Case Summary (G.R. No. 178618)
Key Dates
- 1985: Merger agreement between FISLAI and DSLAI (articles unregistered).
- April 3, 1987: SEC approves name change from DSLAI to MSLAI.
- August 31, 1990: Monetary Board orders MSLAI closure and receivership.
- May 24, 1991: Monetary Board orders MSLAI liquidation, PDIC as liquidator.
- October 19, 1989: RTC-Iligan Branch 3 grants summary decision for Uy against FISLAI.
- February 21, 1992: Uy’s judgment becomes final and executory.
- May 17, 1993: Public auction of six parcels; Willkom high bidder.
- June 14, 1995: MSLAI/PDIC files complaint for annulment of sale.
- March 21, 2007 & June 1, 2007: CA decision and resolution denying MSLAI’s claim.
- October 11, 2010: Supreme Court decision affirming CA.
Applicable Law
- 1987 Philippine Constitution (banking and PDIC authority)
- Corporation Code (Batas Pambansa Blg. 68), Sections 76–79 (merger procedures)
- Civil Code, Article 1625 (publicity of assignment)
- Civil Code, Articles 1293, 1236–1237 (novation and subrogation)
Procedural History
- Uy obtains a money‐judgment against FISLAI (RTC summary decision, final in 1992).
- Sheriff Bantuas levies and auctions FISLAI lands; Willkom becomes purchaser; titles registered in his name; Go acquires one parcel.
- MSLAI/PDIC sues for annulment of sale, cancellation of titles, reconveyance (RTC Branch 41, Cagayan de Oro City).
- RTC dismisses for lack of jurisdiction.
- CA affirms dismissal on the ground that no valid merger merged FISLAI into MSLAI and, alternatively, that Willkom is an innocent purchaser; MSLAI lacks standing.
- Supreme Court grants certiorari under Rule 45 to resolve validity of merger and novation.
Issues Presented
- Whether the merger between FISLAI and DSLAI (now MSLAI) was valid and effective.
- Whether MSLAI’s alleged assumption of FISLAI’s liabilities constituted novation, thereby insulating FISLAI’s assets from execution.
Validity of Merger
- Corporation Code requires (a) board approval and plan of merger; (b) stockholder approval by two-thirds vote; (c) execution of articles of merger; and (d) SEC approval by issuance of a certificate of merger.
- FISLAI–DSLAI articles of merger were not filed or approved by the SEC; no certificate of merger issued.
- Effectivity of merger occurs only upon SEC certification. In its absence, FISLAI and DSLAI (MSLAI) remain separate juridical entities.
- Third parties are entitled to rely on corporate personalities as reflected in the public records; unregistered merger and unregistered assignment of assets cannot prejudice them (Civil Code, Art. 1625).
- Conclusion: The purported merger was legally ineffective; FISLAI remained a distinct corporation and its properties were subject to execution.
Novation Analysis
- Novation by change of debtor requires (a) new obligation; (b) substitution of debtor; and (c) creditor’s express consent (Civil Code, Art. 1293).
- While DSLAI/MSLAI may have assumed FISLAI’s l
Case Syllabus (G.R. No. 178618)
Facts
- First Iligan Savings and Loan Association, Inc. (FISLAI) and Davao Savings and Loan Association, Inc. (DSLAI) were SEC-registered thrift banks (Reg. Nos. 34869 and 32388) engaged in deposit-taking and lending.
- In 1985, FISLAI and DSLAI executed articles of merger (DSLAI as surviving entity), but failed to register them with the SEC due to incomplete documentation.
- On August 12, 1985, DSLAI amended its corporate name to Mindanao Savings and Loan Association, Inc. (MSLAI); SEC approval came only on April 3, 1987.
- On May 26, 1986, FISLAI’s board passed a resolution assigning all its assets to DSLAI, with DSLAI assuming FISLAI’s liabilities.
- MSLAI became insolvent; the Central Bank’s Monetary Board ordered its closure and receivership (Aug. 31, 1990) and ultimately its liquidation (May 24, 1991), appointing PDIC as liquidator.
- Before closure, Remedios Uy sued FISLAI in RTC Branch 3, Iligan City, for P136,801.70 (Civil Case No. 111-697). A summary judgment in Uy’s favor was rendered on October 19, 1989, became final on February 21, 1992, and a writ of execution issued.
- On April 28, 1993, Sheriff Malayo Bantuas levied six FISLAI-owned parcels in Cagayan de Oro City; public auction followed on May 17, 1993, where Edward Willkom was high bidder. Titles were transferred to Willkom; one parcel was later sold to Gilda Go (Sept. 20, 1994).
- On June 14, 1995, MSLAI (through PDIC) filed in RTC Branch 41, Cagayan de Oro City, a complaint to annul the sheriff’s sale, cancel titles, and reconvey properties, alleging lack of notice, custodial immunity of liquidated assets, and illegality of execution against a liquidating institution.
- Respondents contended that FISLAI and MSLAI remained distinct corporations (no valid merger), that FISLAI’s assets could be levied, and that titles to Willkom and Go were beyond challenge.