Deoven voluntarily executed a joint affidavit before the Olongapo City Prosecutor's Office,
SUBIC BAY LEGEND RESORTS AND CASINOS, INC. vs. FERNANDEZ
[G.R. No. 193426. September 29, 2014.]
FACTS: (J. DEL CASTILLO)
At around 11 o'clock in the evening of 6 June 1997, Bernard Fernandez's brother, Ludwin
Fernandez, visited the Legenda Hotel and Casino, owned and operated by Subic Bay
Legend Resorts and Casinos, Inc. and located in Subic Bay Freeport Zone. Legenda had
installed several CCTV. The monitors revealed that Ludwin changed $5,000.00 worth of
chips into smaller denominations. After Ludwin won $200.00 in a game of baccarat, he
redeemed the value of chips worth $7,200.00. A review of the CCTV recordings showed
that the incident was not the first time Ludwin visited the Casino. An operation was
launched by Legenda to zero-in on Ludwin. Thus, unbeknownst to him, he was already
closely watched when he went with another brother, Deoven, to the casino. After losing
$100.00, the siblings had their chips encashed at two separate windows. Since the
cashiers were apprised of a supposed irregularity, they "froze" the transaction. Legenda's
internal security officers accosted Ludwin and Deoven and ordered them to return the
cash and they complied without ado. The two were eventually escorted to private rooms
where they were separately interrogated about the source of the chips they brought.
They were held for about seven hours. The ultimatum was simple: they confess that the
chips were given by a certain employee, Michael Cabrera, or they would not be released
from questioning. The same line of questioning confronted them when they were later
turned-over for blotter preparation to the Intelligence and Investigation Office of the
SBMA. Finally, the brothers succumbed to Legenda's instruction to execute a joint
statement implicating Cabrera as the illegal source of the chips. Due to hunger pangs and
fatigue, they did not disown the statement even when they subscribed the same before
the prosecutor. Bernard Fernandez filed a Civil Case for recovery of sum of money with
damages against petitioner, on the premise he went to Legenda with his brothers Ludwin
and Deoven; that he handed over Legenda casino chips worth US$6,000.00, which
belonged to him, to his brothers for the latter to use at the casino; that petitioner
accosted his brothers and unduly and illegally confiscated his casino chips equivalent to
US$5,900.00; and that petitioner refused and continues to refuse to return the same to
him despite demand.
Petitioner alleged that right after Ludwin and Deoven's transactions with the Legenda
cashier were frozen, they voluntarily agreed to proceed to the Legenda security office,
where Ludwin voluntarily informed security officers that it was a certain Michael Cabrera
a Legenda table inspector at the time who gave him the casino chips for
encashment, taught him how to play baccarat and thereafter encash the chips, and
rewarded him with P1,000.00 for every $1,000.00 he encashed; that Ludwin and Deoven
were then brought to the IIO SBMA, where they reiterated their statements made at the
Legenda security office; that they volunteered to testify against Cabrera; that respondent
himself admitted that it was Cabrera who gave him the casino chips; that Ludwin and
which they subsequently recanted.
The trial court rendered its Decision finding that the evidence preponderates in favor of
the plaintiff. The trial court held that there is no dispute that the subject chips were in the
possession of the plaintiff. He claims he got hold of them as payment for car services he
rendered to a Chinese individual. Defendant however, contends that said chips were
stolen from the casino and it is the lawful owner of the same. The onus fell on defendant
to prove that the casino chips were stolen. The proof adduced however, is wanting. The
tapes, however, do not show how these persons got hold of the chips. The alleged source
in the person of Mike Cabrera, a table inspector of the casino,was based on the recanted
declarations of the brothers. No criminal charge was shown to have been filed against him
nor the plaintiff and his brothers. Neither was there an explanation given as to how those
chips came into the possession of Mike Cabrera much less that he passed them on to the
brothers for the purpose of encashing and dividing the proceeds amongst themselves. The
CA affirmed the trial court's decision. It held that, applying Article 559 of the Civil Code,
respondent had the legal presumption of title to or ownership of the casino chips. This
conclusion springs from respondent's admission during trial that the chips represented
payment by a Chinese customer for services he rendered to the latter in his car shop.
Petitioner failed to convincingly show that the chips were stolen; for one, it did not even
file a criminal case against the supposed mastermind, Cabrera nor did it charge Ludwin
or Deoven for the alleged theft or taking of its chips. The CA likewise held that Ludwin's
and Deoven's statements and admissions at the Legenda security office are inadmissible
because they were obtained in violation of their constitutional rights.
ISSUE:
Whether or not, the respondent is the lawful owner of the chips.
RULING:
Thus, there should be no basis to suppose that the casino chips found in Ludwin's and
Deoven's possession were stolen; petitioner acted arbitrarily in confiscating the same
without basis. Their Joint Affidavit which was later recanted does not even bear such
fact; it merely states that the chips came from Cabrera. If it cannot be proved, in the first
place, that Cabrera stole these chips, then there is no more reason to suppose that
Ludwin and Deoven were dealing in or possessed stolen goods; unless the independent
fact that Cabrera stole the chips can be proved, it cannot be said that they must be
confiscated when found to be in Ludwin's and Deoven's possession.
It is not even necessary to resolve whether Ludwin's and Deoven's Joint Affidavit was
obtained by duress or otherwise; the document is irrelevant to petitioner's cause, as it
does not suggest at all that Cabrera stole the subject casino chips. At most, it only shows
that Cabrera gave Ludwin and Deoven casino chips, if this fact is true at all since such
statement has since been recanted.
Though casino chips do not constitute legal tender, there is no law which prohibits their
use or trade outside of the casino which issues them. In any case, it is not unusual nor
is it unlikely that respondent could be paid by his Chinese client at the former's car
shop with the casino chips in question; said transaction, if not common, is nonetheless
not unlawful. These chips are paid for anyway; petitioner would not have parted with the
same if their corresponding representative equivalent in legal tender, goodwill, or
otherwise was not received by it in return or exchange. Given this premise that
casino chips are considered to have been exchanged with their corresponding
representative value it is with more reason that this Court should require petitioner to
prove convincingly and persuasively that the chips it confiscated from Ludwin and Deoven
were indeed stolen from it; if so, any Tom, Dick or Harry in possession of genuine casino
chips is presumed to have paid for their representative value in exchange therefor. If
petitioner cannot prove its loss, then Article 559 cannot apply; the presumption that the
chips were exchanged for value remains.
PCI BANK VS FRANCO
FACTS:
Arturo Franco secured from defendant PCIB Trust Indenture Certicates. That despite
demands, defendants refused and still refuses to return to plainti the trust amounts,
plus the stipulated interest. In several times, Arturo had visited the defendant bank to
request for a status on his investments, bank ocers would normally pull out his (sic)
ledger card and show plainti the updated amount due him. Later, to his surprise, he
received a letter signed by defendants counsel, in eect denying plaintis request for
payment by stating that due to the conversion of all outstanding PCI Bank trust indenture
accounts into common trust certicates, all such PCI Bank trust indenture certicates
have been rendered "null and void." Arturo prays for the payment of the amounts under
the Trust Indenture Certicates, plus interest, moral and exemplary damages and
attorneys fees
Cacayorin v. Armed Forces and Police (AFPMBAI)
GR 171298
Facts: AFPMBAI is a mutual benefit association duly organized and existing under
Philippine Laws and engaged in the business of developing low-cost housing projects for
personnel of the AFP, PNP, Bureau of Fire Protection, Bureau of Jail Management and
Penology, and Philippine Coast Guard. Petitioner Cacayorin is a member of AFPMBAI.
Petitioner applied to purchase a piece of property which the respondent owned
through a loan facility. Sps Cacayorin (borrower) and the Rural Bank (lender) executed a
Loan and Mortgage Agreement under the auspices of Pag IBIG or HDMF. The Rural Bank
granted the loan and in a letter of guaranty informed AFPMBAI to release the proceeds
upon the transfer of title in petitioners name, and after the registration and annotation
of petitioners mortgage agreement.
AFPMBAI executed in petitioners favor a DEED OF ABSOLUTE SALE, and a new
title was issued in their name, with the corresponding annotation of their mortgage
agreement with Rural Bank. Unfortunately, the Pag-IBIG loan facility did not push through
and the Rural Bank closed and was placed under receivership by the Philippine Deposit
Insurance Corporation (PDIC). Meanwhile, AFPMBAI somehow was able to take
possession of petitioners loan documents and TCT No. 37017, while petitioners were
unable to pay the loan/consideration for the property.
AFPMBAI made oral and written demands for petitioners to pay the
loan/consideration for the property.
Petitioners filed a Complaint for consignation of loan payment, recovery of title
and cancellation of mortgage annotation against AFPMBAI, PDIC and the Register of
Deeds of Puerto Princesa City. Petitioners alleged in their Complaint that as a result of the
Rural Banks closure and PDICs claim that their loan papers could not be located, they
were left in a quandary as to where they should tender full payment of the loan and how
to secure cancellation of the mortgage annotation on TCT No. 37017.
Petitioner- jurisdiction in RTC; AFPMBAI- jurisdiction is in HLURB because of the seller-
buyer relationship.
From the above allegations, it appears that the petitioners debt is outstanding; that the
Rural Banks receiver, PDIC, informed petitioners that it has no record of their loan even
as it took over the affairs of the Rural Bank, which on
record is the petitioners creditor as per the July 4, 1994 Loan and Mortgage Agreement;
that one way or another, AFPMBAI came into possession of the loan documents as well as
TCT No. 37017; that petitioners are ready to pay the loan in
full; however, under the circumstances, they do not know which of the two the Rural
Bank or AFPMBAI should receive full payment of the purchase price, or to whom tender
of payment must validly be made.
ISSUE: Whether or not this is a case of consignation.
Ruling: Under Article 1256 of the Civil Code, the debtor shall be released from
responsibility by the consignation of the thing or sum due, without need of prior tender of
payment, when the creditor is absent or unknown, or when he is
incapacitated to receive the payment at the time it is due, or when two or more persons
claim the same right to collect, or when the title to the obligation has been lost. Applying
Article 1256 to the petitioners case as shaped by the allegations in
their Complaint, the Court finds that a case for consignation has been made out, as it now
appears that there are two entities which petitioners must deal with in order to fully
secure their title to the property: 1) the Rural Bank (through PDIC), which is the apparent
creditor under the July 4, 1994 Loan and Mortgage Agreement; and 2) AFPMBAI, which is
currently in possession of the loan documents and the certificate of title, and the one
making demands upon petitioners to pay.
Clearly, the allegations in the Complaint present a situation where the creditor is
unknown, or that two or more entities appear to possess the same right to collect from
petitioners. Whatever transpired between the Rural Bank or PDIC and AFPMBAI in respect
of petitioners loan account, if any, such that AFPMBAI came into possession of the loan
documents and TCT No. 37017, it appears that petitioners were not informed thereof, nor
made privy thereto.
Indeed, the instant case presents a unique situation where the buyer, through no fault of
his own, was able to obtain title to real property in his name even before he could pay the
purchase price in full. There appears to be no vitiated consent, nor is there any other
impediment to the consummation of their agreement, just as it appears that it would be
to the best interests of all parties to the sale that it be once and for all completed and
terminated. For this reason, Civil Case No. 3812 should at this juncture be allowed to
proceed.
Finally, the lack of prior tender of payment by the petitioners is not fatal to their
consignation case. They filed the case for the exact reason that they were at a loss as to
which between the two the Rural Bank or AFPMBAI was entitled to
such a tender of payment.
On the question of jurisdiction, petitioners case should be tried in the Puerto Princesa
RTC, and not the HLURB. Consignation is necessarily judicial, as the Civil Code itself
provides that consignation shall be made by depositing the
thing or things due at the disposal of judicial authority, thus: Art. 1258. Consignation shall
be made by depositing the things due at the disposal of judicial authority, before whom
the tender of payment shall be proved, in a proper case, and the announcement of the
consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof.
(Emphasis and underscoring supplied)
The above provision clearly precludes consignation in venues other than the courts.
Elsewhere, what may be made is a valid tender of payment, but not consignation.
BARREDO VS LEANO
GR No. 156627, 4 June 2004
Nature: Petition to review on certiorari of the decision and resolution of the Court of
Appeals
Ponente: PUNO
FACTS:
Sometime in 1979, petitioners spouses Manuel and Jocelyn Barredo (Barredo Spouses)
bought a house and lot located along Lilac Road, Pilar Village, Las Pias, Metro Manila,
with the proceeds of a P50, 000.00 loan from the Social Security System (SSS) which was
payable in 25 years and an P88, 400.00 loan from the Apex Mortgage and Loans
Corporation (Apex) which was payable in 20 years. To secure the twin loans, they
executed a first mortgage over the house and lot in favor of SSS and a second one in favor
of Apex.
On July 10, 1987, the Barredo Spouses sold their house and lot to respondents Eustaquio
and Emilda Leao (Leao Spouses) by way of a Conditional Deed of Sale with Assumption
of Mortgage. The Leao Spouses would pay the Barredo Spouses P200,000.00,
P100,000.00 of which would be payable on July 15, 1987, while the balance of
P100,000.00 would be paid in ten (10) equal monthly installments after the signing of the
contract. The Leao Spouses would also assume the first and second mortgages and pay
the monthly amortizations to SSS and Apex beginning July 1987 until both obligations are
fully paid. In accordance with the agreement, the purchase price of P200, 000.00 was paid
to the Barredo Spouses who turned over the possession of the house and lot in favor of
the Leao Spouses. Two (2) years later, on September 4, 1989, the Barredo Spouses
initiated a complaint before the Regional Trial Court of Las Pias seeking the rescission of
the contract on the ground that the Leao Spouses despite repeated demands failed to
pay the mortgage amortizations to the SSS and Apex causing the Barredo Spouses great
and irreparable damage. The Leao Spouses, however, answered that they were up to
date with their amortization payments to Apex but were not able to pay the SSS
amortizations because their payments were refused upon the instructions of the Barredo
Spouses.
Meanwhile, allegedly in order to save their good name, credit standing and reputation,
the Barredo Spouses took it upon themselves to settle the mortgage loans and paid the
SSS the sum of P27, 494.00 on September 11, 1989, and P41, 401.91 on January 9, 1990.
The SSS issued a Release of Real Estate Mortgage Loan on January 9, 1990. They also
settled the mortgage loan with Apex and paid the sum of P5, 379.23 on October 3, 1989,
and P64, 000.00 on January 9, 1990. Likewise, Apex issued a Certification of Full Payment
of Loan on January 12, 1990. They also paid the real estate property taxes for the years
1987 up to 1990.
ISSUE:
Whether or not the failure of the respondents to fulfill the obligation constitutes breach
of the obligation?
HELD:
NO. PETITION DENIED.
RATIO:
In Laforteza v. Machuca, the Court held that the delay of one month in payment was a
mere casual breach that would not entitle the respondents to rescind the contract. In Ang
v. Court of Appeals, we held that the failure to remove and clear the subject property of
all occupants and obstructions and deliver all the pertinent papers to the vendees for the
registration and issuance of a certificate of title in their name were not essential
conditions but merely incidental undertakings which will not permit rescission. In Power
Commercial and Industrial Corp. v. Court of Appeals, we went a step further and
considered the failure of the vendor to eject the occupants of a lot sold as a usual
warranty against eviction, and not a condition that was not met, and thus, rescission was
not allowed. And, in Del Castillo v. Naguiat, we ruled that the failure to pay in full the
purchase price stipulated in a deed of sale does not ipso facto grant the seller the right to
rescind the agreement. In all these cases, we were consistent in holding that rescission of
a contract will not be permitted for a slight or casual breach, but only such substantial and
fundamental breach as would defeat the very object of the parties in making the
agreement.
If the Barredo Spouses were really protective of their reputation and credit standing, they
should have sought the consent, or at least notified the SSS and Apex of the assumption
by the Leao Spouses of their indebtedness. Besides, in ordering rescission, the trial court
should have likewise ordered the Barredo Spouses to return the P200, 000.00 they
received as purchase price plus interests. Art.1385 of the Civil Code provides that
[r]escission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest. The vendor is
therefore obliged to return the purchase price paid to him by the buyer if the latter
rescinds the sale. Thus, where a contract is rescinded, it is the duty of the court to require
both parties to surrender that which they have respectively received and place each other
as far as practicable in his original situation.
BPI vs CA G.R. No. 116792 (1996)
Ponente: J. Puno
Facts:
Edvin Reyes opened two joint savings accounts at the Bank of the Philippine Islands, one
with his wife and the other with his grandmother, where he regularly deposited the U.S.
Treasury Warrants payable to the order of his grandmother as her monthly pension.
Three days prior to the grandmothers death, a check was sent by the U.S. Treasury.
When it was sent to the U.S. for clearing, the treasury dishonored it as it was discovered
that the grandmother died 3 days prior to its issuance. The BPI then contacted Reyes, and
he gave verbal authorization to debit it from his account.
Thereafter, however, Reyes demanded from the bank the reinstitution of the debited
amount, in a suit for Damages filed before the RTC of Quezon City, Branch 79. BPI
counterclaimed for moral and exemplary damages. The court dismissed the case for lack
of cause of action. On appeal, however, the Court of Appeals reversed the decision.
Hence, this petition seeking a review of the decision.
Issue: Whether or not compensation must be made by BPI.
Held:
No.
Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other. Article 1290 of the New Civil Code provides that When all the
requisites mentioned in Art. 1279 are present, compensation takes effect by operation of
law, and extinguishes both debts to the concurrent amount, even though the creditors
and debtors are not aware of the compensation. Legal compensation operates even
against the will of the interested parties even without the consent of them. Since the
compensation takes place ipso jure, its effect arise on the very day on which all its
requisites concur. When used as a defense, it retroacts to the date when its requisites are
fulfilled.
Article 1279 stats that in order that compensation may be proper, it is necessary:
That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;
That the two debts be due;
That they be liquidated and demandable;
That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.
The elements of legal compensation are all present in the case at bar. The obligors bound
principally are at the same time creditors of each other. BPI stands as debtor of Reyes, a
depositor. At the same time, BPI is the creditor of Reyes with respect to the dishonored
U.S. Treasury Warrant which Reyes illegally transferred to his joint account. The debts
involved consist of a sum of money. They are due, liquidated, and demandable. They are
not claimed by a third person.
Soledad Dalton VS FGR Realty and Development Corp., Felix Ng, Nenita Ng, and Florita
Dayrit or Florita Regner
FACTS:
A parcel of land owned by respondent Flora R. Dayrit was leased to petitioners Dalton,et.
al. Eventually, the land was sold to respondent FGR Realty and Development Corporation.
FGR Realty and Dayrit decided not to accept payments from Dalton,et. al. for the purpose
of terminating the lease agreements. Dalton ,et. al. filed a complaint with the Regional
Trial Court and attached was a consignation of the rental payments. However, they failed
to notify the other party of such action. FGR Realty and Dayrit withdrew the consigned
amount with reservation to question the validity of the consignation.
ISSUE:
Whether or not the consignation made by Dalton,et. al.is void
RULING OF THE COURT:
Petition DENIED.Compliance with the requisites of a valid consignation is mandatory.
Failure to comply strictly with any of the requisites will render the consignation void.
Substantial compliance is not enough. The giving of notice to the persons interested in the
performance of the obligation is mandatory. Failure to notify the persons interested in the
performance of the obligation will render the consignation void. Under Art. 1257 of our
Civil Code, in order that consignation of the thing due may release the obligor, it must first
be announced to the persons interested in the fulfillment of the obligation. The
consignation shall be in effectual if it is not made strictly in consonance with the
provisions which regulate payment.
In said Article 1258, it is further stated that the consignation having been made, the
interested party shall also be notified thereof.
We hold that the essential requisites of a valid consignation must be complied with fully
and strictly in accordance with the law, Articles 1256 to1261, New Civil Code. That these
Articles must be accorded a mandatory construction is clearly evident and plain from the
very language of the codal provisions themselves which require absolute compliance with
the essential requisites therein provided. Substantial compliance is not enough for that
would render only a directory construction to the law. The use of the words "shall" and
"must" which are imperative, operating to impose a duty which may be enforced,
positively indicate that all the essential requisites of a valid consignation must be
complied with.
LANDBANK VS ONG
On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank
Legazpi City in the amount of PhP 16 million. The loan was secured by three (3) residential
lots, five (5) cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of
the loan would be short-term and would mature on February 28, 1997, while the balance
of PhP 10 million would be payable in seven (7) years. The Spouses Sy could no longer pay
their loan which resulted to the sale of three (3) of their mortgaged parcels of land for PhP
150,000 to Angelina Gloria Ong, Evangelines mother, under a Deed of Sale with
Assumption of Mortgage. Evangelines father, petitioner Alfredo Ong, later went to Land
Bank to inform them about the sale and assumption of mortgage. Land Bank Banch Head
told Alfredo that there was nothing wrong with agreement with the Spouses Sy and
provided him requirements for the assumption of mortgage. Alfredo later found out that
his application for assumption of mortgage was not approved by Land Bank. On December
12, 1997, Alfredo initiated an action for recovery of sum of money with damages against
Land Bank , as Alfredos payment was not returned by Land Bank. Alfredo said
that Land Banks foreclosure without informing him of the denial of his assumption of the
mortgage was done in bad faith and that he was made to believed that P750,000 would
cause Land Bank to approve his assumption to the mortgage.
6. He also claimed incurring expenses for attorneys fees of PhP 150,000, filing fee of PhP
15,000, and PhP 250,000 in moral damages.
7. This prompted Alfredo to file a case with RTC against Land Bank. On its decision to the
case, RTC held that the contract approving the assumption of mortgage was not perfected
as a result of the credit investigation conducted on Alfredo where he was disapproved.. As
such, it ruled that it would be incorrect to consider Alfredo a third person with no interest
in the fulfillment of the obligation under Article1236 of the Civil Code. Although Land Bank
was not bound by the Deed between Alfredo and the Spouses Sy, the appellate court
found that Alfredo and Land Banks active preparations for Alfredos assumption of
mortgage essentially novated the agreement.
ISSUES:
1) Whether or not the Court of Appeals erred in holding that Art. 1236 of the Civil Code
does not apply and in finding that there is novation.
2) Whether or not the Court of Appeals misconstrued the evidence and the law when
It affirmed the trial court decisions ordering Land Bank to pay Ong the amount of
Php750,000.00 with interest at 12% annum
RULING:
The Supreme Court affirmed with modification to the appealed decision that recourse
against Land Bank. Land Bank contends that Art.1236 of the Civil Code backs their claim
that Alfredo should have sought recourse against the Spouses Sy instead of Land Bank.
The court agreed with Land Bank on the point mentioned as to the first part of paragraph
1 of Art. 1236. However,. Alfredo made a conditional payment so that the properties
subject of the Deed of Sale with Assumption of Mortgage which Land Bank required from
him would be approved. Thus, he made payment not as a debtor but as a prospective
mortgagor. Furthermore, the contract between Alfredo and Land Bank was not perfected
nor consummated because of the adverse disapproval of the proposed assumption. The
Supreme Court did not agree with the Court of Appeals that there was novation in the
contract between the parties because not all elements of novation were present. The
court further stresses that the instant case would not have been litigated had Land Bank
been more circumspect in dealing with Alfredo. The bank chose to accept payment from
Alfredo even before a credit investigation was underway and also failed to informed him
of the disapproval. The court found that there was negligence to a certain degree on the
part of Land Bank in handling the transaction with Alfredo. A bank as a business entity
should observe a higher standard of diligence when dealing with the public which Land
Bank neglect to observe in this case. The petitioners appeal was denied by the Supreme
Court and the decision of the Court of Appeals was affirmed with modification in that the
amount of PhP 750,000 will earn interest at 6% per annum and the total aggregate
monetary awards will in turn earn 12% per annum from the finality of this Decision until
fully paid.
SPS. FRANCISCO AND RUBY REYES VS BPI
G.R. Nos. 149840-41
FACTS:
On March 24, 1995, the Reyes spouses executed a real estate mortgage on their property
in Iloilo City in favor of respondent BPI Family Savings Bank, Inc. (BPI-FSB) to secure a
P15,000,000 loan of Transbuilders Resources and Development Corporation
(Transbuilders).
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
favour consisting of
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.
When BPI-FSB refused to cancel the mortgage, petitioners filed separate petitions for
mandamus and prohibition with the Regional Trial Court (RTC) of Manila to compel the
bank to return their certificate of title and cancel the mortgage. BPI-FSB, on the other
hand, instituted extrajudicial foreclosure proceedings against petitioners in Iloilo City after
Transbuilders defaulted in its payments. Consequently, a sheriffs notice of sale of
petitioners property at public auction was issued.
ISSUE: Whether there was a novation of the mortgage loan contract between petitioners
and BPI-FSB that would result in the extinguishment of petitioners liability to the bank.
HELD: We agree with the CA that there was none.
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.[6]
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 holding of this Court that contracts of adhesion are not invalid per se. On numerous
which may be effected either expressly or impliedly. While there is really no hard and fast occasions, we have upheld the binding effects of such contracts
rule to determine what might constitute sufficient change resulting in novation, the
touchstone, however, is irreconcilable incompatibility between the old and the new
obligations.

In Garcia, Jr. v. Court of Appeals,[8] we held that:

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. The acceptance of the promissory note by the plaintiff is not novation of the
contract. The legal doctrine is that an obligation to pay a sum of money is not novated in a
new instrument by changing the term of payment and adding other obligations not
incompatible with the old one. It is not proper to consider an obligation novated as in the
case at bar by the mere granting of extension of payment which did not even alter its
essence. To sustain novation necessitates that the same be declared in unequivocal terms
or that there is complete and substantial incompatibility between the two obligations. An
obligation to pay a sum of money is not novated in a new instrument wherein the old is
ratified by changing only the terms of payment and adding other obligations not
incompatible with the old one or wherein the old contract is merely supplementing the
old one.

Thus, the well-settled rule is that, with respect to obligations to pay a sum of money, the
obligation is not novated by an instrument that expressly recognizes the old, changes only
the terms of payment, adds other obligations not incompatible with the old ones, or the
new contract merely supplements the old one.

BPI-FSB and Transbuilders only extended the repayment term of the loan from one year
to twenty quarterly installments at 18% interest per annum. There was absolutely no
intention by the parties to supersede or abrogate the old loan contract secured by the
real estate mortgage executed by petitioners in favor of BPI-FSB. In fact, the intention of
the new agreement was precisely to revive the old obligation after the original period
expired and the loan remained unpaid. The novation of a contract cannot be presumed. In
the absence of an express agreement, novation takes place only when the old and the
new obligations are incompatible on every point.

Petitioners voluntarily executed the real estate mortgage on their property in favor of BPI-
FSB to secure the P15M loan of Transbuilders. They cannot now be allowed to repudiate
their obligation to the bank after Transbuilders default. While petitioners liability was
written in fine print and in a contract prepared by BPI-FSB, it has been the consistent