GONZALES vs.
PNB interest as a one-share stockholder and for the cloud
FACTS:
Previous to the present action, the petitioner instituted
several cases in this Court questioning different
transactions entered into by the Bark with other
parties. First among them is Civil Case No. 69345 filed
on April 27, 1967, by petitioner as a taxpayer versus
Sec. Antonio Raquiza of Public Works and
Communications, the Commissioner of Public
Highways, the Bank, Continental Ore Phil., Inc.,
Continental Ore, Huber Corporation, Allis Chalmers and
General Motors Corporation In the course of the
hearing of said case on August 3, 1967, the personality
of herein petitioner to sue the bank and question the
letters of credit it has extended for the importation by
the Republic of the Philippines of public works
equipment intended for the massive development
program of the President was raised.
In view thereof, he expressed and made known his
intention to acquire one share of stock from
Congressman Justiniano Montano which, on the
following day, August 30, 1967, was transferred in his
name in the books of the Bank.
Subsequent to his aforementioned acquisition of one
share of stock of the Bank, petitioner, in his dual
capacity as a taxpayer and stockholder, filed different
cases involving the bank or the members of its Board
of Directors.
On January 11, 1969, however, petitioner addressed a
letter to the President of the Bank (Annex A, Pet.),
requesting submission to look into the records of its
transactions covering the purchase of a sugar central
by the Southern Negros Development Corp. to be
financed by Japanese suppliers and financiers; its
financing of the Cebu-Mactan Bridge to be constructed
by V.C. Ponce, Inc. and the construction of the Passi
Sugar Mills in Iloilo.
On January 23, 1969, the Asst. Vice-President and
Legal Counsel of the Bank answered petitioner's letter
denying his request for being not germane to his
of doubt as to his real intention and purpose in
acquiring said share.
In view of the Bank's refusal the petitioner instituted
this action.
LOWER COURT:
Denied the prayer of the petitioner that he be allowed
to examine and inspect the books and records of the
respondent bank regarding the transactions mentioned on
the grounds:
that the right of a stockholder to inspect the
record of the business transactions of a
corporation granted under Section 51 of the
former Corporation Law (Act No. 1459, as
amended) is not absolute, but is limited to
purposes reasonably related to the interest of
the stockholder, must be asked for in good faith
for a specific and honest purpose and not
gratify curiosity or for speculative or vicious
purposes;
that such examination would violate the
confidentiality of the records of the respondent
bank as provided in Section 16 of its charter,
Republic Act No. 1300, as amended; and
that the petitioner has not exhausted his
administrative remedies.
Petitioner:
Section 51 does not justify the qualification made by
the lower court that the inspection of corporate
records may be denied on the ground that it is
intended for an improper motive or purpose, the law
having granted such right to a stockholder in clear and
unconditional terms.
Assuming that a proper motive or purpose for the
desired examination is necessary for its exercise, there
is nothing improper in his purpose for asking for the
examination and inspection herein involved.
HELD:
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.
o 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 argument of the petitioner that the right granted
to him under Section 51 of the former Corporation Law
should not be dependent on the propriety of his motive
or purpose in asking for the inspection of the books of
the respondent bank loses whatever validity it might
have had before the amendment of the law. If there is
any doubt in the correctness of the ruling of the trial
court that the right of inspection granted under
Section 51 of the old Corporation Law must be
dependent on a showing of proper motive on the part
of the stockholder demanding the same, it is now
dissipated by the clear language of the pertinent
provision contained in Section 74 of Batas Pambansa
Blg. 68.
As to Petitioners claim that he has justifiable motives:
o The circumstances under which he acquired one
share of stock in the respondent bank purposely
to exercise the right of inspection do not argue
in favor of his good faith and proper motivation.
o Admittedly he sought to be a stockholder in
order to pry into transactions entered into by
the respondent bank even before he became a
stockholder. His obvious purpose was to arm
himself with materials which he can use
against the respondent bank for acts done
by the latter when the petitioner was a
total stranger to the same. He could have
been impelled by a laudable sense of civic
consciousness, but it could not be said
that his purpose is germane to his interest
as a stockholder.
The Court 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.
The Philippine National Bank is not an ordinary
corporation. Having a charter of its own, it is not
governed, as a rule, by the Corporation Code of the
Philippines.
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:
On or about September 16, 1975Associated Banking
Corporation and Citizens Bank and Trust Company
merged to form just one banking corporation known as
Associated Citizens Bank, the surviving bank.
On or about March 10, 1981, the Associated Citizens
Bank changed its corporate name to Associated Bank
by virtue of the Amended Articles of Incorporation.
On September 7, 1977, Lorenzo Sarmiento executed in
favor of Associated Bank a promissory note whereby
the former undertook to pay the latter the sum of
P2,500,000.00 payable on or before March 6, 1978.
o As per said promissory note, the defendant
agreed to pay interest at 14% per annum, 3%
per annum in the form of liquidated damages,
compounded interests, and attorneys fees, in
case of litigation equivalent to 10% of the
amount due. The defendant, to date, still owes
plaintiff bank the amount of P2,250,000.00
exclusive of interest and other charges.
o Despite repeated demands the defendant failed
to pay the amount due.
Sarmiento denied all the pertinent allegations in the
complaint and alleged as affirmative and/or special
defenses that the complaint states no valid cause of
action; that the plaintiff is not the proper party in
interest because the promissory note was executed in
favor of Citizens Bank and Trust Company; that the
promissory note does not accurately reflect the true
intention and agreement of the parties; that terms and
conditions of the promissory note are onerous and
must be construed against the creditor-payee bank;
that several partial payments made in the promissory
note are not properly applied; that the present action
is premature; that as compulsory counterclaim the
defendant prays for attorneys fees, moral damages
and expenses of litigation.
The trial court ordered Respondent Sarmiento to pay
the bank his remaining balance plus interests and
attorneys fees.
CA: Accordingly, Respondent Court held that the
Associated Bank had no cause of action against
Lorenzo Sarmiento Jr., since said bank was not privy to
the promissory note executed by Sarmiento in favor of
Citizens Bank and Trust Company (CBTC). The court
ruled that the earlier merger between the two banks
could not have vested Associated Bank with any
interest arising from the promissory note executed in
favor of CBTC after such merger.
o Thus, as earlier stated, Respondent Court set
aside the decision of the trial court and
dismissed the complaint. Petitioner now comes
to us for a reversal of this ruling.
ISSUE: Whether 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.
HELD:
Ordinarily, in the merger of two or more existing
corporations, one of the combining 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
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.
The procedure to be followed is prescribed under the
Corporation Code.
o Section 79 of said Code requires the approval
by the Securities and Exchange
Commission (SEC) of the articles of merger
which, in turn, must have been duly approved
by a majority of the respective
stockholders of the constituent
corporations. The same provision further
states that the merger shall be effective
only upon the issuance by the SEC of a
certificate of merger.
o The effectivity date of the merger is crucial for
determining when the merged or absorbed
corporation ceases to exist; and when its rights,
privileges, properties as well as liabilities pass
on to the surviving corporation.
the September 16, 1975 Agreement of Merger,[13]
which Associated Banking Corporation (ABC) and
Citizens Bank and Trust Company (CBTC) entered into,
provided that its effectivity shall, for all intents and
purposes, be the date when the necessary papers to
carry out this merger shall have been approved by the
Securities and Exchange Commission.
The records do not show when the SEC approved
the merger. Private respondents theory is that it took
effect on the date of the execution of the agreement
itself, which was September 16, 1975. Private
respondent contends that, since he issued the
promissory note to CBTC on September 7, 1977 -- two
years after the merger agreement had been executed
-- CBTC could not have conveyed or transferred to
petitioner its interest in the said note, which was not
yet in existence at the time of the merger. Therefore,
petitioner, the surviving bank, has no right to enforce
the promissory note on private respondent; such right
properly pertains only to CBTC.
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. A closer perusal of the merger agreement leads
to a different conclusion. The provision quoted earlier
has this other clause:
o Upon the effective date of the merger, all
references to [CBTC] in any deed, documents, or
other papers of whatever kind or nature and
wherever found shall be deemed for all intents
and purposes, references to [ABC], the
SURVIVING BANK, as if such references were
direct references to [ABC].
Thus, the fact that the promissory note was executed
after the effectivity date of the merger does not
militate against petitioner. 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. Since, in contrast to the earlier aforequoted
provision, the latter clause no longer specifically refers
only to contracts existing at the time of the merger, no
distinction should be made. The clause must have
been deliberately included in the agreement in order
to protect the interests of the combining banks;
specifically, 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,
as if such reference was a direct reference to the latter
for all intents and purposes.
The Court holds that petitioner has a valid cause of
action against private respondent. Clearly, the failure
of private respondent to honor his obligation under the
promissory note constitutes a violation of petitioners
right to collect the proceeds of the loan it extended to
the former.
MINDANAO SAVINGS & LOAN ASSOCIATION, INC
vs. COURT OF APPEALS
FACTS:
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.
o 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.
 o 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.
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.
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.
Finally, they claimed that FISLAI is still a SEC
registered corporation and could not have been
absorbed by petitioner.
RTC issued a resolution dismissing the case for lack of
jurisdiction. The RTC declared that it could not annul
the decision in Civil Case No. 111-697, having been
rendered by a court of coordinate jurisdiction.
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.
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. Finally, the CA said that the
validity of the auction sale could not be
invalidated by the fact that the sheriff had no
authority to conduct the execution sale.
ISSUES:
1. was the merger between FISLAI and DSLAI (now MSLAI)
valid and effective? NO
2. was there novation of the obligation by substituting the
person of the debtor? NO
HELD:
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.
[22] 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.
Steps necessary to accomplish a merger or
consolidation:
1. The board of each corporation draws up a
plan of merger or consolidation. Such
plan must include any amendment, if
necessary, to the articles of incorporation
of the surviving corporation, or in case of
consolidation, all the statements required
in the articles of incorporation of a
corporation.
2. Submission of plan to stockholders or
members of each corporation for
approval. A meeting must be called and
at least two (2) weeks notice must be
sent to all stockholders or members,
personally or by registered mail. A
summary of the plan must be attached to
the notice. Vote of two-thirds of the
members or of stockholders representing
two-thirds of the outstanding capital stock
will be needed. Appraisal rights, when
proper, must be respected.
3. Execution of the formal agreement,
referred to as the articles of merger o[r]
consolidation, by the corporate officers of
each 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.
4. Submission of said articles of merger or
consolidation to the SEC for approval.
5. If necessary, the SEC shall set a hearing,
notifying all corporations concerned at
least two weeks before.
6. Issuance of certificate of merger or
consolidation.
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.
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, in the instant case, 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.