The Court recently held “incomplete” the merger of two savings and loan associations treated as banks, thus making the properties of one subject to the judgment claim of a creditor despite the assumption of liabilities by the other in absence of the said creditor’s consent.

In a 13-page decision penned by Justice Antonio Eduardo B. Nachura, the Court denied the petition of  Mindanao Savings and Loan Association, Inc. (MSLAI), formerly known as the Davao Savings and Loan Association, Inc. (DSLAI),  represented by its liquidator the Philippine Deposit Insurance Corporation. The Court instead affirmed the decision of the Court of Appeals sustaining the dismissal of MSLAI’s complaint for annulment of the sale on execution in 1993 of certain parcels of land in Cagayan de Oro owned by First Ilagan Savings and Loan Association, Inc. (FISLAI). The sale was to satisfy the judgment debt of FISLAI in favor of one Remedios Uy. During the public auction, Edward Willkom was the highest bidder and was issued a certificate of sale which he later registered. Eventually, after the expiration of the redemption period, he was issued the sheriff’s definite deed of sale and later, new certificates of title covering the subject properties. Willkom would later sell one of the properties to Gilda Go. Earlier, in 1985, FISLAI and DSLAI had entered into a merger with DSLAI as the surviving corporation. Later, DSLAI amended its articles of incorporation to change its corporate name to MSLAI.

The Court upheld the finding of the Court of Appeals that the merger between FISLAI and MSLAI was “incomplete” because the SEC did not issue the required certificate of merger for failure to register the articles of merger. It stressed that the issuance of the certificate of merger marks the moment when the consequences of a merger take place, i.e., the absorbed corporation ceases to exist and its rights and properties, as well as liabilities, 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…Being separate entities, the property of one cannot be considered the property of the other,” the Court held.

 The Court further ruled that petitioner cannot also anchor its right to annul the execution sale on the principle of novation, citing Art. 1293 of the Civil Code which requires the consent of the creditor. “In this case, there was no showing that Uy, the creditor, gave her consent to the agreement that DSLAI (now MSLAI) would assume the liabilities of FISLAI. Such agreement cannot prejudice Uy. Thus, the assets that FISLAI transferred to DSLAI remained subject to execution to satisfy the judgment claim of Uy against FISLAI. The subsequent sale of the properties by Uy to Willkom, and of one of the properties by Willkom to Go, cannot, therefore, be questioned by MSLAI,” held the Court. (GR No. 178618, Mindanao Savings and Loan Association, Inc. v. Willkom, October 20, 2010)