Edward J. Nell Company vs.

Pacific Farms, Inc

FACTS: March 21, 1958: Pacific Farms Inc. (Pacific) purchased as highest
bidder from a bank auction 1,000 shares of stock of Insular Farms for
P285,126.99 and BOD of Insular as reorganized, then caused its assets,
including its leasehold rights over a public land in Bolinao, Pangasinan, to
be sold to Insular for P10,000.00 and paid for the other assets of Insular
Farms.
October 9, 1958: Edward J. Nell Co. (Edward) in Civil Case No. 58579 of the
Municipal Court of Manila against Insular Farms, Inc. (Insular) a judgment
for the sum of P1,853.80 unpaid balance for a pump sold with interest plus
P125 attorney's fees and P84.00 as costs.
August 14, 1959: A writ of execution, issued after the judgment had
become final returned unsatisfied, stating that Insular Farms had no
leviable property.
November 13, 1959: Edward filed the present action against Pacific upon
the theory that Pacific is the alter ego of Insular Farms
CA affirmed Municipal Court: dismissed the complaint
ISSUE: W/N Pacific Farms is an alter ego of Insular Farms
HELD: NO. Appeal Affirmed
GR: where one corporation sells or otherwise transfers all of its assets to
another corporation, the latter is not liable for the debts and liabilities of
the transferor
EX:
where the purchaser expressly or impliedly agrees to assume such debts -
no proof
where the transaction amounts to a consolidation or merger of the
corporations - not claimed
where the purchasing corporation is merely a continuation of the selling
corporation; - no proof

1
 where the transaction is entered into fraudulently in order to escape
liability for such debts - no proof
price paid was fair and reasonable

Sundowner Devt. Corp. vs. Drilon (180 SCRA 14 [1989])

FACTS: Hotel Mabuhay leased the premises belonging to Syjuco. However,
due to non-payment of rentals, a case for ejectment was filed and Hotel
Mabuhay offered to amicably settle by surrendering the premises and to sell
its assets and property to any interested party, to which Syjuco acceded.
ISSUE: W/N Sundowner can be compelled to absorb the employees of
Mabuhay and pay them backwages;
HELD: The absorption of the employees of Hotel Mabuhay may not be
imposed on Sundowner, who has no liability whatsoever to the employees
of Hotel Mabuhay and its responsibility if at all, is only to consider them for
re-employment in the operation of the business in the same premises. There
can be no implied acceptance of the employees of Hotel Mabuhay by
petitioner as it is expressly provided in the agreement that petitioner has no
commitment or duty to absorb them. The rule is that unless expressly
assumed. labor contracts such as employment contracts and CBAs 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 an 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 police power.
As a general rule, there is no law requiring a bona fide purchaser of assets of
an on-going concern to absorb in its employ the employees of the latter.
However, although the purchaser is not legally bound to absorb in its employ
the employees of the seller, the parties are liable to the employees if the
transaction between is clothed with bad faith.

2
Caltex (Philippines), Inc. vs. PNOC Shipping and Transport Corporation
 Enjoying the benefits carries over the assumption of obligations;
FACTS: PSTC and Luzon Stevedoring Corporation ("LUSTEVECO") entered
into an Agreement of Assumption of Obligations ("Agreement").Among the
actions enumerated in the Annexes is which at that time was pending before
the then Intermediate Appellate Court (IAC)directing LUSTEVECO to pay
Caltex.The Decision of the IAC became final and executory.The Regional Trial
Court of Manila, issued a writ of execution in favor of Caltex. However, the
judgment was not satisfied because of the prior foreclosure of LUSTEVECO’s
properties.Caltex subsequently learned of the Agreement between PSTC and
LUSTEVECO. Caltex sentsuccessive demands to PSTC asking for the
satisfaction of the judgment rendered by the CFI. PSTCinformed Caltex that
it was not a party to the prior case and thus, PSTC would not pay
LUSTEVECO’s judgment debt. PSTC advised Caltex to demand satisfaction of
the judgment directly fromLUSTEVECO.Caltex filed a complaint for sum of
money against PSTC.
ISSUE: Whether PSTC is bound by the Agreement when it assumed allthe
obligations of LUSTEVECO
HELD: PNOC Shipping and Transport Corporation (PSTC) cannot accept the
benefits without assuming the obligations under the same agreement which
will amount to defrauding the creditors of Luzon Stevedoring Corporation –

Barayoga vs. Asset Privatization Trust – SALE

Petitioner Bisudeco-Philsucor Corfarm Workers Union is composed of
workers of BicolandiaSugar Development Corporation (BISUDECO), a sugar
plantation mill located in Camarines Sur.Respondent Asset Privatization
Trust (APT), a public trust was created under Proclamation No. 50,mandated
to conserve, provisionally manage and dispose of non-performing assets of
the Philippinegovernment identified for privatization or disposition. Thus,
pursuant to Proclamation No. 50, thenPresident Corazon Aquino issued
Administrative Order No. 14, where the financial claim of thePhilippine
National Bank against BISUDECO in the form of a loan secured by a chattel,
wastransferred to APT as a trustee of the government.

3
 Sometime later, Philippine Sugar Corporation(Philsucor) took over the
management of the sugar plantation and milling operations.
Meanwhile, because of BISUDECO’s continued failure of to pay its
outstanding loan with PNB, its mortgaged properties were foreclosed and
subsequently sold in a public auction to APT, as the sole bidder.
The union filed a labor case against BISUDECO-Phisucor for unfair labor
practice andillegal dismissal when, the management, conditioned their re-
hiring upon their resignation from the union but, nonetheless employed the
services of outsiders under the pakyaw system. Now, the APT's Board of
Trustees sold the plantation to Peñafrancia Sugar Mill (Pensumil). The board,
however, passed another resolution authorizing the payment of separation
benefits to BISUDECO's employees in the event of the company's
privatization.
Not included in the Resolution, though, were petitioner-union'smembers
who had not been recalled to work.
Thus, petitioners impleaded respondents APT andPensumil in the labor case,
all respondents interposed the defense of lack of employer-
employeerelationship.The Labor Arbiter and the NLRC thereafter, ordered
APT to pay herein complainants. It wasruled that while no employer-
employee relationship existed between members of the petitioner union
andAPT, at the time of the employees' illegal dismissal, the assets of
BISUDECO had been transferred to thenational government through APT. On
appeal, the appellate court, under Rule 65 of the Rules of Court,held that the
APT liable for petitioners' claims for unfair labor practice because the
petitioners' claimscould not be enforced against APT as mortgagee of the
foreclosed properties of BISUDECO. Hence,under Rule 45 of the Rules of
Court, petitioner-union's members who were not recalled to work
byPhilsucor, seek to hold APT liable for their monetary claims and allegedly
illegal dismissal.
ISSUE: Whether APT is liable for the claims of petitioners against their former
employer.

4
 HELD: The duties and liabilities of BISUDECO, including its monetary liabilities
to its employees, were not all automatically assumed by APT as purchaser of
the foreclosed properties at the auction sale. Any assumption of liability
must be specifically and categorically agreed upon. In Sundowner
Development Corp. v. Drilon, the Court ruled that, unless expressly assumed,
labor contracts like collective bargaining agreements are not enforceable
against the transferee of an enterprise. Labor contracts are in personam and
thus binding only between the parties.
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 operation of the business
establishment.
The liabilities of the previous owner to its employees are not enforceable
against the buyer or transferee, unless
(1) the latter unequivocally assumes them; or
(2) the sale or transfer was made in bad faith.
Thus, APT cannot be held responsible for the monetary claims of petitioners
who had been dismissed even before it actually took over BISUDECO’s assets.

Philippine Veterans Investment Development Corporation vs. Court of Appeals

FACTS: This case arose when Violeta M. Borres was injured in an accident
that was later held by the trial and respondent courts to be due to the
negligence of Phividec Railways, Inc. (PRI).
Philippine Veterans Investment Development Corporation (PHIVIDEC) sold
all its rights and interests in the PRI to the Philippine Sugar Commission
(PHILSUCOM). Two days later, PHILSUCOM caused the creation of a wholly-
owned subsidiary, the Panay Railways, Inc., to operate the railway assets
acquired from PHIVIDEC.

5
 Petitioner Philippine Veterans Investment Development Corporation
(PHIVIDEC) sold all its rights and interests in the PRI to the Philippine Sugar
Commission (PHILSUCOM). Two days later, PHILSUCOM caused the creation
of a wholly-owned subsidiary, the Panay Railways, Inc., to operate the
railway assets acquired from PHIVIDEC. Borres filed a complaint for damages
against PRI and Panay Railways Inc. PRI filed a 3rd party complaint against
Philippine Veterans.
It alleged that upon the sale to PHILSUCOM of PRI, the corporate name of
PRI was changed to Panay Railways, Inc. It disclaimed liability on the ground
that in the Agreement concluded between PHIVIDEC and PHILSUCOM, it was
provided that: “the PHILSUCOM is harmless against any action, claim or
liability”
ISSUE: Whether PHIVIDEC should be held liable
HELD: The Petition is denied. PHIVIDEC’s act of selling PRI to PHILSUCOM
shows that PHIVIDEC had complete control of PRI’s business. This
circumstance renders applicable the rule cited by third-party plaintiff-
appellee (Costan v. Manila Electric, 24 F 2nd 383) that if a parent-holding
company (PHIVIDEC in the present case) assumes complete control of the
operations of its subsidiary’s business, the separate corporate existence of
the subsidiary must be disregarded, such that the holding company will be
responsible for the negligence of the employees of the subsidiary as if it were
the holding company’s own employees.
Manlimos vs. NLRC

FACTS: The petitioners were among the regular employees of the Super
Mahogany Plywood Corporation hired as patchers, taper-graders, and
receivers dryers. On 1 September 1991, 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
petitioners continued to work for the new owner and were considered
terminated, with their conformity. Each of them then executed on 17
December 1991 a Release and Waiver which they acknowledged before Atty.
Nolasco Discipulo, Hearing Officer of the Butuan City District Office of the
Department of Labor and Employment (DOLE).
6
 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 then filed their applications for
employment.
For their alleged absence without leave, Perla Cumpay and Virginia Etic were
considered, as of 4 May 1992, to have abandoned their work. The rest were
dismissed on 13 June 1992 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
untapped corestock or whole sheets in their supposed taped
veneers/corestock." Two cases were filed by the dismissed employees for
non-payment of wages, underpayment of wages, incentive leave pay, non-
payment of holiday pay, overtime pay, 13th month pay, separation pay,
reinstatement with backwages, illegal termination and damages.
The petitioners maintained that they remained regular employees regardless
of the change of management in September 1991 and their execution of the
Release and Waiver. They argue that being a corporation, the private
respondent's juridical personality was unaffected even if ownership of its
shares of stock changed hands and quit claims executed by laborers are
frowned upon for being contrary to public policy.
On the other hand, the private respondent contended that the petitioners
were deemed legally terminated from their previous employment as
evidenced by the execution of the Release and Waiver and the filing of their
applications for employment with the new owner; that the new owner was
well within its legal right or prerogative in considering as terminated the
petitioners' probationary/temporary appointment.
LA ruled in favor of the petitioner It is the thesis of the Labor Arbiter that the
transfer of ownership partook of a cessation of business operation not due
to business reverses under Article 283 of the Labor Code and pursuant to the
doctrine laid down in Mobil Employees Association vs. National Labor
Relations Commission. The Labor Arbiter ruled that the first and third
requisites were present in this case; she explicitly held that each of the
7
 petitioners signed freely and voluntarily the Release and Waiver and that the
termination and payment of separation pay by the previous owner of the
corporation were done in good faith. The Labor Arbiter, however, ruled that
there was no "cessation of operations which would lead to the dismissal of
the employees."
NLRC reversed the judgment of the Labor Arbiter. It found that the change
of ownership in this case was made in good faith since there was no evidence
on record that "the former owners conspired with the new owners to
insulate the former management of any liability to its workers." Citing
Central Azucarera del Danao, “…sale or disposition of a business enterprise
which has been motivated by good faith is "an element of exemption from
liability." Thus, "an innocent transferee of a business 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 is assumed by the new employer under the
contract of sale, or when liability arises because the new owners participated
in thwarting or defeating the rights of the employees.”
ISSUE: Whether the employees were validly dismissed.
HELD: the instant petition is partly GRANTED.
ISSUE: In the exercise of its management prerogative, the employer may
merge or consolidate its business with another, or sell or dispose all or
substantially all of its assets and properties which may bring about the
dismissal or termination of its employees in the process - In Central
Azucarera del Danao vs. Court of Appeals, this Court stated: There can be no
controversy for it is a principle well-recognized, that it is within the
employer’s legitimate sphere of management control of the business to
adopt economic policies or make some changes or adjustments in their
organization or operations that would insure profit to itself or protect the
investment of its stockholders. As in the exercise of such management
prerogative, the employer may merge or consolidate its business with
another, or sell or dispose all or substantially all of its assets and properties
which may bring about the dismissal or termination of its employees in the
process. Such dismissal or termination should not however be interpreted in

8
 such a manner as to permit the employer to escape payment of termination
pay. For such a situation is not envisioned in the law. It strikes at the very
concept of social justice.
The rule has been laid down that the sale or disposition must be motivated
by good faith as an element of exemption from liability.—In a number of
cases on this point, the rule has been laid down that the sale or disposition
must be motivated by good faith as an element of exemption from liability.
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, or when liability arises because of the new owner’s
participation in thwarting or defeating the rights of the employees.
Where such transfer of ownership is in good faith, the transferee is under no
legal duty to absorb the transferor’s employees as there is no law compelling
such absorption - Where such transfer of ownership is in good faith, the
transferee is under no legal duty to absorb the transferor’s 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.

Poliand Industrial Limited vs. National Development Companyt

FACTS: Poliand is an assignee of the of the rights of Asian Hardwood over the
outstanding obligation of National Development Corporation (NDC), the
latter being the owner of Galleon which previously secured credit
accommodations from Asian Hardwood for its expenses on provisions, oil,
repair, among others.
Galleon also obtained loans from Japanese lenders to finance acquisition of
vessels which was guaranteed by DBP in consideration of a promise by
Galleon to secure a first mortgage on the vessels. DBP later transferred
ownership of the vessel to NDC.

9
 A collection suit was filed after repeated demands of Poliand for the
satisfaction of the obligation from Galleon, NDC and DBP went unheeded.
ISSUE: Whether POLIAND has a maritime lien enforceable against NDC or
DBP or both.
HELD: Petitions are DENIED 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; The
merger shall only be effective upon the issuance of a certificate of merger by
the Securities and Exchange Commission (SEC), subject to its prior
determination that the merger is not inconsistent with Corporation Code.—
The Court cannot accept POLIAND’s theory that with the effectivity of LOI
No. 1155, NDC ipso facto acquired the interests in GALLEON without
disregarding applicable statutory requirements governing the acquisition of
a corporation. 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. The merger, however,
does not become effective upon the mere agreement of the constituent
corporations. As specifically provided under Section 79 of said Code, the
merger shall only be effective upon the issuance of a certificate of merger by
the Securities and Exchange Commission (SEC), subject to its prior
determination that the merger is not inconsistent with the Code or existing
laws. Where a party to the merger is a special corporation governed by its
own charter, the Code particularly mandates that a favorable
recommendation of the appropriate government agency should first be
obtained. The issuance of the certificate of merger is crucial because not only
does it bear out SEC’s approval but also marks the moment whereupon the
consequences of a merger take place. By operation of law, upon the
effectivity of the merger, the absorbed.
In the absence of SEC approval, there is no effective transfer of the
shareholdings in one corporation to another.—The records do not show SEC
approval of the merger. POLIAND cannot assert that no conditions were

10
 required prior to the assumption by NDC of ownership of GALLEON and its
subsisting loans. Compliance with the statutory requirements is a condition
precedent to the effective transfer of the shareholdings in GALLEON to NDC.
In directing NDC to acquire the shareholdings in GALLEON, the President
could not have intended that the parties disregard the requirements of law.
In the absence of SEC approval, there was no effective transfer of the
shareholdings in GALLEON to NDC. Hence, NDC did not acquire the rights or
interests of GALLEON, including its liabilities.

Philippine National Bank vs. Andrada Electric & Engineering Company

Facts: On 26 August 1975, the Philippine national Bank (PNB) acquired the
assets of the Pampanga Sugar Mills (PASUMIL) that were earlier foreclosed
by the Development Bank of the Philippines (DBP) under LOI 311. The PNB
organized the ational Sugar Development Corporation (NASUDECO) in
September 1975, to take ownership and possession of the assets and
ultimately to nationalize and consolidate its interest in other PNB controlled
sugar mills. Prior to 29 October 1971, PASUMIL engaged the services of the
Andrada Electric & Engineering Company (AEEC) for electrical rewinding and
repair, most of which were partially paid by PASUMIL, leaving several unpaid
accounts with AEEC. On 29 October 1971, AEEC and PASUMIL entered into a
contract for AEEC to perform the (a) Construction of a power house building;
3 reinforced concrete foundation for 3 units 350 KW diesel engine generating
sets, 3 reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo
generator sets, among others. Aside from the work contract, PASUMIL
required AEEC to perform extra work, and provide electrical equipment and
spare parts. Out of the total obligation of P777,263.80, PASUMIL had paid
only P250,000.00, leaving an unpaid balance, as of 27 June 1973, amounting
to P527,263.80. Out of said unpaid balance of P527,263.80, PASUMIL made
a partial payment to AEEC of P14,000.00, in broken amounts, covering the
period from 5 January 1974 up to 23 May 1974, leaving an unpaid balance of
P513,263.80. PASUMIL and PNB, and now NASUDECO, allegedly failed and
refused to pay AEEC their just, valid and demandable obligation (The
President of the NASUDECO is also the Vice-President of the PNB. AEEC
besought said official to pay the outstanding obligation of PASUMIL,
inasmuch as PNB and NASUDECO now owned and possessed the assets of

11
 PASUMIL, and these defendants all benefited from the works, and the
electrical, as well as the engineering and repairs, performed by AEEC).
Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to pay
their obligations, AEEC allegedly suffered actual damages in the total amount
of P513,263.80; and that in order to recover these sums, AEEC was
compelled to engage the professional services of counsel, to whom AEEC
agreed to pay a sum equivalent to 25% of the amount of the obligation due
by way of attorney's fees. PNB and NASUDECO filed a joint motion to dismiss
on the ground that the complaint failed to state sufficient allegations to
establish a cause of action against PNB and NASUDECO, inasmuch as there is
lack or want of privity of contract between the them and AEEC. Said motion
was denied by the trial court in its 27 November order, and ordered PNB nad
NASUDECO to file their answers within 15 days. After due proceedings, the
Trial Court rendered judgment in favor of AEEC and against PNB, NASUDECO
and PASUMIL; the latter being ordered to pay jointly and severally the former
(1) the sum of P513,623.80 plus interest thereon at the rate of 14% per
annum as claimed from 25 September 1980 until fully paid; (2) the sum of
P102,724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO
appealed. The Court of Appeals affirmed the decision of the trial court in its
decision of 17 April 2000 (CA-GR CV 57610. PNB and NASUDECO filed the
petition for review.
ISSUE: Whether PNB and NASUDECO may be held liable for PASUMIL’s
liability to AEEC.
HELD: the Petition is hereby GRANTED ; A corporation that purchases the
assets of another will not be liable for the debts of the selling corporation,
provided the former acted in good faith and paid adequate consideration for
such assets; Exceptions.—As a rule, a corporation that purchases the assets
of another will not be liable for the debts of the selling corporation, provided
the former acted in good faith and paid adequate consideration for such
assets, except when any of the following circumstances is present:
(1) where the purchaser expressly or impliedly agrees to assume the
debts, (2) where the transaction amounts to a consolidation or merger
of the corporations,

12
 (3) where the purchasing corporation is merely a continuation of the
selling corporation, and
(4) where the transaction is fraudulently entered into in order to
escape liability for those debts.

Consolidation; Merger; Consolidation and Merger Distinguished.—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.

Merger does not become effective upon the mere agreement of the
constituent corporations; There must be an express provision of law
authorizing them; For a valid merger or consolidation, the approval by the
Securities and Exchange Commission of the article of merger or consolidation
is required.—The merger, however, does not become effective upon the
mere agreement of the constituent corporations. 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. For a valid merger or consolidation, the approval by
the Securities and Exchange Commission (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.

Babst vs. Court of Appeals

FACTS: Elizalde Steel Consolidated, Inc. (ELISCON) obtained a loan from
Commercial Bank and Trust Company (CBTC) in the amount of
P8,015,900.84, evidenced by a promissory note. ELISCON defaulted on its
payments, leaving an outstanding balance of P2,795,240.67.

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. Subsequently, Antonio Roxas Chua and Chester Babst
executed a Continuing Suretyship, whereby they bound themselves jointly
and severally liable to pay any existing indebtedness of MULTI to CBTC.
13
 The Bank of the Philippine Islands (BPI) and CBTC entered into a merger,
wherein BPI, as the surviving corporation, acquired all the assets and
assumed all the liabilities of CBTC. Meanwhile, ELISCON became heavily
indebted to DBP as it suffered financial difficulties.
ELISCON called its creditors to a meeting to announce the take-over by DBP
of its assets, including its indebtedness to BPI. Thereafter, DBP proposed
formulas for the settlement of all of ELISCON’s obligations to its creditors,
but BPI rejected the formula.
BPI then filed a complaint for sum of money against ELISCON, MULTI, and
Babst. ELISCON argued that the complaint was premature since DBP had
made serious efforts to settle its obligations with BPI. Babst, on the other
hand, asserted that his suretyship covers only obligations which MULTI
incurred solely for its benefit and not for any third party liability. MULTI
denied knowledge of the BPI-CBTC merger.

BPI argued that it did not give consent to the DBP take-over of ELISCON.
Hence, no valid novation has been effected.

Issue: WON BPI consented to the assumption by DBP of the obligations of

ELISCON.

HELD: Petitions are granted;

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; BPI has a right to institute the case a quo.—At the
outset, the preliminary issue of BPI’s right of action must first be addressed.
ELISCON and MULTI assail BPI’s legal capacity to recover their obligation to
CBTC. However, there is no question that there was a valid merger between
BPI and CBTC. It is settled that in the merger of two existing corporations,
one of the corporations survives and continues the business, while the other
is dissolved and all its rights, properties and liabilities are acquired by the
surviving corporation. Hence, BPI has a right to institute the case a quo.

14
SMC Employees Union-PTGWO vs. Confessor
FACTS: On June 28, 1990, petitioner-union San Miguel Corporation
Employees Union — PTGWO entered into a CBA with private respondent San
Miguel Corporation (SMC) to take effect upon the expiration of the previous
CBA or on June 30, 1989.

This CBA provided, among others, that:

ARTICLE XIV

DURATION OF AGREEMENT

Sec. 1. This Agreement which shall be binding upon the parties hereto and
their respective successors-in-interest, shall become effective and shall
remain in force and effect until June 30, 1992.

Sec. 2. In accordance with Article 253-A of the Labor Code as amended, the
term of this Agreement insofar as the representation aspect is concerned,
shall be for five (5) years from July 1, 1989 to June 30, 1994. Hence, the
freedom period for purposes of such representation shall be sixty (60) days
prior to June 30, 1994.

Sec. 3. Sixty (60) days prior to June 30, 1992 either party may initiate
negotiations of all provisions of this Agreement, except insofar as the
representation aspect is concerned. If no agreement is reached in such
negotiations, this Agreement shall nevertheless remain in force up to the
time a subsequent agreement is reached by the parties.

Meanwhile, effective October 1, 1991, Magnolia and Feeds and Livestock

Division were spun-off and became two separate and distinct corporations:
Magnolia Corporation (Magnolia) and San Miguel Foods, Inc. (SMFI).
Notwithstanding the spin-offs, the CBA remained in force and effect.

After June 30, 1992, the CBA was renegotiated in accordance with the terms
of the CBA and Article 253-A of the Labor Code. Negotiations started
15
 sometime in July, 1992 with the two parties submitting their respective
proposals and counterproposals.

During the negotiations, the petitioner-union insisted that the bargaining

unit of SMC should still include the employees of the spun-off corporations:
Magnolia and SMFI; and that the renegotiated terms of the CBA shall be
effective only for the remaining period of two years or until June 30, 1994.

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. Furthermore, the CBA should be effective for
three years in accordance with Art. 253-A of the Labor Code.

Unable to agree on these issues with respect to the bargaining unit and
duration of the CBA, petitioner-union declared a deadlock on September 29,
1990.

(Notice of strike…Secretary assumed jurisdiction)

Secretary’s decision: the CBA shall be effective for the period of 3 years from
June 30, 1992; and that such CBA shall cover only the employees of SMC and
not of Magnolia and SMFI.

ISSUES: Whether or not the bargaining unit of SMC includes also the
employees of the Magnolia and SMFI.

HELD: SC agree with the Secretary of Labor. Undeniably, the transformation

of the companies was a management prerogative and business judgment
which the courts can not look into unless it is contrary to law, public policy
or morals. 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.18 Ever
mindful of the employees’ interests, management has assured the
concerned employees that they will be absorbed by the new corporations
without loss of tenure and retaining their present pay and benefits according
to the existing CBAs. 19 They were advised that upon the expiration of the
16
 CBAs, new agreements will be negotiated between the management of the
new corporations and the bargaining representatives of the employees
concerned.

Indubitably, therefore, Magnolia and SMFI became distinct entities with

separate juridical personalities. Thus, they can not belong to a single
bargaining unit.

Moreover, in determining an appropriate bargaining unit, the test of

grouping is mutuality or commonality of interests. The employees sought to
be represented by the collective bargaining agent must have substantial
mutual interests in terms of employment and working conditions as evinced
by the type of work they performed. 22 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. Interests of employees in the different
companies perforce differ. The nature of their products and scales of
business may require different skills which must necessarily be
commensurated by different compensation packages. The different
companies may have different volumes of work and different working
conditions. For such reason, the employees of the different companies see
the need to group themselves together and organize themselves into
distinctive and different groups. It would then be best to have separate
bargaining units for the different companies where the employees can
bargain separately according to their needs and according to their own
working conditions.

WHEREFORE, the petition is DISMISSED for lack of merit.

Manila Sanitarium and Hospital vs. Gabuco

FACTS: On December 19, 1956, respondent Fausto Gabuco (pharmacist)
instituted with the respondent Court of Industrial Relations, a complaint for
Unfair Labor Practice against the petitioner, alleging —
1. That the complainant being an employee of the respondents,
together with some of his co-employees proposed to respondents,
17
 through a petition in writing dated August 2, 1956 the return of the
privileges they usually enjoyed, i.e., (1) rental subsidies, (2) child
allowance, (3) educational grant, and (4) transportation allowance;

2. That on August 14, 1956, the complainant in company with his other co-
employees in respondent hospital convoked a meeting and organized a
union in which he was elected President; and

3. That upon respondents' learning complainant's organization of union, they

dismissed Fausto Gabuco on September 30, 1956, in order to discourage
union membership.

Herein petitioners defense (in their answer to the complaint): specifically

denying the charges and averred that Fausto Gabuco was removed because
(1) his job was longer necessary and (2) he was given the equity separation
allowance; and that CIR did not have jurisdiction over the case, since the
Manila Sanitarium and Hospital was not established for profit or gain, and
that aside from being operated for charitable purposes it is also in the nature
of an educational institution, for it educates and trains nurses.

Decision of the Court of Industrial Relations: holds that respondents are

guilty of unfair labor practices within the meaning of Section 4 (a), 1 and 4 of
the Industrial Peace Act by discriminately discharging Fausto Gabuco on
September 30, 1956 for union activities. Hence, respondents are hereby
ordered to reinstate fully and immediately Fausto Gabuco with back wages
from October 1, 1956 until reinstated without prejudice to seniority or other
rights privileges he enjoyed before his separation.

MR denied because the Memorandum in support of the MR was filed 1 day

late. Hence this Writ of Certiorari, claiming, that the CIR acted without or in
excess of its jurisdiction and/or with grave abuse of discretion, and
committed substantial errors of law in:
1. Taking cognizance of the case subject of this petition and finding
petitioner Manila Sanitarium & Hospital, to be an institution operated
for profit or gain;
18
 2. Finding the herein petitioners guilty of unfair labor practices;
3. Ordering the herein petitioners to reinstate immediately
Respondent Fausto Gabuco with back wages from October 1, 1956
until fully reinstated; and
4. In not giving due course to petitioners' Motion for Reconsideration.

ISSUE: Whether Manila Sanitarium and Hospital is a non-stock corporation

HELD: Petition is Granted; previous decision has been reversed;

Gain on operations not conclusive proof that it is for profit.—The mere fact
that an industrial or commercial enterprise had incurred losses, does not
make it for profit or gain, although it is established for such purpose; much
in the same way that if a charitable institution gains on its operations, that it
has become a business enterprise established for profit or gain, particularly
where it has not been shown that the hospital, a non-stock corporation, ever
declared dividends to its members or that its property, effects or profit was
used for personal or individual gain, and not for the purpose of carrying out
the objectives of the hospital itself.
Collector of Internal Revenue vs. Club Filipino, Inc. de Cebu
FACTS:
The Club Filipino, is a civic corporation organized under the laws of the
Philippines with an original authorized capital stock of P22,000, which
was subsequently increased to P200,000to operate and maintain a
golf course, tennis, gymnasiums, bowling alleys, billiard tables and
pools, and all sorts of games not prohibited by general laws and
general ordinances, and develop and nurture sports of any kind and
any denomination for recreation and healthy training of its members
and shareholders" (sec. 2, Escritura de Incorporation(Deed of
Incorporation) del Club Filipino, Inc.). There is no provision either in
the articles or in the by-laws relative to dividends and their
distribution, although it is covenanted thatupon its dissolution, the
Club's remaining assets, after paying debts, shall be donated to a
charitable Phil. Institution in Cebu(Art. 27, Estatutos del (Statutes of
the) Club).The Club owns and operates a club house, a bowling alley,
a golf course (on a lot leased from the government), and a bar-
19
 restaurant where it sells wines and liquors, soft drinks, meals and short
orders to its members and their guests. The
bar-restaurant was a necessary incident to the operation of the club
and its golf-course. The club is operated mainly with funds derived
from membership fees and dues. Whatever profits it had, were used
to defray its overhead expenses and to improve its golf-course. In
1951, as a result of a capital surplus, arising from the re-valuation of
its real properties, the value or price of which increased, the Club
declared stock dividends; but no actual cash dividends were
distributed to the stockholders. In 1952, a BIR agent discovered that
the Club has never paid percentage tax on the gross receipts of its bar
and restaurant, although it secured licenses. In a letter, the Collector
assessed against and demanded from the Club P12,068.84 as fixed and
percentage taxes, surcharge and compromise penalty. Also, the
Collector denied the Club’s request to cancel the assessment. On
appeal, the CTA reversed the Collector and ruled that the Club is not
liable for the assessed tax liabilities of P12,068.84allegedly due from it
as a keeper of bar and restaurant as it is a non-stock corporation.
Hence, the Collector filed the instant petition for review.

ISSUE: WON the Club is a stock corporation

HELD: NO. It is a non-stock corporation; Club Filipino, Inc. de Cebu; Not

engaged in bar and restaurant.—The Club Filipino, Inc. de Cebu was
organized to develop and cultivate sports of all class and
denomination, for the healthful recreation and entertainment of its
stockholders and members; that upon its dissolution, its remaining
assets, after paying debts shall be donated to a charitable Philippine
Institution in Cebu; that it is operated mainly with funds derived from
membership fees and dues; that the Club's bar and restaurant catered
only to its members and their guests; that there was in fact no cash
dividend distribution to its stockholders and that whatever was
derived on retail from its bar and restaurant was used to defray its
overall overhead expenses and to improve its golf course (cost-plus-

20
 expenses-basis), it stands to reason that the Club is not engaged in the
business of an operator of bar and restaurant..
People vs. Menil
The spouses Menil were the proprietors of a business operating under
the name ABM Appliance and Upholstery. Through ushers and sales
executives, they began soliciting investments from the general public
in Surigao City and its neighboring towns, assuring would-be investors
that their money would be multiplied tenfold after fifteen (15)
calendar days.

The spouses Menil issued "coupons" as proofs of investment. the

initial amounts involved were small, and so the spouses Menil were
able to pay the returns on the investments as they fell due. However,
the amounts invested and the number of depositors gradually
increased until it reached a point wherein the daily investments
amounting to millions of pesos were pouring in and payments of the
returns were delayed.On September 19, 1989, the spouses stopped
releasing payments altogether, prompting the investors to charge
them with large-scale swindling.

ISSUE: Whether Sps Menil can be held liable and convicted with
syndicated estafa

HELD: The spouses Menil could not be charged and convicted with
syndicated estafa since there was no showing that at least five (5)
persons perpetrated the fraudulent investment scheme. Said the
Court: "While the prosecution proved that a non-stock corporation
with eleven (11) incorporators, including accused-appellant and his
wife, was involved in the illegal scheme, there was no showing that
these incorporators collaborated, confederated, and mutually helped
one another in directing the corporations activities. In fact, the
evidence for the prosecution shows that it was only accused-appellant
and his wife who had knowledge of and who perpetrated the illegal
scheme";

21
 Republic vs. COCOFED
FACTS: The PCGG issued and implemented numerous sequestrations,
freeze orders and provisional takeovers of allegedly ill-gotten
companies, assets and properties, real or personal. Among the
properties sequestered by the Commission were shares of stock in the
United Coconut Planters Bank (UCPB) registered in the names of the
alleged “one million coconut farmers,” the so-called Coconut Industry
Investment Fund companies (CIIF companies) and Private Respondent
Eduardo Cojuangco Jr. In connection with the sequestration of the said
UCPB shares, the PCGG, on July 31, 1987, instituted an action for
reconveyance, reversion, accounting, restitution and damages
docketed as Case No. 0033 in the Sandiganbayan.

On November 15, 1990, upon Motion of Private Respondent

COCOFED, the Sandiganbayan issued a Resolution lifting the
sequestration of the subject UCPB shares on the ground that herein
private respondents – in particular, COCOFED and the so-called CIIF
companies – had not been impleaded by the PCGG as parties-
defendants in its July 31, 1987 Complaint for reconveyance, reversion,
accounting, restitution and damages.

This Sandiganbayan Resolution was challenged by the PCGG in a

Petition for Certiorari docketed as GR No. 96073 in this Court.
Meanwhile, upon motion of Cojuangco, the anti-graft court ordered
the holding of elections for the Board of Directors of UCPB. However,
the PCGG applied for and was granted by this Court a Restraining
Order enjoining the holding of the election. Subsequently, the Court
lifted the Restraining Order and ordered the UCPB to proceed with the
election of its board of directors. Furthermore, it allowed the
sequestered shares to be voted by their registered owners.

On February 23, 2001, “COCOFED, et al. and Ballares, et al.” filed the
“Class Action Omnibus Motion” referred to earlier in Sandiganbayan
Civil Case Nos. 0033-A, 0033-B and 0033-F, asking the court a quo:
22
 “1. To enjoin the PCGG from voting the UCPB shares of stock
registered in the respective names of the more than one million
coconut farmers; and
“2. To enjoin the PCGG from voting the SMC shares registered in the
names of the 14 CIIF holding companies including those registered in
the name of the PCGG.”

ISSUE: Who may vote the sequestered UCPB shares while the main
case for their reversion to the State is pending in the Sandiganbayan?

RULING: This Court holds that the government should be allowed to

continue voting those shares inasmuch as they were purchased with
coconut levy funds – funds that are prima facie public in character or,
at the very least, are “clearly affected with public interest.”;

General Rule: Sequestered Shares Are Voted by the Registered Holder

At the outset, it is necessary to restate the general rule that the

registered owner of the shares of a corporation exercises the right and
the privilege of voting. (Sec. 24, BP 68) This principle applies even to
shares that are sequestered by the government, over which the PCGG
as a mere conservator cannot, as a general rule, exercise acts of
dominion. On the other hand, it is authorized to vote these
sequestered shares registered in the names of private persons and
acquired with allegedly ill-gotten wealth, if it is able to satisfy the two-
tiered test devised by the Court in Cojuangco v. Calpo (G.R. No.
115352, June 10, 1993) and PCGG v. Cojuangco Jr., (133197, Jan. 27,
1999) as follows:

(1) Is there prima facie evidence showing that the said shares are ill-
gotten and thus belong to the State?

23
 (2) Is there an imminent danger of dissipation, thus necessitating their
continued sequestration and voting by the PCGG, while the main issue
is pending with the Sandiganbayan?

Sequestered Shares Acquired with Public Funds Are an Exception

From the foregoing general principle, the Court in Baseco v. PCGG

(“Baseco”) and Cojuangco Jr. v. Roxas, G.R. No. 91925, April 16, 1991)
(“Cojuangco-Roxas”) has provided two clear “public character”
exceptions under which the government is granted the authority to
vote the shares:

(1) Where government shares are taken over by private persons or

entities who/which registered them in their own names, and

(2) Where the capitalization or shares that were acquired with public
funds somehow landed in private hands.

The exceptions are based on the common-sense principle that legal

fiction must yield to truth; that public property registered in the names
of non-owners is affected with trust relations; and that the prima facie
beneficial owner should be given the privilege of enjoying the rights
flowing from the prima facie fact of ownership.

The “public character” test was reiterated in many subsequent cases;

most recently, in Antiporda v. Sandiganbayan. (G.R. No. 116941, May
31, 2001) Expressly citing Cojuangco-Roxas, this Court said that in
determining the issue of whether the PCGG should be allowed to vote
sequestered shares, it was crucial to find out first whether these were
purchased with public funds, as follows:

“It is thus important to determine first if the sequestered corporate

shares came from public funds that landed in private hands.” In short,
when sequestered shares registered in the names of private
individuals or entities are alleged to have been acquired with ill-gotten
24
 wealth, then the two-tiered test is applied. However, when the
sequestered shares in the name of private individuals or entities are
shown, prima facie, to have been (1) originally government shares, or
(2) purchased with public funds or those affected with public interest,
then the two-tiered test does not apply. Rather, the public character
exceptions in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that
is, the government shall vote the shares.

UCPB Shares Were Acquired With Coconut Levy Funds

In the present case before the Court, it is not disputed that the money
used to purchase the sequestered UCPB shares came from the
Coconut Consumer Stabilization Fund (CCSF), otherwise known as the
coconut levy funds. This fact was plainly admitted by private
respondent’s counsel, Atty. Teresita J. Herbosa, during the Oral
Arguments held on April 17, 2001 in Baguio City. Indeed in Cocofed v.
PCGG, this Court categorically declared that the UCPB was acquired
“with the use of the Coconut Consumers Stabilization Fund in virtue of
Presidential Decree No. 755, promulgated on July 29, 1975.”

Coconut Levy Funds Are Affected With Public Interest

Having conclusively shown that the sequestered UCPB shares were

purchased with coconut levies, we hold that these funds and shares
are, at the very least, “affected with public interest.” The Resolution
issued by the Court on February 16, 1993 in Republic v. Sandiganbayan
(G.R. No. 96073, stated that coconut levy funds were “clearly affected
with public interest”; thus, herein private respondents – even if they
are the registered shareholders – cannot be accorded the right to vote
them. We quote the said Resolution in part, as follows:

“The coconut levy funds being ‘clearly affected with public interest, it
follows that the corporations formed and organized from those funds,
and all assets acquired therefrom should also be regarded as ‘clearly
affected with public interest.’”
25
 “The utilization and proper management of the coconut levy funds,
raised as they were by the State’s police and taxing powers, are
certainly the concern of the Government. It cannot be denied that it
was the welfare of the entire nation that provided the prime moving
factor for the imposition of the levy. It cannot be denied that the
coconut industry is one of the major industries supporting the national
economy. It is, therefore, the State’s concern to make it a strong and
secure source not only of the livelihood of a significant segment of the
population but also of export earnings the sustained growth of which
is one of the imperatives of economic stability. The coconut levy funds
are clearly affected with public interest. Until it is demonstrated
satisfactorily that they have legitimately become private funds, they
must prima facie and by reason of the circumstances in which they
were raised and accumulated be accounted subject to the measures
prescribed in E.O. Nos. 1, 2, and 14 to prevent their concealment,
dissipation, etc., which measures include the sequestration and other
orders of the PCGG complained of.” (Italics supplied)

To repeat, the foregoing juridical situation has not changed. It is still

the truth today: “the coconut levy funds are clearly affected with
public interest.”

To stress, the two-tiered test is applied only when the sequestered

asset in the hands of a private person is alleged to have been acquired
with ill-gotten wealth. Hence, in PCGG v. Cojuangco, we allowed
Eduardo Cojuangco Jr. to vote the sequestered shares of the San
Miguel Corporation (SMC) registered in his name but alleged to have
been acquired with ill-gotten wealth. We did so on his representation
that he had acquired them with borrowed funds and upon failure of
the PCGG to satisfy the “two-tiered” test. This test was, however, not
applied to sequestered SMC shares that were purchased with coco
levy funds.

26
 In the present case, the sequestered UCPB shares are confirmed to
have been acquired with coco levies, not with alleged ill-gotten
wealth. Hence, by parity of reasoning, the right to vote them is not
subject to the “two-tiered test” but to the public character of their
acquisition, which per Antiporda v. Sandiganbayan cited earlier, must
first be determined.

Coconut Levy Funds Are Prima Facie Public Funds

To avoid misunderstanding and confusion, this Court will even be

more categorical and positive than its earlier pronouncements: the
coconut levy funds are not only affected with public interest; they are,
in fact, prima facie public funds. Public funds are those moneys
belonging to the State or to any political subdivision of the State; more
specifically, taxes, customs duties and moneys raised by operation of
law for the support of the government or for the discharge of its
obligations. (Beckner v. Commonwealth, 5 SE2d 525, Nov. 20, 1939)
Undeniably, coconut levy funds satisfy this general definition of public
funds, because of the following reasons:

1. Coconut levy funds are raised with the use of the police and taxing
powers of the State.
2. They are levies imposed by the State for the benefit of the coconut
industry and its farmers.
3. Respondents have judicially admitted that the sequestered shares
were purchased with public funds.
4. The Commission on Audit (COA) reviews the use of coconut levy
funds.
5. The Bureau of Internal Revenue (BIR), with the acquiescence of
private respondents, has treated them as public funds.
6. The very laws governing coconut levies recognize their public
character.
We shall now discuss each of the foregoing reasons (among others),
any one of which is enough to show their public character.

27
 xxx

3. Respondents Judicially Admit That the Levies Are Government

Funds.

Equally important as the fact that the coconut levy funds were raised
through the taxing and police powers of the State is respondents’
effective judicial admission that these levies are government funds. As
shown by the attachments to their pleadings, respondents concede
that the Coconut Consumers Stabilization Fund (CCSF) and the
Coconut Investment Development Fund “constitute government
funds x x x for the benefit of coconut farmers.”

4. The COA Audit Shows the Public Nature of the Funds.

Under COA Office Order No. 86-9470 dated April 15, 1986, the COA
reviewed the expenditure and use of the coconut levies allocated for
the acquisition of the UCPB. The audit was aimed at ascertaining
whether these were utilized for the purpose for which they had been
intended. Because these funds have been subjected to COA audit,
there can be no other conclusion than that they are prima facie public
in character.

Having shown that the coconut levy funds are not only affected with
public interest, but are in fact prima facie public funds, this Court
believes that the government should be allowed to vote the
questioned shares, because they belong to it as the prima facie
beneficial and true owner.

In sum, we hold that the Sandiganbayan committed grave abuse of

discretion in grossly contradicting and effectively reversing existing
jurisprudence, and in depriving the government of its right to vote the
sequestered UCPB shares which are prima facie public in character.

28
 The Petition is hereby GRANTED and the assailed Order SET ASIDE. The
PCGG shall continue voting the sequestered shares until
Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F are finally
and completely resolved.
Tan vs. Sycip
FACTS:Grace Christian High School (GCHS) is a nonstock, non-profit
educational corporation w/ 15 regular members, who also constitute
the board of trustees.
April 6, 1998: During the annual members’ meeting only 11 living
member-trustees, as 4 had already died.
7 attended the meeting through their respective proxies.
The meeting was convened and chaired by Atty. Sabino Padilla Jr. over
the objection of Atty. Antonio C. Pacis, who argued that there was no
quorum.
In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo,
and Judith Tan were voted to replace the 4 deceased member-
trustees.
SEC: meeting void due to lack of quorum (NOT living but based on AIC)
Sec 24 read together with Sec 89
CA: Dismissed due to technicalities
ISSUE: W/N dead members should still be counted in the quorum - NO
based on by-laws
HELD: NO. remaining members of the board of trustees of GCHS may
convene and fill up the vacancies in the board
Except as provided, the vote necessary to approve a particular
corporate act as provided in this Code shall be deemed to refer only
to stocks with voting rights:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;

29
 3. Sale, lease, exchange, mortgage, pledge or other disposition of all
or substantially all of the corporation property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or business
in accordance with this Code; and
8. Dissolution of the corporation.
quorum in a members’ meeting is to be reckoned as the actual number
of members of the corporation
stock corporations - shareholders may generally transfer their shares
on the death of a shareholder, the executor or administrator duly
appointed by the Court is vested with the legal title to the stock and
entitled to vote it
Until a settlement and division of the estate is effected, the stocks of
the decedent are held by the administrator or executor
nonstock corporation - personal and non-transferable unless the
articles of incorporation or the bylaws of the corporation provide
otherwise
Section 91 of the Corporation Code: termination extinguishes all the
rights of a member of the corporation, unless otherwise provided in
the articles of incorporation or the bylaws.
whether or not "dead members" are entitled to exercise their voting
rights (through their executor or administrator), depends on those
articles of incorporation or bylaws
By-Laws of GCHS: membership in the corporation shall be terminated
by the death of the member
With 11 remaining members, the quorum = 6.
30
 SECTION 29. Vacancies in the office of director or trustee. -- Any
vacancy occurring in the board of directors or trustees other than by
removal by the stockholders or members or by expiration of term, may
be filled by the vote of at least a majority of the remaining directors or
trustees, if still constituting a quorum; otherwise, said vacancies must
be filled by the stockholders in a regular or special meeting called for
that purpose. A director or trustee so elected to fill a vacancy shall be
elected only for the unexpired term of his predecessor in office.
the filling of vacancies in the board by the remaining directors or
trustees constituting a quorum is merely permissive, not mandatory
either by the remaining directors constituting a quorum, or by the
stockholders or members in a regular or special meeting called for the
purpose
By-Laws of GCHS prescribed the specific mode of filling up existing
vacancies in its board of directors; that is, by a majority vote of the
remaining members of the board
remaining member-trustees must sit as a board (as a body in a lawful
meeting) in order to validly elect the new ones

31