Case Chester Babst vs.

CA, BPI, Elizalde Steel Consolidated, Inc (ELISCON) and Pacific Multi-Commercial
Corporation (MULTI)

Elizalde Steel Consolidated Inc. vs. CA, BPI, Pacific Multi-commercial corporation and Chester Babst

TOPIC: MERGER

Facts of the Case

The complaint was commenced principally to enforce payment of a promissory note and three domestic letters of
credit which Elizalde Steel Consolidated, Inc (ELISCON) executed and opened with Commercial Bank and Trust
Company (CBTC).

ELISCON obtained from CBTC a loan in the amount of PhP8,015,900.84 with interest rate of 14% per annum,
evidenced by a promissory note. Eliscon defaulted in its payment leaving an outstanding indebtedness amounting
to PhP2,795,240.67 as of 31 October 1982.

Subsequently, Antonio Roxas Chua and Chester Babst executed continuing suretyship whereby they bound
themselves jointly and severally liable to pay any existing indebtedness of MULTI to CBTC to extent of PhP8Mn
each.

On 22 December 1980 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 DBP. In order to settle its obligations,
Eliscon proposed to convey to DBP by way of dacion and pago all its fixed assets mortgaged with DBP, as
payment for its total indebtedness in the amount of PhP201,181,833.16. Eliscon and DBP executed a deed of
cession of property in payment of debt.

DBP took over the assets of Eliscon including the indebtedness to BPI. Thereafter DBP proposed formulas for the
settlement of all of Eliscons 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 RTC a complaint for sum of money against Eliscon, MULTI
and Babst

RTC favored BPI while CA affirmed with modification the decision of RTC. Hence the petition to SC.

Issues:
1. Whether or not BPI is not entitled to recover from petitioner Eliscon the latters obligation with CBTC
2. Whether or not there is a valid novation of obligation
Decision

1. No, BPI can collect from Eliscon. It is settled that in the merger of two existing corporations, one of the
corporation survives and continues the business, while the other is dissolved and all its rights, properties
and liabilities are acquired by the surviving corporation. The surviving corporation therefore has a right to
institute a collection suit on accounts of one of one of the constituent corporations.
2. 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.