G.R. No. L-4420 - Reyes v. Blouse
G.R. No. L-4420 - Reyes v. Blouse
Blouse
stockholders decide to dissolve the same. This comes squarely within the
purview of section 28 1/2 of the Corporation Law which provides, among This is an action instituted by the plaintiffs as minority stockholders of
others, that a corporation may sell, exchange, lease or otherwise dispose the Laguna Tayabas Bus Co. to restrain its Board of Directors composed of
of all its property and assets, including its goodwill, upon such terms and the defendants from carrying out a resolution approved by approximately
conditions as its Board of Directors may deem expedient when authorized 92 1/2 per cent of the stockholders in a meeting held on July 30, 1947,
by the affirmative vote of the shareholders holding at least 2/3 of the voting authorizing said Board of Directors to take the necessary steps to
power. The phrase "or otherwise disposed of" is very broad and in a sense consolidate the properties and franchises of the Laguna Tayabas Bus Co.
covers a merger or consolidation. with those of the Batangas Transportation Co. The grounds on which
2. ID.; MERGER, DEFINED. — A merger implies necessarily the plaintiffs predicate their action are:
termination or cessation of the merged corporations and not merely a "1. That the proposed consolidation or merger of the two
merger of their properties and assets. companies would be prejudicial to the L.T.B. Co. and to the
3. ID.; PUBLIC SERVICE; MERGER OR CONSOLIDATION OF appellants in particular who do not own shares of stock of B. T. Co. in
LAND TRANSPORTATION COMPANIES. — Section 20 (g) of that:
Commonwealth Act No. 146, as amended, speaks of merger or 'a. During the last ten years prior to the last war, the
consolidation of public services engaged in land transportation. It does not dividends declared by L. T. B. Co. were increasing, whereas the
impose any qualification except that it shall be done with the approval of dividends declared by B. T. Co. were decreasing in amount.
the Public Service Commission. There is no doubt that the intended merger 'b. In 1941, the shares of L. T. B. Co. cost P250 each
or consolidation of the two companies comes within the purview of this in the market, whereas the shares of B. T. Co. cost only P150
legal provision. each.
c. A comparative study of the net gains of each counsel for the plaintiffs contends that its real purpose is to effect a merger
company for the first six months of 1947 showed that the profits or consolidation, and as such there is no law in the Philippines under which
of the L. T. B. Co. exceeded B. T. Co. by approximately P67,000. it may properly be carried out; on the other hand, counsel for defendants
As a consequence, the shares of L. T. B. Co. were costing P360 maintains the negative view, holding that it is merely an exchange of
a share, while the shares of the B. T. Co. were quoted at only properties sanctioned by our corporation law, as amended, and that even if
P200.' it be considered as a consolidation, the same can still be carried out under
2. That the proposed consolidation or merger was illegal Commonwealth Act No. 146, section 20, otherwise known as the Public
because the unanimous vote of the stockholders was not secured Service Law.
and that the same was contrary to the spirit of our laws. (Rec. on
The disputed resolution, which was approved on July 20, 1947, at a
Appeal, pp. 19-20)".
special meeting held by the stockholders of the Laguna Tayabas Bus Co.
After the filing of the complaint, the court granted the writ of reads as follows:
preliminary injunction prayed for therein upon a nominal bond of P5,000,
"Resolved that the Board of Directors of the Laguna Tayabas
which later was increased to P10,000. Bus Company, be as it hereby is, authorized to take the necessary
Defendants twice moved to dissolve the writ of preliminary injunction, steps to consolidate the properties and franchises of the corporation
but both motions were denied by the lower court. with those of the Batangas Transportation Company under a single
corporation by the organization of a new corporation and to dispose
The defendants also asked for the dismissal of the complaint on the
to such new corporation all the properties and franchises of the
ground that the facts, therein alleged do not constitute sufficient cause of
corporation in return for stock of the new corporation, or by the
action. In connection with the determination of this incident, defendants
exchange of stock, and/or through such other means as may be
submitted an affidavit of Max Blouse, President of the Laguna Tayabas Bus deemed most advisable by the Board of Directors."
Co., outlining the steps to be taken by the Board of Directors in carrying out
the merger or consolidation authorized in the disputed resolution. The It should be noted that under the above resolution, the Board of
court, however, deferred its resolution on the motion until after trial on the Directors is charged with the authority to take the necessary steps to
merits. After due trial, at which both parties presented their respective consolidate the properties and franchises of the Laguna Tayabas Bus Co.
evidence, the lower court rendered its decision, the dispositive portion of with those of the Batangas Transportation Co. under a new corporation in
which reads: return for stock of the new corporation, or by exchange of stock, and/or
through such other means as may be deemed most advisable by the Board
"For all the foregoing considerations, the court is of the opinion
of Directors. The way and manner the consolidation shall be effected is,
and so holds that the controversial proposed acts to be performed by
therefore, left to the discretion of the Board of Directors. In pursuance of
the defendants, directors of the Laguna Tayabas Bus Co., are within
the authority granted under Section 28 1/2 of the Corporation Law. this broad authority, the Board of Directors acted and the steps it has taken
The complaint, therefore, is dismissed and the preliminary injunction having in view the interest of both corporations are outlined in the affidavit
is hereby lifted without pronouncement as to costs. (Record on attached to the memorandum submitted to the court by Max Blouse,
Appeal, p. 182)". president of the two corporations above mentioned. The substance of this
affidavit is: that both corporations have passed similar resolutions
On motion of the plaintiffs, the court a quo revived the writ of
authorizing the Board of Directors to take such steps as may be necessary
preliminary injunction which was dissolved in its decision above mentioned
to effect the consolidation; that the Board of Directors of the Laguna
and maintained the status quo of the case pending appeal upon a new
Tayabas Bus Co. has decided to transfer its assets, franchises and other
indemnity bond of P30,000, which was subsequently increased to P50,000.
properties to the new corporation, from which shall be excluded the claims
The case is now before this Court on appeal interposed by the that it has against the United States Army and the cash it has received
plaintiffs who impute six errors to the lower court. from it for the use and commandering of its busses and other stock and
The principal issue involved in this appeal is whether the real equipment during the war; that the Laguna Tayabas Bus Co, will not
purpose of the disputed resolution is the merger or consolidation of the transfer any of its liabilities to the new corporation; and that said company
properties and franchises of the Laguna Tayabas Bus Co. with those of the will not be dissolved but will continue existing, although not operating, until
Batangas Transportation Co. within the meaning of the law, and in the the stockholders decide to dissolve the same.
affirmative case, whether said merger or consolidation can be carried out
under the law now existing and in force in the Philippines. On one hand,
It is apparent that the purpose of the resolution is not to dissolve the impose any qualification except that it shall be done with the approval of
Laguna Tayabas Bus Co. but merely to transfer its assets to a new the Public Service Commission. There is no doubt that the intended merger
corporation in exchange for its corporation stock. This intent is clearly or consolidation comes within the purview of this legal provision.
deducible from the provision that the Laguna Tayabas Bus Co. will not be The claim that the merger or consolidation of two land transportation
dissolved but will continue existing until its stockholders decide to dissolve companies cannot be carried out in this jurisdiction because it is prohibited
the same. This comes squarely within the purview of section 28 1/2 of the by Act No. 2772, is untenable in the light of the very provisions of said Act.
corporation law which provides, among others, that a corporation may sell, A careful analysis of said act will show that it only regulates the merger or
exchange, lease or otherwise dispose of all its property and assets, consolidation of railroad companies, or of a railroad company with any
including its good will, upon such terms and conditions as its Board of other carrier by land or water. Said act does not apply to the merger or
Directors may deem expedient when authorized by the affirmative vote of consolidation of two corporations exclusively engaged in land
the shareholders holding at least 2/3 of the voting power. The words "or transportation. To extend the meaning and scope of said Act 2772 to the
otherwise disposed of" is very broad and in a sense covers a merger or merger or consolidation of land carriers would be to render nugatory the
consolidation. The action of the corporation was taken having in view this provisions of the Public Service Law, which effect cannot be implied
provision of our corporation law and in our opinion the corporation has because the latter law (1936) is of more recent enactment than the former
acted correctly. (1918). As to how the merger or consolidation shall be carried out, our
But appellants contend that the disputed resolution calls for a real corporation law contains ample provisions to this effect (sections 17 1/2, 18
merger or consolidation in the sense and in the manner said terms are and 25 1/2). This law does not require that there be an express legislative
intended and understood under the law and authorities of the United authority, or a unanimous consent of all stockholders, to effect a merger or
States, citing in support of their contention a long line of American consolidation of two corporations.
authorities, and that viewing the resolution in that light, the same cannot Plaintiffs object to the use made by the lower court of the affidavit
come within the purview of section 28 1/2 of our corporation law, as submitted by Max Blouse, president of the merging corporations, in
claimed by appellees. But even if we view the resolution in the light of the connection with the incident relative to the motion to dismiss filed by the
American authorities, we are of the opinion that the transaction called for defendants to which affidavit no objection has been interposed by the
therein cannot be considered, strictly speaking, as a merger or plaintiffs and for that reason that affidavit became part of the record. As
consolidation of the two corporations because, under said authorities, a said affidavit was submitted with the motion to dismiss and other exhibits
merger implies necessarily the termination or cessation of the merged presented by both parties for the consideration of the court, we find no
corporations and not merely a merger of their properties and assets. This reason why the lower court should err in considering it in its decision and
situation does not here obtain. The two corporations will not lose their why it cannot now be considered in this appeal. This action of the court
corporate existence or personality, or at least the Laguna Tayabas Bus Co., was merely in line with the move of the parties when they submitted for
but will continue to exist even after the consolidation. In other words, what consideration the motion to dismiss filed by the defendants.
is intended by the resolution is merely a consolidation of properties and
assets, to be managed and operated by a new corporation, and not a The remaining question to be determined refers to the claim that the
merger of the corporations themselves. proposed consolidation or merger of the two corporations would be
prejudicial to the Laguna Tayabas Bus Co. and to the appellants in
Granting arguendo that the disputed resolution has really the particular who do not own shares of stock of the Batangas Transportation
intention and the purpose of carrying out the merger or consolidation both Co. This is a question of fact which much depends upon the evidence
of the assets and properties of the two corporations as well as of the two submitted by the parties. After weighing the evidence, the lower court
corporations themselves in the true sense of the word, or in the light of the reached the conclusion that the merger would not be prejudicial or
American authorities, still we believe that this can be carried out in this disadvantageous to the appellants or to the stockholders of the Laguna
jurisdiction in the light of our Public Service Law. Thus, section 20(g) of Tayabas Bus Co. On this point the court said: "The testimony of Max
Commonwealth Act No, 146, as amended, prohibits any public service Blouse, who had founded both the Laguna Tayabas Bus Co. and the
operators, unless with the approval of the Public Service Commission, "to Batangas Transportation Co., should be given considerable weight and
sell, alienate, mortgage, encumber or lease its property, franchises, credence not only because of the position which he enjoys in both
certificates, privileges, or rights, or any part thereof, or merge or companies, but also because of his long experience in the transportation
consolidate its property, franchises, privileges or rights or any part thereof, business in this country. His opinion, therefore, insofar as he states that the
with those of any other public service". This law speaks of merger or
consolidation of public services engaged in land transportation. It does not
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5/19/2020 G.R. No. L-4420 | Reyes v. Blouse
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