SET12 Smithv.VanGorkom FACTS: TheshareholdersofTransUnionCorporationsoughtrescissionofacashoutmergerofTransUnioninto NewT Company, a whollyownedsubsidiary of Marmon Group,Inc. OnSeptember13th,1980, Jerome W.

Van Gorkom, Trans Unions chairman and ChiefExecutive Officer, met privately with Jay A. Pritzker, awellknowncorporatetakeoverspecialistandoneoftheownersofMarmon,andproposedtoPritzker anopportunitytoenterintoa$55persharecashoutmerger.OnSeptember15th,PritzkernotifiedVan Gorkomthathewasinterestedinthecashoutmergerproposal.OnSeptember20th,VanGorkomheld a special meeting with the Senior Management of Trans Union, and subsequently met with the Companys Board one hour later. At the meeting with Senior Management, Van Gorkom disclosed the merger offer and described its terms, but did not furnish copies of the proposed Merger Agreement. Similarly, at the meetingwiththeBoard, Van Gorkom provideda 20minute oral presentation regarding theproposedMergerAgreement,butagainfailedtoprovidethewrittenproposal.BasedsolelyonVan Gorkoms oral presentation, supporting representations from Bruce Chelberg, President and Chief Operating Officer of Trans Union, an oral statement from Donald Romans, Chief Financial Officer of TransUnion,indicatingthathispreliminarystudyofthe$55persharedidnotindicateeitherafairprice for the stock or a valuation of the Company, and on James Brennans legal advice, the Board approved the proposed Merger Agreement within two hours. Neither Van Gorkom nor any other director read the agreement prior to its signing and delivery to Pritzker. The Board approved for mailing around January 27th, 1981, a Supplement to its Proxy Statement which set forth details of the Merger Agreement,whichhadnotbeenincludedinthefirstProxyStatementmailedJanuary21st.OnFebruary 10th,thestockholdersofTransUnionapprovedthemerger ISSUE:WhethertheBoardsdecisionreachedSeptember20th,1980,toapprovetheproposedcashout merger was the product of an informed business judgment and whether the Board provided complete candor to the stockholders before securing the stockholders approval of the merger. HELD: No, the Boards decision reached September 20th, 1980, to approve the proposed cashout merger was not theproduct of an informedbusiness judgment andtheBoard did not provide complete candor to the stockholders before securing the stockholders approval of the merger. Under Delaware law, business and affairs of a Delaware corporation are managed by or under its board of directors.Underthebusiness judgmentrule, there isnoprotection fordirectors who have made an unintelligent or unadvised judgment, and is derived from the fiduciary capacity in which he or she serves the corporation and its stockholders. Directors have an affirmative duty to protect the financial interests of those whom he or she represents and to critically assess all pertinent information. Since there were no allegations or proof of fraud, bad faith, or selfdealing, it is presumed that the directors reached their business judgment in good faith. The concept of gross negligence is the proper standard for determining whether a business judgment reached by a board of directors was an informed one. Regardingaproposedmergerofdomesticcorporations,adirectorhasadutyunderDelawarelawtoact

in an informed and deliberate manner in determining whether to approve an agreement of merger beforesubmittingtheproposaltostockholders.Whetherthedirectorsreachedaninformeddecisionon September 20th must be determined only upon the basis of the information then reasonably available to the directors and relevant to their decision to accept the Pritzker merger proposal. The Board did not reach an informed business judgment on September 20th because the directors did not adequately inform themselves as to Van Gorkoms role in forcing the sale of the Company and in establishing the per share purchase price, were uninformed as to the intrinsic value of the Company, and were grossly negligent in approving the saleupontwohoursconsideration,withoutpriornotice,andintheabsenceofacrisisoremergency. None ofthedirectors, other than Van Gorkom and Chelberg, had anyprior knowledgethat thepurpose of the meeting on September 20th was to propose a cashout merger of Trans Union. Without any documentation, the Board was required to rely on Van Gorkoms 20minute oral presentation of the proposal. No written summary of the terms of the merger was presented, the directors were given no documentationtosupporttheadequacyofthe$55pricepershareforthesaleoftheCompany,andthe BoardhadnothingmorethanVanGorkomsstatementofhisunderstandingoftheagreementwhichhe admittedly had never read, nor which any member of the Board had ever seen. Neither Van Gorkoms oral presentation nor Romans brief oral statement constitute a report. The Company was also misvalued by Van Gorkom, who reached a total value of the Company by multiplying the $55 per share figure (based solely on the availability of a leveraged buyout) by the number of shares outstanding, to reach a valuation of $690 million. As such, Van Gorkom failed his fiduciary responsibility to the Company. The directors of Trans Union also failed to disclose germane facts to the shareholders relating to the merger that required shareholder approval, according to the directors fiduciary duty. Since the shareholders were not provided material facts regarding the proposed merger, the shareholders approvalofthemergerwasnotbasedonaninformedelectorate. ALFREDO MONTELIBANO, ET vs. BACOLODMURCIAMILLINGCO.,INC.,defendantappellee. Taada, Teehankee and HiladoandHiladofordefendantappellee. REYES,J.B.L.,J.: FACTS: plaintiffsappellants, Alfredo Montelibano, Alejandro Montelibano, and the Limited co partnership Gonzaga and Company, had been and are sugar planters adhered to the defendant appellee'ssugarcentralmillunderidenticalmillingcontracts.Originallyexecutedin1919,saidcontracts were stipulated to be in force for 30 years starting with the 192021 crop, and provided that the resulting product should be divided in the ratio of 45% for the mill and 55% for the planters. Sometime Carreon AL., plaintiffsappellants,

for

plaintiffsappellants.

in 1936, it was proposed toexecute amended milling contracts,increasingtheplanters' shareto 60% of themanufacturedsugarandresultingmolasses,besidesotherconcessions,butextendingtheoperation ofthemillingcontractfromtheoriginal30yearsto45years. Tothiseffect,aprintedAmendedMillingContractformwasdrawnup.OnAugust20,1936,theBoardof Directors of the appellee BacolodMurcia Milling Co., Inc., adopted a resolution (Acts No. 11, Acuerdo No. 1) granting further concessions to the planters over and above those contained in the printed AmendedMillingContract. In 1953, the appellants initiated the present action, contending that three Negros sugar centrals (La Carlota, BinalbaganIsabela and San Carlos), with a total annual production exceeding onethird of the production of all the sugar central mills in the province, had already granted increased participation (of 62.5%) to their planters, and that under paragraph 9 of the resolution of August 20, 1936, heretofore quoted, the appellee had become obligated to grant similar concessions to the plaintiffs (appellants herein). The appellee BacolodMurcia Milling Co., inc., resisted the claim, and defended by urging that the stipulations contained in the resolution were made without consideration; that the resolution in question was, therefore, null and void ab initio, being in effect a donation that was ultra vires and beyondthepowersofthecorporatedirectorstoadopt. RULING: As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and whether or not it will cause losses or decrease the profits of the central, the court has no authority toreviewthem. Theyholdsuchofficechargedwiththedutytoactforthecorporationaccordingtotheirbestjudgment, and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. Whetherthebusinessofacorporationshouldbeoperatedatalossduringdepression,orclosedownat a smaller loss, is a purely business and economic problem to be determined by the directors of the corporation and not by the court. It is a wellknown rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment of the board of directors;the board isthe business manager of the corporation, and so long as it acts in good faith its orders are not reviewable by the courts.(FletcheronCorporations,Vol.2,p.390). And it appearing undisputed in this appeal that sugar centrals of La Carlota, Hawaiian Philippines, San Carlos and Binalbagan (which produce over onethird of the entire annual sugar production in Occidental Negros) have granted progressively increasing participations to their adhered planter at an averagerateof 62.333% forthe195152cropyear;

64.2% 64.3% 64.5% 63.5%

for195253; for195354; for195455;and for195556,

the appellee BacolodMurcia Milling Company is, under the terms of its Resolution of August 20, 1936, dutyboundtograntsimilarincreasestoplaintiffsappellantsherein. G.R.No.L18805August14,1967 THE BOARD OF LIQUIDATORS representing THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, plaintiffappellant, vs. HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA, and LEONORMOLL,defendantsappellees. Facts: The National Coconut Corporation (NACOCO) General manager and board chairman was Maximo M. Kalaw embarked on copra trading activities. Four devastating typhoons visited the Philippines which causedthenonfulfillmentofvariouscontracts. Whenitbecame clear that the contracts would be unprofitable, Kalawsubmittedthem totheboardfor approval.AmeetingwasthenheldandKalawmadeafulldisclosureofthesituation,apprisedtheboard of the impending heavy losses. No action was taken on the contracts. Neither did the board vote thereon at the meeting. President Roxas made a statement that the NACOCO head did his best to avert the losses, emphasized that government concerns faced the same risks that confronted private companies, that NACOCO was recouping its losses, and that Kalaw was to remain in his post. Not long thereafter,theboardmetagainandtheyunanimouslyapprovedthecontracts. The practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the bylaws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid aside the bylaw requirementofpriorapproval. NACOCO now claimed that KALAW entered into the controverted contracts without the prior approval of the corporation's directorate. Plaintiff leans heavily on NACOCO's corporate bylaws. Article IV (b),

Chapter III thereof, recites, as amongst the duties of the general manager, the obligation: "(b) To perform or execute on behalf of the Corporation upon prior approval of the Board, all contracts necessaryandessentialtotheproperaccomplishmentforwhichtheCorporationwasorganized." ISSUE: Whether the case at bar is to be taken out of the general concept of the powers of a general manager, given the cited provision of the NACOCO bylaws requiring prior directorate approval of NACOCOcontracts. RULING: No. A rule that has gained acceptance through the years is that a corporate officer "intrusted with the general management and control of its business, has implied authority to make any contract or do any other act which is necessary or appropriate to the conduct of the ordinary business of the corporation. Assuchofficer,"hemay,withoutanyspecialauthorityfromtheBoardofDirectorsperformallactsofan ordinary nature, which byusage ornecessity are incidentto his office, and may bind the corporationby contractsinmattersarisingintheusualcourseofbusiness. In the case at bar, there was not dishonest purpose or some moral obliquity or conscious doing of wrongorbreachofknowndutyorsomemotiveorinterestorillwillthatpartakesofthenatureoffraud. Rightfullyhaditbeensaidthatbadfaithdoesnotsimplyconnotebadjudgmentornegligence;itimports adishonestpurposeorsomemoralobliquityandconsciousdoingofwrong;itmeansbreachofaknown duty thru some motive or interest or ill will; it partakes of the nature of fraud. Applying this precept to the given facts herein, we find that there was no "dishonest purpose," or "some moral obliquity," or "conscious doing of wrong," or "breach of a known duty," or "Some motive or interest or ill will" that "partakesofthenatureoffraud." Nor was it even intimated here that the NACOCO directors acted for personal reasons, or to serve their own private interests, or to pocket money at the expense of the corporation. We have had occasion to affirm that bad faith contemplates a "state of mind affirmatively operating with furtive design or with somemotiveofselfinterestorillwillorforulteriorpurposes." Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. In varying language, existence of such authority is established, byproofofthecourseofbusiness,theusageandpracticesofthecompanyandbytheknowledgewhich the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and abouttheaffairsofthecorporation.Soalso, x x x authority to act for and bind a corporation may be presumed from acts of recognition in other instanceswherethepowerwasinfactexercised. x x x Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corporation may be implied from themannerinwhichhehasbeenpermittedbythedirectorstomanageitsbusiness.

In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the bylaws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid asidethebylawrequirementofpriorapproval. Thus,Kalawhadauthoritytoexecutethecontractswithoutneedofpriorapproval.Everybody,including Kalaw himself, thought so, and for a long time. Doubts were first thrown on the way only when the contractsturnedouttobeunprofitableforNACOCO. As the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of damage andwrongishereabsent.Therecannotbeanactionablewrongifeitheroneortheotheriswanting. On topof allthese, isthatnoassertionis made andnoproof ispresentedwhich would linkKalaw's acts ratified by the board to a matrix for defraudation of the government. Kalaw is clear of the stigma ofbadfaith.Plaintiff'scorporatecounselconcedesthatKalawallalongthoughtthathehadauthorityto enter into the contracts,that hedidso inthebest interests of thecorporation; thatheentered intothe contracts in pursuance of an overall policy to stabilize prices, tofree theproducersfrom the clutches of the middlemen. The prices for which NACOCO contracted in the disputed agreements, were at a level calculatedtoproduceprofitsandhigherthanthoseprevailinginthelocalmarket. ThatKalawcannotbetaggedwithcrassanegligentiaorasmuchassimplenegligence,wouldseemtobe supportedbythefactthatevenasthecontractswerebeingquestionedinCongressandintheNACOCO board itself, President Roxas defended the actuations of Kalaw. And, at a time when the contracts had already been openly disputed, the board, at its regular meeting, appointed Maximo M. Kalaw as acting generalmanagerofthecorporation. Meadvs.McCullough FACTS: This action was originally brought by Charles W. Mead against Edwin C. McCullough, Thomas L. Hartigan, Frank E. Green, and Frederick H. Hilbert. Mead has died since the commencement of the actionandthecaseisnowgoingforwardinthenameofhisadministratorasplaintiff. OnMarch 15, 1902,theplaintiff (Meadwill bereferredto as theplaintiff in this opinionunless it is otherwisestated)andthedefendantorganizedthe"PhilippineEngineeringandConstructionCompany," the incorporators being the only stockholders and also the directors of said company, with general ordinarypowers. ISSUE:

Mayofficersordirectorsofthecorporationpurchasethecorporateproperty? RULING: The authorities are not uniform on this question, but on the general proposition whether a director oranofficermaydealwiththecorporation,wethinktheweightofauthorityisthathemay. While a corporation remains solvent, we can see no reason why a director or officer, by the authority of a majority of the stockholders or board of managers, may not deal with the corporation, loan it money or buy property from it, in like manner as a stranger. So long as a purely private corporation remains solvent, its directors are agents or trustees for the stockholders. They owe no duties or obligations to others. But the moment such a corporation becomes insolvent, its directors are trustees of all the creditors, whether they are members of the corporation or not, and must manage its property and assets with strict regard to their interest; and if they are themselves creditors while the insolventcorporationisundertheirmanagement,theywillnotbepermittedtosecuretothemselvesby purchasing the corporate property or otherwise any personal advantage over the other creditors. Nevertheless,adirectororofficermayingoodfaithandforanadequateconsiderationpurchasefroma majority of the directors or stockholders the property even of an insolvent corporation, and a sale thus made to him is valid and binding upon the minority. (Beach et al. vs. Miller, supra; TwinLick Oil Companyvs.Marbury,etc.) InthecaseoftheTwinLickOilCompanyvs.Marbury,supra,itwasheld: That a director of a jointstock corporation occupies one of those fiduciary relations where his dealings withthesubjectmatter ofhistrust oragency, andwiththe beneficiary orparty whoseinterest isconfidedtohiscare,isviewedwithjealousybythecourts,andmaybesetasideonslightgrounds,isa doctrinefoundedonthesoundestmorality,andwhichhasreceivedtheclearestrecognitioninthiscourt and others. The general doctrine, however, in regard to contracts of this class, is, not that they are absolutely void, but that they are voidable at the election of the party whose interest has been so represented by the party claiming under it. We say, this is the general rule; for there may be cases wheresuchcontractswouldbevoidabinitio;aswhenanagenttosellbuysofhimself,andbyhispower ofattorneyconveystohimselfthatwhichhewasauthorizedtosell.butevenhere,actswhichamountt aratificationbytheprincipalmayvalidatethesale. The sale or transfer of the corporate property in the case at bar was made by three directors who were at the same time a majority of stockholders. If a majority of the stockholders have a clear and a better right to sell the corporate property than a majority of the directors, then it can be said that a majorityofthestockholdersmadethissaleortransfertothedefendantMcCullough. The corporation was civilly dead and had passed into the limbo of utter insolvency. The majority of the stockholders or directors sold the assets of this corporation, thereby relieving themselves and the plaintiff of all responsibility. This was only the wise and sensible thing for them to do. They acted in perfectly good faith and for the best interests of all the stockholders. "It would be a harsh rule that would permit one stockholder, or any minority of stockholders to hold a majority to their investment

where a continuation of the business would be at a loss and where there was no prospect or hope that theenterprisewouldbeprofitable. PrimecementvsIntermediateappellatecourt&AlejandroTe Facts: The President and Chairman of the Prime Cement entered into a dealership agreement with Alejandro Tes Corporation (the name of the corpo was not stated in the case). Te is a director and auditor of his Corporation. The agreement stated that Prime Cement will exclusively supply Tes Corporation with white cement in Mindanao area. Te instituted an action to publish such exclusive distribution and some hardware asked for his supplies. However, Prime Cement cannot supply the original20,000bagsstatedintheAgreement,buttheyarewillingtosupply8,000bags.Tedidnotacton it and Prime Cement, notwithstanding the agreement still subsists, they supply other person in MindanaoAreawithWhiteCement.TefiledacaseagainstthePrimeCementandtheRTCdecidedinhis favour ordering Prime Cement to pay Te. Prime Cement contends that the Agreement was not valid on thegroundthatTewasnotauthorizedbyitsBoardofDirectorstoenterintosuch. Issue: Whether ornot the Dealership Agreement referred by the president and chairman of the board ofPetitionerCorporationisvalidandenforceablecontract. Held: UndertheCorporationLaw,whichwastheninforceatthetimethiscasearose,aswellasunder the present Corporation Code, all corporate powers shall be exercised bytheBoard of Directors,except asotherwiseprovidedbylaw.Althoughitcannotcompletelyabdicateitspowerandresponsibilitytoact for the juridical entity, the Board may expressly delegate specific powers to its President or any of its officers.Intheabsenceofsuchexpressdelegation,acontractenteredintobyitsPresident,onbehalfof thecorporation,maystillbindthecorporationiftheboardshouldratifythesameexpresslyorimpliedly. Implied ratification may take various forms like silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. Furthermore, even in the absence of express or implied authority by ratification, the President as such may, as a generalrule,bindthecorporationbyacontractintheordinarycourseofbusiness,providedthesameis reasonable under the circumstances. 8 These rules are basic, but are all general and thus quite flexible. TheyapplywherethePresidentorotherofficer,purportedlyactingforthecorporation,isdealingwitha thirdperson,i.e.,apersonoutsidethecorporation. The situation is quite different where a director or officer is dealing with his own corporation. In the instant case respondent Te was not an ordinary stockholder; he was a member of the Board of Directors and Auditor of the corporation as well. He was what is often referred to as a "selfdealing" director.

 In the eyes of the court Te is guilty of disloyalty to the corporation; he was attempting in effect to enrich himself at the expense of the corporation. There is no showing that the stockholders ratified the dealership agreement or that they were fully aware of it provisions. The contract was thereforenotvalidandthiscourtcannotallowhimtoreapthefruitsofhisdisloyalty.

PNB V. ANDRADA ELECTRIC FACTS: On 29 Oct 1971 respondent Andrada Electric & Engineering Company (Andrada for brevity) was contracted by petitioner Pampanga Sugar Mills (PASUMIL) for the construction a power house building among others and electrical services. PASUMIL failed to pay its obligation with Andrada. On 26 August 1975, petitioner PNB acquired the assets of PASUMIL and organized the other petitioner, National Sugar Development Corp. (NASUDECO) to take ownership and possession of the assets of PASUMIL. Petitioners PNB and PASUMIL failed and refused to pay the unpaid balance, hence, the filing of this complaint. ISSUE: WON PNB is liable for the unpaid debts of PASUMIL to respondent corp. RULING: The Supreme Court that 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 is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to consolidation or merger of the corporations, (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. 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. 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. In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code was not followed.

In fact, PASUMILs corporate existence, as correctly found by the CA, had not been legally extinguished or terminated.

AssociatedBankvs.CA Facts: Associated Banking Corporation and Citizens Bank and Trust Company merged to form 1 banking corporation known as Associated Citizens Bank. The latter changed its corporate name to Associated Bank by virtue of the Amended AOI. Prior to the said merger, defendant Sarmiento executed a PN in favor of CBTC. He defaulted in his payment and so petitioner Associated Bank sought to enforce the contract. Defendant contended that Associated Bank has no cause of action since it is not the proper partyininterest.ThelowercourtruledinfavorofthebankandordereddefendantSarmientotopay.CA reversed the said decision. Issue: W/N Associated Bank, the surviving corporation, may enforce the PN made by defendant in favor of CBTC, the absorbed company, after the merger agreement had been signed. Held: SCheldthat Associatedbank may enforcethe PN against thedefendant. Ina merger of 2 ormore existingcorporations,oneofthecombiningcorporationssurvivesandcontinuesthecombinedbusiness, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation.Althoughthereisadissolutionoftheabsorbedcorporations,thereisnowindingupoftheir affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as their liabilities. It further held that the merger agreement provided that all contracts irrespective of the date of execution entered into in the name of CBTC shallbeunderstoodaspertainingtothesurvivingbank/petitioner. FILIPINASPORTSERVICES,INC.(Filport)vs.NATIONALLABORRELATIONSCOMMISSION FACTS: Different stevedoring and arrastre corporations operating in the Port of Davao were integrated intoasingledockhandlerscorporation,knownastheDavaoDockhandlers,Inc.Asaresultofthemerger, Filport is mandated to draw its personnel complements from the merging operators. Thus, Filport's laborforcewasmostlytakenfromtheintegratingcorporations,amongthemtheprivaterespondents. Private respondents Paterno Liboon and 18 others filed a complaint alleging that they were not paid retirementbenefitsaccordingly.Thecomputationofemploymentperioddidnotincludetheperiodthey were employed in the integration. Finding Filport a mere alter ego of the different integrating corporations, the Labor Arbiter held Filport liable for retirement benefits due private respondents for servicesrendered. Filport filed a petition for certiorari with the Supreme Court, claiming that it is an entirely new corporation with a separate juridical personality from the integrating corporations; and that Filport is not a successoremployer, liable for the obligations of private respondents' previous employers, as shownclearlyinthememorandumofPPAAssistantGeneralManagerMaximoS.Dumlao,Jr. While Paterno Liboon et. al case was still pending decision by this Court, Josefino Silva, another employee of Filport, instituted a suit against Filport and Damasticor (one of the defunct stevedoring firms)claimingforretirementbenefitsforservicesrenderedpriortotheintegration. The Supreme Court in both cases had conflicting rulings although the circumstances surrounding the casearethesame.Hence,theinstantpetitionforclarification. ISSUE: W/N Filport is liable for the benefits due to the employees for services rendered prior to the integration. HELD: Filportisliable.

 As earlier stated, it was mandated that Filport shall absorb all labor force and necessary personnel complement of the merging operators, thus, clearly indicating the intention to continue the employer employeerelationshipsoftheindividualcompanieswithitsemployeesthroughFilport. The alleged memorandum of the PPA Assistant General Manager exonerating Filport from any liability arisingfromandasaresultofthemergeriscontrarytopublicpolicyandisviolativeoftheworkers'right tosecurityoftenure.SaidmemorandumwasissuedinresponsetoaqueryofthePMUOfficerinCharge and was noteven published nor made known to the workers who came to know of its existence only at thehearingbeforetheNLRC. The principle involved cited in the case of Fernando v. Angat Labor Union applies only when the transferee is an entirely new corporation with a distinct personality from the integrating firms and NOT wherethetransfereewasfoundtobemerelyanalteregoofthedifferentmergingfirms,asinthiscase. Thus, Filport has the obligation not only to absorb the workers of the dissolved companies but also to includethelengthofserviceearnedbytheabsorbedemployeeswiththeirformeremployeesaswell.To ruleotherwisewouldbemanifestlylessthanfair,certainly,lessthanjustandequitable. Finally, to deny the private respondents the fruits of their labor corresponding to the time they worked withtheirpreviousemployerswouldrenderatnaughttheconstitutionalprovisionsonlaborprotection. In interpreting the protection to labor and social justice provisions of the Constitution and the labor laws, and rules and regulations implementing the constitutional mandate, the Supreme Court has alwaysadoptedtheliberalapproachwhichfavorstheexerciseoflaborrights. PHILIPPINE VETERANS BANK EMPLOYEES UNIONN.U.B.E. and PERFECTO V. FERNANDEZ vs. HONORABLEBENJAMINVEGA, FACTS: The Central Bank of the Philippines filed a Petition for Assistance in the Liquidation of the Philippine Veterans Bank. Thereafter, the petitioner Philipppine Veterans Bank Employees Union N.U.B.E., filed claims for accrued and unpaid employee wages and benefits. After lengthy proceedings, partialpaymentofthesumsduetotheemployeesweremade.However,duetothepiecemealhearings on the benefits, many remain unpaid. Petitioners moved to disqualify the respondent judge from hearing the above case on grounds of bias and hostility towardspetitioners. Subsequentlythe Congress enacted Republic Act No. 7169 providing for the rehabilitation of the Philippine Veterans Bank. Thereafter, petitioners filed with the labor tribunals their residual claims for benefits and for reinstatement upon reopening of the bank. The Central Bank issued a certificate of authority allowing thePVBtoreopen. Despite the legislative mandate for rehabilitation and reopening of PVB, respondent judge continued withtheliquidationproceedingsofthebank. Moreover,petitionerslearnedthatrespondentswereset to order the payment and release of employee benefits upon motion of another lawyer, while petitionersclaimshavebeenfrozentotheirprejudice.Hence,theinstantpetition.

ISSUE: W/N a liquidation court may continue with liquidation proceedings of the Philippine Veterans Bank(PVB)whenCongresshadmandateditsrehabilitationandreopening? HELD: SC find for the petitioners. the enactment of Republic Act No. 7169, as well as the subsequent developments has rendered the liquidation court functus officio. Consequently, respondent judge has beenstrippedoftheauthoritytoissueordersinvolvingactsofliquidation. Liquidation, in corporation law, connotes a winding up or settling with creditors and debtors. It is the winding up of a corporation so that assets are distributed to those entitled to receive them. It is the processofreducingassetstocash,dischargingliabilitiesanddividingsurplusorloss. On the opposite end of the spectrum is rehabilitation which connotes a reopening or reorganization. Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstatethecorporationtoitsformerpositionofsuccessfuloperationandsolvency. It is crystal clear that the concept of liquidation is diametrically opposed or contrary to the concept of rehabilitation, such that both cannot be undertaken at the same time. To allow the liquidation proceedingstocontinuewouldseriouslyhindertherehabilitationofthesubjectbank. PALvs.SpousesSADIC Facts: The spouses Sadic filed a complaint with the RTC of Marawi City against PAL for breach of contract resultingindamagesduetonegligenceinthecustodyofthemissingluggageswhentheyboardedtoPAL and unable to retrieve their checkin luggages. The PAL filed its answer invoking the limitations under the Warsaw Convention and claiming to have suffered serious business losses due to the Asian economic crisis, followed by a massive strike by its employees, filed a petition for the approval of a rehabilitation plan and the appointment of a rehabilitation receiver before the SEC which was later on granted. The SEC formed a committee and declared the suspension of all actions of money claims against PAL pending before any court, tribunal, board or body. Then PAL moved for the suspension of the proceedings before the RTC of Marawi City but it was denied on the ground that the claim of respondents was only yet tobe established. The motion for reconsideration was denied, then PAL went totheCAbutitwasalsodismissed,hence,thispetition. Issue: "Whether or not the proceedings before the trial court should have been suspended after the courtwasinformedthatarehabilitationreceiverwasappointedbySEC? Ruling: The Supreme Court, in A.M. No. 00810SC, adopted the Interim Rules of Procedure on Corporate RehabilitationanddirectedtobetransferredfromtheSECtoRTC,allpetitionsforrehabilitationfiledby corporations, partnerships, and associations under P.D. 902A in accordance with the amendatory

provisions of Republic Act No. 8799. The rules require trial courts to issue, among other things, a stay order in the enforcement of all claims, whether for money or otherwise, and whether such enforcement is by court action or otherwise, against the corporation under rehabilitation, its guarantorsandsuretiesnotsolidarilyliablewithit. The claim of private respondents against petitioner PAL is a money claim for the missing luggages, a financial demand that the law requires to be suspended pending the rehabilitation proceedings. In B.F. Homes, Inc. vs. Court of Appeals, the Court has ratiocinated. The reason for suspending actions for claims against the corporation should not be difficult to discover. It is not really to enable the managementcommitteeortherehabilitationreceivertosubstitutethedefendantinanypendingaction against it before any court, tribunal, board or body. Obviously, the real justification is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the rescue of the debtor company. To allow such other action to continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the corporation instead of being directed toward its restructuring and rehabilitation. The petitionwasgranted. RCBCVSIAC(Rehabilitation) Facts: On September 28, 1984,BF Homes filed a Petition for Rehabilitation and for Declarationof Suspension ofPaymentswiththeSEC. RCBC,oneofthecreditorslistedinBFHomesinventoryofcreditorsandliabilities,onOctober26,1984, requested the Provincial Sheriff of Rizal to extrajudicially foreclose its real estate mortgage on some propertiesofBF Homes. BFHomes opposed the auction sale andtheSEC orderedthe issuance ofa writ ofpreliminaryinjunctionuponpetitionersfilingofabond.Presumablyunawareofthefilingofthebond ontheverydayoftheauctionsale,thesheriffproceededwiththepublicauctionsaleinwhichRCBCwas the highest bidder for the properties auctioned. But because of the proceedings in the SEC, the sheriff withheldthedeliverytoRCBCofthecertificateofsalecoveringtheauctionedproperties. On March 13, 1985, despite the SEC case, RCBC filed with RTC an action for mandamus against the provincial sheriff of Rizal to compel him to execute in its favor a certificate of sale of the auctioned properties. OnMarch18,1985,theSECappointedaManagementCommitteeforBFHomes. Consequently, the trial court granted RCBCs motion for judgment on the pleading ordering respondentstoexecuteanddelivertopetitionertheCertificateofAuctionSale. On appeal, the SC affirmed CAs decision (setting aside RTCs decision dismissing the mandamus case and suspending issuance to RCBC of new land titles until the resolution of the SEC case) ruling that whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments,

preferred creditors may no longer assert such preference but stand on equal footing with other creditors.Hence,thisMotionforReconsideration. Issue: WhenshouldthesuspensionofactionsforclaimsagainstBFHomestakeeffect? Ruling: The issue of whether or not preferred creditors of distressed corporations stand on equal footing with all other creditors gains relevance and materiality only upon the appointment of a management committee,rehabilitationreceiver,boardorbody. Upon cursory reading of Section 6, par (c) of PD 902A, it is adequately clear that suspension of claims against a corporation under rehabilitation is counted or figured up only upon the appointment of a management committee or a rehabilitation takes effect as soon as the application or a petition for rehabilitation is filed with the SEC may to some, be more logical and wise but unfortunately, such is incongruent with the clear language of the law. To insist on such ruling, no matter how practical and noble would be to encroach upon legislative prerogative to define the wisdom of the law plainly judiciallegislation. Onceamanagementcommittee,rehabilitationreceiver,boardorbodyisappointedpursuanttoPD902 A, all actions for claims against a distressed corporation pending before any court, tribunal, board or bodyshallbesuspendedaccordingly;Suspensionshallnotprejudiceorrenderineffectivethestatusofa secured creditor as compared to a totally unsecured creditor. What it merelyprovides is that all actions for claims against the corporation, partnership or association shall be suspended. This should give the receiver a chance to rehabilitate the corporation if there should still be a possibility for doing so. In the event that rehabilitation is no longer feasible and claims against the distressed corporation would eventuallyhaveto be settled,thesecured creditorsshall enjoy preferenceover theunsecured creditors subjectonlytotheprovisionsoftheCivilCodeonConcurrenceandPreferencesofCredit.