GR 123793; (June, 1998) (Digest)
G.R. No. 123793 June 29, 1998
ASSOCIATED BANK, petitioner, vs. COURT OF APPEALS and LORENZO SARMIENTO JR., respondents.
FACTS
On September 16, 1975, Associated Banking Corporation and Citizens Bank and Trust Company (CBTC) executed an Agreement of Merger, with Associated Citizens Bank (later renamed Associated Bank) as the surviving corporation. The merger was approved by the Securities and Exchange Commission (SEC) on March 10, 1976. On September 7, 1977, respondent Lorenzo Sarmiento Jr. executed a promissory note in favor of “Associated Bank” for P2,500,000.00, payable on or before March 6, 1978. Sarmiento failed to pay the obligation despite demands. Associated Bank filed a collection suit. Sarmiento defended that the complaint stated no cause of action as the promissory note was executed in favor of CBTC, and there was no privity of contract with Associated Bank. The Regional Trial Court ruled in favor of Associated Bank. The Court of Appeals reversed, dismissing the complaint, holding that Associated Bank had no cause of action because the promissory note was executed in favor of CBTC after the merger agreement, and thus, Associated Bank was not a party to the contract.
ISSUE
Whether the surviving corporation in a merger (Associated Bank) has the right to enforce a contract (promissory note) entered into by the absorbed company (CBTC) subsequent to the date of the merger agreement but prior to the issuance of the certificate of merger by the SEC.
RULING
Yes. The Supreme Court granted the petition and reversed the Court of Appeals. The Court ruled that upon the SEC’s approval of the articles of merger and issuance of the certificate of merger, the merger retroacts to the date of the execution of the merger agreement. Consequently, all rights, privileges, properties, and liabilities of the absorbed corporation (CBTC) are transferred to the surviving corporation (Associated Bank) by operation of law. The promissory note executed after the merger agreement but before the SEC’s certificate is deemed issued in favor of the surviving corporation. The Agreement of Merger explicitly stated that the surviving corporation would possess all assets and be responsible for all liabilities of the constituent corporations incurred after the merger’s execution. Therefore, Associated Bank, as the surviving corporation, is the real party in interest and has the right to enforce the promissory note against Sarmiento. The Court reinstated the trial court’s decision with modification, deleting the award for attorney’s fees.