MINDANAO SAVINGS VS CA

FACTS: In 1985, Davao Savings and Loan Association, Inc. (DSLAI) merged with another banking company, the First Iligan Savings and Loan Association, Inc. (FISLAI), with the former as the surviving corporation. The merger was never registered with SEC for lack of documentation.  DSLAI changed its name to Mindanao Savings and Loan Association, Inc. (MSLAI) which was approved by the SEC in 1987.

In 1986, the Board of Directors of FISLAI passed and approved a Board Resolution assigning its assets in favor of DSLAI which in turn assumed the formers liabilities.

MSLAI subsequently suffered insolvency, and was later on ordered to be liquidated by the Monetary Board with the Philippine Deposit Insurance Company (PDIC) as the liquidator. 

However, unknown to MSLAI and PDIC, a money judgment was rendered against FLSAI, which resulted to several parcels of land owned by the latter to be sold at public auction, which was bought by Willkom, and subsequently transferred to his name upon the expiration of the redemption period. PDIC and MSLAI sought for the annulment of the sale on execution of the subject properties, alleging that the sale was conducted without notice to the latter, and that the properties sold are in custodia legis, since MSLAI was under receivership and liquidation. Willkom argued that MSLAI has no cause of action since it is a separate and distinct entity from FISLAI, because of the unsuccessful merger for failure to follow the procedure laid down by the Corporation Code.

The RTC declared that it could not annul the decision in Civil Case as it was rendered by a court of coordinate jurisdiction.

On appeal, the appellate court sustained the dismissal of petitioner’s complaint, but on a different ground. Citing that there was no merger between FISLAI and MSLAI (formerly DSLAI) for their failure to follow the procedure laid down for a valid merger or consolidation; consequently, the claim against FISLAI and the subsequent sale of the levied properties at public auction is valid. The CA went on to say that even if 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.

Hence, this petition.

ISSUES: 

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?

HELD:

1. No. First, 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. In this case, the recommendation of the Monetary Board of the Central Bank of the Philippines is required as FISLAI and DSLAI are corporations treated as banks. Moreover, 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. 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. 

2. No. It is a rule that novation by substitution of debtor must always be made with the consent of the creditor. 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. Thus, the assets that FISLAI transferred to DSLAI remained subject to execution to satisfy the judgment claim of Uy against FISLAI.