MINDANAO SAVINGS AND LOAN ASSOCIATION, INC.

, represented by its Liquidator, THE PHILIPPINE DEPOSIT

INSURANCE CORPORATION v. EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO BANTUAS, in his
capacity as the Deputy Sheriff of RTC, Branch 3, Iligan City; and the REGISTER OF DEEDS of Cagayan de Oro
City, Respondent
2010 Oct 20 2nd Division G.R. No. 178618 NACHURA, J.:

FACTS

First Iligan Savings and Loan Association, Inc. (FISLAI) and Davao Savings and Loan Association, Inc. (DSLAI)
are entities duly registered with the SEC primarily engaged in the business of granting loans and receiving deposits from
the general public, and treated as banks. In 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the surviving
corporation but their articles of merger were not registered with the SEC due to incomplete documentation. DSLAI
changed its corporate name to MSLAI by way of an amendment to its Articles of Incorporation which was approved by the
SEC. In 1986, the Board of Directors of FISLAI passed and approved Board Resolution assigning its assets in favor of
DSLAI which in turn assumed the former’s liabilities. The business of MSLAI, however, failed. Hence, the Monetary Board
of the Central Bank of the Philippines ordered its liquidation with PDIC as its liquidator.
Prior to the closure of MSLAI, Uy filed with the RTC of Iligan City, an action for collection of sum of money against
FISLAI. The RTC issued a summary decision in favor of Uy, directing FISLAI to pay. As a consequence, 6 parcels of land
owned by FISLAI were levied and sold to Willkom. In 1995, MSLAI, represented by PDIC, filed before the RTC a
complaint for the annulment of the Sheriff’s Sale alleging that the sale on execution of the subject properties was
conducted without notice to it and PDIC. Respondents, in its answer, averred that MSLAI had no cause of action because
MSLAI is a separate and distinct entity from FISLAI on the ground that the “unofficial merger” between FISLAI and DSLAI
(now MSLAI) did not take effect considering that the merging companies did not comply with the formalities and procedure
for merger or consolidation as prescribed by the Corporation Code of the Philippines. RTC dismissed the case for lack of
jurisdiction. CA affirmed but ruled that there was no merger between FISLAI and MSLAI (formerly DSLAI) for their failure
to follow the procedure laid down by the Corporation Code for a valid merger or consolidation.

ISSUE
Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective?

HELD
NO. In merger, one of the corporations survives 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 or merged
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.

The merger, however, does not become effective upon the mere agreement of the constituent corporations. Since
a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and
creditors, there must be an express provision of law authorizing them. The steps necessary to accomplish a merger or
consolidation, as provided for in Sections 76,[24] 77,[25] 78,[26] and 79[27] of the Corporation Code, are:
(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must include any
amendment, if necessary, to the articles of incorporation of the surviving corporation, or in case of consolidation,
all the statements required in the articles of incorporation of a corporation;
(2) Submission of plan to stockholders or members of each corporation for approval. A meeting must be called
and at least two (2) weeks’ notice must be sent to all stockholders or members, personally or by registered mail. A
summary of the plan must be attached to the notice. Vote of two-thirds of the members or of stockholders
representing two-thirds of the outstanding capital stock will be needed. Appraisal rights, when proper, must be
respected;
(3) Execution of the formal agreement, referred to as the articles of merger or consolidation, by the corporate
officers of each constituent corporation. These take the place of the articles of incorporation of the consolidated
corporation, or amend the articles of incorporation of the surviving corporation;
(4) Submission of said articles of merger or consolidation to the SEC for approval;
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks before;
(6) Issuance of certificate of merger or consolidation.

Clearly, the merger shall only be effective upon the issuance of a certificate of merger by the SEC, subject to its
prior determination that the merger is not inconsistent with the Corporation Code or existing laws. In this case, it is
undisputed that the articles of merger between FISLAI and DSLAI were not registered with the SEC due to incomplete
documentation. Consequently, the SEC did not issue the required certificate of merger. Even if it is true that the Monetary
Board of the Central Bank of the Philippines recognized such merger, the fact remains that no certificate was issued by
the SEC. Such merger is still incomplete without the certification. The issuance of the certificate of merger is crucial
because not only does it bear out SEC’s approval but it also marks the moment when the consequences of a merger take
place. By operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and
properties, as well as liabilities, shall be taken and deemed transferred to and vested in the surviving corporation. There
being no merger between FISLAI and DSLAI (now MSLAI), for third parties such as respondents, the two corporations
shall not be considered as one but two separate corporations. Being separate entities, the property of one cannot be
considered the property of the other.

Thus, in the instant case, as far as third parties are concerned, the assets of FISLAI remain as its assets and
cannot be considered as belonging to DSLAI and MSLAI, notwithstanding the Deed of Assignment wherein FISLAI
assigned its assets and properties to DSLAI, and the latter assumed all the liabilities of the former. As provided in Article
1625 of the Civil Code, “an assignment of credit, right or action shall produce no effect as against third persons, unless it
appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves
real property.” The certificates of title of the subject properties were clean and contained no annotation of the fact of
assignment. Respondents cannot, therefore, be faulted for enforcing their claim against FISLAI on the properties
registered under its name. Accordingly, MSLAI, as the successor-in-interest of DSLAI, has no legal standing to annul the
execution sale over the properties of FISLAI. With more reason can it not cause the cancellation of the title to the subject
properties of Willkom and Go.