Escolar Documentos
Profissional Documentos
Cultura Documentos
177066
JOSELITO MUSNI PUNO (as heir of the late Carlos Puno), Petitioner,
vs.
PUNO ENTERPRISES, INC., represented by JESUSA PUNO, Respondent.
DECISION
NACHURA, J.:
Upon the death of a stockholder, the heirs do not automatically become stockholders of the
corporation; neither are they mandatorily entitled to the rights and privileges of a stockholder. This,
we declare in this petition for review on certiorari of the Court of Appeals (CA) Decision 1 dated
October 11, 2006 and Resolution dated March 6, 2007 in CA-G.R. CV No. 86137.
The facts of the case follow:
Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno Enterprises,
Inc. On March 14, 2003, petitioner Joselito Musni Puno, claiming to be an heir of Carlos L. Puno,
initiated a complaint for specific performance against respondent. Petitioner averred that he is the
son of the deceased with the latters common-law wife, Amelia Puno. As surviving heir, he claimed
entitlement to the rights and privileges of his late father as stockholder of respondent. The complaint
thus prayed that respondent allow petitioner to inspect its corporate book, render an accounting of all
the transactions it entered into from 1962, and give petitioner all the profits, earnings, dividends, or
income pertaining to the shares of Carlos L. Puno. 2
Respondent filed a motion to dismiss on the ground that petitioner did not have the legal personality
to sue because his birth certificate names him as "Joselito Musni Muno." Apropos, there was yet a
need for a judicial declaration that "Joselito Musni Puno" and "Joselito Musni Muno" were one and
the same.
The court ordered that the proceedings be held in abeyance, ratiocinating that petitioners certificate
of live birth was no proof of his paternity and relation to Carlos L. Puno.
Petitioner submitted the corrected birth certificate with the name "Joselito M. Puno," certified by the
Civil Registrar of the City of Manila, and the Certificate of Finality thereof. To hasten the disposition
of the case, the court conditionally admitted the corrected birth certificate as genuine and authentic
and ordered respondent to file its answer within fifteen days from the order and set the case for
pretrial.3
On October 11, 2005, the court rendered a Decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering Jesusa Puno and/or Felicidad Fermin to allow
the plaintiff to inspect the corporate books and records of the company from 1962 up to the present
including the financial statements of the corporation.
The costs of copying shall be shouldered by the plaintiff. Any expenses to be incurred by the
defendant to be able to comply with this order shall be the subject of a bill of costs.
SO ORDERED.4
On appeal, the CA ordered the dismissal of the complaint in its Decision dated October 11, 2006.
According to the CA, petitioner was not able to establish the paternity of and his filiation to Carlos L.
Puno since his birth certificate was prepared without the intervention of and the participatory
acknowledgment of paternity by Carlos L. Puno. Accordingly, the CA said that petitioner had no right
to demand that he be allowed to examine respondents books. Moreover, petitioner was not a
stockholder of the corporation but was merely claiming rights as an heir of Carlos L. Puno, an
incorporator of the corporation. His action for specific performance therefore appeared to be
premature; the proper action to be taken was to prove the paternity of and his filiation to Carlos L.
Puno in a petition for the settlement of the estate of the latter.5
Petitioners motion for reconsideration was denied by the CA in its Resolution 6 dated March 6, 2007.
In this petition, petitioner raises the following issues:
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT THE JOSELITO PUNO
IS ENTITLED TO THE RELIEFS DEMANDED HE BEING THE HEIR OF THE LATE CARLOS
PUNO, ONE OF THE INCORPORATORS [OF] RESPONDENT CORPORATION.
II. HONORABLE COURT OF APPEALS ERRED IN RULING THAT FILIATION OF JOSELITO
PUNO, THE PETITIONER[,] IS NOT DULY PROVEN OR ESTABLISHED.
III. THE HONORABLE COURT ERRED IN NOT RULING THAT JOSELITO MUNO AND JOSELITO
PUNO REFERS TO THE ONE AND THE SAME PERSON.
IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT WHAT
RESPONDENT MERELY DISPUTES IS THE SURNAME OF THE PETITIONER WHICH WAS
MISSPELLED AND THE FACTUAL ALLEGATION E.G. RIGHTS OF PETITIONER AS HEIR OF
CARLOS PUNO ARE DEEMED ADMITTED HYPOTHETICALLY IN THE RESPONDENT[S]
MOTION TO DISMISS.
V. THE HONORABLE COURT OF APPEALS THEREFORE ERRED I[N] DECREEING THAT
PETITIONER IS NOT ENTITLED TO INSPECT THE CORPORATE BOOKS OF DEFENDANT
CORPORATION.7
The petition is without merit. Petitioner failed to establish the right to inspect respondent
corporations books and receive dividends on the stocks owned by Carlos L. Puno.
Petitioner anchors his claim on his being an heir of the deceased stockholder. However, we agree
with the appellate court that petitioner was not able to prove satisfactorily his filiation to the deceased
stockholder; thus, the former cannot claim to be an heir of the latter.
Incessantly, we have declared that factual findings of the CA supported by substantial evidence, are
conclusive and binding.8 In an appeal via certiorari, the Court may not review the factual findings of
the CA. It is not the Courts function under Rule 45 of the Rules of Court to review, examine, and
evaluate or weigh the probative value of the evidence presented. 9
A certificate of live birth purportedly identifying the putative father is not competent evidence of
paternity when there is no showing that the putative father had a hand in the preparation of the
certificate. The local civil registrar has no authority to record the paternity of an illegitimate child on
the information of a third person.10 As correctly observed by the CA, only petitioners mother supplied
the data in the birth certificate and signed the same. There was no evidence that Carlos L. Puno
acknowledged petitioner as his son.
As for the baptismal certificate, we have already decreed that it can only serve as evidence of the
administration of the sacrament on the date specified but not of the veracity of the entries with
respect to the childs paternity.11
In any case, Sections 74 and 75 of the Corporation Code enumerate the persons who are entitled to
the inspection of corporate books, thus
Sec. 74. Books to be kept; stock transfer agent. x x x.
The records of all business transactions of the corporation and the minutes of any meeting shall be
open to the inspection of any director, trustee, stockholder or member of the corporation at
reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said
records or minutes, at his expense.
xxxx
Sec. 75. Right to financial statements. Within ten (10) days from receipt of a written request of
any stockholder or member, the corporation shall furnish to him its most recent financial statement,
which shall include a balance sheet as of the end of the last taxable year and a profit or loss of
statement for said taxable year, showing in reasonable detail its assets and liabilities and the result
of its operations.12
The stockholders right of inspection of the corporations books and records is based upon his
ownership of shares in the corporation and the necessity for self-protection. After all, a shareholder
has the right to be intelligently informed about corporate affairs.13 Such right rests upon the
stockholders underlying ownership of the corporations assets and property.14
Similarly, only stockholders of record are entitled to receive dividends declared by the corporation, a
right inherent in the ownership of the shares.15
1avvphi1
Upon the death of a shareholder, the heirs do not automatically become stockholders of the
corporation and acquire the rights and privileges of the deceased as shareholder of the corporation.
The stocks must be distributed first to the heirs in estate proceedings, and the transfer of the stocks
must be recorded in the books of the corporation. Section 63 of the Corporation Code provides that
no transfer shall be valid, except as between the parties, until the transfer is recorded in the books of
the corporation.16 During such interim period, the heirs stand as the equitable owners of the stocks,
the executor or administrator duly appointed by the court being vested with the legal title to the
stock.17 Until a settlement and division of the estate is effected, the stocks of the decedent are held
by the administrator or executor.18 Consequently, during such time, it is the administrator or executor
who is entitled to exercise the rights of the deceased as stockholder.
Thus, even if petitioner presents sufficient evidence in this case to establish that he is the son of
Carlos L. Puno, he would still not be allowed to inspect respondents books and be entitled to
receive dividends from respondent, absent any showing in its transfer book that some of the shares
owned by Carlos L. Puno were transferred to him. This would only be possible if petitioner has been
recognized as an heir and has participated in the settlement of the estate of the deceased.
Corollary to this is the doctrine that a determination of whether a person, claiming proprietary rights
over the estate of a deceased person, is an heir of the deceased must be ventilated in a special
proceeding instituted precisely for the purpose of settling the estate of the latter. The status of an
illegitimate child who claims to be an heir to a decedents estate cannot be adjudicated in an
ordinary civil action, as in a case for the recovery of property.19 The doctrine applies to the instant
case, which is one for specific performance to direct respondent corporation to allow petitioner to
exercise rights that pertain only to the deceased and his representatives.
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated
October 11, 2006 and Resolution dated March 6, 2007 are AFFIRMED.
SO ORDERED.
the old Corporation Law must be dependent on a showing of proper motive on the part of the
stockholder demanding the same, it is now dissipated by the clear language of the pertinent
provision contained in Section 74 of Batas Pambansa Bilang 68. Although Gonzales has claimed
that he has justifiable motives in seeking the inspection of the books of the PNB, he has not set forth
the reasons and the purposes for which he desires such inspection, except to satisfy himself as to
the truth of published reports regarding certain transactions entered into by the respondent bank and
to inquire into their validity. The circumstances under which he acquired one share of stock in the
PNB purposely to exercise the right of inspection do not argue in favor of his good faith and proper
motivation. Admittedly he sought to be a stockholder in order to pry into transactions entered into by
the PNB even before he became a stockholder. His obvious purpose was to arm himself with
materials which he can use against the PNB for acts done by the latter when Gonzales was a total
stranger to the same. He could have been impelled by a laudable sense of civic consciousness, but
it could not be said that his purpose is germane to his interest as a stockholder.
2. Section 15 of the PNB's Charter (RA 1300, as amended) provides that "Inspection by Department
of Supervision and Examination of the Central Bank. The National Bank shall be subject to
inspection by the Department of Supervision and Examination of the Central Bank." Section 16
thereof providest that "Confidential information. The Superintendent of Banks and the Auditor
General, or other officers designated by law to inspect or investigate the condition of the National
Bank, shall not reveal to any person other than the President of the Philippines, the Secretary of
Finance, and the Board of Directors the details of the inspection or investigation, nor shall they give
any information relative to the funds in its custody, its current accounts or deposits belonging to
private individuals, corporations, or any other entity, except by order of a Court of competent
jurisdiction." On the other hand, Section 30 of the same provides that "Penalties for violation of the
provisions of this Act. Any director, officer, employee, or agent of the Bank, who violates or
permits the violation of any of the provisions of this Act, or any person aiding or abetting the
violations of any of the provisions of this Act, shall be punished by a fine not to exceed ten thousand
pesos or by imprisonment of not more than five years, or both such fine and imprisonment." The
Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is not
governed, as a rule, by the Corporation Code of the Philippines. The provision of Section 74 of Batas
Pambansa Blg. 68 of the new Corporation Code with respect to the right of a stockholder to demand
an inspection or examination of the books of the corporation may not be reconciled with the above
quoted provisions of the charter of the PNB. It is not correct to claim, therefore, that the right of
inspection under Section 74 of the new Corporation Code may apply in a supplementary capacity to
the charter of the PNB.
of finances, but of policy and business practice in respect to the transaction attacked, must have
been such that the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own; (2) such control must have been used by the defendant to commit a fraud or a
wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an
unjust act in contravention of plaintiff's legal right; and (3) the said control and breach of duty must
have proximately caused the injury or unjust loss complained of. The absence of the foregoing
elements in the present case precludes the piercing of the corporate veil. First, other than the fact
that PNB and NASUDECO acquired the assets of PASUMIL, there is no showing that their control
over it warrants the disregard of corporate personalities. Second, there is no evidence that their
juridical personality was used to commit a fraud or to do a wrong; or that the separate corporate
entity was farcically used as a mere alter ego, business conduit or instrumentality of another entity or
person. Third, AEEC was not defrauded or injured when PNB and NASUDECO acquired the assets
of PASUMIL. Hence, although the assets of NASUDECO can be easily traced to PASUMIL, the
transfer of the latter's assets to PNB and NASUDECO was not fraudulently entered into in order to
escape liability for its debt to AEEC. Neither was there any merger or consolidation with respect to
PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code 59 was not
followed. In fact, PASUMIL's corporate existence had not been legally extinguished or terminated.
Further, prior to PNB's acquisition of the foreclosed assets, PASUMIL had previously made partial
payments to AEEC for the former's obligation in the amount of P777,263.80. As of 27 June 1973,
PASUMIL had paid P250,000 to AEEC and, from 5 January 1974 to 23 May 1974, another P14,000.
Neither did PNB expressly or impliedly agree to assume the debt of PASUMIL to AEEC. LOI 11
explicitly provides that PNB shall study and submit recommendations on the claims of PASUMIL's
creditors. Clearly, the corporate separateness between PASUMIL and PNB remains, despite AEEC's
insistence to the contrary.
5. On September 27, 2002, [BOC] received copies of the Formal Letter of Demand and
Assessment Notice No. DST-99-00-000049 dated September 11, 2002, addressed to
"TRADERS ROYAL BANK (now Bank of Commerce)", issued by the CIR demanding
payment of the amount of P41,467,887.51, as deficiency documentary stamp taxes (DST) on
Special Savings Deposit (SSD) account of TRB for taxable year 1999.
6. On October 11, 2002, [TRB] filed its protest letter contesting the Formal Letter of Demand
and Assessment Notice No. DST-99-00-000049 dated September 11, 2002, pursuant to Sec.
228 of the Tax Code.
7. On March 31, 2004, [BOC] received the Decision dated March 22, 2004 denying the
protest filed by [TRB] on October 11, 2002. The last two paragraphs of the Decision stated
that:
"WHEREFORE, in view of all the foregoing, Assessment Notice No. DST-99-00-000049 demanding
payment of the amount of P41,467,887.51, as deficiency stamp tax for the taxable year 1999 is
hereby MODIFIED AND/OR REDUCED to P41,442,887.51. Consequently, Traders Royal Bank (now
Bank of Commerce) is hereby ordered to pay the above-stated amount, plus interest that have
accrued thereon until the actual date of payment, to the Large Taxpayers Service, B.I.R. National
Office Building, Diliman, Quezon City, within thirty (30) days from receipt hereof; otherwise, collection
thereof shall be effected through the summary remedies provided by law.
This constitutes the Final Decision of this Office on the matter."
On April 30, 2004, the Bank of Commerce (BOC) filed a Petition for Review, assigned to the CTA
2nd Division, praying that it be held not liable for the subject Documentary Stamp Taxes (DST).
7
As also stipulated by the parties, the issues before the CTA 2nd Division were:
1. Whether [BOC] can be held liable for [TRB]s alleged deficiency [DST] liability on [its SSD]
Accounts for taxable year 1999 in the amount of P41,442,887.51, inclusive of penalties.
2. Whether TRBs [SSD] Accounts for taxable year 1999 is subject to [DST].
In support of the first issue, BOC called the attention of the CTA 2nd Division to the fact that as
stated in Article III of the Purchase and Sale Agreement, it and Traders Royal Bank (TRB) continued
to exist as separate corporations with distinct corporate personalities. BOC emphasized that there
was no merger between it and TRB as it only acquired certain assets of TRB in return for its
assumption of some of TRBs liabilities.
9
As for BOCs liability, the CTA 2nd Division said that since the issue of non-merger between BOC
and TRB was not raised in the administrative level, it could not be raised for the first time on appeal.
The CTA 2nd Division also noted how BOC "actively participated in the proceedings before the
administrative body without questioning the legitimacy of the proper party in interest."
11
When its Motion for Reconsideration was denied on January 8, 2007, BOC filed a Petition for
Review before the CTA En Banc, adducing the following grounds:
12
13
14
18
Proceeding then to what it considered to be the pivotal issue, the CTA En Banc, agreeing with the
decision of the CTA 2nd Division, held that BOC was liable for the DST on the subject SSD
accounts. The CTA En Banc also noted that BOC was inconsistent in its position, for claiming that it
was the one that filed the protest letter with the BIR, in its Petition for Review before the CTA 2nd
Division and Pre-Trial Brief, while stating that it was TRB that filed the protest letter, in its Joint
Stipulation of Facts and Issues. The CTA En Banc added that it would not be unfair to hold BOC
liable for the subject DST as TRB constituted an Escrow Fund in the amount of Fifty Million Pesos
(P50,000,000.00) to answer for all claims against TRB, which are excluded from the Agreement.
19
Undaunted, BOC filed before the CTA En Banc a Motion for Reconsideration of its June 27, 2007
Decision, positing the following grounds for reconsideration:
20
I
There was no merger between [BOC] and [TRB] as already decided by this Honorable Court in a
decision dated 18 June 2007; hence [BOC] cannot be held liable for the tax liability of [TRB.]
II
[BOC] could not have raised the issue of non-merger of [BOC] and [TRB] in the proceedings before
the [CIR] because it was never a party to the proceedings before the [CIR]. Contrary to the Courts
findings, the issue of non-merger is no longer an issue but a fact stipulated by both parties.
III
The [CIR]s decision holding [BOC] liable for TRBs tax liability is void since [BOC] was not a party to
the proceedings before the [CIR].
21
In its Amended Decision, the CTA En Banc said that while it did not make a categorical ruling in its
June 27, 2007 Decision on the issue of merger between BOC and TRB, the CTA 1st Division did in
its June 18, 2007 Resolution in C.T.A. Case No. 6392, entitled Traders Royal Bank v. Commissioner
of Internal Revenue.
23
The Traders Royal Bank case, just like the case at bar, involved a deficiency DST assessment
against TRB on its SSD accounts, albeit for taxable years 1996 and 1997. When the CIR attempted
to implement a writ of execution against BOC, which was not a party to the case, by simply inserting
its name beside TRBs in the motion for execution, BOC filed a Motion to Quash (By Way of Special
Appearance) with the CTA 1st Division, which the CTA 1st Division granted in a Resolution on June
18, 2007, primarily on the ground that there was no merger between BOC and TRB.
24
With the foregoing ruling, the CTA En Banc declared that BOC could not be held liable for the
deficiency DST assessed on TRBs SSD accounts for taxable year 1999 in the interest of substantial
justice and to be consistent with the CTA 1st Divisions Resolution in the Traders Royal Bank case.
25
The CTA En Banc also gave weight to BIR Ruling No. 10-2006 dated October 6, 2006 wherein the
CIR expressly recognized the fact that the Purchase and Sale Agreement between BOC and TRB
did not result in their merger. Elaborating on this point the CTA En Banc said:
26
27
By practice, a BIR ruling contains the official written interpretative opinion of the Commissioner of
Internal Revenue addressed to a particular taxpayer regarding his taxability over certain matters.
Moreover, well-settled is the rule that the interpretation of an administrative government agency like
the BIR, is accorded great respect and ordinarily controls the construction of the courts. The reason
behind this rule was explained in Nestle Philippines, Inc. vs. Court of Appeals, in this wise: "The
rationale for this rule relates not only to the emergence of the multifarious needs of a modern or
modernizing society and the establishment of diverse administrative agencies for addressing and
satisfying those needs; it also relates to the accumulation of experience and growth of specialized
capabilities by the administrative agency charged with implementing a particular statute.
Here, We have no reason to disregard the interpretation made by the Commissioner as it is in
accord with the aforementioned Resolution of the First Division. (Citation omitted.)
28
With the reversal of the CTA En Banc s June 27, 2007 Decision, the CIR filed a Motion for
Reconsideration praying that BOC be held liable for the deficiency DST of TRB on its SSD accounts
for taxable year 1999. In support of its motion, the CIR presented the following arguments:
29
[BOC] is estopped from raising the issue that it is not the party held liable for Trader[s] Royal Bank
(TRB)s deficiency DST assessment because it was not a party to the proceeding before [the]
Bureau of Internal Revenue (BIR).
30
Issues not raised in the administrative level cannot be raised for the first time on appeal.
The deficiency Assessment of TRB can be enforced and collected against [BOC].
31
32
The Honorable Court En Banc erred in considering BIR Ruling No. 10-2006 as basis to justify its
conclusion.
33
The Honorable Court En Banc has no sufficient justification for not considering the Escrow fund in its
Amended Decision.
34
On November 15, 2007, the CTA En Banc denied the motion for lack of merit.
The CTA En Banc said that the rule that no issue may be raised for the first time on appeal is not a
hard and fast rule as "jurisprudence declares that the appellate court is clothed with ample authority
to review matters, even if they are not assigned as errors in their appeal, if it finds that their
consideration is necessary in arriving at a just decision of the case." Thus, in the interest of justice,
the CTA En Banc found it necessary to consider and resolve issues, even though not previously
raised in the administrative level, if it is necessary for the complete adjudication of the rights and
obligations of the parties and it falls within the issues they already identified.
35
The CTA En Banc also reiterated its ruling in its Amended Decision, that BOC could not be held
liable for the deficiency DST on the SSD accounts of TRB, in consonance with the Resolution of the
CTA 1st Division in the Traders Royal Bank case; and BIR Ruling No. 10-2006, which has not been
shown to have been revoked or nullified by the CIR.
36
With the foregoing disquisition rendering the issue on the Escrow Fund moot, the CTA En Banc
found no more reason to discuss it.
37
Unsuccessful in its Motion for Reconsideration, the CIR is now before this Court, praying for the
reinstatement of the CTA 2nd Divisions August 31, 2006 Decision, which found BOC liable for the
subject DST. The CIR posits the following grounds in its Petition for Review:
I.
THE DEFICIENCY ASSESSMENT OF TRADERS ROYAL BANK (TRB) CAN BE ENFORCED AND
COLLECTED AGAINST RESPONDENT BANK OF COMMERCE (BOC) BECAUSE THE LATTER
ASSUMED THE OBLIGATIONS AND LIABILITIES OF TRB PURSUANT TO THE PURCHASE AND
SALE AGREEMENT EXECUTED BETWEEN THEM AND THE APPLICABLE LAW ON MERGER OF
CORPORATIONS (SECTION 80 OF THE CORPORATION CODE).
II.
THE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN REVERSING ITS PREVIOUS
DECISION WHICH AFFIRMED THE ASSESSMENT AND ENFORCEMENT OF DEFICIENCY
In response, BOC presented in its Comment, the following grounds in support of its prayer that the
CIRs petition be denied:
39
to P27,698,562.92 for the taxable years 1996 and 1997 of [TRB] was not one of the liabilities
assumed by [BOC] in the Purchase and Sale Agreement.
After carefully evaluating the records, the [CTA 1st Division] agrees with [BOC] for the following
reasons:
First, a close reading of the Purchase and Sale Agreement shows the following self-explanatory
provisions:
a) Items in litigation, both actual and prospective, against [TRB] are excluded from the
liabilities to be assumed by the Bank of Commerce (Article II, paragraph 2); and
b) The Bank of Commerce and Traders Royal Bank shall continue to exist as separate
corporations with distinct corporate personalities (Article III, paragraph 1).
Second, aside from the foregoing, the Purchase and Sale Agreement does not contain any provision
that the [BOC] acquired the identified assets of [TRB] solely in exchange for the latters stocks.
Merger is defined under Section 40 (C)(6)(b) of the Tax Code as follows:
"b) The term "merger" or "consolidation", when used in this Section, shall be understood to mean: (i)
the ordinary merger or consolidation, or (ii) the acquisition by one corporation of all or substantially
all the properties of another corporation solely for stock: Provided, [t]hat for a transaction to be
regarded as a merger or consolidation within the purview of this Section, it must be undertaken for a
bona fide business purpose and not solely for the purpose of escaping the burden of taxation: x x x."
Since the purchase and sale of identified assets between the two companies does not constitute a
merger under the foregoing definition, the Bank of Commerce is considered an entity separate from
petitioner. Thus, it cannot be held liable for the payment of the deficiency DST assessed against
petitioner. (Citation omitted.)
41
Thus, when the CTA En Banc took into consideration the above ruling in its Amended Decision, it
necessarily affirmed the findings of the CTA 1st Division and found them to be correct. This Court
likewise finds the foregoing ruling to be correct. The CTA 1st Division was spot on when it interpreted
the Purchase and Sale Agreement to be just that and not a merger.
The Purchase and Sale Agreement, the document that is supposed to have tied BOC and TRB
together, was replete with provisions that clearly stated the intent of the parties and the purpose of
its execution, viz:
1. Article I of the Purchase and Sale Agreement set the terms of the assets sold to BOC, while Article
II was about the consideration for those assets. Moreover, it was explicitly stated that liabilities not
included in the Consolidated Statement of Condition were excluded from the liabilities BOC was to
assume, to wit:
ARTICLE II
CONSIDERATION: ASSUMPTION OF LIABILITIES
In consideration of the sale of identified recorded assets and properties covered by this Agreement,
[BOC] shall assume identified recorded TRBs liabilities including booked contingent liabilities as
listed and referred to in its Consolidated Statement of Condition as of August 31, 2001, in the total
amount of PESOS: TEN BILLION FOUR HUNDRED ONE MILLION FOUR HUNDRED THIRTY-SIX
THOUSAND (P10,401,436,000.00), provided that the liabilities so assumed shall not include:
xxxx
2. Items in litigation, both actual and prospective, against TRB which include but are not limited to
the following:
xxxx
2.3 Other liabilities not included in said Consolidated Statement of Condition. (Emphases supplied.)
42
2. Article III of the Purchase and Sale Agreement enumerated in no uncertain terms the effects and
consequences of such agreement as follows:
ARTICLE III
EFFECTS AND CONSEQUENCES
The effectivity of this Agreement shall have the following effects and consequences:
1. [BOC] and TRB shall continue to exist as separate corporations with distinct corporate
personalities;
2. With the transfer of its branching licenses to [BOC] and upon surrender of its commercial
banking license to BSP, TRB shall exist as an ordinary corporation placed outside the
supervisory jurisdiction of BSP. To this end, TRB shall cause the amendment of its articles
and by-laws to delete the terms "bank" and "banking" from its corporate name and purpose.
3. There shall be no employer-employee relationship between [BOC] and the personnel and
officers of TRB. (Emphases supplied.)
43
Moreover, the second whereas clause, which served as the premise for the subsequent terms in the
agreement, stated that the sale of TRBs assets to BOC were in consideration of BOCs assumption
of some of TRBs liabilities, viz:
WHEREAS, TRB desires to sell and [BOC] desires to purchase identified recorded assets of TRB in
consideration of [BOC] assuming identified recorded liabilities of TRB x x x.
44
The clear terms of the above agreement did not escape the CIR itself when it issued BIR Ruling No.
10-2006, wherein it was concluded that the Purchase and Sale Agreement did not result in a merger
between BOC and TRB.
In this petition however, the CIR insists that BIR Ruling No. 10-2006 cannot be used as a basis for
the CTA En Bancs Amended Decision, due to BOCs failure, at the time it requested for such ruling,
to inform the CIR of TRBs deficiency DST assessments for taxable years 1996, 1997, and 1999.
45
xxxx
2. Much have been said that the transaction between TRB and [BOC] is not a merger within the
contemplation of Section 40(C)(b) of the Tax Code of 1997. To reiterate, this Office has ruled in the
foregoing discussion that the transaction is one of sale of assets with assumption of identified
recorded liabilities of TRB. As such, the liabilities assumed by [BOC] amounted only
to P10,401,436,000.00 with some enumerated exclusion in the Agreeement. x x x.
46
Clearly, the CIR, in BIR Ruling No. 10-2006, ruled on the issue of merger without taking into
consideration TRBs pending tax deficiencies. The ruling was based on the Purchase and Sale
Agreement, factual evidence on the status of both companies, and the Tax Code provision on
merger. The CIRs knowledge then of TRBs tax deficiencies would not be material as to affect the
CIRs ruling. The resolution of the issue on merger depended on the agreement between TRB and
BOC, as detailed in the Purchase and Sale Agreement, and not contingent on TRBs tax liabilities.
It is worthy to note that in the Joint Stipulation of Facts and Issues submitted by the parties, it was
explicitly stated that both BOC and TRB continued to exist as separate corporations with distinct
corporate personalities, despite the effectivity of the Purchase and Sale Agreement.
47
Considering the foregoing, this Court finds no reason to reverse the CTA En Bancs Amended
Decision. In reconsidering its June 27, 2007 Decision, the CTA En Banc not only took into account
the CTA 1st Divisions ruling in Traders Royal Bank, which, save for the facts that BOC was not
made a party to the case, and the deficiency DST assessed were for taxable years 1996 and 1997,
is almost identical to the case herein; but more importantly, the CIRs very own ruling on the issue of
merger between BOC
WHEREFORE, the petition is hereby DENIED.
SO ORDERED.
Law,
Corporation,
Merger,
No.
123793,
Negotiable
June
Instruments,
29,
1998
Promissory
Note
FACTS:
Associated Banking Corporation and Citizens Bank and Trust Company (CBTC) merged to form just
one banking corporation known as Associated Citizens Bank (later renamed Associated Bank), the
surviving bank. After the merger agreement had been signed, but before a certificate of merger was
issued, respondent Lorenzo Sarmiento, Jr. executed in favor of Associated Bank a promissory note,
promising to pay the bank P2.5 million on or before due date at 14% interest per annum, among
other accessory dues. For failure to pay the amount due, Sarmiento was sued by Associated Bank.
Respondent argued that the plaintiff is not the proper party in interest because the promissory note
was executed in favor of CBTC. Also, while respondent executed the promissory note in favor of
CBTC, said note was a contract pour autrui, one in favor of a third person who may demand its
fulfillment. Also, respondent claimed that he received no consideration for the promissory note and,
in support thereof, cites petitioner's failure to submit any proof of his loan application and of his
actual
receipt
of
the
amount
loaned.
ISSUE:
1.) Whether or not 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,
but
before
a
certificate
of
merger
was
issued?
2.) Whether or not the promissory note was a contract pour autrui and was issued without
consideration?
HELD:
The
petition
is
impressed
with
merit.
Associated Bank assumed all the rights of CBTC. Although absorbed corporations are dissolved,
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
Securities and Exchange Commission (SEC) and majority of the respective stockholders of the
constituent corporations must have approved the merger. (Section 79, Corporation Code) It will be
effective only upon the issuance by the SEC of a certificate of merger. Records do not show when
the
SEC
approved
the
merger.
But 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. 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. Such must have
been deliberately included in the agreement in order 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.
On the issue that the promissory note was a contract pour autrui and was issued without
consideration, the Supreme Court held it was not. In a contract pour autrui, 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. The "fairest test" in determining whether the third
person's 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. It did not indicate that a benefit or
interest was created in favor of a third person. The instrument itself says nothing on the purpose of
the loan, only the terms of payment and the penalties in case of failure to pay.
Private respondent also claims that he received no consideration for the promissory note, citing
petitioner's 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. That he partially paid his obligation is itself an express acknowledgment
of
his
obligation.
WHEREFORE, the petition is GRANTED.
of P3,963,372.08. On 22 December 1980, the Bank of the Philippine Islands (BPI) and CBTC
entered into a merger, wherein BPI, as the surviving corporation, acquired all the assets and
assumed all the liabilities of CBTC. Meanwhile, ELISCON encountered financial difficulties and
became heavily indebted to the Development Bank of the Philippines (DBP). In order to settle its
obligations, ELISCON proposed to convey to DBP by way of dacion en pago all its fixed assets
mortgaged with DBP, as payment for its total indebtedness in the amount of P201,181,833.16.
On 28 December 1978, ELISCON and DBP executed a Deed of Cession of Property in Payment
of Debt. In June 1981, ELISCON called its creditors to a meeting to announce the take-over by
DBP of its assets. In October 1981, DBP formally took over the assets of ELISCON, including
its indebtedness to BPI. Thereafter, DBP proposed formulas for the settlement of all of
ELISCON's obligations to its creditors, but BPI expressly rejected the formula submitted to it for
not being acceptable. Consequently, on 17 January 1983, BPI, as successor-in-interest of CBTC,
instituted with the Regional Trial Court of Makati, Branch 147, a complaint for sum of money
against ELISCON, MULTI and Babst (Civil Case 49226). On 20 February 1987, the trial court
rendered its Decision in favor of BPI. In due time, ELISCON, MULTI and Babst filed their
respective notices of appeal. On 29 April 1991, the Court of Appeals rendered a Decision
modifying the judgment of the trial court. ELISCON filed a Motion for Reconsideration of the
Decision of the Court of Appeals which was, however, denied in a Resolution dated 9 March
1992. Subsequently, ELISCON filed a petition for review on certiorari (GR. 104625).
Meanwhile, Babst also filed a petition for review with the Court (GR 99398).
Issue [1]: Whether the BPI can institute the present case.
Held [1]: There was a valid merger between BPI and CBTC. It is settled that 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. Hence, BPI has a right to institute the present case.
Issue [2]: Whether BPI, the surviving corporation in a merger with CBTC, consented to the
assumption by DBP of the obligations of ELISCON.
Held [2]: Due to the failure of BPI to register its objection to the take-over by DBP of
ELISCON's assets, at the creditors' meeting held in June 1981 and thereafter, it is deemed to
have consented to the substitution of DBP for ELISCON as debtor. The authority granted by BPI
to its account officer to attend the creditors' meeting was an authority to represent the bank, such
that when he failed to object to the substitution of debtors, he did so on behalf of and for the
bank. Even granting arguendo that the said account officer was not so empowered, BPI could
have subsequently registered its objection to the substitution, especially after it had already
learned that DBP had taken over the assets and assumed the liabilities of ELISCON. Its failure to
do so can only mean an acquiescence in the assumption by DBP of ELISCON's obligations. As
repeatedly pointed out by ELISCON and MULTI, BPI's objection was to the proposed payment
formula, not to the substitution itself. BPI gives no cogent reason in withholding its consent to
the substitution, other than its desire to preserve its causes of action and legal recourse against
the sureties of ELISCON. It must be remembered, however, that while a surety is solidarily
liable with the principal debtor, his obligation to pay only arises upon the principal debtor's
failure or refusal to pay. There was no indication that the principal debtor will default in
payment. In fact, DBP, which had stepped into the shoes of ELISCON, was capable of payment.
Its authorized capital stock was increased by the government. More importantly, the National
Development Company took over the business of ELISCON and undertook to pay ELISCON's
creditors, and earmarked for that purpose the amount of P4,015,534.54 for payment to BPI.
Notwithstanding the fact that a reliable institution backed by government funds was offering to
pay ELISCON's debts, not as mere surety but as substitute principal debtor, BPI, for reasons
known only to itself, insisted in going after the sureties. BPI's conduct evinced a clear and
unmistakable consent to the substitution of DBP for ELISCON as debtor. Hence, there was a
valid novation which resulted in the release of ELISCON from its obligation to BPI, whose cause
of action should be directed against DBP as the new debtor.
MULTI to CBTC to the extent of P8,000,000.00 each. Sometime in October 1978, CBTC opened
for ELISCON in favor of National Steel Corporation (NSC) 3 domestic letters of credit in the
amounts of P1,946,805.73, P1,702,869.32 and P200,307.72, respectively, which ELISCON used
to purchase tin black plates from NSC. ELISCON defaulted in its obligation to pay the amounts
of the letters of credit, leaving an outstanding account, as of 31 October 1982, in the total amount
of P3,963,372.08. On 22 December 1980, the Bank of the Philippine Islands (BPI) and CBTC
entered into a merger, wherein BPI, as the surviving corporation, acquired all the assets and
assumed all the liabilities of CBTC. Meanwhile, ELISCON encountered financial difficulties and
became heavily indebted to the Development Bank of the Philippines (DBP). In order to settle its
obligations, ELISCON proposed to convey to DBP by way of dacion en pago all its fixed assets
mortgaged with DBP, as payment for its total indebtedness in the amount of P201,181,833.16.
On 28 December 1978, ELISCON and DBP executed a Deed of Cession of Property in Payment
of Debt. In June 1981, ELISCON called its creditors to a meeting to announce the take-over by
DBP of its assets. In October 1981, DBP formally took over the assets of ELISCON, including
its indebtedness to BPI. Thereafter, DBP proposed formulas for the settlement of all of
ELISCON's obligations to its creditors, but BPI expressly rejected the formula submitted to it for
not being acceptable. Consequently, on 17 January 1983, BPI, as successor-in-interest of CBTC,
instituted with the Regional Trial Court of Makati, Branch 147, a complaint for sum of money
against ELISCON, MULTI and Babst (Civil Case 49226). On 20 February 1987, the trial court
rendered its Decision in favor of BPI. In due time, ELISCON, MULTI and Babst filed their
respective notices of appeal. On 29 April 1991, the Court of Appeals rendered a Decision
modifying the judgment of the trial court. ELISCON filed a Motion for Reconsideration of the
Decision of the Court of Appeals which was, however, denied in a Resolution dated 9 March
1992. Subsequently, ELISCON filed a petition for review on certiorari (GR. 104625).
Meanwhile, Babst also filed a petition for review with the Court (GR 99398).
Issue [1]: Whether the BPI can institute the present case.
Held [1]: There was a valid merger between BPI and CBTC. It is settled that 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. Hence, BPI has a right to institute the present case.
Issue [2]: Whether BPI, the surviving corporation in a merger with CBTC, consented to the
assumption by DBP of the obligations of ELISCON.
Held [2]: Due to the failure of BPI to register its objection to the take-over by DBP of
ELISCON's assets, at the creditors' meeting held in June 1981 and thereafter, it is deemed to
have consented to the substitution of DBP for ELISCON as debtor. The authority granted by BPI
to its account officer to attend the creditors' meeting was an authority to represent the bank, such
that when he failed to object to the substitution of debtors, he did so on behalf of and for the
bank. Even granting arguendo that the said account officer was not so empowered, BPI could
have subsequently registered its objection to the substitution, especially after it had already
learned that DBP had taken over the assets and assumed the liabilities of ELISCON. Its failure to
do so can only mean an acquiescence in the assumption by DBP of ELISCON's obligations. As
repeatedly pointed out by ELISCON and MULTI, BPI's objection was to the proposed payment
formula, not to the substitution itself. BPI gives no cogent reason in withholding its consent to
the substitution, other than its desire to preserve its causes of action and legal recourse against
the sureties of ELISCON. It must be remembered, however, that while a surety is solidarily
liable with the principal debtor, his obligation to pay only arises upon the principal debtor's
failure or refusal to pay. There was no indication that the principal debtor will default in
payment. In fact, DBP, which had stepped into the shoes of ELISCON, was capable of payment.
Its authorized capital stock was increased by the government. More importantly, the National
Development Company took over the business of ELISCON and undertook to pay ELISCON's
creditors, and earmarked for that purpose the amount of P4,015,534.54 for payment to BPI.
Notwithstanding the fact that a reliable institution backed by government funds was offering to
pay ELISCON's debts, not as mere surety but as substitute principal debtor, BPI, for reasons
known only to itself, insisted in going after the sureties. BPI's conduct evinced a clear and
unmistakable consent to the substitution of DBP for ELISCON as debtor. Hence, there was a
valid novation which resulted in the release of ELISCON from its obligation to BPI, whose cause
of action should be directed against DBP as the new debtor.