SM SYSTEMS CORPORATION, petitioner, vs.

SCAR CAMERINO, EFREN

CAMERINO, CORNELIO MANTILE, DOMINGO ENRIQUEZ AND HEIRS OF
NOLASCO DEL ROSARIO, respondents

(G.R. No. 178591 | 29 March 2017 | Third Division | Reyes, J.)

DOCTRINE:
NOVATION
A novation arises when there is a substitution of an obligation by a subsequent one that
extinguishes the first, either by changing the object or the principal conditions, or by substituting
the person of the debtor, or by subrogating a third person in the rights of the creditor.

REQUISITES OF A VALID NOVATION

(a) a previous valid obligation
(b) an agreement of the parties to make a new contract
(c) an extinguishment of the old contract
(d) a valid new contract

FACTS:
Victoria Homes, Inc. is the owner of three (3) parcels of land situated in Muntinlupa,
Rizal whose tenants are the respondent farmers who use the land to cultivate and plant rice and
corn. Without notifying the respondents, these parcels of land were sold to Sprinsun
Management Systems Corporation, the predecessor-in-interest of herein petitioner SM Systems
Corporation. Subsequently, Springsun mortgaged the lots to Banco Filipino as security for its
various loans. Springsun defaulted in its obligations and the lots foreclosed extra-judicially. They
were sold to the highest bidder, Banco Filipino, but were eventually redeemed by Sprinsun.

Thereafter, the farmers filed an action for redemption before the RTC against Springsun
and Banco Filipino, in which they obtained a favorable judgement. On appeal, the CA affirmed
the decision of the lower court. Aggrieved, Springsun elevated the case before the SC via a
petition for review on certiorari. The SC affirmed the decision of the CA. Upon denial of the
subsequent motion for reconsideration of the petitioner, an entry of judgement was made, and the
farmers moved for the execution of the said decision. The petitioner then instituted an action for
Annulment of Judgment with prayer for the issuance of a TRO before the CA. The action seeks
to annul the decision of the RTC allowing the farmers to redeem the property. However, the CA
dismissed the petition, and the subsequent MR filed by the petitioner. The case was elevated to
the SC, which then rendered a judgment against herein petitioner.

Meanwhile, the respondents executed an Irrevocable Power of Attorney in favor of

Mariano Nocom, authorizing him to comply with the previous court decision by paying the
redemption price to Springsun. The respondents, however, filed an action to revoke the said
authority with the RTC, in which they received a favorable decision for being contrary to law
and public policy. The RTC explained that the power of attorney wasa disguised conveyance of
the statutory right of redemption that is prohibited under Republic Act No. 3844. This decision
was affirmed by the CA, but was set aside by the SC with an order remanding the case to the
RTC for a regular trial, not by summary judgment.

Subsequently, the RTC granted the respondents’ motion for execution which caused the
cancellation of the TCTs in the name of the petitioner, and the issuance of new ones in favor of
the farmers. Thereafter, SM Systems and the farmers(except Oscar) executed a
document(Kasunduan), wherein the latter agreed to receive P300,000.00 each from the former,
as a compromise settlement. Petitioner then filed a Motion to Hold Execution in Abeyance on the
Ground of Supervening Event, but the same was denied by the RTC. The case was elevated to
the CA, where the petitioner was found guilty of forum shopping. It further held that the
compromise agreement could not novate the Court's earlier decision.

ISSUE:
Did the “Kasunduan” validly cause the novation of the judgment obligation?

HELD:
YES.
 The Court found no compelling grounds to invalidate the compromise agreements. In
Heirs of Servando Franco v. Spouses Gonzales, the Court discussed novation in this wise: A
novation arises when there is a substitution of an obligation by a subsequent one that
extinguishes the first, either by changing the object or the principal conditions, or by
substituting the person of the debtor, or by subrogating a third person in the rights of the
creditor:

For a valid novation to take place, there must be, therefore: (a) a previous valid
obligation; (b) an agreement of the parties to make a new contract; (c) an extinguishment of the
old contract; and (d) a valid new contract. In short, the new obligation extinguishes the prior
agreement only when the substitution is unequivocally declared, or the old and the new
obligations are incompatible on every point.

A compromise of a final judgment operates as a novation of the judgment obligation

upon compliance with either of these two conditions. In the case at bar, SMS’ obligation to
allow redemption of the three parcels of land was superseded by the terms of the compromise
agreements executed with the four farmers. SMS’ new obligation consisted of the payment of
₱300,000.00 each to the four farmers, who, in turn, waived their redemption rights. Novation,
thus, arose as the old obligation became incompatible with the new.

The Court also notes that Oscar, the farmer who did not execute a compromise agreement
with SMS, filed before the RTC a Manifestation and Motion, dated September 15, 2006,
indicating that “he has no plans, as he is in no financial position, to exercise the right of
redemption” granted to him.