Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 191109, July 18, 2012

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE PHILIPPINE RECLAMATION

AUTHORITY (PRA), Petitioner,

vs.

CITY OF PARAÑAQUE Respondents.

Facts:

The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential Decree
(P.D.) No. 1084 (Creating the Public Estates Authority, Defining its Powers and Functions, Providing
Funds Therefor and For Other Purposes) which took effect on February 4, 1977 to provide a coordinated,
economical and efficient reclamation of lands, and the administration and operation of lands belonging to,
managed and/or operated by, the government with the object of maximizing their utilization and
hastening their development consistent with public interest.

On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President Ferdinand
Marcos, PEA was designated as the agency primarily responsible for integrating, directing and
coordinating all reclamation projects for and on behalf of the National Government.

On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380 transforming PEA
into PRA, which shall perform all the powers and functions of the PEA relating to reclamation activities.

By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of Manila
Bay, including those located in Parañaque City, and was issued Original Certificates of Title (OCT Nos.
180, 202, 206, 207, 289, 557, and 559) and Transfer Certificates of Title (TCT Nos. 104628, 7312, 7309,
7311, 9685, and 9686) over the reclaimed lands.

On February 19, 2003, then Parañaque City Treasurer Liberato M. Carabeo (Carabeo) issued Warrants of
Levy on PRA's reclaimed properties (Central Business Park and Barangay San Dionisio) located in
Parañaque City based on the assessment for delinquent real property taxes made by then Parañaque City
Assessor Soledad Medina Cue for tax years 2001 and 2002.
On January 8, 2010, the RTC rendered its decision dismissing PRA's petition. In ruling that PRA was not
exempt from payment of real property taxes, the RTC reasoned out that it was a GOCC under Section 3
of P.D. No. 1084. It was organized as a stock corporation because it had an authorized capital stock
divided into no par value shares. In fact, PRA admitted its corporate personality and that said properties
were registered in its name as shown by the certificates of title. Therefore, as a GOCC, local tax
exemption is withdrawn by virtue of Section 193 of Republic Act (R.A.) No. 7160 [Local Government
Code (LGC)] which was the prevailing law in 2001 and 2002 with respect to real property taxation. The
RTC also ruled that the tax exemption claimed by PRA under E.O. No. 654 had already been expressly
repealed by R.A. No. 7160 and that PRA failed to comply with the procedural requirements in Section
206 thereof.

PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the
Administrative Code. Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution
because it is not required to meet the test of economic viability. Instead, PRA is a government
instrumentality vested with corporate powers and performing an essential public service pursuant to
Section 2(10) of the Introductory Provisions of the Administrative Code. Although it has a capital stock
divided into shares, it is not authorized to distribute... dividends and allotment of surplus and profits to its
stockholders. Therefore, it may not be classified as a stock corporation because it lacks the second
requisite of a stock corporation which is the distribution of dividends and allotment of surplus and profits
to the stockholders.

It insists that it may not be classified as a non-stock corporation because it has no members and it is not
organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers as
provided in Section 88 of the Corporation Code.

Moreover, PRA points out that it was not created to compete in the market place as there was no
competing reclamation company operated by the private sector. Also, while PRA is vested with corporate
powers under P.D. No. 1084, such circumstance does not make it a corporation but... merely an
incorporated instrumentality and that the mere fact that an incorporated instrumentality of the National
Government holds title to real property does not make said instrumentality a GOCC. Section 48, Chapter
12, Book I of the Administrative Code of 1987 recognizes a scenario where a piece of land owned by the
Republic is titled in the name of a department, agency or instrumentality.

Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is exempt from
payment of real property tax except when the beneficial use of the real property is granted to a taxable
person. PRA claims that based on Section 133(o) of the LGC, local governments cannot tax the national
government which delegates to local governments the power to tax.

It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt from the
payment of real estate taxes. Reclaimed lands retain their inherent potential as areas for public use or
public service. While the subject reclaimed lands are still in its hands, these lands remain public lands and
form part of the public domain. Hence, the assessment of real property taxes made on said lands, as well
as the levy thereon, and the public sale thereof on April 7, 2003, including the issuance of the certificates
of sale in favor of the respondent Parañaque City, are invalid and of no force and effect.

Issues:

Whether the Trial Court erred when it failed to consider that reclaimed lands are part of the public
domain.

THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED LANDS
ARE PART OF THE PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL PROPERTY TAX.

Ruling:

The Court finds merit in the petition.

In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It
cannot be considered as a stock corporation because although it has a capital stock divided into no par
value shares as provided in Section 7 of P.D. No. 1084, it is not authorized to distribute dividends, surplus
allotments or profits to stockholders. There is no provision whatsoever in P.D. No. 1084 or in any of the
subsequent executive issuances pertaining to PRA, particularly, E.O. No. 525, E.O. No. 654 and EO No.
798 that authorizes PRA to distribute dividends, surplus allotments or profits to its stockholders.

PRA cannot be considered a non-stock corporation either because it does not have members. A non-stock
corporation must have members. Moreover, it was not organized for any of the purposes mentioned in
Section 88 of the Corporation Code. Specifically, it was created to manage all government reclamation
projects. Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative
Code of 1987, thus:

SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.-

(1) The President shall have the power to reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which is not otherwise directed by law. The
reserved land shall thereafter remain subject to the specific public purpose indicated until otherwise
provided by law or proclamation.

Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are properties
of public dominion. The ownership of such lands remains with the State unless they are withdrawn by law
or presidential proclamation from public use.

Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of Manila Bay
are part of the "lands of the public domain, waters and other natural resources" and consequently "owned
by the State." As such, foreshore and submerged areas "shall not be alienated," unless they are classified
as "agricultural lands" of the public domain. The mere reclamation of these areas by PEA does not
convert these inalienable natural resources of the State into alienable or disposable lands of the public
domain. There must be a law or presidential proclamation officially classifying these reclaimed lands as
alienable or disposable and open to disposition or concession. Moreover, these reclaimed lands cannot be
classified as alienable or disposable if the law has reserved them for some public or quasi-public use.

As the Court has repeatedly ruled, properties of public dominion are not subject to execution or
foreclosure sale. Thus, the assessment, levy and foreclosure made on the subject reclaimed lands by
respondent, as well as the issuances of certificates of title in favor of respondent, are without basis.

Principles:

Two requisites must concur before one may be classified as a stock corporation, namely:

(1) that it has capital stock divided into shares; and

(2) that it is authorized to distribute dividends and allotments of surplus and profits to its
stockholders.

If only one requisite is present, it cannot be properly classified as a stock corporation. As for non-stock
corporations, they must have members and must not distribute any part of their income to said members.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 195615               April 21, 2014

BANK OF COMMERCE, Petitioner, 
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, Respondents.

Facts

 In late 2001 the Traders Royal Bank (TRB) proposed to sell to petitioner Bank of Commerce
(Bancommerce) for P10.4 billion its banking business consisting of specified assets and liabilities.
Bancommerce agreed subject to prior Bangko Sentral ng Pilipinas’ (BSP’s) approval of their Purchase
and Assumption (P & A) Agreement. On November 8, 2001 the BSP approved that agreement subject to
the condition that Bancommerce and TRB would set up an escrow fund of P50 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.

Specifically, the BSP Monetary Board Min. No. 58 (MB Res. 58) decided as follows:

1.  To approve the revised terms sheet as finalized on September 21, 2001 granting certain incentives
pursuant to Circular No. 237, series of 2000 to serve as a basis for the final Purchase and Assumption (P
& A) Agreement between the Bank of Commerce (BOC) and Traders Royal Bank (TRB); subject to
inclusion of the following provision in the P & A:

The parties to the P & A had considered other potential liabilities against TRB, and to address these
claims, the parties have agreed to set up an escrow fund amounting to Fifty Million Pesos
(P50,000,000.00) in cash to be invested in government securities to answer for any such claim that shall
be judicially established, which fund shall be kept for 15 years in the trust department of any other bank
acceptable to the BSP. Any deviation therefrom shall require prior approval from the Monetary Board. 
Following the above approval, on November 9, 2001 Bancommerce entered into a P & A Agreement with
TRB and acquired its specified assets and liabilities, excluding liabilities arising from judicial actions
which were to be covered by the BSP-mandated escrow of P50 million.

Issue

Whether or not the P & A Agreement constituted as a merger of the two corporations.

Held

No. 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 twothirds 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) approval.

(5)  Submission of said articles of merger or consolidation to the SEC for  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. Indeed, the dissenting opinions of Justices Jose Catral
Mendoza and Marvic Mario Victor F. Leonen are of the same opinion. 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.

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. Still, the Supreme Court held in Reyes v. Blouse, that authority to merge or
consolidate can be derived from Section 28 1/2 (now Section 40) of the former Corporation Law which
provides, among others, that a corporation may “sell, exchange, lease or otherwise dispose of all or
substantially all of its property and assets” if the board of directors is so authorized by the affirmative
vote of the stockholders holding at least two-thirds of the voting power. The words “or otherwise dispose
of,” according to the Supreme Court, is very broad and in a sense, covers a merger or consolidation.

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.