Dear Atty. Gab,

Musta Atty! I’m writing to you because I’m in a really confusing situation. Years ago, my small business had a loan with City Bank. We faced some financial difficulties, and there was a pending court case about the loan when City Bank merged with Excellent Bank. I thought that was the end of it. But now, Excellent Bank is suddenly demanding payment, including years of interest and penalties. They claim that since they absorbed City Bank, they also absorbed the debt.

The problem is, I don’t even have all the records from that time, and it’s been so long. I’m not sure if the original loan agreement is even valid anymore. Can Excellent Bank really come after me for a debt that belonged to City Bank? What are my rights in this situation? I’m worried about the financial implications for my family. Any advice you can give would be greatly appreciated. Salamat po!

Sincerely,
Andres Santiago

Dear Andres,

Musta Atty! Thank you for reaching out to me. I understand your concern about Excellent Bank demanding payment for the old City Bank loan, especially after the merger. The key principle here involves the liabilities of a surviving corporation after a merger. Typically, the surviving corporation assumes all the debts and obligations of the merged corporation.

Navigating Corporate Mergers and Debt Obligations

You’re dealing with a situation where a corporate merger has occurred, specifically City Bank merging into Excellent Bank. In the Philippines, mergers are governed by the Corporation Code. When two corporations merge, one usually survives, absorbing the other. In your case, Excellent Bank survived the merger, effectively taking over City Bank’s assets and liabilities.

This brings us to the core legal issue: What happens to existing debts and obligations of the absorbed corporation? The law is clear on this point. According to Section 80 of the Corporation Code, the surviving corporation is 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.

To put it plainly, Excellent Bank, by virtue of the merger, stepped into the shoes of City Bank. They are now responsible for all the debts, obligations, and pending legal cases that City Bank had before the merger. As such, if City Bank had a valid claim against you, Excellent Bank inherited that claim.

“The surviving or the 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 pending claim, action or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation.” (Corporation Code, Sec. 80)

What is essential for you to assess is if the claim is valid. Even if Excellent Bank took over, they cannot enforce a claim that has prescribed, or has already been paid.

It’s also important to understand that when a court issues a writ of garnishment, that places the funds in custodia legis, or under the custody of the law. Meaning, the funds are essentially under the control of the court, and the bank holding those deposits is obligated to comply with any court orders related to them.

Garnishment has been defined as a specie of attachment for reaching credits belonging to the judgment debtor and owing to him from a stranger to the litigation. A writ of attachment is substantially a writ of execution except that it emanates at the beginning, instead of at the termination, of a suit. It places the attached properties in custodia legis, obtaining pendente lite a lien until the judgment of the proper tribunal on the plaintiff’s claim is established, when the lien becomes effective as of the date of the levy. (National Power Corporation v. Philippine Commercial and Industrial Bank)

In your situation, there was a pending court case when the bank merged. Excellent Bank became a “virtual party” to or a “forced intervenor” in the case, and therefore must follow any orders issued by the trial court.

“Through the service of the writ of garnishment, the garnishee becomes a “virtual party” to, or a “forced intervenor” in, the case and the trial court thereby acquires jurisdiction to bind him to compliance with all orders and processes of the trial court with a view to the complete satisfaction of the judgment of the court.” (Perla Compania de Seguros, Inc. v. Ramolete)

It’s essential to determine if there was a final judgment, and to consider if any procedural errors were committed. Even with the law seemingly against you, all is not lost.

Practical Advice for Your Situation

• Gather All Available Documents: Start by collecting any loan agreements, payment records, or communication you had with City Bank.
• Request Records from Excellent Bank: Formally request all records related to the loan from Excellent Bank. They should have these documents as part of the merger.
• Determine the Status of the Original Court Case: Find out the outcome of the original court case. If a judgment was rendered, understand the terms and conditions.
• Check for Prescription: Determine if the debt has prescribed. Under Philippine law, debts have a statute of limitations, after which they can no longer be legally enforced.
• Consult with a Lawyer: Given the complexity of the situation, seek legal advice. A lawyer can assess the validity of the claim and represent you in negotiations or legal proceedings.
• Explore Settlement Options: If the debt is valid, consider negotiating a settlement with Excellent Bank. You may be able to reduce the amount owed or agree to a payment plan.
• Assess the Validity of Interest and Penalties: Determine if the interest and penalties being charged are legal and justified. Excessive charges may be grounds for challenging the claim.

I understand that this situation is stressful, but by gathering information and seeking legal advice, you can protect your rights and work toward a resolution. Remember, Excellent Bank assumed the liabilities of City Bank, but they must also adhere to legal and procedural requirements in enforcing any claims.

Hope this helps!

Sincerely,
Atty. Gabriel Ablola

For more specific legal assistance related to your situation, please contact me through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.