Re : Consolidated rural bank notexempt from filing fees

April 20, 2004 SEC OPINION NO. 25-04 Re : Consolidated rural bank not exempt from filing fees Atty. Jose Balingit Jr. Corporate Secretary Network Rural Bank Inc. Davao City S i r : This refers to your letter-query on the issue whether or not a consolidated rural bank (Network Rural Bank Inc.) is exempt from paying filing fees on the registration of its Articles of Incorporation and By-Laws on account of Rural Banks Act of 1992 or Republic Act No. 7353. We answer your query in the negative. Section 15 of RA 7353 provides: "Section 15. All rural banks created and organized under the provisions of this Act shall be exempt from the payment of all taxes, fees and charges of whatever nature and description, except the corporate income tax and local taxes, fees and charges, for a period of five (5) years from the date of commencement of operations . All rural banks in operation as of the date of approval of this Act shall be exempt from the payment of all taxes, fees, and charges of whatever nature and description, except the corporate income tax and local tax, fees and charges, for a period of five (5) years from approval of this Act ." The afore-quoted provision exempts rural banks and those which are already operating as of the date of approval of RA 7353 from paying all taxes, fees and charges of whatever nature and description, except corporate income taxes and local tax, fees and charges for a period of five (5) years from the date of commencement of operations or from the approval of RA 7353. The five (5)-year exemption mentioned in the first paragraph of Section 15 of RA 7353 can only be availed of from the date of commencement of corporate operations. What the law mandates for rural banks to avail themselves of the exemption is the original creation, organization and initial commencement of operations of corporation. There is no doubt that the constituent corporations have been in operation for years and may have acquired rights, properties and liabilities which have been transferred now to the consolidated corporation. This is premised on Section 80 of the Corporation Code which reads: "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; 2. The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation; 3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code; 4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities and franchises of each of the constituent corporations; and all property, real or personal, and all receivables 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." The legal effect of either merger or consolidation is not to disturb the legal continuity of the underlying business enterprises of each of the constituent corporations. In Associated Bank -vs- CA ,the Supreme Court ruled: "Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business ,while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as their liabilities. [ GR-123793, June 29, 1998 ] Neither can the consolidated rural bank invoke the Second paragraph of Section 15 of RA 7353. It speaks of five (5) years from the approval of said law or from 2 April 1992. Obviously, the 5-year period had expired. Finally, for your guidance, we are providing you copy of the Guidelines on Request for Legal Opinion or SEC Memorandum Circular No. 15 dated 16 December 2003. cASTED Very truly yours, (SGD.) VERNETTE G. UMALI PACO General Counsel