Maligaya, Rhoda R.

Assignment No. 2

Civil Law Review-Oblicon

Case Digest

1. LEONIDA C. QUINTO, petitioner, vs.  PEOPLE OF THE PHILIPPINES, respondent.

G.R. No. 126712. April 14, 1999

VITUG, J.

Facts:

Quinto was convicted of the crime estafa, the case started when Quinto asked Cariaga to
allow her to have the jewelries for some prospective buyer. Cariaga acceded and handed over
to Quinto the set of such jewelries one (1) set of marques with briliantitos worth
P17,500.00, one (1) solo ring of 2.30 karats worth P16,000.00 and one (1) rosetas ring worth
P2,500.00. Qinto signed a receipt. They had an agreement that after 5 days if Quinto have
not sell the jewelries it will be return to the owner.

After 5 days Quinto failed to deliver back the jewelries and asked for extension that
results for almost six months. Quinto failed to conclude any sale up to time of extension. Cariaga
asked that the pieces of jewelry be returned. After Cariaga send demand letters to Quinto for the
return of the jewelries in which Cariaga failed to do again. The inexplicable delay of Quinto in
returning the items spurred the filing of the case for estafa against her.

In Quinto’s defense, she narrated that the solo ring was sold by certain Mrs. Camacho,
the buyer paid in check on half amount only and the remaining half was paid by installments
directly to Cariaga. Quinto also transacted with Mrs. Camacho the marques and the ring, Mrs.
Camacho then failed to pay the full amount. Quinto brought Cariaga to Mrs. Camacho and both
of them agreed that the payment will be in installments. Quinto was also able to sell the diamond
ring to Mrs. Ramos, unfortunately she was unable to pay the whole amount again Quinto brought
Cariago to Mrs. Ramos and they talked about the terms of payment. In the first payment Mrs.
Ramos gave Quinto a ring, in the next payment was P5,000. Quinto herself paid the P2,000.

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Issue:

Whether or not there was a novation when the private complainant consented to receive
payment on installments directly to the buyer.

Ruling:

The extinguishment of the old obligation by the new one is a necessary element of
novation which may be effected either expressly or impliedly. The term “expressly” means that
the contracting parties incontrovertibly disclose that their object in executing the new contract is
to extinguish the old one. Upon the other hand, no specific form is required for an implied
novation, and all that is prescribed by law would be an incompatibility between the two
contracts. 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.

The changes alluded to by petitioner consists only in the manner of payment. There was
really no substitution of debtors since private complainant merely acquiesced to the payment but
did not give her consent to enter into a new contract.

Thus it is easy to see why Cariaga’s acceptance of Ramos and Camacho’s payment on
installment basis cannot be construed as a case of either expromision or delegacion sufficient to
justify the attendance of extinctive novation. Not too uncommon is when a stranger to a contract
agrees to assume an obligation; and while this may have the effect of adding to the number of
persons liable, it does not necessarily imply the extinguishment of the liability of the first debtor.
Neither would the fact alone that the creditor receives guaranty or accepts payments from a third
person who has agreed to assume the obligation, constitute an extinctive novation absent an
agreement that the first debtor shall be released from responsibility.

2. PEOPLE'S BANK AND TRUST COMPANY, plaintiff-appellee,

vs.
SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y SYYAP, defendants-
appellants.

G.R. No. L-29280; August 11, 1988;

PARAS, J.

Facts:

Defendants-appellants requested for a credit commercial line in the amount of P900K

from People’s Bank which the latter granted and the expiry date of which was May 20, 1966. On
May 20, 1965, defendants Antonio V. Syyap and Angel Y. Syyap executed an undertaking in
favor of the plaintiff whereby they both agreed to guarantee absolutely and unconditionally and
without the benefit of excussion the full and prompt payment of any indebtedness to be incurred

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on account of the said credit line. Against the credit line granted the defendant Syvel's
Incorporated the latter drew advances in the form of promissory notes which are attached to the
complaint as Annexes "C" to "l." In view of the failure of the defendant corporation to make
payment in accordance with the Commercial Credit Agreement, People’s Bank started to
extrajudicially foreclose the chattel mortgage. However, because of an attempt to have the matter
settled, the extra-judicial foreclosure was not pushed thru. As still no payment had been paid,
People’s Bank filed an action for foreclosure of chattel mortgage on Syvel’s Inc’s stocks of
goods, personal properties and other materials owned by it and located at its stores or
warehouses.

A preliminary writ of attachment was issued after petition of the plaintiff based on the
affidavits alleging that the defendants are disposing of their properties with intent to defraud their
creditors, particularly the plaintiff herein. As a consequence of the issuance of the writ of
attachment, the defendants, in their answer to the complaint set up a compulsory counterclaim
for damages.

Antonio Syyap proposed to have the case settled amicably and to that end a conference
was held in which representatives of both parties were present. Mr. Syyap offered to execute a
real estate mortgage on his real property located in Bacoor, Cavite. Thus, a Real Estate Mortgage
was executed by the defendant Antonio V. Syyap and his wife, wherein Syyap also admitted that
as of June 16, 1967, the indebtedness of Syvel's Inc. was P601,633.01, the breakdown of which
is as follows: P568,577.76 as principal and P33,055.25 as interest.

Complying with the promise, People’s Bank a motion to dismiss without prejudice was
prepared, but the defendants did not want to agree if the dismissal would also the dismissal of
their counterclaim against the plaintiff. Hence, trial proceeded.

As regards the liabilities of the defendants, there is no dispute that a credit line to the
maximum amount of P900k was granted to the defendant corporation on the guaranty of the
merchandise or stocks in goods of the said corporation which were covered by chattel mortgage
duly registered as required by law. There is likewise no dispute that the defendants Syyap
guaranteed absolutely and unconditionally and without the benefit of excussion the full and
prompt payment of any indebtedness incurred by the defendant corporation under the credit line
granted it by the plaintiff. As of June 16, 1967, its indebtedness was in the total amount of
P601,633.01. No part of the amount has been paid by either of the defendants. Hence their
liabilities cannot be questioned.

Issue:

Whether or not the obligation secured by the Chattel Mortgage sought to be foreclosed in
the above-entitled case novated by the subsequent execution between appellee and appellant
Antonio V. Syyap of a real estate mortgage as additional collateral to the obligation secured by
said chattel mortgage?

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Ruling:

Novation takes place when the object or principal condition of an obligation is changed
or altered. It is elementary that novation is never presumed; it must be explicitly stated or there
must be manifest incompatibility between the old and the new obligations in every aspect (Goni
v. CA, 144 SCRA 223 [1986]; National Power Corp. v. Dayrit, 125 SCRA 849 [1983]).

In the case at bar, there is nothing in the Real Estate Mortgage which supports appellants'
submission. The contract on its face does not show the existence of an explicit novation nor
incompatibility on every point between the "old and the "new" agreements as the second contract
evidently indicates that the same was executed as new additional security to the chattel mortgage
previously entered into by the parties.

Moreover, records show that in the real estate mortgage, appellants agreed that the chattel
mortgage "shall remain in full force and shall not be impaired by this (real estate) mortgage." It
is clear, therefore, that a novation was not intended. The real estate mortgage was evidently taken
as additional security for the performance of the contract.

3. SPS. FRANCISCO AND RUBY REYES, petitioners, vs. BPI FAMILY SAVINGS BANK,

INC., and MAGDALENA L. LOMETILLO, in her capacity as ex-officio Provincial Sheriff
for Iloilo, respondents.

G.R. NOS. 149840-41, March 31, 2006

CORONA, J.

Facts:

Spouse Reyes executed a real estate mortgage on their property in favor BPI-FSB to
secure a P15,000,000 loan of Transbuilders. The mortgage contract between petitioners and BPI-
FSB provides:

That for and in consideration of the above-mentioned sum received by way of a loan, and
other credit accommodations of whatever nature obtained by the Borrower/Mortgagor, the
Borrower/Mortgagor by this Agreement, hereby constitutes a first mortgage, special and
voluntary over the property/ies specifically described in Annex “A”, together with all existing
improvements as well as those that may hereafter be made to exist or constructed thereon,
inclusive of all fruits and rents, in favor of the Bank, its successors and assigns.

When Transbuilders failed to pay its P15M loan within the stipulated period of one year,
the bank restructured the loan through a promissory note executed by Transbuilders in its favor.
The pertinent provisions of the promissory note stated that:

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The proceeds of the Note shall be applied to loan account no. 21108336; and

The new obligation of Transbuilders to respondent Bank for fifteen million (P15,000,000.00)
shall be paid in twenty (20) quarterly installments commencing on September 28, 1996, and at an
interest rate of eighteen (18%) per annum.

Petitioners aver that they were not informed about the restructuring of Transbuilders'
loan. In fact, when they learned of the new loan agreement sometime in December 1996, they
wrote BPI-FSB requesting the cancellation of their mortgage and the return of their certificate of
title to the mortgaged property. They claimed that the new loan novated the loan agreement of
March 24, 1995. Because the novation was without their knowledge and consent, they were
allegedly released from their obligation under the mortgage.

Issue:

Whether or not there is novation as to extinguish their obligation?

Ruling:

The mortgage contract between the petitioners and the respondent BPI does not limit the
obligation or loan for which it may stand to the loan agreement between Transbuilders and BPI,
dated March 24, 1995, considering that under the terms of that contract, the intent of all the
parties, including the petitioners, to secure future indebtedness is apparent. On the whole, the
contract of loan/mortgage dated March 24, 1995, appears to include even the new loan
agreement between Transbuilders and BPI, entered into on June 28, 1996.

There is likewise no merit to the petitioners’ submission that there was a novation of the
March 24, 1995 contract. There is no clear intent of the parties to make the new contract
completely supersede and abolish the old loan/mortgage contract. The established rule is that
novation is never presumed.

Novation will not be allowed unless it is clearly shown by express agreement, or by acts
of equal import.

Thus, to effect an objective novation itis imperative that the new obligation expressly
declares that the old obligation is thereby extinguished or that the new obligation be on every
point incompatible with the new one. (Ajax Marketing & Development Corporation vs. Court of
Appeals, 248 SCRA 222 [1995]) Without such clear intent to abolish the old contract, there is no
merit to affirm the existence of a novation.

There is no basis therefore, to the charge that respondent BPI had gravely erred in not
surrendering the petitioners’ certificate of title, as the mortgage undertaking of the petitioners has
not been cancelled. For the same reason, the respondent BPI acted within its prerogative when it
initiated extra- judicial foreclosure proceedings over the petitioners’ property.

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4. ADORACION E. CRUZ, THELMA DEBBIE E. CRUZ and GERRY E. CRUZ,
petitioners, vs. COURT OF APPEALS and SPOUSES ELISEO and VIRGINIA
MALOLOS, respondents.

G.R. No. 126713, July 27, 1998

PANGANIBAN, J.

Facts:

Petitioner Adoracion Cruz was married to Delfin Cruz. Upon the death of the latter,
Adoracion together with her children, likewise, petitioners herein executed a Deed of Partial
Partition. By virture of the same, each one of the petitioners was given share of several parcel of
lands. Then, they executed a Memorandum of Agreement. Such agreement was annotated in the
titles of the land covered by the Deed of Partial Partition. After the same, they registered the
Deeed and titles were issued iun their favor. For the part of Nerissa Cruz-Tamayo, several titles
were issued iun her name covering the land in question. Spouses Eliseo filed a civil case against
Nerissa Tamayo for a sum of money. The Rizal CFI issued a decision ordering spouses Nerissa
and Nelson Tamayo to pay the Spouses Eliseo. The decision of RTC then retained finality and a
subsequent writ of execution was issued. In enforcing the writ, the sheriff levied the lands in
question. Properties were sold in an execution sale, and the same was sold to spouses Eliseo
being highest bidder. Nerissa Tamayo failed to exercise her right of redemption and a final deed
of sale was executed in favor of spouses Eliseo. The spouses moved to compel Tamayo to
surredned the titles but the latter refused. In view of non-compliance, the Malolos couple asked
the court to declare the title as null and void. Petitioners herein moved to intervene. They
likewise filed a civilcase for Partition of Real Estate. The RTC ruled in favor of peitioners. On
appeal, the CA reversed the RTC ruling. Hence, this petition.

Issue:

Whether or not there was a valid novation.

Ruling:

The Court held in the negative. In its decision, it was held that Memorandum of
Agreement does not novate or cancel the earlier Deed of Partial Partition. The Court likewise
noted the nature of novation and laid down its elements. As one of the modes of extinguishment
of obligation, in order for novation to apply, the following requisites must concur: first, there is a
previous valid obligation; second, the parties concerned agree to a new contract; third, the old
contract is extinguished; and fourth, there is a valid new contract. Novation may be express or

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implied. Article 1292 of the Code provides that an obligation may be extinguished by another
which substitutes the same. It is imperative that it be so declared in unequivocal terms or that the
old and new obligations be on every point incompatible with each other. In the present case,
MOA falls short of producing a novation, because it does not express a clear intent to dissolve
the old obligation as a consideration for the emergence of the new one. Likewise, petitioners fail
to show that the DPP and the MOA are materially and substantially incompatible with each
other. The petition was denied.

5. CCC INSURANCE CORPORATION, petitioner, vs. KAWASAKI STEEL

CORPORATION, F.F. MAÑACOP CONSTRUCTION CO., INC., AND FLORANTE F.
MAÑACOP, respondents.

G.R. No. 156162, June 22, 2015

LEONARDO-DE CASTRO, J.

Facts:

Kawasaki and FFMCCI executed a Consortium Agreement. Kawasaki-FFMCCI

Consortium was then formed for the purpose of contracting with the Government for the
construction of a fishing port network in Pangasinan. Based from such agreement, Kawasaki and
FFMCCI undertook to perform and accomplish their respective and specific portions of work in
the intended contract with the Philippine Government. The contract was a success, as the
Government through the DPWH Secretary entered a Construction agreement with respondents
for the contract price of P62,000,441.00. In accordance to Article 10 of Consortium Agreement,
Kawasaki secured a letter of Credit from PCIB in favor of DPWH. The Republic made an
advance payment for the Project to the Kawasaki-FFMCCI Consortium. For the release of its
share in the advance payment, FFMCCI secured from CCCIC several bonds in favor of
Kawasaki. In two letters, FFMCCI submitted the Surety and Performance Bonds to Kawasaki
and requested Kawasaki to release the advance payment. Sometime in April 1989, FFMCCI
ceased performing its work in the Project after suffering financial problems. Kawasaki and
FFMCCI then executed a new Agreement entitled Transferred Portion of Work, whereby the
former agreed to take over the unfinished portion of work of FFMCCI. In a letter, Kawasaki
informed CCCIC about the cessation of operations of FFMCCI and ordered the latter to pay the
former in view of the advance payment it made. Consequently, Kawasaki formally demanded
that CCCIC. Because CCCIC did not act upon its demand, Kawasaki filed on November 6, 1989
before the RTC a Complaint against CCCIC. After trial, the RTC rendered a Decision on May 2,
1996 dismissing the Complaint of Kawasaki and the counterclaim of CCCIC. the RTC, citing
Article 2079 of the Civil Code, ruled that the obligations of CCCIC under the Surety and
Performance Bonds were extinguished. Kawasaki appealed with the CA. The latter reversed the
ruling of RTC. Hence, this petition>

Issue:
Whether or not there is a valid novation?

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Ruling:

The Court first notes that the default of FFMCCI preceded the execution of the Agreement on
August 24, 1989 which purportedly novated the Consortium Agreement and, in effect,
extinguished the Surety and Performance Bonds. As early as his letter dated July 20, 1989,
Mañacop, FFMCCI President, already admitted the inability of FFMCCI to continue with its
portion of work in the Project and authorized Kawasaki to continue the same. It was precisely
because FFMCCI defaulted on its obligations under the Consortium Agreement that necessitated
the execution of the Agreement dated August 24, 1989 between Kawasaki and FFMCCI, and this
is evident from one of the "whereas" clauses in the said Agreement which says that "due to some
financial reverses [, FFMCCI] can no longer do its portion of the work under the Contract." The
liabilities of CCCIC as surety to Kawasaki under the Surety and Performance Bonds had already
attached upon the default of FFMCCI while the said bonds were still in effect and prior to the
alleged novation of the Consortium Agreement by the Agreement dated August 24, 1989 which
resulted in the extinguishment of the bonds.

The Court expounded on the concept of novation in Reyes v. BPI Family Savings Bank, Inc.36:
Novation is defined as the extinguishment of an obligation by the substitution or change of the
obligation by a subsequent one which terminates the first, either by changing the object or
principal conditions, or by substituting the person of the debtor, or subrogating a third person in
the rights of the creditor.

Article 1292 of the Civil Code on novation further provides:

Article 1292. In order that an obligation may be extinguished by another which substitute the
same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. The cancellation of the old
obligation by the new one is a necessary element of novation which may be effected either
expressly or impliedly. While there is really no hard and fast rule to determine what might
constitute sufficient change resulting in novation, the touchstone, however, is irreconcilable
incompatibility between the old and the new obligations.

Following the ruling in Garcia, Jr. v. Court of Appeals,

In every novation there are four essential requisites: (1) a previous valid obligation; (2) the
agreement of all the parties to the new contract; (3) the extinguishment of the old contract; and
(4) validity of the new one. There must be consent of all the parties to the substitution, resulting
in the extinction of the old obligation and the creation of a valid new one. x x x. (Citations
omitted.)

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It is well-settled that novation is never presumed - novatio non praesumitur. As the party alleging
novation, the onus of showing clearly and unequivocally that novation had indeed taken place
rests on CCCIC.37 The Court laid down guidelines in establishing novation, viz.:

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.

The extinguishment of the old obligation by the new one is a necessary element of novation
which may be effected either expressly or impliedly. The term "expressly" means that the
contracting parties incontrovertibly disclose that their object in executing the new contract is to
extinguish the old one. Upon the other hand, no specific form is required for an implied
novation, and all that is prescribed by law would be an incompatibility between the two
contracts. 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.

6. NARCISO DEGAÑOS, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.

G.R. No. 162826, October 14, 2013

BERSAMIN, J.

Facts:

Narciso Deganos and Brigilda D. Luz, alias Aida Luz was charged of the crime estafa,
the case started when Brigida/Aida Luz instructed Narciso Degaños to get gold and jewelry from
Lydia for them to sell. Lydia came to know Narciso Degaños because the latter frequently visited
their house selling religious articles and books. While in their house, Narciso Degaños saw her
counting pieces of jewelry and he asked her if he could show the said pieces of jewelry to his
sister, Brigida/Aida Luz, to which she agreed.

Thereafter, Narciso Degaños returned the jewelry and Aida/Brigida Luz called her to ask
if she could trust Narciso Degaños to get the pieces of jewelry from her for Aida/Brigida Luz to
sell. Lydia agreed on the condition that if they could not pay it in cash, they should pay it after
one month or return the unsold jewelry within the said period. She delivered the said jewelry
starting sometime in 1986 as evidenced by several documents entitled “Katibayan at
Kasunduan”, the earliest of which is dated March 16, 1986. Everytime Narciso Degaños got
jewelry from her, he signed the receipts in her presence. They were able to pay only up to a
certain point. However, receipt nos. 614 to 745 dated from April 27, 1987 up to July 20, 1987
were no longer paid and the accused failed to return the jewelry covered by such receipts.
Despite oral and written demands, the accused failed and refused to pay and return the subject
jewelry. As of October 1998, the total obligation of the accused amounted to P725,000.00. It was

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the accused’s sister, Julie dela Rosa, who responded, seeking an extension of time for the
accused to settle their obligation.

In Brigida/Aida Luz, defense, she narrated that she started transacting business of selling
gold bars and jewelry with the private complainants sometime in 1986 through her brother,
Narciso Degaños. It was the usual business practice for Narciso Degaños to get the gold bars and
pieces of jewelry from the private complainants after she placed orders through telephone calls to
the private complainants, although sometimes she personally went to the private complainants’
house to get the said items. The gold bars and pieces of jewelry delivered to her by Narciso
Degaños were usually accompanied by a pink receipt which she would sign and after which she
would make the payments to the private complainants through Narciso Degaños, which
payments are in the form of postdated checks usually with a thirty-day period. In return, the
private complainants would give the original white receipts to Narciso Degaños for him to sign.
Thereafter, as soon as the postdated checks were honored by the drawee bank, the said white
receipts were stamped “paid” by Lydia Bordador, after which the same would be delivered to her
by Narciso Degaños.

On September 2, 1987, Brigida/Aida Luz sent a letter to private complainant Lydia

Bordador requesting for an accounting of her indebtedness. Private complainant made an
accounting which contained the amount of P122,673.00 as principal and P21,483.00 as interest.
Thereafter, she paid the principal amount through checks. She did not pay the interest because
the same was allegedly excessive. In 1998, private complainant brought a ledger to her and asked
her to sign the same. The said ledger contains a list of her supposed indebtedness to the private
complainants. She refused to sign the same because the contents thereof are not her indebtedness
but that of his brother, Narciso Degaños. She even asked the private complainants why they gave
so many pieces of jewelry and gold bars to Narciso Degaños without her permission, and told
them that she has no participation in the transactions covered by the subject “Kasunduan at
Katibayan” receipts.

Co-accused Narciso Degaños, in his defense, he stated that all their transactions are
usually covered by receipts denominated as “Kasunduan at Katibayan”. All the “Kasunduan at
Katibayan” receipts were issued by the private complainants and was signed by him. The phrase
“for Brigida Luz” and for “Evely Aquino” were written on the receipts so that in case he fails to
pay for the items covered therein, the private complainants would have someone to collect from.
He categorically admitted that he is the only one who was indebted to the private complainants
and out of his indebtedness, he already made partial payments in the amount of P53,307.00.
Included in the said partial payments is the amount of P20,000.00 which was contributed by his
brothers and sisters who helped him and which amount was delivered by Brigida Luz to the
private complainants.

On June 23, 1999, the lower court rendered its decisions against Narciso Deganos but
acquitted Brigilda/ Aida Luz.

Hence this appeal.

Issue:

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 Whether or not the court erred in finding that novation had converted the liability of the
accused into civil liability.

Ruling:

The Court ruled in the negative. Novation did not transpire as to prevent the incipient
criminal liability from arising.

Novation is not one of the grounds prescribed by the Revised Penal Code for the extinguishment
of criminal liability. It is well settled that criminal liability for estafa is not affected by
compromise or novation of contract, for it is a public offense which must be prosecuted and
punished by the Government on its own motion even though complete reparation should have
been made of the damage suffered by the offended party. A criminal offense is committed
against the people and the offended party may not waive or extinguish the criminal liability that
the law imposes for the commission of the offense. The criminal liability for estafa already
committed is not affected by the subsequent novation of the contract.

Not being included in the list, novation is limited in its effect only to the civil aspect of the
liability, and, for that reason, is not an efficient defense in estafa. This is because only the State
may validly waive the criminal action against an accused. The role of novation may only be
either to prevent the rise of criminal liability, or to cast doubt on the true nature of the original
basic transaction, whether or not it was such that the breach of the obligation would not give rise
to penal responsibility, as when money loaned is made to appear as a deposit, or other similar
disguise is resorted to.

Novation is the extinguishment of an obligation by the substitution or change of the obligation

by a subsequent one that terminates the first, either by (a) changing the object or principal
conditions; or (b) substituting the person of the debtor; or (c) subrogating a third person in the
rights of the creditor. In order that an obligation may be extinguished by another that substitutes
the former, it is imperative that the extinguishment be so declared in unequivocal terms, or that
the old and the new obligations be on every point incompatible with each other. Obviously, in
case of only slight modifications, the old obligation still prevails.

7. FOOD FEST LAND, INC. AND JOYFOODS CORP. vs. ROMUALDO SIAPNO, et. al.

G.R. No. 226088, February 27, 2019

PERALTA, J.

Facts:

Food Fest, Inc. is local corporation in Dagupan City. For its intent to put up a fast food
restaurant, it entered into a contract of lease with Romualdo, Teodoro, and Felipe, all surnamed
Siapno, over a parcel of land to be used as its site. The contract was fixed at five years with a

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monthly rent of P43, 901.00, with a 10% increase on the second year and the succeeding
ones. The contract likewise contains a no-waiver clause which contains that no waiver by the
parties of any of their rights under the Contract shall be deemed to have been made unless
expressed in writing and signed by the party concerned.

For the first to fifth years. Food Fest religiously paid its obligations under the contract.
However, Food Fest failed to pay the 10% increases from the sixth to the 10thyears. On the
11thand 12thyears, the parties operated on a P90,000.00 monthly rental. During the effectivity of
the contract, Food Fest assigned all its rights and obligations to Tucky Foods, who in turn,
assigned all rights and obligations to Joy Foods. After the assignment, the Siapnos accepted
payment from Joy Foods. Due to financial reverses, Food Fest notified the Siapnos that it is
pre-terminating the lease contract. The Siapnos filed an action for sum of money for the recovery
of the deficiency in the rentals from the sixth year to the 12th years. Food Fest contends that it
cannot be held liable because it has already assigned all its rights and obligations to Tucky
Foods, did the same to Joy Foods. Thus, according to Food Fest, Joy Foods is the only one liable.
Both the RTC and the CA rejected Food Fest’s defense. Food Fest now questions the rulings of
the trial and the appellate courts.

Issue:

Whether or not there is novation?

Ruling:

No, Novation of an obligation by substituting the person of the debtor, as the term
suggests, entails the replacement of the debtor by a third person. When validly made, it releases
the debtor from the obligation which is then assumed by the third person as the new debtor. To
validly effect such kind of novation, however, it is not enough for the debtor to merely assign his
debt to a third person, or for the latter to assume the debt of the former; the consent of the
creditor to the substitution of the debtor is essential and must be had. As Article 1293 of the Civil
Code provides:

Article 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in
articles 1236 and 1237.

In this case it is well settled that the facts do not show that respondents had expressly
consented in writing to the substitution of Food Fest by Joyfoods. The consent of respondents to
such substitution has to be in writing, in. Light of the non-waiver clause of the Contract of Lease.
As can be recalled, the non waiver clause of the Contract of Lease required the parties thereto to
express any waiver of their rights under said contract in writing lest their waiver be considered
null. Verily, without the consent of the respondent conveyed in the form required under the
Contract of Lease — there can be no substitution of Food Fest by Joyfoods.

Also following the ruling in the case of De Cortes v. Venturanza,

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 A personal novation by substitution of another in place of the debtor may be effected
with or without the knowledge of the debtor but not without the consent of the creditor (Art.
1205, Civil Code [now Art. 1293, New Civil Code]). This is the legal provision applicable to the
case at bar. The reason for the requirement that the creditor give his consent to the substitution is
obvious. The substitution of another in place of the debtor may prevent or delay the fulfillment
or performance of the obligation by reason of the inability or insolvency of the new debtor;
hence, the consent of the creditor is necessary. This kind of substitution may take place without
the knowledge of the debtor when a third party assumes the obligation of the debtor with the
consent of the creditor. The novation effected in this way is called expromision. Substitution may
also take place when the debtor offers and the creditor accepts a third party who assumes the
obligation of the debtor. The novation made in this manner is called delegacion. (1206, Civil
Code [now Art. 1295, New Civil Code]). In these two modes of substitution, the consent of the
creditor is always required.

8. BENEDICTO V. YUJUICO, petitioner, vs. FAR EAST BANK AND TRUST COMPANY (NOW BANK

OF THE PHILIPPINE ISLANDS), SUBSTITUTED BY PHILIPPINE INVESTMENT ONE (SPV-
AMC), INC., respondenst.

G.R. No. 186196, August 15, 2018

CAGUIOA, J.:

Facts:

Appellant then Far East Bank and Trust Company (appellant bank, for brevity) approved
the renewal of appellee GTI Sportswear Corporation's Omnibus Credit Line (OCL) with a total
amount of P35,000,000.00. This was secured by a Comprehensive Surety Agreement executed
by appellee Benedicto V. Yujuico in his personal capacity. Negotiations then were undertaken to
settle appellee GTI's trust receipt obligation under the OCL. On June 26, 1995, appellee Yujuico,
in behalf of appellee GTI and in his personal capacity as surety and the bank’s vice president,
signed a Loan Restructuring Agreement. The agreement expressly stated that the restructured
loan continues to be secured by the Comprehensive Surety Agreement previously executed by
appellee Yujuico in favor of appellant bank. After the signing of the restructuring agreement,
appellee GTI, reiterated its request for the re-denomination of its loan obligation to US dollars,
the bank however denied the same. In a letter, appellant bank demanded appellee GTI to update
all its unpaid amortizations on the outstanding restructured loan to avoid any legal suit against
the same. Then, on October 1997 appellees filed against appellant bank a complaint with the
Makati City RTC. In a decision, the RTC ruled that conversion resulted in the novation of
appellee GTI's loan obligation. Likewise, it was held that appellee Yujuico was accordingly
released from his obligations as surety pursuant to Article 1215 of the New Civil Code in
conjunction with paragraph 1 of Article 1291 of the same Code. Appellant bank issued a Motion
for Reconsideration but the same was denied. On Appeal, the CA ruled in favor of the bank and
modified the bank’s decision. Hence, this petition.

Issue:

Whether or not there was a valid novation.

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Ruling:

The Court ruled in the negative. In its decision, it was pointed that in this case, the
attendant facts do not make out a case of novation. In this case, the Court discussed the nature of
novation. It was defined as the substitution or alteration of an obligation by a subsequent one that
cancels or modifies the preceding one. As to its essence, novation may be classified into: (a)
objective or real, (b) subjective or personal, or (c) mixed. Article 1291(1) contemplates an
objective or real novation where there is a change in the cause, object or principal conditions of
the obligations while (2) and (3) of said Article contemplate a passive one where there is a
substitution of the person of the debtor and an active one where there is subrogation of a third
person in the rights of the creditor. Mixed novation, on the other hand, refers to a combination of
objective and subjective novation. As to its form or constitution, novation may be express, when
it is declared in unequivocal terms that the old obligation is extinguished by a new one which
substitutes the same, or implied or tacit, when the old and the new obligations are incompatible
with each other on every point. As to extent or effect, novation may be total or extinctive, when
there is an absolute extinguishment of the old obligation, or partial, when there is merely a
modification of the old obligation. In this case, the parties to the new

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