Babst vs CA January 26, 2001

Doctrine:

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. Hence, BPI has a right to institute the case a quo.


FACTS:

ELISCON obtained from CBTC a loan in the amount of P 8,015,900.84, with interest at the rate of 14% per annum, evidenced by a promissory note. ELISCON defaulted in its payments. 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.

Subsequently, Antonio Roxas Chua and Chester G. Babst executed a Continuing Suretyship, 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. CBTC opened for ELISCON in favor of National Steel Corporation three (3) domestic letters of credit which ELISCON used to purchase tin black plates from National Steel Corporation. ELISCON defaulted in its obligation to pay.

Later, BPI and CBTC entered into a merger, wherein BPI, as the surviving corporation, acquired all the assets and assumed all the liabilities of CBTC.

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 executing a Deed of Cession of Property in Payment of Debt. Thereafter, DBP proposed formulas for the settlement of all of ELISCON's obligations to its creditors, but BPI expressly rejected the formula submitted to it for not being acceptable.

BPI, as successor-in-interest of CBTC, instituted with the RTC a complaint for sum of money against ELISCON, MULTI and Babst which renders judgment in favor of the plaintiff and against all the defendants. CA modified the decision.


ISSUE:

WON BPI consented to the assumption by DBP of the obligations of ELISCON.


HELD:

YES.

Babst, MULTI and ELISCON all maintain that due to the failure of BPI to register its objection to the take-over by DBP of ELISCON's assets, at the creditors' meeting held in June 1981 and thereafter, it is deemed to have consented to the substitution of DBP for ELISCON as debtor. Its failure to do so can only mean an acquiescence in the assumption by DBP of ELISCON's obligations. As repeatedly pointed out by ELISCON and MULTI, BPI's objection was to the proposed payment formula, not to the substitution itself.

BPI's conduct evinced a clear and unmistakable consent to the substitution of DBP for ELISCON as debtor. Hence, there was a valid novation which resulted in the release of ELISCON from its obligation to BPI, whose cause of action should be directed against DBP as the new debtor. The original obligation having been extinguished, the contracts of suretyship executed separately by Babst and MULTI, being accessory obligations, are likewise extinguished.