Published 25 October 2019, The Daily Tribune
It has been said that in marriage, the spouses should not only rejoice in their individual and collective good traits but must also learn to cheerfully accept each other’s character defects. Civil union is essentially the same then with corporate merger. The surviving corporation acquires all the assets but at the same time assumes lock, stock and barrel the liabilities of the absorbed corporation. It cannot deny or just turn a blind eye on the liabilities of the acquired corporation on the pretext that the surviving corporation is not aware of such at the time of the merger or did not directly incur them.
Let us take the case of spouses Francis and Betty. They obtained a term loan and various credit facilities from BSA Bank secured by mortgages on their real properties (REM). The loan proceeds were supposed to be used to finance their business expansion.
With regard to the term loan, only part of the credit was released by the bank. Spouses Francis and Betty then refused to pay the amortizations due on their term loan. Later on, BPI Bank (BPI) merged with BSA, thus, acquired all the latter’s rights and assumed its obligations. BPI filed a petition for extrajudicial foreclosure of the REM for the spouses’ default in the payment of their term loan.
To enjoin the foreclosure, the spouses instituted an action for damages with prayer for temporary restraining order and preliminary injunction against BPI. RTC rendered a decision in favor of the spouses.
BPI thereafter appealed to the Court of Appeals (CA) averring that the court a quo erred when it ruled that the spouses were entitled to damages. BPI posited that the spouses are liable on the principal balance of the loan agreement and insisted that it acted in good faith when it sought the extrajudicial foreclosure of the mortgage as it was not responsible for acts committed by its predecessor. The CA reversed the decision of the lower court and ruled in favor of BPI.
When the case reached the Supreme Court (SC), it was held that BPI is liable for damages. Good faith is not an excuse to exempt BPI from the statutory and legal effects of merger. Under the law, (whether under the old or the Revised Corporation Code) the surviving 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 corporation had itself incurred such liabilities or obligations; and any pending claim, action, or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving corporation. The rights of creditors or liens upon the property of any of such constituent corporations shall not be impaired by such merger.
Applying the pertinent provisions of the Corporation Code, BPI did not only acquire all the rights, privileges and assets of BSA but likewise acquired the liabilities and obligations of the latter as if BPI itself incurred it. Since BSA incurred delay in the performance of its obligations, its successor BPI cannot be permitted to foreclose the loan for the reason that its successor BSA violated the terms of the contract even prior to the spouses’ justified refusal to continue paying the amortizations. As such, BPI is liable for BSA, its predecessor (Spouses Ong vs BPI Family Savings Bank Inc., GR 208638, 24 January 2018).
In another case involving merger, a judgment creditor successfully garnished the bank deposits of the judgment debtor. The garnishee bank merged with another bank. There is accordingly no evidence that the garnished deposits were transferred to the surviving bank. Is the latter liable to pay and deliver the garnished deposits to the judgment creditor?
The SC ruled in the affirmative citing the same provision of the Corporation Code that the surviving corporation is liable for all obligations of the absorbed corporation as if they were directly incurred by the surviving corporation (Bank of the Philippine Islands vs Carlito Lee, GR 190144, 1 August 2012).
As you can see, it is imperative that due diligence be conducted by the surviving corporation to determine the nature and extent of liabilities of the corporation to be acquired. Surprises are avoided and expectations are managed similar indeed to a marriage. Get to know fully well your prospective spouse before you take the plunge because once marriage is contracted, the plus and the minuses are all included.
For comments and questions, please send an email to cabdo@divinalaw.com.
