Corpo_merger & Appraisal Full Text

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MERGER & CONSOLIDATION

[G.R. No. 142936. April 17, 2002

!"ILI!!INE NATIONAL #AN$ & NATIONAL S%GAR DEELO!MENT

COR!ORATION, petitioners, vs. ANDRADA ELECTRIC & ENGINEERING

COM!AN', respondent .

D E C I S I O N

!ANGANI#AN, J .(

Basic is the rule that a corporation has a legal personality distinct and separate from the persons andentities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime, justifya wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that thePhilippine National Bank (PNB ac!uired ownership or management of some assets of the Pampanga "ugar #ill (P$"%#&', which had earlier been foreclosed and purchased at the resulting public auction by the

evelopment Bank of the Philippines (BP, will not make PNB liable for the P$"%#&')s contractual debts torespondent.

S)*)++-) o )/+ C*+

Before us is a Petition for *eview assailing the $pril +, - ecision /+0 of the 1ourt of $ppeals (1$ in1$23* 14 No. 56+. The decretal portion of the challenged ecision reads as follows7

89:;*;<=*;, the judgment appealed from is hereby $<<&*#;.>/-0

T/+ *)

The factual antecedents of the case are summari?ed by the 1ourt of $ppeals as follows7

8&n its complaint, the plaintiff /herein respondent0 alleged that it is a partnership duly organi?ed, e@isting, and

operating under the laws of the Philippines, with office and principal place of business at Nos. A2C+- el#onte /$0venue, Due?on 1ity, while the defendant /herein petitioner0 Philippine National Bank (herein referredto as PNB, is a semi2government corporation duly organi?ed, e@isting and operating under the laws of thePhilippines, with office and principal place of business at ;scolta "treet, "ta. 1ru?, #anilaE whereas, the otherdefendant, the National "ugar evelopment 1orporation (N$"%;1= in brief, is also a semi2governmentcorporation and the sugar arm of the PNB, with office and principal place of business at the -nd <loor,"ampaguita Building, 1ubao, Due?on 1ityE and the defendant Pampanga "ugar #ills (P$"%#&' in short, is a

corporation organi?ed, e@isting and operating under the +A5 laws of the Philippines, and had its business office before +A5 at el 1armen, <loridablanca, PampangaE that the plaintiff is engaged in the business of generalconstruction for the repairs andFor construction of different kinds of machineries and buildingsE that on $ugust-6, +A5, the defendant PNB ac!uired the assets of the defendant P$"%#&' that were earlier foreclosed by theevelopment Bank of the Philippines (BP under '=& No. G++E that the defendant PNB organi?ed thedefendant N$"%;1= in "eptember, +A5, to take ownership and possession of the assets and ultimately to

nationali?e and consolidate its interest in other PNB controlled sugar millsE that prior to =ctober -A, +A+, thedefendant P$"%#&' engaged the services of plaintiff for electrical rewinding and repair, most of which were

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partially paid by the defendant P$"%#&', leaving several unpaid accounts with the plaintiffE that finally, on=ctober -A, +A+, the plaintiff and the defendant P$"%#&' entered into a contract for the plaintiff to performthe following, to wit H

I(a 1onstruction of one (+ power house buildingE

I(b 1onstruction of three (G reinforced concrete foundation for three (G units G5 J9diesel engine generating set/s0E

I(c 1onstruction of three (G reinforced concrete foundation for the 5, J9 and +,-5

J9 turbo generator setsE

I(d 1omplete overhauling and reconditioning tests sum for three (G G5 J9 diesel enginegenerating set/s0E

I(e &nstallation of turbine and diesel generating sets including transformer, switchboard,

electrical wirings and pipe provided those stated units are completely supplied withtheir accessoriesE

I(f *elocating of -, 4 transmission line, demolition of all e@isting concrete foundationand drainage canals, e@cavation, and earth fillings H all for the total amountofP5G,5. as evidenced by a contract, /a0 @ero@ copy of which is hereto attachedas $nne@ I$) and made an integral part of this complaintE)

that aside from the work contract mentioned2above, the defendant P$"%#&' re!uired the plaintiff to performe@tra work, and provide electrical e!uipment and spare parts, such as7

I(a "upply of electrical devicesE

I(b ;@tra mechanical worksE

I(c ;@tra fabrication worksE

I(d "upply of materials and consumable itemsE

I(e ;lectrical shop repairE

I(f "upply of parts and related works for turbine generatorE

I(g "upply of electrical e!uipment for machineryE

I(h "upply of diesel engine parts and other related works including fabrication of parts.)

that out of the total obligation of P,-6G.C, the defendant P$"%#&' had paid only P-5,., leaving an

unpaid balance, as of Kune -, +AG, amounting to P5-,-6G.C, as shown in the 1ertification of the chiefaccountant of the PNB, a machine copy of which is appended as $nne@ I1) of the complaintE that out of saidunpaid balance of P5-,-6G.C, the defendant P$"%#&' made a partial payment to the plaintiff of P+,.,in broken amounts, covering the period from Kanuary 5, +A up to #ay -G, +A, leaving an unpaid balanceof P5+G,-6G.CE that the defendant P$"%#&' and the defendant PNB, and now the defendant N$"%;1=,

failed and refused to pay the plaintiff their just, valid and demandable obligationE that the President of the N$"%;1= is also the 4ice2President of the PNB, and this official holds office at the +th <loor of the PNB,;scolta, #anila, and plaintiff besought this official to pay the outstanding obligation of the defendantP$"%#&', inasmuch as the defendant PNB and N$"%;1= now owned and possessed the assets of thedefendant P$"%#&', and these defendants all benefited from the works, and the electrical, as well as the

engineering and repairs, performed by the plaintiffE that because of the failure and refusal of the defendants to pay their just, valid, and demandable obligations, plaintiff suffered actual damages in the total amountof P5+G,-6G.CE and that in order to recover these sums, the plaintiff was compelled to engage the professional



services of counsel, to whom the plaintiff agreed to pay a sum e!uivalent to -5L of the amount of the obligationdue by way of attorney)s fees. $ccordingly, the plaintiff prayed that judgment be rendered against thedefendants PNB, N$"%;1=, and P$"%#&', jointly and severally to wit7

I(+ "entencing the defendants to pay the plaintiffs the sum of P5+G,-6G.C, with annual interest of +Lfrom the time the obligation falls due and demandableE

I(- 1ondemning the defendants to pay attorney)s fees amounting to -5L of the amount claimE

I(G =rdering the defendants to pay the costs of the suit.)

8The defendants PNB and N$"%;1= filed a joint motion to dismiss the complaint chiefly on the ground thatthe complaint failed to state sufficient allegations to establish a cause of action against both defendants,inasmuch as there is lack or want of privity of contract between the plaintiff and the two defendants, the PNBand N$"%;1=, said defendants citing $rticle +G++ of the New 1ivil 1ode, and the case law ruling in "alongav. 9arner Barnes M 1o., CC Phil. +-5E and #anila Port "ervice, et al. v. 1ourt of $ppeals, et al., - "1*$ +-+.

8The motion to dismiss was by the court a !uo denied in its =rder of November -, +ACE in the same order, that

court directed the defendants to file their answer to the complaint within +5 days.

8&n their answer, the defendant N$"%;1= reiterated the grounds of its motion to dismiss, to wit7

IThat the complaint does not state a sufficient cause of action against the defendant N$"%;1= because7 (a

N$"%;1= is not @ @ @ privy to the various electrical construction jobs being sued upon by the plaintiff underthe present complaintE (b the taking over by N$"%;1= of the assets of defendant P$"%#&' was solely forthe purpose of reconditioning the sugar central of defendant P$"%#&' pursuant to martial law powers of thePresident under the 1onstitutionE (c nothing in the '=& No. +CA2$ (as well as in '=& No. G++ authori?ed orcommanded the PNB or its subsidiary corporation, the N$"%;1=, to assume the corporate obligations ofP$"%#&' as that being involved in the present caseE and, (d all that was mentioned by the said letter of

instruction insofar as the P$"%#&' liabilities /were0 concerned /was0 for the PNB, or its subsidiary corporation

the N$"%;1=, to make a study of, and submit /a0 recommendation on the problems concerning the same.)

8By way of counterclaim, the N$"%;1= averred that by reason of the filing by the plaintiff of the presentsuit, which it /labeled0 as unfounded or baseless, the defendant N$"%;1= was constrained to litigate andincur litigation e@penses in the amount of P5,., which plaintiff should be sentenced to pay. $ccordingly,

N$"%;1= prayed that the complaint be dismissed and on its counterclaim, that the plaintiff be condemned to pay P5,. in concept of attorney)s fees as well as e@emplary damages.

8&n its answer, the defendant PNB likewise reiterated the grounds of its motion to dismiss, namely7 (+ thecomplaint states no cause of action against the defendant PNBE (- that PNB is not a party to the contract allegedin par. 6 of the complaint and that the alleged services rendered by the plaintiff to the defendant P$"%#&' upon

which plaintiff)s suit is erected, was rendered long before PNB took possession of the assets of the defendantP$"%#&' under '=& No. +CA2$E (G that the PNB take2over of the assets of the defendant P$"%#&' under

'=& +CA2$ was solely for the purpose of reconditioning the sugar central so that P$"%#&' may resume itsoperations in time for the +A25 milling season, and that nothing in the said '=& No. +CA2$, as well as in '=& No. G++, authori?ed or directed PNB to assume the corporate obligationFs of P$"%#&', let alone that for whichthe present action is broughtE ( that PNB)s management and operation under '=& No. G++ did not refer to any

asset of P$"%#&' which the PNB had to ac!uire and thereafter /manage0, but only to those which wereforeclosed by the BP and were in turn redeemed by the PNB from the BPE (5 that conformably to '=& No.G++, on $ugust +5, +A5, the PNB and the evelopment Bank of the Philippines (BP entered into aI*edemption $greement) whereby BP sold, transferred and conveyed in favor of the PNB, by way ofredemption, all its (BP rights and interest in and over the foreclosed real andFor personal properties ofP$"%#&', as shown in $nne@ I1) which is made an integral part of the answerE (6 that again, conformably

with '=& No. G++, PNB pursuant to a eed of $ssignment dated =ctober -+, +A5, conveyed, transferred, andassigned for valuable consideration, in favor of N$"%;1=, a distinct and independent corporation, all its(PNB rights and interest in and under the above I*edemption $greement.) This is shown in $nne@ I) which is

also made an integral part of the answerE /0 that as a conse!uence of the said eed of $ssignment, PNB on=ctober -+, +A5 ceased to managed and operate the above2mentioned assets of P$"%#&', which function was



now actually transferred to N$"%;1=. &n other words, so asserted PNB, the complaint as to PNB, had become moot and academic because of the e@ecution of the said eed of $ssignmentE /C0 that moreover, '=& No. G++ did not authori?e or direct PNB to assume the corporate obligations of P$"%#&', including the alleged

obligation upon which this present suit was broughtE and /A0 that, at most, what was granted to PNB in thisrespect was the authority to Imake a study of and submit recommendation on the problems concerning theclaims of P$"%#&' creditors,) under sub2par. 5 '=& No. G++.

8&n its counterclaim, the PNB averred that it was unnecessarily constrained to litigate and to incur e@penses inthis case, hence it is entitled to claim attorney)s fees in the amount of at leastP5,.. $ccordingly, PNB

prayed that the complaint be dismissedE and that on its counterclaim, that the plaintiff be sentenced to paydefendant PNB the sum of P5,. as attorney)s fees, aside from e@emplary damages in such amount that thecourt may seem just and e!uitable in the premises.

8"ummons by publication was made via the Philippines aily ;@press, a newspaper with editorial office at G+Bonifacio rive, Port $rea, #anila, against the defendant P$"%#&', which was thereafter declared in defaultas shown in the $ugust , +AC+ =rder issued by the Trial 1ourt.

8$fter due proceedings, the Trial 1ourt rendered judgment, the decretal portion of which reads7

I9:;*;<=*;, judgment is hereby rendered in favor of plaintiff and against the defendant 1orporation,Philippine National Bank (PNB N$T&=N$' "%3$* ;4;'=P#;NT 1=*P=*$T&=N (N$"%;1= andP$#P$N3$ "%3$* #&''" (P$"%#&', ordering the latter to pay jointly and severally the former the

following7

I+. The sum of P5+G,6-G.C plus interest thereon at the rate of +L per annum asclaimed from "eptember -5, +AC until fully paidE

I-. The sum of P+-,-.6 as attorney)s feesE and,

IG. 1osts.

I"= =*;*;.

I#anila, Philippines, "eptember , +AC6.

("3 ;*N;"T= ". T;N31=

IKudge)>/G0

Rli- o )/+ Cor) o App+*l

$ffirming the trial court, the 1$ held that it was offensive to the basic tenets of justice and e!uity for acorporation to take over and operate the business of another corporation, while disavowing or repudiating anyresponsibility, obligation or liability arising therefrom./0

:ence, this Petition./50

I+

&n their #emorandum, petitioners raise the following errors for the 1ourt)s consideration7

5I

The 1ourt of $ppeals gravely erred in law in holding the herein petitioners liable for the unpaid corporate

debts of P$"%#&', a corporation whose corporate e@istence has not been legally e@tinguished or









terminated, simply because of petitioners/)0 take2over of the management and operation of P$"%#&' pursuant to the mandates of '=& No. +CA2$, as amended by '=& No. G++.

5II

The 1ourt of $ppeals gravely erred in law in not applying /to0 the case at bench the ruling enunciated in

;dward K. Nell 1o. v. Pacific <arms, +5 "1*$ +5.> /60

"uccinctly put, the aforesaid errors boil down to the principal issue of whether PNB is liable for the unpaiddebts of P$"%#&' to respondent.

T/i Cor) Rli-

The Petition is meritorious.

M*i- I+(

Liability for Corporate Debts

$s a general rule, !uestions of fact may not be raised in a petition for review under *ule 5 of the *ules of 1ourt./0 To this rule, however, there are some e@ceptions enumerated in Fuentes v. Court of Appeals./C0 $fter a

careful scrutiny of the records and the pleadings submitted by the parties, we find that the lower courtsmisappreciated the evidence presented./A0 =verlooked by the 1$ were certain relevant facts that would justify aconclusion different from that reached in the assailed ecision./+0

Petitioners posit that they should not be held liable for the corporate debts of P$"%#&', because their takeover of the latter)s foreclosed assets did not make them assignees. =n the other hand, respondent assertsthat petitioners and P$"%#&' should be treated as one entity and, as such, jointly and severally held liable for

P$"%#&')s unpaid obligation.

$s a rule, a corporation that purchases the assets of another will not be liable for the debts of the sellingcorporation, provided the former acted in good faith and paid ade!uate consideration for such assets, e@ceptwhen any of the following circumstances is present7 (+ where the purchaser e@pressly or impliedly agrees toassume the debts, (- where the transaction amounts to a consolidation or merger of the corporations, (G where

the purchasing corporation is merely a continuation of the selling corporation, and ( where the transaction isfraudulently entered into in order to escape liability for those debts./++0

Piercing the Corporate

Veil Not Warranted

$ corporation is an artificial being created by operation of law. &t possesses the right of succession and

such powers, attributes, and properties e@pressly authori?ed by law or incident to its e@istence. /+-0 &t has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which itmay be related./+G0 This is basic.

;!ually well2settled is the principle that the corporate mask may be removed or the corporate veil piercedwhen the corporation is just an alter ego of a person or of another corporation. /+0 <or reasons of public policyand in the interest of justice, the corporate veil will justifiably be impaled /+50 only when it becomes a shield for fraud, illegality or ine!uity committed against third persons./+60

:ence, any application of the doctrine of piercing the corporate veil should be done with caution. /+0 $court should be mindful of the milieu where it is to be applied. /+C0 &t must be certain that the corporate fiction wasmisused to such an e@tent that injustice, fraud, or crime was committed against another, in disregard of its rights./+A0 The wrongdoing must be clearly and convincingly establishedE it cannot be presumed./-0 =therwise, an

injustice that was never unintended may result from an erroneous application./-+0




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This 1ourt has pierced the corporate veil to ward off a judgment credit, /--0 to avoid inclusion of corporateassets as part of the estate of the decedent, /-G0 to escape liability arising from a debt, /-0 or to perpetuate fraudandFor confuse legitimate issues/-50 either to promote or to shield unfair objectives/-60 or to cover up an otherwise

blatant violation of the prohibition against forum2shopping./-0 =nly in these and similar instances may the veil be pierced and disregarded./-C0

The !uestion of whether a corporation is a mere alter ego is one of fact. /-A0 Piercing the veil of corporate

fiction may be allowed only if the following elements concur7 (+ control 22 not mere stock control, but completedomination 22 not only 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 e@istence of its ownE (- 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 incontravention of plaintiff)s legal rightE and (G the said control and breach of duty must have pro@imately caused

the injury or unjust loss complained of./G0

9e believe that the absence of the foregoing elements in the present case precludes the piercing of the

corporate veil. First , other than the fact that petitioners ac!uired the assets of P$"%#&', there is no showingthat their control over it warrants the disregard of corporate personalities. /G+0 Second , there is no evidence thattheir juridical personality was used to commit a fraud or to do a wrongE or that the separate corporate entity wasfarcically used as a mere alter ego, business conduit or instrumentality of another entity or person. /G-0 Third ,

respondent was not defrauded or injured when petitioners ac!uired the assets of P$"%#&'./GG0

Being the party that asked for the piercing of the corporate veil, respondent had the burden of presentingclear and convincing evidence to justify the setting aside of the separate corporate personality rule. /G0 :owever,it utterly failed to discharge this burdenE /G50 it failed to establish by competent evidence that petitioner)s separatecorporate veil had been used to conceal fraud, illegality or ine!uity./G60

9hile we agree with respondent)s claim that the assets of the National "ugar evelopment 1orporation(N$"%;1= can be easily traced to P$"%#&',/G0 we are not convinced that the transfer of the latter)s assets

to petitioners was fraudulently entered into in order to escape liability for its debt to respondent./GC0

$ careful review of the records reveals that BP foreclosed the mortgage e@ecuted by P$"%#&' andac!uired the assets as the highest bidder at the public auction conducted. /GA0 The bank was justified in foreclosing

the mortgage, because the P$"%#&' account had incurred arrearages of more than - percent of the total

outstanding obligation./0 Thus, BP had not only a right, but also a duty under the law to foreclose the subject properties./+0

Pursuant to '=& No. +CA2$/-0 as amended by '=& No. G++,/G0 PNB ac!uired P$"%#&')s assets that BPhad foreclosed and purchased in the normal course. Petitioner bank was likewise tasked to manage temporarilythe operation of such assets either by itself or through a subsidiary corporation./0

PNB, as the second mortgagee, redeemed from BP the foreclosed P$"%#&' assets pursuant to "ection 6of $ct No. G+G5./50 These assets were later conveyed to PNB for a consideration, the terms of which wereembodied in the *edemption $greement./60 PNB, as successor2in2interest, stepped into the shoes of BP asP$"%#&')s creditor./0 By way of a eed of $ssignment,/C0 PNB then transferred to N$"%;1= all its rightsunder the *edemption $greement.

&n Development Bank of the Philippines v. Court of Appeals ,/A0 we had the occasion to resolve a similar

issue. 9e ruled that PNB, BP and their transferees were not liable for #arindu!ue #ining)s unpaidobligations to *emington &ndustrial "ales 1orporation (*emington after the two banks had foreclosed the assetsof #arindu!ue #ining. 9e likewise held that *emington failed to discharge its burden of proving bad faith onthe part of #arindu!ue #ining to justify the piercing of the corporate veil.

&n the instant case, the 1$ erred in affirming the trial court)s lifting of the corporate mask. /50 The 1$ didnot point to any fact evidencing bad faith on the part of PNB and its transferee. /5+0 The corporate fiction was notused to defeat public convenience, justify a wrong, protect fraud or defend crime./5-0 None of the foregoinge@ceptions was shown to e@ist in the present case./5G0 =n the contrary, the lifting of the corporate veil wouldresult in manifest injustice. This we cannot allow.

No Merger or Consolidation







































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*espondent further claims that petitioners should be held liable for the unpaid obligations of P$"%#&' byvirtue of '=& Nos. +CA2$ and G++, which e@pressly authori?ed P$"%#&' and PNB to merge or consolidate. =nthe other hand, petitioners contend that their takeover of the operations of P$"%#&' did not involve any

corporate merger or consolidation, because the latter had never lost its separate identity as a corporation.

$ consolidation is the union of two or more e@isting entities to form a new entity called the consolidatedcorporation. $ merger, on the other hand, is a union whereby one or more e@isting corporations are absorbed by

another corporation that survives and continues the combined business./50

The merger, however, does not become effective upon the mere agreement of the constituent corporations./550 "ince a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must be an e@press provision of law authori?ing them. /560 <or a valid merger or consolidation, the approval by the "ecurities and ;@change 1ommission (";1 of the articles of merger or consolidation is re!uired./50 These articles must likewise be duly approved by a majority of the respectivestockholders of the constituent corporations./5C0

&n the case at bar, we hold that there is no merger or consolidation with respect to P$"%#&' andPNB. The procedure prescribed under Title &O of the 1orporation 1ode/5A0was not followed.

&n fact, P$"%#&')s corporate e@istence, as correctly found by the 1$, had not been legally e@tinguishedor terminated./60 <urther, prior to PNB)s ac!uisition of the foreclosed assets, P$"%#&' had previously made partial payments to respondent for the former)s obligation in the amount of P,-6G.C. $s of Kune -, +AG,P$"%#&' had paid P-5, to respondent and, from Kanuary 5, +A to #ay -G, +A, another P+,.

Neither did petitioner e@pressly or impliedly agree to assume the debt of P$"%#&' to respondent./6+0 '=& No. ++ e@plicitly provides that PNB shall study and submit recommendations on the claims of P$"%#&')screditors./6-0 1learly, the corporate separateness between P$"%#&' and PNB remains, despite respondent)s

insistence to the contrary./6G0

"EREORE, the Petition is hereby GRAT!D and the assailed ecision S!T AS"D! . No

pronouncement as to costs.

SO ORDERED.

G.R. No. 18029 No:+;+r 13, 2013

COMMISSIONER O INTERNAL REEN%E, Petitioner,vs.

#AN$ O COMMERCE, *espondent.

; 1 & " & = N

LEONARDO<DE CASTRO, J.:

This is a Petition (or *eview on 1ertiorar i+ filed by the 1ommissioner of &nternal *evenue (1&* wherein the"eptember + - $mended ecision- and November +5 - *esolutionG of the 1ourt of Ta@ $ppeals ;n

Bane (1T$ in 1.T.$. ;B No. -5A, are sought to be nullified and set aside .

The facts of the case, as stipulated by the parties are as follows7

+. /Bank of 1ommerce (B=10 is a banking corporation duly organi?ed and e@isting under and byvirtue of the laws of the *epublic of the Philippines, with principal office address at +-th <loor,Bankers 1entre Building, 66 $yala $venue, #akati 1ity.

-. *espondent is the 1ommissioner of the Bureau of &nternal *evenue /(1&*0, duly appointed to perform the duties of his office, including, among others, the power to decide, cancel and abate ta@liabilities pursuant to "ection -(B of the Ta@ 1ode, as amended by *epublic $ct (*$ No. C-,otherwise known as the ITa@ *eform $ct) (T*$ of +AA.

G. =n November A, -+, /B=10 and Traders *oyal Bank (T*B e@ecuted a Purchase and "ale$greement5whereby it stipulated the T*B)s desire to sell and the B=1)s desire to purchase identified
















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recorded assets of T*B in consideration of B=1 assuming identified recorded liabilities. . %nder thePurchase and "ale $greement, B=1 and T*B shall continue to e@ist as separate corporations withdistinct corporate personalities.

5. =n "eptember -, --, /B=10 received copies of the <ormal 'etter of emand and $ssessment Notice No. "T2AA22A dated "eptember ++, --, addressed to T*$;*" *=Q$' B$NJ

(now Bank of 1ommerce, issued by the 1&* demanding payment of the amount of P+,6,CC.5+,as deficiency documentary stamp ta@es ("T on "pecial "avings eposit ("" account of T*B forta@able year +AAA.

6. =n =ctober ++, --, /T*B0 filed its protest letter contesting the <ormal 'etter of emand and$ssessment Notice No. "T2AA22A dated "eptember ++, --, pursuant to "ec. --C of the Ta@1ode.

. =n #arch G+, -, /B=10 received the ecision dated #arch --, - denying the protest filed by/T*B0 on =ctober ++, --. The last two paragraphs of the ecision stated that7

9:;*;<=*;, in view of all the foregoing, $ssessment Notice No. "T2AA22A demanding payment

of the amount of P+,6,CC.5+, as deficiency stamp ta@ for the ta@able year +AAA is hereby #=&<&;$NF=* *;%1; to P+,-,CC.5+. 1onse!uently, Traders *oyal Bank (now Bank of 1ommerce ishereby ordered to pay the above2stated amount, plus interest that have accrued thereon until the actual date of payment, to the 'arge Ta@payers "ervice, B.&.*. National =ffice Building, iliman, Due?on 1ity, within thirty

(G days from receipt hereofE otherwise, collection thereof shall be effected through the summary remedies provided by law.

This constitutes the <inal ecision of this =ffice on the matter.6

=n $pril G, -, the Bank of 1ommerce (B=1 filed a Petition for *eview, assigned to the 1T$ -ndivision, praying that it be held not liable for the subject ocumentary "tamp Ta@es ("T.

$s also stipulated by the parties, the issues before the 1T$ -nd ivision were7

+. 9hether /B=10 can be held liable for /T*B0)s alleged deficiency /"T0 liability on /its ""0$ccounts for ta@able year +AAA in the amount of P+,-,CC.5+, inclusive of penalties.

-. 9hether T*B)s /""0 $ccounts for ta@able year +AAA is subject to /"T0.C

&n support of the first issue, B=1 called the attention of the 1T$ -nd ivision to the fact that as stated in $rticle&&& of the Purchase and "ale $greement, it and Traders *oyal Bank (T*B continued to e@ist as separatecorporations with distinct corporate personalities. B=1 emphasi?ed that there was no merger between it andT*B as it only ac!uired certain assets of T*B in return for its assumption of some of T*B)s liabilities.A

*uling of the 1T$ -nd ivision

&n a ecision+ dated $ugust G+, -6, the 1T$ -nd ivision dismissed the petition for lack of merit. &t held thatthe "pecial "avings eposit ("" account in issue is subject to "T because its nature and substance are akinto that of a certificate of deposit bearing interest, which under the then "ection +C of the National &nternal*evenue 1ode (N&*1, is subject to "T.

$s for B=1)s liability, the 1T$ -nd ivision said that since the issue of non2merger between B=1 and T*Bwas not raised in the administrative level, it could not be raised for the first time on appeal. The 1T$ -ndivision also noted how B=1 actively participated in the proceedings before the administrative body without!uestioning the legitimacy of the proper party in interest.++

9hen its #otion for *econsideration+- was denied+G on Kanuary C, -, B=1 filed a Petition for

*eview+ before the 1T$ ;n Banc, adducing the following grounds7


























T:; :='&N3 =< T:; :=N=*$B'; ";1=N &4&"&=N T:$T /B=10 &" ;;#; T=:$4; $#&TT; T:$T &T &" T:; P*=P;* P$*TQ $"";""; BQ T:; /1&*0 B;1$%"; &T& N=T *$&"; T:; &""%; =< #;*3;* &N T:; ';TT;* =< P*=T;"T <&'; 9&T: T:;

/1&*0 &" 9&T:=%T B$"&" $N 4&='$T;" ;';#;NT$*Q *%';" =< %; P*=1;"".

T:; :=N=*$B'; ";1=N &4&"&=N ;**; &N :='&N3 T:$T T*B)" "" $11=%NT"

<=* T$O$B'; Q;$* +AAA $*; "%BK;1T T= /"T0 %N;* T:;N ";1T&=N +C =< T:;T$O 1=;.+5

*uling of the 1T$ ;n Banc

on B=1)s Petition for *eview

=n Kune -, -, the 1T$ ;n Banc affirmed the 1T$ -nd ivision)s ecision and *esolution, ruling that B=1was liable for the "T on T*B)s "" accounts.+6

1iting this 1ourt)s decision in &nternational ;@change Bank v. 1ommissioner of &nternal *evenue,+ the 1T$ ;n

Banc said that the 1T$ -nd ivision was correct when it deemed T*B)s "" accounts to be certificates ofdeposit bearing interest, subject to "T under "ection +C of the N&*1, as they involved deposits, which though

may be withdrawn anytime, earned a higher rate of interest when kept in the bank for a specified number ofdays.+C

Proceeding then to what it considered to be the pivotal issue, the 1T$ ;n Banc, agreeing with the decision of

the 1T$ -nd ivision, held that B=1 was liable for the "T on the subject "" accounts. The 1T$ ;n Bancalso noted that B=1 was inconsistent in its position, for claiming that it was the one that filed the protest letterwith the B&*, in its Petition for *eview before the 1T$ -nd ivision and Pre2Trial Brief, while stating that itwas T*B that filed the protest letter, in its Koint "tipulation of <acts and &ssues. The 1T$ ;n Banc added that itwould not be unfair to hold B=1 liable for the subject "T as T*B constituted an ;scrow <und in the amountof <ifty #illion Pesos (P5,,. to answer for all claims against T*B, which are e@cluded from the

$greement.+A

%ndaunted, B=1 filed before the 1T$ ;n Banc a #otion for *econsideration- of its Kune -, - ecision, positing the following grounds for reconsideration7

&

There was no merger between /B=10 and /T*B0 as already decided by this :onorable 1ourt in a decision dated+C Kune -E hence /B=10 cannot be held liable for the ta@ liability of /T*B.0

&&

/B=10 could not have raised the issue of non2merger of /B=10 and /T*B0 in the proceedings before the /1&*0 because it was never a party to the proceedings before the /1&*0. 1ontrary to the 1ourt)s findings, the issue of

non2merger is no longer an issue but a fact stipulated by both parties.

&&&

The /1&*0)s decision holding /B=10 liable for T*B)s ta@ liability is void since /B=10 was not a party to the proceedings before the /1&*0.-+

*uling of the 1T$ ;n Bancon B=1)s #otion for *econsideration

=n "eptember +, -, the 1T$ ;n Banc, in its $mended ecision, reversed itself and ruled that B=1 couldnot be held liable for the deficiency "T of T*B on its "" accounts. The dispositive portion of the 1T$ ;nBanc )s $mended ecision reads7




















9:;*;<=*;, /B=10)s #otion for *econsideration is hereby 3*$NT;. The ecision in the case at bar promulgated on Kune -, - is *;4;*";. The appealed ecision in 1.T.$. 1ase No. 6A5 is ";T $"&;and a new one is hereby ;NT;*; finding petitioner Bank of 1ommerce N=T '&$B'; for the amount

ofP+,-,CC.5+ representing the assessment of deficiency ocumentary "tamp Ta@ on the "pecial "avingseposit accounts of Traders *oyal Bank for ta@able year +AAA.--

&n its $mended ecision, the 1T$ ;n Banc said that while it did not make a categorical ruling in its Kune -,- ecision on the issue of merger between B=1 and T*B, the 1T$ +st ivision did in its Kune +C, -*esolution-Gin 1.T.$. 1ase No. 6GA-, entitled Traders *oyal Bank v. 1ommissioner of &nternal *evenue.

The Traders *oyal Bank case, just like the case at bar, involved a deficiency "T assessment against T*B on its"" accounts, albeit for ta@able years +AA6 and +AA. 9hen the 1&* attempted to implement a writ ofe@ecution against B=1, which was not a party to the case, by simply inserting its name beside T*B)s in themotion for e@ecution, B=1 filed a #otion to Duash (By 9ay of "pecial $ppearance with the 1T$ +stivision,- which the 1T$ +st ivision granted in a *esolution on Kune +C, -, primarily on the ground thatthere was no merger between B=1 and T*B.

9ith the foregoing ruling, the 1T$ ;n Banc declared that B=1 could not be held liable for the deficiency "T

assessed on T*B)s "" accounts for ta@able year +AAA in the interest of substantial justice and to be consistentwith the 1T$ +st ivision)s *esolution in the Traders *oyal Bank case. -5

The 1T$ ;n Banc also gave weight to B&* *uling No. +2-6-6 dated =ctober 6, -6 wherein the 1&*

e@pressly recogni?ed the fact that the Purchase and "ale $greement between B=1 and T*B did not result intheir merger .-;laborating on this point the 1T$ ;n Banc said7

By practice, a B&* ruling contains the official written interpretative opinion of the 1ommissioner of &nternal*evenue addressed to a particular ta@payer regarding his ta@ability over certain matters. #oreover, well2settledis the rule that the interpretation of an administrative government agency like the B&*, is accorded great respect

and ordinarily controls the construction of the courts. The reason behind this rule was e@plained in NestlePhilippines, &nc. vs. 1ourt of $ppeals, in this wise7 The rationale for this rule relates not only to the emergenceof the multifarious needs of a modern or moderni?ing society and the establishment of diverse administrative

agencies for addressing and satisfying those needsE it also relates to the accumulation of e@perience and growthof speciali?ed capabilities by the administrative agency charged with implementing a particular statute.

:ere, 9e have no reason to disregard the interpretation made by the 1ommissioner as it is in accord with the

aforementioned *esolution of the <irst ivision.-C (1itation omitted.

9ith the reversal of the 1T$ ;n Banc )s Kune -, - ecision, the 1&* filed a #otion for*econsideration-A praying that B=1 be held liable for the deficiency "T of T*B on its "" accounts forta@able year +AAA. &n support of its motion, the 1&* presented the following arguments7

/B=10 is estopped from raising the issue that it is not the party held liable for Trader/s0 *oyal Bank (T*B)sdeficiency "T assessment because it was not a party to the proceeding before /the0 Bureau of &nternal *evenue

(B&*.G

&ssues not raised in the administrative level cannot be raised for the first time on appeal.G+

The deficiency $ssessment of T*B can be enforced and collected against /B=10.G-

The :onorable 1ourt ;n Banc erred in considering B&* *uling No. +2-6 as basis to justify its conclusion.GG

The :onorable 1ourt ;n Banc has no sufficient justification for not considering the ;scrow fund in its $mendedecision.G

=n November +5, -, the 1T$ ;n Banc denied the motion for lack of merit.



































The 1T$ ;n Banc said that the rule that no issue may be raised for the first time on appeal is not a hard and fastrule as jurisprudence declares that the appellate court is clothed with ample authority to review matters, even ifthey 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 1T$ ;n Banc found it necessary to consider andresolve issues, even though not previously raised in the administrative level, if it is necessary for the completeadjudication of the rights and obligations of the parties and it falls within the issues they already identified.G5

The 1T$ ;n Banc also reiterated its ruling in its $mended ecision, that B=1 could not be held liable for thedeficiency "T on the "" accounts of T*B, in consonance with the *esolution of the 1T$ +st ivision in the

Traders *oyal Bank caseE and B&* *uling No. +2-6, which has not been shown to have been revoked ornullified by the 1&*.G6

9ith the foregoing dis!uisition rendering the issue on the ;scrow <und moot, the 1T$ ;n Banc found no morereason to discuss it.G

%nsuccessful in its #otion for *econsideration, the 1&* is now before this 1ourt, praying for the reinstatement

of the 1T$ -nd ivision)s $ugust G+, -6 ecision, which found B=1 liable for the subject "T. The 1&* posits the following grounds in its Petition for *eview7

&.

T:; ;<&1&;N1Q $"";""#;NT =< T*$;*" *=Q$' B$NJ (T*B 1$N B; ;N<=*1; $N

1='';1T; $3$&N"T *;"P=N;NT B$NJ =< 1=##;*1; (B=1 B;1$%"; T:; '$TT;*$""%#; T:; =B'&3$T&=N" $N '&$B&'&T&;" =< T*B P%*"%$NT T= T:; P%*1:$"; $N"$'; $3*;;#;NT ;O;1%T; B;T9;;N T:;# $N T:; $PP'&1$B'; '$9 =N #;*3;* =<1=*P=*$T&=N" (";1T&=N C =< T:; 1=*P=*$T&=N 1=;.

&&.

T:; 1=%*T =< T$O $PP;$'" ;N B$N1 3*$4;'Q ;**; &N *;4;*"&N3 &T" P*;4&=%"

;1&"&=N 9:&1: $<<&*#; T:; $"";""#;NT $N ;N<=*1;#;NT =< ;<&1&;N1Q T$O;" BQP;T&T&=N;* $3$&N"T *;"P=N;NT, 1=NT*$*Q T= '$9 $N K%*&"P*%;N1;.GC

&n response, B=1 presented in its 1omment,GA the following grounds in support of its prayer that the 1&*)s petition be denied7

&. T:; P;T&T&=N <=* *;4&;9 & N=T *$&"; D%;"T&=N" =< '$9.

&&. T:; 1=%*T =< T$O $PP;$'" ;N B$N1 9$" 1=**;1T $N & N=T 1=##&T 3*$4; $B%";=< &"1*;T&=N 9:;N &T <=%N *;"P=N;NT N=T '&$B'; <=* T:; "%BK;1T T$O B;1$%";7

$. T:;*; 9$" N= #;*3;* 1*;$T; B;T9;;N T:; *;"P=N;NT B$NJ =<

1=##;*1; $N T*$;*" *=Q$' B$NJ (T*B.

B. T:; P;T&T&=N;* &T";'< *%'; $N *;N;*; $N =P&N&=N %N;* B&* *;4;N%;*%'&N3 N=. +2-6 T:$T T:;*; 9$" N= #;*3;* B;T9;;N T:; *;"P=N;NT $NT*B.

&&&. *;"P=N;NT &" N=T ;"T=PP; <*=# *$&"&N3 T:; &""%; =< N=N2#;*3;* B;T9;;N

*;"P=N;NT $N T*B B;1$%"; &T 9$" N=T $ P$*TQ T= T:; P*=1;;&N3" B;<=*; T:;P;T&T&=N;*.

&4. T:; P;T&T&=N;*)" ;1&"&=N :='&N3 *;"P=N;NT '&$B'; <=* T*B)" T$O '&$B&'&TQ &"4=& "&N1; *;"P=N;NT 9$" N=T $ P$*TQ T= /T:;0 P*=1;;&N3" B;<=*; T:;P;T&T&=N;* .

This 1ourt)s *uling

















The petition is denied for lack of merit.

$s the 1T$ ;n Banc stated in its $mended ecision, the issue boils down to whether or not B=1 is liable for

the deficiency "T of T*B for ta@able year +AAA.

&n resolving this issue, the 1T$ ;n Banc relied on + the *esolution in the Traders *oyal Bank case, wherein the

1T$ +st ivision made a categorical pronouncement on the issue of merger based on the evidence at itsdisposal, which included the Purchase and "ale $greementE and - the 1&*)s own administrative ruling on theissue of merger in B&* *uling No. +2-6 dated =ctober 6, -6.

%nlike the ecision of the 1T$ -nd ivision in this case, which focused on the ta@ability of the "" accounts,the 1T$ +st ivision)s *esolution in Traders *oyal Bank, e@plicitly addressed the issue of merge between B=1and T*B. The 1T$ +st ivision, relying on the provisions in both the Purchase and "ale $greement and the Ta@1ode, determined that the agreement did not result in a merger, to wit7

&n the #otion, /B=10 moves to have the 9rit of ;@ecution dated #arch A, - issued against it !uashed on

the ground that it is a separate entity from /T*B0E that there was no merger or consolidation between the twoentities. <urther, /B=10 claims that the deficiency /"T0 amounting to P-,6AC,56-.A- for the ta@able years

+AA6 and +AA of /T*B0 was not one of the liabilities assumed by /B=10 in the Purchase and "ale $greement.

$fter carefully evaluating the records, the /1T$ +st ivision0 agrees with /B=10 for the following reasons7

<irst, a close reading of the Purchase and "ale $greement shows the following self2e@planatory provisions7

a &tems in litigation, both actual and prospective, against /T*B0 are e@cluded from the liabilities to beassumed by the Bank of 1ommerce ($rticle &&, paragraph -E and

b The Bank of 1ommerce and Traders *oyal Bank shall continue to e@ist as separate corporationswith distinct corporate personalities ($rticle &&&, paragraph +.

"econd, aside from the foregoing, the Purchase and "ale $greement does not contain any provision that the/B=10 ac!uired the identified assets of /T*B0 solely in e@change for the latter)s stocks. #erger is defined under "ection (1(6(b of the Ta@ 1ode as follows7

b The term merger or consolidation, when used in this "ection, shall be understood to mean7 (i theordinary merger or consolidation, or (ii the ac!uisition by one corporation of all or substantially all the

properties of another corporation solely for stock7 Provided, /t0hat for a transaction to be regarded as a merger or consolidation within the purview of this "ection, it must be undertaken for a bona fide business purpose and notsolely for the purpose of escaping the burden of ta@ation7 @ @ @.

"ince the purchase and sale of identified assets between the two companies does not constitute a merger underthe foregoing definition, the Bank of 1ommerce is considered an entity separate from petitioner. Thus, it cannot

be held liable for the payment of the deficiency "T assessed against petitioner .+ (1itation omitted.

Thus, when the 1T$ ;n Banc took into consideration the above ruling in its $mended ecision, it necessarilyaffirmed the findings of the 1T$ +st ivision and found them to be correct. This 1ourt likewise finds theforegoing ruling to be correct. The 1T$ +st ivision was spot on when it interpreted the Purchase and "ale$greement to be just that and not a merger.

The Purchase and "ale $greement, the document that is supposed to have tied B=1 and T*B together, wasreplete with provisions that clearly stated the intent of the parties and the purpose of its e@ecution, vi?7

+. $rticle & of the Purchase and "ale $greement set the terms of the assets sold to B=1, while $rticle && wasabout the consideration for those assets. #oreover, it was e@plicitly stated that liabilities not included in the1onsolidated "tatement of 1ondition were e@cluded from the liabilities B=1 was to assume, to wit7







$*T&1'; &&1=N"&;*$T&=N7 $""%#PT&=N =< '&$B&'&T&;"

&n consideration of the sale of identified recorded assets and properties covered by this $greement, /B=10 shallassume identified recorded T*B)s liabilities including booked contingent liabilities as listed and referred to in its1onsolidated "tatement of 1ondition as of $ugust G+, -+, in the total amount of P;"="7 T;N B&''&=N

<=%* :%N*; =N; #&''&=N <=%* :%N*; T:&*TQ2"&O T:=%"$N (P+,+,G6,., provided that the liabilities so assumed shall not include7

@ @ @ @

-. &tems in litigation, both actual and prospective, against T*B which include but are not limited to thefollowing7

@ @ @ @

-.G =ther liabilities not included in said 1onsolidated "tatement of 1ondition.- (;mphases supplied.

-. $rticle &&& of the Purchase and "ale $greement enumerated in no uncertain terms the effects andconse!uences of such agreement as follows7

$*T&1'; &&&;<<;1T" $N 1=N";D%;N1;"

The effectivity of this $greement shall have the following effects and conse!uences7

+. /B=10 and T*B shall continue to e@ist as separate corporations with distinct corporate personalitiesE

-. 9ith the transfer of its branching licenses to /B=10 and upon surrender of its commercial bankinglicense to B"P, T*B shall e@ist as an ordinary corporation placed outside the supervisory jurisdiction of

B"P. To this end, T*B shall cause the amendment of its articles and by2laws to delete the terms bankand banking from its corporate name and purpose.

G. There shall be no employer2employee relationship between /B=10 and the personnel and officers ofT*B.G(;mphases supplied.

#oreover, the second whereas clause, which served as the premise for the subse!uent terms in the agreement,stated that the sale of T*B)s assets to B=1 were in consideration of B=1)s assumption of some of T*B)sliabilities, vi?7

9:;*;$", T*B desires to sell and /B=10 desires to purchase identified recorded assets of T*B inconsideration of /B=10 assuming identified recorded liabilities of T*B @ @ @.

The clear terms of the above agreement did not escape the 1&* itself when it issued B&* *uling No. +2-6,wherein it was concluded that the Purchase and "ale $greement did not result in a merger between B=1 andT*B.

&n this petition however, the 1&* insists that B&* *uling No. +2-6 cannot be used as a basis for the 1T$ ;nBanc)s $mended ecision, due to B=1)s failure, at the time it re!uested for such ruling, to inform the 1&* of

T*B)s deficiency "T assessments for ta@able years +AA6, +AA, and +AAA.5

The 1&*)s contention is untenable.

$ perusal of B&* *uling No. +2-6 will show that the 1&* ruled on the issue of merger without any reference

to T*B)s subject ta@ liabilities. The relevant portions of such ruling are !uoted below7












=ne distinctive characteristic for a merger to e@ist under the second part of /"ection (1(b of the +AA N&*10is that, it is not enough for a corporation to ac!uire all or substantially all the properties of another corporation but it is also necessary that such ac!uisition is solely for stock of the absorbing corporation. "tated differently,

the ac!uiring corporation will issue a block of shares e!ual to the net asset value transferred, which stocks are inturn distributed to the stockholders of the absorbed corporation in proportion to the respective share.

$fter a careful perusal of the facts presented as well as the details of the instant case, it is observed by this=ffice that the transaction was purely concerning ac!uisition and assumption by /B=10 of the recordedliabilities of T*B. The /Purchase and "ale0 $greement did not mention with respect to the issuance of shares of

stock of /B=10 in favor of the stockholders of T*B. "uch transaction is absent of the re!uisite of a stocktransfer and same belies the e@istence of a merger. $s such, this =ffice considers the $greement between /B=10and T*B as one of a sale of assets with an assumption of liabilities rather than Imerger).

@ @ @ @

&n the case at bar, /B=10 purchased identified recorded assets and properties of T*B.#$%phi# &n consideration

thereof, /B=10 assumed certain liabilities of T*B which were identified in the 1onsolidated "tatement of1ondition as of $ugust G+, -+. &n this wise, the liabilities of T*B assumed by /B=10 were limited only to

those already identified as of $ugust G+, -+ amounting in all to Ten Billion <our :undred =ne #illion <our:undred Thirty2"i@ Thousand Pesos (P+,+, G6,. @ @ @. #ore so, liabilities that were not assumed by/B=10 should not be enforced against it. @ @ @. (;mphasis supplied.

@ @ @ @

-. #uch have been said that the transaction between T*B and /B=10 is not a merger within the contemplationof "ection (1(b of the Ta@ 1ode of +AA. To reiterate, this =ffice has ruled in the foregoing discussion thatthe transaction is one of sale of assets with assumption of identified recorded liabilities of T*B. $s such, theliabilities assumed by /B=10 amounted only to P+,+,G6,. with some enumerated e@clusion in the

$greeement. @ @ @.6

1learly, the 1&*, in B&* *uling No. +2-6, ruled on the issue of merger without taking into considerationT*B)s pending ta@ deficiencies. The ruling was based on the Purchase and "ale $greement, factual evidence onthe status of both companies, and the Ta@ 1ode provision on merger. The 1&*)s knowledge then of T*B)s ta@deficiencies would not be material as to affect the 1&*)s ruling. The resolution of the issue on merger dependedon the agreement between T*B and B=1, as detailed in the Purchase and "ale $greement, and not contingent

on T*B)s ta@ liabilities.

&t is worthy to note that in the Koint "tipulation of <acts and &ssues submitted by the parties, it was e@plicitlystated that both B=1 and T*B continued to e@ist as separate corporations with distinct corporate personalities,despite the effectivity of the Purchase and "ale $greement.

1onsidering the foregoing, this 1ourt finds no reason to reverse the 1T$ ;n Banc)s $mended ecision. &nreconsidering its Kune -, - ecision, the 1T$ ;n Banc not only took into account the 1T$ +st ivision)s

ruling in Traders *oyal Bank, which, save for the facts that B=1 was not made a party to the case, and thedeficiency "T assessed were for ta@able years +AA6 and +AA, is almost identical to the case hereinE but moreimportantly, the 1&*)s very own ruling on the issue of merger between B=1

9:;*;<=*;, the petition is hereby ;N&;.

"= =*;*;

[G.R. No. 123793. =-+ 29, 1998

ASSOCIATED #AN$, petitioner , vs. CO%RT O A!!EALS *-> LOREN?O SARMIENTO

=R., respondents.

D E C I S I O N








!ANGANI#AN, J .:

&n a merger, does the surviving corporation have a right to enforce a contract entered into by the absorbed

company su&se'uent to the date of the merger agreement, but prior to the issuance of a certificate of merger bythe "ecurities and ;@change 1ommissionR

T/+ C*+

This is a petition for review under *ule 5 of the *ules of 1ourt seeking to set aside the ecision /+0 of the1ourt of $ppeals/-0 in 1$23* 14 No. -665 promulgated on Kanuary G, +AA6, which answered the above

!uestion in the negative. The challenged ecision reversed and set aside the =ctober +, +AC6 ecision/G0 in1ivil 1ase No. C52G--G, promulgated by the *egional Trial 1ourt of #anila, Branch C, which disposed of thecontroversy in favor of herein petitioner as follows7/0

89:;*;<=*;, judgment is hereby rendered in favor of the plaintiff $ssociated Bank. Thedefendant 'oren?o "armiento, Kr. is ordered to pay plaintiff7

+. The amount of P,6CA,+G.6G with interest thereon at +L per annum until fully paidE

-. The amount of P-,. as and for attorney)s feesE and

G. The costs of suit.>

=n the other hand, the 1ourt of $ppeals resolved the case in this wise7/50

89:;*;<=*;, premises considered, the decision appealed from, dated =ctober +, +AC6 is*;4;*"; and ";T $"&; and another judgment rendered &"#&""&N3 plaintiff2appellee)scomplaint, docketed as 1ivil 1ase No. C52G--G. There is no pronouncement as to costs.>

T/+ *)

The undisputed factual antecedents, as narrated by the trial court and adopted by public respondent, are asfollows7/60

8@ @ @ /=0n or about "eptember +6, +A5 $ssociated Banking 1orporation and 1iti?ens Bank andTrust 1ompany merged to form just one banking corporation known as $ssociated 1iti?ens Bank, the

surviving bank. =n or about #arch +, +AC+, the $ssociated 1iti?ens Bank changed its corporatename to $ssociated Bank by virtue of the $mended $rticles of &ncorporation. =n "eptember , +A,the defendant e@ecuted in favor of $ssociated Bank a promissory note whereby the former undertookto pay the latter the sum of P-,5,. payable on or before #arch 6, +AC. $s per said promissory note, the defendant agreed to pay interest at +L per annum, GL per annum in the form ofli!uidated damages, compounded interests, and attorney)s fees, in case of litigation e!uivalent to +L

of the amount due. The defendant, to date, still owes plaintiff bank the amount of P-,-5,.e@clusive of interest and other charges. espite repeated demands the defendant failed to pay theamount due.

@@@ @@@ @@@

@ @ @ /T0he defendant denied all the pertinent allegations in the complaint and alleged as affirmative

and/F0or special defenses that the complaint states no valid cause of actionE that the plaintiff is not the proper party in interest because the promissory note was e@ecuted in favor of 1iti?ens Bank and Trust1ompanyE that the promissory note does not accurately reflect the true intention and agreement of the partiesE that terms and conditions of the promissory note are onerous and must be construed againstthe creditor2payee bankE that several partial payments made in the promissory note are not properlyappliedE that the present action is prematureE that as compulsory counterclaim the defendant prays for

attorney)s fees, moral damages and e@penses of litigation.

http://sc.judiciary.gov.ph/jurisprudence/1998/jun1998/123793.htm#_edn1
















=n #ay --, +AC6, the defendant was declared as if in default for failure to appear at the Pre2Trial1onference despite due notice.

$ #otion to 'ift =rder of efault andFor *econsideration of =rder dated #ay --, +AC6 was filed bydefendant)s counsel which was denied by the 1ourt in /an0 order dated "eptember +6, +AC6 and the plaintiff was allowed to present its evidence before the 1ourt e@2parte on =ctober +6, +AC6.

$t the hearing before the 1ourt e@2parte, ;steban 1. =campo testified that @ @ @ he is an accountantof the 'oans and iscount epartment of the plaintiff bankE that as such, he supervises the accountingsection 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/ 0be assigned to the 'oans andiscount epartmentE that he knows the /0efendant 'oren?o "armiento, Kr. because he has anoutstanding loan with them as per their recordsE that 'oren?o "armiento, Kr. e@ecuted a promissorynote No. T'2-6A2 dated "eptember , +A in the amount ofP-,5,. (;@hibit $E that$ssociated Banking 1orporation and the 1iti?ens Bank and Trust 1ompany merged to form one banking corporation known as the $ssociated 1iti?ens Bank and is now known as $ssociated Bank by

virtue of its $mended $rticles of &ncorporationE that there were partial payments made but not fullEthat the defendant has not paid his obligation as evidenced by the latest statement of account (;@h. BEthat as per statement of account the outstanding obligation of the defendant is P5,6CA,+G.6Gless P+,,. or P,6CA,+G.6G (;@h. B, B2+E that a demand letter dated Kune 6, +AC5 was sent by the bank thru its counsel (;@h. 1 which was received by the defendant on November +-, +AC5

(;@h. 1, 12+, 12-, 12GE that the defendant paid only P+,,. which is reflected in the ;@hibit1.>

Based on the evidence presented by petitioner, the trial court ordered *espondent "armiento to pay the bank his remaining balance plus interests and attorney)s fees. &n his appeal, "armiento assigned to the trial courtseveral errors, namely7/0

8& The /trial court0 erred in denying appellant)s motion to dismiss appellee bank)s complainton the ground of lack of cause of action and for being barred by prescription and laches.

&& The same lower court erred in admitting plaintiff2appellee bank)s amended complaintwhile defendant2appellant)s motion to dismiss appellee bank)s original complaint andusingFavailing /itself of0 the new additional allegations as bases in denial of said appellant)s

motion and in the interpretation and application of the agreement of merger and "ection C of BPBlg. 6C, 1orporation 1ode of the Philippines.

&&& The /trial court0 erred and gravely abuse/d0 its discretion in rendering the two as if indefault orders dated #ay --, +AC6 and "eptember +6, +AC6 and in not reconsidering the sameupon technical grounds which in effect subvert the best primordial interest of substantial justiceand e!uity.

&4 The court a 'uo erred in issuing the orders dated #ay --, +AC6 and "eptember +6, +AC6

declaring appellant as if in default due to non2appearance of appellant)s attending counsel whohad resigned from the law firm and while the parties /were0 negotiating for settlement of the caseand after a one million peso payment had in fact been paid to appellee bank for appellant)saccount at the start of such negotiation on <ebruary +C, +AC6 as act of earnest desire to settle the

obligation in good faith by the interested parties.

4 The lower court erred in according credence to appellee bank)s ;@hibit B statement ofaccount which had been merely re!uested by its counsel during the trial and bearing date of"eptember G, +AC6.

4& The lower court erred in accepting and giving credence to appellee bank)s -2year2oldwitness ;steban 1. =campo as of the date he testified on =ctober +6, +AC6, and therefore, hewas merely an eighteen2year2old minor when appellant supposedly incurred the foisted

obligation under the subject PN No. T'2-6A2 dated "eptember , +A, ;@hibit $ of appellee bank.





4&& The /trial court0 erred in adopting appellee bank)s ;@hibit B dated "eptember G, +AC6 inits decision given in open court on =ctober +, +AC6 which e@acted eighteen percent (+CL perannum on the foisted principal amount of P-.5 million when the subject PN, ;@hibit $,

stipulated only fourteen percent (+L per annum and which was actually prayed for in appellee bank)s original and amended complaints.

4&&& The appealed decision of the lower court erred in not considering at all appellant)saffirmative defenses that (+ the subject PN No. T'2-6A2 for P-.5 million dated "eptember ,+A, is merely an accommodation pour autrui bereft of any actual consideration to appellant

himself and (- the subject PN is a contract of adhesion, hence, /it0 needs /to0 be strictlyconstrued against appellee bank 22 assuming for granted that it has the right to enforce and seekcollection thereof.

&O The lower court should have at least allowed appellant the opportunity to presentcountervailing evidence considering the huge amounts claimed by appellee bank (principal sumof P-.5 million which including accrued interests, penalties and cost of litigation

totaled P,6CA,+G.6G and appellant)s affirmative defenses 22 pursuant to substantial justice ande!uity.>

The appellate court, however, found no need to tackle all the assigned errors and limited itself to the!uestion of 8whether /herein petitioner had0 established or proven a cause of action against /herein privaterespondent0.> $ccordingly, *espondent 1ourt held that the $ssociated Bank had no cause of action against

'oren?o "armiento Kr., since said bank was not privy to the promissory note e@ecuted by "armiento in favor of 1iti?ens Bank and Trust 1ompany (1BT1. The court ruled that the earlier merger between the two bankscould not have vested $ssociated Bank with any interest arising from the promissory note e@ecuted in favor of 1BT1 after such merger.

Thus, as earlier stated, *espondent 1ourt set aside the decision of the trial court and dismissed the

complaint. Petitioner now comes to us for a reversal of this ruling./C0

I+

&n its petition, petitioner cites the following 8reasons>7/A0

8& The 1ourt of $ppeals 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.

&& The 1ourt of $ppeals also erred in declaring that, since the promissory note was e@ecuted in favorof 1iti?ens Bank and Trust 1ompany two years after the merger between $ssociated Banking1orporation and 1iti?ens Bank and Trust 1ompany, respondent is not liable to petitioner because thereis no privity of contract between respondent and $ssociated Bank.

&&& The 1ourt of $ppeals erred when it ruled that petitioner, despite the merger between petitioner and

1iti?ens Bank and Trust 1ompany, is not a real party in interest insofar as the promissory notee@ecuted in favor of the merger.>

&n a nutshell, the main issue is whether $ssociated Bank, the surviving corporation, may enforce the promissory note made by private respondent in favor of 1BT1, the absorbed company, after the merger

agreement had been signed.

T/+ Cor) Rli-

The petition is impressed with merit.

T/+ M*i- I+(

Associated an! Ass"#ed







All $ights of C%C

=rdinarily, in the merger of two or more e@isting corporations, one of the combining corporations survives

and continues the combined business, while the rest are dissolved and all their rights, properties and liabilitiesare ac!uired by the surviving corporation. /+0 $lthough there is a dissolution of the absorbed corporations, thereis no winding up of their affairs or li!uidation of their assets, because the surviving corporation automatically

ac!uires all their rights, privileges and powers, as well as their liabilities./++0

The merger, however, does not become effective upon the mere agreement of the constituentcorporations. The procedure to be followed is prescribed under the 1orporation 1ode. /+-0 "ection A of said

1ode re!uires the approval by the "ecurities and ;@change 1ommission (";1 of the articles of merger which,in turn, must have been duly approved by a majority of the respective stockholdersof the constituent corporations. The same provision further states that the merger shall be effective only uponthe issuance by the ";1 of a certificate of merger. The effectivity date of the merger is crucial for determiningwhen the merged or absorbed corporation ceases to e@istE and when its rights, privileges, properties as well asliabilities pass on to the surviving corporation.

1onsistent with the aforementioned "ection A, the "eptember +6, +A5 $greement of #erger, /+G0 which

$ssociated Banking 1orporation ($B1 and 1iti?ens Bank and Trust 1ompany (1BT1 entered into, providedthat its effectivity 8shall, for all intents and purposes, be the date when the necessary papers to carry out this/m0erger shall have been approved by the "ecurities and ;@change 1ommission.> /+0 $s to the transfer of the properties of 1BT1 to $B1, the agreement provides7

8+. %pon effective date of the #erger, all rights, privileges, powers, immunities, franchises,assets and property of /1BT10, whether real, personal or mi@ed, and including /1BT1)s0goodwill and tradename, and all debts due to /1BT10 on whatever act, and all otherthings in action belonging to /1BT10 as of the effective date of the /m0erger shall bevested in /$B10, the "%*4&4&N3 B$NJ, without need of further act or deed, unless by

e@press re!uirements of law or of a government agency, any separate or specific deed ofconveyance to legally effect the transfer or assignment of any kind of property /or0 assetis re!uired, in which case such document or deed shall be e@ecuted accordinglyE and all

property, rights, privileges, powers, immunities, franchises and all appointments,designations and nominations, and all other rights and interests of /1BT10 as trustee,e@ecutor, 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 /1BT10 shall thereafter be effectually the property of/$B10 as they were of /1BT10, and title to any real estate, whether by deed or otherwise,vested in /1BT10 shall not revert or be in any way impaired by reason thereofE provided,however, that all rights of creditors and all liens upon any property of /1BT10 shall be preserved and unimpaired and all debts, liabilities, obligations, duties and undertakings of

/1BT10, whether contractual or otherwise, e@pressed or implied, actual or contingent,shall henceforth attach to /$B10 which shall be responsible therefor and may be enforcedagainst /$B10 to the same e@tent as if the same debts, liabilities, obligations, duties andundertakings have been originally incurred or contracted by /$B10, subject, however, to

all rights, privileges, defenses, set2offs and counterclaims which /1BT10 has or mighthave and which shall pertain to /$B10.>/+50

The records do not show when the ";1 approved the merger. Private respondent)s theory is that it took effect on the date of the e@ecution of the agreement itself, which was "eptember +6, +A5. Private respondentcontends that, since he issued the promissory note to 1BT1 on "eptember , +A 22 two years after the merger agreement had been e@ecuted 22 1BT1 could not have conveyed or transferred to petitioner its interest in thesaid note, which was not yet in e@istence at the time of the merger. Therefore, petitioner, the surviving bank, has

no right to enforce the promissory note on private respondentE such right properly pertains only to 1BT1.

$ssuming that the effectivity date of the merger was the date of its e@ecution, we still cannot agree that petitioner no longer has any interest in the promissory note. $ closer perusal of the merger agreement leads to adifferent conclusion. The provision !uoted earlier has this other clause7


















8%pon the effective date of the /m0erger, all references to /1BT10 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 /$B10, the "%*4&4&N3 B$NJ, as if such references were direct references to

/$B10. @ @ @>/+60 (%nderscoring supplied

Thus, the fact that the promissory note was e@ecuted after the effectivity date of the merger does not

militate against petitioner. The agreement itself clearly provides that all contracts 22 irrespective of the date of e@ecution 22 entered into in the name of 1BT1 shall be understood as pertaining to the surviving bank, herein petitioner. "ince, in contrast to the earlier afore!uoted provision, the latter clause no longer specifically refers

only to contracts e@isting at the time of the merger, no distinction should be made. The clause must have beendeliberately included in the agreement in order to protect the interests of the combining banksE specifically, toavoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation.

Thus, although the subject promissory note names 1BT1 as the payee, the reference to 1BT1 in the noteshall be construed, under the very provisions of the merger agreement, as a reference to petitioner bank, 8as if such reference /was a0 direct reference to> the latter 8for all intents and purposes.>

No other construction can be given to the une!uivocal stipulation. Being clear, plain and free of

ambiguity, the provision must be given its literal meaning

/+0

and applied without a convolutedinterpretation. (er&a le)is non est recedendum./+C0

&n light of the foregoing, the 1ourt holds that petitioner has a valid cause of action against private

respondent. 1learly, the failure of private respondent to honor his obligation under the promissory noteconstitutes a violation of petitioner)s right to collect the proceeds of the loan it e@tended to the former.

S+o->*r@ I+(

Prescription& Laches& Contract

!or A)ri, Lac! of Consideration

No Prescription

or Laches

Private respondent)s claim that the action has prescribed, pursuant to $rticle ++A of the 1ivil 1ode, is

legally untenable. Petitioner)s 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. /+A0 "armiento)s obligation under the promissorynote became due and demandable on #arch 6, +AC. Petitioner)s complaint was instituted on $ugust --, +AC5, before the lapse of the ten2year prescriptive period. efinitely, petitioner still had every right to commence suitagainst the payorFobligor, the private respondent herein.

Neither is petitioner)s action barred by laches. The principle of laches is a creation of e!uity, which isapplied not to penali?e neglect or failure to assert a right within a reasonable time, but rather to avoidrecogni?ing a right when to do so would result in a clearly ine!uitable situation /-0 or in an injustice. /-+0 Tore!uire private respondent to pay the remaining balance of his loan is certainly not ine!uitable or unjust. 9hatwould be manifestly unjust and ine!uitable is his contention that 1BT1 is the proper party to proceed againsthim despite the fact, which he himself asserts, that 1BT1)s corporate personality has been dissolved by virtue of

its merger with petitioner. To hold that no payeeFobligee e@ists and to let private respondent enjoy the fruits of his loan without liability is surely most unfair and unconscionable, amounting to unjust enrichment at thee@pense of petitioner. Besides, this 1ourt has held that the doctrine of laches is inapplicable where the claimwas filed within the prescriptive period set forth under the law./--0

No Contract

!or A)ri






















Private respondent, while not denying that he e@ecuted the promissory note in the amount of P-,5, infavor of 1BT1, offers the alternative defense that said note was a contract pour autrui.

$ stipulation pour autrui is one in favor of a third person who may demand its fulfillment, provided hecommunicated his acceptance to the obligor before its revocation. $n incidental benefit or interest, whichanother person gains, is not sufficient. The contracting parties must have clearly and deliberately conferred a

favor upon a third person./-G0

Florentino vs. !ncarnacion Sr ./-0 enumerates the re!uisites for such contract7 (+ the stipulation in favor of a third person must be a part of the contract, and not the contract itselfE (- the favorable stipulation should not

be conditioned or compensated by any kind of obligationE and (G neither of the contracting parties bears thelegal representation or authori?ation of the third party. The 8fairest test> in determining whether the third person)s interest in a contract is a stipulation pour autrui or merely an incidental interest is to e@amine theintention of the parties as disclosed by their contract./-50

9e 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. &t merely lays down the terms of payment and the penalties incurred for failure to pay upon

maturity. &t is patently devoid of any indication that a benefit or interest was thereby created in favor of a personother than the contracting parties. &n fact, in no part of the instrument is there any mention of a third party atall. ;@cept for his barefaced statement, no evidence was proffered by private respondent to support hisargument. $ccordingly, his contention cannot be sustained. $t 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 legalremedy of a third2party complaint./-60 That he made no effort to implead such third person proves the hollownessof his arguments.

Consideration

Private respondent also claims that he received no consideration for the promissory note and, in supportthereof, cites petitioner)s failure to submit any proof of his loan application and of his actual receipt of theamount loaned. These arguments deserve no merit. Res ipsa lo'uitur. The instrument, bearing the signature of

private respondent, speaks for itself. *espondent "armiento has not !uestioned the genuineness and duee@ecution thereof. No further proof is necessary to show that he undertook to payP-,5,, plus interest, to petitioner bank on or before #arch 6, +AC. This he failed to do, as testified to by petitioner)s accountant. The

latter presented before the trial court private respondent)s statement of account /-0 as of "eptember G, +AC6,showing an outstanding balance of P,6CA,+G.6G after deducting P+,,. paid seven monthsearlier. <urthermore, such partial payment is e!uivalent to an e@press acknowledgment of hisobligation. Private respondent can no longer backtrack and deny his liability to petitioner bank. 8$ personcannot accept and reject the same instrument.>/-C0

"EREORE, the petition is GRAT!D. The assailed ecision is S!T AS"D! and the ecision of

*T12#anila, Branch C, in 1ivil 1ase No. -665 is hereby R!"STAT!D.

SO ORDERED.

#!I . CARLITO LEE S++ !D

[G.R. No. 99398. =*-*r@ 26, 2001

C"ESTER #A#ST, petitioner& vs. CO%RT O A!!EALS, #AN$ O T"E !"ILI!!INE ISLANDS,

ELI?ALDE STEEL CONSOLIDATED, INC., *-> !ACIIC M%LTI<COMMERCIAL

COR!ORATION, respondents.

[G.R. No. 10462. =*-*r@ 26, 2001




















ELI?ALDE STEEL CONSOLIDATED, INC., petitioner& vs. CO%RT O A!!EALS, #AN$ O T"E

!"ILI!!INE ISLANDS, !ACIIC M%LTI<COMMERCIAL COR!ORATION *-> C"ESTER

#A#ST, respondents.

D E C I S I O N

'NARES<SANTIAGO, J .(

These consolidated petitions seek the review of the ecision dated $pril -A, +AA+ of the 1ourt of $ppealsin 1$23.*. 14 No. +-C-/+0 entitled, 8Bank of the Philippine &slands, Plaintiff*Appellee versus ;li?alde "teel

1onsolidated, &nc., Pacific #ulti21ommercial 1orporation, and 1hester 3. Babst, Defendants*Appellants.>

The complaint was commenced principally to enforce payment of a promissory note and three domesticletters of credit which ;li?alde "teel 1onsolidated, &nc. (;'&"1=N e@ecuted and opened with the 1ommercialBank and Trust 1ompany (1BT1.

=n Kune C, +AG, ;'&"1=N obtained from 1BT1 a loan in the amount of PC,+5,A.C, with interest atthe rate of +L per annum, evidenced by a promissory note./-0 ;'&"1=N defaulted in its payments, leaving an

outstanding indebtedness in the amount of P-,A5,-.6 as of =ctober G+, +AC-./G0

The letters of credit, on the other hand, were opened for ;'&"1=N by 1BT1 using the credit facilities of Pacific #ulti21ommercial 1orporation (#%'T& with the said bank, pursuant to the *esolution of the Board of irectors of #%'T& adopted on $ugust G+, +A which reads7

9:;*;$", at least AL of the 1ompany)s gross sales is generated by the sale of tin2plates manufactured by;li?alde "teel 1onsolidated, &nc.E

9:;*;$", it is to the best interests of the 1ompany to continue handling said tin2plate lineE

9:;*;$", ;li?alde "teel 1onsolidated, &nc. has re!uested the assistance of the 1ompany in obtaining credit

facilities to enable it to maintain the present level of its tin2plate manufacturing output and the 1ompany iswilling to e@tend said re!uested assistanceE

N=9, T:;*;<=*;, for and in consideration of the foregoing premises 222

B; &T *;"='4; $" &T &" :;*;BQ *;"='4;, That the P*;"&;NT M 3;N;*$' #$N$3;*,

$NT=N&= *=O$" 1:%$, be, as he is hereby empowered to allow and authori?e ;'&S$'; "T;;'1=N"='&$T;, &N1. to avail and make use of the 1redit 'ine of P$1&<&1 #%'T&21=##;*1&$'1=*P=*$T&=N with the 1=##;*1&$' B$NJ M T*%"T 1=#P$NQ =< T:; P:&'&PP&N;", #akati,#etro #anilaE

*;"='4;, <%*T:;*, That the Pacific #ulti21ommercial 1orporation guarantee, as it does hereby

guarantee, solidarily, the payment of the corresponding 'etters of 1redit upon maturity of the sameE

*;"='4;, <&N$''Q, That copies of this resolution be furnished the 1ommercial Bank M Trust 1ompany ofthe Philippines, #akati, #etro #anila, for their information./0

"ubse!uently, on "eptember -6, +AC, $ntonio *o@as 1hua and 1hester 3. Babst e@ecuted a 1ontinuing"uretyship,/50 whereby they bound themselves jointly and severally liable to pay any e@isting indebtedness of

#%'T& to 1BT1 to the e@tent of PC,,. each.

"ometime in =ctober +AC, 1BT1 opened for ;'&"1=N in favor of National "teel 1orporation three (Gdomestic letters of credit in the amounts of P+,A6,C5.G, /60 P+,-,C6A.G-/0 and P-,G.-,/C0 respectively,which ;'&"1=N used to purchase tin black plates from National "teel 1orporation. ;'&"1=N defaulted in itsobligation to pay the amounts of the letters of credit, leaving an outstanding account, as of =ctober G+, +AC-, in

the total amount of PG,A6G,G-.C./A0

http://sc.judiciary.gov.ph/jurisprudence/2001/jan2001/99398.htm#_edn1























=n ecember --, +AC, the Bank of the Philippine &slands (BP& and 1BT1 entered into a merger, whereinBP&, as the surviving corporation, ac!uired all the assets and assumed all the liabilities of 1BT1./+0

#eanwhile, ;'&"1=N encountered financial difficulties and became heavily indebted to the evelopmentBank of the Philippines (BP. &n order to settle its obligations, ;'&"1=N proposed to convey to BP by wayof dacion en pa)o all its fi@ed assets mortgaged with BP, as payment for its total indebtedness in the amount

of P-+,+C+,CGG.+6. =n ecember -C, +AC, ;'&"1=N and BP e@ecuted a eed of 1ession of Property inPayment of ebt./++0

&n Kune +AC+, ;'&"1=N called its creditors to a meeting to announce the take2over by BP of its assets.

&n =ctober +AC+, BP formally took over the assets of ;'&"1=N, including its indebtedness to BP&.Thereafter, BP proposed formulas for the settlement of all of ;'&"1=N)s obligations to its creditors, but BP&e@pressly rejected the formula submitted to it for not being acceptable./+-0

1onse!uently, on Kanuary +, +ACG, BP&, as successor2in2interest of 1BT1, instituted with the *egional

Trial 1ourt of #akati, Branch +, a complaint /+G0 for sum of money against ;'&"1=N, #%'T& and Babst,which was docketed as 1ivil 1ase No. A--6.

;'&"1=N, in its $nswer ,/+0 argued that the complaint was premature since BP had made serious effortsto settle its obligations with BP&.

Babst also filed his $nswer alleging that he signed the 1ontinuing "uretyship on the understanding that it

covers only obligations which #%'T& incurred solely for its benefit and not for any third party liability, and hehad no knowledge or information of any transaction between #%'T& and ;'&"1=N. /+50

#%'T&, for its part, denied knowledge of the merger between BP& and 1BT1, and averred that theguaranty under its board resolution did not cover purchases made by ;'&"1=N in the form of trust receipts. &tset up a cross2claim against ;'&"1=N alleging that the latter should be held liable for any judgment which the

court may render against it in favor of BP&./+60

=n <ebruary -, +AC, the trial court rendered its ecision,/+0 the dispositive portion of which reads7

9:;*;<=*;, in view of all the foregoing, the 1ourt hereby renders judgment in favor of the plaintiff andagainst all the defendants7

+ =rdering defendant ;'&"1=N to pay the plaintiff the amount of P-,A5,-.6 due on the promissory note,$nne@ 8$> of the 1omplaint as of G+ =ctober +AC- and the amount of PG,A6G,G-.C due on the three (Gdomestic letters of credit, also as of G+ =ctober +AC-E

- =rdering defendant ;'&"1=N to pay the plaintiff interests and related charges on the principal of said promissory note of P-,+-,-G-.- at the rates provided in said note from and after G+ =ctober +AC- until full

payment thereof, and on the principal of the three (G domestic letters of credit of PG,56,GA.-5 interests andrelated charges at the rates provided in said letters of credit, from and after G+ =ctober +AC- until full paymentE

G =rdering defendant ;'&"1=N to pay interests at the legal rate on all interests and related charges but unpaidas of the filing of this complaint, until full payment thereofE

=rdering defendant ;'&"1=N to pay attorney)s fees e!uivalent to +L of the total amount due under the

preceding paragraphsE

5 =rdering defendants Pacific #ulti21ommercial 1orporation and defendant 1hester Babst to pay, jointly andseverally with defendant ;'&"1=N, the total sum of PG,A6G,G-.C due on the three (G domestic letters ofcredit as of G+ =ctober +AC- with interests and related charges on the principal amount of PG,A6G,G-.C at therates provided in said letters of credit from G =ctober +AC- until fully paid, but to the e@tent of not more than

PC,,. in the case of defendant 1hester BabstE

























6 =rdering defendant Pacific #ulti21ommercial 1orporation and defendant 1hester Babst to pay, jointly andseverally plaintiff interests at the legal rate on all interests and related charges already accrued but unpaid onsaid three (G domestic letters of credit as of the date of the filing of this 1omplaint until full payment thereofE

=rdering defendant Pacific #ulti21ommercial 1orporation and defendant 1hester Babst to pay, jointly andseverally, attorney)s fees of not less than +L of the total amount due under paragraphs 5 and 6 hereof. 9ith

costs.

"= =*;*;.

&n due time, ;'&"1=N, #%'T& and Babst filed their respective notices of appeal. /+C0

=n $pril -A, +AA+, the 1ourt of $ppeals rendered the appealed ecision as follows7

9:;*;<=*;, the judgment appealed from is #=&<&;, to now read (with the underlining to show the principal changes from the decision of the lower court thus7

+ =rdering appellant ;'&"1=N to pay the appellee BP& the amount of P-,G+,5.6 due on the promissory

note, $nne@ 8$> of the 1omplaint as of G+ =ctober +AC- and the amount of PG,A6G,G-.C due on the three (Gdomestic letters of credit, also as of G+ =ctober +AC-E

- =rdering appellant ;'&"1=N to pay the appellee BP& interests and related charges on the principal of said promissory note of P-,+-,-G-.- at the rates provided in said note from and after G+ =ctober +AC- until full

payment thereof, and on the principal of the three (G domestic letters of credit of PG,56,GA.-5 interests andrelated charges at the rates provided in said letters of credit, from and after G+ =ctober +AC- until full paymentE

G =rdering appellant ;'&"1=N to pay appellee BP& interest at the legal rate on all interests and related charges but unpaid as of the filing of this complaint, until full payment thereofE

=rdering appellant Pacific #ulti21ommercial 1orporation and appellant 1hester 3. Babst to pay appellee

BP&, jointly and severally with appellant ;'&"1=N, the total sum of PG,A6G,G-.C due on the three (Gdomestic letters of credit as of G+ =ctober +AC- with interest and related charges on the principal amount ofPG,A6G,G-.C at the rates provided in said letters of credit from G =ctober +AC- until fully paid, but to thee@tent of not more than PC,,. in the case of defendant 1hester BabstE

5 =rdering appellant Pacific #ulti21ommercial 1orporation and defendant 1hester Babst to pay, jointly and

severally, appellee BP& interests at the legal rate on all interests and related charges already accrued but unpaidon said three (G domestic letters of credit as of the date of the filing of this 1omplaint until full paymentthereof and the plaintiff)s lawyer)s fees in the nominal amount of P-,.E

6 =rdering appellant ;'&"1=N to reimburse appellants Pacific #ulti21ommercial 1orporation and 1hesterBabst whatever amount they shall have paid in said ;liscon)s behalf particularly referring to the three (G letters

of credit as of G+ =ctober +AC- and other related charges.

No costs.

"= =*;*;./+A0

;'&"1=N filed a #otion for *econsideration of the ecision of the 1ourt of $ppeals which was,

however, denied in a *esolution dated #arch A, +AA-. /-0 "ubse!uently, ;'&"1=N filed a petition for review oncertiorari, docketed as 3.*. No. +6-5, on the following grounds7

$. T:; B$NJ =< T:; P:&'&PP&N; &"'$N" &" N=T ;NT&T'; T= *;1=4;* <*=#P;T&T&=N;* ;'&"1=N T:; '$TT;*)" =B'&3$T&=N 9&T: 1=##;*1&$' B$NJ $NT*%"T 1=#P$NQ (1BT1









B. T:;*; 9$" $ 4$'& N=4$T&=N =< T:; 1=NT*$1T B;T9;;N ;'&"1=N $N BP&T:;*; B;&N3 $ P*&=* 1=N";NT T= $N $PP*=4$' BQ BP& =< T:; "%B"T&T%T&=NBQ BP $" ;BT=* &N '&;% =< T:; =*&3&N$' ;BT=*, ;'&"1=N, T:;*;BQ

*;';$"&N3 ;'&"1=N <*=# &T" =B'&3$T&=N T= BP&.

1. P$1&<&1 #%'T& 1=##;*1&$' 1=*P=*$T&=N $N 1:;"T;* B$B"T 1$NN=T

'$9<%''Q *;1=4;* <*=# ;'&"1=N 9:$T;4;* $#=%NT T:;Q #$Q B;*;D%&*; T= P$Q T= BP& $" "%*;T&;" =< ;'&"1=N)" =B'&3$T&=N T= BP&E T:;&* 1$%"; =< $1T&=N #%"T B; &*;1T; $3$&N"T BP $" T:; N;9'Q

"%B"T&T%T; ;BT=* &N P'$1; =< ;'&"1=N.

. T:; BP T$J;=4;* =< T:; ;NT&*; ;'&"1=N $#=%NT; T= $N $1T =<3=4;*N#;NT 9:&1: 9$" $ <=*T%&T=%" ;4;NT ;O1%'P$T&N3 ;'&"1=N <*=#<%*T:;* '&$B&'&T&;" T= *;"P=N;NT BP&.

;. P;T&T&=N;* ;'&"1=N ":=%' N=T B; :;' '&$B'; T= P$Q *;"P=N;NT BP& T:;

$#=%NT" "T$T; &N T:; &"P="&T&4; P=*T&=N =< *;"P=N;NT 1=%*T =<$PP;$'") ;1&"&=N./-+0

BP& filed its 1omment/--0 raising the following arguments, to wit7

+. *espondent BP& is legally entitled to recover from ;'&"1=N, #%'T& and Babst the past due obligations

with 1BT1 prior to the merger of BP& with 1BT1.

-. BP& did not give its consent to the BP take2over of ;'&"1=N. :ence, no valid novation has been effected.

G. ;@press consent of creditor to substitution should be recorded in the books.

. Petitioner 1hester 3. Babst and respondent #%'T& are jointly and solidarily liable to BP& for the unpaid

letters of credit of ;'&"1=N.

5. The !uestion of the liability of ;'&"1=N to BP& has been clearly established.

6. "ince #%'T& and 1hester 3. Babst are guarantors of the debts incurred by ;'&"1=N, they may recoverfrom the latter what they may have paid for on account of that guaranty.

1hester Babst filed a 1omment with #anifestation,/-G0 wherein he contends that the suretyship agreementhe e@ecuted with $ntonio *o@as 1hua was in favor of #%'T&E and that there is nothing therein whichauthori?es #%'T&, in turn, to guarantee the obligations of ;'&"1=N.

&n its 1omment,/-0 #%'T& maintained that inasmuch as BP& had full knowledge of the purpose of themeeting in Kune +AC+, wherein the takeover by BP of ;'&"1=N was announced, it was incumbent upon the

said bank to formally communicate its objection to the assumption of ;'&"1=N)s liabilities by BP in answer to the call for the meeting. #oreover, there was no showing that the availment by ;'&"1=N of #%'T&)s creditfacilities with 1BT1, which was supposedly guaranteed by $ntonio *o@as 1hua, was indeed authori?ed by thelatter pursuant to the resolution of the Board of irectors of #%'T&.

&n compliance with this 1ourt)s *esolution dated #arch +, +AAG, /-50 the parties submitted their respectivememoranda.

#eanwhile, in a petition for review filed with this 1ourt, which was docketed as 3.*. No. AAGAC, 1hester Babst alleged that the 1ourt of $ppeals acted without jurisdiction andFor with grave abuse of discretion when7

+. &T $<<&*#; T:; '=9;* 1=%*T)" :='&N3 T:$T T:;*; 9$" N= N=4$T&=N &N$"#%1:$" *;"P=N;NT B$NJ =< T:; P:&'&PP&N; &"'$N" (=* BP& :$ P*&=* 1=N";NT T= $N

$PP*=4$' =< T:; "%B"T&T%T&=N $" ;BT=* BQ T:; ;4;'=P#;NT B$NJ =< T:;

















P:&'&PP&N;" (=* BP &N T:; P'$1; =< ;'&S$'; "T;;' 1=N"='&$T;, &N1. (=* ;'&"1=N&N T:; '$TT;*)" =B'&3$T&=N T= BP&.

-. &T 1=N<&*#; T:; '=9;* 1=%*T)" 1=N1'%"&=N T:$T T:;*; 9$" N= &#P'&; 1=N";NT=< T:; 1*;&T=* B$NJ =< T:; P:&'&PP&N; &"'$N" T= T:; "%B"T&T%T&=N BQ;4;'=P#;NT B$NJ =< T:; P:&'&PP&N;" =< T:; =*&3&N$' ;BT=* ;'&S$'; "T;;'

1=N"='&$T;, &N1.

G. &T $<<&*#; T:; '=9;* 1=%*T)" <&N&N3 =< '$1J =< #;*&T =< T:; 1=NT;NT&=N =<;'&"1=N T:$T T:; <$&'%*; =< T:; =<<&1;* =< BP&, 9:= 9$" P*;";NT %*&N3 T:;

#;;T&N3 =< ;'&"1=N)" 1*;&T=*" &N K%N; +AC+ T= 4=&1; :&" =BK;1T&=N T= T:;$NN=%N1; T$J;=4;* BQ T:; BP =< T:; $"";T" =< ;'&"1=N $N $""%#PT&=N =< &T"'&$B&'&T&;", 1=N"T&T%T; $N &#P'&; 1=N";NT T= T:; $""%#PT&=N BQ BP =< T:;=B'&3$T&=N" =< ;'&"1=N T= BP&.

. &N N=T T$J&N3 K%&1&$' N=T&1; T:$T T:; BP T$J;=4;* =< T:; ;NT&*; ;'&"1=N 9$"

$N $1T =< 3=4;*N#;NT 1=N"T&T%T&N3 $ <=*T%&T=%" ;4;NT ;O1%'P$T&N3 ;'&"1=N<*=# $NQ '&$B&'&TQ T= BP&.

5. &N N=T <&N&N3 T:$T T:; $1&=N ;N P$3= B;T9;;N BP $N BP& *;'&;4; ;'&"1=N,#%'T& $N B$B"T =< $NQ '&$B&'&TQ T= BP&.

6. &N <&N&N3 T:$T #%'T& $N B$B"T B=%N T:;#";'4;" "='&$*&'Q 9&T: ;'&"1=N9&T: *;"P;1T T= T:; =B'&3$T&=N &N4='4; :;*;.

. &N *;N;*&N3 K%3#;NT &N <$4=* =< BP& $N $3$&N"T ;'&"1=N =*;*&N3 T:; '$TT;* T= P$Q T:; $#=%NT" "T$T; &N T:; &"P="&T&4; P=*T&=N =< T:; ;1&"&=NE $N=*;*&N3 P;T&T&=N;* $N #%'T& T= P$Q "$& $#=%NT" K=&NT'Q $N ";4;*$''Q 9&T:;'&"1=N./-60

Petitioner Babst alleged that BP sold all of ;'&"1=N)s assets to the National evelopment 1ompany,for the latter to take over and continue the operation of its business. =n "eptember ++, +AC+, the Board of 3overnors of the BP adopted *esolution No. -C+ which states that BP shall enter into a contractualarrangement with N1 for the latter to pay ;'&"1=N)s creditors, including BP& in the amount of P,+5,5G.5. This was followed by a #emorandum of $greement e@ecuted on #ay , +ACG by and between

BP and N1, wherein they stipulated, inter alia, that N1 shall pay to ;'&"1=N)s creditors, through BP,the amount of P-AA,5-,.. $mong the creditors mentioned in the agreement was BP&, with a listed creditof P,+5,5G.5.

<urthermore, petitioner Babst averred that the assets of ;'&"1=N which were ac!uired by the BP, andlater transferred to the N1, were placed under the $sset Privati?ation Trust pursuant to Proclamation No. 5,

issued by then President 1ora?on 1. $!uino on ecember C, +AC6.

&n its 1omment,/-0 BP& countered that by virtue of its merger with 1BT1, it ac!uired all the latter)s rightsand interest including all receivablesE that in order to effect a valid novation by substitution of debtors, theconsent of the creditor must be e@pressE that in addition, the consent of BP& must appear in its books, it being a private corporationE that BP& intentionally did not consent to the assumption by BP of the obligations of

;'&"1=N because it wanted to preserve intact its causes of action and legal recourse against Pacific #ulti21ommercial 1orporation and Babst as sureties of ;'&"1=N and not of BPE that #%'T& e@pressly bound itself solidarily for ;'&"1=N)s obligations to 1BT1 in its *esolution wherein it allowed the latter to use its creditfacilitiesE and that the suretyship agreement e@ecuted by Babst does not e@clude liabilities incurred by #%'T&on behalf of third parties, such as ;'&"1=N.

;'&"1=N likewise filed a 1omment,/-C0 wherein it manifested that of the seven errors raised by Babst in

his petition, si@ are arguments which ;'&"1=N itself raised in its previous pleadings. &t is only the si@thassigned error 222 that the 1ourt of $ppeals erred in finding that #%'T& and Babst bound themselves solidarilywith ;'&"1=N 222 that ;'&"1=N takes e@ception to. #ore particularly, ;'&"1=N pointed out thecontradictory positions taken by Babst in admitting that he bound himself to pay the indebtedness of #%'T&,









while at the same time completely disavowing and denying any such obligation. &t stressed that should #%'T&or Babst be finally adjudged liable under the suretyship agreement, they cannot lawfully recover from;'&"1=N, but from the BP which had been substituted as the new debtor.

#%'T& filed its 1omment,/-A0 admitting the correctness of the petition and adopting the 1omment of ;'&"1=N insofar as it is not inconsistent with the positions of Babst and #%'T&.

$t the outset, the preliminary issue of BP&)s right of action must first be addressed. ;'&"1=N and #%'T&assail BP&)s legal capacity to recover their obligation to 1BT1. :owever, there is no !uestion that there was avalid merger between BP& and 1BT1. &t is settled that in the merger of two e@isting corporations, one of the

corporations survives and continues the business, while the other is dissolved and all its rights, properties andliabilities are ac!uired by the surviving corporation./G0 :ence, BP& has a right to institute the case a 'uo.

9e now come to the primordial issue in this case H whether or not BP& consented to the assumption byBP of the obligations of ;'&"1=N.

$rticle +-AG of the 1ivil 1ode provides7

Novation which consists in substituting a new debtor in the place of the original one, may be made even withoutthe knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the newdebtor gives him the rights mentioned in articles +-G6 and +-G.

BP& contends that in order to have a valid novation, there must be an e@press consent of the creditor. &n the

case of Testate !state of +ota, et al. v. Serra,/G+0 this 1ourt held7

&t should be noted that in order to give novation its legal effect, the law re!uires that the creditor should consentto the substitution of a new debtor. This consent must be given e@pressly for the reason that, since novatione@tinguishes the personality of the first debtor who is to be substituted by a new one, it implies on the part of thecreditor a waiver of the right that he had before the novation, which waiver must be e@press under the principle

of renuntiatio non prsumitur , recogni?ed by the law in declaring that a waiver of right may not be performed

/ should read- presumed0 unless the will to waive is indisputably shown by him who holds the right.

/G-0

The import of the foregoing ruling, however, was e@plained and clarified by this 1ourt in the later caseof Asia Bankin) Corporation v. !lser /GG0 in this wise7

T/+ *or+i)+> *r)il+ 120 [-o 1293 o )/+ Ci:il Co>+ >o+ -o) )*)+ )/*) )/+ r+>i)or o-+-) )o )/+

;)i))io- o )/+ -+ >+;)or or )/+ ol> ;+ +Bpr+, or given at the time of the substitution, and the "upreme1ourt of "pain, in its judgment of Kune +6, +AC, construing said article, laid down the doctrine that 8article+-5 of the 1ivil 1ode does not mean or re!uire that the creditor)s consent to the change of debtors must begiven simultaneously with the debtor)s consent to the substitution, its evident purpose being to preserve thecreditor)s full right, it is sufficient that the latter)s consent be given at any time and in any form whatever, while

the agreement of the debtors subsists.> The same rule is stated in the !nciclopedia ur/dica !spa0ola, volume-G, page 5G, which reads7 8The rule that this kind of novation, like all others, must be e@press, is not

absoluteE or )/+ +Bi)+-+ o )/+ o-+-) *@ +ll ;+ i-+rr+> ro )/+ *) o )/+ r+>i)or, i-+ :oli)io-*@ * +ll ;+ +Bpr++> ;@ >++> * ;@ or>.> The understanding between :enry 9. ;lser and the principal director of Qangco, *osenstock M 1o., &nc., with respect to 'uis *. Qangco)s stock in said corporation,and the acts of the board of directors after :enry 9. ;lser had ac!uired said shares, in substituting the latter for

'uis *. Qangco, are a clear and unmistakable e@pression of its consent. /+- )/i or) *i> i- )/+ *+ o

E)*)+ o Mo)* vs. S+rr* 47 !/il., 464, )/*) )/+ r+>i)or +Bpr+ o-+-) i -++*r@ i- or>+r )/*) )/+r+

*@ ;+ * -o:*)io- o * o-)r*) ;@ )/+ ;)i))io- o >+;)or, i) >i> -o) i/ )o o-:+@ )/+ ipr+io-

)/*) )/+ or> 5+Bpr+ * )o ;+ i:+- *- -F*lii+> +*-i-, * i->i*)+> i- )/+ *)/ori)i+ or *+,

;o)/ Sp*-i/ *-> A+ri*-, i)+> i- *i> >+iio-./G0

"ubse!uently, in the case of (da. e 1i2os de Pio Barretto 3 C/a., "nc. v. Al&o 4 Sevilla, "nc., et al. ,/G50 this

1ourt reiterated the rule that there can be implied consent of the creditor to the substitution of debtors.




















&n the case at bar, Babst, #%'T& and ;'&"1=N all maintain that due to the failure of BP& to register itsobjection to the take2over by BP of ;'&"1=N)s assets, at the creditors) meeting held in Kune +AC+ andthereafter, it is deemed to have consented to the substitution of BP for ;'&"1=N as debtor.

9e find merit in the argument. &ndeed, there e@ist clear indications that BP& was aware of the assumption by BP of the obligations of ;'&"1=N. &n fact, BP& admits that 222

8the evelopment Bank of the Philippines (BP, for a time, had proposed a formula for the settlement of;liscon)s past obligations to its creditors, including the plaintiff /BP&0, but the formula was e@pressly rejected bythe plaintiff as not acceptable (long before the filing of the complaint at bar.>/G60

The 1ourt of $ppeals held that even if the account officer who attended the Kune +AC+ creditors) meetinghad e@pressed consent to the assumption by BP of ;'&"1=N)s debts, such consent would not bind BP& for lack of a specific authority therefor. &n its petition, ;'&"1=N counters that the mere presence of the accountofficer at the meeting necessarily meant that he was authori?ed to represent BP& in that creditors) meeting.#oreover, BP& did not object to the substitution of debtors, although it objected to the payment formula

submitted by BP.

&ndeed, the authority granted by BP& to its account officer to attend the creditors) meeting was an authorityto represent the bank, such that when he failed to object to the substitution of debtors, he did so on behalf of andfor the bank. ;ven granting ar)uendo that the said account officer was not so empowered, BP& could havesubse!uently registered its objection to the substitution, especially after it had already learned that BP had

taken over the assets and assumed the liabilities of ;'&"1=N. &ts failure to do so can only mean anac!uiescence in the assumption by BP of ;'&"1=N)s obligations. $s repeatedly pointed out by ;'&"1=Nand #%'T&, BP&)s objection was to the proposed payment formula, not to the substitution itself.

BP& gives no cogent reason in withholding its consent to the substitution, other than its desire to preserveits causes of action and legal recourse against the sureties of ;'&"1=N. &t must be remembered, however, that

while a surety is solidarily liable with the principal debtor, his obligation to pay only arises upon the principaldebtor)s failure or refusal to pay. $ contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. /G0 $

surety is an insurer of the debtE he promises to pay the principal)s debt if the principal will not pay./GC0

&n the case at bar, there was no indication that the principal debtor will default in payment. &n fact, BP,which had stepped into the shoes of ;'&"1=N, was capable of payment. &ts authori?ed capital stock was

increased by the government./GA0 #ore importantly, the National evelopment 1ompany took over the businessof ;'&"1=N and undertook to pay ;'&"1=N)s creditors, and earmarked for that purpose the amount of P,+5,5G.5 for payment to BP&./0

Notwithstanding the fact that a reliable institution backed by government funds was offering to pay;'&"1=N)s debts, not as mere surety but as substitute principal debtor, BP&, for reasons known only to itself,

insisted in going after the sureties. The course of action chosen ta@es the credulity of this 1ourt. $t the veryleast, suffice it to state that BP&)s actuation in this regard runs counter to the good faith covenant in contractual

relations, provided for by the 1ivil 1ode, to wit7

$*T. +A. ;very person must, in the e@ercise of his rights and in the performance of his duties, act with justice,give everyone his due, and observe honesty and good faith.

$*T. ++5A. =bligations arising from contract have the force of law between the contracting parties and should be complied with in good faith.

BP&)s conduct evinced a clear and unmistakable consent to the substitution of BP for ;'&"1=N asdebtor. :ence, there was a valid novation which resulted in the release of ;'&"1=N from its obligation to BP&,whose cause of action should be directed against BP as the new debtor.

Novation, in its broad concept, may either be e@tinctive or modificatory. &t is e@tinctive when an old obligationis terminated by the creation of a new obligation that takes the place of the formerE it is merely modificatorywhen the old obligation subsists to the e@tent it remains compatible with the amendatory agreement. $n
















e@tinctive novation results either by changing the object or principal conditions (objective or real, or bysubstituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal. %nder this mode, novation would have dual functions H one to e@tinguish an e@isting obligation, the

other to substitute a new one in its place H re!uiring a conflu@ of four essential re!uisites, (+ a previous validobligationE (- an agreement of all parties concerned to a new contractE (G the e@tinguishment of the oldobligationE and ( the birth of a valid new obligation./+0

The original obligation having been e@tinguished, the contracts of suretyship e@ecuted separately by Babstand #%'T&, being accessory obligations, are likewise e@tinguished./-0

:ence, BP& should enforce its cause of action against BP. &t should be stressed that notwithstanding thelapse of time within which these cases have remained pending, the prescriptive period for BP& to file its actionwas interrupted when it filed 1ivil 1ase No. A--6. /G0

"EREORE, the consolidated petitions are 3*$NT;. The appealed ecision of the 1ourt of $ppeals, which held ;'&"1=N, #%'T& and Babst solidarily liable for payment to BP& of the promissory note

and letters of credit, is *;4;*"; and ";T $"&;. BP&)s complaint against ;'&"1=N, #%'T& and Babst is&"#&"";.

SO ORDERED.

#AN$ O T"E !"ILI!!INE ISLANDS, Petitioner,

2 versus 2

#!I EM!LO'EES %NION<DAAO

C"A!TER<EDERATION O %NIONS

IN #!I %NI#AN$ ,

*espondent.

G.R. No. 164301

Present7

1=*=N$, C..,1$*P&=,1$*P&= #=*$';",4;'$"1=, K*.,

N$1:%*$,

';=N$*=2; 1$"T*=,B*&=N,P;*$'T$,B;*"$#&N,;' 1$"T&''=,

$B$,4&''$*$#$, K*.,P;*;S, and#;N=S$, .

Promulgated7 $ugust +, -+

@ 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 @

D E C I S I O N

LEONARDO<DE CASTRO, J .(

#ay a corporation invoke its merger with another corporation as a valid ground to e@empt its 8absorbed

employees> from the coverage of a union shop clause contained in its e@isting 1ollective Bargaining $greement





http://sc.judiciary.gov.ph/jurisprudence/2010/august2010/164301.htm#_ftn1







(1B$ with its own certified labor unionR That is the !uestion we shall endeavor to answer in this petition for

review filed by an employer after the 1ourt of $ppeals decided in favor of respondent union, which is the

employees) recogni?ed collective bargaining representative.

$t the outset, we should call to mind the spirit and the letter of the 'abor 1ode provisions on union

security clauses, specifically $rticle -C (e, which states, 8@ @ @ No)/i- i- )/i Co>+ or i- *-@ o)/+r

l* /*ll )op )/+ p*r)i+ ro r+Firi- +;+r/ip i- * r+o-i+> oll+)i:+ ;*r*i-i- *+-) * *

o->i)io- or +plo@+-), e@cept those employees who are already members of another union at the time of

the signing of the collective bargaining agreement.> /+0 This case which involves the application of a collective

bargaining agreement with a union shop clause should be resolved principally from the standpoint of the clear

provisions of our labor laws, and the e@press terms of the 1B$ in !uestion, and not by inference from the

general conse!uence of the merger of corporations under the 1orporation 1ode, which obviously does not deal

with and, therefore, is silent on the terms and conditions of employment in corporations or juridical entities.

This issue must be resolved N=9, instead of postponing it to a future time when the 1B$ is

renegotiated as suggested by the :onorable Kustice $rturo . Brion because the same issue may still be

resurrected in the renegotiation if the absorbed employees insist on their privileged status of being e@empt from

any union shop clause or any variant thereof.

9e find it significant to note that it is only the employer, Bank of the Philippine &slands (BP&, that

brought the case up to this 1ourt via the instant petition for reviewE while the employees actually involved in the

case did not pursue the same relief, but had instead chosen in effect to ac!uiesce to the decision of the 1ourt of

$ppeals which effectively re!uired them to comply with the union shop clause under the e@isting 1B$ at the

time of the merger of BP& with <ar ;ast Bank and Trust 1ompany (<;BT1, /i/ >+iio- /*> *lr+*>@

;+o+ i-*l *-> +B+)or@ * )o )/+ *or+*i> +plo@++ . By not appealing the decision of the 1ourt of

$ppeals, the aforesaid employees are bound by the said 1ourt of $ppeals) decision to join BP&)s duly certified

labor union. &n view of the apparent ac!uiescence of the affected <;BT1 employees in the 1ourt of $ppeals)

decision, BP& should not have pursued this petition for review. :owever, even assuming that BP& may do so,

the same still cannot prosper.

9hat is before us now is a petition for review under *ule 5 of the *ules of 1ourt of the ecision /-0 dated

"eptember G, -G of the 1ourt of $ppeals, as reiterated in its *esolution

/G0

of Kune A, -, reversing and

setting aside the ecision/0 dated November -G, -+ of 4oluntary $rbitrator *osalina 'etrondo2#ontejo,














in CA*G.R. SP o. 56778, entitled BP" !mplo3ees 9nion*Davao Chapter*Federation of 9nions in BP" 9ni&ank

v. Bank of the Philippine "slands, et al.

The antecedent facts are as follows7

=n #arch -G, -, the Bangko "entral ng Pilipinas approved the $rticles of #erger e@ecuted on

Kanuary -, - by and between BP&, herein petitioner, and <;BT1. /50 This $rticle and Plan of #erger was

approved by the "ecurities and ;@change 1ommission on $pril , -./60

Pursuant to the $rticle and Plan of #erger, all the assets and liabilities of <;BT1 were transferred to and

absorbed by BP& as the surviving corporation. <;BT1 employees, including those in its different branches

across the country, were hired by petitioner as its own employees, with their status and tenure recogni?ed and

salaries and benefits maintained.

*espondent BP& ;mployees %nion2avao 1hapter 2 <ederation of %nions in BP& %nibank (hereinafter

the 8%nion,> for brevity is the e@clusive bargaining agent of BP&)s rank and file employees in avao 1ity. The

former <;BT1 rank2and2file employees in avao 1ity did not belong to any labor union at the time of the

merger. Prior to the effectivity of the merger, or on #arch G+, -, respondent %nion invited said <;BT1

employees to a meeting regarding the %nion "hop 1lause($rticle &&, "ection - of the e@isting 1B$ between

petitioner BP& and respondent %nion./0

The parties both advert to certain provisions of the e@isting 1B$, which are !uoted below7

$*T&1'; &"ection +. *ecognition and Bargaining %nit H The B$NJ recogni?es the %N&=N as the soleand e@clusive collective bargaining representative of all the regular rank and file employees of the Bank offices in avao 1ity. "ection -. ;@clusions

"ection G. $dditional ;@clusions "ection . 1opy of 1ontract

$*T&1'; &&

"ection +. #aintenance of #embership H $ll employees within the bargaining unit who aremembers of the %nion on the date of the effectivity of this $greement as well as employeeswithin the bargaining unit who subse!uently join or become members of the %nion during thelifetime of this $greement shall as a condition of their continued employment with the Bank,maintain their membership in the %nion in good standing.

"ection -. %nion "hop 2 N+ +plo@++ falling within the bargaining unit as defined in$rticle & of this $greement, /o *@ /+r+*)+r ;+ r+l*rl@ +plo@+> by the Bank shall,within thirty (G days after they become regular employees, join the %nion as a condition of their continued employment. &t is understood that membership in good standing in the %nionis a condition of their continued employment with the Bank./C0 (;mphases supplied.













$fter the meeting called by the %nion, some of the former <;BT1 employees joined the %nion, while

others refused. 'ater, however, some of those who initially joined retracted their membership./A0

*espondent %nion then sent notices to the former <;BT1 employees who refused to join, as well as

those who retracted their membership, and called them to a hearing regarding the matter. 9hen these former

<;BT1 employees refused to attend the hearing, the president of the %nion re!uested BP& to implement the

%nion "hop 1lause of the 1B$ and to terminate their employment pursuant thereto./+0

$fter two months of management inaction on the re!uest, respondent %nion informed petitioner BP& of

its decision to refer the issue of the implementation of the %nion "hop 1lause of the 1B$ to the 3rievance

1ommittee. :owever, the issue remained unresolved at this level and so it was subse!uently submitted for

voluntary arbitration by the parties./++0

4oluntary $rbitrator *osalina 'etrondo2#ontejo, in a ecision/+-0 dated November -G, -+, ruled in

favor of petitioner BP&)s interpretation that the former <;BT1 employees were not covered by the %nion

"ecurity 1lause of the 1B$ between the %nion and the Bank on the ground that the said employees were not

new employees who were hired and subse!uently regulari?ed, but were absorbed employees 8by operation of

law> because the 8or+r +plo@++ of <;BT1 can be considered *+) *-> li*;ili)i+ o )/+ *;or;+>

orpor*)io-.> The 4oluntary $rbitrator concluded that the former <;BT1 employees could not be compelled

to join the %nion, as it was their constitutional right to join or not to join any organi?ation.

*espondent %nion filed a #otion for *econsideration, but the 4oluntary $rbitrator denied the same in

an =rder dated #arch -5, --./+G0

issatisfied, respondent then appealed the 4oluntary $rbitrator)s decision to the 1ourt of $ppeals. &nthe herein assailed ecision dated "eptember G, -G, the 1ourt of $ppeals reversed and set aside the ecision

of the 4oluntary $rbitrator./+0 'ikewise, the 1ourt of $ppeals denied herein petitioner)s #otion for

*econsideration in a *esolution dated Kune A, -.

The 1ourt of $ppeals pertinently ruled in its ecision7

$ union2shop clause has been defined as a form of union security provision wherein

non2members may be hired, but to retain employment must become union members after acertain period.

There is no !uestion as to the e@istence of the union2shop clause in the 1B$ betweenthe petitioner2union and the company. The controversy lies in its application to the8absorbed> employees.

This 1ourt agrees with the voluntary arbitrator that the $B"=*B; employees are

distinct and different from N;9 employees B%T only in so far as their employment service isconcerned. The distinction ends there. &n the case at bar, the absorbed employees) length of

service from its former employer is tacked with their employment with BP&. =therwise stated,the absorbed employees service is continuous and there is no gap in their service record.

This 1ourt is persuaded that the similarities of 8new> and 8absorbed> employees far

outweighs the distinction between them. The similarities lies on the following, to wit7 (a theyhave a new employerE (b new working conditionsE (c new terms of employment andE (d new

company policy to follow. $s such, they should be considered as 8new> employees for purposes of applying the provisions of the 1B$ regarding the 8union2shop> clause.


















To rule otherwise would definitely result to a very awkward and unfair situationwherein the 8absorbed> employees shall be in a different if not, better situation than thee@isting BP& employees. The e@isting BP& employees by virtue of the 8union2shop> clause are

re!uired to pay the monthly union dues, remain as members in good standing of the unionotherwise, they shall be terminated from the company, and other union2relatedobligations. =n the other hand, the 8absorbed> employees shall enjoy the 8fruits of labor> of

the petitioner2union and its members for nothing in e@change. 1ertainly, this would disturbindustrial peace in the company which is the paramount reason for the e@istence of the 1B$and the union.

The voluntary arbitrator)s interpretation of the provisions of the 1B$ concerning the

coverage of the 8union2shop> clause is at war with the spirit and the rationale why the 'abor 1ode itself allows the e@istence of such provision.

The "upreme 1ourt in the case of #anila #andarin ;mployees %nion vs. N'*1

(3.*. No. 6ACA, "eptember -A, +AC rule, to !uote7

8This 1ourt has held that a valid form of union security, and such a provision in a collective bargaining agreement is not a restriction of the right

of freedom of association guaranteed by the 1onstitution.

$ closed2shop agreement is an agreement whereby an employer binds himself to hire only members of the contracting union who mustcontinue to remain members in good standing to keep their jobs. &t is 5T"E

MOST !RI?ED AC"IEEMENT O %NIONISM. IT ADDS

MEM#ERS"I! AND COM!%LSOR' D%ES. By holding out to loyalmembers a promise of employment in the closed2shop, i) i+l> rop

oli>*ri)@.> (;mphasis supplied

:ence, the voluntary arbitrator erred in construing the 1B$ literally at the e@pense of industrial peace in the company.

9ith the foregoing ruling from this 1ourt, necessarily, the alternative prayer of the petitioner to re!uire the individual respondents to become members or if they refuse, for this1ourt to direct respondent BP& to dismiss them, follows./+50

:ence, petitioner)s present recourse, raising the following issues7

&9:;T:;* =* N=T T:; 1=%*T =< $PP;$'" 3*$4;'Q ;**; &N *%'&N3 T:$TT:; <=*#;* <;BT1 ;#P'=Q;;" ":=%' B; 1=N"&;*; IN;9) ;#P'=Q;;"=< BP& <=* P%*P=";" =< $PP'Q&N3 T:; %N&=N ":=P 1'$%"; =< T:; 1B$

&&9:;T:;* =* N=T T:; 1=%*T =< $PP;$'" 3*$4;'Q ;**; &N <&N&N3 T:$TT:; 4='%NT$*Q $*B&T*$T=*)" &NT;*P*;T$T&=N =< T:; 1=4;*$3; =< T:;%N&=N ":=P 1'$%"; &" 8$T 9$* 9&T: T:; "P&*&T $N T:; *$T&=N$'; 9:QT:; '$B=* 1=; &T";'< $''=9" T:; ;O&"T;N1; =< "%1: P*=4&"&=N> /+60

&n essence, the sole issue in this case is whether or not the former <;BT1 employees that were

absorbed by petitioner upon the merger between <;BT1 and BP& should be covered by the %nion "hop 1lause

found in the e@isting 1B$ between petitioner and respondent %nion.








Petitioner is of the position that the former <;BT1 employees are not new employees of BP& for purposes

of applying the %nion "hop 1lause of the 1B$, on this note, petitioner points to "ection -, $rticle && of the

1B$, which provides7

N+ +plo@++ *lli- i)/i- )/+ ;*r*i-i- -i) as defined in $rticle & of this

$greement, /o *@ /+r+*)+r ;+ r+l*rl@ +plo@+> ;@ )/+ #*-H /*ll, i)/i- )/ir)@30 >*@ *)+r )/+@ ;+o+ r+l*r employees, oi- )/+ %-io- * * o->i)io- o )/+ir

o-)i-+> +plo@+-). &t is understood that membership in good standing in the %nion is a

condition of their continued employment with the Bank./+0 (;mphases supplied.

Petitioner argues that the term 8new employees> in the %nion "hop 1lause of the 1B$ is !ualified by

the phrases 8who may hereafter be regularly employed> and 8after they become regular employees> which led

petitioner to conclude that the 8new employees> referred to in, and contemplated by, the %nion "hop 1lause of

the 1B$ were only those employees who were 8new> to BP&, on account of having been hired initially on a

temporary or probationary status for possible regular employment at some future date. BP& argues that the

<;BT1 employees absorbed by BP& cannot be considered as 8new employees> of BP& for purposes of applyingthe %nion "hop 1lause of the 1B$./+C0

$ccording to petitioner, the contrary interpretation made by the 1ourt of $ppeals of this particular

1B$ provision ignores, or even defies, what petitioner assumes as its clear meaning and scope which allegedly

contradicts the 1ourt)s strict and restrictive enforcement of union security agreements.

9e do not agree.

"ection -, $rticle && of the 1B$ is silent as to how one becomes a 8regular employee> of the BP& for

the first time. T/+r+ i -o)/i- i- )/+ *i> pro:iio- /i/ r+Fir+ )/*) * 5-+ r+l*r +plo@++ ir)

->+ro * )+por*r@ or pro;*)io-*r@ )*) ;+or+ ;+i- >+++> * / ->+r )/+ -io- /op l*+ o

)/+ C#A.

8%nion security> is a generic term which is applied to and comprehends 8closed shop,> 8union shop,>

8maintenance of membership> or any other form of agreement which imposes upon employees the obligation to

ac!uire or retain union membership as a condition affecting employment. There is union shop when all new

regular employees are re!uired to join the union within a certain period for their continued employment. There

is maintenance of membership shop when employees, who are union members as of the effective date of the

agreement, or who thereafter become members, must maintain union membership as a condition for continued

employment until they are promoted or transferred out of the bargaining unit or the agreement is terminated. $

closed2shop, on the other hand, may be defined as an enterprise in which, by agreement between the employer

and his employees or their representatives, no person may be employed in any or certain agreed departments of

the enterprise unless he or she is, becomes, and, for the duration of the agreement, remains a member in good

standing of a union entirely comprised of or of which the employees in interest are a part. /+A0

&n the case of :i&ert3 Flour +ills !mplo3ees v. :i&ert3 Flour +ills, "nc.,/-0 we ruled that7

I) i )/+ poli@ o )/+ S)*)+ )o proo)+ -io-i )o +-*;l+ )/+ orH+r )o

-+o)i*)+ i)/ *-*++-) o- )/+ *+ l+:+l *-> i)/ or+ p+r*i:+-+ )/*- i )/+@

+r+ )o i->i:i>*ll@ *-> i->+p+->+-)l@ ;*r*i- or )/+ ipro:++-) o )/+ir r+p+)i:+

o->i)io-. To this end, the 1onstitution guarantees to them the rights 8to self2organi?ation,collective bargaining and negotiations and peaceful concerted actions including the right to














strike in accordance with law.> There is no !uestion that these purposes could be thwarted if every worker were to choose to go his own separate way instead of joining his co2employeesin planning collective action and presenting a united front when they sit down to bargain with

their employers. &t is for this reason that the law has sanctioned stipulations for the unionshop and the closed shop as a means of encouraging the workers to join and support the labor union of their own choice as their representative in the negotiation of their demands and the

protection of their interest vis*;*vis the employer. (;mphasis ours.

&n other words, the purpose of a union shop or other union security arrangement is to guarantee the

continued e@istence of the union through enforced membership for the benefit of the workers.

$ll employees in the bargaining unit covered by a %nion "hop 1lause in their 1B$ with management are

subject to its terms. "o+:+r, ->+r l* *-> ripr>+-+, )/+ olloi- Hi-> o +plo@++ *r+

+B+p)+> ro i) o:+r*+, namely, employees who at the time the union shop agreement takes effect are

bona fide members of a religious organi?ation which prohibits its members from joining labor unions on

religious groundsE/-+0 +plo@++ *lr+*>@ i- )/+ +r:i+ *-> *lr+*>@ +;+r o * -io- o)/+r )/*- )/+

*ori)@ *) )/+ )i+ )/+ -io- /op *r+++-) )ooH ++) E/--0 confidential employees who are e@cluded fromthe rank and file bargaining unitE/-G0 and +plo@++ +Bl>+> ro )/+ -io- /op ;@ +Bpr+ )+r o )/+

*r+++-).

9hen certain employees are obliged to join a particular union as a re!uisite for continued employment,

as in the case of %nion "ecurity 1lauses, this condition is a valid restriction of the freedom or right not to join

any labor organi?ation because it is in favor of unionism. This 1ourt, on occasion, has even held that a union

security clause in a 1B$ is not a restriction of the right of freedom of association guaranteed by the

1onstitution./-0

#oreover, a closed shop agreement is an agreement whereby an employer binds himself to hire only

members of the contracting union who must continue to remain members in good standing to keep their jobs. &t

is 8)/+ o) pri+> */i+:++-) o -io-i.> &t adds membership and compulsory dues. By holding out to

loyal members a promise of employment in the closed shop, i) i+l> rop oli>*ri)@./-50

&ndeed, the situation of the former <;BT1 employees in this case clearly does not fall within the first

three e@ceptions to the application of the %nion "hop 1lause discussed earlier. No allegation or evidence of

religious e@emption or prior membership in another union or engagement as a confidential employee was

presented by both parties. The sole category therefore in which petitioner may prove its claim is the fourth

recogni?ed e@ception or whether the former <;BT1 employees are e@cluded by the e@press terms of the

e@isting 1B$ between petitioner and respondent.

To reiterate, petitioner insists that the term 8new employees,> as the same is used in the %nion "hop

1lause of the 1B$ at issue, refers only to employees hired by BP& as -o-<r+l*r employees who l*)+r

F*li@ for regular employment and become regular employees, and not those who, as a legal conse!uence of a

merger, are allegedly automatically deemed regular employees of BP&. :owever, the 1B$ does not make a

distinction as to how a regular employee attains such a status. #oreover, there is nothing in the 1orporation 'aw

and the merger agreement mandating the automatic employment as regular employees by the surviving

corporation in the merger.

&t is apparent that petitioner hinges its argument that the former <;BT1 employees were absorbed by

BP& merely as a legal conse!uence of a merger based on the characteri?ation by the 4oluntary $rbiter of these

















absorbed employees as included in the 8assets and liabilities> of the dissolved corporation 2 assets because they

help the Bank in its operation and liabilities because redundant employees may be terminated and company

benefits will be paid to them, thus reducing the Bank)s financial status. Based on this ratiocination, she ruled

that the same are not new employees of BP& as contemplated by the 1B$ at issue, noting that the 1ertificate of

<iling of the $rticles of #erger and Plan of #erger between <;BT1 and BP& stated that 8@ @ @ the entire assets

and liabilities of <$* ;$"T;*N B$NJ M T*%"T 1=#P$NQ will be transferred to and absorbed by the

B$NJ =< T:; P:&'&PP&N; &"'$N" @ @ @ (underlining supplied.>/-60 &n sum, the 4oluntary $rbiter upheld

the reasoning of petitioner that the <;BT1 employees became BP& employees by 8operation of law> because

they are included in the term 8assets and liabilities.>

Absorbed '(%C (#ployees are Neither Assets nor Liabilities

&n legal parlance, however, human beings are never embraced in the term 8assets and

liabilities.> #oreover, BP&)s absorption of former <;BT1 employees was neither by operation of law nor by

legal conse!uence of contract. There was no government regulation or law that compelled the merger of the two

banks or the absorption of the employees of the dissolved corporation by the surviving corporation. :ad there

been such law or regulation, the absorption of employees of the non2surviving entities of the merger would have

been mandatory on the surviving corporation./-0 &n the present case, the merger was voluntarily entered into by

both banks presumably for some mutually acceptable consideration. I- *), )/+ Corpor*)io- Co>+ >o+ -o)

*lo *->*)+ )/+ *;orp)io- o )/+ +plo@++ o )/+ -o-<r:i:i- orpor*)io- ;@ )/+ r:i:i-

orpor*)io- i- )/+ *+ o * +r+r. "ection C of the 1orporation 1ode provides7

";1. C. !ffects of mer)er or consolidation. H The merger or consolidation, as

provided in the preceding sections shall have the following effects7

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

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

-. The separate e@istence of the constituent corporations shall cease, e@cept that of thesurviving or the consolidated corporationE

G. The surviving or the consolidated corporation shall possess all the rights, privileges,immunities and powers and shall be subject to all the duties and liabilities of a corporationorgani?ed under this 1odeE

. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities and franchises of each of the constituent

corporationsE and all property, real or personal, and all receivables due on whatever account,including subscriptions to shares and other choses in action, and all and every other interest of,or belonging to, or due to each constituent corporation, shall be taken and deemed to betransferred to and vested in such surviving or consolidated corporation without further act or deedE and

5. The surviving or the consolidated corporation shall be responsible and liable for allthe liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligationsEand any claim, action or proceeding pending by or against any of such constituentcorporations may be prosecuted by or against the surviving or consolidated corporation, as thecase may be. Neither the rights of creditors nor any lien upon the property of any of such

constituent corporations shall be impaired by such merger or consolidated.








"ignificantly, too, the $rticles of #erger and Plan of #erger dated $pril , - did -o) contain any

specific stipulation with respect to the employment contracts of e@isting personnel of the non2surviving entity

which is <;BT1. %nlike the 4oluntary $rbitrator, this 1ourt cannot uphold the reasoning that the general

stipulation regarding transfer of <;BT1 assets and liabilities to BP& as set forth in the $rticles of #erger

necessarily includes the transfer of all <;BT1 employees into the employ of BP& and neither BP& nor the

<;BT1 employees allegedly could do anything about it. E:+- i i) i o, i) >o+ -o) ollo )/*) )/+ *;or;+>

+plo@++ /ol> -o) ;+ ;+) )o )/+ )+r *-> o->i)io- o +plo@+-) o;)*i-i- i- )/+ r:i:i-

orpor*)io-.

The rule is that unless e@pressly assumed, labor contracts such as employment

contracts and collective bargaining agreements are not enforceable against a transferee of anenterprise, labor contracts being in personam, thus binding only between the parties. $ 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 toselect his employees and to decide when to engage them as protected under our 1onstitution,and the same can only be restricted by law through the e@ercise of the police power ./-C0

<urthermore, this 1ourt believes that it is contrary to public policy to declare the former <;BT1

employees as forming part of the assets or liabilities of <;BT1 that were transferred and absorbed by BP& in the

$rticles of #erger. $ssets and liabilities, in this instance, should be deemed to refer only to property rights and

obligations of <;BT1 and do not include the employment contracts of its personnel. $ corporation cannot

unilaterally transfer its employees to another employer like chattel. 1ertainly, if BP& as an employer had the

right to choose who to retain among <;BT1)s employees, <;BT1 employees had the concomitant right to

choose not to be absorbed by BP&. ;ven though <;BT1 employees had no choice or control over the merger of

their employer with BP&, they had a choice whether or not they would allow themselves to be absorbed by

BP&. 1ertainly nothing prevented the <;BT1)s employees from resigning or retiring and seeking employment

elsewhere instead of going along with the proposed absorption.

;mployment is a personal consensual contract and absorption by BP& of a former <;BT1 employee

without the consent of the employee is in violation of an individual)s freedom to contract. &t would have been a

different matter if there was an e@press provision in the articles of merger that as a condition for the merger, BP&

was being re!uired to assume all the employment contracts of all e@isting <;BT1 employees with the

conformity of the employees. &n the absence of such a provision in the articles of merger, then BP& clearly had

the business management decision as to whether or not employ <;BT1)s employees. <;BT1 employees

likewise retained the prerogative to allow themselves to be absorbed or notE otherwise, that would be tantamount

to involuntary servitude.

There appears to be no dispute that with respect to <;BT1 employees that BP& chose not to employ or

<;BT1 employees who chose to retire or be separated from employment instead of 8being absorbed,> #!I

*+> li*;ili)@ to these employees pursuant to the merger is <;BT1)s liability to them in terms of separation

pay,/-A0 retirement pay/G0 or other benefits that may be due them depending on the circumstances.

Legal Conse)"ences of Mergers

$lthough not binding on this 1ourt, $merican jurisprudence on the conse!uences of voluntary mergers

on the right to employment and seniority rights is persuasive and illuminating. 9e !uote the following pertinent

discussion from the $merican 'aw *eports7











"everal cases have involved the situation where as a result of +r+r,consolidations, or shutdowns, one group of employees, who had accumulated seniority at one plant or for one employer, finds that their jobs have been discontinued e@cept to the e@tent that

they are offered employment at the place or by the employer where the work is to be carriedon in the future. Such cases have involved the 'uestion %hether such transferrin) emplo3ees

should &e entitled to carr3 %ith them their accumulated seniorit3 or %hether the3 are to &e

compelled to start over at the &ottom of the seniorit3 list in the <ne%< 2o&. "t has &eenreco)ni=ed in some cases that the accumulated seniorit3 does not survive and cannot &e

transferred to the <ne%< 2o&.

&n C*r:+r : #ri+- 1942 31 Ill App 643, 43 NE2> 97 , the shop work of three

formerly separate railroad corporations, which had previously operated separate facilities, wasconsolidated in the shops of one of the roads. isplaced employees of the other two roadswere given preference for the new jobs created in the shops of the railroad which took over thework. $ controversy arose between the employees as to whether the displaced employees

were entitled to carry with them to the new jobs the seniority rights they had accumulated withtheir prior employers, that is, whether the rosters of the three corporations, for seniority purposes, should be dovetailed or whether the transferring employees should go to the bottom of the roster of their new employer. 'abor representatives of the various systems

involved attempted to work out an agreement which, in effect, preserved the seniority statusobtained in the prior employment on other roads, and the action was for specific performance

of this agreement against a demurring group of the original employees of the railroad whichwas operating the consolidated shops. The relief sought was denied, the court sayingthat, a&sent some specific contract provision other%ise, seniorit3 ri)hts %ere ordinaril3

limited to the emplo3ment in %hich the3 %ere earned , and concluding that the contract for which specific performance was sought was not such a completed and binding agreement aswould support such e!uitable relief, since the railroad, whose concurrence in the arrangements

made was essential to their effectuation, was not a party to the agreement.

9here the provisions of a labor contract provided that in the event that atrucker *;or;+> the business of another private contractor or common carrier, or was a partyto a+r+r of lines, the seniorit3 of the emplo3ees absorbed or affected there&3 should &e

determined &3 mutual a)reement &et%een the trucker and the unions involved , it was heldinMoor+ : I-)+r-*)io-*l #ro)/+r/oo> o T+*)+r, +). 1962, $@ 36 S2> 241 , thatthe trucker %as not re'uired to a&sor& the affected emplo3ees as %ell as the &usiness, the

court sa3in) that the3 could find no such meanin) in the a&ove clause, statin) that it dealt

onl3 %ith seniorit3, and not %ith initial emplo3ment. 9nless and until the a&sor&in) compan3

a)reed to take the emplo3ees of the compan3 %hose &usiness %as &ein) absorbed , no seniorit3

pro&lem %as created, said the court, hence the provision of the contract could have no

application. <urthermore, said the court, it did not re!uire that the absorbing company takethese employees, but only that if it did take them the 'uestion of seniorit3 &et%een the old

and ne* e#ployees %ould &e %orked out &3 a)reement or else be submitted to the grievance procedure./G+0 (;mphasis ours.

&ndeed, from the tenor of local and foreign authorities, in voluntary mergers, absorption of the

dissolved corporation)s employees or the recognition of the absorbed employees) service with their previous

employer may be demanded from the surviving corporation if re!uired by provision of law or contract. The

dissent of Kustice $rturo . Brion tries to make a distinction as to the terms and conditions of employment of the

absorbed employees in the case of a corporate merger or consolidation which will, in effect, take away from

corporate management the prerogative to make purely business decisions on the hiring of employees or will give

it an e@cuse not to apply the 1B$ in force to the prejudice of its own employees and their recogni?ed collective

bargaining agent. &n this regard, we disagree with Kustice Brion.

Kustice Brion takes the position that because the surviving corporation continues the personality of the

dissolved corporation and ac!uires all the latter)s rights and obligations, it is duty2bound to absorb the dissolved

corporation)s employees, even in the absence of a stipulation in the plan of merger. :e proposes that this

http://web2.westlaw.com/find/default.wl?tf=-1&serialnum=1942110973&rs=WLW9.05&ifm=NotSet&fn=_top&sv=Split&tc=-1&findtype=Y&ordoc=1963009965&mt=WLIGeneralSubscription&db=0000578&utid=%7B62FAB03A-2211-4D8E-B5AF-5BFD8AB739B2%7D&vr=2.0&rp=%2Ffind%2Fdefault.wl&pbc=5E3ACC12











interpretation would provide the necessary protection to labor as it spares workers from being 8left in legal

limbo.>

:owever, there are instances where an employer can validly discontinue or terminate the employment of

an employee without violating his right to security of tenure. $mong others, in case of redundancy, for

e@ample, superfluous employees may be terminated and such termination would be authori?ed under $rticle -CG

of the 'abor 1ode./G-0

#oreover, assuming for the sake of argument that there is an obligation to hire or absorb all employees of

the non2surviving corporation, there is still no basis to conclude that the terms and conditions of employment

under a valid collective bargaining agreement in force in the surviving corporation should not be made to apply

to the absorbed employees.

%he Corporation Code and the +"b,ect Merger Agree#ent are

+ilent on (fficacy& %er#s and Conditions of (#ploy#ent

Contracts

The lack of a provision in the plan of merger regarding the transfer of employment contracts to the

surviving corporation could have very well been deliberate on the part of the parties to the merger, in order to

grant the surviving corporation the freedom to choose who among the dissolved corporation)s employees to

retain, in accordance with the surviving corporation)s business needs. &f terminations, for instance due to

redundancy or labor2saving devices or to prevent losses, are done in good faith, they would be valid. The

surviving corporation too is duty2bound to protect the rights of its own employees who may be affected by the

merger in terms of seniority and other conditions of their employment due to the merger. Thus, we are not

convinced that in the absence of a stipulation in the merger plan the surviving corporation was compelled, or

may be judicially compelled, to absorb all employees under the same terms and conditions obtaining in the

dissolved corporation as the surviving corporation should also take into consideration the state of its business

and its obligations to its own employees, and to their certified collective bargaining agent or labor union.

;ven assuming we accept Kustice Brion)s theory that in a merger situation the surviving corporation

should be compelled to absorb the dissolved corporation)s employees as a legal conse!uence of the merger and

as a social justice consideration, it bears to emphasi?e his dissent also recogni?es that the employee may choose

to end his employment at any time by voluntarily resigning. <or the employee to be 8absorbed> by BP&, it

re!uires the employees) implied or e@press consent. &t is because of this human element in employment

contracts and the personal, consensual nature thereof that we cannot agree that, in a merger situation,

employment contracts are automatically transferable from one entity to another in the same manner that a

contract pertaining to purely proprietary rights H such as a promissory note or a deed of sale of property H is

perfectly and automatically transferable to the surviving corporation.

That BP& is the same entity as <;BT1 after the merger is but a legal fiction intended as a tool to

adjudicate rights and obligations between and among the merged corporations and the persons that deal with






them. $lthough in a merger it is as if there is no change in the personality of the employer, there is in reality a

change in the situation of the employee. =nce an <;BT1 employee is absorbed, there are presumably changes

in his condition of employment even if his previous tenure and salary rate is recogni?ed by BP&. &t is reasonable

to assume that BP& would have different rules and regulations and company practices than <;BT1 and it is

incumbent upon the former <;BT1 employees to obey these new rules and adapt to their new

environment. Not the least of the changes in employment condition that the absorbed <;BT1 employees must

face is the fact that prior to the merger they were employees of an unorgani?ed establishment and after the

merger they became employees of a unioni?ed company that had an e@isting collective bargaining agreement

with the certified union. This presupposes that the union who is party to the collective bargaining agreement is

the certified union that has, in the appropriate certification election, been shown to represent a majority of the

members of the bargaining unit.

'ikewise, with respect to <;BT1 employees that BP& chose to employ and who also chose to be

absorbed, then due to BP&)s blanket assumption of liabilities and obligations under the articles of merger, BP&

was bound to respect the years of service of these <;BT1 employees and to pay the same, or commensurate

salaries and other benefits that these employees previously enjoyed with <;BT1.

$s the %nion likewise pointed out in its pleadings, )/+r+ +r+ ;+-+i) ->+r )/+ C#A )/*) )/+ or+r

E#TC +plo@++ >i> -o) +-o@ i)/ )/+ir pr+:io +plo@+r. $s BP& employees, they will enjoy all these

1B$ benefits upon their 8absorption.> Thus, although in a sense BP& is continuing <;BT1)s employment of

these absorbed employees, BP&)s employment of these absorbed employees was not under e@actly the same

terms and conditions as stated in the latter)s employment contracts with <;BT1. This further strengthens the

view that BP& and the former <;BT1 employees voluntarily contracted with each other for their employment in

the surviving corporation.

Proper Appreciation of the %er# -Ne* (#ployees /nder the

CA

&n any event, it is of no moment that the former <;BT1 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 8new employees> as contemplated in the %nion "hop 1lause of the

1B$, contrary to petitioner)s insistence that the term 8new employees> only refers to those who are initially

hired as -o-<r+l*r employees for possible regular employment.

The %nion "hop 1lause in the 1B$ simply states that 8new employees> who during the effectivity of

the 1B$ 8may be regularly employed> by the Bank must join the union within thirty (G days from their

regulari?ation. There is nothing in the said clause that limits its application to only -+ +plo@++ /o

po+ -o-<r+l*r )*), meaning probationary status, at the start of their employment. Petitioner likewise

failed to point to any provision in the 1B$ e@pressly e@cluding from the %nion "hop 1lause new employees

who are 8absorbed> as regular employees from the beginning of their employment. 9hat is indubitable from

the %nion "hop 1lause is that upon the effectivity of the 1B$, petitioner)s new regular employees ( r+*r>l+



o )/+ *--+r ;@ /i/ )/+@ ;+*+ +plo@++ o #!I are re!uired to join the %nion as a condition of their

continued employment.

The dissenting opinion of Kustice Brion dovetails with Kustice 1arpio)s view only in their restrictive

interpretation of who are 8new employees> under the 1B$. To our dissenting colleagues, the phrase 8new

employees> (who are covered by the union shop clause should only include new employees who were hired as

probationary during the life of the 1B$ and were later granted regular status. They propose that the former

<;BT1 employees who were deemed regular employees from the beginning of their employment with BP&

should be treated as a special class of employees and be e@cluded from the union shop clause.

Kustice Brion himself points out that there is no clear, categorical definition of 8new employee> in the

1B$. &n other words, the term 8new employee> as used in the union shop clause is used broadly without any

!ualification or distinction. :owever, the 1ourt should not uphold an interpretation of the term 8new employee>

based on the general and e@traneous provisions of the 1orporation 1ode on merger that would defeat, rather

than fulfill, the purpose of the union shop clause. To r+i)+r*)+, )/+ pro:iio- o )/+ Ar)il+ 248+ o )/+

L*;or Co>+ i- poi-) *->*)+ )/*) -o)/i- i- )/+ *i> Co>+ or *-@ o)/+r l* /ol> )op )/+ p*r)i+ ro

r+Firi- +;+r/ip i- * r+o-i+> oll+)i:+ ;*r*i-i- *+-) * * o->i)io- o +plo@+-).

"ignificantly, petitioner BP& never stretches its arguments so far as to state that the absorbed employees

should be deemed 8old employees> who are not covered by the %nion "hop 1lause. This is not surprising.

By law and jurisprudence, a merger only becomes effective upon approval by the "ecurities and

;@change 1ommission (";1 of the articles of merger. &n Associated Bank v. Court of Appeals,/GG0 we held7

The procedure to be followed is prescribed under the 1orporation 1ode. "ection A of said1ode re!uires the approval by the "ecurities and ;@change 1ommission (";1 of the articles

of merger which, in turn, must have been duly approved by a majority of the respectivestockholders of the constituent corporations. The same provision further states that the merger shall be effective only upon the issuance by the ";1 of a certificate of merger. T/+

++)i:i)@ >*)+ o )/+ +r+r i ri*l or >+)+ri-i- /+- )/+ +r+> or *;or;+>

orpor*)io- +*+ )o +Bi)J *-> /+- i) ri/), pri:il++, prop+r)i+ * +ll * li*;ili)i+

p* o- )o )/+ r:i:i- orpor*)io-. (;mphasis ours.

&n other words, even though BP& steps into the shoes of <;BT1 as the surviving corporation, BP& does

so at a particular point in time, i.e., the effectivity of the merger upon the ";1)s issuance of a certificate of

merger. &n fact, the articles of merger themselves provided that both BP& and <;BT1 will continue their

respective business operations until the ";1 issues the certificate of merger and in the event ";1 does not issue

such a certificate, they agree to hold each other blameless for the non2consummation of the merger.

1onsidering the foregoing principle, BP& could have only become the employer of the <;BT1

employees it absorbed after the approval by the ";1 of the merger. &f the ";1 did not approve the merger, BP&

would not be in the position to absorb the employees of <;BT1 at all. &ndeed, there is evidence on record that

BP& made the assignments of its absorbed employees in BP& effective $pril +, -, or after the ";1)s

approval of the merger./G0 &n other words, BP& became the employer of the absorbed employees only at some









point *)+r )/+ ++)i:i)@ o )/+ +r+r, notwithstanding the fact that the absorbed employees) years of service

with <;BT1 were voluntarily recogni?ed by BP&.

;ven assuming for the sake of argument that we consider the absorbed <;BT1 employees as 8old

employees> of BP& who are not members of any union ( i.e.& i) i )/+ir >*)+ o /iri- ;@ E#TC *-> -o) )/+

>*)+ o )/+ir *;orp)io- )/*) i o-i>+r+>, this does not necessarily e@clude them from the union security

clause in the 1B$. The 1B$ subject of this case was effective from $pril +, +AA6 until #arch G+, -+. Based

on the allegations of the former <;BT1 employees themselves, there were former <;BT1 employees who

were /ir+> ;@ E#TC *)+r April 1, 1996 and if their date of hiring by <;BT1 is considered as their date of

hiring by BP&, they would undeniably be considered 8new employees> of BP& within the contemplation of the

%nion "hop 1lause of the said 1B$. =therwise, it would lead to the absurd situation that we would

discriminate not only between new BP& employees (hired during the life of the 1B$ and former <;BT1

employees (absorbed during the life of the 1B$ but also among the former <;BT1 employees themselves. &n

other words, we would be treating employees who are e@actly similarly situated ( i.e., the group of absorbed

<;BT1 employees differently. This hardly satisfies the demands of e!uality and justice.

Petitioner limited itself to the argument that its absorbed employees do not fall within the term 8new

employees> contemplated under the %nion "hop 1lause with the apparent objective of e@cluding all, and not

just some, of the former <;BT1 employees from the application of the %nion "hop 1lause.

:owever, in law or even under the e@press terms of the 1B$, there is no special class of employees called

8absorbed employees.> &n order for the 1ourt to apply or not apply the %nion "hop 1lause, we can only classify

the former <;BT1 employees as either 8old> or 8new.> &f they are not 8old> employees, they are necessarily

8new> employees. &f they are new employees, the %nion "hop 1lause did not distinguish between new

employees who are non*re)ular at their hiring but who subse!uently become regular and new employees whoare 8absorbed> as regular and permanent from the beginning of their employment. The %nion "hop 1lause did

not so distinguish, and so neither must we.

No +"bstantial Distinction /nder the CA et*een $eg"lar

(#ployees 0ired After Probationary +tat"s and $eg"lar

(#ployees 0ired After the Merger

4erily, we agree with the 1ourt of $ppeals that there are no substantial differences between a newly

hired non2regular employee who was regulari?ed 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 %nion"hop 1lause. Both employees were hiredFemployed only after the 1B$ was signed. $t the time they are being

re!uired to join the %nion, they are both already regular rank and file employees of BP&. They belong to the

same bargaining unit being represented by the %nion. They both enjoy benefits that the %nion was able to

secure for them under the 1B$. 9hen they both entered the employ of BP&, the 1B$ and the %nion "hop

1lause therein were already in effect and neither of them had the opportunity to e@press their preference for

unionism or not. 9e see no cogent reason why the %nion "hop 1lause should not be applied e!ually to these

two types of new employees, for they are undeniably similarly situated.

The effect or conse!uence of BP&)s so2called 8absorption> of former <;BT1 employees should be limited

to what they actually agreed to, i.e. recognition of the <;BT1 employees) years of service, salary rate and other benefits with their previous employer. The effect should not be stretched so far as to +B+p) former <;BT1



employees from the e@isting 1B$ terms, company policies and rules which apply to employees similarly

situated. &f the %nion "hop 1lause is valid as to other new regular BP& employees, there is no reason why the

same clause would be a violation of the 8absorbed> employees) freedom of association.

Non1Application of /nion +hop Cla"se Contrary to the Policy of

the Labor Code and 2ni#ical to 2nd"strial Peace

&t is but fair that similarly situated employees who enjoy the same privileges of a 1B$ should be

likewise subject to the same obligations the 1B$ imposes upon them. $ contrary interpretation of the %nion

"hop 1lause will be inimical to industrial peace and workers) solidarity. This unfavorable situation will not be

sufficiently addressed by asking the former <;BT1 employees to simply pay agency fees to the %nion in lieu of

union membership, as the dissent of Kustice 1arpio suggests. The fact remains that other new regular

employees, to whom the 8absorbed employees> should be compared, do not have the option to simply pay the

agency fees and they must join the %nion or face termination.

Petitioner)s restrictive reading of the %nion "hop 1lause could also inadvertently open an avenue,

which an employer could readily use, in order to dilute the membership base of the certified union in the

collective bargaining unit (1B%. By entering into a voluntary merger with a non2unioni?ed company that

employs more workers, an employer could get rid of its e@isting union by the simple e@pedient of arguing that

the 8absorbed employees> are -o) new employees, as are commonly understood to be covered by a 1B$)s union

security clause. This could then lead to a new majority within the 1B% that could potentially threaten the

majority status of the e@isting union and, ultimately, spell its demise as the 1B%)s bargaining

representative. "uch a dreaded but not entirely far2fetched scenario is no different from the ingenious and

creative 8union2busting> schemes that corporations have fomented throughout the years, which this 1ourt has

foiled time and again in order to preserve and protect the valued place of labor in this jurisdiction consistentwith the 1onstitution)s mandate of insuring social justice.

There is nothing in the 'abor 1ode and other applicable laws or the 1B$ provision at issue that

re!uires that a new employee has to be of probationary or non2regular status at the beginning of the employment

relationship. $n employer may confer upon a new employee the status of regular employment even at the onset

of his engagement. #oreover, no law prohibits an employer from voluntarily recogni?ing the length of service

of a new employee with a previous employer in relation to computation of benefits or seniority but it should not

unduly be interpreted to e@clude them from the coverage of the 1B$ which is a binding contractual obligation

of the employer and employees.

&ndeed, a union security clause in a 1B$ should be interpreted to give meaning and effect to its

purpose, which is to afford protection to the certified bargaining agent and ensure that the employer is dealing

with a union that represents the interests of the legally mandated percentage of the members of the bargaining

unit.

The union shop clause offers protection to the certified bargaining agent by ensuring that future regular

employees who (a enter the employ of the company during the life of the 1B$E (b are deemed part of the

collective bargaining unitE and (c whose number will affect the number of members of the collective bargaining

unit will be compelled to join the union. "uch compulsion has legal effect, precisely because the employer by

voluntarily entering in to a union shop clause in a 1B$ with the certified bargaining agent takes on theresponsibility of dismissing the new regular employee who does not join the union.



9ithout the union shop clause or with the restrictive interpretation thereof as proposed in the dissenting

opinions, the company can jeopardi?e the majority status of the certified union by e@cluding from union

membership all new regular employees whom the 1ompany will 8absorb> in future mergers and all new regular

employees whom the 1ompany hires as regular from the beginning of their employment without undergoing a

probationary period. &n this manner, the 1ompany can increase the number of members of the collective

bargaining unit and if this increase is not accompanied by a corresponding increase in union membership, the

certified union may lose its majority status and render it vulnerable to attack by another union who wishes to

represent the same bargaining unit./G50

=r worse, a certified union whose membership falls below twenty percent (-L of the total members of

the collective bargaining unit may lose its status as a legitimate labor organi?ation altogether, even in a situation

where there is no competing union. /G60 &n such a case, an interested party may file for the cancellation of the

union)s certificate of registration with the Bureau of 'abor *elations./G0

Plainly, the restrictive interpretation of the union shop clause would place the certified union)s very

e@istence at the mercy and control of the employer. R+l+:*-)l@, o-l@ #!I, )/+ +plo@+r *pp+*r )o ;+

i-)+r+)+> i- pri- )/i *+. The former <;BT1 employees have not joined BP& in this appeal.

<or the foregoing reasons, Kustice 1arpio)s proposal to simply re!uire the former <;BT1 to pay agency

fees is wholly inade!uate to compensate the certified union for the loss of additional membership supposedly

guaranteed by compliance with the union shop clause. This is apart from the fact that treating these 8absorbed

employees> as a special class of new employees does not encourage worker solidarity in the company since

another class of new employees (i.e. those whose were hired as probationary and later regulari?ed during the life

of the 1B$ would not have the option of substituting union membership with payment of agency fees.

Kustice Brion, on the other hand, appears to recogni?e the inherent unfairness of perpetually e@cluding the

8absorbed> employees from the ambit of the union shop clause. :e proposes that this matter be left to

negotiation by the parties in the ne@t 1B$. To our mind, however, this proposal does not sufficiently address

the issue. 9ith BP& already taking the position that employees 8absorbed> pursuant to its voluntary mergers

with other banks are e@empt from the union shop clause, the chances of the said bank ever agreeing to the

inclusion of such employees in a future 1B$ is ne@t to nil H more so, if BP&)s narrow interpretation of the union

shop clause is sustained by this 1ourt.

$ight of an (#ployee not to Join a /nion is not Absol"te and

M"st 3ive Way to the Collective 3ood of All Me#bers of the

argaining /nit

The dissenting opinions place a premium on the fact that even if the former <;BT1 employees are not

old employees, they nonetheless were employed as regular and permanent employees without a gap in their

service. :owever, an employee)s permanent and regular employment status in itself does not necessarily

e@empt him from the coverage of a union shop clause.










&n the past this 1ourt has upheld even the more stringent type of union security clause, i.e., the closed

shop provision, and held that it can be made applicable to old employees who are already regular and permanent

but have chosen not to join a union. &n the early case of uat v. Court of "ndustrial Relations ,/GC0 the 1ourt held

that an old employee who had no union may be compelled to join the union even if the collective bargaining

agreement (1B$ imposing the closed shop provision was only entered into seven years after of the hiring of the

said employee. To !uote from that decision7

$ closed2shop agreement has been considered as one form of union security whereby

only union members can be hired and workers must remain union members as a condition of continued employment. The re!uirement for employees or workers to become members of aunion as a condition for employment r+>o-> )o )/+ ;+-+i) *-> *>:*-)*+ o *i>

+plo@++ because by holding out to loyal members a promise of employment in the closed2shop the union i+l> rop oli>*ri)@. &n fact, it is said that the closed2shop contract is themost pri?ed achievement of unionism.

@ @ @ @

This 1ourt had categorically held in the case of Freeman Shirt +anufacturin) Co.,

"nc., et al. vs. Court of "ndustrial Relations, et al., 3.*. No. '2+656+, Kan. -C, +A6+, thatthe lo+></op pro:io of a collective bargaining agreement entered into between an

employer and a duly authori?ed labor union is *ppli*;l+ -o) o-l@ )o )/+ +plo@++ or

l*;or+r )/*) *r+ +plo@+> *)+r )/+ oll+)i:+ ;*r*i-i- *r+++-) /*> ;++- +-)+r+>

i-)o ;) *lo )o ol> +plo@++ /o *r+ -o) +;+r o *-@ l*;or -io- *) )/+ )i+ )/+

*i> oll+)i:+ ;*r*i-i- *r+++-) * +-)+r+> i-)o. &n other words, if an employee or laborer is already a member of a labor union different from the union that entered into acollective bargaining agreement with the employer providing for a closed2shop, said employee

or worker cannot be obliged to become a member of that union which had entered into acollective bargaining agreement with the employer as a condition for his continuedemployment. (;mphasis and underscoring supplied.

$lthough the present case does not involve a closed shop provision that included even old employees,

the uat e@ample is but one of the cases that laid down the doctrine that the right not to join a union is not

absolute. Theoretically, there is nothing in law or jurisprudence to prevent an employer and a union from

stipulating that e@isting employees (who already attained regular and permanent status but who are not members

of any union are to be included in the coverage of a union security clause. ;ven $rticle -C(e of the 'abor

1ode only e@pressly e@empts ol> +plo@++ /o *lr+*>@ /*:+ * -io- from inclusion in a union security

clause./GA0

1ontrary to the assertion in the dissent of Kustice 1arpio, uat has not been overturned by (ictoriano

v. !li=alde Rope >orkers? 9nion /0 nor by Re3es v. Tra2ano./+0 The factual milieus of these three cases are

vastly different.

&n (ictoriano, the issue that confronted the 1ourt was whether or not employees who were members of

the &glesia ni Jristo (&NJ sect could be compelled to join the union under a closed shop provision, despite the

fact that their religious beliefs prohibited them from joining a union. &n that case, the 1ourt was asked to

balance the constitutional right to religious freedom against a host of other constitutional provisions including

the freedom of association, the non2establishment clause, the non2impairment of contracts clause, the e!ual

protection clause, and the social justice provision. &n the end, the 1ourt held that 8religious freedom, although

not unlimited, is a fundamental personal right and liberty, and has a preferred position in the hierarchy of

values.>/-0

















:owever, (ictoriano is consistent with uat since they both affirm that the right to refrain from joining a

union is not absolute. The relevant portion of (ictoriano is !uoted below7

T/+ ri/) )o r+r*i- ro oi-i- l*;or or*-i*)io- r+o-i+> ;@ S+)io- 3 o

)/+ I->)ri*l !+*+ A) i, /o+:+r, lii)+>. The legal protection granted to such right to

refrain from joining is i)/>r*- ;@ op+r*)io- o l*, /+r+ * l*;or -io- *-> *-+plo@+r /*:+ *r++> o- * lo+> /op, ;@ :ir)+ o /i/ )/+ +plo@+r *@ +plo@

o-l@ +;+r o )/+ oll+)i:+ ;*r*i-i- -io-, *-> )/+ +plo@++ ) o-)i-+ )o ;+

+;+r o )/+ -io- or )/+ >r*)io- o )/+ o-)r*) i- or>+r )o H++p )/+ir o; . Thus"ection (a ( of the &ndustrial Peace $ct, before its amendment by *epublic $ct No. GG5, provides that *l)/o/ i) ol> ;+ *- -*ir l*;or pr*)i+ or *- +plo@+r K)o

>irii-*)+ i- r+*r> )o /ir+ or )+-r+ o +plo@+-) or *-@ )+r or o->i)io- o

+plo@+-) )o +-or*+ or >ior*+ +;+r/ip i- *-@ l*;or or*-i*)io-K )/+

+plo@+r i, /o+:+r, -o) pr+l>+> Kro *Hi- *- *r+++-) i)/ * l*;or

or*-i*)io- )o r+Fir+ * * o->i)io- o +plo@+-) +;+r/ip )/+r+i-, i / l*;or

or*-i*)io- i )/+ r+pr++-)*)i:+ o )/+ +plo@++. By virtue, therefore, of a closed shopagreement, before the enactment of *epublic $ct No. GG5, if any person, regardless of his

religious beliefs, wishes to be employed or to keep his employment, he must become a

member of the collective bargaining union. "+-+, )/+ ri/) o *i> +plo@++ -o) )o oi-)/+ l*;or -io- i r)*il+> *-> i)/>r*-./G0 (;mphases supplied.

&f uat e@emplified an e@ception to the rule that a person has the right not to join a

union, (ictoriano merely created an e@ception to the e@ception on the ground of religious freedom.

Re3es, on the other hand, did not involve the interpretation of any union security clause. &n that case,

there was no certified bargaining agent yet since the controversy arose during a certification

election. &n Re3es, the 1ourt highlighted the idea that the freedom of association included the right not to

associate or join a union in resolving the issue whether or not the votes of members of the &NJ sect who were

part of the bargaining unit could be e@cluded in the results of a certification election, simply because they were

not members of the two contesting unions and were e@pected to have voted for 8N= %N&=N> in view of their

religious affiliation. The 1ourt upheld the inclusion of the votes of the &NJ members since in the previous case

of (ictoriano we held that &NJ members may not be compelled to join a union on the ground of religious

freedom and even without (ictoriano every employee has the right to vote 8no union> in a certification election

as part of his freedom of association. :owever, Re3es is not authority for Kustice 1arpio)s proposition that an

employee who is not a member of any union may claim an e@emption from an e@isting union security clause

because he already has regular and permanent status but simply prefers not to join a union.

The other cases cited in Kustice 1arpio)s dissent on this point are likewise inapplicable. Basa v.

Federacion @&rera de la "ndustria Ta&a'uera 3 @tros Tra&a2adores de Filipinas,/0 Anucension v. ational

:a&or 9nion,/50 and Gon=ales v. Central A=ucarera de Tarlac :a&or 9nion /60 all involved members of the

&NJ. &n line with (ictoriano, these cases upheld the &NJ members) claimed e@emption from the union security

clause on religious grounds. &n the present case, the former <;BT1 employees never claimed any religious

grounds for their e@emption from the %nion "hop 1lause. $s for Philips "ndustrial Development, "nc. v.

ational :a&or Relations Corporation/0 and nit2o3 +anufacturin), "nc. v. Ferrer*Calle2a,/C0 the employees

who were e@empted from joining the respondent union or who were e@cluded from participating in the

certification election were found to be -o) +;+r o )/+ ;*r*i-i- -i) r+pr++-)+> ;@ r+po->+-)

-io-and were free to formFjoin their own union. &n the case at bar, it is undisputed that the former <;BT1

employees were part of the bargaining unit that the %nion represented. Thus, the rulings

in Philips and nit2o3 have no relevance to the issues at hand.



















Time and again, this 1ourt has ruled that the individual employee)s right not to join a union may be

validly restricted by a union security clause in a 1B$ /A0and such union security clause is not a violation of the

employee)s constitutional right to freedom of association./50

&t is unsurprising that significant provisions on labor protection of the +AC 1onstitution are found in

$rticle O&&& on "ocial Kustice. The constitutional guarantee given the right to form unions/5+0 and the "tate

policy to promote unionism/5-0 have social justice considerations. &n People?s "ndustrial and Commercial

!mplo3ees and >orkers @r)ani=ation v. People?s "ndustrial and Commercial Corporation,/5G0 we recogni?ed that

8/l0abor, being the weaker in economic power and resources than capital, deserve protection that is actually

substantial and material.>

The rationale for upholding the validity of union shop clauses in a 1B$, 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. 'aws and

jurisprudence promote unionism and afford certain protections to the certified bargaining agent in a unioni?ed

company because a strong and effective union presumably benefits *ll +plo@++ i- )/+ ;*r*i-i- -i) since

such a union would be in a better position to demand improved benefits and conditions of work from the

employer. This is the rationale behind the "tate policy to promote unionism declared in the 1onstitution, which

was elucidated in the above2cited case of :i&ert3 Flour +ills !mplo3ees v. :i&ert3 Flour +ills, "nc./50

&n the case at bar, since the former <;BT1 employees are deemed covered by the %nion "hop 1lause,

they are re!uired to join the certified bargaining agent, which supposedly has gathered the support of the

majority of workers within the bargaining unit in the appropriate certification proceeding. Their joining the

certified union would, in fact, be in the best interests of the former <;BT1 employees for it unites their interests

with the majority of employees in the bargaining unit. &t encourages employee solidarity and affords sufficient

protection to the majority status of the union during the life of the 1B$ which are the precisely the objectives of

union security clauses, such as the %nion "hop 1lause involved herein. 9e are indeed not being called to

balance the interests of individual employees as against the "tate policy of promoting unionism, since the

employees, who were parties in the court below, no longer contested the adverse 1ourt of $ppeals)

decision. 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. &n the hierarchy of constitutional

values, this 1ourt has repeatedly held that the right to abstain from joining a labor organi?ation is subordinate to

the policy of encouraging unionism as an instrument of social justice.

$lso in the dissenting opinion of Kustice 1arpio, he maintains that one of the dire conse!uences to the

former <;BT1 employees who refuse to join the union is the forfeiture of their retirement benefits. This is

clearly not the case precisely because BP& e@pressly recogni?ed under the merger the length of service of the

















absorbed employees with <;BT1. "hould some refuse to become members of the union, they may still opt to

retire if they are !ualified under the law, the applicable retirement plan, or the 1B$, based on their combined

length of service with <;BT1 and BP&. 1ertainly, there is nothing in the union shop clause that should be read

as to curtail an employee)s eligibility to apply for retirement if !ualified under the law, the e@isting retirement

plan, or the 1B$ as the case may be.

&n sum, this 1ourt finds it reasonable and just to conclude that the %nion "hop 1lause of the 1B$

covers the former <;BT1 employees who were hiredFemployed by BP& during the effectivity of the 1B$ in a

manner which petitioner describes as 8absorption.> $ contrary appreciation of the facts of this case would,

undoubtedly, lead to an ine!uitable and very volatile labor situation which this 1ourt has consistently ruled

against.

&n the case of former <;BT1 employees who initially joined the union but later withdrew their

membership, there is even greater reason for the union to re!uest their dismissal from the employer since the

1B$ also contained a #aintenance of #embership 1lause.

$ final point in relation to procedural due process, the 1ourt is not unmindful that the former <;BT1

employees) refusal to join the union and BP&)s refusal to enforce the %nion "hop 1lause in this instance may

have been based on the honest belief that the former <;BT1 employees were not covered by said clause. &n the

interest of fairness, we believe the former <;BT1 employees should be given a fresh thirty (G days from

notice of finality of this decision to join the union before the union demands BP& to terminate their employment

under the %nion "hop 1lause, assuming said clause has been carried over in the present 1B$ and there has been

no material change in the situation of the parties.

"EREORE, the petition is hereby DENIED, and the ecision dated "eptember G, -G of the

1ourt of $ppeals is AIRMED, subject to the thirty (G day notice re!uirement imposed herein. <ormer

<;BT1 employees who opt not to become union members but who !ualify for retirement shall receive their

retirement benefits in accordance with law, the applicable retirement plan, or the 1B$, as the case may be.

SO ORDERED.

SANTIAGO C%A, =R., SOLOMON S.C%A *-> EE%IEL D. RO#LES, i- )/+ir

*p*i)@ * Dir+)or o !"ILI!!INE

RACING CL%#, INC.,

Petitioners,

2 versus 2

MIG%EL OCAM!O TAN, =EMIE%. TAN

*-> ATT'. #RIGIDO =. D%LA',

A!!RAISA

L RIG"T

G.R. No. 1814<6



*espondents.

B <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<< B

SANTIAGO C%A, SR., i- /i *p*i)@ *

Dir+)or o !"ILI!!INE RACING CL%#,

INC.,

Petitioner,

2 versus 2

CO%RT O A!!EALS, MIG%EL

OCAM!O TAN, =EMIE %. TAN, ATT'.

#RIGIDO =. D%LA', *-> "ON. CESAR

%NTALAN, !r+i>i- =>+, M*H*)i

R+io-*l Tri*l Cor), #r. 149,

*espondents.

G.R. No. 182008

Present7

1=*=N$, .,

1hairperson,



1:&1=2N$S$*&=,

4;'$"1=, K*.,

N$1:%*$, andP;*$'T$, .

Promulgated7 ecember , -A

@2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2@

; 1 & " & = N

1:&1=2N$S$*&=, .7

Before this 1ourt are two Petitions7 (+ a Petition for *eview on Certiorari /+0 under *ule 5 of the

*ules of 1ourt filed by petitioners "antiago 1ua, Kr. ("antiago Kr., "olomon ". 1ua ("olomon, and ;@e!uiel .

*obles (*obles, in their capacity as directors of the Philippine *acing 1lub, &nc. (P*1&, with #iguel =campo

Tan (#iguel, Kemie %. Tan (Kemie and $tty. Brigido K. ulay (ulay as respondents, docketed as 3.*. No.

+C+55256E and (- a Petition for Certiorari and Prohibition/-0 under *ule 65 of the *ules of 1ourt filed by

petitioner "antiago 1ua, "r. ("antiago "r., also in his capacity as P*1& director, likewise naming #iguel, Kemie,

and ulay as respondents, together with the 1ourt of $ppeals and Presiding Kudge 1esar %ntalan (Kudge%ntalan of the *egional Trial 1ourt (*T1, Branch +A of #akati 1ity, docketed as 3.*. No. +C-C.

Both Petitions assail the ecision/G0 dated 6 "eptember - and *esolution/0 dated -- Kanuary -C of

the 1ourt of $ppeals in the consolidated cases 1$23.*. "P No. AA6A and No. AAC. &n its 6 "eptember -

ecision, the 1ourt of $ppeals dismissed for lack of merit, mootness, and prematurity, the Petition

for Certiorari of petitioners "antiago Kr., "olomon, and *obles ("antiago Kr., et al.E and the Petition

for Certiorari and Prohibition of petitioner "antiago "r., which sought the nullification of the *esolution /50 dated

+6 Kuly - of the *T1 in 1ivil 1ase No. 26+ granting the Temporary *estraining =rder (T*= prayed for

by respondents #iguel, Kemie, and ulay (#iguel, et al.. &n its -- Kanuary -C *esolution, the appellate court

denied the #otions for *econsideration of petitioners and the #otion to $dmit "upplemental Petition

for Certiorari of petitioner "antiago Kr, et al . The same *esolution did not consider the "upplemental Petition

for Certiorari and Prohibition filed by petitioner "antiago "r. for the latter)s failure to seek leave of court for its

filing and admittance. Petitioners would have wanted to challenge in their "upplemental Petitions the

*esolution/60 dated C =ctober - of the *T1 in 1ivil 1ase No. 26+ granting the issuance of a 8permanent

injunction> against petitioners and the other P*1& directors until the said case was resolved.

I

ACT%AL AND !ROCED%RAL ANTECEDENTS

P*1& is a corporation organi?ed and established under Philippine laws to7 (+ carry on the business of arace course in all its branches and, in particular, to conduct horse races or races of any kind, to accept bets on the

http://sc.judiciary.gov.ph/jurisprudence/2009/december2009/181455-56.htm#_ftn1















results of the races, and to construct grand or other stands, booths, stablings, paddocks, clubhouses, refreshment

rooms and other erections, buildings, and conveniences, and to conduct, hold and promote race meetings and

other shows and e@hibitionsE and (- promote the breeding of better horses in the Philippines, lend all possible

aid in the development of sports, and uphold the principles of good sportsmanship and fair play. /0 To pursue its

avowed purposes, P*1& holds a franchise granted under *epublic $ct No. 66G-, as amended by *epublic $ct

No. A5G, to operate a horse racetrack and manage betting stations. %nder its franchise, P*1& may operate only

one racetrack.

&n +AAA, the $rticles of &ncorporation of P*1& was amended to include a secondary purpose, vi= 7

To ac!uire real properties andFor develop real properties into mi@2use realty projects

including but not limited to leisure, recreational and memorial parks and to own, operate,manage andFor sell these real estate projects./C0

P*1& is publicly listed with the Philippine "tock ;@change (P";. &n -6, P*1& had an authori?ed

capital stock of P+,,,. divided into +,,, shares, with a par value of P+. eachE of which a

total of P56A,C5,A., representing 56A,C5,A shares, had been subscribed and paid up./A0

P*1& owns only two real properties, each covered by several transfer certificates of title. =ne is known

as the "ta. $na *acetrack, located along $. P. *eyes $venue, #akati 1ity (#akati property, measuring around

-+.- hectaresE and the other is located in the towns of Naic and Tan?a in the province of 1avite (1avite

property.

<ollowing the trend in the development of properties in the same area, /+0 P*1& wished to convert

its #akati property from a racetrack to urban residential and commercial use. 3iven the location and si?e of

its #akati property, P*1& believed that said property was severely under2utili?ed. :ence, P*1& management

decided to transfer its racetrack from #akati to 1avite. P*1& began developing its 1avite property as a

racetrack, scheduled to be completed by $pril -C.

Now as to its #akati property, P*1& management decided that it was best to spin off the management

and development of the same to a wholly owned subsidiary, so that P*1& could continue to focus its efforts on

pursuing its core business competence of horse racing. &nstead of organi?ing and establishing a new corporation

for the said purpose, P*1& management opted to ac!uire another domestic corporation, KT: avies :oldings,

&nc. (KT:./++0

KT: was then owned by Kardine #atheson ;urope B.4. (K#;./+-0 &t had an authori?ed capital stock

of P-5,,., divided into 5,, common shares with a par value of P.5 each. KT: was publicly

listed with the P";. &ts tangible assets substantially consisted of cash. To determine the value of KT:, P*1&

engaged the services of the accounting firm "ycip 3orres 4elayo M 1o. ("34 to conduct a due diligence study./+G0

%sing the results of the "34 study, P*1& management determined that P*1& could initially ac!uire

+,A-C,-A shares, or A5.55L of the outstanding capital stock of KT:, for the price of P+.+ per share, or for a

total of PA,-5,.E in this case, P*1& would be paying a premium of P-,+,5. for the said KT:

shares, computed as follows7



















Total price for all of the issued and subscribed KT:shares (at P+.+Fshare P ,+C,CC.

'ess7 %naudited net worth of KT: (purely cash 2 -6,+,.

Total premium for +L of KT: ,C,CC.#ultiply7 &nterest in KT: to be initially ac!uired by

P*1& (A5.5L @ .A55

Premium for the A5.5L interest in KT: to be ac!uired by P*1& P -,+,5.

The P*1& Board of irectors held a meeting on -6 "eptember -6. $mong the directors present were

petitioners "antiago "r., "antiago Kr., and "olomon, as well as respondent ulay. $fter discussing and

deliberating on the matter of the ac!uisition of KT: by P*1&, all the directors present, e@cept respondent ulay,

voted affirmatively to pass and approve the following resolutions7

1. D+l*r*)io- o I-)+-)io- )o AFir+ *-> !r/*+ S/*r+ o S)oH o

A-o)/+r Cop*-@ <

RESOLED, as it is hereby resolved, that the 1orporation intends to ac!uire up toone hundred percent (+L of the common shares of stock of KT: avies :oldings, &nc. byway of negotiated saleE

RESOLED %RT"ER , That #anagement and the 1orporate "ecretary shall

prepare and submit the Tender =ffer, as well as, to file all the necessary disclosures andnotices in compliance with the "ecurities *egulation 1ode, its implementing rules, and other prevailing regulationsE

RESOLED %RT"ERMORE, That the 1orporation authori?es its President, #r."olomon ". 1ua, to sign and e@ecute any purchase agreements, memoranda, and such other deeds, and to deliver any documents and papers, perform any acts, necessary and incidental toimplement the foregoing, as well as to source the funds to implement the same.

2. Sp+i*l S)oH/ol>+r M++)i- <

RESOLED, That a "pecial "tockholders) #eeting of P*1& shall be held on =ctober

-6, -6 at +7 $.#., or at such later date as may be practicable under the circumstances, inthe principal place of business of P*1& at "anta $na Park, $.P. *eyes $venue, #akati 1ityE

RESOLED %RT"ER , That only those stockholders of record as of end of

business day of =ctober ++, -6 shall be entitled to notice, to vote andFor to be voted upon, inaccordance with the laws, regulations and by2laws of P*1&E

RESOLED %RT"ERMORE, That the 1orporate "ecretary shall be authori?ed toissue the re!uired notices, set the time for the submission of, and to receive and validate

pro@ies, as well as, to order publication of notices and undertake such appropriate andnecessary steps, including the filing of the re!uired disclosures to the regulating agencies, toeffect the foregoing. 3. A)/ori+> A))or-+@<I-<*) *-> !roB@ <

&n the event of a successful ac!uisition of the shares of KT: avies :oldings, &nc.,

the Board passed and approved the following resolutions7 RESOLED, that the 1orporation shall hereby authori?e SANTIAGO C%A, or in

his absence, EE%IEL RO#LES, or in his absence, SOLOMON S. C%A, or in hisabsence, SANTIAGO C%A, =R., or in his absence, DAT%$ S%RIN %!AT$OON, or in hisabsence, 'aurence 'im "wee 'im, or in his absence, LIM TEONG LEONG, to act as its

attorney2in2factFpro@y and to vote all shares as may be registered in the name of the1orporationFlodged with the P1 "ystem, and to e@ercise all rights appurtenant thereto during



the $nnual "tockholders) #eetingFs and all regularFspecial meetingFs of KT: $4&;":='&N3", &N1. (formerly K$*&N; $4&;", &N1.E

RESOLED %RT"ER , That these irectors, in the said order of priority, shallhave full power and authority and discretion to nominate, appoint, andFor vote into office suchdirectors andFor officers during the said $nnual "tockholders) #eetingFs and regularFspecial

meetingFs of KT: :='&N3", &N1. (formerly K$*&N; $4&;", &N1.E

RESOLED INALL', That these irectors be, as they are hereby granted full

power and authority whatsoever re!uisite or necessary or proper to be done in these matters./+0

The ne@t day, - "eptember -6, P*1& entered into a "ale and Purchase $greement for the ac!uisition

from K#; of +,A-C,-A common shares or A5.55L of the outstanding capital stock of KT:. $mong the

principal terms of the "ale and Purchase $greement were7

(a The consideration for the ac!uisition was P+.+ per share or PA,-5,.E

(b %pon the signing of the /$0greement, the /P*1&0 shall pay P- #illion to an ;scrow$gent as depositE and

(c The sale and purchase transaction contemplated in the $greement shall be consummated

at a closing not later than November G, -6 or the 5th day from the start of the KT:=ffer or such date which shall in no case be later than ecember ++, -6./+50

P*1& also made a tender offer for the remaining .5L or +,A5,CCG issued and outstanding common

shares of KT: at P+.+ each.

&n the "pecial "tockholders) #eeting held on November -6, attended by stockholders with

C+,5,CC shares or C.-L of the outstanding capital stock of P*1&, the ac!uisition by P*1& of KT: was

presented for approval. The events during said meeting were duly recorded in the #inutes, to wit7

. A!!ROAL O T"E AC%ISITION O T"E S"ARES O STOC$ O =T"

DAIES "OLDINGS, INC.

Thereafter, the 1orporate "ecretary informed that the President will present to thestockholders the rationale for the ac!uisition of the shares of KT: avies :oldings,&nc.

$ccording to the President P*1& is intending to ac!uire up to +L of the shares of KT: avies :oldings, &nc. another listed company in the P";. <or reference, thePresident informed that the latest $nnual *eport of KT: has been appended to the&nformation "tatement for guidance. $lso copies of the Board)s resolution presentedfor approval and ratification by the stockholders has been posted in the room for convenient reading of the stockholders.

The President e@plained that KT: is one of the oldest holdings company and thename KT: avies is an internationally acclaimed name with a reputation for solidand sound financial standing. 9ith P*1&)s ac!uisition of KT:, it gives P*1& thenecessary vehicle within which to enlarge and broaden the business and operationalalternatives or options of our company. P*1& believes that this KT: will complement

the direction of P*1& in fast tracking the development of P*1&)s plans and provide itinvestment opportunities. &t is for this reason that we call this special meeting so you

may know soonest the present opportunity faced by P*1& without need for you towait until ne@t year)s annual meeting.








The 4ice21hairman then informed that the resolution approving the purchase of KT:avies :oldings, &nc. as presented in the &nformation "tatement which werefurnished to the stockholders is presented for approval to the body. $ stockholder

thereafter moved that the the (sic resolution be approved which was duly seconded by another stockholder. The 4ice21hairman declared the resolutionapproved. Thereafter, $tty. Pagunsan took the floor and informed that he is the pro@y

of various stockholders (+L and would like to manifest his vote as 8N=> which the4ice21hairman duly noted. Notwithstanding the objection of $tty. Pagunsan,considering the more than -FG of the outstanding capital stock of P*1& has approved

and ratified the resolution, (L the 1orporate "ecretary declared the resolution asduly approved and ratified. Thereafter, another stockholder, #r. Ngo, asked the President what are the plans of P*1& on the assets of KT:. The President informed that as of now, KT: has nomaterial hard assets other than its retained earnings. #r. Ngo asked again what will

be the direction of P*1& on the substantial retained earnings of KT: to which thePresident replied that there are several options being considered once the purchase iscomplete one of which is the declaration of cash dividend.

$nother stockholder took the floor and informed the #anagement that he is happywith the transaction of P*1& and the purchase by P*1& of the KT: shares is a good

deal since the value of the goodwill of KT: is substantial by his estimate. :e proceeded to thank the President and shook hands with him./+60

By -- November -6, P*1& was able to additionally ac!uire +,+6,+G common shares of KT: from

the minority stockholders of the latter, giving P*1& ownership of AC.+AL of the outstanding capital stock of

KT:.

P*1& prepared consolidated financial statements for itself and for KT: for the fiscal year ending G+

ecember -6. The financial statements were audited by the accounting firm Punongbayan M $raullo whichgave the following un!ualified opinion of the same7 8&n our opinion, based on our audit and the report of other

auditors, the consolidated financial statements present fairly, in all material respects, the consolidated financial

position of the Philippine *acing 1lub, &nc. and "ubsidiary as of ecember G+, -6, and their consolidated

financial performance and their cash flows for the year then ended in accordance with Philippine <inancial

*eporting "tandards.> The audited financial statements of P*1& and KT: for -6 were presented to the

stockholders of P*1& and submitted to the "ecurities and ;@change 1ommission (";1, the Bureau of &nternal

*evenue (B&*, and the Philippine "tock ;@change (P";.

Thereafter, P*1& again engaged the assistance of "34 in e@ecuting its intended spin2off to KT: of the

management and development of P*1&)s #akatiproperty. &t was then determined that the #akati property, witha total ?onal value of PG,C+,--,., could be transferred to KT: in e@change for the unissued portion of the

latter)s recently increase authori?ed capital stock,/+0 amounting to PGA,AC,CA.5, divided into A5,C+,CA

shares with a par value of P.5 per share. The difference of PG,+A,GGG,+5.5 between the total ?onal value of

the #akati property and the aggregate par value of the KT: shares to be issued in e@change for the same, would

be reflected as additional paid2in capital of P*1& in KT:.

The matter of the proposed e@change was taken up and approved by the P*1& Board of irectors in its

meeting held on ++ #ay -, again with the lone dissent of respondent ulay. $ccording to the #inutes of the

said meeting, the following occurred7








A. EB/*-+ o )/+ Corpor*)io- M*H*)i !rop+r)@ i)/ S/*r+ o =T"

D*:i+ "ol>i-, I-.

President 1ua reported on certain essential matters regarding the 1orporation)s#akati Property. $fter doing so, President 1ua proposed the e@change of this Property withshares of KT: avies :oldings, &nc. :e then presented to the Board financial facts and

figures heavily favoring the transaction. $fter due discussion and deliberation, all the irectors present approved and passed

the following resolution, e@cept irector Brigido ulay who registered a negative vote7 RESOLED, That the 1orporation hereby approves and

authori?es the e@change of its #akati property with shares of KT: avies:oldings, &nc.E

RESOLED %RT"ER , That, for this purpose, the 1orporationhereby authori?es its ;@ecutive 1ommittee to determine and approve theterms and conditions governing the e@change as it shall consider for the bestinterest of the 1orporation subject to approval by the stockholders in

compliance with the 1orporation 1odeE

RESOLED %RT"ER , That the ;@ecutive 1ommittee, be, as itis hereby granted full power and authority whatsoever re!uisite or necessaryor proper to accomplish theseE

RESOLED INALL', That SOLOMON C%A, President M1;=, be, as he is hereby authori?ed to negotiate with KT: avies :oldings,

&nc. and to e@ecute, sign, andFor deliver any and all documents covering thee@change in accordance with the terms and conditions of the ;@ecutive1ommittee./+C0

"ubse!uently, the $nnual "tockholders) #eeting of P*1& was scheduled on + Kuly -, the $genda

for which is reproduced below7

&. 1all to =rderE

&&. Proof of NoticeE

&&&. 1ertification of DuorumE

&4. $pproval of the #inutes of the $nnual "tockholders) #eeting held last Kune +A,-6 and of the "pecial "tockholders) #eeting held last November , -6E

4. *eport of the PresidentE

4&. $pproval of the $udited <inancial "tatement for the year ended ecember G+,

-6E

4&&. $pproval and *atification of the acts of the Board of irectors, the ;@ecutive1ommittee and the #anagement of the 1orporation for the <iscal Qear -6E

4&&&. $pproval of the Planned ;@change of P*1&)s #akati property for shares of stockE

&O. $pproval of the $mendments of the By2'aws to conform with the #anual of

1orporate 3overnanceE

O. ;lection of the members of the Board of irectorsE





O&. $ppointment of &ndependent ;@ternal $uditorsE

O&&. =ther #attersE

O&&&. $djournment./+A0

The ++ #ay - *esolution of the P*1& Board of irectors on the property2for2shares e@change

between P*1& and KT: was supposed to be presented for approval by the stockholders under the afore2!uoted

&tems No. 4&& and No. 4&&& of the $genda.

:owever, on + Kuly -, respondents #iguel, et al ., as minority stockholders of P*1&, with the

following shareholdings7

S)oH/ol>+r No. o S/*r+ !+r+-)*+

#iguel =campo2Tan +6,GC, -.C

Kemie %. Tan +5,A-,- -.C

$tty. Brigido K. ulay/-0 + .

Total G-,G5-,-+ 5.6

filed before the *T1 a 1omplaint, denominated as a erivative "uit with prayer for &ssuance of

T*=FPreliminary &njunction, against the rest of the directors of P*1& andFor KT:. The 1omplaint was docketed

as 1ivil 1ase No. 26+.

The 1omplaint was based on three causes of action7 (+ the approval by the majority directors of P*1&

of the Board *esolutions dated -6 "eptember -6 and ++ #ay - 22 with undue haste and deliberate speed,

despite the absence of any disclosure and information 22 was not only anomalous and fraudulent, but also

e@tremely prejudicial and inimical to interest of P*1&, committed in violation of their fiduciary duty as directors

of the said corporationE (- respondent "olomon, as P*1& President, with the ac!uiescence of the majority

directors of P*1&, maliciously refused and resisted the re!uest of respondents #iguel, et al ., for complete and

ade!uate information relative to the disputed Board *esolutions, bra?enly and unlawfully violating the rights of

the minority stockholders to information and to inspect corporate books and recordsE and (G without being

officially and formally nominated, the majority directors of P*1& illegally and unlawfully constituted themselves

as members of the Board of irectors andFor ;@ecutive =fficers of KT:, rendering all the actions they have taken

as such null and void a& initio. &n the end, respondents #iguel, et al ., prayed to the *T1, after notice and

hearing, that7

+. $ temporary restraining order andFor writ of preliminary injunction be issuedrestraining and enjoining the holding of the $nnual "tockholders) #eeting scheduled on +Kuly - and restraining and enjoining the defendants /P*1& directors0 from enforcing,

implementing, 8railroading>, or taking any further action in reliance upon or in substitution or in furtherance of the isputed *esolutions, which would inflict grave and irreparable injury infraud of the 1orporation.

-. $ receiver andFor management committee be constituted and appointed to

undertake the management and operations of the 1orporation and to take over its assets to

prevent its further loss, wastage and dissipation. G. To compel the defendant #ajority irectors to render a complete and

ade!uate disclosure of all documents and information relating to the subject matter of theisputed *esolutions as well as the business and affairs of the 1orporation and its wholly2owned subsidiary from the time of the latter)s ac!uisition until final judgment.








. $fter trial on the merits, that judgment be rendered in favor of the plaintiffs

and against the defendants, as follows7

(a Permanently enjoining and prohibiting defendants from enforcing,

implementing, or taking any action in reliance upon the isputed *esolutions.

(b eclaring the isputed *esolutions dated -6 "eptember -6 and ++ #ay

- and the approval by the ;@ecutive 1ommittee of the e@change of the 1orporation)s

#akati Property for KT: shares, as well as any and all actions taken in reliance upon or pursuant to or in furtherance of the isputed *esolutions andFor approval of the ;@ecutive1ommittee, as null and void a& initio.

(c eclaring the assumption by defendant #ajority irectors as irectors

andFor officers of KT:, including all acts done by defendant #ajority irectors as such

irectors andFor officers of KT:, as null and void a& initio. (d =rdering defendants to pay plaintiffs the sum of P5,., and by way of

attorney)s fees, plus P+,. per court appearance, plus costs of suit.

=ther reliefs just and e!uitable under the premises are likewise prayed for./-+0

$fter conducting hearings on the prayer for the issuance of a T*=, *T1 Kudge %ntalan issued a

*esolution on +6 Kuly -, the dispositive portion of which reads7

9:;*;<=*;, premises considered, this court hereby partially grants the prayer of

P*1& for the issuance of Temporary *estraining =rder upon the herein defendants subject tothe posting of Php+,. bond on condition that such bond shall answer to any damage

that the efendants may sustain by reason of this T*= if the court should finally decide thatthe applicants are not entitled thereto. This T*= shall be effective for T9;NTQ (- $Q"

only from service of the same upon the efendants after posting of the bond. Therefore, the efendants, their agents, pro@ies and representatives are hereby

enjoined, prohibited and forbidden to present to, discuss, much more to approve the same, at

the - $nnual "tockholders) #eeting of P*1& to be held on Kuly +, - at C7 $.#. atthe 4&P *oom, "anta $na Park, $.P. *eyes $ve., #akati 1ity, the following $genda includedin the Notice of said stockholders) meeting7

+. $genda *oman No. &4 H $pproval of the #inutes of the $nnual "tockholders)

#eeting held last Kune +A, -6 and the "pecial "tockholders) meeting held last

November , -6.

-. $genda *oman No. 4&& H $pproval and *atification of the acts of the Board of

irectors, the ;@ecutive 1ommittee and the #anagement of the 1orporation for the <iscal Qear -6.

G. $genda *oman No. 4&&& H $pproval of the Planned ;@change of P*1&)s #akati property for shares of stock.

Thus, in order that these subject matters and items of the $genda of the aforesaid

"tockholders) #eeting shall not be taken up, the herein efendants, their agents, pro@ies andrepresentatives, jointly and severally, are hereby ordered to delete and remove from the

$genda said three (G above stated items of the $genda before the start and conduct of the saidstockholders) meeting. Therefore, in case herein efendants, their agents, pro@ies andrepresentatives defy and disobey this mandate, they have committed already four ( distinctcontemptuous acts7 delete, present, discuss and approve.





This 1ourt appealed to the 1orporate "ecretary as =fficer of the 1ourt, to pleasemake sure that this mandate is obeyed and observed by the efendants, their agents, pro@iesand representatives, before and during the conduct of said stockholders) meeting.

'et the hearing of the main injunction be set on Kuly -G and -, - and $ugust -,

-, all at two o)clock in the afternoon./--0

The $nnual "tockholders) #eeting of P*1& scheduled the ne@t day, + Kuly -, failed to push

through for lack of !uorum.

=n +A Kuly -, petitioners "antiago Kr., et al ., as P*1& directors filed a Petition for Certiorari with

the 1ourt of $ppeals, docketed as 1$23.*. "P No. AA6A. =n - Kuly -, "antiago "r., also as P*1& director,

filed his own Petition for Certiorari and Prohibition, docketed as 1$23.*. "P No. AAC. Both Petitions

assailed the *T1 *esolution dated +6 Kuly -, granting the issuance of a T*=, for being rendered with grave

abuse of discretion amounting to lack or e@cess of jurisdiction. 1$23.*. "P No. AA6A and No. AAC were

subse!uently consolidated.

The 1ourt of $ppeals promulgated its ecision on 6 "eptember - dismissing the Petitions in 1$2

3.*. "P No. AA6A and No. AAC for lack of merit, mootness, and prematurity.

$ccording to the 1ourt of $ppeals, the T*= issued by the *T1 enjoined the presentation, discussion,

and approval of only three of the +G items on the $genda of the - $nnual "tockholders) #eeting. There is no

evidence that the T*= issued by the *T1 legally impaired the holding of the scheduled stockholders)

meeting. &ndeed, the lack of !uorum during the said meeting was due to the absence of petitioners themselves

who comprised the majority interest in P*1&. 1onse!uently, the appellate court found no grave abuse of

discretion in the issuance by the *T1 of the T*=.

The 1ourt of $ppeals also noted that the Petitions in 1$23.*. "P No. AA6A and No. AAC as regards

the issuance of the T*= already became moot when the -2day period of effectivity of said restraining order

e@pired on 5 $ugust -, even before the Petitions were submitted for resolution.

'astly, the 1ourt of $ppeals held that the issues raised by petitioners were factual and evidentiary in

nature which must be threshed out before the *T1 as the designated commercial court in #akati. The appellate

court would not interfere with the proceedings a 'uo considering that 1ivil 1ase No. 26+ had not yet gone to

trial and had not yet been resolved or terminated by the *T1. Therefore, for being premature, the 1ourt of

$ppeals could not prohibit the continuance of the *T1 proceedings in 1ivil 1ase No. 26+.

The 1ourt of $ppeals ruled that there was no reason to dismiss the 1omplaint in 1ivil 1ase No. 2

6+. $lthough the 1omplaint contained mere allegations, which had yet to be supported by evidence, it was

sufficient in form and substance, and the *T1 properly took cogni?ance of the same. The 1ourt of $ppeals

reasoned that7

*ule C, "ection + of the &nterim *ules of Procedure for &ntra21orporate 1ontroversies

(&nterim *ules provides7

8SECTION 1. D+ri:*)i:+ *)io-. H $ stockholder or member may

bring an action in the name of a corporation or association, as the case may be, provided, that7





(+ :e was a stockholder or member at the time the acts or transactionssubject of the action occurred and at the time the action was filedE

(- :e e@erted all reasonable efforts, and alleges the same with particularity in the complaint, to e@haust all remedies available under thearticles of incorporation, by2laws, laws or rules governing the corporation or

partnership to obtain the relief he desiresE (G No appraisal rights are available for the act or acts complained ofE

and ( The suit is not a nuisance or harassment suit.

&n case of nuisance or harassment suit, the court shall forthwithdismiss the case.>

$ reading of the 1omplaint reveals that the same sufficiently alleges the foregoing

re!uirements. 1omplainants essentially allege that they are P*1& stockholders, that they haveopposed the issuance and approval of the !uestioned resolutions during the board

stockholders) (sic meetings, that prior resort to intra2corporate remedies are futile, thatnevertheless, they have asked for copies of the pertinent documents pertaining to the

!uestioned transactions which the board has declined to furnish, that they have instituted thederivative suit in the name of the corporation, that they are !uestioning the acts of the majorityof the board of directors believing that the herein petitioners have committed a wrong againstthe corporation and seeking a nullification of the !uestioned board resolutions on the groundof wastage of the corporate assets.

Thus, contrary to petitioners) averment, the 1omplaint does state a cause of action./-G0

Petitioners in 1$23.*. "P No. AA6A and No. AAC filed their respective #otions for *econsideration

of the foregoing ecision of the 1ourt of $ppeals.

&n the meantime, upon the e@piration of the T*= issued by *T1 Kudge %ntalan in 1ivil 1ase No. 2

6+, the $nnual "tockholders) #eeting of P*1& was again scheduled on + =ctober -. :owever, Kudge

%ntalan issued on C =ctober - a *esolution with the following decree7

"EREORE, premises considered, this court hereby GRANTS the issuance

of !ERMANENT IN=%NCTION against the defendants until the instant case is finallyresolved, subject to the posting by plaintiffs of a Php +,. bond, on condition that such

bond shall answer to any damage that the efendants may sustain by reason of this injunctionif the court should finally decide that the applicants are not entitled thereto. This injunctionshall be effective from service of the same upon the efendants after posting of the bond.

Therefore, the efendants, their agents, pro@ies and representatives are hereby

enjoined, prohibited and forbidden to present to, discuss, much more to approve the same, at

any stockholders) meeting, whatsoever kind and nature, of P*1& of the following $genda7

+. $pproval of the #inutes of the $nnual "tockholders) #eeting held last Kune +A,-6 and the "pecial "tockholders) meeting held last November , -6 of P*1&.

-. $pproval and *atification of the acts of the Board of irectors, the ;@ecutive1ommittee and the #anagement of P*1& for the <iscal Qear -6, as far as theac!uisition of KT: and the planned e@change of P*1&)s #akati property for shares of stock of KT: are concerned.





G. $pproval of the Planned ;@change of P*1&)s #akati property for shares of stock of KT:./-0

$s a result, the $nnual "tockholders) #eeting of P*1& proceeded as scheduled on + =ctober

- without taking up the matters covered by the permanent injunction issued by the *T1.

Petitioners "antiago Kr., et al. filed in 1$23.*. "P No. AA6A their #otion to $dmit "upplemental

Petition for Certiorari with the attached "upplemental Petition for CertiorariE/-50 and petitioner "antiago "r. filed

in 1$23.*. "P No. AAC a "upplemental Petition for Certiorari and Prohibition,/-60 to be followed shortly

thereafter by a #otion to $dmit ("upplemental Petition. /-0 Petitioners intended to additionally assail in their

"upplemental Petitions the C =ctober -*esolution of the *T1 granting the issuance of the permanent

injunction.

&n its *esolution dated -- Kanuary -C, the 1ourt of $ppeals denied the #otions for *econsideration

of petitioners and the #otion to $dmit "upplemental Petition for Certiorari of petitioners "antiago Kr., et al .

The 1ourt of $ppeals found that petitioners) #otions for *econsideration merely reiterated the issues

and arguments which were raised in the Petitions andFor which the appellate court already discussed and passed

upon. The 1ourt of $ppeals reiterated its ruling that it was premature to prohibit the continuance of the

proceedings in 1ivil 1ase No. 26+ before the *T1E and that the 1omplaint therein sufficiently stated a cause

of action.

The 1ourt of $ppeals likewise refused to admit petitioners) "upplemental Petitions for Certiorari. &t

noted that "antiago "r. filed his "upplemental Petition without asking for leave to file the same. $pparently, the

appellate court disregarded the #otion to $dmit ("upplemental Petition which petitioner "antiago filedseparately from and at a later date than his "upplemental Petition. &n addition, the 1ourt of $ppeals adjudged

that the "upplemental Petitions which petitioners hoped to be admitted involved a subject matter not covered in

their original Petitions. $lthough the T*= and the permanent injunction were both issued by the *T1 in 1ivil

1ase No. 26+, the two issuances were independent of each other, and only the T*= was the subject of the

original Petitions. :ence, the "upplemental Petitions assailing the permanent injunction granted by the *T1

could not be considered as merely augmenting the matters, issues, and causes of action of the original PetitionsE

and should be challenged in a separate petition for certiorari.

<ailing to obtain any relief from the 1ourt of $ppeals, petitioners turned to this 1ourt.

Petitioners "antiago Kr., et al ., filed a Petition for *eview on Certiorari under *ule 5 of the *ules of

1ourt, docketed as 3.*. No. +C+55256E while petitioner "antiago "r. filed a Petition for Certiorari under *ule

65 of the *ules of 1ourt, docketed as 3.*. No. +C-C. $ccording to petitioners, the appellate court committed

reversible errors of law and grave abuse of discretion in its ecision dated 6 "eptember - and *esolution

dated -- Kanuary -C in 1$23.*. "P No. AA6A and No. AAC.

Petitioners insisted that 1ivil 1ase No. 26+ pending before the *T1 did not constitute a valid

derivative suit. *espondents #iguel, et al ., failed to allege in their 1omplaint that they had no appraisal rights

for the acts they were complaining of. &n fact, the very allegations made by respondents #iguel, et al . in their

1omplaint supported the availability of appraisal rights to them. The 1omplaint in 1ivil 1ase No. 26+ wasnothing more than a nuisance or harassment suit against petitioners and the other P*1& directors.














Petitioners averred that, by finding no grave abuse of discretion on the part of the *T1 in issuing the

T*= against petitioners and the other P*1& directors, the 1ourt of $ppeals substituted its own judgment for that

of the P*1& Board of irectors, arbitrarily and capriciously disregarding the business judgment made by the said

Board and approved by P*1& stockholders. The T*= issued by the *T1 was not for the benefit of the P*1&

stockholders. <urthermore, the e@piration of the -2day T*= did not make their Petitions for Certiorari in 1$2

3* "P No. AA6A and No. AAC moot. "aid Petitions included the prayer that the *T1 be restrained from

proceeding with 1ivil 1ase No. 26+ in view of the fatally defective 1omplaint, the grant or denial of which

the appellate court should have still determined despite the e@piration of the T*=.

Petitioners also challenged the refusal by the 1ourt of $ppeals to admit their "upplemental Petitions in

1$23* "P No. AA6A and No. AAC. They asserted that the issues in their "upplemental Petitions were closely

intertwined with those in their original Petitions.

The prayer of petitioners "antiago Kr., et al., in their Petition in 3.*. No. +C+55256 reads7

!RA'ER

9:;*;<=*;, in view of the foregoing and in the interest of justice, it is mostrespectfully prayed of the :onorable "upreme 1ourt that7

$. The ecision of the 1ourt of $ppeals dated 6 "eptember - A--+B 5I and the

*esolution of the 1ourt of $ppeals dated -- Kanuary -C A--+B 5M be N%''&<&;,*;4;*"; and ";T $"&; for having been issued on the basis of reversible error of

law and with grave abuse of discretion amounting to lack of jurisdiction. B. The *esolutions of Kudge 1esar %ntalan of #akati *egional Trial 1ourt, Branch +A

dated +6 Kuly - A--+B 5 and C =ctober - A--+B 5G be accordingly N%''&<&;, *;4;*"; and ";T $"&; for having been issued with grave abuse of discretion amounting to lack of jurisdiction.

1. The complaint of *espondents be &"#&""; outright for lack of jurisdiction and

cause of action. . "uch further reliefs just and e!uitable under the circumstances be 3*$NT;./-C0

Petitioners "antiago Kr., et al., subse!uently filed in 3.*. No. +C+55256 an %rgent #otion for &ssuance

of a Temporary *estraining =rder ("tatus Duo $nte andFor 9rit of Preliminary &njunction, in which they

additionally asked the 1ourt that 8a Temporary *estraining =rder ("tatus Duo $nte andFor 9rit of Preliminary&njunction be immediately issued restraining the implementation (sic Kudge 1esar %ntalan)s *esolutions dated

+6 Kuly - and C =ctober - so as not to render inutile this #ost :onorable 1ourt)s e@ercise of jurisdiction

over this action and to prevent the decision on this case from being rendered ineffectual and academic.>/-A0

#eanwhile, petitioner "antiago "r. sought the following reliefs from this 1ourt in his Petition in 3.*.

No. +C-C7

!RA'ER

"EREORE, premises considered, it is respectfully prayed that the petition begiven due course, and that7







+. %pon the filing of this petition, a temporary restraining order andFor writ of

preliminary injunction be immediately issued restraining and enjoining the enforcement or

e@ecution of the assailed 1ourt of $ppeals) ecision and *esolution, and the assailed trialcourt)s resolutions, particularly that which mandates the continued enforcement of the 9rit of P;*#$N;NT &njunction issued by the trial, which prevents the stockholders of the

corporation from acting on matters that have to be submitted to them for approvalandFratification at the regular annual stockholders) meetings.

-. Thereafter, a writ of prohibition be issued andFor the preliminary injunction be made permanent and continuing, during the pendency of the instant case before the:onorable court.

G. $fter due hearing, that the :onorable 1ourt7

(a eclare null and void the :onorable 1ourt of $ppeals) 6 "eptember -ecision and -- Kanuary -C *esolution, in 1$23.*. "P No. AAC, as well as theTrial 1ourt)s +6 Kuly - and C =ctober - *esolutions in 1ivil 1ase No. 26+of the #akati *egional Trial 1ourt, and

(b =rder the dismissal of the 1omplaint filed by the private respondents against

petitioner, et al., docketed as 1ivil 1ase No. 26+ of the *T1 of #akati 1ity. =ther reliefs just and e!uitable in the premises are likewise prayed for./G0

&n a *esolution dated A $pril -C in 3.*. No. +C-C, the 1ourt granted petitioner "antiago "r.)s

prayer for the issuance of a T*=, to wit7

$cting on the prayer for the issuance of a temporary restraining order andFor a writ of preliminary injunction dated - #arch -C, the 1ourt likewise resolves

to 2++/( *%(MP4$A$5 $(+%$A2N2N3 4$D($ enjoining respondents from enforcing or e@ecuting the assailed 1ourt of $ppeals) decision and resolution and the assailed trial court)sresolutions particularly that which mandates the continued enforcement of the writ of permanent injunction issued by the trial court, until further orders from this 1ourt, and to

re!uire petitioner to P4+% * CA+0 4ND or a +/$(%5 4ND from a reputable bondingcompany of indubitable solvency with terms and conditions acceptable to the 1ourt, in theamount of %W4 0/ND$(D %04/+AND P(+4+ !200,000.00, within five (5 days fromnotice, o)/+ri+, )/+ )+por*r@ r+)r*i-i- or>+r /+r+i- i+> /*ll *)o*)i*ll@ ;+

li)+>. %nless and until the 1ourt directs otherwise, the bond shall be effective from itsapproval by the 1ourt until this case is finally decided, resolved or terminated./G+0

$ccordingly, the 1ourt issued the T*=/G-0 on even date, directed against the respondents of 3.*. No. +C-C,

namely, respondents #iguel, et al ., and Kudge %ntalan.

=n -+ $pril -C, respondents #iguel, et al . filed with the 1ourt their 1omment with Prayer for the

&mmediate 'ifting or issolution of the Temporary *estraining =rder in 3.*. No. +C-C.

*espondents #iguel, et al ., argued that the Petition for Certiorari in 3.*. No. +C-C was dismissible

due to several procedural errors. Petitioner "olomon, who signed the Petition in 3.*. No. +C-C on behalf of

"antiago "r., was guilty of forum shopping for failing to inform the 1ourt of the Petition for *eview in 3.*. No.

+C+55256, of which he was one of the petitioners. Both Petitions involved the same transactions, essential facts,

and circumstances, as well as identical causes of action, subject matter, and issues. The Petition for Certiorari in

3.*. No. +C-C was also not personally verified by petitioner "antiago "r. as re!uired by rules and









jurisprudence. #oreover, the Petition for Certiorari was not a proper remedy, since it was only proper when

there was no other plain, speedy, and ade!uate remedy in the ordinary course of law. Petitioner 1ua himself

admitted the availability of other remedies, e@cept that he was 8avoiding the tortuous manner offered by other

remedies.> &n fact, petitioners "antiago Kr., et al., filed a Petition for *eview in 3.*. No. +C+55256. 'astly,

errors of judgment could not be remedied by a Petition for Certiorari. Petitioner "antiago "r.)s Petition in 3.*.

No. +C-C raised issues that were factual and evidentiary in nature, on which the *T1 has yet to make finding.

=n substantial grounds, respondents #iguel, et al ., e@plained that their 1omplaint in 1ivil 1ase No. 2

6+ was comprised of several causes of action. &t was not merely a derivative suit, but was also an intra2

corporate action arising from devices or schemes employed by the P*1& Board of irectors amounting to fraud

or misrepresentation and were detrimental to the interest of the P*1& stockholders. $dditionally, the fraudulent

acts and breach of fiduciary duties by the P*1& directors had already been established by prima facie factual

evidence, which warranted the continuation of the proceedings in 1ivil 1ase No. 26+ before the *T1 for

adjudication on the merits. &t was also established that there were no appraisal rights available for the acts

complained of, since (+ the P*1& directors were being charged with mismanagement, misrepresentation, fraud,

and breach of fiduciary duties, which were not subject to appraisal rightsE (- appraisal rights would only obtain

for acts of the Board of irectors in good faithE and (G appraisal rights may be e@ercised by a stockholder who

had voted against the proposed corporate action, and no corporate action had yet been taken herein by P*1&

stockholders, who still had not voted on the intended property2for2shares e@change between P*1& and

KT:. <urthermore, the 1ourt of $ppeals correctly denied admission of the "upplemental Petitions in 1$23* "P

No. AA6A and No. AAC. $ new and independent cause of action could not be set by supplemental

complaint. The issues raised in the original Petitions pertain to the grave abuse of discretion committed by the

*T1 in issuing the T*= and in taking cogni?ance of 1ivil 1ase No. 26+, by setting the same for hearing on

the main injunctionE in contrast, the issues in the "upplemental Petitions referred to the issuance of the 9rit of

Preliminary &njunction.

&n support of their prayer for the immediate lifting or dissolution of the T*= issued by this 1ourt,

respondents #iguel, et al ., contended that7

&

T:; T;#P=*$*Q *;"T*$&N&N3 =*;* &""%; BQ T:&" :=N=*$B'; 1=%*T:$" &#P;''; :;*;&N P;T&T&=N;* $N :&" 1=2#$K=*&TQ &*;1T=*" T="1:;%'; $ "T=1J:=';*") #;;T&N3 9&T: T:; 4&;9 T= *;N;* #==T

$N $1$;#&1 T:; $1T&=N $N P*=1;;&N3" B;<=*; T:; *;3&=N$'T*&$' 1=%*T =< #$J$T&, B*$N1: +A.

&& T:; P;T&T&=N;* :;*;&N, :$4&N3 B;;N &#P';$; $" &*;1T=* $N

<&%1&$*Q =< P*1&, =;" N=T "T$N T= "%<<;* $NQ &**;P$*$B'; &NK%*Q.

&&&

T= T:; 1=NT*$*Q, &T &" P*1& 9:= "T$N T= "%<<;* 3*$4; $N&**;P$*$B'; &NK%*Q &< T:; T*= &" N=T '&<T; $NF=* &""='4;.

&4

T:; P;T&T&=N;* :;*;&N :$" <$&'; T= ;"T$B'&": $NQ 1';$* ';3$' *&3:TT:$T ;NT&T';" :&# T= T:; &""%$N1; =< $ T*= $NF=* 9*&T =<P*;'&#&N$*Q &NK%N1T&=N.



4

T:; T*= 9$" &#P*=P;*'Q &""%; $" P;T&T&=N;* :$" <$&'; T= ":=9 $NQ;OT*;#; %*3;N1Q T= N;1;""&T$T; T:; &""%$N1; T:;*;=<./GG0

&n the end, respondents #iguel, et al ., prayed7

!RA'ER

9:;*;<=*;, premises considered, it is respectfully prayed of this :onorable

"upreme 1ourt that the Temporary *estraining =rder be '&<T; or &""='4;&##;&$T;'Q, and that the instant Petition be &"#&"";.

=ther just and e!uitable reliefs are likewise prayed for./G0

=nly two days later, on -G $pril -C, respondents #iguel, et al ., again urgently moved/G50

for thelifting andFor dissolution of the T*= issued by this 1ourt. They informed the 1ourt that the P*1& Board of

irectors passed and approved on -- $pril -C a *esolution setting the $nnual "tockholders) #eeting of P*1&

on+C Kune -C, including in the proposed $genda therefor the following items7

(d $pproval of the #inutes of the "pecial "tockholders) #eeting held on November -6, and the #inutes of the $nnual "tockholders) #eeting held on + =ctober -E

@ @ @ @

(g $pproval and ratification of the acts of the Board of irectors, the ;@ecutive

1ommittee, and #anagement of the 1orporation for <iscal Qears -6 and -E

(h $pproval of the Planned ;@change of P*1&)s #akati Property for shares of stock of

KT: avies :oldings, &nc./G60

=n the same day, -G $pril -C, the 1ourt issued a *esolution /G0 consolidating 3.*. No. +C+55256

and No. +C-C.

Thereafter, on +6 Kune -C, $ris Prime *esources, &nc. ($P*&, a minority stockholder of P*1& H with

5,,. shares or .CCL of the outstanding capital stock of P*1& H filed a 4ery *espectful #otion for

'eave to &ntervene as 1o2*espondent in the Petition with the attached 4ery *espectful %rgent #otion to 'ift

*estraining =rder./GC0 &t relayed to the 1ourt that it received Notice of the $nnual "tockholders) #eeting of P*1&

set on +C Kune -C, where the items on the property2for2shares e@change between P*1& and KT: were included

in the $genda.

1onsidering that the validity of the acts of the P*1& Board of irectors concerning the property2for2

shares e@change are the very issues raised in the Petitions presently before the 1ourt, while the factual issues

relating to the same are still being litigated before the *T1 in 1ivil 1ase No. 26+, the submission of the

e@change to the P*1& stockholders for their approval will render the aforementioned proceedings before this

1ourt and the *T1 moot and academic. &t will amount to a denial of the right of $P*& and of respondents

#iguel, et al ., to be heard before the *T1 where they are still to present their evidence on the factual issues. &t

will likewise unduly pave the way for the validation of the abuse committed by the majority directors of P*1& in

denying the right of the minority directors and stockholders of the corporation to information, and for the



















sanction of the blatant disregard by the majority directors of their duties of fidelity and transparency. %nless the

T*= is lifted forthwith, $P*&, respondents #iguel, et al., and all other minority stockholders stand to suffer

prejudice. ;@pectedly, petitioners seek the dismissal, while respondents #iguel, et al ., pray for the grant of the

motion to intervene of $P*&.

Pending action on the foregoing incidents, petitioners "antiago Kr., et al ., filed before the 1ourt a

#anifestation and #otion to "et 1ase for =ral $rguments./GA0

&n their #anifestation, petitioners "antiago Kr., et al ., admitted that the P*1& Board of irectors had

already called and set the $nnual "tockholders) #eeting on+C Kune -C, and among the items on the $genda for

confirmation and approval by the stockholders was the property2for2shares e@change between P*1& and KT:.

Petitioners "antiago Kr., et al ., brought to the attention of the 1ourt the fact that on 5 Kune -C, another

set of minority stockholders of P*1&, namely, Kalane 1hristie %. Tan, #arilou %. Pua, $risteo 3. Puyat, and

*icardo ". Parreno (Kalane, et al. filed with the *T1 of #akati a 1omplaint against petitioners and the other

directors of P*1& andFor KT:, docketed as 1ivil 1ase No. C25C. Kalane, et al ., have the following

shareholdings in P*1&7

S)oH/ol>+r No. o S/*r+ !+r+-)*+

Kalane 1hristie %. Tan +6,A-,56 -.A

#arilou %. Pua G,CC, .6C

$rtisteo 3. Puyat +,6GG,666 .-A

*icardo ". PareUo 5,C5 .

Total --,5+,6 G.A

Kalane, et al ., claimed in their 1omplaint in 1ivil 1ase No. C25C that 8/a0part from being a derivative

suit, this suit is also filed based on devices or schemes employed by the Board of irectors amounting to fraud or

misrepresentation which is detrimental to the interest of the corporation, the public andFor stockholders as

provided for under "ection +(a(+ of the &nterim *ules of Procedure for &ntra21orporate 1ontroversies ($.#.

No. +2-22"1.>/0 The 1omplaint was based on four causes of action7 (+ the ac!uisition of KT: by P*1&E (-

sale of -A.A-L of KT: shares by P*1&E /+0 (G e@change of the #akati property of P*1& for KT: sharesE and (

interlocking of irectors of P*1& and KT:. The 1omplaint of Kalane, et al ., contained the following prayer7

!RA'ER

9:;*;<=*;, it is respectfully prayed of this :onorable 1ourt, after due notice andhearing, that7

+. $ Temporary *estraining =rder andFor 9rit of Preliminary #andatory &njunction be

issued enjoining the presentation, discussion and ratification of portions of the $genda of the $nnual "tockholders #eeting of P*1& scheduled on Kune +C, -C, particularly items&4, 4&& and 4&&&E

-. $n order be issued nullifying the "ale and Purchase $greement dated "eptember -,

-6 for the ac!uisition of KT: avies :oldings, &nc. G. $n order be issued nullifying the sale of P*1& shares in KT: in $pril - and #ay ,

-E

/Paragraph crossed2out.0











5. $n order be issued directing defendants to pay plaintiffs the sum of P5,. as and by

way of attorney)s fees, plus cost of suit.

=ther reliefs, just and e!uitable under the premises are likewise prayed for./-0

$cting on the 1omplaint of Kalane, et al . in 1ivil 1ase No. C25C, ;@ecutive Kudge 9inlove umayas

(;@ecutive Kudge umayas of the #akati 1ity *T1 issued a -2hour T*=, enjoining P*1& directors from

presenting, discussing, and ratifying the items in the $genda for the $nnual "tockholders) #eeting set on +C

Kune -C related to the property2for2shares e@change between P*1& and KT:. :owever, upon being apprised of

the T*= issued by this 1ourt on A $pril -C in 3.*. No. +C-C, in relation to 1ivil 1ase No. 26+ pending

before the #akati 1ity *T1, Branch +A, ;@ecutive Kudge umayas gave verbal advice that the $nnual

"tockholders) #eeting of P*1& should proceed on +C Kune -C as if the -2hour T*= had not been

issued. 1onse!uently, the $nnual "tockholders) #eeting of P*1& proceeded on +C Kune -C.

The $nnual "tockholders) #eeting of P*1&, held on +C Kune -C, was attended by stockholders with atotal of AG,+,5A shares or C6.5-L of the outstanding capital stock of P*1&, more than the necessary -FG to

constitute a !uorum. iscussed in the meeting were the same items, whose presentation to the stockholders was

sought to be enjoined by respondents #iguel, et al ., in 1ivil 1ase No. 26+ and by Kalane, et al ., in 1ivil 1ase

No. C25C. The actions taken by the stockholders on the controversial items were duly recorded in the #inutes

of the meeting, as follows7

I. A!!ROAL O T"E MIN%TES O T"E !REIO%S STOC$"OLDERS

MEETINGS

Before the ne@t agenda was tackled in the meeting, a stockholder, $tty. Benjamin

"antos asked to be recogni?ed on the floor. The 1hairman gave $tty. "antos permission to speak. $tty. "antos in!uired from the 1orporate "ecretary if there hasalready been official notice of service on him regarding a 72</or )+por*r@

r+)r*i-i- or>+r /i/ * i+> ;@ )/+ EB+)i:+ =>+ o

)/+ M*H*)i R+io-*l Tri*l Cor) RTC. The 1orporation (sic "ecretary answeredin the negative.

<or the information of the stockholders present, $tty. "antos mentioned that a casehas been filed by certain minority shareholders, namely, Kalane 1hristie %. Tan,

#arilou %. Pua, $risteo 3. Puyat and *icardo ". Parreno, against the Board of irectors of P*1& (1ivil 1ase No. C25C, #akati *T1, and a -2hour T*= wasissued on + Kune -C 8enjoining defendants (directors of P*1&, their representatives, employees andFor all those acting for and in their behalf to refrain

from the presentation, discussion and ratification of portions of the $genda of the$nnual "tockholders) #eeting of P*1& scheduled on Kune +C, -C particularly

items &4, 4&& and 4&&&.> @ @ @. @ @ @ @ $ccording to $tty. "antos, the T*= enjoins them in their capacity as irectors of P*1&. :e further stated that the attendance of all the directors present in the

stockholders) meeting, is in their capacity as stockholders of P*1& and not asdirectors of P*1&. The 1hairman is present merely to preside over the meeting, andthe 1orporate "ecretary is not a member of the Board of irectors. $tty. "antoslikewise informed the stockholders present of the e@istence of a )+por*r@

r+)r*i-i- or>+r i+> ;@ )/+ Spr++ Cor) >*)+> 09 April 2008 (in "1 3.*.

No. +C-C which en2oined respondents from enforcin) or eEecutin) the assailed Court of Appeals? decision and resolution, and the assailed trial court?s resolutions





particularl3 that %hich mandates the continued enforcement of the %rit of permanent

in2unction issued &3 the trial court, until further orders from this Court. Thereafter,$tty. "antos moved that $genda &tem &4 as well as the rest of the items to be taken

up since the T*= of the #akati *T1 is defective and should not prevail over theT*= of the "upreme 1ourt.

$tty. "antos added that the case recently filed by the abovementioned minorityshareholders is a duplicate of another pending case filed by other minorityshareholders also in the #akati *T1. &t was pointed out that the shareholders in the

recent case are guilty of forum shopping since they primarily have the same interestsas those who had earlier filed a suit against P*1&. $tty. "antos clarified that the pending case is currently the subject of a Petition to the "upreme 1ourt wherein theaforementioned T*= was issued. 9ith this 1omment, the 1orporate "ecretary took note of the Petition filed with the "upreme 1ourt and the T*= issued by the "upreme1ourt.

@ @ @ @ @ @ @ 9ith all the foregoing comments, $tty. "antos moved that the stockholders

proceed with the meeting and that the item under $genda &4 be approved, which arethe following7 the #inutes of the $nnual "tockholders) #eeting held on Kune +A,

-6, the #inutes of the "pecial "tockholders) #eeting held on November , -6and the #inutes of the $nnual "tockholders) #eeting held on =ctober +, -. Thereafter, $tty. $le@ander 1arandang asked to be given permission to speak. The1hairman asked $tty. 1arandang his name and authority to speak, to which, heanswered his name and said he was stockholder of record and a pro@y of $risteo

Puyat and Kose '. "antos. $fter $tty. 1arandang was recogni?ed, he stated that,contrary to $tty. "antos) earlier actuations, the recent complaint filed is differentfrom the complaint earlier filed by the ulay group. :e also mentioned that the casewhich Puyat earlier filed is different because it is a case for inspection and photocopying of P*1& documents. :e thereafter warned against the tackling of

$genda &tem No. . $tty. Brigido ulay, as a stockholder and pro@y to the Tan group (#iguel =campoTan, Kemie %. Tan, K%T :oldings, &nc., Kalane 1hristie %. Tan, etc. likewise took thefloor to manifest his continuing objection to the proceedings. $tty. $mado Paolo imayuga also took the floor as a pro@y to #arilou Pua and

manifested that the complainants in the recent case filed are not guilty of forumshopping and also manifested his objection to the taking up of &tem &4 in the agendaand the continuance of the proceedings in the stockholders) meeting. $tty. Pelagio*icalde also took the floor as pro@y for $ries Prime *esources, &nc. and alsomanifested objection to the proceedings. Both $tty. imayuga and $tty. *icaldemanifested continuing objections.

$tty. imayuga also mentioned that he received word that a #otion to 'ift was justfiled by the P*1& irectors regarding the recent T*= issued by the #akati *T1. $sa reply, the 1orporate "ecretary asked that the counsel for the P*1& directors beallowed to e@plain such allegations. $tty. 3arbriel D. ;nri!ue?, the counsel for P*1& irectors 1ua, 1ua, Kr., e 4illa and *obles informed the stockholders of the

wrong information being given by $tty. imayuga. They had filed a manifestation before the ;@ecutive Kudge of the *T1 which issued the T*= and informed him of the facts mentioned by $tty. "antos. The ;@ecutive Kudge said that today)s meetingshould proceed because the plaintiffs therein suppressed the e@isting T*= in the"upreme 1ourt, and the T*= of the *T1 cannot rise above the "upreme 1ourtT*=. There is therefore no legal obstacle to holding the $nnual "tockholders)

#eeting, which should proceed so as not to prejudice the stockholders.



The 1orporate "ecretary stated that all the objections are duly noted. There being anearlier motion for the approval of the #inutes, a stockholder seconded saidmotion. The motion having been duly seconded, the 1hairman declared all the

minutes for approval as duly approved.

@ @ @ @

I. RATIICATION O T"E ACTS O T"E #OARD O DIRECTORS, T"E

EEC%TIE COMMITTEE AND T"E MANAGEMENT O T"E

COR!ORATION OR ISCAL 'EARS 2006 AND 2007

The 1hairman then proceeded by stating that the ne@t item on the agenda is theratification by the "tockholders of the acts of the #o*r> o Dir+)or, )/+ EB+)i:+

Coi))++, *-> )/+ M*-*++-) >ri- )/+ l*) i*l @+*r 2006 *->

2007. The 1hairman then e@plained that as to all other matters and action affecting

the operations, financial performance and strategic posture of the 1orporation, allhave been subsumed and discussed in the $nnual *eport of the President andlikewise reflected in the &nformation "tatement sent to all stockholders of record andto the ";1.

=nce more, $tty. ulay, $tty. 1arandang, $tty. imayuga and $tty. *icalde all took

the floor successively and objected to this item in the agenda and the 1orporate"ecretary duly noted these objections. $ stockholder later moved that all the acts of the Board of irectors, the ;@ecutive1ommittee, and the corporate management be confirmed, ratified and approved bythe stockholders. The said motion was duly seconded, thus, the stockholders

thereafter approved and ratified all the said acts. $t this juncture, $tty. ulay re!uested that the stockholders who moved andseconded the aforementioned acts be named and their authority to speak be madeknown. $tty. 1arandang likewise in!uired about the same information about a lady

stockholder who earlier seconded the motion. 9ith this, $tty. Kose #iguel #analostated his name and said he was a stockholder of record. The other stockholdersstated that they were pro@ies of #r. "antiago 1ualoping &&&.

II. A!!ROAL O T"E EC"ANGE O !RCIS MA$ATI !RO!ERT' OR

S"ARES O STOC$ O =T" DAIES "OLDINGS, INC.

9hen asked by the 1hairman as to the ne@t item in the agenda, the 1orporate"ecretary informed all present that the ne@t item is the *ppro:*l o )/+ +B/*-+ o

!RCIM*H*)i prop+r)@ or /*r+ o )oH o =T" D*:i+ "ol>i- which wasduly approved by the Board of irectors during its ++ #ay - meeting. Thee@change was duly reported and disclosed to the ";1 and the information thereof was included in the &nformation "tatements mailed to all stockholders of P*1&.

Qet again, $tty. ulay, $tty. 1arandang, $tty. imayuga and $tty. *icalde all took the floor successively and objected to this item in the agenda which were duly noted by the 1orporate "ecretary.

The 1hairman then called the President of P*1&, #r. "olomon 1ua to officiate on

this matter. $t this point, one stockholder moved that the e@change of P*1&)s #akatiproperty for KT: shares be approved by the stockholders, which wasduly seconded by another stockholder. President 1ua then asked that the total percentage of those who are in favor of the e@change be taken. #r. "antiago 1ua, Kr.,a stockholder and a pro@y of appro@imately G+.GAL of the shareholdings voted infavor of the e@change. Then, #r. 'awrence 'im "wee 'in, representing #agnum

&nvestment 'td. and 'eisure #anagement 'td. who own GA.+5L of the

shareholdings, also voted in favor of the e@change. #r. ;@e!uiel . *obles alsovoted in favor of the e@change, as pro@y of "ta. 'ucia *ealty M evelopment, &nc.



owning .+AL of the shares. 'astly, $tty. "antos also wanted his vote of approval becounted whi his shares of stock of ++ shares.

9ith 5.-GL of the outstanding capital stock of P*1& voting in favor of thee@change of its #akati property for shares of stock of KT: avies, the 1hairmanthen declared said motion as carried and approved./G0

:ence, at their annual meeting on +C Kune -C, the P*1& stockholders had already confirmed and

approved the actions and resolutions of the P*1& Board of irectors, which were to subject matters of 1ivil

1ases No. 26+ and No. C25C. *esultantly, on Kuly -C, P*1& and KT: duly signed and e@ecuted a eed

of Transfer with "ubscription $greement, covering the e@change of the #akati property of P*1& for shares of

stock of KT:. Paragraph of said eed e@pressly provides7

. The parties understand, acknowledge and agree that this eed is +B+)+>

i)/ )/+ i-)+-)io- o *:*ili- o )/+ ;+-+i) o S+)io- 40C2 o )/+ N*)io-*l I-)+r-*l

R+:+-+ Co>+ o 1997 NIRC, * *+->+> , where, upon subscription of shares hereunder,the "ubscriber shall gain further control of the 1ompany. The partieso;)*i-+> * rli- ro

)/+ #r+* o I-)+r-*l R+:+-+ to the effect that -o *i- or lo ill ;+ r+o-i+> on the part of each of the parties, pursuant to this eed, in accordance with "ections (1(- of the N&*1, as amended. The ruling confirmed that the transfer of the "ubscriber)s parcels of landto the 1ompany in e@change for the shares of stock of the latter is -o) ;+) )o i-o+ )*B,

*pi)*l *i- )*B, >o-or )*B, :*l+<*>>+> )*B *-> >o+-)*r@ )*p )*B, e@cept for documentary stamp ta@ on the original issuance of the 1ompany)s shares of stock to the"ubscriber. /0 (;mphases ours.

:owever, in a letter dated +5 Kuly -C, the B&* reversedFrevoked its earlier ruling that the property2

for2shares e@change between P*1& and KT: was a ta@2free transaction under "ection (1(- of the National

&nternal *evenue 1ode of +AAE and subjected the e@change to value2added ta@. $s a result, P*1& and KT:

e@ecuted on -- $ugust -C a isengagement $greement,/50 by virtue of which, effective immediately, P*1&

and KT: would disengaged and would no longer implement the eed of Transfer with "ubscription $greement

dated Kuly -C. <or all intents and purposes, the said eed of Transfer with "ubscription $greement was

rescinded. P*1& disclosed the isengagement $greement to the ";1 on -6 $ugust -C.

1ivil 1ase No. C25C was eventually also assigned to the only commercial court of #akati 1ity, i.e.,*T1, Branch +A, presided over by Kudge %ntalan. Petitioners "antiago Kr., et al. averred that Kudge %ntalan

refused to dismiss 1ivil 1ase No. C25C on the ground of forum shopping, even when it was no different from

1ivil 1ase No. 26+. They further asserted that Kudge %ntalan showed evident partiality in favor of Kalane, et

al ., during the hearings in 1ivil 1ase No. C25C, openly making hasty conclusions as to certain marked e@hibits

and demonstrating his pre2judgment of the case. =n -5 "eptember -C and G "eptember -C, the P*1&

directors filed before the *T1 a #otion to &nhibit/60 and a "upplemental #otion to &nhibit,/0 respectively, urging

Kudge %ntalan to inhibit himself from 1ivil 1ase No. C25C, since he had revealed in several instances his utter

bias and prejudice against the P*1& directors and admitted his being a relative by affinity of $tty. $mado Paulo

imayuga,/C0 the initial counsel of Kalane, et al . Kudge %ntalan has yet to act on such motions.





















$t the end of their #anifestation, petitioners "antiago Kr., et al ., asked that this 1ourt grant them the

following reliefs7

!RA'ER

9:;*;<=*;, it is respectfully prayed that the foregoing #anifestation be noted,and that the <irst "uit /1ivil 1ase No. 26+0 as well as the "econd "uit /1ivil 1ase No. C25C0 should now be dismissed for being moot and academic, without need of remand to thetrial (sic 1ourt for further proceedings.

&t is further respectfully prayed that should the :onorable 1ourt find it proper and

necessary, the instant cases be set for oral arguments on such date and time as it may deemconvenient to its calendar.

:erein petitioners furthermore pray for such other reliefs as may be just and

e!uitable in the premises./A0

Petitioner "antiago "r. also filed his own #anifestation (To %pdate the :onorable 1ourt on *elevant

"upervening Proceedings and &ncidents with #otion to *esolve #erits of Petition and of the 1ase in the 'ower

1ourt (&n 4iew of "upervening Proceedings and &ncidents, /50 essentially recounting the same events in the

#anifestation of petitioners "antiago Kr., et al . The prayer of "antiago "r. in his #anifestation and #otion reads7

! R A ' E R

9:;*;<=*;, it is respectfully prayed that the :onorable 1ourt7 +. T$J; 1=3N&S$N1; of the instant #anifestation on relevant supervening

proceedings and incidents in this case, especially and specifically, after the issuance by the:onorable 1ourt on A $pril -C of a temporary restraining order, addressed to the 1ourt of $ppeals, the presiding judge of the *egional Trial 1ourt, Branch +A, #akati 1ity, and the

private respondents, and their agents, representatives andFor any person or persons acting upontheir orders or in their place of stead, who are7

8;NK=&N; from enforcing or e@ecuting the assailed 1ourt of $ppeals)decision and resolution, and the assailed trial court)s resolutions particularlythat which mandates the continued enforcement of the writ of permanent

injunction issued by the trial court, until further orders from this 1ourt.> -. =*;* the dismissal of the complaint below on the ground that the same is

not a legitimate and valid derivative suit.

G. =*;* the dismissal of the complaint below, in any case, on the ground thatthe issues raised in the complaint, specifically with respect to the so2called 8disputed>resolutions, have been mooted andFor no longer subsist.

. =*;* the private respondents to e@plain why they should not be cited for

contempt of court for violation of the temporary restraining order issued by the 1ourt onA$pril -C.

5. =*;* the private respondents to e@plain why they should not be cited for

contempt of court for engaging in forum2shopping. 6. =*;* that the temporary restraining order issued by the 1ourt on A $pril

-C be made P;*#$N;NT.

=ther reliefs just and e!uitable in the premises are likewise prayed for./5+0










II

ISS%ES

The 1ourt identifies the following fundamental issues for its resolution in the Petitions at bar7

(+ 9hether the Petition of "antiago "r. in 3.*. No. +C-C should be dismissed for its procedural

infirmitiesR

(- 9hether 1ivil 1ase No. 26+ instituted by respondents #iguel, et al . before the *T1 should be

ordered dismissedR

(G 9hether 1ivil 1ase No. C25C instituted by Kalane, et al ., before the *T1 should be ordered

dismissedR

( 9hether $P*& should be allowed to intervene in the instant PetitionsR

III

R%LING O T"E CO%RT

Proced"ral infir#ities of Petition in 3.$. No. 678897

*espondents #iguel, et al ., call attention to two procedural infirmities of the Petition for Certiorari of

petitioner "antiago "r. in 3.*. No. +C-C7 (+ the failure to inform the 1ourt of the pendency of the Petition in

3.*. No. +C+55256, thus, violating the rule against forum2shoppingE and (- its being the wrong mode of

appeal.

The 4erification and 1ertification of Non2<orum "hopping attached to the Petition for Certiorari of

petitioner "antiago "r. in 3.*. No. +C-C was actually signed by his attorney2in2fact, "olomon,/5-0 who is also a

petitioner in 3.*. No. +C+55256. &t contains the following paragraph7

. &n compliance with the +AA *ules of 1ivil Procedure, & hereby certify that

the petitioner, by himself personally andFor acting through his attorneys2in fact, has notheretofore commenced any other action or proceeding involving the same issues in the"upreme 1ourt, the 1ourt of $ppeals, or different ivisions thereof, or any other tribunal or

agency, and that to the best of my knowledge, no such action or proceeding is pending in the"upreme 1ourt, the 1ourt of $ppeals, or different ivisions thereof, or any other tribunal or agency. &f & should learn that a similar action or proceeding has been filed or is pending before the "upreme 1ourt, 1ourt of $ppeals, or different ivisions thereof, or any other tribunal or agency, & undertake to promptly inform this :onorable 1ourt, the aforesaid courtsand other tribunal or agency within five (5 days therefrom./5G0

*espondents #iguel, et al., maintain that the failure of "olomon, as petitioner "antiago "r.)s attorney2in2

fact, to inform the 1ourt as regards the pendency of the Petition for *eview in 3.*. No. +C+55256, of which

"olomon is one of the petitioners, is in violation of the rule against forum2shopping and warrants the summary

dismissal of the Petition in 3.*. No. +C-C.

<orum shopping is the institution of two or more actions or proceedings grounded on the same cause on

the supposition that one or the other court would make a favorable disposition. &t is an act of malpractice and is







prohibited and condemned as trifling with courts and abusing their processes. &n determining whether or not

there is forum shopping, what is important is the ve@ation caused the courts and parties2litigants by a party who

asks different courts andFor administrative bodies to rule on the same or related causes andFor grant the same or

substantially the same reliefs and in the process creates the possibility of conflicting decisions being rendered by

the different bodies upon the same issues./50

<orum shopping is present when, in two or more cases pending, there is identity of (+ parties (- rights

or causes of action and reliefs prayed for, and (G the two preceding particulars, such that any judgment rendered

in the other action will, regardless of which party is successful, amount to res 2udicata in the action under

consideration./550

&t is evident that "antiago "r., the petitioner in 3.*. No. +C-C, is not a party to 3.*. No. +C+552

56. ;ven though "olomon is admittedly a petitioner in 3.*. No. +C+55256, he is only acting in 3.*. No.

+C-C as the attorney2in2fact of "antiago "r., the actual petitioner in the latter case. Thus, the very first element

for forum shopping, identity of parties, is lacking.

*espondents #iguel, et al ., cannot insist on identity of interests between petitioner "antiago "r. in 3.*.

No. +C-C and petitioners "antiago Kr., et al., in 3.*. No. +C+55256, when the 1omplaint itself of respondents

#iguel, et al ., before the *T1, docketed as 1ivil 1ase No. 26+, impleads the petitioners "antiago "r. and

"antiago Kr., et al ., as defendants a 'uo in their i->i:i>*l *p*i)i+ * !RCI >ir+)or, and not collectively as

the P*1& Board of irectors. ;ach individual P*1& director, therefore, is not precluded from hiring his own

counsel, presenting his own arguments and defenses, and resorting to his own procedural remedies, apart and

independent from the other P*1& directors. &n addition, the consolidation of 3.*. No. +C+55256 and 3.*. No.

+C-C has already eliminated the danger of conflicting decisions being issued in said cases.

$ssuming ar)uendo that "olomon did have the legal obligation to inform the 1ourt in 3.*. No. +C-C of

the pendency of 3.*. No. +C+55256, his failure to do so does not necessarily result in the dismissal of the

former. $lthough the submission of a certificate against forum shopping is deemed obligatory, it is not

jurisdictional./560 :ence, in this case in which such a certification was in fact submitted H only, it was defective 22

the 1ourt may still refuse to dismiss and may, instead, give due course to the Petition in light of attendant

e@ceptional circumstances./50

"antiago "r. committed another procedural fauE pas by filing before this 1ourt a Petition

for Certiorari under *ule 65 of the *ules of 1ourt to assail the ecision dated 6 "eptember - and *esolution

dated -- Kanuary -C of the 1ourt of $ppeals in 1$23.*. "P No. AA6A and No. AAC.

The proper remedy of a party aggrieved by a decision of the 1ourt of $ppeals is a petition for review

under *ule 5, which is not similar to a petition for certiorari under *ule 65 of the *ules of 1ourt. $s provided

in *ule 5 of the *ules of 1ourt, decisions, final orders or resolutions of the 1ourt of $ppeals in any case, i.e.,

regardless of the nature of the action or proceedings involved, may be appealed to this 1ourt by filing a petitionfor review, which would be but a continuation of the appellate process over the original case. =n the other hand,














a special civil action under *ule 65 is an independent action based on the specific grounds therein provided and,

as a general rule, cannot be availed of as a substitute for the lost remedy of an ordinary appeal, including that

under *ule 5./5C0

$ccordingly, when a party adopts an improper remedy, as in this case, his Petition may be dismissed

outright. :owever, in the interest of substantial justice, the strict application of procedural technicalities should

not hinder the speedy disposition of this case on the merits. Thus, while the instant Petition is one

for certiorariunder *ule 65 of the *ules of 1ourt, the assigned errors are more properly addressed in a petition

for review under *ule 5./5A0

The merits of the Petitions in both 3.*. No. +C+55256 and No. +C-C compel this 1ourt to give more

weight to substantive justice, instead of technical rules. &ndeed, where, as here, there is a strong showing that a

grave miscarriage of justice would result from the strict application of the *ules, the 1ourt will not hesitate to

rela@ the same in the interest of substantial justice. &t bears stressing that the rules of procedure are merely tools

designed to facilitate the attainment of justice. They were conceived and promulgated to effectively aid the court

in the dispensation of justice. 1ourts are not slaves to or robots of technical rules, shorn of judicial discretion. &n

rendering justice, courts have always been, as they ought to be, conscientiously guided by the norm that, on the

balance, technicalities take a backseat against substantive rights, and not the other way around. Thus, if the

application of the *ules would tend to frustrate rather than promote justice, it is always within the power of the

1ourt to suspend the *ules, or e@cept a particular case from its operation./60

Derivative s"its& in general

$ corporation, such as P*1&, is but an association of individuals, allowed to transact under an assumed

corporate name, and with a distinct legal personality. &n organi?ing itself as a collective body, it waives noconstitutional immunities and per!uisites appropriate to such body. $s to its corporate and management

decisions, therefore, the "tate will generally not interfere with the same. Duestions of policy and of management

are left to the honest decision of the officers and directors of a corporation, and the courts are without authority

to substitute their judgment for the judgment of the board of directors. The board is the business manager of the

corporation, and so long as it acts in good faith, its orders are not reviewable by the courts./6+0

The governing body of a corporation is its board of directors. "ection -G of the 1orporation 1ode

provides that 8/u0nless otherwise provided in this 1ode, the corporate powers of all corporations formed under

this 1ode shall be e@ercised, all business conducted and all property of such corporations controlled and held by

the board of directors or trustees @ @ @.> The concentration in the board of the powers of control of corporate business and of appointment of corporate officers and managers is necessary for efficiency in any large

organi?ation. "tockholders are too numerous, scattered and unfamiliar with the business of a corporation to

conduct its business directly. $nd so the plan of corporate organi?ation is for the stockholders to choose the

directors who shall control and supervise the conduct of corporate business./6-0

The following discourse on the corporate powers of the board of directors under "ection -G of the

1orporation 1ode establishes the e@tent thereof7

%nder the above provision, it is !uite clear that, e@cept in the instances where the

1ode e@pressly grants a specific power to the stockholders or member, the board has the sole

power and responsibility to decide whether a corporation should sue, purchase and sell property, enter into any contract, or perform any act. "tockholders) or members) resolutions














dealing with matters other than the e@ceptions are not legally effective nor binding on the board, and may be treated by it as merely advisory, or may even be completelydisregarded. "ince the law has vested the responsibility of managing the corporate affairs on

the board, the stockholders must abide by its decisions. &f they do not agree with the policiesof the board, their remedy is to wait for the ne@t election of the directors and choose new onesto take their place. The theory of the law is that although stockholders are to have all the

profit, the complete management of the enterprise shall be with the board./6G0

The board of directors of a corporation is a creation of the stockholders. The board of directors, or the

majority thereof, controls and directs the affairs of the corporationE but in drawing to itself the power of the

corporation, it occupies a position of trusteeship in relation to the minority of the stock. The board shall

e@ercise good faith, care, and diligence in the administration of the affairs of the corporation, and protect not

only the interest of the majority but also that of the minority of the stock. 9here the majority of the board of

directors wastes or dissipates the funds of the corporation or fraudulently disposes of its properties, or

performs ultra viresacts, the court, in the e@ercise of its e!uity jurisdiction, and upon showing that intracorporate

remedy is unavailing, will entertain a suit filed by the minority members of the board of directors, for and in

behalf of the corporation, to prevent waste and dissipation and the commission of illegal acts and otherwise

redress the injuries of the minority stockholders against the wrongdoing of the majority. The action in such a

case is said to be brought derivatively in behalf of the corporation to protect the rights of the minority

stockholders thereof./60

&t is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust V not of

mere error of judgment or abuse of discretion V and intracorporate remedy is futile or useless, a stockholder

may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring

about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders./650

$ derivative suit must be differentiated from individual and representative or class suits, thus7

"uits by stockholders or members of a corporation based on wrongful or fraudulentacts of directors or other persons may be classified into individual suits, class suits, andderivative suits. 9here a stockholder or member is denied the right of inspection, his suitwould be i->i:i>*l because the wrong is done to him personally and not to the other stockholders or the corporation. 9here the wrong is done to a group of stockholders, aswhere preferred stockholders) rights are violated, a l* or r+pr++-)*)i:+ i) will be proper

for the protection of all stockholders belonging to the same group. But where the actscomplained of constitute a wrong to the corporation itself, the cause of action belongs to thecorporation and not to the individual stockholder or member. $lthough in most every case of wrong to the corporation, each stockholder is necessarily affected because the value of his

interest therein would be impaired, this fact of itself is not sufficient to give him an individualcause of action since the corporation is a person distinct and separate from him, and can and

should itself sue the wrongdoer. =therwise, not only would the theory of separate entity beviolated, but there would be multiplicity of suits as well as a violation of the priority rights of creditors. <urthermore, there is the difficulty of determining the amount of damages thatshould be paid to each individual stockholder.

:owever, in cases of mismanagement where the wrongful acts are committed by the

directors or trustees themselves, a stockholder or member may find that he has no redress because the former are vested by law with the right to decide whether or not the corporationshould sue, and they will never be willing to sue themselves. The corporation would thus behelpless to seek remedy. Because of the fre!uent occurrence of such a situation, the commonlaw gradually recogni?ed the right of a stockholder to sue on behalf of a corporation in what

eventually became known as a 5>+ri:*)i:+ i). &t has been proven to be an effectiveremedy of the minority against the abuses of management. Thus, an individual stockholder is









permitted to institute a derivative suit on behalf of the corporation wherein he holds stock inorder to protect or vindicate corporate rights, whenever officials of the corporation refuse tosue or are the ones to be sued or hold the control of the corporation. &n such actions, the suing

stockholder is regarded as the nominal party, with the corporation as the party in interest./660

The afore2!uoted e@position is relevant considering the claim of respondents #iguel, et al ., that its

1omplaint in 1ivil 1ase No. 26+ is not just a derivative suit, but also an intracorporate action arising from

devices or schemes employed by the P*1& Board of irectors amounting to fraud or misrepresentation. /60 $

thorough study of the said 1omplaint, however, reveals that the distinction is deceptive. The supposed devices

and schemes employed by the P*1& Board of irectors amounting to fraud or misrepresentation are the very

same bases for the derivative suit. They are the very same acts of the P*1& Board of irectors that have

supposedly caused injury to the corporation. <rom the very beginning of their 1omplaint, respondents have

alleged that they are filing the same 8as shareholders, for and in behalf of the 1orporation, in order to redress the

wrongs committed against the 1orporation and to protect or vindicate corporate rights, and to prevent wastage

and dissipation of corporate funds and assets and the further commission of illegal acts by the Board of

irectors.> $lthough respondents #iguel, et al ., also aver that they are seeking 8redress for the injuries of the

minority stockholders against the wrongdoings of the majority,> the rest of the 1omplaint does not bear this out,

and is utterly lacking any allegation of injury personal to them or a certain class of stockholders to which they

belong./6C0

&ndeed, the 1ourt notes $merican jurisprudence to the effect that a derivative suit, on one hand, and

individual and class suits, on the other, are mutually e@clusive, vi= 7

$s the "upreme 1ourt has e@plained7 8$ shareholders derivative suit seeks torecover for the benefit of the corporation and its whole body of shareholders when injury iscaused to the corporation that may not otherwise be redressed because of failure of thecorporation to act. Thus, Ithe action is derivative, i.e., in the corporate right, if the gravamenof the complaint is injury to the corporation, or to the whole body of its stock and propertywithout any severance or distribution among individual holders, or it seeks to recover assets

for the corporation or to prevent the dissipation of its assets.) /1itations.0> ( ones, supra, +1al.Gd AG, +6, C+ 1al.*ptr. 5A-, 6 P.-d 6. &n contrast, 8a direct action /is one0 filed bythe shareholder individually (or on behalf of a class of shareholders to which he or she belongs for injury to his or her interest as a shareholder. ... /W0 ... [T/+ )o *)io- *r+

)*ll@ +Bli:+( i.e., )/+ ri/) o *)io- *-> r+o:+r@ ;+lo- )o +i)/+r

)/+ shareholders >ir+) *)io- 65+ or )/+ corporation >+ri:*)i:+ *)io-.> (<riedman,

1al. Practice 3uide7 1orporations, supra, W 675AC, p. 62+-. Thus, in elson v. Anderson (+AAA - 1al.$pp.th +++, C 1al.*ptr.-d 5G,

the -CA minority shareholder alleged that the other shareholder of the corporationnegligently managed the business, resulting in its total failure. ( "d. at p. +-5, C 1al.*ptr.-d5G The appellate court concluded that the plaintiff could not maintain the suit as a direct

action7 8Because the gravamen of the complaint is injury to the whole body of itsstockholders, it was for the corporation to institute and maintain a remedial action. /1itation.0$ derivative action would have been appropriate if its responsible officials had refused or failed to act.> ( "d. at pp. +-52+-6, C 1al.*ptr.-d 5G The court went on to note that thedamages shown at trial were the loss of corporate profits. (&d. at p. +-6, C 1al.*ptr.-d

5G "ince 8/s0hareholders own neither the property nor the earnings of the corporation,> anydamages that the plaintiff alleged that resulted from such loss of corporate profits 8wereincidental to the injury to the corporation.>/6A0











Based on allegations in the 1omplaint of #iguel, et al ., in 1ivil 1ase No. 26+, the 1ourt determines

that there is only a derivative suit, based on the devices and schemes employed by the P*1& Board of irectors

that amounts to mismanagement, misrepresentation, fraud, and bad faith.

$t the cru@ of the 1omplaint of respondents #iguel, et al., in 1ivil 1ase No. 26+ is their dissent

from the passage by the majority of the P*1& Board of irectors of the 8disputed resolutions,> particularly7 (+

the *esolution dated -6 "eptember -6, authori?ing the ac!uisition by P*1& of up to +L of the common

shares of KT:E and (- the *esolution dated ++ #ay -, approving the property2for2shares e@change between

P*1& and KT:.

Derivative s"it re: ac)"isition of J%0;

&t is important for the 1ourt to mention that the -6 "eptember -6 *esolution of the P*1& Board of

irectors not only authori?ed the ac!uisition by P*1& of up to +L of the common stock of KT:, but it also

specifically appointed petitioner "antiago "r ./0 to act as attorney2in2fact and pro@y who could vote all the shares

of P*1& in KT:, as well as nominate, appoint, and vote into office directors andFor officers during regular and

special stockholders) meetings of KT:. &t was by this authority that P*1& directors were able to constitute the

KT: Board of irectors. Thus, the protest of respondents #iguel, et al ., against the interlocking directors of

P*1& and KT: is also rooted in the -6 "eptember -6 *esolution of the P*1& Board of irectors.

$fter a careful study of the allegations concerning this derivative suit, the 1ourt rules that it is

dismissible for being moot and academic.

That a court will not sit for the purpose of trying moot cases and spend its time in deciding !uestions,

the resolution of which cannot in any way affect the rights of the person or persons presenting them, is wellsettled. 9here the issues have become moot and academic, there is no justiciable controversy, thereby rendering

the resolution of the same of no practical use or value./+0

The *esolution dated -6 "eptember -6 of the P*1& Board of irectors was *ppro:+> *-> r*)ii+> by

the stockholders, holding L of the outstanding capital stock in P*1&, during the "pecial "tockholders)

#eeting held on 7 No:+;+r 2006./-0

*espondents #iguel, et al ., instituted 1ivil 1ase No. 26+ only on 10 =l@ 2007, against herein

petitioners "antiago "r., "antiago Kr., "olomon, and *obles, together with *enato de 4illa, 'im Teong 'eong,

'awrence 'im "wee 'in, Tham Ja :on, and ato "urin %patkoon, i- )/+ir *p*i)@ * >ir+)or of P*1&andFor KT:. 1learly, the ac!uisition by P*1& of KT: and the constitution of the KT: Board of irectors are no

longer just the acts of the majority of the P*1& Board of irectors, but also of the majority of the P*1&

stockholders. By ratification, even an unauthori?ed act of an agent becomes the authori?ed act of the principal./G0 To declare the *esolution dated -6 "eptember -6 of the P*1& Board of irectors null and void will serve

no practical use or value, or affect any of the rights of the parties, because the *esolution dated November

-6 of the P*1& stockholders 22 approving and ratifying said ac!uisition and the manner in which P*1& shall

constitute the KT: Board of irectors 22 will still remain valid and binding.

&n fact, if the derivative suit, insofar as it concerns the *esolution dated -6 "eptember -6 of the P*1&

Board of irectors, is not dismissible for mootness, it is still vulnerable to dismissal for failure to impleadindispensable parties, namely, the majority of the P*1& stockholders.















%nder *ule G, "ection of the *ules of 1ourt, an indispensable party is a party2in2interest, without

whom there can be no final determination of an action. The interests of such indispensable party in the subject

matter of the suit and the relief are so bound with those of the other parties that his legal presence as a party to

the proceeding is an absolute necessity. $s a rule, an indispensable party)s interest in the subject matter is such

that a complete and efficient determination of the e!uities and rights of the parties is not possible if he is not

joined./0

The majority of the stockholders of P*1& are indispensable parties to 1ivil 1ase No. 26+, for they

have approved and ratified, during the "pecial "tockholders) #eeting on November -6, the *esolution

dated -6 "eptember -6 of the P*1& Board of irectors. =bviously, no final determination of the validity of

the ac!uisition by P*1& of KT: or of the constitution of the KT: Board of irectors can be had without

consideration of the effect of the approval and ratification thereof by the majority stockholders.

*espondents #iguel, et al ., cannot simply assert that the majority of the P*1& Board of irectors

named as defendants in 1ivil 1ase No. 26+ are also the P*1& majority stockholders, because respondents

#iguel, et al ., e@plicitly impleaded said defendants in their capacity as directors of P*1& andFor KT:, not as

stockholders.

Derivative s"it re: property1for1shares e<change;

The derivative suit, with respect to the *esolution dated ++ #ay - of the P*1& Board of irectors, is

similarly dismissible for lack of cause of action.

The 1ourt has recogni?ed that a stockholder)s right to institute a derivative suit is not based on any

e@press provision of the 1orporation 1ode, or even the "ecurities *egulation 1ode, but is impliedly recogni?ed

when the said laws make corporate directors or officers liable for damages suffered by the corporation and its

stockholders for violation of their fiduciary duties. &n effect, the suit is an action for specific performance of an

obligation, owed by the corporation to the stockholders, to assist its rights of action when the corporation has

been put in default by the wrongful refusal of the directors or management to adopt suitable measures for its

protection. The basis of a stockholder)s suit is always one of e!uity. "o+:+r, i) *--o) prop+r i)/o) ir)

opl@i- i)/ )/+ l+*l r+Fii)+ or i) i-)i))io-./50

*ule C, "ection + of the &nterim *ules of Procedure for &ntra21orporate 1ontroversies (&*P&11 lays

down the following re!uirements which a stockholder must comply with in filing a derivative suit7

"ec. +. Derivative action. H $ stockholder or member may bring an action in thename of a corporation or association, as the case may be, provided, that7








(+ :e was a stockholder or member at the time the acts or transactions subject of theaction occurred and at the time the action was filedE

(- :e e@erted all reasonable efforts, and alleges the same with particularity in thecomplaint, to e@haust all remedies available under the articles of incorporation, by2laws, lawsor rules governing the corporation or partnership to obtain the relief he desiresE

3 No *ppr*i*l ri/) *r+ *:*il*;l+ or )/+ *) or *) opl*i-+> o E and

( The suit is not a nuisance or harassment suit. (;mphasis ours.

&n their 1omplaint before the *T1 in 1ivil 1ase No. 26+, respondents #iguel, et al., made no

mention at all of appraisal rights, which could or could not have been available to them. &n their 1omment on

the Petitions at bar, respondents #iguel, et al., contend that there are no appraisal rights available for the acts

complained of, since (+ the P*1& directors are being charged with mismanagement, misrepresentation, fraud,

and breach of fiduciary duties, which are not subject to appraisal rightsE (- appraisal rights will only obtain for

acts of the Board of irectors in good faithE and (G appraisal rights may be e@ercised by a stockholder who shall

have voted against the proposed corporate action, and no corporate action has yet been taken herein by P*1&

stockholders, who still have not voted on the intended property2for2shares e@change between P*1& and KT:.

The 1ourt disagrees.

&t bears to point out that every derivative suit is necessarily grounded on an alleged violation by the

board of directors of its fiduciary duties, committed by mismanagement, misrepresentation, or fraud, with the

latter two situations already implying bad faith. &f the 1ourt upholds the position of respondents #iguel, et al . H

that the e@istence of mismanagement, misrepresentation, fraud, andFor bad faith renders the right of appraisal

unavailable H it would give rise to an absurd situation. &nevitably, appraisal rights would be unavailable in any

derivative suit. This renders the re!uirement in *ule C, "ection +(G of the &P*&11 superfluous and effectively

inoperativeE and in contravention of an elementary rule of legal hermeneutics that effect must be given to every

word, clause, and sentence of the statute, and that a statute should be so interpreted that no part thereof becomes

inoperative or superfluous./60

The import of establishing the availability or unavailability of appraisal rights to the minority

stockholder is further highlighted by the fact that it is one of the factors in determining whether or not a

complaint involving an intra2corporate controversy is a nuisance and harassment suit. "ection +(b, *ule + of

&*P&11 provides7

(b Prohi&ition a)ainst nuisance and harassment suits. 2 Nuisance and harassment

suits are prohibited. &n determining whether a suit is a nuisance or harassment suit, the courtshall consider, among others, the following7

(+ The e@tent of the shareholding or interest of the initiating stockholder or memberE

(- "ubject matter of the suitE






(G 'egal and factual basis of the complaintE

4 A:*il*;ili)@ o *ppr*i*l ri/) or )/+ *) or *) opl*i-+> o E and

(5 Prejudice or damage to the corporation, partnership, or association in relation tothe relief sought. /;mphasis ours.0

&n case of nuisance or harassment suits, the court may, motu proprio or upon motion,

forthwith dismiss the case.

The availability or unavailability of appraisal rights should be objectively based on the subject matter of

the complaint, i.e., the specific act or acts performed by the board of directors, without regard to the subjective

conclusion of the minority stockholder instituting the derivative suit that such act constituted mismanagement,

misrepresentation, fraud, or bad faith.

The raison d?etre for the grant of appraisal rights to minority stockholders has been e@plained thus7

@ @ @ /$ppraisal right0 means that a stockholder who dissented and voted against the

proposed corporate action, may choose to get out of the corporation by demanding payment of the fair market value of his shares. 9hen a person invests in the stocks of a corporation, hesubjects his investment to all the risks of the business and cannot just pull out such investmentshould the business not come out as he e@pected. :e will have to wait until the corporation is

finally dissolved before he can get back his investment, and even then, only if sufficient assetsare left after paying all corporate creditors. :is only way out before dissolution is to sell hisshares should he find a willing buyer. &f there is no buyer, then he has no recourse but to staywith the corporation. "o+:+r, i- +r)*i- p+ii+> i-)*-+, )/+ Co>+ r*-) )/+

)oH/ol>+r )/+ ri/) )o +) o) o )/+ orpor*)io- +:+- ;+or+ i) >iol)io- ;+*+

)/+r+ /* ;++- * *or /*-+ i- /i o-)r*) o i-:+)+-) i)/ /i/ /+ >o+ -o) *r++

*-> /i/ )/+ l* pr++ /+ >i> -o) or+++ /+- /+ ;o/) /i /*r+. Si-+ )/+ ill

o )o<)/ir> o )/+ )oH ill /*:+ )o pr+:*il o:+r /i o;+)io-, )/+ l* o-i>+r i)

o-l@ *ir )o *llo /i )o +) ;*H /i i-:+)+-) *-> i)/>r* ro )/+ orpor*)io-. @ @@,/0 (;mphasis ours.

The 1orporation 1ode e@pressly made appraisal rights available to the dissenting stockholder in the

following instances7

"ec. -. Po%er to invest corporate funds in another corporation or &usiness or for

an3 other purpose. H "ubject to the provisions of this 1ode, a private corporation may investits funds in any other corporation or business or for any purpose other than the primary purpose for which it was organi?ed when approved by a majority of the board of directors or trustees and ratified by the stockholders representing at least two2thirds (-FG of theoutstanding capital stock, or by at least two2thirds (-FG of the members in case of non2stock

corporations, at a stockholders) or members) meeting duly called for the purpose. 9rittennotice of the proposed investment and the time and place of the meeting shall be addressed to

each stockholder or member at his place of residence as shown on the books of thecorporation and deposited to the addressee in the post office with postage prepaid, or served personallyE Provided , T/*) *-@ >i+-)i- )oH/ol>+r /*ll /*:+ *ppr*i*l ri/) as






provided in this 1ode7 Provided, ho%ever , That where the investment by the corporation isreasonably necessary to accomplish its primary purpose as stated in the articles of incorporation, the approval of the stockholders or members shall not be necessary.

"ec. C+. "nstances of appraisal ri)ht . H $ny stockholder of a corporation shall have

the ri/) )o >i+-) *-> >+*-> p*@+-) o )/+ *ir :*l+ o /i /*r+ in the following

instances7 +. &n case any amendment to the articles of incorporation has the effect of changing

or restricting the rights of any stockholders or class of shares, or of authori?ing preferences inany respect superior to those of outstanding shares of any class, or of e@tending or shorteningthe term of corporate e@istenceE

-. &n case of sale, lease, e@change, transfer, mortgage, pledge or other disposition of

all or substantially all of the corporate property and assets as provided in this 1odeE and

G. &n case of merger or consolidation. (;mphasis ours.

*espondents #iguel, et al ., themselves admitted that the property2for2shares e@change between P*1&

and KT:, approved by majority of the P*1& Board of irectors in the *esolution dated ++ #ay -, involved

all or substantially all of the properties and assets of P*1&. They alleged in their 1omplaint in 1ivil 1ase No.

26+ that7

A. The 1orporation)s #akati Property, consisting of prime property in the heart

of #akati 1ity worth billions of pesos in its current value o-)i))+ ;)*-)i*ll@ *ll o )/+

*+) o )/+ Corpor*)io- and is the sole and e@clusive location on which it conducts its business of a race course.

5. The e@change of the 1orporation)s property for KT: shares would

therefore o-)i))+ * *l+ o ;)*-)i*ll@ *ll o )/+ *+) o )/+ orpor*)io- . (;mphasisours.

&rrefragably, the property2for2shares e@change between P*1& and KT:, involving as it did substantially all

of the properties and assets of P*1&, !ualified as one of the instances when dissenting stockholders, such as

respondents #iguel, et al ., could have e@ercised their appraisal rights.

The 1ourt finds specious the averment of respondents #iguel, et al ., that appraisal rights were not

available to them, because appraisal rights may only be e@ercised by stockholders who had voted against the

proposed corporate actionE and that at the time respondents #iguel, et al ., instituted 1ivil 1ase No. 26+,

P*1& stockholders had yet to vote on the intended property2for2shares e@change between P*1& and

KT:. *espondents #iguel, et al., themselves caused the unavailability of appraisal rights by filing the

1omplaint in 1ivil 1ase No. 26+, in which they prayed that the ++ #ay - *esolution of the Board of

irectors approving the property2for2shares e@change between P*1& and KT: be declared null and void, even

before the said *esolution could be presented to the P*1& stockholders for approval or rejection. #ore than

anything, the argument of respondents #iguel, et al ., raises !uestions of whether their derivative suit was

prematurely filed for they had failed to e@ert all reasonable efforts to e@haust *ll o)/+r r++>i+ available under

the articles of incorporation, by2laws, laws, or rules governing the corporation or partnership, as re!uired by *ule

C, "ection +(- of the &*P&11. The obvious intent behind the rule is to make the derivative suit the final recourse

of the stockholder, after all other remedies to obtain the relief sought have failed. /C0

Personal action for inspection of corporate boo!s and records






*espondents #iguel, et al., allege another cause of action, other than the derivative suit 22 the violation of

their right to information relative to the disputed *esolutions, i.e., the *esolutions dated +6 "eptember

-6 and ++ #ay - of the P*1& Board of irectors.

*ule of the &*P&11 shall apply to disputes e@clusively involving the rights of stockholders or

members to inspect the books and records andFor to be furnished with the financial statements of a corporation,

under "ections /A0 and 5/C0 of the 1orporation 1ode./C+0

*ule , "ection - of &*P&11 enumerates the re!uirements particular to a complaint for inspection of

corporate books and records7

"ec. -. Complaint . 2 &n addition to the re!uirements in section , *ule - of these*ules, the complaint must state the following7

(+ The case is for the enforcement of plaintiffs right of inspection of corporate

orders or records andFor to be furnished with financial statements under "ections and 5 of

the 1orporation 1ode of the PhilippinesE

2 A >+*-> or i-p+)io- *-> op@i- o ;ooH *-> r+or> *->or )o ;+

r-i/+> i)/ i-*-i*l )*)++-) *>+ ;@ )/+ pl*i-)i po- >++->*-) E

(G The refusal of defendant to grant the demands of the plaintiff and the reasonsgiven for such refusals, if anyE and

( The reasons why the refusal of defendant to grant the demands of the plaintiff isunjustified and illegal, stating the law and jurisprudence in support thereof. (;mphasis ours.

$s has already been previously established herein, the right to information, which includes the right to

inspect corporate books and records, is a right personal to each stockholder. $fter a closer reading of the1omplaint in 1ivil 1ase No. 26+, the 1ourt observes that only respondent ulay actually made a demand for

a copy of 8all the records, documents, contracts, and agreements, emails, letters, correspondences, relative to the

ac!uisition of KT: @ @ @.> There is no allegation that his co2respondents (who are his co2plaintiffs in 1ivil 1ase

No. 26+ made similar demands for the inspection or copying of corporate books and records. =nly

respondent ulay complied then with the re!uirement under *ule , "ection -(- of &*P&11.

;ven so, respondent ulay)s 1omplaint should be dismissed for lack of cause of action, for his demand for

copies of pertinent documents relative to the ac!uisition of KT: shares was not denied by any of the defendants

named in the 1omplaint in 1ivil 1ase No. 26+, but by $tty. Kesulito $. #analo (#analo, the 1orporate

"ecretary of P*1&, in a letter dated + Kanuary -6. "ection of the 1orporation 1ode, the substantive law on











which respondent ulay)s 1omplaint for inspection and copying of corporate books and records is based, states

that7

"ec. . Books to &e kept stock transfer a)ent. H

@ @ @ @ $ny oi+r or *+-) o )/+ orpor*)io- who shall refuse to allow any director,

trustees, stockholder or member of the corporation to e@amine and copy e@cerpts from itsrecords or minutes, in accordance with the provisions of this 1ode, /*ll ;+ li*;l+ to suchdirector, trustee, stockholder or member for damages, and in addition, shall be guilty of an

offense which shall be punishable under "ection + of this 1ode7 Provided, That if suchrefusal is pursuant to a resolution or order of the Board of irectors or Trustees, the liabilityunder this section for such action shall be imposed upon the directors or trustees who votedfor such refusal7 @ @ @ (;mphasis ours.

Based on the foregoing, it is 1orporate "ecretary #analo who should be held liable for the supposedly

wrongful and unreasonable denial of respondent ulay)s demand for inspection and copying of corporate books

and recordsE but, as previously mentioned, 1orporate "ecretary #analo is not among the defendants named in

the 1omplaint in 1ivil 1ase No. 26+. There is also utter lack of any allegation in the 1omplaint that

1orporate "ecretary #analo denied respondent ulay)s demand pursuant to a resolution or order of the P*1&

irectors, so that the latter (who are actually named defendants in the 1omplaint could also be held liable for

the denial.

+"pervening events

uring the pendency of the cases at bar, supervening events took place that further justified the dismissal

of 1ivil 1ase No. 26+ for already being moot and academic.

First , during the -C $nnual "tockholders) #eeting of P*1&, held on +C Kune -C, the following

agenda items were finally presented to the stockholders, who approved and ratified the same by a majority vote7

(+ the #inutes of the "pecial "tockholders) #eeting dated November -6, during which the majority of the

stockholders approved and ratified the ac!uisition of KT: by P*1&E (- the acts of the Board of irectors, the

;@ecutive 1ommittee, and the #anagement of P*1& for -6, which included the ac!uisition of KT: by P*1&E

and (G the planned property2for2shares e@change between P*1& and KT:. ;ven respondents #iguel, et al .,

themselves admitted in their 1omment with Prayer for the &mmediate 'ifting or issolution of the Temporary

*estraining =rder in 3.*. No. +C-C that7

+-. &ndeed, the approval andFor ratification of the transfer of P*1&)s "ta. $na

racetrack property to KT: during the upcoming stockholders) meeting would render nugatory,

moot and academic the action and proceedings before the *egional Trial 1ourt of #akati,Branch +A, inasmuch as the acts assailed by private respondents would have already beenconsummated by such approval andFor ratification.

+G. &n the same vein, such approval andFor ratification during the forthcoming

P*1& stockholder)s (sic meeting would likewise render moot and academic the proceedings

before this :onorable 1ourt in that it would have effectively granted the reliefs sought byherein petitioner even before this :onorable 1ourt could finally rule on the propriety of the1ourt of $ppeals) ecisionF*esolution by herein petitioners./C-0





Second , although already approved and ratified by majority vote of the P*1& stockholders, and P*1&

and KT: e@ecuted a eed of Transfer with "ubscription $greement on Kuly -C to effect the property2for2

shares e@change between the two corporations, the controversial transaction will no longer push through. $

major consideration for the e@change is that it will be ta@2freeE but the B&* ruled that such transaction shall be

subject to 4$T. *esultantly, P*1& and KT: e@ecuted on -- $ugust -C a isengagement $greement, by virtue

of which, both corporations rescinded the eed of Transfer with "ubscription $greement dated Kuly -C and

immediately disengaged from implementing the said eed.

Civil Case No. 871=>7

The very nature of 1ivil 1ase No. 26+ as a derivative suit bars 1ivil 1ase No. C25C and warrants

the latter)s dismissal.

&n Chua v. Court of Appeals,/CG0 the 1ourt stresses that the corporation is the real party in interest in a

derivative suit, and the suing stockholder is only a nominal party7

$n individual stockholder is permitted to institute a derivative suit on behalf of thecorporation wherein he holds stocks in order to protect or vindicate corporate rights, whenever

the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation. &n such actions, )/+ i- )oH/ol>+r i r+*r>+> * * -oi-*l p*r)@, i)/

)/+ orpor*)io- * )/+ r+*l p*r)@ i- i-)+r+).

@ @ @ @

@ @ @ <or a derivative suit to prosper, it is re!uired that the minority stockholder suingfor and on behalf of the corporation must allege in his complaint that /+ i i- o- *

>+ri:*)i:+ *+ o *)io- o- ;+/*l o )/+ orpor*)io- *-> *ll o)/+r )oH/ol>+r

iil*rl@ i)*)+> /o *@ i/ )o oi- /i i- )/+ i) . &t is a condition sine 'ua non thatthe corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. The judgment must be

made binding upon the corporation in order that the corporation may get the benefit of the suitand *@ -o) ;ri- ;+F+-) i) **i-) )/+ *+ >++->*-) or )/+ *+ *+ o

*)io-. &n other words, the corporation must be joined as party because i) i i) *+ o

*)io- )/*) i ;+i- li)i*)+> *-> ;+*+ >+-) ) ;+ * res ad,"dicata **i-)

i). (;mphases ours.

The more e@tensive discussion by the 1ourt of the nature of a derivative suit in Asset Privati=ation Trust v.

Court of Appeals/C0 is presented below7

"ettled is the doctrine that in a derivative suit, the corporation is the real party in

interest while the stockholder filing suit for the corporation)s behalf is only a nominal party. The corporation should be included as a party in the suit.

$n individual stockholder is permitted to institute a derivative suiton behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse tosue, or are the ones to be sued or hold the control of the corporation. &nsuch actions, the suing stockholder is regarded as a nominal party, with thecorporation as the real party in interest. @ @ @.

&t is a condition sine 'ua non that the corporation be impleaded as a party because2








@ @ @. Not only is the corporation an indispensable party, but it isalso the present rule that it must be served with process. The reason given isthat the judgment must be made binding upon the corporation and in order

that the corporation may get the benefit of the suit and may not bring asubse!uent suit against the same defendants for the same cause of action. &nother words the corporations must be joined as party because it is its cause

of action that is being litigated and because judgment must be a resa2udicata against it.

The reasons given or -o) *lloi- >ir+) i->i:i>*l i) are7

(+ @ @ @ 8the universally recogni?ed doctrine that a stockholder ina corporation has -o )i)l+ l+*l or +Fi)*;l+ )o )/+ orpor*)+ prop+r)@ Ethat both of these are in the corporation itself for the benefit of thestockholders.> &n other words, )o *llo /*r+/ol>+r )o + +p*r*)+l@

ol> o-li) i)/ )/+ +p*r*)+ orpor*)+ +-)i)@ pri-ipl+E (- @ @ @ that the prior rights of the creditors may be

prejudiced. Thus, our "upreme 1ourt held in the case of !van)elista v.

Santos, that 8the stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution

among them of part of the corporate assets before the dissolution of thecorporation and the li!uidation of its debts and liabilities, something whichcannot be legally done in view of "ection +6 of the 1orporation 'aw @@@E>

(G the filing of such suits would conflict with the duty of the

management to sue for the protection of all concernedE

( it would pro>+ *)+l l)iplii)@ o i)E and (5 it would involve confusion in ascertaining the effect of partial

recovery by an individual on the damages recoverable by the corporation for

the same act.

$s established in the foregoing jurisprudence, in a derivative suit, it is the corporation that is the

indispensable party, while the suing stockholder is just a nominal party. %nder *ule , "ection G of the *ules of

1ourt, an indispensable party is a party2in2interest, without whom no final determination can be had of an action

without that party being impleaded. &ndispensable parties are those with such an interest in the controversy that a

final decree would necessarily affect their rights, so that the court cannot proceed without their presence.

8&nterest,> within the meaning of this rule, should be material, directly in issue, and to be affected by the decree,

as distinguished from a mere incidental interest in the !uestion involved. =n the other hand, a nominal or pro

forma party is one who is joined as a plaintiff or defendant, not because such party has any real interest in thesubject matter or because any relief is demanded, but merely because the technical rules of pleadings re!uire the

presence of such party on the record./C50

9ith the corporation as the real party2in2interest and the indispensable party, any ruling in one of the

derivative suits should already bind the corporation as res 2udicata in the other. $llowing two different minority

stockholders to institute separate derivative suits arising from the same factual background, alleging the same

causes of action, and praying for the same reliefs, is tantamount to allowing the corporation, the real party2in2

interest, to file the same suit twice, resulting in the violation of the rules against a multiplicity of suits and even

forum2shopping. &t is also in disregard of the separate2corporate2entity principle, because it is to look beyond the

corporation and to give recognition to the different identities of the stockholders instituting the derivativesuits.






&t is for these reasons that the derivative suit, 1ivil 1ase No. C25C, although filed by a different set of

minority stockholders from those in 1ivil 1ase No. 26+, should still not be allowed to proceed.

<urthermore, the highly suspicious circumstances surrounding the institution of 1ivil 1ase No. C25C

are not lost upon the 1ourt. To recall, on A $pril -C, the 1ourt already issued in 3.*. No. +C-C a T*=

enjoining the e@ecution and enforcement of the writ of permanent injunction issued by the *T1 in 1ivil 1ase No.

26+, which prevented the P*1& Board of irectors from presenting to the P*1& stockholders at the $nnual

"tockholders) #eeting, for approval and ratification, the agenda items on the ac!uisition by P*1& of KT: shares

and the property2for2shares e@change between P*1& and KT:. The 1omplaint in 1ivil 1ase No. C25C was

filed with the *T1 on +6 Kune -C, just two days before the scheduled $nnual "tockholders) #eeting on +C

Kune -C, where the items subject of the permanent injunction were again included in the agenda. The -2hour

T*= issued by the *T1 in 1ivil 1ase No. C25C enjoined the very same acts covered by the writ of permanent

injunction issued by the *T1 in 1ivil 1ase No. 26+, the e@ecution and enforcement of which, in turn, was

already enjoined by the T*= dated A $pril -C of this 1ourt. 1onsidering that it is P*1& which is the real

party2in2interest in both 1ivil 1ases No. 26+ and No. C25C, then its ac!uisition in the latter of a T*=

e@actly similar to the writ of permanent injunction in the former is but an obvious attempt to circumvent the T*=

of this 1ourt enjoining the e@ecution and enforcement of the permanent injunction.

2ntervention of AP$2

&t is also the nature of a derivative suit that prompts the 1ourt to deny the intervention by $P*& in 1ivil

1ase No. 26+. =nce more, the 1ourt emphasi?es that P*1& is the real party2in2interest in 1ivil 1ase No. 2

6+, not respondents #iguel, et al ., whose participation therein is deemed nominal. $P*&, moreover, merely

echoes the position of respondents #iguel, et al., and, hence, renders the participation of $P*& in 1ivil 1ase No.26+ redundant.

$lso, the main concern of $P*& was the lifting of the T*= issued by this 1ourt on A $pril -C and the

e@ecution and enforcement of the permanent injunction issued by the *T1, enjoining the presentation by the

P*1& Board of irectors 22 at the $nnual "tockholders) #eeting scheduled on +C Kune -C, for approval and

ratification by the stockholders H of the agenda items on the ac!uisition by P*1& of KT: shares and the property2

for2shares e@change between P*1& and KT:. 3iven that the $nnual "tockholders) #eeting already took place

on +C Kune -C, during which the subject agenda items were presented to and approved and ratified by the

stockholders, the intervention of $P*& is already moot.

$s a final note, respondent #iguel, et al . made repeated allegations that foreigners were taking over P*1&,

and that this must be stopped to protect the <ilipino stockholders. They even invoked the ruling of this 1ourt

in +anila Prince 1otel v. Government Service "nsurance S3stem GS"S./C60

*espondents #iguel, et al ., however, cannot rely on +anila Prince 1otel as judicial precedent, for the

facts therein are far different from those in the cases at bar. The 3overnment, through 3"&", owned #anila

:otel 1orporation (#:1, which, in turn, owned the historic #anila :otel. The case arose from the efforts of

3"&" at privati?ing #:1 by holding a public bidding for G25+L of the issued and outstanding shares of

#:1. The 1ourt ruled that since the <ilipino corporation was able to match the higher bid made by a foreign

corporation, then preference should be given to the former, considering that #anila :otel had become a







landmark, a living testimonial to Philippine heritage, and part of Philippine economy and patrimony. This was in

accord with the <ilipino2first policy in the +AC 1onstitution.

&n contrast, P*1& is a publicly listed corporation. &ts shares can be freely sold and traded to the public,

subject to regulation by the P"; and the ";1. 9ithout any legal basis therefor, the 1ourt cannot be e@pected to

allocate or impose limitations on ownership of P*1& shares by foreigners. 9hat is more, P*1&, which operates

and maintains a horse racetrack and conducts horse racing and betting, can hardly claim to be 8a living

testimonial of Philippine heritage,> like #anila :otel, that would justify judicial intervention to protect the

interests of <ilipino stockholders as against foreign stockholders.

"EREORE, the 1ourt renders the following judgment7

(+ The 1ourt GRANTS the Petitions of petitioners "antiago, et al., and petitioner "antiago "r. in

3.*. No. +C+55256 and 3.*. No. +C-C, respectively. &tREERSES and SETS ASIDE the ecision dated 6

"eptember - and *esolution dated -- Kanuary -C of the 1ourt of $ppeals in 1$23.*. "P No. AA6A and

No. AACE

(- The 1ourt LITS the T*= issued on A $pril -C in 3.*. No. +C-C

and CANCELS and RET%RNS the cash bond posted by petitioner "antiago "r. The permanent injunction

issued by the *T1 on C =ctober -, the e@ecution and enforcement of which the T*= dated A $pril -C of

this 1ourt enjoins, has been rendered moot, since the agenda items subject of said permanent injunction were

already presented to, and approved and ratified by a majority of the P*1& stockholders at the $nnual

"tockholders) #eeting held on +C Kune -CE

(G The 1ourt ORDERS the DISMISSAL of the 1omplaint of respondents #iguel, et al., in 1ivil1ase No. 26+ before the *T1 for lack of cause of action, failure to implead indispensable parties, and

mootnessE

( The 1ourt ORDERS the DISMISSAL of the 1omplaint of Kalane, et al., in 1ivil 1ase No. C2

5C, for being in violation of the rules on the multiplicity of suits and forum shoppingE and

(5 The 1ourt DENIES the 4ery *espectful #otion for 'eave to &ntervene as 1o2*espondent in the

Petition with the attached 4ery *espectful %rgent #otion to 'ift *estraining =rder of $P*&, for redundancy and

mootness.

No costs.

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