Associated Bank vs CA 291 SCRA 511

Doctrine:

Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation.

The merger, however, does not become effective upon the mere agreement of the constituent corporations. Section 79 of said Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders of the constituent corporations. The same provision further states that the merger shall be effective only upon the issuance by the SEC of a certificate of merger.

FACTS:
Associated Banking Corporation and Citizens Bank and Trust Company merged to form just one banking corporation known as Associated Citizens Bank, the surviving bank. Associated Citizens Bank changed its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. The defendant executed in favor of Associated Bank a promissory note whereby the former undertook to pay the latter the sum of P2,500,000.00 payable on or before March 6, 1978. As per said promissory note, the defendant agreed to pay interest at 14% per annum, 3% per annum in the form of liquidated damages, compounded interests, and attorney's fees, in case of litigation equivalent to 10% of the amount due. The defendant, to date, still owes plaintiff bank the amount of P2,250,000.00 exclusive of interest and other charges. Despite repeated demands the defendant failed to pay the amount due.

The defendant alleged plaintiff is not the proper party in interest because the promissory note was executed in favor of CBTC; that the promissory note does not accurately reflect the true intention and agreement of the parties; that several partial payments made in the promissory note are not properly applied.

Trial court ordered Respondent Sarmiento to pay the bank his remaining balance plus interests and attorney's fees. The appellate court held that the Associated Bank had no cause of action against Lorenzo Sarmiento Jr., since said bank was not privy to the promissory note executed by Sarmiento in favor of Citizens Bank and Trust Company (CBTC). The court ruled that the earlier merger between the two banks could not have vested Associated Bank with any interest arising from the promissory note executed in favor of CBTC after such merger.

ISSUE:
WON Associated Bank, the surviving corporation, may enforce the promissory note made by private respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed.

HELD:
YES. The records do not show when the SEC approved the merger.

The fact that the promissory note was executed after the effectivity date of the merger does not militate against petitioner. The agreement itself clearly provides that all contracts — irrespective of the date of execution — entered into in the name of CBTC shall be understood as pertaining to the surviving bank, herein petitioner. Since, in contrast to the earlier aforequoted provision, the latter clause no longer specifically refers only to contracts existing at the time of the merger, no distinction should be made.

Thus, although the subject promissory note names CBTC as the payee, the reference to CBTC in the note shall be construed, under the very provisions of the merger agreement, as a reference to petitioner bank, "as if such reference [was a] direct reference to" the latter "for all intents and purposes."