DEATH OF A DEBTOR

STRONGHOLD
ASAHI

INSURANCE

VS

REPUBLIC

Facts:
On May 24, 1989, respondent Republic Asahi
Glass Corporation entered into a contract with
Jose D. Santos, Jr., the proprietor of JDS
Construction (JDS), for the construction of
roadways and a drainage system in Republic
Asahis compound, where respondent was to pay
JDS P5,300,000 for said construction, which was
supposed to be completed within a period of 240
days beginning May 8, 1989. In order to
guarantee
the
faithful
and
satisfactory
performance of its undertakings, JDS, shall post a
performance bond of P795,000.00. JDS executed
jointly and severally with petitioner Stronghold
Insurance Co. Inc. (SICI) the performance bond.
Two progress billings dated August 14, 1989 and
September 15, 1989 were submitted by JDS to
respondent. According to respondent, the two
progress billings accounted for only 7.301% of
the work supposed to be undertaken by JDS
under the terms of the contract.
Several timers prior to November of 1989,
respondents engineers called the attention of
JDS to the alleged alarmingly slow pace of the
construction, but said reminder were unheeded
by JDS.
On November 24, 1989, dissatisfied with the work
undertaken by JDS, Republic Asahi extrajudicially
rescinded the contract pursuant to Article XIII of
said contract.
Respondent alleged that, as a result of JDSs
failure to comply with the provisions of the
contract, it had to hire another contractor to
finish the project, for which it incurred an
additional expense of P3,256,874.00.
Respondent then sent two letters to SICI filing its
claim under the bond for not less than
P795,000.00, which letters were both unheeded.
Respondent then filed a complaint against JDS
and SICI. Summons were duly served by the
Sheriff on SICI. However, Jose D. Santos, Jr. died
on 1990 and JDS Construction was no longer at its
address and its whereabouts were unknown.
Petitioner contends that the death of Santos, the
bond principal, extinguished his liability under the
surety bond, and is automatically released from
any liability under the bond.
Issue:
W/N
the
petitioners
performance
bond

liability
under
the
was
automatically

extinguished by
principal. No.

the

death

of

Santos,

the

Held:
As a general rule, the death of either the creditor
or the debtor does not extinguish the obligation.
Obligations are transmissible to the heirs, except
when the transmission is prevented by the law,
the stipulations of the parties, or the nature of
the obligation. Only obligations that are personal
or are identified with the persons themselves are
extinguished by death. A surety companys
liability under the performance bond it issues is
solidary. The death of the principal obligor, does
not, as a rule, extinguish the obligation and the
solidary nature of that liability.
In the present case, whatever monetary liabilities
or obligations Santos had under his contracts with
respondent were not intransmissible by their
nature, by stipulation, or by provision of law.
Hence, his death did not result in the
extinguishment of those obligations or liabilities,
which merely passed on to his estate. Death is
not a defense that he or his estate can set up to
wipe out the obligations under the performance
bond.
Consequently, petitioner as surety cannot use his
death to escape its monetary obligation under its
performance bond.
The liability of petitioner is contractual in nature,
because it executed a performance bond.
Petitioner is solidarily liable with Santos in
accordance with the Civil Code, which provides:
Art 1216. The creditor may proceed against any
one of the solidary debtors or some or all of them
simultaneously. The demand made against one of
them shall not be an obstacle to those which may
subsequently be directed against the others, so
long as the debt has not been fully collected.
In Garcia vs CA, the court stated:
The suretys obligation is not an original and
direct one for the performance of his own act, but
merely accessory or collateral to the obligation
contracted by the principal. Nevertheless,
although the contract of a surety is in essence
secondary only to a valid principal obligation, his
liability to the creditor or promise of the principal
is said to be direct, primary and absolute; in other
words, he is directly and equally bound with the
principal.

amount of P32,480.00, it had the obligation to

deliver the same to him. Under Art. 1233 of the
Civil Code, a debt shall not be understood to have
been paid unless the thing or service in which the
obligation consists has been completely delivered
or rendered, as the case may be.

ARTICLE 1240 TO WHOM PAYMENT SHALL BE

MADE
PNB VS CA AND TAN
Facts:
Private respondent Loreto Tan is the owner of a
parcel of land abutting the national highway in
Mandalangan,
Bacolod
City.
Expropriation
proceedings were instituted by the government
against private respondent Tan and other
property owners before the CFI of Negros
Occidental.
Tan then filed a motion requesting the issuance of
an order for the release to him of the
expropriation price of P32,480.00.
On May 22, 1978, petitioner PNB was required by
the trial court to release to Tan the said amount.
On May 24, 1978, petitioner, through its Assistant
Branch Manager Juan Tagamolilia, issued a
managers check for P32,480.00 and delivered
the same to one Sonia Gonzaga without Tans
knowledge, consent or authority. Sonia Gonzaga
deposited it in her account with Far East Bank and
Trust Co. (FEBTC) and later on withdrew the said
amount. Private respondent Tan subsequently
demanded payment of the amount from
petitioner, but the same was refused on the
ground that petitioner had already paid and
delivered the amount to Sonia Gonzaga on the
strength of a Special Power of Attorney (SPA)
allegedly executed in her favor by Tan.
Tan then executed an affidavit stating that he had
never executed an SPA in favor of Sonia Gonzaga
and he had never authorized her to receive the
sum from petitioner.
After failing to recover the amount from PNB,
private respondent filed a motion with the court
to require PNB to pay the same to him.
Held:
There is no question that no payment had ever
been made to private respondent as the check
was never delivered to him. When the court
ordered petitioner to pay private respondent the

The burden of proof of such payment lies with the

debtor. In the instant case, neither the SPA nor
the check issued by petitioner was ever
presented in court.
The testimonies of petitioners own witnesses
regarding the check were conflicting. Tagamolila
testified that the check was issued to the order of
Sonia Gonzaga as attorney-in-fact of Loreto Tan,
while Elvira Tibon, assistant cashier of PNB
(Bacolod Branch), stated that the check was
issued to the order of Loreto Tan.
Furthermore, contrary to petitioners contention
that all that is needed to be proved is the
existence of the SPA, it is also necessary for
evidence to be presented regarding the nature
and extent of the alleged powers and authority
granted to Sonia Gonzaga; more specifically, to
determine whether the document indeed
authorized her to receive payment intended for
private respondent. However, no such evidence
was ever presented.

successor-in-interest, or any person authorized to

receive it. In this case, the payments were
purportedly made to a supervisor of the private
respondent, who was clan in an SMC uniform and
drove an SMC van. He appeared to be authorized
to accept payment as he showed a list of
customers accountabilities and issued SMC
liquidation receipts which looked genuine.
Unfortunately for petitioner Francisco Culaba, he
did not ascertain the identity and authority of the
said supervisor, nor did he ask to be shown any
identification to prove that the latter was, indeed,
an SMC supervisor. The petitioners relied solely
on the mans representation that he was
collecting payments for SMC. Thus, the payments
the petitioners claimed they made were not the
payments that discharged their obligation to
private respondents.
CULABA VS CA
Facts:
The spouses Francisco and Demetria Culaba were
engaged in the sale and distribution of San
Miguel Corporations (SMC) beer products. SMC
sold beer products on credit to the Culaba
spouses in the amount of P28,650.00. thereafter,
the Culaba spouses made a partial payment of
P3,740.00, leaving an unpaid balance of
P24,910.00. As they failed to pay despite
repeated demands, SMC filed an action for
collection of a sum of money against them before
the RTC.
The defendant-spouses denied any liability,
claiming that they had already paid the plaintiff in
full on four separate occasions. To substantiate
this claim, the defendants presented 4 Temporary
Charge Sales (TCS) Liquidation Receipts: 27331,
27318, 27339, 27346. Defendant Francisco
Culaba testified that he made payments to an
SMC supervisor who came in an SMC van. The
defendant, in good faith, then paid to the said
supervisor, and he was, in turn, issued genuine
SMC liquidation receipts.
SMC, for its part, submitted a publishers affidavit
to prove that the entire booklet of TCSL Receipts
bearing Nos. 27301-27350 were reported lost by
it, and that it caused the publication of the notice
of loss.
Issue:
W/N petitioners obligation is extinguished. No
Held:
Payment is a mode of extinguishing an obligation.
Article 1240 of the Civil Code provides that
payment shall be made to the person in whose
favor the obligation has been constituted, or his

The basis of agency is representation. A person

dealing with an agent is put upon an inquiry and
must discover upon his peril the authority of the
agent. In the instant case, the petitioners loss
could have been avoided if they had simply
exercised due diligence in ascertaining the
identity of the person to whom they allegedly
made the payments. The fact that they were
parting with valuable consideration should have
made them more circumspect in handling their
business transactions. Persons dealing with an
assumed agent are bound at their peril to
ascertain not only the fact agency but also the
nature and extent of authority, and in case either
is controverted, the burden of proof is upon them
to establish it. the petitioners in this case failed to
discharge this burden, considering that the
private respondent vehemently denied that the
payments were accepted by it, and were made to
its authorized representative.

purported indorsement. The amount on the check

was credited to the account of FCC.
On December 14, 1983, upon the maturity date
of the money market placement, Lim Sio Wan
went to withdraw it. She was then informed that
the placement had been pre-terminated upon her
instructions. She denied giving any instructions
and receiving the proceeds thereof. She desisted
from further complaints when she was assured by
the banks manager that her money would be
recovered. On January 24, 1984, Lim Sio Wan,
realizing that the promise that her money would
be recovered would not materialize, sent a
demand letter to Allied asking for payment. Allied
refused to pay, claiming that she had authorized
the pre-termination of the placement and its
subsequent release to Santos.
Consequently, Lim Sio Wan filed a complaint for
the recovery of the proceeds of her money
placement.
Issue:
W/N the obligation of Allied to Lim Sio Wan was
extinguished. No.
ALLIED BANKING VS LIM SIO WAN
Facts:
On November 14, 1983, respondent Lim Sio Wan
deposited
with
petitioner
Allied
Banking
Corporation (Allied) a money market placement
of P1,152,597.35 for a term of 31 days to mature
on December 15, 1983.
On December 5, 1983, a person claiming to be
Lim Sio Wan called up Cristina So, an officer of
Allied, and instructed the latter to pre-terminate
Lim Sio Wans money market placement, to issue
a managers check representing the proceeds of
the placement, and to give the check to one
Deborah Dee Santos who would pick up the
check. Later, Santos arrived at the bank and
signed the application form for a managers
check to be issued. The Bank issued a managers
check and it was deposited in the accountof
Filipinas Cement Corporation (FCC) at respondent
Metropolitan Bank and Trust Co. (Metrobank), with
the forged signature of Lim Sio Wan as indorser.
To clear the check and in compliance with the
requirements of the Philippines Clearing House
Corporation (PCHC) Rules and Regulations,
Metrobank stamped a guaranty on the check,
which reads: All prior endorsements and/or lack
of endorsement guaranteed.
The check was then sent to Allied and upon
presentment, it funded the check without even
checking the authenticity of Lim Sio Wans

Held:
Allied is liable to Lim Sio Wan. Fundamental and
familiar is the doctrine that the relationship
between a bank and a client is one of debtorcreditor.
In a line of cases, the Court ruled that a bank
deposit is in the nature of a simple loan or
mutuum. In Citibank vs Sabeniano, the Court
ruled that a money market placement is a simple
loan or mutuum. Further, a money market is
defined in Cebu International Finance Corporation
vs Court of Appeals as:
A money market is a market dealing in
standardized
short-term
credit
instruments
(involving large amounts) where lenders and
borrowers do not deal directly with each other but
through a middle man or dealer in open market.
In a money market transaction, the investor is a
lender who loans his money to a borrower
through a middleman or dealer.
In the case at bar, the money market transaction
between the petitioner and the private
respondent is in the nature of a loan.
Lim Sio Wan, as creditor of the bank for her
money market placement, is entitled to payment
upon her request, or upon maturity of the
placement, or until the bank is released from its
obligation as debtor. Until any such event, the
obligation of Allied to Lim Sio Wan remains
unextinguished.

Art. 1231 of the Civil Code enumerates the

instances when obligations are considered
extinguished, thus:

On April 10, 2000, respondent bank filed a suit for

replevin with damages praying that the
equipment covered by the first deed of chattel
mortgage be seized and delivered to it.

Art. 1231. Obligations are extinguished:

(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of
creditor and debtor;
(5) By compensation;
(6) By novation.

After the trial court suspended the proceedings,

on a moved by the respondent, a deed of
assignment date August 16, 2000 was drafted by
the respondent which provides in part:

From the factual findings of the trial and appellate

courts that Lim Sio Wan did not authorize the
release of her money market placement to Santos
and the bank had been negligent in so doing,
there is no question that the obligation of Allied
to pay Lim Sio Wan had not been extinguished.
Art. 1240 of the Code states that payment shall
be made to the person in whose favor the
obligation has been constituted, or his successor
in interest, or any person authorized to receive
it.

That the ASSIGNEE hereby accepts the

assignment in full payment of the abovementioned debt.

As commented by Arturo Tolentino:

Payment made by the debtor to a wrong party
does not extinguish the obligation as to the
creditor, if there is no fault or negligence which
can be imputed to the latter. Even when the
debtor acted in utmost good faith and by mistake
as to the person of his creditor, or through error
induced by the fraud of a third person, the
payment to one who is not in fact his creditor, or
authorized to receive such payment, is void,
except as provided in Article 1241. Such payment
does not prejudice the creditor, and accrual of
interest is not suspended by it.
Since there was no effective payment of Lim Sio
Wans money market placement, the bank still
has an obligation to pay her at 6% interest from
March 16, 1984 until the payment thereof.
ARTICLE 1245 DATION IN PAYMENT
ESTANISLAO VS EAST WEST BANK
Facts:
On July 24, 1987, petitioners obtained a loan from
the respondent in the amount of P3,925,000.00
evidenced by a promissory note and secured by 2
deeds of chattel mortgage: one covering 2 dump
trucks and a bulldozer to secure the loan amount
of P2,375,000.00, and another covering bulldozer
and a wheel loader to secure the loan amount of
P1,550,000.00. Petitioners defaulted in the
amortizations and the entire obligation became
due and demandable.

ASSIGNOR does hereby ASSIGN, TRANSFER and

CONVEY unto the ASIGNEE those motor vehicles,
with all their tools and accessories.

Petitioners affixed their signatures on the deed of

assignment. However, for some unknown reason,
respondent banks duly authorized representative
failed to sign the deed.
On October 6, 2000 and March 8, 2001, petitioner
completed the delivery of the heavy equipment
mentioned in the deed of assignment to
respondent, which accepted the same without
protest or objection.
However, on June 20, 2001, respondent filed a
manifestation and motion to admit an amended
complaint for the seizure and delivery of two
more heavy equipment which are covered under
the 2nd deed of chattel mortgage. Respondent
claimed that its representative inadvertently
failed to include the 2nd deed of chattel
mortgage among the documents forwarded to its
counsel when the original complaint was being
drafted.
Petitioners sought to dismiss the amended
complaint. They alleged that their previous
payment on loan amortizations, the execution of
the deed of assignment on August 16, 200, and
respondents acceptance of the 3 units of heavy
equipment, had the effect of full payment or
satisfaction of their total outstanding obligation
which is a bar on respondent bank from
recovering any more amounts from them.

Issue:
W/N the deed of assignment which expressly
provides that the transfer and conveyance to
respondent of the 3 units of heavy equipment,
and its acceptance thereof, shall be in full
payment of the petitioners total outstanding
obligation to the latter operate to extinguish
petitioners debt to respondent such that the
replevin suit could no longer prosper. Yes.

ONG VS ROBAN LENDING

Held:
The deed of assignment was a perfected
agreement which extinguished petitioners total
outstanding obligation to the respondent. The
deed explicitly provides that the assignor
(petitioners), in full payment of its obligation
shall deliver the 3 units of heavy equipment to
the assignee (respondent), which accepts the
assignment in full payment of the abovementioned debt. This could only mean that
should petitioners complete the delivery of the 3
units of heavy equipment covered by the deed,
respondents credit would have been satisfied in
full, and petitioners aggregate indebtedness
would then be considered to have been paid in
full as well.
The nature of the assignment was a dation in
payment, whereby property is alienated to the
creditor in satisfaction of a debt in money. Such
transaction is governed by the law on sales. Even
if we were to consider the agreement as a
compromise agreement, there was no need for
respondents signature on the same, because
with the delivery of the heavy equipment which
the latter accepted, the agreement was
consummated. Respondents approval may be
inferred from its unqualified acceptance of the
heavy equipment.
With years of banking experience, resources and
manpower, respondent bank is presumed to be
familiar with the implications of entering into the
deed of assignment, whose terms are categorical
and left nothing for interpretation. The alleged
non-inclusion in the deed of certain units of heavy
equipment due to inadvertence, plain oversight
or mistake, is tantamount to inexcusable manifest
negligence, which should not invalidate the
juridical tie that was created.
Since the agreement was consummated by the
delivery on March 8, 2001 of the last unit of
heavy equipment under the deed, petitioners are
deemed to have been released from all their
obligations to respondent.
Since there is no more credit to collect, no
principal obligation to speak of, then there is no
more 2nd deed of chattel mortgage that may
susbsist. A chattel mortgage cannot exist as an
independent contract since its consideration is
the same as that of the principal contract. Being
a mere accessory contract, its validity would
depend on the validity of the loan secured by it.
this being so, the amended complaint for replevin
should be dismissed, because the chattel
mortgage agreement upon which it is based had
been rendered ineffectual.

Facts:
On different dates from July 14, 1999 to March 20,
2000, petitioner-spouses Ong obtained several
loans
from
Roban
Lending
Corporation
(respondent). These loans were secured by a real
estate mortgage on petitioners parcels of land.
On February 12, 2001, petitioners and respondent
executed an Amendment to Amended Real Estate
Mortgage consolidating their loans. On even date,
the parties executed a Dacion in Payment
Agreement wherein petitioners assigned their
properties to respondent in settlement of their
total obligation and a Memorandum of Agreement
reading:
With a promise to pay the FIRST PARTY in full
within one year from the date of the consolidation
and restructuring, otherwise the SECOND PARTY
agree to have their DACION IN PAYMENT
agreement, which they have executed and signed
today in favor of the FIRST PARTY be enforced.
In April 2002, petitioners filed a complaint
alleging that the Memorandum of Agreement and
the Dacion in Payment executed are void for
being pactum commissorium.
Respondent maintained its legality alleging that if
the voluntary execution of the Memorandum of
Agreement and Dacion in Payment Agreement
novated the Real Estate Mortgage then the
allegation of Pactum Commissorium has no more
legal leg to stand on.
Issue:
W/N the Memorandum of Agreement and the
Dacion
in
Pago
constitutes
pactum
commissorium. Yes.
Held:
The Court finds that the Memorandum of
Agreement and Dacion in Payment constitute
pactum commissorium, which is prohibited under
Article 2088 of the Civil Code which provides:
The creditor cannot appropriate the things given
by way of pledge or mortgage, or dispose of
them. Any stipulation to the contrary is null and
void.
The elements of pactum commissorium which
enables the mortgagee to acquire ownership of
the mortgaged property without the need of any
foreclosure proceedings, are: (1) there should be
a property mortgaged by way of security for the
payment of the principal obligation, and (2) there
should
be
a
stipulation
for
automatic
appropriation by the creditor of the thing

mortgaged in case of non-payment of the

principal obligation within the stipulated period.
In the case at bar, the Memorandum of
Agreement and the Dacion in Payment contain no
provisions for foreclosure proceedings nor
redemption.
Under
the
Memorandum
of
Agreement, the failure by the petitioners to pay
their debt within the one-year period gives
respondent the right to enforce the Dacion in
Payment transferring to it ownership of the
properties. Respondent, in effect, automatically
acquires ownership of the properties upon
petitioners failure to pay their debt within the
stipulated period.
Respondent argues that the law recognizes
dacion en pago as a special form of payment
whereby the debtor alienates property to the
creditor in satisfaction of a monetary obligation.
This does not persuade. In a true dacion en pago,
the assignment of the property extinguishes the
monetary debt. In the case at bar, the alienation
of the properties was by way of security, and not
by way of satisfying the debt. The Dacion in
Payment did not extinguish petitioners obligation
to respondent. On the contrary, under the
Memorandum of Agreement executed on the
same day as Dacion in Payment, petitioners had
to execute a promissory note, which they were to
pay within one year.

ROCKVILLE VS CULLA
Facts:
The spouses Culla are the registered owners of a
parcel of land. They mortgaged this property to
PS Bank to secure a loan of P1,400,000.00
Sometime in 1993, a notice of sale for the
extrajudicial foreclosure of the property was
issued. To prevent the foreclosure, Oligation
approached Rockville represented by its
president and chairman, Diana Young for
financial assistance. Rockville accommodated
Oligarios request and extended him a loan of
P1,400,000.00. This amount was increased for
cash advances for a total loan amount of
P2,000,000.00.
According to Rockville, when Oligarion failed to
pay the loan after repeated demands and
promises to pay, the Sps. Culla agreed to pay
their indebtedness by selling to Rockvilled
another property the spouses owned.
Rockville accepted the offer for a dacion en pago;
on June 25, 1994, Rockvilled and Oligario
executed a Deed of Absolute Sale over the
property. While the property was a conjugal
property, only Oligario signed the deed.
Bernardita continued to refuse to sign the Deed
of Absolute Sale. Rockville then cause the
annotation of an adverse claim on the TCT.
Furthermore, Rockville tried to transfer the title of
the property in its name but the Registry of
Deeds refused to carry out the transfer, given the
absence of Bernarditas signature in the Deed of
Absolute Sale.
Rockville then filed a complaint for Specific
Performance and Damages.
In their Answer, the Sps. Culla alleged that the
purported Deed of Absolute Sale failed to reflect
their true intentions, as the deed was meant only
to guarantee the debt to Young, not to Rockville.
When neither Rockvilled nor Young paid, the Sps.
Culla volunteered to pay and opted to rescind the
sale.
Rockville mainly contends that the Sps. Culla sold
their property to pay their due and demandable

debt; the transaction therefore is a dacion en

pago.
Issue:
W/N the parites agreement is an absolute sale or
an equitable mortgage of real property. Equitable
Mortgage.
Held:
Dacion en pago is the delivery and transmission
of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the
performance of an existing obligation. It is a
special mode of payment where the debtor offers
another thing to the creditor who accepts it as
equivalent to the payment of an outstanding
debt. For dacion en pago to exist, the following
elements must concur: (a) existence of a money
obligation; (b) the alientation to the creditor of a
property by the debtor with the consent of the
former; and (c) satisfaction of the money
obligation of the debtor.
Rockvilles arguments would have been telling
and convincing were it not for the undisputed fact
that even after the execution of the Deed of
Absolute Sale, Rockville still granted Oligario time
to repat his P2,000,000.00 indebtedness. In fact,
as Young admitted in her testimony, Rockville
gave Oligario the chance to pay off the loan on
the same day that the deed was executed.
If the parties had truly intended a dacion en pago
transaction to extinguish the Sps. Cullas
P2,000,000.00 loan and Oligario had sold the
property in payment for his debt, it made no
sense for him to continue to ask for extensions of
the time to pay the loan. More importantly,
Rockville would not have granted the requested
extensions to Oligario if payment through a
dacion en pago had taken place. That Rockville
granted the extensions simply belied its
contention that they had intended a dacion en
pago. An equitable mortgage has been defined as
one which although lacking in some formality, or
form or words or other requisites demanded by a
statute, nevertheless reveals the intention of the
parties to charge real property as security for a
debt, there being no impossibility nor anything
contrary to law in this intent.

TYPINGCO VS LIM
Facts:
Sometime between December 1996 and February
1997, respondent spouses Lina and Johnson
borrowed from petitioner Typingco the sum of
US$600,000 which was later restructured,
payable on or before December 31, 1997, under a
promissory note executed by the spouses and cosigned by their children co-respondents Jerry and
Jackson as sureties.
Following their default in payment, Lina, Jerry and
Jackson conveyed on January 29, 1998 to
Typingco via dacion en pago their house and lot.
Because of Typingcos repeated demands for the
delivery of the owners duplicate copy of the title
having unheeded, he filed a complaint for specific
performance and recovery of the title against the
respondent.
Respondents Sychinghos averred that it was
FEBTC that was unlawfully withholding delivery of
the owners duplicate copy of the title despite the
full payment of the mortgage loan with it.
FEBTC contended that spouses Lina and Johnson
had unsettled obligations as sureties.
At the pre-trial, the parties clarified that the
subject matter of the case was only 1/3 inchoate
portion of the subject property or that pertaining
to Lina as co-owner as the 2/3 belongs to her
sons Jerry and Jackson.
Issue:

W/N the Sychingcos had the right to sell or

convey title to the subject property at the time of
the dacion en pago. Yes.
Held:
Dacion en pago is the delivery and transmission
of ownership of another thing by the debtor to
the creditor as an accepted equivalent of
performance of an obligation. It partakes of the
nature of a contract of sale, where the thing
offered by the debtor is the object of the contract,
while the debt is the consideration or purchase
price.
There having been no previous foreclosure of the
Real Estate Mortgage on the subject property,
respondent
Sychingcos
ownership
thereof
remained intact. Indeed, a mortgage does not
affect the ownership of the property as it is
nothing more than a lien thereon serving as
security for the debt. The mortgagee does not
acquire title to the mortgaged real estate unless
he purchases it at a public auction, and it is not
redeemed within the period provided for by the
Rules of Court. This applies a fortiori to the
present case where only 1/3, not the whole, of
the subject property was actually encumbered to
FEBTC. Since petitioner agreed to the full
extinguishment of respondent spouses then
outstanding
obligation
in
view
of
the
unconditional conveyance to him of the subject
property, there is a perfected and enforceable
dacion en pago. He should thus enjoy full
entitlement to the subject property.
Surrender of the certificate of title will not impair
any existing mortgage on the subject property. It
is an elementary principle in civil law that a real
estate
mortgage
subsists
notwithstanding
changes in ownership, and all subsequent
purchasers of the property must respect the
mortgage.

TAN SHUY VS MAULAWIN

Facts:
Petitioner Tan Shuy is engaged in the business of
buying copra and corn. Whenever he would buy
copra from sellers, he would prepare and issue a
pesada in their favor. A pesada is a document
containing details of the transaction, including
the date of sale, the weight of the crop delivered,
the trucking cost, and the net price of the crop.
He then explained that when a pesada contained
the annotation pd on the total amount of the
purchase price, it meant that the crop delivered
had already been paid for by petitioner.
Guillermo Maulawin, respondent, is a farmerbusinessman engaged in the buying and selling
of copra and corn. On 10 July 1997, Tan Shuy
extended a loan to Guillermo in the amountof
P420,000. In consideration thereof, Guillermo
obligated himself to pay the loan and to sell lucad
or copra to petitioner.
Petitioner
alleged
that
despite
repeated
demands, Guillermo remitted only P23,000 in
August 1998 and P5,500 in October 1998, or a
total of P28,500. He claimed that respondent had
an outstanding balance of P391,500. Thus,
convinced that Guillermo no longer had the
intention to pay the loan, petitioner brought the

controversy to the Lupon Tagapamayapa. When

no settlement was reached, petitioner filed a
complaint before the RTC.
Respondent Guillermo countered that he had
already paid the subject loan in full. He
continuously delivered and sold copra to
petitioner. He said that they had an oral
arrangement that the net proceeds thereof shall
be applied as installment payments for the loan.
Petitioner argues that since their written
agreement did not specifically provide for the
application of the net proceeds from the
deliveries of the copra for the loan, he cannot be
compelled to accept copra as payment for the
loan.

The subsequent arrangement between Tan Shuy

and Guillermo can thus be considered as one in
the nature of dation in payment. There was
partial payment every time Guillermo delivered
copra to petitioner, chose not to collect the net
proceeds of his copra deliveries, and instead
applied the collectible as installment payments
for his loan from Tan Shuy.

Issue:
W/N the delivery of copra amounted to
installment payments for the loan obtained by
respondent from petitioner. Yes.
Held:
The pesadas served as proof that the net
proceeds from the copra deliveries were used as
installment
payments
for
the
debts
of
respondents.
Pursuant to Article 1232 of the Civil Code, an
obligation is extinguished by payment or
performance. There is payment when there is
delivery of money or performance of an
obligation. Article 1245 provides for a special
mode of payment called dation in payment. There
is dation in payment when property is alienated
to the creditor in satisfaction of a debt in money.
Here, the debtor deliveres and transmits to the
creditor the formers ownership over a thing as
an accepted equivalent of the payment or
performance of an outstanding debt. In such
cases, Article 1245 provides that the law on sales
shall apply since the undertaking really partakes
in one sense of the nature of sale; that is, the
creditor is really buying the thing or property of
the debtor, the payment for which is to be
charged against the debtors obligation. Dation in
payment extinguishes the obligation to the extent
of the value of the thing delivered, either as
agreed upon by the parties or as may be proved,
unless the parties by agreement express or
implied, or by their silence consider the thing as
equivalent to the obligation, in which ase the
obligation is totally extinguished.
But not all amounts should be applied as
payments to the subject loan since several of
which clearly indicated mais deliveries on the
part of defendant-appelle Guillermo instead of
copras.

ARTICLE 1250
EXTRAORDINARY INFLATION/DEFLATION
EQUITABLE PCI VS NG SHEU NGOR
Facts:
On October 7, 2001, respondents Ng Sheung
Ngor filed an action for annulment and/or
reformation of documents and contracts against
petitioner Equitable PCI and its employees. They
claimed that Equitable induced them to avail of
its peso and dollar credit facilities by offering low
interest rates so they accepted Equitables
proposal and signed the banks pre-printed
promissory notes. They, however, were unaware
that
the
documents
contained
indentical
escalation clauses granting Equitable authority to
increase interest rates without their consent.

Equitable asserted that respondents knowingly

accepted all the terms and conditions contained
in the promissory notes. In fact, they continuously
availed of and benefited from Equitables credit
facilities for 5 years.
After trial, the RTC upheld the validity of the
promissory notes. It took judicial notice of the
steep depreciation of the peso during the
intervening period and declared the existence of
extraordinary deflation. Consequently, it ordered
the use of the 1996 dollar exchange rate in
computing respondents dollar denominated
loans.
Issue:
W/N there was extraordinary deflation. No.
Held:
Extraordinary inflation exists when there is an
unusual decrease in the purchasing power of
currency and such decrease could not be
reasonably foreseen or was manifestly beyond
the contemplation of the parties at the time of
the obligation. Extraordinary deflation, on the
other hand, involves as inverse situation.
Article 1250. In case an extraordinary inflation or
deflation of the currency stipulated should
intervene, the value of the currency at the time of
the establishment of the obligation shall be the
basis of payment, unless there is an agreement
to the contrary.
For extraordinary inflation (or deflation) to affect
an obligation, the following requisites must be
proven:
1. That there was an official declaration of
extraordinary inflation or deflation from the
Bangko Sentral ng Pilipinas (BSP);
2. That the obligation was contractual in nature;
and
3. That the parties expressly agreed to consider
the effects of the extraordinary inflation or
deflation.
Despite the devaluation of the peso, the BSP
never declared a situation of extraordinary
inflation. Moreover, although the obligation in this
instance arose out of a contract, the parties did
not agree to recognize the effects of
extraordinary inflation (or deflation). The RTC
never mentioned that there was such a
stipulation either in the promissory note or loan
agreement. Therefore, respondents should pay
their dollar-denominated loan at the exchange
rate fixed by the BSP on the date of maturity.

ALMEDA VS BATHALA MARKETING

Facts:
Sometime in May 1997, respondent Bathala
Marketing Industries, Inc., as lessee, renewed its
Contract of Lease with Ponciano Almeda, as
lessor, husband of petitioner Eufemia and father
of petitioner Romel Almeda. The contract of lease
contained the following pertinent provisions
which gave rise to the instant case:

SEVENTH In case an extraordinary inflation or

devaluation of Philippines Currency should
supervene, the value of Philippine peso at the
time of the establishment of the obligation shall
be the basis of payment.
On January 26, 1998, respondent received a letter
from petitioners informing the former that its
monthly rental should be increased by 73%
pursuant to condition No. 7 of the contract and
Article 1250 of the Civil Code. Respondent
opposed petitioners demand and insisted that
there was no extraordinary inflation to warrant
the application of Article 1250.
Issue:
W/N the amount of rentals due the petitioners
should be adjusted by reason of extraordinary
inflation or devaluation. No.
Held:
While condition No. 7 of the contract speaks of
extraordinary inflation or devaluation as
compared to Article 1250s extraordinary
inflation or deflation, we find that when the
parties used the term devaluation, they really
did not intend to depart from Article 1250 of the
Civil Code. Condition No. 7 of the contract should,
thus, be read in harmony with the Civil Code
provision.
That this is the intention of the parties is evident
from petitioners letter dated January 26, 1998,
where,
in
demanding
rental
adjustment
ostensibly based on condition No. 7, petitioners
made explicit reference to Article 1250 of the
Civil Code, even quoting the law verbatim.
The factual circumstances obtaining in the
present case do not make out a case of
extraordinary inflation or devaluation as would
justify the application of Article 1250 of the Civil
Code. The erosion of the value of the Philippines
peso in the past three or four decades, starting in
the mid-sixties, is characteristic of most
currencies. And while the Court may take judicial
notice of the decline in the purchasing power of
the Philippine currency in that span of time, such
downward trend of the peso cannot be considered
as the extraordinary phenomenon contemplated
by Article 1250 of the Civil Code. Furthermore,
absent an official pronouncement or declaration
by competent authorities of the existence of
extraordinary inflation during a given period, the
effects of extraordinary inflation are not to be
applied.

ARTICLE 1252 APPLICATION OF PAYMENTS

PREMIERE DEVELOPMENT BANK VS CENTRAL
SURETY
Facts:

whatever account he chooses, unless he has

assigned or waived that right. If the debtor does
not do so, the right passes to the creditor, who
may make such application as he chooses. But if
neither party has exercised its option, the court
will apply the payment according to the justice
and equity of the case, taking into consideration
all its circumstances.
The following are some limitations on the right of
the debtor to apply his payment:
5.) when there is an agreement as to the debts
which are to be paid first, the debtor cannot vary
this agreement.

Issue:

Held:
Creditor given the right to apply payments
Article 1252. He who has various debts of the
same kind in favor of one and the same creditor,
may declare at the time of making the payment,
to which of them the same must be applied.
Unless the parties so stipulate, or when the
application of payment is made by the party for
whose benefit the term has been constituted,
application shall not be made as to debts which
are not yet due.
If the debtor accepts from the creditor a receipt in
which an application of the payment is made, the
former cannot complain of the same, unless there
is a cause for invalidating the contract.
The debtors right to apply payment is not
mandatory. This is clear from the use of the word
may rather than the word shall.
Article 1252 gives the right to the debtor to
choose to which of several obligations to apply a
particular payment that he tenders to the
creditor. But likewise granted in the same
provision is the right of the creditor to apply such
payment in case the debtor fails to direct its
application. This is obvious in Art. 1252, par. 2,
viz.: If the debtor accepts from the creditor a
receipt in which an application of payment is
made, the former cannot complain of the same.
It is the directory nature of this right and the
subsidiary right of the creditor to apply payments
when the debtor does not elect to do so that
make this right waivable.
A debtor, in making a voluntary payment, may at
the time of payment direct an application of it to

In the case at bench, the records show that

Premiere Bank and Central Surety entered into
several contracts of loan, securities by way of
pledges, and suretyship agreements. In at least 2
promissory notes between the parties, Central
Surety expressly agreed to grant Premiere Bank
the authority to apply any and all of Central
Suretys payments, thus:
In case I/We have several obligations with
Premiere Bank, I/We hereby empower Premiere
Bank to apply whithout notice and in any manner
it sees fit, any or all of my/our deposits and
payments to any of my/our obligations whether
due or not. Any such application of deposits or
payments shall be conclusive and binding upon
us.
This proviso is representative of all other
Promissory Notes involved in this case. It is in the
exercise of this express authority under the
Promissory Notes, and following Bangko Sentral
ng Pilipinas Regulations, that Premiere Bank
applied payments made by Central Surety, as it
deemed fit, to the several debts of the latter.
All debts were due, There was no waiver on the
part of petitioner.
Undoubtedly, at the time of conflict between the
parties material to this case, the Promissory Note
in the amount of P6,000,000 and secured by the
pledge of the Wack Wack membership was past
due and demand stage. By its terms, Premiere
Bank was entitled to declare said Note and all
sums payable thereunder immediately due and
payable, without need of presentment, demand,
protest or notice of any kind. The subsequent
demand made by Premiere Bank was, therefore,
merely a superfluity, which cannot be equated
with a waiver of the right to demand payment of
all the matured obligations of Central surety to
Premiere Bank.
Any inference of a waiver of Premiere Bank, as
creditor, right to apply payments is eschewed by

the express provision of the Promissory Note that:

no failure on the part of Premiere Bank to
exercise, and no delay in exercising any right
hereunder, shall operate as a waiver thereof.
ARTICLE 1256 TO 1261
TENDER OF PAYMENT AND CONSIGNATION
PABUGAIS VS SAHJWANI
Facts:
Pursuant to an Agreement and Undertaking
dated December 3, 1993, petitioner Teddy G.
Pabugais, in consideration of the amount
P15,487,500, agreed to sell to respondent Dave P.
Sahijwani a lot. Respondent paid petitioner the
amount of P600,000 as option/reservation fee
and the balance of P14,887,500 to be paid within
60 days from the execution of the contract,
simultaneous with delivery of the owners
duplicate Transfer Certificate of Title in
respondents name. The parties further agreed
that failure on the part of respondent to pay the
balance of the purchase price entities petitioner
to forfeit the P600,000 option/reservation fee;
while non-delivery by the latter of the necessary
documents obliges him to return to respondent
the said option/reservation fee with interest at
18% per annum.
Petitioner failed to deliver the required
documents. In compliance with their agreement,
he returned to respondent the latters P600,000
option/reservation fee by way of Far East Bank &
Trust Company Check, which was dishonored.
Petitioner claimed that he twice tendered to
respondent, through his counsel, but said counsel
refused to accept the same. His first attempt to
tender payment was allegedly made on August 3,
1994 through his messenger; while the second
one was on August 8, 1994, when he sent via
DHL Worldwide Services, the managers check
attached to a letter date August 5, 1994. On
August 11, 1994, petitioner wrote a letter to
respondent saying that he is consigning the
amount tendered with the RTC. On August 15,
1994,
petitioner
filed
a
complaint
for
consignation.
Respondents counsel averred that there was no
valid tender of payment because no check was
tendered and the computation of the amount to
be tendered was insufficient.
The trial court rendered a decision declaring the
consignation invalid for failure to prove that
petitioner tendered payment to respondent and
that the latter refused to receive the same.
On appeal to the CA, petitioner then filed a
motion to withdraw the amount consigned but
was denied by the Court of Appeals.

Petitioner now contends that he can withdraw the

amount deposited with the trial court as a matter
of right because at the time he moved for the
withdrawal thereof, the CA has yet to rule on the
consignations validity and the respondent had
not yet accepted the same.
Issue/s:
W/N there was a valid consignation. Yes.
W/N petitioner can withdraw the
consigned as a matter of right. No.

amount

Held:
Consignation is the act of depositing the thing
due with the court or judicial authorities
whenever the creditor cannot accept or refuses to
accept payment and it generally requires a prior
tender of payment. In order that consignation
may be effective, the debtor must show that: (1)
there was a debt due; (2) the consignation of the
obligation had been made because the creditor to
whom tender of payment was made refused to
accept it, or because he was absent or
incapacitated, or because several persons
claimed to be entitled to receive the amount due
or because the title to the obligation has been
lost; (3) previous notice of the consignation had
been given to the person interested in the
performance of the obligation; (4) the amount
due was placed at the disposal of the court; and
(5) after the consignation had been made the
person interested was notified thereof. Failure in
any of these requirements is enough ground to
render a consignation ineffective.
The issues to be resolved in the instant case
concerns one of the important requisites of
consignation, i.e, the existence of a valid tender
of payment. As testified by the counsel for
respondent, the reasons why his client did not
accept petitioners tender of payment were (1)
the check mentioned in the August 5, 1994 letter
of petitioner manifesting that he is settling the
obligation was not attached to the said letter; and
(2) the amount tendered was insufficient to cover
the obligation. It is obvious that the reason for
respondents non-acceptance of the tender of
payment was the alleged insufficiency thereof
and not because the said check was not tendered
to respondent, or because it was in form of
managers check. While it is true that in general,
a managers check is not a legal tender, the
creditor has the option of refusing or accepting it.
Payment in check by the debtor may be
acceptable as valid, if no prompt objection to said
payment is made. Consequently, petitioners
tender of payment in the form of managers
check is valid.

The managers check in the amount of P672,900

which was tendered but refused by respondent
and thereafter consigned with the court, was
enough to satisfy the obligation.
There being a valid tender of payment in an
amount sufficient to extinguish the obligation, the
consignation is valid.
As regards petitioners right to withdraw the
amount consigned, reliance on Article 1260 is
misplaced. The amount consigned with the trial
court can no longer be withdrawn by petitioner
because respondents prayer in his answer that
the amount consigned be awarded to him is
equivalent to an acceptance of the consignation,
which has the effect of extinguishing petitioners
obligation.

LLOBRERA VS FERNANDEZ
Facts:
Respondent Josefina V. Fernandez, who is one of
the registered co-owners of a parcel of land,
served a written demand letter upon petitioners
Spouses Llobrera, et al., to vacate the premises
within
fifteen
(15)
days
from
notice.
Notwithstanding the receipt of the demand letter,
petitioners refused to vacate, which led to the
filing by the respondent of a formal complaint
against them before the Barangay Captain. Upon
failure of the parties to reach any settlement, the
Barangay
Captain
issued
the
necessary
certification to file action.
Respondent then filed a complaint for ejectment
and damages the petitioners before the MTCC of
Dagupan City.
Petitioners alleged in their answer that they had
been occupying the property in question
beginning the year 1945 onwards, when their
predecessors-in-interest, with the permission of
Gualberto de Venecia, one of the other co-owners
of said land, developed and occupied the same
on the condition that they will pay their monthly
rental of P20.00 each. From then on, they have
continuously paid their monthly rentals to de
Venecia or their representatives, such payments
being duly acknowledged by receipts.
But sometime in June 1996, the representatives
of de Venecia refused to accept their rentals,
prompting them to consign the same to Banco
San Juan, which bank deposit they continued to
maintain and update with their monthly rental
payments.
Issue:
W/N petitioners possession of the
property is founded on contract. No.

subject

Held:
Petitioners failed to present any written
memorandum of the alleged lease arrangements
between them and Gualberto De Venecia.
From the absence of proof of any contractual
basis for petitioners possession of the subject
premises, the only legal implication is that their
possession thereof is by mere tolerance.
In Roxas vs CA, the court ruled:
A person who occupies the land of another at the
latters tolerance or permission, without any
contract between them, is necessarily bound by
an implied promise that he will vacate upon
demand, failing which, a summary action for
ejectment is the proper remedy against him.

The judgment favoring the ejectment of

petitioners being consistent with law and
jurisprudence can only be affirmed. The alleged
consignation of the P20.00 monthly rental to a
bank account in respondents name cannot save
the day for petitioners simply because of the
absence of any contractual basis for their claim to
rightful possession of the subject property.
Consignation based on Article 1256 of the Civil
Code indispensably requires a creditor-debtor
relationship between the parties, in the absence
of which, the legal effects thereof cannot be
availed of.
Art. 1256. If the creditor to whom tender of
payment has been made refuses without just
cause to accept it, the debtor shall be released
from responsibility by the consignation of the
thing or sum due.
Unless there is unjust refusal by a creditor to
accept payment, Article 1256 cannot apply. In the
present case, the possession of the property by
the petitioners being by mere tolerance as they
failed establish through competent evidence the
existence of any contractual relations between
them and the respondent, the latter has no
obligation to receive any payment from them.
Since respondent is not a creditor to petitioners
as far as the alleged P20.00 monthly rental
payment is concerned, respondent cannot be
compelled to receive such payment even through
consignation and such has no legal effect insofar
as the respondent is concerned.

Held:
It must be borne in mind that a mere tender of
payment is not enough to extinguish an
obligation.

B.E. SAN DIEGO VS ALZUL

Facts:
On February 10, 1975 respondent Rosario Alzul
purchased from petitioner B.E. San Diego 4
subdivision lots. These lots were bought through
installment under Contract to Sell.
On July 25, 1977, respondent signed a
Conditional Deed of Assignment and Transfer of
Rights which assigned to a certain Wilson P. Yu
her rights under the Contract to Sell.
Due to Yus failure to pay the amounts due,
respondent commenced an action for rescission
and caused the annotation of notices of lis
pendens on the titles covering the subject lots.
The trial court ruled in favor of respondent.
On April 28, 1989, the subject lots were sold to
Sps. Ventura who were allegedly surprise to find
the annotation in their owners duplicate title.
The spouses filed an action for Quieting of Title in
the RTC. The RTC ruled in favor of the spouses.
On appeal to the CA, it was reversed and it
declared null and void the title of the spouses and
ownership was reinstated in the name of
petitioner B.E. San Diego.
On appeal to the SC, it ordered that respondent
should be given a non-extendible period of 30
days to make full payment for the properties.
In an attempt to comply with the Supreme Court
directive, respondent tried to serve payment
upon petitioner on August 29, 1996, August 30,
1996 and September 28, 1996. On all these
dates, petitioner allegedly refused to accept
payment.
Petitioner now stresses the fact that respondent
Alzul did not comply with the Courts resolution
which gave a non-extendible period of 30 days
within which to make full payment for the subject
properties. After 3 unsuccesful tenders, it was
only on March 12, 1998 or about a year and half
later that respondent offered to consign said
amount in action for consignment before the
HLURB.
Issue:
W/N there was a valid consignation. No.

Consignation is the act of depositing the thing

due with the court or judicial authorities
whenever the creditor cannot accept or refuses to
accept payment, and it generally requires a prior
tender of payment. It should be distinguished
from tender of payment. Tender is the antecedent
of consignation, that is, an act preparatory to the
consignation, which is the principal, and from
which are derived the immediate consequences
which the debtor desire or seeks to obtain. Tender
of payment may be extrajudicial, while
consignation is necessarily judicial, and the
priority of the first is the attempt to make a
private settlement before proceeding to the
solemnities
of
consignation.
Tender
and
consignation, where validly made, produces the
effect of payment and extinguishes the
obligation. There is no dispute that a valid tender
of payment had been made by respondent.
Absent however a valid consignation, mere
tender will not suffice to extinguish her obligation
and consummate the acquisition of the subject
properties.
In St. Dominic Corporation, the court held that a
valid consignation is made when the amount is
consigned with the court within the required
period or within a reasonable time thereafter.
In the case at bar, in respondents complaint for
consignation
and
specific
performance,
respondent only prayed that she be allowed to
make the consignation without placing or
depositing that amount due at the disposal of the
court of origin. Verily, respondent made no valid
consignation.

SOLID HOMES VS LASERNA

Facts:
Respondents entered into a contract to sell with
petitioner. When the respondents had allegedly
paid 90% of the purchase price, they demanded
the execution and delivery of the Deed of Sale
and TCT of the subject property upon the final
payment of the balance. But the petitioner did
not comply with the demands of respondents.
In view of the said non-payment, the petitioner
considered the Contract to Sell abandoned by the
respondents and rescinded in accordance with
the provisions of the same contract.
Issue:
W/N there was a valid tender of payment. No
Held:
Based on the records of the case, respondents
have tendered payment of the balance of the
purchase price of the subject property. However,
the petitioner, without any justifiable reason,
refused to accept the same. In Ramos vs Sarao,
the Court held that tender of payment is the
manifestation by the debtors of their desire to
comply with or to pay their obligation. If the
creditor refuses the tender of payment without
just cause, the debtors are discharged from the
obligation by the consignation of the sum due. In
the case at bar, after the petitioner refused to
accept the tender of payment made by the
respondents, the latter failed to make any
consignation of the sum due. Consequently, there
was no valid tender of payment and the
respondents are not yet discharged from the
obligation to pay the outstanding balance of the
purchase price of the subject property.
Since petitioner did not rescind the Contract to
Sell it executed with the respondents by a
notarial act, the said Contract still stands. Both
parties must comply with their obligations.

Issue:
W/N petitioner should be released from the
obligatory force of the contract. No.

ARTICLE 1267 DOCTINE OF UNFORESEEN

EVENTS
PHIL. NATIONAL CONSTRUCTION VS CA
Facts:
Subject in this case is the parcel of land owned by
private respondents. They executed then a lease
contract.
On January 7, 1986, petitioner obtained from the
Ministry of Human Settlements a Temporary Use
Permit for the proposed rock crushing project.
On January 16, 1986, private respondents wrote
petitioner requesting payment of the first annual
rental which was due and payable upon the
execution of the contract.
In its reply, petitioner argued that under
paragraph 1 of the lease contract, payment of
rental would commence on the date of the
issuance of an industrial clearance by the Ministry
of Human Settlements, and not from the date of
signing of the contract. It then expressed its
intention to terminate the contract, as it had
decided to cancel or discontinue with the rock
crushing project due to financial, as well as
technical difficulties.
Private respondents refused to accede to
petitioners request for the pretermination of the
lease contract. They insisted on the performance
of petitioners obligation and reiterated their
demand for the payment of the first annual
rental.
Invoking Article 1266 and the principle of rebus
sic stantibus, petitioner asserts that is should be
released from the obligatory force of the contract
of lease because the purpose of the contract did
not materialize due to unforeseen events and
causes beyond its control, i.e, due to the abrupt
change in political climate after EDSA Revolution
and financial difficulties.

Held:
It is a fundamental rule that contracts, once
perfected, bind both contracting parties, and
obligations arising therefrom have the force of
law between the parties and should be complied
with in good faith. But the law recognizes
exceptions to the principle of the obligatory force
of the contracts. One exception is laid down in
Article 1266 of the Civil Code, which reads: The
debtor in obligations to do shall also be released
when the prestation becomes legally or physically
impossible without the fault of the obligor.
Petitioner cannot, however, successfully take
refuge in the said article, since it is applicable
only to obligations to do, and not to obligations
to give. An obligation to do includes all kinds
of work or service; while an obligation to give is
a prestation which consists in the delivery of a
movable or an immovable thing in order to create
a real right, or for the use of the recipient or for
its simple possession, or in order to return it to its
owner.
The obligation to pay rentals or deliver the thing
in a contract of lease falls within the prestation
to give; hence, it is not covered within the
scope of Article 1266. At any rate, the unforeseen
event and causes mentioned by petitioner are not
the legal or physical impossibilities contemplated
in the said article. Besides, petitioner failed to
state specifically the circumstances brought
about by the abrupt change in the political
climate in the country except the alleged
prevailing uncertainties in government policies on
infrastructure projects.
The principle of rebus sic stantibus neither firs in
with the facts of the case. Under this theory, the
parties stipulate in the light of certain prevailing
conditions, and once these conditions cease to
exist, the contract also ceases to exist. This
theory is said to be the basis of Article 1267 of
the Civil Code.
Article 1267, which enunciates the doctrine of
unforeseen events, is not, however, an absolute
application of the principle of rebus sic stantibus,
which would endanger the security of contractual
relations. The parties to the contract must be
presumed to have assumed the risks of
unfavorable developments. It is therefore only in
absolutely exceptional changes of circumstances
that equity demands assistance for the debtor.

In this case, the petitioner wants the Court to

believe that the abrupt change in the political
climate of the country after the EDSA Revolution
and its poor financial condition rendered the
performance of the lease contract impractical and
inimical to the corporate survival of the
petitioner.
The Court cannot subscribe to the argument. As
pointed out by private respondents:
It is a matter of record that petitioner PNCC
entered into a contract with private respondents
on November 18, 1985. Prior thereto, it is of
judicial notice that after the assassination of
Senator Aquino on August 21, 1983, the country
has experience political upheavals, turmoils,
almost
daily
mass
demonstrations,
unprecedented inflation, peace and order
deterioration, the Aquino trial and many other
things that brought about the hatred of people
even against crony corporations.
On November 18, 1985, petitioner PNCC entered
into the contract of lease with private
respondents with open eyes of the deteriorating
conditions of the country.
Anent
petitioners
alleged
poor
financial
condition, the same will neither release petitioner
from the binding effect of the contract of lease.
As held in Central Bank vs CA, mere pecuniary
inability to fulfill an engagement does not
discharge a contractual obligation, nor does it
constitute a defense to an action for specific
performance.
With regard to the non-materialization of
petitioners particular purpose in entering into the
contract of lease, i.e, to use the leased premises
as a site of a rock crushing plant, the same will
not invalidate the contract. The cause or essential
purpose in a contract of lease is the use or
enjoyment of a thing. As a general principle, the
motive or particular purpose of a party in
entering into a contract does not affect the
validity nor existence of the contract; an
exception is when the realization of such motive
or particular purpose has been made a condition
upon which the contract is made to depend. The
exception does not apply here.

remove its fixtures and equipment from the

premises.
Food Fest invokes the principle of rebus sic
stantibus as enunciated in Article 1267 to render
the
lease
contract
functus
officio,
and
consequently release it from responsibility to pay
rentals. It claims that its failure to secure the
necessary
business
permits
and
licenses
rendered
the
impossibility
and
nonmaterialization of its purpose in entering into the
contract of lease.
Held:
The Court is not persuaded.
Article 1267, which enunciates the doctrine of
unforeseen events, is not an absolute application
of the principle of rebus sic stantibus, which
would endanger the security of contractual
relations. The parties to the contract must be
presumed to have assumed the risks of
unfavorable developments. It is, therefore, only in
absolutely exceptional changes of circumstances
that equity demands assistance for the debtor.

SO VS FOOD FEST LAND

Facts:
Food Fest Land entered into a Contract of Lease
with Daniel So over a commercial space for a
period of 3 years (1999-2002).
Before forging the lease contract, the parties
entered into a preliminary agreement dated July
1, 1999.
While Food Fest was able to secure the necessary
licenses and permits for the year 1999, it failed to
commence business operations. For the year
2000, Food Fests application for renewal of
barangay business clearance was held in
abeyance until further study of its kitchen
facilities.
Fearing business losses, Food Fest communicated
its intent to terminate the lease contract to So
who, however, did not accede and instead offered
to help Food Fest.
In August 2000, Food Fest, for the second time,
informed So of its intent to terminate the lease,
and in fact stopped paying rent.
So demanded payment of the rentals. Food Fest,
however, denied any liability, and started to

The cause or essential purpose in a contract of

lease is the use or enjoyment of a thing. A partys
motive or particular purpose in entering into a
contract does not affect the validity or existence
of the contract; an exception is when the
realization of such motive or particular purpose
has been made a condition upon which the
contract is made to depend. The exception does
not apply here.
It is clear that the condition set forth in the
preliminary agreement pertains to the initial
application of Food fest for the permits, licenses
and authority to operate. It should not be
construed to apply to Food Fests subsequent
applications.
Food Fest was able to secure the permits, licenses
and authority to operate when the lease contract
was executed. Its failure to renew these permits,
licenses and authority for the succeeding year
does not suffice to declare the lease functus
officio nor can it be construed as an unforeseen
event to warrant the application of Article 1267.

2 months after, private respondent closed the

Savings account with her mother and transferred
its funds to the joint account with his wife.
On January 16, 1991, a US Treasury Warrant was
dishonored as it was discovered that Fernandez
died. The US Department of Treasury requested
petitioner bank for a refund. For the first time,
petitioner bank came to know of the death of
Fernandez.
On February 19, 1991, private respondent
received a telegram from petitioner bank
requesting him to contact them. When he called
up the bank, he was informed of treasury check.
He then verbally authorized the petitioners to
debit from his other account the amount stated in
the dishonored US Treasury Warrant. On the same
day, petitioner bank debited the amount from
private respondents Savings account.
On February 21, 1991, private respondent visited
the petitioner bank and surprisingly demanded
restitution of the debited amount.
Issue:
W/N petitioner bank has legal right to apply the
deposit of respondent Reyes to his outstanding
obligation to petitioner bank brought about by the
return of the US Treasury Warrant he earlier
deposited
under
the
principle
of
Legal
Compensation. Yes.

ARTICLE 1278 TO 1290 COMPENSATION

BPI VS CA
Facts:
On September 25, 1985, private respondent
Edvin Reyes opened a joint savings account with
his wife Sonia Reyes at petitioner Bank of the
Philippines Islands (BPI).
Private respondent also held a joint savings
account
with
his
grandmother,
Emeteria
Fernandez, on February 11, 1986 at the same BPI
branch. He regularly deposited in this account the
U.S. Treasury Warrants payable to the order of
Emeteria Fernandez as her monthly pension.
Emeteria Fernandez died on December 28, 1989
without the knowledge of the US Treasury
Department. She was still sent US Treasury
warrant. On January 4, 1990, private respondent
deposited the said US treasury check of
Fernandez in their savings account.

Held:
Compensation shall take place when two persons,
in their own right, are creditors and debtors of
each other. Article 1290 of the Civil Code provides
that when all the requisites mentioned in Article
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 and even without the
consent of them. Since this compensation takes
place ipso jure, its effects 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.
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. Petitioner bank stands as a debtor of the
private respondent, a depositor. At the same
time, said bank is the creditor of the private
respondent with respect to the dishonored US
Treasury Warrant which the latter illegally
transferred to his joint account. The debts
involved consist of a sum of money. They are due,

liquidated, and demandable.

claimed by a third person.

They

are

not

It is true that the joint account of private

respondent and his wife was debited in the case
at bar. We hold that the presence of private
respondents wife does not negate the element of
mutuality of parties, i.e., that they must be
creditors and debtors of each other in their own
right. The wife of private respondent is not a
party in the case at bar. She never asserted any
right to the debited US Treasury Warrant.

respondent to recover on the double credits it

erroneously made in 1980 and 1981, based on
the principle of solution indebiti. No.
Held:
The parties were not bound principally and were
not a debtor and creditor of the other at the same
time.
With respect to the private respondent being a
depositor of petitioner bank, they are creditor and
debtor respectively. As to the relationship created
by the telexed fund transfers from abroad: A
contract between a foreign bank and local bank
asking the latter to pay an amount to a
beneficiary is a stipulation pour atrui. A
stipulation pour atrui is a stipulation in favor of a
third person. Thus, between petitioner bank and
the plaintiff as beneficiary, there is created an
implied trust.
Therefore, as matters stand, the parties
obligations are not subject to compensation or
set-off under Article 1279 if the Civil Code, for the
reason that the defendant is not a principal
debtor nor is the plaintiff a principal creditor
insofar as the amount $2,627.11 is concerned.
They are debtor and creditor only with respect to
the double payments; but are trustee-beneficiary
as to the fund transfer.

PNB VS CA
Facts:
The petitioner applied/appropriated the amounts
of $2,627.11 and P34,340.38 from remittances of
the private respondents principal abroad, NCB of
Jeddah.
There were 2 instances in the past, in 1980 and
1981 when the private respondents account was
doubly credited.
Issue:
W/N the petitioner was legally justified in making
the compensation or set-off against the two
remittances coursed through it in favor of private

On several occasions, respondent was allegedly

robbed bringing the total value of items lost at
P12,295.00.
Respondent then demanded compensation and
reimbursement from petitioner for the losses
incurred as a result of the robbery.
Petitioner denied any liability for the losses
stating that the goods lost belonged to Amtrade,
a third party.
As a consequence of the denial, respondent
withheld payment of its monthly dues.
Respondent then received a letter from petitioner
demanding payment of past dues.
Petitioner then executed a Deed of Absolute Sale
over Unit 301 in favor of respondent. Thereafter,
a condominium certificate was issued in
respondents name bearing the annotation of a
lien in favor of petitioner for the unpaid
condominium dues in the amount of P13,142.67.
Petitioners then filed a petition with SEC for the
collection of unpaid monthly dues against
respondents.
In its answer, respondent alleged that it could not
be deemed in default of said unpaid dues
because its tardiness was occasioned by
petitioners failure to comply with what is
incumbent upon them.
On appeal to the CA, it declared that the amount
of P13,142.67, the unpaid monthly dues of
respondent should be offset by the losses it
suffered in the amount of P12,295.00.
Petitioner now asserts that the ruling of the CA to
offset the alleged losses in unfounded because
respondent is not the owner of the goods lost, but
a third party, Amtrade.
Issue:
W/N compensation is proper. No.
EGV REALTY VS CA
Facts:
Petitioner EGV is the owner of a 7-storey
condominium known as Cristina Condominium.
Cristina Condominium Corporation holds title to
all common areas of Cristina Condominium and is
in charge of managing and providing for the
buildings security.
Respondent Unisphere is the owner of Unit 301 of
said condominium.

Held:
Compensation or offset under the New Civil Code
takes place only when two persons or entities in
their own rights, are creditors and debtors of
each other.
A distinction must be made between a debt and a
mere claim. A debt is an amount actually
ascertained. It is a claim which has been formally
passed upon by the courts or quasi-judicial bodies
to which it can in law be submitted and has been
declared to be a debt. A claim, on the other hand,
is a debt in embryo. It is mere evidence of debt
and must pass thru the process prescribed by law

before it develops into what is properly called a

debt. Absent, however, any such categorical
admission by an obligor or final adjudication, no
compensation or off-set can take place. Unless
admitted by the a debtor himself, the conclusion
that he is in truth indebted to another cannot be
definitely and finally pronounce, no matter how
convinced he may be from the examination of the
pertinent records of the validity of that conclusion
the indebtedness must be one that is admitted by
the alleged debtor or pronounced by final
judgment of a competent court or in this case by
the Commission.

sell a Mercedes Benz for P580,000. Canete also

said that if respondent herself will buy the car,
Canete was willing to sell it for P500,000.
Petitioner Hermenegildo Trinidad borrowed the
car from respondent but instead of returning it,
petitioner told respondent to buy the car from
Canete and that petitioner would pay respondent
after petitioner returns from Davao. Respondent
thereafter executed a deed of sale in favor of
petitioner. When petitioner returned from Davao,
he refused to pay respondent. Respondent then
prayed that the deed of sale be declared null and
void and that the car be returned to her.

It appears quite clear that the offsetting of debts

does not extend to unliquidated, disputed claims
arising from tort or breach of contract.

In their pre-trial briefs, petitioner raised as issue

whether or not there was a valid dation in
payment while respondent put forth the
questions: whether or not she is indebted to
petitioner in the amount of P566,000, and
whether the car was ceded by her to petitioner in
order to partially pay off her obligation of
P566,000 to petitioner as dation in payment.

While respondent Unisphere does not deny any

liability for its unpaid dues to petitioners, the
latter do not admit any responsibility for the loss
suffered by the former occasioned by the
burglary. At best, what respondent Unisphere has
against petitioners is just a claim, not a debt.
Such being the case, it is not enforceable in
court. It is only the debts that are enforceable in
court, there being no apparent defenses inherent
in them. Respondent Unispheres claim for its
losses has not been passed upon by any legal
authority so as to elevate it to the level of a debt.

The RTC rendered a decision finding that no

dacion en pago is present as common consent
was not proven.
Petitioner argues that legal compensation should
be appreciated, though not expressly stated in his
Answer to the Complaint before the trial court, as
his allegations therein and the facts proven at the
trial show the presence of legal compensation. He
further argues that, in any case, legal
compensation takes place by operation of law
even without the consent of the interested
parties.
Respondent counters that Article 1279 of the Civil
Code also states that for legal compensation to
be proper both debts should consist of sum of
money; in this case, one of the obligations does
not entail payment of money but delivery of car.
Issue:
W/N compensation took place. Yes.
Held:
While it is true that petitioner failed to raise the
issue of legal compensation at the earliest
opportunity, this should not preclude the courts
from appreciating the same especially in this
case, where ignoring the same would only result
to unnecessary and circuitous filing of cases.

TRINIDAD VS ACAPULCO
Facts:
Sometime in February 1991, a certain Primitivo
Canete requested respondent Estrella Acapulco to

Compensation takes effect by operation of law

even without the consent or knowledge of the
parties concerned when all the requisites
mentioned in Article 1279 are present. This is in
consonance with Article 1290 of the Civil Code.

Since it takes place ipso jure when used as a

defense, it retroacts to the date when all its
requisites are fulfilled.
Here,
petitioners
stance
is
that
legal
compensation has taken place and operates even
against the will of the parties because: (a)
respondent and petitioner were personally both
creditor and debtor of each other; (b) the
monetary
obligation
of
respondent
was
P566,000.00 and that of the petitioner was
P500,000.00 showing that both indebtedness
were monetary obligations the amount of which
were also both known and liquidated; (c) both
monetary obligations had become due and
demandablepetitioners obligation as shown in
the deed of sale and respondents indebtedness
as shown in the dishonored checks; and (d)
neither of the debts or obligations are subject of a
controversy commenced by a third person.
While the proceedings in the RTC focused on
ascertaining the presence of the elements of
dacion en pago, it was likewise proven that
petitioner owed respondent the amount of
P500,000.00
while
respondent
owed
petitionerP566,000.00; that both debts are due,
liquidated and demandable, and; that neither of
the debts or obligations are subject of a
controversy commenced by a third person.
Respondent
in
her
cross-examination
categorically admitted that she is indebted to
petitioner.
Compensations aim is to prevent unnecessary
suits and payments through the mutual extinction
of concurring debts by operation of law.
The claim of respondent that there could be no
legal compensation in this case as one of the
obligations consists of delivery of a car and not a
sum of money must also fail. Respondent sold the
car to petitioner on March 4, 1991 for
P500,000.00 while she filed her complaint for
nullification of the sale only on May 6, 1991. As
legal compensation takes place ipso jure, and
retroacts to the date when its requisites are
fulfilled, legal compensation has already taken
place at the time of the sale. At such time,
petitioner owed respondent the sum of
P500,000.00 which is the price of the vehicle.

PHILIPPINE
COMMERCIAL
BANK
INTERNATIONAL BANK VS BALMACEDA
Facts:
PCIB alleged that between 1991 and 1993,
Balamaceda, by taking advantage of his position
as bank manager, fraudulently obtained and
encashed Managers check in the total amount o
P10,782,150.
PCIB then filed an action for recovery of sum of
money against Balamaceda. It also impleaded
Ramos as one of the recipients of a portion of the
proceeds from Balmacedas allege fraud.
PCIB maintains that it had the right to freeze and
debit the amount of P251,910.96 from Ramos
bank account, even without his consent, since
legal compensation had taken place between
them by operation of law. PCIB debited Ramos
bank account, believing in good faith that Ramos
was not entitled to the proceeds of the Managers
checks and was actually privy to the fraud
perpetrated by Balmaceda.
Issue:
W/N PCIB had the right to freeze and debit
Ramos assets. No.
Held:
Ramos participation in Balmacedas scheme not
proven.
There is no merit in PCIBs claim that legal
compensation took place between it and Ramos,
thereby warranting the automatic deduction from
Ramos bank account. For legal compensation to
take place, two persons, in their own right, must
first be creditors and debtors of each other. While
PCIB, as the depositary bank, is Ramos debtor in
the amount of his deposits, Ramos is not PCIBs
debtor under the evidence the PCIB adduced.
PCIB thus had no basis, in fact or in law, to
automatically debit from Ramos bank account.

ARTICLE 1291 TO 1304 NOVATION

LICAROS VS GATMAITAN
Facts:
Abelardo Licaros, decided to make a fund
placement with Anglo-Asean Bank in the 1980s.
Licaros, after having invested, encountered
tremendous and unexplained difficulties in
retrieving, not only the interest or profits, but
even the very investments he had put in AngloAsean.
Confronted with the dire prospect of not getting
back any of his investments, Licaros then decide
to seek the counsel of Antonio P. Gatmaitan.
Gatmaitan voluntarily offered to assume the
payment of Anglo-Aseans indebtedness to
Licaros. In order to effectuate and formalize the
parties respective commitments, the two
executed
a
notarized
MEMORANDUM
OF
AGREEMENT on July 29, 1988.
Thereafter, Gatmaitan presented to Anglo-Asean
the Memorandum of Agreement for the purpose
of collecting the placement thereat of $150,000.
No formal response was ever made by said bank
to either Licaros or Gatmaitan. To date, AngloAsean has not acted on Gatmaitans monetary
claims.
Evidently, because of his inability to collect from
Anglo-Asean, Gatmaitan did not bother anymore
to make good his promise to pay Licaros the
amount stated in his promissory note. Licaros,
however, felt that he had a right to collect on the
basis of the promissory note regardless of the
outcome of Gatmaitans recovery efforts. Thus,
Licaros addressed successive demand letters to
Gatmaitan. Gatmaitan, however, did not accede
to these demands.
Issue:
W/N the Memorandum of Agreement between
petitioner and respondent is one of assignment of
credit or conventional subrogation. Conventional
subrogation.
Held:
An assignment of credit has been defined as the
process of transferring the right of the assignor to
the assignee who would then have the right to
proceed against the debtor. The assignment may
be done gratuitously or onerously, in which case,

the assignment has an effect similar to that of a

sale.
On the other hand, subrogation has been defined
as the transfer of all the rights of the creditor to a
third person, who substitutes him in all his rights.
It may either be legal or conventional. Legal
subrogation is that which takes place without
agreement but by operation of law because of
certain acts. Conventional subrogation is that
which takes place by agreement of parties.
Conventional subrogation is not identical to
assignment of credit. In the former, the debtors
consent is necessary; in the latter, it is not
required. Subrogation extinguishes the obligation
and gives rise to a new one; assignment refers to
the same right which passes from one person to
another. The nullity of an old obligation may be
cured by subrogation, such that a new obligation
will be perfectly valid; but the nullity of an
obligation is not remedies by the assignment of
the creditors right to another.
In an assignment of credit, the consent of the
debtor is not necessary in order that the
assignment may fully produce legal effects. What
the law requires in an assignment of credit is not
the consent of the debtor but merely notice to
him as the assignment takes effect only from the
time he has knowledge thereof. A creditor, may,
therefore, validly assign his credit and its
accessories without the debtors consent. On the
other hand, conventional subrogation requires an
agreement among the 3 parties concerned the
original creditor, the debtor, and the new creditor.
It is a new contractual relation based on the
mutual agreement among all the necessary
parties. Thus, Article 1301 of the Civil Code
explicitly states that Conventional subrogation of
a third person requires the consent of the original
parties and of the third person.
The Memorandum of Agreement dated July 29,
1988 was in the nature of a conventional
subrogation which requires the consent of the
debtor, Anglo-Asean Bank, for its validity.
Gatmaitan and Licaros intended their agreement
as one of conventional subrogation as it is plainly
borne by a stipulation in their memorandum, to
wit:
WHEREAS, the parties herein have come to an
agreement on the nature, form and extent of
their mutual prestations which they now record
herein with the express conformity of the third
parties concerned, which third party is
admittedly Anglo-Asean Bank.

Had the intention been merely to confer on

appellant the status of a mere assignee of
appellees credit, there is simply no sense for
them to have stipulated in their agreement that
the same is conditioned on the express
conformity thereto of Anglo-Asean Bank.
It bears stressing that the subject Memorandum
of Agreement expressly requires the consent of
Anglo-Asean to the subrogation. Upon whom the
task of securing such consent devolves, be it on
Licaros or Gatmaitan, is of no significance. What
counts most is the hard reality that there has
been an abject failure to get Anglo-Aseans nod of
approval over Gatmaitans being subrogated in
the place of Licaros. The absence of such
conformity on the part of Anglo-Asean, which is
thereby made a party to the same Memorandum
of Agreement, prevented the agreement from
becoming effective, much less from being a
source of any cause of action for the signatories
thereto.

GARCIA VS LLAMAS
Facts:
On December 23, 1996, petitioner and De Jesus
borrowed P400,00 from respondent. On the same
day, they executed a promissory note wherein
they bound themselves jointly and severally to
pay the loan on or before January 23, 1997 with a
5% interest per month.
After the loan has long been overdue and despite
repeated demands, petitioner and De Jesus have
failed and refused to pay it; and by reason of
their
unjustified
refusal,
respondent
was
compelled to engage the services of a counsel.
Petitioner averred that he assumed no liability
under the promissory note because he signed it
merely as an accommodation party for De Jesus;
and alternatively, he is relieved from any liability
from the note inasmuch as the load had been
paid by De Jesus by means of a check dated 17
April 1997 and the respondents acceptance
novated or superseded the note.
Respondent replied that the loan remained
unpaid for the reason that the check issued by De
Jesus bounced.
Petitioner seeks to extricate himself from the
obligation as joint and solidary debtor by insisting
that novation took place, either through the
substitution of De Jesus as sole debtor or the
replacement of the promissory note by the check.

Issue:
W/N there was novation of the obligation. No.
Held:
Novation is a mode of extinguishing an obligation
by changing its objects or principal obligations,
by substituting a new debtor in place of the old
one, or by subrogating a third person to the rights
of the creditor.
In general, there are two modes of substituting
the person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the
change does not come from and may even be
made without the knowledge of the debtor, since
it consists of a third persons assumption of the
obligation. As such, it logically requires the
consent of the third person and the creditor. In
delegacion, the debtor offers, and the creditor
accepts, a third person who consents to the
substitution and assumes the obligation; thus, the
consent of these three persons are necessary.
Both modes of substitution by the debtor require
the consent of the creditor.
Novation may also be extinctive or modificatory.
It is extinctive when an old obligation is
terminated by the creation of a new one that
takes the place of the former. It is merely
modificatory when the old obligation susbsists to
the extent that it remains compatible with the
amendatory agreement. Whether extinctive or
modificatory, novation is made either by
changing the object or principal conditions,
referred to as objective or real novation; or by
substituting the person of the debtor or
subrogating a third person to the rights of the
creditor, an act known as subjective or personal
novation. For novation to take place, the following
requisites must concur:
1. There must be a previous valid obligation.
2. The parties concerned must a agree to a new
contract.
3. The old contract must be extinguished.
4. There must be a valid new contract.
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 instant case, no novation took place.

The parties did not unequivocally declare that the

old obligation had been extinguished by the
issuance and the acceptance of the check, or that
the check would take the place of the note. There
is no incompatibility between the promissory note
and the check. As the CA correctly observed, the
check had been issued precisely to answer for the
obligation. On the one hand, the note evidences
the loan obligation; and on the other, the check
answerws for it. verily, the two can stand
together.
Neither could the payment of interests which, in
petitioners view, also constitutes novation
change the terms and conditions of the
obligation. Such payment was already provided
for in the promissory note and, like the check,
was totally in accord with the terms thereof.
Also unmeritorious is petitioners argument that
the obligation was novated by the substitution of
debtors. In order to change the person of the
debtor, the old one must be expressly released
from the obligation, and the third person or new
debtor must assume the formers place in the
relation. Well-settled is the rule that novation is
never presumed. Consequently, that which arises
from a purported change in the person of the
debtor must be clear and express. It is thus
incumbent on petitioner to show clearly and
unequivocally that novation has indeed taken
place.
In the present case, petitioner has not shown that
he was expressly released from the obligation,
that a third person was substituted in his place,
or that the joint and solidary obligation was
cancelled and substituted by the solitary
undertaking of De Jesus.
Moreover, it must be noted that for novation to
be valid and legal, the law requires that the
creditor expressly consent to the substitution of a
new debtor.
De Jesus was not a third person to the obligation.
From the beginning, he was a joint and solidary
obligor of the P400,000 loan; thus he can be
released from it only upon its extinguishment.
Respondents acceptance of his check did not
change the person of the debtor, because a joint
and solidary obligor is required to pay the entirety
of the obligation.

CALIFORNIA BUS
INVESTMENT

LINES,

INC

VS

STATE

Facts:
Sometime in 1979, Delta Motors Corporation
M.A.N. Division (Delta) applied for financial
assistance from respondent State Investment
House, Inc. (hereafter SIHI). SIHI agreed to extend
a credit line to Delta for P25,000,000. On several
occasions, Delta availed of the credit line by
discounting with SIHI some of its receivables,
which evidence actual sales of Delta vehicles.
Delta eventually became indebted to SIHI to the
tune of P24,010,269.32.
Meanwhile, from April 1979 to May 1980,
petitioner California Bus Lines, Inc. (hereafter
CBLI), purchased on installment basis 35 units of
M.A.N. Diesel Buses and 2 units of M.A.N. Diesel
Conversion Engines from Delta. To secure the
payment of the purchase price of the 35 buses,
CBLI and its president, Mr. Dionisio Llamas,
executed 16 promissory notes in favor of Delta. In
each promissory note, CBLI promised to pay
Delta. In addition to the notes, CBLI executed

chattel mortgages over the 35 buses in Deltas

favor.
When CBLI defaulted on all payments due, it
entered into a restructuring agreement with Delta
on October 7, 1981, to cover its overdue
obligations under the promissory notes. The
restructuring agreement provided for a new
scheduled of payments of CBLIs past due
installments, extending the period to pay, and
stipulating daily remittance instead of the
previously
agreed
monthly
remittance
of
payments. In case of default, Delta would have
the authority to take over the management and
operations of CBLI until CBLI and/or its president,
Dionisio Llamas, remitted and/or updated CBLIs
past due account.
CBLI contends that the Restructuring Agreement
did not merely change the incidental elements of
the obligation under all 16 promissory notes, but
it also increased the obligations of CBLI with the
addition
of
new
obligations
that
were
incompatible with the old obligations in the said
notes. CBLI adds that even if the restructuring
agreement did not totally extinguish the
obligations under the 16 promissory notes, the
compromise agreement executed on July 24,
1984, which would allow Delta to exercise its
right to extrajudicially foreclose on the chattel
mortgages over the 35 bus units, did.
Issue/s:
1. W/N the Restructuring Agreement novated the
5 promissory notes Delta assigned to respondent
SIHI. No.
2. W/N the compromise agreement superseded
and/or discharged the subject 5 promissory notes.
No.

In this case, the attendant facts do not make out

a case of novation. The restructuring agreement
between Delta and CBLI shows that the parties
did not expressly stipulate that the restructuring
agreement novated the promissory notes. Absent
an unequivocal declaration of extinguishment of
the pre-existing obligation, only a showing of
complete incompatibility between the old and the
new obligation would sustain a finding of
novation by implication. However, a review of its
terms yields no incompatibility between the
promissory
notes
and
the
restructuring
agreement.
The restructuring agreement merely provided for
a new schedule of payments and additional
security in giving Delta authority to take over the
management and operations of CBLI in case CBLI
fails to pay installments equivalent to 60 days.
Where the parties to the new obligation expressly
recognize the continuing existence and validity of
the old one, there can be no novation.
The addition of other obligations likewise did not
extinguish the promissory notes. In Young vs CA,
the Court ruled that a change in the incidental
elements of, or an addition of such element to, an
obligation, unless otherwise expressed by the
parties will not result in its extinguishment.
In fine, the restructuring agreement can stand
together with the promissory notes.
Neither is there merit in CBLIs argument that the
compromise
agreement
superseded and/or
discharged the 5 promissory notes. Having
previously assigned the 5 promissory notes to
SIHI, Delta had no more right to compromise the
same.

Held:
Novation has two functions: one to extinguish an
existing obligation, the other to substitute a new
one in its place.
With respect to obligations to pay a sum of
money, the Court has consistently applied the
well-settled rule that the obligation is not novated
by an instrument that expressly recognizes the
old, changes only the terms of payment, and
adds other obligations not incompatible with the
old ones, or where the new contract merely
supplements the old one.
In Tible vs Aquino and Pascual vs Lacsamana, the
Court declared that it is well settled that a mere
extension of payment and the addition of another
obligation not incompatible with the old ones in
not a novation thereof.

AQUINTEY VS. TIBONG

Facts:
Agrifina Aquintey in this case alleges that
Felicidad Tibong had secured loans from her on
several occasions. Despite demands, the spouses
Tibong failed to pay their outstanding loan. This

prompted Aquintey to file a complaint for sum of

money and damages against spouses Felicidad
and Rico Tibong.
In their Answer spouses Tibong admitted that
they had secured loans from Agrifina. However,
they alleged that they had executed deeds of
assignment in favor of Agrifina, and that their
debtors had executed promissory notes in
Agrifina's favor. According to the spouses Tibong,
this resulted in a novation of the original
obligation to Agrifina. They insisted that by virtue
of these documents, Agrifina became the new
collector of their debtors; and the obligation to
pay the balance of their loans had been
extinguished.
The trial court ruled that Felicidad's obligation
had not been novated by the deeds of
assignment and the promissory notes executed
by Felicidad's borrowers
On appeal, the CA affirmed with modification the
decision of the RTC and stated that though the
deeds of assignment does not have the effect of
novating the original obligation of Sps. Tibong,
Aquinteys
account
was
already
partially
extinguished as a part of it was covered by the
deeds of assignment and has been in fact already
collected by Aquintey.
Issue:
WON there was novation. NO.
WON the assignment has the effect of partially
extinguishing the respondents obligation. Yes.
Ruling:
We find in this case that the CA correctly found
that respondents' obligation to pay the balance of
their account with petitioner was partially
extinguished, not by novation but by the deeds of
assignment of credit.
Novation may either be extinctive or modificatory.
Extinctive novation is never presumed; there
must be an express intention to novate. However
in cases where novation is implied, novation in
this case necessitates the incompatibility
between the old and new obligation be total on
every point such that the old obligation is
completely superseded by the new one. The test
of incompatibility is whether they can stand
together, each one having an independent
existence; if they cannot and are irreconciliable,
the subsequent obligation would also extinguish
the first.
Novation which consists in substituting a new
debtor (delegado) in the place of the original one
(delegante) may be made even without the
knowledge or against the will of the latter but not

without the consent of the creditor. Substitution

of the person of the debtor may be effected by
delegacion, meaning, the debtor offers, and the
creditor (delegatario), accepts a third person who
consents to the substitution and assumes the
obligation. Thus, the consent of those three
persons is necessary. In this kind of novation, it is
not enough to extend the juridical relation to a
third person; it is necessary that the old debtor
be released from the obligation, and the third
person or new debtor take his place in the
relation. Without such release, there is no
novation; the third person who has assumed the
obligation of the debtor merely becomes a codebtor or a surety. If there is no agreement as to
solidarity, the first and the new debtor are
considered obligated jointly.
An assignment of credit on the otherhand is an
agreement by virtue of which the owner of a
credit, known as the assignor, by a legal cause,
such as sale, dation in payment, exchange or
donation, and without the consent of the debtor,
transfers his credit and accessory rights to
another, known as the assignee, who acquires the
power to enforce it to the same extent as the
assignor could enforce it against the debtor.
In this case, all the requisites for a valid dation in
payment are present. Respondent Felicidad
assigned to petitioner her credits "to make good"
the balance of her obligation. Felicidad testified
that she executed the deeds to enable her to
make partial payments of her account, since she
could not comply with petitioner's frenetic
demands to pay the account in cash. Petitioner
and respondent Felicidad agreed to relieve the
latter of her obligation to pay the balance of her
account, and for petitioner to collect the same
from respondent's debtors.

RICARZE VS. CA
Facts:
Eduardo G. Ricarze was employed as a collectormessenger by City Service Corporation, a
domestic corporation engaged in messengerial
services. He was assigned to the main office of
Caltex where his primary task was to collect
checks payable to Caltex and deliver them to the
cashier. In 1997 Caltex filed a criminal complaint
against Ricarze for estafa through falsification of
commercial documents when Caltex discovered
that several checks were missing and forged and
have subsequently been cleared throught its
depositary bank PCIB. Upon further investigation,
it was found out that the cleared checks were
deposited in an account opened by Ricarze.
Meanwhile, the PCIB credited the amount of
P581,229.00 to the account of Caltex without
informing the City prosecutor.
Hence 2
informations for estafa were filed against Ricarze
with
Caltex
Philippines
as
the
private
complainant. Ricarze was then arraigned.
During trial, SRMO Law Office presented evidence
in behalf of PCIB, Ricarze then opposed such
pleading contending that the private complainant
is Caltex and not PCIB. SRMO then contended
that when PCIB re-credited the amount to Caltex
to the extent of the indemnity; PCIB had been
subrogated to the rights and interests of Caltex
as private complainant.
Petitioner however argues that PCIB cannot be
subrogated to the rights of Caltex, considering
that he has no knowledge of the subrogation
much less gave his consent to it.
Issue:
WON There is a valid subrogation between
PCIBank and Caltex.
Ruling:
Petitioners
argument
on
subrogation
is
misplaced. The Court agrees with respondent
PCIBs comment that petitioner failed to make a
distinction between legal and conventional
subrogation. Subrogation is the transfer of all the
rights of the creditor to a third person, who
substitutes him in all his rights.28 It may either
be legal or conventional. Legal subrogation is that
which takes place without agreement but by
operation of law because of certain acts.29
Instances of legal subrogation are those provided
in Article 1302 of the Civil Code. Conventional

subrogation, on the other hand, is that which

takes place by agreement of the parties.31 Thus,
petitioners acquiescence is not necessary for
subrogation to take place because the instant
case is one of legal subrogation that occurs by
operation of law, and without need of the
debtors knowledge.
Thus, being subrogated to the right of Caltex,
PCIB, through counsel, has the right to intervene
in the proceedings, and under substantive laws is
entitled to restitution of its properties or funds,
reparation, or indemnification.

WON the consent of Ledonio to the assignment of

credit is essential in order for Capitol to have a
cause of action against Him? No.
Ruling:
The transaction between Ms. Picache and Capitol
was an assignment of credit and not conventional
subrogation(novation), and does not require
Ledonios consent asdebtor for its validity and
enforceability.
LEDONIO VS. CAPITOL DEVELOPMENT
Facts:
Ledonio on a certain date obtained from a Ms.
Picache two loans covered by promissory notes.
Subsequently,
Ms.
Picache
executed
an
Assignment of Credit in favor of Capitol
Development Corporaiton.
When the loans became due however, petitioner
failed to settle his indebtedness despite Capitols
demands. Hence, Capitol instituted a Complaint
for the collection of a sum of money against
herein petitioner Edgar Ledonio.
Ledonio on the otherhand sought the dismissal of
the complaint averring that Capitol had no cause
of action against him as he never consented or
agreed to the said assignment. It is his contention
that consent of the debtor to the assignment of
credit is a basic/essential element in order for the
assignee to have a cause of action against the
debtor.
According to petitioner, the assignment of credit
constitutes conventional subrogation which
requires the consent of the original parties to the
loan contract, namely, Ms. Picache (the creditor)
and Ledonio (the debtor); and the third person,
Capitol(the assignee). Since petitioner never gave
his consent to the assignment of credit, then the
subrogation of respondent in the rights of Ms.
Picache as creditor by virtue of said assignment is
without force and effect. In support of said
argument, petitioner invokes the following
provisions of the Civil Code
ART. 1300. Subrogation of a third person in the
rights of the creditor is either legal or
conventional. The former is not presumed, except
in cases expressly mentioned in this Code; the
latter must be clearly established in order that it
may take effect.
ART. 1301. Conventional subrogation of a third
person requires the consent of the original parties
and the third person.
Issue:

An assignment of credit has been defined as an

agreement by virtue of which the owner of a
credit (known as the assignor), by a legal cause such as sale, dation in payment or exchange or
donation - and without need of the debtor's
consent, transfers that credit and its accessory
rights to another (known as the assignee), who
acquires the power to enforce it, to the same
extent as the assignor could have enforced it
against the debtor.
On the other hand, subrogation, by definition, is
the transfer of all the rights of the creditor to a
third person, who substitutes him in all his rights.
It may either be legal or conventional. Legal
subrogation is that which takes place without
agreement but by operation of law because of
certain acts. Conventional subrogation is that
which takes place by agreement of parties.
Although it may be said that the effect of the
assignment of credit is to subrogate the assignee
in the rights of the original creditor, this Court still
cannot definitively rule that assignment of credit
and conventional subrogation are one and the
same.
Under our Code, conventional subrogation is not
identical to assignment of credit. In the former,
the debtor's consent is necessary; in the latter, it
is not required. Subrogation extinguishes an
obligation and gives rise to a new one; while
assignment refers to the same right which passes
from one person to another. The nullity of an old
obligation may be cured by subrogation, such
that the new obligation will be perfectly valid; but
the nullity of an obligation is not remedied by the
assignment of the creditor's right to another.
(Emphasis supplied.)
The Courts has consistently adhered to the
foregoing distinction between an assignment of
credit and a conventional subrogation. Such
distinction is crucial because it would determine
the necessity of the debtor's consent. In an
assignment of credit, the consent of the debtor is
not necessary in order that the assignment may
fully produce the legal effects. What the law
requires in an assignment of credit is not the
consent of the debtor, but merely notice to him

as the assignment takes effect only from the time

he has knowledge thereof. A creditor may,
therefore, validly assign his credit and its
accessories without the debtor's consent. On the
other hand, conventional subrogation requires an
agreement among the parties concerned the
original creditor, the debtor, and the new creditor.
It is a new contractual relation based on the
mutual agreement among all the necessary
parties.

per month, the original contract was changed;

and Kalayaan recognized Juliets capacity to pay,
as well as her designation as the new debtor. The
original contract was novated and the principal
obligation to pay for the remaining half of the
subject property was transferred from petitioners
to Juliet. When Kalayaan accepted the payments
made by the new debtor, Juliet, it waived its right
to rescind the previous contract. Thus, the action
for rescission filed by Kalayaan against them, was
unfounded, since the contract sought to be
rescinded was no longer in existence.
Issue:
WON there is novation in this case. No.

VALENZUELA VS. KALAYAAN DEVELOPMENT

Facts:
Kalayaan is the owner of a parcel of land which
was being illegally occupied by petitioner sps.
Valenzuela. Upon discovery of such, Kalayaan
demanded the petitioners to immediately vacate
the premises. The petitionrs however negotiated
with Kalayaan to purchase the portion of the lot
that they were already occupying and by virtue of
which, the parties executed a Contract to Sell.
Petitioners commenced the paying of monthly
installments, however, upon their payment of
one-half of the purchase price,they manifested
their inability to pay the remaining balance and
proposed to Kalayaan, thate substitution of Juliet
Flores Gilon who was willing to assume the
payment of the remaining balance payable to
Kalayaan. Thereafter, Juliet made payments of
10,000 per montht to Kalayaan, which the latter
accepted for and in behalf of Gloria Valenzuela.
Thereafter, Kalayaan demanded that Sps.
Valenzuela pay their outstanding obligation but
thesedemands
remained
unheeded
thus
Kalayaan filed a Complaint for Rescission of
Contract and Damages against Sps. Valenzuela.
Petitioners on the otherhand claim that there was
already a valid novation in the present case. They
aver that the CA failed to see that the original
contract between the petitioners and Kalayaan
was altered, changed, modified and restructured,
as a consequence of the change in the person of
the principal debtor and the monthly amortization
to be paid for the subject property. When they
agreed to a monthly amortization of P10,000.00

Ruling:
Novation is the extinguishment of an obligation
by the substitution or change of the obligation by
a subsequent one which extinguishes or modifies
the first, either by changing the 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.
Article 1292 of the Civil Code provides that "[i]n
order 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 the new obligations be
on every point incompatible with each other."
Novation is never presumed. Parties to a contract
must expressly agree that they are abrogating
their old contract in favor of a new one. In the
absence of an express agreement, novation takes
place only when the old and the new obligations
are incompatible on every point. The test of
incompatibility is whether or not 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.
Thus, in order that a novation can take place, the
concurrence of the following requisites are
indispensable:
1) There must be a previous valid obligation;
2) There must be an agreement of the parties
concerned to a new contract;
3) There must be the extinguishment of the old
contract; and
4) There must be the validity of the new contract.
In the instant case, none of the requisites are
present. There is only one existing and binding
contract between the parties, because Kalayaan
never agreed to the creation of a new contract
between them or Juliet. True, petitioners may
have offered that they be substituted by Juliet as
the new debtor to pay for the remaining

obligation. Nonetheless,
acquiesce to the proposal.

Kalayaan

did

not

renovation of the apartment units - has not yet

been fulfilled.

Its acceptance of several payments after it

demanded that petitioners pay their outstanding
obligation did not modify their original contract.
Petitioners, admittedly, have been in default; and
Kalayaans acceptance of the late payments is, at
best, an act of tolerance on the part of Kalayaan
that could not have modified the contract.

Issue:
WON the petitioner's obligation has already
become due and demandable?Yes.
Ruling:
The evidence on record clearly shows that after
renovation of seven out of the eight apartment
units had been completed, petitioner and
respondent agreed that the former shall already
start making monthly payments on the loan even
if renovation on the last unit was still pending.
Evidently,
by
virtue
of
the
subsequent
agreement, the parties mutually dispensed with
the condition that petitioner shall only begin
paying after the completion of all renovations.
There was, in effect, a modificatory or partial
novation, of petitioner's obligation. Article 1291
of the Civil Code provides, thus:
Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the
creditor. (Emphasis supplied)
In Iloilo Traders Finance, Inc. v. Heirs of Sps.
Soriano,10 the Court expounded on the nature of
novation, to wit:

TOMIMBANG VS. TOMIMBANG

Facts:
Petitioner and respondent are siblings. The
petitioner in this case want3ed to renovate the
property their parents has given him so he
entered into a loan agreement with the
respondent witht the agreement that the
petitioner will only start paying after the
completion of the renovation. However due to
certain misunderstandings, the parties entered
into a new agreement stating that the petitioner
shall start paying off the loan in a monthly basis
and this was initially complied with by the
petitioner. However, when another misunderstand
arouse between the parties, the petitioner
stopped paying his monthly obligations thus
prompting respondent to file the instand case for
the payment of the loan plus interest from date of
default.
Petitioner does not deny that she obtained a loan
from respondent. She, however, contends that
the loan is not yet due and demandable because
the suspensive condition the completion of the

Novation
may
either
be
extinctive
or
modificatory, much being dependent on the
nature of the change and the intention of the
parties. Extinctive novation is never presumed;
there must be an express intention to novate.
An extinctive novation would thus have the twin
effects of, first, extinguishing an existing
obligation and, second, creating a new one in its
stead. This kind of novation presupposes a
confluence 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 new valid obligation. Novation is merely
modificatory where the change brought about by
any subsequent agreement is merely incidental
to the main obligation (e.g., a change in interest
rates or an extension of time to pay); in this
instance, the new agreement will not have the
effect of extinguishing the first but would merely
supplement it or supplant some but not all of its
provisions.
As can be gleaned from the foregoing, the
aforementioned four essential elements and the
requirement that there be total incompatibility
between the old and new obligation, apply only to

extinctive novation. In partial novation, only the

terms and conditions of the obligation are altered,
thus, the main obligation is not changed and it
remains in force.
Petitioner stated in her Answer with Counterclaim
that she agreed and complied with respondent's
demand for her to begin paying her loan, since
she believed this was in accordance with her
commitment to pay whenever she was able. Her
partial performance of her obligation is
unmistakable proof that indeed the original
agreement between her and respondent had
been novated by the deletion of the condition
that payments shall be made only after
completion of renovations. Hence, by her very
own admission and partial performance of her
obligation, there can be no other conclusion but
that under the novated agreement, petitioner's
obligation is already due and demandable.

MILLA VS PEOPLE
Facts:
In this case, a criminal case was filed against
Milla for having committed estafa through
falsification of the notarized deed of absolute sale
and TCT purportedly issued by the ROD of Makati.
Milla by misrepresenting himself and through
falsification of the said documents was ableto get
the total amount of P2m from Carlo Lopez of
Market Pursuits, Inc. When Lopez discovered
Millas scheme however, Lopez demanded the
return of the amount of P2m which Milla
acquiesced into by issuing 2 checks for the said
amount. These checks were later on dishonored
and Milla for his part consistently ignored the
demands made by Lopez. This led to the filing of
the present case.
Now Milla contends that his issuance of the 2
checks reprenting the amount of 2m 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:
So the issue in this cse is whether or not the
payment of an obligation before the institution of
a criminal complaint, in itself constitute novation
that may prevent criminal liability or WON there
is novation in this case. No.
Ruling:
In Quinto v. People, this Court exhaustively
explained the concept of novation in relation to
incipient criminal liability, 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.
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 first is
when novation has been explicitly stated and
declared in unequivocal terms. The second is
when the old and the new obligations are
incompatible on every point. The test of
incompatibility is whether or not 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 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 Millas
falsification of public documents, the liability for
which cannot be extinguished by mere novation.
In view of the foregoing, the petition of Milla was
denied.