CORPORATION

 LAW  CASE  DIGESTS  

3C  &  3S  –  ATTY.  CARLO  BUSMENTE  

GONZALES  vs.  PNB   examination   would   violate   the   confidentiality   of   the   records   of   the  
G.R.  No.  L-­‐3320  –  May  30,  1983   respondent  bank  as  provided  in  Section  16  of  its  charter,  Republic  Act  
  No.   1300,   as   amended;   and   that   the   petitioner   has   not   exhausted   his  
FACTS:   administrative  remedies.  
Previous   to   the   present   action,   the   petitioner   instituted   several   cases    
questioning   different   transactions   entered   into   by   PNB   with   other   ISSUE:  
parties.   First   among   them   is   civil   case   filed   by   the   petitioner   as   a   Whether   or   not   the   lower   court   erred   in   denying   the   request   of   the  
taxpayer  vs.  the  Commissioner  of  Public  Highways,  et  al.  In  the  course   petitioner  to  inspect  the  book  and  records  of  the  bank.  
of   the   hearing   of   said   case,   the   personality   of   herein   petitioner   to   sue    
the   bank   and   question   the   letters   of   credit   it   has   extended   for   the   HELD:  
importation   by   the   Republic   of   the   Philippines   of   public   works   No.   Among   the   changes   introduced   in   the   new   Code   with   respect   to   the  
equipment   intended   for   the   massive   development   program   of   the   right   of   inspection   granted   to   a   stockholder   are   the   following:   the  
President   was   raised.   In   view   thereof,   he   expressed   and   made   known   records  must  be  kept   at   the   principal   office   of   the   corporation;  the  
his   intention   to   acquire   one   share   of   stock   from   Congressman   inspection   must   be   made   on   business   days;   the   stockholder   may  
Justiniano  Montano  which  was  transferred  in  his  name  in  the  books  of   demand   a   copy   of   the   excerpts   of   the   records   or   minutes;  and  the  
the   Bank.   Subsequent   to   his   aforementioned   acquisition   of   one   share   of   refusal  to  allow  such  inspection  shall  subject  the  erring  officer  or  
stock   of   the   Bank,   petitioner,   in   his   dual   capacity   as   a   taxpayer   and   agent   of   the   corporation   to   civil   and   criminal   liabilities.  However,  
stockholder,  filed  the  several  cases  involving  the  bank  or  the  members   while   seemingly   enlarging   the   right   of   inspection,   the   new   Code   has  
of  its  Board  of  Directors.  Petitioner  addressed  a  letter  to  the  President   prescribed  limitations  to  the  same.   It   is   now   expressly  required  as  
of   the   Bank   requesting   submission   to   look   into   the   records   of   its   a   condition   for   such   examination   that   the   one   requesting   (1)  it   must  
transactions   covering   the   purchase   of   a   sugar   central   by   the   Southern   not  have  been  guilty  of  using  improperly  any  information  secured  
Negros   Development   Corp.   to   be   financed   by   Japanese   suppliers   and   through   a   prior   examination,   and   (2)   that   the   person   asking   for  
financiers;  its  financing  of  the  Cebu-­‐Mactan  Bridge  to  be  constructed  by   such   examination   must   be   "acting   in   good   faith   and   for   a  
V.C.   Ponce,   Inc.   and   the   construction   of   the   Passi   Sugar   Mills   in   Iloilo.   legitimate  purpose  in  making  his  demand."  
The   Asst.   Vice   President   and   Legal   Counsel   of   the   Bank   answered      
petitioner's   letter   denying   his   request   for   being   not   germane   to   his   The   unqualified   provision   on   the   right   of   inspection   previously  
interest  as  a  one  share  stockholder  and  for  the  cloud  of  doubt  as  to  his   contained  in  Section  51,  Act  No.  1459,  as  amended,  no  longer  holds  true  
real  intention  and  purpose  in  acquiring  said  share.  In  view  of  the  Bank's   under  the  provisions  of  the  present  law.  The  argument  of  the  petitioner  
refusal,  the  petitioner  instituted  this  action.   that   the   right   granted   to   him   under   Section   51   of   the   former  
COURT   A   QUO:   Denied   petitioner’s   request   to   look   into   the   books   of   Corporation   Law   should   not   be   dependent   on   the   propriety   of   his  
the   bank   on   the   grounds   that   the   right   of   a   stockholder   to   inspect   the   motive   or   purpose   in   asking   for   the   inspection   of   the   books   of   the  
record   of   the   business   transactions   of   a   corporation   granted   under   respondent   bank   loses   whatever   validity   it   might   have   had   before   the  
Section   51   of   the   former   Corporation   Law   is   not   absolute,   but   is   limited   amendment   of   the   law.   If   there   is   any   doubt   in   the   correctness   of   the  
to  purposes  reasonably  related  to  the  interest  of  the  stockholder,  must   ruling   of   the   trial   court   that   the   right   of   inspection   granted   under  
be   asked   for   in   good   faith   for   a   specific   and   honest   purpose   and   not   Section  51  of  the  old  Corporation  Law  must  be  dependent  on  a  showing  
gratify   curiosity   or   for   speculative   or   vicious   purposes;   that   such   of   proper   motive   on   the   part   of   the   stockholder   demanding   the   same,   it  

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3C  &  3S  –  ATTY.  CARLO  BUSMENTE  

is   now   dissipated   by   the   clear   language   of   the   pertinent   provision   ASSOCIATED  BANK  vs.  CA  
contained  in  Section  74  of  Batas  Pambansa  Blg  68.   G.R.  No.  123793  –  June  29,  1998  
   
Although   the   petitioner   has   claimed   that   he   has   justifiable   motives   in   FACTS:  
seeking  the  inspection  of  the  books  of  the  respondent  bank,  he  has  not   On   September   16,   1975   Associated   Banking   Corporation   and   Citizens  
set   forth   the   reasons   and   the   purposes   for   which   he   desires   such   Bank   and   Trust   Company   merged   to   form   just   one   banking   corporation  
inspection,   except   to   satisfy   himself   as   to   the   truth   of   published   reports   known   as   Associated   Citizens   Bank,   the   surviving   bank.     On   or   about  
regarding  certain  transactions  entered  into  by  the  respondent  bank  and   March   10,   1981,   the   Associated   Citizens   Bank   changed   its   corporate  
to   inquire   into   their   validity.   The   circumstances   under   which   he   name   to   Associated   Bank   by   virtue   of   the   Amended   Articles   of  
acquired   one   share   of   stock   in   the   respondent   bank   purposely   to   Incorporation.     On  September  7,  1977,  the  defendant  executed  in  favor  
exercise   the   right   of   inspection   do   not   argue   in   favor   of   his   good   faith   of   Associated   Bank   a   promissory   note   whereby   the   former   undertook  
and   proper   motivation.   Admittedly   he   sought   to   be   a   stockholder   in   to  pay  the  latter  the  sum  of  P2,500,000.00  payable  on  or  before  March  
order   to   pry   into   transactions   entered   into   by   the   respondent   bank   6,   1978.       As   per   said   promissory   note,   the   defendant   agreed   to   pay  
even  before  he  became  a  stockholder.  His  obvious  purpose  was  to  arm   interest   at   14%   per   annum,   3%   per   annum   in   the   form   of   liquidated  
himself   with   materials   which   he   can   use   against   the   respondent   bank   damages,   compounded   interests,   and   attorney’s   fees,   in   case   of  
for   acts   done   by   the   latter   when   the   petitioner   was   a   total   stranger   to   litigation   equivalent   to   10%   of   the   amount   due.     The   defendant,   to   date,  
the   same.   He   could   have   been   impelled   by   a   laudable   sense   of   civic   still   owes   plaintiff   bank   the   amount   of   P2,250,000.00   exclusive   of  
consciousness,   but   it   could   not   be   said   that   his   purpose   is   germane   to   interest   and   other   charges.     Despite   repeated   demands   the   defendant  
his  interest  as  a  stockholder.   failed  to  pay  the  amount  due.  
   
OTHER  ISSUE:  (baka  lang  matanong)   The   defendant   denied   all   the   pertinent   allegations   in   the   complaint   and  
The  Philippine  National  Bank  is  not  an  ordinary  corporation.  Having  a   alleged   as   affirmative   and[/]or   special   defenses   that   the   complaint  
charter  of  its  own,  it  is  not  governed,  as  a  rule,  by  the  Corporation  Code   states  no  valid  cause  of  action;  that  the  plaintiff  is  not  the  proper  party  
of   the   Philippines.   Section   4   of   the   said   Code   provides:   “Corporations   in   interest   because   the   promissory   note   was   executed   in   favor   of  
created  by  special  laws  or  charters  shall  be  governed  primarily  by  the   Citizens  Bank  and  Trust  Company;  
provisions  of  the  special  law  or  charter  creating  them  or  applicable  to    
them,  supplemented  by  the  provisions  of  this  Code,  insofar  as  they  are   ISSUE:  
applicable."   The   provision   of   Section   74   of   Batas   Pambansa   Blg.   68   of   Whether   or   not   Associated   Bank,   the   surviving   corporation,   may  
the  new  Corporation  Code  with  respect  to  the  right  of  a  stockholder  to   enforce   the   promissory   note   made   by   private   respondent   in   favor   of  
demand   an   inspection   or   examination   of   the   books   of   the   corporation   CBTC,   the   absorbed   company,   after   the   merger   agreement   had   been  
may   not   be   reconciled   with   the   provisions   of   the   charter   of   the   signed.  
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   HELD:  
a  supplementary  capacity  to  the  charter  of  the  respondent  bank.   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  

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3C  &  3S  –  ATTY.  CARLO  BUSMENTE  

and  liabilities  are  acquired  by  the  surviving  corporation.  Although  there    
is  a  dissolution  of  the  absorbed  corporations,  there  is  no  winding  up  of   “Upon   the   effective   date   of   the   merger,   all   references   to  
their   affairs   or   liquidation   of   their   assets,   because   the   surviving   [CBTC]   in   any   deed,   documents,   or   other   papers   of  
corporation   automatically   acquires   all   their   rights,   privileges   and   whatever   kind   or   nature   and   wherever   found   shall   be  
powers,  as  well  as  their  liabilities.   deemed   for   all   intents   and   purposes,   references   to   [ABC],  
  the   SURVIVING   BANK,   as   if   such   references   were   direct  
The   merger,   however,   does   not   become   effective   upon   the   mere   references  to  [ABC].  “  
agreement   of   the   constituent   corporations.     The   procedure   to   be    
followed   is   prescribed   under   the   Corporation   Code   Section   79   of   said   Thus,   the   fact   that   the   promissory   note   was   executed   after   the  
Code  requires  the  approval  by  the  Securities  and  Exchange  Commission   effectivity  date  of  the  merger  does  not  militate  against  petitioner.     The  
(SEC)   of   the   articles   of   merger   which,   in   turn,   must   have   been   duly   agreement   itself   clearly   provides   that   all   contracts   -­‐-­‐   irrespective   of   the  
approved   by   a   majority   of   the   respective   stockholders   date   of   execution   -­‐-­‐   entered   into   in   the   name   of   CBTC   shall   be  
of     the     constituent     corporations.     The   same   provision   further   states   understood   as   pertaining   to   the   surviving   bank,   herein  
that  the  merger  shall  be  effective  only  upon  the  issuance  by  the  SEC  of  a   petitioner.     Since,   in   contrast   to   the   earlier   aforequoted   provision,   the  
certificate   of   merger.     The   effectivity   date   of   the   merger   is   crucial   for   latter   clause   no   longer   specifically   refers   only   to   contracts   existing   at  
determining  when  the  merged  or  absorbed  corporation  ceases  to  exist;   the  time  of  the  merger,  no  distinction  should  be  made.    The  clause  must  
and  when  its  rights,  privileges,  properties  as  well  as  liabilities  pass  on   have   been   deliberately   included   in   the   agreement   in   order   to   protect  
to  the  surviving  corporation.   the   interests   of   the   combining   banks;   specifically,   to   avoid   giving   the  
  merger  agreement  a  farcical  interpretation  aimed  at  evading  fulfillment  
The  records  do  not  show  when  the  SEC  approved  the  merger.     Private   of  a  due  obligation.  
respondent’s   theory   is   that   it   took   effect   on   the   date   of   the   execution   of    
the   agreement   itself,   which   was   September   16,   1975.     Private   Thus,  although  the  subject  promissory  note  names  CBTC  as  the  payee,  
respondent   contends   that,   since   he   issued   the   promissory   note   to   CBTC   the   reference   to   CBTC   in   the   note   shall   be   construed,   under   the   very  
on   September   7,   1977   -­‐-­‐   two   years   after   the   merger   agreement   had   provisions  of  the  merger  agreement,  as  a  reference  to  petitioner  bank,  
been   executed   -­‐-­‐   CBTC   could   not   have   conveyed   or   transferred   to   “as   if   such   reference   [was   a]   direct   reference   to”   the   latter     “for   all  
petitioner  its  interest  in  the  said  note,  which  was   not  yet  in  existence  at   intents  and  purposes.”  
the   time   of   the   merger.     Therefore,   petitioner,   the   surviving   bank,   has    
no   right   to   enforce   the   promissory   note   on   private   respondent;   such   No   other   construction   can   be   given   to   the   unequivocal  
right  properly  pertains  only  to  CBTC.   stipulation.    Being  clear,  plain  and  free  of  ambiguity,  the  provision  must  
  be   given   its   literal   meaning   and   applied   without   a   convoluted  
Assuming   that   the   effectivity   date   of   the   merger   was   the   date   of   its   interpretation.    Verba  legis  non  est  recedendum  
execution,   the   Supreme   Court   still   does   not   agree   that   the   petitioner    
has   no   longer   any   interest   in   the   promissory   note   due   to   the   fact   that    
the  contract  was  enforced  prior  to  the  issuance  of  certificate  of  merger.        
   
The  agreement  clearly  provides  that:    

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MINDANAO  SAVINGS  vs.  CA   published.   During   the   public   auction   on   May   17,   1993,   Willkom   was  
G.R.  No.  178618  –  October  20,  2010   the   highest   bidder.   A   certificate   of   sale   was   issued   and   eventually  
  registered  with  the  Register  of  Deeds  of  Cagayan  de  Oro  City.  Upon  the  
FACTS:   expiration  of  the  redemption  period,  sheriff  Bantuas  issued  the  sheriff's  
The   First   Iligan   Savings   and   Loan   Association,   Inc.   (FISLAI)   and   the   definite   deed   of   sale.   New   certificates   of   title   covering   the   subject  
Davao   Savings   and   Loan   Association,   Inc.   (DSLAI)   are   entities   duly   properties   were   issued   in   favor   of   Willkom.   On   September   20,   1994,  
registered   with   the   Securities   and   Exchange   Commission   (SEC),   which   Willkom  sold  one  of  the  subject  parcels  of  land  to  Go.  
primarily   engaged   in   the   business   of   granting   loans   and   receiving    
deposits  from  the  general  public,  and  treated  as  banks.     On   June   14,   1995,   MSLAI,   represented   by   PDIC,   filed   before   the   RTC  
  Cagayan   de   Oro   City,   a   complaint   for   Annulment   of   Sheriff's   Sale,  
In   1985,   FISLAI   and   DSLAI   entered   into   a   merger,   with   DSLAI   as   the   Cancellation   of   Title   and   Reconveyance   of   Properties   against  
surviving  corporation.   The  articles  of  merger  were  not  registered  with   respondents.   MSLAI   alleged   that   the   sale   on   execution   of   the   subject  
the   SEC   due   to   incomplete   documentation.   Then,   DSLAI   changed   its   properties   was   conducted   without   notice   to   it   and   PDIC;   that   PDIC   only  
corporate  name  to  MSLAI  (Mindanao  Savings)  by  way  of  an  amendment   came  to  know  about  the  sale  for  the  first  time  in  February  1995  while  
to   Article   1   of   its   Articles   of   Incorporation,   but   the   amendment   was   discharging   its   mandate   of   liquidating   MSLAI's   assets;   that   the  
approved   by   the   SEC   only   on   1987.     Meanwhile,   on   May   26,   1986,   the   execution  of  the  RTC  decision  in  Civil  Case  between  Uy  and  FISLAI  was  
Board   of   Directors   of   FISLAI   passed   and   approved   by   aBoard   illegal   and   contrary   to   law   and   jurisprudence,   not   only   because   PDIC  
Resolution   assigning   its   assets   in   favor   of   DSLAI   which   in   turn   assumed   was  not  notified  of  the  execution  sale,  but  also  because  the  assets  of  an  
the   former's   liabilities.   The   business   of   MSLAI,   however,   failed.   institution   placed   under   receivership   or   liquidation   such   as   MSLAI  
Hence,  the  Monetary  Board  of  the  Central  Bank  of  the  Philippines   should   be   deemed   in   custodia   legis   and   should   be   exempt   from   any  
ordered   its   closure   and   placed   it   under   receivership   in   1990.   In   order  of  garnishment,  levy,  attachment,  or  execution.  
1991,  the  Monetary  Board  ordered  the  liquidation  of  MSLAI,  with  PDIC    
as  its  liquidator.   Respondent’s  contention:    
  That  MSLAI  had  no  cause  of  action  against  them  or  the  right  to  recover  
Prior  to  the  closure  of  MSLAI,  Uy  filed  with  the  RTC  of  Iligan  City,   the   subject   properties   because   MSLAI   is   a   separate   and   distinct   entity  
an  action  for  collection  of  sum  of  money  against  FISLAI  where  the   from   FISLAI.   They   further   contended   that   the   "unofficial   merger"  
RTC   issued   a   summary   decision   in   favor   of   Uy,   directing   between  FISLAI  and  DSLAI  (now  MSLAI)  did  not  take  effect  considering  
defendants  therein  (which  included  FISLAI)  to  pay  the  former  the   that   the   merging   companies   did   not   comply   with   the   formalities   and  
sum   of   P136,801.70,   plus   interest   until   full   payment,   25%   as   procedure   for   merger   or   consolidation   as   prescribed   by   the  
attorney's   fees,   and   the   costs   of   suit.   The   decision   was   modified   by   Corporation  Code  of  the  Philippines.  Finally,  they  claimed  that  FISLAI  is  
the   CA   by   further   ordering   the   third-­‐party   defendant   (I   presume   still  a  SEC  registered  corporation  and  could  not  have  been  absorbed  by  
this   is   MSLAI)   therein   to   reimburse   the   payments   that   would   be   petitioner.   (Remember:   that   the   property   levied   was   the   property  
made   by   the   defendants(FISLAI).   The   decision   became   final   and   originally  owned  by  the  FISLAI  and  that  the  claim  of  UY  in  the  civil  case  
executory  on  1992.  A  writ  of  execution  was  thereafter  issued.  Now  the   was  originally  directed  against  FISLAI)  
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  

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RTC  of  CAGAYAN  DE  ORO:  dismissed  the  case  on  the  ground  of  lack  of   that   the   merger   is   not   inconsistent   with   the   Corporation   Code   or  
jurisdiction  since  the  decision  ordering  the  sale  is  made  by  a  court  w/   existing   laws.   Where   a   party   to   the   merger   is   a   special   corporation  
concurrent  jurisdiction  (db  the  civil  case  was  filed  with  rtc  iligan  city)   governed   by   its   own   charter,   the   Code   particularly   mandates   that   a  
favorable   recommendation   of   the   appropriate   government   agency  
CA:     dismissed/   sustained   the   dismissal   but   not   on   the   ground   of   should  first  be  obtained.    
jurisdiction  but  said  that  there  was  in  fact  no  merger  or  consolidation    
for   their   failure   to   follow   the   procedure   laid   down   by   the   Corporation   In   this   case,   it   is   undisputed   that   the   articles   of   merger   between  
Code   for   a   valid   merger   or   consolidation,   hence   with   separate   FISLAI   and   DSLAI   were   not   registered   with   the   SEC   due   to  
personalities.  Implications:   incomplete   documentation.   Consequently,   the   SEC   did   not   issue  
the   required   certificate   of   merger.  Even  if  it  is  true  that  the  Monetary  
1. The  decision  cannot  be  annulled  since  the  order  of  sale   Board   of   the   Central   Bank   of   the   Philippines   recognized   such   merger,  
is   valid,   the   FISLAI   having   a   separate   juridical   the  fact  remains  that  no  certificate  was  issued  by  the  SEC.  Such  merger  
personality.     is  still  incomplete  without  the  certification.    
2. If  there  was  a  de  facto  merger,  Willkon  is  an  innocent    
purchaser   for   value   relying   on   the   clean   certificate   of     The   issuance   of   the   certificate   of   merger   is   crucial   because   not   only  
title     does   it   bear   out   SEC's   approval   but   it   also   marks   the   moment   when   the  
3. The   assignment   of   assets   and   liabilities   of   FISLAI   to   consequences   of   a   merger   take   place.   By   operation   of   law,   upon   the  
MSLAI   is   not   binding   to   3rd   persons   for   failure   to   reg.   effectivity   of   the   merger,   the   absorbed   corporation   ceases   to   exist   but  
the  merger.     its   rights   and   properties,   as   well   as   liabilities,   shall   be   taken   and  
deemed   transferred   to   and   vested   in   the   surviving   corporation.   There  
ISSUE:    
being   no   merger   between   FISLAI   and   DSLAI   (now   MSLAI),   for   third  
Whether  or  not  the  merger  was  valid  and  effective?   parties   such   as   respondents,   the   two   corporations   shall   not   be  
considered  as  one  but  two  separate  corporations.  
HELD:      
NO.  IT  IS  NOT  VALID  and  EFFECTIVE.   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  
The   merger   does   not   become   effective   upon   the   mere   agreement   of   the   DSLAI   and   MSLAI,   notwithstanding   the   Deed   of   Assignment   wherein  
constituent   corporations.   Since   a   merger   or   consolidation   involves   FISLAI   assigned   its   assets   and   properties   to   DSLAI,   and   the   latter  
fundamental   changes   in   the   corporation,   as   well   as   in   the   rights   of   assumed  all  the  liabilities  of  the  former.  As  provided  in  Article  1625  of  
stockholders   and   creditors,   there   must   be   an   express   provision   of   law   the  Civil  Code,  "an  assignment  of  credit,  right  or  action  shall  produce  no  
authorizing   them.     The   steps   in   accomplishing   effect   as   against   third   persons,   unless   it   appears   in   a   public   instrument,  
merger/consolidation   is   found   in   SEC   76   to   79   of   Corp   Code.   or   the   instrument   is   recorded   in   the   Registry   of   Property   in   case   the  
(check  codal)   assignment   involves   real   property."   The   certificates   of   title   of   the  
    subject  properties  were  clean  and  contained  no  annotation  of  the  fact  of  
Clearly,   the   merger   shall   only   be   effective   upon   the   issuance   of   a   assignment.   Respondents   cannot,   therefore,   be   faulted   for   enforcing  
certificate  of  merger  by  the  SEC,  subject  to  its  prior  determination   their  claim  against  FISLAI  on  the  properties  registered  under  its  name.  

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Accordingly,  MSLAI,  as  the  successor-­‐in-­‐interest  of  DSLAI,  has  no  legal   On   December   22,   1980,   the   Bank   of   the   Philippine   Islands   (BPI)   and  
standing  to  annul  the  execution  sale  over  the  properties  of  FISLAI.  With   CBTC   entered   into   a   merger,   wherein   BPI,   as   the   surviving   corporation,  
more  reason  can  it  not  cause  the  cancellation  of  the  title  to  the  subject   acquired  all  the  assets  and  assumed  all  the  liabilities  of  CBTC.  
properties  of  Willkom  and  Go.    
  ELISCON   encountered   financial   difficulties   and   became   heavily  
BABST  vs.  CA   indebted  to  the  Development  Bank  of  the  Philippines  (DBP).  In  order  to  
G.R.  No.  99398  –  January  26,  2001   settle   its   obligations,   ELISCON   proposed   to   convey   to   DBP   by   way  
  of  dacion  en  pago  all   its   fixed   assets   mortgaged   with   DBP,   as   payment  
FACTS:     for  its  total  indebtedness.  
BPI   filed   a   complaint   to   enforce   payment   of   a   promissory   note   and    
three   domestic   letters   of   credit   which   Elizalde   Steel   Consolidated,   Inc.   DBP   formally   took   over   the   assets   of   ELISCON,   including   its  
(ELISCON)  executed  and   opened  with  the  Commercial  Bank  and  Trust   indebtedness   to   BPI.   Thereafter,   DBP   proposed   formulas   for   the  
Company  (CBTC),  predecessor  of  BPI.     settlement   of   all   of   ELISCON's   obligations   to   its   creditors,   but   BPI  
  expressly  rejected  the  formula  submitted  to  it  for  not  being  acceptable.  
ELISCON   obtained   from   CBTC   a   loan   in   the   amount   of   P8,015,900.84,    
with   14%   annual   interest,   evidenced   by   a   promissory   note.   ELISCON   BPI,  as  successor-­‐in-­‐interest  of  CBTC,  instituted  with  the  Regional  Trial  
defaulted   in   its   payments,   leaving   an   outstanding   indebtedness   in   the   Court  of  Makati,  a  complaint  for  sum  of  money  against  ELISCON,  MULTI  
amount   of   P2,795,240.   The   letters   of   credit,   on   the   other   hand,   were   and  BABST.  
opened  for  ELISCON  by  CBTC  using  the  credit  facilities  of  Pacific  Multi-­‐  
Commercial   Corporation   (MULTI)   with   the   said   bank,   wherein,   the   RTC-­‐Makati  ruled  in  favor  of  BPI.  
Pacific   Multi-­‐Commercial   Corporation   solidarily   guaranteed   the    
payment   of   the   corresponding   Letters   of   Credit   upon   maturity   of   the   CA  affirmed  with  modification  RTC’s  judgment.  
same.   Subsequently,   Antonio   Roxas   Chua   (president   and   general  
manager   of   MULTI)   and   Chester   G.   Babst  executed   a   Continuing   • Petitioner  Babst  alleged   that   DBP   sold   all   of   ELISCON's   assets  
Suretyship,  whereby   they   bound   themselves   jointly   and   severally   liable   to   the   National   Development   Company,   for   the   latter   to   take  
to   pay   any   existing   indebtedness   of   MULTI   to   CBTC   to   the   extent   of   over   and   continue   the   operation   of   its   business.   Also,  
P8,000,000.00  each.   Babst  averred  that  the  assets  of  ELISCON  which  were  acquired  
  by   the   DBP,   and   later   transferred   to   the   NDC,   were   placed  
CBTC  opened  for  ELISCON  in  favor  of  National  Steel  Corporation  three   under   the   Asset   Privatization   Trust   pursuant   to  Proclamation  
(3)   domestic   letters   of   credit   in   the   amounts   of   P1,946,805.73,   No.  50,  issued  by  then  President  Corazon  C.  Aquino.  
P1,702,869.32  and   P200,307.72,  respectively,   which   ELISCON   used   to    
purchase   tin   black   plates   from   National   Steel   Corporation.   ELISCON   • BPI   countered   that   by   virtue   of   its   merger   with   CBTC,   it  
defaulted   in   its   obligation   to   pay   the   amounts   of   the   letters   of   credit,   acquired   all   the   latter's   rights   and   interest   including   all  
leaving   an   outstanding   account,   as   of   October   31,   1982,   in   the   total   receivables;   that   in   order   to   effect   a   valid   novation   by  
amount  of  P3,963,372.08.   substitution   of   debtors,   the   consent   of   the   creditor   must   be  
express;  that  in  addition,  the  consent  of  BPI  must  appear  in  its  

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books,   it   being   a   private   corporation;   that   BPI   intentionally   did   The   authority   granted   by   BPI   to   its   account   officer   to   attend   the  
not   consent   to   the   assumption   by   DBP   of   the   obligations   of   creditors'   meeting   was   an   authority   to   represent   the   bank,   such   that  
ELISCON   because   it   wanted   to   preserve   intact   its   causes   of   when   he   failed   to   object   to   the   substitution   of   debtors,   he   did   so   on  
action   and   legal   recourse   against   Pacific   Multi-­‐Commercial   behalf   of   and   for   the   bank.   Even   granting  arguendo  that   the   said  
Corporation  and  Babst  as  sureties  of  ELISCON  and  not  of  DBP;   account   officer   was   not   so   empowered,   BPI   could   have   subsequently  
that   MULTI   expressly   bound   itself   solidarily   for   ELISCON's   registered   its   objection   to   the   substitution,   especially   after   it   had  
obligations   to   CBTC   in   its   Resolution   wherein   it   allowed   the   already   learned   that   DBP   had   taken   over   the   assets   and   assumed   the  
latter   to   use   its   credit   facilities;   and   that   the   suretyship   liabilities  of  ELISCON.  Its  failure  to  do  so  can  only  mean  acquiescence  in  
agreement   executed   by  Babst  does   not   exclude   liabilities   the  assumption  by  DBP  of  ELISCON's  obligations.  As  repeatedly  pointed  
incurred  by  MULTI  on  behalf  of  third  parties,  such  as  ELISCON.   out   by   ELISCON   and   MULTI,   BPI's   objection   was   to   the   proposed  
payment  formula,  not  to  the  substitution  itself.  
ISSUE:    
Whether   or   not   BPI   has   legal   capacity   to   recover   ELISCON   and   MULTI’s  
obligation  to  CBTC  by  virtue  of  a  valid  merger.   (2) WON   the   obligations   of   Babst   and   Multi   under   the   contract   of  
  suretyship  were  extinguished  thru  novation.  
HELD:      
YES.  It  is  settled  that  in  the  merger  of  two  existing  corporations,  one  of   YES.   BPI's   conduct   evinced   a   clear   and   unmistakable  
the  corporations  survives  and  continues  the  business,  while  the  other  is   consent  to  the  substitution  of  DBP  for  ELISCON  as  debtor.  
dissolved  and  all  its  rights,  properties  and  liabilities  are  acquired  by  the   Hence,   there   was   a   valid   novation   which   resulted   in   the  
surviving  corporation.  Hence,  BPI  has  a  right  to  institute  the  case  a  quo.   release   of   ELISCON   from   its   obligation   to   BPI,   whose   cause  
of   action   should   be   directed   against   DBP   as   the   new  
(1) WON  BPI  consented  to  the  assumption  by  DBP  of  the  obligations   debtor.  
of  ELISCON.    
Novation   has   dual   functions   —   one   to   extinguish   an  
  YES.   There   exist   clear   indications   that   BPI   was   aware   of   existing  obligation,  the  other  to  substitute  a  new  one  in  its  
the   assumption   by   DBP   of   the   obligations   of   ELISCON.   In   place  —  requiring  a  conflux  of  four  essential  requisites,  (1)  
fact,  BPI  admits  that  —   a  previous  valid  obligation;  (2)  an  agreement  of  all  parties  
"the   Development   Bank   of   the   concerned  to  a  new  contract;  (3)  the  extinguishment  of  the  
Philippines   (DBP),   for   a   time,   had   old  obligation;  and  (4)  the  birth  of  a  valid  new  obligation.    
proposed   a   formula   for   the    
settlement   of   ELISCON's   past   The   original   obligation   having   been   extinguished,   the  
obligations   to   its   creditors,   including   contracts   of   suretyship   executed   separately   by   Babst  and  
the   plaintiff   [BPI],   but   the   formula   MULTI,   being   accessory   obligations,   are   likewise  
was  expressly  rejected  by  the  plaintiff   extinguished.  
as   not   acceptable   (long   before   the    
filing  of  the  complaint  at  bar)."    

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