FACTS: First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan Association, Inc. (DSLAI) entered into a merger with DSLAI as the surviving corporation. The articles of merger were not registered with the SEC due to incomplete documentation. DSLAI changed its corporate name to MSLAI by way of an amendment to Article 1 of its Articles of Incorporation. Meanwhile, the Board of Directors of FISLAI passed and approved a Board Resolution assigning its assets in favor of DSLAI which in turn assumed the former’s liabilities.
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, and finding its financial condition as one of insolvency, ordered the liquidation of MSLAI, with PDIC as its liquidator.
Prior to the closure of MSLAI, Uy filed with the RTC an action for collection of sum of money against FISLAI. The RTC directed defendants therein (which included FISLAI) to pay Uy. 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 and a writ of execution was issued. Sheriff Bantuas levied on six (6) parcels of land owned by FISLAI. A notice of sale was subsequently published. During the public auction, Willkom was the highest bidder. A certificate of sale was issued and registered with the Register of Deeds. At 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, who sold one of the subject parcels of land to Go.
MSLAI, represented by PDIC, filed before the RTC a complaint for Annulment of Sheriff’s Sale, Cancellation of Title and Reconveyance of Properties against respondents, alleging that (1) the sale on execution of the subject properties was conducted without notice to it and PDIC and (2) the assets of an institution placed under receivership or liquidation such as MSLAI should be deemed in custodia legis and should be exempt from any order of garnishment, levy, attachment, or execution.
Respondents averred that MSLAI had no cause of action against them or the right to recover the subject properties because MSLAI is a separate and distinct entity from FISLAI. 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. Moreover, FISLAI is still a SEC registered corporation and could not have been absorbed by petitioner.
The RTC dismissed the complaint. 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. 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. 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. The validity of the auction sale could not be invalidated by the fact that the sheriff had no authority to conduct the execution sale.
ISSUE: Whether the merger between FISLAI and DSLAI (now MSLAI) is valid and effective.
RULING: No. 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. 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, 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.
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. 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. Being separate entities, the property of one cannot be considered the property of the other.
Thus, 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.
