FACTS:

The petitioner, Associated Banking Corporation (ABC), filed a complaint against respondent Lorenzo Sarmiento Jr. seeking to collect the amount due under a promissory note (PN) executed by Sarmiento in favor of Citizens Bank and Trust Company (CBTC). ABC claimed that it acquired CBTC through a merger and, therefore, became entitled to enforce the PN. Sarmiento denied any liability, arguing that ABC had no cause of action against him.

During the trial, ABC's attending counsel resigned and negotiations for a settlement were ongoing between the parties. Despite a payment of one million pesos made by ABC to the appellee bank during the negotiation process, the trial court issued two as if in default orders against ABC. ABC moved to reconsider these orders, but the trial court denied the motion.

The trial court ruled in favor of ABC, finding Sarmiento liable to pay the principal amount plus interests. However, the Court of Appeals reversed the decision and dismissed the complaint. The Appellate Court held that ABC had no cause of action against Sarmiento since ABC was not a party to the PN executed in favor of CBTC and the merger between CBTC and ABC did not vest ABC with any interest arising from the PN executed after the merger.

Aggrieved, ABC filed a petition for review on certiorari, raising several reasons as to why the decision of the Appellate Court should be reversed.

ISSUES:

1. Whether the surviving corporation may enforce a promissory note made in favor of the absorbed corporation after the merger agreement had been signed.

2. Whether there is privity of contract between the surviving corporation and the absorbed corporation.

3. Whether the surviving corporation is a real party in interest in regards to the promissory note executed in favor of the merger.

4. Whether petitioner, the surviving bank, has the right to enforce the promissory note on the private respondent.

5. Whether the action for collection is barred by prescription or laches.

6. Whether the promissory note is a contract pour autrui.

7. Whether or not there was a third party who actually benefited from the loan and undertook to repay the bank.

8. Whether or not private respondent received any consideration for the promissory note.

RULING:

1. The court ruled in favor of the petitioner. It held that the surviving corporation, Associated Bank, may enforce the promissory note made by the private respondent in favor of CBTC, the absorbed corporation, after the merger agreement had been signed. The court emphasized that upon the merger, the surviving corporation automatically acquires the rights, properties, and liabilities of the absorbed corporation. Therefore, there is privity of contract between the surviving corporation and the absorbed corporation. The court also stated that the surviving corporation, as the real party in interest, has the right to enforce the promissory note executed in favor of the merger.

2. The court held that petitioner, the surviving bank, has the right to enforce the promissory note on the private respondent. The merger agreement stated that all contracts entered into in the name of CBTC shall be understood as pertaining to the surviving bank. Thus, even though the promissory note named CBTC as the payee, it shall be construed as a reference to the surviving bank, petitioner.

3. The court held that the action for collection is not barred by prescription or laches. The suit was filed within the ten-year prescriptive period, and the doctrine of laches is inapplicable when the claim was filed within the prescriptive period set forth under the law.

4. The court held that the promissory note is not a contract pour autrui. There was no stipulation in the note that conferred a favor upon a third person. The intention of the parties was not to create a benefit or interest in favor of a person other than the contracting parties.

5. The contention of private respondent that a third party actually benefited from the loan and undertook to repay the bank cannot be sustained since no evidence was presented to support this argument. Private respondent could have availed of the legal remedy of a third-party complaint if there was indeed a third person involved. Since he made no effort to implead such third person, his argument is deemed hollow.

6. The instrument, a promissory note bearing the signature of private respondent, speaks for itself and proves that he undertook to pay the specified amount to the petitioner bank. Respondent's claim that he did not receive any consideration for the promissory note is unsupported by evidence and therefore not meritorious. The failure of petitioner to submit proof of private respondent's loan application and actual receipt of the loan amount is irrelevant as the instrument itself is sufficient proof. Private respondent's partial payment is also deemed an express acknowledgment of his obligation, and he cannot now deny his liability to the petitioner bank.

PRINCIPLES:

• In a merger of corporations, the surviving corporation acquires all the rights, properties, and liabilities of the absorbed corporation.

• The merger becomes effective upon the approval of the articles of merger by the Securities and Exchange Commission and the issuance of a certificate of merger.

• The date of the merger's effectivity is crucial in determining when the absorbed corporation ceases to exist and when its rights, privileges, properties, and liabilities pass on to the surviving corporation.

• Privity of contract exists between the surviving corporation and the absorbed corporation in a merger.

• The surviving corporation is the real party in interest and has the right to enforce contracts executed in favor of the absorbed corporation after the merger.

• The literal meaning of a clear, plain, and unambiguous provision in an agreement must be given and applied without a convoluted interpretation.

• Prescription and laches do not bar a claim when filed within the prescriptive period set forth under the law.

• A contract pour autrui requires a stipulation in favor of a third person that is part of the contract and not conditioned or compensated by any obligation. The intention of the parties is crucial in determining whether a third person's interest is a stipulation pour autrui or an incidental interest.

• A person cannot accept and reject the same instrument.

• Res ipsa loquitur - the thing or the record speaks for itself.

• A party claiming that a third person is liable for the obligation should avail of the legal remedy of a third-party complaint.