Case Digest (G.R. No. 160206)
Facts:
In 1979, Delta Motors Corporation–M.A.N. Division (Delta) secured a ₱25 million credit line from State Investment House, Inc. (SIHI) under three credit agreements dated May 11, June 19, and August 22. Delta discounted receivables and became indebted for ₱24,010,269.32. Between April 1979 and May 1980, California Bus Lines, Inc. (CBLI) acquired 35 M.A.N. diesel buses and two conversion engines from Delta, issuing sixteen promissory notes in January and April 1980 for ₱2,314,000 each, payable over 60 months at 14% interest per annum, with 25% attorney’s fees on judicial enforcement and chattel mortgages over the vehicles. Upon default, CBLI and its president entered into a restructuring agreement on October 7, 1981, which restructured past‐due installments, extended payment terms, raised interest to 16%, imposed 2% documentation and 4% restructuring fees, and authorized Delta to take over CBLI’s management after 60 days’ nonremittance. On December 23, 1981, Delta executed a ContinCase Digest (G.R. No. 160206)
Facts:
- Parties and Background
- California Bus Lines, Inc. (CBLI) purchased 35 buses from Delta Motors Corporation–M.A.N. Division (Delta) in 1979–1980, secured by 16 promissory notes and chattel mortgages.
- Delta obtained a P25,000,000.00 credit line from State Investment House, Inc. (SIHI) in 1979 under three credit agreements.
- Delta defaulted on its debt to SIHI, owing P24,010,269.32 by restructured loan agreements in 1982.
- Execution and Default of Promissory Notes
- CBLI and its president executed 16 promissory notes on January 23 and April 25, 1980, each for P2,314,000, payable in 60 monthly installments at 14% interest, plus 25% attorney’s fees on default.
- CBLI defaulted; on October 7, 1981, it entered into a restructuring agreement with Delta, amending installment schedules, raising interest to 16%, adding documentation (2%) and restructuring (4%) fees, and authorizing Delta to take over CBLI’s operations on further default.
- Assignment to SIHI and SIHI’s Direct Collection
- On September 15, 1983, Delta assigned five of the 16 promissory notes (Nos. 80-53 to 80-57; total P16,152,819.80) to SIHI.
- SIHI demanded direct payments from CBLI; Delta’s limited authority to collect was thereby revoked.
- Compromise Agreement and Foreclosure
- On July 24, 1984, CBLI and Delta (not SIHI) executed a compromise agreement in Pasay (Civil Case No. 0023-P) settling CBLI’s remaining 11 notes; the court approved it July 25, 1984.
- Delta extrajudicially foreclosed on chattel mortgages over the 35 buses on April 2, 1987, and acquired 14 units at sheriff’s sale.
- SIHI’s Suit and Attachments (Civil Case No. 84-28505)
- On December 26, 1984, SIHI sued CBLI for collection on the five assigned notes, sought preliminary attachment of CBLI’s properties.
- The RTC granted attachment January 4, 1985; CBLI’s motion to quash was denied by the CA July 31, 1987, affirming fraud in asset disposition.
- Trial Court’s Decision
- On June 3, 1993, RTC Manila, Branch 13, discharged CBLI from liability on the five notes, ruling the October 7, 1981 restructuring agreement novated (extinguished) them, and granted CBLI counterclaims for return/value of 16 buses.
- Court of Appeals Reversal
- On April 17, 2001 (CA-G.R. CV No. 52667), the CA reversed, holding CBLI liable for the five notes less proceeds from the 16 buses; eliminated attorney’s fees award.
- Supreme Court Appeal
- CBLI petitioned for review, raising errors on (a) renovation by restructuring agreement; (b) effect of compromise agreement; (c) validity of preliminary attachment; (d) application of Article 1484(3) Civil Code.
Issues:
- Did the October 7, 1981 restructuring agreement between CBLI and Delta novate (extinguish) the five promissory notes assigned to SIHI?
- Did the July 24, 1984 compromise agreement between CBLI and Delta in Civil Case No. 0023-P supersede and discharge the five notes?
- Was SIHI’s preliminary attachment of CBLI’s buses valid and free from malfeasance?
- Is SIHI barred by Article 1484(3) of the Civil Code from recovering on the five notes after foreclosure of the chattel mortgages?
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)