G.R. No. 178618; October 11, 2010
Mindanao Savings and Loan Association, Inc., represented by its Liquidator, The Philippine Deposit Insurance Corporation, Petitioner, vs. Edward Willkom; Gilda Go; Remedios Uy; Malayo Bantuas, in his capacity as the Deputy Sheriff of Regional Trial Court, Branch 3, Iligan City; and the Register of Deeds of Cagayan de Oro City, Respondents.

FACTS

The controversy involves the execution sale of properties owned by First Iligan Savings and Loan Association, Inc. (FISLAI) to satisfy a judgment debt. Prior to its closure, FISLAI and Davao Savings and Loan Association, Inc. (DSLAI) undertook merger steps in 1985, with DSLAI as the surviving entity, later renamed Mindanao Savings and Loan Association, Inc. (MSLAI). However, the formal articles of merger were never registered with the SEC. In 1990, the Monetary Board ordered MSLAI’s closure and liquidation, appointing the Philippine Deposit Insurance Corporation (PDIC) as liquidator. Meanwhile, a final judgment was rendered against FISLAI in a collection case. To satisfy this judgment, the sheriff levied and sold at public auction six parcels of land still registered under FISLAI’s name. Edward Willkom was the highest bidder, and titles were eventually issued to him. MSLAI, through PDIC, later filed a complaint to annul the sheriff’s sale, arguing the assets were in custodia legis due to the liquidation and that the merger made MSLAI the proper party.

ISSUE

The core issue is whether the execution sale of FISLAI’s properties was valid, considering the prior merger steps with DSLAI/MSLAI and the subsequent liquidation order against MSLAI.

RULING

The Supreme Court ruled the execution sale was valid and affirmed the dismissal of MSLAI’s complaint. The legal logic hinges on the absence of a de jure merger. For a merger to be legally effective and confer rights and liabilities upon the surviving corporation, strict compliance with the Corporation Code is required. This includes board and stockholder approval, execution of articles of merger, and SEC approval via a certificate of merger. The Court found that while there were preparatory acts like a board resolution assigning FISLAI’s assets to DSLAI, the crucial SEC approval was never obtained. Consequently, no legal merger transpired. FISLAI and MSLAI remained separate juridical entities. The judgment obligation remained solely FISLAI’s, and its properties were thus legitimately subject to execution. The Court further held that the doctrine of assets being in custodia legis applies only to the institution under liquidation (MSLAI), not to a separate corporation like FISLAI. The claim of a de facto merger was rejected, as the clear legal requirements were not met. Willkom, as a purchaser in a public auction relying on clean titles under FISLAI’s name, was protected.