California Bus Lines Inc Vs State Investment House Inc - 147950 - December 11, 2003 - J

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CaliforniaBusLinesIncvsStateInvestmentHouseInc:147950:December11,2003:J.Quisumbing:SecondDivision:Decision
SECONDDIVISION
[G.R.No.147950.December11,2003]
CALIFORNIABUSLINES,INC.,petitioner,vs.STATEINVESTMENTHOUSE,
INC.,respondent.
DECISION
QUISUMBING,J.:
[1]
Inthispetitionforreview,CaliforniaBusLines,Inc.,assailsthedecision, datedApril17,
[2]
2001,oftheCourtofAppealsinCAG.R.CVNo.52667,reversingthejudgment ,datedJune
3,1993,oftheRegionalTrialCourtofManila,Branch13,inCivilCaseNo.8428505entitled
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
promissorynotesassignedtorespondentStateInvestmentHouse,Inc.
Thefacts,asculledfromtherecords,areasfollows:
Sometimein1979,DeltaMotorsCorporationM.A.N.Division(Delta)appliedforfinancial
assistance from respondent State Investment House, Inc. (hereafter SIHI), a domestic
corporationengagedinthebusinessofquasibanking.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
[3]
August 22, 1979. On several occasions, Delta availed of the credit line by discounting with
SIHIsomeofitsreceivables,whichevidenceactualsalesofDeltasvehicles.Deltaeventually
[4]
becameindebtedtoSIHItothetuneofP24,010,269.32.
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.DieselConversionEnginesfromDelta.Tosecurethepaymentofthepurchasepriceof
the35buses,CBLIanditspresident,Mr.DionisioO.Llamas,executedsixteen(16)promissory
[5]
notes in favor of Delta on January 23 and April 25, 1980. In each promissory note, CBLI
promisedtopayDeltaororder,P2,314,000payablein60monthlyinstallmentsstartingAugust
31,1980,withinterestat14%perannum.CBLIfurtherpromisedtopaytheholderofthesaid
notes 25% of the amount due on the same as attorneys fees and expenses of collection,
whether actually incurred or not, in case of judicial proceedings to enforce collection. In
additiontothenotes,CBLIexecutedchattelmortgagesoverthe35busesinDeltasfavor.
When CBLI defaulted on all payments due, it entered into a restructuring agreement with
[6]
DeltaonOctober7,1981, to cover its overdue obligations under the promissory notes. The
restructuring agreement provided for a new schedule of payments of CBLIs 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
authoritytotakeoverthemanagementandoperationsofCBLIuntilCBLIand/oritspresident,
Mr.DionisioLlamas,remittedand/orupdatedCBLIs past due account. CBLI and Delta also
http://sc.judiciary.gov.ph/jurisprudence/2003/dec2003/147950.htm
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increased the interest rate to 16% p.a. and added a documentation fee of 2% p.a. and a 4%
p.a.restructuringfee.
[7]
OnDecember23,1981,DeltaexecutedaContinuingDeedofAssignmentofReceivables
infavorofSIHIassecurityforthepaymentofitsobligationstoSIHIperthecreditagreements.
InviewofDeltasfailuretopay,theloanagreementswererestructuredunderaMemorandum
[8]
of Agreement dated March 31, 1982. 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
withtheunderstandingthatSIHIshallapplytheproceedsagainstDeltasoverdueaccounts.
CBLI continued having trouble meeting its obligations to Delta. This prompted Delta to
threaten CBLI with the enforcement of the management takeover clause. To preempt the
[9]
takeover,CBLIfiledonMay3,1982,acomplaintforinjunction ,docketedasCivilCaseNo.
0023P, with the Court of First Instance of Rizal, Pasay City, (now Regional Trial Court of
PasayCity).Induetime,Deltafileditsamendedanswerwithapplicationsfortheissuanceofa
writofpreliminarymandatoryinjunctiontoenforcethemanagementtakeoverclauseandawrit
[10]
[11]
ofpreliminaryattachmentoverthebusesitsoldtoCBLI. OnDecember27,1982, thetrial
court granted Deltas prayer for issuance of a writ of preliminary mandatory injunction and
preliminaryattachmentonaccountofthefraudulentdispositionbyCBLIofitsassets.
On September 15, 1983, pursuant to the Memorandum of Agreement, Delta executed a
[12]
[13]
DeedofSale assigningtoSIHIfive(5)ofthesixteen(16)promissorynotes fromCalifornia

Bus Lines, Inc. At the time of assignment, these five promissory notes, identified and
numbered as 8053, 8054, 8055, 8056, and 8057, had a total value of P16,152,819.80
inclusiveofinterestat14%perannum.
[14]
SIHI subsequently sent a demand letter dated December 13, 1983, 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. 0023P and of the fact that Delta had taken over its
[15]
managementandoperations.
AsregardsDeltasremainingobligationtoSIHI,Deltaoffereditsavailablebusunits,valued
[16]
atP27,067,162.22,aspaymentinkind. OnDecember29,1983,SIHIacceptedDeltasoffer,
andDeltatransferredtheownershipofitsavailablebusestoSIHI,whichinturnacknowledged
[17]
fullpaymentofDeltasremainingobligation. WhenSIHIwasunabletotakepossessionofthe
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. 8423019. The
Manila RTC issued a writ of replevin and SIHI was able to take possession of 17 bus units
belongingtoDelta.SIHIappliedtheproceedsfromthesaleofthesaid17busesamountingto
P12,870,526.98toDeltasoutstandingobligation.DeltasobligationtoSIHIwasthusreduced
toP20,061,898.97.OnDecember5,1984,Branch6oftheRTCofManilarenderedjudgment
inCivilCaseNo.8423019orderingDeltatopaySIHIthisamount.
[18]
Thereafter,DeltaandCBLIenteredintoacompromiseagreementonJuly24,1984, in
CivilCaseNo.0023P,theinjunctioncasebeforetheRTCofPasay.CBLIagreedthatDelta
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,
[19]
1984. Followingthis,CBLIvehementlyrefusedtopaySIHIthevalueofthefivepromissory
notes,contendingthatthecompromiseagreementwasinfullsettlementofallitsobligationsto
Deltaincludingitsobligationsunderthepromissorynotes.
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On December 26, 1984, SIHI filed a complaint, docketed as Civil Case No. 8428505,
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
[20]
preliminaryattachmentagainstthepropertiesofCBLI.
On December 28, 1984, Delta filed a petition for extrajudicial foreclosure of chattel
mortgagespursuanttoitscompromiseagreementwithCBLI.OnJanuary2,1985,Deltafiledin
theRTCofPasayamotionforexecutionofthejudgmentbasedonthecompromiseagreement.
[21]
TheRTCofPasaygrantedthismotionthefollowingday.
[22]
In view of Deltas petition and motion for execution per the judgment of compromise, the
RTCofManilagrantedinCivilCaseNo.8428505SIHIsapplicationforpreliminaryattachment
[23]
onJanuary4,1985. Consequently,SIHIwasabletoattachandphysicallytakepossession
[24]
ofthirtytwo(32)busesbelongingtoCBLI.
However,actingonCBLIs motion to quash the

[25]
writ of preliminary attachment, the same court resolved on January 15, 1986, to discharge
the writ of preliminary attachment. SIHI assailed the discharge of the writ before the
IntermediateAppellateCourt(nowCourtofAppeals)inapetitionforcertiorariandprohibition,
docketedas CAG.R.SP No.08378.OnJuly31,1987, the Court of Appeals granted SIHIs
petition in CAGR SP No. 08378 and ruled that the writ of preliminary attachment issued by
[26]
Branch 34 of the RTC Manila in Civil Case No. 8428505 should stay. The decision of the
CourtofAppealsattainedfinalityonAugust22,1987.
[27]
Meanwhile, pursuant to the January 3, 1985 Order of the RTC of Pasay, the sheriff of
PasayCityconductedapublicauctionandissuedacertificateofsheriffssaletoDeltaonApril
[28]
2,1987,attestingtothefactthatDeltabought14ofthe35busesforP3,920,000. OnApril7,
1987,thesheriffofManila,byvirtueofthewritofexecutiondatedMarch27,1987,issuedby
Branch6oftheRTCofManilainCivilCaseNo.8423019,soldthesame14busesatpublic
auctioninpartialsatisfactionofthejudgmentSIHIobtainedagainstDeltainCivilCaseNo.84
23019.
SometimeinMay1987,CivilCaseNo.8428505wasraffledtoBranch13oftheRTCof
ManilainviewoftheretirementofthepresidingjudgeofBranch34.Subsequently,SIHImoved
tosellthesixteen(16)busesofCBLIwhichhadpreviouslybeenattachedbythesheriffinCivil
[29]
Case No. 8428505 pursuant to the January 4, 1985, Order of the RTC of Manila. SIHIs
[30]
motionwasgrantedonDecember16,1987. OnNovember29,1988,however,SIHIfiledan
urgentexpartemotiontoamendthisorderclaimingthatthroughinadvertenceandexcusable
negligence of its new counsel, it made a mistake in the list of buses in the Motion to Sell
[31]
AttachedPropertiesithadearlierfiled. SIHIexplainedthat14ofthebuseslistedhadalready
beensoldtoDeltaonApril2,1987,byvirtueoftheJanuary3,1985OrderoftheRTCofPasay,
and that two of the buses listed had been released to third party, claimant PilipinasBank,by
[32]
OrderdatedSeptember16,1987
ofBranch13oftheRTCofManila.
[33]
CBLIopposedSIHIsmotiontoallowthesaleofthe16buses.OnMay3,1989, Branch
13oftheRTCofManiladeniedSIHIsurgentmotiontoallowthesaleofthe16buseslistedin
itsmotiontoamend.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
[34]
merits.
Aftertrial,judgmentwasrenderedinCivilCaseNo.8428505onJune3,1993,discharging
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CBLI from liability on the five promissory notes. The trial court likewise favorably ruled on
CBLIscompulsorycounterclaim.ThetrialcourtdirectedSIHItoreturnthe16busesortopay
CBLIP4,000,000representingthevalueoftheseizedbuses,withinterestat12%p.a.tobegin
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,
betweenDeltaandCBLInovatedthefivepromissorynoteshence,atthetimeDeltaassigned
the five promissory notes to SIHI, the notes were already merged in the restructuring
agreementandcannotbeenforcedagainstCBLI.
SIHIappealedthedecisiontotheCourtofAppeals.ThecasewasdocketedasCAG.R.
CVNo.52667.OnApril17,2001,theCourtofAppealsdecidedCAG.R.CVNo.52667inthis
manner:
WHEREFORE,basedontheforegoingpremisesandfindingtheappealtobemeritorious,Wefind
defendantappelleeCBLIliableforthevalueofthefive(5)promissorynotessubjectofthecomplainta
quolesstheproceedsfromtheattachedsixteen(16)buses.Theawardofattorneysfeesandcostsis
eliminated.TheappealeddecisionisherebyREVERSED.Nocosts.
[35]
SOORDERED.
Hence,thisappealwhereCBLIcontendsthat
I. THE COURT OF APPEALS ERRED IN DECLARING THAT THE RESTRUCTURING
AGREEMENT BETWEEN DELTA AND THE PETITIONER DID NOT SUBSTANTIALLY
NOVATETHETERMSOFTHEFIVEPROMISSORYNOTES.
II. THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPROMISE
AGREEMENT BETWEEN DELTA AND THE PETITIONER IN THE PASAY CITY CASE
DIDNOTSUPERSEDEANDDISCHARGETHEPROMISSORYNOTES.
III.THECOURTOFAPPEALSERREDINUPHOLDINGTHECONTINUINGVALIDITYOF
THE PRELIMINARY ATTACHMENT AND EXONERATING THE RESPONDENT OF
[36]
MALEFACTIONSINPRESERVINGANDASSERTINGITSRIGHTSTHEREUNDER.
Essentially,theissuesare(1)whethertheRestructuringAgreementdatedOctober7,1981,
between petitioner CBLI and Delta Motors, Corp. novated the five promissory notes Delta
Motors,Corp.assignedtorespondentSIHI,and(2)whetherthecompromiseagreementinCivil
CaseNo.0023Psupersededand/ordischargedthesubjectfivepromissorynotes.Theissues
beinginterrelated,theyshallbejointlydiscussed.
CBLIfirstcontendsthattheRestructuringAgreementdidnotmerelychangetheincidental
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
[37]
obligations in the said notes. CBLI adds that even if the restructuring agreement did not
totally extinguish the obligations under the sixteen (16) promissory notes, the July 24, 1984,
[38]
compromiseagreementexecutedinCivilCaseNo.0023Pdid. CBLI cites paragraph 5 of

thecompromiseagreementwhichstatesthattheagreementbetweenitandCBLIwasinfull
and final settlement, adjudication and termination of all their rights and obligations as of the
dateof(the)agreement,andoftheissuesin(the)case.AccordingtoCBLI,inasmuchasthe
five promissory notes were subject matters of the Civil Case No. 0023P, the decision
[39]
approvingthecompromiseagreementoperatedasresjudicatainthepresentcase.
Novation has been defined as the extinguishment of an obligation by the substitution or
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changeoftheobligationbyasubsequentonewhichterminatesthefirst,eitherbychangingthe
objectorprincipalconditions,orbysubstitutingthepersonofthedebtor,orsubrogatingathird
[40]
personintherightsofthecreditor.
[41]
Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive

whenanoldobligationisterminatedbythecreationofanewobligationthattakestheplaceof
the former it is merely modificatory when the old obligation subsists to the extent it remains
[42]
compatiblewiththeamendatoryagreement. Anextinctivenovationresultseitherbychanging
theobjectorprincipalconditions(objectiveorreal),orbysubstitutingthepersonofthedebtor
[43]
orsubrogatingathirdpersonintherightsofthecreditor(subjectiveorpersonal). Novation
hastwofunctions:onetoextinguishanexistingobligation,theothertosubstituteanewonein
[44]
itsplace. Fornovationtotakeplace,fouressentialrequisiteshavetobemet,namely,(1)a
previousvalidobligation(2)anagreementofallpartiesconcernedtoanewcontract(3)the
[45]
extinguishmentoftheoldobligationand(4)thebirthofavalidnewobligation.
[46]
Novationisneverpresumed, andtheanimusnovandi,whether totally or partially, must

appearbyexpressagreementoftheparties,orbytheiractsthataretooclearandunequivocal
[47]
tobemistaken.
Theextinguishmentoftheoldobligationbythenewoneisanecessaryelementofnovation
[48]
which may be effected either expressly or impliedly. The term "expressly" means that the
contractingpartiesincontrovertiblydisclosethattheirobjectinexecutingthenewcontractisto
[49]
extinguish the old one. 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
[50]
contracts. Whilethereisreallynohardandfastruletodeterminewhatmightconstitutetobe
a sufficient change that can bring about novation, the touchstone for contrariety, however,
wouldbeanirreconcilableincompatibilitybetweentheoldandthenewobligations.
There are two ways which could indicate, in fine, the presence of novation and thereby
producetheeffectofextinguishinganobligationbyanotherwhichsubstitutesthesame.The
first is when novation has been explicitly stated and declared in unequivocal terms. The
secondiswhentheoldandthenewobligationsareincompatibleoneverypoint.Thetestof
incompatibility is whether the two obligations can stand together, each one having its
[51]
independentexistence. Iftheycannot,theyareincompatibleandthelatterobligationnovates
[52]
thefirst. Corollarily, changes that breed incompatibility must be essential in nature and not
merelyaccidental.Theincompatibilitymusttakeplaceinanyoftheessentialelementsofthe
obligation,suchasitsobject,causeorprincipalconditionsthereofotherwise,thechangewould
[53]
bemerelymodificatoryinnatureandinsufficienttoextinguishtheoriginalobligation.
The necessity to prove the foregoing by clear and convincing evidence is accentuated
[54]
wheretheobligationofthedebtorinvokingthedefenseofnovationhasalreadymatured.
Withrespecttoobligationstopayasumofmoney,thisCourthasconsistentlyappliedthe
wellsettled rule that the obligation is not novated by an instrument that expressly recognizes
theold,changesonlythetermsofpayment,andaddsotherobligationsnotincompatiblewith
[55]
theoldones,orwherethenewcontractmerelysupplementstheoldone.
[56]
InInchausti&Co.v.Yulo
thisCourtheldthatanobligationtopayasumofmoneyisnot
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novatedinanewinstrumentwhereintheoldisratified,bychangingonlythetermofpayment
[57]
and adding other obligations not incompatible with the old one. In Tible v. Aquino and
[58]
Pascual v. Lacsamana 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
novationthereof.
In this case, the attendant facts do not make out a case of novation. The restructuring
agreementbetweenDeltaandCBLIexecutedonOctober7,1981,showsthatthepartiesdid
notexpresslystipulatethattherestructuringagreementnovatedthepromissorynotes.Absent
anunequivocaldeclarationofextinguishmentofthepreexistingobligation,onlyashowingof
complete incompatibility between the old and the new obligation would sustain a finding of
[59]
novationbyimplication. However,ourreviewofitstermsyieldsnoincompatibilitybetween
thepromissorynotesandtherestructuringagreement.
Thefivepromissorynotes,whichDeltaassignedtoSIHIonSeptember13,1983,contained
thefollowingcommonstipulations:
1.Theywerepayablein60monthlyinstallmentsuptoJuly31,1985
2.Interest:14%perannum
3.Failuretopayanyoftheinstallmentswouldrendertheentireremainingbalancedueand
payableattheoptionoftheholderofthenotes
4.Incaseofjudicialcollectiononthenotes,themaker(CBLI)andcomaker(itspresident,
Mr.DionisioO.Llamas,Jr)weresolidarilyliableofattorneysfeesandexpensesof25%
oftheamountdueinadditiontothecostsofsuit.
Therestructuringagreement,foritspart,hadthefollowingprovisions:
WHEREAS,CBLandLLAMASadmittheirpastdueinstallmentonthefollowingpromissorynotes:
a.PNNos.16to26(11units)
PastDueasofSeptember30,1981P1,411,434.00
b.PNNos.52to57(24units)
PastDueasofSeptember30,1981P1,105,353.00
WHEREAS,thepartiesagreedtorestructuretheabovementionedpastdueinstallmentsunderthe
followingtermsandconditions:
a.PNNos.16to26(11units)37months
PNNos.52to57(24units)46months
b.InterestRate:16%perannum
c.DocumentationFee:2%perannum
d.PenaltypreviouslyincurredandRestructuringfee:4%p.a.
e.ModeofPayment:DailyRemittance
NOW,THEREFORE,forandinconsiderationoftheforegoingpremises,thepartiesherebyagreeand
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covenantasfollows:
1.Thatthepastdueinstallmentreferredtoaboveplusthecurrentand/orfallingdueamortizationasof
October1,1981forPromissoryNotesNos.16to26and52to57shallbepaidbyCBLand/orLLAMAS
inaccordancewiththefollowingscheduleofpayments:
DailypaymentsofP11,000.00from
October1toDecember31,1981
January1,1982toMarch31,1982
April1,1982toJune30,1982
July1,1982toSeptember30,1982
October1,1982toDecember31,1982
January1,1983toJune30,1983
July1,1983
2.CBLorLLAMASshallremittoDMConorbefore11:00a.m.everydaythedailycashpaymentsdue
toDMCinaccordancewiththescheduleinparagraph1.DMCmaysendacollectortoreceivethe
amountdueatCBLspremises.Alldelayedremittancesshallbechargedadditional2%penaltyinterest
permonth.
3.Allpaymentsshallbeappliedtoamortizationsandpenaltiesdueinaccordancewithparagraphofthe
restructuredpastdueinstallmentsabovementionedandPNNos.16to26and52to57.
4.DMCmayatanytimeassignand/orsenditsrepresentativestomonitortheoperationsofCBL
pertainingtothefinancialandfieldoperationsandserviceandmaintenancemattersofM.A.N.units.
RecordsneededbytheDMCrepresentativesinmonitoringsaidoperationsshallbemadeavailableby
CBLandLLAMAS.
5.Withinthirty(30)daysaftertheendofthetermsofthePNNos.16to26and52to57,CBLor
LLAMASshallremitinlumpsumwhateverbalanceisleftafterdeductingallpaymentsmadefromwhat
isdueandpayabletoDMCinaccordancewithparagraph1ofthisagreementandPNNos.16to26and
52to57.
6.IntheeventthatCBLandLLAMASfailtoremitthedailyremittanceagreeduponandthetotal
accumulatedunremittedamounthasreachedand(sic)equivalentofSixty(60)days,DMCandSilverio
shallexerciseanyorallofthefollowingoptions:
(a)Thewholesumremainingthenunpaidplus2%penaltypermonthand16%interest
perannumontotalpastdueinstallmentswillimmediatelybecomedueand
payable.Intheeventofjudicialproceedingstoenforcecollection,CBLand
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LLAMASwillpaytoDMCanadditionalsumequivalentto25%oftheamountduefor
attorneysfeesandexpensesofcollection,whetheractuallyincurredornot,inaddition
tothecostofsuit
(b)Toenforceinaccordancewithlaw,theirrightsundertheChattelMortgageovervarious
M.A.N.DieselbuswithNos.CU8039,8040,8041,8042,8043,8044and8015,
and/or
(c)TotakeovermanagementandoperationsofCBLuntilsuchtimethatCBLand/or
LLAMAShaveremittedand/orupdatedtheirpastdueaccountwithDMC.
7.DMCandSILVERIOshallinsuretoCBLcontinuoussupplyofsparepartsfortheM.A.N.Diesel
BusesandshallmakeavailabletoCBLatthepriceprevailingatthetimeofpurchase,aninventoryof
sparepartsconsistingofatleastninety(90%)percentoftheneedsofCBLbasedonamoving6month
requirementtobepreparedandsubmittedbyCBL,andacceptabletoDMC,withinthefirstweekofeach
month.
8.ExceptasotherwisemodifiedinthisAgreement,thetermsandconditionsstipulatedinPNNos.16to
26and52to57shallcontinuetogoverntherelationshipbetweenthepartiesandthattheChattel
MortgageovervariousM.A.N.DieselBuseswithNos.CMNo.8039,8040,8041,8042,8043,8044
andCMNo.8015aswellastheDeedofPledgeexecutedbyMr.Llamasshallcontinuetosecurethe
obligationuntilfullpayment.
9.DMCandSILVERIOundertaketorecallorwithdrawitspreviousrequesttoNotaryPublicAlbertoG.
DollerandtoinstructhimnottoproceedwiththepublicauctionsaleofthesharesofstockofCBL
subjectmatteroftheDeedofPledgeofShares.LLAMAS,ontheotherhand,undertakestomoveforthe
immediatedismissalofCivilCaseNo.9460PentitledDionisioO.Llamasvs.AlbertoG.Doller,etal.,
[60]
CourtofFirstInstanceofPasay,BranchXXIX.
It is clear from the foregoing that the restructuring agreement, instead of containing
provisionsabsolutelyincompatiblewiththeobligationsofthejudgment,expresslyratifiessuch
obligationsinparagraph8andcontainsprovisionsforsatisfyingthem.Therewasnochangein
the object of the prior obligations. The restructuring agreement merely provided for a new
scheduleofpaymentsandadditionalsecurityinparagraph6(c)givingDeltaauthoritytotake
overthemanagementandoperationsofCBLIincaseCBLIfailstopayinstallmentsequivalent
to 60 days. Where the parties to the new obligation expressly recognize the continuing
[61]
existence and validity of the old one, there can be no novation. Moreover, this Court has
ruledthatanagreementsubsequentlyexecutedbetweenasellerandabuyerthatprovidedfor
adifferentscheduleandmannerofpayment,torestructurethemodeofpaymentsbythebuyer
so that it could settle its outstanding obligation in spite of its delinquency in payment, is not
[62]
tantamounttonovation.
Theadditionofotherobligationslikewisedidnotextinguishthepromissorynotes.InYoung
[63]
v. CA , 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.
Infine,therestructuringagreementcanstandtogetherwiththepromissorynotes.
Neither is there merit in CBLIs argument that the compromise agreement dated July 24,
1984,inCivilCaseNo.0023Psupersededand/ordischargedthefivepromissorynotes.Both
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DeltaandCBLIcannotdenythatthefivepromissorynoteswerenolongersubjectofCivilCase
No.0023PwhentheyenteredintothecompromiseagreementonJuly24,1984.
Having previously assigned the five promissory notes to SIHI, Delta had no more right to
compromisethesame.DeltaslimitedauthoritytocollectforSIHIstipulatedintheSeptember
13, 1985, Deed of Sale cannot be construed to include the power to compromise CBLIs
obligationsinthesaidpromissorynotes.Anauthoritytocompromise,byexpressprovisionof
[64]
Article1878 oftheCivilCode,requiresaspecialpowerofattorney,whichisnotpresentin
thiscase.Incidentally,DeltasauthoritytocollectinbehalfofSIHIwas,byexpressprovisionof
[65]
the Continuing Deed of Assignment, automatically revoked when SIHI opted to collect
directlyfromCBLI.
AsregardsCBLI,SIHIsdemandletterdatedDecember13,1983,requiringCBLItoremit
thepaymentsdirectlytoSIHIeffectivelyrevokedDeltaslimitedrighttocollectinbehalfofSIHI.
ThisshouldhavedispelledCBLIserroneousnotionthatDeltawasactinginbehalfofSIHI,with
authoritytocompromisethefivepromissorynotes.
Butmoreimportantly,thecompromiseagreementitselfprovidedthatitcoveredtherights
andobligationsonlyofDeltaandCBLIandthatitdidnotreferto,norcovertherightsof,SIHI
as the new creditor of CBLI in the subject promissory notes. CBLI and Delta stipulated in
paragraph5oftheagreementthat:
5.ThisCOMPROMISEAGREEMENTconstitutestheentireunderstandingbyandbetweenthe
plaintiffsandthedefendantsaswellastheirlawyers,andoperatesasfullandfinalsettlement,
adjudicationandterminationofalltheirrightsandobligationsasofthedateofthisagreement,andofthe
[66]
issuesinthiscase.
Evenintheabsenceofsuchaprovision,thecompromiseagreementstillcannotbindSIHI
under the settled rule that a compromise agreement determines the rights and obligations of
[67]
onlythepartiestoit. Therefore,weholdthatthecompromiseagreementcoveredtherights
and obligations only of Delta and CBLI and only with respect to the eleven (11) other
promissorynotesthatremainedwithDelta.
CBLI next maintains that SIHI is estopped from questioning the compromise agreement
becauseSIHIfailedtointerveneinCivilCaseNo.0023PafterCBLIinformeditofthetakeover
by Delta of CBLIs management and operations and the resultant impossibility for CBLI to
complywithitsobligationsinthesubjectpromissorynotes.CBLIalsoaddsthatSIHIsfailureto
intervene in Civil Case No. 0023P is proof that Delta continued to act in SIHIs behalf in
effectingcollectionunderthenotes.
Thecontentionisuntenable.Asaresultoftheassignment,Deltarelinquishedallitsrights
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. 0023P.From that
time,CBLIs obligations to SIHI embodied in the five promissory notes became separate and
distinctfromCBLIsobligationsineleven(11)otherpromissorynotesthatremainedwithDelta.
Thus,anybreachoftheseindependentobligationsgivesrisetoaseparatecauseofactionin
favor of SIHI against CBLI. Considering that Deltas assignment to SIHI of these five
promissorynoteshadtheeffectofremovingthesaidnotesfromCivilCaseNo.0023P,there
wasnoreasonforSIHItointerveneinthesaidcase.SIHIdidnothaveanyinteresttoprotect
inCivilCaseNo.0023P.
[68]
Moreover, intervention is not mandatory, but only optional and permissive.

Notably,
9/15
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[69]
Section 2, Rule 12 of the then 1988 Revised Rules of Procedure uses the word may in
definingtherighttointervene.Thepresentrulesmaintainthepermissivenatureofintervention
inSection1,Rule19ofthe1997RulesofCivilProcedure,whichprovidesasfollows:
SEC.1.Whomayintervene.Apersonwhohasalegalinterestinthematterinlitigation,orinthe
successofeitheroftheparties,oraninterestagainstboth,orissosituatedastobeadverselyaffectedby
adistributionorotherdispositionofpropertyinthecustodyofthecourtorofanofficerthereofmay,
withleaveofcourt,beallowedtointerveneintheaction.Thecourtshallconsiderwhetherornotthe
interventionwillundulydelayorprejudicetheadjudicationoftherightsoftheoriginalparties,and
[70]
whetherornottheintervenor'srightsmaybefullyprotectedinaseparateproceeding.
Also,recallthatDeltatransferredthefivepromissorynotestoSIHIonSeptember13,1983
whileCivilCaseNo.0023Pwaspending.Thenasnow,theruleincaseoftransferofinterest
pendente lite is that the action may be continued by or against the original party unless the
court,uponmotion,directsthepersontowhomtheinterestistransferredtobesubstitutedin
[71]
theactionorjoinedwiththeoriginalparty. Thenoninclusionofanecessarypartydoesnot
prevent the court from proceeding in the action, and the judgment rendered therein shall be
[72]
withoutprejudicetotherightsofsuchnecessaryparty.
In light of the foregoing, SIHIs refusal to intervene in Civil Case No. 0023P in another
court does not amount to an estoppel that may prevent SIHI from instituting a separate and
[73]
independentactionofitsown. Thisisespeciallysosinceitdoesnotappearthataseparate
[74]
proceeding would be inadequate to protect fully SIHIs rights. Indeed, SIHIs refusal to
intervene is precisely because it considered that its rights would be better protected in a
separateandindependentsuit.
ThejudgmentoncompromiseinCivilCaseNo.0023Pdidnotoperateasresjudicata 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. 0023P covered
onlyDeltaandCBLIandtheirrespectiverightsunderthe11promissorynotesnotassignedto
SIHI. In contrast, the instant case involves SIHI and CBLI and the five promissory notes.
Therebeingnoidentityofpartiesandsubjectmatter,thereisnoresjudicata.
CBLImaintains,however,thatinanyevent,recoveryunderthesubjectpromissorynotesis
[75]
nolongerallowedbyArticle1484(3) oftheCivilCode,whichprohibitsacreditorfromsuing
forthedeficiencyafterithasforeclosedonthechattelmortgages.SIHI,beingthesuccessor
ininterestofDelta,isnolongerallowedtorecoveronthepromissorynotesgivenassecurity
forthepurchasepriceofthe35busesbecauseDeltahadalreadyextrajudiciallyforeclosedon
thechattelmortgagesoverthesaidbusesonApril2,1987.
Thisclaimislikewiseuntenable.
Article1484(3)findsnoapplicationinthepresentcase.Theextrajudicialforeclosureofthe
chattel mortgages Delta effected cannot prejudice SIHIs rights. As stated earlier, the
assignmentofthefivenotesoperatedtocreateaseparateandindependentobligationonthe
part of CBLI to SIHI, distinct and separate from CBLIs obligations to Delta.And since there
was a previous revocation of Deltas authority to collect for SIHI, Delta was no longer SIHIs
collecting agent. CBLI, in turn, knew of the assignment and Deltas lack of authority to
compromise the subject notes, yet it readily agreed to the foreclosure. To sanction CBLIs
argumentandtoapplyArticle1484(3)tothiscasewouldworkinjusticetoSIHIbydeprivingit
ofitsrighttocollectagainstCBLIwhohasnotpaiditsobligations.
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ThatSIHIlateronleviedonexecutionandacquiredintheensuingpublicsaleinCivilCase
No.8423019thebusesDeltaearlierextrajudicially foreclosed on April 2, 1987, in Civil Case
No.0023P,didnotoperatetorenderthecompromiseagreementandtheforeclosurebinding
onSIHI.AtthetimeSIHIeffectedthelevyonexecutiontosatisfyitsjudgmentcreditagainst
Delta in Civil Case No. 8423019, 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,wecannotseehowSIHIsbelatedacquisitionoftheforeclosedbusesoperates
to hold the compromise agreementand consequently Article 1484(3)applicable to SIHI as
CBLIcontends.CBLIslastcontentionmust,therefore,fail.Weholdthatthewritofexecution
to enforce the judgment of compromise in Civil Case No. 0023P and the foreclosure sale of
April 2, 1987, done pursuant to the said writ of execution affected only the eleven (11) other
promissorynotescoveredbythecompromiseagreementandthejudgmentoncompromisein
CivilCaseNo.0023P.
Insupportofitsthirdassignmentoferror,CBLImaintainsthattherewasnobasisforSIHIs
[76]
applicationforawritofpreliminaryattachment. AccordingtoCBLI,itcommittednofraudin
contractingitsobligationunderthefivepromissorynotesbecauseitwasfinanciallysoundwhen
[77]
it issued the said notes on April 25, 1980. CBLI also asserts that at no time did it falsely
[78]
representtoSIHIthatitwouldbeabletopayitsobligationsunderthefivepromissorynotes.
According to CBLI, it was not guilty of fraudulent concealment, removal, or disposal, or of
[79]
fraudulentintenttoconceal,remove,ordisposeofitspropertiestodefrauditscreditors and
that SIHIs bare allegations on this matter were insufficient for the preliminary attachment of
[80]
CBLIsproperties.
The question whether the attachment of the sixteen (16) buses was valid and in
accordancewithlaw,however,hasalreadybeenresolvedwithfinalitybytheCourtofAppeals
in CAG.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
presenceofadeterminedschemeonthepartofCBLItodisposeofitsproperty.Considering
thatthesaidCourtofAppealsdecisionhasalreadyattainedfinalityonAugust22,1987, there
existsnoreasontoresolvethisquestionanew.Reasonsofpublicpolicy,judicialorderliness,
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
[81]
tribunalsofcompetentjurisdiction.
Finally,inthelightofthejustnessofSIHIsclaimagainstCBLI,wecannotsustainCBLIs
contentionthattheCourtofAppealserredindismissingitscounterclaimforlostincomeandthe
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
[82]
damagesresultingfromtheattachmentofpropertycannotbesustained.
WHEREFORE,thedecisiondatedApril17,2001,oftheCourtofAppealsinCAG.R.CV
No.52667isAFFIRMED.PetitionerCaliforniaBusLines,Inc.,isORDEREDtopayrespondent
StateInvestmentHouse,Inc.,thevalueofthefive(5)promissorynotessubjectofthecomplaint
inCivilCaseNo.8428505lesstheproceedsfromthesaleoftheattachedsixteen(16)buses.
Nopronouncementastocosts.
SOORDERED.
Puno,(Chairman),AustriaMartinez,Callejo,Sr.,andTinga,JJ.,concur.
11/15
12/10/2014
[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
Rollo,pp.6272.PennedbyAssociateJusticeElvi John S. Asuncion and concurred in by Associate Justices

CancioC.GarciaandOswaldoD.Agcaoili.
Id.at5260.
Records,pp.102110771079.
Id.at3.
Id.at1215.
Id.at170174.
Id.at222610801084.
Id.at283110861089.
Id.at175181.
[10]
[11]
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]
[20]
[21]
[22]
[23]
[24]
[25]
[26]
[27]
Id.at183220.
Id.at225236.
Id.at323310901091.
Id.at345310921111.
Id.at545511121113.
Id.at281.
Id.at282.
Id.at283285.
Id.at258264.
Id.at265.
Id.at19.
Id.at274276.
Id.at278.
Id.at61.
Id.at292295306.
Id.at691694.
CARollo,p.103.
Ibid.
12/15
12/10/2014
[28]
[29]
[30]
[31]
[32]
[33]
[34]
[35]
[36]
[37]
[38]
[39]
[40]
[41]
[42]
[43]
[44]
[45]
[46]
[47]
[48]
[49]
[50]
[51]
[52]
[53]
[54]
[55]
Id.at101.
Records,pp.761764.
Id.at772.
Id.at795797.
Id.at755.
Id.at861865.
Id.at864.
Rollo,p.72.
Id.at26,2930,36.
Rollo,pp.294295.
Id.at297.
Id.at299.
Idolorv.CourtofAppeals,G.R.No.141853,7February2001,351SCRA399,407.
OcampoPaulev.CourtofAppeals,G.R.No.145872,4February2002,376SCRA83,88.
Ibid.
Babstv.CourtofAppeals,G.R.Nos.99398&104625,26January2001,350SCRA341,356.
Ibid.
Reyesv.CourtofAppeals,G.R.No.120817,4November1996,264SCRA35,43.
Sps.Reyesv.CourtofAppeals,G.R.No.147758,26June2002,383SCRA471,482.
Quintov.People,G.R.No.126712,14April1999,305SCRA708,714.
OcampoPaulev.CourtofAppeals,supra,note41at88.
Quintov.People,supra,note47at715.
OcampoPaulev.CA,supra,note48.
Molinov.SecurityDinersInternationalCorporation,G.R.No.136780,16August2001,363SCRA358,366.
Ibid.
Quintov.People,supranote47at715716.
Guerrerov.CourtofAppeals,140Phil.335,342343(1969).
Sps. Reyes v. Court of Appeals, supra, note 46 Magdalena Estates, Inc. v. Rodriguez, 125 Phil. 151, 157
(1966).
13/15
12/10/2014
[56]
[57]
[58]
[59]
[60]
[61]
[62]
[63]
[64]
34Phil.978,986(1914).
No.L28967,22July1975,65SCRA207,218.
100Phil.381,385(1956).
Cochingyan,Jr.v.R&BSuretyandInsuranceCo.,Inc.,No.L47369,30June1987,151SCRA339,350.
Records,pp.170173,
Cochingyan,Jr.v.R&BSuretyandInsuranceCo.,Inc.,No.L47369,30June1987,151SCRA339,350.
TropicalHomes,Inc.v. Court of Appeals, G.R. No. 111858,14May1997, 272 SCRA 428 Seealso Tible v.
Aquino,No.L28967,22July1975,65SCRA207,217218.
G.R.No.83271,8May1991,196SCRA795,800.
ART.1878.Specialpowersofattorneyarenecessaryinthefollowingcases:
(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive
objectionstothevenueofanactionortoabandonaprescriptionalreadyacquired
[65]
[66]
[67]
[68]
[69]
[70]
[71]
[72]
[73]
[74]
[75]
Records,p.3.
Records,p.264.Emphasissupplied.
Guerrerov.CourtofAppeals,No.L22366,30October1969,29SCRA791,796.
Cruzcosav.Hon.H.Concepcion,101Phil.146,150(1957).
SEC. 2. Intervention.A person may, before or during a trial, be permitted by the court, in its discretion, to
interveneinanaction,xxx.
Emphasissupplied.
Section19,Rule3oftheRulesofCourt.
Section9,Rule3oftheRulesofCourt.
SeeVda.DeCaillesv.Mayuga,G.R.No.30859,20February1989,170SCRA347,356.
Ibid.
ART.1484.Inacontractofsaleofpersonalpropertythepriceofwhichispayableininstallments,thevendor
mayexerciseanyofthefollowingremedies:
(1)Exactfulfillmentoftheobligation,shouldthevendeefailtopay
(2)Cancelthesale,shouldthevendeesfailuretopaycovertwoormoreinstallments
(3)Foreclosethechattelmortgageofthethingsold,ifonehasbeenconstituted,shouldthevendeesfailureto
paycovertwoormoreinstallments.Inthiscase,heshallhavenofurtheractionagainstthepurchaserto
recoveranyunpaidbalanceoftheprice.Anyagreementtothecontraryshallbevoid.
[76]
Rollo,p.304.
14/15
12/10/2014
[77]
[78]
[79]
[80]
[81]
[82]
Id.at306308.
Id.at304,308.
Id.at309.
Id.at309310.
Turquezav.Hernando,No.L51626,30April1980,97SCRA483,488.
BanqueGeneraleBelgev.WalterBull&Co.,Inc.,84Phil.164,172(1949).
15/15

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California Bus Lines Inc Vs State Investment House Inc - 147950 - December 11, 2003 - J

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DeedofSale assigningtoSIHIfive(5)ofthesixteen(16)promissorynotes fromCalifornia

However,actingonCBLIs motion to quash the

compromiseagreementexecutedinCivilCaseNo.0023Pdid. CBLI cites paragraph 5 of

Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive

Novationisneverpresumed, andtheanimusnovandi,whether totally or partially, must

Moreover, intervention is not mandatory, but only optional and permissive.

Rollo,pp.6272.PennedbyAssociateJusticeElvi John S. Asuncion and concurred in by Associate Justices

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