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Boundary Dispute and Suspension of Action for Collection of Real Property Tax

Chamcham
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Boundary Dispute and Suspension of Action for Collection of Real Property Tax

In Sta. Lucia v. City of Pasig [G.R. No. 166838], Sta. Lucia and Cainta moved for the suspension of the proceedings, and claimed that the pending petition in the Antipolo RTC, for the settlement of boundary dispute between Cainta and Pasig, presented a “prejudicial question” to the resolution of the case.

The RTC denied this in an Order dated December 4, 1996 for lack of merit. Holding that the TCTs were conclusive evidence as to its ownership and location, the RTC, on August 10, 1998, rendered a Decision in favor of Pasig.

In affirming the RTC, the Court of Appeals declared that there was no proper legal basis to suspend the proceedings. Elucidating on the legal meaning of a “prejudicial question,” it held that “there can be no prejudicial question when the cases involved are both civil.” the Court of Appeals further held that the elements of litis pendentia and forum shopping, as alleged by Cainta to be present, were not met.

Suspension of the Proceedings in the Civil Case for Collection of Real Property Taxes was Proper

The Supreme Court set aside the Decision and the Resolution of the Court of Appeals stating, thus:

It would be unfair to hold Sta. Lucia liable again for real property taxes it already paid simply because Pasig cannot wait for its boundary dispute with Cainta to be decided. Pasig has consistently argued that the boundary dispute case is not a prejudicial question that would entail the suspension of its collection case against Sta. Lucia. This was also its argument in City of Pasig v. Commission on Elections [G.R. No. 125646]. We agreed with the COMELEC therein that the boundary dispute case presented a prejudicial question and explained our statement in this wise:

To begin with, we agree with the position of the COMELEC that Civil Case No. 94-3006 involving the boundary dispute between the Municipality of Cainta and the City of Pasig presents a prejudicial question which must first be decided before plebiscites for the creation of the proposed barangays may be held.

The City of Pasig argues that there is no prejudicial question since the same contemplates a civil and criminal action and does not come into play where both cases are civil, as in the instant case. While this may be the general rule, this Court has held in Vidad v. RTC of Negros Oriental, Br. 42, that, in the interest of good order, we can very well suspend action on one case pending the final outcome of another case closely interrelated or linked to the first.

X x x x x Precisely because territorial jurisdiction is an issue raised in the pending civil case, until and unless such issue is resolved with finality, to define the territorial jurisdiction of the proposed barangays would only be an exercise in futility. Not only that, we would be paving the way for potentially ultra vires acts of such barangays. x x x.

It is obvious from the foregoing, that the term “prejudicial question,” as appearing in the cases involving the parties herein, had been used loosely. Its usage had been more in reference to its ordinary meaning, than to its strict legal meaning under the Rules of Court. Nevertheless, even without the impact of the connotation derived from the term, our own Rules of Court state that a trial court may control its own proceedings according to its sound discretion.

The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the cases on its dockets, considering its time and effort, that of counsel and the litigants. But if proceedings must be stayed, it must be done in order to avoid multiplicity of suits and prevent vexatious litigations, conflicting judgments, confusion between litigants and courts. It bears stressing that whether or not the RTC would suspend the proceedings in the SECOND CASE is submitted to its sound discretion.

In light of the foregoing, we hold that the Pasig RTC should have held in abeyance the proceedings in Civil Case No. 65420, in view of the fact that the outcome of the boundary dispute case before the Antipolo RTC will undeniably affect both Pasig’s and Cainta’s rights. In fact, the only reason Pasig had to file a tax collection case against Sta. Lucia was not that Sta. Lucia refused to pay, but that Sta. Lucia had already paid, albeit to another local government unit. Evidently, had the territorial boundaries of the contending local government units herein been delineated with accuracy, then there would be no controversy at all.

In the meantime, to avoid further animosity, Sta. Lucia is directed to deposit the succeeding real property taxes due on the subject properties, in an escrow account with the Land Bank of the Philippines.

Note: Compare with Municipality of Cainta v. City of Pasig.

Tax on Real Property Subject of Boundary Dispute Between Local Government Units

Chamcham
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Tax on Real Property Subject of Boundary Dispute Between Local Government Units

While a local government unit is authorized to collect real estate tax on properties falling under its territorial jurisdiction, it is imperative to first show that these properties are unquestionably within its geographical boundaries.

STA. LUCIA REALTY & DEVELOPMENT, Inc. v. CITY OF PASIG [G.R. No. G.R. No. 166838]

FACTS:

Petitioner Sta. Lucia Realty & Development, Inc. (Sta. Lucia) is the registered owner of several parcels of land with Transfer Certificates of Title (TCT) Nos. 39112, 39110 and 38457, all of which indicated that the lots were located in Barrio Tatlong Kawayan, Municipality of Pasig (Pasig).

The parcel of land covered by TCT No. 39112 was consolidated with that covered by TCT No. 518403, which was situated in Barrio Tatlong Kawayan, Municipality of Cainta, Province of Rizal (Cainta). The two combined lots were subsequently partitioned into three, for which TCT Nos. 532250, 598424, and 599131, now all bearing the Cainta address, were issued.

TCT No. 39110 was also divided into two lots, becoming TCT Nos. 92869 and 92870.

Upon Pasig’s petition to correct the location stated in TCT Nos. 532250, 598424, and 599131, the Land Registration Court, on June 9, 1995, ordered the amendment of the TCTs to read that the lots with respect to TCT No. 39112 were located in Barrio Tatlong Kawayan, Pasig City.

On January 31, 1994, Cainta filed a petition for the settlement of its land boundary dispute with Pasig before the RTC, Branch 74 of Antipolo City (Antipolo RTC).

On November 28, 1995, Pasig filed a Complaint, docketed as Civil Case No. 65420, against Sta. Lucia for the collection of real estate taxes, including penalties and interests, on the lots covered by TCT Nos. 532250, 598424, 599131, 92869, 92870 and 38457, including the improvements thereon (the subject properties).

Sta. Lucia, in its Answer, alleged that it had been religiously paying its real estate taxes to Cainta, just like what its predecessors-in-interest did, by virtue of the demands and assessments made and the Tax Declarations issued by Cainta on the claim that the subject properties were within its territorial jurisdiction. Sta. Lucia further argued that since 1913, the real estate taxes for the lots covered by the above TCTs had been paid to Cainta.

Cainta was allowed to file its own Answer-in-Intervention when it moved to intervene on the ground that its interest would be greatly affected by the outcome of the case. It averred that it had been collecting the real property taxes on the subject properties even before Sta. Lucia acquired them. Cainta further asseverated that the establishment of the boundary monuments would show that the subject properties are within its metes and bounds.

Holding that the TCTs were conclusive evidence as to its ownership and location, the RTC, on August 10, 1998, rendered a Decision in favor of Pasig.

On June 30, 2004, the Court of Appeals rendered its Decision, wherein it agreed with the RTC’s judgment.

Sta. Lucia and Cainta filed separate Motions for Reconsideration, which the Court of Appeals denied in a Resolution dated January 27, 2005.

ISSUE:

Whether the RTC and the CA were correct that Sta. Lucia should continue paying its real property taxes to Pasig, as the location stated in Sta. Lucia’s TCTs.

RULING:

No.

The Local Government Unit entitled To Collect Real Property Taxes

Under Presidential Decree No. 464 or the “Real Property Tax Code,” the authority to collect real property taxes is vested in the locality where the property is situated. This requisite was reiterated in Republic Act No. 7160, also known as the Local Government Code of 1991.

The only import of these provisions is that, while a local government unit is authorized under several laws to collect real estate tax on properties falling under its territorial jurisdiction, it is imperative to first show that these properties are unquestionably within its geographical boundaries.

Therefore, the local government unit entitled to collect real property taxes from Sta. Lucia must undoubtedly show that the subject properties are situated within its territorial jurisdiction; otherwise, it would be acting beyond the powers vested to it by law.

Certificates of Title as Conclusive Evidence of Location

While we fully agree that a certificate of title is conclusive as to its ownership and location, this does not preclude the filing of an action for the very purpose of attacking the statements therein.

Although it is true that “Pasig” is the locality stated in the TCTs of the subject properties, both Sta. Lucia and Cainta aver that the metes and bounds of the subject properties, as they are described in the TCTs, reveal that they are within Cainta’s boundaries. This only means that there may be a conflict between the location as stated and the location as technically described in the TCTs. Mere reliance therefore on the face of the TCTs will not suffice as they can only be conclusive evidence of the subject properties’ locations if both the stated and described locations point to the same area.

The Antipolo RTC, wherein the boundary dispute case between Pasig and Cainta is pending, would be able to best determine once and for all the precise metes and bounds of both Pasig’s and Cainta’s respective territorial jurisdictions. The resolution of this dispute would necessarily ascertain the extent and reach of each local government’s authority, a prerequisite in the proper exercise of their powers, one of which is the power of taxation.

In the meantime, to avoid further animosity, Sta. Lucia is directed to deposit the succeeding real property taxes due on the subject properties, in an escrow account with the Land Bank of the Philippines.

An Heir may Institute an Action on Behalf of the Co-Heirs Prior to Full Settlement of the Estate

Chamcham
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An Heir may Institute an Action on Behalf of the Co-Heirs Prior to Full Settlement of the Estate

“Although an heir’s right in the estate of the decedent which has not been fully settled and partitioned is merely inchoate, Article 493 of the Civil Code gives the heir the right to exercise acts of ownership…”

Socorro T. Clemente, as substituted by Salvador T. Clemente, petitioner, v. Republic of the Philippines (Department of Public Works and Highways, Region IV-A), respondent (G.R. No. 220008)

Facts:

Municipal Mayor Amado A. Clemente (Mayor Clemente), Dr. Vicente A. Clemente, Judge Ramon A. Clemente, and Milagros A. Clemente (Clemente Siblings) were the owners of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-50896. During their lifetime, they executed a Deed of Donation dated 16 March 1963 over a one-hectare portion of their property (Subject Property) in favor of the Republic of the Philippines.

In 2004, almost forty-one (41) years after the Deed of Donation was executed, Socorro, as heir and successor-in-interest of Mayor Clemente, filed a Complaint, and subsequently an Amended Complaint, for Revocation of Donation, Reconveyance and Recovery of Possession alleging that the Republic of the Philippines failed to comply with the condition imposed on the Deed of Donation, which was to use the property “solely for hospital site only and for no other else, where a government hospital shall be constructed”.

Ruling of the Regional Trial Court

On 24 September 2007, the RTC rendered its Decision dismissing the case on the ground of prematurity.

In a Resolution dated 4 April 2008, the RTC denied the Motion for Reconsideration filed by Socorro. Thus, Socorro appealed to the Court of Appeals.

Ruling of the Court of Appeals

In a Decision dated 17 October 2014, the CA denied the appeal, finding that while there may be basis for the recovery of the property, Socorro, as an heir of a deceased co-donor, cannot assert the concept of heirship to participate in the revocation of the property donated by her successor-in-interest. The CA held, thus:

Prescinding simply from the hypothetical effect of succession for Socorro T. Clemente, neither was there any assertion on the initiatory pleading nor evidence from the plaintiff-appellant as to any judicial or extra-judicial settlement of the estate of her husband as co-donor. And without any representation from Socorro T. Clemente on the Amended Complaint as to previous determination of heirs, full liquidation of the estate and payment of estate debts, if any, it cannot be assumed, and the plaintiff’s representatives cannot assert heirship, that a portion of the property donated was still part of the estate of Socorro T. Clemente’s husband. Corollary thereto, Section 2, Rule 73 of the Revised Rules of Court illuminates that until liquidation of the property, neither the widow nor the heirs can sue for participation therein.

Issue:

Whether the full settlement of the estate is required before the petitioner may institute  an action for revocation of donation, reconveyance, and recovery of possession of property.

Ruling:

No.

There is no need for the settlement of the estate before one of the heirs can institute an action on behalf of the other co-heirs. Although an heir’s right in the estate of the decedent which has not been fully settled and partitioned is merely inchoate, Article 493 of the Civil Code gives the heir the right to exercise acts of ownership.

Thus, even before the settlement of the estate, an heir may file an action for reconveyance of possession as a co-owner thereof, provided that such heir recognizes and acknowledges the other co-heirs as co-owners of the property as it will be assumed that the heir is acting on behalf of all the co-heirs for the benefit of the co-ownership.

On Doing Business in the Philippines

Chamcham
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On Doing Business in the Philippines

Steelcase, Inc., Petitioner, v. Design International Selections, Inc., Respondent; G.R. No. 171995

Facts:

Petitioner Steelcase, Inc. (Steelcase) is a foreign corporation existing under the laws of Michigan, United States of America (U.S.A.), and engaged in the manufacture of office furniture with dealers worldwide. Respondent Design International Selections, Inc. (DISI) is a corporation existing under Philippine Laws and engaged in the furniture business, including the distribution of furniture.

Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership agreement whereby Steelcase granted DISI the right to market, sell, distribute, install, and service its products to end-user customers within the Philippines. The business relationship continued smoothly until it was terminated sometime in January 1999 after the agreement was breached with neither party admitting any fault.

On January 18, 1999, Steelcase filed a complaint for sum of money against DISI alleging, among others, that DISI had an unpaid account of US$600,000.00. Steelcase prayed that DISI be ordered to pay actual or compensatory damages, exemplary damages, attorney’s fees, and costs of suit.

In its Answer, DISI sought the dismissal of the complaint on the ground that Steelcase lacked the legal capacity to sue in Philippine courts, being a foreign corporation doing business in the Philippines without a license.

Issue:

Whether Steelcase is doing business in the Philippines.

Ruling:

No.

The appointment of a distributor in the Philippines is not sufficient to constitute doing business unless it is under the full control of the foreign corporation…

The phrase doing business is clearly defined in Section 3(d) of R.A. No. 7042 (Foreign Investments Act of 1991). The definition is supplemented by its Implementing Rules and Regulations, Rule I, Section 1(f) which elaborates on the meaning of the same phrase.

Based on the said provisions, the appointment of a distributor in the Philippines is not sufficient to constitute “doing business” unless it is under the full control of the foreign corporation. On the other hand, if the distributor is an independent entity which buys and distributes products, other than those of the foreign corporation, for its own name and its own account, the latter cannot be considered to be doing business in the Philippines. It should be kept in mind that the determination of whether a foreign corporation is doing business in the Philippines must be judged in light of the attendant circumstances.

In the case at bench, it is undisputed that DISI was founded in 1979 and is independently owned and managed by the spouses Leandro and Josephine Bantug. In addition to Steelcase products, DISI also distributed products of other companies including carpet tiles, relocatable walls and theater settings. Thus, DISI was an independent contractor, distributing various products of Steelcase and of other companies, acting in its own name and for its own account.

Cram-Down Power of Rehabilitation Court

Chamcham
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Cram-Down Power of Rehabilitation Court

The court may approve a rehabilitation plan over the objection of the creditors if, in its judgment, the rehabilitation of the debtors is feasible and the opposition of the creditors is manifestly unreasonable.

Marilyn Victorio-Aquino v. Pacific Plans, Inc. (G.R. No. 193108)

Facts:

Respondent Pacific Plans, Inc. (now Abundance Providers and Entrepreneurs Corporation or “APEC”) is engaged in the business of selling pre-need plans and educational plans, including traditional open-ended educational plans (PEPTrads). PEPTrads are educational plans where respondent guarantees to pay the planholder, without regard to the actual cost at the time of enrolment, the full amount of tuition and other school fees of a designated beneficiary. Petitioner is a holder of two (2) units of respondent’s PEPTrads.

On April 7, 2005, foreseeing the impossibility of meeting its obligations to the availing planholders as they fall due, respondent filed a Petition for Corporate Rehabilitation with the Regional Trial Court (Rehabilitation Court), praying that it be placed under rehabilitation and suspension of payments pursuant to Presidential Decree (P.D.) No. 902-A, as amended, in relation to the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules).

Pursuant to the prevailing rules on corporate rehabilitation, respondent submitted to the Rehabilitation Court its proposed rehabilitation plan. Under the terms thereof, respondent proposed the implementation of a “Swap,” which will essentially give the planholder a means to exit from the PEPTrads at terms and conditions relative to a termination value that is more advantageous than those provided under the educational plan in case of voluntary termination.

On February 16, 2006, the Rehabilitation Receiver submitted an Alternative Rehabilitation Plan (ARP) for the approval of the Rehabilitation Court. Under the ARP, the benefits under the PEP Trads shall be translated into fixed-value benefits as of December 31, 2004, which will be termed as Base Year-end 2004 Entitlement. The ARP also provided for tuition support for each enrollment period until SY 2009-2010 depending on the prevailing market rate of the NAPOCOR Bonds and Peso-Dollar exchange rate.

The value of the Philippine Peso strengthened and appreciated. In view of this development, and considering that the trust fund of respondent is mainly composed of NAPOCOR bonds that are denominated in US Dollars, respondent submitted a manifestation with the Rehabilitation Court on February 29, 2008, stating that the continued appreciation of the Philippine Peso has grossly affected the value of the U.S. Dollar-denominated NAPOCOR bonds, which stood as security for the payment of the Net TranslatedValues of the PEPTrads.

Thereafter, the Rehabilitation Receiver filed a Manifestation with Motion to Admit dated March 7, 2008, echoing the earlier tenor and substance of respondent’s manifestation, and praying that the Modified Rehabilitation Plan (MRP) be approved by the Rehabilitation Court. Under the MRP, the ARP previously approved by the Rehabilitation Court is modified.

After the submission of comments/opposition by the concerned parties, the Rehabilitation Court issued a Resolution dated July 28, 2008 approving the MRP. In approving the same, the Rehabilitation Court reasoned that in view of the “cram down” power of the rehabilitation court under Section 23 of the Interim Rules, courts have the power to approve a rehabilitation plan over the objection of creditors and even when such proposed rehabilitation plan involves the impairment of contractual obligations.

Petitioner questioned the approval of the MRP before the Court of Appeals (CA) on September 26, 2008. It likewise prayed for the issuance of a TRO and a writ of preliminary injunction to stay the execution of the Resolution dated July 28, 2008.

Petitioner contends that the MRP is ultra vires insofar as it reduces the original claim and even the original amount that petitioner was to receive under the ARP. She also claims that it was beyond the authority of the Rehabilitation Court to sanction a rehabilitation plan, or the modification thereof, when the essential feature of the plan involves forcing creditors to reduce their claims against respondent.

Issue:

Whether or not the rehabilitation court may approve the rehabilitation plan over the opposition of the creditors.

Ruling:

Yes.

Petitioner’s argument is misplaced. The “cram-down” power of the Rehabilitation Court has long been established and even codified under Section 23, Rule 4 of the Interim Rules, to wit: Section 23. Approval of the Rehabilitation Plan. – The court may approve a rehabilitation plan over the opposition of creditors, holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable.

Such prerogative was carried over in the Rehabilitation Rules, which maintains that the court may approve a rehabilitation plan over the objection of the creditors if, in its judgment, the rehabilitation of the debtors is feasible and the opposition of the creditors is manifestly unreasonable. The required number of creditors opposing such plan under the Interim Rules (i.e.,those holding the majority of the total liabilities of the debtor) was, in fact, removed. Moreover, the criteria for manifest unreasonableness is spelled out, to wit:

SEC. 11. Approval of Rehabilitation Plan. — The court may approve a rehabilitation plan even over the opposition of creditors of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable. The opposition of the creditors is manifestly unreasonable if the following are present:

(a) The rehabilitation plan complies with the requirements specified in Section 18 of Rule 3;

(b) The rehabilitation plan would provide the objecting class of creditors with payments whose present value projected in the plan would be greater than that which they would have received if the assets of the debtor were sold by a liquidator within a six (6)month period from the date of filing of the petition; and

(c) The rehabilitation receiver has recommended approval of the plan.

In approving the rehabilitation plan, the court shall ensure that the rights of the secured creditors are not impaired. The court shall also issue the necessary orders or processes for its immediate and successful implementation. It may impose such terms, conditions, or restrictions as the effective implementation and monitoring thereof may reasonably require, or for the protection and preservation of the interests of the creditors should the plan fail.

This legal precept is not novel and has, in fact, been reinforced in recent decisions such as in Bank of the Philippine Islands v. Sarabia Manor Hotel Corporation,  where the Court elucidated the rationale behind Section 23, Rule 4 of the Interim Rules, thus:

Among other rules that foster the foregoing policies, Section 23, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules) states that a rehabilitation plan may be approved even over the opposition of the creditors holding a majority of the corporation’s total liabilities if there is a showing that rehabilitation is feasible and the opposition of the creditors is manifestly unreasonable. Also known as the “cram-down” clause, this provision, which is currently incorporated in the FRIA, is necessary to curb the majority creditors’ natural tendency to dictate their own terms and conditions to the rehabilitation, absent due regard to the greater long-term benefit of all stakeholders. Otherwise stated, it forces the creditors toaccept the terms and conditions of the rehabilitation plan, preferring long-term viability over immediate but incomplete recovery.

as well as in Pryce Corporation v. China Banking Corporation, to wit:

In any case, the Interim Rules or the rules in effect at the time the petition for corporate rehabilitation was filed in 2004 adopts the cramdown principle which “consists of two things: (i) approval despite opposition and (ii) binding effect of the approved plan x x x.”

First, the Interim Rules allows the rehabilitation court to “approve a rehabilitation plan even over the opposition of creditors holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable.”

Second, it also provides that upon approval by the court, the rehabilitation plan and its provisions “shall be binding upon the debtor and all persons who may be affected by it, including the creditors, whether or not such persons have participated in the proceedings or opposed the plan or whether or not their claims have been scheduled.”

Based on the aforequoted doctrines, petitioner’s outright censure of the concept of the cram-down power of the rehabilitation court cannot be countenanced. To adhere to the reasoning of petitioner would be a step backward — a futile attempt to address an outdated set of challenges. It is undeniable that there is a need to move to a regime of modern restructuring, cram-down and court supervision in the matter of corporation rehabilitation in order to address the greater interest of the public. This is clearly manifested in Section 64 of Republic Act (R.A.) No. 10142, otherwise known as Financial Rehabilitation and Insolvency Act of 2010 (FRIA), the latest law on corporate rehabilitation and insolvency.

While the voice and participation of the creditors is crucial in the determination of the viability of the rehabilitation plan, as they stand to benefit or suffer in the implementation thereof, the interests of all stakeholders is the ultimate and prime consideration. Thus, while we recognize the predisposition of the planholders in vacillating on the enforcement of the MRP, since the terms and conditions stated therein have been fundamentally changed from those stated in the Original and Amended Rehabilitation Plan, the MRP cannot be considered an abrogation of rights to the planholders/creditors.

We hold that the modification of the rehabilitation plan is a risk management tool to address the volatility of the exchange rate of the Philippine Peso vis-à-vis the U.S. Dollars, with the goal of ensuring that all planholders or creditors receive adequate returns regardless of the tides of the Philippine market by making payment in U.S. Dollars. This plan would prevent the trust fund of respondent from being diluted due to the appreciation of the Philippine Peso and assure that all planholders and creditors shall receive payment upon maturity of the NAPOCOR bonds in the most equitable manner.

On Liability of Surviving Corporation for Acts Committed by Absorbed Corporation

Chamcham
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On Liability of Surviving Corporation for Acts Committed by Absorbed Corporation

Spouses Ong v. BPI Family Savings Bank; G.R. No. 208638; 24 January 2018

Facts:

Sometime in December 1996, Bank of Southeast Asia’s (BSA) managers, Ronnie Denila and Rommel Nayve, visited petitioners’ office and discussed the various loan and credit facilities offered by their bank. In view of petitioners’ business expansion plans and the assurances made by BSA’s managers, they applied for the credit facilities offered by the latter.

Sometime in April 1997, they executed a real estate mortgage (REM) over their property situated in Paco, Manila, covered by Transfer Certificate of Title No. 143457, in favor of BSA as security for a ₱15,000,000.00 term loan and ₱5,000,000.00 credit line or a total of ₱20,000,000.00.

With regard to the term loan, only ₱10,444,271.49 was released by BSA (the amount needed by the petitioners to pay out their loan with Ayala life assurance, the balance was credited to their account with BSA).

With regard to the ₱5,000,000.00 credit line, only ₱3,000,000.00 was released. BSA promised to release the remaining ₱2,000,000.00 conditioned upon the payment of the ₱3,000,000.00 initially released to petitioners.

Petitioners acceded to the condition and paid the ₱3,000,000.00 in full. However, BSA still refused to release the ₱2,000,000.00. Petitioners then refused to pay the amortizations due on their term loan.

Later on, BPI Family Savings Bank (BPI) merged with BSA, thus, acquired all the latter’s rights and assumed its obligations. BPI filed a petition for extrajudicial foreclosure of the REM for petitioners’ default in the payment of their term loan.

In order to enjoin the foreclosure, petitioners instituted an action for damages with Temporary Restraining Order and Preliminary Injunction against BPI praying for ₱23,570,881.32 as actual damages; ₱1,000,000.00 as moral damages; ₱500,000.00 as attorney’s fees, litigation expenses and costs of suit.

On 10 November 2010, the trial court rendered its decision in favor of petitioners ordering BPI to pay the Petitioners actual damages and attorney’s fees.

On appeal, the Court of Appeals reversed the decision of the  trial court and ruled in favor of BPI.

Issue:

Whether or not BPI Family Savings Bank is liable for damages on account of acts committed by the absorbed corporation, BSA, prior to the merger.

Ruling:

Yes.

BPI insists that it acted in good faith when it sought extrajudicial foreclosure of the mortgage and that it was not responsible for acts committed by its predecessor, BSA. Good faith, however, is not an excuse to exempt BPI from the effects of a merger or consolidation, viz:

Section 80.Effects of merger or consolidation. – The merger or consolidation shall have the following effects:

1. The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation;

x x x x x

4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the right, privileges, immunities and franchises of each of the constituent corporations; and all property, real or personal, and all receivable due on whatever account, including subscriptions to shares and other choses in action, and all and every other interest of, or belonging to, or due to each constituent corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed; and

5. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any pending claim, action, or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the property of any of such constituent corporations shall not be impaired by such merger or consolidation.

Applying the pertinent provisions of the Corporation Code, BPI did not only acquire all the rights, privileges and assets of BSA but likewise acquired the liabilities and obligations of the latter as if BPI itself incurred it.

Effect of Merger on Employees of the Absorbed Corporation

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Effect of Merger on Employees of the Absorbed Corporation

The Philippine Geothermal, Inc. Employees Union, Petitioner,  v. Unocal Philippines, Inc. (now known as Chevron Geothermal Philippines Holdings, Inc.), Respondent; G.R. No. 190187; 28 September 2016

Facts:

Philippine Geothermal, Inc. Employees Union is a legitimate labor union that stands as the bargaining agent of the rank-and-file employees of Unocal Philippines.

Unocal Philippines, formerly known as Philippine Geothermal, Inc., is a foreign corporation incorporated under the laws of the State of California, United States of America, licensed to do business in the Philippines for the “exploration and development of geothermal resources as alternative sources of energy.” It is a wholly owned subsidiary of Union Oil Company of California (Unocal California), which, in turn, is a wholly owned subsidiary of Union Oil Corporation (Unocal Corporation).

On April 4, 2005, Unocal Corporation executed an Agreement and Plan of Merger (Merger Agreement) with Chevron Texaco Corporation (Chevron) and Blue Merger Sub, Inc. (Blue Merger). Blue Merger is a wholly owned subsidiary of Chevron. Under the Merger Agreement, Unocal Corporation merged with Blue Merger, and Blue Merger became the surviving corporation. Chevron then became the parent corporation of the merged corporation. After the merger, Blue Merger, as the surviving corporation, changed its name to Unocal Corporation.

On October 20, 2006, the Union wrote Unocal Philippines asking for the separation benefits provided for under the Collective Bargaining Agreement executed on January 31, 2006. According to the Union, the Merger Agreement of Unocal Corporation, Blue Merger, and Chevron resulted in the closure and cessation of operations of Unocal Philippines and the implied dismissal of its employees.

Unocal Philippines refused the Union’s request and asserted that the employee-members were not terminated and that the merger did not result in its closure or the cessation of its operations.

On February 5, 2007, the parties agreed to submit their dispute for voluntary arbitration before the Department of Labor and Employment, with the Secretary of Labor and Employment as Voluntary Arbitrator.

After the parties submitted their respective position papers, the Secretary of Labor rendered the Decision on January 15, 2008 ruling that the Union’s members were impliedly terminated from employment as a result of the Merger Agreement. The Secretary of Labor found that the merger resulted in new contracts and a new employer for the Union’s members. The new contracts allegedly required the employees’ consent; otherwise, there was no employment contract to speak of. Thus, the Secretary of Labor awarded the Union separation pay under the Collective Bargaining Agreement.

Unocal Philippines filed before the Court of Appeals a Petition for Review questioning the Decision of the Secretary of Labor.

In the Decision dated July 23, 2009, the Court of Appeals granted the appeal of Unocal Philippines and reversed the Decision of the Secretary of Labor.

On November 9, 2009, the Court of Appeals denied the Union’s Motion for Reconsideration.

Issue:

Whether or not the merger resulted in the implied dismissal of the Respondent’s employees.

Ruling:

No.

There is no implied dismissal of the respondent’s employees as a consequence of the merger.

A merger is a consolidation of two or more corporations, which results in one or more corporations being absorbed into one surviving corporation. The separate existence of the absorbed corporation ceases, and the surviving corporation retains its identity and takes over the rights, privileges, franchises, properties, claims, liabilities and obligations of the absorbed corporation.

If respondent is a subsidiary of Unocal California, which, in turn, is a subsidiary of Unocal Corporation, then the merger of Unocal Corporation with Blue Merger and Chevron does not affect respondent or any of its employees. Respondent has a separate and distinct personality from its parent corporation.

Nonetheless, if respondent is indeed a party to the merger, the merger still does not result in the dismissal of its employees.

The effects of a merger are provided under Section 80 of the Corporation Code. Although this provision does not explicitly state the merger’s effect on the employees of the absorbed corporation, Bank of the Philippine Islands v. BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank has ruled that the surviving corporation automatically assumes the employment contracts of the absorbed corporation, such that the absorbed corporation’s employees become part of the manpower complement of the surviving corporation.

The rationale for this ruling is anchored on the nature and effects of a merger as provided under Section 80 of the Corporation Code, as well as the policies on work and labor enshrined in the Constitution.

Section 80 of the Corporation Code provides that the surviving corporation shall possess all the rights, privileges, properties, and receivables due of the absorbed corporation. Moreover, all interests of, belonging to, or due to the absorbed corporation “shall be taken and deemed to be transferred to and vested in such surviving or consolidated corporation without further act or deed.” The surviving corporation likewise acquires all the liabilities and obligations of the absorbed corporation as if it had itself incurred these liabilities or obligations.

This acquisition of all assets, interests, and liabilities of the absorbed corporation necessarily includes the rights and obligations of the absorbed corporation under its employment contracts. Consequently, the surviving corporation becomes bound by the employment contracts entered into by the absorbed corporation. These employment contracts are not terminated. They subsist unless their termination is allowed by law.

Basis for Allegations of Fraud must be Communicated to the Taxpayer

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Basis for Allegations of Fraud must be Communicated to the Taxpayer

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. FITNESS BY DESIGN, INC., Respondent; G.R. No. 215957; 09 November 2016

Facts:

On April 11, 1996, Fitness filed its Annual Income Tax Return for taxable year 1995.

On June 9, 2004, Fitness received a copy of the Final Assessment Notice dated March 17, 2004. The Final Assessment Notice was issued under Letter of Authority No. 00002953.  The Final Assessment Notice assessed that Fitness had a tax deficiency in the amount of ₱10,647,529.69.

Fitness filed a protest to the Final Assessment Notice on June 25, 2004. According to Fitness, the Commissioner’s period to assess had already prescribed. Further, the assessment was without basis since the company was only incorporated on May 30, 1995.

On February 2, 2005, the Commissioner issued a Warrant of Distraint and/or Levy with Reference No. OCN WDL-95-05-005 dated February 1, 2005 to Fitness.

Fitness filed before the First Division of the Court of Tax Appeals a Petition for Review (With Motion to Suspend Collection of Income Tax, Value Added Tax, Documentary Stamp Tax and Surcharges and Interests) on March 1, 2005.

On May 17, 2005, the Commissioner of Internal Revenue filed an Answer to Fitness’ Petition and raised special and affirmative defenses. The Commissioner posited that the Warrant of Distraint and/or Levy was issued in accordance with law. The Commissioner claimed that its right to assess had not yet prescribed under Section 222(a) of the National Internal Revenue Code. Because the 1995 Income Tax Return filed by Fitness was false and fraudulent for its alleged intentional failure to reflect its true sales, Fitness’ respective taxes may be assessed at any time within 10 years from the discovery of fraud or omission.

The Court of Tax Appeals First Division granted Fitness’ Petition on the ground that the assessment has already prescribed. It ruled that the Final Assessment Notice is invalid for failure to comply with the requirements of Section 228 of the National Internal Revenue Code.

The Commissioner’s Motion for Reconsideration and its Supplemental Motion for Reconsideration were denied by the Court of Tax Appeals First Division.

Aggrieved, the Commissioner filed an appeal before the Court of Tax Appeals En Banc. The Commissioner asserted that it had 10 years to make an assessment due to the fraudulent income tax return filed by Fitness.

The Court of Tax Appeals En Banc ruled in favor of Fitness. It affirmed the Decision of the Court of Tax Appeals First Division. The Commissioner’s Motion for Reconsideration was denied by the Court of Tax Appeals En Banc in the Resolution dated December 16, 2014.

Issue:

Whether the applicable prescriptive period is 10 years as provided under Sec. 222(a) of the NIRC.

Ruling:

No.

The prescriptive period in making an assessment depends upon whether a tax return was filed or whether the tax return filed was either false or fraudulent. When a tax return that is neither false nor fraudulent has been filed, the Bureau of Internal Revenue may assess within three (3) years, reckoned from the date of actual filing or from the last day prescribed by law for filing. However, in case of a false or fraudulent return with intent to evade tax, the assessment may be made within ten (10) years after the discovery of the falsity or fraud.

“To avail of the extraordinary period of assessment in Section 222(a) of the National Internal Revenue Code, the Commissioner of Internal Revenue should show that the facts upon which the fraud is based is communicated to the taxpayer.”

Fraud is a question of fact that should be alleged and duly proven. “The willful neglect to file the required tax return or the fraudulent intent to evade the payment of taxes, considering that the same is accompanied by legal consequences, cannot be presumed.” Fraud entails corresponding sanctions under the tax law. Therefore, it is indispensable for the Commissioner of Internal Revenue to include the basis for its allegations of fraud in the assessment notice.

During the proceedings in the Court of Tax Appeals First Division, respondent presented its President, Domingo C. Juan Jr. (Juan, Jr.), as witness. Juan, Jr. testified that respondent was in its pre-operating stage in 1995. During that period, respondent “imported equipment and distributed them for market testing in the Philippines without earning any profit.” He also confirmed that the Final Assessment Notice and its attachments failed to substantiate the Commissioner’s allegations of fraud against respondent.

Petitioner did not refute respondent’s allegations. For its defense, it presented Socrates Regala (Regala), the Group Supervisor of the team, who examined respondent’s tax liabilities. Regala confirmed that the investigation was prompted by a tip from an informant who provided them with respondent’s list of sales. He admitted that the gathered information did not show that respondent deliberately failed to reflect its true income in 1995.

On Real Property Tax and Boundary Dispute between Local Government Units

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On Real Property Tax and Boundary Dispute between Local Government Units

Municipality of Cainta v. Spouses Braña; G.R. No. 199290; 03 February 2020

Facts:

Sps. Braña are the registered owners of six parcels of land located at Phase 9, Pasig Green Park, Cainta Rizal covered by Transfer Certificate of Title (TCT) Nos. 47350, 47351, 47352, 47353, 46600 and 46601 (subject properties). Sps. Braña religiously paid real estate taxes on the subject properties to the Municipality of Cainta from 1994 to 1996. Sometime in 1997, the City of Pasig filed a civil case for the collection of unpaid taxes against Sps. Braña docketed as Civil Case No. 5525. The City of Pasig claimed that the subject properties were all geographically located in Pasig City, as such, Sps. Braña should pay real estate taxes over the said subject properties to the City of Pasig. Sps. Braña, thereafter, deposited two checks representing the real estate taxes for the years 1995 to 1998 with the Metropolitan Trial Court (MTC) of Pasig City, Branch 70, where Civil Case No. 5525 is pending.

However, the Municipality of Cainta continued to demand from Sps. Braña payment of real estate taxes over the same properties. As such, Sps. Braña filed an action for interpleader to compel the Municipality of Cainta and the City of Pasig to litigate with each other; as a pre-emptive measure to another possible tax collection case that the Municipality of Cainta might file against Sps. Braña.

Meanwhile, on January 30, 1994, the Municipality of Cainta filed a petition for the settlement of boundary dispute against the City of Pasig with the Regional Trial Court of Antipolo City, Branch 74 (RTC of Antipolo), docketed as Civil Case No. 94-3006. Among the territories disputed in the aforesaid boundary dispute case are the subject properties.

In its Answer  to the action for interpleader filed by Sps. Braña, the Municipality of Cainta claims that it is entitled to the payment of real estate taxes on the ground that the subject properties are situated in Brgy. San Isidro, Cainta Rizal, which is within the geographical jurisdiction of Cainta under the Progress Map of CAD-688-D or the Cainta-Taytay Cadastral Survey. Further, the subject properties have long been registered for tax purposes in Cainta, before the City of Pasig assessed the same in 1997.

For its part, the City of Pasig asserts that the payment of taxes to the Municipality of Cainta is erroneousconsidering that the locational entries in the TCTs state that the properties are located in Brgy. Santolan, Municipality of Pasig. The City of Pasig argues further that the Department of Finance (DOF) has consistently ruled that the location of the property as indicated in the certificate of title is controlling as to the venue of payment of real estate taxes.

On June 23, 2008, the RTC of Pasig issued its Decision  in the interpleader case ordering Sps. Braña to pay the real estate taxes from the year 1996 up to the present to the City of Pasig.  The RTC of Pasig ruled that while it is improper for the court to declare any finding as to the actual location of the subject properties, since the same is within the jurisdiction of the RTC of Antipolo City, the court is still bound by the locational entries appearing on the TCTs. Thus, unless corrected by competent authority, the locational entries in the TCTs, that the properties are situated in Brgy. Santolan, Municipality of Pasig, is controlling.

Aggrieved, the Municipality of Cainta directly filed before the Supreme Court a Petition for Review on Certiorari.

Issue:

Whether or not the real estate taxes due upon the subject properties owned by Sps. Braña should be paid to the City of Pasig as ruled by the RTC of Pasig in the interpleader case.

Ruling:

No.

The local government unit where the property is situated has the right to collect taxes therefrom. Thus, to determine who has the right to collect taxes from Sps. Braña, it is necessary to determine the location of the property. However, this Court cannot make any definitive ruling on the location of the property due to the pending boundary dispute case between the City of Pasig and the Municipality of Cainta.

While it is true that Pasig is the location indicated in the TCTs, the Municipality of Cainta have long assessed the same for tax purposes and Sps. Braña were paying the real estate taxes to the Municipality of Cainta. It was only in 1997 that the City of Pasig assessed the properties for real estate tax purposes. Thus, while the TCTs state that the location is in Pasig, the same cannot be relied in this case because the location of the property is precisely in dispute. The RTC of Antipolo, which has jurisdiction over the boundary dispute case, would be the best forum to determine the precise metes and bounds of the City of Pasig’s and the Municipality of Cainta’s respective territorial jurisdiction, as well as the extent of each local government unit’s authority, such as its power to assess and collect real estate taxes.

Ordering Sps. Braña to pay real estate taxes to the City of Pasig simply because of the locational entries in the TCTs would be counter-productive considering that the RTC of Antipolo has not yet rendered a definitive ruling as to the precise territorial jurisdiction of the City of Pasig and the Municipality of Cainta. Thus, it would be more prudent to avoid any further animosity between the two local government units. Sps. Braña are ordered to deposit the succeeding payment of real estate taxes due on the subject properties in an account with the Land Bank of the Philippines in escrow for the City of Pasig/the Municipality of Cainta. The proceeds of the same will be released to the local government adjudged by virtue of a final judgment on the issue of territorial jurisdiction over the disputed areas.

The City of Pasig and the Municipality of Cainta are both directed to await the final judgment of their boundary dispute case in Civil Case No. 94-3006.

Note: Compare with Municipality of Cainta v. City of Pasig.

Mandamus to Compel Corporation to Record Transfer of Shares in Stock and Transfer Book

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Mandamus to Compel Corporation to Record Transfer of Shares in Stock and Transfer Book

The remedy of mandamus is available even upon the instance of a bona fide transferee who is able to establish a clear legal right to the registration of the transfer…”

Joseph Omar O. Andaya, Petitioner, vs. Rural Bank of Cabadbaran, Inc., Demosthenes P. Oraiz and Ricardo D. Gonzales, Respondents; G.R. No. 188769; 03 August 2016

Facts:

Andaya bought from Chute 2,200 shares of stock in the Rural Bank of Cabadbaran for P220,000. The transaction was evidenced by a notarized document denominated as Sale of Shares of Stocks. Chute duly endorsed and delivered the certificates of stock to Andaya and, subsequently, requested the bank to register the transfer and issue new stock certificates in favor of the latter. Andaya also separately communicated with the bank’s corporate secretary, respondent Oraiz, reiterating Chute’s request for the issuance of new stock certificates in petitioner’s favor. The bank denied the request of Andaya.

In denying the request of Andaya, the bank reasoned that he had a conflict of interest, as he was then president and chief executive officer of the Green Bank of Caraga, a competitor bank. Respondent bank concluded that the purchase of shares was not in good faith, and that the purchase “could be the beginning of a hostile bid to take-over control of the [Rural Bank of Cabadbaran].” Citing Gokongwei v. Securities and Exchange Commission, respondent insisted that it may refuse to accept a competitor as one of its stockholders.

Consequently, Andaya instituted an action for mandamus and damages against the Rural Bank of Cabadbaran; its corporate secretary, Oraiz; and its legal counsel, Gonzalez. Petitioner sought to compel them to record the transfer in the bank’s stock and transfer book and to issue new certificates of stock in his name.

The trial court dismissed the complaint. Citing Porice v. Alsons Cement Corporation  the trial court ruled that Andaya had no standing to compel the bank to register the transfer and issue stock certificates in his name. It explained that he had failed to show that the transfer of subject shares of stock was recorded in the stock and transfer book of the bank or that he was authorized by Chute to make the transfer.” According to the trial court, Ponce requires that a person seeking to transfer shares must appear to have an express instruction and a specific authority from the registered stockholder, such as a special power of attorney, to cause the disposition of stocks registered in the stockholder’s name. It ruled that without the sale first registered or an authority from the transferor, it was unmistakably clear that Andaya had no cause of action for mandamus against the bank.

Issue:

Whether Andaya, as a transferee of shares of stock, may initiate an action for mandamus compelling the Rural Bank of Cabadbaran to record the transfer of shares in its stock and transfer book and to issue new stock certificates in his name.

Ruling:

Yes.

It is already settled jurisprudence that the registration of a transfer of shares of stock is a ministerial duty on the part of the corporation. Aggrieved parties may then resort to the remedy of mandamus to compel corporations that wrongfully or unjustifiably refuse to record the transfer or to issue new certificates of stock. This remedy is available even upon the instance of a bona fide transferee who is able to establish a clear legal right to the registration of the transfer. This legal right inherently flows from the transferee’s established ownership of the stocks, a right that has been recognized by this Court as early as in Price v. Martin.

Consequently, transferees of shares of stock are real parties in interest having a cause of action for mandamus to compel the registration of the transfer and the corresponding issuance of stock certificates.

Andaya has been able to establish that he is a bona fide transferee of the shares of stock of Chute. In proving this fact, he presented to the RTC the following documents evidencing the sale: (1) a notarized Sale of Shares of Stocks showing Chute’s sale of 2,200 shares of stock to petitioner; (2) a Documentary Stamp Tax Declaration/Return  (3) Capital Gains Tax Return; and (4) stock certificates covering the subject shares  duly  endorsed by  Chute.  The  existence,  genuineness,  and due execution of these documents have been admitted  and remain undisputed.

There is no doubt that Andaya had the standing to initiate an action for mandamus to compel the Rural Bank of Cabadbaran to record the transfer of shares in its stock and transfer book and to issue new stock certificates in his name. As the transferee of the shares, petitioner stands to be benefited or injured by the judgment in the instant petition, a judgment that will either order the bank to recognize the legitimacy of the transfer and petitioner’s status as stockholder or to deny the legitimacy thereof.

This Court further finds that the reliance of the RTC on Ponce in finding that petitioner had no cause of action for mandamus against the defendant bank was misplaced. In Ponce, the issue resolved by this Court was whether the petitioner therein had a cause of action for mandamus to compel the issuance of stock certificates, not the registration of the transfer. Ruling in the negative, the Court said in that case that without any record of the transfer of shares in the stock and transfer book of the corporation, there would be no clear basis to compel that corporation to issue a stock certificate. By the import of Section 63 of the Corporation Code, the stock and transfer book would be the main reference book in ascertaining a person’s entitlement to the rights of a stockholder. Consequently, without the registration of the transfer, the alleged transferee could not yet be recognized as a stockholder who is entitled to be given a stock certificate.

In contrast, at the crux of this petition are the registration of the transfer and the issuance of the corresponding stock certificates. Requiring petitioner to register the transaction before he could institute a mandamus suit in supposed abidance by the ruling in Ponce was a palpable error. It led to an absurd, circuitous situation in which Andaya was prevented from causing the registration of the transfer, ironically because the shares had not been registered. With the logic resorted to by the RTC, transferees of shares of stock would never be able to compel the registration of the transfer and the issuance of new stock certificates in their favor. They would first be required to show the registration of the transfer in their names —  the ministerial act that is the subject of the mandamus suit in the first place. The trial court confuses the application of the dicta in Ponce, which is pertinent only to the issuance of new stock certificates, and not to the registration of a transfer of shares. As Ponce itself provides, these two are entirely different events. The RTC’s anomalous reasoning cannot be given legal imprimatur by this Court.

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