G.R. No. 123793. June 29, 1998. Associated Bank, Petitioner, vs. Court of APPEALS and LORENZO SARMIENTO, JR., Respondents

7/20/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 291
VOL. 291, JUNE 29, 1998 511

Associated Bank vs. Court of Appeals
*
G.R. No. 123793. June 29, 1998.
ASSOCIATED BANK, petitioner, vs. COURT OF

APPEALS and LORENZO SARMIENTO, JR., respondents.
Corporation Law; Mergers; The merger does not become

effective upon the mere agreement of the constituent corporations—
the merger shall be effective only upon the issuance by the SEC of a
certificate of merger.—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.
Same; Same; Promissory Notes; The fact that a promissory

note was executed after the effectivity date of the merger does not
militate against the surviving bank where the agreement itself
clearly provides that all contracts—irrespective of the date of
execution—entered into in the name of the other bank shall be
understood as pertaining to the surviving bank.—Assuming that
the effectivity date of the merger was the date of its execution, we
still cannot agree that petitioner no longer has any interest in the
http://www.central.com.ph/sfsreader/session/00000164b6daf38ea6622cb4003600fb002c009e/t/?o=False 1/21
promissory note. A closer perusal of the merger agreement leads

to a different conclusion. The provision quoted earlier has this
other clause: “Upon the effective date of the
________________
* FIRST DIVISION.
512
512 SUPREME COURT REPORTS ANNOTATED
[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]. x x x” (Italics supplied) Thus, 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. 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.
Contracts; Prescription; A suit for collection of money based on

a written contract prescribes after ten years from the time its right
of action arose.—Private respondent’s claim that the action has
prescribed, pursuant to Article 1149 of the Civil Code, is legally
untenable. Petitioner’s suit for collection of a sum of money was
based on a written contract and prescribes after ten years from
the time its right of action arose. Sarmiento’s obligation under the
promissory note became due and demandable on March 6, 1978.
Petitioner’s complaint was instituted on August 22, 1985, before
the lapse of the ten-year prescriptive period. Definitely, petitioner
still had every right to commence suit against the payor/obligor,
the private respondent herein.
Same; Same; Laches; The doctrine of laches is inapplicable

where the claim was filed within the prescriptive period set forth
under the law.—Neither is petitioner’s action barred by laches.
The principle of laches is a creation of equity, which is applied not
to penalize neglect or failure to assert a right within a reasonable
time, but rather to avoid recognizing a right when to do so would
result in a clearly inequitable situation or in an injustice. To
require private respondent to pay the remaining balance of his
loan is certainly not inequitable or unjust. What would be
manifestly unjust and inequitable is his contention that CBTC is
the proper party to proceed against him despite the fact, which he
himself asserts, that CBTC’s corporate personality has been
dissolved by virtue of its merger with
513
VOL. 291, JUNE 29, 1998 513
petitioner. To hold that no payee/obligee exists and to let private

respondent enjoy the fruits of his loan without liability is surely
most unfair and unconscionable, amounting to unjust enrichment
at the expense of petitioner. Besides, this Court has held that the
doctrine of laches is inapplicable where the claim was filed within
the prescriptive period set forth under the law.
Same; Stipulations Pour Autrui; Requisites; The “fairest test”

in determining whether the third person’s interest in a contract is
a stipulation pour autrui or merely an incidental interest is to
examine the intention of the parties as disclosed by their contract.
—A stipulation pour autrui is one in favor of a third person who
may demand its fulfillment, provided he communicated his
acceptance to the obligor before its revocation. An incidental
benefit or interest, which another person gains, is not sufficient.
The contracting parties must have clearly and deliberately
conferred a favor upon a third person. Florentino vs. Encarnacion,
Sr. enumerates the requisites for such contract: (1) the stipulation
in favor of a third person must be a part of the contract, and not
the contract itself; (2) the favorable stipulation should not be
conditioned or compensated by any kind of obligation; and (3)
neither of the contracting parties bears the legal representation or
authorization of the third party. The “fairest test” in determining
whether the third person’s interest in a contract is a stipulation
pour autrui or merely an incidental interest is to examine the
intention of the parties as disclosed by their contract.
Same; Estoppel; A person cannot accept and reject the same

instrument.—Private respondent also claims that he received no
consideration for the promissory note and, in support thereof,
cites petitioner’s failure to submit any proof of his loan application
and of his actual receipt of the amount loaned. These arguments
deserve no merit. Res ipsa loquitur. The instrument, bearing the
signature of private respondent, speaks for itself. Respondent
Sarmiento has not questioned the genuineness and due execution
thereof. No further proof is necessary to show that he undertook
to pay P2,500,000, plus interest, to petitioner bank on or before
March 6, 1978. This he failed to do, as testified to by petitioner’s
accountant. The latter presented before the trial court private
respondent’s statement of account as of September 30, 1986,
showing an outstanding balance of P4,689,413.63 after deducting
P1,000,000.00 paid seven months earlier. Furthermore, such
partial payment is equivalent to an express acknowledgment of
his obligation. Private respondent can no
514
longer backtrack and deny his liability to petitioner bank. “A

person cannot accept and reject the same instrument.”
PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.

Villanueva, Pacis, Mondragon & Cana Law Offices for
petitioner.
Enrico Eric R. Castro for private respondents.
PANGANIBAN, J.:
In a merger, does the surviving corporation have a right to

enforce a contract entered into by the absorbed company
subsequent to the date of the merger agreement, but prior
to the issuance of a certificate of merger by the Securities
and Exchange Commission?
The Case
This is a petition for review under Rule 45

1
of the Rules of
Court, seeking to set aside the Decision of the Court of
2
2
Appeals in CA-GR CV No. 26465 promulgated on January
30, 1996, which answered the above question in the
negative. The challenged Decision
3
reversed and set aside
the October 17, 1986 Decision in Civil Case No. 85-32243,
promulgated by the Regional Trial Court of Manila, Branch
48, which disposed 4of the controversy in favor of herein
petitioner as follows:
________________
1 Rollo, pp. 38-48.

2 Eighth Division, composed of JJ. Eduardo G. Montenegro, ponente;
Jaime M. Lantin, chairman; and Jose C. de la Rama, concurring.
3 Penned by Judge Bonifacio A. Cacdac, Jr.
4 RTC Decision, p. 2; records, p. 129.
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VOL. 291, JUNE 29, 1998 515

“WHEREFORE, judgment is hereby rendered in favor of the

plaintiff Associated Bank. The defendant Lorenzo Sarmiento, Jr.
is ordered to pay plaintiff:
1. The amount of P4,689,413.63 with interest thereon at 14%

per annum until fully paid;
2. The amount of P200,000.00 as and for attorney’s fees; and
3. The costs of suit.”
On the other5 hand, the Court of Appeals resolved the case

in this wise:
“WHEREFORE, premises considered, the decision appealed from,

dated October 17, 1986 is REVERSED and SET ASIDE and
another judgment rendered DISMISSING plaintiff-appellee’s
complaint, docketed as Civil Case No. 85-32243. There is no
pronouncement as to costs.”
The Facts
The undisputed factual antecedents, as narrated by the

trial court
6
and adopted by public respondent, are as
follows:
“x x x [O]n or about September 16, 1975 Associated Banking

Corporation and Citizens Bank and Trust Company merged to
form just one banking corporation known as Associated Citizens

Bank, the surviving bank. On or about March 10, 1981, the
Associated Citizens Bank changed its corporate name to
Associated Bank by virtue of the Amended Articles of
Incorporation. On September 7, 1977, 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
________________
5 Assailed Decision, p. 11; rollo, p. 48.

6 RTC Decision, pp. 1-2; assailed Decision, pp. 2-3; Petition for Review, pp. 1-4.
516

other charges. Despite repeated demands the defendant failed to

pay the amount due.
x x x x x x x x x
x x x [T]he defendant denied all the pertinent allegations in the
complaint and alleged as affirmative and[/]or special defenses
that the complaint states no valid cause of action; that the
plaintiff is not the proper party in interest because the promissory
note was executed in favor of Citizens Bank and Trust Company;
that the promissory note does not accurately reflect the true
intention and agreement of the parties; that terms and conditions
of the promissory note are onerous and must be construed against
the creditor-payee bank; that several partial payments made in
the promissory note are not properly applied; that the present
action is premature; that as compulsory counterclaim the
defendant prays for attorney’s fees, moral damages and expenses
of litigation.
On May 22, 1986, the defendant 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 defendant’s counsel which
was denied by the Court in [an] order dated September 16, 1986
and the plaintiff was allowed to present its evidence before the
Court exparte on October 16, 1986.
At the hearing before the Court ex-parte, Esteban C. Ocampo

testified that x x x he is an accountant of the Loans and Discount
Department of the plaintiff bank; that as such, he supervises the
accounting section of the bank, he counterchecks all the
transactions that transpired during the day and is responsible for
all the accounts and records and other things that may[]be
assigned to the Loans and Discount Department; that he knows
the [D]efendant Lorenzo Sarmiento, Jr. because he has an
outstanding loan with them as per their records; that Lorenzo
Sarmiento, Jr. executed a promissory note No. TL-2649-77 dated
September 7, 1977 in the amount of P2,500,000.00 (Exhibit A);
that Associated Banking Corporation and the Citizens Bank and
Trust Company merged to form one banking corporation known
as the Associated Citizens Bank and is now known as Associated
Bank by virtue of its Amended Articles of Incorporation; that
there were partial payments made but not full; that the defendant
has not paid his obligation as evidenced by the latest statement of
account (Exh. B); that as per statement of account the
outstanding obligation of the defendant is P5,689,413.63 less
P1,000,000.00 or P4,689,413.63 (Exhs. B, B-1); that a demand
517
VOL. 291, JUNE 29, 1998 517

letter dated June 6, 1985 was sent by the bank thru its counsel
(Exh. C) which was received by the defendant on November 12,
1985 (Exhs. C, C-1, C-2, C-3); that the defendant paid only
P1,000,000.00 which is reflected in the Exhibit C.”
Based on the evidence presented by petitioner, the trial

court ordered Respondent Sarmiento to pay the bank his
remaining balance plus interests and attorney’s fees. In his
appeal, Sarmiento
7
assigned to the trial court several errors,
namely:
“I The [trial court] erred in denying appellant’s

motion to dismiss appellee bank’s complaint on the
ground of lack of cause of action and for being
barred by prescription and laches.
II The same lower court erred in admitting plaintiff-
appellee bank’s amended complaint while
defendant-appellant’s motion to dismiss appellee
bank’s original complaint and using/availing [itself
of] the new additional allegations as bases in denial
of said appellant’s motion and in the interpretation
and application of the agreement of merger and
Section 80 of BP Blg. 68, Corporation Code of the

Philippines.
III The [trial court] erred and gravely abuse[d] its
discretion in rendering the two as if in default
orders dated May 22, 1986 and September 16, 1986
and in not reconsidering the same upon technical
grounds which in effect subvert the best primordial
interest of substantial justice and equity.
IV The court a quo erred in issuing the orders dated
May 22, 1986 and September 16, 1986 declaring
appellant as if in default due to non-appearance of
appellant’s attending counsel who had resigned
from the law firm and while the parties [were]
negotiating for settlement of the case and after a
one million peso payment had in fact been paid to
appellee bank for appellant’s account at the start of
such negotiation on February 18, 1986 as act of
earnest desire to settle the obligation in good faith
by the interested parties.
V The lower court erred in according credence to
appellee bank’s Exhibit B statement of account
which had been merely re-
________________
7 CA rollo, pp. 35-38. (Upper case in the original.)
518

quested by its counsel during the trial and bearing date of

September 30, 1986.
VI The lower court erred in accepting and giving

credence to appellee bank’s 27-year-old witness
Esteban C. Ocampo as of the date he testified on
October 16, 1986, and therefore, he was merely an
eighteen-year-old minor when appellant supposedly
incurred the foisted obligation under the subject PN
No. TL-2649-77 dated September 7, 1977, Exhibit A
of appellee bank.
VII The [trial court] erred in adopting appellee bank’s
Exhibit B dated September 30, 1986 in its decision
given in open court on October 17, 1986 which
exacted eighteen percent (18%) per annum on the
foisted principal amount of P2.5 million when the

subject PN, Exhibit A, stipulated only fourteen
percent (14%) per annum and which was actually
prayed for in appellee bank’s original and amended
complaints.
VIII The appealed decision of the lower court erred in
not considering at all appellant’s affirmative
defenses that (1) the subject PN No. TL-2649-77 for
P2.5 million dated September 7, 1977, is merely an
accommodation pour autrui bereft of any actual
consideration to appellant himself and (2) the
subject PN is a contract of adhesion, hence, [it]
needs [to] be strictly construed against appellee
bank—assuming for granted that it has the right to
enforce and seek collection thereof.
IX The lower court should have at least allowed
appellant the opportunity to present countervailing
evidence considering the huge amounts claimed by
appellee bank (principal sum of P2.5 million which
including accrued interests, penalties and cost of
litigation totaled P4,689,413.63) and appellant’s
affirmative defenses—pursuant to substantial
justice and equity.”
The appellate court, however, found no need to tackle all

the assigned errors and limited itself to the question of
“whether [herein petitioner had] established or proven a
cause of action against [herein private respondent].”
Accordingly, Respondent 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 inter-
519
VOL. 291, JUNE 29, 1998 519

est arising from the promissory note executed in favor of

CBTC after such merger.
Thus, as earlier stated, Respondent Court set aside the
decision of the trial court and dismissed the complaint. 8
Petitioner now comes to us for a reversal of this ruling.
Issues
9
In its petition, petitioner cites the following “reasons:”
“I The Court of Appeals erred in reversing the

decision of the trial court and in declaring that
petitioner has no cause of action against respondent
over the promissory note.
II The Court of Appeals also erred in declaring that,
since the promissory note was executed in favor of
Citizens Bank and Trust Company two years after
the merger between Associated Banking
Corporation and Citizens Bank and Trust
Company, respondent is not liable to petitioner
because there is no privity of contract between
respondent and Associated Bank.
III The Court of Appeals erred when it ruled that
petitioner, despite the merger between petitioner
and Citizens Bank and Trust Company, is not a
real party in interest insofar as the promissory note
executed in favor of the merger.”
In a nutshell, the main issue is whether 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.
The Court’s Ruling
The petition is impressed with merit.
________________
8 This case was deemed submitted for decision upon receipt by this
Court of private respondent’s Memorandum on October 10, 1997.
9 Petition, p. 5; rollo, p. 24. (Upper case in the original.)
520

The Main Issue: Associated Bank Assumed All Rights

of CBTC
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
10
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,
11
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 be12 followed is prescribed under the
Corporation Code. Section 79 of said Code requires the
approval by the
________________
10 Jose C. Campos, Jr. and Maria Clara Lopez-Campos, The

Corporation Code: Comments, Notes and Selected Cases, Vol. 2, 1990 ed.,
p. 441; §80, Corporation Code.
11 Campos and Campos, ibid., p. 447.
12 Pertinent provisions of the Corporation Code read:
“SEC. 76. Plan of merger or consolidation.—Two or more corporations may merge

into a single corporation which shall be one of the constituent corporations or may
consolidate into a new single corporation which shall be the consolidated
corporation.
The board of directors or trustees of each corporation, party to the merger of
consolidation, shall approve a plan of merger or consolidation setting forth the
following:
1. The names of the corporations proposing to merge or consolidate,

hereinafter referred to as the constituent corporations;
2. The terms of the merger or consolidation and the mode of carrying the
same into effect;
3. A statement of the changes, if any, in the articles of incorporation of the
surviving corporation in case of merger; and, with respect to the
consolidated corporation in case of consolidation, all the statements
required to be set forth in the articles of incorporation for corporations
organized under this Code; and
4. Such other provisions with respect to the proposed merger or consolidation
as are deemed necessary or desirable.
SEC. 77. Stockholders’ or members’ approval.—Upon approval by a majority

vote of each of the board of directors or trustees of the constituent corporations of
the plan of merger or consolidation, the same shall be submitted for approval by
the stockholders or members of each of such corporations at separate corporate
meetings duly called for the purpose. Notice of such meetings shall be given to all
stockholders or members of the respective corporations, at least two (2) weeks

prior to the date of the
521
VOL. 291, JUNE 29, 1998 521

Securities and Exchange Commission (SEC) of the articles

of merger which, in turn, must have been duly approved by
a
________________
meeting, either personally or by registered mail. Said notice shall state the
purpose of the meeting and shall include a copy or a summary of the plan of
merger or consolidation, as the case may be. The affirmative vote of stockholders
representing at least two-thirds (2/3) of the outstanding capital stock of each
corporation in case of stock corporations or at least two-thirds (2/3) of the members
in case of non-stock corporations, shall be necessary for the approval of such plan.
Any dissenting stockholder in stock corporations may exercise his appraisal right
in accordance with the Code: Provided, That if after the approval by the
stockholders of such plan, the board of directors should decide to abandon the
plan, the appraisal right shall be extinguished.
Any amendment to the plan of merger or consolidation may be made, provided
such amendment is approved by majority vote of the respective boards of directors
or trustees of all the constituent corporations and ratified by the affirmative vote
of stockholders representing at least two-thirds (2/3) of the outstanding capital
stock or two-thirds (2/3) of the members of each of the constituent corporations.
Such plan, together with any amendment, shall be considered as the agreement of
merger or consolidation.
SEC. 78. Articles of merger or consolidation.—After the approval by the
stockholders or members as required by the preceding section, articles of merger
or articles of consolidation shall be executed by each of the constituent
corporations, to be signed by the president or vice-president and certified by the
secretary or assistant secretary of each corporation setting forth:
1. The plan of the merger or the plan of consolidation;

2. As to stock corporations, the number of shares outstanding, or in the case
of non-stock corporations, the number of members; and
3. As to each corporation, the number of shares or members voting for and
against such plan, respectively.
SEC. 79. Securities and Exchange Commission’s approval and effectivity of

merger or consolidation.—The articles of merger or of consolidation, signed and
certified as hereinabove required, shall be submitted to the Securities and
Exchange Commission in quadruplicate for its approval: Provided, That in the
case of merger or consolidation of banks or banking institutions, building and loan
associations, trust companies, insurance companies, public utilities, educational

institutions and other special corporations governed by special laws, the favorable
recommendation of the appropriate government agency shall first be obtained.
Where the commission is satisfied that the merger or consolidation of the
corporations concerned is not inconsistent with the provisions of this Code and
existing laws, it shall issue a certificate of merger or of consolidation, as the case
may be, at which time the merger or consolidation shall be effective.
If, upon investigation, the Securities and Exchange Commission has reason to
believe that the proposed merger or consolidation is contrary to or inconsistent
with the provisions of this Code or existing laws, it shall set a hearing to give the
corporations concerned the opportunity to be heard. Written notice of the date,
time and place of said hearing shall be given to each constituent corporation at
least two (2) weeks before said hearing. The Commission shall thereafter proceed
as provided in this Code.
SEC. 80. Effects of merger or consolidation.—The merger or consolidation, as
provided in the preceding sections, shall have the following effects:
1. The constituent corporations shall become a single corporation which, in case
of merger, shall be the surviving corporation designated in the plan of merger;
and, in case of consolidation, shall be the consolidated corporation designated in
the plan of consolidation;
522

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.
Consistent with the aforementioned Section13 79, 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 [m]erger shall
have been approved
14
by the Securities and Exchange
Commission.” As to the transfer of the properties of CBTC
to ABC, the agreement provides:
“10. Upon effective date of the Merger, all rights, privileges,

powers, immunities, franchises, assets and properties 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
________________
2. The separate existence of the constituent corporations shall cease, except

that of the surviving or the consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and powers and shall be subject to all the duties
and liabilities of a corporation organized under this Code;
4. The surviving or the consolidated corporation shall thereupon and
thereafter possess all the rights, privileges, immunities and franchises of
each of the constituent corporations; and all property, real or personal, and
all receivables due on whatever account, including subscriptions to shares
and other choses in action, and all and every other interest of, or belonging
to, or due to each constituent corporation, shall be taken and deemed to be
transferred to and vested in such surviving or consolidated corporation
without further act or deed; and
5. The surviving or consolidated corporation shall be responsible and liable
for all the liabilities and obligations of each of the constituent corporations
in the same manner as if such surviving or consolidated corporation had
itself incurred such liabilities or obligations; and any claim, action or
proceeding pending by or against any of such constituent corporations may
be prosecuted by or against the surviving or consolidated corporation, as
the case may be. The rights of creditors or any lien upon the property of
any of such constituent corporation shall not be impaired by such merger
or consolidation.”
13 Records, pp. 33-40.

14 No. 14, p. 8, Agreement of Merger; records, p. 40.
523
VOL. 291, JUNE 29, 1998 523

other things in action belonging to [CBTC] as of the effective date

of the [m]erger 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
15
[CBTC] has or might have and which shall pertain to [ABC].”
The records do not show when the SEC approved the

merger. Private respondent’s theory is that it took effect on
the date of the execution of the agreement itself, which was
September 16, 1975. Private respondent contends that,
since he issued the promissory note to CBTC on September
7, 1977—two years after the merger agreement had been
executed—CBTC could not have conveyed or transferred to
petitioner its interest in the said note, which was not yet in
existence at the time of the merger. Therefore, petitioner,
the surviving bank, has no right to enforce the promissory
note on
________________
15 Agreement of Merger, pp. 5-6; records, pp. 37-38.
524

private respondent; such right properly pertains only to

CBTC.
Assuming that the effectivity date of the merger was the
date of its execution, we still cannot agree that petitioner
no longer has any interest in the promissory note. A closer
perusal of the merger agreement leads to a different
conclusion. The provision quoted earlier has this other
clause:
“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 SURVIVING16BANK, as if such references
were direct references to [ABC]. x x x” (Italics supplied)
Thus, 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. 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 petitioner bank, “as if such
reference [was a] direct reference to” the latter “for all
intents and purposes.”
No other construction can be given to the unequivocal
stipulation. Being clear, plain and free of ambiguity, the
pro-
________________
16 Ibid., pp. 6-7; records, pp. 38-39.
525
VOL. 291, JUNE 29, 1998 525

17
vision must be given its literal meaning and applied
without a convoluted
18
interpretation. Verba legis non est
recedendum.
In light of the foregoing, the Court holds that petitioner
has a valid cause of action against private respondent.
Clearly, the failure of private respondent to honor his
obligation under the promissory note constitutes a violation
of petitioner’s right to collect the proceeds of the loan it
extended to the former.
Secondary Issues: Prescription, Laches, Contract

Pour Autrui, Lack of Consideration
No Prescription or Laches
Private respondent’s claim that the action has prescribed,
pursuant to Article 1149 of the Civil Code, is legally
untenable. Petitioner’s suit for collection of a sum of money
was based on a written contract and prescribes 19
after ten
years from the time its right of action arose. Sarmiento’s
obligation under the promissory note became due and
demandable on March 6, 1978. Petitioner’s complaint was
instituted on August 22, 1985, before the lapse of the ten-
year prescriptive period. Definitely, petitioner still had
every right to commence suit against the payor/obligor, the
private respondent herein.
Neither is petitioner’s action barred by laches. The
principle of laches is a creation of equity, which is applied
not to penalize neglect or failure to assert a right within a
reasonable time, but rather to avoid recognizing a right
when to20 do so would result in21 a clearly inequitable
situation or in an injustice. To require private
respondent to pay the remain-
________________
17 Art. 1370, Civil Code.

18 Ruben E. Agpalo, Statutory Construction, 1990 ed., p. 94.
19 Art. 1144, Civil Code.
20 Catholic Bishop of Balanga vs. Court of Appeals, 264 SCRA 181, 193,
November 14, 1996.
21 Olizon vs. Court of Appeals, 236 SCRA 148, 157, September 1, 1994.
526

ing balance of his loan is certainly not inequitable or

unjust. What would be manifestly unjust and inequitable is
his contention that CBTC is the proper party to proceed
against him despite the fact, which he himself asserts, that
CBTC’s corporate personality has been dissolved by virtue
of its merger with petitioner. To hold that no payee/obligee
exists and to let private respondent enjoy the fruits of his
loan without liability is surely most unfair and
unconscionable, amounting to unjust enrichment at the

expense of petitioner. Besides, this Court has held that the
doctrine of laches is inapplicable where the claim was22 filed
within the prescriptive period set forth under the law.
No Contract Pour Autrui

Private respondent, while not denying that he executed the
promissory note in the amount of P2,500,000 in favor of
CBTC, offers the alternative defense that said note was a
contract pour autrui.
A stipulation pour autrui is one in favor of a third
person who may demand its fulfillment, provided he
communicated his acceptance to the obligor before its
revocation. An incidental benefit or interest, which another
person gains, is not sufficient. The contracting parties must
have clearly
23
and deliberately conferred a favor upon a third
person. 24
Florentino vs. Encarnacion, Sr. enumerates the
requisites for such contract: (1) the stipulation in favor of a
third person must be a part of the contract, and not the
contract itself; (2) the favorable stipulation should not be
conditioned or compensated by any kind of obligation; and
(3) neither of the contracting parties bears the legal
representation or authorization of the third party. The
“fairest test” in determining whether the third person’s
interest in a contract is a stipula-
________________
22 Chavez vs. Bonto-Perez, 242 SCRA 73, 80-81, March 1, 1995.

23 Art. 1311, par. 2, Civil Code.
24 79 SCRA 192, 201, September 30, 1977, per Guerrero, J.
527
VOL. 291, JUNE 29, 1998 527

tion pour autrui or merely an incidental interest is to

examine 25the intention of the parties as disclosed by their
contract.
We carefully and thoroughly perused the promissory
note, but found no stipulation at all that would even
resemble a provision in consideration of a third person. The
instrument itself does not disclose the purpose of the loan
contract. It merely lays down the terms of payment and the
penalties incurred for failure to pay upon maturity. It is
patently devoid of any indication that a benefit or interest
was thereby created in favor of a person other than the

contracting parties. In fact, in no part of the instrument is
there any mention of a third party at all. Except for his
barefaced statement, no evidence was proffered by private
respondent to support his argument. Accordingly, his
contention cannot be sustained. At any rate, if indeed the
loan actually benefited a third person who undertook to
repay the bank, private respondent could have availed26
himself of the legal remedy of a third-party complaint.
That he made no effort to implead such third person proves
the hollowness of his arguments.
Consideration
Private respondent also claims that he received no
consideration for the promissory note and, in support
thereof, cites petitioner’s failure to submit any proof of his
loan application and of his actual receipt of the amount
loaned. These arguments deserve no merit. Res ipsa
loquitur. The instrument, bearing the signature of private
respondent, speaks for itself. Respondent Sarmiento has
not questioned the genuineness and due execution thereof.
No further proof is necessary to show that he undertook to
pay P2,500,000, plus interest, to petitioner bank on or
before March 6, 1978. This he failed to do, as testified to by
petitioner’s accountant. The latter presented before the
trial court private respondent’s statement of
________________
25 Ibid., p. 202.
26 §11, Rule 6, Rules of Court.
528

27
account as of September 30, 1986, showing an outstanding
balance of P4,689,413.63 after deducting P1,000,000.00
paid seven months earlier. Furthermore, such partial
payment is equivalent to an express acknowledgment of his
obligation. Private respondent can no longer backtrack and
deny his liability to petitioner bank.28 “A person cannot
accept and reject the same instrument.”
WHEREFORE, the petition is GRANTED. The assailed
Decision is SET ASIDE and the Decision of RTC-Manila,
Branch 48, in Civil Case No. 26465 is hereby
REINSTATED.
SO ORDERED.
Davide, Jr. (Chairman), Bellosillo, Vitug and

Quisumbing, JJ., concur.
Petition granted. Judgment set aside, that of the court a

quo reinstated.
Notes.—Where the promissory notes signed by the

borrowers do not contain any stipulation on the payment of
handling charges, the bank cannot collect the same.
(Consolidated Bank and Trust Company [Solidbank] vs.
Court of Appeals, 246 SCRA 193 [1995])
In the performance of its job, an arrastre operator is
bound by the management contract it had executed with
the Bureau of Customs which is a sort of a stipulation pour
autrui which is also binding on the consignee (and the
insurer, as successor-in-interest of the consignee)—indeed,
upon taking delivery of the cargo, a consignee tacitly
accepts the provisions of the management contract,
including those which are intended to limit the liability of
the arrastre operator. (Summa Insurance Corporation vs.
Court of Appeals, 253 SCRA 175 [1996])
________________
27 Exh. “B”; records, p. 130.

28 Ducasse v. American Yellow Taxi Operators, Inc., 224 App. Div. 516,
231 NY Supp. 51 (1928), citing Chipman v. Montgomery, 63 NY 211; in
Campos and Campos, supra.
529
VOL. 291, JUNE 29, 1998 529

People vs. Solis
Where the entire mortgage contract yields no mention of

penalty charges, it can fairly be concluded that the
mortgagee did not intend to include the penalties on the
promissory notes in the secured amount. (Philippine Bank
of Communications vs. Court of Appeals, 253 SCRA 241
[1996])
——o0o——
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G.R. No. 123793. June 29, 1998. Associated Bank, Petitioner, vs. Court of APPEALS and LORENZO SARMIENTO, JR., Respondents

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7/20/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 291

VOL. 291, JUNE 29, 1998 511

ASSOCIATED BANK, petitioner, vs. COURT OF

Corporation Law; Mergers; The merger does not become

Same; Same; Promissory Notes; The fact that a promissory

promissory note. A closer perusal of the merger agreement leads

512 SUPREME COURT REPORTS ANNOTATED

Associated Bank vs. Court of Appeals

[m]erger, all references to [CBTC] in any deed, documents, or other

Contracts; Prescription; A suit for collection of money based on

Same; Same; Laches; The doctrine of laches is inapplicable

VOL. 291, JUNE 29, 1998 513

Associated Bank vs. Court of Appeals

petitioner. To hold that no payee/obligee exists and to let private

Same; Stipulations Pour Autrui; Requisites; The “fairest test”

Same; Estoppel; A person cannot accept and reject the same

514 SUPREME COURT REPORTS ANNOTATED

Associated Bank vs. Court of Appeals

longer backtrack and deny his liability to petitioner bank. “A

PETITION for review on certiorari of a decision of the

The facts are stated in the opinion of the Court.

In a merger, does the surviving corporation have a right to

This is a petition for review under Rule 45

1 Rollo, pp. 38-48.

VOL. 291, JUNE 29, 1998 515

“WHEREFORE, judgment is hereby rendered in favor of the

1. The amount of P4,689,413.63 with interest thereon at 14%

On the other5 hand, the Court of Appeals resolved the case

“WHEREFORE, premises considered, the decision appealed from,

The undisputed factual antecedents, as narrated by the

“x x x [O]n or about September 16, 1975 Associated Banking

form just one banking corporation known as Associated Citizens

5 Assailed Decision, p. 11; rollo, p. 48.

516 SUPREME COURT REPORTS ANNOTATED

other charges. Despite repeated demands the defendant failed to

At the hearing before the Court ex-parte, Esteban C. Ocampo

VOL. 291, JUNE 29, 1998 517

Based on the evidence presented by petitioner, the trial

“I The [trial court] erred in denying appellant’s

Section 80 of BP Blg. 68, Corporation Code of the

7 CA rollo, pp. 35-38. (Upper case in the original.)

518 SUPREME COURT REPORTS ANNOTATED

quested by its counsel during the trial and bearing date of

VI The lower court erred in accepting and giving

foisted principal amount of P2.5 million when the

The appellate court, however, found no need to tackle all

VOL. 291, JUNE 29, 1998 519

est arising from the promissory note executed in favor of

“I The Court of Appeals erred in reversing the

In a nutshell, the main issue is whether Associated Bank,

The Court’s Ruling

The petition is impressed with merit.

520 SUPREME COURT REPORTS ANNOTATED

The Main Issue: Associated Bank Assumed All Rights

Ordinarily, in the merger of two or more existing

10 Jose C. Campos, Jr. and Maria Clara Lopez-Campos, The

“SEC. 76. Plan of merger or consolidation.—Two or more corporations may merge

1. The names of the corporations proposing to merge or consolidate,

SEC. 77. Stockholders’ or members’ approval.—Upon approval by a majority