BANK OF COMMERCE vs. RADIO PHILIPPINES NETWORK (G.R. No.

195615; April 21, 2014)

FACTS: Traders Royal Bank (TRB) proposed to sell to petitioner Bank of Commerce (Bancommerce) for its banking
business consisting of specified assets and liabilities. Bancommerce agreed subject to prior BSP’s approval of their
Purchase and Assumption (P & A) Agreement.

The BSP approved that agreement subject to the condition that Bancommerce and TRB would set up an escrow fund of
P5O million with another bank to cover TRB liabilities for contingent claims that may subsequently be adjudged against
it, which liabilities were excluded from the purchase.

Bancommerce acquired TRB’s specified assets and liabilities, excluding liabilities arising from judicial actions which were
to be covered by the BSP-mandated escrow of ₱50 million, which shall be kept for 15 years in the trust department of
any other bank acceptable to the BSP.

The BSP finally approved such agreement.

Shortly after, in Traders Royal Bank v. Radio Philippines Network (TRB v. RPN), this Court ordered TRB to pay
respondents RPN, et al. actual damages plus 12% legal interest and some amounts.

RPN, et al.filed a motion for execution against TRB before the RTC, and a Supplemental Motion for Execution where they
described TRB as “now Bank of Commerce” based on the assumption that TRB had been merged into Bancommerce.

Bancommerce questioned the jurisdiction of the RTC over it and denied that there was a merger between TRB and
Bancommerce.

The RTC issued an Order granting and issuing the writ of execution to cover any and all assets of TRB, “including those
subject of the merger/consolidation in the guise of a Purchase and Sale Agreement with Bank of Commerce, and/or
against the Escrow Fund established by TRB and Bank of Commerce with the MetroBank.”

This prompted Bancommerce to file a petition for certiorari with the CA assailing the RTC’s Order. The CA denied the
petition. The CA pointed out that the Decision of the RTC was clear in that Bancommerce was not being made to answer
for the liabilities of TRB, but rather the assets or properties of TRB under its possession and custody.

The RTC granted RPN’s motion for alias writ of execution against Bancommerce based on the CA Decision.

The RTC issued the alias writ, hence, Bancommerce filed on a motion to quash the same.

The RTC issued the assailed Order denying Bancommerce’s pleas. It ordered the release to the Sheriff of
Bancommerce’s “garnished monies and shares of stock or their monetary equivalent” and for the sheriff to pay to the
respondents’ attorney’s fees, appearance fees and litigation expenses.

Aggrieved, Bancommerce immediately assailed the RTC Orders to the CA via a petition for certiorari under Rule 65. The
CA dismissed the petition outright and denied Bancommerce’s motion for reconsideration prompting it to come to this
Court.

ISSUE: Whether or not the CA gravely erred in failing to rule that the RTC’s Order of execution against Bancommerce
was a nullity because TRB v. RPN held that TRB had not been merged into Bancommerce as to make the latter liable for
TRB’s judgment debts.

RULING: Merger is a re-organization of two or more corporations that results in their consolidating into a single
corporation, which is one of the constituent corporations, one disappearing or dissolving and the other surviving.
To put it another way, merger is the absorption of one or more corporations by another existing corporation, which
retains its identity and takes over the rights, privileges, franchises, properties, claims, liabilities and obligations of the
absorbed corporation(s). The absorbing corporation continues its existence while the life or lives of the other
corporation(s) is or are terminated.

The Corporation Code requires the following steps for merger or consolidation:

(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must include any
amendment, if necessary, to the articles of incorporation of the surviving corporation, or in case of
consolidation, all the statements required in the articles of incorporation of a corporation.

(2) Submission of plan to stockholders or members of each corporation for approval. A meeting must be called
and at least two (2) weeks’ notice must be sent to all stockholders or members, personally or by registered mail.
A summary of the plan must be attached to the notice. Vote of two-thirds of the members or of stockholders
representing two thirds of the outstanding capital stock will be needed. Appraisal rights, when proper, must be
respected.

(3) Execution of the formal agreement, referred to as the articles of merger o[r] consolidation, by the corporate
officers of each constituent corporation. These take the place of the articles of incorporation of the consolidated
corporation, or amend the articles of incorporation of the surviving corporation.

(4) Submission of said articles of merger or consolidation to the SEC for approval.

(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks before.

(6) Issuance of certificate of merger or consolidation.

Indubitably, it is clear that no merger took place between Bancommerce and TRB as the requirements and procedures
for a merger were absent. A merger does not become effective upon the mere agreement of the constituent
corporations. All the requirements specified in the law must be complied with in order for merger to take effect. Section
79 of the Corporation Code further provides that the merger shall be effective only upon the issuance by the Securities
and Exchange Commission (SEC) of a certificate of merger.

Here, Bancommerce and TRB remained separate corporations with distinct corporate personalities. What happened is
that TRB sold and Bancommerce purchased identified recorded assets of TRB in consideration of Bancommerce’s
assumption of identified recorded liabilities of TRB including booked contingent accounts. There is no law that prohibits
this kind of transaction especially when it is done openly and with appropriate government approval.

In strict sense, no merger or consolidation took place as the records do not show any plan or articles of merger or
consolidation. More importantly, the SEC did not issue any certificate of merger or consolidation.

On the other hand, the idea of a de facto merger came about because, prior to the present Corporation Code, no law
authorized the merger or consolidation of Philippine Corporations, except insurance companies, railway corporations,
and public utilities. And, except in the case of insurance corporations, no procedure existed for bringing about a merger.

In his book, Philippine Corporate Law, Dean Cesar Villanueva explained that under the Corporation Code, “a de facto
merger can be pursued by one corporation acquiring all or substantially all of the properties of another corporation in
exchange of shares of stock of the acquiring corporation. The acquiring corporation would end up with the business
enterprise of the target corporation; whereas, the target corporation would end up with basically its only remaining
assets being the shares of stock of the acquiring corporation.”
No de facto merger took place in the present case simply because the TRB owners did not get in exchange for the bank’s
assets and liabilities an equivalent value in Bancommerce shares of stock. Bancommerce and TRB agreed with BSP
approval to exclude from the sale the TRB’s contingent judicial liabilities, including those owing to RPN, et al.

Herein petition is granted.

The enforcement, therefore, of the decision in the main case should not include the assets and properties that
Bancommerce acquired from TRB. These have ceased to be assets and properties of TRB under the terms of the BSP-
approved P & A Agreement between them. They are not TRB assets and properties in the possession of Bancommerce.
CARGILL INC. vs. INTRA STRATA ASSURANCE CORPORATION (G.R. NO. 168266; MARCH 15, 2010)

FACTS: Cargill Inc. is a corporation organized and existing under the laws of the State of Delaware, USA. Cargill executed
a contract with Northern Mindanao Corporation (NMC), whereby NMC agreed to sell to petitioner 20,000 to 24,000
metric tons of molasses to be delivered from Jan 1 – 30, 1990 for $44 per metric ton. The contract provided that Cargill
was to open a Letter of Credit with BPI. NMC was permitted to draw up $500,000 representing the minimum price of the
contract. The contract was amended 3 times (in relation to the amount and the price). But the third amendment
required NMC to put up a performance bond which was intended to guarantee NMC’s performance to deliver the
molasses during the prescribed shipment periods. In compliance, Intra Strata issued a performance bond to guarantee
NMC’s delivery. NMC was only able to deliver 219.5 metric tons out of the agreed 10,500 metric tons. Thus Cargill sent
demand letters to Intra claiming payment under the performance and surety bonds. When Intra failed to pay, Cargill
filed a complaint. Cargill, NMC and Intra then entered into a compromise agreement which provided that NMC would
pay Cargill Php 3M upon signing and would deliver to Cargill 6,991 metric tons of molasses; but NMC still failed to
comply. The RTC ruled in favor of Cargill, but on appeal, CA reversed RTC, holding that Cargill does not have the capacity
to file suit since it was a foreign corporation doing business in the PH without the requisite license. The purchase of
molasses were in pursuance of its basic business and not just mere isolated and incidental transactions

ISSUES:

 Whether or not petitioner is doing or transacting business in the Philippines in contemplation of the law and
established jurisprudence.
 Whether or not Cargill, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts.

HELD: YES. According to Article 123 of the Corporation Code, a foreign corporation must first obtain a license and a
certificate from the appropriate government agency before it can transact business in the Philippines. Where a foreign
corporation does business in the Philippines without the proper license, it cannot maintain any action or proceeding
before Philippine courts, according to Article 133 of the Corporation Code. While the Corporation Code does not provide
for the meaning of “Doing Business”, RA 5455 does:

“x x x the phrase "doing business" shall include soliciting orders, purchases, service contracts, opening offices,
whether called ‘liaison’ offices or branches; appointing representatives or distributors who are domiciled in the
Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred
eighty days or more; participating in the management, supervision or control of any domestic business firm,
entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings
or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of
the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and
object of the business organization.”

Since Intra is relying on Section 133 of the Corporation Code to bar petitioner from maintaining an action in Philippine
courts, Intra bears the burden of proving that Cargill was doing business in the PH. In this case,
we find that Intra failed to prove that Cargill’s activities in the Philippines constitute “doing business” as would prevent it
from bringing an action. There is no showing that the transactions between petitioner and NMC signify the intent of
petitioner to establish a continuous business or extend its operations in the Philippines. In this case, the contract
between petitioner and NMC involved the purchase of molasses by petitioner from NMC. It was NMC, the domestic
corporation, which derived income from the transaction and not petitioner. To constitute “doing business,” the activity
undertaken in the Philippines should involve profit-making. Other factors which support the finding that petitioner is not
doing business in the Philippines are:

(1) Petitioner does not have an office in the Philippines;

(2) Petitioner imports products from the Philippines through its non-exclusive local broker, whose authority to act on
behalf of petitioner is limited to soliciting purchases of products from suppliers engaged in the sugar trade in the
Philippines; and

(3) The local broker is an independent contractor and not an agent of petitioner.
SAN JOSE TIMBER CORPORATION vs. SEC (GR NO. 162196; FEBRUARY 27, 2012)

FACTS: Petitioner Casilayan Softwood Development Corporation (CSDC) is a domestic corporation and is the controlling
stockholder and creditor of petitioner San Jose Timber Corporation (SJTC). SJTC is primarily engaged in the operation of
a logging concession with a base camp in Western Samar by virtue of a Timber License Agreement (TLA) issued by the
DENR which is to expire in 2007. On February 1989, the DENR issued a Moratorium Order (MO) suspending all logging
operations in the island of Samar effective February 1989 to May 1989 which prompted SJTC to cease operations
immediately and caused it to lose all its income.

Then in 1990, SJTC and CSDC filed with the SEC a petition for the appointment of a rehabilitation receiver and for
suspension of payments. SEC Hearing Panel granted such with the condition that SJTC would “resuscitate its operations
and properly service its liabilities in accordance with the duly approved schedule to be submitted by the Rehabilitation
Receiver within a 1 year period. Petitioners, in February 1992 submitted their Motion to Approve Revised Rehabilitation
Plan and Urgent Motion to Extend Waiting Period for Commencement of Rehabilitation. The SEC Hearing Panel
extended the waiting period up to August 1992, but held in abeyance its approval of the revised rehabilitation plan. Also,
subsequent motions filed by petitioners extended the waiting period several times. Meanwhile, prior to the expiration
of the waiting period to commence rehabilitation, petitioners filed their Motion for Settlement of Claims against
Petitioner San Jose and subsequently, their Motion to Dispose of Personal Properties which were both granted by SEC.

In 2002 however, the SEC En Banc motu propio issued its decision terminating the rehabilitation proceedings and
dismissing the petition for rehabilitation since SJTC could no longer be rehabilitated because the logging moratorium
ban, which was crucial for its rehabilitation, had not been lifted. Such was affirmed by the CA. The petitioners filed a
motion for reconsideration but it was denied by CA, hence this petition for review with the SC.

Significantly, except for the SSS, none of the creditors filed an opposition to or comment on the petition. During the
pendency of the petition before the SC, DENR allowed SJTC to resume operations and extending the term of its TLA up
to 2021. Then petitioners filed their Supplemental Petition which the SC gave due course and directed the parties to
submit their respective memoranda. SJTC and CSDC filed their memorandum arguing, inter alia, that the SEC acted
beyond its statutory mandate when it ordered the termination of the rehabilitation proceedings. The CA in turn acted
contrary to law when it upheld the SEC’s decision.

ISSUE: W/N the CA erred in affirming the dissolution of SJTC when the vast majority of the creditors had agreed to await
its rehabilitation.

HELD: NO, the CA did not err in affirming the dissolution of SJTC. At the time of the promulgation of the CA decision,
there was no certainty that the moratorium on logging activities in Samar would be lifted or a law on selective logging
was forthcoming. There being no assurance, the CA was correct in sustaining the decision of the SEC to terminate the
rehabilitation proceedings to protect the interest of all concerned, particularly the investors and the creditors. To have
resolved otherwise would have been prejudicial to these entities as they would be made to wait indefinitely for
something the likelihood of which was quite remote.

Under the Rules of Procedure on Corporate Rehabilitation, rehabilitation is defined as the restoration of the debtor to a
position of successful operation and solvency, if it is shown that its continuance of operation is economically feasible
and its creditors can recover by way of the present value of payments projected in the plan, more if the corporation
continues as a going concern than if it is immediately liquidated. An indispensable requirement in the rehabilitation of a
distressed corporation is the rehabilitation plan, which shall include:

(a) The desired business targets or goals and the duration and coverage of the rehabilitation.
 (b) The terms and conditions of such rehabilitation, which shall include the manner of its implementation, giving
due regard to the interests of secured creditors.

(c) The material financial commitments to support the rehabilitation plan.

(d) The means for the execution of the rehabilitation plan, which may include conversion of the debts or any
portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the controlling
interest.

(e) A liquidation analysis that estimates the proportion of the claims that the creditors and shareholders
would receive if the debtor’s properties were liquidated.

(f) Such other relevant information to enable a reasonable investor to make an informed decision on the
feasibility of the rehabilitation plan.

A successful rehabilitation usually depends on two factors: (a) a positive change in the business fortunes of the debtor;
and (b) the willingness of the creditors and shareholders to arrive at a compromise agreement on repayment burdens,
extent of dilution, etc. The debtor must demonstrate by convincing and compelling evidence that these circumstances
exist or are likely to exist by the time the debtor submits his revised or substitute rehabilitation plan for the final
approval of the court. Both the SEC and the CA had reasonable basis in deciding to terminate the rehabilitation
proceedings of SJTC because of the lack of certainty that the logging ban would be lifted. It is clear from the records that
the proposed rehabilitation plan of the petitioners would depend entirely on the lifting of the logging ban; such lifting of
is indispensable to the rehabilitation of SJTC.