The Supreme Court has ruled that when a corporation alleges it only acquired selected assets and liabilities from another entity through a purchase agreement, the burden of proof lies on the party claiming the corporation assumed all liabilities. Absent the formal offering and admission of the purchase agreement as evidence, courts cannot assume the acquiring corporation’s solidary liability for the negligence of the acquired entity. This decision underscores the importance of presenting concrete evidence to establish the terms of a corporate merger or acquisition and its impact on liabilities to third parties, ensuring that liabilities are not automatically transferred without proper documentation and legal basis.

Merger Mystery: Who Pays for Past Negligence?

The case revolves around a dispute initiated by Rodolfo Dela Cruz against Panasia Banking, Inc. (Panasia) for unauthorized withdrawals from his account. Dela Cruz later amended his complaint to include Bank of Commerce, alleging it had acquired Panasia and thus assumed its liabilities. The central legal question is whether Bank of Commerce is solidarily liable for Panasia’s negligence, given its claim that it only purchased selected assets and liabilities.

The Regional Trial Court (RTC) initially ruled in favor of Dela Cruz, holding both Panasia and Bank of Commerce jointly and severally liable. The RTC reasoned that Bank of Commerce, by taking over Panasia, absorbed all its assets and liabilities. The Court of Appeals (CA) affirmed this decision, emphasizing Bank of Commerce’s failure to formally offer the Purchase and Sale Agreement and Deed of Assignment as evidence, which purportedly defined the scope of the acquired liabilities. The Supreme Court (SC), however, disagreed with the lower courts regarding Bank of Commerce’s liability.

The SC underscored the importance of formally offering evidence in court proceedings. Citing Section 34, Rule 132 of the Rules of Court, the Court stated that “the court shall consider no evidence which has not been formally offered,” and that “the purpose for which the evidence is offered must be specified.” This rule ensures that the trial judge bases the findings of facts and the judgment strictly on the evidence presented by the parties. The formal offer allows the judge to understand the purpose of the evidence and enables the opposing parties to examine and object to its admissibility. Moreover, it facilitates appellate review by limiting it to the documents scrutinized by the trial court.

Despite this procedural requirement, the SC recognized exceptions where a court may consider evidence not formally offered, provided it was duly identified by recorded testimony and incorporated into the case records. However, because the Purchase and Sale Agreement and Deed of Assignment were not properly marked, identified, or presented, the general rule of formal offer should have been applied. Consequently, the exclusion of these documents created a critical evidentiary gap.

Building on this principle, the SC emphasized that the terms of a merger or acquisition cannot be presumed; they must be proven. In this case, Dela Cruz alleged that Bank of Commerce had assumed Panasia’s liabilities. However, Bank of Commerce specifically denied this, claiming it only acquired selected assets and liabilities. Thus, the burden of proof shifted to Dela Cruz to establish that Bank of Commerce had indeed assumed all of Panasia’s obligations. This principle is crucial, as it prevents the automatic transfer of liabilities without clear evidence of assumption.

The SC noted the RTC’s error in assuming that Bank of Commerce had taken over all of Panasia’s assets and liabilities. The RTC stated, “Common sense dictates that when Bank of Commerce took over Panasia, it likewise took over its assets but also its liabilities. It cannot say that only selected assets and liabilities were the subject matter of the purchase agreement.” The Supreme Court found this assumption to be without factual or legal basis, and it should have required Dela Cruz to present evidence of the merger, including its specific terms. Merger details, as outlined in the Corporation Code, must be shown, including the plan of merger, its approval by the boards of directors and stockholders, and the issuance of a certificate by the Securities and Exchange Commission (SEC). In the absence of such evidence, the courts cannot take judicial notice of the merger’s terms and consequences.

The Supreme Court cited Latip v. Chua, which provided instances for proper judicial notice:

Sections 1 and 2 of Rule 129 of the Rules of Court declare when the taking of judicial notice is mandatory or discretionary on the courts… A court shall take judicial notice, without the introduction of evidence, of the existence and territorial extent of states… A court may take judicial notice of matters which are of public knowledge, or are capable of unquestionable demonstration or ought to be known to judges because of their judicial functions.

Judicial notice requires that the matter be of common and general knowledge, well-settled, and known within the court’s jurisdiction. The Court emphasized that the merger of Bank of Commerce and Panasia was not a matter of common knowledge, and thus, the RTC’s assumption was overly presumptuous. The SC reiterated the need for an express provision of law authorizing the merger and the approval of the articles of merger by the SEC. Furthermore, it emphasized that several specific facts must be shown before a merger can be declared as established. These facts include the plan of merger, approval by the boards of directors and stockholders, and the SEC’s issuance of a certificate of merger.

In this case, the failure to provide evidence of the merger’s terms and conditions, combined with Bank of Commerce’s denial of having assumed all liabilities, meant that the RTC and CA lacked a factual and legal basis to hold Bank of Commerce solidarily liable with Panasia. Consequently, the SC dismissed the amended complaint against Bank of Commerce.

The implications of this decision are significant for corporate law and litigation. It reinforces the principle that assumptions about corporate mergers and acquisitions are insufficient to establish liability. Parties must provide concrete evidence, such as purchase agreements and merger documents, to demonstrate the extent of liabilities assumed by an acquiring corporation. This ruling serves as a reminder for parties to properly present and offer crucial documents as evidence to substantiate their claims.

In essence, this case underscores the importance of adhering to procedural rules regarding the formal offering of evidence. It clarifies that liability cannot be transferred based on assumptions or generalities but must be grounded in concrete evidence of the terms and conditions of a merger or acquisition. Without such evidence, the acquiring corporation cannot be held liable for the prior negligence of the acquired entity.

The SC ruling is also a reminder of the basic principles of evidence. In civil cases, the burden of proof rests upon the plaintiff to establish their claim by a preponderance of evidence. Here, Dela Cruz had the burden of proving that Bank of Commerce assumed Panasia’s liabilities. Since Dela Cruz failed to present sufficient evidence to support this claim, the claim against Bank of Commerce necessarily failed. The legal compensation or set-off, as argued by Dela Cruz, also could not be applied since the liabilities assumed by Bank of Commerce were not proven.

FAQs

What was the key issue in this case?	The central issue was whether Bank of Commerce could be held solidarily liable for the negligence of Panasia Banking, Inc., based on an alleged acquisition and assumption of liabilities. The Supreme Court ruled it could not, due to a lack of evidence proving Bank of Commerce assumed all of Panasia’s liabilities.
Why did the Court focus on the Purchase and Sale Agreement?	The Purchase and Sale Agreement was crucial because it would define the extent to which Bank of Commerce assumed Panasia’s assets and liabilities. Without this document being formally offered and admitted as evidence, the Court could not determine the scope of the acquisition.
What does “solidary liability” mean?	Solidary liability means that each debtor is responsible for the entire obligation. In this context, if Bank of Commerce was solidarily liable with Panasia, Dela Cruz could recover the entire amount owed from either bank.
What is the significance of formally offering evidence?	Formally offering evidence is a procedural requirement that ensures the court considers only evidence presented by the parties. This allows the court to base its findings on concrete proof rather than assumptions or unverified claims.
Can a court take “judicial notice” of a corporate merger?	A court can only take judicial notice of facts that are commonly known and beyond reasonable dispute. The Supreme Court held that the merger of Bank of Commerce and Panasia was not a matter of common knowledge, so judicial notice was inappropriate.
What is the burden of proof in this type of case?	The burden of proof lies with the party claiming that a corporation has assumed the liabilities of another. In this case, Dela Cruz had to prove that Bank of Commerce had assumed all of Panasia’s liabilities.
What happens to Panasia’s liability after this decision?	Panasia remains liable for its negligence, as the decision only concerns the liability of Bank of Commerce. Dela Cruz can still pursue a claim against Panasia, though practical recovery may be challenging if Panasia has limited assets.
What are the implications for future corporate acquisitions?	This case highlights the importance of clearly defining the scope of assumed liabilities in corporate acquisition agreements. Parties must ensure that these agreements are formally offered as evidence in any related litigation.

This case underscores the importance of meticulous legal practice in corporate disputes. The Supreme Court’s decision emphasizes that assumptions regarding corporate mergers and acquisitions are insufficient to establish liability. Concrete evidence, such as purchase agreements and merger documents, is essential to demonstrate the extent of liabilities assumed by an acquiring corporation.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: BANK OF COMMERCE VS. HEIRS OF RODOLFO DELA CRUZ, G.R. No. 211519, August 14, 2017