RAMON A. GONZALES vs.

THE PHILIPPINE NATIONAL BANK

Facts:
Petitioner Ramon A. Gonzales instituted in the erstwhile Court of First
Instance of Manila a special civil action for mandamus against the
herein respondent praying that the latter be ordered to allow him to
look into the books and records of the respondent bank in order to
satisfy himself as to the truth of the published reports that the
respondent has guaranteed the obligation of Southern Negros
Development Corporation in the purchase of a US$ 23 million sugarmill to be financed by Japanese suppliers and financiers; that the
respondent is financing the construction of the P 21 million CebuMactan Bridge to be constructed by V.C. Ponce, Inc., and the
construction of Passi Sugar Mill at Iloilo by the Honiron Philippines,
Inc., as well as to inquire into the validity of Id transactions. The
petitioner has alleged hat his written request for such examination
was denied by the respondent. The trial court having dismissed the
petition for mandamus, the instant appeal to review the said dismissal
was filed.
Issue: Whether or not the lower court of having ruled that his alleged
improper motive in asking for an examination of the books and
records of the respondent bank disqualifies him to exercise the right
of a stockholder to such inspection?
Held:
The right of inspection granted to a stockholder under Section 51 of
Act No. 1459 has been retained, but with some modifications. The
second and third paragraphs of Section 74 of Batas Pambansa Blg.
68
Among the changes introduced in the new Code with respect to the
right of inspection granted to a stockholder are the following the
records must be kept at the principal office of the corporation; the
inspection must be made on business days; the stockholder may
demand a copy of the excerpts of the records or minutes; and the
refusal to allow such inspection shall subject the erring officer or

agent of the corporation to civil and criminal liabilities. However, while

seemingly enlarging the right of inspection, the new Code has
prescribed limitations to the same. It is now expressly required as a
condition for such examination that the one requesting it must not
have been guilty of using improperly any information through a prior
examination, and that the person asking for such examination must
be "acting in good faith and for a legitimate purpose in making his
demand."
The unqualified provision on the right of inspection previously
contained in Section 51, Act No. 1459, as amended, no longer holds
true under the provisions of the present law.
We also find merit in the contention of the respondent bank that the
inspection sought to be exercised by the petitioner would be violative
of the provisions of its charter. (Republic Act No. 1300, as amended.)
Sections 15, 16 and 30 of the said charter.
The provision of Section 74 of Batas Pambansa Blg. 68 of the new
Corporation Code with respect to the right of a stockholder to demand
an inspection or examination of the books of the corporation may not
be reconciled with the abovequoted provisions of the charter of the
respondent bank. It is not correct to claim, therefore, that the right of
inspection under Section 74 of the new Corporation Code may apply
in a supplementary capacity to the charter of the respondent bank.

Associated Bank vs. Court of Appeals

FACTS:
Associated Banking Corporation and Citizens Bank and Trust
Company (CBTC) merged to form just one banking corporation
known as Associated Citizens Bank (later renamed Associated Bank),
the surviving bank. After the merger agreement had been signed, but

before a certificate of merger was issued, respondent Lorenzo

Sarmiento, Jr. executed in favor of Associated Bank a promissory
note, promising to pay the bank P2.5 million on or before due date at
14% interest per annum, among other accessory dues. For failure to
pay the amount due, Sarmiento was sued by Associated Bank.
Respondent argued that the plaintiff is not the proper party in interest
because the promissory note was executed in favor of CBTC. Also,
while respondent executed the promissory note in favor of CBTC,
said note was a contract pour autrui, one in favor of a third person
who may demand its fulfillment. Also, respondent claimed that he
received no consideration for the promissory note and, in support
thereof, cites petitioner's failure to submit any proof of his loan
application and of his actual receipt of the amount loaned.
ISSUE:
Whether or not Associated Bank, the surviving corporation, may
enforce the promissory note made by private respondent in favor of
CBTC, the absorbed company, after the merger agreement had been
signed, but before a certificate of merger was issued.
HELD:
The petition is impressed with merit.
Associated Bank assumed all the rights of CBTC. Although absorbed
corporations are dissolved, 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. The merger, however, does not become
effective upon the mere agreement of the constituent
corporations. The Securities and Exchange Commission (SEC)
and majority of the respective stockholders of the constituent
corporations must have approved the merger. (Section 79,
Corporation Code) It will be effective only upon the issuance by the
SEC of a certificate of merger. Records do not show when the SEC
approved the merger.
But assuming that the effectivity date of the merger was the date of

its execution, we still cannot agree that petitioner no longer has any
interest in the promissory note. The agreement itself clearly provides
that all contracts irrespective of the date of execution entered
into in the name of CBTC shall be understood as pertaining to the
surviving bank, herein petitioner. Such must have been deliberately
included in the agreement in order to avoid giving the merger
agreement a farcical interpretation aimed at evading fulfillment of a
due obligation. Thus, although the subject promissory note names
CBTC as the payee, the reference to CBTC in the note shall be
construed, under the very provisions of the merger agreement, as a
reference to petitioner bank.
CHESTER BABST vs. COURT OF APPEALS, BANK
Facts:
The complaint was commenced principally to enforce payment of a
promissory note and three domestic letters of credit which Elizalde
Steel Consolidated, Inc. (ELISCON) executed and opened with the
Commercial Bank and Trust Company (CBTC).
On June 8, 1973, ELISCON obtained from CBTC a loan in the
amount of P 8,015,900.84, with interest at the rate of 14% per
annum, evidenced by a promissory note.2 ELISCON defaulted in its
payments, leaving an outstanding indebtedness in the amount of
P2,795,240.67 as of October 31, 1982.3
The letters of credit, on the other hand, were opened for ELISCON by
CBTC using the credit facilities of Pacific Multi-Commercial
Corporation (MULTI) with the said bank, pursuant to the Resolution of
the Board of Directors of MULTI adopted on August 31, 1977.
1wphi1.nt
Sometime in October 1978, CBTC opened for ELISCON in favor of
National Steel Corporation three (3) domestic letters of credit in the
amounts of P1,946,805.73,6 P1,702,869.327 and P200,307.72,8
respectively, which ELISCON used to purchase tin black plates from
National Steel Corporation. ELISCON defaulted in its obligation to
pay the amounts of the letters of credit, leaving an outstanding
account, as of October 31, 1982, in the total amount of
P3,963,372.08.9

On December 22, 1980, the Bank of the Philippine Islands (BPI) and
CBTC entered into a merger, wherein BPI, as the surviving
corporation, acquired all the assets and assumed all the liabilities of
CBTC.
Meanwhile, ELISCON encountered financial difficulties and became
heavily indebted to the Development Bank of the Philippines (DBP).
In order to settle its obligations, ELISCON proposed to convey to
DBP by way of dacion en pago all its fixed assets mortgaged with
DBP, as payment for its total indebtedness in the amount of
P201,181,833.16. On December 28, 1978, ELISCON and DBP
executed a Deed of Cession of Property in Payment of Debt. 11
In June 1981, ELISCON called its creditors to a meeting to announce
the take-over by DBP of its assets.
In October 1981, DBP formally took over the assets of ELISCON,
including its indebtedness to BPI. Thereafter, DBP proposed formulas
for the settlement of all of ELISCON's obligations to its creditors, but
BPI expressly rejected the formula submitted to it for not being
acceptable.
ISSUE:
Whether or not BPI's right of action must first be addressed.
ELISCON and MULTI assail BPI's legal capacity to recover their
obligation to CBTC?
Held:
However, there is no question that there was a valid merger between
BPI and CBTC. It is settled that in the merger of two existing
corporations, one of the corporations survives and continues the
business, while the other is dissolved and all its rights, properties and
liabilities are acquired by the surviving corporation. 30 Hence, BPI has
a right to institute the case a quo.
We now come to the primordial issue in this case whether or not
BPI consented to the assumption by DBP of the obligations of
ELISCON.
We find merit in the argument. Indeed, there exist clear indications
that BPI was aware of the assumption by DBP of the obligations of

ELISCON. In fact, BPI admits that --"the Development Bank of the Philippines (DBP), for a time, had
.proposed a formula for the settlement of Eliscon's past obligations to
its creditors, including the plaintiff [BPI], but the formula was
expressly rejected by the plaintiff as not acceptable (long before the
filing of the complaint at bar)."
The Court of Appeals held that even if the account officer who
attended the June 1981 creditors' meeting had expressed consent to
the assumption by DBP of ELISCON' s debts, such consent would
not bind BPI for lack of a specific authority therefor. In its petition,
ELISCON counters that the mere presence of the account officer at
the meeting necessarily meant that he was authorized to represent
BPI in that creditors' meeting. Moreover, BPI did not object to the
substitution of debtors, although it objected to the payment formula
submitted by DBP.
Indeed, the authority granted by BPI to its account officer to attend
the creditors' meeting was an authority to represent the bank, such
that when he failed to object to the substitution of debtors, he did so
on behalf of and for the bank. Even granting arguendo that the said
account officer was not so empowered, BPI could have subsequently
registered its objection to the substitution, especially after it had
already learned that DBP had taken over the assets and assumed the
liabilities of ELISCON. Its failure to do so can only mean an
acquiescence in the assumption by DBP of ELISCON's obligations.
A surety is an insurer of the debt; he promises to pay the principal's
debt if the principal will not pay.38
In the case at bar, there was no indication that the principal debtor will
default in payment. In fact, DBP, which had stepped into the shoes of
ELISCON, was capable of payment. Its authorized capital stock was
increased by the government.39 More importantly, the National
Development Company took over the business of ELISCON and
undertook to pay ELISCON's creditors, and earmarked for that
purpose the amount of P4,015,534.54 for payment to BPI.
Notwithstanding the fact that a reliable institution backed by
government funds was offering to pay ELISCON's debts, not as mere
surety but as substitute principal debtor, BPI, for reasons known only
to itself, insisted in going after the sureties. The course of action

chosen taxes the credulity of this Court. At the very least, suffice it to
state that BPI's actuation in this regard runs counter to the good faith
covenant in contractual relations, provided for by the Civil Code
BPI's conduct evinced a clear and unmistakable consent to the
substitution of DBP for ELISCON as debtor. Hence, there was a valid
novation which resulted in the release of ELISCON from its obligation
to BPI, whose cause of action should be directed against DBP as the
new debtor.
The original obligation having been extinguished, the contracts of
suretyship executed separately by Babst and MULTI, being
accessory obligations, are likewise extinguished. 42
Hence, BPI should enforce its cause of action against DBP. It should
be stressed that notwithstanding the lapse of time within which these
cases have remained pending, the prescriptive period for BPI to file
its action was interrupted when it filed Civil Case No. 49226. 43

Mindanao Savings and Loan vs. Willkoam

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.
Sometime in 1985, FISLAI and 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 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.
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 formers 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 per Monetary Board Resolution No. 922 dated August 31, 1990.
The Monetary Board found that MSLAIs 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.
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 P136,801.70, plus
interest until full payment, 25% as attorneys 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.
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
sheriffs 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.
On June 14, 1995, MSLAI, represented by PDIC, filed before the
RTC, Branch 41 of Cagayan de Oro City, a complaint for Annulment of
Sheriffs Sale, Cancellation of Title and Reconveyance of Properties against
respondents. 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 MSLAIs 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 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.

Issue:
Whether or not the merger between FISLAI and DSLAI is valid and
effective ?
Held:
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. 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.
The merger, however, does not become effective upon the mere
agreement of the constituent corporations. 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.
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.
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.
The issuance of the certificate of merger is crucial because not only
does it bear out SECs 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.
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. 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. The new consolidated corporation comes into
existence and the constituent corporations are dissolved and cease to exist.
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.