Associated Bank vs.

Court of Appeals

CASE DIGEST: G. R. No. 123793, June 29, 1998

Commercial Law, Corporation, Merger, Negotiable Instruments, Promissory Note

FACTS:

Associated Banking Corporation and Citizens Bank and Trust Company (CBTC)
merged to form just one banking corporation known as Associated Citizens Bank
(later renamed Associated Bank), the surviving bank. After the merger agreement
had been signed, but before a certificate of merger was issued, respondent Lorenzo
Sarmiento, Jr. executed in favor of Associated Bank a promissory note, promising to
pay the bank P2.5 million on or before due date at 14% interest per annum, among
other accessory dues. For failure to pay the amount due, Sarmiento was sued by
Associated Bank.

Respondent argued that the plaintiff is not the proper party in interest because the
promissory note was executed in favor of CBTC. Also, while respondent executed the
promissory note in favor of CBTC, said note was a contract pour autrui, one in favor
of a third person who may demand its fulfillment. Also, respondent claimed that he
received no consideration for the promissory note and, in support thereof, cites
petitioner's failure to submit any proof of his loan application and of his actual
receipt of the amount loaned.

ISSUE:

1.) Whether or not Associated Bank, the surviving corporation, may enforce the
promissory note made by private respondent in favor of CBTC, the absorbed
company, after the merger agreement had been signed, but before a certificate of
merger was issued?

2.) Whether or not the promissory note was a contract pour autrui and was issued
without consideration?

HELD:

The petition is impressed with merit.

Associated Bank assumed all the rights of CBTC. Although absorbed corporations are
dissolved, there is no winding up of their affairs or liquidation of their assets,
because the surviving corporation automatically acquires all their rights, privileges
and powers, as well as their liabilities. The merger, however, does not become
effective upon the mere agreement of the constituent corporations. The Securities
and Exchange Commission (SEC) and majority of the respective stockholders of the
constituent corporations must have approved the merger. (Section 79, Corporation
Code) It will be effective only upon the issuance by the SEC of a certificate of merger.
Records do not show when the SEC approved the merger.
But assuming that the effectivity date of the merger was the date of its execution, we
still cannot agree that petitioner no longer has any interest in the promissory note.
The agreement itself clearly provides that all contracts irrespective of the date of
execution entered into in the name of CBTC shall be understood as pertaining to
the surviving bank, herein petitioner. Such must have been deliberately included in
the agreement in order to avoid giving the merger agreement a farcical
interpretation aimed at evading fulfillment of a due obligation. Thus, although the
subject promissory note names CBTC as the payee, the reference to CBTC in the note
shall be construed, under the very provisions of the merger agreement, as a
reference to petitioner bank.

On the issue that the promissory note was a contract pour autrui and was issued
without consideration, the Supreme Court held it was not. In a contract pour autrui,
an incidental benefit or interest, which another person gains, is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third
person. The "fairest test" in determining whether the third person's interest in a
contract is a stipulation pour autrui or merely an incidental interest is to examine
the intention of the parties as disclosed by their contract. It did not indicate that a
benefit or interest was created in favor of a third person. The instrument itself says
nothing on the purpose of the loan, only the terms of payment and the penalties in
case of failure to pay.

Private respondent also claims that he received no consideration for the promissory
note, citing petitioner's failure to submit any proof of his loan application and of his
actual receipt of the amount loaned. These arguments deserve no merit. Res ipsa
loquitur. The instrument, bearing the signature of private respondent, speaks for
itself. Respondent Sarmiento has not questioned the genuineness and due execution
thereof. That he partially paid his obligation is itself an express acknowledgment of
his obligation.

WHEREFORE, the petition is GRANTED.

MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its Liquidator, THE
PHILIPPINE DEPOSIT INSURANCE CORPORATION v. EDWARD WILLKOM; GILDA GO;
REMEDIOS UY; MALAYO BANTUAS, in his capacity as the Deputy Sheriff of RTC, Branch
3, Iligan City; and the REGISTER OF DEEDS of Cagayan de Oro City, Respondent
2010 Oct 20 2nd Division G.R. No. 178618 NACHURA, J.:

FACTS

First Iligan Savings and Loan Association, Inc. (FISLAI) and Davao Savings and Loan
Association, Inc. (DSLAI) are entities duly registered with the SEC primarily engaged in the
business of granting loans and receiving deposits from the general public, and treated as banks.
In 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the surviving corporation but
their articles of merger were not registered with the SEC due to incomplete documentation.
DSLAI changed its corporate name to MSLAI by way of an amendment to its Articles of
Incorporation which was approved by the SEC. In 1986, the Board of Directors of FISLAI passed
and approved Board Resolution assigning its assets in favor of DSLAI which in turn assumed the
formers liabilities. The business of MSLAI, however, failed. Hence, the Monetary Board of the
Central Bank of the Philippines ordered its liquidation with PDIC as its liquidator.
Prior to the closure of MSLAI, Uy filed with the RTC of Iligan City, an action for collection
of sum of money against FISLAI. The RTC issued a summary decision in favor of Uy, directing
FISLAI to pay. As a consequence, 6 parcels of land owned by FISLAI were levied and sold to
Willkom. In 1995, MSLAI, represented by PDIC, filed before the RTC a complaint for the
annulment of the Sheriffs Sale alleging that the sale on execution of the subject properties was
conducted without notice to it and PDIC. Respondents, in its answer, averred that MSLAI had no
cause of action because MSLAI is a separate and distinct entity from FISLAI on the ground that
the unofficial merger between FISLAI and DSLAI (now MSLAI) did not take effect considering
that the merging companies did not comply with the formalities and procedure for merger or
consolidation as prescribed by the Corporation Code of the Philippines. RTC dismissed the case
for lack of jurisdiction. CA affirmed but ruled that there was no merger between FISLAI and
MSLAI (formerly DSLAI) for their failure to follow the procedure laid down by the Corporation
Code for a valid merger or consolidation.

ISSUE
Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective?

HELD
NO. In merger, one of the corporations survives while the rest are dissolved and all their
rights, properties, and liabilities are acquired by the surviving corporation. Although there is a
dissolution of the absorbed or merged corporations, there is no winding up of their affairs or
liquidation of their assets because the surviving corporation automatically acquires all their rights,
privileges, and powers, as well as their liabilities.

The merger, however, does not become effective upon the mere agreement of the
constituent corporations. Since a merger or consolidation involves fundamental changes in the
corporation, as well as in the rights of stockholders and creditors, there must be an express
provision of law authorizing them. The steps necessary to accomplish a merger or consolidation,
as provided for in Sections 76,[24] 77,[25] 78,[26] and 79[27] of the Corporation Code, are:
(1) The board of each corporation draws up a plan of merger or consolidation. Such plan
must include any amendment, if necessary, to the articles of incorporation of the surviving
corporation, or in case of consolidation, all the statements required in the articles of
incorporation of a corporation;
(2) Submission of plan to stockholders or members of each corporation for approval. A
meeting must be called and at least two (2) weeks notice must be sent to all stockholders
or members, personally or by registered mail. A summary of the plan must be attached to
the notice. Vote of two-thirds of the members or of stockholders representing two-thirds of
the outstanding capital stock will be needed. Appraisal rights, when proper, must be
respected;
(3) Execution of the formal agreement, referred to as the articles of merger or
consolidation, by the corporate officers of each constituent corporation. These take the
place of the articles of incorporation of the consolidated corporation, or amend the
articles of incorporation of the surviving corporation;
(4) Submission of said articles of merger or consolidation to the SEC for approval;
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least
two weeks before;
(6) Issuance of certificate of merger or consolidation.

Clearly, the merger shall only be effective upon the issuance of a certificate of merger by
the SEC, subject to its prior determination that the merger is not inconsistent with the Corporation
Code or existing laws. In this case, it is undisputed that the articles of merger between FISLAI
and DSLAI were not registered with the SEC due to incomplete documentation. Consequently,
the SEC did not issue the required certificate of merger. Even if it is true that the Monetary Board
of the Central Bank of the Philippines recognized such merger, the fact remains that no certificate
was issued by the SEC. Such merger is still incomplete without the certification. The issuance of
the certificate of merger is crucial because not only does it bear out SECs approval but it also
marks the moment when the consequences of a merger take place. By operation of law, upon the
effectivity of the merger, the absorbed corporation ceases to exist but its rights and properties, as
well as liabilities, shall be taken and deemed transferred to and vested in the surviving
corporation. There being no merger between FISLAI and DSLAI (now MSLAI), for third parties
such as respondents, the two corporations shall not be considered as one but two separate
corporations. Being separate entities, the property of one cannot be considered the property of
the other.

Thus, in the instant case, as far as third parties are concerned, the assets of FISLAI
remain as its assets and cannot be considered as belonging to DSLAI and MSLAI,
notwithstanding the Deed of Assignment wherein FISLAI assigned its assets and properties to
DSLAI, and the latter assumed all the liabilities of the former. As provided in Article 1625 of the
Civil Code, an assignment of credit, right or action 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 case the assignment involves real property. The certificates of title of the subject
properties were clean and contained no annotation of the fact of assignment. Respondents
cannot, therefore, be faulted for enforcing their claim against FISLAI on the properties registered
under its name. Accordingly, MSLAI, as the successor-in-interest of DSLAI, has no legal standing
to annul the execution sale over the properties of FISLAI. With more reason can it not cause the
cancellation of the title to the subject properties of Willkom and Go.

Bank of the Philippine Islands v. BPI Employees Union

Davao Chapter Federation of Unions in BPI Unibank,
G.R. No. 164301, October 19, 2011.
29APR
[LEONARDO-DE CASTRO, J.]
FACTS
In the present incident, petitioner Bank of the Philippine Islands (BPI) moves for reconsideration of our Decision
dated August 10, 2010, holding that former employees of the Far East Bank and Trust Company (FEBTC)
absorbed by BPI pursuant to the two banks merger were covered by the Union Shop Clause in the then existing
collective bargaining agreement (CBA) of BPI with respondent BPI Employees Union-Davao Chapter-Federation of
Unions in BPI Unibank (the Union).
ISSUE
Whether or not employees are absorbed in a merger of the two corporations.

RULING
YES.
It is more in keeping with the dictates of social justice and the State policy of according full protection to labor to
deem employment contracts as automatically assumed by the surviving corporation in a merger, even in the
absence of an express stipulation in the articles of merger or the merger plan. In his dissenting opinion, Justice
Brion reasoned that:
To my mind, due consideration of Section 80 of the Corporation Code, the constitutionally declared policies on
work, labor and employment, and the specific FEBTC-BPI situation i.e., a merger with complete body and soul
transfer of all that FEBTC embodied and possessed and where both participating banks were willing (albeit by
deed, not by their written agreement) to provide for the affected human resources by recognizing continuity of
employment should point this Court to a declaration that in a complete merger situation where there is total
takeover by one corporation over another and there is silence in the merger agreement on what the fate of the
human resource complement shall be, the latter should not be left in legal limbo and should be properly provided
for, by compelling the surviving entity to absorb these employees. This is what Section 80 of the Corporation Code
commands, as the surviving corporation has the legal obligation to assume all the obligations and liabilities of the
merged constituent corporation.
Not to be forgotten is that the affected employees managed, operated and worked on the transferred assets and
properties as their means of livelihood; they constituted a basic component of their corporation during its existence.
In a merger and consolidation situation, they cannot be treated without consideration of the applicable
constitutional declarations and directives, or, worse, be simply disregarded. If they are so treated, it is up to this
Court to read and interpret the law so that they are treated in accordance with the legal requirements of mergers
and consolidation, read in light of the social justice, economic and social provisions of our Constitution. Hence,
there is a need for the surviving corporation to take responsibility for the affected employees and to absorb them
into its workforce where no appropriate provision for the merged corporations human resources component is
made in the Merger Plan.
By upholding the automatic assumption of the non-surviving corporations existing employment contracts by the
surviving corporation in a merger, the Court strengthens judicial protection of the right to security of tenure of
employees affected by a merger and avoids confusion regarding the status of their various benefits which were
among the chief objections of our dissenting colleagues. However, nothing in this Resolution shall impair the right
of an employer to terminate the employment of the absorbed employees for a lawful or authorized cause or the
right of such an employee to resign, retire or otherwise sever his employment, whether before or after the merger,
subject to existing contractual obligations. In this manner, Justice Brions theory of automatic assumption may be
reconciled with the majoritys concerns with the successor employers prerogative to choose its employees and the
prohibition against involuntary servitude.
Notwithstanding this concession, the Court finds no reason to reverse our previous pronouncement that the
absorbed FEBTC employees are covered by the Union Shop Clause.
[See the original Decision dated August 10, 2010, reversing the ruling on the absorption of employees in a
merger.]

CASE DIGEST: BANK OF THE PHILIPPINE ISLANDS v. BPI EMPLOYEES

UNION-DAVAO CHAPTER-FEDERATION OF UNIONS IN BPI UNIBANK

FACTS: In 2000, Far East Bank and trust Company (FEBTC) merged with
Bank of the Philippine Islands. Petitioner had a Union Shop agreement with
respondent BPI Employees Union-Davao Chapter-Federation of Unions in
BPI Unibank (the Union).Pursuant to the merger, respondent requested BPI
to terminate the employment of those new employees from FEBTC who did
not join the union.

BPI refused to undertake such action and brought the controversy before a
voluntary arbitrator. Although BPI won the initial battle at the Voluntary
Arbitrator level, BPIs position was rejected by the Court of Appeals which
ruled that the Voluntary Arbitrators interpretation of the Union Shop Clause
was at war with the spirit and rationale why the Labor Code allows the
existence of such provision.

This was followed and affirmation by the Supreme Court of the CA decision
holding that former employees of the Far East Bank and Trust Company
(FEBTC) "absorbed" by BPI pursuant to the two banks merger. The
absorbed employees were covered by the Union Shop Clause in the then
existing collective bargaining agreement (CBA)of BPI with respondent BPI
Employees Union-Davao Chapter-Federation of Unions in BPI Unibank (the
Union). Petitioners, despite the August 2010 decision moved for a Motion
for reconsideration of the decision.

ISSUE:

May the "absorbed" FEBTC employees fell within the definition of "new
employees," under the Union Shop Clause, such that they be required to
join respondent union or suffer termination upon request by the union?

HELD: The court agreed with Justice Brion's view that it is more in keeping
with the dictates of social justice and the State policy of according full
protection to labor to deem employment contracts as automatically
assumed by the surviving corporation in a merger, without break in the
continuity of their employment, and even in the absence of an express
stipulation in the articles of merger or the merger plan.

By upholding the automatic assumption of the non-surviving corporations

existing employment contracts by the surviving corporation in a merger,
the Court strengthens judicial protection of the right to security of tenure
of employees affected by a merger and avoid confusion regarding the
status of their various benefits.However, it shall be noted that nothing in
the Resolution shall impair the right of an employer to terminate the
employment of the absorbed employees for a lawful or authorized cause or
the right of such an employee to resign, retire or otherwise sever his
employment, whether before or after the merger, subject to existing
contractual obligations.

Although by virtue of the merger BPI steps into the shoes of FEBTC as a
successor employer as if the former had been the employer of the latters
employees from the beginning it must be emphasized that, in reality, the
legal consequences of the merger only occur at a specific date,i.e.,upon
its effectivity which is the date of approval of the merger by the SEC.Thus,
the court observed in the Decision that BPI and FEBTC stipulated in the
Articles of Merger that they will both continue their respective business
operations until the SEC issues the certificate of merger and in the event
no such certificate is issued, they shall hold each other blameless for the
non-consummation of the merger.

In other words, the obligation of BPI to pay the salaries and benefits of the
former FEBTC employees and its right of discipline and control over them
only arose with the effectivity of the merger.Concomitantly, the obligation
of former FEBTC employees to render service to BPI and their right to
receive benefits from the latter also arose upon the effectivity of the
merger.What is material is that all of these legal consequences of the
merger took place during the life of an existing and valid CBA between BPI
and the Union wherein they have mutually consented to include a Union
Shop Clause.