Obligations and Contracts:

Activity on Novation:

This activity is due on Monday, March 30, 2020 before 5 pm.

Case at bar: Sps. Reyes v. BPI-FSB, Inc., et al.

Answer the following questions:

(1) Who are the parties to the case? Describe briefly their role to the contracts subject of the
case. (3 pts)
(2) Cite in your own words the simple issue to be resolved. The simple issue will start with this
phrase: Whether or not x x x (2 pts)
(3) How did the Court rule on the issue? What specific provision/s of law was/were applied? (5)

(4) Enumerate the four (4) essential requisites of novation. (2)

REQUISITES OF NOVATION
In novation, there are four (4) essential requisites, namely:
(1) A previous valid obligation;
(2) Capacity and intention of the parties to modify or extinguish the obligation;
(3) The modification or extinguishment of the obligation; and
(4) The creation of a new valid obligation.

(5) Define a contract of adhesion. What is the contract of adhesion cited in the case. (1)
Contract of Adhesion or a standard form of contract is a contract between two parties,
where the terms and conditions of the contract are set by one of the parties, and the other
has a little or no ability to negotiate more favourable terms and is thus placed in a “take it or
leave it” position. The contract of adhesion cited in the case is that Reyes spouses
(petitioner) and BPI-FSB, Inc. agreed that Reyes spouses will mortgage its real estate
property to secure loan for Transbuilders amounting to Php 15,000,000.00 on March 24,
1995. Since the petitioner voluntarily mortgage their real estate for Transbuilders’ loan, then
they can’t just withdraw the title of the property as the changes on the extension of the loan
between BPI-FSB, Inc. and Transbuilders was not qualified for the claim of the petitioner so
they can’t be released to their obligation.
(6) Define novation. What are the dual purpose of novation. (2)
Novation is the total or partial extinction of an obligation through the creation of a new
one which substitutes it.
It is the substitution or change of an obligation by another, which extinguishes or modifies
the first, either by changing its object or principal conditions, or by substituting another in
place of the debtor, or by subrogating a third person in the rights of the creditor.
Dual function of novation.
Novation is a contract containing two (2) stipulations: one to extinguish or modify an
existing obligation, the other to substitute a new one in its place.