CALIFORNIA BUS LINES INC. vs STATE INVESTMENT HOUSE, INC. G.R. No. 147950. December 11, 2003

QUISUMBING, J:

Facts: 

Delta Motors Corporation  applied for financial assistance from respondent State Investment House, Inc., a domestic corporation engaged in the business of quasi-banking. SIHI agreed to extend a credit line to Delta which eventually became indebted to SIHI. Meanwhile, petitioner purchased on installment basis several buses to Delta. To secure the payment of the obligation petitioner executed promissory notes in favor of Delta. When petitioner defaulted on the payments of the debts, it entered into an agreement with delta to cover its due obligations. However, petitioner still had trouble meeting its obligations with delta. Pursuant to the memorandum of agreement delta executed a deed of sale assigning to respondent, the promissory notes from petitioner. Respondent subsequently sent a demand letter to petitioner requiring remitting payments due on the promissory notes. Petitioner replied informing respondent of the fact that delta had taken over its management and operations.   

Issue: 

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,

Held:  

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.