Essay Flashcards

A bank extends a PHP 9,500,000 loan to Turbo Builders, Inc. to finance the purchase of a commercial building, the loan being secured by a mortgage on the building. Turbo asks its affiliate, Turbo Holdings, to assume the debt and continue payments on the same terms. The bank and the parties execute a written instrument titled “Novation/Transfer of Debt” stating that Turbo Holdings is the new debtor, Turbo Builders is expressly released from the obligation, a new promissory note is issued in Turbo Holdings’ name, and the old note is canceled. After six months, Turbo Holdings defaults. The bank continues to send statements to Turbo Builders and accepts occasional payments from Turbo Builders, even though the novation document purports to release Turbo Builders. (a) Identify the doctrine governing this arrangement and classify it as express novation or otherwise; explain the essential elements that must be present for the classification to hold. (b) Suppose there is no written novation and no express release of Turbo Builders. Instead, Turbo Holdings and Turbo Builders sign a separate Assumption of Debt, and the bank accepts Turbo Holdings’ payments without releasing Turbo Builders in writing. Is there implied novation in this scenario? Explain the controlling factors and apply them to the facts.