1

Case Digest on SAN MIGUEL V. KAHN Facts: 14 corporations initially acquired shares of outstanding capital stock of SanMiguel Corporation and constituted a Voting Trust thereon in favor of Andres Soriano, Jr. When the latter died Eduardo Cojuanco was elected as the substitute trustee. However, after the EDSA revolution, Cojuanco fled out of the country, and subsequently an agreement was entered into between the 14 corporations and Andres Soriano III (as an t o seven (7) individuals including Eduardo de los Angeles from the sequestered shares for them to hold in trust. Then, the San Miguel board of directors passed a resolution assuming the loans incurred by Neptunia for the downpayment. De los Angeles assailed the resolution alleging that it was not passed by the board aside from its delitorious effects on the corporations interest. When his efforts to obtain relief within the corporation proved futile, he filed this action with the SEC. Respondent directors alleged that de los Angeles has no legal standing having been merely imposed by the PCGG and that the twenty (20) shares owned by him personally cannot fairly and adequately represent the interest of the minority. Ruling: The requisites of a derivative suit are: 1. the party bringing the suit should be a stockholder as of the time of the act or transactions complained of, the number of shares not being material; 2. exhaustion of intra-corporate remedies (has made a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his plea); and 3. the cause of action actually devolves on the corporation and not to the particular stockholder bringing the suit. The bona fide ownership by a stockholder in his own right suffices to invest him with the standing to bring a derivative suit for the benefit of the corporation. The number of his shares is immaterial since he is not suing in his own behalf, or for the protection or vindication of his own particular right, or the redress of a wrong committed against him individually but in behalf and for the benefit of the corporation. It is undisputed that apart from the qualifying shares given to him by the PCGG, he owns 20 shares in his own right, as regards which he cannot from any aspect be deemed to be beholden to the PCGG, his ownership of his shares being precisely what he invokes as the source of his authority to bring the derivative suit. Furthermore, it was not necessary for de los Angeles to be a director in order to bring a derivative suit. De los Angeles complaint is confined to the issue of the validity of the assumption by the corporation of the indebtedness of Neptunia, allegedly for the benefit of certain of its officers and stockholders and is distinct from the ownership of the sequestered shares. The dispute concerns the agent of several persons) for the purchase of the shares held by the former. Actually the buyer of the shares was Neptunia Corporation, a foreign corporation and wholly-owned subsidiary of another subsidiary wholly owned by San Miguel Corporation. Neptunia paid the downpayment from the proceeds of certain loans. PCGG then sequestered the shares subject of the sale so San Miguel suspended all the other installments of the price to the sellers. The 14 corporations then sued for recission and damages. Meanwhile, PCGG directed San Miguel to issue qualifying shares acts of the board of directors claimed to amount to fraud and misrepresentation which may be detrimental to the interest of the stockholders, or is one arising out of intra-corporate relations between and among stockholders, or between any or all of them and the corporation of which they are stockholders (meaning that the cause of action still belongs to the corporation). Class notes: In effect the result of the acts of the directors of San Miguel is the use of corporate assets for the benefit of certain directors/stockholders to the extent that the corporation will not be able to devote its assets in acquiring its own shares. But even without the presence of a selfinterested director, still the transaction would result to a premature retirement of the shares (meaning a reduction of capital). In a derivative suit, the number of shares of a suing stockholder is immaterial. Even assuming that the suing stockholder had only qualifying shares, the law requires only one share without any distinction or qualification. besides, it is precisely within the scope of PCGGs duty to preserve the assets of the corporation.

Hahn v. Court of Appeals [266 SCRA 537 (January 22, 1997)] Jurisdiction Over Foreign Corporation Doing Business in the Philippines Without a License Facts: Petitioner is a Filipino citizen doing business under the name of Hahn-Manila. Private respondent BMW is a non-resident corporation incorporated in Germany. Petitioner executed in favor of private respondent a Deed of Assignment with a Special Power of Attorney which constituted petitioner as the exclusive dealer of private respondent as long as the assignment of its trademark and device subsisted. However, no formal contract was drawn between the two parties. Thereafter, petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW cars and products to Columbia Motors Corp. (CMC). BMW expressed dissatisfaction with various aspect of petitioners business but nonetheless also expressed willingness to continue business relations with petitioner on

2
the basis of a standard BMW contract otherwise, if said offer was unacceptable to petitioner then BMW would terminate petitioners exclusive dealership. Petitioner refused BMWs offer in which case BMW withdrew its alternative offer and terminated petitioners exclusive dealership. Petitioner therefore filed an action for specific performance and damages against BMW to compel it to continue the exclusive dealership. BMW moved to dismiss the case contending that the trial court did not acquire jurisdiction over it through the service of summons on DTI because BMW is a foreign corporation and is not doing business in the Philippines. The trial court deferred the resolution of the motion for dismissal until after trial on the merits for the reason that the grounds advanced by BMW did not seem indubitable. BMW appealed said order to the CA. The CA resolved that BMW was not doing business in the country and therefore jurisdiction over it could not have been acquired through the service of summons on DTI and it dismissed the petition. Issue: W/N BMW is doing business in the Philippines so as to enable the court to acquire jurisdiction over it through the service of summons on the DTI. HeId: RA 7042 enumerates what acts are considered as doing business. Section 3(d) enumerating such acts includes the phrase appointing representatives or distributors in the Philippines but not when the representative or distributor transacts business in his own name for his own account. In the case at bar, petitioner is private respondent BMWs agent and not merely a broker. The record reveals that private respondent exercised control over petitioners activities as a dealer and made regular inspections of petitioners premises to enforce its standards. Since BMW is considered as doing business in the Philippines, the trial court validly acquired jurisdiction over it by virtue of the service of summons on the DTI. Furthermore, it is now settled that, for purposes of having summons served on a foreign corporation in accordance with the Rules of Court, it is sufficient that it be alleged in the complaint that the foreign corporation is doing business in the Philippines. The court need not go beyond the allegations in the complaint in order to determine whether or not it acquired jurisdiction. Such determination that the foreign corporation is doing business in the Philippines is only tentative and only for the purpose of enabling the court to acquire jurisdiction. A contrary determination may be made based on the courts findings or evidence presented. insurance companies and the international insurance broker C.J. Boatright, acting as agent for respondent Worldwide Surety and Insurance Company. Inasmuch as petitioners are not engaged in business in the Philippines with no offices, places of business or agents in the Philippines, the reinsurance treaties having been entered abroad, service of summons upon motion of respondent Yupangco, was made upon petitioners through the Office of the Insurance Commissioner. Petitioners, by counsel on special appearance, seasonably filed motions to dismiss disputing the jurisdiction of respondent Court and the extra-territorial service of summons. Respondent Yupangco filed its opposition to the motions to dismiss, petitioners filed their reply, and respondent Yupangco filed its rejoinder. In an Order dated April 30, 1990, respondent Court denied the motions to dismiss and directed petitioners to file their answer. On May 29, 1990, petitioners filed their notice of appeal. In an order dated June 4, 1990, respondent court denied due course to the appeal. In a Petition for Certiorari filed with the Court of Appeals, petitioners submitted that respondent Court has no jurisdiction over them, being all foreign corporations not doing business in the Philippines with no office, place of business or agents in the Philippines. The remedy of Certiorari was resorted to by the petitioners on the premise that if petitioners had filed an answer to the complaint as ordered by the respondent court, they would risk, abandoning the issue of jurisdiction. Moreover, extra-territorial service of summons on petitioners is null and void because the complaint for collection is not one affecting plaintiffs status and not relating to property within the Philippines. Issue: Whether Ruling: We are not persuaded by the position taken by the private respondent. In Facilities Management case, the principal issue presented was whether the petitioner had been doing business in the Philippines, so that service of summons upon its agent as under Section 14, Rule 14 of the Rules of Court can be made in order that the Court of First Instance could assume jurisdiction over it. The Court ruled that the petitioner was doing business in the Philippines, and that by serving summons upon its resident agent, the trial court had effectively acquired jurisdiction. In that case, the court made no prescription as the absolute suability of foreign corporations not

or

not

petitioners

are

doing

business

in

the

country

AVON INSURANCE PLC vs. CA Facts: Respondent Yupangco Cotton Mills filed a complaint against several foreign reinsurance companies (among which are petitioners) to collect their alleged percentage liability under contract treaties between the foreign

3
doing business in the country, but merely discounts the absolute exemption of such foreign corporations from liabilities particularly arising from acts done against a person or persons in the Philippines. When a defendant voluntarily appears, he is deemed to have submitted himself to the jurisdiction of the court. This is not, however, always the case. Admittedly, and without subjecting himself to the court's jurisdiction, the defendant in an action can, by special appearance object to the court's assumption on the ground of lack of jurisdiction. If he so wishes to assert this defense, he must do so seasonably by motion for the purpose of objecting to the jurisdiction of the court, otherwise, he shall be deemed to have submitted himself to that jurisdiction. In the case of foreign corporations, it has been held that they may seek relief against the wrongful assumption of jurisdiction by local courts. In Time, Inc. vs. Reyes, it was held that the action of a court in refusing to rule or deferring its ruling on a motion to dismiss for lack or excess of jurisdiction is correctable by a writ of prohibition or certiorari sued out in the appellate court even before trial on the merits is had. The same remedy is available should the motion to dismiss be denied, and the court, over the foreign corporation's objections, threatens to impose its jurisdiction upon the same. If the defendant, besides setting up in a motion to dismiss his objection to the jurisdiction of the court, alleges at the same time any other ground for dismissing the action, or seeks an affirmative relief in the motion, he is deemed to have submitted himself to the jurisdiction of the court. In this instance, however, the petitioners from the time they filed their motions to dismiss, their submissions have been consistently and unfailingly to object to the trial court's assumption of jurisdiction, anchored on the fact that they are all foreign corporations not doing business in the Philippines. As we have consistently held, if the appearance of a party in a suit is precisely to question the jurisdiction of the said tribunal over the person of the defendant, then this appearance is not equivalent to service of summons, nor does it constitute acquiescence to the court's jurisdiction. Thus, it cannot be argued that the petitioners had abandoned their objections to the jurisdiction of the court, as their motions to dismiss in the trial court, and all their subsequent posturing, were all in protest of the private respondent's insistence on holding them to answer a charge in a forum where they believe they are not subject to. Clearly, to continue the proceedings in a case such as those before Us would just "be useless and a waste of time.

As we have found, there is no showing that petitioners had performed any act in the country that would place it within the sphere of the court's jurisdiction. A general allegation standing alone, that a party is doing business in the Philippines does not make it so. A conclusion of fact or law cannot be derived from the unsubstantiated assertions of parties, notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Court would be guilty of sorcery; extracting substance out of nothingness. In addition, the assertion that a resident of the Philippines will be inconvenienced by an out-of-town suit against a foreign entity, is irrelevant and unavailing to sustain the continuance of a local action, for jurisdiction is not dependent upon the convenience or inconvenience of a party. It is also argued that having filed a motion to dismiss in the proceedings before the trial court, petitioners have thus acquiesced to the court's jurisdiction, and they cannot maintain the contrary at this juncture. This argument is at the most, flimsy. In civil cases, jurisdiction over the person of the defendant is acquired either by his voluntary appearance in court and his submission to its authority or by service of summons. Fundamentally, the service of summons is intended to give official notice to the defendant or respondent that an action has been commenced against it. The defendant or respondent is thus put on guard as to the demands of the plaintiff as stated in the complaint. The service of summons upon the defendant becomes an important element in the operation of a court's jurisdiction upon a party to a suit, as service of summons upon the defendant is the means by which the court acquires jurisdiction over his person. Without service of summons, or when summons are improperly made, both the trial and the judgment, being in violation of due process, are null and void, unless the defendant waives the service of summons by voluntarily appearing and answering the suit.

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NORTHWEST ORIENT AIRLINES, INC. petitioner, vs. COURT OF APPEALS and C.F. SHARP & COMPANY INC., respondents. "A foreign judgment is presumed to be valid and binding in the country from which it comes, until the contrary is shown. It is also proper to presume the regularity of the proceedings and the giving of due notice therein. Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in personam of a tribunal of a foreign country having jurisdiction to pronounce the same is presumptive evidence of a right as between the parties and their successors-in-interest by a subsequent title. The judgment may, however, be assailed by evidence of want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact. Also, under Section 3 of Rule 131, a court, whether of the Philippines or elsewhere, enjoys the presumption that it was acting in the lawful exercise of jurisdiction and has regularly performed its official duty. Consequently, the party attacking a foreign judgment has the burden of overcoming the presumption of its validity. Being the party challenging the judgment rendered by the Japanese court, SHARP had the duty to demonstrate the invalidity of such judgment. In an attempt to discharge that burden, it contends that the extraterritorial service of summons effected as its home office in the Philippines was not only ineffectual but also void, and the Japanese Court did not, therefore, acquire jurisdiction over it. It is settled that matters of remedy and procedure such as those relating to the service of process upon a defendant are governed by the lex fori or the internal law of the forum. In this case, it is the procedural law of Japan where the judgment was rendered that determines the validity of the extraterritorial service'of process on SHARP. As to what this law is is a question of fact, not of law. It may not be taken judicial notice of and must be pleaded and proved like any other fact. Sections 24 and 25, Rule 132 of the Rules of Court provide that it may be evidenced by an official publication or by a duly attested or authenticated copy thereof. It was then incumbent upon SHARP to present evidence as to what that Japanese procedural law is and to show taat under it, the assailed extraterritorial service is invalid. It did not. Accordingly, the presumption of validity and regularity of the service of summons and the decision thereafter rendered by the Japanese court must stand. Alternatively, in the light of the absence of proof regarding Japanese law, the presumption of identity or similarity or the so-called processual

Facts: [In 1974, an International Passenger Sales Agency Agreement was entered into by plaintiff Northwest Orient Airlines (Northwest) and defendant C.F. Sharp & Co. (Sharp), through its Japan branch, whereby Northwest authorized Sharp to sell the former's airlines tickets. Sharp failed to remit the proceeds of the ticket sales it made on behalf of Northwest under the agreement which led the latter to sue in Tokyo for collection of the unremitted amount, with claim for damages. The Tokyo District Court of Japan issued a writ of summons against Sharp at its office in Yokohama, Japan but the bailiff failed twice to serve the writs. Finally, the Tokyo District Court decided to have the writs of summons served at Sharp's head office in Manila. Sharp accepted the writs but despite such receipt, it failed to appear at the hearings. The District Court proceeded to hear the complaint and rendered judgment ordering Sharp to pay Northwest the sum of 83,158,195 Yen plus damages. Sharp failed to appeal and the judgment became final and executory. Northwest failed to execute the decision in Japan, hence, it filed a suit for enforcement of the judgment before the Regional Trial Court of Manila. Sharp filed its answer averring that the judgment of the Japanese court is null and void and unenforceable in this jurisdiction having been rendered without due and proper notice to Sharp The case for enforcement of judgment was tried on the merits. Sharp filed a Motion for Judgment on a Demurrer to Evidence. The trial court granted the demurrer motion, holding that the foreign judgment in the Japanese court sought to be enforced is null and void for want of jurisdiction over the person of the defendant. Northwest appealed but the Court of Appeals sustained the trial court, holding that the process of the court has no extraterritorial effect and no jurisdiction was acquired over the person of the defendant by serving him beyond the boundaries of the state. Hence, this appeal by Northwest.] RULING

5
presumpcion may be invoked. Applying it, the Japanese law on the matter is presumed to be similar with the Philippine law on service of summons on a private foreign corporation doing business ir, the Philippines. Section 14 of the Rules of Court provides that if the defendant is a foreign corporation doing business in the Philippines, service may be made: 1) on its resident agent designated in accordance with law for that purpose, or 2) if there is no such resident agent, on the government official designated by law to that effect, or 3) on any of its officers or agents within the Philippines. If the foreign corporation has designated an agent to receive summons, the designation is exclusive, and service of summons is without force and gives the court no jurisdiction unless made upon him. Where the corporation has no such great agent, service shall be made on the government official designated by law, to wit: (a) the Insurance Commissioner, in the case of a foreign insurance company; (b) the Superintendent of Banks, in the case of a foreign banking corporation; and (c) the Securities and Exchange Commission, in the case of other foreign corporations duly licensed to do business in the Philippines. Whenever service of process is so made, the government office or official served shall transmit by mail a copy of the summons or other legal process to the corporation at its home or principal office. The sending of such copy is a necessary part of the service. Nowhere in its pleadings did SHARP profess to having had a resident agent authorized to receive court processes in Japan. This silence could only mean, or at least create an impression, that it had none. Hence, service on the designated government official or any of its officers or agents in Japan could be availed of. As found by the Court of Appeals, it was the Tokyo District Court which ordered that summons for SHARP be served at its head office in the Philippines after the two attempts of service had failed. The Tokyo District Court requested the Supreme Court of Japan to cause the delivery of the summons and other legal documents to the Philippines. Acting on that request, the Supreme Court of Japan sent the summons together with the other legal documents to the Ministry of Foreign Affairs of Japan, which in turn, forwarded the same to the Japanese Embassy in Manila. Thereafter, the court processes were delivered to the Ministry (now Department) of Foreign Affairs of the Philippines then to the Executive Judge of the Court of First Instance (now Regional Trial Court) of Manila, who forthwith ordered Deputy Sheriff Rolando Balingit to serve the same on SHARP at its principal office in Manila. This service is equivalent to service on the proper government official under Section 14, Rule 14 of the Rules of Court, in relation to Section 128 of the Corporation Code. Hence, SHARP's contention that such manner of service is not valid under Philippine law holds no water. Inasmuch as SHARP was admittedly doing business in Japan through its four registered branches at the time the collection suit against it was filed, then in the light of the processual presumption, SHARP may be deemed a resident of JAPAN, and, as such, was amenable to the jurisdiction of the courts therein and may be deemed to have assented to the said courts' lawful methods of serving process. Accordingly, the extraterritorial service of summons on it by the Japanese Court was valid not only under the processual presumption but also because of the presumption of regularity of performance of official duty .

[G.R. No. 99398. January 26, 2001]

CHESTER BABST, petitioner, vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS, ELIZALDE STEEL CONSOLIDATED, INC., and PACIFIC MULTI-COMMERCIAL CORPORATION, respondents.

[G.R. No. 104625. January 26, 2001]

ELIZALDE STEEL CONSOLIDATED, INC., petitioner, vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS, PACIFIC MULTI-COMMERCIAL CORPORATION and CHESTER BABST, respondents.

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DECISION YNARES-SANTIAGO, J.: These consolidated petitions seek the review of the Decision dated April 29, 1991 of the Court of Appeals in CA-G.R. CV No. 17282[1] entitled, Bank of the Philippine Islands, Plaintiff-Appellee versus Elizalde Steel Consolidated, Inc., Pacific Multi-Commercial Corporation, and Chester G. Babst, DefendantsAppellants. The complaint was commenced principally to enforce payment of a promissory note and three domestic letters of credit which Elizalde Steel Consolidated, Inc. (ELISCON) executed and opened with the Commercial Bank and Trust Company (CBTC). On June 8, 1973, ELISCON obtained from CBTC a loan in the amount of P8,015,900.84, with interest at the rate of 14% per annum, evidenced by a promissory note.[2] ELISCON defaulted in its payments, leaving an outstanding indebtedness in the amount of P2,795,240.67 as of October 31, 1982. [3] The letters of credit, on the other hand, were opened for ELISCON by CBTC using the credit facilities of Pacific Multi-Commercial Corporation (MULTI) with the said bank, pursuant to the Resolution of the Board of Directors of MULTI adopted on August 31, 1977 which reads: WHEREAS, at least 90% of the Companys gross sales is generated by the sale of tin-plates manufactured by Elizalde Steel Consolidated, Inc.; WHEREAS, it is to the best interests of the Company to continue handling said tinplate line; WHEREAS, Elizalde Steel Consolidated, Inc. has requested the assistance of the Company in obtaining credit facilities to enable it to maintain the present level of its tin-plate manufacturing output and the Company is willing to extend said requested assistance; NOW, THEREFORE, for and in consideration of the foregoing premises --BE IT RESOLVED AS IT IS HEREBY RESOLVED, That the PRESIDENT & GENERAL MANAGER, ANTONIO ROXAS CHUA, be, as he is hereby empowered to allow and authorize ELIZALDE STEEL CONSOLIDATED, INC. to avail and make use of the Credit Line of PACIFIC MULTI-COMMERCIAL CORPORATION with the COMMERCIAL BANK & TRUST COMPANY OF THE PHILIPPINES, Makati, Metro Manila; RESOLVED, FURTHER, That the Pacific Multi-Commercial Corporation guarantee, as it does hereby guarantee, solidarily, the payment of the corresponding Letters of Credit upon maturity of the same; RESOLVED, FINALLY, That copies of this resolution be furnished the Commercial Bank & Trust Company of the Philippines, Makati, Metro Manila, for their information.[4] Subsequently, on September 26, 1978, Antonio Roxas Chua and Chester G. Babst executed a Continuing Suretyship,[5] whereby they bound themselves jointly and severally liable to pay any existing indebtedness of MULTI to CBTC to the extent of P8,000,000.00 each. Sometime in October 1978, CBTC opened for ELISCON in favor of National Steel Corporation three (3) domestic letters of credit in the amounts of P1,946,805.73,[6] P1,702,869.32[7] and P200,307.72,[8] respectively, which ELISCON used to purchase tin black plates from National Steel Corporation. ELISCON defaulted in its obligation to pay the amounts of the letters of credit, leaving an outstanding account, as of October 31, 1982, in the total amount of P3,963,372.08. [9] On December 22, 1980, the Bank of the Philippine Islands (BPI) and CBTC entered into a merger, wherein BPI, as the surviving corporation, acquired all the assets and assumed all the liabilities of CBTC.[10] Meanwhile, ELISCON encountered financial difficulties and became heavily indebted to the Development Bank of the Philippines (DBP). In order to settle its obligations, ELISCON proposed to convey to DBP by way of dacion en pago all its fixed assets mortgaged with DBP, as payment for its total indebtedness in the amount of P201,181,833.16. On December 28, 1978, ELISCON and DBP executed a Deed of Cession of Property in Payment of Debt.[11] In June 1981, ELISCON called its creditors to a meeting to announce the takeover by DBP of its assets. In October 1981, DBP formally took over the assets of ELISCON, including its indebtedness to BPI. Thereafter, DBP proposed formulas for the settlement of all of ELISCONs obligations to its creditors, but BPI expressly rejected the formula submitted to it for not being acceptable.[12] Consequently, on January 17, 1983, BPI, as successor-in-interest of CBTC, instituted with the Regional Trial Court of Makati, Branch 147, a complaint [13] for sum of money against ELISCON, MULTI and Babst, which was docketed as Civil Case No. 49226. ELISCON, in its Answer,[14] argued that the complaint was premature since DBP had made serious efforts to settle its obligations with BPI.

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Babst also filed his Answer alleging that he signed the Continuing Suretyship on the understanding that it covers only obligations which MULTI incurred solely for its benefit and not for any third party liability, and he had no knowledge or information of any transaction between MULTI and ELISCON.[15] MULTI, for its part, denied knowledge of the merger between BPI and CBTC, and averred that the guaranty under its board resolution did not cover purchases made by ELISCON in the form of trust receipts. It set up a cross-claim against ELISCON alleging that the latter should be held liable for any judgment which the court may render against it in favor of BPI.[16] On February 20, 1987, the trial court rendered its Decision, [17] the dispositive portion of which reads: WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor of the plaintiff and against all the defendants: 1) Ordering defendant ELISCON to pay the plaintiff the amount of P2,795,240.67 due on the promissory note, Annex A of the Complaint as of 31 October 1982 and the amount of P3,963,372.08 due on the three (3) domestic letters of credit, also as of 31 October 1982; 2) Ordering defendant ELISCON to pay the plaintiff interests and related charges on the principal of said promissory note of P2,102,232.02 at the rates provided in said note from and after 31 October 1982 until full payment thereof, and on the principal of the three (3) domestic letters of credit of P3,564,349.25 interests and related charges at the rates provided in said letters of credit, from and after 31 October 1982 until full payment; 3) Ordering defendant ELISCON to pay interests at the legal rate on all interests and related charges but unpaid as of the filing of this complaint, until full payment thereof; 4) Ordering defendant ELISCON to pay attorneys fees equivalent to 10% of the total amount due under the preceding paragraphs; 5) Ordering defendants Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally with defendant ELISCON, the total sum of P3,963,372.08 due on the three (3) domestic letters of credit as of 31 October 1982 with interests and related charges on the principal amount of P3,963,372.08 at the rates provided in said letters of credit from 30 October 1982 until fully paid, but to the extent of not more than P8,000,000.00 in the case of defendant Chester Babst; 6) Ordering defendant Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally plaintiff interests at the legal rate on all interests and related charges already accrued but unpaid on said three (3) domestic letters of credit as of the date of the filing of this Complaint until full payment thereof; 7) Ordering defendant Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally, attorneys fees of not less than 10% of the total amount due under paragraphs 5 and 6 hereof. With costs. SO ORDERED. In due time, ELISCON, MULTI and Babst filed their respective notices of appeal.[18] On April 29, 1991, the Court of Appeals rendered the appealed Decision as follows: WHEREFORE, the judgment appealed from is MODIFIED, to now read (with the underlining to show the principal changes from the decision of the lower court) thus: 1) Ordering appellant ELISCON to pay the appellee BPI the amount of P2,731,005.60 due on the promissory note, Annex A of the Complaint as of 31 October 1982 and the amount of P3,963,372.08 due on the three (3) domestic letters of credit, also as of 31 October 1982; 2) Ordering appellant ELISCON to pay the appellee BPI interests and related charges on the principal of said promissory note of P2,102,232.02 at the rates provided in said note from and after 31 October 1982 until full payment thereof, and on the principal of the three (3) domestic letters of credit of P3,564,349.25 interests and related charges at the rates provided in said letters of credit, from and after 31 October 1982 until full payment; 3) Ordering appellant ELISCON to pay appellee BPI interest at the legal rate on all interests and related charges but unpaid as of the filing of this complaint, until full payment thereof; 4) Ordering appellant Pacific Multi-Commercial Corporation and appellant Chester G. Babst to pay appellee BPI, jointly and severally with appellant ELISCON, the total sum of P3,963,372.08 due on the three (3) domestic letters of credit as of 31 October 1982 with interest and related charges on the principal amount of P3,963,372.08 at the rates provided in said letters of credit from 30 October 1982 until fully paid, but to the extent of not more than P8,000,000.00 in the case of defendant Chester Babst;

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5) Ordering appellant Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally, appellee BPI interests at the legal rate on all interests and related charges already accrued but unpaid on said three (3) domestic letters of credit as of the date of the filing of this Complaint until full payment thereof and the plaintiffs lawyers fees in the nominal amount of P200,000.00; 6) Ordering appellant ELISCON to reimburse appellants Pacific Multi-Commercial Corporation and Chester Babst whatever amount they shall have paid in said Eliscons behalf particularly referring to the three (3) letters of credit as of 31 October 1982 and other related charges. No costs. SO ORDERED.[19] ELISCON filed a Motion for Reconsideration of the Decision of the Court of Appeals which was, however, denied in a Resolution dated March 9, 1992.[20] Subsequently, ELISCON filed a petition for review on certiorari, docketed as G.R. No. 104625, on the following grounds: A. THE BANK OF THE PHILIPPINE ISLANDS IS NOT ENTITLED TO RECOVER FROM PETITIONER ELISCON THE LATTERS OBLIGATION WITH COMMERCIAL BANK AND TRUST COMPANY (CBTC) B. THERE WAS A VALID NOVATION OF THE CONTRACT BETWEEN ELISCON AND BPI THERE BEING A PRIOR CONSENT TO AND APPROVAL BY BPI OF THE SUBSTITUTION BY DBP AS DEBTOR IN LIEU OF THE ORIGINAL DEBTOR, ELISCON, THEREBY RELEASING ELISCON FROM ITS OBLIGATION TO BPI. C. PACIFIC MULTI COMMERCIAL CORPORATION AND CHESTER BABST CANNOT LAWFULLY RECOVER FROM ELISCON WHATEVER AMOUNT THEY MAY BE REQUIRED TO PAY TO BPI AS SURETIES OF ELISCONS OBLIGATION TO BPI; THEIR CAUSE OF ACTION MUST BE DIRECTED AGAINST DBP AS THE NEWLY SUBSTITUTED DEBTOR IN PLACE OF ELISCON. E. PETITIONER ELISCON SHOULD NOT BE HELD LIABLE TO PAY RESPONDENT BPI THE AMOUNTS STATED IN THE DISPOSITIVE PORTION OF RESPONDENT COURT OF APPEALS DECISION.[21] BPI filed its Comment[22] raising the following arguments, to wit: 1. Respondent BPI is legally entitled to recover from ELISCON, MULTI and Babst the past due obligations with CBTC prior to the merger of BPI with CBTC. 2. BPI did not give its consent to the DBP take-over of ELISCON. Hence, no valid novation has been effected. 3. Express consent of creditor to substitution should be recorded in the books. 4. Petitioner Chester G. Babst and respondent MULTI are jointly and solidarily liable to BPI for the unpaid letters of credit of ELISCON. 5. The question of the liability of ELISCON to BPI has been clearly established. 6. Since MULTI and Chester G. Babst are guarantors of the debts incurred by ELISCON, they may recover from the latter what they may have paid for on account of that guaranty. Chester Babst filed a Comment with Manifestation,[23] wherein he contends that the suretyship agreement he executed with Antonio Roxas Chua was in favor of MULTI; and that there is nothing therein which authorizes MULTI, in turn, to guarantee the obligations of ELISCON. In its Comment,[24] MULTI maintained that inasmuch as BPI had full knowledge of the purpose of the meeting in June 1981, wherein the takeover by DBP of ELISCON was announced, it was incumbent upon the said bank to formally communicate its objection to the assumption of ELISCONs liabilities by DBP in answer to the call for the meeting. Moreover, there was no showing that the availment by ELISCON of MULTIs credit facilities with CBTC, which was supposedly guaranteed by Antonio Roxas Chua, was indeed authorized by the latter pursuant to the resolution of the Board of Directors of MULTI. In compliance with this Courts Resolution dated March 17, 1993, [25] the parties submitted their respective memoranda. Meanwhile, in a petition for review filed with this Court, which was docketed as G.R. No. 99398, Chester Babst alleged that the Court of Appeals acted without jurisdiction and/or with grave abuse of discretion when:

D. THE DBP TAKEOVER OF THE ENTIRE ELISCON AMOUNTED TO AN ACT OF GOVERNMENT WHICH WAS A FORTUITOUS EVENT EXCULPATING ELISCON FROM FURTHER LIABILITIES TO RESPONDENT BPI.

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1. IT AFFIRMED THE LOWER COURTS HOLDING THAT THERE WAS NO NOVATION INASMUCH AS RESPONDENT BANK OF THE PHILIPPINE ISLANDS (OR BPI) HAD PRIOR CONSENT TO AND APPROVAL OF THE SUBSTITUTION AS DEBTOR BY THE DEVELOPMENT BANK OF THE PHILIPPINES (OR DBP) IN THE PLACE OF ELIZALDE STEEL CONSOLIDATED, INC. (OR ELISCON) IN THE LATTERS OBLIGATION TO BPI. 2. IT CONFIRMED THE LOWER COURTS CONCLUSION THAT THERE WAS NO IMPLIED CONSENT OF THE CREDITOR BANK OF THE PHILIPPINE ISLANDS TO THE SUBSTITUTION BY DEVELOPMENT BANK OF THE PHILIPPINES OF THE ORIGINAL DEBTOR ELIZALDE STEEL CONSOLIDATED, INC. 3. IT AFFIRMED THE LOWER COURTS FINDING OF LACK OF MERIT OF THE CONTENTION OF ELISCON THAT THE FAILURE OF THE OFFICER OF BPI, WHO WAS PRESENT DURING THE MEETING OF ELISCONS CREDITORS IN JUNE 1981 TO VOICE HIS OBJECTION TO THE ANNOUNCED TAKEOVER BY THE DBP OF THE ASSETS OF ELISCON AND ASSUMPTION OF ITS LIABILITIES, CONSTITUTED AN IMPLIED CONSENT TO THE ASSUMPTION BY DBP OF THE OBLIGATIONS OF ELISCON TO BPI. 4. IN NOT TAKING JUDICIAL NOTICE THAT THE DBP TAKEOVER OF THE ENTIRE ELISCON WAS AN ACT OF GOVERNMENT CONSTITUTING A FORTUITOUS EVENT EXCULPATING ELISCON FROM ANY LIABILITY TO BPI. 5. IN NOT FINDING THAT THE DACION EN PAGO BETWEEN DBP AND BPI RELIEVED ELISCON, MULTI AND BABST OF ANY LIABILITY TO BPI. 6. IN FINDING THAT MULTI AND BABST BOUND THEMSELVES SOLIDARILY WITH ELISCON WITH RESPECT TO THE OBLIGATION INVOLVED HERE. 7. IN RENDERING JUDGMENT IN FAVOR OF BPI AND AGAINST ELISCON ORDERING THE LATTER TO PAY THE AMOUNTS STATED IN THE DISPOSITIVE PORTION OF THE DECISION; AND ORDERING PETITIONER AND MULTI TO PAY SAID AMOUNTS JOINTLY AND SEVERALLY WITH ELISCON.[26] Petitioner Babst alleged that DBP sold all of ELISCONs assets to the National Development Company, for the latter to take over and continue the operation of its business. On September 11, 1981, the Board of Governors of the DBP adopted Resolution No. 2817 which states that DBP shall enter into a contractual arrangement with NDC for the latter to pay ELISCONs creditors, including BPI in the amount of P4,015,534.54. This was followed by a Memorandum of Agreement executed on May 4, 1983 by and between DBP and NDC, wherein they stipulated, inter alia, that NDC shall pay to ELISCONs creditors, through DBP, the amount of P299,524,700.00. Among the creditors mentioned in the agreement was BPI, with a listed credit of P4,015,534.54. Furthermore, petitioner Babst averred that the assets of ELISCON which were acquired by the DBP, and later transferred to the NDC, were placed under the Asset Privatization Trust pursuant to Proclamation No. 50, issued by then President Corazon C. Aquino on December 8, 1986. In its Comment,[27] BPI countered that by virtue of its merger with CBTC, it acquired all the latters rights and interest including all receivables; that in order to effect a valid novation by substitution of debtors, the consent of the creditor must be express; that in addition, the consent of BPI must appear in its books, it being a private corporation; that BPI intentionally did not consent to the assumption by DBP of the obligations of ELISCON because it wanted to preserve intact its causes of action and legal recourse against Pacific Multi-Commercial Corporation and Babst as sureties of ELISCON and not of DBP; that MULTI expressly bound itself solidarily for ELISCONs obligations to CBTC in its Resolution wherein it allowed the latter to use its credit facilities; and that the suretyship agreement executed by Babst does not exclude liabilities incurred by MULTI on behalf of third parties, such as ELISCON. ELISCON likewise filed a Comment,[28] wherein it manifested that of the seven errors raised by Babst in his petition, six are arguments which ELISCON itself raised in its previous pleadings. It is only the sixth assigned error --- that the Court of Appeals erred in finding that MULTI and Babst bound themselves solidarily with ELISCON --- that ELISCON takes exception to. More particularly, ELISCON pointed out the contradictory positions taken by Babst in admitting that he bound himself to pay the indebtedness of MULTI, while at the same time completely disavowing and denying any such obligation. It stressed that should MULTI or Babst be finally adjudged liable under the suretyship agreement, they cannot lawfully recover from ELISCON, but from the DBP which had been substituted as the new debtor. MULTI filed its Comment,[29] admitting the correctness of the petition and adopting the Comment of ELISCON insofar as it is not inconsistent with the positions of Babst and MULTI. At the outset, the preliminary issue of BPIs right of action must first be addressed. ELISCON and MULTI assail BPIs legal capacity to recover their obligation to CBTC. However, there is no question that there was a valid merger

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between BPI and CBTC. It is settled that in the merger of two existing corporations, one of the corporations survives and continues the business, while the other is dissolved and all its rights, properties and liabilities are acquired by the surviving corporation.[30] Hence, BPI has a right to institute the case a quo. We now come to the primordial issue in this case whether or not BPI consented to the assumption by DBP of the obligations of ELISCON. Article 1293 of the Civil Code provides: Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237. BPI contends that in order to have a valid novation, there must be an express consent of the creditor. In the case of Testate Estate of Mota, et al. v. Serra,[31] this Court held: It should be noted that in order to give novation its legal effect, the law requires that the creditor should consent to the substitution of a new debtor. This consent must be given expressly for the reason that, since novation extinguishes the personality of the first debtor who is to be substituted by a new one, it implies on the part of the creditor a waiver of the right that he had before the novation, which waiver must be express under the principle of renuntiatio non prsumitur, recognized by the law in declaring that a waiver of right may not be performed [should read: presumed] unless the will to waive is indisputably shown by him who holds the right.[32] The import of the foregoing ruling, however, was explained and clarified by this Court in the later case of Asia Banking Corporation v. Elser[33] in this wise: The aforecited article 1205 [now 1293] of the Civil Code does not state that the creditors consent to the substitution of the new debtor for the old be express, or given at the time of the substitution, and the Supreme Court of Spain, in its judgment of June 16, 1908, construing said article, laid down the doctrine that article 1205 of the Civil Code does not mean or require that the creditors consent to the change of debtors must be given simultaneously with the debtors consent to the substitution, its evident purpose being to preserve the creditors full right, it is sufficient that the latters consent be given at any time and in any form whatever, while the agreement of the debtors subsists. The same rule is stated in the Enciclopedia Jurdica Espaola, volume 23, page 503, which reads: The rule that this kind of novation, like all others, must be express, is not absolute; for the existence of the consent may well be inferred from the acts of the creditor, since volition may as well be expressed by deeds as by words. The understanding between Henry W. Elser and the principal director of Yangco, Rosenstock & Co., Inc., with respect to Luis R. Yangcos stock in said corporation, and the acts of the board of directors after Henry W. Elser had acquired said shares, in substituting the latter for Luis R. Yangco, are a clear and unmistakable expression of its consent. When this court said in the case of Estate of Mota vs. Serra (47 Phil., 464), that the creditors express consent is necessary in order that there may be a novation of a contract by the substitution of debtors, it did not wish to convey the impression that the word express was to be given an unqualified meaning, as indicated in the authorities or cases, both Spanish and American, cited in said decision.[34]