JOSELITO MUSNI PUNO (as heir of the late Carlos Puno), Petitioner, vs.

PUNO
ENTERPRISES, INC., represented by JESUSA PUNO

Respondent. *Upon the death of a stockholder, the heirs do not automatically become
stockholders of the corporation; neither are they mandatorily entitled to the rights
and privileges of a stockholder.

FACTS:
Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno
Enterprises, Inc. On March 14, 2003, petitioner Joselito Musni Puno, claiming to be an
heir of Carlos L. Puno, initiated a complaint for specific performance against
respondent. Petitioner averred that he is the son of the deceased with the latter’s
common
-law wife, Amelia Puno. As surviving heir, he claimed entitlement to the rights and
privileges of his late father as stockholder of respondent. The complaint thus prayed
that respondent allow petitioner to inspect its corporate book, render an accounting
of all the transactions it entered into from 1962, and give petitioner all the profits,
earnings, dividends, or income pertaining to the shares of Carlos L. Puno. Respondent
filed a motion to dismiss on the ground that petitioner did not have the legal
personality to sue because his birth certificate names him as "Joselito Musni Muno."
Apropos, there was yet a need for a judicial declaration that "Joselito Musni Puno" and
"Joselito Musni Muno" were one and the same. After submitting his corrected birth
certificate, the court ordered Jesusa Puno and/or Felicidad Fermin to allow the
plaintiff to inspect the corporate books and records of the company from 1962 up to
the present including the financial statements of the corporation. CA ordered the
dismissal of the complaint in its Decision dated October 11, 2006. According to the
CA, petitioner was not able to establish the paternity of and his filiation to Carlos L.
Puno since his birth certificate was prepared without the intervention of and the
participatory acknowledgment of paternity by Carlos L. Puno. Accordingly, the CA said
that petitioner
had no right to demand that he be allowed to examine respondent’s books. Moreover
, petitioner was not a stockholder of the corporation but was merely claiming rights
as an heir of Carlos L. Puno, an incorporator of the corporation. His action for specific
performance therefore appeared to be premature; the proper action to be taken was
to prove the paternity of and his filiation to Carlos L. Puno in a petition for the
settlement of the estate of the latter.
ISSUE:
WON petitioner automatically became stockholder of the corporation and acquire the
rights and privileges of the deceased as shareholder of the corporation.

HELD:
No. Upon the death of a shareholder, the heirs do not automatically become
stockholders of the corporation and acquire the rights and privileges of the deceased
as shareholder of the corporation. The stocks must be distributed first to the heirs in
estate proceedings, and the transfer of the stocks must be recorded in the books of
the corporation. Section 63 of the Corporation Code provides that no transfer shall be
valid, except as between the parties, until the transfer is recorded in the books of the
corporation. During such interim period, the heirs stand as the equitable owners of
the stocks, the executor or administrator duly appointed by the court being vested
with the legal title to the stock.

Until a settlement and division of the estate is effected, the stocks of the decedent
are held by the administrator or executor. Consequently, during such time, it is the
administrator or executor who is entitled to exercise the rights of the deceased as
stockholder. Thus, even if petitioner presents sufficient evidence in this case to
establish that he is the son of Carlos L. Puno, he would still no
t be allowed to inspect respondent’s books and be entitled to receive dividends from
respondent, absent any showing in
its transfer book that some of the shares owned by Carlos L. Puno were transferred to
him. This would only be possible if petitioner has been recognized as an heir and has
participated in the settlement of the estate of the deceased. Corollary to this is the
doctrine that a determination of whether a person, claiming proprietary rights over
the estate of a deceased person, is an heir of the deceased must be ventilated in a
special proceeding instituted precisely for the purpose of
settling the estate of the latter. The status of an illegitimate child who claims to be
an heir to a decedent’s estate cannot
be adjudicated in an ordinary civil action, as in a case for the recovery of property.
The doctrine applies to the instant case, which is one for specific performance
to direct respondent corporation to allow petitioner to exercise rights that pertain
only to the deceased and his representatives. Petition denied
Gonzales vs PNB 122 SCRA 489

FACTS:

Gonzales instituted a suit, as a taxpayer, against Sec. of Public Works

andCommunications, the Commissioner of Public Highways, and PNB for alleged
anomalies committed regarding the bank’s extension of credit to import public works
equipment intended for the massive development program. The petitioner’s standing
was questioned because he did not owned any share in PNB. Consequently, Petitioner
bought 1 share of PNB stocks in order to gain standing as a stockholder.Petitioner
thereafter sought to inquire and ordered PNB to produce its books and records which
the Bank refused, invoking the provisions from its charter created by Congress.The
petitioner filed petition for mandamus to compel PNB to produce its books and
records. The RTC dismissed the petition and it ruled that the right to examine and
inspect corporate books is not absolute, but is limited to purposes reasonably related
to the interest of the stockholder, must be asked for in good faith for a specific and
honest purpose and not gratify curiosity or for speculative or vicious purposes; that
such examination would violate the confidentiality of the records of the respondent
bank as provided in Section 16 of its charter, Republic Act No. 1300, as amended; and
that the petitioner has not exhausted his administrative remedies.

ISSUE:
Whether or not Petitioner may compel PNB to produce its books and records

HELD:
No. As may be noted from the Sec 74 BP Blg. 68, among the changes introduced in the
new Code with respect to the right of inspection granted to a stockholder are the
following the records must be kept at the principal office of the corporation; the
inspection must be made on business days; the stockholder may demand a copy of the
excerpts of the records or minutes; and the refusal to allow such inspection shall
subject the erring officer or agent of the corporation to civil and criminal liabilities.
However, while seemingly enlarging the right of inspection, the new Code has
prescribed limitations to the same. It is now expressly required as a condition for such
examination that the one requesting it must not have been guilty of using improperly
any information through a prior examination, and that the person asking for such
examination must be"acting in good faith and for a legitimate purpose in making his
demand."Although the petitioner has claimed that he has justifiable motives in
seeking the inspection of the books of the respondent bank, he has not set forth the
reasons and the purposes for which he desires such inspection, except to satisfy
himself as to the truth of published reports regarding certain transactions entered
into by the respondent bank and to inquire into their validity. The circumstances
under which he acquired one share of stock in the respondent bank purposely to
exercise the right of inspection do not argue in favor of his good faith and proper
motivation. Admittedly he sought to be a stockholder in order to pry into transactions
entered into by the respondent bank even before he became a stockholder. His
obvious purpose was to arm himself with materials which he can use against the
respondent bank for acts done by the latter when the petitioner was a total stranger
to the same. He could have been impelled by a laudable sense of civic consciousness,
but it could not be said that his purpose is germane to his interest as as
tockholder.The inspection sought to be exercised by the petitioner would be violative
of the provisions of its charter of PNB. The Philippine National Bank is not an ordinary
corporation. Having a charter of its own, it is not governed, as a rule, by the
CorporationCode of the Philippines.

Section 4 of the said Code provides:SEC. 4.

Corporations created by special laws or charters
. — Corporations created by special laws or charters shall be governed primarily by
the provisions of the special law or charter creating them or applicable to
them.supplemented by the provisions of this Code, insofar as they are applicable.The
provision of Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with
respect to the right of a stockholder to demand an inspection or examination of the
books of the corporation may not be reconciled with the above quoted provisions of
the charter of the respondent bank. It is not correct to claim, therefore, that the
right of inspection under Section 74 of the new Corporation Code may apply in a
supplementary capacity to the charter of the respondent bank
PNB, NASUDECO vs. Andrada Electric and Engineering Company (2002)Doctrine:
Basic is the rule that a corporation has a legal personality distinct andseparate from
the persons and entities owning it. The corporate veil may be lifted only if it has been
used to shield fraud, defend crime, justify a wrong, defeat publicconvenience,
insulate bad faith or perpetuate injustice. Thus, the mere fact that thePhilippine
National Bank (PNB) acquired ownership or management of some assets of the
Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchasedat
the resulting public auction by the Development Bank of the Philippines (DBP), willnot
make PNB liable for the PASUMIL’s contractual debts to respondent.

Facts:
1.PASUMIL (Pampanga Sugar Mills) engaged the services of Andrada Electric for
electrical rewinding, repair, the construction of a power house building,installation of
turbines, transformers, among others. Most of the services werepartially paid by
PASUMIL, leaving several unpaid accounts.
2.On August 1975, PNB, a semi-government corporation, acquired the assets of
PASUMIL—assets that were earlier foreclosed by the DBP.
3.On September 1975, PNB organized NASUDECO (National Sugar
DevelopmentCorporation), under LOI No. 311 to take ownership and possession of the
assetsand ultimately, to nationalize and consolidate its interest in other PNB
controlledsugar mills. NASUDECO is a semi-government corporation and the sugar arm
of the PNB.4.Andrada Electric alleges that PNB and NASUDECO should be liable for
PASUMIL’s unpaid obligation amounting to 500K php, damages, and attorney’sfees,
having owned and possessed the assets of PASUMIL.

Issue:
Whether PNB and NASUDECO may be held liable for PASUMIL’s liability to
AndradaElectric and Engineering Company.

Held: NO.
Basic is the rule that a corporation has a legal personality distinct and separate from
thepersons and entities owning it. The corporate veil may be lifted only if it has been
usedto shield fraud, defend crime, justify a wrong, defeat public convenience,
insulate badfaith or perpetuate injustice.Thus, the mere fact that the Philippine
National Bank (PNB) acquired ownership or management of some assets of the
Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at
the resulting public auction by the Development Bankof the Philippines (DBP),
will not make PNB liable for the PASUMIL's contractualdebts
to Andrada Electric & Engineering Company (AEEC).
Piercing the veil of corporate fiction may be allowed only if the following
elementsconcur: (1) control not mere stock control, but complete domination² not
only of finances, but of policy and business practice in respect to the transaction
attacked, musthave been such that the corporate entity as to this transaction had at
the time noseparate mind, will or existence of its own; (2) such control must have
been used by thedefendant to commit a fraud or a wrong to perpetuate the violation
of a statutory or other positive legal duty, or a dishonest and an unjust act in
contravention of plaintiff'slegal right; and (3) the said control and breach of duty
must have proximately causedthe injury or unjust loss complained of.The absence of
the foregoing elements in the present case precludes the piercing of thecorporate
veil.First, other than the fact that PNB and NASUDECO acquired the assets of
PASUMIL,there is no showing that their control over it warrants the disregard of
corporatepersonalities. Second, there is no evidence that their juridical personality
was used tocommit a fraud or to do a wrong; or that the separate corporate entity
was farcicallyused as a mere alter ego, business conduit or instrumentality of another
entityor person.Third, AEEC was not defrauded or injured when PNB and NASUDECO
acquired theassets of PASUMIL. Hence, although the assets of NASUDECO can be easily
traced toPASUMIL, the transfer of the latter's assets to PNB and NASUDECO was
notfraudulently entered into in order to escape liability for its debt to AEEC.There
was NO merger or consolidation with respect to PASUMIL and PNB.Respondent further
claims that petitioners should be held liable for the unpaidobligations of PASUMIL by
virtue of LOI Nos. 189-A and 311, which expresslyauthorized PASUMIL and PNB to
merge or consolidate (allegedly).On the other hand, petitioners contend that their
takeover of the operations of PASUMILdid not involve any corporate merger or
consolidation, because the latter had never lostits separate identity as a corporation.
A consolidation is the union of two or more existing entities to form a new entity
calledthe consolidated corporation. A merger, on the other hand, is a union whereby
one or more existing corporations are absorbed by another corporation that survives
andcontinues the combined business.The merger, however, does not become effective
upon the mere agreement of theconstituent corporations. Since a merger or
consolidation involves fundamental changesin the corporation, as well as in the rights
of stockholders and creditors, there must bean express provision of law authorizing
them.For a valid merger or consolidation, the approval by the SEC of the articles of
merger or consolidation is required. These articles must likewise be duly approved by
a majority of the respective stockholders of the constituent corporations.
Associated Bank vs. Court of Appeals

FACTS:
Associated Banking Corporation and Citizens Bank and Trust Company (CBTC) merged
to form just one banking corporation known as Associated Citizens Bank (later
renamed Associated Bank), the surviving bank. After the merger agreement had been
signed, but before a certificate of merger was issued, respondent Lorenzo Sarmiento,
Jr. executed in favor of Associated Bank a promissory note, promising to pay the bank
P2.5 million on or before due date at 14% interest per annum, among other accessory
dues. For failure to pay the amount due, Sarmiento was sued by Associated Bank.
Respondent argued that the plaintiff is not the proper party in interest because the
promissory note was executed in favor of CBTC. Also, while respondent executed the
promissory note in favor of CBTC, said note was a contract pour autrui, one in favor of
a third person who may demand its fulfillment. Also, respondent claimed that he
received no consideration for the promissory note and, in support thereof, cites
petitioner's failure to submit any proof of his loan application and of his actual receipt
of the amount loaned.

ISSUE:
1.) Whether or not Associated Bank, the surviving corporation, may enforce the
promissory note made by private respondent in favor of CBTC, the absorbed company,
after the merger agreement had been signed, but before a certificate of merger was
issued?
2.) Whether or not the promissory note was a contract pour autrui and was issued
without consideration?

HELD:
The petition is impressed with merit.
Associated Bank assumed all the rights of CBTC. Although absorbed corporations are
dissolved, there is no winding up of their affairs or liquidation of their assets, because
the surviving corporation automatically acquires all their rights, privileges and
powers, as well as their liabilities. The merger, however, does not become effective
upon the mere agreement of the constituent corporations. The Securities and
Exchange Commission (SEC) and majority of the respective stockholders of the
constituent corporations must have approved the merger. (Section 79, Corporation
Code) It will be effective only upon the issuance by the SEC of a certificate of merger.
Records do not show when the SEC approved the merger.

But assuming that the effectivity date of the merger was the date of its execution, we
still cannot agree that petitioner no longer has any interest in the promissory note.
The agreement itself clearly provides that all contracts — irrespective of the date of
execution — entered into in the name of CBTC shall be understood as pertaining to
the surviving bank, herein petitioner. Such must have been deliberately included in
the agreement in order to avoid giving the merger agreement a farcical interpretation
aimed at evading fulfillment of a due obligation. Thus, although the subject
promissory note names CBTC as the payee, the reference to CBTC in the note shall be
construed, under the very provisions of the merger agreement, as a reference to
petitioner bank.
On the issue that the promissory note was a contract pour autrui and was issued
without consideration, the Supreme Court held it was not. In a contract pour autrui,
an incidental benefit or interest, which another person gains, is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third
person. The "fairest test" in determining whether the third person's interest in a
contract is a stipulation pour autrui or merely an incidental interest is to examine the
intention of the parties as disclosed by their contract. It did not indicate that a
benefit or interest was created in favor of a third person. The instrument itself says
nothing on the purpose of the loan, only the terms of payment and the penalties in
case of failure to pay.
Private respondent also claims that he received no consideration for the promissory
note, citing petitioner's failure to submit any proof of his loan application and of his
actual receipt of the amount loaned. These arguments deserve no merit. Res ipsa
loquitur. The instrument, bearing the signature of private respondent, speaks for
itself. Respondent Sarmiento has not questioned the genuineness and due execution
thereof. That he partially paid his obligation is itself an express acknowledgment of
his obligation. WHEREFORE, the petition is GRANTED.
Bank of the Philippine Islands vs Carlito Lee
G.R. no. 190144, August 1, 2012,

TOPIC: Merger; Effects

FACTS:
Respondent Carlito Lee filed a complaint for sum of money with damages and
application for issuance of a writ of attachment against Trendline and Buelva. He
alleged that he was enticed to invest his money with Trendline upon Buelva’s
misrepresentation that she was its duly licensed investment consultant or commodity
saleswoman. RTC issued a writ of preliminary attachment whereby the savings
account of Trendline with Citytrust Banking Corporation were garnished. Subsequently
it held defendants jointly and severally liable to Lee for the full amount of his
investment plus legal interest' attorney’s fees and costs of suit. Citytrust filed an
urgent motion to release the amount garnished to pay Trendline’s obligation and a
similar motion was also filed by Trendline with the CA. the motion was denied. Later
on Citytrust and BPI merged with BPI as the surviving corporation. The Articles of
Merger provides among others that all liabilities and obligations of Citytrust shall be
transferred to and become the liabilities and obligations of BPI in the same manner as
if the BPI had itself incurred such liabilities or obligations. Lee filed a motion for
execution to release the garnished deposits of Trendline. BPI’s manager Mendoza
denied having possession, control and custody of any deposits or properties belonging
to defendants, prompting Lee to seek the production of their records of accounts with
BPI. BPI said that it cannot locate the defendant’s bank records with Citytrust. Lee
filed again a motion for execution and-or enforcement of garnishment to enforce
against BPI the garnishment of Trendline’s deposit and other deposits it may have had
with Citytrust. Lee was denied. The CA then annulled RTC’s orders finding grave abuse
of discretion on the part of RTC in denying Lee’smotion to enforce garnishment
against Trendline’s attached bank deposits with Citytrust, which have been
transferred to BPI by virtue of their merger.

Issue:
Whether or not BPI may be held liable because of its merger with Citytrust

HELD:

Yes. Petition is denied. Through the service of the writ of garnishment, the garnishee
becomes a virtual party to, or a forced intervenor in the case and the trial court
thereby acquires jurisdiction to bind him to compliance with all orders and processes
of the trial court with a view to the complete satisfaction of the judgment of the
court. Citytrust, therefore, upon service of the notice of garnishment and its
acknowledgment that it was in possession of defendants’ deposit accounts in its letter
became a virtual party to or a forced intervenor in the civil case. As such, it became
bound by the orders and processes issued by the trial court despite not having been
properly impleaded therein.
Consequently, by virtue of its merger with BPI on October 9, BPI as the surviving
corporation, effectively became the garnishee, thus the virtual party to the civil case.
Merger of two corporations produces the following effects: 1. The constituent
corporations shall become a single corporation 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 corporation shall cease, except that of the
surviving or the consolidated corporation; 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; 4.
The surviving or the consolidated corporation shall thereupon and thereafter possess
all the rights, privileges, immunities and franchises of each of the constituent
corporations and all property, real or personal, and all receivables due on whatever
account, including subscriptions to shares and other choses in action, and all and
every other interest of or belonging to, or due to each constituent 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 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.
Although Citytrust was dissolved, no winding up of its affairs or liquidation of its
assets, privileges, powers and liabilities took place. As the surviving corporation, BPI
simply continued the combined businesses of the two banks and absorbed all the
rights, privileges, assets, liabilities and obligations of Citytrust, including the latter’s
obligation over the garnished deposits of the defendants. BPI’s liability for the
garnished deposits of the defendants has been clearly established. By virtue of the
writ of garnishment, the deposits of the defendants with Citytrust were placed in
custodia legis of the court. From that time onwards' their deposits were under the
sole control of the RTC and Citytrust holds them subject to its orders until such time
that the attachment or garnishment is discharged, or the judgment in favor of Lee is
satisfied or the credit or deposit is delivered to the proper officer of the court.
Thus, Citytrust, and thereafter BPI, which automatically assumed the former’s
liabilities and obligations upon the approval of their Articles of Merger, is obliged to
keep the deposit intact and to deliver the same to the proper officer upon order of
the court. The loss of bank records of a garnished deposit is not a ground for the
dissolution of garnishment. BPI cannot avoid the obligation attached to the writ of
garnishment by claiming that the fund was not transferred to it, in light of the
Articles of Merger which provides that all liabilities and obligations of Citytrust shall
be transferred to and become the liabilities and obligations of BPI in the same manner
as if the BPI had itself incurred such liabilities or obligations' and in order that the
rights and interest of creditors of Citytrust or liens upon the property of Citytrust
shall not be impaired by merger. BPI is liable to deliver the fund subject of the writ of
garnishment.
BABST VS CA

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).

FACTS:
On June 8, 1973, ELISCON obtained from CBTC a loan in the amount of P8,015,900.84,
with interest at the rate of 14% per annum, evidenced by a promissory note. ELISCON
defaulted in its payments, leaving an outstanding indebtedness in the amount of
P2,795,240.67 as of October 31, 1982. The letters of credit, on the other hand, were
opened for ELISCON by CBTC using the credit facilities of Pacific Multi-Commercial
Corporation (MULTI) with the said bank, pursuant to the Resolution of the Board of
Directors of MULTI. Subsequently, on September 26, 1978, Antonio Roxas Chua and
Chester G. Babst executed a Continuing Suretyship, whereby they bound themselves
jointly and severally liable to pay any existing indebtedness of MULTI to CBTC to the
extent of P8,000,000.00 each. Sometime in October 1978, CBTC opened for ELISCON
in favor of National Steel Corporation three (3) domestic letters of credit in the
amounts of P1,946,805.73, P1,702,869.32 and P200,307.72, respectively, which
ELISCON used to purchase tin black plates from National Steel Corporation. ELISCON
defaulted in its obligation to pay the amounts of the letters of credit, leaving an
amount of P3,963,372.08. On December 22, 1980, BPI and CBTC entered into a
merger, wherein BPI, as the surviving corporation, acquired all the assets and assumed
all the liabilities of CBTC. Meanwhile, ELISCON encountered financial difficulties and
became heavily indebted to the Development Bank of the Philippines (DBP). In order
to settle its obligations, ELISCON proposed to convey to DBP by way of dacion en pago
all its fixed assets mortgaged with DBP, as payment for its total indebtedness.
ELISCON called its creditors to a meeting to announce the take-over by DBP of its
assets. In October 1981, DBP formally took over the assets of ELISCON, including its
indebtedness to BPI. Thereafter, DBP proposed formulas for the settlement of all of
ELISCONs obligations to its creditors, but BPI expressly rejected the formula
submitted to it for not being acceptable. BPI, as successor-in-interest of CBTC,
instituted with the Regional Trial Court of Makati, Branch 147, a complaint for sum of
money against ELISCON, MULTI and Babst, which was docketed as Civil Case No.
49226. ELISCON, in its Answer, argued that the complaint was premature since DBP
had made serious efforts to settle its obligations with BPI. Babst also filed his Answer
alleging that he signed the Continuing Suretyship on the understanding that it covers
only obligations which MULTI incurred solely for its benefit and not for any third party
liability, and he had no knowledge or information of any transaction between MULTI
and ELISCON.
MULTI, for its part, denied knowledge of the merger between BPI and CBTC, and
averred that the guaranty under its board resolution did not cover purchases made by
ELISCON in the form of trust receipts. The trial court rendered its Decision in favor of
the plaintiff and against all the defendants. Petitioner Babst alleged that DBP sold all
of ELISCONs assets to the National Development Company, for the latter to take over
and continue the operation of its business. Furthermore, Babst averred that the assets
of ELISCON which were acquired by the DBP, and later transferred to the NDC, were
placed under the Asset Privatization Trust. BPI countered that by virtue of its merger
with CBTC, it acquired all the latters rights and interest including all receivables; that
in order to effect a valid novation by substitution of debtors, the consent of the
creditor must be express; that BPI intentionally did not consent to the assumption by
DBP of the obligations of ELISCON.

ISSUE:
Whether or not BPI consented to the assumption by DBP of the obligations of ELISCON

HELD:
Yes, there was consent from BPI. There is a valid takeover by DBP of ELISCON’s assets.
Complaint against ELISCON and Babst must be dismissed. Article 1293 of the Civil
Code provides: Novation which consists in substituting a new debtor in the place of
the original one, may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor gives
him the rights mentioned in articles 1236 and 1237. BPI contends that in order to have
a valid novation, there must be an express consent of the creditor. In the case of Vda.
e Hijos de Pio Barretto y Ca., Inc. v. Albo & Sevilla, Inc., et al., this Court reiterated
the rule that there can be implied consent of the creditor to the substitution of
debtors. In the case at bar, Babst, MULTI and ELISCON all maintain that due to the
failure of BPI to register its objection to the take-over by DBP of ELISCONs assets, at
the creditors meeting held in June 1981 and thereafter, it is deemed to have
consented to the substitution of DBP for ELISCON as debtor. There exist clear
indications that BPI was aware of the assumption by DBP of the obligations of
ELISCON. BPI gives no cogent reason in withholding its consent to the substitution,
other than its desire to preserve its causes of action and legal recourse against the
sureties of ELISCON. It must be remembered, however, that while a surety is solidarily
liable with the principal debtor, his obligation to pay only arises upon the principal
debtors failure or refusal to pay. A contract of surety is an accessory promise by which
a person binds himself for another already bound, and agrees with the creditor to
satisfy the obligation if the debtor does not. A surety is an insurer of the debt; he
promises to pay the principals debt if the principal will not pay. In the case at bar,
there was no indication that the principal debtor will default in payment. In fact, DBP,
which had stepped into the shoes of ELISCON, was capable of payment. Its authorized
capital stock was increased by the government. More importantly, the National
Development Company took over the business of ELISCON and undertook to pay
ELISCONs creditors, and earmarked for that purpose the amount of P4,015,534.54 for
payment to BPI. Notwithstanding the fact that a reliable institution backed by
government funds was offering to pay ELISCONs debts, not as mere surety but as
substitute principal debtor, BPI, for reasons known only to itself, insisted in going
after the sureties. The course of action chosen taxes the credulity of this Court. At
the very least, suffice it to state that BPIs actuation in this regard runs counter to the
good faith covenant in contractual relations, provided for by the Civil Code. BPIs
conduct evinced a clear and unmistakable consent to the substitution of DBP for
ELISCON as debtor. Hence, there was a valid novation which resulted in the release of
ELISCON from its obligation to BPI, whose cause of action should be directed against
DBP as the new debtor. Novation, in its broad concept, may either be extinctive or
modificatory. It is extinctive when an old obligation is terminated by the creation of a
new obligation that takes the place of the former; it is merely modificatory when the
old obligation subsists to the extent it remains compatible with the amendatory
agreement. An extinctive novation results either by changing the object or principal
conditions (objective or real), or by substituting the person of the debtor or
subrogating a third person in the rights of the creditor (subjective or personal). The
original obligation having been extinguished, the contracts of suretyship executed
separately by Babst and MULTI, being accessory obligations, are likewise extinguished.
BPI should enforce its cause of action against DBP. Hence, Court of Appeals decision,
which held ELISCON, MULTI and Babst solidarily liable for payment to BPI of the
promissory note and letters of credit, is REVERSED and SET ASIDE. BPIs complaint
against ELISCON, MULTI and Babst is DISMISSED
BPI VS BPI EMPLOYEES UNION

Facts:
The BSP approved the Articles of Merger executed on January 20, 2000 by and
betweenBPI, and FEBTC. This Article and Plan of Merger was approved by the SEC on
April 7, 2000.Pursuant to the Article and Plan of Merger, all the assets and liabilities
of FEBTC were transferred to and absorbed by BPI as the surviving corporation. FEBTC
employees, including those in its different branches across the country, were hired by
petitioner as its own employees, with their status and tenure recognized and salaries
and benefits maintained.Respondent BPI Employees Union-Davao Chapter-Federation
of Unions in BPI Unibank is the exclusive bargaining agent of BPI¶s rank and file
employees in Davao City. The former FEBTCrank-and-file employees in Davao City did
not belong to any labor union at the time of the merger. Prior to the effectivity of the
merger, respondent union invited said FEBTC employees to a meeting regarding the
Union Shop Clause of the existing CBA between petitioner BPI and respondent union.
The parties both advert to certain provisions of the existing CBA.After the meeting
called by the union, some of the former FEBTC employees joined the union, while
others refused. Later, however, some of those who initially joined retracted their
membership. Respondent union then sent notices to the former FEBTC employees who
refused to join, as well as those who retracted their membership and called them to a
hearing regarding the matter. When these former FEBTC employees refused to attend
the hearing, the president of the Union requested BPI to implement the Union Shop
Clause of the CBA and to terminate their employment.After two months of
management inaction on the request, respondent informed petitioner of its decision
to refer the issue of the implementation of the Union Shop Clause of the CBA to
theGrievance Committee. However, the issue remained unresolved at this level and so
it was subsequently submitted for voluntary arbitration by the parties. Voluntary
Arbitrator ruled in favor of petitioner BPI. Respondent Union filed a motion for
reconsideration, but the voluntary arbitrator denied the same. It appealed to the CA
and the CA reversed and set aside the decision of the voluntary arbitrator. Hence, this
petition.

Issue:
May a corporation invoke its merger with another corporation as a valid ground to
exempt its absorbed employees from the coverage of a union shop clause contained in
its existing CBA with its own certified labor union Employment Contracts
Significantly, too, the Articles of Merger and Plan of Merger dated April 7, 2000 did not
contain a specific stipulation with respect to the employment contracts of existing
personnel of the non-surviving entity which is FEBTC. Unlike the Voluntary Arbitrator,
this Court cannot uphold the reasoning that the general stipulation regarding transfer
of FEBTC assets and liabilities toBPI as set forth in the Articles of Merger necessarily
includes the transfer of all FEBTC employees into the employ of BPI and neither BPI
nor the FEBTC employees allegedly could do anything about it. Even if it is so, it does
not follow that the absorbed employees should not be subject to the terms and
conditions of employment obtaining in the surviving corporation.The rule is that
unless expressly assumed, labor contracts such as employment contracts and
collective bargaining agreements are not enforceable against a transferee of an
enterprise, labor contracts being in personam, thus binding only between the parties.
A labor contract merely creates an action in personam and does not create any real
right which should be respected by third parties. This conclusion draws its force from
the right of an employer to select his employees and to decide when to engage them
as protected under our Constitution, and the same can only be restricted by law
through the exercise of the police power.(BANK OF THE PHILIPPINE ISLANDS v. BPI
EMPLOYEES UNION-DAVAO CHAPTER-FEDERATIONOF UNIONS IN BPI UNIBANK, G.R. No.
164301, August 10, 2010)Equality)
Cua Jr. vs. OcampoG.R. No. 181455-56, December 4, 2009 Chico-Nazario, J.:

Facts:

PRCI is a corporation organized and established under Philippine laws to carry on the
business of a race course in all its branches and, in particular, to conduct horse races
or races of any kind, to accept bets on the results of the races, and to construct grand
or other stands, booths, stablings, paddocks, clubhouses, refreshment rooms and
other erections, buildings, and conveniences, and to conduct, hold and promote race
meetings and other shows and exhibitions. PRCI owns only two real properties, each
covered by several transfer certificates of title. One is known as the Sta. Ana
Racetrack located in Makati City, and the other is located in the towns of Naic and
Tanza, Cavite. Following the trend in the development of properties in the same area,
PRCI wished to convert its Makati property from a racetrack to urban residential and
commercial use. Given the location and size of its Makati property, PRCI believed that
said property was severely under-utilized. Hence, PRCI management decided to
transfer its racetrack from Makati to Cavite. Now as to its Makati property, PRCI
management decided that it was best to spin off the management and development
of the same to a wholly owned subsidiary, so that PRCI could continue to focus its
efforts on pursuing its core business competence of horse racing. Instead of organizing
and establishing a new corporation for the said purpose, PRCI management opted to
acquire another domestic corporation, JTH Davies Holdings, Inc. The Board agreed to
acquire the stocks of latter company through an exchange of their Makati property.
Said move was made into a resolution but was opposed by some stockholders. The
Board and petitioners continued to acquire the company, which was surrounded by
fraud as alleged by the respondents. The petitioners proceeded with the plan despite
the demand by respondents to appraise the stocks of JTH Davies Holdings. A case was
filed by respondents and was granted by the RTC.

Issue:
Whether or not appraisal rights are available to respondents.

Held:

No. It bears to point out that every derivative suit is necessarily grounded on an
alleged violation by the board of directors of its fiduciary duties, committed by
mismanagement, misrepresentation, or fraud, with the latter two situations
alreadyimplying bad faith. If the Court upholds the position of respondents Miguel, et
al. that the existence of mismanagement, misrepresentation, fraud, and/or bad faith
renders the right of appraisal unavailable it would give rise to an absurd situation.
Inevitably, appraisal rights would be unavailable in any derivative suit. This renders
the requirement in Rule 8, Section 1(3) of the IPRICC superfluous and effectively
inoperative; and in contravention of an elementary rule of legal hermeneutics that
effect must be given to every word, clause, and sentence of the statute, and that a
statute should be so interpreted that no part thereof becomes inoperative or
superfluous. The import of establishing the availability or unavailability of appraisal
rights to the minority stockholder is further highlighted by the fact that it is one of
the factors in determining whether or not a complaint involving an intra-corporate
controversy is a nuisance and harassment suit. In case of nuisance or harassment
suits, the court may, motu proprio or upon motion, forthwith dismiss the case. The
availability or unavailability of appraisal rights should be objectively based on the
subject matter of the complaint, i.e., the specific act or acts performed by the board
of directors, without regard to the subjective conclusion of the minority stockholder
instituting the derivative suit that such act constituted mismanagement,
misrepresentation, fraud, or bad faith.
Turner v. Lorenzo Shipping Corporation
G.R. No. 157479

Facts:

Petitioners Philip and Elnora Turner were the owners of 1,010,000 shares of stocks of
Respondent Lorenzo Shipping Corporation. Petitioners voted against the restriction of
pre-emptive right to newly issued stocks, to be effected via the amendment of the
articles of incorporation of the Respondent Corporation. They alleged that it is
prejudicial to their interests as shareholders. Thus, through the exercise of their
appraisal right, they demanded the payment of their shares at P2.276/share
(P2,298,760.00). Respondent Corporation countered that it was an acceptable amount
alleging that, the FMV of Petitioners’ shares before the implementation of the
corporate action to deny pre-emptive right was at P0.41 share (P414,100.00).
Respondent Corporation further alleged that the corporation had no unrestricted
retained earnings at the time the demand was made. Disagreement to stock valuation
led to the constitution of an appraisal committee which valued the shares in dispute
at P2.54/share (2,565,000.00). Petitioners then asked for payment at said value plus
2% interest per month from the date of original demand. Respondent Corporation,
through a letter, told Petitioners that they cannot pay due to the absence of URE, and
that the corporation had a deficit of P72,973,114.00. This led petitioner to file an
action for collection of sum of money and damages with RTC Makati. Respondent
Corporation alleged that the cause of action of the Petitioners has not yet accrued
due to the absence of the former’s URE
RTC Makati, in finding that the suit was an intracorporate dispute, ordered the re-
raffle of the case pursuant to the Interim Rules of Intracorporate Dispute. The case
was raffled in RTC Manila, the court which exercise territorial jurisdiction in the place
where the principal office of Respondent Corporation is found RTC Manila, in ruling in
favor of the Petitioners and ordering the Respondent to pay, stated that the
Corporation Code does not require that URE must exist at the time of demand. Even if
there is no URE at such time, if there would be URE later, the FMV of the stocks shall
be paid, provided that there must be sufficient funds to cover creditors after such
payment. Respondents, aggrieved, elevated the case to the Court of Appeals which
reversed the RTC Decision and enjoined the payment to the petitioners. This
prompted the Petitioners to elevate the same to the Supreme Court, thus, this
recourse.

Issue: Whether or not the Court of Appeals erred in reversing the RTC Decision.
Ruling:

No. The RTC erred in ordering the Respondent Corporation to pay, and that the same
exceeded in the exercise of its jurisdiction in rendering judgment in favor of
Petitioners and in the issuance of writ of execution. A stock holder who dissents
certain corporate actions has the right to demand FMV of his share (appraisal right),
provided that the corporation has URE as provided for under Sec. 81 of the
Corporation Code. Such right may be exercised when there is a change in the AoI
prejudicing the interests of the stockholder. No payment shall be made unless there
are unrestricted retained earnings in its books to cover such payment. Payment by the
corporation to a dissenting stockholder exercising his appraisal right without the
existence of URE is in violation of the trust fund doctrine which proscribes the
distribution of assets to a stockholder without first paying corporate debts because
the assets of the corporation are held in trust by the same for the benefit of its
creditors. Payment made under such circumstance is prejudicial to the corporate
creditors and is null and void. Creditors are always preferred over stockholders.

Petitioners’ cause of action is premature, because there is no URE at the time of

demand. Right to demand has not yet accrued. No valid demand, no actionable
wrong. The subsequent existence of URE does not cure the lack of cause of action.
Petition for Certiorari Denied. Yeah.