Bank of Commerce vs. Radio Philippines Network, Inc., et al.

A Purchase and Assumption Agreement is not a merger or de facto merger, and the purchasing corporation is not liable for the selling corporation’s excluded liabilities, where (1) the seller retains its separate corporate identity and does not dissolve; (2) the buyer pays cash or assumes specified liabilities rather than issuing its own shares as consideration; and (3) the Securities and Exchange Commission has not issued a certificate of merger.

Traders Royal Bank (TRB) entered into a Purchase and Assumption (P&A) Agreement with Bank of Commerce (Bancommerce) for the sale of TRB’s banking business, subject to Bangko Sentral ng Pilipinas (BSP) approval. The BSP approved the agreement on the condition that the parties establish a ₱50 million escrow fund to answer for contingent claims excluded from the sale. Following the execution of the P&A Agreement, the Supreme Court rendered a decision in a separate case (G.R. No. 138510) ordering TRB to pay respondents Radio Philippines Network, Inc. (RPN), Intercontinental Broadcasting Corporation, and Banahaw Broadcasting Corporation (collectively, RPN, et al.) actual damages and interest. RPN, et al. sought execution of this judgment against TRB, but later implicated Bancommerce, alleging that the P&A Agreement was effectively a merger.

• The Purchase and Assumption Agreement: On November 9, 2001, following BSP Monetary Board Resolution No. 58 dated November 8, 2001, TRB and Bancommerce executed a P&A Agreement whereby Bancommerce acquired specified assets and liabilities of TRB for ₱10.4 billion. The BSP approval mandated the creation of a ₱50 million escrow fund with Metropolitan Bank and Trust Co. to cover contingent claims excluded from the sale. The agreement explicitly excluded liabilities arising from pending litigation, including the claims of RPN, et al. The BSP issued its final approval on July 3, 2002. TRB subsequently changed its name to Traders Royal Holdings, Inc. but remained a separate entity.

• The Underlying Judgment and Execution Attempts: In G.R. No. 138510 (Traders Royal Bank v. Radio Philippines Network, Inc.), decided on October 10, 2002, the Supreme Court ordered TRB to pay RPN, et al. actual damages of ₱9,790,716.87 plus 12% legal interest. RPN, et al. filed a motion for execution before the RTC of Quezon City. Instead of levying on the escrow fund, they filed a Supplemental Motion for Execution alleging that TRB was "now Bank of Commerce" due to a merger.

• The RTC and CA Proceedings (First Round): On August 15, 2005, the RTC issued a writ of execution against TRB assets, including those "subject of the merger/consolidation" with Bancommerce. Bancommerce filed a special appearance and opposition. The CA, in CA-G.R. SP 91258, denied Bancommerce’s petition for certiorari but modified the RTC order by deleting the characterization of the P&A Agreement as a "farce" or merger tool, stating there was no conclusive evidence of a merger. However, the CA affirmed the execution against assets of TRB in Bancommerce’s possession.

• The Alias Writ and Garnishment: On January 8, 2010, RPN, et al. moved for an alias writ of execution against Bancommerce. The RTC granted this on February 19, 2010. The sheriff subsequently garnished Bancommerce’s deposits in other banks, levied on its Lipa Branch cash on hand (₱1,520,000.00), and seized computers and monitors, causing a temporary cessation of operations. On March 9, 2010, the alias writ was issued. Bancommerce moved to quash and for reconsideration, which the RTC denied on August 18, 2010, directing the sheriff to release garnished funds to respondents after deducting attorney’s fees.

• The CA Proceedings (Second Round): Bancommerce filed a petition for certiorari (CA-G.R. SP 116704) assailing the February 19, 2010 and August 18, 2010 RTC Orders. The CA dismissed the petition on November 26, 2010 for failure to file a motion for reconsideration, and denied reconsideration on February 9, 2011.

• Exceptions to Motion for Reconsideration: Filing a motion for reconsideration would have been redundant because the August 18, 2010 Order was effectively a denial of the motion for reconsideration of the February 19, 2010 Order. Furthermore, an urgent necessity existed for immediate resolution because the sheriff was relentlessly garnishing deposits and seizing assets, creating a danger of a bank run and causing irreparable injury. The issues raised were purely legal.

• No Merger or De Facto Merger: The transaction was a bona fide sale of assets and assumption of liabilities, not a merger. The Corporation Code requirements for merger (plan, stockholder approval, articles of merger, SEC certificate) were not complied with. TRB remained a separate corporation (later renamed Traders Royal Holdings, Inc.). There was no de facto merger because TRB did not receive Bancommerce shares in exchange for its assets; the consideration was cash and assumption of specified liabilities. The BIR treated the transaction as a sale, not a merger.

• No Successor Liability: Under common law, a purchaser of assets is not liable for the seller’s debts unless there is an express assumption, a merger, a mere continuation, or fraud. None of these exceptions apply. The P&A Agreement specifically excluded the judgment debt of RPN, et al. Bancommerce was not a mere continuation of TRB, as the latter retained its corporate identity. The escrow fund was set up at the BSP’s direction to protect contingent claimants, not as an admission of liability or evidence of merger.

• Effect of Prior CA Decision: The CA’s December 8, 2009 Decision in CA-G.R. SP 91258 explicitly deleted the RTC’s finding of a merger. Therefore, the RTC’s subsequent orders treating Bancommerce as a successor-in-interest and executing against its assets were nullities.

• Procedural Defect: Bancommerce failed to file a motion for reconsideration of the RTC Orders before seeking certiorari in the CA, violating the hierarchy of remedies and the requirement of Rule 65.

• Existence of De Facto Merger: A de facto merger existed because (1) the P&A Agreement involved substantially all assets and liabilities of TRB; (2) Bancommerce qualified TRB in an Ex Parte Petition for Writ of Possession with the words "now known as Bancommerce;" and (3) the BSP issued Circular Letter (Series of 2002) stating that the banking activities of TRB and Bancommerce were consolidated and the latter continued the operations of the former.

• Liability of Successor: The CA’s prior decision did not reverse the RTC’s order allowing execution; it merely deleted the "farce" language. The execution against assets acquired by Bancommerce from TRB was proper because those assets remained subject to the judgment against the seller.

• Motion for Reconsideration Requirement: Whether the Court of Appeals gravely erred in holding that Bancommerce had no valid excuse for failing to file a motion for reconsideration of the assailed RTC Orders before filing a petition for certiorari.

• Nullity of Execution Orders: Whether the Court of Appeals gravely erred in failing to rule that the RTC’s Orders of execution against Bancommerce were nullities because the CA’s prior decision held that no merger existed between TRB and Bancommerce.

• Merger and Successor Liability: Whether the transaction between TRB and Bancommerce constituted a merger or de facto merger rendering Bancommerce liable for TRB’s judgment debts to respondents.

• Motion for Reconsideration Requirement: The CA erred in dismissing the petition for failure to file a motion for reconsideration. Exceptions to the rule were present: (1) redundancy—filing another motion would be superfluous as the August 18, 2010 Order was effectively a denial of the earlier motion for reconsideration; and (2) urgent necessity—the sheriff had already garnished deposits, levied on cash, and seized computers, threatening irreparable injury and a bank run. The issues raised were purely legal.

• No Statutory Merger: No merger occurred under the Corporation Code. The requisites for merger under Sections 76 to 79 of the Corporation Code were absent: there was no plan of merger approved by stockholders, no articles of merger executed, and no certificate of merger issued by the SEC. TRB remained a separate corporation, merely changing its name to Traders Royal Holdings, Inc.

• No De Facto Merger: No de facto merger existed. The elements of a de facto merger—where the selling corporation transfers substantially all assets in exchange for shares of the purchasing corporation and ends up holding only those shares—were not met. Here, TRB received cash and Bancommerce’s assumption of specific liabilities, not Bancommerce shares. The BIR treated the transaction as a sale. The BSP Circular Letter referring to "consolidation" of banking activities was clarified by the BSP General Counsel as using the term "merger" in a loose sense; what was consolidated were banking operations, not corporate existence.

• No Successor Liability: Bancommerce is not liable for TRB’s debts. Under common law, a purchaser of assets is not liable for the seller’s debts unless: (1) it expressly assumes them; (2) the transaction amounts to a merger or consolidation; (3) the purchaser is a mere continuation of the seller; or (4) the transaction is fraudulent. None apply. The P&A Agreement expressly excluded the liabilities to RPN, et al. There was no merger. Bancommerce was not a mere continuation because TRB retained its corporate identity. There was no fraud; the escrow fund was set up at the BSP’s requirement to protect contingent claimants, not to defraud creditors.

• Effect of Prior CA Decision: The CA’s December 8, 2009 Decision deleted the RTC’s finding that the P&A Agreement was a merger tool. By affirming the execution only against "TRB’s properties found in Bancommerce’s possession," the CA meant assets held in trust or as a mere continuation, not assets that Bancommerce had purchased and owned absolutely. The RTC’s subsequent orders treating Bancommerce as the judgment debtor and executing against its own assets were nullities.

• Statutory Merger Requirements — Merger under the Corporation Code requires strict compliance with Sections 76 to 79: (1) a plan of merger drawn by the board; (2) approval by stockholders representing two-thirds of the outstanding capital stock; (3) execution of articles of merger; and (4) issuance of a certificate of merger by the SEC. The merger is effective only upon the issuance of the certificate. Absent these, no merger exists, and the constituent corporations retain their separate identities.

• De Facto Merger — A de facto merger occurs when one corporation acquires substantially all the properties of another in exchange for shares of the acquiring corporation, such that the target corporation ends up with only the shares of the acquirer as its remaining assets. Where the seller receives cash or assumption of liabilities rather than shares, or where the seller retains its corporate existence and does not dissolve, no de facto merger exists.

• Successor Liability (Common Law Exceptions) — A corporation that purchases the assets of another is not liable for the seller’s debts unless: (1) the purchaser expressly or impliedly agrees to assume such debts; (2) the transaction amounts to a consolidation or merger; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is entered into fraudulently to escape liability. Mere acquisition of substantially all assets does not, by itself, trigger liability under the "mere continuation" exception if the seller remains in existence as a separate juridical entity.

• Exceptions to Motion for Reconsideration in Certiorari — A petition for certiorari under Rule 65 may be filed without prior motion for reconsideration where: (a) the issues raised are purely legal; (b) filing a motion would be redundant or useless; (c) there is urgent necessity for the court to intervene to prevent irreparable injury; or (d) the respondent court acted in a manner contrary to due process, such as issuing orders ex parte.

• "Merger is a re-organization of two or more corporations that results in their consolidating into a single corporation, which is one of the constituent corporations, one disappearing or dissolving and the other surviving."

• "A merger does not become effective upon the mere agreement of the constituent corporations. All the requirements specified in the law must be complied with in order for merger to take effect."

• "No de facto merger took place in the present case simply because the TRB owners did not get in exchange for the bank’s assets and liabilities an equivalent value in Bancommerce shares of stock."

• "Since there had been no merger, Bancommerce cannot be considered as TRB’s successor-in-interest and against which the Court’s Decision of October 10, 2002 in G.R. 138510 may been forced. Bancommerce did not hold the former TRBs assets in trust for it as to subject them to garnishment for the satisfaction of the latter’s liabilities to RPN, et al. Bancommerce bought and acquired those assets and thus, became their absolute owner."

• Reyes v. Blouse, 91 Phil. 305 (1952) — Cited for the historical development of the de facto merger doctrine under the former Corporation Law (Section 28½, now Section 40), where "sell, exchange, lease or otherwise dispose of" was interpreted to cover merger-like transactions. Distinguished because in Reyes, the intent to merge was clear, whereas here the transaction was a straightforward sale.

• Associated Bank v. Court of Appeals, 353 Phil. 702 (1998) — Cited for the principle that a merger is effective only upon the issuance of a certificate of merger by the SEC.

• Philippine First Insurance Co., Inc. v. Hartigan, G.R. No. L-26370, 34 SCRA 252 (1970) — Cited for the principle that changing a corporation’s name does not create a new corporation or dissolve the old one; the corporate entity remains unchanged.

• Edward J. Nell Company v. Pacific Farms, Inc., 122 Phil. 825 (1965) — Cited for the common law rule on successor liability and its four exceptions.

• Mindanao Savings and Loan Association, Inc. v. Willkom, G.R. No. 178618, 634 SCRA 291 (2010) — Cited for the procedural requirements of merger under the Corporation Code.

• Sections 76, 77, 78, and 79, Corporation Code of the Philippines — Govern the plan of merger or consolidation, approval by stockholders, articles of merger, and effectivity upon SEC certification. The Court emphasized that strict compliance is necessary for a merger to exist.

• Section 40, Corporation Code of the Philippines — Allows a corporation to sell, lease, exchange, or otherwise dispose of all or substantially all of its assets, which is distinct from a merger.

• Section 1, Rule 65, Rules of Court — Requires that a petition for certiorari be filed when there is no plain, speedy, and adequate remedy in the ordinary course of law, generally requiring a motion for reconsideration first.

Presbitero J. Velasco, Jr. (wrote a separate concurring opinion).

• Associate Justice Jose Catral Mendoza — Argued that a de facto merger existed because (1) the P&A Agreement involved substantially all of TRB’s assets and liabilities; (2) Bancommerce represented TRB as "now known as Bancommerce" in a separate petition; and (3) the BSP Circular Letter indicated consolidation of banking activities. He maintained that the CA’s prior decision did not reverse the execution order but merely deleted the "farce" language, and that execution against assets in Bancommerce’s possession was proper.

• Associate Justice Marvic Mario Victor F. Leonen — Joined Justice Mendoza’s dissent, agreeing that a de facto merger existed and that Bancommerce should be held liable for the judgment debts of TRB.