Professional Documents
Culture Documents
178618 October 11, 2010 Meanwhile, on May 26, 1986, the Board of Directors of FISLAI passed
and approved Board Resolution No. 86-002, assigning its assets in favor
MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented of DSLAI which in turn assumed the former’s liabilities.8
by its Liquidator, THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION, Petitioner, The business of MSLAI, however, failed. Hence, the Monetary Board of
vs. the Central Bank of the Philippines ordered its closure and placed it
EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO under receivership per Monetary Board Resolution No. 922 dated August
BANTUAS, in his capacity as the Deputy Sheriff of Regional Trial 31, 1990. The Monetary Board found that MSLAI’s financial condition
Court, Branch 3, Iligan City; and the REGISTER OF DEEDS of was one of insolvency, and for it to continue in business would involve
Cagayan de Oro City, Respondent. probable loss to its depositors and creditors. On May 24, 1991, the
Monetary Board ordered the liquidation of MSLAI, with PDIC as its
DECISION liquidator.9
NACHURA, J.: 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
This is a petition for review on certiorari under Rule 45 of the Rules of FISLAI, docketed as Civil Case No. 111-697. On October 19, 1989, the
Court filed by Mindanao Savings and Loan Association, Inc. (MSLAI), RTC issued a summary decision in favor of Uy, directing defendants
represented by its liquidator, Philippine Deposit Insurance Corporation therein (which included FISLAI) to pay the former the sum of
(PDIC), against respondents Edward R. Willkom (Willkom); Gilda Go ₱136,801.70, plus interest until full payment, 25% as attorney’s fees, and
(Go); Remedios Uy (Uy); Malayo Bantuas (sheriff Bantuas), in his the costs of suit. The decision was modified by the CA by further ordering
capacity as sheriff of the Regional Trial Court (RTC), Branch 3 of Iligan the third-party defendant therein to reimburse the payments that would
City; and the Register of Deeds of Cagayan de Oro City. MSLAI seeks be made by the defendants. The decision became final and executory on
the reversal and setting aside of the Court of Appeals1 (CA) February 21, 1992. A writ of execution was thereafter issued.10
Decision2 dated March 21, 2007 and Resolution3 dated June 1, 2007 in
CA-G.R. CV No. 58337. 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
The controversy stemmed from the following facts: 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.
The First Iligan Savings and Loan Association, Inc. (FISLAI) and the
Upon the expiration of the redemption period, sheriff Bantuas issued the
Davao Savings and Loan Association, Inc. (DSLAI) are entities duly
sheriff’s definite deed of sale. New certificates of title covering the subject
registered with the Securities and Exchange Commission (SEC) under
properties were issued in favor of Willkom. On September 20, 1994,
Registry Nos. 34869 and 32388, respectively, primarily engaged in the
Willkom sold one of the subject parcels of land to Go.11
business of granting loans and receiving deposits from the general
public, and treated as banks.4
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
Sometime in 1985, FISLAI and DSLAI entered into a merger, with DSLAI
Sale, Cancellation of Title and Reconveyance of Properties against
as the surviving corporation.5 The articles of merger were not registered
respondents.12 MSLAI alleged that the sale on execution of the subject
with the SEC due to incomplete documentation.6 On August 12, 1985,
properties was conducted without notice to it and PDIC; that PDIC only
DSLAI changed its corporate name to MSLAI by way of an amendment to
came to know about the sale for the first time in February 1995 while
Article 1 of its Articles of Incorporation, but the amendment was approved
discharging its mandate of liquidating MSLAI’s assets; that the execution
by the SEC only on April 3, 1987.7
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 there had been a de facto merger between FISLAI and MSLAI (formerly
receivership or liquidation such as MSLAI should be deemed in custodia DSLAI), Willkom, having relied on the clean certificates of title, was an
legis and should be exempt from any order of garnishment, levy, innocent purchaser for value, whose right is superior to that of MSLAI.
attachment, or execution.13 Furthermore, the alleged assignment of assets and liabilities executed by
FISLAI in favor of MSLAI was not binding on third parties because it was
In answer, respondents averred that MSLAI had no cause of action not registered. Finally, the CA said that the validity of the auction sale
against them or the right to recover the subject properties because could not be invalidated by the fact that the sheriff had no authority to
MSLAI is a separate and distinct entity from FISLAI. They further conduct the execution sale.18
contended that the "unofficial merger" between FISLAI and DSLAI (now
MSLAI) did not take effect considering that the merging companies did Petitioner’s motion for reconsideration was denied in a Resolution dated
not comply with the formalities and procedure for merger or consolidation June 1, 2007. Hence, the instant petition anchored on the following
as prescribed by the Corporation Code of the Philippines. Finally, they grounds:
claimed that FISLAI is still a SEC registered corporation and could not
have been absorbed by petitioner.14 THE HONORABLE COURT OF APPEALS, CAGAYAN DE ORO
COMMITTED GRAVE AND REVERSIBLE ERROR WHEN:
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 (1)
in Civil Case No. 111-697, having been rendered by a court of coordinate
jurisdiction.15 IT PASSED UPON THE EXISTENCE AND STATUS OF DSLAI
(now MSLAI) AS THE SURVIVING ENTITY IN THE MERGER
On appeal, MSLAI failed to obtain a favorable decision when the CA BETWEEN DSLAI AND FISLAI AS A DEFENSE IN AN ACTION
affirmed the RTC resolution. The dispositive portion of the assailed CA OTHER THAN IN A QUO WARRANTO PROCEEDING UPON
Decision reads: THE INSTITUTION OF THE SOLICITOR GENERAL AS
MANDATED UNDER SECTION 20 OF BATAS PAMBANSA
WHEREFORE, premises considered, the instant appeal is DENIED. The BLG. 68.
decision assailed is AFFIRMED.
(2)
We REFER Sheriff Malayo B. Bantuas’ violation of the Supreme Court
Administrative Circular No. 12 to the Office of the Court Administrator for IT REFUSED TO RECOGNIZE THE MERGER BETWEEN
appropriate action. The Division Clerk of Court is hereby DIRECTED to F[I]SLAI AND DSLAI WITH DSLAI AS THE SURVIVING
furnish the Office of the Court Administrator a copy of this decision. CORPORATION.
SO ORDERED.16 (3)
The appellate court sustained the dismissal of petitioner’s complaint not IT HELD THAT THE PROPERTIES SUBJECT OF THE CASE
because it had no jurisdiction over the case, as held by the RTC, but on a ARE NOT IN CUSTODIA LEGIS AND THEREFORE, EXEMPT
different ground. Citing Associated Bank v. CA,17 the CA ruled that there FROM GARNISHMENT, LEVY, ATTACHMENT OR
was no merger between FISLAI and MSLAI (formerly DSLAI) for their EXECUTION.19
failure to follow the procedure laid down by the Corporation Code for a
valid merger or consolidation. The CA then concluded that the two To resolve this petition, we must address two basic questions: (1) Was
corporations retained their separate personalities; consequently, the the merger between FISLAI and DSLAI (now MSLAI) valid and effective;
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
and (2) Was there novation of the obligation by substituting the person of incorporation of the consolidated corporation, or amend the
the debtor? articles of incorporation of the surviving corporation.
We answer both questions in the negative. (4) Submission of said articles of merger or consolidation to the
SEC for approval.
Ordinarily, in the merger of two or more existing corporations, one of the
corporations survives and continues the combined business, while the (5) If necessary, the SEC shall set a hearing, notifying all
rest are dissolved and all their rights, properties, and liabilities are corporations concerned at least two weeks before.
acquired by the surviving corporation.20 Although there is a dissolution of
the absorbed or merged corporations, there is no winding up of their (6) Issuance of certificate of merger or consolidation.28
affairs or liquidation of their assets because the surviving corporation
automatically acquires all their rights, privileges, and powers, as well as Clearly, the merger shall only be effective upon the issuance of a
their liabilities.21 certificate of merger by the SEC, subject to its prior determination that the
merger is not inconsistent with the Corporation Code or existing
The merger, however, does not become effective upon the mere laws.29 Where a party to the merger is a special corporation governed by
agreement of the constituent corporations.22 Since a merger or its own charter, the Code particularly mandates that a favorable
consolidation involves fundamental changes in the corporation, as well as recommendation of the appropriate government agency should first be
in the rights of stockholders and creditors, there must be an express obtained.30
provision of law authorizing them.23
In this case, it is undisputed that the articles of merger between FISLAI
The steps necessary to accomplish a merger or consolidation, as and DSLAI were not registered with the SEC due to incomplete
provided for in Sections 76,24 77,25 78,26 and 7927 of the Corporation Code, documentation. Consequently, the SEC did not issue the required
are: 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
(1) The board of each corporation draws up a plan of merger or that no certificate was issued by the SEC. Such merger is still incomplete
consolidation. Such plan must include any amendment, if without the certification.
necessary, to the articles of incorporation of the surviving
corporation, or in case of consolidation, all the statements The issuance of the certificate of merger is crucial because not only does
required in the articles of incorporation of a corporation. 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
(2) Submission of plan to stockholders or members of each effectivity of the merger, the absorbed corporation ceases to exist but its
corporation for approval. A meeting must be called and at least rights and properties, as well as liabilities, shall be taken and deemed
two (2) weeks’ notice must be sent to all stockholders or transferred to and vested in the surviving corporation.31
members, personally or by registered mail. A summary of the
plan must be attached to the notice. Vote of two-thirds of the The same rule applies to consolidation which becomes effective not upon
members or of stockholders representing two-thirds of the mere agreement of the members but only upon issuance of the certificate
outstanding capital stock will be needed. Appraisal rights, when of consolidation by the SEC.32 When the SEC, upon processing and
proper, must be respected. examining the articles of consolidation, is satisfied that the consolidation
of the corporations is not inconsistent with the provisions of the
(3) Execution of the formal agreement, referred to as the articles Corporation Code and existing laws, it issues a certificate of
of merger o[r] consolidation, by the corporate officers of each consolidation which makes the reorganization official.33 The new
constituent corporation. These take the place of the articles of consolidated corporation comes into existence and the constituent
corporations are dissolved and cease to exist.34
3
There being no merger between FISLAI and DSLAI (now MSLAI), for against the will of the latter, but not without the consent of the creditor.
third parties such as respondents, the two corporations shall not be Payment by the new debtor gives him the rights mentioned in Articles
considered as one but two separate corporations. A corporation is an 1236 and 1237.
artificial being created by operation of law. It possesses the right of
succession and such powers, attributes, and properties expressly In this case, there was no showing that Uy, the creditor, gave her consent
authorized by law or incident to its existence.35 It has a personality to the agreement that DSLAI (now MSLAI) would assume the liabilities of
separate and distinct from the persons composing it, as well as from any FISLAI. Such agreement cannot prejudice Uy. Thus, the assets that
other legal entity to which it may be related.36 Being separate entities, the FISLAI transferred to DSLAI remained subject to execution to satisfy the
property of one cannot be considered the property of the other. 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
Thus, in the instant case, as far as third parties are concerned, the assets Go, cannot, therefore, be questioned by MSLAI.
of FISLAI remain as its assets and cannot be considered as belonging to
DSLAI and MSLAI, notwithstanding the Deed of Assignment wherein The consent of the creditor to a novation by change of debtor is as
FISLAI assigned its assets and properties to DSLAI, and the latter indispensable as the creditor’s consent in conventional subrogation in
assumed all the liabilities of the former. As provided in Article 1625 of the order that a novation shall legally take place.39 Since novation implies a
Civil Code, "an assignment of credit, right or action shall produce no waiver of the right which the creditor had before the novation, such
effect as against third persons, unless it appears in a public instrument, waiver must be express.40
or the instrument is recorded in the Registry of Property in case the
assignment involves real property." The certificates of title of the subject WHEREFORE, premises considered, the petition is DENIED. The Court
properties were clean and contained no annotation of the fact of of Appeals Decision dated March 21, 2007 and Resolution dated June 1,
assignment. Respondents cannot, therefore, be faulted for enforcing their 2007 in CA-G.R. CV No. 58337 are AFFIRMED.
claim against FISLAI on the properties registered under its name.
Accordingly, MSLAI, as the successor-in-interest of DSLAI, has no legal
SO ORDERED.
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.
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
In the present incident, petitioner Bank of the Philippine Islands (BPI) Notwithstanding our affirmation of the applicability of the Union Shop
moves for reconsideration1 of our Decision dated August 10, 2010, Clause to former FEBTC employees, for reasons already extensively
holding that former employees of the Far East Bank and Trust Company discussed in the August 10, 2010 Decision, even now BPI continues to
(FEBTC) "absorbed" by BPI pursuant to the two banks’ merger in 2000 protest the inclusion of said employees in the Union Shop Clause.
were covered by the Union Shop Clause in the then existing collective
bargaining agreement (CBA)2 of BPI with respondent BPI Employees In seeking the reversal of our August 10, 2010 Decision, petitioner insists
Union-Davao Chapter-Federation of Unions in BPI Unibank (the Union). 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-
To recall, the Union Shop Clause involved in this long standing regular employees but later attained regular status at some point after
controversy provided, thus: hiring. FEBTC employees cannot be considered new employees as BPI
merely stepped into the shoes of FEBTC as an employer purely as a
ARTICLE II consequence of the merger.5
7
absorbed employees from the application of the Union Shop Clause. In means of livelihood. Therefore, he should be protected against any
the Decision, we noted that: arbitrary deprivation of his job. Article 280 of the Labor Code has
construed security of tenure as meaning that "the employer shall not
Verily, we agree with the Court of Appeals that there are no substantial terminate the services of an employee except for a just cause or
differences between a newly hired non-regular employee who was when authorized by" the Code. x x x (Emphasis supplied.)
regularized weeks or months after his hiring and a new employee who
was absorbed from another bank as a regular employee pursuant to a We have also previously held that the fundamental guarantee of security
merger, for purposes of applying the Union Shop Clause. Both of tenure and due process dictates that no worker shall be dismissed
employees were hired/employed only after the CBA was signed. At the except for a just and authorized cause provided by law and after due
time they are being required to join the Union, they are both already process is observed.21 Even as we now recognize the right to continuous,
regular rank and file employees of BPI. They belong to the same unbroken employment of workers who are absorbed into a new company
bargaining unit being represented by the Union. They both enjoy benefits pursuant to a merger, it is but logical that their employment may be
that the Union was able to secure for them under the CBA. When they terminated for any causes provided for under the law or in jurisprudence
both entered the employ of BPI, the CBA and the Union Shop Clause without violating their right to security of tenure. As Justice Carpio
therein were already in effect and neither of them had the opportunity to discussed in his dissenting opinion, it is well-settled that termination of
express their preference for unionism or not. We see no cogent reason employment by virtue of a union security clause embodied in a CBA is
why the Union Shop Clause should not be applied equally to these two recognized in our jurisdiction.22 In Del Monte Philippines, Inc. v.
types of new employees, for they are undeniably similarly situated.18 Saldivar,23 we explained the rationale for this policy in this wise:
Again, it is worthwhile to highlight that a contrary interpretation of the Article 279 of the Labor Code ordains that "in cases of regular
Union Shop Clause would dilute its efficacy and put the certified union employment, the employer shall not terminate the services of an
that is supposedly being protected thereby at the mercy of management. employee except for a just cause or when authorized by [Title I, Book Six
For if the former FEBTC employees had no say in the merger of its of the Labor Code]." Admittedly, the enforcement of a closed-shop or
former employer with another bank, as petitioner BPI repeatedly decries union security provision in the CBA as a ground for termination
on their behalf, the Union likewise could not prevent BPI from proceeding finds no extension within any of the provisions under Title I, Book
with the merger which undisputedly affected the number of employees in Six of the Labor Code. Yet jurisprudence has consistently
the bargaining unit that the Union represents and may negatively impact recognized, thus: "It is State policy to promote unionism to enable
on the Union’s majority status. In this instance, we should be guided by workers to negotiate with management on an even playing field and with
the principle that courts must place a practical and realistic construction more persuasiveness than if they were to individually and separately
upon a CBA, giving due consideration to the context in which it is bargain with the employer. For this reason, the law has allowed
negotiated and purpose which it is intended to serve.19 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
We now come to the question: Does our affirmance of our ruling that their rights and interests vis-a-vis the employer."24 (Emphasis supplied.)
former FEBTC employees absorbed by BPI are covered by the Union
Shop Clause violate their right to security of tenure which we expressly Although it is accepted that non-compliance with a union security clause
upheld in this Resolution? We answer in the negative. 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
In Rance v. National Labor Relations Commission,20 we held that: much we decreed in General Milling Corporation v. Casio,25 to wit:
It is the policy of the state to assure the right of workers to "security of The Court reiterated in Malayang Samahan ng mga Manggagawa sa M.
tenure" (Article XIII, Sec. 3 of the New Constitution, Section 9, Article II of Greenfield v. Ramos that:
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
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.
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.
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
G.R. No. 195615 April 21, 2014
Following the above approval, on November 9, 2001 Bancommerce
BANK OF COMMERCE, Petitioner, entered into a P & A Agreement with TRB and acquired its specified
vs. assets and liabilities, excluding liabilities arising from judicial actions
RADIO PHILIPPINES NETWORK, INC., INTERCONTINENTAL which were to be covered by the BSP-mandated escrow of ₱50 million.
BROADCASTING CORPORATION, and BANAHA W BROADCASTING
CORPORATION, THRU BOARD OF ADMINISTRATOR, and SHERIFF
To comply with the BSP mandate, on December 6, 2001 TRB placed ₱50
BIENVENIDO S. REYES, JR., Sheriff, Regional Trial Court of Quezon
million in escrow with Metropolitan Bank and Trust Co. (Metrobank) to
City, Branch 98, Respondents.
answer for those claims and liabilities that were excluded from the P & A
Agreement and remained with TRB. Accordingly, the BSP finally
DECISION approved such agreement on July 3, 2002.
ABAD, J.: Shortly after or on October 10, 2002, acting in G.R. 138510, Traders
Royal Bank v. Radio Philippines Network (RPN), Inc., this Court ordered
In late 2001 the Traders Royal Bank (TRB) proposed to sell to petitioner TRB to pay respondents RPN, Intercontinental Broadcasting Corporation,
Bank of Commerce (Bancommerce) for ₱10.4 billion its banking business and Banahaw Broadcasting Corporation (collectively, RPN, et al.) actual
consisting of specified assets and liabilities. Bancommerce agreed damages of ₱9,790,716.87 plus 12% legal interest and some amounts.
subject to prior Bangko Sentral ng Pilipinas' (BSP's) approval of their Based on this decision, RPN, et al.filed a motion for execution against
Purchase and Assumption (P & A) Agreement. On November 8, 2001 the TRB before the Regional Trial Court (RTC) of Quezon City. But rather
BSP approved that agreement subject to the condition that than pursue a levy in execution of the corresponding amounts on escrow
Bancommerce and TRB would set up an escrow fund of PSO million with with Metrobank, RPN, et al. filed a Supplemental Motion for
another bank to cover TRB liabilities for contingent claims that may Execution where they described TRB as "now Bank of Commerce"
1
subsequently be adjudged against it, which liabilities were excluded from based on the assumption that TRB had been merged into Bancommerce.
the purchase.
On February 20, 2004, having learned of the supplemental application for
Specifically, the BSP Monetary Board Min. No. 58 (MB Res. 58) decided execution, Bancommerce filed its Special Appearance with Opposition to
as follows: the same questioning the jurisdiction of the RTC over Bancommerce and
2
2001 granting certain incentives pursuant to Circular No. 237, series of of execution to cover any and all assets of TRB, "including those subject
10
of the merger/consolidation in the guise of a Purchase and Sale the CA Decision. The RTC granted the motion on February 19, 2010 on
8
Agreement with Bank of Commerce, and/or against the Escrow Fund the premise that the CA Decision allowed it to execute on the assets that
established by TRB and Bank of Commerce with the Metropolitan Bank Bancommerce acquired from TRB under their P & A Agreement.
and Trust Company."
On March 10, 2010 Bancommerce sought reconsideration of the RTC
This prompted Bancommerce to file a petition for certiorari with the Court Order considering that the December 8,2009 CA Decision actually
of Appeals (CA) in CA-G.R. SP 91258 assailing the RTC’s Order. On declared that no merger existed between TRB and Bancommerce. But,
December 8, 2009 the CA denied the petition. The CA pointed out that
4
since the RTC had already issued the alias writ on March 9, 2010
the Decision of the RTC was clear in that Bancommerce was not being Bancommerce filed on March 16, 2010 a motion to quash the same,
made to answer for the liabilities of TRB, but rather the assets or followed by supplemental Motion on April 29, 2010.
9
On August 18, 2010 the RTC issued the assailed Order denying 10
In the same Decision, the CA modified the Decision of the RTC by Bancommerce pleas and, among others, directing the release to the
deleting the phrase that the P & A Agreement between TRB and Sheriff of Bancommerce’s "garnished monies and shares of stock or their
Bancommerce is a farce or "a mere tool to effectuate a merger and/or monetary equivalent" and for the sheriff to pay 25% of the amount "to the
consolidation between TRB and BANCOM." The CA Decision partly respondents’ counsel representing his attorney’s fees and ₱200,000.00
reads: representing his appearance fees and litigation expenses" and the
balance to be paid to the respondents after deducting court dues.
xxxx
Aggrieved, Bancommerce immediately elevated the RTC Order to the CA
We are not prepared though, unlike the respondent Judge, to declare the via a petition for certiorari under Rule 65 to assail the Orders dated
PSA between TRB and BANCOM as a farce or "a mere tool to effectuate February 19, 2010 and August 18, 2010. On November 26, 2010 the
a merger and/or consolidation" of the parties to the PSA. There is just a CA dismissed the petition outright for the supposed failure of
11
dearth of conclusive evidence to support such a finding, at least at this Bancommerce to file a motion for reconsideration of the assailed order.
point. Consequently, the statement in the dispositive portion of the The CA denied Bancommerce’s motion for reconsideration on February
assailed August 15, 2005 Order referring to a merger/consolidation 9, 2011, prompting it to come to this Court.
between TRB and BANCOM is deleted. 6
On January 8, 2010 RPN, et al. filed with the RTC a motion to cause the Direct filing of the petition for
issuance of an alias writ of execution against Bancommerce based on certiorari by Bancommerce
11
Section 1, Rule 65 of the Rules of Court provides that a petition for Further, the Sheriff forcibly levied on Bancommerce’s Lipa Branch cash
certiorari may only be filed when there is no plain, speedy, and adequate on hand amounting to ₱1,520,000.00 and deposited the same with the
remedy in the course of law. Since a motion for reconsideration is Landbank. He also seized the bank’s computers, printers, and monitors,
generally regarded as a plain, speedy, and adequate remedy, the failure causing the temporary cessation of its banking operations in that branch
to first take recourse to is usually regarded as fatal omission. and putting the bank in an unwarranted danger of a run. Clearly,
Bancommerce had valid justifications for skipping the technical
But Bancommerce invoked certain recognized exceptions to the rule. It 12 requirement of a motion for reconsideration.
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 Merger and De Facto Merger
to resolve the questions it raised and any further delay would prejudice its
interests; b) under the circumstances, a motion for reconsideration would Merger is a re-organization of two or more corporations that results in
have been useless; c) Bancommerce had been deprived of its right to their consolidating into a single corporation, which is one of the
due process when the RTC issued the challenged order ex parte, constituent corporations, one disappearing or dissolving and the other
depriving it of an opportunity to object; and d) the issues raised were surviving. To put it another way, merger is the absorption of one or more
purely of law. corporations by another existing corporation, which retains its identity and
takes over the rights, privileges, franchises, properties, claims, liabilities
In this case, the records amply show that Bancommerce’s action fell and obligations of the absorbed corporation(s). The absorbing
within the recognized exceptions to the need to file a motion for corporation continues its existence while the life or lives of the other
reconsideration before filing a petition for certiorari. corporation(s) is or are terminated.13
First. The filing of a motion for reconsideration would be redundant since The Corporation Code requires the following steps for merger or
actually the RTC’s August 18, 2010 Order amounts to a denial of consolidation:
Bancommerce motion for reconsideration of the February 19, 2010 Order
which granted the application for the issuance of the alias writ. (1) The board of each corporation draws up a plan of merger or
consolidation. Such plan must include any amendment, if
Significantly, the alias writ of execution itself, the quashal of which was necessary, to the articles of incorporation of the surviving
sought by Bancommerce two times (via a motion to quash the writ and a corporation, or in case of consolidation, all the statements
supplemental motion to quash the writ) derived its existence from the required in the articles of incorporation of a corporation.
RTC’s February 19, 2010 Order. Another motion for reconsideration
would have been superfluous. The RTC had not budge on those issues (2) Submission of plan to stockholders or members of each
in the preceding incidents. There was no point in repeatedly asking it to corporation for approval. A meeting must be called and at least
reconsider. two (2) weeks’ notice must be sent to all stockholders or
members, personally or by registered mail. A summary of the
Second. An urgent necessity for the immediate resolution of the case by plan must be attached to the notice. Vote of two-thirds of the
the CA existed because any further delay would have greatly prejudiced members or of stockholders representing two thirds of the
Bancommerce. The Sheriff had been resolute and relentless in trying to outstanding capital stock will be needed. Appraisal rights, when
execute the judgment and dispose of the levied assets of Bancommerce. proper, must be respected.
Indeed, on April 22, 2010 the Sheriff started garnishing Bancommerce’s
deposits in other banks, including those in Banco de Oro-Salcedo- (3) Execution of the formal agreement, referred to as the articles
Legaspi Branch and in the Bank of the Philippine Islands Ayala Paseo of merger o[r] consolidation, by the corporate officers of each
Branch. 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.
12
(4) Submission of said articles of merger or consolidation to the Philippine Corporations, except insurance companies, railway
SEC for approval. corporations, and public utilities. And, except in the case of insurance
16
(5) If necessary, the SEC shall set a hearing, notifying all Supreme Court held in Reyes v. Blouse, that authority to merge or
18
corporations concerned at least two weeks before. consolidate can be derived from Section 28½ (now Section 40) of the
former Corporation Law which provides, among others, that a corporation
(6) Issuance of certificate of merger or consolidation. 14 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
Indubitably, it is clear that no merger took place between Bancommerce
voting power. The words "or otherwise dispose of," according to the
and TRB as the requirements and procedures for a merger were absent.
Supreme Court, is very broad and in a sense, covers a merger or
A merger does not become effective upon the mere agreement of the
consolidation.
constituent corporations. All the requirements specified in the law must
15
Here, Bancommerce and TRB remained separate corporations with It is apparent that the purpose of the resolution is not to dissolve the
distinct corporate personalities. What happened is that TRB sold and [company] but merely to transfer its assets to a new corporation in
Bancommerce purchased identified recorded assets of TRB in exchange for its corporation stock. This intent is clearly deducible from
consideration of Bancommerce’s assumption of identified recorded the provision that the [company] will not be dissolved but will continue
liabilities of TRB including booked contingent accounts. There is no law existing until its stockholders decide to dissolve the same. This comes
that prohibits this kind of transaction especially when it is done openly squarely within the purview of Section 28½ of the corporation law which
and with appropriate government approval. Indeed, the dissenting provides, among others, that a corporation may sell, exchange, lease, or
opinions of Justices Jose Catral Mendoza and Marvic Mario Victor F. otherwise dispose of all its property and assets, including its good will,
Leonen are of the same opinion. In strict sense, no merger or upon such terms and conditions as its Board of Directors may deem
consolidation took place as the records do not show any plan or articles expedient when authorized by the affirmative vote of the shareholders
of merger or consolidation. More importantly, the SEC did not issue any holding at least 2/3 of the voting power. [The phrase] "or otherwise
certificate of merger or consolidation. dispose of" is very broad and in a sense covers a merger or
consolidation."19
(1) the P & A Agreement between them involved substantially all the that under the Corporation Code, "a de facto merger can be pursued by
assets and liabilities of TRB; (2) in an Ex Parte Petition for Issuance of one corporation acquiring all or substantially all of the properties of
Writ of Possession filed in a case, Bancommerce qualified TRB, the another corporation in exchange of shares of stock of the acquiring
petitioner, with the words "now known as Bancommerce;" and (3) the corporation. The acquiring corporation would end up with the business
BSP issued a Circular Letter (series of 2002) advising all banks and non- enterprise of the target corporation; whereas, the target corporation
bank financial intermediaries that the banking activities and transaction of would end up with basically its only remaining assets being the shares of
TRB and Bancommerce were consolidated and that the latter continued stock of the acquiring corporation." (Emphasis supplied)
the operations of the former.
No de facto merger took place in the present case simply because the
The idea of a de facto merger came about because, prior to the present TRB owners did not get in exchange for the bank’s assets and liabilities
Corporation Code, no law authorized the merger or consolidation of an equivalent value in Bancommerce shares of stock. Bancommerce and
13
TRB agreed with BSP approval to exclude from the sale the TRB’s and referred to in its Consolidated Statement of Condition as of August
contingent judicial liabilities, including those owing to RPN, et al.
21
31, 2001, in the total amount of PESOS: TEN BILLION FOUR HUNDRED
ONE MILLION FOUR HUNDRED THIRTY SIX THOUSAND
The Bureau of Internal Revenue (BIR) treated the transaction between (₱10,410,436,000.00), provided that the liabilities so assumed shall not
the two banks purely as a sale of specified assets and liabilities when it include:
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 xxxx
consolidation.
2. Items in litigation, both actual and prospective, against TRB which
Indubitably, since the transaction between TRB and Bancommerce was include but not limited to the following:
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 2.1 Claims of sugar planters for alleged under valuation of sugar
not the RTC could regard Bancommerce as RPN, et al.’s judgment export sales x x x;
debtor.
2.2 Claims of the Republic of the Philippines for peso-
It is pointed out that under common law, if one corporation sells or
23
denominated certificates supposed to have been placed by the
otherwise transfers all its assets to another corporation, the latter is not Marcos family with TRB;
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) 2.3 Other liabilities not included in said Consolidated Statement of
where the purchaser expressly or impliedly agrees to assume such Condition; and
debts; (2) where the transaction amounts to a consolidation or merger of
the corporations; (3) where the purchasing corporation is merely a
2.4 Liabilities accruing after the effectivity date of this Agreement
continuation of the selling corporation; and (4) where the transaction is
that were not incurred in the ordinary course of
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
2. As already pointed out above, the sale did not amount to merger or de
where existing statutes governing the situation are in place. Secondly,
facto merger of Bancommerce and TRB since the elements required of
none of the cited exceptions apply to this case.
both were not present.
1. Bancommerce agreed to assume those liabilities of TRB that are
3. The evidence in this case fails to show that Bancommerce was a mere
specified in their P & A Agreement. That agreement specifically excluded
continuation of TRB. TRB retained its separate and distinct identity after
TRB’s contingent liabilities that the latter might have arising from pending
the purchase. Although it subsequently changed its name to Traders
litigations in court, including the claims of respondent RPN, et al.
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
The pertinent provision of the P & A provides: 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
Article II what the language which we use to designate it imports—a change of
CONSIDERATION: ASSUMPTION OF LIABILITIES name and not a change of being." As such, Bancommerce and TRB
26
14
not Bancommerce that fixed the amount of the escrow. Consequently, it Lastly, the dissenting opinion of Justice Mendoza cited the Circular Letter
cannot be said that the latter bank acted in bad faith with respect to the (series of 2002) issued by the BSP advising all banks and non-bank
excluded liabilities. They did not enter into the P & A Agreement to financial intermediaries that the banking activities and transaction of TRB
enable TRB to escape from its liability to creditors with pending court and Bancommerce were consolidated and that the latter continued the
cases. operations of the former as an indication of a de facto merger. The
Circular Letter reads:
30
The dissenting opinion of Justice Mendoza claims that another proof of a For your information and guidance.
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
(Sgd.)
known as Bancommerce." But paragraph 3 of the Ex Parte Petition
shows the context in which such qualification was made. It reads: 29
ALBERTO V. REYES
Deputy Governor
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. Indeed, what was "consolidated" per the above letter was the banking
Photocopy of the agreement is hereto attached as Annex "A." 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
It is thus clear that the phrase "now known as Bank of Commerce" used
cannot be the BSP letter circular, which had been issued without their
in the petition served only to indicate that Bancommerce is now the
participation, but the terms of their P & A Agreement that the BSP
former property owner’s creditor that filed the petition for writ of
approved through its Monetary Board.
possession as a result of the P & A Agreement. It does not indicate a
merger.
15
Also, in a letter dated November 2,2005 Atty. Juan De Zuñiga, Jr., pronouncement of respondent Judge in the August 15, 2005 Order that
Assistant Governor and General Counsel of the BSP, clarified to the RTC the PSA between TRB and BANCOM is a farce or "a mere tool to
the use of the word "merger" in their January 29, 2003 letter. According to effectuate a merger and/or consolidation between TRB and BANCOM" is
him, the word "merger" was used "in a very loose sense x x x and merely DELETED.
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 SO ORDERED. 33