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Business Loan Dispute Ruling

Transpacific Battery Corporation entered into a credit line agreement and trust receipt agreements with Security Bank & Trust Co. to facilitate imports for its business. Transpacific failed to pay amounts due under the trust receipts. The parties later entered into a restructuring agreement changing the payment terms, but Transpacific failed to comply. The Supreme Court ruled that the restructuring agreement was not a novation and did not extinguish Transpacific's original obligations under the trust receipts, as there was no clear intention by the parties to replace the old obligations with the new agreement, which merely supplemented the old obligations by changing payment terms. The Court affirmed the decision finding Transpacific liable for amounts due under the original trust receipt agreements.

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863 views2 pages

Business Loan Dispute Ruling

Transpacific Battery Corporation entered into a credit line agreement and trust receipt agreements with Security Bank & Trust Co. to facilitate imports for its business. Transpacific failed to pay amounts due under the trust receipts. The parties later entered into a restructuring agreement changing the payment terms, but Transpacific failed to comply. The Supreme Court ruled that the restructuring agreement was not a novation and did not extinguish Transpacific's original obligations under the trust receipts, as there was no clear intention by the parties to replace the old obligations with the new agreement, which merely supplemented the old obligations by changing payment terms. The Court affirmed the decision finding Transpacific liable for amounts due under the original trust receipt agreements.

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piptipayb
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Article 1291 - 1292 Transpacific Battery, Corporation vs. Security Bank & Trust Co. GR No.

173565, 173607 May 8, 2009 Tinga, J.: Facts: Transpacific, represented by its officers, Michael G. Say, Josephine G. Say and Myrna Magpantay, entered into a Credit Line Agreement with the Bank. They applied for nine letters of credit with Bank to facilitate the importation and/or purchases of certain merchandise, goods and supplies for its business. Transpacific executed and delivered to the Bank as entrustor the trust receipt agreements, with its officers solidarily liable. Entrustees agreed to hold the goods, merchandise, supplies, proceeds of the sale and collection as payment. Petitioners failed to account for and deliver to the Bank upon the maturity dates of the trust receipts. Petitioners reneged on their obligation despite repeated demands. They instead executed a letter-agreement restructuring the obligation. Despite repeated demands, petitioners failed to comply with restructuring agreement. Issue: Whether or not the obligation under the trust receipts was novated by the restructuring agreement. Ruling: No. Novation is a mode of extinguishing an obligation by changing its object or principal obligations by hanging its object or principals obligations, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. Novation is never presumed, and the anius novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unmistakable. The extinguishment of the obligation by the new one is necessary element of navation, which may be effected either expressly or impliedly. The contracting parties must introconvertibly disclose that their object in executing the new contract is to extinguish the old one. All that is prescribed by law would be an incompatibility between the two contracts. In the case at bar, there is no express novation since the resctructuring agreement does not state in clear terms that the obligation under the trust receipts is extingusihed and in lieu thereof the restructuring agreement will be substituted. Neither is is there an implied novation since the restructuring agreements is not incompatible with the trust receipt transactions. The parties will not be relieved from their obligations as there was absolutely no intention by the parties to supersede or abrogate the trust receipt transactions. Well settled rule that , with respect to obligations to pay a sum of money, the obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other

obligations not incompatible with the old ones, or the new contract merely supplements the old one. Fallo: Wherefoe, the twin petitions are denied. The Decision of the Court of appeals in CA-GR. CV. No. 74644 is affirmed. Costs against petitioners.

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