JURISTS BAR REVIEW CENTER

NOTES on COMMERCIAL LAW PRE WEEK 2014

PROFESSOR E.H. BALMES

A SURVEY OF THE 2014 CASES

IN COMMERCIAL LAW
JANUARY 2014 TO MAY 2014

Don't be afraid, for I am with you. Don't be discouraged, for I am your God. I will
strengthen you and help you. I will hold you up with my victorious right hand.
(ISAIAH 41:10)

ERIC GODFREY STANLEY LIVESEY v. BINSWANGER PHILIPPINES, INC. AND KEITH

ELLIOT
G.R. No. 177493, March 19, 2014
BRION J.

Eric Godfrey Stanley Livesey filed a complaint for illegal dismissal with money claims against CBB
Philippines Strategic Property Services, Inc. (CBB) and Paul Dwyer- President. Livesey alleged that CBB
failed to pay him a significant portion of his salary. He claimed CBB owed him US$23,000.00 in unpaid
salaries.

The Labor Arbiter ruled in favor of Livesey and ordered the payment of his accrued salaries and
attorneys fees. The CBB paid Livesey the initial amount of US$13,000.00, but not the next two installments
as the company ceased operations.

Thereafter, Livesey discovered that after the closure of CBB, another company, Binswanger
Philippines, Inc. was organzed to replace it.

Subsequently, invoking the doctrine of piercing the veil of corporate fiction, Livesey prayed that an
alias writ of execution be issued against Binswanger and Keith Elliot, CBBs former President, and now
Binswangers President and Chief Executive Officer (CEO). This was denied by the Labor Arbiter.

Livesey filed an appeal which the National Labor Relations Commission (NLRC) which granted the
same. However, the CA disagreed with the NLRC finding that the respondents are jointly and severally
liable with CBB in the case. The CA emphasized that the mere fact that Binswanger and CBB have the same
President is not in itself sufficient to pierce the veil of corporate fiction of the two entities, and that although
Elliot was formerly CBBs President, this circumstance alone does not make him answerable for CBBs
liabilities, there being no proof that he was motivated by malice or bad faith when he signed the compromise
agreement in CBBs behalf; neither was there proof that Binswanger was formed, or that it was operated, for
the purpose of shielding fraudulent or illegal activities of its officers or stockholders or that the corporate veil
was used to conceal fraud, illegality or inequity at the expense of third persons like Livesey.

ISSUE:

Whether the doctrine of piercing the veil of corporate fiction is applicable to this case.

HELD:

YES. It has long been settled that the law vests a corporation with a personality distinct and separate
from its stockholders or members. In the same vein, a corporation, by legal fiction and convenience, is an
entity shielded by a protective mantle and imbued by law with a character alien to the persons comprising it.
1
 JURISTS BAR REVIEW CENTER
NOTES on COMMERCIAL LAW PRE WEEK 2014
PROFESSOR E.H. BALMES

Nonetheless, the shield is not at all times impenetrable and cannot be extended to a point beyond its
reason and policy. Circumstances might deny a claim for corporate personality, under the doctrine of
piercing the veil of corporate fiction.

Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where
the separate corporate personality of a corporation is abused or used for wrongful purposes. Under the
doctrine, the corporate existence may be disregarded where the entity is formed or used for nonlegitimate
purposes, such as to evade a just and due obligation, or to justify a wrong, to shield or perpetrate fraud or to
carry out similar or inequitable considerations, other unjustifiable aims or intentions, in which case, the
fiction will be disregarded and the individuals composing it and the two corporations will be treated as
identical.

In this case, we see an indubitable link between CBBs closure and Binswangers
incorporation. CBB ceased to exist only in name; it reemerged in the person of Binswanger for an
urgent purpose to avoid payment by CBB of the last two installments of its monetary obligation to
Livesey, as well as its other financial liabilities. Freed of CBBs liabilities, especially that owing to
Livesey, Binswanger can continue, as it did continue, CBBs real estate brokerage business.

This wrongful intent we cannot and must not condone, for it will give a premium to an iniquitous
business strategy where a corporation is formed or used for a nonlegitimate purpose, such as to evade a just
and due obligation. Elliot was held as liable as Binswanger for CBBs unfulfiled obligation to Livesey.

FORTUNE MEDICARE, INC., vs. DAVID ROBERT U. AMORIN

G.R. No. 195872
March 12, 2014
Reyes J.

FACTS:

David Robert U. Amorin was a cardholder/member of Fortune Medicare, Inc. (Fortune Care), a
corporation engaged in providing health maintenance services to its members.

Amorin underwent an emergency appendectomy while he was overeseas causing him to incur
professional and hospitalization expenses of US$7,242.35 and US$1,777.79, respectively.

Amorin attempted to recover from Fortune Care the full amount of his operation from Fortune Care
upon his return in Manila but he was only paid an amount that was based on the average cost of
appendictomy net of medicare.

He attempted to recover from Fortune Care the full amount thereof upon his return to Manila, but the
company merely for amount that was based on the average cost of appendectomy, net of medicare deduction,
if the procedure were performed in an accredited hospital in Metro Manila

Amorin received the amount under protest but asked for its adjusment to cover the total amount of
professinal fees he paid and eighty percent (80%) of the approved standard charges based on "American
standard", considering that the emergency procedure occurred in the U.S.A.

To support his claim, Amorin cited Section 3, Article V on Benefits and Coverages of the Health
Care Contract, to wit:

EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-patient or out-

patient, the member shall be entitled to full coverage under the benefits provisions of the
2
 JURISTS BAR REVIEW CENTER
NOTES on COMMERCIAL LAW PRE WEEK 2014
PROFESSOR E.H. BALMES
Contract at any FortuneCare accredited hospitals subject only to the pertinent provision
of Article VII (Exclusions/Limitations) hereof. For emergency care attended by non
affiliated physician (MSU), the member shall be reimbursed 80% of the professional fee
which should have been paid, had the member been treated by an affiliated physician. The
availment of emergency care from an unaffiliated physician shall not invalidate or
diminish any claim if it shall be shown to have been reasonably impossible to obtain such
emergency care from an affiliated physician.

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

Whether as an in-patient or out-patient, FortuneCare shall reimburse the total
hospitalization cost including the professional fee (based on the total approved
charges) to a member who receives emergency care in a non-accredited hospital.
The above coverage applies only to Emergency confinement within Philippine
Territory. However, if the emergency confinement occurs in a foreign territory,
Fortune Care will be obligated to reimburse or pay eighty (80%) percent of the
approved standard charges which shall cover the hospitalization costs and
professional fees. x x x

Fortune Care denied the request of Amorin prompting him to file a complaint for breach of contract
with damages with the RTC of Makati. Fortune Care argued that the Health Care Contract did not cover
hospitalization costs and professional fees incurred in foreign countries, as the contracts operation was
confined to Philippine territory.

The RTC ruled in favor of Fortune Care. The CA reversed.

Issue/s:

1. Whether the phrase "approved standard charges" is subject to interpretation, and that it did not
automatically mean "Philippine Standard";

2. Whether or not American Standard Cost shall be applied in the payment of medical and
hospitalization expenses and professional fees incurred by the Amorin.

HELD:

The Court finds no cogent reason to disturb the CAs finding that Fortune Cares liability to Amorin
under the subject Health Care Contract should be based on the expenses for hospital and professional fees
which he actually incurred, and should not be limited by the amount that he would have incurred had
his emergency treatment been performed in an accredited hospital in the Philippines.

For purposes of determining the liability of a health care provider to its members, jurisprudence holds
that a health care agreement is in the nature of non-life insurance, which is primarily a contract of
indemnity. Once the member incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contingent, the health care provider must pay for the same to the extent
agreed upon under the contract.

When the terms of insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly against the party which prepared the contract
the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of

3
 JURISTS BAR REVIEW CENTER
NOTES on COMMERCIAL LAW PRE WEEK 2014
PROFESSOR E.H. BALMES
the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture.

The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be
susceptible of different meanings. Plainly, the term "standard charges" could be read as referring to the
"hospitalization costs and professional fees" which were specifically cited as compensable even when
incurred in a foreign country.

RAUL C. COSARE vs. BROADCOM ASIA, INC. and DANTE AREVALO.

G.R. No. 201298
February 5, 2014
REYES

Cosare was emloyed as a salesman by Arevalo in the latters business of selling broadcast equipment
needed by television networks and production houses.

Subsequently, in December 2000, Arevalo set up the company Broadcom Inc. Cosare was among
those named as an incorporator of Broadcom. He was listed as having subscribed to 100 sharess of stock
with a par value of P 1.00 per share.

On March 31, 2009, Broadcom dismissed Cosare for alleged serious misconduct. Resultantly, Cosare
filed a labor complaint for illegal dismissal.

The Labor Arbiter dismissed the complaint. The NLRC reversed. The CA ruled that the case
involved an intra-corporate case, as such the proper jurisdiction is vested with the proper Regional Trial
Court. The CA ratiocinated that Cosare was indeed a stockholder of Broadcom and that he was listed as one
of its directors. Moreover, he held the position of [AVP] for Sales which is listed as a corporate officer

Issues:

1. Whether the Labor Arbiter, and not the regular courts, has the original jurisdiction over the subject
controversy.

HELD

An intra-corporate controversy, which falls within the jurisdiction of regular courts, has been
regarded in its broad sense to pertain to disputes that involve any of the following relationships: (1) between
the corporation, partnership or association and the public; (2) between the corporation, partnership or
association and the state in so far as its franchise, permit or license to operate is concerned; (3) between the
corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the
stockholders, partners or associates, themselves

Settled jurisprudence, however, qualifies that when the dispute involves a charge of illegal dismissal,
the action may fall under the jurisdiction of the LAs upon whose jurisdiction, as a rule, falls termination
disputes and claims for damages arising from employer-employee relations as provided in Article 217 of the
Labor Code. Consistent with this jurisprudence, the mere fact that Cosare was a stockholder and an
officer of Broadcom at the time the subject controversy developed failed to necessarily make the case
an intra-corporate dispute.

In Matling Industrial and Commercial Corporation v. Coros, the Court distinguished between a
"regular employee" and a "corporate officer" for purposes of establishing the true nature of a dispute or
4
 JURISTS BAR REVIEW CENTER
NOTES on COMMERCIAL LAW PRE WEEK 2014
PROFESSOR E.H. BALMES
complaint for illegal dismissal and determining which body has jurisdiction over it. Succinctly, it was
explained that "the determination of whether the dismissed officer was a regular employee or corporate
officer unravels the conundrum" of whether a complaint for illegal dismissal is cognizable by the LA or by
the RTC. "In case of the regular employee, the LA has jurisdiction; otherwise, the RTC exercises the legal
authority to adjudicate.

Applying the foregoing to the present case, the LA had the original jurisdiction over the complaint for
illegal dismissal because Cosare, although an officer of Broadcom for being its AVP for Sales, was not a
"corporate officer" as the term is defined by law.

Corporate officers in the context of Presidential Decree No. 902-A are those officers of the
corporation who are given that character by the Corporation Code or by the corporations by-laws. There are
three specific officers whom a corporation must have under Section 25 of the Corporation Code. These are
the president, secretary and the treasurer. The number of officers is not limited to these three. A
corporation may have such other officers as may be provided for by its by-laws like, but not limited to, the
vice-president, cashier, auditor or general manager. The number of corporate officers is thus limited by law
and by the corporations by-laws.

As may be deduced from the foregoing, there are two circumstances which must concur in order for
an individual to be considered a corporate officer, as against an ordinary employee or officer, namely: (1) the
creation of the position is under the corporations charter or by-laws; and (2) the election of the officer is by
the directors or stockholders. It is only when the officer claiming to have been illegally dismissed is
classified as such corporate officer that the issue is deemed an intra-corporate dispute which falls within the
jurisdiction of the trial courts.

RODOLFO LABORTE and PHILIPPINE TOURISM AUTHORITY (PTA) vs. PAGSANJAN

TOURISM CONSUMERS COOPERATIVE (PTCC) and LELIZA S. FABRICIO et., al
G.R. No. 183860
January 15, 2014
REYES, J.

FACTS:

PTA is a government-owned and controlled corporation that administers tourism zones as mandated
by P.D No. 564 and later amended by P.D. No. 1400. PTA used to operate the Philippine Gorge Tourist Zone
(PGTZ) Administration Complex (PTA Complex), a declared tourist zone in Pagsanjan, Laguna.

On the other hand, the PTCC is a cooperative organized since 1988 under Republic Act No. 6938, or
the "Cooperative Code of the Philippines.

In 1989, in order to help the PTCC as a cooperative, the PTA allowed it to operate a restaurant
business located at the main building of the PTA Complex and the boat ride services to ferry guests and
tourists to and from the Pagsanjan Falls. PTCC agreed to pay certain percentage of its earnings to the PTA.

On October 22, 1993, Laborte, on behalf of PTA, served a written notice upon PTCC to cease the
operations of the latters restaurant business and boat ride services in view of the rehabilitation, facelifting
and upgrading project of the PTA Complex.

Consequently, on November 9, 1993, the PTCC prayed for the issuance of a TRO or writ of
preliminary injunction to prohibit Laborte from causing the PTCC to cease the operations of the restaurant
and boat ride services. Opposing the issuance of the TRO, Laborte averred that the PTCC does not own the
restaurant facility and has neither been granted any franchise nor concession to operate the restaurant nor any
exclusive franchise to handle the boating operations in the complex.
5
 JURISTS BAR REVIEW CENTER
NOTES on COMMERCIAL LAW PRE WEEK 2014
PROFESSOR E.H. BALMES
Thereafter, on March 14, 1994, the individual respondents, Fabricio et al., who are employees and
boatmen of the PTCC, filed a Complaint-in-Intervention against Laborte stating that they were rendered
jobless and were deprived of their livelihood because of the actions of Laborte.

The RTC rendered a decision against Laborte.

Issue:

Whether or not LABORTE can be held liable in both his Personal and Official Capacity.

Held:

The Supreme Court ruled in the negative. The Court finds that Laborte was simply implementing the
lawful order of the PTA Management.

As a general rule the officer cannot be held personally liable with the corporation, whether civilly or
otherwise, for the consequences of his acts, if acted for and in behalf of the corporation, within the scope of
his authority and in good faith. Furthermore, the Court also notes that the charges against petitioners Laborte
and the PTA for grave coercion and for the violation of R.A. 671374 have all been dismissed. Consequently,
the Court finds no basis to hold petitioner Laborte liable.

Likewise, the award of damages to the respondents and respondents-intervenors is without basis.
Absent a contract between the PTCC and the PTA, and considering further that the respondents were
adequately notified to properly vacate the PTA Complex, the Court finds no justifiable reason to award any
damages. Neither may the respondents-intervenors claim damages since the act directed against the PTCC
was a lawful exercise of the PTA's management prerogative. While it is true that the exercise of management
prerogative is a recognized right of a corporate entity, it can not be gainsaid that the exercise of such right
must be tempered with justice, honesty, good faith and a careful regard of other party's rights.

DEVELOPMENT BANK OF THE PHILIPPINES (DBP)

vs.
GUARIA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION
G.R. No. 160758
January 15, 2014
Bersamin, J.

FACTS:

In August 5, 1976, DBP approved a loan in favor of Guaria Corporation to finance the development
of its resort complex situated in Trapiche, Oton, Iloilo amounting to P3,387,000.00

Thereafter, on October 5, 1976, Guaria Corporation executed a real estate mortgage over several
real properties in favor of DBP as security for the repayment of the loan.

Subsequently, on May 17, 1977, Guaria Corporation executed a chattel mortgage over the personal
properties existing at the resort complex and those yet to be acquired out of the proceeds of the loan, also to
secure the performance of the obligation

Prior to the release of the loan, DBP required Guaria Corporation to put up a cash equity of
P1,470,951.00 for the construction of the buildings and other improvements on the resort complex.

6
 JURISTS BAR REVIEW CENTER
NOTES on COMMERCIAL LAW PRE WEEK 2014
PROFESSOR E.H. BALMES
Therafter, Guaria Corporation demanded the release of the balance of the loan, but DBP refused.
Instead, DBP directly paid some suppliers of Guaria Corporation over the latter's objection.

DBP found upon inspection of the resort project, its developments and improvements that Guaria
Corporation had not completed the construction works. DBP initiated extrajudicial foreclosure proceedings.
A notice of foreclosure sale was sent to Guaria Corporation. The notice was eventually published, leading
the clients and patrons of Guaria Corporation to think that its business operation had slowed down, and that
its resort had already closed.

Then, on January 6, 1979, Guaria Corporation sued DBP in the RTC to demand specific
performance of the latter's obligations under the loan agreement, and to stop the foreclosure of the mortgages
(Civil Case No. 12707 while DBP moved for the dismissal of the complaint,

The RTC ruled that the extra-judicial sales of the mortgaged properties are null and void and
ordered the respondents to give back to the plaintiff the actual possession and enjoyment of all the properties
foreclosed and possessed by it. The CA affirmed the judgement with modification.

Issues:

Whether cogent reasons exists to reverse the findings and rulings of the Supreme Court.

Held:

The Supreme Court rules in the negative.

The agreement between DBP and Guaria Corporation was a loan. Under the law, a loan requires the
delivery of money or any other consumable object by one party to another who acquires ownership thereof,
on the condition that the same amount or quality shall be paid

Loan is a reciprocal obligation, as it arises from the same cause where one party is the creditor, and
the other the debtor. The obligation of one party in a reciprocal obligation is dependent upon the obligation
of the other, and the performance should ideally be simultaneous. This means that in a loan, the creditor
should release the full loan amount and the debtor repays it when it becomes due and demandable.

The records show that the DBP did not make any demand for payment of the promissory note. It
appears that the basis of the foreclosure was not a default on the loan but appellee's failure to complete the
project in accordance with DBPs standards. In fact, DBP refused to release the remaining balance of the
approved loan after it found that the improvements introduced by appellee were below DBP's expectations.

Since DBP did not release the total amount of the approved loan, it could not have made a demand
for payment of the loan since it had yet to fulfil its own obligation. Moreover, the fact that appellee was not
yet in default rendered the foreclosure proceedings premature and improper.

For an obligation to become due, there must generally be a demand. Default generally begins from
the moment the creditor demands the performance of the obligation.

Being a banking institution, DBP owed it to Guaria Corporation to exercise the highest degree of
diligence, as well as to observe the high standards of integrity and performance in all its transactions because
its business was imbued with public interest.

7
 JURISTS BAR REVIEW CENTER
NOTES on COMMERCIAL LAW PRE WEEK 2014
PROFESSOR E.H. BALMES
The high standards were also necessary to ensure public confidence in the banking system, for,
according to Philippine National Bank v. Pike "The stability of banks largely depends on the confidence of
the people in the honesty and efficiency of banks."

SPI TECHNOLOGIES, INC. and LEA VILLANUEVA,

vs.
VICTORIA K. MAPUA
G.R. No. 191154
April 7, 2014
Reyes, J.

Facts:

Victoria K. Mapua (Mapua) was hired in 2003 by SPI Technologies, Inc. (SPI) and was the Corporate
Developments Research/Business Intelligence Unit Head and Manager of the company with Elizabeth
Nolan (Nolan) as her supervisor

Subsequently, Nolan informed Mapua that she was realigning Mapuas position to become a
subordinate of co-manager Sameer Raina (Raina) due to her missing a work deadline and due to having
unmotivated colleagues.

Consequently, Mapua lost about 95% of her work projects and job responsibilities because it was
distributed to rank and file staff. On March 21, 2007, Raina informed Mapua over the phone that her position
was considered redundant and that she is terminated from employment effective immediately. Villanueva
notified Mapua that she should cease reporting for work the next day. Her laptop computer and company
mobile phone were taken right away and her office phone ceased to function.

Resultantly, on March 27, 2007, Mapua filed with the Labor Arbiter (LA) a complaint for illegal
dismissal, claiming reinstatement or if deemed impossible, for separation pay. The Labor Arbiter rendered a
decision in favor of Mapua. Her employer was ordered to pay her backwages, separation pay in lieu of
reinstatement, moral and exemplary damages and attorneys fees.

Issue:

WHETHER THE INDIVIDUAL OFFICERS OF SPI TECHNOLOGIES INC. CAN BE HELD

SOLIDARILY LIABLE WITH SPI TO ITS LIABILITIES TO MAPUA.

Held:

The SC ruled in the negative. It is a hornbook principle that the personal liability of corporate
directors, trustees or officers attaches only when: (a) they assent to a patently unlawful act of the corporation,
or when they are guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders or other persons; (b) they consent to the
issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith file with the
corporate secretary their written objection; (c) they agree to hold themselves personally and solidarily liable
with the corporation; or (d) they are made by specific provision of law personally answerable for their
corporate action

8
 JURISTS BAR REVIEW CENTER
NOTES on COMMERCIAL LAW PRE WEEK 2014
PROFESSOR E.H. BALMES
While the Court finds Mapuas averments against as detailed and exhaustive, the Court takes notice
that these are mostly suppositions on her part. Thus, the Court cannot apply the above-enumerated
exceptions when a corporate officer becomes personally liable for the obligation of a corporation to this case.

BANK OF COMMERCE,
vs.
RADIO PHILIPPINES NETWORK, INC., INTERCONTINENTAL BROADCASTING
CORPORATION, and BANAHA W BROADCASTING CORPORATION, THRU BOARD OF
ADMINISTRATOR, and SHERIFF BIENVENIDO S. REYES, JR., Sheriff, Regional Trial Court of
Quezon City, Branch 98
G.R. No. 195615
April 21, 2014
ABAD, J.:

Facts:

In late 2001 to TRB proposed to sell Bancommerce for P10.4 billion its banking business consisting
of specified assets and liabilities.

Subsequently, on July 3, 2002, the BSP approved that agreement with TRB placing P50 million in
escrow with Metropolitan Bank and Trust Co. (Metrobank) to answer for those claims and liabilities that
were excluded from the P & A Agreement and remained with TRB.

Acting in G.R. 138510, Traders Royal Bank v. RPN, which ordered TRB to pay respondents RPN et
al actual damages of P9,790,716.87 plus 12% legal interest and some amounts. Based on this decision, RPN,
et al.filed a motion for execution against TRB before the Regional Trial Court (RTC) of Quezon City. But
rather than pursue a levy in execution of the corresponding amounts on escrow with Metrobank, RPN, et al.
filed a Supplemental Motion for Execution1 where they described TRB as "now Bank of Commerce" based
on the assumption that TRB had been merged into Bancommerce.

Subsequently, on February 20, 2004, Bancommerce questioned the jurisdiction of the RTC over
Bancommerce and denying that there was a merger between TRB and Bancommerce.

Thereafter, on August 15, 2005 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 Metropolitan Bank and Trust Company,

Bancommerce then filed a petition for certiorari with the CA, The CA denied the petition pointing out
that it 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.

ISSUE:

1. Whether or the CA gravely erred in failing to rule that the RTCs Order of execution against
Bancommerce was a nullity because the CA Decision of December 8, 2009 in CA-G.R. SP 91258 held that
TRB had not been merged into Bancommerce as to make the latter liable for TRBs judgment debts.

2. Whether a "de facto" merger existed between TRB and Bancommerce.

HELD:

Anent the issue of the existence of a proper merger, the SC ruled in the Negative.
9
 JURISTS BAR REVIEW CENTER
NOTES on COMMERCIAL LAW PRE WEEK 2014
PROFESSOR E.H. BALMES
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 Bancommerces 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.

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.

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
10
 JURISTS BAR REVIEW CENTER
NOTES on COMMERCIAL LAW PRE WEEK 2014
PROFESSOR E.H. BALMES
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." (Emphasis supplied)

No de facto merger took place in the present case simply because the TRB owners did not get in
exchange for the banks assets and liabilities an equivalent value in Bancommerce shares of stock.
Bancommerce and TRB agreed with BSP approval to exclude from the sale the TRBs contingent judicial
liabilities, including those owing to RPN, et al.

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND

DEVELOPMENT, INC., and MCARTHUR MINING, INC.,
vs.
REDMONT CONSOLIDATED MINES CORP.,
G.R. No. 195580
April 21, 2014
Velasco Jr., J

Redmont, a domestic corporation organized and existing under Philippine laws upon inquiry with
the DENR learned that the areas where it wanted to undertake exploration and mining activities where
already covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro
and McArthur.

The following discoveries were likewise made: MPSA and Exploration Permit (EP) was assigned to
McArthur from predecessor-in-interest Sara Marie Mining, Inc. (SMMI). Narra acquired its MPSA from
Alpha Resources and Development Corporation and Patricia Louise Mining & Development Corporation
(PLMDC) Another MPSA application of SMMI which was subsequently conveyed, transferred and
assigned its rights and interest over the said MPSA application to Tesoro.

Redmont challenged all of these alleging that at least 60% of the capital stock of McArthur,
Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation and was the driving force behind petitioners filing of the MPSAs over the areas covered by
applications since it knows that it can only participate in mining activities through corporations which are
deemed Filipino citizens.

Redmont argued that given that petitioners capital stocks were mostly owned by MBMI, they were
likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for
Filipino citizens.

ISSUE:

Whether Narra, Tesoro and McArthur are foreign corporations based on the "Grandfather Rule"

HELD:

The Supreme Court ruled in the NEGATIVE.

Basically, there are two acknowledged tests in determining the nationality of a corporation: the
control test and the grandfather rule.

After a scrutiny of the evidence extant on record, the Court finds that this case calls for the
application of the grandfather rule

11
 JURISTS BAR REVIEW CENTER
NOTES on COMMERCIAL LAW PRE WEEK 2014
PROFESSOR E.H. BALMES
The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to
convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an example
of an instance where "doubt" as to the ownership of the corporation exists. It would be ludicrous to limit the
application of the said word only to the instances where the stockholdings of non-Filipino stockholders are
more than 40% of the total stockholdings in a corporation. The corporations interested in circumventing our
laws would clearly strive to have "60% Filipino Ownership" at face value. It would be senseless for these
applying corporations to state in their respective articles of incorporation that they have less than 60%
Filipino stockholders since the applications will be denied instantly. Thus, various corporate schemes and
layerings are utilized to circumvent the application of the Constitution.

Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to
circumvent the law, creating a cloud of doubt in the Courts mind. To determine, therefore, the actual
participation, direct or indirect, of MBMI, the grandfather rule must be used.

McArthur Mining, Inc.

McArthur, when it is "grandfathered," company layering was utilized by MBMI to gain control over
McArthur. It is apparent that MBMI has more than 60% or more equity interest in McArthur, making the
latter a foreign corporation.

Tesoro Mining and Development, Inc.

Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos
(PhP 10,000,000) divided into ten thousand (10,000) common shares at PhP 1,000 per share.

Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympics participation in

SMMIs corporate structure, it is clear that MBMI is in control of Tesoro and owns 60% or more equity
interest in Tesoro. This makes petitioner Tesoro a non-Filipino corporation and, thus, disqualifies it to
participate in the exploitation, utilization and development of our natural resources.

Narra Nickel Mining and Development Corporation

The capital stock of Narra is ten million pesos (PhP 10,000,000), which is divided into ten thousand
common shares (10,000) at one thousand pesos (PhP 1,000) per share.

Studying MBMIs Summary of Significant Accounting Policies dated October 31, 2005 explains the
reason behind the intricate corporate layering that MBMI immersed itself in:

Under a joint venture agreement the Company holds directly and indirectly an effective equity
interest in the Alpha Property of 60.4%. Pursuant to a shareholders agreement, the Company exercises joint
control over the companies in the Alpha Group.

Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro
and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their
equity interests. Such conclusion is derived from grandfathering petitioners corporate owners, namely:
MMI, SMMI and PLMDC. Going further and adding to the picture, MBMIs Summary of Significant
Accounting Policies statement regarding the "joint venture" agreements that it entered into with the
"Olympic" and "Alpha" groupsinvolves SMMI, Tesoro, PLMDC and Narra. Noticeably, the ownership of
the "layered" corporations boils down to MBMI, Olympic or corporations under the "Alpha" group wherein
MBMI has joint venture agreements with, practically exercising majority control over the corporations
mentioned. In effect, whether looking at the capital structure or the underlying relationships between and
among the corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60% or
more of their capital stocks or equity interests are owned by MBMI.
12
 JURISTS BAR REVIEW CENTER
NOTES on COMMERCIAL LAW PRE WEEK 2014
PROFESSOR E.H. BALMES
ALL RIGHTS RESERVED
October 1, 2014
Manila and Batangas City

EVERYONE IS INVITED TO THE

2014 SEN. KOKO PIMENTEL FREE LAST MINUTE BAR LECTURE SERIES

3/f CEU School of Law and Jurisprudence

Buendia, Makati City
All Saturdays of October 2014
8 a.m. to 12:00 nn
Registration starts at 7 a.m.

FREE LECTURES, FREE HAND OUTS,

Sama Kami Sa Pangarap Nyo!

GOOD LUCK AND GOD BLESS!

+
Ad Majorem DEI Gloriam

13