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[143] California Bus Line vs. State Investment (GR 147950, December 11, 2003)

[143] California Bus Line vs. State Investment (GR 147950, December 11, 2003)

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 G.R. No. 147950December 11, 2003
In this Petition for Review, California BusLines, Inc., assails the Decision,[1] datedApril 17, 2001, of the Court of Appeals inCA-G.R. CV No. 52667, reversing the judgment,[2] dated June 3, 1993, of theRegional Trial Court of Manila, Branch 13, inCivil Case No. 84-28505 entitled StateInvestment House, Inc. v. California BusLines, Inc., forcollection of a sum of money. The Court of Appeals heldpetitionerCalifornia Bus Lines, Inc., liablefor the value of five promissory notesassigned to respondent State InvestmentHouse, Inc. The facts, as culled from the records, are asfollows:Sometime in 1979, Delta MotorsCorporation - M.A.N. Division(Delta)applied for financial assistance fromrespondent State Investment House, Inc.(hereafterSIHI), a domestic corporationengaged in the business of quasi-banking.SIHI agreed to extend a credit line to Deltafor P25,000,000.00 in three separate creditagreements dated May 11, June 19, andAugust 22, 1979.[3] On several occasions,Delta availed of the credit line bydiscounting with SIHI some of itsreceivables, which evidence actual sales of Delta's vehicles. Delta eventually becameindebted to SIHI to the tune of P24,010,269.32.[4] Meanwhile, from April 1979 to May 1980,petitioner California Bus Lines, Inc.(hereafter CBLI), purchased on installmentbasis 35 units of M.A.N. Diesel Buses andtwo (2) units of M.A.N. Diesel ConversionEngines from Delta. To secure the paymentof the purchase price of the 35 buses, CBLIand its president, Mr. Dionisio O. Llamas,executed sixteen (16) promissory notes infavor of Deltaon January 23 and April 25,1980.[5] In each promissory note, CBLIpromised to pay Delta or order,P2,314,000payable in 60 monthly installmentsstartingAugust 31, 1980, with interest at 14% perannum. CBLI further promised to pay theholder of the said notes 25% of the amountdue on the same as attorney's fees andexpenses of collection, whether actuallyincurred or not, in case of judicialproceedings to enforce collection. Inaddition to the notes, CBLI executed chattelmortgages over the 35 buses in Delta'sfavor.When CBLI defaulted on all payments due,it entered into arestructuring agreementwith Deltaon October 7, 1981, to cover itsoverdue obligations under the promissorynotes.[6] The restructuring agreementprovided for a new schedule of payments of CBLI's past due installments, extending theperiod to pay, andstipulating dailyremittance instead of the previously agreedmonthly remittance of payments. In case of default, Delta would have the authority totake over the management and operationsof CBLI until CBLI and/or its president, Mr.Dionisio Llamas, remitted and/or updatedCBLI's past due account. CBLI and Deltaalso increased the interest rate to 16% p.a.and added a documentation fee of 2% p.a.and a 4% p.a. restructuring fee.On December 23, 1981, Delta executed aContinuing Deed of Assignment of Receivables[7] in favor of SIHI as securityfor the payment of its obligations to SIHIper the credit agreements. In view of Delta's failure to pay, the loan agreementswere restructured under a Memorandum of Agreementdated March 31, 1982.[8] Delta obligated itself to pay a fixed monthlyamortization of P400,000 to SIHI and todiscount with SIHI P8,000,000 worth of receivables with the understanding that
SIHI shall apply the proceeds againstDelta's overdue accounts.CBLI continued having trouble meeting itsobligations to Delta. This prompted Delta tothreaten CBLI with the enforcement of themanagement takeover clause. To pre-emptthe take-over, CBLI filedon May 3, 1982, acomplaint for injunction[9], docketed as Civil Case No. 0023-P, with the Court of First Instance of Rizal, Pasay City, (nowRegional Trial Court of Pasay City). In duetime,Delta filedits amended answer withapplications for the issuance of a writ of preliminary mandatory injunction toenforce the management takeoverclauseanda writ of preliminary attachmentoverthe buses it sold to CBLI.[10] On December27, 1982,[11] thetrial court grantedDelta's prayer for issuance of a writ of preliminarymandatory injunction and preliminaryattachment on account of the fraudulentdisposition by CBLI of its assets.On September 15, 1983, pursuant to theMemorandum of Agreement,Deltaexecuted a Deed of Sale[12] assigning toSIHI five (5) of the sixteen (16) promissorynotes[13] from California Bus Lines, Inc.At the time of assignment, these fivepromissory notes, identified and numberedas 80-53, 80-54, 80-55, 80-56, and 80-57,had a total value of P16,152,819.80inclusive of interest at 14% per annum.SIHI subsequently sent a demand letterdated December 13, 1983,[14] to CBLIrequiring CBLI to remit the payments dueon the five promissory notes directly to it.CBLI replied informing SIHI of Civil Case No.0023-P and of the fact that Delta had takenover its management and operations.[15]As regards Delta's remaining obligation toSIHI,Delta offered its available bus units,valued at P27,067,162.22, as paymentinkind.[16] On December 29, 1983, SIHIaccepted Delta's offer, and Deltatransferred the ownership of its availablebuses to SIHI, which in turn acknowledgedfull payment of Delta's remainingobligation.[17] When SIHI was unable totake possession of the buses,SIHI filedapetition for recovery of possession withprayer for issuance of a writ of replevinbefore the RTC of Manila, Branch 6,docketed as Civil Case No. 84-23019. TheManila RTCissued a writ of replevinandSIHI was able to take possession of 17 busunits belonging to Delta. SIHI applied theproceeds from the sale of the said 17 busesamounting to P12,870,526.98 to Delta'soutstanding obligation. Delta's obligation toSIHI was thus reduced toP20,061,898.97.On December 5, 1984, Branch 6 of the RTCof Manila rendered judgment in Civil CaseNo. 84-23019 ordering Delta to pay SIHIthis amount. Thereafter, Delta and CBLI entered into acompromise agreementon July 24, 1984,[18] in Civil Case No. 0023-P, the injunctioncase before the RTC of Pasay. CBLI agreedthatDelta would exercise its right toextrajudicially foreclose on the chattelmortgages over the 35 bus units.The RTCof Pasay approved this compromiseagreement the following day, July 25, 1984.[19] Following this,CBLI vehemently refused to pay SIHI the value of the fivepromissory notes, contending that thecompromiseagreement was in fullsettlement of all its obligations to Deltaincluding its obligations under thepromissory notes.On December 26, 1984,SIHI filedacomplaint, docketed as Civil Case No. 84-28505, against CBLI in the Regional TrialCourt of Manila, Branch 34, tocollect onthe five (5) promissory noteswith interestat 14% p.a. SIHI also prayed for theissuance of a writ of preliminaryattachment against the properties of CBLI.[20]On December 28, 1984,Delta filedapetition forextrajudicial foreclosure of chattel mortgagespursuant to itscompromise agreement with CBLI. On January 2, 1985, Delta filed in the RTC of Pasay a motion for execution of the judgment based on the compromiseagreement.[21] The RTC of Pasaygranted this motion the following day.[22]In view of Delta's petition and motion forexecution per the judgment of compromise,
the RTC of Manila granted in Civil Case No.84-28505 SIHI's application for preliminaryattachment on January 4, 1985.[23]Consequently,SIHI was able to attach andphysically take possession of thirty-two(32) buses belonging to CBLI.[24] However,acting onCBLI's motion to quashthe writ of preliminary attachment, the same courtresolved on January 15, 1986,[25] todischarge the writ of preliminaryattachment. SIHI assailed the discharge of the writ before the Intermediate AppellateCourt (now Court of Appeals) in a petitionfor certiorari and prohibition, docketed asCA-G.R. SP No. 08378. On July 31, 1987,theCourt of Appeals grantedSIHI's petition inCA-GR SP No. 08378 and ruled that thewritof preliminary attachment issuedby Branch34 of the RTC Manila in Civil Case No. 84-28505should stay.[26] The decision of the Court of Appeals attained finality on August22, 1987.[27]Meanwhile, pursuant to the January 3, 1985Order of the RTC of Pasay, the sheriff of Pasay City conducted a public auction andissued a certificate of sheriff's sale to Deltaon April 2, 1987, attesting to the factthatDelta bought 14 of the 35 buses forP3,920,000.[28] On April 7, 1987, thesheriff of Manila, by virtue of the writ of execution dated March 27, 1987, issued byBranch 6 of the RTC of Manila in Civil CaseNo. 84-23019, sold the same 14 buses atpublic auction in partial satisfaction of the judgment SIHI obtained against Delta inCivil Case No. 84-23019.Sometime in May 1987, Civil Case No. 84-28505 was raffled to Branch 13 of the RTCof Manila in view of the retirement of thepresiding judge of Branch 34.Subsequently,SIHI moved to sell thesixteen (16) buses of CBLI which hadpreviously been attached by the sheriff inCivil Case No. 84-28505 pursuant to the January 4, 1985, Order of the RTC of Manila.[29] SIHI's motion was granted onDecember 16, 1987.[30] On November 29,1988, however, SIHI filed an urgent ex-parte motion to amend this order claimingthat through inadvertence and excusablenegligence of its new counsel, it made amistake in the list of buses in the Motion toSell Attached Properties it had earlier filed.[31] SIHI explained that 14 of the buseslisted had already been sold to Delta onApril 2, 1987, by virtue of the January 3,1985 Order of the RTC of Pasay, and thattwo of the buses listed had been releasedto third party, claimant Pilipinas Bank, byOrder dated September 16, 1987[32] of Branch 13 of the RTC of Manila.CBLI opposed SIHI's motion to allow thesale of the 16 buses. On May 3, 1989,[33] Branch 13 of the RTC of Manila deniedSIHI's urgent motion to allow the sale of the16 buses listed in its motion to amend. Thetrial court ruled that the best interest of theparties might be better served by denyingfurther sales of the buses and to go directto the trial of the case on the merits.[34] After trial, judgment was rendered in CivilCase No. 84-28505 on June 3, 1993,discharging CBLI from liability on the fivepromissory notes. The trial court likewisefavorably ruled on CBLI's compulsorycounterclaim. The trial court directed SIHIto return the 16 buses or to pay CBLIP4,000,000 representing the value of theseized buses, with interest at 12% p.a. tobegin from January 11, 1985, the date SIHIseized the buses, until payment is made. Inruling against SIHI, the trial court heldthatthe restructuring agreement dated October7, 1981, between Delta and CBLI novatedthe five promissory notes; hence, at thetime Delta assigned the five promissorynotes to SIHI, the notes were alreadymerged in the restructuring agreement andcannot be enforced against CBLI.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 Courtof Appeals decided CA-G.R. CV No. 52667in this manner:WHEREFORE, based on the foregoingpremises and finding the appeal to bemeritorious, We find defendant-appelleeCBLI liable for the value of the five (5)promissory notessubject of the complaint aquo less the proceeds from the attached

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