G.R. No.
178618 October 11, 2010
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.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court filed by Mindanao Savings and Loan Association, Inc. (MSLAI),
represented by its liquidator, Philippine Deposit Insurance Corporation
(PDIC), against respondents Edward R. Willkom (Willkom); Gilda Go
(Go); Remedios Uy (Uy); Malayo Bantuas (sheriff Bantuas), in his
capacity as sheriff of the Regional Trial Court (RTC), Branch 3 of Iligan
City; and the Register of Deeds of Cagayan de Oro City. MSLAI seeks
the reversal and setting aside of the Court of Appeals1 (CA)
Decision2 dated March 21, 2007 and Resolution3 dated June 1, 2007 in
CA-G.R. CV No. 58337.
The controversy stemmed from the following 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) under
Registry Nos. 34869 and 32388, respectively, primarily engaged in the
business of granting loans and receiving deposits from the general
public, and treated as banks.4
Sometime in 1985, FISLAI and DSLAI entered into a merger, with DSLAI
as the surviving corporation.5 The articles of merger were not registered
with the SEC due to incomplete documentation.6 On August 12, 1985,
DSLAI changed its corporate name to MSLAI by way of an amendment to
Article 1 of its Articles of Incorporation, but the amendment was approved
by the SEC only on April 3, 1987.7
Meanwhile, on May 26, 1986, the Board of Directors of FISLAI passed
and approved Board Resolution No. 86-002, assigning its assets in favor
of DSLAI which in turn assumed the former’s liabilities.8
The business of MSLAI, however, failed. Hence, the Monetary Board of
the Central Bank of the Philippines ordered its closure and placed it
under receivership per Monetary Board Resolution No. 922 dated August
31, 1990. The Monetary Board found that MSLAI’s financial condition
was one of insolvency, and for it to continue in business would involve
probable loss to its depositors and creditors. On May 24, 1991, the
Monetary Board ordered the liquidation of MSLAI, with PDIC as its
liquidator.9
It appears that prior to the closure of MSLAI, Uy filed with the RTC,
Branch 3 of Iligan City, an action for collection of sum of money against
FISLAI, docketed as Civil Case No. 111-697. On October 19, 1989, the
RTC issued a summary decision in favor of Uy, directing defendants
therein (which included FISLAI) to pay the former the sum of
₱136,801.70, plus interest until full payment, 25% as attorney’s fees, and
the costs of suit. 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 on
February 21, 1992. A writ of execution was thereafter issued.10
On April 28, 1993, sheriff Bantuas levied on six (6) parcels of land owned
by FISLAI located in Cagayan de Oro City, and the notice of sale was
subsequently published. During the public auction on May 17, 1993,
Willkom was the highest bidder. A certificate of sale was issued and
eventually registered with the Register of Deeds of Cagayan de Oro City.
Upon the expiration of the redemption period, sheriff Bantuas issued the
sheriff’s definite deed of sale. 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.11
On June 14, 1995, MSLAI, represented by PDIC, filed before the RTC,
Branch 41 of Cagayan de Oro City, a complaint for Annulment of Sheriff’s
Sale, Cancellation of Title and Reconveyance of Properties against
respondents.12 MSLAI alleged 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 Civil Case No. 111-697 was illegal and contrary to
law and jurisprudence, not only because PDIC was not notified of the
1
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.13
In answer, 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. They further
contended 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. Finally, they
claimed that FISLAI is still a SEC registered corporation and could not
have been absorbed by petitioner.14
On March 13, 1997, the RTC issued a resolution dismissing the case for
lack of jurisdiction. The RTC declared that it could not annul the decision
in Civil Case No. 111-697, having been rendered by a court of coordinate
jurisdiction.15
On appeal, MSLAI failed to obtain a favorable decision when the CA
affirmed the RTC resolution. The dispositive portion of the assailed CA
Decision reads:
WHEREFORE, premises considered, the instant appeal is DENIED. The
decision assailed is AFFIRMED.
We REFER Sheriff Malayo B. Bantuas’ violation of the Supreme Court
Administrative Circular No. 12 to the Office of the Court Administrator for
appropriate action. The Division Clerk of Court is hereby DIRECTED to
furnish the Office of the Court Administrator a copy of this decision.
SO ORDERED.16
The appellate court sustained the dismissal of petitioner’s complaint not
because it had no jurisdiction over the case, as held by the RTC, but on a
different ground. Citing Associated Bank v. CA,17 the CA 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. The CA then concluded that the two
corporations retained their separate personalities; consequently, the
claim against FISLAI is warranted, and the subsequent sale of the levied
properties at public auction is valid. The CA went on to say that even if
2
there had been a de facto merger between FISLAI and MSLAI (formerly
DSLAI), Willkom, having relied on the clean certificates of title, was an
innocent purchaser for value, whose right is superior to that of MSLAI.
Furthermore, the alleged assignment of assets and liabilities executed by
FISLAI in favor of MSLAI was not binding on third parties because it was
not registered. Finally, the CA said that the validity of the auction sale
could not be invalidated by the fact that the sheriff had no authority to
conduct the execution sale.18
Petitioner’s motion for reconsideration was denied in a Resolution dated
June 1, 2007. Hence, the instant petition anchored on the following
grounds:
THE HONORABLE COURT OF APPEALS, CAGAYAN DE ORO
COMMITTED GRAVE AND REVERSIBLE ERROR WHEN:
(1)
IT PASSED UPON THE EXISTENCE AND STATUS OF DSLAI
(now MSLAI) AS THE SURVIVING ENTITY IN THE MERGER
BETWEEN DSLAI AND FISLAI AS A DEFENSE IN AN ACTION
OTHER THAN IN A QUO WARRANTO PROCEEDING UPON
THE INSTITUTION OF THE SOLICITOR GENERAL AS
MANDATED UNDER SECTION 20 OF BATAS PAMBANSA
BLG. 68.
(2)
IT REFUSED TO RECOGNIZE THE MERGER BETWEEN
F[I]SLAI AND DSLAI WITH DSLAI AS THE SURVIVING
CORPORATION.
(3)
IT HELD THAT THE PROPERTIES SUBJECT OF THE CASE
ARE NOT IN CUSTODIA LEGIS AND THEREFORE, EXEMPT
FROM GARNISHMENT, LEVY, ATTACHMENT OR
EXECUTION.19
To resolve this petition, we must address two basic questions: (1) Was
the merger between FISLAI and DSLAI (now MSLAI) valid and effective;
and (2) Was there novation of the obligation by substituting the person of
the debtor?
We answer both questions in the negative.
Ordinarily, 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.20 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.21
The merger, however, does not become effective upon the mere
agreement of the constituent corporations.22 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.23
The steps necessary to accomplish a merger or consolidation, as
provided for in Sections 76,24 77,25 78,26 and 7927 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 o[r] consolidation, by the corporate officers of each
constituent corporation. These take the place of the articles of
3
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.28
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.29 Where a party to the merger is a special corporation governed by
its own charter, the Code particularly mandates that a favorable
recommendation of the appropriate government agency should first be
obtained.30
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.31
The same rule applies to consolidation which becomes effective not upon
mere agreement of the members but only upon issuance of the certificate
of consolidation by the SEC.32 When the SEC, upon processing and
examining the articles of consolidation, is satisfied that the consolidation
of the corporations is not inconsistent with the provisions of the
Corporation Code and existing laws, it issues a certificate of
consolidation which makes the reorganization official.33 The new
consolidated corporation comes into existence and the constituent
corporations are dissolved and cease to exist.34
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. A corporation is an
artificial being created by operation of law. It possesses the right of
succession and such powers, attributes, and properties expressly
authorized by law or incident to its existence.35 It has a personality
separate and distinct from the persons composing it, as well as from any
other legal entity to which it may be related.36 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.
against the will of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights mentioned in Articles
1236 and 1237.
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
FISLAI. Such agreement cannot prejudice Uy. Thus, the assets that
FISLAI transferred to DSLAI remained subject to execution to satisfy the
judgment claim of Uy against FISLAI. The subsequent sale of the
properties by Uy to Willkom, and of one of the properties by Willkom to
Go, cannot, therefore, be questioned by MSLAI.
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.40
WHEREFORE, premises considered, the petition is DENIED. The Court
of Appeals Decision dated March 21, 2007 and Resolution dated June 1,
2007 in CA-G.R. CV No. 58337 are AFFIRMED.
SO ORDERED.

Petitioner cannot also anchor its right to annul the execution sale on the
principle of novation. While it is true that DSLAI (now MSLAI) assumed
1avvphi1

all the liabilities of FISLAI, such assumption did not result in novation as
would release the latter from liability, thereby exempting its properties
from execution. Novation is the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or
principal conditions, by substituting another in place of the debtor, or by
subrogating a third person in the rights of the creditor.37

It is a rule that novation by substitution of debtor must always be made

with the consent of the creditor.38 Article 1293 of the Civil Code is explicit,
thus:

Art. 1293. Novation which consists in substituting a new debtor in the

place of the original one, may be made even without the knowledge or
4

G.R. No. 164301 October 19, 2011
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF
UNIONS IN BPI UNIBANK, Respondent.
RESOLUTION
LEONARDO-DE CASTRO, J.:
In the present incident, petitioner Bank of the Philippine Islands (BPI)
moves for reconsideration1 of our Decision dated August 10, 2010,
holding that former employees of the Far East Bank and Trust Company
(FEBTC) "absorbed" by BPI pursuant to the two banks’ merger in 2000
were covered by the Union Shop Clause in the then existing collective
bargaining agreement (CBA)2 of BPI with respondent BPI Employees
Union-Davao Chapter-Federation of Unions in BPI Unibank (the Union).
To recall, the Union Shop Clause involved in this long standing
controversy provided, thus:
ARTICLE II
xxxx
Section 2. Union Shop - New employees falling within the bargaining unit
as defined in Article I of this Agreement, who may hereafter be regularly
employed by the Bank shall, within thirty (30) days after they become
regular employees, join the Union as a condition of their continued
employment. It is understood that membership in good standing in the
Union is a condition of their continued employment with the
Bank.3 (Emphases supplied.)
The bone of contention between the parties was whether or not the
"absorbed" FEBTC employees fell within the definition of "new
5
employees" under the Union Shop Clause, such that they may be
required to join respondent union and if they fail to do so, the Union may
request BPI to terminate their employment, as the Union in fact did in the
present case. Needless to state, BPI refused to accede to the Union’s
request. Although BPI won the initial battle at the Voluntary Arbitrator
level, BPI’s position was rejected by the Court of Appeals which ruled
that the Voluntary Arbitrator’s interpretation of the Union Shop Clause
was at war with the spirit and rationale why the Labor Code allows the
existence of such provision. On review with this Court, we upheld the
appellate court’s ruling and disposed of the case as follows:
WHEREFORE, the petition is hereby DENIED, and the Decision dated
September 30, 2003 of the Court of Appeals is AFFIRMED, subject to the
thirty (30) day notice requirement imposed herein. Former FEBTC
employees who opt not to become union members but who qualify for
retirement shall receive their retirement benefits in accordance with law,
the applicable retirement plan, or the CBA, as the case may be.4
Notwithstanding our affirmation of the applicability of the Union Shop
Clause to former FEBTC employees, for reasons already extensively
discussed in the August 10, 2010 Decision, even now BPI continues to
protest the inclusion of said employees in the Union Shop Clause.
In seeking the reversal of our August 10, 2010 Decision, petitioner insists
that the parties to the CBA clearly intended to limit the application of the
Union Shop Clause only to new employees who were hired as non-
regular employees but later attained regular status at some point after
hiring. FEBTC employees cannot be considered new employees as BPI
merely stepped into the shoes of FEBTC as an employer purely as a
consequence of the merger.5
Petitioner likewise relies heavily on the dissenting opinions of our
respected colleagues, Associate Justices Antonio T. Carpio and Arturo D.
Brion. From both dissenting opinions, petitioner derives its contention that
"the situation of absorbed employees can be likened to old employees of
BPI, insofar as their full tenure with FEBTC was recognized by BPI and
their salaries were maintained and safeguarded from diminution" but
such absorbed employees "cannot and should not be treated in exactly
the same way as old BPI employees for there are substantial differences
between them."6 Although petitioner admits that there are similarities
between absorbed and new employees, they insist there are marked
differences between them as well. Thus, adopting Justice Brion’s stance,
petitioner contends that the absorbed FEBTC employees should be
considered "a sui generis group of employees whose classification will
not be duplicated until BPI has another merger where it would be the
surviving corporation."7 Apparently borrowing from Justice Carpio,
petitioner propounds that the Union Shop Clause should be strictly
construed since it purportedly curtails the right of the absorbed
employees to abstain from joining labor organizations.8
Pursuant to our directive, the Union filed its Comment9 on the Motion for
Reconsideration. In opposition to petitioner’s arguments, the Union, in
turn, adverts to our discussion in the August 10, 2010 Decision regarding
the voluntary nature of the merger between BPI and FEBTC, the lack of
an express stipulation in the Articles of Merger regarding the transfer of
employment contracts to the surviving corporation, and the consensual
nature of employment contracts as valid bases for the conclusion that
former FEBTC employees should be deemed new employees.10 The
Union argues that the creation of employment relations between former
FEBTC employees and BPI (i.e., BPI’s selection and engagement of
former FEBTC employees, its payment of their wages, power of dismissal
and of control over the employees’ conduct) occurred after the merger, or
to be more precise, after the Securities and Exchange Commission’s
(SEC) approval of the merger.11 The Union likewise points out that BPI
failed to offer any counterargument to the Court’s reasoning that:
The rationale for upholding the validity of union shop clauses in a CBA,
even if they impinge upon the individual employee's right or freedom of
association, is not to protect the union for the union's sake. Laws and
jurisprudence promote unionism and afford certain protections to the
certified bargaining agent in a unionized company because a strong and
effective union presumably benefits all employees in the bargaining unit
since such a union would be in a better position to demand improved
benefits and conditions of work from the employer. x x x.
x x x Nonetheless, settled jurisprudence has already swung the balance
in favor of unionism, in recognition that ultimately the individual employee
will be benefited by that policy. In the hierarchy of constitutional values,
this Court has repeatedly held that the right to abstain from joining a labor
organization is subordinate to the policy of encouraging unionism as an
instrument of social justice.12
While most of the arguments offered by BPI have already been
thoroughly addressed in the August 10, 2010 Decision, we find that a
qualification of our ruling is in order only with respect to the interpretation
6
of the provisions of the Articles of Merger and its implications on the
former FEBTC employees’ security of tenure.
Taking a second look on this point, we have come to agree with Justice
Brion’s view that it is more in keeping with the dictates of social justice
and the State policy of according full protection to labor to deem
employment contracts as automatically assumed by the surviving
corporation in a merger, even in the absence of an express stipulation in
the articles of merger or the merger plan. In his dissenting opinion,
Justice Brion reasoned that:
To my mind, due consideration of Section 80 of the Corporation Code,
the constitutionally declared policies on work, labor and employment, and
the specific FEBTC-BPI situation — i.e., a merger with complete "body
and soul" transfer of all that FEBTC embodied and possessed and where
both participating banks were willing (albeit by deed, not by their written
agreement) to provide for the affected human resources by recognizing
continuity of employment — should point this Court to a declaration that
in a complete merger situation where there is total takeover by one
corporation over another and there is silence in the merger agreement on
what the fate of the human resource complement shall be, the latter
should not be left in legal limbo and should be properly provided for, by
compelling the surviving entity to absorb these employees. This is what
Section 80 of the Corporation Code commands, as the surviving
corporation has the legal obligation to assume all the obligations and
liabilities of the merged constituent corporation.
Not to be forgotten is that the affected employees managed, operated
and worked on the transferred assets and properties as their means of
livelihood; they constituted a basic component of their corporation during
its existence. In a merger and consolidation situation, they cannot be
treated without consideration of the applicable constitutional declarations
and directives, or, worse, be simply disregarded. If they are so treated, it
is up to this Court to read and interpret the law so that they are treated in
accordance with the legal requirements of mergers and consolidation,
read in light of the social justice, economic and social provisions of our
Constitution. Hence, there is a need for the surviving corporation to take
responsibility for the affected employees and to absorb them into its
workforce where no appropriate provision for the merged corporation's
human resources component is made in the Merger Plan.13
By upholding the automatic assumption of the non-surviving corporation’s
existing employment contracts by the surviving corporation in a merger,
the Court strengthens judicial protection of the right to security of tenure
of employees affected by a merger and avoids confusion regarding the
status of their various benefits which were among the chief objections of
our dissenting colleagues. However, nothing in this Resolution shall
impair the right of an employer to terminate the employment of the
absorbed employees for a lawful or authorized cause or the right of such
an employee to resign, retire or otherwise sever his employment, whether
before or after the merger, subject to existing contractual obligations. In
this manner, Justice Brion’s theory of automatic assumption may be
reconciled with the majority’s concerns with the successor employer’s
prerogative to choose its employees and the prohibition against
involuntary servitude.1avvphi1
Notwithstanding this concession, we find no reason to reverse our
previous pronouncement that the absorbed FEBTC employees are
covered by the Union Shop Clause.
Even in our August 10, 2010 Decision, we already observed that the legal
fiction in the law on mergers (that the surviving corporation continues the
corporate existence of the non-surviving corporation) is mainly a tool to
adjudicate the rights and obligations between and among the merged
corporations and the persons that deal with them.14 Such a legal fiction
cannot be unduly extended to an interpretation of a Union Shop Clause
so as to defeat its purpose under labor law. Hence, we stated in the
Decision that:
In any event, it is of no moment that the former FEBTC employees
retained the regular status that they possessed while working for their
former employer upon their absorption by petitioner. This fact would not
remove them from the scope of the phrase "new employees" as
contemplated in the Union Shop Clause of the CBA, contrary to
petitioner's insistence that the term "new employees" only refers to those
who are initially hired as non-regular employees for possible regular
employment.
The Union Shop Clause in the CBA simply states that "new employees"
who during the effectivity of the CBA "may be regularly employed" by the
Bank must join the union within thirty (30) days from their regularization.
There is nothing in the said clause that limits its application to only new
employees who possess non-regular status, meaning probationary
status, at the start of their employment. Petitioner likewise failed to point
to any provision in the CBA expressly excluding from the Union Shop
Clause new employees who are "absorbed" as regular employees from
7
the beginning of their employment. What is indubitable from the Union
Shop Clause is that upon the effectivity of the CBA, petitioner's new
regular employees (regardless of the manner by which they became
employees of BPI) are required to join the Union as a condition of their
continued employment.15
Although by virtue of the merger BPI steps into the shoes of FEBTC as a
successor employer as if the former had been the employer of the latter’s
employees from the beginning it must be emphasized that, in reality, the
legal consequences of the merger only occur at a specific date, i.e., upon
its effectivity which is the date of approval of the merger by the SEC.
Thus, we observed in the Decision that BPI and FEBTC stipulated in the
Articles of Merger that they will both continue their respective business
operations until the SEC issues the certificate of merger and in the event
no such certificate is issued, they shall hold each other blameless for the
non-consummation of the merger.16 We likewise previously noted that BPI
made its assignments of the former FEBTC employees effective on April
10, 2000, or after the SEC approved the merger.17 In other words, the
obligation of BPI to pay the salaries and benefits of the former FEBTC
employees and its right of discipline and control over them only arose
with the effectivity of the merger. Concomitantly, the obligation of former
FEBTC employees to render service to BPI and their right to receive
benefits from the latter also arose upon the effectivity of the merger.
What is material is that all of these legal consequences of the merger
took place during the life of an existing and valid CBA between BPI and
the Union wherein they have mutually consented to include a Union Shop
Clause.
From the plain, ordinary meaning of the terms of the Union Shop Clause,
it covers employees who (a) enter the employ of BPI during the term of
the CBA; (b) are part of the bargaining unit (defined in the CBA as
comprised of BPI’s rank and file employees); and (c) become regular
employees without distinguishing as to the manner they acquire their
regular status. Consequently, the number of such employees may
adversely affect the majority status of the Union and even its existence
itself, as already amply explained in the Decision.
Indeed, there are differences between (a) new employees who are hired
as probationary or temporary but later regularized, and (b) new
employees who, by virtue of a merger, are absorbed from another
company as regular and permanent from the beginning of their
employment with the surviving corporation. It bears reiterating here that
these differences are too insubstantial to warrant the exclusion of the
absorbed employees from the application of the Union Shop Clause. In
the Decision, we noted that:
Verily, we agree with the Court of Appeals that there are no substantial
differences between a newly hired non-regular employee who was
regularized weeks or months after his hiring and a new employee who
was absorbed from another bank as a regular employee pursuant to a
merger, for purposes of applying the Union Shop Clause. Both
employees were hired/employed only after the CBA was signed. At the
time they are being required to join the Union, they are both already
regular rank and file employees of BPI. They belong to the same
bargaining unit being represented by the Union. They both enjoy benefits
that the Union was able to secure for them under the CBA. When they
both entered the employ of BPI, the CBA and the Union Shop Clause
therein were already in effect and neither of them had the opportunity to
express their preference for unionism or not. We see no cogent reason
why the Union Shop Clause should not be applied equally to these two
types of new employees, for they are undeniably similarly situated.18
Again, it is worthwhile to highlight that a contrary interpretation of the
Union Shop Clause would dilute its efficacy and put the certified union
that is supposedly being protected thereby at the mercy of management.
For if the former FEBTC employees had no say in the merger of its
former employer with another bank, as petitioner BPI repeatedly decries
on their behalf, the Union likewise could not prevent BPI from proceeding
with the merger which undisputedly affected the number of employees in
the bargaining unit that the Union represents and may negatively impact
on the Union’s majority status. In this instance, we should be guided by
the principle that courts must place a practical and realistic construction
upon a CBA, giving due consideration to the context in which it is
negotiated and purpose which it is intended to serve.19
We now come to the question: Does our affirmance of our ruling that
former FEBTC employees absorbed by BPI are covered by the Union
Shop Clause violate their right to security of tenure which we expressly
upheld in this Resolution? We answer in the negative.
In Rance v. National Labor Relations Commission,20 we held that:
It is the policy of the state to assure the right of workers to "security of
tenure" (Article XIII, Sec. 3 of the New Constitution, Section 9, Article II of
the 1973 Constitution). The guarantee is an act of social justice. When a
person has no property, his job may possibly be his only possession or
8
means of livelihood. Therefore, he should be protected against any
arbitrary deprivation of his job. Article 280 of the Labor Code has
construed security of tenure as meaning that "the employer shall not
terminate the services of an employee except for a just cause or
when authorized by" the Code. x x x (Emphasis supplied.)
We have also previously held that the fundamental guarantee of security
of tenure and due process dictates that no worker shall be dismissed
except for a just and authorized cause provided by law and after due
process is observed.21 Even as we now recognize the right to continuous,
unbroken employment of workers who are absorbed into a new company
pursuant to a merger, it is but logical that their employment may be
terminated for any causes provided for under the law or in jurisprudence
without violating their right to security of tenure. As Justice Carpio
discussed in his dissenting opinion, it is well-settled that termination of
employment by virtue of a union security clause embodied in a CBA is
recognized in our jurisdiction.22 In Del Monte Philippines, Inc. v.
Saldivar,23 we explained the rationale for this policy in this wise:
Article 279 of the Labor Code ordains that "in cases of regular
employment, the employer shall not terminate the services of an
employee except for a just cause or when authorized by [Title I, Book Six
of the Labor Code]." Admittedly, the enforcement of a closed-shop or
union security provision in the CBA as a ground for termination
finds no extension within any of the provisions under Title I, Book
Six of the Labor Code. Yet jurisprudence has consistently
recognized, thus: "It is State policy to promote unionism to enable
workers to negotiate with management on an even playing field and with
more persuasiveness than if they were to individually and separately
bargain with the employer. For this reason, the law has allowed
stipulations for 'union shop' and 'closed shop' as means of encouraging
workers to join and support the union of their choice in the protection of
their rights and interests vis-a-vis the employer."24 (Emphasis supplied.)
Although it is accepted that non-compliance with a union security clause
is a valid ground for an employee’s dismissal, jurisprudence dictates that
such a dismissal must still be done in accordance with due process. This
much we decreed in General Milling Corporation v. Casio,25 to wit:
The Court reiterated in Malayang Samahan ng mga Manggagawa sa M.
Greenfield v. Ramos that:
While respondent company may validly dismiss the employees expelled (a) Petitioner is deemed to have assumed the employment
by the union for disloyalty under the union security clause of the contracts of the Far East Bank and Trust Company (FEBTC)
collective bargaining agreement upon the recommendation by the union, employees upon effectivity of the merger without break in the
this dismissal should not be done hastily and summarily thereby eroding continuity of their employment, even without express stipulation in
the employees' right to due process, self-organization and security of the Articles of Merger; and
tenure. The enforcement of union security clauses is authorized by law
provided such enforcement is not characterized by arbitrariness, and (b) Aside from the thirty (30) days, counted from notice of finality
always with due process. Even on the assumption that the federation had of the August 10, 2010 Decision, given to former FEBTC
valid grounds to expel the union officers, due process requires that these employees to join the respondent, said employees shall be
union officers be accorded a separate hearing by respondent company. accorded full procedural due process before their employment
may be terminated.
The twin requirements of notice and hearing constitute the essential
elements of procedural due process. The law requires the employer to SO ORDERED.
furnish the employee sought to be dismissed with two written notices
before termination of employment can be legally effected: (1) a written
notice apprising the employee of the particular acts or omissions for
which his dismissal is sought in order to afford him an opportunity to be
heard and to defend himself with the assistance of counsel, if he desires,
and (2) a subsequent notice informing the employee of the employer's
decision to dismiss him. This procedure is mandatory and its absence
taints the dismissal with illegality.

Irrefragably, GMC cannot dispense with the requirements of notice and

hearing before dismissing Casio, et al. even when said dismissal is
pursuant to the closed shop provision in the CBA. The rights of an
employee to be informed of the charges against him and to reasonable
opportunity to present his side in a controversy with either the company
or his own union are not wiped away by a union security clause or a
union shop clause in a collective bargaining agreement. x x
x26 (Emphases supplied.)

In light of the foregoing, we find it appropriate to state that, apart from the
fresh thirty (30)-day period from notice of finality of the Decision given to
the affected FEBTC employees to join the Union before the latter can
request petitioner to terminate the former’s employment, petitioner must
still accord said employees the twin requirements of notice and hearing
on the possibility that they may have other justifications for not joining the
Union. Similar to our August 10, 2010 Decision, we reiterate that our
ruling presupposes there has been no material change in the situation of
the parties in the interim.

WHEREFORE, the Motion for Reconsideration is DENIED. The Decision

dated August 10, 2010 is AFFIRMED, subject to the qualifications that:
9

G.R. No. 195615 April 21, 2014
BANK OF COMMERCE, Petitioner,
vs.
RADIO PHILIPPINES NETWORK, INC., INTERCONTINENTAL
BROADCASTING CORPORATION, and BANAHA W BROADCASTING
CORPORATION, THRU BOARD OF ADMINISTRATOR, and SHERIFF
BIENVENIDO S. REYES, JR., Sheriff, Regional Trial Court of Quezon
City, Branch 98, Respondents.
DECISION
ABAD, J.:
In late 2001 the Traders Royal Bank (TRB) proposed to sell to petitioner
Bank of Commerce (Bancommerce) for ₱10.4 billion its banking business
consisting of specified assets and liabilities. Bancommerce agreed
subject to prior Bangko Sentral ng Pilipinas' (BSP's) approval of their
Purchase and Assumption (P & A) Agreement. On November 8, 2001 the
BSP approved that agreement subject to the condition that
Bancommerce and TRB would set up an escrow fund of PSO million with
another bank to cover TRB liabilities for contingent claims that may
subsequently be adjudged against it, which liabilities were excluded from
the purchase.
Specifically, the BSP Monetary Board Min. No. 58 (MB Res. 58) decided
as follows:
1. To approve the revised terms sheet as finalized on September 21,
2001 granting certain incentives pursuant to Circular No. 237, series of
10
2000 to serve as a basis for the final Purchase and Assumption (P & A)
Agreement between the Bank of Commerce (BOC) and Traders Royal
Bank (TRB); subject to inclusion of the following provision in the P & A:
The parties to the P & A had considered other potential liabilities against
TRB, and to address these claims, the parties have agreed to set up an
escrow fund amounting to Fifty Million Pesos (₱50,000,000.00) in cash to
be invested in government securities to answer for any such claim that
shall be judicially established, which fund shall be kept for 15 years in the
trust department of any other bank acceptable to the BSP. Any deviation
therefrom shall require prior approval from the Monetary Board.
xxxx
Following the above approval, on November 9, 2001 Bancommerce
entered into a P & A Agreement with TRB and acquired its specified
assets and liabilities, excluding liabilities arising from judicial actions
which were to be covered by the BSP-mandated escrow of ₱50 million.
To comply with the BSP mandate, on December 6, 2001 TRB placed ₱50
million in escrow with Metropolitan Bank and Trust Co. (Metrobank) to
answer for those claims and liabilities that were excluded from the P & A
Agreement and remained with TRB. Accordingly, the BSP finally
approved such agreement on July 3, 2002.
Shortly after or on October 10, 2002, acting in G.R. 138510, Traders
Royal Bank v. Radio Philippines Network (RPN), Inc., this Court ordered
TRB to pay respondents RPN, Intercontinental Broadcasting Corporation,
and Banahaw Broadcasting Corporation (collectively, RPN, et al.) actual
damages of ₱9,790,716.87 plus 12% legal interest and some amounts.
Based on this decision, RPN, et al.filed a motion for execution against
TRB before the Regional Trial Court (RTC) of Quezon City. But rather
than pursue a levy in execution of the corresponding amounts on escrow
with Metrobank, RPN, et al. filed a Supplemental Motion for
Execution where they described TRB as "now Bank of Commerce"
1
based on the assumption that TRB had been merged into Bancommerce.
On February 20, 2004, having learned of the supplemental application for
execution, Bancommerce filed its Special Appearance with Opposition to
the same questioning the jurisdiction of the RTC over Bancommerce and
2
denying that there was a merger between TRB and Bancommerce. On
August 15, 2005 the RTC issued an Order granting and issuing the writ
3
of execution to cover any and all assets of TRB, "including those subject
of the merger/consolidation in the guise of a Purchase and Sale
Agreement with Bank of Commerce, and/or against the Escrow Fund
established by TRB and Bank of Commerce with the Metropolitan Bank
and Trust Company."
This prompted Bancommerce to file a petition for certiorari with the Court
of Appeals (CA) in CA-G.R. SP 91258 assailing the RTC’s Order. On
December 8, 2009 the CA denied the petition. The CA pointed out that
4
the Decision of the RTC was clear in that Bancommerce was not being
made to answer for the liabilities of TRB, but rather the assets or
properties of TRB under its possession and custody. 5
In the same Decision, the CA modified the Decision of the RTC by
deleting the phrase that the P & A Agreement between TRB and
Bancommerce is a farce or "a mere tool to effectuate a merger and/or
consolidation between TRB and BANCOM." The CA Decision partly
reads:
xxxx
We are not prepared though, unlike the respondent Judge, to declare the
PSA between TRB and BANCOM as a farce or "a mere tool to effectuate
a merger and/or consolidation" of the parties to the PSA. There is just a
dearth of conclusive evidence to support such a finding, at least at this
point. Consequently, the statement in the dispositive portion of the
assailed August 15, 2005 Order referring to a merger/consolidation
between TRB and BANCOM is deleted. 6
xxxx
WHEREFORE, the herein consolidated Petitions are DENIED. The
assailed Orders dated August 15, 2005 and February 22, 2006 of the
respondent Judge, are AFFIRMED with the MODIFICATION that the
pronouncement of respondent Judge in the August 15, 2005 Order that
the PSA between TRB and BANCOM is a farce or "a mere tool to
effectuate a merger and/or consolidation between TRB and BANCOM" is
DELETED.
SO ORDERED. 7 to make the latter liable for TRB’s judgment debts.
On January 8, 2010 RPN, et al. filed with the RTC a motion to cause the
issuance of an alias writ of execution against Bancommerce based on
11
the CA Decision. The RTC granted the motion on February 19, 2010 on
8
the premise that the CA Decision allowed it to execute on the assets that
Bancommerce acquired from TRB under their P & A Agreement.
On March 10, 2010 Bancommerce sought reconsideration of the RTC
Order considering that the December 8,2009 CA Decision actually
declared that no merger existed between TRB and Bancommerce. But,
since the RTC had already issued the alias writ on March 9, 2010
Bancommerce filed on March 16, 2010 a motion to quash the same,
followed by supplemental Motion on April 29, 2010.
9
On August 18, 2010 the RTC issued the assailed Order denying 10
Bancommerce pleas and, among others, directing the release to the
Sheriff of Bancommerce’s "garnished monies and shares of stock or their
monetary equivalent" and for the sheriff to pay 25% of the amount "to the
respondents’ counsel representing his attorney’s fees and ₱200,000.00
representing his appearance fees and litigation expenses" and the
balance to be paid to the respondents after deducting court dues.
Aggrieved, Bancommerce immediately elevated the RTC Order to the CA
via a petition for certiorari under Rule 65 to assail the Orders dated
February 19, 2010 and August 18, 2010. On November 26, 2010 the
CA dismissed the petition outright for the supposed failure of
11
Bancommerce to file a motion for reconsideration of the assailed order.
The CA denied Bancommerce’s motion for reconsideration on February
9, 2011, prompting it to come to this Court.
The issues this case presents are:
1. Whether or not the CA gravely erred in holding that
Bancommerce had no valid excuse in failing to file the required
motion for reconsideration of the assailed RTC Order before
coming to the CA; and
2. Whether or not the CA gravely erred in failing to rule that the
RTC’s Order of execution against Bancommerce was a nullity
because the CA Decision of December 8, 2009 in CA-G.R. SP
91258 held that TRB had not been merged into Bancommerce as
Direct filing of the petition for
certiorari by Bancommerce
Section 1, Rule 65 of the Rules of Court provides that a petition for
certiorari may only be filed when there is no plain, speedy, and adequate
remedy in the course of law. Since a motion for reconsideration is
generally regarded as a plain, speedy, and adequate remedy, the failure
to first take recourse to is usually regarded as fatal omission.
But Bancommerce invoked certain recognized exceptions to the rule. It 12
had to forego the filing of the required motion for reconsideration of the
assailed RTC Order because a) there was an urgent necessity for the CA
to resolve the questions it raised and any further delay would prejudice its
interests; b) under the circumstances, a motion for reconsideration would
have been useless; c) Bancommerce had been deprived of its right to
due process when the RTC issued the challenged order ex parte,
depriving it of an opportunity to object; and d) the issues raised were
purely of law.
In this case, the records amply show that Bancommerce’s action fell
within the recognized exceptions to the need to file a motion for
reconsideration before filing a petition for certiorari.
First. The filing of a motion for reconsideration would be redundant since
actually the RTC’s August 18, 2010 Order amounts to a denial of
Bancommerce motion for reconsideration of the February 19, 2010 Order
which granted the application for the issuance of the alias writ.
Significantly, the alias writ of execution itself, the quashal of which was
sought by Bancommerce two times (via a motion to quash the writ and a
supplemental motion to quash the writ) derived its existence from the
RTC’s February 19, 2010 Order. Another motion for reconsideration
would have been superfluous. The RTC had not budge on those issues
in the preceding incidents. There was no point in repeatedly asking it to
reconsider.
Second. An urgent necessity for the immediate resolution of the case by
the CA existed because any further delay would have greatly prejudiced
Bancommerce. The Sheriff had been resolute and relentless in trying to
execute the judgment and dispose of the levied assets of Bancommerce.
Indeed, on April 22, 2010 the Sheriff started garnishing Bancommerce’s
deposits in other banks, including those in Banco de Oro-Salcedo-
Legaspi Branch and in the Bank of the Philippine Islands Ayala Paseo
Branch.
12
Further, the Sheriff forcibly levied on Bancommerce’s Lipa Branch cash
on hand amounting to ₱1,520,000.00 and deposited the same with the
Landbank. He also seized the bank’s computers, printers, and monitors,
causing the temporary cessation of its banking operations in that branch
and putting the bank in an unwarranted danger of a run. Clearly,
Bancommerce had valid justifications for skipping the technical
requirement of a motion for reconsideration.
Merger and De Facto Merger
Merger is a re-organization of two or more corporations that results in
their consolidating into a single corporation, which is one of the
constituent corporations, one disappearing or dissolving and the other
surviving. To put it another way, merger is the absorption of one or more
corporations by another existing corporation, which retains its identity and
takes over the rights, privileges, franchises, properties, claims, liabilities
and obligations of the absorbed corporation(s). The absorbing
corporation continues its existence while the life or lives of the other
corporation(s) is or are terminated.13
The Corporation Code requires the following steps for merger or
consolidation:
(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 o[r] 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. 14
Indubitably, it is clear that no merger took place between Bancommerce
and TRB as the requirements and procedures for a merger were absent.
A merger does not become effective upon the mere agreement of the
constituent corporations. All the requirements specified in the law must
15
be complied with in order for merger to take effect. Section 79 of the
Corporation Code further provides that the merger shall be effective only
upon the issuance by the Securities and Exchange Commission (SEC) of
a certificate of merger.
Here, Bancommerce and TRB remained separate corporations with
distinct corporate personalities. What happened is that TRB sold and
Bancommerce purchased identified recorded assets of TRB in
consideration of Bancommerce’s assumption of identified recorded
liabilities of TRB including booked contingent accounts. There is no law
that prohibits this kind of transaction especially when it is done openly
and with appropriate government approval. Indeed, the dissenting
opinions of Justices Jose Catral Mendoza and Marvic Mario Victor F.
Leonen are of the same opinion. In strict sense, no merger or
consolidation took place as the records do not show any plan or articles
of merger or consolidation. More importantly, the SEC did not issue any
certificate of merger or consolidation.
The dissenting opinion of Justice Mendoza finds, however, that a "de
facto" merger existed between TRB and Bancommerce considering that
(1) the P & A Agreement between them involved substantially all the
assets and liabilities of TRB; (2) in an Ex Parte Petition for Issuance of
Writ of Possession filed in a case, Bancommerce qualified TRB, the
petitioner, with the words "now known as Bancommerce;" and (3) the
BSP issued a Circular Letter (series of 2002) advising all banks and non-
bank financial intermediaries that the banking activities and transaction of
TRB and Bancommerce were consolidated and that the latter continued
the operations of the former.
The idea of a de facto merger came about because, prior to the present
Corporation Code, no law authorized the merger or consolidation of
13
Philippine Corporations, except insurance companies, railway
corporations, and public utilities. And, except in the case of insurance
16
corporations, no procedure existed for bringing about a merger. Still, the
17
Supreme Court held in Reyes v. Blouse, that authority to merge or
18
consolidate can be derived from Section 28½ (now Section 40) of the
former Corporation Law which provides, among others, that a corporation
may "sell, exchange, lease or otherwise dispose of all or substantially all
of its property and assets" if the board of directors is so authorized by the
affirmative vote of the stockholders holding at least two-thirds of the
voting power. The words "or otherwise dispose of," according to the
Supreme Court, is very broad and in a sense, covers a merger or
consolidation.
But the facts in Reyes show that the Board of Directors of the
Corporation being dissolved clearly intended to be merged into the other
corporations. Said this Court:
It is apparent that the purpose of the resolution is not to dissolve the
[company] but merely to transfer its assets to a new corporation in
exchange for its corporation stock. This intent is clearly deducible from
the provision that the [company] will not be dissolved but will continue
existing until its stockholders decide to dissolve the same. This comes
squarely within the purview of Section 28½ of the corporation law which
provides, among others, that a corporation may sell, exchange, lease, or
otherwise dispose of all its property and assets, including its good will,
upon such terms and conditions as its Board of Directors may deem
expedient when authorized by the affirmative vote of the shareholders
holding at least 2/3 of the voting power. [The phrase] "or otherwise
dispose of" is very broad and in a sense covers a merger or
consolidation."19
In his book, Philippine Corporate Law, Dean Cesar Villanueva explained
20
that under the Corporation Code, "a de facto merger can be pursued by
one corporation acquiring all or substantially all of the properties of
another corporation in exchange of shares of stock of the acquiring
corporation. The acquiring corporation would end up with the business
enterprise of the target corporation; whereas, the target corporation
would end up with basically its only remaining assets being the shares of
stock of the acquiring corporation." (Emphasis supplied)
No de facto merger took place in the present case simply because the
TRB owners did not get in exchange for the bank’s assets and liabilities
an equivalent value in Bancommerce shares of stock. Bancommerce and
TRB agreed with BSP approval to exclude from the sale the TRB’s
contingent judicial liabilities, including those owing to RPN, et al.
21
The Bureau of Internal Revenue (BIR) treated the transaction between
the two banks purely as a sale of specified assets and liabilities when it
rendered its opinion on the tax consequences of the transaction given
22
that there is a difference in tax treatment between a sale and a merger or
consolidation.
Indubitably, since the transaction between TRB and Bancommerce was
neither a merger nor a de facto merger but a mere "sale of assets with
assumption of liabilities," the next question before the Court is whether or
not the RTC could regard Bancommerce as RPN, et al.’s judgment
debtor.
It is pointed out that under common law, if one corporation sells or
23
otherwise transfers all its assets to another corporation, the latter is not
liable for the debts and liabilities of the transferor if it has acted in good
faith and has paid adequate consideration for the assets, except: (1)
where the purchaser expressly or impliedly agrees to assume such
debts; (2) where the transaction amounts to a consolidation or merger of
the corporations; (3) where the purchasing corporation is merely a
continuation of the selling corporation; and (4) where the transaction is
entered into fraudulently in order to escape liability for such debts. 24
But, in the first place, common law has no application in this jurisdiction
where existing statutes governing the situation are in place. Secondly,
none of the cited exceptions apply to this case.
1. Bancommerce agreed to assume those liabilities of TRB that are
specified in their P & A Agreement. That agreement specifically excluded
TRB’s contingent liabilities that the latter might have arising from pending
litigations in court, including the claims of respondent RPN, et al.
The pertinent provision of the P & A provides:
Article
CONSIDERATION: ASSUMPTION OF LIABILITIES
In consideration of the sale of identified recorded assets and properties
covered by this Agreement, BANCOMMERCE shall assume identified
recorded TRB’s liabilities including booked contingent liabilities as listed
and referred to in its Consolidated Statement of Condition as of August
31, 2001, in the total amount of PESOS: TEN BILLION FOUR HUNDRED
ONE MILLION FOUR HUNDRED THIRTY SIX THOUSAND
(₱10,410,436,000.00), provided that the liabilities so assumed shall not
include:
xxxx
2. Items in litigation, both actual and prospective, against TRB which
include but not limited to the following:
2.1 Claims of sugar planters for alleged under valuation of sugar
export sales x x x;
2.2 Claims of the Republic of the Philippines for peso-
denominated certificates supposed to have been placed by the
Marcos family with TRB;
2.3 Other liabilities not included in said Consolidated Statement of
Condition; and
2.4 Liabilities accruing after the effectivity date of this Agreement
that were not incurred in the ordinary course of
business. (Underscoring supplied)
25
2. As already pointed out above, the sale did not amount to merger or de
facto merger of Bancommerce and TRB since the elements required of
both were not present.
3. The evidence in this case fails to show that Bancommerce was a mere
continuation of TRB. TRB retained its separate and distinct identity after
the purchase. Although it subsequently changed its name to Traders
Royal Holding’s, Inc. such change did not result in its dissolution. "The
changing of the name of a corporation is no more than creation of a
corporation than the changing of the name of a natural person is the
begetting of a natural person. The act, in both cases, would seem to be
II what the language which we use to designate it imports—a change of
name and not a change of being." As such, Bancommerce and TRB
26
remained separate corporations.
4. To protect contingent claims, the BSP directed Bancommerce and
TRB to put up ₱50 million in escrow with another bank. It was the BSP,
14
not Bancommerce that fixed the amount of the escrow. Consequently, it
cannot be said that the latter bank acted in bad faith with respect to the
excluded liabilities. They did not enter into the P & A Agreement to
enable TRB to escape from its liability to creditors with pending court
cases.
Further, even without the escrow, TRB continued to be liable to its
creditors although under its new name. Parenthetically, the P & A
Agreement shows that Bancommerce acquired greater amount of TRB
liabilities than assets. Article II of the P & A Agreement shows that
Bancommerce assumed total liabilities of ₱10,401,436,000.00 while it
received total assets of only ₱10,262,154,000.00. This proves the arms
length quality of the transaction.
The dissenting opinion of Justice Mendoza cites certain instances
indicating the existence of a de facto merger in this case. One of these is
the fact that the P & A Agreement involved substantially all the assets
and liabilities of TRB. But while this is true, such fact alone would not
prove the existence of a de facto merger because a corporation "does not
really lose its juridical entity" on account of such sale. Actually, the law
27
allows a corporation to "sell, lease, exchange, mortgage, pledge or
otherwise dispose of all or substantially all of its properties and assets
including its goodwill" to another corporation. This is not merger
28
because it recognizes the separate existence of the two corporations that
transact the sale.
The dissenting opinion of Justice Mendoza claims that another proof of a
de facto merger is that in a case, Bancommerce qualified TRB in its Ex
Parte Petition for Issuance of Writ of Possession with the words "now
known as Bancommerce." But paragraph 3 of the Ex Parte Petition
shows the context in which such qualification was made. It reads: 29
3. On November 09, 2001, Bank of Commerce and Traders Royal Bank
executed and signed a Purchase and Sale Agreement. The account of
the mortgagor was among those acquired under the agreement.
Photocopy of the agreement is hereto attached as Annex "A."
It is thus clear that the phrase "now known as Bank of Commerce" used
in the petition served only to indicate that Bancommerce is now the
former property owner’s creditor that filed the petition for writ of
possession as a result of the P & A Agreement. It does not indicate a
merger.
15
Lastly, the dissenting opinion of Justice Mendoza cited the Circular Letter
(series of 2002) issued by the BSP advising all banks and non-bank
financial intermediaries that the banking activities and transaction of TRB
and Bancommerce were consolidated and that the latter continued the
operations of the former as an indication of a de facto merger. The
Circular Letter reads:
30
CIRCULAR LETTER
(series of 2002)
TO: ALL BANK AND NON-BANK
FINANCIAL INTERMEDIARIES
The Securities and Exchange Commission approved on August 15, 2002
the Amendment of the Articles of Incorporation and By-Laws of Traders
Royal Bank on the deletion of the term "banks" and "banking" from the
corporate name and purpose, pursuant to the purchase of assets and
assumption of liabilities of Traders Royal Bank by Bank of Commerce.
Accordingly, the bank franchise of Traders Royal Bank has been
automatically revoked and Traders Royal Bank has ceased to operate as
a banking entity.
Effective July 3, 2002, the banking activities and transactions of Bank of
Commerce and Traders Royal Bank have been consolidated and the
former has carried their operations since then.
For your information and guidance.
(Sgd.)
ALBERTO V. REYES
Deputy Governor
Indeed, what was "consolidated" per the above letter was the banking
activities and transactions of Bancommerce and TRB, not their corporate
existence. The BSP did not remotely suggest a merger of the two
corporations. What controls the relationship between those corporations
cannot be the BSP letter circular, which had been issued without their
participation, but the terms of their P & A Agreement that the BSP
approved through its Monetary Board.
Also, in a letter dated November 2,2005 Atty. Juan De Zuñiga, Jr.,
Assistant Governor and General Counsel of the BSP, clarified to the RTC
the use of the word "merger" in their January 29, 2003 letter. According to
him, the word "merger" was used "in a very loose sense x x x and merely
repeated, for convenience" the term used by the RTC. It further stated
31
that "Atty. Villanueva did not issue any legal pronouncement in the said
letter, which is merely transmittal in nature. Thus it cannot, by any stretch
of construction, be considered as binding on the BSP. What is binding to
the BSP is MB Res. 58 referring to the aforementioned transaction
between TRB and Bancommerce as a purchase and assumption
agreement." 32
Since there had been no merger, Bancommerce cannot be considered as
TRB’s successor-in-interest and against which the Court’s Decision of
October 10, 2002 in G.R. 138510 may been forced. Bancommerce did
not hold the former TRBs assets in trust for it as to subject them to
garnishment for the satisfaction of the latter’s liabilities to RPN, et al.
Bancommerce bought and acquired those assets and thus, became their
absolute owner.
The CA Decision in
CA-G.R. SP 91258
According to the dissenting opinion of Justice Mendoza, the CA Decision
dated December 8, 2009 did not reverse the RTC’s Order causing the
issuance of a writ of execution against Bancommerce to enforce the
judgment against TRB. It also argues that the CA did not find grave
abuse of discretion on the RTC’s part when it issued its August 15, 2005
Order granting the issuance of a writ of execution. In fact, it affirmed that
order. Moreover, it argued that the CA’s modification of the RTC Order
1âwphi1
merely deleted an opinion there expressed and not reversed such order.
But it should be the substance of the CA’s modification of the RTC Order
that should control, not some technical flaws that are taken out of
context. Clearly, the RTC’s basis for holding Bancommerce liable to TRB
was its finding that TRB had been merged into Bancommerce, making
the latter liable for TRB’s debts to RPN, et al. The CA clearly annulled
such finding in its December 8, 2009 Decision in CA-G.R. SP 91258,
thus:
WHEREFORE, the herein consolidated Petitions are DENIED. The
assailed Orders dated August 15, 2005 and February 22, 2006 of the
respondent Judge, are AFFIRMED with the MODIFICATION that the
16
pronouncement of respondent Judge in the August 15, 2005 Order that
the PSA between TRB and BANCOM is a farce or "a mere tool to
effectuate a merger and/or consolidation between TRB and BANCOM" is
DELETED.
SO ORDERED. 33
Thus, the CA was careful in its decision to restrict the enforcement of the
writ of execution only to "TRB’s properties found in Bancommerce’s
possession." Indeed, the CA clearly said in its decision that it was not
Bancommerce that the RTC Order was being made to answer for TRB’s
judgment credit but "the assets/properties of TRB in the hands of
BANCOM." The CA then went on to state that it is not prepared, unlike
the RTC, to declare the P & A Agreement but a farce or a "mere tool to
effectuate a merger and/or consolidation." Thus, the CA deleted the
RTC’s reliance on such supposed merger or consolidation between the
two as a basis for its questioned order.
The enforcement, therefore, of the decision in the main case should not
include the assets and properties that Bancommerce acquired from TRB.
These have ceased to be assets and properties of TRB under the terms
of the BSP-approved P & A Agreement between them. They are not TRB
assets and properties in the possession of Bancommerce. To make them
so would be an unwarranted departure from the CA’s Decision in CA-
G.R. SP 91258.
WHEREFORE, the petition is GRANTED. The assailed Resolution of
November 26, 2010 and the Resolution of February 9, 2011 of the Court
of Appeals both in CA-G.R. SP 116704 are REVERSED and SET ASIDE.
Accordingly, the assailed Orders dated February 19, 2010 and August
18, 2010, the Alias Writ of Execution dated March 9, 2010, all issued by
the Regional Trial Court and all orders, notices of garnishment/levy, or
notices of sale and any other action emanating from the Orders dated
February 19, 2010 and August 18, 2010 in Civil Case Q-89-3580 are
ANNULLED and SET ASIDE. The Temporary Restraining Order issued
by this Court on April 13, 2011 is hereby made PERMANENT.
SO ORDERED.