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GONZALES vs.

PNB interest as a one-share stockholder and for the cloud


of doubt as to his real intention and purpose in
FACTS: acquiring said share.
Previous to the present action, the petitioner instituted In view of the Bank's refusal the petitioner instituted
several cases in this Court questioning different this action.
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 LOWER COURT:
Communications, the Commissioner of Public Denied the prayer of the petitioner that he be allowed
Highways, the Bank, Continental Ore Phil., Inc., to examine and inspect the books and records of the
Continental Ore, Huber Corporation, Allis Chalmers and respondent bank regarding the transactions mentioned on
General Motors Corporation In the course of the the grounds:
hearing of said case on August 3, 1967, the personality that the right of a stockholder to inspect the
of herein petitioner to sue the bank and question the record of the business transactions of a
letters of credit it has extended for the importation by corporation granted under Section 51 of the
the Republic of the Philippines of public works former Corporation Law (Act No. 1459, as
equipment intended for the massive development amended) is not absolute, but is limited to
program of the President was raised. purposes reasonably related to the interest of
In view thereof, he expressed and made known his the stockholder, must be asked for in good faith
intention to acquire one share of stock from for a specific and honest purpose and not
Congressman Justiniano Montano which, on the gratify curiosity or for speculative or vicious
following day, August 30, 1967, was transferred in his purposes;
name in the books of the Bank. that such examination would violate the
Subsequent to his aforementioned acquisition of one confidentiality of the records of the respondent
share of stock of the Bank, petitioner, in his dual bank as provided in Section 16 of its charter,
capacity as a taxpayer and stockholder, filed different Republic Act No. 1300, as amended; and
cases involving the bank or the members of its Board that the petitioner has not exhausted his
of Directors. administrative remedies.
On January 11, 1969, however, petitioner addressed a Petitioner:
letter to the President of the Bank (Annex A, Pet.), Section 51 does not justify the qualification made by
requesting submission to look into the records of its the lower court that the inspection of corporate
transactions covering the purchase of a sugar central records may be denied on the ground that it is
by the Southern Negros Development Corp. to be intended for an improper motive or purpose, the law
financed by Japanese suppliers and financiers; its having granted such right to a stockholder in clear and
financing of the Cebu-Mactan Bridge to be constructed unconditional terms.
by V.C. Ponce, Inc. and the construction of the Passi Assuming that a proper motive or purpose for the
Sugar Mills in Iloilo. desired examination is necessary for its exercise, there
On January 23, 1969, the Asst. Vice-President and is nothing improper in his purpose for asking for the
Legal Counsel of the Bank answered petitioner's letter examination and inspection herein involved.
denying his request for being not germane to his
HELD: o Admittedly he sought to be a stockholder in
Among the changes introduced in the new Code with order to pry into transactions entered into by
respect to the right of inspection granted to a the respondent bank even before he became a
stockholder are the following the records must be stockholder. His obvious purpose was to arm
kept at the principal office of the corporation; himself with materials which he can use
the inspection must be made on business days; against the respondent bank for acts done
the stockholder may demand a copy of the by the latter when the petitioner was a
excerpts of the records or minutes; and the total stranger to the same. He could have
refusal to allow such inspection shall subject the been impelled by a laudable sense of civic
erring officer or agent of the corporation to civil consciousness, but it could not be said
and criminal liabilities. that his purpose is germane to his interest
However, while seemingly enlarging the right of as a stockholder.
inspection, the new Code has prescribed limitations to The Court also find merit in the contention of the
the same. respondent bank that the inspection sought to be
o It is now expressly required as a condition for exercised by the petitioner would be violative of the
such examination that the one requesting it provisions of its charter.
must not have been guilty of using The Philippine National Bank is not an ordinary
improperly any information through a prior corporation. Having a charter of its own, it is not
examination, and that the person asking governed, as a rule, by the Corporation Code of the
for such examination must be "acting in Philippines.
good faith and for a legitimate purpose in The provision of Section 74 of Batas Pambansa Blg. 68
making his demand." of the new Corporation Code with respect to the right
The argument of the petitioner that the right granted of a stockholder to demand an inspection or
to him under Section 51 of the former Corporation Law examination of the books of the corporation may not
should not be dependent on the propriety of his motive be reconciled with the abovequoted provisions of the
or purpose in asking for the inspection of the books of charter of the respondent bank. It is not correct to
the respondent bank loses whatever validity it might claim, therefore, that the right of inspection under
have had before the amendment of the law. If there is Section 74 of the new Corporation Code may apply in a
any doubt in the correctness of the ruling of the trial supplementary capacity to the charter of the
court that the right of inspection granted under respondent bank.
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.
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
ASSOCIATED BANK vs. COURT OF APPEALS attorneys fees.
CA: Accordingly, Respondent Court held that the
FACTS: Associated Bank had no cause of action against
On or about September 16, 1975Associated Banking Lorenzo Sarmiento Jr., since said bank was not privy to
Corporation and Citizens Bank and Trust Company the promissory note executed by Sarmiento in favor of
merged to form just one banking corporation known as Citizens Bank and Trust Company (CBTC). The court
Associated Citizens Bank, the surviving bank. ruled that the earlier merger between the two banks
On or about March 10, 1981, the Associated Citizens could not have vested Associated Bank with any
Bank changed its corporate name to Associated Bank interest arising from the promissory note executed in
by virtue of the Amended Articles of Incorporation. favor of CBTC after such merger.
On September 7, 1977, Lorenzo Sarmiento executed in o Thus, as earlier stated, Respondent Court set
favor of Associated Bank a promissory note whereby aside the decision of the trial court and
the former undertook to pay the latter the sum of dismissed the complaint. Petitioner now comes
P2,500,000.00 payable on or before March 6, 1978. to us for a reversal of this ruling.
o As per said promissory note, the defendant
agreed to pay interest at 14% per annum, 3% ISSUE: Whether Associated Bank, the surviving corporation,
per annum in the form of liquidated damages, may enforce the promissory note made by private
respondent in favor of CBTC, the absorbed company, after The records do not show when the SEC approved
the merger agreement had been signed. the merger. Private respondents theory is that it took
effect on the date of the execution of the agreement
HELD: itself, which was September 16, 1975. Private
Ordinarily, in the merger of two or more existing respondent contends that, since he issued the
corporations, one of the combining corporations promissory note to CBTC on September 7, 1977 -- two
survives and continues the combined business, while years after the merger agreement had been executed
the rest are dissolved and all their rights, properties -- CBTC could not have conveyed or transferred to
and liabilities are acquired by the surviving petitioner its interest in the said note, which was not
corporation. yet in existence at the time of the merger. Therefore,
Although there is a dissolution of the absorbed petitioner, the surviving bank, has no right to enforce
corporations, there is no winding up of their affairs or the promissory note on private respondent; such right
liquidation of their assets, because the surviving properly pertains only to CBTC.
corporation automatically acquires all their rights, Assuming that the effectivity date of the merger was
privileges and powers, as well as their liabilities. the date of its execution, we still cannot agree that
The merger, however, does not become effective upon petitioner no longer has any interest in the promissory
the mere agreement of the constituent corporations. note. A closer perusal of the merger agreement leads
The procedure to be followed is prescribed under the to a different conclusion. The provision quoted earlier
Corporation Code. has this other clause:
o Section 79 of said Code requires the approval o Upon the effective date of the merger, all
by the Securities and Exchange references to [CBTC] in any deed, documents, or
Commission (SEC) of the articles of merger other papers of whatever kind or nature and
which, in turn, must have been duly approved wherever found shall be deemed for all intents
by a majority of the respective and purposes, references to [ABC], the
stockholders of the constituent SURVIVING BANK, as if such references were
corporations. The same provision further direct references to [ABC].
states that the merger shall be effective Thus, the fact that the promissory note was executed
only upon the issuance by the SEC of a after the effectivity date of the merger does not
certificate of merger. militate against petitioner. The agreement itself clearly
o The effectivity date of the merger is crucial for provides that all contracts -- irrespective of the date of
determining when the merged or absorbed execution -- entered into in the name of CBTC shall be
corporation ceases to exist; and when its rights, understood as pertaining to the surviving bank, herein
privileges, properties as well as liabilities pass petitioner. Since, in contrast to the earlier aforequoted
on to the surviving corporation. provision, the latter clause no longer specifically refers
the September 16, 1975 Agreement of Merger,[13] only to contracts existing at the time of the merger, no
which Associated Banking Corporation (ABC) and distinction should be made. The clause must have
Citizens Bank and Trust Company (CBTC) entered into, been deliberately included in the agreement in order
provided that its effectivity shall, for all intents and to protect the interests of the combining banks;
purposes, be the date when the necessary papers to specifically, to avoid giving the merger agreement a
carry out this merger shall have been approved by the farcical interpretation aimed at evading fulfillment of a
Securities and Exchange Commission. 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. MINDANAO SAVINGS & LOAN ASSOCIATION, INC
The Court holds that petitioner has a valid cause of vs. COURT OF APPEALS
action against private respondent. Clearly, the failure
of private respondent to honor his obligation under the FACTS:
promissory note constitutes a violation of petitioners The First Iligan Savings and Loan Association, Inc.
right to collect the proceeds of the loan it extended to (FISLAI) and the Davao Savings and Loan Association,
the former. 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, MSLAI) did not take effect considering that the
directing defendants therein (which included merging companies did not comply with the formalities
FISLAI) to pay the former the sum of and procedure for merger or consolidation as
P136,801.70, plus interest until full payment, prescribed by the Corporation Code of the Philippines.
25% as attorneys fees, and the costs of suit. The Finally, they claimed that FISLAI is still a SEC
decision was modified by the CA by further registered corporation and could not have been
ordering the third-party defendant therein to absorbed by petitioner.
reimburse the payments that would be made by RTC issued a resolution dismissing the case for lack of
the defendants. The decision became final and jurisdiction. The RTC declared that it could not annul
executory on February 21, 1992. A writ of the decision in Civil Case No. 111-697, having been
execution was thereafter issued. rendered by a court of coordinate jurisdiction.
On April 28, 1993, sheriff Bantuas levied on six (6) CA ruled that there was no merger between FISLAI
parcels of land owned by FISLAI located in Cagayan de and MSLAI (formerly DSLAI) for their failure to follow
Oro City, and the notice of sale was subsequently the procedure laid down by the Corporation Code for a
published. During the public auction on May 17, 1993, valid merger or consolidation. The CA then concluded
Willkom was the highest bidder. A certificate of sale that the two corporations retained their separate
was issued and eventually registered with the Register personalities; consequently, the claim against
of Deeds of Cagayan de Oro City. Upon the expiration FISLAI is warranted, and the subsequent sale of
of the redemption period, sheriff Bantuas issued the the levied properties at public auction is valid.
sheriffs definite deed of sale. New certificates of title The CA went on to say that even if there had been a
covering the subject properties were issued in favor of de facto merger between FISLAI and MSLAI (formerly
Willkom. On September 20, 1994, Willkom sold one of DSLAI), Willkom, having relied on the clean
the subject parcels of land to Go. certificates of title, was an innocent purchaser
MSLAI alleged that the sale on execution of the subject for value, whose right is superior to that of
properties was conducted without notice to it and MSLAI. Furthermore, the alleged assignment of
PDIC; that PDIC only came to know about the sale for assets and liabilities executed by FISLAI in favor of
the first time in February 1995 while discharging its MSLAI was not binding on third parties because it
mandate of liquidating MSLAIs assets; that the was not registered. Finally, the CA said that the
execution of the RTC decision in Civil Case No. 111-697 validity of the auction sale could not be
was illegal and contrary to law and jurisprudence, not invalidated by the fact that the sheriff had no
only because PDIC was not notified of the execution authority to conduct the execution sale.
sale, but also because the assets of an institution
placed under receivership or liquidation such as MSLAI ISSUES:
should be deemed in custodia legis and should be 1. was the merger between FISLAI and DSLAI (now MSLAI)
exempt from any order of garnishment, levy, valid and effective? NO
attachment, or execution. 2. was there novation of the obligation by substituting the
Respondents averred that MSLAI had no cause of person of the debtor? NO
action against them or the right to recover the subject
properties because MSLAI is a separate and distinct HELD:
entity from FISLAI. They further contended that the Ordinarily, in the merger of two or more existing
unofficial merger between FISLAI and DSLAI (now corporations, one of the corporations survives and
continues the combined business, while the rest are the articles of incorporation of the
dissolved and all their rights, properties, and liabilities surviving corporation.
are acquired by the surviving corporation Although 4. Submission of said articles of merger or
there is a dissolution of the absorbed or merged consolidation to the SEC for approval.
corporations, there is no winding up of their affairs or 5. If necessary, the SEC shall set a hearing,
liquidation of their assets because the surviving notifying all corporations concerned at
corporation automatically acquires all their rights, least two weeks before.
privileges, and powers, as well as their liabilities. 6. Issuance of certificate of merger or
The merger, however, does not become effective upon consolidation.
the mere agreement of the constituent corporations. Clearly, the merger shall only be effective upon
[22] Since a merger or consolidation involves the issuance of a certificate of merger by the
fundamental changes in the corporation, as well as in SEC, subject to its prior determination that the
the rights of stockholders and creditors, there must be merger is not inconsistent with the Corporation
an express provision of law authorizing them. Code or existing laws. Where a party to the
Steps necessary to accomplish a merger or merger is a special corporation governed by its
consolidation: own charter, the Code particularly mandates
1. The board of each corporation draws up a that a favorable recommendation of the
plan of merger or consolidation. Such appropriate government agency should first be
plan must include any amendment, if obtained.
necessary, to the articles of incorporation In this case, it is undisputed that the articles of merger
of the surviving corporation, or in case of between FISLAI and DSLAI were not registered with the
consolidation, all the statements required SEC due to incomplete documentation. Consequently,
in the articles of incorporation of a the SEC did not issue the required certificate of
corporation. merger. Even if it is true that the Monetary Board of
2. Submission of plan to stockholders or the Central Bank of the Philippines recognized such
members of each corporation for merger, the fact remains that no certificate was issued
approval. A meeting must be called and by the SEC. Such merger is still incomplete without
at least two (2) weeks notice must be the certification.
sent to all stockholders or members, The issuance of the certificate of merger is crucial
personally or by registered mail. A because not only does it bear out SECs approval but it
summary of the plan must be attached to also marks the moment when the consequences of a
the notice. Vote of two-thirds of the merger take place. By operation of law, upon the
members or of stockholders representing effectivity of the merger, the absorbed corporation
two-thirds of the outstanding capital stock ceases to exist but its rights and properties, as well as
will be needed. Appraisal rights, when liabilities, shall be taken and deemed transferred to
proper, must be respected. and vested in the surviving corporation.
3. Execution of the formal agreement, There being no merger between FISLAI and
referred to as the articles of merger o[r] DSLAI (now MSLAI), for third parties such as
consolidation, by the corporate officers of respondents, the two corporations shall not be
each constituent corporation. These take considered as one but two separate
the place of the articles of incorporation corporations. A corporation is an artificial being
of the consolidated corporation, or amend
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.