Topic: Novation, under Art 1293, to be valid, must be done with the consent of the creditor.

Title: Mindanao Savings and Loan Association, Inc. (MSLAI) vs Willkom Facts: - The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan Association, Inc. (DSLAI) are entities duly registered with the Securities and Exchange Commission, primarily engaged in the business of granting loans and receiving deposits from the general public, and treated as banks. - 1985, FISLAI and DSLAI entered into a merger, DSLAI being the surviving corporation. The articles of merger were not registered with the SEC due to incomplete documentation. DSLAI changed its corporate name to MSLAI. - May 26, 1986, The Board of Directors of FSLAI approved the assignment of assets in favor of DSLAI, which assumed FISLAI's liabilities (the novation in question) - MSLAI's business failed and the Monetary Board of the Central Bank of the Philippines ordered its closure. The Monetary Board found that MSLAI was insolvent and to continue business would involve probable loss to its depositors and creditors. The Monetary Board ordered the liquidation of MSLAI with PDIC as its liquidator. - Prior to MSLAI's closure, Uy filed an action for collection of sum of money against FISLAI. RTC rendered a decision in favor of Uy and ordered defendants (including FISLAI) to pay the sum of P136,801.70 plus interest, 25% attorney's fees and the costs of suit. CA modified the decision by ordering the third party defendant to reimburse the payments that would be made by defendants. - April 28, 1993, sheriff Bantuas levied on 6 parcels of land of FSLAI in Cagayan de Oro, and during the public auction, Willkom was the highest bidder. A certificate of sale was issued, and was registered with the Register of Deeds. September 20, 1994, Willkom sold one of the parcels of land to Go. - June 14, 1995, MSLAI, represented by PDIC, filed a complaint for the Annulment of the Sale, Cancellation of Title and Reconveyance of the properties, stating that the sale was conducted without notice given to them and PDIC. PDIC came to know about the sale, almost two years after, while liquidating MSLAI's assets. MSLAI stated that the sale was illegal not only due to lack of notice, but also because the assets under liquidation should be deemed in custodia legis and exempt from garnishment, levy, attachment or execution. - Respondents stated that MSLAI had no cause of action; MSLAI is a separate entity from FSLAI, further stating that the merger was unofficial and did not comply with formalities and procedure. - RTC: dismissed the case for a supposed lack of jurisdiction. - CA affirmed the dismissal but stated that accdg. to Associated Bank vs CA, there was no merger between FISLAI and MSLAI for failure to follow procedure for a valid merger, but even if there was a de facto merger, Willkom was an innocent purchaser and had a superior right. The assignment of assets and liabilities was not binding on third parties because it wasn't registered. The validity of the auction sale could not be invalidated by the fact that the sheriff had no authority to conduct the sale. Issues: 1. Whether the merger between FISLAI and DSLAI valid and effective 2. Whether there was novation of the obligation by substituting the person of the debtor

Held: 1. No. A merger does not become effective upon the mere agreement of the corporations. There must be an express provision of law authorizing them. There is a procedure to be followed as stated in the Corporation Code. The board of each corporation draws up a plan of merger and is submitted to stockholders or members for approval. The formal agreement is executed (the articles of merger) and is submitted to the SEC for approval. If approved, the SEC issues a certificate of merger. The merger shall only be effective upon the issuance of the certificate. (An exception would be if a party to a merger is a special corporation governed by its own charter, then a favorable recommendation of the appropriate government agency should first be obtained.) In this case, no certificate was issued and such merger is incomplete without it. The certificate is important because it bears the approval of the SEC and it marks the moment when the consequences of a merger take place. Since there is no valid merger, FISLAI and MSLAI are still considered as two separate corporations. ASs far as third parties are concerned, FISLAI's assets still belongs to them, not MSLAI. 2. No. The assumption by MSLAI of FISLAI's liabilities did not result in novation. "Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor." Novation must always be done with the consent of the creditor as stated in Article 1293 of the Civil Code. In this case, it was not shown that Uy consented to the agreement between FISLAI and MSLAI. MSLAI cannot question the levy, and subsequent sale of the properties of FISLAI. Since novation implies a waiver of right which the creditor had before novation, such waiver must be express. *CA ruling affirmed.