120 California v State Investment (101) Grp 3

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CA Bus Lines v. State Investment House, Inc. GR No. 147950 | 11 December 2003 | Quisumbing, J. Princess Trisha Joy Z. Uy | Law 122Obligations and Contracts | Grp3 Sorry too much facts. Basically, PET owes Delta. Delta owes RESP. PET and Delta defaulted and entered a restructuring agreement with their respective creditors. Delta assigned 5 of the promissory notes PET issued to the RESP. RESP wants to collect from PET, but PET doesn’t want to pay saying that the agreement was with Delta. Facts: ! Delta Motors applied for financial assistance from RESP, SIHI. SIHI granted Delta a credit line, and after sometime, Delta owed SIHI 24M. ! CA Bus Lines purchased 35 buses and 2 conversion engines from Delta, CBLI executed 16 promissory notes in favor of Delta. Each note is for ~2M payable monthly. ! CBLI also promised to pay for attorney’s fees and expenses of collection in case of judicial proceedings. ! CBLI also executed chattel mortgages over the 35 buses in Delta’s favor. ! CBLI defaulted and entered into a restructuring agreement with Delta. It was agreed upon that in case of default, Delta would have the authority to take over CBLI operations, until the account is satisfied. ! Delta executed a Continuing Deed of Assignment of Receivables in favor of SIHI as security for the payment of its obligation to SIHI. Delta failed to pay, and it’s loan was restructured. ! CBLI defaulted, and a suit was brought to the court for Delta to take over the company. A writ was granted to Delta. ! Delta executed a Deed of Sale assigning to SIHI 5 of the promissory notes given by CBLI. It had a total value of ~16M. ! SIHI sent a demand letter to CBLI to remit the payments of the promissory notes directly to it. ! CBLI informed SIHI that Delta had taken over its management. ! Delta offered its available bus units to SIHI as payment in kind of its remaining obligation. The buses were valued at ~27M. SIHI accepted the offer and Delta transferred the ownership to SIHI which acknowledged full payment of Delta’s debt. ! SIHI was not able to take possession of all the buses, only 17, which was not sufficient to fulfill the obligation. SIHI filed a suit, and the court ordered Delta to pay the remaining amount ~20M. ! CBLI agreed that Delta could extrajudicially foreclose on the chattel mortgages over the 35 bus units. ! CBLI refused to pay SIHI the value of the promissory notes saying that the agreement was between it and Delta. ! SIHI filed a complaint against CBLI for collection. ! Delta bought 14 out of the 35 buses and sold the same for partial satisfaction of its debt to SIHI. ! SIHI moved to sell the 16 buses of CBLI and was granted. SIHI amended the motion stating that 14 of the buses had already been sold to Delta, and the 2 others were sold to another party. ! The TC ruled that the best interest of the parties might be better served denying further sales and go direct to the trial of the case on the merits. (Pati yung cout nahihilo na ) ! TC ordered SIHI to return the 16 buses or pay for it. ! TC: the restructuring agreement on Oct 7, 1981 novated the 5 promissory notes, at the time Delta assigned the 5 promissory notes to SIHI, the notes were already merged into the restructuring agreement and cannot be enforced against CBLI. ! CA Reversed. Kinds of Novation

Transcript of 120 California v State Investment (101) Grp 3

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CA  Bus  Lines  v.  State  Investment  House,  Inc.  GR  No.  147950  |  11  December  2003  |  Quisumbing,  J.  Princess  Trisha  Joy  Z.  Uy  |  Law  122-­‐Obligations  and  Contracts  |  Grp3    Sorry  too  much  facts.  Basically,  PET  owes  Delta.  Delta  owes  RESP.    PET  and  Delta  defaulted  and  entered  a  restructuring  agreement  with  their  respective  creditors.  Delta  assigned  5  of  the  promissory  notes  PET  issued  to  the  RESP.  RESP  wants  to  collect  from  PET,  but  PET  doesn’t  want  to  pay  saying  that  the  agreement  was  with  Delta.    Facts:  

 ! Delta  Motors  applied  for  financial  assistance  from  RESP,  SIHI.  SIHI  granted  Delta  a  credit  line,  and  after  

sometime,  Delta  owed  SIHI  24M.  ! CA  Bus  Lines  purchased  35  buses  and  2  conversion  engines  from  Delta,  CBLI  executed  16  promissory  

notes  in  favor  of  Delta.  Each  note  is  for  ~2M  payable  monthly.  ! CBLI  also  promised  to  pay  for  attorney’s  fees  and  expenses  of  collection  in  case  of  judicial  proceedings.  ! CBLI  also  executed  chattel  mortgages  over  the  35  buses  in  Delta’s  favor.  ! CBLI  defaulted  and  entered  into  a  restructuring  agreement  with  Delta.  It  was  agreed  upon  that  in  case  

of  default,  Delta  would  have  the  authority  to  take  over  CBLI  operations,  until  the  account  is  satisfied.  ! Delta  executed  a  Continuing  Deed  of  Assignment  of  Receivables  in  favor  of  SIHI  as  security  for  the  

payment  of  its  obligation  to  SIHI.  Delta  failed  to  pay,  and  it’s  loan  was  restructured.    ! CBLI  defaulted,  and  a  suit  was  brought  to  the  court  for  Delta  to  take  over  the  company.  A  writ  was  

granted  to  Delta.  ! Delta  executed  a  Deed  of  Sale  assigning  to  SIHI  5  of  the  promissory  notes  given  by  CBLI.  It  had  a  total  

value  of  ~16M.  ! SIHI  sent  a  demand  letter  to  CBLI  to  remit  the  payments  of  the  promissory  notes  directly  to  it.  ! CBLI  informed  SIHI  that  Delta  had  taken  over  its  management.  ! Delta  offered  its  available  bus  units  to  SIHI  as  payment  in  kind  of  its  remaining  obligation.  The  buses  

were  valued  at  ~27M.  SIHI  accepted  the  offer  and  Delta  transferred  the  ownership  to  SIHI  which  acknowledged  full  payment  of  Delta’s  debt.  

! SIHI  was  not  able  to  take  possession  of  all  the  buses,  only  17,  which  was  not  sufficient  to  fulfill  the  obligation.  SIHI  filed  a  suit,  and  the  court  ordered  Delta  to  pay  the  remaining  amount  ~20M.  

! CBLI  agreed  that  Delta  could  extrajudicially  foreclose  on  the  chattel  mortgages  over  the  35  bus  units.  ! CBLI  refused  to  pay  SIHI  the  value  of  the  promissory  notes  saying  that  the  agreement  was  between  it  

and  Delta.  ! SIHI  filed  a  complaint  against  CBLI  for  collection.  ! Delta  bought  14  out  of  the  35  buses  and  sold  the  same  for  partial  satisfaction  of  its  debt  to  SIHI.  ! SIHI  moved  to  sell  the  16  buses  of  CBLI  and  was  granted.  SIHI  amended  the  motion  stating  that  14  of  

the  buses  had  already  been  sold  to  Delta,  and  the  2  others  were  sold  to  another  party.  ! The  TC  ruled  that  the  best  interest  of  the  parties  might  be  better  served  denying  further  sales  and  go  

direct  to  the  trial  of  the  case  on  the  merits.  (Pati  yung  cout  nahihilo  na  L  )  ! TC  ordered  SIHI  to  return  the  16  buses  or  pay  for  it.  ! TC:  the  restructuring  agreement  on  Oct  7,  1981  novated  the  5  promissory  notes,  at  the  time  Delta  

assigned  the  5    promissory  notes  to  SIHI,  the  notes  were  already  merged  into  the  restructuring  agreement  and  cannot  be  enforced  against  CBLI.  

! CA  Reversed.        

Kinds of Novation

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Issue/Ratio:  WON  the  restructuring  agreement  between  CBLI  and  Delta  novated  the  5  promissory  notes  assigned  to  SIHI.  NO    Novation  -­‐    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.  

Extinctive  Novation  –  an  old  obligation  is  terminated  by  the  creation  of  a  new  obligation  that  takes  the  place  of  the  former.  

Objective/Real  –  results  by  changing  the  object  or  principal  conditions.  Subjective/personal  –  results  by  substituting  the  person  of  the  debtor  or  subrogating  a  third  person  in  the  rights  of  the  creditor.  

Modificatory  Novation  –  old  obligation  subsists  to  the  extent  it  remains  compatible  with  the  amendatory  agreement.  

Functions  of  Novation  (1) Extinguish  an  existing  obligation  (2) Substitute  a  new  one  in  its  place  

Requisites  of  Novation  (1) PrevioUs  valid  obligation  (2) Agreement  of  all  parties  concerned  to  a  new  contract  (3) Extinguishment  of  the  old  obligation  (4) Birth  of  a  valid  new  obligation  

Indicators  of  Novation  (1) Novation  has  been  stated  in  clear  unequivocal  terms  (2) Old  and  new  obligations  are  incompatible  on  every  point  

 The  restructuring  agreement  between  Delta  and  CBLI  shows  that  the  parties  did  not  expressly  stipulate  

the  restructuring  agreement  novated  the  promissory  notes.  Absent  this,  there  must  be  a  showing  of  complete  incompatibility,  which  is  not  present.  

The  restructuring  agreement  contained  provisions  to  satisfy  the  obligation.  There  was  no  change  in  the  object  of  the  prior  obligations.  The  only  change  was  the  schedule  of  payment,  and  the  court  says  that  this  is  done  to  help  the  debtor  pay,  but  it  is  not  tantamount  to  a  novation.  

Delta’s  authority  to  collect  from  CBLI  was  revoked  when  SIHI  opted  to  directly  collect.