corpo atty. busmente set 10

8/10/2019 Corpo Atty. Busmente Set 10

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Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

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.

AS!UEZ, J.:

Petitioner Raon !. "on#ales instituted in the erst$hile %ourt of First Instanceof Manila a special civil action for andaus a&ainst the herein respondentpra'in& that the latter be ordered to allo$ hi to loo( into the boo(s and recordsof the respondent ban( in order to satisf' hiself as to the truth of the publishedreports that the respondent has &uaranteed the obli&ation of Southern Ne&rosDevelopent %orporation in the purchase of a )S* + illion su&ar-ill to befinanced b' apanese suppliers and financiers/ that the respondent is financin&the construction of the P +0 illion %ebu-Mactan 1rid&e to be constructed b'

V.%. Ponce, Inc., and the construction of Passi Su&ar Mill at Iloilo b' the 2onironPhilippines, Inc., as $ell as to in3uire into the validit' of Id transactions. Thepetitioner has alle&ed hat his $ritten re3uest for such e4aination $as deniedb' the respondent. The trial court havin& disissed the petition for andaus,the instant appeal to revie$ the said disissal $as filed.

The facts that &ave rise to the sub5ect controvers' have been set forth b' thetrial court in the decision herein sou&ht to be revie$ed, as follo$s6

1riefl' stated, the follo$in& facts &athered fro the stipulation of the parties

served as the bac(drop of this proceedin&.

Previous to the present action, the petitioner instituted several cases in this%ourt 3uestionin& different transactions entered into b' the 1ar( $ith otherparties. First aon& the is %ivil %ase No. 789: filed on !pril +;, 087;, b'petitioner as a ta4pa'er versus Sec. !ntonio Ra3ui#a of Public


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the transactions entioned on the &rounds that the ri&ht of a stoc(holder toinspect the record of the business transactions of a corporation &ranted underSection :0 of the forer %orporation ?a$ @!ct No. 09:8, as aendedA is notabsolute, but is liited to purposes reasonabl' related to the interest of thestoc(holder, ust be as(ed for in &ood faith for a specific and honest purpose

and not &ratif' curiosit' or for speculative or vicious purposes/ that suche4aination $ould violate the confidentialit' of the records of the respondentban( as provided in Section 07 of its charter, Republic !ct No. 0==, asaended/ and that the petitioner has not e4hausted his adinistrative reedies.

!ssailin& the conclusions of the lo$er court, the petitioner has assi&ned thesin&le error to the lo$er court of havin& ruled that his alle&ed iproper otive inas(in& for an e4aination of the boo(s and records of the respondent ban(dis3ualifies hi to e4ercise the ri&ht of a stoc(holder to such inspection underSection :0 of !ct No. 09:8, as aended. Said provision reads in part as follo$s6

Sec. :0. ... The record of all business transactions of the corporation and theinutes of an' eetin& shall be open to the inspection of an' director, eberor stoc(holder of the corporation at reasonable hours.

Petitioner aintains that the above-3uoted provision does not 5ustif' the3ualification ade b' the lo$er court that the inspection of corporate recordsa' be denied on the &round that it is intended for an iproper otive orpurpose, the la$ havin& &ranted such ri&ht to a stoc(holder in clear andunconditional ters. 2e further ar&ues that, assuin& that a proper otive or

purpose for the desired e4aination is necessar' for its e4ercise, there isnothin& iproper in his purpose for as(in& for the e4aination and inspectionherein involved.

Petitioner a' no lon&er insist on his interpretation of Section :0 of !ct No.09:8, as aended, re&ardin& the ri&ht of a stoc(holder to inspect and e4ainethe boo(s and records of a corporation. The forer %orporation ?a$ @!ct No.09:8, as aendedA has been replaced b' 1atas Pabansa 1l&. 7>, other$ise(no$n as the C%orporation %ode of the Philippines.C

The ri&ht of inspection &ranted to a stoc(holder under Section :0 of !ct No.09:8 has been retained, but $ith soe odifications. The second and thirdpara&raphs of Section ;9 of 1atas Pabansa 1l&. 7> provide the follo$in&6

The records of all business transactions of the corporation and the inutes ofan' eetin& sha& be open to inspection b' an' director, trustee, stoc(holder oreber of the corporation at reasonable hours on business da's and he a'


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deand, in $ritin&, for a cop' of e4cerpts fro said records or inutes, at hise4pense.

!n' officer or a&ent of the corporation $ho shall refuse to allo$ an' director,trustee, stoc(holder or eber of the corporation to e4aine and cop' e4cerptsfro its records or inutes, in accordance $ith the provisions of this %ode, shallbe liable to such director, trustee, stoc(holder or eber for daa&es, and inaddition, shall be &uilt' of an offense $hich shall be punishable under Section099 of this %ode6 Provided, That if such refusal is ade pursuant to a resolutionor order of the board of directors or trustees, the liabilit' under this section forsuch action shall be iposed upon the directors or trustees $ho voted for suchrefusal/ and Provided, further, That it shall be a defense to an' action under thissection that the person deandin& to e4aine and cop' e4cerpts fro thecorporationBs records and inutes has iproperl' used an' inforation securedthrou&h an' prior e4aination of the records or inutes of such corporation or

of an' other corporation, or $as not actin& in &ood faith or for a le&itiatepurpose in a(in& his deand.

!s a' be noted fro the above-3uoted provisions, aon& the chan&esintroduced in the ne$ %ode $ith respect to the ri&ht of inspection &ranted to astoc(holder are the follo$in& the records ust be (ept at the principal office ofthe corporation/ the inspection ust be ade on business da's/ the stoc(holdera' deand a cop' of the e4cerpts of the records or inutes/ and the refusal toallo$ such inspection shall sub5ect the errin& officer or a&ent of the corporationto civil and criinal liabilities. 2o$ever, $hile seein&l' enlar&in& the ri&ht ofinspection, the ne$ %ode has prescribed liitations to the sae. It is no$e4pressl' re3uired as a condition for such e4aination that the one re3uestin& itust not have been &uilt' of usin& iproperl' an' inforation throu&h a priore4aination, and that the person as(in& for such e4aination ust be Cactin& in&ood faith and for a le&itiate purpose in a(in& his deand.C

The un3ualified provision on the ri&ht of inspection previousl' contained inSection :0, !ct No. 09:8, as aended, no lon&er holds true under theprovisions of the present la$. The ar&uent of the petitioner that the ri&ht

&ranted to hi under Section :0 of the forer %orporation ?a$ should not bedependent on the propriet' of his otive or purpose in as(in& for the inspectionof the boo(s of the respondent ban( loses $hatever validit' it i&ht have hadbefore the aendent of the la$. If there is an' doubt in the correctness of therulin& of the trial court that the ri&ht of inspection &ranted under Section :0 ofthe old %orporation ?a$ ust be dependent on a sho$in& of proper otive onthe part of the stoc(holder deandin& the sae, it is no$ dissipated b' the clearlan&ua&e of the pertinent provision contained in Section ;9 of 1atas Pabansa


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1l&. 7>.

!lthou&h the petitioner has claied that he has 5ustifiable otives in see(in& theinspection of the boo(s of the respondent ban(, he has not set forth the reasonsand the purposes for $hich he desires such inspection, e4cept to satisf' hiselfas to the truth of published reports re&ardin& certain transactions entered into b'the respondent ban( and to in3uire into their validit'. The circustances under$hich he ac3uired one share of stoc( in the respondent ban( purposel' toe4ercise the ri&ht of inspection do not ar&ue in favor of his &ood faith and properotivation. !dittedl' he sou&ht to be a stoc(holder in order to pr' intotransactions entered into b' the respondent ban( even before he becae astoc(holder. 2is obvious purpose $as to ar hiself $ith aterials $hich hecan use a&ainst the respondent ban( for acts done b' the latter $hen thepetitioner $as a total stran&er to the sae. 2e could have been ipelled b' alaudable sense of civic consciousness, but it could not be said that his purpose

is &erane to his interest as a stoc(holder.


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The Philippine National 1an( is not an ordinar' corporation. 2avin& a charter ofits o$n, it is not &overned, as a rule, b' the %orporation %ode of the Philippines.Section 9 of the said %ode provides6

SE%. 9. "orporations created by special laws or charters. %orporationscreated b' special la$s or charters shall be &overned priaril' b' the provisionsof the special la$ or charter creatin& the or applicable to the. suppleentedb' the provisions of this %ode, insofar as the' are applicable.

The provision of Section ;9 of 1atas Pabansa 1l&. 7> of the ne$ %orporation%ode $ith respect to the ri&ht of a stoc(holder to deand an inspection ore4aination of the boo(s of the corporation a' not be reconciled $ith theabove3uoted provisions of the charter of the respondent ban(. It is not correct toclai, therefore, that the ri&ht of inspection under Section ;9 of the ne$%orporation %ode a' appl' in a suppleentar' capacit' to the charter of the

respondent ban(.


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-IRS* DIISI/0"G.R. No. 123#93. $%&' 29, 1998(

ASSOCIATE) BANK, petitioner, vs. COURT O*APPEALS a&+ LORENZO SARMIENTO $R.,respondents.

) E C I S I O N

PANGANIBAN, J.:

In a er&er, does the survivin& corporation have a ri&ht to enforcea contract entered into b' the absorbed copan'subsequent to thedate of the er&er a&reeent, but prior to the issuance of a certificateof er&er b' the Securities and E4chan&e %oission

T' Ca'

This is a petition for revie$ under Rule 9: of the Rules of %ourtsee(in& to set aside the DecisionG0Hof the %ourt of !ppealsG+Hin %!-

"R %V No. +797: proul&ated on anuar' =, 0887, $hich ans$eredthe above 3uestion in the ne&ative. The challen&ed Decisionreversed and set aside the October 0;, 08>7 DecisionGHin %ivil %aseNo. >:-++9, proul&ated b' the Re&ional Trial %ourt of Manila,1ranch 9>, $hich disposed of the controvers' in favor of hereinpetitioner as follo$s6G9H

8,90.7 $ith interest thereon at 09J perannu until full' paid/

+. The aount of P+==,===.== as and for attorne'Ks fees/ and


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. The costs of suit.L

On the other hand, the %ourt of !ppeals resolved the case in this$ise6G:H

7 is REVERSED and SET !SIDEand another 5ud&ent rendered DISMISSIN" plaintiff-appelleeKs coplaint, doc(eted as %ivil %ase No. >:-++9.There is no pronounceent as to costs.L

T' *a/

The undisputed factual antecedents, as narrated b' the trial courtand adopted b' public respondent, are as follo$s6G7H

4 4 4 GOHn or about Septeber 07, 08;: !ssociated 1an(in&%orporation and %iti#ens 1an( and Trust %opan' er&ed tofor 5ust one ban(in& corporation (no$n as !ssociated%iti#ens 1an(, the survivin& ban(. On or about March 0=,08>0, the !ssociated %iti#ens 1an( chan&ed its corporatenae to !ssociated 1an( b' virtue of the !ended !rticles of

Incorporation. On Septeber ;, 08;;, the defendant e4ecutedin favor of !ssociated 1an( a proissor' note $hereb' theforer undertoo( to pa' the latter the su of P+,:==,===.==pa'able on or before March 7, 08;>. !s per said proissor'note, the defendant a&reed to pa' interest at 09J per annu,J per annu in the for of li3uidated daa&es,copounded interests, and attorne'Ks fees, in case of liti&atione3uivalent to 0=J of the aount due. The defendant, to date,still o$es plaintiff ban( the aount of P+,+:=,===.== e4clusiveof interest and other char&es. Despite repeated deands thedefendant failed to pa' the aount due.

444 444 444

4 4 4 GTHhe defendant denied all the pertinent alle&ations in thecoplaint and alle&ed as affirative andGHor special defenses


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that the coplaint states no valid cause of action/ that theplaintiff is not the proper part' in interest because theproissor' note $as e4ecuted in favor of %iti#ens 1an( andTrust %opan'/ that the proissor' note does not accuratel'reflect the true intention and a&reeent of the parties/ thatters and conditions of the proissor' note are onerous andust be construed a&ainst the creditor-pa'ee ban(/ thatseveral partial pa'ents ade in the proissor' note are notproperl' applied/ that the present action is preature/ that ascopulsor' counterclai the defendant pra's for attorne'Ksfees, oral daa&es and e4penses of liti&ation.

On Ma' ++, 08>7, the defendant $as declared as if in defaultfor failure to appear at the Pre-Trial %onference despite duenotice.

! Motion to ?ift Order of Default andor Reconsideration ofOrder dated Ma' ++, 08>7 $as filed b' defendantKs counsel$hich $as denied b' the %ourt in GanH order dated Septeber07, 08>7 and the plaintiff $as allo$ed to present its evidencebefore the %ourt e4-parte on October 07, 08>7.

!t the hearin& before the %ourt e4-parte, Esteban %. Ocapo

testified that 4 4 4 he is an accountant of the ?oans andDiscount Departent of the plaintiff ban(/ that as such, hesupervises the accountin& section of the ban(, hecounterchec(s all the transactions that transpired durin& theda' and is responsible for all the accounts and records andother thin&s that a'G Hbe assi&ned to the ?oans and DiscountDepartent/ that he (no$s the GDHefendant ?oren#oSariento, r. because he has an outstandin& loan $ith the

as per their records/ that ?oren#o Sariento, r. e4ecuted aproissor' note No. T?-+798-;; dated Septeber ;, 08;; inthe aount of P+,:==,===.== @E4hibit !A/ that !ssociated1an(in& %orporation and the %iti#ens 1an( and Trust%opan' er&ed to for one ban(in& corporation (no$n asthe !ssociated %iti#ens 1an( and is no$ (no$n as !ssociated1an( b' virtue of its !ended !rticles of Incorporation/ that


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there $ere partial pa'ents ade but not full/ that thedefendant has not paid his obli&ation as evidenced b' thelatest stateent of account @E4h. 1A/ that as per stateent ofaccount the outstandin& obli&ation of the defendant isP:,7>8,90.7 less P0,===,===.== or P9,7>8,90.7 @E4h. 1,1-0A/ that a deand letter dated une 7, 08>: $as sent b' theban( thru its counsel @E4h. %A $hich $as received b' thedefendant on Noveber 0+, 08>: @E4h. %, %-0, %-+, %-A/ thatthe defendant paid onl' P0,===,===.== $hich is reflected inthe E4hibit %.L

1ased on the evidence presented b' petitioner, the trial courtordered Respondent Sariento to pa' the ban( his reainin& balanceplus interests and attorne'Ks fees. In his appeal, Sariento assi&nedto the trial court several errors, nael'6G;H

I The Gtrial courtH erred in den'in& appellantKs otionto disiss appellee ban(Ks coplaint on the &round of lac(of cause of action and for bein& barred b' prescription andlaches.

II The sae lo$er court erred in adittin& plaintiff-appellee ban(Ks aended coplaint $hile defendant-

appellantKs otion to disiss appellee ban(Ks ori&inalcoplaint and usin&availin& Gitself ofH the ne$ additionalalle&ations as bases in denial of said appellantKs otionand in the interpretation and application of the a&reeentof er&er and Section >= of 1P 1l&. 7>, %orporation %odeof the Philippines.

III The Gtrial courtH erred and &ravel' abuseGdH itsdiscretion in renderin& the t$o as if in default orders datedMa' ++, 08>7 and Septeber 07, 08>7 and in notreconsiderin& the sae upon technical &rounds $hich ineffect subvert the best priordial interest of substantial

5ustice and e3uit'.

IV The court a quoerred in issuin& the orders datedMa' ++, 08>7 and Septeber 07, 08>7 declarin&


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appellant as if in default due to non-appearance ofappellantKs attendin& counsel $ho had resi&ned fro thela$ fir and $hile the parties G$ereH ne&otiatin& forsettleent of the case and after a one illion pesopa'ent had in fact been paid to appellee ban( forappellantKs account at the start of such ne&otiation onFebruar' 0>, 08>7 as act of earnest desire to settle theobli&ation in &ood faith b' the interested parties.

V The lo$er court erred in accordin& credence toappellee ban(Ks E4hibit 1 stateent of account $hich hadbeen erel' re3uested b' its counsel durin& the trial andbearin& date of Septeber =, 08>7.

VI The lo$er court erred in acceptin& and &ivin&credence to appellee ban(Ks +;-'ear-old $itness Esteban%. Ocapo as of the date he testified on October 07,08>7, and therefore, he $as erel' an ei&hteen-'ear-oldinor $hen appellant supposedl' incurred the foistedobli&ation under the sub5ect PN No. T?-+798-;; datedSepteber ;, 08;;, E4hibit ! of appellee ban(.

VII The Gtrial courtH erred in adoptin& appellee ban(Ks

E4hibit 1 dated Septeber =, 08>7 in its decision &ivenin open court on October 0;, 08>7 $hich e4acted ei&hteenpercent @0>JA per annu on the foisted principal aountof P+.: illion $hen the sub5ect PN, E4hibit !, stipulatedonl' fourteen percent @09JA per annu and $hich $asactuall' pra'ed for in appellee ban(Ks ori&inal andaended coplaints.

VIII The appealed decision of the lo$er court erred innot considerin& at all appellantKs affirative defenses that@0A the sub5ect PN No. T?-+798-;; for P+.: illion datedSepteber ;, 08;;, is erel' an accoodationpourautruibereft of an' actual consideration to appellanthiself and @+A the sub5ect PN is a contract of adhesion,hence, GitH needs GtoH be strictl' construed a&ainst appellee


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ban( -- assuin& for &ranted that it has the ri&ht toenforce and see( collection thereof.

I The lo$er court should have at least allo$edappellant the opportunit' to present countervailin&

evidence considerin& the hu&e aounts claied b'appellee ban( @principal su of P+.: illion $hichincludin& accrued interests, penalties and cost of liti&ationtotaled P9,7>8,90.7A and appellantKs affirativedefenses -- pursuant to substantial 5ustice and e3uit'.L

The appellate court, ho$ever, found no need to tac(le all theassi&ned errors and liited itself to the 3uestion of $hether Ghereinpetitioner hadH established or proven a cause of action a&ainst Gherein

private respondentH.L !ccordin&l', Respondent %ourt held that the!ssociated 1an( had no cause of action a&ainst ?oren#o Sarientor., since said ban( $as not priv' to the proissor' note e4ecuted b'Sariento in favor of %iti#ens 1an( and Trust %opan' @%1T%A. Thecourt ruled that the earlier er&er bet$een the t$o ban(s could nothave vested !ssociated 1an( $ith an' interest arisin& fro theproissor' note e4ecuted in favor of %1T% aftersuch er&er.

Thus, as earlier stated, Respondent %ourt set aside the decision

of the trial court and disissed the coplaint. Petitioner no$ coesto us for a reversal of this rulin&.G>H

I%'

In its petition, petitioner cites the follo$in& reasonsL6G8H

I The %ourt of !ppeals erred in reversin& the decision of thetrial court and in declarin& that petitioner has no cause ofaction a&ainst respondent over the proissor' note.

II The %ourt of !ppeals also erred in declarin& that, since theproissor' note $as e4ecuted in favor of %iti#ens 1an( andTrust %opan' t$o 'ears after the er&er bet$een

!ssociated 1an(in& %orporation and %iti#ens 1an( and Trust%opan', respondent is not liable to petitioner because there


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is no privit' of contract bet$een respondent and !ssociated1an(.

III The %ourt of !ppeals erred $hen it ruled that petitioner,despite the er&er bet$een petitioner and %iti#ens 1an( and

Trust %opan', is not a real part' in interest insofar as theproissor' note e4ecuted in favor of the er&er.L

In a nutshell, the ain issue is $hether !ssociated 1an(, thesurvivin& corporation, a' enforce the proissor' note ade b'private respondent in favor of %1T%, the absorbed copan', after theer&er a&reeent had been si&ned.

T' Co%/ R%&4

The petition is ipressed $ith erit.

T' Ma& I%'5Associated Bank Assumed

All Rights of CBTC

Ordinaril', in the er&er of t$o or ore e4istin& corporations, one

of the cobinin& corporations survives and continues the cobinedbusiness, $hile the rest are dissolved and all their ri&hts, propertiesand liabilities are ac3uired b' the survivin& corporation. G0=H !lthou&hthere is a dissolution of the absorbed corporations, there is no $indin&up of their affairs or li3uidation of their assets, because the survivin&corporation autoaticall' ac3uires all their ri&hts, privile&es andpo$ers, as $ell as their liabilities.G00H

The er&er, ho$ever, does not becoe effective upon the ere

a&reeent of the constituent corporations. The procedure to befollo$ed is prescribed under the %orporation %ode.G0+HSection ;8 ofsaid %ode re3uires the approval b' the Securities and E4chan&e%oission @SE%A of the articles of er&er $hich, in turn, ust havebeen dul' approved b' a a5orit' of the respective stoc(holders ofthe constituent corporations. The sae provision further states thatthe er&er shall be effective onl' upon the issuance b' the SE% of a


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certificate of er&er. The effectivit' date of the er&er is crucial fordeterinin& $hen the er&ed or absorbed corporation ceases toe4ist/ and $hen its ri&hts, privile&es, properties as $ell as liabilitiespass on to the survivin& corporation.

%onsistent $ith the aforeentioned Section ;8, the Septeber07, 08;: !&reeent of Mer&er,G0H $hich !ssociated 1an(in&%orporation @!1%A and %iti#ens 1an( and Trust %opan' @%1T%Aentered into, provided that its effectivit' shall, for all intents andpurposes, be the date $hen the necessar' papers to carr' out thisGHer&er shall have been approved b' the Securities and E4chan&e%oission.LG09H!s to the transfer of the properties of %1T% to !1%,the a&reeent provides6

0=. )pon effective date of the Mer&er, all ri&hts,privile&es, po$ers, iunities, franchises, assetsand propert' of G%1T%H, $hether real, personal ori4ed, and includin& G%1T%KsH &ood$ill andtradenae, and all debts due to G%1T%H on $hateveract, and all other thin&s in action belon&in& to G%1T%Has of the effective date of the GHer&er shall bevested in G!1%H, the S)RVIVIN" 1!N, $ithout

need of further act or deed, unless b' e4pressre3uireents of la$ or of a &overnent a&enc', an'separate or specific deed of conve'ance to le&all'effect the transfer or assi&nent of an' (ind ofpropert' GorH asset is re3uired, in $hich case suchdocuent or deed shall be e4ecuted accordin&l'/ andall propert', ri&hts, privile&es, po$ers, iunities,franchises and all appointents, desi&nations andnoinations, and all other ri&hts and interests ofG%1T%H as trustee, e4ecutor, adinistrator, re&istrarof stoc(s and bonds, &uardian of estates, assi&nee,receiver, trustee of estates of persons entall' ill andin ever' other fiduciar' capacit', and all and ever'other interest of G%1T%H shall thereafter be effectuall'the propert' of G!1%H as the' $ere of G%1T%H, and


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title to an' real estate, $hether b' deed or other$ise,vested in G%1T%H shall not revert or be in an' $a'ipaired b' reason thereof/ provided, ho$ever, thatall ri&hts of creditors and all liens upon an' propert'of G%1T%H shall be preserved and unipaired and alldebts, liabilities, obli&ations, duties and underta(in&sof G%1T%H, $hether contractual or other$ise,e4pressed or iplied, actual or contin&ent, shallhenceforth attach to G!1%H $hich shall be responsibletherefor and a' be enforced a&ainst G!1%H to thesae e4tent as if the sae debts, liabilities,obli&ations, duties and underta(in&s have beenori&inall' incurred or contracted b' G!1%H, sub5ect,

ho$ever, to all ri&hts, privile&es, defenses, set-offsand counterclais $hich G%1T%H has or i&ht haveand $hich shall pertain to G!1%H.LG0:H

The records do not sho$ $hen the SE% approved the er&er.Private respondentKs theor' is that it too( effect on the date of thee4ecution of the a&reeent itself, $hich $as Septeber 07, 08;:.Private respondent contends that, since he issued the proissor'note to %1T% on Septeber ;, 08;; -- t$o 'ears after the er&er

a&reeent had been e4ecuted -- %1T% could not have conve'ed ortransferred to petitioner its interest in the said note, $hich $as not 'etin e4istence at the tie of the er&er. Therefore, petitioner, thesurvivin& ban(, has no ri&ht to enforce the proissor' note on privaterespondent/ such ri&ht properl' pertains onl' to %1T%.

!ssuin& that the effectivit' date of the er&er $as the date of itse4ecution, $e still cannot a&ree that petitioner no lon&er has an'interest in the proissor' note. ! closer perusal of the er&era&reeent leads to a different conclusion. The provision 3uotedearlier has this other clause6

)pon the effective date of the GHer&er, all references toG%1T%H in an' deed, docuents, or other papers of $hatever(ind or nature and $herever found shall be deeed for allintents and purposes, references to G!1%H, the S)RVIVIN"


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1!N, as if such references $ere direct references to G!1%H.4 4 4LG07H@)nderscorin& suppliedA

Thus, the fact that the proissor' note $as e4ecuted after theeffectivit' date of the er&er does not ilitate a&ainst petitioner. The

a&reeent itself clearl' provides that allcontracts -- irrespective of thedate of e4ecution -- entered into in the nae of %1T% shall beunderstood as pertainin& to the survivin& ban(, herein petitioner.Since, in contrast to the earlier afore3uoted provision, the latter clauseno lon&er specificall' refers onl' to contracts e4istin& at the tie of theer&er, no distinction should be ade. The clause ust have beendeliberatel' included in the a&reeent in order to protect the interestsof the cobinin& ban(s/ specificall', to avoid &ivin& the er&era&reeent a farcical interpretation aied at evadin& fulfillent of adue obli&ation.

Thus, althou&h the sub5ect proissor' note naes %1T% as thepa'ee, the reference to %1T% in the note shall be construed, underthe ver' provisions of the er&er a&reeent, as a reference topetitioner ban(, as if such reference G$as aH direct reference toL thelatter for all intents and purposes.L

No other construction can be &iven to the une3uivocal stipulation.

1ein& clear, plain and free of abi&uit', the provision ust be &ivenits literal eanin&G0;Hand applied $ithout a convoluted interpretation.erba le1is non est recedendum.G0>H

In li&ht of the fore&oin&, the %ourt holds that petitioner has a validcause of action a&ainst private respondent. %learl', the failure ofprivate respondent to honor his obli&ation under the proissor' noteconstitutes a violation of petitionerKs ri&ht to collect the proceeds of theloan it e4tended to the forer.

S'o&+ay I%'5Prescription, Laches, Contract

Po% A%/%, Lack of Consideration

o Prescription


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or Laches

Private respondentKs clai that the action has prescribed,pursuant to !rticle 0098 of the %ivil %ode, is le&all' untenable.

PetitionerKs suit for collection of a su of one' $as based on a$ritten contract and prescribes after ten 'ears fro the tie its ri&ht ofaction arose.G08H SarientoKs obli&ation under the proissor' notebecae due and deandable on March 7, 08;>. PetitionerKscoplaint $as instituted on !u&ust ++, 08>:, before the lapse of theten-'ear prescriptive period. Definitel', petitioner still had ever' ri&htto coence suit a&ainst the pa'orobli&or, the private respondentherein.

Neither is petitionerKs action barred b' laches. The principle oflaches is a creation of e3uit', $hich is applied not to penali#e ne&lector failure to assert a ri&ht $ithin a reasonable tie, but rather to avoidreco&ni#in& a ri&ht $hen to do so $ould result in a clearl' ine3uitablesituationG+=Hor in an in5ustice.G+0HTo re3uire private respondent to pa'the reainin& balance of his loan is certainl' not ine3uitable or un5ust.


18/49

! stipulationpour autrui is one in favor of a third person $ho a'deand its fulfillent, provided he counicated his acceptance tothe obli&or before its revocation. !n incidental benefit or interest,$hich another person &ains, is not sufficient. The contractin& partiesust have clearl' and deliberatel' conferred a favor upon a thirdperson.G+H

-lorentino vs. ncarnacion Sr.G+9H enuerates the re3uisites forsuch contract6 @0A the stipulation in favor of a third person ust be apart of the contract, and not the contract itself/ @+A the favorablestipulation should not be conditioned or copensated b' an' (ind ofobli&ation/ and @A neither of the contractin& parties bears the le&alrepresentation or authori#ation of the third part'. The fairest testL indeterinin& $hether the third personKs interest in a contract is astipulation pour autrui or erel' an incidental interest is to e4ainethe intention of the parties as disclosed b' their contract.G+:H


19/49

for the proissor' note and, in support thereof, cites petitionerKsfailure to subit an' proof of his loan application and of his actualreceipt of the aount loaned. These ar&uents deserve no erit.Res ipsa loquitur. The instruent, bearin& the si&nature of privaterespondent, spea(s for itself. Respondent Sariento has not3uestioned the &enuineness and due e4ecution thereof. No furtherproof is necessar' to sho$ that he undertoo( to pa' P+,:==,===, plusinterest, to petitioner ban( on or before March 7, 08;>. This he failedto do, as testified to b' petitionerKs accountant. The latter presentedbefore the trial court private respondentKs stateent of account G+;Hasof Septeber =, 08>7, sho$in& an outstandin& balance ofP9,7>8,90.7 after deductin& P0,===,===.== paid seven onthsearlier. Furtherore, such partial pa'ent is e3uivalent to an e4press

ac(no$led&ent of his obli&ation. Private respondent can no lon&erbac(trac( and den' his liabilit' to petitioner ban(. ! person cannotaccept and re5ect the sae instruent.LG+>H

6HERE*ORE, the petition is GRA0*D. The assailed Decisionis S* ASID and the Decision of RT%-Manila, 1ranch 9>, in %ivil%ase No. +797: is hereb' RI0S*A*D.

SO OR)ERE).

Davide Jr. @%hairanA) #ellosillo) itu1) and 2uisumbin1) JJ.)concur.


20/49

Republic of the %hilippines

S%7'' Co%/Ma&a

SECON) )IISION

MIN)ANAO SAINGSAN) LOANASSOCIATION, INC.,'7''&/'+ y /L:%+a/o, THEPHILIPPINE )EPOSITINSURANCECORPORATION,

Petitioner,

- versus -E)6AR) 6ILLKOM;GIL)A GO; REME)IOSU


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Respondent.

4----------------------------------------------------------------------------

--------4

)ECISIONNACHURA, J.5

This is a petition for revie$ on certiorariunder Rule9: of the Rules of %ourt filed b' Mindanao Savin&s and

?oan !ssociation, Inc. @MS?!IA, represented b' itsli3uidator, Philippine Deposit Insurance %orporation@PDI%A, a&ainst respondents Ed$ard R. ;.

The controvers' steed fro the follo$in& facts6

The First Ili&an Savin&s and ?oan !ssociation, Inc.

@FIS?!IA and the Davao Savin&s and ?oan !ssociation,Inc. @DS?!IA are entities dul' re&istered $ith the Securitiesand E4chan&e %oission @SE%A under Re&istr' Nos.9>78 and +>>, respectivel', priaril' en&a&ed in thebusiness of &rantin& loans and receivin& deposits fro the


22/49

&eneral public, and treated as ban(s.G9H

Soetie in 08>:, FIS?!I and DS?!I entered into aer&er, $ith DS?!I as the survivin& corporation.G:H The

articles of er&er $ere not re&istered $ith the SE% due toincoplete docuentation.G7HOn !u&ust 0+, 08>:, DS?!Ichan&ed its corporate nae to MS?!I b' $a' of anaendent to !rticle 0 of its !rticles of Incorporation, butthe aendent $as approved b' the SE% onl' on !pril ,08>;.G;H

Mean$hile, on Ma' +7, 08>7, the 1oard of Directorsof FIS?!I passed and approved 1oard Resolution No. >7-==+, assi&nin& its assets in favor of DS?!I $hich in turnassued the forerKs liabilities.G>H

The business of MS?!I, ho$ever, failed. 2ence, theMonetar' 1oard of the %entral 1an( of the Philippines

ordered its closure and placed it under receivership perMonetar' 1oard Resolution No. 8++ dated !u&ust 0,088=. The Monetar' 1oard found that MS?!IKs financialcondition $as one of insolvenc', and for it to continue inbusiness $ould involve probable loss to its depositors andcreditors. On Ma' +9, 0880, the Monetar' 1oard orderedthe li3uidation of MS?!I, $ith PDI% as its li3uidator.G8H

It appears that prior to the closure of MS?!I, )' filed

$ith the RT%, 1ranch of Ili&an %it', an action forcollection of su of one' a&ainst FIS?!I, doc(eted as%ivil %ase No. 000-78;. On October 08, 08>8, the RT%


23/49

issued a suar' decision in favor of )', directin&defendants therein @$hich included FIS?!IA to pa' theforer the su of P07,>=0.;=, plus interest until fullpa'ent, +:J as attorne'Ks fees, and the costs of suit. The

decision $as odified b' the %! b' further orderin& thethird-part' defendant therein to reiburse the pa'entsthat $ould be ade b' the defendants. The decisionbecae final and e4ecutor' on Februar' +0, 088+. ! $rit ofe4ecution $as thereafter issued.G0=H

On !pril +>, 088, sheriff 1antuas levied on si4 @7A

parcels of land o$ned b' FIS?!I located in %a&a'an deOro %it', and the notice of sale $as subse3uentl'published. Durin& the public auction on Ma' 0;, 088,


24/49

first tie in Februar' 088: $hile dischar&in& its andate ofli3uidatin& MS?!IKs assets/ that the e4ecution of the RT%decision in %ivil %ase No. 000-78; $as ille&al and contrar'to la$ and 5urisprudence, not onl' because PDI% $as not

notified of the e4ecution sale, but also because the assetsof an institution placed under receivership or li3uidationsuch as MS?!I should be deeed in custodia le1is andshould be e4ept fro an' order of &arnishent, lev',attachent, or e4ecution.G0H

In ans$er, respondents averred that MS?!I had no

cause of action a&ainst the or the ri&ht to recover thesub5ect properties because MS?!I is a separate anddistinct entit' fro FIS?!I. The' further contended that theunofficial er&erL bet$een FIS?!I and DS?!I @no$MS?!IA did not ta(e effect considerin& that the er&in&copanies did not copl' $ith the foralities andprocedure for er&er or consolidation as prescribed b' the

%orporation %ode of the Philippines. Finall', the' claiedthat FIS?!I is still a SE% re&istered corporation and couldnot have been absorbed b' petitioner.G09H

On March 0, 088;, the RT% issued a resolutiondisissin& the case for lac( of 5urisdiction. The RT%declared that it could not annul the decision in %ivil %ase

No. 000-78;, havin& been rendered b' a court ofcoordinate 5urisdiction.G0:H

On appeal, MS?!I failed to obtain a favorabledecision $hen the %! affired the RT% resolution. The


25/49

dispositive portion of the assailed %! Decision reads6


26/49

FIS?!I in favor of MS?!I $as not bindin& on third partiesbecause it $as not re&istered. Finall', the %! said that thevalidit' of the auction sale could not be invalidated b' thefact that the sheriff had no authorit' to conduct the

e4ecution sale.G0>H

PetitionerKs otion for reconsideration $as denied ina Resolution dated une 0, +==;. 2ence, the instantpetition anchored on the follo$in& &rounds6

T2E 2ONOR!1?E %O)RT OF !PPE!?S, %!"!!N

DE ORO %OMMITTED "R!VE !ND REVERSI1?EERROR

@A

IT 2E?D T2!T T2E PROPERTIES S)1E%T OF T2E%!SE !RE NOT IN %)STODI! ?E"IS !ND


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T2EREFORE, EEMPT FROM "!RNIS2MENT, ?EV,!TT!%2MENT OR EE%)TION.G08H

To resolve this petition, $e ust address t$o basic

3uestions6 @0A


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;>,G+7Hand ;8G+;Hof the %orporation %ode, are6@0A The board of each corporation dra$s up a

plan of er&er or consolidation. Such plan ust includean' aendent, if necessar', to the articles ofincorporation of the survivin& corporation, or in case ofconsolidation, all the stateents re3uired in the articlesof incorporation of a corporation.

@+A Subission of plan to stoc(holders or

ebers of each corporation for approval. ! eetin&ust be called and at least t$o @+A $ee(sK notice ustbe sent to allstoc(holders or ebers, personall' or b'

re&istered ail. ! suar' of the plan ust be attachedto the notice. Vote of t$o-thirds of the ebers or ofstoc(holders representin& t$o-thirds of the outstandin&capital stoc( $ill be needed. !ppraisal ri&hts, $henproper, ust be respected.

@A E4ecution of the foral a&reeent, referred to

as the articles of er&er oGrH consolidation, b' the

corporate officers of each constituent corporation. Theseta(e the place of the articles of incorporation of theconsolidated corporation, or aend the articles ofincorporation of the survivin& corporation.

@9A Subission of said articles of er&er or

consolidation to the SE% for approval.

@:A If necessar', the SE% shall set a hearin&,notif'in& all corporations concerned at least t$o $ee(sbefore.

@7A Issuance of certificate of er&er or

consolidation.G+>H


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%learl', the er&er shall onl' be effective upon theissuance of a certificate of er&er b' the SE%, sub5ect toits prior deterination that the er&er is not inconsistent$ith the %orporation %ode or e4istin& la$s.G+8H


30/49

ebers but onl' upon issuance of the certificate ofconsolidation b' the SE%.G+H


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!rticle 07+: of the %ivil %ode, an assi&nent of credit,ri&ht or action shall produce no effect as a&ainst thirdpersons, unless it appears in a public instruent, or theinstruent is recorded in the Re&istr' of Propert' in case

the assi&nent involves real propert'.L The certificates oftitle of the sub5ect properties $ere clean and contained noannotation of the fact of assi&nent. Respondents cannot,therefore, be faulted for enforcin& their clai a&ainstFIS?!I on the properties re&istered under its nae.

!ccordin&l', MS?!I, as the successor-in-interest of DS?!I,has no le&al standin& to annul the e4ecution sale over the

properties of FIS?!I.


32/49

0+8 of the %ivil %ode is e4plicit, thus6

!rt. 0+8. Novation $hich consists in substitutin&a ne$ debtor in the place of the ori&inal one, a' be

ade even $ithout the (no$led&e or a&ainst the $ill ofthe latter, but not $ithout the consent of the creditor.Pa'ent b' the ne$ debtor &ives hi the ri&htsentioned in !rticles 0+7 and 0+;.

In this case, there $as no sho$in& that )', thecreditor, &ave her consent to the a&reeent that DS?!I

@no$ MS?!IA $ould assue the liabilities of FIS?!I. Sucha&reeent cannot pre5udice )'. Thus, the assets thatFIS?!I transferred to DS?!I reained sub5ect to e4ecutionto satisf' the 5ud&ent clai of )' a&ainst FIS?!I. Thesubse3uent sale of the properties b' )' to


33/49

SO OR)ERE).


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-IRS* DIISI/0"G.R. No. 99398. $a&%ay 2>, 2001(

CHESTER BABST,petitioner, vs. COURT O* APPEALS,BANK O* THE PHILIPPINE ISLAN)S, ELIZAL)ESTEEL CONSOLI)ATE), INC., a&+ PACI*ICMULTI-COMMERCIAL CORPORATION,respondents.

"G.R. No. 10?>2@. $a&%ay 2>, 2001(

ELIZAL)E STEEL CONSOLI)ATE), INC.,petitioner, vs.COURT O* APPEALS, BANK O* THE PHILIPPINEISLAN)S, PACI*IC MULTI-COMMERCIALCORPORATION a&+ CHESTER BABST,respondents.

) E C I S I O N


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evidenced b' a proissor' note.G+H E?IS%ON defaulted in itspa'ents, leavin& an outstandin& indebtedness in the aount ofP+,;8:,+9=.7; as of October 0, 08>+.GH

The letters of credit, on the other hand, $ere opened for E?IS%ON

b' %1T% usin& the credit facilities of Pacific Multi-%oercial%orporation @M)?TIA $ith the said ban(, pursuant to the Resolution ofthe 1oard of Directors of M)?TI adopted on !u&ust 0, 08;; $hichreads6


36/49

RESO?VED, FIN!??, That copies of this resolution be furnished the%oercial 1an( Trust %opan' of the Philippines, Ma(ati, MetroManila, for their inforation.G9H

Subse3uentl', on Septeber +7, 08;>, !ntonio Ro4as %hua and

%hester ". 1abst e4ecuted a %ontinuin& Suret'ship,G:H$hereb' the'bound theselves 5ointl' and severall' liable to pa' an' e4istin&indebtedness of M)?TI to %1T% to the e4tent of P>,===,===.== each.

Soetie in October 08;>, %1T% opened for E?IS%ON in favorof National Steel %orporation three @A doestic letters of credit in theaounts of P0,897,>=:.;,G7H P0,;=+,>78.+G;H and P+==,=;.;+,G>Hrespectivel', $hich E?IS%ON used to purchase tin blac( plates froNational Steel %orporation. E?IS%ON defaulted in its obli&ation topa' the aounts of the letters of credit, leavin& an outstandin&account, as of October 0, 08>+, in the total aount ofP,87,;+.=>.G8H

On Deceber ++, 08>=, the 1an( of the Philippine Islands @1PIAand %1T% entered into a er&er, $herein 1PI, as the survivin&corporation, ac3uired all the assets and assued all the liabilities of%1T%.G0=H

Mean$hile, E?IS%ON encountered financial difficulties andbecae heavil' indebted to the Developent 1an( of the Philippines@D1PA. In order to settle its obli&ations, E?IS%ON proposed to conve'to D1P b' $a' of dacion en pa1o all its fi4ed assets ort&a&ed $ithD1P, as pa'ent for its total indebtedness in the aount ofP+=0,0>0,>.07. On Deceber +>, 08;>, E?IS%ON and D1Pe4ecuted a Deed of %ession of Propert' in Pa'ent of Debt. G00H

In une 08>0, E?IS%ON called its creditors to a eetin& to

announce the ta(e-over b' D1P of its assets.

In October 08>0, D1P forall' too( over the assets of E?IS%ON,includin& its indebtedness to 1PI. Thereafter, D1P proposed forulasfor the settleent of all of E?IS%ONKs obli&ations to its creditors, but1PI e4pressl' re5ected the forula subitted to it for not bein&acceptable.G0+H


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%onse3uentl', on anuar' 0;, 08>, 1PI, as successor-in-interestof %1T%, instituted $ith the Re&ional Trial %ourt of Ma(ati, 1ranch09;, a coplaintG0Hfor su of one' a&ainst E?IS%ON, M)?TI and1abst, $hich $as doc(eted as %ivil %ase No. 98++7.

E?IS%ON, in its !ns$er,G09H ar&ued that the coplaint $aspreature since D1P had ade serious efforts to settle its obli&ations$ith 1PI.

1abst also filed his !ns$er alle&in& that he si&ned the %ontinuin&Suret'ship on the understandin& that it covers onl' obli&ations $hichM)?TI incurred solel' for its benefit and not for an' third part' liabilit',and he had no (no$led&e or inforation of an' transaction bet$eenM)?TI and E?IS%ON.G0:H

M)?TI, for its part, denied (no$led&e of the er&er bet$een 1PIand %1T%, and averred that the &uarant' under its board resolutiondid not cover purchases ade b' E?IS%ON in the for of trustreceipts. It set up a cross-clai a&ainst E?IS%ON alle&in& that thelatter should be held liable for an' 5ud&ent $hich the court a'render a&ainst it in favor of 1PI.G07H

On Februar' +=, 08>;, the trial court rendered its Decision,G0;Hthe

dispositive portion of $hich reads6


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related char&es at the rates provided in said letters of credit, fro andafter 0 October 08>+ until full pa'ent/

A Orderin& defendant E?IS%ON to pa' interests at the le&al rate onall interests and related char&es but unpaid as of the filin& of this

coplaint, until full pa'ent thereof/

9A Orderin& defendant E?IS%ON to pa' attorne'Ks fees e3uivalent to0=J of the total aount due under the precedin& para&raphs/

:A Orderin& defendants Pacific Multi-%oercial %orporation anddefendant %hester 1abst to pa', 5ointl' and severall' $ith defendantE?IS%ON, the total su of P,87,;+.=> due on the three @A

doestic letters of credit as of 0 October 08>+ $ith interests andrelated char&es on the principal aount of P,87,;+.=> at the ratesprovided in said letters of credit fro = October 08>+ until full' paid,but to the e4tent of not ore than P>,===,===.== in the case ofdefendant %hester 1abst/

7A Orderin& defendant Pacific Multi-%oercial %orporation anddefendant %hester 1abst to pa', 5ointl' and severall' plaintiff interestsat the le&al rate on all interests and related char&es alread' accrued

but unpaid on said three @A doestic letters of credit as of the date ofthe filin& of this %oplaint until full pa'ent thereof/

;A Orderin& defendant Pacific Multi-%oercial %orporation anddefendant %hester 1abst to pa', 5ointl' and severall', attorne'Ks feesof not less than 0=J of the total aount due under para&raphs : and7 hereof. H

On !pril +8, 0880, the %ourt of !ppeals rendered the appealedDecision as follo$s6


39/49

+ and the aount of P,87,;+.=>due on the three @A doestic letters of credit, also as of 0 October08>+/

+A Orderin& appellant E?IS%ON to pa' the appellee 1PI interests andrelated char&es on the principal of said proissor' note ofP+,0=+,++.=+ at the rates provided in said note fro and after 0

October 08>+ until full pa'ent thereof, and on the principal of thethree @A doestic letters of credit of P,:79,98.+: interests andrelated char&es at the rates provided in said letters of credit, fro andafter 0 October 08>+ until full pa'ent/

A Orderin& appellant E?IS%ON to pa' appellee 1PI interest at thele&al rate on all interests and related char&es but unpaid as of thefilin& of this coplaint, until full pa'ent thereof/

9A Orderin& appellant Pacific Multi-%oercial %orporation andappellant %hester ". 1abst to pa' appellee 1PI, 5ointl' and severall'$ith appellant E?IS%ON, the total su of P,87,;+.=> due on thethree @A doestic letters of credit as of 0 October 08>+ $ith interestand related char&es on the principal aount of P,87,;+.=> at therates provided in said letters of credit fro = October 08>+ until full'paid, but to the e4tent of not ore than P>,===,===.== in the case ofdefendant %hester 1abst/

:A Orderin& appellant Pacific Multi-%oercial %orporation anddefendant %hester 1abst to pa', 5ointl' and severall', appellee 1PIinterests at the le&al rate on all interests and related char&es alread'accrued but unpaid on said three @A doestic letters of credit as ofthe date of the filin& of this %oplaint until full pa'ent thereof andthe plaintiffKs la$'erKs fees in the noinal aount of P+==,===.==/


40/49

7A Orderin& appellant E?IS%ON to reiburse appellants Pacific Multi-%oercial %orporation and %hester 1abst $hatever aount the'shall have paid in said ElisconKs behalf particularl' referrin& to thethree @A letters of credit as of 0 October 08>+ and other relatedchar&es.

No costs.

SO ORDERED.G08H

E?IS%ON filed a Motion for Reconsideration of the Decision of the%ourt of !ppeals $hich $as, ho$ever, denied in a Resolution datedMarch 8, 088+.G+=HSubse3uentl', E?IS%ON filed a petition for revie$

on certiorari, doc(eted as ".R. No. 0=97+:, on the follo$in& &rounds6!. T2E 1!N OF T2E P2I?IPPINE IS?!NDS IS NOT ENTIT?ED

TO RE%OVER FROM PETITIONER E?IS%ON T2E ?!TTERKSO1?I"!TION

%. P!%IFI% M)?TI %OMMER%I!? %ORPOR!TION !ND%2ESTER 1!1ST %!NNOT ?!


41/49

P! RESPONDENT 1PI T2E !MO)NTS ST!TED IN T2EDISPOSITIVE PORTION OF RESPONDENT %O)RT OF

!PPE!?SK DE%ISION.G+0H

1PI filed its %oentG++Hraisin& the follo$in& ar&uents, to $it6

0. Respondent 1PI is le&all' entitled to recover fro E?IS%ON,M)?TI and 1abst the past due obli&ations $ith %1T% prior to theer&er of 1PI $ith %1T%.

+. 1PI did not &ive its consent to the D1P ta(e-over of E?IS%ON.2ence, no valid novation has been effected.

. E4press consent of creditor to substitution should be recorded in

the boo(s.9. Petitioner %hester ". 1abst and respondent M)?TI are 5ointl' andsolidaril' liable to 1PI for the unpaid letters of credit of E?IS%ON.

:. The 3uestion of the liabilit' of E?IS%ON to 1PI has been clearl'established.

7. Since M)?TI and %hester ". 1abst are &uarantors of the debts

incurred b' E?IS%ON, the' a' recover fro the latter $hat the' a'have paid for on account of that &uarant'.

%hester 1abst filed a %oent $ith Manifestation,G+H$herein hecontends that the suret'ship a&reeent he e4ecuted $ith !ntonioRo4as %hua $as in favor of M)?TI/ and that there is nothin& therein$hich authori#es M)?TI, in turn, to &uarantee the obli&ations ofE?IS%ON.

In its %oent,G+9HM)?TI aintained that inasuch as 1PI hadfull (no$led&e of the purpose of the eetin& in une 08>0, $hereinthe ta(eover b' D1P of E?IS%ON $as announced, it $as incubentupon the said ban( to forall' counicate its ob5ection to theassuption of E?IS%ONKs liabilities b' D1P in ans$er to the call forthe eetin&. Moreover, there $as no sho$in& that the availent b'E?IS%ON of M)?TIKs credit facilities $ith %1T%, $hich $as


42/49

supposedl' &uaranteed b' !ntonio Ro4as %hua, $as indeedauthori#ed b' the latter pursuant to the resolution of the 1oard ofDirectors of M)?TI.

In copliance $ith this %ourtKs Resolution dated March 0;, 088,

G+:Hthe parties subitted their respective eoranda.Mean$hile, in a petition for revie$ filed $ith this %ourt, $hich $as

doc(eted as ".R. No. 888>, %hester 1abst alle&ed that the %ourt of!ppeals acted $ithout 5urisdiction andor $ith &rave abuse ofdiscretion $hen6

0. IT !FFIRMED T2E ?O

+. IT %ONFIRMED T2E ?ODEVE?OPMENT 1!N OF T2E P2I?IPPINES OF T2E ORI"IN!?DE1TOR E?IQ!?DE STEE? %ONSO?ID!TED, IN%.

. IT !FFIRMED T2E ?O

9. IN NOT T!IN" )DI%I!? NOTI%E T2!T T2E D1P T!EOVEROF T2E ENTIRE E?IS%ON


43/49

%ONSTIT)TIN" ! FORT)ITO)S EVENT E%)?P!TIN" E?IS%ONFROM !N ?I!1I?IT TO 1PI.

:. IN NOT FINDIN" T2!T T2E D!%ION EN P!"O 1ET0; $hichstates that D1P shall enter into a contractual arran&eent $ith ND%

for the latter to pa' E?IS%ONKs creditors, includin& 1PI in the aountof P9,=0:,:9.:9. This $as follo$ed b' a Meorandu of

!&reeent e4ecuted on Ma' 9, 08> b' and bet$een D1P and ND%,$herein the' stipulated, inter alia, that ND% shall pa' to E?IS%ONKscreditors, throu&h D1P, the aount of P+88,:+9,;==.==. !on& thecreditors entioned in the a&reeent $as 1PI, $ith a listed credit ofP9,=0:,:9.:9.

Furtherore, petitioner 1abst averred that the assets of E?IS%ON$hich $ere ac3uired b' the D1P, and later transferred to the ND%,$ere placed under the !sset Privati#ation Trust pursuant toProclaation No. :=, issued b' then President %ora#on %. !3uino onDeceber >, 08>7.

In its %oent,G+;H1PI countered that b' virtue of its er&er $ith%1T%, it ac3uired all the latterKs ri&hts and interest includin& all


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receivables/ that in order to effect a valid novation b' substitution ofdebtors, the consent of the creditor ust be e4press/ that in addition,the consent of 1PI ust appear in its boo(s, it bein& a privatecorporation/ that 1PI intentionall' did not consent to the assuptionb' D1P of the obli&ations of E?IS%ON because it $anted to preserveintact its causes of action and le&al recourse a&ainst Pacific Multi-%oercial %orporation and 1abst as sureties of E?IS%ON and notof D1P/ that M)?TI e4pressl' bound itself solidaril' for E?IS%ONKsobli&ations to %1T% in its Resolution $herein it allo$ed the latter touse its credit facilities/ and that the suret'ship a&reeent e4ecuted b'1abst does not e4clude liabilities incurred b' M)?TI on behalf of thirdparties, such as E?IS%ON.

E?IS%ON li(e$ise filed a %oent,G+>H$herein it anifested thatof the seven errors raised b' 1abst in his petition, si4 are ar&uents$hich E?IS%ON itself raised in its previous pleadin&s. It is onl' thesi4th assi&ned error --- that the %ourt of !ppeals erred in findin& thatM)?TI and 1abst bound theselves solidaril' $ith E?IS%ON --- thatE?IS%ON ta(es e4ception to. More particularl', E?IS%ON pointed outthe contradictor' positions ta(en b' 1abst in adittin& that he boundhiself to pa' the indebtedness of M)?TI, $hile at the sae tiecopletel' disavo$in& and den'in& an' such obli&ation. It stressed

that should M)?TI or 1abst be finall' ad5ud&ed liable under thesuret'ship a&reeent, the' cannot la$full' recover fro E?IS%ON,but fro the D1P $hich had been substituted as the ne$ debtor.

M)?TI filed its %oent,G+8H adittin& the correctness of thepetition and adoptin& the %oent of E?IS%ON insofar as it is notinconsistent $ith the positions of 1abst and M)?TI.

!t the outset, the preliinar' issue of 1PIKs ri&ht of action ust

first be addressed. E?IS%ON and M)?TI assail 1PIKs le&al capacit'to recover their obli&ation to %1T%. 2o$ever, there is no 3uestionthat there $as a valid er&er bet$een 1PI and %1T%. It is settledthat in the er&er of t$o e4istin& corporations, one of the corporationssurvives and continues the business, $hile the other is dissolved andall its ri&hts, properties and liabilities are ac3uired b' the survivin&corporation.G=H2ence, 1PI has a ri&ht to institute the case a quo.


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preserve the creditorKs full ri&ht, it is sufficient that the latterKs consentbe &iven at an' tie and in an' for $hatever, $hile the a&reeent ofthe debtors subsists.L The sae rule is stated in the nciclopediaJur6dica spa7ola, volue +, pa&e :=, $hich reads6 The rule thatthis (ind of novation, li(e all others, ust be e4press, is not absolute/=o /' '/'&' o= /' o&'&/ ay ' ' &=''+ =o /'a/ o= /' '+/o, &' o/o& ay a ' ' '7''+ y+''+ a y o+.L The understandin& bet$een 2enr' ?, /a/ /' '+/o '7'o&'&/ &''ay & o+' /a/ /'' ay ' a &oa/o& o= ao&/a/ y /' %//%/o& o= +'/o, / ++ &o/ /o o&'y/' 7'o& /a/ /' o+ F'7' a /o ' 4'& a&%&:%a='+ 'a&&4, a &+a/'+ & /' a%/o/' o a',o/ S7a& a&+ A'a&, /'+ & a+ +'o&.G9H

Subse3uentl', in the case of da. e (i8os de %io #arretto y "6a.)

Inc. v. Albo 9 Sevilla) Inc.) et al.,G:Hthis %ourt reiterated the rule thatthere can be iplied consent of the creditor to the substitution ofdebtors.

In the case at bar, 1abst, M)?TI and E?IS%ON all aintain thatdue to the failure of 1PI to re&ister its ob5ection to the ta(e-over b'D1P of E?IS%ONKs assets, at the creditorsK eetin& held in une 08>0and thereafter, it is deeed to have consented to the substitution ofD1P for E?IS%ON as debtor.


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re5ected b' the plaintiff as not acceptable @lon& before the filin& of thecoplaint at barA.LG7H

The %ourt of !ppeals held that even if the account officer $hoattended the une 08>0 creditorsK eetin& had e4pressed consent to

the assuption b' D1P of E?IS%ONKs debts, such consent $ould notbind 1PI for lac( of a specific authorit' therefor. In its petition,E?IS%ON counters that the ere presence of the account officer atthe eetin& necessaril' eant that he $as authori#ed to represent1PI in that creditorsK eetin&. Moreover, 1PI did not ob5ect to thesubstitution of debtors, althou&h it ob5ected to the pa'ent forulasubitted b' D1P.

Indeed, the authorit' &ranted b' 1PI to its account officer to attendthe creditorsK eetin& $as an authorit' to represent the ban(, suchthat $hen he failed to ob5ect to the substitution of debtors, he did soon behalf of and for the ban(. Even &rantin& ar1uendothat the saidaccount officer $as not so epo$ered, 1PI could have subse3uentl're&istered its ob5ection to the substitution, especiall' after it hadalread' learned that D1P had ta(en over the assets and assued theliabilities of E?IS%ON. Its failure to do so can onl' ean anac3uiescence in the assuption b' D1P of E?IS%ONKs obli&ations.

!s repeatedl' pointed out b' E?IS%ON and M)?TI, 1PIKs ob5ection$as to the proposed pa'ent forula, not to the substitution itself.

1PI &ives no co&ent reason in $ithholdin& its consent to thesubstitution, other than its desire to preserve its causes of action andle&al recourse a&ainst the sureties of E?IS%ON. It ust bereebered, ho$ever, that $hile a suret' is solidaril' liable $ith theprincipal debtor, his obli&ation to pa' onl' arises upon the principaldebtorKs failure or refusal to pa'. ! contract of suret' is an accessor'proise b' $hich a person binds hiself for another alread' bound,and a&rees $ith the creditor to satisf' the obli&ation if the debtor doesnot.G;H! suret' is an insurer of the debt/ he proises to pa' theprincipalKs debt if the principal $ill not pa'.G>H

In the case at bar, there $as no indication that the principal debtor$ill default in pa'ent. In fact, D1P, $hich had stepped into the


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shoes of E?IS%ON, $as capable of pa'ent. Its authori#ed capitalstoc( $as increased b' the &overnent.G8H More iportantl', theNational Developent %opan' too( over the business of E?IS%ONand undertoo( to pa' E?IS%ONKs creditors, and earar(ed for thatpurpose the aount of P9,=0:,:9.:9 for pa'ent to 1PI.G9=H

Not$ithstandin& the fact that a reliable institution bac(ed b'&overnent funds $as offerin& to pa' E?IS%ONKs debts, not as eresuret' but as substitute principal debtor, 1PI, for reasons (no$n onl'to itself, insisted in &oin& after the sureties. The course of actionchosen ta4es the credulit' of this %ourt. !t the ver' least, suffice it tostate that 1PIKs actuation in this re&ard runs counter to the &ood faithcovenant in contractual relations, provided for b' the %ivil %ode, to$it6

!RT. 08. Ever' person ust, in the e4ercise of his ri&hts and in theperforance of his duties, act $ith 5ustice, &ive ever'one his due, andobserve honest' and &ood faith.

!RT. 00:8. Obli&ations arisin& fro contract have the force of la$bet$een the contractin& parties and should be coplied $ith in &oodfaith.

1PIKs conduct evinced a clear and unista(able consent to thesubstitution of D1P for E?IS%ON as debtor. 2ence, there $as a validnovation $hich resulted in the release of E?IS%ON fro its obli&ationto 1PI, $hose cause of action should be directed a&ainst D1P as thene$ debtor.

Novation, in its broad concept, a' either be e4tinctive orodificator'. It is e4tinctive $hen an old obli&ation is terinated b'

the creation of a ne$ obli&ation that ta(es the place of the forer/ it iserel' odificator' $hen the old obli&ation subsists to the e4tent itreains copatible $ith the aendator' a&reeent. !n e4tinctivenovation results either b' chan&in& the ob5ect or principal conditions@ob5ective or realA, or b' substitutin& the person of the debtor orsubro&atin& a third person in the ri&hts of the creditor @sub5ective orpersonalA. )nder this ode, novation $ould have dual functions U


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one to e4tin&uish an e4istin& obli&ation, the other to substitute a ne$one in its place U re3uirin& a conflu4 of four essential re3uisites, @0A aprevious valid obli&ation/ @+A an a&reeent of all parties concerned toa ne$ contract/ @A the e4tin&uishent of the old obli&ation/ and @9Athe birth of a valid ne$ obli&ation.G90H

The ori&inal obli&ation havin& been e4tin&uished, the contracts ofsuret'ship e4ecuted separatel' b' 1abst and M)?TI, bein& accessor'obli&ations, are li(e$ise e4tin&uished.G9+H

2ence, 1PI should enforce its cause of action a&ainst D1P. Itshould be stressed that not$ithstandin& the lapse of tie $ithin $hichthese cases have reained pendin&, the prescriptive period for 1PI tofile its action $as interrupted $hen it filed %ivil %ase No. 98++7. G9H

6HERE*ORE, the consolidated petitions are "R!NTED. Theappealed Decision of the %ourt of !ppeals, $hich held E?IS%ON,M)?TI and 1abst solidaril' liable for pa'ent to 1PI of the proissor'note and letters of credit, is REVERSED and SET !SIDE. 1PIKscoplaint a&ainst E?IS%ON, M)?TI and 1abst is DISMISSED.

SO OR)ERE).

Davide) Jr.) ".J.) +"hairman,) %uno) :apunan) and %ardo) JJ.)concur.

corpo atty. busmente set 10

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