NATURE
Petition for Review on certiorari of a decision of the CA
FACTS
- In 1979, Delta Motors Corporation (Delta) applied for financial assistance from respondent State Investment House, Inc. (SIHI), a domestic corporation engaged in the business of quasi-banking. SIHI agreed to extend a credit line to Delta for P25M in 3 separate credit agreements. Delta eventually became indebted to SIHI.
- In April 1979 to May 1980, petitioner California Bus Lines, Inc. (CBLI), purchased on installment basis 35 units of M.A.N. Diesel Buses and 2 units of M.A.N. Diesel
Conversion Engines from Delta. To secure the payment of the 35 buses, CBLI and its president executed 16 promissory notes in favor of Delta. CBLI [a] promised to pay Delta or order, P2.314M payable in 60 monthly installments with interest at 14% per annum (p.a), [b] promised to pay the holder of the said notes 25% of the amount due on the same as attorney’s fees and expenses of collection, [c] executed chattel mortgages over the 35 buses in Delta’s favor.
- When CBLI defaulted on all payments due, it entered into a restructuring
agreement with Delta in Oct. 1981, to cover its overdue obligations under the
promissory notes. The restructuring agreement provided for a new schedule of payments of CBLI’s past due installments, extending the period to pay, and stipulating daily remittance instead of the previously agreed monthly remittance of payments. In case of default, Delta would have the authority to take over the management and operations of CBLI until CBLI remitted and/or updated CBLI’s past due account. CBLI and Delta also increased the interest rate to 16%.
- In Dec. 1981, Delta executed a Continuing Deed of Assignment of Receivables in favor of SIHI as security for the payment of its obligations to SIHI per the credit agreements. In view of Delta’s failure to pay, the loan agreements were restructured under a Memorandum of Agreement dated March 1982. Delta obligated itself to pay a fixed monthly amortization of P0.4M to SIHI and to discount with SIHI P8M worth of receivables with the understanding that SIHI shall apply the proceeds against Delta’s overdue accounts.
- CBLI continued having trouble meeting its obligations to Delta. This prompted Delta to threaten CBLI with the enforcement of the management takeover clause. CBLI filed a complaint for injunction at CFI Rizal, Pasay City, (now RTC Pasay City). In due time, Delta filed amended answer with applications for issuance of a writ of preliminary mandatory injunction to enforce the management takeover clause and a writ of preliminary attachment over the buses it sold to CBLI. RTC granted Delta’s prayer on account of the fraudulent disposition by CBLI of its assets.
- In Sept.1983, pursuant to the Memorandum of Agreement, Delta executed a Deed of Sale assigning to SIHI 5 of the 16 promissory notes from CBLI At the time of assignment, these 5 promissory notes had a total value P16.1M inclusive of interest at 14% p.a. SIHI subsequently sent a demand letter to CBLI requiring CBLI to remit the payments due on the 5 promissory notes directly to it. CBLI replied informing SIHI that Delta had taken over its management and operations.
- Thereafter, Delta and CBLI entered into a compromise agreement in July 1984. CBLI agreed that Delta would exercise its right to extrajudicially foreclose on the chattel mortgages over the 35 bus units. RTC Pasay approved this compromise agreement. Following this, CBLI vehemently refused to pay SIHI the value of the 5 promissory notes, contending that the compromise agreement was in full settlement of all its obligations to Delta including its obligations under the promissory notes.
- On Dec 26, 1984, SIHI filed a complaint against CBLI in RTC Manila, to collect on the 5 promissory notes with interest at 14% p.a. SIHI also prayed for the issuance of a writ of preliminary attachment against the properties of CBLI.
- On Dec 28, 1984, Delta filed a petition for extrajudicial foreclosure of chattel mortgages pursuant to its compromise agreement with CBLI. Delta then filed in the RTC Pasay a motion for execution of the judgment based on the compromise agreement which was granted.
- In view of Delta’s petition and motion for execution per the judgment of compromise, the RTC Manila granted SIHI’s application for preliminary attachment on Jan. 4, 1985. Consequently, SIHI was able to attach and physically take
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possession of 32 buses belonging to CBLI. However, acting on CBLI’s motion to quash the writ of preliminary attachment, the same court resolved in Jan. 1986, to discharge the writ of preliminary attachment. SIHI assailed the discharge of the writ before the IAC (now Court of Appeals) CA granted SIHI’s petition in and ruled that the writ of preliminary attachment issued by RTC Manila should stay.
- Meanwhile, pursuant to the Jan. 3, 1985 Order of RTC of Pasay, the sheriff of Pasay City conducted a public auction and issued a certificate of sheriff’s sale to Delta on April 2, 1987, attesting to the fact that Delta bought 14 of the 35 buses for P3.92M. On April 7, 1987, the sheriff of Manila, by virtue of the writ of execution dated March 27, 1987, sold the same 14 buses at public auction in partial satisfaction of the judgment SIHI obtained against Delta.
- SIHI moved to sell the 16 buses of CBLI which had previously been attached by the sheriff pursuant to the Jan 4, 1985, Order of RTC of Manila. SIHI’s motion was granted on Dec. 16, 1987. In Nov. 1988, however, SIHI filed an urgent ex-parte motion to amend this order claiming that its new counsel made a mistake in the list of buses in the Motion to Sell it had earlier filed. SIHI explained that 14 of the buses listed had already been sold to Delta on April 2, 1987, by virtue of the Jan. 3, 1985 Order of the RTC of Pasay, and that 2 of the buses listed had been released to a third party.
- CBLI opposed SIHI’s motion to allow the sale of the 16 buses. On May 3, 1989, RTC Manila denied SIHI’s urgent motion to allow the sale of the 16 buses listed in its motion to amend. RTC ruled that the best interest of the parties might be better served by denying further sales of the buses and to go direct to the trial of the case on the merits.
- RTC and CA Ruling. Judgment discharged CBLI from liability on the 5 promissory
notes. RTC also favorably ruled on CBLI’s compulsory counterclaim. It directed SIHI to return the 16 buses or to pay CBLI P4M representing the value of the seized buses, with interest at 12% p.a. RTC held that the restructuring agreement between Delta and CBLI novated the 5 promissory notes; hence, at the time Delta assigned the 5 promissory notes to SIHI, the notes were already merged in the restructuring agreement and cannot be enforced against CBLI. SIHI appealed to the Court of Appeals. CA reversed RTC ruling. Hence this appeal.
ISSUES
1. WON the Restructuring Agreement between CBLI and Delta novated the 5 promissory notes Delta assigned to respondent SIHI
2. WON the Compromise Agreement between Delta and CBLI superseded and/or discharged the subject 5 promissory notes
HELD
1. NO
Ratio An agreement subsequently executed between a seller and a buyer that
provides for a different schedule and manner of payment, to restructure the mode of payments by the buyer so that it could settle its outstanding obligation in spite of its delinquency in payment is not novation.
Reasoning [a] Novation Defined and its Requisites. Novation is the extinguishment
of an obligation by the substitution or change of the obligation by a subsequent one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a third person in the rights of the creditor. Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of
a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. For novation to take place, 4 essential requisites have to be met, namely, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. [b] Express and Implied Novation. There are 2 ways which could indicate the presence of novation and thus produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly or expressly stated and declared in unequivocal terms. The second is implied novation. when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the 2 obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely incidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation. [c] In this case, the attendant facts do not make out a case of novation. The restructuring agreement between Delta and CBLI executed shows that the parties did not expressly stipulate that the restructuring agreement novated the promissory notes. Absent an unequivocal declaration of extinguishment of the pre- existing obligation, only a showing of complete incompatibility between the old and the new obligation would sustain a finding of novation by implication. However, our review of its terms yields no incompatibility between the promissory notes and the restructuring agreement. Furthermore, obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, and adds other obligations not incompatible with the old ones, or where the new contract merely supplements the old one
2. NO
Ratio A compromise agreement determines the rights and obligations of only the
parties to it.
Reasoning: [a] Having previously assigned the 5 promissory notes to SIHI, Delta
had no more right to compromise the same. Delta’s limited authority to collect for SIHI stipulated in the Sept. 13, 1985, Deed of Sale cannot be construed to include the power to compromise CBLI’s obligations in the said promissory notes. An authority to compromise, by express provision of Article 1878 of the Civil Code, requires a special power of attorney, which is not present in this case. Furthermore, the compromise agreement itself provided that it covered the rights and obligations only of Delta and CBLI and that it did not refer to, nor cover the rights of, SIHI as the new creditor of CBLI in the subject promissory notes. [b] The assignment of the 5 notes operated to create a separate and independent obligation on the part of CBLI to SIHI, distinct and separate from CBLI’s obligations to Delta. And since there was a previous revocation of Delta’s authority to collect for SIHI, Delta was no longer SIHI’s collecting agent. CBLI, in turn, knew of the assignment and Delta’s lack of authority to compromise the subject notes, yet it readily agreed to the foreclosure
Disposition CA ruling affirmed. CBLI is ordered to pay SIHI the value of the 5
promissory notes less the proceeds from the sale of the attached 16 buses.
GARCIA V LLAMAS
;
8, 2003
PANGANIBAN DEC
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FACTS
- On Dec. 23 1996, Petitioner Romeo Garcia and Eduardo de Jesus borrowed P400,000 from Respondent Dionisio Llamas. On the same day, they executed a promissory note wherein they bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month
- The loan was not paid, despite the repeated demands by the respondent. He then filed for the recovery of said amount.
Garcia averred that he assumed no liability under the promissory note because he signed it merely as an accommodation party for de Jesus; and, alternatively, that he is relieved from any liability arising from the note inasmuch as the loan had been paid by de Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of the check and respondent’s acceptance thereof novated or superseded the note.
- Respondent however said that the said check has bounced
- De Jesus in his answer said that out of the supposed P400,000.00 loan, he received only P360,000.00, the P40,000.00 having been advance interest thereon for two months. He claims to have paid P120,000 of the debt. He also claims that the respondent acted in bad faith in instituting the case, since the respondent has agreed to accept the benefits de Jesus would receive for his retirement. The respondent nonetheless filed the instant case while his retirement was being processed.
- The trial court found in favor of the respondent, ordering petitioner and de jesus to pay P400,000.00 representing the principal amount plus 5% interest thereon per month from January 23, 1997 until the same shall have been fully paid, less the amount of P120,000.00 representing interests already paid by x x x de Jesus. - The CA affirmed the trial court’s ruling regarding Garcia. IT ruled that no novation has taken place respondent accepted the check from De Jesus. According to the CA, the check was issued precisely to pay for the loan that was covered by the promissory note jointly and severally undertaken by petitioner and De Jesus. Respondent’s acceptance of the check did not serve to make De Jesus the sole debtor because, first, the obligation incurred by him and petitioner was joint and several; and, second, the check -- which had been intended to extinguish the obligation -- bounced upon its presentment.
ISSUES
1. WON there was novation in the obligation
2. WON the defense that petitioner was only an accommodation party had any basis 3. Won the CA was correct in treating the case as a summary judgement
HELD
1. NO novation took place.
The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the acceptance of the check, or that the check would take the place of the note. There is no incompatibility between the promissory note and the check. As the CA correctly observed, the check had been issued precisely to answer for the obligation. On the one hand, the note evidences the loan obligation; and on the other, the check answers for it. Verily, the two can stand together.
- Neither could the payment of interests change the terms and conditions of the obligation. Such payment was already provided for in the promissory note and, like the check, was totally in accord with the terms thereof.
- Also unmeritorious is petitioner’s argument that the obligation was novated by the substitution of debtors. In order to change the person of the debtor, the old one must be expressly released from the obligation, and the third person or new debtor must assume the former’s place in the relation. Novation is never presumed. - Moreover, it must be noted that for novation to be valid and legal, the law requires that the creditor expressly consent to the substitution of a new debtor.
- De Jesus also is not a third person to the obligation, since he was a joint and solidary obligor of the loan
2. NO
- The petitioner’s reasoning is untenable, since this is not a negotiable instrument. He cannot avail of the Negotiable Instrument’s Law’s provisions on the liabilities and defenses of an accommodation party. Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note. Under Article 29 of Act 2031, an accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation part
3. YES
- A summary judgment is a procedural device designed for the prompt disposition of actions in which the pleadings raise only a legal, not a genuine, issue regarding any material fact. Consequently, facts are asserted in the complaint regarding which there is yet no admission, disavowal or qualification; or specific denials or affirmative defenses are set forth in the answer, but the issues are fictitious as shown by the pleadings, depositions or admissions
- Petitioner’s Answer apparently raised several issues -- that he signed the promissory note allegedly as a mere accommodation party, and that the obligation was extinguished by either payment or novation. However, these are not factual issues requiring trial.
Disposition Petition denied
QUINTO V PEOPLE
;
14, 1999
VITUG April
NATURE
Appeal from decision of CA finding petitioner guilty of estafa
FACTS
- Petitioner Leonida Quinto received in trust several pieces of jewelry from Aurelia Cariaga with a total value of P36,000 with the purpose of selling the same on a commission basis and with the express obligation to turn over the proceeds of sale thereof or to return the jewelry within 5 days if not sold
- The prosecution claimed that petitioner asked for more time to sell the items but failed to conclude any sale. After 6 months, Aurelia sent a demand letter for the return of the items which petitioner ignored.
- The defense proffered that petitioner had sold several pieces of jewelry for Aurelia, and it happened on some occasions that the buyers were unable to pay in full. When this happened, petitioner brought the buyers to meet Aurelia who agreed to accept payment in installments. Petitioner claims that the contract between herself and Aurelia was effectively novated when the latter agreed to accept payment in installments directly from the buyers
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WON there was novation of the contract
HELD
NO.
Ratio Novation is never presumed, and the animus novandi, whether totally or
partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. There are two ways which could indicate the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation. The changes alluded to by petitioner consists only in the manner of payment. There was really no substitution of debtors since private complainant merely acquiesced to the payment but did not give her consent to enter into a new contract. The fact alone that the creditor receives guaranty or accepts payments from a third party who has agreed to assume the obligation does not constitute an extinctive novation