SECOND DIVISION.
.
CALIFORNIA BUS
LINES,
INC.,
Petitioner,
G.R.
No.
147950
December 11, 2003
-versus-
STATE INVESTMENT
HOUSE, INC.,
Respondent.
D E C I S I O N
QUISUMBING,
J.:
In this Petition
for Review, California Bus Lines, Inc., assails the Decision,[1]
dated April 17, 2001, of the Court of Appeals in CA-G.R. CV No. 52667,
reversing the judgment,[2]
dated June 3, 1993, of the Regional Trial Court of Manila, Branch 13,
in
Civil Case No. 84-28505 entitled State Investment House, Inc. v.
California
Bus Lines, Inc., for collection of a sum of money. The Court of Appeals
held petitioner California Bus Lines, Inc., liable for the value of
five
promissory notes assigned to respondent State Investment House, Inc.chanrobles virtuallaw libraryred
The facts, as culled
from the records, are as follows:
Sometime in
1979, Delta Motors Corporation - M.A.N. Division (Delta) applied for
financial
assistance from respondent State Investment House, Inc. (hereafter
SIHI),
a domestic corporation engaged in the business of quasi-banking. SIHI
agreed
to extend a credit line to Delta for P25,000,000.00 in three separate
credit
agreements dated May 11, June 19, and August 22, 1979.[3]
On several occasions, Delta availed of the credit line by discounting
with
SIHI some of its receivables, which evidence actual sales of Delta's
vehicles.
Delta eventually became indebted to SIHI to the tune of P24,010,269.32.[4]chanrobles virtuallaw libraryred
Meanwhile, from
April
1979 to May 1980, petitioner California Bus Lines, Inc. (hereafter
CBLI),
purchased on installment basis 35 units of M.A.N. Diesel Buses and two
(2) units of M.A.N. Diesel Conversion Engines from Delta. To secure the
payment of the purchase price of the 35 buses, CBLI and its president,
Mr. Dionisio O. Llamas, executed sixteen (16) promissory notes in favor
of Delta on January 23 and April 25, 1980.[5]
In each promissory note, CBLI promised to pay Delta or order,
P2,314,000
payable in 60 monthly installments starting August 31, 1980, with
interest
at 14% per annum. CBLI further 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,
whether actually incurred or not, in case of judicial proceedings to
enforce
collection. In addition to the notes, CBLI executed chattel mortgages
over
the 35 buses in Delta's favor.chanrobles virtuallaw libraryred
When CBLI
defaulted
on all payments due, it entered into a restructuring agreement with
Delta
on October 7, 1981, to cover its overdue obligations under the
promissory
notes.[6]
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 and/or its president,
Mr. Dionisio Llamas, remitted and/or updated CBLI's past due account.
CBLI
and Delta also increased the interest rate to 16% p.a. and added a
documentation
fee of 2% p.a. and a 4% p.a. restructuring fee.chanrobles virtuallaw libraryred
On December 23,
1981,
Delta executed a Continuing Deed of Assignment of Receivables[7]
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
31, 1982.[8]
Delta obligated itself to pay a fixed monthly amortization of P400,000
to SIHI and to discount with SIHI P8,000,000 worth of receivables with
the understanding that SIHI shall apply the proceeds against Delta's
overdue
accounts.chanrobles virtuallaw libraryred
CBLI continued
having
trouble meeting its obligations to Delta. This prompted Delta to
threaten
CBLI with the enforcement of the management takeover clause. To
pre-empt
the take-over, CBLI filed on May 3, 1982, a complaint for injunction[9],
docketed as Civil Case No. 0023-P, with the Court of First Instance of
Rizal, Pasay City, (now Regional Trial Court of Pasay City). In due
time,
Delta filed its amended answer with applications for the 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.[10]
On December 27, 1982,[11]
the trial court granted Delta's prayer for issuance of a writ of
preliminary
mandatory injunction and preliminary attachment on account of the
fraudulent
disposition by CBLI of its assets.chanrobles virtuallaw libraryred
On September 15,
1983,
pursuant to the Memorandum of Agreement, Delta executed a Deed of Sale[12]
assigning to SIHI five (5) of the sixteen (16) promissory notes[13]
from California Bus Lines, Inc. At the time of assignment, these five
promissory
notes, identified and numbered as 80-53, 80-54, 80-55, 80-56, and
80-57,
had a total value of P16,152,819.80 inclusive of interest at 14% per
annum.chanrobles virtuallaw libraryred
SIHI subsequently
sent
a demand letter dated December 13, 1983,[14]
to CBLI requiring CBLI to remit the payments due on the five promissory
notes directly to it. CBLI replied informing SIHI of Civil Case No.
0023-P
and of the fact that Delta had taken over its management and operations.[15]
As regards Delta's
remaining
obligation to SIHI, Delta offered its available bus units, valued at
P27,067,162.22,
as payment in kind.[16]
On December 29, 1983, SIHI accepted Delta's offer, and Delta
transferred
the ownership of its available buses to SIHI, which in turn
acknowledged
full payment of Delta's remaining obligation.[17]
When SIHI was unable to take possession of the buses, SIHI filed a
petition
for recovery of possession with prayer for issuance of a writ of
replevin
before the RTC of Manila, Branch 6, docketed as Civil Case No.
84-23019.
The Manila RTC issued a writ of replevin and SIHI was able to take
possession
of 17 bus units belonging to Delta. SIHI applied the proceeds from the
sale of the said 17 buses amounting to P12,870,526.98 to Delta's
outstanding
obligation. Delta's obligation to SIHI was thus reduced to
P20,061,898.97.
On December 5, 1984, Branch 6 of the RTC of Manila rendered judgment in
Civil Case No. 84-23019 ordering Delta to pay SIHI this amount.chanrobles virtuallaw libraryred
Thereafter, Delta
and
CBLI entered into a compromise agreement on July 24, 1984,[18]
in Civil Case No. 0023-P, the injunction case before the RTC of Pasay.
CBLI agreed that Delta would exercise its right to extrajudicially
foreclose
on the chattel mortgages over the 35 bus units. The RTC of Pasay
approved
this compromise agreement the following day, July 25, 1984.[19]
Following this, CBLI vehemently refused to pay SIHI the value of the
five
promissory notes, contending that the compromise agreement was in full
settlement of all its obligations to Delta including its obligations
under
the promissory notes.chanrobles virtuallaw libraryred
On December 26,
1984,
SIHI filed a complaint, docketed as Civil Case No. 84-28505, against
CBLI
in the Regional Trial Court of Manila, Branch 34, to collect on the
five
(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.[20]chanrobles virtuallaw libraryred
On December 28,
1984,
Delta filed a petition for extrajudicial foreclosure of chattel
mortgages
pursuant to its compromise agreement with CBLI. On January 2, 1985,
Delta
filed in the RTC of Pasay a motion for execution of the judgment based
on the compromise agreement.[21]
The RTC of Pasay granted this motion the following day.[22]chanrobles virtuallaw libraryred
In view of Delta's
petition
and motion for execution per the judgment of compromise, the RTC of
Manila
granted in Civil Case No. 84-28505 SIHI's application for preliminary
attachment
on January 4, 1985.[23]
Consequently, SIHI was able to attach and physically take possession of
thirty-two (32) buses belonging to CBLI.[24]
However, acting on CBLI's motion to quash the writ of preliminary
attachment,
the same court resolved on January 15, 1986,[25]
to discharge the writ of preliminary attachment. SIHI assailed the
discharge
of the writ before the Intermediate Appellate Court (now Court of
Appeals)
in a petition for certiorari and prohibition, docketed as CA-G.R. SP
No.
08378. On July 31, 1987, the Court of Appeals granted SIHI's petition
in
CA-GR SP No. 08378 and ruled that the writ of preliminary attachment
issued
by Branch 34 of the RTC Manila in Civil Case No. 84-28505 should stay.[26]
The decision of the Court of Appeals attained finality on August 22,
1987.[27]chanrobles virtuallaw libraryred
Meanwhile,
pursuant
to the January 3, 1985 Order of the 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 P3,920,000.[28]
On April 7, 1987, the sheriff of Manila, by virtue of the writ of
execution
dated March 27, 1987, issued by Branch 6 of the RTC of Manila in Civil
Case No. 84-23019, sold the same 14 buses at public auction in partial
satisfaction of the judgment SIHI obtained against Delta in Civil Case
No. 84-23019.chanrobles virtuallaw libraryred
Sometime in May
1987,
Civil Case No. 84-28505 was raffled to Branch 13 of the RTC of Manila
in
view of the retirement of the presiding judge of Branch 34.
Subsequently,
SIHI moved to sell the sixteen (16) buses of CBLI which had previously
been attached by the sheriff in Civil Case No. 84-28505 pursuant to the
January 4, 1985, Order of the RTC of Manila.[29]
SIHI's motion was granted on December 16, 1987.[30]
On November 29, 1988, however, SIHI filed an urgent ex-parte motion to
amend this order claiming that through inadvertence and excusable
negligence
of its new counsel, it made a mistake in the list of buses in the
Motion
to Sell Attached Properties it had earlier filed.[31]
SIHI explained that 14 of the buses listed had already been sold to
Delta
on April 2, 1987, by virtue of the January 3, 1985 Order of the RTC of
Pasay, and that two of the buses listed had been released to third
party,
claimant Pilipinas Bank, by Order dated September 16, 1987[32]
of Branch 13 of the RTC of Manila.
CBLI opposed
SIHI's
motion to allow the sale of the 16 buses. On May 3, 1989,[33]
Branch 13 of the RTC of Manila denied SIHI's urgent motion to allow the
sale of the 16 buses listed in its motion to amend. The trial court
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.[34]chanrobles virtuallaw libraryred
After trial,
judgment
was rendered in Civil Case No. 84-28505 on June 3, 1993, discharging
CBLI
from liability on the five promissory notes. The trial court likewise
favorably
ruled on CBLI's compulsory counterclaim. The trial court directed SIHI
to return the 16 buses or to pay CBLI P4,000,000 representing the value
of the seized buses, with interest at 12% p.a. to begin from January
11,
1985, the date SIHI seized the buses, until payment is made. In ruling
against SIHI, the trial court held that the restructuring agreement
dated
October 7, 1981, between Delta and CBLI novated the five promissory
notes;
hence, at the time Delta assigned the five promissory notes to SIHI,
the
notes were already merged in the restructuring agreement and cannot be
enforced against CBLI.chanrobles virtuallaw libraryred
SIHI appealed the
decision
to the Court of Appeals. The case was docketed as CA-G.R. CV No. 52667.
On April 17, 2001, the Court of Appeals decided CA-G.R. CV No. 52667 in
this manner:chanrobles virtuallaw libraryred
WHEREFORE,
based on the foregoing premises and finding the appeal to be
meritorious,
We find defendant-appellee CBLI liable for the value of the five (5)
promissory
notes subject of the complaint a quo less the proceeds from the
attached
sixteen (16) buses. The award of attorney's fees and costs is
eliminated.
The appealed decision is hereby REVERSED. No costs.chanrobles virtuallaw libraryred
SO ORDERED.[35]
Hence, this appeal
where
CBLI contends that: I
THE COURT OF APPEALS
ERRED IN DECLARING THAT THE RESTRUCTURING AGREEMENT BETWEEN DELTA AND
THE
PETITIONER DID NOT SUBSTANTIALLY NOVATE THE TERMS OF THE FIVE
PROMISSORY
NOTES.
II
THE COURT OF APPEALS
ERRED IN HOLDING THAT THE COMPROMISE AGREEMENT BETWEEN DELTA AND THE
PETITIONER
IN THE PASAY CITY CASE DID NOT SUPERSEDE AND DISCHARGE THE PROMISSORY
NOTES.
III
THE COURT OF APPEALS
ERRED IN UPHOLDING THE CONTINUING VALIDITY OF THE PRELIMINARY
ATTACHMENT
AND EXONERATING THE RESPONDENT OF MALEFACTIONS IN PRESERVING AND
ASSERTING
ITS RIGHTS THEREUNDER.[36]
Essentially, the issues
are (1) whether the Restructuring Agreement dated October 7, 1981,
between
petitioner CBLI and Delta Motors, Corp. novated the five promissory
notes
Delta Motors, Corp. assigned to respondent SIHI, and (2) whether the
compromise
agreement in Civil Case No. 0023-P superseded and/or discharged the
subject
five promissory notes. The issues being interrelated, they shall be
jointly
discussed.chanrobles virtuallaw libraryred
CBLI first contends
that the Restructuring Agreement did not merely change the incidental
elements
of the obligation under all sixteen (16) promissory notes, but it also
increased the obligations of CBLI with the addition of new obligations
that were incompatible with the old obligations in the said notes.[37]
CBLI adds that even if the restructuring agreement did not totally
extinguish
the obligations under the sixteen (16) promissory notes, the July 24,
1984,
compromise agreement executed in Civil Case No. 0023-P did.[38]
CBLI cites paragraph 5 of the compromise agreement which states that
the
agreement between it and CBLI was in "full and final settlement,
adjudication
and termination of all their rights and obligations as of the date of
(the)
agreement, and of the issues in (the) case." According to CBLI,
inasmuch
as the five promissory notes were subject matters of the Civil Case No.
0023-P, the decision approving the compromise agreement operated as res
judicata in the present case.[39]chanrobles virtuallaw libraryred
Novation has been defined
as 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.[40]
Novation, in its broad
concept, may either be extinctive or modificatory.[41]
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.[42]
An extinctive novation results either by changing the object or
principal
conditions (objective or real), or by substituting the person of the
debtor
or subrogating a third person in the rights of the creditor (subjective
or personal).[43]
Novation has two functions: one to extinguish an existing obligation,
the
other to substitute a new one in its place.[44]
For novation to take place, four 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.[45]
Novation is never presumed,[46]
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.[47]chanrobles virtuallaw libraryred
The extinguishment of
the old obligation by the new one is a necessary element of novation
which
may be effected either expressly or impliedly.[48]
The term "expressly" means that the contracting parties
incontrovertibly
disclose that their object in executing the new contract is to
extinguish
the old one.[49]
Upon the other hand, no specific form is required for an implied
novation,
and all that is prescribed by law would be an incompatibility between
the
two contracts.[50]
While there is really no hard and fast rule to determine what might
constitute
to be a sufficient change that can bring about novation, the touchstone
for contrariety, however, would be an irreconcilable incompatibility
between
the old and the new obligations.chanrobles virtuallaw libraryred
There are two ways which
could indicate, in fine, 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
the two obligations can stand together, each one having its independent
existence.[51]
If they cannot, they are incompatible and the latter obligation novates
the first.[52]
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.[53]chanrobles virtuallaw libraryred
The necessity to prove
the foregoing by clear and convincing evidence is accentuated where the
obligation of the debtor invoking the defense of novation has already
matured.[54]chanrobles virtuallaw libraryred
With respect to obligations
to pay a sum of money, this Court has consistently applied the
well-settled
rule that the 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.[55]chanrobles virtuallaw libraryred
In Inchausti & Co.
v. Yulo[56]
this Court held that an obligation to pay a sum of money is not novated
in a new instrument wherein the old is ratified, by changing only the
term
of payment and adding other obligations not incompatible with the old
one.
In Tible v. Aquino[57]
and Pascual v. Lacsamana[58]
this Court declared that it is well settled that a mere extension of
payment
and the addition of another obligation not incompatible with the old
one
is not a novation thereof.cralaw:red
In this case, the attendant
facts do not make out a case of novation. The restructuring agreement
between
Delta and CBLI executed on October 7, 1981, 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.[59]
However, our review of its terms yields no incompatibility between the
promissory notes and the restructuring agreement.chanrobles virtuallaw libraryred
The five promissory
notes, which Delta assigned to SIHI on September 13, 1983, contained
the
following common stipulations:
1. They
were
payable in 60 monthly installments up to July 31, 1985;
2. Interest: 14% per
annum;chanrobles virtuallaw libraryred
3. Failure to pay any
of the installments would render the entire remaining balance due and
payable
at the option of the holder of the notes;
4. In case of
judicial
collection on the notes, the maker (CBLI) and co-maker (its president,
Mr. Dionisio O. Llamas, Jr.) were solidarily liable of attorney's fees
and expenses of 25% of the amount due in addition to the costs of suit.chanrobles virtuallaw libraryred
The restructuring
agreement,
for its part, had the following provisions:
WHEREAS,
CBL
and LLAMAS admit their past due installment on the following promissory
notes:
a. PN Nos. 16 to
26
(11 units) - Past Due as of September 30, 1981
— P1,411,434.00chanrobles virtuallaw libraryred
b. PN Nos. 52 to 57
(24 units) - Past Due as of September 30, 1981
— P1,105,353.00chanrobles virtuallaw libraryred
WHEREAS, the parties
agreed
to restructure the above-mentioned past due installments under the
following
terms and conditions:
a.
PN Nos. 16 to 26 (11 units) — 37 monthschanrobles virtuallaw libraryred
PN Nos. 52 to 57 (24 units) — 46 monthschanrobles virtuallaw libraryred
b.
Interest Rate: 16% per annumchanrobles virtuallaw libraryred
c.
Documentation Fee: 2% per annumchanrobles virtuallaw libraryred
d
Penalty previously incurred and Restructuring fee: 4% p.a.chanrobles virtuallaw libraryred
e.
Mode of Payment: Daily Remittancechanrobles virtuallaw libraryred
NOW, THEREFORE, for and
in consideration of the foregoing premises, the parties hereby agree
and
covenant as follows:
1. That the
past due installment referred to above plus the current and/or falling
due amortization as of October 1, 1981 for Promissory Notes Nos. 16 to
26 and 52 to 57 shall be paid by CBL and/or LLAMAS in accordance with
the
following schedule of payments:chanrobles virtuallaw libraryred
Daily
payments
of P11,000.00 from October 1 to December 31, 1981
Daily payments
of P12,000.00
from January 1, 1982 to March 31, 1982
Daily payments
of P13,000.00
from April 1, 1982 to June 30, 1982
Daily payments
of P14,000.00
from July 1, 1982 to September 30, 1982
Daily payments
of P15,000.00
from October 1, 1982 to December 31, 1982
Daily payments
of P16,000.00
from January 1, 1983 to June 30, 1983
Daily payments
of P17,000.00
from July 1, 1983
2. CBL or LLAMAS
shall
remit to DMC on or before 11:00 a.m. everyday the daily cash payments
due
to DMC in accordance with the schedule in paragraph 1. DMC may send a
collector
to receive the amount due at CBL's premises. All delayed remittances
shall
be charged additional 2% penalty interest per month.chanrobles virtuallaw libraryred
3. All payments
shall
be applied to amortizations and penalties due in accordance with
paragraph
of the restructured past due installments above mentioned and PN Nos.
16
to 26 and 52 to 57.chanrobles virtuallaw libraryred
4. DMC may at
anytime
assign and/or send its representatives to monitor the operations of CBL
pertaining to the financial and field operations and service and
maintenance
matters of M.A.N. units. Records needed by the DMC representatives in
monitoring
said operations shall be made available by CBL and LLAMAS.chanrobles virtuallaw libraryred
5. Within thirty
(30)
days after the end of the terms of the PN Nos. 16 to 26 and 52 to 57,
CBL
or LLAMAS shall remit in lump sum whatever balance is left after
deducting
all payments made from what is due and payable to DMC in accordance
with
paragraph 1 of this agreement and PN Nos. 16 to 26 and 52 to 57.chanrobles virtuallaw libraryred
6. In the event
that
CBL and LLAMAS fail to remit the daily remittance agreed upon and the
total
accumulated unremitted amount has reached and (sic) equivalent of Sixty
(60) days, DMC and Silverio shall exercise any or all of the following
options:chanrobles virtuallaw libraryred
(a) The
whole
sum remaining then unpaid plus 2% penalty per month and 16% interest
per
annum on total past due installments will immediately become due and
payable.
In the event of judicial proceedings to enforce collection, CBL and
LLAMAS
will pay to DMC an additional sum equivalent to 25% of the amount due
for
attorney's fees and expenses of collection, whether actually incurred
or
not, in addition to the cost of suit;chanrobles virtuallaw libraryred
(b) To enforce
in accordance
with law, their rights under the Chattel Mortgage over various M.A.N.
Diesel
bus with Nos. CU 80-39, 80-40, 80-41, 80-42, 80-43, 80-44 and 80-15,
and/orchanrobles virtuallaw libraryred
(c) To take over
management
and operations of CBL until such time that CBL and/or LLAMAS have
remitted
and/or updated their past due account with DMC.chanrobles virtuallaw libraryred
7. DMC and SILVERIO
shall
insure to CBL continuous supply of spare parts for the M.A.N. Diesel
Buses
and shall make available to CBL at the price prevailing at the time of
purchase, an inventory of spare parts consisting of at least ninety
(90%)
percent of the needs of CBL based on a moving 6-month requirement to be
prepared and submitted by CBL, and acceptable to DMC, within the first
week of each month.
8. Except as
otherwise
modified in this Agreement, the terms and conditions stipulated in PN
Nos.
16 to 26 and 52 to 57 shall continue to govern the relationship between
the parties and that the Chattel Mortgage over various M.A.N. Diesel
Buses
with Nos. CM No. 80-39, 80-40, 80-41, 80-42, 80-43, 80-44 and CM No.
80-15
as well as the Deed of Pledge executed by Mr. Llamas shall continue to
secure the obligation until full payment.
9. DMC and
SILVERIO
undertake to recall or withdraw its previous request to Notary Public
Alberto
G. Doller and to instruct him not to proceed with the public auction
sale
of the shares of stock of CBL subject-matter of the Deed of Pledge of
Shares.
LLAMAS, on the other hand, undertakes to move for the immediate
dismissal
of Civil Case No. 9460-P entitled "Dionisio O. Llamas vs. Alberto G.
Doller,
et al.", Court of First Instance of Pasay, Branch XXIX.[60]chanrobles virtuallaw libraryred
It is clear from the
foregoing
that the restructuring agreement, instead of containing provisions
"absolutely
incompatible" with the obligations of the judgment, expressly ratifies
such obligations in paragraph 8 and contains provisions for satisfying
them. There was no change in the object of the prior obligations. The
restructuring
agreement merely provided for a new schedule of payments and additional
security in paragraph 6 (c) giving Delta authority to take over the
management
and operations of CBLI in case CBLI fails to pay installments
equivalent
to 60 days. Where the parties to the new obligation expressly recognize
the continuing existence and validity of the old one, there can be no
novation.[61]
Moreover, this Court has ruled that an agreement subsequently executed
between a seller and a buyer that provided 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 tantamount to novation.[62]chanrobles virtuallaw libraryred
The addition of other
obligations likewise did not extinguish the promissory notes. In Young
v. CA,[63]
this Court ruled that a change in the incidental elements of, or an
addition
of such element to, an obligation, unless otherwise expressed by the
parties
will not result in its extinguishment.chanrobles virtuallaw libraryred
In fine, the restructuring
agreement can stand together with the promissory notes.cralaw:red
Neither is there merit
in CBLI's argument that the compromise agreement dated July 24, 1984,
in
Civil Case No. 0023-P superseded and/or discharged the five promissory
notes. Both Delta and CBLI cannot deny that the five promissory notes
were
no longer subject of Civil Case No. 0023-P when they entered into the
compromise
agreement on July 24, 1984.chanrobles virtuallaw libraryred
Having previously assigned
the five promissory notes to SIHI, Delta had no more right to
compromise
the same. Delta's limited authority to collect for SIHI stipulated in
the
September 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[64]of
the Civil Code, requires a special power of attorney, which is not
present
in this case. Incidentally, Delta's authority to collect in behalf of
SIHI
was, by express provision of the Continuing Deed of Assignment,[65]
automatically revoked when SIHI opted to collect directly from CBLI.chanrobles virtuallaw libraryred
As regards CBLI, SIHI's
demand letter dated December 13, 1983, requiring CBLI to remit the
payments
directly to SIHI effectively revoked Delta's limited right to collect
in
behalf of SIHI. This should have dispelled CBLI's erroneous notion that
Delta was acting in behalf of SIHI, with authority to compromise the
five
promissory notes.chanrobles virtuallaw libraryred
But more importantly,
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. CBLI and Delta stipulated in paragraph 5 of the agreement that:
5. This
Compromise
Agreement constitutes the entire understanding by and between the
plaintiffs
and the defendants as well as their lawyers, and operates as full and
final
settlement, adjudication and termination of all their rights and
obligations
as of the date of this agreement, and of the issues in this case.[66]chanrobles virtuallaw libraryred
Even in the absence of
such a provision, the compromise agreement still cannot bind SIHI under
the settled rule that a compromise agreement determines the rights and
obligations of only the parties to it.[67]
Therefore, we hold that the compromise agreement covered the rights and
obligations only of Delta and CBLI and only with respect to the eleven
(11) other promissory notes that remained with Delta.chanrobles virtuallaw libraryred
CBLI next maintains
that SIHI is estopped from questioning the compromise agreement because
SIHI failed to intervene in Civil Case No. 0023-P after CBLI informed
it
of the takeover by Delta of CBLI's management and operations and the
resultant
impossibility for CBLI to comply with its obligations in the subject
promissory
notes. CBLI also adds that SIHI's failure to intervene in Civil Case
No.
0023-P is proof that Delta continued to act in SIHI's behalf in
effecting
collection under the notes.chanrobles virtuallaw libraryred
The contention is untenable.
As a result of the assignment, Delta relinquished all its rights to the
subject promissory notes in favor of SIHI. This had the effect of
separating
the five promissory notes from the 16 promissory notes subject of Civil
Case No. 0023-P. From that time, CBLI's obligations to SIHI embodied in
the five promissory notes became separate and distinct from CBLI's
obligations
in eleven (11) other promissory notes that remained with Delta. Thus,
any
breach of these independent obligations gives rise to a separate cause
of action in favor of SIHI against CBLI. Considering that Delta's
assignment
to SIHI of these five promissory notes had the effect of removing the
said
notes from Civil Case No. 0023-P, there was no reason for SIHI to
intervene
in the said case. SIHI did not have any interest to protect in Civil
Case
No. 0023-P.chanrobles virtuallaw libraryred
Moreover, intervention
is not mandatory, but only optional and permissive.[68]
Notably, Section 2,[69]
Rule 12 of the then 1988 Revised Rules of Procedure uses the word 'may'
in defining the right to intervene. The present rules maintain the
permissive
nature of intervention in Section 1, Rule 19 of the 1997 Rules of Civil
Procedure, which provides as follows:chanrobles virtuallaw libraryred
Sec. 1. Who
may intervene. - A person who has a legal interest in the matter in
litigation,
or in the success of either of the parties, or an interest against
both,
or is so situated as to be adversely affected by a distribution or
other
disposition of property in the custody of the court or of an officer
thereof
may, with leave of court, be allowed to intervene in the action. The
court
shall consider whether or not the intervention will unduly delay or
prejudice
the adjudication of the rights of the original parties, and whether or
not the intervenor’s rights may be fully protected in a separate
proceeding.[70]chanrobles virtuallaw libraryred
Also, recall that Delta
transferred the five promissory notes to SIHI on September 13, 1983
while
Civil Case No. 0023-P was pending. Then as now, the rule in case of
transfer
of interest pendente lite is that the action may be continued by or
against
the original party unless the court, upon motion, directs the person to
whom the interest is transferred to be substituted in the action or
joined
with the original party.[71]
The non-inclusion of a necessary party does not prevent the court from
proceeding in the action, and the judgment rendered therein shall be
without
prejudice to the rights of such necessary party.[72]chanrobles virtuallaw libraryred
In light of the foregoing,
SIHI's refusal to intervene in Civil Case No. 0023-P in another court
does
not amount to an estoppel that may prevent SIHI from instituting a
separate
and independent action of its own.[73]
This is especially so since it does not appear that a separate
proceeding
would be inadequate to protect fully SIHI's rights.[74]
Indeed, SIHI's refusal to intervene is precisely because it considered
that its rights would be better protected in a separate and independent
suit.chanrobles virtuallaw libraryred
The judgment on compromise
in Civil Case No. 0023-P did not operate as res judicata to prevent
SIHI
from prosecuting its claims in the present case. As previously
discussed,
the compromise agreement and the judgment on compromise in Civil Case
No.
0023-P covered only Delta and CBLI and their respective rights under
the
11 promissory notes not assigned to SIHI. In contrast, the instant case
involves SIHI and CBLI and the five promissory notes. There being no
identity
of parties and subject matter, there is no res judicata.chanrobles virtuallaw libraryred
CBLI maintains, however,
that in any event, recovery under the subject promissory notes is no
longer
allowed by Article 1484(3)[75]
of the Civil Code, which prohibits a creditor from suing for the
deficiency
after it has foreclosed on the chattel mortgages. SIHI, being the
successor-in-interest
of Delta, is no longer allowed to recover on the promissory notes given
as security for the purchase price of the 35 buses because Delta had
already
extrajudicially foreclosed on the chattel mortgages over the said buses
on April 2, 1987.chanrobles virtuallaw libraryred
This claim is likewise
untenable.cralaw:red
Article 1484(3) finds
no application in the present case. The extrajudicial foreclosure of
the
chattel mortgages Delta effected cannot prejudice SIHI's rights. As
stated
earlier, the assignment of the five 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.
To sanction CBLI's argument and to apply Article 1484 (3) to this case
would work injustice to SIHI by depriving it of its right to collect
against
CBLI who has not paid its obligations.cralaw:red
That SIHI later on levied
on execution and acquired in the ensuing public sale in Civil Case No.
84-23019 the buses Delta earlier extrajudicially foreclosed on April 2,
1987, in Civil Case No. 0023-P, did not operate to render the
compromise
agreement and the foreclosure binding on SIHI. At the time SIHI
effected
the levy on execution to satisfy its judgment credit against Delta in
Civil
Case No. 84-23019, the said buses already pertained to Delta by virtue
of the April 2, 1987 auction sale. CBLI no longer had any interest in
the
said buses. Under the circumstances, we cannot see how SIHI's belated
acquisition
of the foreclosed buses operates to hold the compromise agreement — and
consequently Article 1484(3) — applicable to SIHI as CBLI contends.
CBLI's
last contention must, therefore, fail. We hold that the writ of
execution
to enforce the judgment of compromise in Civil Case No. 0023-P and the
foreclosure sale of April 2, 1987, done pursuant to the said writ of
execution
affected only the eleven (11) other promissory notes covered by the
compromise
agreement and the judgment on compromise in Civil Case No. 0023-P.chanrobles virtuallaw libraryred
In support of its third
assignment of error, CBLI maintains that there was no basis for SIHI's
application for a writ of preliminary attachment.[76]
According to CBLI, it committed no fraud in contracting its obligation
under the five promissory notes because it was financially sound when
it
issued the said notes on April 25, 1980.[77]
CBLI also asserts that at no time did it falsely represent to SIHI that
it would be able to pay its obligations under the five promissory notes.[78]
According to CBLI, it was not guilty of fraudulent concealment,
removal,
or disposal, or of fraudulent intent to conceal, remove, or dispose of
its properties to defraud its creditors;[79]
and that SIHI's bare allegations on this matter were insufficient for
the
preliminary attachment of CBLI's properties.[80]chanrobles virtuallaw libraryred
The question whether
the attachment of the sixteen (16) buses was valid and in accordance
with
law, however, has already been resolved with finality by the Court of
Appeals
in CA-G.R. SP No. 08376. In its July 31, 1987 decision, the Court of
Appeals
upheld the legality of the writ of preliminary attachment SIHI obtained
and ruled that the trial court judge acted with grave abuse of
discretion
in discharging the writ of attachment despite the clear presence of a
determined
scheme on the part of CBLI to dispose of its property. Considering that
the said Court of Appeals decision has already attained finality on
August
22, 1987, there exists no reason to resolve this question anew. Reasons
of public policy, judicial orderliness, economy and judicial time and
the
interests of litigants as well as the peace and order of society, all
require
that stability be accorded the solemn and final judgments of courts or
tribunals of competent jurisdiction.[81]
Finally, in the light
of the justness of SIHI's claim against CBLI, we cannot sustain CBLI's
contention that the Court of Appeals erred in dismissing its
counterclaim
for lost income and the value of the 16 buses over which SIHI obtained
a writ of preliminary attachment. Where the party who requested the
attachment
acted in good faith and without malice, the claim for damages resulting
from the attachment of property cannot be sustained.[82]chanrobles virtuallaw libraryred
WHEREFORE, the decision
dated April 17, 2001, of the Court of Appeals in CA-G.R. CV No. 52667
is
AFFIRMED. Petitioner California Bus Lines, Inc., is ORDERED to pay
respondent
State Investment House, Inc., the value of the five (5) promissory
notes
subject of the complaint in Civil Case No. 84-28505 less the proceeds
from
the sale of the attached sixteen (16) buses. No pronouncement as to
costs.chanrobles virtuallaw libraryred
SO ORDERED.chanrobles virtuallaw libraryred
Puno, Austria-Martinez,
Callejo, Sr. and Tinga, JJ.,
concur.chan
robles virtual law library
____________________________
Endnotes:
[1]
Rollo, pp. 62–72. Penned by Associate Justice Elvi John S. Asuncion and
concurred in by Associate Justices Cancio C. Garcia and Oswaldo D.
Agcaoili.chanrobles virtuallaw libraryred
[2]
Id. at 52–60.chanrobles virtuallaw libraryred
[3]
Records, pp. 10–21; 1077–1079.chanrobles virtuallaw libraryred
[4]
Id. at 3.chanrobles virtuallaw libraryred
[5]
Id. at 1215.chanrobles virtuallaw libraryred
[6]
Id. at 170–174.chanrobles virtuallaw libraryred
[7]
Id. at 22–26; 1080–1084.chanrobles virtuallaw libraryred
[8]
Id. at 28–31; 1086–1089.chanrobles virtuallaw libraryred
[9]
Id. at 175–181.chanrobles virtuallaw libraryred
[10]
Id. at 183–220.chanrobles virtuallaw libraryred
[11]
Id. at 225–236.chanrobles virtuallaw libraryred
[12]
Id. at 32–33; 1090–1091.chanrobles virtuallaw libraryred
[13]
Id. at 34–53; 1092–1111.chanrobles virtuallaw libraryred
[14]
Id. at 54–55; 1112–1113.chanrobles virtuallaw libraryred
[15]
Id. at 281.chanrobles virtuallaw libraryred
[16]
Id. at 282.chanrobles virtuallaw libraryred
[17]
Id. at 283–285.chanrobles virtuallaw libraryred
[18]
Id. at 258–264.chanrobles virtuallaw libraryred
[19]
Id. at 265.chanrobles virtuallaw libraryred
[20]
Id. at 1–9.chanrobles virtuallaw libraryred
[21]
Id. at 274–276.chanrobles virtuallaw libraryred
[22]
Id. at 278.chanrobles virtuallaw libraryred
[23]
Id. at 61.chanrobles virtuallaw libraryred
[24]
Id. at 292–295; 306.chanrobles virtuallaw libraryred
[25]
Id. at 691–694.chanrobles virtuallaw libraryred
[26]
CA Rollo, p. 103.chanrobles virtuallaw libraryred
[27]
Ibid.chanrobles virtuallaw libraryred
[28]
Id. at 101.chanrobles virtuallaw libraryred
[29]
Records, pp. 761–764.chanrobles virtuallaw libraryred
[30]
Id. at 772.chanrobles virtuallaw libraryred
[31]
Id. at 795–797.chanrobles virtuallaw libraryred
[32]
Id. at 755.chanrobles virtuallaw libraryred
[33]
Id. at 861–865.chanrobles virtuallaw libraryred
[34]
Id. at 864.chanrobles virtuallaw libraryred
[35]
Rollo, p. 72.chanrobles virtuallaw libraryred
[36]
Id at 26, 29–30, 36.chanrobles virtuallaw libraryred
[37]
Rollo, pp. 294–295.chanrobles virtuallaw libraryred
[38]
Id. at 297.chanrobles virtuallaw libraryred
[39]
Id. at 299.chanrobles virtuallaw libraryred
[40]
Idolor v. Court of Appeals, G.R. No. 141853, 7 February 2001, 351 SCRA
399, 407.
[41]
Ocampo-Paule v. Court of Appeals, G.R. No. 145872, 4 February 2002, 376
SCRA 83, 88.
[42]
Ibid.chanrobles virtuallaw libraryred
[43]
Babst v. Court of Appeals, G.R. Nos. 99398 & 104625, 26 January
2001,
350 SCRA 341, 356.
[44]
Ibid.chanrobles virtuallaw libraryred
[45]
Reyes v. Court of Appeals, G.R. No. 120817, 4 November 1996, 264 SCRA
35,
43.chanrobles virtuallaw libraryred
[46]
Sps. Reyes v. Court of Appeals, G.R. No. 147758, 26 June 2002, 383 SCRA
471, 482.chanrobles virtuallaw libraryred
[47]
Quinto v. People, G.R. No. 126712, 14 April 1999, 305 SCRA 708, 714.chanrobles virtuallaw libraryred
[48]
Ocampo-Paule v. Court of Appeals, supra, note 41 at 88.chanrobles virtuallaw libraryred
[49]
Quinto v. People, supra, note 47 at 715.chanrobles virtuallaw libraryred
[50]
Ocampo-Paule v. CA, supra, note 48.chanrobles virtuallaw libraryred
[51]
Molino v. Security Diners International Corporation, G.R. No. 136780,
16
August 2001, 363 SCRA 358, 366.
[52]
Ibid.chanrobles virtuallaw libraryred
[53]
Quinto v. People, supra note 47 at 715–716.chanrobles virtuallaw libraryred
[54]
Guerrero v. Court of Appeals, 140 Phil. 335, 342–343 (1969).chanrobles virtuallaw libraryred
[55]
Sps. Reyes v. Court of Appeals, supra, note 46; Magdalena Estates, Inc.
v. Rodriguez, 125 Phil. 151, 157 (1966).
[56]
34 Phil. 978, 986 (1914).chanrobles virtuallaw libraryred
[57]
No. L-28967, 22 July 1975, 65 SCRA 207, 218.chanrobles virtuallaw libraryred
[58]
100 Phil. 381, 385 (1956).chanrobles virtuallaw libraryred
[59]
Cochingyan, Jr. v. R&B Surety and Insurance Co., Inc., No. L-47369,
30 June 1987, 151 SCRA 339, 350.
[60]
Records, pp. 170–173.chanrobles virtuallaw libraryred
[61]
Cochingyan, Jr. v. R&B Surety and Insurance Co., Inc., No. L-47369,
30 June 1987, 151 SCRA 339, 350.chanrobles virtuallaw libraryred
[62]
Tropical Homes, Inc. v. Court of Appeals, G.R. No. 111858, 14 May 1997,
272 SCRA 428; See also Tible v. Aquino, No. L-28967, 22 July 1975, 65
SCRA
207, 217–218.
[63]
G.R. No. 83271, 8 May 1991, 196 SCRA 795, 800.chanrobles virtuallaw libraryred
[64]
ART. 1878. Special powers of attorney are necessary in the following
cases:chanroblesvirtuallawlibrarychanrobles virtuallaw libraryred
a.
x x
x
x x
x
x x xchanrobles virtuallaw libraryred
(3) To compromise, to submit questions to arbitration, to renounce the
right to appeal from a judgment, to waive objections to the venue of an
action or to abandon a prescription already acquired;
x x
x
x x
x
x x xchanrobles virtuallaw libraryred
[65]
Records, p. 3.chanrobles virtuallaw libraryred
[66]
Records, p. 264. Emphasis supplied.chanrobles virtuallaw libraryred
[67]
Guerrero v. Court of Appeals, No. L-22366, 30 October 1969, 29 SCRA
791,
796.chanrobles virtuallaw libraryred
[68]
Cruzcosa v. Hon. H. Concepcion, 101 Phil. 146, 150 (1957).chanrobles virtuallaw libraryred
[69]
69. SEC. 2. Intervention. — A person may, before or during a trial, be
permitted by the court, in its discretion, to intervene in an
action,
x x x
[70]
Emphasis supplied.chanrobles virtuallaw libraryred
[71]
Section 19, Rule 3 of the Rules of Court.chanrobles virtuallaw libraryred
[72]
Section 9, Rule 3 of the Rules of Court.chanrobles virtuallaw libraryred
[73]
See Vda. De Cailles v. Mayuga, G.R. No. 30859, 20 February 1989, 170
SCRA
347, 356.chanrobles virtuallaw libraryred
[74]
Ibid.chanrobles virtuallaw libraryred
[75]
75. ART. 1484. In a contract of sale of personal property the price of
which is payable in installments, the vendor may exercise any of the
following
remedies:chanroblesvirtuallawlibrary
(1) Exact fulfillment of the obligation, should the vendee fail to pay;chanrobles virtuallaw libraryred
(2) Cancel the sale, should the vendee's failure to pay cover two or
more
installments;chanrobles virtuallaw libraryred
(3) Foreclose the chattel mortgage of the thing sold, if one has been
constituted,
should the vendee's failure to pay cover two or more installments. In
this
case, he shall have no further action against the purchaser to recover
any unpaid balance of the price. Any agreement to the contrary shall be
void.chanrobles virtuallaw libraryred
[76]
Rollo, p. 304.chanrobles virtuallaw libraryred
[77]
Id. at 306–308.chanrobles virtuallaw libraryred
[78]
Id. at 304, 308.chanrobles virtuallaw libraryred
[79]
Id. at 309.chanrobles virtuallaw libraryred
[80]
Id at 309–310.chanrobles virtuallaw libraryred
[81]
Turqueza v. Hernando, No. L-51626, 30 April 1980, 97 SCRA 483, 488.
[82]
Banque Generale Belge v. Walter Bull & Co., Inc., 84 Phil. 164, 172
(1949).chanrobles virtuallaw libraryred |