The steps necessary to accomplish a merger or consolidation, as provided for in Sections 76, 77, 78, and 79 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 o[r] 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.
FACTS:
The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan Association, Inc. (DSLAI) are entities duly registered with the Securities and Exchange Commission primarily engaged in the business of granting loans and receiving deposits from the general public, and treated as banks. They entered into a merger, with DSLAI as the surviving corporation. The 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 Article 1 of its Articles of Incorporation, but the amendment was approved by the SEC only on April 3, 1987.
The business of MSLAI, however, failed. Hence, the Monetary Board of the Central Bank of the Philippines ordered its closure and placed it under receivership; found that MSLAIs financial condition was one of insolvency, and for it to continue in business would involve probable loss to its depositors and creditors; the Monetary Board ordered the liquidation of MSLAI, with PDIC as its liquidator.
It appears that prior to the closure of MSLAI, Uy filed with the RTC, an action for collection of sum of money against FISLAI. RTC issued a summary decision in favor of Uy. Sheriff Bantuas levied on six (6) parcels of land owned by FISLAI; Willkom was the highest bidder. A certificate of sale was issued and eventually registered.
MSLAI, represented by PDIC, filed before the RTC, a complaint for Annulment of Sheriffs Sale, Cancellation of Title and Reconveyance of Properties against respondents. MSLAI alleged that the sale on execution of the subject properties was conducted without notice to it and PDIC. respondents averred that MSLAI had no cause of action against them or the right to recover the subject properties because MSLAI is a separate and distinct entity from FISLAI. They further contended that the "unofficial merger" between FISLAI and DSLAI (now MSLAI) did not take effect.
RTC issued a resolution dismissing the case for lack of jurisdiction. CA affirmed.
ISSUE:
WON the merger between FISLAI and DSLAI (now MSLAI) valid and effective.
HELD:
NO. 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.
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. 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.
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