G.R. No. 123793, 29 June 1998


On or about September 16, 1975 Associated Banking Corporation and Citizens Bank and Trust Company agreed to merged and form just one banking corporation to be known as Associated Citizens Bank.

The September 16, 1975 Agreement of Merger, which Associated Banking Corporation (ABC) and Citizens Bank and Trust Company (CBTC) entered into, provided that its effectivity “shall, for all intents and purposes, be the date when the necessary papers to carry out this merger shall have been approved by the Securities and Exchange Commission.”

As to the transfer of the properties of CBTC to ABC, the agreement provides that “Upon effective date of the Merger, all rights, privileges, powers, immunities, franchises, assets and property of CBTC, whether real, personal or mixed, and including [CBTC’s goodwill and tradename, and all debts due to [CBTC] on whatever act, and all other things in action belonging to [CBTC] as of the effective date of the merger shall be vested in [ABC], the SURVIVING BANK, without need of further act or deed, unless by express requirements of law or of a government agency, any separate or specific deed of conveyance to legally effect the transfer or assignment of any kind of property [or] asset is required, in which case such document or deed shall be executed accordingly; and all property, rights, privileges, powers, immunities, franchises and all appointments, designations and nominations, and all other rights and interests of [CBTC] as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, trustee of estates of persons mentally ill and in every other fiduciary capacity, and all and every other interest of [CBTC] shall thereafter be effectually the property of [ABC] as they were of [CBTC], and title to any real estate, whether by deed or otherwise, vested in [CBTC] shall not revert or be in any way impaired by reason thereof; provided, however, that all rights of creditors and all liens upon any property of [CBTC] shall be preserved and unimpaired and all debts, liabilities, obligations, duties and undertakings of [CBTC], whether contractual or otherwise, expressed or implied, actual or contingent, shall henceforth attach to [ABC] which shall be responsible therefor and may be enforced against [ABC] to the same extent as if the same debts liabilities, obligations, duties and undertakings have been originally incurred or contracted by [ABC], subject, however, to all rights, privileges, defenses, set-offs and counterclaims which [CBTC] has or might have and which shall pertain to [ABC].

On or about 10 March 1981, the Associated Citizens Bank changed its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. On September 7, 1977, Lorenzo Sarmiento Jr. 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 6 March 1978. As per said promissory note, Sarmiento 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.

Sarmiento, to date, still owed Associated 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. Sarmiento denied the charges. On 22 May 1986, Sarmiento was declared as if in default for failure to appear at the Pre-Trial Conference despite due notice.

A Motion to Lift Order of Default and/or Reconsideration of Order dated May 22, 1986 was filed by Sarmiento’s counsel which was denied by the Court in an order dated 16 September 1986 and Associated Bank was allowed to present its evidence before the Court ex-parte on 16 October 1986.

Based on the evidence presented by the bank, the trial court ordered Sarmiento to pay the bank his remaining balance plus interests and attorney’s fees. Sarmiento appealed.

The Court of Appeals (in CA-GR CV 26465) promulgated on 30 January 1996 a decision which reversed and set aside the October 17, 1986 Decision in Civil Case 85-32243, promulgated by the Regional Trial Court of Manila, Branch 48; and thus dismissing the complaint.


Whether or not the surviving corporation in a merger have a right to enforce a contract entered into by the absorbed company following to the date of the merger agreement, but prior to the issuance of a certificate of merger by the Securities and Exchange Commission.


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. Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as their liabilities.

The merger, however, does not become effective upon the mere agreement of the constituent corporations. The procedure to be followed is prescribed under the Corporation Code. 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. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as liabilities pass on to the surviving corporation.

The agreement, as a clause, provided that “Upon the effective date of the [m]erger, all references to [CBTC] in any deed, documents, or other papers of whatever kind or nature and wherever found shall be deemed for all intents and purposes, references to [ABC], the SURVIVING BANK, as if such references were direct references to [ABC].”

The fact that the promissory note was executed after the effectivity date of the merger does not militate against the bank. 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, Associated Bank. 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.

The clause must have been deliberately included in the agreement in order to protect the interests of the combining banks; specifically, to avoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation. 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 Associated Bank, “as if such reference [was a] direct reference to” the latter “for all intents and purposes.”

*Case Digest by Jelyn C. Ondong, Refresher, Andres Bonifacio College, SY: 2019-2020