Topic: Effects of Novation

G.R. No. 159097 July 5, 2010

METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

vs.
RURAL BANK OF GERONA, INC. (RBG), Respondent.

Brion, J.:
FACTS:
In the 1970s, the Central Bank and the RBG entered into an
agreement where RBG shall facilitate the loan applications of farmers-
borrowers under the Central Bank-IBRD’s 4th Rural Credit Project. Since
the agreement required RBG to open a separate bank account where the
IBRD loan proceeds shall be deposited, it opened a special savings account
with Metrobank’s Tarlac Branch. As the depository bank of RBG, Metrobank
was designated to receive the credit advice released by the Central Bank
representing the proceeds of the IBRD loan of the farmers-borrowers;
Metrobank, in turn, credited the proceeds to RBGs special savings account
for the latter’s release to the farmers-borrowers. In 1978, Central Bank
released 3 credit advices which represented the approved loan application
of 3 farmer-borrowers in favor of Metrobank, of which the latter credited in
RBG’s special account. RBG withdrew the all the credited amounts, in the
first 2 transactions and on the third loan on part of the applied loan was
withdrawn from its account. More than a month after RBG made the
withdrawals, the Central Bank issued debit advices, reversing all the
approved IBRD loans. Upon such receipt Metrobank debited certain
amounts in RBG’s account but claimed that these were insufficient to cover
all credit advices reversed by the Central Bank. It demanded payment from
RBG which could make partial payments. Metrobank filed a collection suit
against RBG.
Regional Trial Court (RTC) ruled in favor of Metrobank, however,
Court of Appeals (CA) reversed the decision noting that this was not a case
of legal subrogation under Article 1302 of the Civil Code. But CA recognized
that Metrobank had a right to reimbursement, as it suffered loss in an
agreement that involved only the Central Bank and the RBG.

ISSUE:
Was there legal subrogation that took place in this case?

RULING:
Yes, legal subrogation took place.

Article 1303 of the Civil Code states that subrogation transfers to the
person subrogated the credit with all the rights thereto appertaining, either
against the debtor or against third persons.
 In the instant case, Metrobank’s involuntary payment does not change
the reality that it was Metrobank which effectively answered for RBG’s
obligations. Even if the tacit approval by RBG of payment enforced against
Metrobank came after payment had been made does not completely negate
that legal subrogation was effected. As the entity against which the
collection was enforced, Metrobank was subrogated to the rights of Central
Bank and has a cause of action to recover from RBG the amounts it paid to
the Central Bank, plus 14% per annum interest.
 Topic: Effects of Novation

G.R. No. 178618               October 11, 2010

MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented

by its Liquidator, THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION, Petitioner,
vs.
EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO BANTUAS,
in his capacity as the Deputy Sheriff of Regional Trial Court, Branch
3, Iligan City; and the REGISTER OF DEEDS of Cagayan de Oro
City, Respondent.

Nachura, J.:

FACTS:
First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao
Savings and Loan Association, Inc. (DSLAI), primarily engaged in the
business of granting loans and receiving deposits from the general public,
and treated as banks, entered into a merger in 1985, with DSLAI as the
surviving corporation. But the articles of merger were not registered with
the SEC due to incomplete documentation. DSLAI changed its corporate
name to MSLAI by way of an amendment to Article 1 of its Articles of
Incorporation, but the amendment was approved by the SEC only on 1987.
Meanwhile, in 1986, FISLAI’s Board of Directors passed a resolution
assigning its assets to DSLAI which in turn assumed the former’s liabilities.
The business of MSLAI, however, failed due to insolvency thus the Monetary
Board its liquidation of MSLAI, with PDIC as its liquidator. Prior to its
closure, Uy filed with the RTC a collection suit against FISLAI, which was
granted. FISLAI’s properties were auctioned with Willkom as the highest
bidder.
In 1995, MSLAI, represented by PDIC, filed before the RTC a
complaint for annulment of the sale. Willkom averred that they cannot
recover the properties because MSLAI is distinct from FISLAI there having
an unofficial merger, which was ineffective. RTC declared that it could not
annul the decision of sale of the properties, which decision CA affirmed.

ISSUE:
Was there novation of the obligation by substituting the person of the
debtor?

RULING:
No.
Novation is a mode for the extinguishment of an obligation. It is a rule
that novation by substitution of debtor must always be made with the
consent of the creditor. Article 1293 of the Civil Code is explicit.
 In this case, there was no showing that Uy, the creditor, gave her
consent to the agreement that DSLAI would assume the liabilities of FISLAI.
Such agreement cannot prejudice Uy. Thus, the assets that FISLAI
transferred to DSLAI remained subject to execution to satisfy the judgment
claim of Uy against FISLAI. The subsequent sale of the properties by Uy to
Willkom, and of one of the properties by Willkom to Go, cannot, therefore,
be questioned by MSLAI. The consent of the creditor to a novation by
change of debtor is as indispensable as the creditor’s consent in
conventional subrogation in order that a novation shall legally take place.
Since novation implies a waiver.

Topic: Effects of Novation

G.R. No. 171165 February 14, 2011

CAROLINA HERNANDEZ-NIEVERA, DEMETRIO P. HERNANDEZ, JR., and

MARGARITA H. MALVAR, Petitioners,
vs.
WILFREDO HERNANDEZ, HOME INSURANCE AND GUARANTY
CORPORATION, PROJECT MOVERS REALTY AND DEVELOPMENT
CORPORATION, MARIO P. VILLAMOR and LAND BANK OF THE
PHILIPPINES, Respondents.

Peralta, J.

FACTS:
Respondent Project Movers Realty & Dev. Corp. (PMRDC), a domestic
corporation, entered into various agreements with co-respondents Home Insurance
& Guaranty Corp. (HIGC) and Land Bank of the Phil. (LBP), in the construction of
Isabel Homes housing project in Batangas and of Monumento Plaza commercial
and recreation complex in Caloocan City. In Nov. 1997, PMRDC entered into a
MOA with petitioners giving PMRDC the option to buy pieces of petitioners’
4,580,451 sq. m. land in Laguna amounting to P114,511,270.00. The lands were
mortgaged to Solid Bank. But PMRDC did not avail of its option to buy the lands
and the postdated checks issued bounced. When petitioners demanded the return
of the TCTs, respondents stated that they could no longer be delivered back as
they had been conveyed and assigned to the Asset Pool pursuant to DAC. The RTC
declared the DAC null and void as Demetrio’s (petitioner) signature was forged and
there was fraud in its execution. The CA reversed the RTC decision saying the DAC
was valid.

ISSUE:
Was there novation that took place?

RULING:
No.
There are two ways which could indicate, in fine, the presence of novation
and thereby produce the effect of extinguishing an obligation by another which
substitutes the same. The test of incompatibility is whether the two obligations can
stand together, each one having its independent existence. If they cannot, they are
incompatible, and the latter obligation novates the first. Corollarily, changes that
breed incompatibility must be essential in nature and not merely accidental. The
incompatibility must take place in any of the essential elements of the obligation
such as its object, cause or principal conditions thereof; otherwise, the change
would be merely modificatory in nature and insufficient to extinguish the original
obligation.
In the instant case, it becomes clear that Demetrio’s special power of
attorney to sell is sufficient to enable him to make a binding commitment under the
DAC in behalf of Carolina and Margarita. In particular, it does include the
authority to extinguish PMRDC’s obligation under the MOA to deliver option
money and agree to a more flexible term by agreeing instead to receive shares of
stock in lieu thereof and in consideration of the assignment and conveyance of the
properties to the Asset Pool. Indeed, the terms of his special power of attorney
allow much leeway to accommodate not only the terms of the MOA but also those
of the subsequent agreement in the DAC which, in this case, necessarily and
consequently has resulted in a novation of PMRDC’s integral obligations.
Topic: Effects of Novation

G.R. No. 152313 October 19, 2011

REPUBLIC FLOUR MILLS CORPORATION, Petitioner,

vs.
FORBES FACTORS, INC. Respondent.

Sereno, J.:

FACTS:
A contract dated April 1983 appointed respondent as the exclusive
Philippine indent representative of Richco Rotterdam B.V., a foreign corporation,
in the sale of the latter's commodities. One of the terms of the contract provide the
assumption by respondent of the liabilities of all the Philippine buyers, should they
fail to honor the commitments on the discharging operations of each vessel,
including the payment of demurrage and other penalties. In such instances, Richco
shall have the option to debit the account of respondent corresponding to the
liabilities of the buyers, and respondent shall then be deemed to be subrogated to
all the rights of Richco against these defaulting buyers. Sometime in 1987,
petitioner purchased Canadian barley and soybean meal from Richco. Chartered
for transport in 4 vessels. Each cover 4 different Sale Contracts which specifically
referred to the charter party in determining demurrage or dispatch rate. The
delivery was made but petitioner failed to discharge the cargoes from the 4 vessels
on time incurring a demurrage. On behalf of Richco, respondent demanded
payment of the demurrage, to no avail, so, Richco informed that the demurrage
due has been debited from respondent’s account. Respondent filed a complaint for
demurrage and damages against petitioner. RTC held that petitioner is liable to
pay the demurrage and damages to respondent, which was affirmed with
modification by CA.

ISSUE:
Was there subrogation that took place in this case?

RULING:
Yes.
Subrogation is either "legal" or "conventional." Legal subrogation is an
equitable doctrine and arises by operation of the law, without any agreement to
that effect executed between the parties; conventional subrogation rests on a
contract, arising where "an agreement is made that the person paying the debt
shall be subrogated to the rights and remedies of the original creditor.”
The instant case is an example of legal subrogation, the petitioner and
respondent having no express agreement on the right of subrogation. Thus, it is of
no moment that the Contracts of Sale did not expressly state that demurrage shall
be paid to respondent. By operation of law, respondent has become the real party-
in-interest to pursue the payment of demurrage.
Topic: Effects of Novation

G.R. No. 188726               January 25, 2012

CRESENCIO C. MILLA, Petitioner,
vs.
PEOPLE OF THE PHILIPPINES and MARKET PURSUITS, INC. represented
by CARLO V. LOPEZ, Respondents.
Sereno, J.:

FACTS:
Cresencio Milla sold property to Market Pursuits, Inc. (MPI) by presenting
falsifed documents thereby causing the latter to believe that the registered owners
of the said lot are actually selling their property. After the sale, MPI discovered
that the documents given to them by Milla are spurious and the title of the
property was not transferred under its name. Consequently, MPI demanded the
return of the amount it paid to Milla, and then he issued checks amounting to said
amount. Moreover, the checks are dishonored for having been drawn against
insufficient funds. MPI demanded Milla to make good of his checks but the demand
went unheeded which led them to file a criminal charge of estafa through
falsification of public documents against Milla.
RTC found Milla guilty of the crime and on appeal his conviction was
affirmed. He appealed before the Court asserting that his issuance of the 2 checks
before the institution of the criminal complaint against him novated his obligation
to MPI, thereby enabling him to avoid any incipient criminal liability and
converting his obligation into a purely civil one.
ISSUE:
Can the principle of novation exculpate Milla from criminal liability?
RULING:
No.

In Quinto v. People, this Court exhaustively explained the concept of

novation in relation to incipient criminal liability, viz: Novation is never
presumed. While there is really no hard and fast rule to determine what might
constitute to be a sufficient change that can bring about novation, the touchstone
for contrariety, however, would be an irreconcilable incompatibility between the
old and the new obligations. Moreover, the criminal liability for estafa already
committed is then not affected by the subsequent novation of contract, for it is a
public offense which must be prosecuted and punished by the State in its own
conation.

In the case at bar, the acceptance by MPI of the Equitable PCI checks
tendered by Milla could not have novated the original transaction, as the checks
were only intended to secure the return of the P2 million the former had already
given him. Even then, these checks bounced and were thus unable to satisfy his
liability. Moreover, the estafa involved here was not for simple misappropriation or
conversion, but was committed through Milla’s falsification of public documents,
the liability for which cannot be extinguished by mere novation.
Topic: Effects of Novation

G.R. No. 190755               November 24, 2010

LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
ALFREDO ONG, Respondent
VELASCO, JR., J.:

FACTS:
In 1996, spouses Sy secured a loan from Land Bank Legazpi City for
P16million, secured by 3 residential lots, 5 cargo trucks, and a warehouse. But
when the Spouses Sy could no longer pay their loan, they sold 3of their mortgaged
parcels of land to Angelina Ong under a Deed of Sale with Assumption of
Mortgage. Evangeline’s father, Alfredo Ong, later went to LBP to inform it about
the sale and assumption of mortgage. Representatives of LBP told Alfredo that
there was nothing wrong with the agreement with the Spouses Sy but provided
them with requirements for the assumption of mortgage. They also made Alfredo
pay part of the principal at P750,000 and to update due interests on the
promissory notes so that Atty. Hingco, counsel for LBP could easily approve the
assumption of mortgage. Alfredo complied but the certificate of title of the Spouses
Sy was never transferred in his name. Alfredo later found out that his application
for assumption of mortgage was not approved by Land Bank due to a real estate
mortgage with another bank due. Alfredo claimed that this was fully paid later on
but still LBP foreclosed the mortgage of the Spouses Sy after several months,
discovered by Alfredo on a later date. He filed an action for recovery of sum of
money with damages against LBP.
RTC ruled in favor of Alfredo holding that the contract approving the
assumption of mortgage was not perfected as a result of the credit investigation
conducted on Alfredo. The CA affirmed this decision.

ISSUE:
Did the Court of Appeals err in holding that novation existed in the contract
of the parties?

Ruling :
No.
An extinctive novation requires a conflux of four essential requisites: (1) a
previous valid obligation; (2) an agreement of all parties concerned to a new
contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid
new obligation. Thus, novation must be expressly consented to.
In the instant case, the substitution of debtors was made without the
consent of Land Bank – a requirement which is indispensable in order to effect a
novation of the obligation, it is therefore not bound to recognize the substitution of
debtors. Land Bank did not intervene in the contract between Spouses Sy and
Spouses Ong and did not expressly give its consent to this substitution.
Topic: Effects of Novation

G.R. No. 200602 December 11, 2013

ACE FOODS, INC. (ACE Foods), Petitioner,
vs.
MICRO PACIFIC TECHNOLOGIES CO., LTD. (MTCL), Respondent.

Perlas-Bernabe, J.

FACTS:
ACE Foods is a domestic corporation engaged in the trading and distribution
of consumer goods in wholesale and retail bases, while MTCL is one engaged in
the supply of computer hardware and equipment. In 2001, MTCL sent a letter-
proposal for the delivery and sale of the subject products to be installed at various
offices of ACE Foods. ACE Foods accepted MTCL’s proposal and accordingly
issued a purchase order for the subject products amounting to ₱646,464.00. Then,
on 2002, MTCL delivered the said products to ACE Foods as reflected in the
invoice receipt. The fine print of the invoice states, inter alia, that "title to sold
property is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full
compliance of the terms and conditions of above and payment of the price". After
delivery, the products were then installed and configured in ACE Foods’s premises.
MTCL’s demands against ACE Foods to pay the purchase price, however, remained
unheeded. Instead of paying the purchase price, ACE Foods sent MTCL a letter
stating that it has been returning the products to MTCL thru its sales
representative Mr. Mark Anteola who has agreed to pull out the products but had
failed to do so up to now. Eventually, ACE Foods lodged a complaint against MTCL
before the RTC. It argued that MTCL’s reservation of ownership of the subject
products as reflected in the Invoice Receipt novated the contract of sale between
the parties. RTC ruled in favor of ACE Foods directing MTCL to remove the subject
products from ACE Foods’s premises and pay actual damages and attorney fees.
CA reversed and set aside this decision of the RTC.

ISSUE:
Whether or not the stipulation anent MTCL’s reservation of ownership of the
subject products as reflected in the Invoice Receipt novated the contract of sale
between the parties.

RULING:
The Court ruled that records are bereft of any showing that the said
stipulation novated the contract of sale between the parties which, to repeat,
already existed at the precise moment ACE Foods accepted MTCL’s proposal.
Novation, in its broad concept, may either be extinctive or modificatory. It is
extinctive when an old obligation is terminated by the creation of a new obligation
that takes the place of the former; it is merely modificatory when the old obligation
subsists to the extent it remains compatible with the amendatory agreement. In
either case, however, novation is never presumed, and the animus novandi,
whether totally or partially, must appear by express agreement of the parties, or
by their acts that are too clear and unequivocal to be mistaken.
In the present case, it has not been shown that the title reservation
stipulation appearing in the Invoice Receipt had been included or had
subsequently modified or superseded the original agreement of the parties. The
fact that the Invoice Receipt was signed by a representative of ACE Foods does
not, by and of itself, prove animus novandi since: (a) it was not shown that the
signatory was authorized by ACE Foods (the actual party to the transaction) to
novate the original agreement; (b) the signature only proves that the Invoice
Receipt was received by a representative of ACE Foods to show the fact of
delivery; and (c) as matter of judicial notice, invoices are generally issued at the
consummation stage of the contract and not its perfection, and have been even
treated as documents which are not actionable per se, although they may prove
sufficient delivery.
Topic: Effects of Novation

G.R. No. 174665               September 18, 2013

PHILIPPINE RECLAMATION AUTHORITY (Formerly known as the PUBLIC
ESTATES AUTHORITY), Petitioner,
vs.
ROMAGO, INCORPORATED, Respondent.
Abad, J.

FACTS:
In 1993, Bases Conversion and Development Authority (BCDA) entered into
a MOA with the Philippine Reclamation Authority (PRA) designating it as the
Project Manager. In 1994, BCDA, PRA and Philippine National Bank (PNB)
executed a Pool Formation Trust Agreement under which BCDA, as project owner,
was to issue Heritage Park Investment Certificates that would evidence the
holders’ right to the perpetual use and care of specific interment plots. After public
bidding, the PRA awarded the outdoor electrical and lighting works for the park to
Romago, Inc., with a contract price of P176.3million. On receipt of the PRA’s notice
to proceed, Romago immediately began construction works. Meanwhile, the
parties to the PFTA organized HPMC to take over the management of the project.
The PRA lost no time in informing Romago of the consequent termination of its
services. Because the HPMC refused to recognize the PRA’s contract with it,
Romago filed with the Construction Industry Arbitration Commission (CIAC), a
complaint seeking to collect its claims totaling P24.4million because even though it
completed 96.15% of the work, he was not paid full. CIAC issued an order
dropping RMMI but denying the HPMC’s motion to dismiss the case against it. The
HPMC elevated the CIAC order to the Court of Appeals (CA).

ISSUE:
Was the PRA’s liability under its contract with Romago had been
extinguished by novation when it assigned all its obligations to the HPMC pursuant
to the provisions of the PFTA.

RULING:
No.
Novation requires (a) the existence of a previous valid obligation; (b) the
agreement of all parties to the new contract; (c) the extinguishment of the old
contract; and (d) the validity of the new one.
There cannot be novation in this case since the proposed substituted parties
did not agree to the PRA’s supposed assignment of its obligations under the
contract for the electrical and light works at Heritage Park to the HPMC. The
latter definitely and clearly rejected the PRA’s assignment of its liability under that
contract to the HPMC. Romago tried to follow up its claims with the HPMC, not
because of any new contract it entered into with the latter, but simply because the
PRA told it that the HPMC would henceforth assume the PRA’s liability under its
contract with Romago.
Topic: Effects of Novation
G.R. No. 180144 September 24, 2014
LEONARDO BOGNOT, Petitioner,
vs.
RRI LENDING CORPORATION, represented by its General Manager, DARIO
J. BERNARDEZ, Respondent.

Brion, J.:

FACTS:
Sometime in September 1996, the petitioner and his younger brother,
Rolando A. Bognot (collectively referred to as the "Bognot siblings"), applied for
and obtained a loan of Five Hundred Thousand Pesos (₱500,000.00) from the
respondent, payable on November 30, 1996.4 The loan was evidenced by a
promissory note and was secured by a postdated check dated November 30,
1996.Subsequently, the loan was again renewed on a monthly basis (until June 30,
1997), as shown by the Official Receipt No. 7979 dated May 5, 1997, and the
Disclosure Statement dated May 30, 1997 duly signed by Bernardez. The petitioner
purportedly paid the renewal fees and issued a post-dated check dated June 30,
1997 as security. As had been done in the past, the respondent superimposed the
date "June 30, 1997" on the upper right portion of Promissory Note No. 97-035 to
make it appear that it would mature on the said date. He also denied having issued
the BPI check post-dated to June 30, 1997, as well as the promissory note dated
June 30, 1997, claiming that this note had been tampered. He claimed that the one
(1) month loan contracted by Rolando and his wife in November 1996 which was
lastly renewed in March 1997 had already been fully paid and extinguished in April
1997. Trial on the merits thereafter ensued.

ISSUE:
Was the parties’ obligation extinguished by: (i) payment; and (ii) novation by
substitution of debtors?

RULING:
The parties’ obligation was not extinguished by payment and novation by
substation of debtors.
In both cases, the original debtor must be released from the obligation;
otherwise, there can be no valid novation. In order to give novation legal effect, the
creditor should consent to the substitution of a new debtor. Novation must be
clearly and unequivocally shown, and cannot be presumed.
In the present case, Mrs. Bognot did not substitute the petitioner as debtor.
She merely attempted to renew the original loan by executing a new promissory
note and check. More importantly, the respondent never agreed to release the
petitioner from his obligation. That the respondent initially allowed Mrs. Bognot to
bring home the promissory note, disclosure statement and the petitioner’s previous
check dated June 30, 1997, does not ipso facto result in novation. Neither will this
acquiescence constitute an implied acceptance of the substitution of the debtor.
Topic: Effects of Novation

G.R. No. 167519               January 14, 2015

THE WELLEX GROUP, INC., Petitioner,

vs.
U-LAND AIRLINES, CO., LTD., Respondent.
Leonen, J.:

FACTS:
Wellex and U-Land agreed to develop a long-term business
relationship through the creation of joint interest in airline operations and
property development projects in the Philippines. The provisions of the
memorandum were agreed to be executed within 40 days from its execution date.
The 40-day period lapsed but Wellex and U-Land were not able to enter into any
share purchase agreement although drafts were exchanged between the
two. Despite the absence of share purchase agreement, U-Land remitted
to Wellex atotal of US$7,499,945.00. Wellex acknowledged the receipt of
these remittances in a confirmation letter addressed to U-Land and
allegedly delivered stock certificates and TCTs of subject properties.
Despite these transactions, Wellex and U-Land still failed to enter into the share
purchase agreement and the joint development agreement. Thus, U-Land filed a
Complaint praying for rescission of the First Memorandum of Agreement
and damages against Wellex and for the issuance of a Writ of Preliminary
Attachment. The Regional Trial Court (RTC) ruled in favor of U-Land and ordered
rescission of contract under Art. 1911 of the Civil Code. On appeal, the Court
of Appeals affirmed the ruling of the RTC.. Hence, this petition.

ISSUE:
Was there novation of the First Memorandum of Agreement?

RULING:
No. The Court ruled that there was no express or implied novation of the
First Memorandum of Agreement.
Novation may also be express or implied. It is express when the new
obligation declares in unequivocal terms that the old obligation is extinguished. It
is implied when the new obligation is incompatible with the old one on every point.
The test of incompatibility is whether the two obligations can stand together, each
one with its own independent existence.
In the present case, after the 40-day period, the parties did not enter into
any subsequent written agreement that was couched in unequivocal terms. Both
parties admitted that their counsels participated in the crafting and execution of
the First Memorandum of Agreement as well as in the efforts to enter into the
share purchase agreement. Any subsequent agreement would be expected to be
clearly agreed upon with their counsels’ assistance and in writing, as well.
Moreover, there was no incompatibility between the original terms of the First
Memorandum of Agreement and the remittances made by respondent U-Land for
the shares of stock. These remittances were actually made with the view that both
parties would subsequently enter into a share purchase agreement.