G.R. No.
178618 October 11, 2010 Meanwhile, FISLAI assigned its assets in favor of DSLAI which in turn,
MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented
by its Liquidator, THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION, Petitioner, vs. EDWARD WILLKOM; GILDA GO;
REMEDIOS UY; MALAYO BANTUAS, in his capacity as the Deputy
Sheriff of Regional Trial Court, Branch 3, Iligan City; and the
REGISTER OF DEEDS of Cagayan de Oro City, Respondent.
Doctrines:
- In the merger of two or more existing corporations, one of the
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. 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. Not by
mere agreement of the corporations.
- The consent of the creditor to a novation by change of debtor is as
indispensable as the creditor’s consent in conventional subrogation in order
that a novation shall legally take place.39 Since novation implies a waiver of
the right which the creditor had before the novation, such waiver must be
express.
Facts: The First Iligan Savings and Loan Association, Inc. (FISLAI) and the
Davao Savings and Loan Association, Inc. (DSLAI) are entities duly registered
with the Securities and Exchange Commission (SEC) primarily engaged in the
business of granting loans and receiving deposits from the general public,
and treated as banks.
On 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the
surviving corporation. The articles of merger were not registered with the
SEC due to incomplete documentation. On August 12, 1985, DSLAI changed
its corporate name to MSLAI by way of an amendment, but the amendment
was approved by the SEC only on 1987.
assumed the former’s liabilities. The business of MSLAI, however, failed due
to insolvency. Hence, the Monetary Board of the Central Bank of the
Philippines ordered its closure and placed it under receivership.
It appears that prior to the closure of MSLAI, Uy filed with the RTC an action
for collection of sum of money against FISLAI. On October 19, 1989, the RTC
decided in favor of Uy, directing defendants therein (which included FISLAI)
to pay the former. The decision was modified by the CA by further ordering
the third-party defendant therein to reimburse the payments that would be
made by the defendants. The decision became final and executory.
Thereafter, Sheriff Bantuas levied on six (6) parcels of land owned by FISLAI.
Willkom was the highest bidder in the public auction and eventually, new
certificates of title covering the subject properties were issued in favor of
Willkom. On September 20, 1994, Willkom sold one of the subject parcels of
land to Go.
On June 14, 1995, MSLAI filed before the RTC a complaint for Annulment of
Sheriff’s Sale, Cancellation of Title and Reconveyance of Properties against
respondents alleging that the sale on execution of the subject properties was
conducted without notice to it and PDIC; that PDIC only came to know about
the sale for the first time in February 1995 while discharging its mandate of
liquidating MSLAI’s assets; that the execution of the RTC decision in the
complaint for sum of money was illegal and contrary to law and
jurisprudence, not only because PDIC (who handled the receivership) was not
notified of the execution sale, but also because the assets of an institution
placed under receivership or liquidation such as MSLAI should be deemed in
custodia legis and should be exempt from any order of garnishment, levy,
attachment, or execution.
Respondents averred that MSLAI had no cause of action against them or the
right to recover the subject properties because MSLAI is a separate and
distinct entity from FISLAI. Further, that there wa an unoffivial merger
because they did not comply with the formalities and procedure for merger or
consolidation provided in the Corporation Code. Hence, they claimed that
1
FISLAI is still a SEC registered corporation and could not have been absorbed if it is true that the Monetary Board of the Central Bank of the Philippines
by petitioner. recognized such merger, the fact remains that no certificate was issued by
the SEC. Such a merger is still incomplete without the certification.
RTC – dismissed for lack of jurisdiction
The issuance of the certificate of merger marks the moment when the
CA – affirmed the dismissal because there was no merger between FISLAI consequences of a merger take place. Such is also the case in consolidation,
and MSLAI (formerly DSLAI) for their failure to follow the procedure laid a SEC certification is needed. Hence, as far as third parties are concerned,
down by the Corporation Code for a valid merger or consolidation. the assets of FISLAI remain as its assets and cannot be considered as
belonging to DSLAI and MSLAI, notwithstanding the Deed of Assignment
Issues: 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
(1) Was the merger between FISLAI and DSLAI (now MSLAI) valid and
Civil Code, "an assignment of credit, right or action shall produce no effect as
effective = NO;
against third persons, unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in case the assignment
(2) Was there novation of the obligation by substituting the person of the
involves real property."
debtor? = NO
(2) It is a rule that novation by substitution of debtor must always be made
Held:
with the consent of the creditor.38 Article 1293 of the Civil Code is explicit,
(1) In the merger of two or more existing corporations, one of the thus:
corporations survives and continues the combined business, while the rest
Art. 1293. Novation which consists in substituting a new debtor in the place
are dissolved and all their rights, properties, and liabilities are acquired by the
of the original one, may be made even without the knowledge or against the
surviving corporation. Although there is a dissolution of the absorbed or
will of the latter, but not without the consent of the creditor. Payment by the
merged corporations, there is no winding up of their affairs or liquidation of
new debtor gives him the rights mentioned in Articles 1236 and 1237.
their assets because the surviving corporation automatically acquires all their
rights, privileges, and powers, as well as their liabilities.
In this case, there was no showing that Uy, the creditor, gave her consent to
the agreement that DSLAI (now MSLAI) would assume the liabilities of
The merger shall only be effective upon the issuance of a certificate of
FISLAI. Such agreement cannot prejudice Uy. Thus, the assets that FISLAI
merger by the SEC, subject to its prior determination that the merger is not
transferred to DSLAI remained subject to execution to satisfy the judgment
inconsistent with the Corporation Code or existing laws. Not by mere
claim of Uy against FISLAI. The subsequent sale of the properties by Uy to
agreement of the corporations. Where a party to the merger is a special
Willkom, and of one of the properties by Willkom to Go, cannot, therefore, be
corporation governed by its own charter, the Code particularly mandates that
questioned by MSLAI.
a favorable recommendation of the appropriate government agency should
first be obtained.

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