Corpo Cases 10

8/12/2019 Corpo Cases 10

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[G.R. No. L-33320. May 30, 1983.]

RAMON A. GONZALES, petitioner, vs.THE PHILIPPINE NATIONAL BANK,respondent.

Ramon A. Gonzales in his own behalf.

Juan Diaz for respondent.

SYLLABUS

1.COMMERCIAL LAW; CORPORATION CODE;LIMITATIONS OF RIGHT OF INSPECTION UNDER THENEW CODE (B.P. BLG. 68). As may be noted, amongthe changes introduced in the new Code with respect tothe right of inspection granted to a stockholder are thefollowing: the records must be kept at the principal officeof the corporation; the inspection must be made on

business days; the stockholder may demand a copy ofthe excerpts of the records or minutes; and the refusalto allow such inspection shall subject the erring officer oragent of the corporation to civil and criminal liabilities.However, while seemingly enlarging the right ofinspection, the new Code has prescribed limitations tothe same. It is now expressly required as a condition forsuch examination that the one requesting it must nothave been guilty of using improperly any informationsecured through a prior examination, and that theperson asking for such examinations must be "acting ingood faith and for a legitimate purpose in making hisdemand."


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2.ID.; ID.; ID.; UNQUALIFIED PROVISION UNDER THEPREVIOUS LAW, NOW DISSIPATED BY THE CLEARPROVISION OF SECTION 74 OF B.P. BLG. 68. The

unqualified provision on the right of inspection previouslycontained in Section 51, Act No. 1459, as amended, nolonger holds true under the provisions of the presentlaw. The argument of the petitioner that the rightgranted to him under Section 51 of the formerCorporation law should not be dependent on thepropriety of his motive or purpose in asking for theinspection of the books of the respondent bank loseswhatever validity it might have had before theamendment of the law. If there is any doubt in thecorrectness of the ruling of the trial court that the rightof inspection granted under Section 51 of the oldCorporation Law must be dependent on a showing ofproper motive on the part of the stockholder demandingthe same, it now dissipated by the clear language of the

pertinent provision contained in Section 74 of BatasPambansa Blg. 68.

3.ID.; ID.; ID.; MODE OF ACQUISITION OF ONE SHAREOF STOCK, AS EVIDENCE OF BAD FAITH AND ULTERIORMOTIVE. Although the petitioner has claimed that hehas justifiable motives in seeking the inspection of thebooks of the respondent bank, he has not set forth the

reasons and the purposes for which be desires suchinspection, except to satisfy himself as to the truth ofpublished reports regarding certain transactions enteredinto by the respondent bank and to inquire into theirvalidity. The circumstances under which he acquired oneshare of stock in the respondent bank purposely to


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exercise the right of inspection do not argue in favor ofhis good faith and proper motivation. Admittedly hesought to be a stockholder in order to pry into

transactions entered into by the respondent bank evenbefore he became a stockholder. His obvious purposewas to arm himself with materials which he can useagainst the respondent bank for acts done by the latterwhen the petitioner was a total stranger to the same. Hecould have been impelled by a laudable sense of civilconsciousness, but it could not be said that his purposeis germane to his interest as a stockholder.

4.ID.; ID.; PROVIDES THAT CORPORATIONS CREATEDBY CHARTERS SHALL BE GOVERNED PRIMARILY BYSAID CHARTERS; RESPONDENT BANK WITH A CHARTEROF ITS OWN IS NOT GOVERNED BY THE CORPORATIONCODE. The Philippine National Bank is not an ordinarycorporation. Having a charter of its own, it is notgoverned, as a rule, by the Corporation Code of thePhilippines. Section 4 of the said Code provides: "SEC. 4. Corporations created by special laws or charters. Corporations created by special laws or charters shall begoverned primarily by the provisions of the special law orcharter creating them or applicable to them,supplemented by the provisions of this Code, insofar asthey are applicable." The provision of Section 74 of Batas

Pambansa Blg. 68 of the new Corporation Code withrespect to the right of a stockholder to demand aninspection or examination of the books of the corporationmay not be reconciled with the above-quoted provisionsof the charter of the bank. It is not correct to claim,therefore, that the right of inspection under Section 74 of


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the new Corporation Code may apply in a supplementarycapacity to the charter of the respondent bank.

D E C I S I O N

VASQUEZ , J p:

Petitioner Ramon A. Gonzales instituted in the erstwhileCourt of First Instance of Manila a special civil action formandamus against the herein respondent praying thatthe latter be ordered to allow him to look into the booksand records of the respondent bank in order to satisfyhimself as to the truth of the published reports that therespondent has guaranteed the obligation of SouthernNegros Development Corporation in the purchase of aUS$23 million sugar-mill to be financed by Japanesesuppliers and financiers; that the respondent is financingthe construction of the P21 million Cebu-Mactan Bridge

to be constructed by V.C. Ponce, Inc., and theconstruction of Passi Sugar Mill at Iloilo by the HonironPhilippines, Inc., as well as to inquire into the validity ofsaid transactions. The petitioner has alleged had hiswritten request for such examination was denied by therespondent. The trial court having dismissed the petitionfor mandamus, the instant appeal to review the said

dismissal was filed. LLjur

The facts that gave rise to the subject controversy havebeen set forth by the trial court in the decision hereinsought to be reviewed, as follows:

"'Briefly stated, the following facts gathered


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from the stipulation of the parties served asthe backdrop of this proceeding.

'Previous to the present action, the

petitioner instituted several cases inthis Court questioning differenttransactions entered into by the Bankwith other parties . First among them isCivil Case No. 69345 filed on April 27, 1967,by petitioner as a taxpayer versus Sec.

Antonio Raquiza of Public Works andCommunications, the Commissioner of Public

Highways, the Bank, Continental Ore Phil.,Inc., Continental Ore, Huber Corporation,

Allis Chalmers and General MotorsCorporation. In the course of the hearing ofsaid case on August 3, 1967, the personalityof herein petitioner to sue the bank andquestion the letters of credit it has extendedfor the importation by the Republic of thePhilippines of public works equipmentintended for the massive developmentprogram of the President was raised. In viewthereof, he expressed and made known hisintention to acquire one share of stock fromCongressman Justiniano Montano which, onthe following day, August 30, 1967, wastransferred in his name in the books of theBank.

'Subsequent to his aforementionedacquisition of one share of stock of the Bank,petitioner, in his dual capacity as a taxpayerand stockholder, filed the following cases


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involving the bank or the members of itsBoard of Directors to wit:

'1.On October 18, 1967, Civil

Case No. 71044 versus the Board ofDirectors of the Bank; the NationalInvestment and Development Corp.,Marubeni Iida Co., Ltd., and Agro-Inc.Dev. Co. or Saravia;

'2.On May 11, 1968, Civil CaseNo. 72936 versus Roberto Benedictoand other Directors of the Bank, Passi(Iloilo) Sugar Central, Inc., Calinog-Lambunao Sugar Mill IntegratedFarming, Inc., Talog sugar Milling Co.,Inc., Safary Central, Inc., andBatangas Sugar Central Inc.;

'3.On May 8, 1969, Civil CaseNo. 76427 versus Alfredo Montelibanoand the Directors of both the PNB andDBP;

'On January 11, 1969, however, petitioneraddressed a letter to the President of theBank (Annex A, Pet.), requesting submissionto look into the records of its transactionscovering the purchase of a sugar central by

the Southern Negros Development Corp. tobe financed by Japanese suppliers andfinanciers; its financing of the Cebu-MactanBridge to be constructed by V.C. Ponce, Inc.and the construction of the Passi Sugar Millsin Iloilo. On January 23, 1969, the Asst. Vice


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President and Legal Counsel of the Bankanswered petitioner's letter denying hisrequest for being not germane to hisinterest as a one share stockholder andfor the cloud of doubt as to his realintention and purpose in acquiring saidshare. (Annex B, Pet.) In view of the Bank'srefusal, the petitioner instituted this action.'"(Rollo, pp. 16-18.)

The petitioner has adopted the above finding of factsmade by the trial court in its brief which he characterizedas having been "correctly stated." (Petitioner-Appellant'sBrief, pp. 5-7.) LLjur

The court a quo denied the prayer of the petitionerthat he be allowed to examine and inspect thebooks and records of the respondent bank regarding thetransactions mentioned on the grounds that the right ofa stockholder to inspect the record of the businesstransactions of a corporation granted under Section 51 ofthe former Corporation Law (Act No. 1459, as amended)is not absolute, but is limited to purposesreasonably related to the interest of thestockholder, must be asked for in good faith for aspecific and honest purpose and not gratifycuriosity or for speculative or vicious purposes;

that such examination would violate theconfidentiality of the records of the respondentbank as provided in Section 16 of its charter, Republic

Act No. 1300, as amended; and that the petitioner hasnot exhausted his administrative remedies.


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Assailing the conclusions of the lower court, thepetitioner has assigned the single error to the lowercourt of having ruled that his alleged improper motive in

asking for an examination of the books and records ofthe respondent bank disqualifies him to exercise the rightof a stockholder to such inspection under Section 51 of

Act No. 1459, as amended. Said provision reads in partas follows:

"Sec. 51.. . . The record of all businesstransactions of the corporation and theminutes of any meeting shall be open to theinspection of any director, member orstockholder of the corporation at reasonablehours."

Petitioner maintains that the above-quoted provisiondoes not justify the qualification made by the lower court

that the inspection of corporate records may be deniedon the ground that it is intended for an impropermotive or purpose , the law having granted such rightto a stockholder in clear and unconditional terms. Hefurther argues that, assuming that a proper motive orpurpose for the desired examination is necessary for itsexercise, there is nothing improper in his purpose forasking for the examination and inspection hereininvolved.

Petitioner may no longer insist on his interpretation ofSection 51 of Act No. 1459, as amended, regarding theright of a stockholder to inspect and examine the books


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and records of a corporation. The former CorporationLaw (Act No. 1459, as amended) has been replaced byBatas Pambansa Blg. 68, otherwise known as the

"Corporation Code of the Philippines." The right ofinspection granted to a stockholder under Section 51 of Act No. 1459 has been retained, but with somemodifications. The second and third paragraphs ofSection 74 of Batas Pambansa Blg. 68 provide thefollowing:

"The records of all business transactions ofthe corporation and the minutes of anymeeting shall be open to inspection by anydirector, trustee, stockholder or member ofthe corporation at reasonable hours onbusiness days and he may demand, inwriting, for a copy of excerpts from saidrecords or minutes, at his expense.

Any officer or agent of the corporation whoshall refuse to allow any director, trustee,stockholder or member of the corporation toexamine and copy excerpts from its recordsor minutes, in accordance with the provisionsof this Code, shall be liable to such director,trustee, stockholder or member for damages,and in addition, shall be guilty of an offensewhich shall be punishable under Section 144of this Code: Provided, That if such refusal ismade pursuant to a resolution or order of theboard of directors or trustees, the liabilityunder this section for such action shall beimposed upon the directors or trustees who


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voted for such refusal: and Provided, further,That it shall be a defense to any action underthis section that the person demanding toexamine and copy excerpts from thecorporation's records and minutes hasimproperly used any information securedthrough any prior examination of the recordsor minutes of such corporation or of anyother corporation, or was not acting in goodfaith or for a legitimate purpose in making hisdemand."

As may be noted from the above-quoted provisions,among the changes introduced in the new Code withrespect to the right of inspection granted to astockholder are the following the records must be kept atthe principal office of the corporation; the inspectionmust be made on business days; the stockholder maydemand a copy of the excerpts of the records or

minutes; and the refusal to allow such inspection shallsubject the erring officer or agent of the corporation tocivil and criminal liabilities. However, while seeminglyenlarging the right of inspection, the new Codehas prescribed limitations to the same. It is nowexpressly required as a condition for suchexamination that the one requesting it must nothave been guilty of using improperly anyinformation secured through a prior examination,and that the person asking for such examinationmust be "acting in good faith and for a legitimatepurpose in making his demand."

The unqualified provision on the right of inspection


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previously contained in Section 51, Act No. 1459, asamended, no longer holds true under the provisions ofthe present law. The argument of the petitioner that the

right granted to him under Section 51 of the formerCorporation Law should not be dependent on thepropriety of his motive or purpose in asking for theinspection of the books of the respondent bank loseswhatever validity it might have had before theamendment of the law. If there is any doubt in thecorrectness of the ruling of the trial court that the rightof inspection granted under Section 51 of the oldCorporation Law must be dependent on a showing ofproper motive on the part of the stockholder demandingthe same, it is now dissipated by the clear language ofthe pertinent provision contained in Section 74 of BatasPambansa Blg 68.

Although the petitioner has claimed that he has justifiable motives in seeking the inspection of the booksof the respondent bank, he has not set forth thereasons and the purposes for which he desiressuch inspection, except to satisfy himself as to thetruth of published reports regarding certaintransactions entered into by the respondent bankand to inquire into their validity. The circumstancesunder which he acquired one share of stock in the

respondent bank purposely to exercise the right ofinspection do not argue in favor of his good faith andproper motivation. Admittedly he sought to be astockholder in order to pry into transactionsentered into by the respondent bank even beforehe became a stockholder. His obvious purpose


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was to arm himself with materials which he canuse against the respondent bank for acts done bythe latter when the petitioner was a total stranger

to the same. He could have been impelled by alaudable sense of civic consciousness, but it could notbe said that his purpose is germane to his interestas a stockholder.

We also find merit in the contention of the respondentbank that the inspection sought to be exercised by thepetitioner would be violative of the provisions of its

charter. (Republic Act No. 1300, as amended.) Sections15, 16 and 30 of the said charter provide respectively asfollows:

"'Sec. 15.Inspection by Department ofSupervision and Examination of the CentralBank. The National Bank shall be subjectto inspection by the Department ofSupervision and Examination of the CentralBank.'

'Sec. 16.Confidential information. TheSuperintendent of Banks and the AuditorGeneral, or other officers designated by lawto inspect or investigate the condition of theNational Bank, shall not reveal to any personother than the President of the Philippines,

the Secretary of Finance, and the Board ofDirectors the details of the inspection orinvestigation, nor shall they give anyinformation relative to the funds in itscustody, its current accounts or depositsbelonging to private individuals, corporations,


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or any other entity, except by order of aCourt of competent jurisdiction.'

'Sec. 30.Penalties for violation of the

provisions of this Act. Any director, officer,employee, or agent of the Bank, who violatesor permits the violation of any of theprovisions of this Act, or any person aiding orabetting the violations of any of theprovisions of this Act, shall be punished by afine not to exceed ten thousand pesos or byimprisonment of not more than five years, or

both such fine and imprisonment.'"

The Philippine National Bank is not an ordinarycorporation. Having a charter of its own, it is notgoverned, as a rule, by the Corporation Code of thePhilippines. Section 4 of the said Code provides:

"SEC. 4.Corporations created by special lawsor charters. Corporations created byspecial laws or charters shall be governedprimarily by the provisions of the special lawor charter creating them or applicable tothem, supplemented by the provisions of thisCode, insofar as they are applicable."

The provision of Section 74 of Batas Pambansa Blg. 68 ofthe new Corporation Code with respect to the right of astockholder to demand an inspection or examination ofthe books of the corporation may not be reconciled withthe above quoted provisions of the charter of therespondent bank. It is not correct to claim, therefore,that the right of inspection under Section 74 of the new


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Corporation Code may apply in a supplementary capacityto the charter of the respondent bank. cdrep

WHEREFORE, the petition is hereby DISMISSED, withoutcosts.


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[G.R. No. 123793. June 29, 1998.]

ASSOCIATED BANK , petitioner, vs.COURT OF APPEALS and LORENZOSARMIENTO JR. , respondents.

Villanueva, Pacis, Mondragon & Cana Law Offices forpetitioner.

Enrico Eric R. Castro for private respondent.

SYNOPSIS

After the merger of Associated Banking Corporation(ABC) and Citizens Bank and Trust Company (CBTC), theprivate respondent executed in favor of Associated Banka promissory note whereby respondent undertook to paythe bank the sum of P2,500,000.00. The mergeragreement provided that all references to CBTC shall be

deemed for all intents and purposes references to thesurviving bank, ABC, as if such references were directreferences to ABC. When private respondent failed topay the remaining balance, Associated Bank, thesurviving corporation, sued for collection. Privaterespondent denied the pertinent allegations in thecomplaint and alleged that the complaint states no causeof action because the promissory note was executed infavor of CBTC, not the Associated Bank. Privaterespondent was declared as in default for failure toappear at the pre-trial conference and petitionerpresented its evidence ex-parte. Thereafter, the trialcourt rendered judgment ordering private respondent to


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pay the bank his remaining balance plus interests andattorney's fees. On appeal, the Court of Appeals heldthat petitioner, which was not privy to the transaction,

had no cause of action against private respondent andthat the earlier merger between the two banks could nothave vested petitioner with any interest arising from thepromissory note executed in favor of CBTC after suchmerger. Hence, this recourse.

The Supreme Court held that the fact that thepromissory note was executed after the effectivity of the

merger does not militate against the petitioner where theagreement clearly provides that all contracts entered intoin the name of CBTC shall be understood as pertaining tothe surviving bank; that the merger provision beingclear, plain and free of ambiguity, the same must begiven its literal meaning; and that to let the privaterespondent enjoy the fruits of his loan without liability isunfair and unsconscionable, amounting to unjustenrichment.

SYLLABUS

1.MERCANTILE LAW; CORPORATIONS; MERGER;EFFECT. Ordinarily, in the merger of two or moreexisting corporations, one of the combining corporationssurvives and continues the combined business, while therest are dissolved and all their rights, properties andliabilities are acquired by the surviving corporation.

Although there is a dissolution of the absorbedcorporations, there is no winding up of their affairs orliquidation of their assets, because the surviving


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corporation automatically acquires all their rights,privileges and powers, as well as their liabilities. ACSaHc

2.ID.; ID.; ID., EFFECTIVITY THEREOF DETERMINED BYDATE OF SEC'S ISSUANCE OF CERTIFICATE OFMERGER. The merger, however, does not becomeeffective upon the mere agreement of the constituentcorporations. The procedure to be followed is prescribedunder the Corporation Code. Section 79 of said Coderequires the approval by the Securities and ExchangeCommission (SEC) of the articles of merger which, in

turn, must have been duly approved by a majority of therespective stockholders of the constituent corporations.The same provision further states that the merger shallbe effective only upon the issuance by the SEC of acertificate of merger.

3.ID.; ID.; ID.; AGREEMENT PROVIDING THAT ALLCONTRACTS, IRRESPECTIVE OF DATE OF EXECUTION,

ENTERED INTO BY ABSORBED BANK, SHALL PERTAINTO SURVIVING BANK EMPOWERS SERVING BANK TOCOLLECT OBLIGATIONS DUE TO ABSORBED BANK;CASE AT BAR. The fact that the promissory note wasexecuted after the effectivity date of the merger doesnot militate against petitioner. The agreement itselfclearly provides that all contracts irrespective of thedate of execution entered into in the name of CBTCshall be understood as pertaining to the surviving bank,herein petitioner. Since, in contrast to the earlieraforequoted provision, the latter clause no longerspecifically refers only to contracts existing at the time ofthe merger, no distinction clause must have been


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deliberately included in the agreement in order to protectthe interests of the combining banks; specifically, toavoid giving the merger agreement a farcical

interpretation aimed at evading fulfillment of a dueobligation. Thus, although the subject promissory notenames CBTC as the payee, the reference to CBTC in thenote shall be construed, under the very provisions of themerger agreement, as a reference to petitioner bank, asif such reference [was a] direct reference to the latter forall intents and purposes. No other construction can begiven to the unequivocal stipulation. Being clear, plainand free of ambiguity, the provision must be given itsliteral meaning and applied without a convolutedinterpretation. Verba legis non est recedendum. In lightof the foregoing, the Court holds that petitioner has avalid cause of action against private respondent. Clearly,the failure of private respondent to honor his obligationunder the promissory note constitutes a violation of

petitioners right to collect the proceeds of the loan itextended to the former.

4.CIVIL LAW; PRESCRIPTION OF ACTIONS;COLLECTION OF SUM OF MONEY BASED ON WRITTENCONTRACT PRESCRIBES IN TEN (10) YEARS; CASE ATBAR. Petitioner's suit for collection of a sum of moneywas based on a written contract and prescribes after ten

years from the time its right of action arose. Sarmiento'sobligation under the promissory note became due anddemandable on March 6, 1978. Petitioner's complaintwas instituted on August 22, 1985, before the lapse ofthe ten-year prescriptive period. Definitely, petitioner stillhad every right to commence suit against the


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payor/obligor, the private respondent herein.

5.REMEDIAL LAW; ACTIONS; LACHES; APPLIED TO AVOID INEQUITABLE SITUATION OR INJUSTICE;INAPPLICABLE WHERE CLAIM WAS FILED WITHINPRESCRIPTIVE PERIOD. Neither is petitioner's actionbarred by laches. The principle of laches is a creation ofequity, which is applied not to penalize neglect or failureto assert a right within a reasonable time, but rather toavoid recognizing a right when to do so would result in aclearly inequitable situation or in an injustice. To require

private respondent to pay the remaining balance of hisloan is certainly not inequitable or unjust. What would bemanifestly unjust and inequitable is his contention thatCBTC is the proper party to proceed against him despitethe fact, which he himself asserts, that CBTC's corporatepersonality has been dissolved by virtue of its mergerwith petitioner. To hold that no payee/obligee exists andto let private respondent enjoy the fruits of his loanwithout liability is surely most unfair and unconscionable,amounting to unjust enrichment at the expense ofpetitioner. Besides, this Court has held that the doctrineof laches is inapplicable where the claim was filed withinthe prescriptive period set forth under the law.

6.CIVIL LAW; OBLIGATIONS AND CONTRACTS;STIPULATION POUR AUTRUI; CONSTRUED. Astipulation pour autruiis one in favor of a third personwho may demand its fulfillment, provided hecommunicated his acceptance to the obligor before itsrevocation. An incidental benefit or interest, whichanother person gains, is not sufficient. The contracting


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parties must have clearly and deliberately conferred afavor upon a third person.

7.ID.; ID.; ID.; REQUISITES. Florentino vs.Encarnacion, Sr. enumerates the requisites for suchcontract: (1) the stipulation in favor of a third personmust be a part of the contract, and not the contractitself; (2) the favorable stipulation should not beconditioned or compensated by any kind of obligation;and (3) neither of the contracting parties bears the legalrepresentation or authorization of the third party. The

"fairest test" in determining whether the third person'sinterest in a contract is a stipulation pour autrui ormerely an incidental interest is to examine the intentionof the parties as disclosed by their contract.

8.REMEDIAL LAW; EVIDENCE; RES IPSA LOQUITURBAR. Private respondent also claims that he receivedno consideration for the promissory note and, in support

thereof, cites petitioner's failure to submit any proof ofhis loan application and of his actual receipt of theamount loaned. These arguments deserve no merit. Resipsa loquitur. The instrument, bearing the signature ofprivate respondent, speaks for itself. RespondentSarmiento has not questioned the genuineness and dueexecution thereof. No further proof is necessary to showthat he undertook to pay P2,500.000, plus interest, topetitioner bank on or before March 6, 1978. This hefailed to do, as testified to by petitioner's accountant.The latter presented before the trial court privaterespondent's statement of account as of September 30,1986, showing an outstanding balance of P4,689,413.63


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after deducting P1,000,000.00 paid seven months earlier.

9.ID.; ID.; PARTIAL PAYMENT, AN EXPRESS ACKNOWLEDGMENT OF OBLIGATION. Furthermoresuch partial payment is equivalent to an expressacknowledgment of his obligation. Private respondentcan no longer backtrack and deny his liability topetitioner bank. A person cannot accept and reject thesame instrument. TCaAHI

D E C I S I O N

PANGANIBAN , J p:

In a merger, does the surviving corporation have aright to enforce a contract entered into by theabsorbed company subsequent to the date of themerger agreement, but prior to the issuance of acertificate of merger by the Securities andExchange Commission? dctai

The Case This is a petition for review under Rule 45 of the Rules ofCourt, seeking to set aside the Decision 1 of the Court of

Appeals 2 in CA-GR CV No. 26465 promulgated onJanuary 30, 1996, which answered the above question in

the negative. The challenged Decision reversed and setaside the October 17, 1986 Decision 3 in Civil Case No.85-32243, promulgated by the Regional Trial Court ofManila, Branch 48, which disposed of the controversy infavor of herein petitioner as follows: 4


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"WHEREFORE, judgment is hereby renderedin favor of the plaintiff Associated Bank. The

defendant Lorenzo Sarmiento, Jr. is orderedto pay plaintiff:

1.The amount of P4,689,413.63 with interestthereon at 14% per annum until fully paid;

2.The amount of P200,000.00 as and forattorney's fees; and

3.The costs of suit."

On the other hand, the Court of Appeals resolved thecase in this wise: 5

"WHEREFORE, premises considered, thedecision appealed from, dated October 17,1986 is REVERSED and SET ASIDE andanother judgment rendered DISMISSING

plaintiff-appellee's complaint, docketed asCivil Case No. 85-32243. There is nopronouncement as to costs."

The Facts The undisputed factual antecedents, as narrated by thetrial court and adopted by public respondent, are asfollows: 6

". . . [O]n or about September 16, 1975 Associated Banking Corporation and CitizensBank and Trust Company merged to form

just one banking corporation known as Associated Citizens Bank, the surviving bank.


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On or about March 10, 1981, the AssociatedCitizens Bank changed its corporate name to

Associated Bank by virtue of the Amended Articles of Incorporation. On September 7,1977, the defendant executed in favor of

Associated Bank a promissory note wherebythe former undertook to pay the latter thesum of P2,500,000.00 payable on or beforeMarch 6, 1978. As per said promissory note,the defendant agreed to pay interest at 14%per annum, 3% per annum in the form ofliquidated damages, compounded interests,and attorney's fees, in case of litigationequivalent to 10% of the amount due. Thedefendant, to date, still owes plaintiff bankthe amount of P2,250,000.00 exclusive ofinterest and other charges. Despite repeateddemands the defendant failed to pay theamount due.

xxx xxx xxx

. . . [T]he defendant denied all the pertinentallegations in the complaint and alleged asaffirmative and[/]or special defenses that thecomplaint states no valid cause of action;that the plaintiff is not the proper party ininterest because the promissory note

was executed in favor of Citizens Bankand Trust Company ; that the promissorynote does not accurately reflect the trueintention and agreement of the parties; thatterms and conditions of the promissory noteare onerous and must be construed against


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the creditor-payee bank; that several partialpayments made in the promissory note arenot properly applied; that the present actionis premature; that as compulsorycounterclaim the defendant prays forattorney's fees, moral damages and expensesof litigation.

On May 22, 1986, the defendant wasdeclared as if in default for failure to appearat the Pre-Trial Conference despite duenotice.

A Motion to Lift Order of Default and/orReconsideration of Order dated May 22, 1986was filed by defendant's counsel which wasdenied by the Court in [an] order datedSeptember 16, 1986 and the plaintiff wasallowed to present its evidence before theCourt ex-parte on October 16, 1986.

At the hearing before the Court ex-parte,Esteban C. Ocampo testified that . . . he is anaccountant of the Loans and DiscountDepartment of the plaintiff bank; that assuch, he supervises the accounting section ofthe bank, he counterchecks all thetransactions that transpired during the dayand is responsible for all the accounts andrecords and other things that may[ ]beassigned to the Loans and DiscountDepartment; that he knows the [D]efendantLorenzo Sarmiento, Jr. because he has anoutstanding loan with them as per theirrecords; that Lorenzo Sarmiento, Jr. executed


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a promissory note No. TL-2649-77 datedSeptember 7, 1977 in the amount ofP2,500,000.00 (Exhibit A); that AssociatedBanking Corporation and the Citizens Bankand Trust Company merged to form onebanking corporation known as the AssociatedCitizens Bank and is now known as

Associated Bank by virtue of its Amended Articles of Incorporation; that there werepartial payments made but not full; that thedefendant has not paid his obligation asevidenced by the latest statement of account(Exh. B); that as per statement of accountthe outstanding obligation of the defendant isP5,689,413.63 less P1,000,000.00 orP4,689,413.63 (Exh. B, B-1); that a demandletter dated June 6, 1985 was sent by thebank thru its counsel (Exh. C) which wasreceived by the defendant on November 12,1985 (Exh. C, C-1, C-2, C-3); that thedefendant paid only P1,000,000.00 which isreflected in the Exhibit C."

Based on the evidence presented by petitioner, the trialcourt ordered Respondent Sarmiento to pay the bankhis remaining balance plus interests and attorney's fees.In his appeal, Sarmiento assigned to the trial courtseveral errors, namely: 7

"IThe [trial court] erred in denyingappellant's motion to dismiss appellee bank'scomplaint on the ground of lack of cause ofaction and for being barred by prescriptionand laches.


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IIThe same lower court erred in admittingplaintiff-appellee bank's amended complaintwhile defendant-appellant's motion to dismissappellee bank's original complaint andusing/availing [itself of] the new additionalallegations as bases in denial of saidappellant's motion and in the interpretationand application of the agreement of mergerand Section 80 of BP Blg. 68, CorporationCode of the Philippines.

IIIThe [trial court] erred and gravely

abuse[d] its discretion in rendering the twoas if in default orders dated May 22, 1986and September 16, 1986 and in notreconsidering the same upon technicalgrounds which in effect subvert the bestprimordial interest of substantial justice andequity.

IVThe court a quo erred in issuing the ordersdated May 22, 1986 and September 16, 1986declaring appellant as if in default due tonon-appearance of appellant's attendingcounsel who had resigned from the law firmand while the parties [were] negotiating forsettlement of the case and after a one millionpeso payment had in fact been paid to

appellee bank for appellant's account at thestart of such negotiation on February 18,1986 as act of earnest desire to settle theobligation in good faith by the interestedparties.

VThe lower court erred in according credence


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to appellee bank's Exhibit B statement ofaccount which had been merely requested byits counsel during the trial and bearing dateof September 30, 1986.

VIThe lower court erred in accepting andgiving credence to appellee bank's 27-year-old witness Esteban C. Ocampo as of thedate he testified on October 16, 1986, andtherefore, he was merely an eighteen-year-old minor when appellant supposedlyincurred the foisted obligation under the

subject PN No. TL-2649-77 dated September7, 1977, Exhibit A of appellee bank.

VIIThe [trial court] erred in adopting appelleebank's Exhibit B dated September 30, 1986 inits decision given in open court on October17, 1986 which exacted eighteen percent(18%) per annum on the foisted principal

amount of P2.5 million when the subject PN,Exhibit A, stipulated only fourteen percent(14%) per annum and which was actuallyprayed for in appellee bank's original andamended complaints.

VIIIThe appealed decision of the lower courterred in not considering at all appellant'saffirmative defenses that (1) the subject PNNo. TL-2649-77 for P2.5 million datedSeptember 7, 1977, is merely anaccommodation pour autrui bereft of anyactual consideration to appellant himself and(2) the subject PN is a contract of adhesion,hence, [it] needs [to] be strictly construed


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against appellee bank assuming forgranted that it has the right to enforce andseek collection thereof.

IXThe lower court should have at leastallowed appellant the opportunity to presentcountervailing evidence considering the hugeamounts claimed by appellee bank (principalsum of P2.5 million which including accruedinterests, penalties and cost of litigationtotaled P4,689,413.63) and appellant'saffirmative defenses pursuant to

substantial justice and equity."

The appellate court, however , found no need totackle all the assigned errors and limited itself to thequestion of "whether [herein petitioner had] establishedor proven a cause of action against [herein privaterespondent]." Accordingly, Respondent Court held thatthe Associated Bank had no cause of action against

Lorenzo Sarmiento Jr., since said bank was not privy tothe promissory note executed by Sarmiento in favor ofCitizens Bank and Trust Company (CBTC). The courtruled that the earlier merger between the two bankscould not have vested Associated Bank with any interestarising from the promissory note executed in favor ofCBTC after such merger.

Thus, as earlier stated, Respondent Court set aside thedecision of the trial court and dismissed the complaint.Petitioner now comes to us for a reversal of this ruling. 8

Issues In its petition, petitioner cites the following "reasons": 9


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"IThe Court of Appeals erred in reversing thedecision of the trial court and in declaringthat petitioner has no cause of action againstrespondent over the promissory note.

IIThe Court of Appeals also erred in declaringthat, since the promissory note was executedin favor of Citizens Bank and Trust Companytwo years after the merger between

Associated Banking Corporation and CitizensBank and Trust Company, respondent is notliable to petitioner because there is no privity

of contract between respondent and Associated Bank. LLjur

IIIThe Court of Appeals erred when it ruledthat petitioner, despite the merger betweenpetitioner and Citizens Bank and TrustCompany, is not a real party in interestinsofar as the promissory note executed in

favor of the merger."

In a nutshell, the main issue is whether AssociatedBank, the surviving corporation, may enforce thepromissory note made by private respondent infavor of CBTC, the absorbed company, after themerger agreement had been signed.

The Court's Ruling The petition is impressed with merit.

The Main Issue:


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Associated Bank Assumed

All Rights of CBTC Ordinarily, in the merger of two or more existingcorporations, one of the combining corporations survivesand continues the combined business, while the rest aredissolved and all their rights, properties and liabilities areacquired by the surviving corporation. 10 Although thereis a dissolution of the absorbed corporations, there is nowinding up of their affairs or liquidation of their assets,because the surviving corporation automatically

acquires all their rights, privileges and powers, as wellas their liabilities. 11

The merger, however, does not become effective uponthe mere agreement of the constituent corporations. Theprocedure to be followed is prescribed under theCorporation Code. 12 12a 12b Section 79 of said Coderequires the approval by the Securities and Exchange

Commission (SEC) of the articles of merger which, inturn, must have been duly approved by a majority of therespective stockholders of the constituent corporations.The same provision further states that the merger shallbe effective only upon the issuance by the SEC of acertificate of merger. The effectivity date of the mergeris crucial for determining when the merged or absorbedcorporation ceases to exist; and when its rights,privileges, properties as well as liabilities pass on to thesurviving corporation.

Consistent with the aforementioned Section 79, theSeptember 16, 1975 Agreement of Merger, 13 which


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Associated Banking Corporation (ABC) and Citizens Bankand Trust Company (CBTC) entered into, provided thatits effectivity "shall, for all intents and purposes, be the

date when the necessary papers to carry out this[m]erger shall have been approved by the Securities andExchange Commission." 14 As to the transfer of theproperties of CBTC to ABC, the agreement provides:

"10.Upon effective date of the Merger, allrights, privileges, powers, immunities,franchises, assets and property of[CBTC], whether real, personal ormixed, and including [CBTC's] goodwilland tradename, and all debts due to[CBTC] on whatever act, and all otherthings in action belonging to [CBTC]as of the effective date of the[m]erger shall be vested in [ABC], theSURVIVING BANK, without need offurther act or deed, unless by expressrequirements of law or of agovernment agency, any separate orspecific deed of conveyance to legallyeffect the transfer or assignment ofany kind of property [or] asset isrequired, in which case such documentor deed shall be executed accordingly;

and all property, rights, privileges,powers, immunities, franchises and allappointments, designations andnominations, and all other rights andinterests of [CBTC] as trustee,executor, administrator, registrar of


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stocks and bonds, guardian of estates,assignee, receiver, trustee of estatesof persons mentally ill and in everyother fiduciary capacity, and all andevery other interest of [CBTC] shallthereafter be effectually the propertyof [ABC] as they were of [CBTC], andtitle to any real estate, whether bydeed or otherwise, vested in [CBTC]shall not revert or be in any wayimpaired by reason thereof; provided,however, that all rights of creditorsand all liens upon any property of[CBTC] shall be preserved andunimpaired and all debts, liabilities,obligations, duties and undertakings of[CBTC], whether contractual orotherwise, expressed or implied, actualor contingent, shall henceforth attachto [ABC] which shall be responsibletherefor and may be enforced against[ABC] to the same extent as if thesame debts liabilities, obligations,duties and undertakings have beenoriginally incurred or contracted by[ABC], subject, however, to all rights,privileges, defenses, set-offs and

counterclaims which [CBTC] has ormight have and which shall pertain to[ABC]." 15

The records do not show when the SEC approvedthe merger. Private respondent's theory is that it took


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effect on the date of the execution of the agreementitself, which was September 16, 1975. Privaterespondent contends that, since he issued the

promissory note to CBTC on September 7, 1977

twoyears after the merger agreement had been executed CBTC could not have conveyed or transferred topetitioner its interest in the said note, which was not yetin existence at the time of the merger. Therefore,petitioner, the surviving bank, has no right to enforce thepromissory note on private respondent; such rightproperly pertains only to CBTC.

Assuming that the effectivity date of the merger was thedate of its execution, we still cannot agree that petitionerno longer has any interest in the promissory note. Acloser perusal of the merger agreement leads to adifferent conclusion. The provision quoted earlier has thisother clause:

"Upon the effective date of the [m]erger, allreferences to [CBTC] in any deed,documents, or other papers of whatever kindor nature and wherever found shall bedeemed for all intents and purposes,references to [ABC], the SURVIVING BANK,as if such references were direct referencesto [ABC]. . . ." 16 (Emphasis supplied)

Thus, the fact that the promissory note was executedafter the effectivity date of the merger does not militateagainst petitioner. The agreement itself clearlyprovides that all contracts irrespective of thedate of execution entered into in the name of


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CBTC shall be understood as pertaining to thesurviving bank, herein petitioner. Since, in contrastto the earlier aforequoted provision, the latter clause no

longer specifically refers only to contracts existing at thetime of the merger, no distinction should be made. Theclause must have been deliberately included in theagreement in order to protect the interests of thecombining banks; specifically, to avoid giving the mergeragreement a farcical interpretation aimed at evadingfulfillment of a due obligation.

Thus, although the subject promissory note names CBTCas the payee, the reference to CBTC in the note shall beconstrued, under the very provisions of the mergeragreement, as a reference to petitioner bank, "as if suchreference [was a] direct reference to" the latter "for allintents and purposes."

No other construction can be given to the unequivocal

stipulation. Being clear, plain and free of ambiguity, theprovision must be given its literal meaning 17 and appliedwithout a convoluted interpretation. Verba legis non estrecedendum. 18

In light of the foregoing, the Court holds that petitionerhas a valid cause of action against privaterespondent. Clearly, the failure of private

respondent to honor his obligation under thepromissory note constitutes a violation ofpetitioner's right to collect the proceeds of theloan it extended to the former.

Secondary Issues:


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Prescription Laches, Contract

Pour Autrui, Lack of Consideration No Prescription

or Laches Private respondent's claim that the action has prescribed,pursuant to Article 1149 of the Civil Code, is legallyuntenable. Petitioner's suit for collection of a sum ofmoney was based on a written contract and prescribesafter ten years from the time its right of action arose. 19

Sarmiento's obligation under the promissory notebecame due and demandable on March 6, 1978.Petitioner's complaint was instituted on August 22, 1985,before the lapse of the ten-year prescriptive period.Definitely, petitioner still had every right to commencesuit against the payor/obligor, the private respondentherein.

Neither is petitioner's action barred by laches. Theprinciple of laches is a creation of equity, which isapplied not to penalize neglect or failure to assert a rightwithin a reasonable time, but rather to avoid recognizinga right when to do so would result in a clearly inequitablesituation 20 or in an injustice. 21 To require privaterespondent to pay the remaining balance of his loan iscertainly not inequitable or unjust. What would bemanifestly unjust and inequitable is his contention thatCBTC is the proper party to proceed against him despitethe fact, which he himself asserts, that CBTC's corporatepersonality has been dissolved by virtue of its mergerwith petitioner. To hold that no payee/obligee exists and


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to let private respondent enjoy the fruits of his loanwithout liability is surely most unfair and unconscionable,amounting to unjust enrichment at the expense of

petitioner. Besides, this Court has held that the doctrineof laches is inapplicable where the claim was filed withinthe prescriptive period set forth under the law. 22

No Contract

Pour Autrui Private respondent, while not denying that he executedthe promissory note in the amount of P2,500,000 infavor of CBTC, offers the alternative defense that saidnote was a contract Pour autrui.

A stipulation pour autrui is one in favor of a third personwho may demand its fulfillment, provided hecommunicated his acceptance to the obligor before itsrevocation. An incidental benefit or interest, whichanother person gains, is not sufficient. The contractingparties must have clearly and deliberately conferred afavor upon a third person. 23

Florentino vs. Encarnacion Sr. 24 enumerates therequisites for such contract: (1) the stipulation in favor ofa third person must be a part of the contract, and notthe contract itself; (2) the favorable stipulation shouldnot be conditioned or compensated by any kind ofobligation; and (3) neither of the contracting partiesbears the legal representation or authorization of thethird party. The "fairest test" in determining whether thethird person's interest in a contract is a stipulation pourautrui or merely an incidental interest is to examine the


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intention of the parties as disclosed by their contract. 25

We carefully and thoroughly perused the promissorynote, but found no stipulation at all that would evenresemble a provision in consideration of a third person.The instrument itself does not disclose the purpose ofthe loan contract. It merely lays down the terms ofpayment and the penalties incurred for failure to payupon maturity. It is patently devoid of any indication thata benefit or interest was thereby created in favor of aperson other than the contracting parties. In fact, in no

part of the instrument is there any mention of a thirdparty at all. Except for his barefaced statement, noevidence was proffered by private respondent to supporthis argument. Accordingly, his contention cannot besustained. At any rate, if indeed the loan actuallybenefited a third person who undertook to repay thebank, private respondent could have availed himself ofthe legal remedy of a third-party complaint. 26 That hemade no effort to implead such third person proves thehollowness of his arguments. cdrep

Consideration Private respondent also claims that he received noconsideration for the promissory note and, in supportthereof, cites petitioner's failure to submit any proof ofhis loan application and of his actual receipt of theamount loaned. These arguments deserve no merit. Resipsa loquitur. The instrument, bearing the signature ofprivate respondent, speaks for itself. RespondentSarmiento has not questioned the genuineness and due


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execution thereof. No further proof is necessary to showthat he undertook to pay P2,500,000, plus interest, topetitioner bank on or before March 6, 1978. This he

failed to do, as testified to by petitioner's accountant.The latter presented before the trial court privaterespondent's statement of account 27 as of September30, 1986, showing an outstanding balance ofP4,689,413.63 after deducting P1,000,000.00 paid sevenmonths earlier. Furthermore, such partial payment isequivalent to an express acknowledgment of hisobligation. Private respondent can no longer backtrackand deny his liability to petitioner bank. "A person cannotaccept and reject the same instrument." 28

WHEREFORE, the petition is GRANTED. The assailedDecision is SET ASIDE and the Decision of RTC-Manila,Branch 48, in Civil Case No. 26465 is herebyREINSTATED.

SO ORDERED.


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[G.R. No. 178618. October 20, 2010.]

MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented byits Liquidator, THE PHILIPPINEDEPOSIT INSURANCECORPORATION , petitioner, vs.EDWARD WILLKOM; GILDA GO;REMEDIOS UY; MALAYO BANTUAS, inhis capacity as the Deputy Sheriff ofRegional Trial Court, Branch 3, Iligan

City; and the REGISTER OF DEEDS ofCagayan de Oro City , respondents.

DECISION

NACHURA , J p:

This is a petition for review on certiorari under Rule 45 ofthe Rules of Court filed by Mindanao Savings and Loan

Association, Inc. (MSLAI), represented by its liquidator,Philippine Deposit Insurance Corporation (PDIC), againstrespondents Edward R. Willkom (Willkom); Gilda Go(Go); Remedios Uy (Uy); Malayo Bantuas (sheriffBantuas), in his capacity as sheriff of the Regional TrialCourt (RTC), Branch 3 of Iligan City; and the Register ofDeeds of Cagayan de Oro City. MSLAI seeks the reversaland setting aside of the Court of Appeals 1 (CA) Decision2 dated March 21, 2007 and Resolution 3 dated June 1,2007 in CA-G.R. CV No. 58337. SEIcAD


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The controversy stemmed from the following facts:

The First Iligan Savings and Loan Association, Inc.(FISLAI) and the Davao Savings and Loan Association,Inc. (DSLAI) are entities duly registered with theSecurities and Exchange Commission (SEC) underRegistry Nos. 34869 and 32388, respectively, primarilyengaged in the business of granting loans and receivingdeposits from the general public, and treated as banks. 4

Sometime in 1985, FISLAI and DSLAI entered into amerger, with DSLAI as the surviving corporation. 5 Thearticles of merger were not registered with theSEC due to incomplete documentation. 6 On August12, 1985, DSLAI changed its corporate name to MSLAIby way of an amendment to Article 1 of its Articles ofIncorporation, but the amendment was approved by theSEC only on April 3, 1987. 7

Meanwhile, on May 26, 1986, the Board of Directors ofFISLAI passed and approved Board Resolution No. 86-002, assigning its assets in favor of DSLAI which in turnassumed the former's liabilities. 8

The business of MSLAI, however, failed. Hence, theMonetary Board of the Central Bank of the Philippinesordered its closure and placed it under receivership perMonetary Board Resolution No. 922 dated August 31,1990. The Monetary Board found that MSLAI's financialcondition was one of insolvency, and for it to continue inbusiness would involve probable loss to its depositorsand creditors. On May 24, 1991, the Monetary Boardordered the liquidation of MSLAI, with PDIC as its


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liquidator. 9

It appears that prior to the closure of MSLAI, Uyfiled with the RTC, Branch 3 of Iligan City , an actionfor 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) topay the former the sum of P136,801.70, plus interestuntil full payment, 25% as attorney's fees, and the costsof suit. The decision was modified by the CA by further

ordering the third-party defendant therein to reimbursethe 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. 10

On April 28, 1993, sheriff Bantuas levied on six (6)parcels of land owned by FISLAI located in Cagayan deOro 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 salewas issued and eventually registered with the Register ofDeeds of Cagayan de Oro City. Upon the expiration ofthe redemption period, sheriff Bantuas issued thesheriff's definite deed of sale. New certificates of titlecovering the subject properties were issued in favor ofWillkom. On September 20, 1994, Willkom sold one ofthe subject parcels of land to Go. 11

On June 14, 1995, MSLAI, represented by PDIC,filed before the RTC, Branch 41 of Cagayan de Oro City,a complaint for Annulment of Sheriff's Sale,Cancellation of Title and Reconveyance of


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Properties against respondents. 12 MSLAI allegedthat the sale on execution of the subjectproperties was conducted without notice to it and

PDIC; that PDIC only came to know about the sale forthe first time in February 1995 while discharging itsmandate of liquidating MSLAI's assets; that the executionof the RTC decision in Civil Case No. 111-697 was illegaland contrary to law and jurisprudence, not only becausePDIC was not notified of the execution sale, but alsobecause the assets of an institution placed underreceivership or liquidation such as MSLAI should bedeemed in custodia legis and should be exempt from anyorder of garnishment, levy, attachment, or execution. 13 SEIDAC

In answer, respondents averred that MSLAI had nocause of action against them or the right torecover the subject properties because MSLAI is aseparate and distinct entity from FISLAI. Theyfurther contended that the "unofficial merger" between FISLAI and DSLAI (now MSLAI) did not takeeffect considering that the merging companies didnot comply with the formalities and procedure formerger or consolidation as prescribed by theCorporation Code of the Philippines. Finally, theyclaimed that FISLAI is still a SEC registered corporationand could not have been absorbed by petitioner. 14

On March 13, 1997, the RTC issued a resolutiondismissing the case for lack of jurisdiction. TheRTC declared that it could not annul the decision in CivilCase No. 111-697, having been rendered by a court ofcoordinate jurisdiction. 15


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On appeal, MSLAI failed to obtain a favorable decisionwhen the CA affirmed the RTC resolution . Thedispositive portion of the assailed CA Decision reads:

WHEREFORE, premises considered, theinstant appeal is DENIED. The decisionassailed is AFFIRMED.

We REFER Sheriff Malayo B. Bantuas'violation of the Supreme Court AdministrativeCircular No. 12 to the Office of the Court

Administrator for appropriate action. The

Division Clerk of Court is hereby DIRECTEDto furnish the Office of the Court Administrator a copy of this decision.

SO ORDERED.16

The appellate court sustained the dismissal of petitioner'scomplaint not because it had no jurisdiction over thecase, as held by the RTC, but on a different ground.

Citing Associated Bank v. CA, 17 the CA ruled thatthere was no merger between FISLAI and MSLAI (formerly DSLAI) for their failure to follow the procedurelaid down by the Corporation Code for a valid merger orconsolidation. The CA then concluded that the twocorporations retained their separate personalities;consequently, the claim against FISLAI is warranted, and

the subsequent sale of the levied properties at publicauction is valid. The CA went on to say that even if therehad been a de facto merger between FISLAI andMSLAI (formerly DSLAI), Willkom, having reliedon the clean certificates of title, was an innocentpurchaser for value, whose right is superior to


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that of MSLAI. Furthermore, the alleged assignment ofassets and liabilities executed by FISLAI in favor ofMSLAI was not binding on third parties because it was

not registered. Finally, the CA said that the validity of theauction sale could not be invalidated by the fact that thesheriff had no authority to conduct the execution sale. 18

Petitioner's motion for reconsideration was denied in aResolution dated June 1, 2007. Hence, the instantpetition anchored on the following grounds:

THE HONORABLE COURT OF APPEALS,CAGAYAN DE ORO COMMITTED GRAVE ANDREVERSIBLE ERROR WHEN:

(1)

IT PASSED UPON THE EXISTENCE ANDSTATUS OF DSLAI (now MSLAI) AS THESURVIVING ENTITY IN THE MERGERBETWEEN DSLAI AND FISLAI AS A DEFENSEIN AN ACTION OTHER THAN IN A QUOWARRANTO PROCEEDING UPON THEINSTITUTION OF THE SOLICITOR GENERAL

AS MANDATED UNDER SECTION 20 OFBATAS PAMBANSA BLG. 68.DHEaTS

(2)

IT REFUSED TO RECOGNIZE THE MERGERBETWEEN F[I]SLAI AND DSLAI WITH DSLAI

AS THE SURVIVING CORPORATION.

(3)

IT HELD THAT THE PROPERTIES SUBJECT


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OF THE CASE ARE NOT IN CUSTODIA LEGIS AND THEREFORE, EXEMPT FROMGARNISHMENT, LEVY, ATTACHMENT OREXECUTION.19

To resolve this petition, we must address two basicquestions: (1) Was the merger between FISLAI andDSLAI (now MSLAI) valid and effective ; and (2)Was there novation of the obligation by substituting theperson of the debtor?

We answer both questions in the negative.

Ordinarily, in the merger of two or more existingcorporations, one of the corporations survives andcontinues the combined business, while the rest aredissolved and all their rights, properties, and liabilitiesare acquired by the surviving corporation. 20 Althoughthere is a dissolution of the absorbed or mergedcorporations, there is no winding up of their affairs or

liquidation of their assets because the survivingcorporation automatically acquires all their rights,privileges, and powers, as well as their liabilities. 21

The merger, however, does not become effective uponthe mere agreement of the constituent corporations. 22 Since a merger or consolidation involves fundamentalchanges in the corporation, as well as in the rights of

stockholders and creditors, there must be an expressprovision of law authorizing them. 23

The steps necessary to accomplish a merger orconsolidation, as provided for in Sections 76, 24 77, 25 78, 26 and 79 27 of the Corporation Code, are:


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(1)The board of each corporation draws up aplan of merger or consolidation. Such planmust include any amendment, if necessary,to the articles of incorporation of thesurviving corporation, or in case ofconsolidation, all the statements required inthe articles of incorporation of a corporation.

(2)Submission of plan to stockholders ormembers of each corporation for approval. Ameeting must be called and at least two (2)weeks' notice must be sent to all

stockholders or members, personally or byregistered mail. A summary of the plan mustbe attached to the notice. Vote of two-thirdsof the members or of stockholdersrepresenting two-thirds of the outstandingcapital 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 ofeach constituent corporation. These take theplace of the articles of incorporation of theconsolidated corporation, or amend thearticles of incorporation of the survivingcorporation.

(4)Submission of said articles of merger orconsolidation to the SEC for approval.

(5)If necessary, the SEC shall set a hearing,notifying all corporations concerned at leasttwo weeks before. EACTSH


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(6)Issuance of certificate of merger orconsolidation. 28

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 mergeris not inconsistent with the Corporation Code orexisting laws. 29 Where a party to the merger is aspecial corporation governed by its own charter, theCode particularly mandates that a favorablerecommendation of the appropriate government agencyshould first be obtained. 30

In this case, it is undisputed that the articles ofmerger between FISLAI and DSLAI were notregistered with the SEC due to incompletedocumentation. Consequently, the SEC did not issuethe required certificate of merger. Even if it is truethat the Monetary Board of the Central Bank of the

Philippines recognized such merger, the fact remainsthat no certificate was issued by the SEC. Suchmerger is still incomplete without thecertification.

The issuance of the certificate of merger is crucialbecause not only does it bear out SEC's approval but italso marks the moment when the consequences of a

merger take place. By operation of law, upon theeffectivity of the merger, the absorbed corporationceases to exist but its rights and properties, as well asliabilities, shall be taken and deemed transferred to andvested in the surviving corporation. 31


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The same rule applies to consolidation which becomeseffective not upon mere agreement of the members butonly upon issuance of the certificate of consolidation by

the SEC. 32 When the SEC, upon processing andexamining the articles of consolidation, is satisfied thatthe consolidation of the corporations is not inconsistentwith the provisions of the Corporation Code and existinglaws, it issues a certificate of consolidation which makesthe reorganization official. 33 The new consolidatedcorporation comes into existence and the constituentcorporations are dissolved and cease to exist. 34

There being no merger between FISLAI and DSLAI(now MSLAI), for third parties such asrespondents, the two corporations shall not beconsidered as one but two separate corporations.

A corporation is an artificial being created by operation oflaw. It possesses the right of succession and suchpowers, attributes, and properties expressly authorizedby law or incident to its existence. 35 It has a personalityseparate and distinct from the persons composing it, aswell as from any other legal entity to which it may berelated. 36 Being separate entities, the property of onecannot be considered the property of the other.

Thus, in the instant case , as far as third parties areconcerned, the assets of FISLAI remain as itsassets and cannot be considered as belonging toDSLAI and MSLAI, notwithstanding the Deed of

Assignment wherein FISLAI assigned its assetsand properties to DSLAI, and the latter assumedall the liabilities of the former. As provided in Article


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1625 of the Civil Code, "an assignment of credit, right oraction shall produce no effect as against third persons,unless it appears in a public instrument, or the

instrument is recorded in the Registry of Property in casethe assignment involves real property." The certificatesof title of the subject properties were clean andcontained no annotation of the fact of assignment.Respondents cannot, therefore, be faulted for enforcingtheir claim against FISLAI on the properties registeredunder its name. Accordingly, MSLAI, as the successor-in-interest of DSLAI, has no legal standing to annul theexecution sale over the properties of FISLAI. With morereason can it not cause the cancellation of the title to thesubject properties of Willkom and Go. CScTDE

Petitioner cannot also anchor its right to annul theexecution sale on the principle of novation. While it istrue that DSLAI (now MSLAI) assumed all the liabilities ofFISLAI, such assumption did not result in novation aswould release the latter from liability, thereby exemptingits properties from execution. Novation is theextinguishment of an obligation by the substitution orchange of the obligation by a subsequent one whichextinguishes or modifies the first, either by changing theobject or principal conditions, by substituting another inplace of the debtor, or by subrogating a third person in

the rights of the creditor. 37 It is a rule that novation by substitution of debtor mustalways be made with the consent of the creditor. 38

Article 1293 of the Civil Code is explicit, thus:

Art. 1293.Novation which consists in


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substituting a new debtor in the place of theoriginal one, may be made even without theknowledge or against the will of the latter,but not without the consent of the creditor.Payment by the new debtor gives him therights mentioned in Articles 1236 and 1237.

In this case, there was no showing that Uy, the creditor,gave her consent to the agreement that DSLAI (nowMSLAI) would assume the liabilities of FISLAI. Suchagreement cannot prejudice Uy. Thus, the assets thatFISLAI transferred to DSLAI remained subject toexecution to satisfy the judgment claim of Uy againstFISLAI. The subsequent sale of the properties by Uy toWillkom, and of one of the properties by Willkom to Go,cannot, therefore, be questioned by MSLAI.

The consent of the creditor to a novation by change ofdebtor is as indispensable as the creditor's consent inconventional subrogation in order that a novation shalllegally take place. 39 Since novation implies a waiver ofthe right which the creditor had before the novation,such waiver must be express. 40

WHEREFORE , premises considered, the petition isDENIED . The Court of Appeals Decision dated March 21,2007 and Resolution dated June 1, 2007 in CA-G.R. CVNo. 58337 are AFFIRMED .

SO ORDERED .


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[G.R. No. 99398. January 26, 2001.]

CHESTER BABST , petitioner, vs. COURTOF APPEALS, BANK OF THEPHILIPPINE ISLANDS, ELIZALDESTEEL CONSOLIDATED, INC., andPACIFIC MULTI-COMMERCIALCORPORATION , respondents.

[G.R. No. 104625. January 26, 2001.]

ELIZALDE STEEL CONSOLIDATED,INC., petitioner, vs. COURT OF APPEALS, BANK OF THE PHILIPPINEISLANDS, PACIFIC MULTI-COMMERCIAL CORPORATION andCHESTER BABST, respondents.

De Guzman, Florentino & Assoc. for C. Babst. Antonio Barredo & Associates for respondent in 104625

Padilla Law Office for respondent BPI

SYNOPSIS

On January 17, 1983, Bank of the Philippine Islands, as

successor-in-interest of Commercial Bank and TrustCompany (CBTC), instituted with the Regional Trial Courtof Makati City a complaint for sum of money docketed asCivil Case No. 49226 against Eliscon, Multi and Babst toenforce payment of a promissory note and threedomestic letters of credit which Elizalde Steel


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Consolidated, Inc. executed and opened with the CBTC. After the defendants filed their respective answers, trialon the merits ensued. On February 20, 1987, the trial

court rendered its decision in favor of the plaintiff andordered herein defendant Eliscon to pay the amount ofP2,795,240.67 due on the promissory note datedOctober 31, 1982; P3,963,322.08 due on three domesticletters of credit as of October 31, 1982; interest andrelated charges on the principal amounting toP2,102,232.02; attorney's fees. Likewise, the trial courtordered the defendants Pacific Multi-CommercialCorporation and Babst to pay jointly and severally withdefendant Eliscon all the charges awarded againstEliscon. In due time, Eliscon, Multi and Babst filed theirrespective notices of appeal. On April 29, 1991, the Courtof Appeals rendered a decision modifying the appealeddecision by ordering appellant Eliscon to pay the amountawarded to the BPI. Additionally, the appellate court

ordered Eliscon to reimburse appellants Multi and Babstwhatever amount they shall have paid in said Eliscon'sbehalf particularly referring to the 3 letters of credit andother related charges. Hence, these consolidatedpetitions seeking the review of the decision of the Courtof Appeals.

The Court found the petitions meritorious. The Court

ruled that there exists a clear indication that BPI wasaware of the assumption by DBP of the obligations ofEliscon. The authority granted by BPI to its accountofficer to attend the creditors' meeting was an authorityto represent the bank. When the court officer failed toobject to the substitution of debtors, he did so in behalf


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of and for the bank. Even granting arguendo that theaccount officer was not so empowered, BPI could havesubsequently registered its objection to the substitution,

especially after it had already learned that DBP hadtaken over the assets and assumed the liabilities ofEliscon. Its failure to do so can only mean anacquiescence in the assumption by DBP of Eliscon'sobligation. BPI's conduct evinced a clear andunmistakable consent to the substitution of DBP forEliscon as debtor. Hence, there was a valid novation,which resulted in the release of Eliscon from itsobligation to BPI, whose cause of action should bedirected against DBP as the new debtor. The originalobligation having been extinguished, the contract ofsuretyship executed separately by Babst and Multi, beingaccessory obligations, are likewise extinguished.

SYLLABUS

1.COMMERCIAL LAW; CORPORATION LAW; MERGER; INTHE MERGER OF TWO EXISTING CORPORATIONS, ONEOF THE CORPORATIONS SURVIVES AND CONTINUESTHE BUSINESS WHILE THE OTHER IS DISSOLVED AND

ALL ITS RIGHTS, PROPERTIES AND LIABILITIES ARE ACQUIRED BY THE SURVIVING CORPORATION. At theoutset, the preliminary issue of BPI's right of action must

first be addressed. ELISCON and MULTI assail BPI's legalcapacity to recover their obligation to CBTC. However,there is no question that there was a valid mergerbetween BPI and CBTC. It is settled that in the merger oftwo existing corporations, one of the corporations


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survives and continues the business, while the other isdissolved and all its rights, properties and liabilities areacquired by the surviving corporation. Hence, BPI has a

right to institute the case a quo.TCSEcI

2.CIVIL LAW; CONTRACTS; SURETYSHIP; WHILE THESURETY IS SOLIDARILY LIABLE WITH THE PRINCIPALDEBTOR, HIS OBLIGATION TO PAY ARISES ONLY UPONTHE PRINCIPAL DEBTOR'S FAILURE OR REFUSAL TOPAY; CASE AT BAR. BPI gives no cogent reason inwithholding its consent to the substitution, other than its

desire to preserve its causes of action and legal recourseagainst the sureties of ELISCON. It must beremembered, however, that while a surety is solidarilyliable with the principal debtor, his obligation to pay onlyarises upon the principal debtor's failure or refusal topay. A contract of surety is an accessory promise bywhich a person binds himself for another already bound,and agrees with the creditor to satisfy the obligation ifthe debtor does not. A surety is an insurer of the debt;he promises to pay the principal's debt if the principalwill not pay. In the case at bar, there was no indicationthat the principal debtor will default in payment. In fact,DBP, which had stepped into the shoes of ELISCON, wascapable of payment. Its authorized capital stock wasincreased by the government. More importantly, the

National Development Company took over the businessof ELISCON and undertook to pay ELISCON's creditors,and earmarked for that purpose the amount ofP4,015,534.54 for payment to BPI.

3.ID.; ID.; NOVATION; KINDS; IF THE ORIGINAL


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OBLIGATION IS EXTINGUISHED, THE CONTRACT OFSURETYSHIP IS LIKEWISE EXTINGUISHED. BPI'sconduct evinced a clear and unmistakable consent to the

substitution of DBP for ELISCON as debtor. Hence, therewas a valid novation which resulted in the release ofELISCON from its obligation to BPI, whose cause ofaction should be directed against DBP as the new debtor.Novation, in its broad concept, may either be extinctiveor modificatory. It is extinctive when an old obligation isterminated by the creation of a new obligation that takesthe place of the former; it is merely modificatory whenthe old obligation subsists to the extent it remainscompatible with the amendatory agreement. Anextinctive novation results either by changing the objector principal conditions (objective or real), or bysubstituting the person of the debtor or subrogating athird person in the rights of the creditor (subjective orpersonal). Under this mode, novation would have dual

functions

one to extinguish an existing obligation, theother to substitute a new one in its place requiring aconflux of four essential requisites, (1) a previous validobligation; (2) an agreement of all parties concerned to anew contract; (3) the extinguishment of the oldobligation; and (4) the birth of a valid new obligation.The original obligation having been extinguished, thecontracts of suretyship executed separately by Babst andMULTI, being accessory obligations, are likewiseextinguished.

D E C I S I O N


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YNARES-SANTIAGO , J p:

These consolidated petitions seek the review of theDecision dated April 29, 1991 of the Court of Appeals inCA-G.R. CV No. 17282 1 entitled, "Bank of the PhilippineIslands, Plaintiff-Appellee versus Elizalde SteelConsolidated, Inc., Pacific Multi-Commercial Corporation,and Chester G. Babst, Defendants-Appellants." AaCcST

The complaint was commenced principally to enforcepayment of a promissory note and three domestic lettersof credit which Elizalde Steel Consolidated, Inc.(ELISCON) executed and opened with the CommercialBank and Trust Company (CBTC).

On June 8, 1973, ELISCON obtained from CBTC a loan inthe amount of P8,015,900.84, with interest at the rate of14% per annum, evidenced by a promissory note. 2 ELISCON defaulted in its payments, leaving anoutstanding indebtedness in the amount ofP2,795,240.67 as of October 31, 1982. 3

The letters of credit, on the other hand, were opened forELISCON by CBTC using the credit facilities of PacificMulti-Commercial Corporation (MULTI) with the saidbank, pursuant to the Resolution of the Board ofDirectors of MULTI adopted on August 31, 1977 whichreads:

WHEREAS, at least 90% of the Company'sgross sales is generated by the sale of tin-plates manufactured by Elizalde SteelConsolidated, Inc.;


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WHEREAS, it is to the best interests of theCompany to continue handling said tin-plateline;

WHEREAS, Elizalde Steel Consolidated, Inc.has requested the assistance of the Companyin obtaining credit facilities to enable it tomaintain the present level of its tin-platemanufacturing output and the Company iswilling to extend said requested assistance;

NOW, THEREFORE, for and in considerationof the foregoing premises

BE IT RESOLVED AS IT IS HEREBYRESOLVED, That the PRESIDENT & GENERALMANAGER, ANTONIO ROXAS CHUA, be, ashe is hereby empowered to allow andauthorize ELIZALDE STEEL CONSOLIDATED,INC. to avail and make use of the Credit Lineof PACIFIC MULTI-COMMERCIALCORPORATION with the COMMERCIAL BANK& TRUST COMPANY OF THE PHILIPPINES,Makati, Metro Manila;

RESOLVED, FURTHER, That the Pacific Multi-Commercial Corporation guarantee, as it doeshereby guarantee, solidarily, the payment ofthe corresponding Letters of Credit upon

maturity of the same; RESOLVED, FINALLY, That copies of thisresolution be furnished the Commercial Bank& Trust Company of the Philippines, Makati,Metro Manila, for their information. 4


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Subsequently, on September 26, 1978, Antonio RoxasChua and Chester G. Babst executed a ContinuingSuretyship, 5 whereby they bound themselves jointly and

severally liable to pay any existing indebtedness ofMULTI to CBTC to the extent of P8,000,000.00 each.

Sometime in October 1978, CBTC opened for ELISCON infavor of National Steel Corporation three (3) domesticletters of credit in the amounts of P1,946,805.73, 6 P1,702,869.32 7 and P200,307.72, 8 respectively, whichELISCON used to purchase tin black plates from National

Steel Corporation. ELISCON defaulted in its obligation topay the amounts of the letters of credit, leaving anoutstanding account, as of October 31, 1982, in the totalamount of P3,963,372.08. 9

On December 22, 1980, the Bank of the PhilippineIslands (BPI) and CBTC entered into a merger,wherein BPI, as the surviving corporation,acquired all the assets and assumed all theliabilities of CBTC. 10

Meanwhile, ELISCON encountered financial difficultiesand became heavily indebted to the Development Bankof the Philippines (DBP). In order to settle its obligations,ELISCON proposed to convey to DBP by way of dacionen pago all its fixed assets mortgaged with DBP, aspayment for its total indebtedness in the amount ofP201,181,833.16. On December 28, 1978, ELISCON andDBP executed a Deed of Cession of Property in Paymentof Debt. 11


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In June 1981, ELISCON called its creditors to a meetingto announce the take-over by DBP of its assets.

In October 1981, DBP formally took over the assets ofELISCON, including its indebtedness to BPI. Thereafter,DBP proposed formulas for the settlement of all ofELISCON's obligations to its creditors, but BPI expresslyrejected the formula submitted to it for not beingacceptable. 12

Consequently, on January 17, 1983, BPI, as successor-in-interest of CBTC, instituted with the Regional Trial Courtof Makati, Branch 147, a complaint 13 for sum of moneyagainst ELISCON, MULTI and Babst, which was docketedas Civil Case No. 49226.

ELISCON, in its Answer, 14 argued that the complaint waspremature since DBP had made serious efforts to settleits obligations with BPI. TDEASC

Babst also filed his Answer alleging that he signed theContinuing Suretyship on the understanding that itcovers only obligations which MULTI incurred solely forits benefit and not for any third party liability, and he hadno knowledge or information of any transaction betweenMULTI and ELISCON. 15

MULTI, for its part, denied knowledge of the merger

between BPI and CBTC, and averred that the guarantyunder its board resolution did not cover purchases madeby ELISCON in the form of trust receipts. It set up across-claim against ELISCON alleging that the lattershould be held liable for any judgment which the courtmay render against it in favor of BPI. 16


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On February 20, 1987, the trial court rendered itsDecision, 17 the dispositive portion of which reads:

WHEREFORE, in view of all the foregoing, the

Court hereby renders judgment in favor ofthe plaintiff and against all the defendants:

1)Ordering defendant ELISCON to pay theplaintiff the amount of P2,795,240.67 due onthe promissory note, Annex "A" of theComplaint as of 31 October 1982 and theamount of P3,963,372.08 due on the three

(3) domestic letters of credit, also as of 31October 1982;

2)Ordering defendant ELISCON to pay theplaintiff interests and related charges on theprincipal of said promissory note ofP2,102,232.02 at the rates provided in saidnote from and after 31 October 1982 until fullpayment thereof, and on the principal of thethree (3) domestic letters of credit ofP3,564,349.25 interests and related chargesat the rates provided in said letters of credit,from and after 31 October 1982 until fullpayment;

3)Ordering defendant ELISCON to payinterests at the legal rate on all interests and

related charges but unpaid as of the filing ofthis complaint, until full payment thereof;

4)Ordering defendant ELISCON to payattorney's fees equivalent to 10% of the totalamount due under the preceding paragraphs;


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5)Ordering defendants Pacific Multi-Commercial Corporation and defendantChester Babst to pay, jointly and severallywith defendant ELISCON, the total sum ofP3,963,372.08 due on the three (3) domesticletters of credit as of 31 October 1982 withinterests and related charges on the principalamount of P3,963,372.08 at the ratesprovided in said letters of credit from 30October 1982 until fully paid, but to theextent of not more than P8,000,000.00 in thecase of defendant Chester Babst;

6)Ordering defendant Pacific Multi-Commercial Corporation and defendantChester Babst to pay, jointly and severallyplaintiff interests at the legal rate on allinterests and related charges already accruedbut unpaid on said three (3) domestic lettersof credit as of the date of the filing of thisComplaint until full payment thereof; DHCSTa

7)Ordering defendant Pacific Multi-Commercial Corporation and defendantChester Babst to pay, jointly and severally,attorney's fees of not less than 10% of thetotal amount due under paragraphs 5 and 6hereof. With costs.

SO ORDERED.

In due time, ELISCON, MULTI and Babst filed theirrespective notices of appeal. 18

On April 29, 1991, the Court of Appeals rendered the


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appealed Decision as follows:

WHEREFORE, the judgment appealed from isMODIFIED, to now read (with the underlining

to show the principal changes from thedecision of the lower court) thus:

1)Ordering appellant ELISCON to pay theappellee BPI the amount of P2,731,005.60due on the promissory note, Annex "A" of theComplaint as of 31 October 1982 and theamount of P3,963,372.08 due on the three

(3) domestic letters of credit, also as of 31October 1982;

2)Ordering appellant ELISCON to pay theappellee BPI interests and related charges onthe principal of said promissory note ofP2,102,232.02 at the rates provided in saidnote from and after 31 October 1982 until fullpayment thereof, and on the principal of thethree (3) domestic letters of credit ofP3,564,349.25 interests and related chargesat the rates provided in said letters of credit,from and after 31 October 1982 until fullpayment;

3)Ordering appellant ELISCON to payappellee BPI interest at the legal rate on all

interests and related charges but unpaid asof the filing of this complaint, until fullpayment thereof;

4)Ordering appellant Pacific Multi-CommercialCorporation and appellant Chester G. Babst


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to pay appellee BPI, jointly and severally withappellant ELISCON, the total sum ofP3,963,372.08 due on the three (3) domesticletters of credit as of 31 October 1982 withinterest and related charges on the principalamount of P3,963,372.08 at the ratesprovided in said letters of credit from 30October 1982 until fully paid, but to theextent of not more than P8,000,000.00 in thecase of defendant Chester Babst;

5)Ordering appellant Pacific Multi-Commercial

Corporation and defendant Chester Babst topay, jointly and severally, appellee BPIinterests at the legal rate on all interests andrelated charges already accrued but unpaidon said three (3) domestic letters of credit asof the date of the filing of this Complaint untilfull payment thereof and the plaintiff'slawyer's fees in the nominal amount ofP200,000.00;

6)Ordering appellant ELISCON to reimburseappellants Pacific Multi-CommercialCorporation and Chester Babst whateveramount they shall have paid in said Eliscon'sbehalf particularly referring to three (3)letters of credit as of 31 October 1982 and

other related charges. ICESTA No costs.

SO ORDERED.19

ELISCON filed a Motion for Reconsideration of the


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Decision of the Court of Appeals which was, however,denied in a Resolution dated March 9, 1992. 20 Subsequently, ELISCON filed a petition for review on

certiorari, docketed as G.R. No. 104625, on the followinggrounds:

A.THE BANK OF THE PHILIPPINE ISLANDSIS NOT ENTITLED TO RECOVERFROM PETITIONER ELISCON THELATTER'S OBLIGATION WITHCOMMERCIAL BANK AND TRUST

COMPANY (CBTC) B.THERE WAS A VALID NOVATION OF

THE CONTRACT BETWEEN ELISCON AND BPI THERE BEING A PRIORCONSENT TO AND APPROVAL BYBPI OF THE SUBSTITUTION BY DBP

AS DEBTOR IN LIEU OF THE

ORIGINAL DEBTOR, ELISCON,THEREBY RELEASING ELISCONFROM ITS OBLIGATION TO BPI.

C.PACIFIC MULTI COMMERCIALCORPORATION AND CHESTERBABST CANNOT LAWFULLYRECOVER FROM ELISCON

WHATEVER AMOUNT THEY MAY BEREQUIRED TO PAY TO BPI ASSURETIES OF ELISCON'SOBLIGATION TO BPI; THEIR CAUSEOF ACTION MUST BE DIRECTED

AGAINST DBP AS THE NEWLY


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SUBSTITUTED DEBTOR IN PLACEOF ELISCON.

D.THE DBP TAKEOVER OF THE ENTIREELISCON AMOUNTED TO AN ACTOF GOVERNMENT WHICH WAS AFORTUITOUS EVENT EXCULPATINGELISCON FROM FURTHERLIABILIT

Corpo Cases 10

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