13. Acquisitions Mergers and Consolidations

April 19, 2018 | Author: Rache Gutierrez | Category: Assignment (Law), Mergers And Acquisitions, Corporations, Business Law, Society
Share Embed Donate


Short Description

Corporation Law Reviewer based on Dean Cesar Villanueva's Syllabus and Book...

Description

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

 

ACQUISITIONS,  MERGERS  AND  CONSOLIDATIONS     I.  ACQUISITIONS  AND  TRANSFERS     A.   Concept   of   “Business   Enterprise”,   “Economic   Unit”   or   “Going   Concern”  (Section  40)     Section  40.  Sale  or  other  disposition  of  assets.   Subject  to  the  provisions  of  existing  laws  on  illegal  combinations  and   monopolies,   a   corporation   may,   by   a   majority   vote   of   its   board   of   directors   or   trustees,   sell,   lease,   exchange,   mortgage,   pledge   or   otherwise  dispose  of  all  or  substantially  all  of  its  property  and  assets,   including   its   goodwill,   upon   such   terms   and   conditions   and   for   such   consideration,   which   may   be   money,   stocks,   bonds   or   other   instruments   for   the   payment   of   money   or   other   property   or   consideration,   as   its   board   of   directors   or   trustees   may   deem   expedient,   when   authorized   by   the   vote   of   the   stockholders   representing  at  least  two-­‐thirds  (2/3)  of  the  outstanding  capital  stock,   or   in   case   of   non-­‐stock   corporation,   by   the   vote   of   at   least   to   two-­‐ thirds   (2/3)   of   the   members,   in   a   stockholder's   or   member's   meeting   duly   called   for   the   purpose.   Written   notice   of   the   proposed   action   and   of   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   the   corporation   and   deposited   to   the   addressee   in   the   post  

the   corporate   property   and   assets   if   thereby   the   corporation   would   be   rendered   incapable   of   continuing   the   business   or   accomplishing   the   purpose  for  which  it  was  incorporated.     After  such  authorization  or  approval  by  the  stockholders  or  members,   the  board  of  directors  or  trustees  may,  nevertheless,  in  its  discretion,   abandon   such   sale,   lease,   exchange,   mortgage,   pledge   or   other   disposition  of  property  and  assets,  subject  to  the  rights  of  third  parties   under  any  contract  relating  thereto,  without  further  action  or  approval   by  the  stockholders  or  members.     Nothing   in   this   section   is   intended   to   restrict   the   power   of   any   corporation,   without   the   authorization   by   the   stockholders   or   members,   to   sell,   lease,   exchange,   mortgage,   pledge   or   otherwise   dispose  of  any  of  its  property  and  assets  if  the  same  is  necessary  in  the   usual   and   regular   course   of   business   of   said   corporation   or   if   the   proceeds   of   the   sale   or   other   disposition   of   such   property   and   assets   be  appropriated  for  the  conduct  of  its  remaining  business.     In   non-­‐stock   corporations   where   there   are   no   members   with   voting   rights,   the   vote   of   at   least   a   majority   of   the   trustees   in   office   will   be   sufficient   authorization   for   the   corporation   to   enter   into   any   transaction  authorized  by  this  section.  (28  1/2a)    

office   with   postage   prepaid,   or   served   personally:   Provided,   That   any   dissenting   stockholder   may   exercise   his   appraisal   right   under   the   conditions  provided  in  this  Code.     A   sale   or   other   disposition   shall   be   deemed   to   cover   substantially   all  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  



Business  enterprise  constitutes  the  goodwill,  the  customer  lists   and  all  factors  that  make  a  business  profitable.  Villa  Rey  Transit,   Inc.  v.  Ferrer,  25  SCRA  845  (1968).     Villa  Rey  Transit,  Inc.  v.  Ferrer  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

    Facts:  Villarama  entered  into  a  Contract  of  Sale  with  PANTRANCO  for  2   certificates  of  public  convenience  (first  set)  which  authorizes  the  owner   to  operate  32  units  of  buses  along  the  Pangasinan  to  Manila  route.  The   contract  contains  a  stipulation  that  prohibits  Villarama  from  applying  for  

pay   for   his   own   obligations,   and   that   he   also   bought   money   into   the   corporation’s   coffers.   Evidence   further   shows   that   the   initial   cash   capitalization   of   the   corporation   of   P105,000   was   mostly   financed   by   Villarama.  Further,  the  evidence  shows  that  when  the  Corporation  was   in  its  initial  months  of  operation,  Villarama  purchased  and  paid  with  his  

new  TPUs  for  10  years  identical  or  competing  with  the  buyer’s.     3  months  alter,  a  corporation  called  Villa  Rey  Transit  Inc.  was  organized   with   a   capital   stock   of   P500,000.   The   incorporators   are   Natividad   Villarama  (wife)  and  other  relatives.  After  registering  with  the  SEC,  Villa   Rey  bought  five  TPUs  (second  set)  from  Fernando  along  with  49  buses,   tools   and   other   equipment.   Villa   Rey   prayed   for   the   Public   Service  

personal   checks   Ford   trucks   for   the   Corporation.   Villarama   had   co-­‐ mingled   his   personal   funds   and   transactions   with   those   made   in   the   name  of  the  Corporation.     The   clear   intention   of   the   parties   was   to   prevent   the   seller   from   conducting   any   competitive   line   for   10   years   since,   anyway,   he   has   bound  himself  not  to  apply  for  authorization  to  operate  along  such  lines  

Commission   (PSC)   to   grant   it   provisional   authority   to   operate.   Before   the  PSC  could  take  action  on  the  application,  two  of  the  five  TPUs  were   levied   in   favor   of   Ferrer   in   cases   against   Fernando.   Ferrer   then   sold   these   two   TPUs   to   PANTRANCO.   Subsequently,   the   PSC   ordered   that   PANTRANCO   would   have   the   authority   to   operate   on   the   two   TPUs   acquired  from  Ferrer.  Villa  Rey  now  questioned  this  order  and  initiated   an  action  in  the  CFI  of  Manila  to  annul  these  two  TPUs.  PANTRANCO  on  

for  the  duration  of  such  period.  If  the  prohibition  is  to  be  applied  only  to   the   acquisition   of   new   certificates   of   public   convenience   thru   an   application   with   the   Public   Service   Commission,   this   would,   in   effect,   allow  the  seller  just  the  same  to  compete  with  the  buyer  as  long  as  his   authority   to   operate   is   only   acquired   thru   transfer   or   sale   from   a   previous  operator,  thus  defeating  the  intention  of  the  parties.    

the   other   hand   initiated   a   third-­‐party   complaint   alleging   that   Villarama/Villa  Rey  Inc.  was  disqualified  from  operating  on  the  two  TPUs   by  virtue  of  their  original  contract  of  Sale.     Issue:   Whether  or  not  the  stipulation  on  the  original  contract  between   PANTRANCO  and  Villarama  binds  Villa  Rey  Inc.  as  well.     Held:   YES.   Evidence   discloses   that   for   someone   claiming   he   is   only   a  

Doctrine:  

part-­‐time  manager,  the  evidence  on  record  shows  Villarama  practically   controlled   the   corporation   because   he   used   the   corporation   funds   to  



  •

As   a   rule   “Personal   Liabilities”   remain   with   the   company   even   where   assets   are   disposed.   But   those   liabilities   that   attach   to   the   object   disposed   of   follow   that   object   and   become   the   liability  of  the  purchaser/transferee.  

  B.  Types  of  Acquisitions\Transfers  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

As  a  rule,  a  corporation  that  purchases  the  assets  of  another  will   not   be   liable   for   the   debts   of   the   selling   corporation,   provided  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  the   former   acted   in   good   faith   and   paid   adequate   consideration   for   such   assets,  except   when   any   of   the   following   circumstances   is   present:   (1)   where   the   purchasers   expressly   or   impliedly   agrees   to   assume   the   debts;   (2)   where   the   selling   corporation   fraudulently   enters   into   the   transactions   to   escape   liability   for   those   debts   (3)   where   the   purchasing   corporation   is   merely   a   continuation   of   the   selling   corporation,   and   (4)   where   the   transaction   amounts   to   a   consolidation   or   merger   of   the   corporations.  Edward  J.  Nell  Co.  v.  Pacific,  15  SCRA  415  (1965).1     Edward  J.  Nell  Co.  v.  Pacific  

including   the   pumping   equipment   it   sold   to   Insular   Farms.   The   sale   transaction  was  not  entered  into  fraudulently.  The  sale  between  Insular   and   Pacific   took   place   nearly   6   months   before   the   rendition   of   the   judgment   sought   to   be   collected.   In   addition,   Pacific   purchased   the   shares  of  stock  of  Insular  as  the  highest  bidder  at  an  action  sale  at  the   instance  of  a  bank.  The  claim  that  the  amount  paid  (P10,000)  is  grossly   inadequate   cannot   be   assailed   because   the   sale   was   submitted   to   and   approved  by  the  SEC  and  as  such,  presumed  fair  and  reasonable.     Doctrine:  See  above.    

  Facts:   Edward   J.   Nell   Company   (EJNC)   secured   a   judgment   against   Insular  Farms,  Inc.  representing  unpaid  balance  of  the  price  of  a  pump   sold  by  EJNC  to  the  former.  The  writ  of  execution  was  returned  stating   that   Insular   Farms   had   no   leviable   property.   A   few   months   later,   EJNC   filed   this   present   action   against   Pacific   Farms,   Inc.   for   the   collection   of   the  judgment  against  Insular  Farms,  upon  the  theory  that  Pacific  Farms   is  the  alter  ego  of  Insular  Farms.     Issue:  Whether   or   not   Pacific   Farms   is   liable   for   the   unpaid   obligation   of   Insular  Farms.     Held:  NO.  The  theory  of  EJNC  that  Pacific  Farms  is  an  alter  ego  of  Insular   Farms,  arose  because  the  former  purchased  all  or  substantially  all  of  the   shares   of   stock,   as   well   as   the   real   and   personal   properties   of   the   latter,  

                                                                                                                1

 Philippines  National  Bank  v.  Andrada  Electric  &  Engineering  Co.,  381  SCRA  244   (2002);   McLeod   v.   NLRC,   512   SCRA   222   (2007);   Jiao   v.   NLRC,   670   SCRA   184   (2012).  



Even  under  the  provisions  of  the  Civil  Code,  a  creditor  has  a  real   interest  to  go  after  any  person  to  whom  the  debtor  fraudulently   transferred   its   assets.   Caltex  (Phils.),  Inc.  v.  PNOC  Shipping  and   Transport  Corp.,  498  SCRA  400  (2006).     Caltex  (Phils.),  Inc.  v.  PNOC  Shipping  and  Transport  Corp.  

  Facts:   The   PNOC   Shipping   and   Transport   Corporation   (PSTC)   and   the   Luzon   Stevedoring   Corporation   (LUSTEVECO)   entered   into   an   Agreement  of  Assumption  of  Obligations,  which  provides  that  PSTC  shall   assume   all   obligations   of   LUSTEVECO   with   respect   to   certain   claims   enumerated   in   the   Annexes   of   the   Agreement.   This   Agreement   also   provides   that   PSTC   shall   control   the   conduct   of   any   litigation   pending   which   may   be   filed   with   respect   to   such   claims,   and   that   LUSTEVECO   appoints   and   constitutes   PSTC   as   its   attorney-­‐in-­‐fact   to   demand   and   receive  any  claim  out  of  the  countersuits  and  counterclaims  arising  from   said   claims.   Among   the   actions   mentioned   is   Caltex   (Phils)   v.   Luzon   Stevedoring   Corporation,   which   was   then   pending   appeal.   Caltex   won  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 



In  the  "assets-­‐only"  acquisition,   the  purchaser  is  only  interested   in   the   "raw"   assets   and   properties   of   the   business,   perhaps   to   be  used  to  establish  his  own  business  enterprise  or  to  be  used   for  his  on-­‐going  business  enterprise.  In  such  an  acquisition,  the   purchaser  is  not  interested  in  the  entity  of  the  corporate  owner   of   the   assets,   nor   of   the   goodwill   and   other   factors   relating   to   the  business  itself.    

  Held:   YES.   The   Agreement   provides   that   PSTC   shall   assume   all   the   obligations   of   LUSTEVECO.   LUSTEVECO   transferred,   conveyed   and   assigned   to   PSTC   all   of   LUSTEVECO’s   business,   properties   and   assets   pertaining   to   its   tanker   and   bulk   business   “together   with   all   the   obligations   relating   to   the   said   business,   properties   and   assets.”   The   assumption  of  obligations  was  stipulated  not  only  in  the  Agreement  of  



In   other   instances,   the   purchaser   is   interested   only   in  

purchasing  the  assets  to  ensure  that  he  would  not  be  embroiled   in   issues   relating   to   the   liabilities   and   other   contractual   commitments  of  the  business  enterprise  or  those  pertaining  to   the  transferor.   2. "Business-­‐Enterprise"  Level.  2  

Assumption  of  Obligations  but  also  in  the  Agreement  of  Transfer.       Even  without  the  Agreement,  PSTC  is  still  liable.  While  the  Corporation   Code   allows   the   transfer   of   all   or   substantially   all   the   properties   and   assets  of  a  corporation,  the  transfer  should  not  prejudice  the  creditors   of   the   assignor   by   holding   the   assignee   liable   for   the   former’s   obligations.    



In  the  "business-­‐enterprise"  level,  the  purchaser's  interest  goes   beyond  the  assets  or  properties  of  the  business  enterprise.  The   purchaser’s  primary  interest  is  essentially  to  obtain  the  “earning   capability”  of  the  venture.  However,  the  purchaser  in  such  is  not   interested   in   obtaining   the   juridical   entity   that   owns   the   business   enterprise,   and   therefore   purchases   directly   the   business  from  the  corporate  entity.  

  Doctrine:  To  allow  an  assignor  to  make  a  transfer  without  the  consent   of   its   creditors   and   without   requiring   the   assignee   to   assume   the   former’s  obligations  will  defraud  creditors.  



As   will   be   shown   in   the   discussions   hereunder,   the   essence   of   the   "business-­‐enterprise"   transfer   is   that   the   effect   is   that   the   transferee   merely   continues   the   same   business   of   the   transferor.  

  PSALM  took  ownership  over  most  of  NPC’s  assets  by  operation   of   law—these   properties   may   be   used   to   satisfy   the   Court’s   judgment,   and   such   being   the   case,   the   employees   may   go   after   such   properties.   NPC   Drivers   and   Mechanics   Association   (NPC   DAMA)  v.  NPC,  606  SCRA  409  (2009).  

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

1. "Assets-­‐Only"  Level.1  

the   case   and   a   writ   of   execution   was   issued   in   its   favor   but   was   not   satisfied.   When   it   learned   about   the   agreement   between   PSTC   and   LUSTEVECO,  it  sued  PSTC  and  brought  an  action.     Issue:  Whether  or  not  Caltex  may  recover  from  PTSC.  



 

                                                                                                                1

 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.   2  Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)    

 

3. "Equity"  Level.  1   •

business   enterprise   as   it   is   owned   and   operated   by   the   corporation.  The  purchaser  takes  control  and  ownership  of  the   business   by   purchasing   the   shareholdings   of   the   corporate   owner.   The   control   of   the   business   enterprise   is   therefore   indirect,   since   the   corporate   owner   remains   the   direct   owner   of   the  business,  and  what  the  purchaser  has  actually  purchased  is   the  ability  to  elect  the  members  of  the  board  of  the  corporation   who  run  the  business.  



In   an   assets-­‐only   transfer,   the   transferee   is   not   liable   for   the  



When   another   corporation   takes   over   the   assets   of   another  

corporation   which   is   dissolved,   the   succeeding   corporation   is   liable   for   the   claims   against   the   dissolved   corporation   to   the   extent  of  the  fair  value  of  the  assets  assumed.     4. Voluntary  Assumption  of  Liabilities.7   •

The   other   instance   in   an   assets-­‐only   transfer   when   the   transferee  becomes  liable  for  the  obligations  of  the  transferor  is   when  by  contract,  express  or  implied,  the  transferee  voluntarily   assumes  such  obligations  of  the  transferor.    

  D.  Business  Enterprise  Transfers:     1. Nature  of  Business-­‐Enterprise.8  

debts   and   liabilities   of   the   transferor,   except   where   the   transferee  expressly  or  impliedly  agrees  to  assume  such  debts.   2. Coverage  of  the  Bulk  Sales  Law.3   •

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

title  of  the  transferee  over  the  assets  would  be  void,  even  if  he   were  a  purchaser  in  good  faith.5   3. Special  Rule  in  Corporate  Dissolution.6  

The   "equity"   level   constitutes   looking   at   the   entirety   of   the  

  C.  Assets  Only  Transfers   1. Rationale  for  Non-­‐Assumption  of  Liability.2  

 

An   assets-­‐only   transfer   if   constituting   "bulk   sale"   under   the  Bulk  

A   business   enterprise,   apart   from   the   juridical   personality   under   which   is   operates,   has   a   "separate   being"   of   its   own.   Properly   speaking,   a   business   enterprise   comprises   more   than   just   the  

Sales   Law,4  would   affect   the   transferee   in   the   sense   that   if   the   sale   has   not   complied   with   the   requirements   of   the   Law,   the   sale   could   be   classified   as   fraudulent   and   void,   and   therefore  

properties  of  the  business,  but  includes  a  "concern"  that  covers   the  employees,  the  goodwill,  list  of  clientele  and  suppliers,  etc.,   which  give  it  value  separate  and  distinct  from  its  owners  or  the  



                                                                                                                5

                                                                                                                1

 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.   2  Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.   3  Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.   4  Act  No.  3952,  as  amended  by  Rep.  Act  No.  111.  

 The  Court  of  Appeals  in  People  v.  Wong,  50  O.G.  4867,  has  held  that  the  Bulk   Sales  Law  applies  only  to  merchandising  business  or  establishments,  and  has  no   application   to   other   forms   of   activities   such   as   in   that   case   the   sale   of   the   equipment,  tools  and  machineries  of  a  foundry  shop.   6  Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.   7  Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.   8  Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  juridical  entity  under  which  it  operates.  This  is  what  is  termed  as   the   "economic   unit",   "the   enterprise",   "the   going   concern",   or   the   "financial   unit",   recognized   in   other   disciplines,   such   as   Economics  and  Accounting.   •

Although,   jurisprudence   refuses   to   recognize   a   separate  

existence   of   the   business   enterprise   apart   from   the   juridical   personality   which   the   State   grants   in   corporations, 1  and   partnerships, 2  such   separate   existence   of   the   business   enterprise  does  exist  and  is  recognized  in  the  business  world.   2. Statement  of  Doctrine.  3   •



Jurisprudence   has   held   that   in   a   business-­‐enterprise   transfer,   the   transferee   is   liable   for   the   debts   and   liabilities   of   his   transferor.     The   purpose   of   the   jurisprudential   doctrine   is   to   protect   the  

creditors   of   the   business   by   allowing   them   a   remedy   against   the   new  controller  or  owner  of  the  business  enterprise.   3. Application  of  Doctrine   •

A.D.  Santos  v.  Vasquez,  22  SCRA  1156  (1968)       A.D.  Santos  v.  Vasquez  

 

                                                                                                                1

 Tayag   v.   Benguet   Consolidated   Inc.,   26   SCRA   242   (1968).   It   rejected   the   genossenchaft  theory  of  Friedman  that  would  recognize  the  corporate  entity  as   "the   reality   of   the   group   as   a   social   and   legal   entity   independent   of   state   recognition  and  concession."     2  Ang  Pue  &  Co.  v.  Section  of  Commerce  and  Industry,  5  SCRA  645  (1962).  The   formation   of   a   corporate   entity   or   a   partnership   is   not   a   matter   of   right,   but   rather  of  a  privilege.   3  Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  

Facts:   A.D.  Santos,  Inc.  operates  taxicabs.  Ventura  Vasquez  was  one  of   his   taxi   drivers.   While   driving   A.D.   Santos,   Inc.’s   taxi   cab,   Vasquez   vomited   blood.   The   company’s   physician,   Dr.   Roman,   treated   him.   He   was  sent  to  and  confined  in  Santo  Tomas  Hospital.  Afterwards,  he  was   admitted   at   the   Quezon   Institute   where   he   was   diagnosed   with   pulmonary  tuberculosis.  He  did  not  resume  work.  Vasquez  filed  a  claim   with   the   Workmen’s   Compensation   Commission.   A.D.   Santos,   Inc.   was   ordered   to   pay   compensation   and   reimburse   Vasquez   the   amount   he   spent  for  his  treatment.     Issue:  Whether  or  not  A.D.  Santos  is  liable  for  the  expenses  of  Vasquez     Held:   YES.  Vasquez’  cause  of  action  against  A.D.  Santos,  Inc.  is  complete.   In   its   answer   to   Vasquez’s   claim,   A.D.   Santos,   Inc.   categorically   admitted   that   Vasquez   was   its   taxi   driver.   Further,   Vasquez   contracted   pulmonary   tuberculosis  by  reason  of  his  employment.     Vasquez  cited  in  his  testimony  that  he  worked  for  City  Cab,  a  company   operated  by  a  certain  Amador  Santos.  This  does  not  detract  the  validity   of  Vasquez’  right  to  compensation.  Amador  Santos  was  the  sole  owner   and   operator   of   City   Cab   (sole   proprietorship).   It   was   subsequently   transferred  to  A.D.  Santos,  Inc.  in  which  Amador  Santos  was  a  majority   stockholder.  In  business  enterprise  transfers,  the  transferee  is  liable  for   the   liabilities   of   his   transferor   arising   from   the   business   enterprise   transferred.   Mentioning   Amador   Santos   as   his   employer   should   not   confuse  the  facts  relating  to  the  employer-­‐employee  relationship.  In  this   case,  the  veil  of  the  corporate  fiction  is  used  as  a  shield  to  perpetrate  a   fraud  or  confuse  legitimate  issues.    

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  Doctrine:  In  business  enterprise  transfers,  the  transferee  is  liable  for  the   liabilities   of   his   transferor   arising   from   the   business   enterprise   transferred.     •

Where  a  corporation  is  formed  by,  and  consisted  of  members  of   a   partnership   whose   business   and   property   was   conveyed   and   transferred  to  the  corporation  for  the  purpose  of  continuing  its   business,   in   payment   for   which   corporate   capital   stock   was   issued,   such   corporation   is   presumed   to   have   assumed   partnership   debts,   and   is   prima   facie   liable   therefore.   Laguna   Trans.  Co.,  Inc.  v.  SSS,  107  Phil.  833  (1960).  

  Laguna  Trans.  Co.,  Inc.  v.  SSS     Facts:   In   1940   the   Biñan   Transportation   Co.,   a   corporation   duly   registered  with  the  SEC,  sold  part  of  the  lines  and  equipment  it  operates   to  G.  Mercado,  A.  Mercado,  Mata  and  Vera  Cruz.  After  this,  the  vendees   formed   an   unregistered   partnership   under   the   name   of   Laguna   Transportation   Company   which   continued   to   operate   the   lines   and   equipment  bought  from  Biñan  Transportation  Co.  Later  on,  the  original   partners   forming   Laguna   Transport   Company   along   with   2   new   members  organized  a  corporation  known  as  the  Laguna  Transportation   Co.,  Inc.  and  the  corporation  was  registered  in  the  SEC  on  June  20,  1956,   which   continued   the   same   transportation   business   of   the   unregistered   partnership.   Laguna   Trans.   Co.   Inc.   requested   for   exemption   from   coverage  by  the  System  on  the  ground  that  it  started  operation  only  on   June  20,  1956,  when  it  was  registered  with  the  Securities  and  Exchange   Commission   but   on   November   11,   1957,   the   Social   Security   System   notified  plaintiff  that  it  was  covered.  

  Issue:   Whether   or   not   Laguna   Trans   Co.   Inc.   was   bound   by   the   compulsory  coverage  of  the  Social  Security  Act     Held:  YES.   While   it   is   true   that   a   corporation   once   formed   is   conferred   a   juridical  personality  separate  and  district  from  the  persons  composing  it,   it   is   but   a   legal   fiction   introduced   for   purposes   of   convenience   and   to   subserve  the  ends  of  justice.  To  adopt  Laguna  Trans.  Co.  Inc.’s  argument   would   defeat,   rather   than   promote,   the   ends   for   which   the   Social   Security   Act   was   enacted.   An   employer   could   easily   circumvent   the   statute   by   simply   changing   his   form   of   organization   every   other   year,   and  then  claim  exemption  from  contribution  to  the  System  as  required,   on   the   theory   that,   as   a   new   entity,   it   has   not   been   in   operation   for   a   period   of   at   least   2   years.   In   this   case,   it   can   be   said   that   there   was   only   a  change  in  the  form  of  organization  of  the  entity  in  the  common  carrier   business.   This   is   said   to   be   so   because   when   the   unregistered   partnership   was   turned   into   a   corporation,   the   firm   name   was   not   altered   save   for   the   fact   that   Inc.   was   added   to   show   that   it   was   duly   incorporated  under  existing  laws.       Doctrine:   The   law   provides   that   the   Commission   may   not   compel   any   employer  to  become  a  member  of  the  System  unless  he  shall  have  been   in   operation   for   at   least   two   years,   such   is   not   applicable   to   a   corporation  that  merely  changed  its  form  of  organization.    

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  



A   business   enterprise   operated   under   a   partnership   and   later   incorporated,   or   where   a   corporation   assumed   all   the   assets   and  liabilities  of  the  partnership,  then  the  corporation  cannot  be   regarded,   for   purposes   of   the   SSS   Law,   as   having   come   into  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  being  only  on  the  date  of  its  incorporation  but  from  the  date  the   partnership  started  the  business.  Oromeca  Lumber  Co.  v.  SSS,  4   SCRA  1188  (1962);  San  Teodoro  Dev.  v.  SSS,  8  SCRA  96  (1963).   •

When   a   corporation   transferred   all   its   assets   to   another   corporation   “to   settle   its   obligations”   that   would   not   amount   to   a  fraudulent  transfer.  McLeod  v.  NLRC,  512  SCRA  222  (2007).     McLeod  v.  NLRC  

  Facts:   John   F.   McLeod   filed   a   complaint   for   unpaid   benefits   and   damages,   against   Filipinas   Synthetic   Corporation   (Filsyn),   Far   Eastern   Textile   Mills,   Inc.,   Sta.   Rosa   Textiles,   Inc.,   Patricio   Lim   and   Eric   Hu   (respondents).  McLeod  said  that  he  is  an  expert  in  textile  manufacturing   process,   and   was   hired   as   the   Manager   of   Universal   Textiles,   Inc.   (UTEX)   under  its  President,  Patricio  Lim.  Lim  later  formed  Peggy  Mills,  Inc.  (with   Filsyn  having  controlling  interest),  and  it  absorbed  McLeod.  Filsyn  then  

counsel  holds  office  in  the  same  address,  and  that  all  respondents  have   the  same  key  personnel  such  as  Lim.     Issue:   Whether   or   not   an   employer-­‐employee   relationship   exists   between  private  respondents  and  McLeod     Held:   YES   BUT   he   was   an   employee   of   Peggy   Mills   ONLY.   What   happened   between   Peggy   Mills   and   Sta.   Rosa   textile   was   dation   in   payment   with   lease.   Peggy   Mills   had   ceded,   conveyed   and   transferred   all  of  its  rights,  title  and  interests  in  and  to  the  assets  to  Sta.  Rosa  Textile   to  settle  its  obligations.     Doctrine:  See  above.     •

sold   Peggy   Mills   to   Far   Eastern   Textile   Mills   with   Lim   as   the   chairman   and   president.   Peggy   Mills   was   renamed   Sta.   Rosa   Textile.   When   McLeod   reached   retirement   age,   he   was   only   given   a   reduced   13   month   pay.  Lim  offered  McLeod  a  compromise  settlement  but  was  rejected.     UTEX  à  Peggy  Mills  à  Far  Eastern  Textile  Mills  à  Sta.  Rosa  Textile     Respondents   allege   that   Filsyn   and   Far   Eastern   Textiles   are   separate   legal   entities   and   have   no   employer   relationship   with   McLeod.   Sta.   Rosa   only   acquired   the   assets   and   NOT   the   liabilities   of   Peggy   Mills.   In   McLeod’s  reply,  he  alleged  that  all  the  respondents  are  solidarily  liable   for   all   salaries   and   benefits   he   is   entitled   to,   being   one   and   the   same   entity.  McLeod  said  that  their  offices  were  all  in  the  same  building,  their  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

When   the   bus   operations   belonging   to   the   estate   of   the   deceased   spouses   is   duly   incorporated   by   the   administratrix   with   the   intention   to   make   the   corporation   liable   for   past   and   pending   obligations   of   the   estate   as   the   transportation   business   itself,  then  that  liability  on  the  part  of  the  corporation,  vis-­‐à-­‐vis   the   estate,   should   continue   to   remain   with   it   even   after   the   percentage   of   the   estate’s   shares   of   stock   in   the   corporation   should   have   been   diluted.   Buan   v.   Alcantara,   127   SCRA   845   (1984).  



Settled   now   is   the   rule   that   where   one   corporation   sells   or   otherwise   transfers   all   its   assets   to   another   corporation   for   value,   the   latter   is   not,   by   that   fact   alone,   liable   for   the   debts   and   liabilities   of   the   transferor.   Pantranco   Employees   Association  (PEA-­‐PTGWO)  v.  NLRC,  581  SCRA  598  (2009).    

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  Pantranco  Employees  Association  (PEA-­‐PTGWO)  v.  NLRC     Facts:  The   Gonzales   family   owned   two   corporations,   PANTRANCO   North   Express   Inc.   (PNEI)   and   Macris   Realty   Corporation   (Macris).   PNEI   provided   transportation   services   and   its   terminals   were   on   the   Pantranco   properties   registered   under   the   name   of   Macris.   Due   to   financial   losses,   creditors   took   over   both   corporations   and   later   transferred   to   the   National   Investment   Development   Corporation   (NIDC),   a   subsidiary   of   the   Philippine   National   Bank.   Macris   was   later   renamed   and   merged   to   another   corporation   to   form   the   new   PNB   subsidiary,   the   PNB-­‐Madecor.   NIDC   sold   PNEI   to   North   Express   Transport,  Inc.  (NETI),  PNEI  was  later  placed  under  sequestration  by  the   PCGG.  Eventually  PNEI  ceased  its  operation  which  came  with  the  various   labor   claims   commenced   by   the   former   employees   of   PNEI   where   the   employees   won.   The   employees   now   seek   to   attach   on   the   properties   registered  to  PNB-­‐Madecor  to  satisfy  their  claim.     Issue:   Whether   or   not   the   former   PNEI   employees   can   attach   the   properties  (specifically  the  Pantranco  properties)  of  PNB,  PNB-­‐Madecor   and  Mega  Prime  to  satisfy  their  unpaid  labor  claims  against  PNEI     Held:   NO.   First,   the   subject   property   is   not   owned   by   the   judgment   debtor,   PNEI.   The   properties   were   owned   by   Macris,   the   predecessor   of   PNB-­‐Madecor.   Hence,   they   cannot   be   pursued   against   by   the   creditors   of  PNEI.  It  is  a  settled  rule  that  the  court  in  executing  judgments  extends   only   to   properties   unquestionably   belonging   to   the   judgment   debtor   alone.   Second,   the   general   rule   is   that   a   corporation   has   a   personality   separate   and   distinct   from   those   of   its   stockholders   and   other   corporations   to   which   it   may   be   connected.   Obviously,   PNB,   PNB-­‐

Madecor,   Mega   Prime,   and   PNEI   are   corporations   with   their   own   personalities.   PNB   was   only   a   stockholder   of   PNB-­‐Madecor   which   later   sold   its   shares   to   Mega   Prime;   and   that   PNB-­‐Madecor   was   the   owner   of   the   Pantranco   properties.   Neither   can   we   merge   the   personality   of   PNEI   with  PNB  simply  because  the  latter  acquired  the  former.     Doctrine:  See  above.     4. Rationale  of  Doctrine  in  Business  Enterprise  Transfers   •

The   doctrine   in   business-­‐enterprise   transfers   recognizes   the   reality  in  the  business  world  that  although  no  formal  mortgage   contract   is   executed,   creditors   and   suppliers   extend   credit   to   the  business  enterprise  because  they  see  the  business's  earning   capacity  and  assets  as  a  "security"  to  the  undertaking  that  they   will   eventually   be   paid   back.1  The   doctrine   therefore   puts   the   burden  on  the  shoulder  of  the  person  who  is  in  the  best  position   to   protect   himself,   namely   the   transferee,   by   obtaining   certain   guarantees  and  protection  from  his  transferor.  

                                                                                                                1

 It  would  be  instructive  to  see  the  judicial  attitude  to  the  extension  of  credit  as   underpinning  a  clear  intention  to  establish  a  long-­‐term  business.   On  the  issue   of   whether   a   foreign   corporation   intended   to   engage   in   business   in   the   Philippines,   in   Eriks   Pte.   Ltd.   v.   Court   of   Appeals,   267   SCRA   567   (1997),   the   Supreme   Court   found   that   the   extension   of   credit   terms   to   be   indicative   of   intent   to   do   business   in   the   Philippines   for   an   indefinite   period,   thus:   "More   than  the  sheer  number  of  transactions  entered  into,  a  clear  and  unmistakable   intention   on   the   part   of   petitioner   to   continue   the   body   of   its   business   in   the   Philippines   is   more   than   apparent.   .   .   Further,   its   grant   and   extension   of   90-­‐day   credit  terms  to  private  respondent  for  every  purchase  made,  unarguably  shows   an   intention   to   continue   transaction   with   private   respondent,   since   in   the   usual   course   of   commercial   transactions,   credit   is   extended   only   to   customers   in   good   standing   or   to   those   on   whom   there   is   an   intention   to   maintain   long-­‐term   relationship.”    

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

    E.  Equity  Transfers   1. Rationale  of  Doctrine.  1   •

In  an  equity  transfers,  the  transferee  is  not  liable  for  the  debts   and   liabilities   of   the   transferor,   except   where   the   transferee   expressly  or  impliedly  agreed  to  assume  such  debts.  



The  logic  of  the  doctrine  in  equity  transfer  finds  support  in  the  

main   doctrine   of   separate   juridical   personality,   that   by   purchasing  the  shares  in  a  corporation  that  owns  a  business,  the   stockholder   does   not   by   that   reason   alone   become   the   owner   directly  of  the  business  assets  and  does  not  become  personally   liable  for  the  debts  and  liabilities  of  the  business.   2. Application  of  the  Doctrine   •

The  transfer  by  the  controlling  shareholder  of  all  of  its  equity  in   the   corporation   warrants   the   application   of   the   alter   ego   piercing   doctrine   since   it   shows   that   the   transferor   had   complete   control   of   the   corporation.   Phividec   v.   Court   of   Appeals,  181  SCRA  669  (1990).     Phividec  v.  Court  of  Appeals  

  Facts:  On  March  29,  Violeta  M.  Borres  was  injured  in  an  accident  which   the   trial   court   ruled   was   due   to   the   negligence   of   PHIVIDEC   Railways,   Inc.  (PRI).  Prior,  on  May  25,  PHIVIDEC  sold  all  its  rights  and  interests  in  

operate   the   railway   assets   of   PHIVIDEC.   Borres   sued   PRI   and   Panay,   and   Panay   disclaimed   liability   on   the   ground   that   in   the   Agreement   concluded   between   PHIVIDEC   and   PHILSUCOM,   it   was   provided   that   PHIVIDEC  holds  PHILSUCOM  free  from  any  action  that  might  arise  from   any  act  of  omission  prior  to  the  turn-­‐over.     Issue:  Whether  or  not  PHIVIDEC  should  be  held  liable.     Held:   YES.   It   is   clear   from   the   evidence   of   record   that   by   virtue   of   the   agreement   between   PHIVIDEC   and   PHILSUCOM,   particularly   the   stipulation  exempting  the  latter  from  any  “claim  or  liability  arising  out  of   any   act   or   transaction”   prior   to   the   turn-­‐over,   PHIVIDEC   had   expressly   assumed   liability   for   any   claim   against   PRI.   Since   the   accident   happened   before   that   agreement   and   PRI   ceased   to   exist   after   the   turn-­‐over,   it   should   follow   that   PHIVIDEC   cannot   evade   its   liability   for   the   injuries   sustained   by   the   private   respondent.   In   the   interest   of   justice   and   equity,  and  to  prevent  the  veil  of  corporate  fiction  from  denying  her  the   reparation   to   which   she   is   entitled,   that   veil   must   be   pierced   and   PHIVIDEC  and  PRI  regarded  as  one  and  the  same  entity.     Doctrine:  See  above.    

the   PRI   to   the   PHILSUCOM.   Two   days   later,   PHILSUCOM   caused   the   creation   of   a   wholly-­‐owned   subsidiary,   the   Panay   Railways   Inc.   to  

                                                                                                                1

 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

o

The  general  rule  therefore  is  that  in  an  equity  transfer,   the  transferee  does  not  become  personally  liable  for  the   obligations   of   the   corporate   enterprise   under   the   main   doctrine   of   separate   juridical   personality,   unless   either  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  the  transferee  by  contract  assumes  such  obligations,  or   there  is  basis  for  piercing  the  veil  of  corporate  fiction.  1   •

Proper   Doctrine:   The   mere   fact   that   a   stockholder   sells   his   shares   of   stock   in   the   corporation   during   the   pendency   of   a   collection   case   against   the   corporation,   does   not   make   such   stockholder   personally   liable   for   the   corporate   debt,   since   the   disposing  stockholder  has  no  personal  obligation  to  the  creditor,   and   it   is   the   inherent   right   of   the   stockholder   to   dispose   of   his   shares   of   stock   anytime   he   so   desires.   Remo,   Jr.   v.   IAC,   172   SCRA  405  (1989).2  

  II.  MERGER  AND  CONSOLIDATIONS     A.  Concepts  (McLeod  v.  NLRC,  512  SCRA  222  [2007]).   •

A  consolidation  is  the  union  of  two  or  more  existing  entities  to   form   a   new   entity   called   the   consolidated   corporation.   A   merger,   on   the   other   hand,   is   a   union   whereby   one   or   more   existing  corporations  are  absorbed  by  another  corporation  that   survives   and   continues   the   combined   business.   Since   a   merger   or   consolidation   involves   fundamental   changes   in   the   corporation,   as   well   as   in   the   rights   of   stockholders   and   creditors,   there   must   be   an   express   provision   of   law   authorizing   them.  PNB  v.  Andrada  Electric  &  Engineering  Co.,  381  SCRA  244   (2002).  

  B.  Procedure:  

                                                                                                                1

 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.   2  PNB  v.  Ritratto  Group,  Inc.,  362  SCRA  216  (2001).  

1. Plan  of  Merger  or  Consolidation  (Section  76)     Section  76.  Plan  or  merger  of  consolidation.   Two  or  more  corporations  may  merge  into  a  single  corporation  which   shall  be  one  of  the  constituent  corporations  or  may  consolidate  into  a   new  single  corporation  which  shall  be  the  consolidated  corporation.     The   board   of   directors   or   trustees   of   each   corporation,   party   to   the   merger   or   consolidation,   shall   approve   a   plan   of   merger   or   consolidation  setting  forth  the  following:     1.   The   names   of   the   corporations   proposing   to   merge   or   consolidate,   hereinafter  referred  to  as  the  constituent  corporations;     2.  The  terms  of  the  merger  or  consolidation  and  the  mode  of  carrying   the  same  into  effect;     3.  A  statement  of  the  changes,  if  any,  in  the  articles  of  incorporation  of   the   surviving   corporation   in   case   of   merger;   and,   with   respect   to   the   consolidated   corporation   in   case   of   consolidation,   all   the   statements   required   to   be   set   forth   in   the   articles   of   incorporation   for   corporations  organized  under  this  Code;  and     4.   Such   other   provisions   with   respect   to   the   proposed   merger   or   consolidation  as  are  deemed  necessary  or  desirable.  (n)     2. Stockholders’  or  Members’  Approvals  (Section  77)     Section  77.  Stockholder's  or  member's  approval.  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  Upon   approval   by   majority   vote   of   each   of   the   board   of   directors   or   trustees   of   the   constituent   corporations   of   the   plan   of   merger   or   consolidation,   the   same   shall   be   submitted   for   approval   by   the   stockholders   or   members   of   each   of   such   corporations   at   separate   corporate   meetings   duly   called   for   the   purpose.   Notice   of   such  

 

meetings   shall   be   given   to   all   stockholders   or   members   of   the   respective  corporations,  at  least  two  (2)  weeks  prior  to  the  date  of  the   meeting,  either  personally  or  by  registered  mail.  Said  notice  shall  state   the  purpose  of  the  meeting  and  shall  include  a  copy  or  a  summary  of   the   plan   of   merger   or   consolidation.   The   affirmative   vote   of   stockholders  representing  at  least  two-­‐thirds  (2/3)  of  the  outstanding   capital  stock  of  each  corporation  in  the  case  of  stock  corporations  or  at  

the   president   or   vice-­‐president   and   certified   by   the   secretary   or   assistant  secretary  of  each  corporation  setting  forth:     1.  The  plan  of  the  merger  or  the  plan  of  consolidation;     2.   As   to   stock   corporations,   the   number   of   shares   outstanding,   or   in   the  case  of  non-­‐stock  corporations,  the  number  of  members;  and  

least   two-­‐thirds   (2/3)   of   the   members   in   the   case   of   non-­‐stock   corporations   shall   be   necessary   for   the   approval   of   such   plan.   Any   dissenting  stockholder  in  stock  corporations  may  exercise  his  appraisal   right   in   accordance   with   the   Code:   Provided,  That  if  after  the  approval   by   the   stockholders   of   such   plan,   the   board   of   directors   decides   to   abandon  the  plan,  the  appraisal  right  shall  be  extinguished.    

  3.  As  to  each  corporation,  the  number  of  shares  or  members  voting  for   and  against  such  plan,  respectively.  (n)  

Any   amendment   to   the   plan  of  merger  or  consolidation  may  be  made,   provided   such   amendment   is   approved   by   majority   vote   of   the   respective   boards   of   directors   or   trustees   of   all   the   constituent   corporations   and   ratified   by   the   affirmative   vote   of   stockholders   representing  at  least  two-­‐thirds  (2/3)  of  the  outstanding  capital  stock   or   of   two-­‐thirds   (2/3)   of   the   members   of   each   of   the   constituent   corporations.   Such   plan,   together   with   any   amendment,   shall   be   considered  as  the  agreement  of  merger  or  consolidation.  (n)  

not   earlier   than   120   days   prior   to   the   date   of   filing   of   the   application   and   the   long-­‐form   audit   report   for   absorbed   corporation(s)   are   always   required.   Long   form   audit   report   for   the   surviving   corporation   is   required   if   it   is   insolvent.   (SEC   Opinion  14,  s.  of  2002,  15  November  2002).   5. Approval  by  SEC  (Section  79)  

  3. Articles  of  Merger  or  Consolidation  (Section  78)  

Section  78.  Articles  of  merger  or  consolidation.   After  the  approval  by  the  stockholders  or  members  as  required  by  the   preceding   section,   articles   of   merger   or   articles   of   consolidation   shall   be  executed  by  each  of  the  constituent  corporations,  to  be  signed  by  

  4. Submission   of   Financial   Statements   Requirements:   For   applications   of   merger,   the   audited   financial   statements   of   the   constituent  corporations  (surviving  and  absorbed)  as  of  the  date  

  Section  79.  Effectivity  of  merger  or  consolidation.   The   articles   of   merger   or   of   consolidation,   signed   and   certified   as   herein   above   required,   shall   be   submitted   to   the   Securities   and  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  transferred   to   and   vested   in   the   surviving   corporation.   Poliand   Industrial  Ltd.  V.  NDC,  467  SCRA  500  (2005).1  

Exchange  Commission  in  quadruplicate  for  its  approval:  Provided,  That   in  the  case  of  merger  or  consolidation  of  banks  or  banking  institutions,   building  and  loan  associations,  trust  companies,  insurance  companies,   public  utilities,  educational  institutions  and  other  special  corporations   governed   by   special   laws,   the   favorable   recommendation   of   the   appropriate   government   agency   shall   first   be   obtained.   If   the   Commission   is   satisfied   that   the   merger   or   consolidation   of   the   corporations  concerned  is  not  inconsistent  with  the  provisions  of  this   Code   and   existing   laws,   it   shall   issue   a   certificate   of   merger   or   of   consolidation,   at   which   time   the   merger   or   consolidation   shall   be   effective.     If,   upon   investigation,   the   Securities   and   Exchange   Commission   has   reason   to   believe   that   the   proposed   merger   or   consolidation   is   contrary  to  or  inconsistent  with  the  provisions  of  this  Code  or  existing   laws,   it   shall   set   a   hearing   to   give   the   corporations   concerned   the   opportunity   to   be   heard.   Written   notice   of   the   date,   time   and   place   of   hearing  shall  be  given  to  each  constituent  corporation  at  least  two  (2)   weeks   before   said   hearing.   The   Commission   shall   thereafter   proceed  

When  the  procedure  for  merger/consolidation  prescribed  under   the  Corporation  Code  are  not  followed,  there  can  be  no  merger   or   consolidation,   and   corporate   separateness   between   the   constituent   corporations   remains,   and   the   liabilities   of   one   entity   cannot   be   enforced   against   another   entity.   PNB   v.   Andrada  Electric  &  Engineering  Co.,  381  SCRA  244  (2002).  

  C.  Effects  of  Merger  or  Consolidation  (Section  80):  Associated  Bank  v.   CA,  291  SCRA  511  (1998).     Section  80.  Effects  of  merger  or  consolidation.   The  merger  or  consolidation  shall  have  the  following  effects:     1.   The   constituent   corporations   shall   become   a   single   corporation  

The   issuance   by   the   SEC   of   the   certificate   of   merger   is   crucial   because   not   only   does   it   bear   out   SEC’s   approval   but   also   marks  

which,  in  case  of  merger,  shall  be  the  surviving  corporation  designated   in   the   plan   of   merger;   and,   in   case   of   consolidation,   shall   be   the   consolidated  corporation  designated  in  the  plan  of  consolidation;     2.  The  separate  existence  of  the  constituent  corporations  shall  cease,   except  that  of  the  surviving  or  the  consolidated  corporation;    

the   moment   whereupon   the   consequences   of   a   merger   take   place.   By   operation   of   law,   upon   the   effectivity   of   the   merger,   the   absorbed   corporation   ceases   to   exist   but   its   rights,   and   properties   as   well   as   liabilities   shall   be   taken   and   deemed  

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

as  provided  in  this  Code.  (n)     •



                                                                                                                1

 Mindanao  Savings  and  Loan  Asso.  V.  Willkom,  634  SCRA  291  (2010).  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  4.   The   surviving   or   the   consolidated   corporation   shall   thereupon   and   thereafter  possess  all  the  rights,  privileges,  immunities  and  franchises   of   each   of   the   constituent   corporations;   and   all   property,   real   or   personal,   and   all   receivables   due   on   whatever   account,   including   subscriptions   to   shares   and   other   choses   in   action,   and   all   and   every  

  Issue:   Whether  or  not  Associated  Bank,  the  surviving  corporation,  may   enforce   the   promissory   note   made   by   private   respondent   in   favor   of   CBTC,  the  absorbed  company.    

other   interest   of,   or   belonging   to,   or   due   to   each   constituent   corporation,   shall   be   deemed   transferred   to   and   vested   in   such   surviving  or  consolidated  corporation  without  further  act  or  deed;  and     5.   The   surviving   or   consolidated   corporation   shall   be   responsible   and   liable   for   all   the   liabilities   and   obligations   of   each   of   the   constituent   corporations   in   the   same   manner   as   if   such   surviving   or   consolidated  

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

corporation   had   itself   incurred   such   liabilities   or   obligations;   and   any   pending  claim,  action  or  proceeding  brought  by  or  against  any  of  such   constituent   corporations   may   be   prosecuted   by   or   against   the   surviving   or   consolidated   corporation.   The   rights   of   creditors   or   liens   upon   the   property   of   any   of   such   constituent   corporations   shall   not   be   impaired  by  such  merger  or  consolidation.  (n)  

and   powers,   as   well   as   their   liabilities.   The   merger,   however,   does   not   become   effective   upon   the   mere   agreement   of   the   constituent   corporations.   The   procedure   to   be   followed   is   prescribed   under   the   Corporation  Code.  Assuming  that  the  effectivity  date  of  the  merger  was   the   date   of   its   execution,   we   still   cannot   agree   that   petitioner   no   longer   has   any   interest   in   the   promissory   note.   The   agreement   itself   clearly   provides   that   all   contracts   —   irrespective   of   the   date   of   execution   —  

  Associated  Bank  v.  CA     Facts:  Associated  Banking  Corporation  (ABC)  and  Citizens  Bank  and  Trust   Company  (CBTC)  merged  to  form  just  one  banking  corporation  known  as   Associated   Citizens   Bank   (ACB),   which   changed   its   name   to   Associated   Bank   (AB).   Lorenzo   Sarmiento   Jr.   executed   in   favor   of   AB   a   promissory   note  whereby  the  former  undertook  to  pay  on  or  before  March  6,  1978.   Sarmiento   still   owes   AB   today   despite   repeated   demands.   He   alleges   that  AB  is  not  the  proper  party  in  interest  because  the  promissory  note   was  executed  in  favor  of  Citizens  Bank  and  Trust  Company.  

entered  into  in  the  name  of  CBTC  shall  be  understood  as  pertaining  to   the   surviving   bank,   herein   petitioner.   Clause   have   been   deliberately   included   in   the   agreement   in   order   to   protect   the   interests   of   the   combining   banks;   specifically,   to   avoid   giving   the   merger   agreement   a   farcical  interpretation  aimed  at  evading  fulfillment  of  a  due  obligation.     Doctrine:   The   merger,   however,   does   not   become   effective   upon   the   mere  agreement  of  the  constituent  corporations  Section  79  requires:  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

1. Approval  by  the  SEC  of  the  articles  of  merger     2. Must   have   been   duly   approved   by   a   majority   of   the   respective  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  stockholders  of  the  constituent  corporations.   3. Merger  shall  be  effective  only  upon  the  issuance  by  the  SEC  of  a   certificate  of  merger.     4. The   effectivity   date   of   the   merger   is   crucial   for   determining   when  the  merged  or  absorbed  corporation  ceases  to  exist;  and   when   its   rights,   privileges,   properties   as   well   as   liabilities   pass   on  to  the  surviving  corporation.     •

Atty.  Hofileña  à  The  assumption  of  rights  is  a  matter  of  law.  



Global  is  bound  by  the  terms  of  the  contract  entered  into  by  its   predecessor-­‐in-­‐interest,   Asian   Bank.   Due   to   Global’s   merger   with  Asian  Bank  and  because  it  is  the  surviving  corporation,  it  is   as  if  it  was  the  one  which  entered  into  contract  with  Surecomp.   In   the   merger   of   two   existing   corporation,   one   of   the   corporations   survives   and   continues   the   business,   while   the   other  is  dissolved,  and  all  its  rights,  properties,  and  liabilities  are   acquired  by  the  surviving  corporation.  In  the  same  way,  Global   also  has  the  right  to  exercise  all  defenses,  rights,  privileges,  and   counter-­‐claims  of  every  kind  and  nature  which  Asian  Bank  may   have  or  invoke  under  the  law.  Global   Business   Holdings   Inc.   v.   Surecompsoftware,  B.V.,  633  SCRA  94  (2010)  



It  is  settled  that  in  the  merger  of  two  existing  corporations,  one   of   the   corporations   survives   and   continues   the   business,   while   the  other  is  dissolved  and  all  its  rights,  properties  and  liabilities   are   acquired   by   the   surviving   corporation.   The   surviving   corporation   therefore   has   a   right   to   institute   a   collection   suit   on   accounts  of  one  of  one  of  the  constituent  corporations.  Babst  v.   CA,  350  SCRA  341  (2001).  

 

III.  EFFECTS  ON  EMPLOYEES  OF  CORPORATION     A.  Assets  Only  Transfers:  Sundowner  Dev.  Corp.  v.  Drilon,  180  SCRA  14   (1989).     Sundowner  Dev.  Corp.  v.  Drilon     Facts:  Hotel   Mabuhay,   Inc.   (Mabuhay)   leased   the   premises   belonging   to   Santiago   Syjuco,   Inc.   (Syjuco)   but   failed   to   pay   their   rentals,   and   so   Syjuco   instituted   and   ejectment   case.   They   settled   the   case   with   the   surrender   of   the   premises   to   Syjuco.   The   assets   of   Mabuhay   within   it   were  sold  to  Sundowner  who  also  leased  the  property  from  Syjuco.  The   National   Union   of   Workers   in   Hotel,   Restaurant   and   Allied   Services   (NUWHRAIN)   picketed   the   leased   premises,   barricaded   the   entrance   and   denied   Sundowner’s   officers,   employees   and   guests   access.   The   Secretary   of   Labor   ordered   the   workers   to   return   and   for   Mabuhay   to   accept  them  pending  final  determination  of  the  issue  of  the  absorption   of   the   former   employees   of   Mabuhay.   Mabuhay   argues   that   such   is   impossible   because   it   has   ceased   operations.   NUWHRAIN   alleged   that   Mabuhay   and   Sundownder   connived   to   sell   the   assets   and   close   the   hotel   to   escape   its   obligations   to   the   employees   and   asked   that   Sundowner  accept  the  workforce  of  Mabuhay  and  pay  backwages.     Issue:   Whether   or   not   the   purchaser   of   the   assets   of   an   employer   corporation   can   be   considered   a   successor   employer   of   the   latter’s   employees.     Held:   NO.   It   was   only   when   Mabuhay   offered   to   sell   its   assets   and   personal   properties   in   the   premises   to   Sundowner   that   they   came   to  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  deal   with   each   other.   Thus,   the   absorption   of   the   employees   of   Mabuhay  may  not  be  imposed  on  Sundowner.  In  a  tripartite  agreement   that  was  entered  into  by  Sundowner  with  NUWHRAIN  and  Mabuhay,  it   is  clear  that  Sundowner  has  no  liability  whatsoever  to  the  employees  of   Mabuhay  and  its  responsibility  if  at  all,  is  only  to  consider  them  for  re-­‐

B.   Business-­‐Enterprise   Transfers:   Central   Azucarera   del   Danao   v.   CA,   137   SCRA   295   (1985);   Complex   Electronics   Employees   Assn.   v.   NLRC,   310  SCRA  403  (1999).1    

employment   in   the   operation   of   the   business   in   the   same   premises.   There   is   no   implied   acceptance   of   the   employees   of   Mabuhay   by   Sundowner  and  no  commitment  or  duty  to  absorb  them.     Doctrine:   Also,   while   it   is   true   that   Sundowner   is   using   the   leased   property  for  the  same  type  of  business  as  that  of  Mabuhay,  there  can  be   no   continuity   of   the   business   operations   from   Mabuhay   to   Sundowner  

  Facts:   Bana-­‐ay,   Cosculluela,   and   Palma   were   among   the   regular   and   permanent   employees   of   Central   Danao,   the   owner   and   operator   of   a   sugar   mill.   Central   Danao   later   sold   its   sugar   mill   to   DADECO.   DADECO   actually  took  over  operations  of  the  mill  pursuant  to  the  Deed  of  Sale.     Although  the  Deed  made  no  mention  of  currently  employed  employees,  

because  Mabuhay  had  not  retained  control  of  the  business.  Sundowner   is  a  corporation  entirely  different  from  Mabuhay  and  has  no  controlling   interest  whatever  in  the  same.  What  is  obvious  is  that  the  Sundowner,   by  purchasing  the  assets  in  the  hotel  premises,  enabled  Mabuhay  to  pay   its   obligations   to   its   employees.   There   being   no   employer-­‐employee   relationship   between   the   Sundowner   and   the   Mabuhay   employees,   it   cannot  be  compelled  to  absorb  the  latter  and  to  pay  them  backwages.  

DADECO  did  hire  regular  and  permanent  employees  pursuant  to  its  own   hiring   and   selection   processes,   including   Bana-­‐Ay,   Cosculluela,   and   Palma.  During  the  period  of  their  employment,  they  were  terminated  by   DADECO.   Bana-­‐Ay,   Cosculluela,   and   Palma   filed   a   complaint   against   Central  Danao  and  DADECO.     Central   Danao   claimed   that   DADECO   was   the   employer   during   that   time  

 

since   the   former   had   already   transferred   its   assets   to   DADECO   at   the   time  of  termination.  DADECO  claims  that  it  was  Central  Danao  who  was   liable   since   the   termination   happened   during   the   time   that   Central   Danao  was  there  employer.     Issue:  Whether  or  not  Central  Danao  is  liable    



“There   is   no   law   requiring   that   the   purchaser   of   MDII’s   assets   should  absorb  its  employees  .  .  .  the  most  that  the  NLRC  could   do,  for  reasons  of  public  policy  and  social  justice,  was  to  direct   [the   buyer]   to   give   preference   to   the   qualified   separated   employees  of  MDII  in  the  filling  up  of  vacancies  in  the  facilities.   MDII   Supervisors   &   Confidential   Employees   Asso.   v.   Pres.   Assistance  on  Legal  Affairs,  79  SCRA  40.  

 

Central  Azucarera  del  Danao  v.  CA  

                                                                                                                1

 Yu   v.   NLRC,   245   SCRA   134   (1995);   Sunio   v.   NLRC,   127   SCRA   390   (1984);   San   Felipe  Neri  School  of  Mandaluyong,  Inc.  v.  NLRC,  201  SCRA  478  (1991).  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  Held:   YES,   CENTRAL   DANAO   IS   LIABLE.   The   Deed   reveals   no   express   stipulation   whatsoever   relative   to   the   continued   employment   by   Dadeco  of  the  former  employees  of  Central  Danao.  There  was  in  fact,  an   interruption  of  the  employment  of  the  private  respondents  in  the  sugar   central.   In   reality   then,   they   were   rehired   anew   by   Dadeco,   their   new  

the   employees   that   it   was   left   with   no   alternative   but   to   close   down   the   operations   of   Lite-­‐On.   The   Union   pushed   for   a   retrenchment   pay   equivalent   to   1   month   salary   for   every   year   of   service,   which   Complex   refused.      

employer.   The   records   also   reveal   that   negotiations   for   the   sale   were   made   behind   the   back   of   the   employees   who   were   taken   by   surprise   upon   its   consummation.   Technically   then,   the   employees   were   terminated  on  the  date  of  the  sale.  Worse,  they  were  not  even  given  the   required  notice  of  termination.     Doctrine:   The   sale   or   disposition   must   be   motivated   by   good   faith.  

The   machinery,   equipment   and   materials   being   used   for   production   at   Complex   were   pulled-­‐out   from   the   company   premises   and   transferred   to   Ionics   Circuit,   Inc.   (Ionics)   at   Cabuyao,   Laguna.   The   following   day,   a   total  closure  of  company  operation  was  effected.     A   complaint   was   filed   with   the   Labor   Arbitration   Branch   of   the   NLRC.   Ionics  was  impleaded  as  a  party  because  the  officers  and  management  

Indeed,   an   innocent   transferee   of   a   business   establishment   has   no   liability  to  the  employees  of  the  transferor  to  continue  employing  them.   Nor  is  the  transferee  liable  for  past  unfair  labor  practices  of  the  previous   owner,   except,   when   the   liability   therefor   is   assumed   by   the   new   employer  under  the  contract  of  sale.    

personnel   were   also   holding   office   there.   Ionics   contended   that   it   was   an   entity   separate   and   distinct   from   Complex   and   had   been   in   existence   8   years   before   the   labor   dispute   arose.   Ionics   further   argued   that   the   hiring   of   some   displaced   workers   of   Complex   was   an   exercise   of   management  prerogatives.     Issue:  Whether  or    not  there  was  transfer  of  business  from  Complex  to  

  Complex  Electronics  Employees  Assn.  v.  NLRC     Facts:  Complex  was  engaged  in  the  manufacture  of  electronic  products.   There   were   different   lines,   including   Ionics   and   Lite-­‐On.   The   rank   and   file   workers   of   Complex   were   organized   into   the   Complex   Electronics   Employees   Association   (“Union”).   Complex   received   a   fax   message   from   Lite-­‐On,  requiring  it  to  lower  its  price  by  10%.       Complex   informed   its   Lite-­‐On   personnel   that   such   request   of   lowering   their  selling  price  was  not  feasible  as  they  were  already  incurring  losses   at   the   present   prices   of   their   products.   Complex   regretfully   informed  

Ionics     Held:   NO.   There   was   no   transfer   of   business.   A   “runaway   shop”   is   defined  as  an  industrial  plant  moved  by  its  owners  from  one  location  to   another  to  escape  union  labor  regulations  or  state  laws,  but  the  term  is   also   used   to   describe   a   plant   removed   to   a   new   location   in   order   to   discriminate  against  employees  at  the  old  plant  because  of  their  union   activities.   A   “runaway   shop”   in   this   sense,   is   a   relocation   motivated   by   anti-­‐union  animus  rather  than  for  business  reasons.      

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  earlier   firm.   Pepsi-­‐Cola   Bottling   Co.,   v.   NLRC,   210   SCRA   277   (1992).    

In   this   case,   however,   Ionics   was   not   set   up   merely   for   the   purpose   of   transferring   the   business   of   Complex.   At   the   time   the   labor   dispute   arose   at   Complex,   Ionics   was   already   existing   as   an   independent   company.   It   cannot,   therefore,   be   said   that   the   temporary   closure   in   Complex  and  its  subsequent  transfer  of  business  to  Ionics  was  for  anti-­‐

 

union   purposes.   The   Union   failed   to   show   that   the   primary   reason   for   the  closure  of  the  establishment  was  due  to  the  union  activities.         Doctrine:   The   mere   fact   that   one   or   more   corporations   are   owned   or   controlled   by   the   same   or   single   stockholder   is   not   a   sufficient   ground   for   disregarding   separate   corporate   personalities.   Ionics   may   be   engaged  in  the  same  business  as  that  of  Complex,  but  this  fact  alone  is  

Facts:   Private   respondent   Encabo   was   employed   as   a   maintenance   manager   in   Pepsi   Cola   Distributors   (PCD).   His   employment   was   terminated   because   of   his   negligence   in   repairing   the   beverage   plant’s   CEM-­‐72   soaker   machine   which   needed   rehabilitation.   According   to   PCD,   his   delays   in   repairing   the   machine   caused   the   company   to   incur   significant  losses.      

not   enough   reason   to   pierce   the   veil   of   corporate   fiction   of   the   corporation.   Well-­‐settled   is   the   rule   that   a   corporation   has   a   personality   separate  and  distinct  from  that  of  its  officers  and  stockholders.  

Encabo   filed   a   complaint   for   illegal   dismissal   and   unfair   labor   practice   claiming   that   he   was   denied   due   process.   The   NLRC   found   in   favor   of   Encabo  and  issued  a  writ  of  execution  addressed  to  Pepsi  Cola  Bottling   Corp   (PBC)   ordering   PCD   to   reinstate   him.   The   writ   was   delivered   to   Pepsi-­‐Cola   Products   Philippines   (PCPPI).   PCCPI   alleged   that   reinstatement   is   no   longer   possible   since   PCD   had   closed   down   its   business  on  the  ground  of  serious  business  losses  and  the  new  franchise  

  •

Furthermore,   under   the   principle   of   absorption,   a   bona   fide   buyer  or  transferee  of  all,  or  substantially  all,  the  properties  of   the   seller   or   transferor   is   not   obliged   to   absorb   the   latter’s   employees.  The  most  that  the  purchasing  company  may  do,  for   reasons  of  public  policy  and  social  justice,  is  to  give  preference   of   reemployment   to   the   selling   company’s   qualified   separated   employees,  who  in  its  judgment  are  necessary  to  the  continued  

Although   a   corporation   may   have   ceased   business   operations   and   an   entirely   new   company   has   been   organized   to   take   over  

holder,  PCPPI,  is  a  new  entity.     Issue:  Whether  or    not  PCPPI  is  liable     Held:   YES.   PCPPI   is   liable   and   must   reinstate   Encabo.   PCD   may   have   ceased   business   operations   and   PCPPI   may   be   a   new   company   but   it   does  necessarily  follow  that  one  may  now  be  held  liable  for  illegal  acts   committed   by   the   earlier   firm.   The   complaint   was   filed   when   PCD   was  

the  same  type  of  operations,  it  does  not  necessarily  follow  that   no   one   may   now   be   held   liable   for   illegal   acts   committed   by   the  

still   in   existence.   Pepsi-­‐Cola   never   stopped   doing   business   in   the   Philippines.   The   same   soft   drink   products   sold   in   1988   when   the  

operation   of   the   business   establishment.   Barayoga   v.   Asset   Privation  Trust,  473  SCRA  690  (2005).   •

Pepsi-­‐Cola  Bottling  Co.,  v.  NLRC  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  complaint   was   initiated   continue   to   be   sold   now.   The   sale   of   products   did   not   stop   at   the   time   PCD   bowed   out   and   PCPPI   came   into   being.   There  is  no  evidence  presented  showing  that  PCCPI,  as  the  new  entity  or   purchasing   company   is   free   from   any   liabilities   incurred   by   the   former   company.       In   fact,   in   the   surety   bond   put   up   by   petitioners,   both   PCD   and   PCPPI   bound   themselves   to   answer   for   monetary   awards   which   clearly   implies   that   the   PCPPI   as   a   result   of   the   transfer   of   the   franchise   bound   itself   to   answer  for  the  liability  of  PCD  to  its  employees.     Doctrine:  See  above.     •

Where   a   corporation   is   closed   for   alleged   losses   and   its   equipment  are  transferred  to  another  company  which  engaged   in  the  same  operations,  the  separate  juridical  personality  of  the   latter  can  be  pierced  to  make  it  liable  for  the  labor  claims  of  the   employees   of   the   closed   company.   National   Federation   of   Labor  Union  v.  Ople,  143  SCRA  124  (1986).  





transgressions  of  his  or  her  precedessor.  Peñafrancia  Tours  and   Travel  Transport  v.  Sarmiento,  634  SCRA  279  (2010).     C.   Equity   Transfers:   Pepsi   Cola   Distributors   v.   NLRC,   247   SCRA   386   (1995);  Manlimos  v.  NLRC,  242  SCRA  145  (1995).1     Pepsi  Cola  Distributors  v.  NLRC     Facts:  Private  respondent  Yute  started  working  with  Pepsi-­‐Cola  Bottling   Company   (PCBCP)   as   contractual   maintenance   electrician   and   when   Pepsi   Cola   Distributors   (PCD)   took   over   the   company’s   manufacturing   operations,   he   was   absorbed   as   a   regular   employee.   PCD   terminated   Yute   for   alleged   abandonment   of   work   and/or   absence   without   leave   so   he   filed   a   complaint   for   illegal   dismissal   before   the   NLRC   wherein   the   labor  arbiter  declared  the  dismissal  illegal  and  ordered  PCD  to  reinstate   him.  However,  33  days  after  his  reinstatement,  PCD  stopped  payment  of   Yute’s   salary   on   the   ground   that   it   allegedly   sold   its   business   interest   with  Pepsi  Cola  Products  Philippines,  Inc.  (PCPPI)    

a   corporation   (i.e.,   business   enterprise   transfers),   the   liabilities   of   the   previous   owners   to   its   employees   are   not   enforceable   against   the   buyer   or   transferee,   unless   (a)   the   latter   unequivocally   assumes   them;   or   (b)   the   sale   or   transfer   was   made   in   bad   faith.   Barayoga   v.   Asset   Privatization   Trust,   473   SCRA  690  (2005).  

NLRC  issued  a  writ  of  execution  ordering  PCD  to  pay  the  salaries.  PCPPI   filed  in  the  case  a  motion  praying  that  the  change  of  ownership  of  the   company   be   taken   cognizance   of   by   the   NLRC   saying   that   PCPPI   has   a   separate   personality   from   PCD   and   therefore,   not   a   party   to   the   cases   filed.   Not   being   a   party,   they   cannot   be   subjected   to   the   issue   writ   of   execution.   NLRC   in   resolving   the   MR   modified   its   decision   by   ordering   both  PCD  and  PCPPI  to  reinstate  Yute.  PCD  was  further  ordered  to  pay  

Where  the  change  of  ownership  is  done  in  bad  faith,  or  is  used  

                                                                                                               

In   the   case   of   a   transfer   of   all   or   substantially   all   of   the   assets   of  

to  defeat  the  rights  of  labor,  the  successor-­‐employer  is  deemed   to   have   absorbed   the   employees   and   is   held   liable   for   the  

1

 Robledo   v.   NLRC,   238   SCRA   52   (1994);   Pepsi-­‐Cola   Bottling   Co.   v.   NLRC,   210   SCRA  277  (1992);  DBP  v.  NLRC,  186  SCRA  841  (1990);  Coral  v.  NLRC,  258  SCRA   704  (1996);  Avon  Dale  Garments,  Inc.  v.  NLRC,  246  SCRA  733  (1995).  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  Yute’s  separation  pay.     Issue:   Whether   or   not   the   dismissal   of   Yute   on   the   ground   that   the   company  already  sold  its  business  interest  to  PCCPI  was  proper      

petitioners  continued  to  work  for  the  new  owner  and  were  considered   terminated,  with  their  conformity  much  later  when  they  received  their   separation   pay   and   all   other   benefits   due   them.   Each   of   them   then   executed   a   Release   and   Waiver   which   they   acknowledged   before   Atty.   Nolasco   Discipulo,   Hearing   Officer   of   the   Butuan   City   District   Office   of  

Held:   NO.   The   contention   that   the   second   dismissal   of   private   respondent  presents  an  issue  separate  and  distinct  from  the  issue  of  the   earlier   dismissal   on   December   15,   1988   is   nothing   but   an   attempt   of   PCD   to   evade   liability.   Pepsi   Cola   Distributors   of   the   Philippines   may   have   ceased   business   operations   and   Pepsi-­‐Cola   Products   Philippines,   Inc.   may   be   a   new   company   but   it   does   not   necessarily   follow   that   no   one   may   now   be   held   liable   for   illegal   acts   committed   by   the   earlier  

DOLE.       The   new   owner   caused   the   publication   of   a   notice   for   the   hiring   of   workers,   indicating   therein   who   of   the   separated   employees   could   be   accepted   on   probationary   basis.   The   petitioners   were   hired   on   probationary   basis   for   six   months   as   patchers   or   tapers,   but   were   compensated  on  piece-­‐rate  or  task  basis.    

firm.  The  complaint  was  filed  when  PCD  was  still  in  existence.  Pepsi-­‐Cola   never   stopped   doing   business   in   the   Philippines.   The   same   soft   drinks   products  sold  in  1988  when  the  complaint  was  initiated  continue  to  be   sold  now.       Doctrine:   The   sale   of   products,   purchases   of   materials,   payment   of   obligations,  and  other  business  acts  did  not  stop  at  the  time  PCD  bowed  

  For  their  alleged  absence  without  leave,  Perla  Cumpay  and  Virginia  Etic   were   considered   to   have   abandoned   their   work.   The   rest   were   dismissed   later   because   they   allegedly   committed   acts   prejudicial   to   the   interest   of   the   new   management   which   consisted   of   their   "including   unrepaired   veneers   in   their   reported   productions   on   output   as   well   as   untaped   corestock   or   whole   sheets   in   their   supposed   taped  

out  and  PCPPI  came  into  being.  There  is  no  evidence  presented  showing   that   PCPPI,   as   the   new   entity   or   purchasing   company   is   free   from   any   liabilities  incurred  by  the  former  corporation.  

veneers/corestock."       The  employee-­‐petitioners  allege  that  they  remained  regular  employees   of   the   corporation   because   the   change   in   ownership   and   management   of   Super   Mahogany   left   its   separate   juridical   personality   unaffected.  In   their   defense,   the   corporation   claims   that   it   was   within   their   management   prerogative   to   terminate   the   employee-­‐petitioners,   as   they  were  re-­‐  hired  by  the  new  management  under  probationary  status.  

  Manlimos  v.  NLRC     Facts:   Manlimos   along   with   15   others   were   employees   of   Mahogany   Plywood   Corporation.   A   new   owner/management   group   headed   by   Alfredo   Roxas   acquired   complete   ownership   of   the   corporation.   The   petitioners   were   advised   of   such   change   of   ownership;   however,   the  

  Issue:   Whether   or   not   an   innocent   transferee   of   a   business  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  establishment   has   liability   to   the   employees   of   the   transfer   or   to   continue  employing  them.       Held:  NO.  The  change  in  ownership  of  the  management  was  done  bona   fide  and  the  petitioners  did  not  for  any  moment  before  the  filing  of  their   complaints   raise   any   doubt   on   the   motive   for   the   change.   On   the   contrary,   upon   being   informed   thereof   and   of   their   eventual   termination   from   employment,   they   freely   and   voluntarily   accepted   their   separation   pay   and   other   benefits   and   individually   executed   the   Release   or   Waiver   which   they   acknowledged   before   no   less   than   a   hearing  officer  of  the  DOLE.       Since   the   petitioners   were   effectively   separated   from   work   due   to   a   bona   fide   change   of   ownership   and   they   were   accordingly   paid   their   separation  pay,  which  they  freely  and  voluntarily  accepted,  the  private   respondent   corporation   was   under   no   obligation   to   employ   them;   it   may,   however,   give   them   preference   in   the   hiring.   The   private   respondent   in   fact   hired,   but   on   probationary   basis,   was   legally   permissible.       The   hiring   of   employees   on   a   probationary   basis   is   an   exclusive   management   prerogative.   The   employer   has   the   right   or   privilege   to   choose  who  will  be  hired  and  who  will  be  denied  employment.     Doctrine:   Where   such   transfer   of   ownership   is   in   good   faith,   the   transferee  is  under  no  legal  duty  to  absorb  the  transferor  employees  as   there   is   no   law   compelling   such   absorption.   The   most   that   the   transferee   may   do,   for   reasons   of   public   policy   and   social   justice,   is   to   give   preference   to   the   qualified   separated   employees   in   the   filling   of  

vacancies  in  the  facilities  of  the  purchaser.       D.   Mergers   and   Consolidations:   Filipinas   Port   Services   v.   NLRC,   177   SCRA  203  (1989).1     Filipinas  Port  Services  v.  NLRC     Facts:  On  Feb.  16,  1977,  the  government  adopted  a  policy  in  Davao  that   only  one  company  can  operate  stevedoring  and  arrastre  services  in  the   ports  of  Davao.  Because  of  this,  the  companies  providing  such  services   consolidated   together   and   formed   a   corporation   named   Davao   Dockhandlers,   Inc.   which   was   later   renamed   Filipinas   Port   Services.   Among   the   corporations   in   the   consolidation   agreement   was   Davao   Maritime  Stevedoring  Corporation  (DAMASTICOR).     In  the  articles  of  incorporation  of  the  new  corporation,  it  provided  that   “all   labor   force   together   with   its   necessary   personnel   complement,   of   the   merging   operators   shall   be   absorbed   by   the   merged   or   integrated   organization  to  constitute  its  labor  force.”     Private   respondent,   an   employee   of   DAMASTICOR,   upon   retirement   from  Filipinas,  was  paid  his  retirement  fee  from  1977-­‐1987.  He  however   contends   that   his   employment   from   DAMASTICOR   should   be   counted   in   computing  his  retirement  fee.     Issue:  Whether  or  not  the  successor-­‐in-­‐interest  of  an  employer  is  liable  

                                                                                                                1

 Reiterated   in   Filipinas   Port   Services   v.   NLRC,   200   SCRA   773   (1991);   National   Union   Bank   Employees   v.   Lazaro,   156   SCRA   123   (1988);   First   Gen.   Marketing   Corp.  v.  NLRC,  223  SCRA  337  (1993).  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

  for  the  differential  retirement  pay  of  an  employee  earned  by  him  when   he  was  still  under  the  employment  of  the  predecessor-­‐in-­‐interest.     Held:   NO.   Petitioner   cannot   be   held   liable   for   the   payment   of   the   retirement   pay   of   private   respondent   while   in   the   employ   of   DAMASTICOR.   It   is   the   latter   who   is   responsible   for   the   same   as   the   labor  contract  of  private  respondent  with  DAMASTICOR  is  in  personam   and  cannot  be  passed  on  to  the  petitioner.     Doctrine:  Unless  expressly  assumed,  labor  contracts  are  not  enforceable   against  a  transferee  of  an  enterprise,  labor  contracts  being  in  personam.     •

It   is   more   in   keeping   with   the   dictates   of   social   justice   and   the   State   policy   of   according   full   protection   to   labor   to   deem   employment   contracts   as   automatically   assumed   by   the   surviving   corporation   in   a   merger,   even   in   the   absence   of   an   express  stipulation  in  the  articles  of  merger  or  the  merger  plan.   By   upholding   the   automatic   assumption   of   the   non-­‐surviving   corporation’s   existing   employment   contracts   by   the   surviving   corporation   in   a   merger,   the   Court   strengthens   judicial   protection   of   the   right   to   security   of   tenure   of   employees   affected  by  a  merger  and  avoids  confusion  regarding  the  status   of  their  various  benefits.  Bank   of   P.I.   v.   BPI   Employees   Union-­‐ Davao  Chapter,  etc.,  658  SCRA  828  (2011).   o Atty.  Hofileña  à  the  surviving  corporation,  in  a  merger   situation,   is   absorbing   everything   including   employees.   As   such,   there   is   no   interruption.   This   case   seems   to   suggest   that   the   employees   have   a   choice   whether   to   join  the  new  company  or  not.   However,  the  rule  still  is  

that   employment,   because   they   are   obligations,   are   carried  over.     E.  Spin-­‐Offs:  SMC  Employees  Union-­‐PTGWO  v.  Confessor,  262  SCRA  81   (1996).     SMC  Employees  Union-­‐PTGWO  v.  Confessor     Facts:   SMC-­‐Union  entered  into  a  Collective  Bargaining  Agreement  with   SMC.   SMC   management   informed   its   employees   in   a   letter   that   the   company   -­‐   which   was   composed   of   4   operating   divisions   (1)   beer,   (2)   packaging,  (3)  feed  and  livestocks  and  (4)  Magnolia  and  Agri-­‐business  -­‐   would   undergo   a   restructuring.   Magnolia   and   Feeds   and   Livestock   divisions   were   spun-­‐off   and   became   2   separate   and   distinct   corporations:  Magnolia  Corp.  (Magnolia)  and  San  Miguel  Foods  (SMFI).   Because   of   this,   the   CBA   was   renegotiated.   During   the   negotiations,   SMC-­‐Union  insisted  that  the  bargaining  unit  of  SMC  should  still  include   the   employees   of   the   spun-­‐off   corporation   and   the   CBA   shall   be   effective   for   2   years.   SMC,   on   the   other   hand,   contended   that   the   members/employees   who   had   moved   to   Magnolia   and   SMFI,   automatically  ceased  to  be  part  of  the  bargaining  unit  at  the  SMC.     Issue:   Whether   or   not   the   bargaining   unit   of   SMC   includes   also   the   employees  of  Magnolia  and  SMFI.     Held:   NO.   Magnolia   and   SMFI   were   spun-­‐off   to   operate   as   distinct   companies.   Undeniably,   the   transformation   of   the   companies   was   a   management   prerogative   and   business   judgment   which   the   courts   cannot   look   into   unless   it   is   contrary   to   law,   public   policy   or   morals.  

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

CORPORATION  LAW  REVIEWER  (2013-­‐2014)     Neither  can  we  impute  any  bad  faith  on  the  part  of  SMC  so  as  to  justify   the  application  of  the  doctrine  of  piercing  the  corporate  veil.  Magnolia   and   SMFI   became   distinct   entities   with   separate   juridical   personalities.   Thus,  they  cannot  belong  to  a  single  bargaining  unit.     Doctrine:   In   determining   an   appropriate   bargaining   unit,   the   test   of   grouping   is   mutuality   or   commonality   of   interests.   Considering   the   spin-­‐ offs,   the   companies   would   consequently   have   their   respective   and   distinctive   concerns   in   terms   of   the   nature   of   work,   wages,   hours   of   work  and  other  conditions  of  employment.    

  NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  

 

 

     ATTY.  JOSE  MARIA  G.  HOFILEÑA    

View more...

Comments

Copyright ©2017 KUPDF Inc.
SUPPORT KUPDF