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ACE FOODS, INC. v. MICRO PACIFIC TECHNOLOGIES CO., LTD.

G.R. No. 200602 December 11, 2013

FACTS:
ACE Foods is a domestic corporation engaged in the trading and
distribution of consumer goods in wholesale and retail bases, while Micro
Pacific Technologies Co., Ltd. (MTCL) is one engaged in the supply of
computer hardware and equipment.
On September 26, 2001, MTCL sent a letter-proposal for the delivery
and sale of the subject products to be installed at various offices of ACE
Foods, which the later accepted. Thereafter, or on March 4, 2002, MTCL
delivered the said products to ACE Foods. The fine print of the invoice
states, inter alia, that "title to sold property is reserved in MTCL until full
compliance of the terms and conditions of above and payment of the price".
After delivery, the subject products were then installed and configured in
ACE Foods’s premises. MTCL’s demands against ACE Foods to pay the
purchase price, however, remained unheeded. Instead of paying the
purchase price, ACE Foods informed MTCL that the former will pull out the
said products but had failed to do so up to now.
On October 16, 2002, ACE Foods lodged a Complaint against MTCL
before the RTC, praying that the latter pull out from its premises the subject
products and that the subject products MTCL delivered are defective and
not working.
In its Answer with Counterclaim, MTCL maintained that it had duly
complied with its obligations to ACE Foods and that the subject products
were in good working condition when they were delivered, installed and
configured in ACE Foods’s premises. MTCL even conducted a training
course for ACE Foods’s representatives/employees. It posited that ACE
Foods refused and failed to pay the purchase price for the subject products
despite the latter’s use of the same for a period of nine (9) months. As such,
MTCL prayed that ACE Foods be compelled to pay the purchase price, as
well as damages related to the transaction.
ISSUE:
Is there novation thereby warranting ACE Foods pay MTCL the
purchase price for the subject products?
RULING:
The Supreme Court ruled in the affirmative. The Court held that the
parties have agreed to a contract of sale and not to a contract to sell.
Bearing in mind its consensual nature, a contract of sale had been perfected
at the precise moment ACE Foods accepted the latter’s proposal to sell the
subject products in consideration of the purchase price of ₱646,464.00.
From that point in time, the reciprocal obligations of the parties – i.e., on the
one hand, of MTCL to deliver the said products to ACE Foods, and, on the
other hand, of ACE Foods to pay the purchase price therefor within thirty
(30) days from delivery – already arose and consequently may be demanded.
In the case, the Court also dispelled the notion that the stipulation
anent MTCL’s reservation of ownership of the subject products as reflected
in the Invoice Receipt, changed the complexion of the transaction from a
contract of sale into a contract to sell. There was no showing that the said
stipulation novated the contract of sale between the parties which, to repeat,
already existed at the precise moment ACE Foods accepted MTCL’s
proposal. To be sure, novation, in its broad concept, may either be extinctive
or modificatory. It is extinctive when an old obligation is terminated by the
creation of a new obligation that takes the place of the former; it is merely
modificatory when the old obligation subsists to the extent it remains
compatible with the amendatory agreement. In either case, however,
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.
In the present case, it has not been shown that the title reservation
stipulation appearing in the Invoice Receipt had been included or had
subsequently modified or superseded the original agreement of the parties.
The fact that the Invoice Receipt was signed by a representative of ACE
Foods does not, by and of itself, prove animus novandi since: (a) it was not
shown that the signatory was authorized by ACE Foods (the actual party to
the transaction) to novate the original agreement; (b) the signature only
proves that the Invoice Receipt was received by a representative of ACE
Foods to show the fact of delivery; and (c) as matter of judicial notice,
invoices are generally issued at the consummation stage of the contract and
not its perfection, and have been even treated as documents which are not
actionable per se, although they may prove sufficient delivery.
Thus, absent any clear indication that the title reservation stipulation
was actually agreed upon, the Court deemed the same to be a mere
unilateral imposition on the part of MTCL which has no effect on the nature
of the parties’ original agreement as a contract of sale. Perforce, the
obligations arising thereto, among others, ACE Foods’s obligation to pay the
purchase price as well as to accept the delivery of the goods, remain
enforceable and subsisting.
PHILIPPINE RECLAMATION AUTHORITY v. ROMAGO
GR. NO. 174665 SEPTEMBER 18, 2013
FACTS:
Bases Conversion and Development Authority (BCDA) entered into a
Memorandum of Agreement with the petitioner as a project manager. BCDA,
the petitioner Philippine Reclamation Authority (PRA), and Philippine
National Bank entered into a Pool Formation Trust Agreement (PFTA). After
public bidding, the petitioner awarded the outdoor electrical and lighting
works to the Romago, Inc. as manifested by their Construction Agreement.
Romago completed 96.15% of the project. PFTA organized Heritage Park
Management Corporation (HPMC), and later elected Board of Trustees. All
engagements of PRA under the PFTA was then terminated after the elections
by the HPMC. As a consequence, the contract with Romago was also
terminated. Due to the refusal of HPMC to recognize the PRA’s contract with
it, Romago filed with the Construction Industry Arbitration Commission
(CIAC) a complaint, seeking to collect its claims and it ruled in its favor.
On appeal, the CA rejected the PRA’s argument that it can no longer
be held liable to Romago after turning over and assigning the project,
including all its duties and obligations relating to it, to the HPMC. Romago
was not a party to the PFTA and it did not give consent to the PRA’s
supposed assignment of its obligations to the HPMC. Hence, this petition
where the PRA claims that its liability under its contract with Romago had
been extinguished by novation when it assigned all its obligations to the
HPMC pursuant to the provisions of the PFTA.
ISSUE:
Is there novation?
RULING:
The Supreme Court rule in the negative. The Court held that in
novation, a subsequent obligation extinguishes a previous one through
substitution either by changing the object or principal conditions, by
substituting another in place of the debtor, or by subrogating a third person
into the rights of the creditor. Novation requires (a) the existence of a
previous valid obligation; (b) the agreement of all parties to the new contract;
(c) the extinguishment of the old contract; and (d) the validity of the new
one.
There cannot be novation in this case since the proposed substituted
parties did not agree to the PRA’s supposed assignment of its obligations
under the contract for the electrical and light works at Heritage Park to the
HPMC. The latter definitely and clearly rejected the PRA’s assignment of its
liability under that contract to the HPMC. Romago tried to follow up its
claims with the HPMC, not because of any new contract it entered into with
the latter, but simply because the PRA told it that the HPMC would
henceforth assume the PRA’s liability under its contract with Romago.
Besides, Section 11.07 of the PFTA makes it clear that the termination
of the PRA’s obligations is conditioned upon the turnover of documents,
equipment, computer hardware and software on the geographical
information system of the Park; and the completion and faithful
performance of its respective duties and responsibilities under the PFTA.
More importantly, Section 11.07 did not say that the HPMC shall, thereafter,
assume the PRA’s obligations. On the contrary, Section 7.01 of the PFTA
recognizes that contracts that the PRA entered into in its own name and
makes it liable for the same. Thus: Section 7.01. Liability of BCDA and PRA.
BCDA and PRA shall be liable in accordance herewith only to the extent of
the obligations specifically undertaken by BCDA and PRA herein and any
other documents or agreements relating to the Project, and in which they
are parties.
VECTOR SHIPPING CORPORATION AND FRANCISCO SORIANO v.
AMERICAN HOME ASSURANCE COMPANY (AHAC) AND SULPICIO
LINES, INC.
G.R. No. 159213 July 03, 2013
FACTS:
Vector Shipping was the operator of the motor tanker M/T Vector,
while Soriano was the registered owner of M/V Vector. The respondent is an
insurance company.
On September 30, 1987, Caltex entered into a contract of
affreightment with Vector for the transport of its petroleum cargo through
the M/T Vector. Caltex insured the petroleum cargo with AHAC for
P7,455,421.08 under Marine Open Policy No. 34-5093-6. Unfortunately,
M/T Vector and the M/V Doña Paz, the latter a vessel owned and operated
by Sulpicio Lines, Inc., collided in the open sea which led to the sinking of
both vessels. Then on July 12, 1988, AHAC indemnified Caltex for the loss
of the petroleum cargo in the full amount.
On March 5, 1992, AHAC filed a complaint against Vector, Soriano,
and Sulpicio Lines, Inc. to recover the full amount of P7,455,421.08 it paid
to Caltex. The RTC dismissed the complaint on the ground that it has
prescribed considering that it is based on a quasi-delict, hence, an action
shall be filed four years from the occurrence.
ISSUE:
Was there novation?
RULING:
The Supreme Court ruled in the negative. The Court held that the
present action was not upon a written contract, but upon an obligation
created by law. Hence, it came under Article 1144 (2) of the Civil Code. This
is because the subrogation of respondent to the rights of Caltex as the
insured was by virtue of the express provision of law embodied in Article
2207 of the Civil Code, to wit:
Article 2207. If the plaintiff’s property has been insured, and he has
received indemnity from the insurance company for the injury or loss arising
out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount paid
by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury.
Article 2207 of the Civil Code is founded on the well-settled principle
of subrogation. If the insured property is destroyed or damaged through the
fault or negligence of a party other than the assured, then the insurer, upon
payment to the assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has been obligated
to pay. Payment by the insurer to the assured operates as an equitable
assignment to the former of all remedies which the latter may have against
the third party whose negligence or wrongful act caused the loss. The right
of subrogation is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer.
Verily, the contract of affreightment that Caltex and Vector entered
into did not give rise to the legal obligation of Vector and Soriano to pay the
demand for reimbursement by respondent because it concerned only the
agreement for the transport of Caltex’s petroleum cargo. As the Court has
aptly put it in Pan Malayan Insurance Corporation v. Court of Appeals,
respondent’s right of subrogation pursuant to Article 2207 was “not
dependent upon, nor did it grow out of, any privity of contract or upon
written assignment of claim but accrued simply upon payment of the
insurance claim by the insurer.”
ASIAN TERMINALS, INC (ATI) v. PHILAM INSURANCE CO.,
GR NO. 181163 JULY 24, 2013

FACTS:
Nichimen Corporation shipped to Universal Motors 219 packages
containing 120 units of brand new Nissan Pickup Truck without engine,
tires, and batteries on board the vessel S/S “Calayan Iris” from Japan to
Manila. The shipment, which had a declared value of P29,400,000 was
insured with Philam against all risks. The carrying vessel arrived at the port
of Manila and when the shipment was unloaded by the staff of ATI, it was
found that the package marked as 03-245-42K/1 and 03/237/7CK/2 are in
bad order. The cargoes were stored for temporary safekeeping inside CFS
Warehouse in Pier No. 5. Upon the request of Universal Motors, a bad order
survey was conducted on the cargoes and it was found that one Frame Axle
Sub without LWR was deeply dented in the buffle plate while 6 Frame
Assembly with Bush were deformed and misaligned. Owing to the extent of
the damage to said cargoes, Universal Motors declared them a total loss.
Universal Motors filed a formal claim for damages in the amount of
P643, 963. 84 against Westwind, ATI, and RF Revilla Customs Brokerage.
When Universal Motors’ demands remained unheeded, it sought reparation
from and was compensated in the sum of P633, 957. 15 by Phil Am.
Accordingly, Universal Motors issued a Subrogation Receipt dated 15
November 1999 in favor of Philam.
PhilAm as subrogee of Universal Motors, filed a Complaint for
Damages against Westwind, ATI, and RF Revilla Customs Brokerage Inc
before the RTC of Makati. The trial court rendered judgment in favor of
Philam which ruling was affirmed by the Court of Appeals modifying the
amount to be paid by Westwind and ATI.
ISSUE:
May PhilAm claim against Westwind and ATI as subrogee?

RULING:
The Supreme Court ruled in the affirmative. The Court held that
Article 2207 of the Civil Code provides that if the plaintiff’s property has
been insured and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the
contract.
In this case, Philam has adequately established the basis of its claim
against ATI and Westwind. Philam, as insurer, was subrogated to the rights
of the consignee, Universal Motors Corporation, pursuant to the
Subrogation receipt executed by the latter in favor of the former. The right of
subrogation accrues simply upon payment by the insurance company of the
insurance claim.
NARCISO DEGAÑOS v. PEOPLE OF THE PHILIPPINES
G.R. No. 162826 OCTOBER 14, 2013

FACTS:
Narciso Degaños and Brigida D. Luz, alias Aida Luz are brother and
sister. Lydia knew them because they are the relatives of her husband. The
usual business practice of Sps. Bordador with the accused was for Narciso
to receive the jewelry and gold items for and in behalf of Aida and for
Narciso to sign the "Kasunduan at Katibayan" receipts while Aida will pay
for the price later on. The subject items were usually given to Narciso only
upon instruction from Aida through telephone calls or letters. Said business
arrangement went on for quite some time since Narciso and Aida Luz had
been paying religiously. When the accused defaulted in their payment, they
sent demand letters Aida sent a letter to Lydia Bordador requesting for an
accounting of her indebtedness. Lydia made an accounting which contained
the amount of P122,673.00 as principal and P21,483.00 as interest.
Thereafter, she paid the principal amount through checks. She did not pay
the interest because the same was allegedly excessive. Atty. Jose Bordador
brought a ledger to her and asked her to sign the same. The said ledger
contains a list of her supposed indebtedness to the private complainants.
She refused to sign the same because the contents thereof are not her
indebtedness but that of her brother Narciso. She even asked the private
complainants why they gave so many pieces of jewelry and gold bars to
Narciso without her permission, and told them that she has no participation
in the transactions covered by the subject "Kasunduan at Katibayan"
receipts. Co-accused Narciso categorically admitted that he is the only one
who was indebted to the private complainants and out of his indebtedness,
he already made partial payments in the amount of P53,307.00. Included in
the said partial payments is the amount of P20,000.00 which was
contributed by his brothers and sisters who helped him and which amount
was delivered by Aida to the private complainants.
Luz and Degaños were charged with estafa under Article 315
paragraph 1 b) of the Revised Penal Code. RTC found Narciso guilty beyond
reasonable doubt of the crime chargede but acquitted Luz for insufficiency of
evidence.
ISSUE:
Had novation convert the liability of the accused into a civil one?
RULING:
The Supreme Court ruled in the negative. The Court held that
novation is not one of the grounds prescribed by the Revised Penal Code for
the extinguishment of criminal liability. Criminal liability for estafa is not
affected by compromise or novation of contract, for it is a public offense
which must be prosecuted and punished by the Government on its own
motion even though complete reparation should have been made of the
damage suffered by the offended party.
The partial payments Degaños made and his purported agreement to
pay the remaining obligations did not equate to a novation of the original
contractual relationship of agency to one of sale. Novation is the
extinguishment of an obligation by the substitution or change of the
obligation by a subsequent one that terminates the first, either by (a)
changing the object or principal conditions; or (b) substituting the person of
the debtor; or (c) subrogating a third person in the rights of the creditor. In
order that an obligation may be extinguished by another that substitutes
the former, it is imperative that the extinguishment be so declared in
unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other. Obviously, in case of only slight modifications,
the old obligation still prevails. The changes alluded to by petitioner consists
only in the manner of payment. There was really no substitution of debtors
since private complainant merely acquiesced to the payment but did not give
her consent to enter into a new contract.
ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS v. DAN T.
LIM, doing business under the name and style of QUALITY PAPERS &
PLASTIC PRODUCTS ENTERPRISES
G.R. No. 206806 June 25, 2014
FACTS:
Dan T. Lim works in the business of supplying scrap papers, cartons,
and other raw materials, under the name Quality Paper and Plastic
Products, Enterprises, to factories engaged in the paper mill business. From
February 2007 to March 2007, he delivered scrap papers to Arco Pulp and
Paper Company, Inc. (Arco Pulp and Paper). The parties allegedly agreed
that Arco Pulp and Paper would either pay Dan T. Lim the value of the raw
materials or deliver to him their finished products of equivalent value.
Dan T. Lim alleged that when he delivered the raw materials, Arco
Pulp and Paper issued a postdated check as partial payment, with the
assurance that the check would not bounce. When he deposited the check
on April 18, 2007, it was dishonored for being drawn against a closed
account.
On the same day, Arco Pulp and Paper and a certain Eric Sy executed
a memorandum of agreement10 where Arco Pulp and Paper bound
themselves to deliver their finished products to Megapack Container
Corporation, owned by Eric Sy, for his account. According to the
memorandum, the raw materials would be supplied by Dan T. Lim, through
his company, Quality Paper and Plastic Products.
On May 5, 2007, Dan T.Lim sent a letter to Arco Pulp and Paper
demanding but no payment was made to him. Dan T. Lim filed a complaint
for collection of sum of money with prayer for attachment with the Regional
Trial Court. The trial court rendered a judgment in favor of Arco Pulp and
Paper and dismissed the complaint, holding that when Arco Pulp and Paper
and Eric Sy entered into the memorandum of agreement, novation took
place, which extinguished Arco Pulp and Paper’s obligation to Dan T. Lim.
The Court of Appeals reversed this.
ISSUE:
Did the memorandum of agreement constitute a novation of the
original contract?
RULING:
The Supreme Court ruled in the negative. The Court held that the
Memorandum Agreement did not constitute a novation of the original
contract. When petitioner Arco Pulp and Paper opted instead to deliver the
finished products to a third person, it did not novate the original obligation
between the parties.
Novation extinguishes an obligation between two parties when there is
a substitution of objects or debtors or when there is subrogation of the
creditor. It occurs only when the new contract declares so "in unequivocal
terms" or that "the old and the new obligations be on every point
incompatible with each other."
For novation to take place, the following requisites must concur: 1)
There must be a previous valid obligation. 2) The parties concerned must
agree to a new contract. 3) The old contract must be extinguished. 4) There
must be a valid new contract.
In the case, there is nothing in the memorandum of agreement that
states that with its execution, the obligation of petitioner Arco Pulp and
Paper to respondent would be extinguished. It also does not state that Eric
Sy somehow substituted petitioner Arco Pulp and Paper as respondent’s
debtor. It merely shows that petitioner Arco Pulp and Paper opted to deliver
the finished products to a third person instead. If the memorandum of
agreement was intended to novate the original agreement between the
parties, respondent must have first agreed to the substitution of Eric Sy as
his new debtor. The memorandum of agreement must also state in clear and
unequivocal terms that it has replaced the original obligation of petitioner
Arco Pulp and Paper to respondent. Neither of these circumstances is
present in this case. Petitioner Arco Pulp and Paper’s act of tendering partial
payment to respondent also conflicts with their alleged intent to pass on
their obligation to Eric Sy.
LEONARDO BOGNOT v. RRI LENDING CORPORATION, represented by
its General Manager, DARIO J. BERNARDEZ
G.R. No. 180144 September 24, 2014

FACTS:
Sometime in September 1996, the petitioner and his younger brother,
Rolando A. Bognot (Bognot siblings), applied for and obtained a loan of from
the respondent, payable on November 30, 1996. The loan was evidenced by
a promissory note and was secured by a post-dated check dated November
30, 1996.
The petitioner renewed the loan several times on a monthly basis.
Sometime in March 1997, the petitioner applied for another loan renewal.
He again executed as principal and signed a promissory note payable on
April 1, 1997; his co-maker was again Rolando. As security for the loan, the
petitioner also issued BPI check post-dated to April 1, 1997.
Subsequently, the loan was again renewed on a monthly basis (until
June 30, 1997). The petitioner purportedly paid the renewal fees and issued
a post-dated check dated June 30, 1997 as security. As had been done in
the past, the respondent superimposed the date "June 30, 1997" on the
upper right portion of promissory note to make it appear that it would
mature on the said date.
Several days before the loan’s maturity, Rolando’s wife, Julieta Bognot
(Mrs. Bognot), went to the respondent’s office and applied for another
renewal of the loan. She issued in favor of the respondent a promissory note,
and International Bank Exchange (IBE) check, dated July 30, 1997, in the
amount of ₱54,600.00 as renewal fee.
On the excuse that she needs to bring home the loan documents for
the Bognot siblings’ signatures and replacement, Mrs. Bognot asked the
respondent’s clerk to release to her the promissory note, the disclosure
statement, and the check dated July 30, 1997. Mrs. Bognot, however, never
returned these documents nor issued a new post-dated check.
Consequently, the respondent sent the petitioner follow-up letters
demanding payment of the loan, plus interest and penalty charges. These
demands went unheeded. On November 27, 1997, the respondent filed a
complaint for sum of money before the Regional Trial Court (RTC) against
the Bognot siblings, alleging that the loan renewal payable on June 30, 1997
which the Bognot siblings applied for remained unpaid.
ISSUE:
Were the obligations of the parties’ obligations extinguished by
novation by substitution of debtors?
RULING:
The Supreme Court ruled in the negative. The Court held that the
obligation was not extinguished, either by payment or novation. Novation
cannot be presumed and must be clearly and unequivocally proven. To give
novation legal effect, the original debtor must be expressly released from the
obligation, and the new debtor must assume the original debtor’s place in
the contractual relationship. Depending on who took the initiative, novation
by substitution of debtor has two forms – substitution by expromision and
substitution by delegacion. But, novation by substitution of debtor must
alwaysv be made with the consent of the creditor.
Contrary to the petitioner’s contention, Mrs. Bognot did not substitute
the petitioner as debtor. She merely attempted to renew the original loan by
executing a new promissory note41 and check. The purported one-month
renewal of the loan, however, did not push through, as Mrs. Bognot did not
return the documents or issue a new post-dated check. Since the loan was
not renewed for another month, the original due date, June 30,1997,
continued to stand. More importantly, the respondent never agreed to
release the petitioner from his obligation. That the respondent initially
allowed Mrs. Bognot to bring home the promissory note, disclosure
statement and the petitioner’s previous check dated June 30, 1997, does not
ipso facto result in novation. Neither will this acquiescence constitute an
implied acceptance of the substitution of the debtor. Since the petitioner
failed to show that the respondent assented to the substitution, no valid
novation took place with the effect of releasing the petitioner from his
obligation to the respondent.
Moreover, in the absence of showing that Mrs. Bognot and the
respondent had agreed to release the petitioner, the respondent can still
enforce the payment of the obligation against the original debtor. Mere
acquiescence to the renewal of the loan, when there is clearly no agreement
to release the petitioner from his responsibility, does not constitute
novation.
WELLEX GROUP v. U-LAND AIRLINES
GR NO. 167519 JANUARY 14, 2015

FACTS:
Wellex and U-Land agreed to develop a long- term business
relationship through the creation of joint interest in airline operations and
property development projects in the Philippines. The agreement includes: 1)
Acquisition of APIC and PEC shares; 2) Operation and management of APIC/
PEC/ APC; 3) entering into and funding a joint development agreement; and
4) the option to acquire from Wellex shares of stock of Express Savings Bank
up to 40% of the outstanding capital stock of ESB of U-Land. The provisions
of the memorandum were agreed to be executed within 40 days from its
execution date.
The 40- day period lapsed but Wellex and U- Land were not able to
enter into any share purchase agreement although drafts were exchanged
between the two. However, despite the absence of a share purchase
agreement, U- Land remitted to Wellex a total of US$7,499,945. Wellex
acknowledged the receipt of these remittances in a confirmation letter
addressed to U-Land and allegedly delivered stock certificates and TCTs of
subject properties. Despite these transactions, Wellex and U- Land still
failed to enter into the share purchase agreement and the joint development
agreement. Thus, U- Land filed a complaint praying for the rescission of the
first MOA and damages against Wellex and for the issuance of a Writ of
Preliminary Attachment. After verification with the SEC, U-Land discovered
that APIC did not own a single share of stock in APC.
The RTC ruled in favor of ULand and ordered the rescission of
contract under Art 1911 of the Civil Code. Basis of rescission is the
misrepresentation that APIC was a majority shareholder of APC that
compelled it to enter into the agreement.
ISSUE:
Was there novation of the First Memorandum of Agreement?
RULING:
The Supreme Court rule in the Negative. The Court held that there
was no express or implied novation of the First Memorandum of Agreement.
The subsequent acts of the parties after the 40-day period were, therefore,
independent of the First Memorandum of Agreement.
Novation extinguishes an obligation between two parties when there is
a substitution of objects or debtors or when there is subrogation of the
creditor. It occurs only when the new contract declares so “in unequivocal
terms” or that “the old and the new obligations be on every point
incompatible with each other.”
For novation to take place, the following requisites must concur: 1)
There must be a previous valid obligation; 2) The parties concerned must
agree to a new contract; 3) The old contract must be extinguished; and 4)
There must be a valid new contract.
Because novation requires that it be clear and unequivocal, it is never
presumed, thus it is clear that there was no novation of the original
obligation.
After the 40-day period, the parties did not enter into any subsequent
written agreement that was couched in unequivocal terms. The transaction
of the First Memorandum of Agreement involved large amounts of money
from both parties. The parties sought to participate in the air travel
industry, which has always been highly regulated and subject to the
strictest commercial scrutiny. Both parties admitted that their counsels
participated in the crafting and execution of the First Memorandum of
Agreement as well as in the efforts to enter into the share purchase
agreement. Any subsequent agreement would be expected to be clearly
agreed upon with their counsels’ assistance and in writing, as well. Given
these circumstances, there was no express novation.
There was also no implied novation of the original obligation. No
specific form is required for an implied novation, and all that is prescribed
by law would be an incompatibility between the two contracts. While there is
really no hard and fast rule to determine what might constitute to be a
sufficient change that can bring about novation, the touchstone for
contrariety, however, would be an irreconcilable incompatibility between the
old and the new obligations.
There was no incompatibility between the original terms of the First
Memorandum of Agreement and the remittances made by respondent U-
Land for the shares of stock. These remittances were actually made with the
view that both parties would subsequently enter into a share purchase
agreement. It is clear that there was no subsequent agreement inconsistent
with the provisions of the First Memorandum of Agreement.
There being no novation of the First Memorandum of Agreement,
respondent U-Land is entitled to the return of the amount it remitted to
petitioner Wellex. Petitioner Wellex is likewise entitled to the return of the
certificates of shares of stock and titles of land it delivered to respondent U-
Land. This is simply an enforcement of Section 9 of the First Memorandum
of Agreement. Pursuant to Section 9, only the execution of a final share
purchase agreement within either of the periods contemplated by this
stipulation will justify the parties’ retention of what they received or would
receive from each other.

BANK OF THE PHILIPPINE ISLANDS v. AMADOR DOMINGO


G.R. No. 169407 March 25, 2015
FACTS:
Respondent Amador Domingo and his wife, the late Mercy Maryden
Domingo executed a Promissory Note in favor of Makati Auto Center, Inc.
payable in 48 successive monthly installments. They simultaneously
executed a Deed of Chattel Mortgage over a 1993 Mazda 323 to secure the
payment of their Promissory Note. Makati Auto Center Inc. then assigned all
its rights and interests over the said Promissory Note and Chattel Mortgage
to Far East Bank and Trust Company (FEBTC).
On April7, 2000 FEBTC and BPI merged with BPI as the surviving
corporation. By virtue of said merger all the assets of FEBTC were
transferred and absorbed by BPI. The Sps. Domingo failed to pay 21
monthly installments from January 15,1996 to September 15, 1997. BPI
being the surviving corporation after the merger, demanded that the spouses
pay the balance of the Promisssory Note including accrued late payment
charges or to return the possession of the subject vehicle for the purpose of
foreclosure in accordance with the undertaking stated in the chattel
mortgage. A complaint for replevin and damages was filed by BPI as the
spouses Domingo failed to comply. BPI included a John Doe as defendant
because at the time of filing of the Complaint, BPI was aware that subject
vehicle was in the possession of a third persons but did not yet know the
identity of said person.
MeTC decided in favor of BPI as it was able to establish by
preponderance of evidence a valid cause of action against the Sps. Domingo.
As per MeTC, Novation is never presumed and must be clearly shown by
express agreement or by acts of equal import. To effect a subjective novation
by a change in the person of the debtor, it isss necessary that the old debtor
be released expressly from the obligation and that the third person/new
debtor take his place. Without such release, no novation takes place and the
third person who assumes the debtor’s obligation merely becomes a co-
debtor or surety.
On Appeal the RTC held the in cases of novation the consent of the
creditor to the substitution of the debtor need not be in express agreement
as it can be implied.
ISSUE:
Did novation take place resulting to the Sps. Domingo released from
their obligation and Carmelita substituted as debtor to BPI?
RULING:
The Supreme Court ruled in the negative. It held that no novation
took place. Article 1293 of the New Civil Code provides: Novation which
consists in substituting a new debtor in the place of the original one, may be
made even without the knowledge or against the will of the latter, but not
without the consent of the creditor.
Under Article 1293, two forms of novation exist by substituting the
person of the debtor. The first is Expromision where the initiative of the
change does not come from the debtor but may even take place without his
knowledge, because it consists of a third person assuming the obligation. It
therefore requires the consent of the third person and the creditor. The
second form is called Delegacion where the debtor offers and the creditor
accepts a third person who consents to the substitution and assumes the
obligation. The consent of the three persons are thus necessary. In the two
modes of substitution, the consent of the creditor is an indispensable
requirement.
Both the RTC and CA found that there was novation by delegacion in
the case at bar. The Deed of Sale with Assumption of Mortgage was executed
between Mercy and Carmelita, thus their consent to the substitution as
debtors and third person are deemed undisputed.
It should be noted that to give novation its legal effect, the law
requires that the creditor should consent to the substitution of a new
debtor. Such consent must be given expressly for the reason that, since
novation extinguishes the personality of the first debtor who is substituted
by a new one, it implies a waiver of right on the part of the creditor which he
had before novation. Such waiver must be express pursuant to the principle
renuntiatio non praesumitor, recognized by law in declaring that a waiver of
right may not be performed unless the will to waive is indisputably shown
by him who hold the right.
PARADIGM DEVELOPMENT CORPORATION OF THE PHILIPPINES v.
BANK OF THE PHILIPPINE ISLANDS
G. R. No. 191174 JUNE 7, 2017

FACTS:
This case stemmed from a loan agreement between Far East Bank and
Trust Company (FEBTC) and Sengkon Trading (Sengkon) under a credit
facility denominated as Omnibus Line. Paradigm Development Corporation
of the Philippines’ (PDCP) President Anthony Go executed two real estate
mortgage contracts to secure the obligations of Sengkon under the Credit
Line. Sengkon was able to seek approval from the FEBTC to change the
account name of Sengkon Trading to Sengkon Trading, Inc. (STI).
Sengkon defaulted in payment of its obligations prompting FEBTC to
demand payment form PDCP. Pending the negotiations for a comprehensive
repayment scheme between PDCP and the FEBTC, the latter was acquired
by Bank of the Philippine Islands (BPI). With the failed negotiations, FEBTC
initiated foreclosure proceedings against the mortgaged properties of PDCP.
A verification of the records in the Registry of Deeds by the PDCP revealed
that FEBTC extrajudicially foreclosed the first and second mortgage without
notice to it as the mortgagor and sold the mortgaged properties to FEBTC as
the lone bidder. It was also issued a Certificate of Sale.
PDCP filed a Complaint for the Annulment of Mortgage, Foreclosure,
Certificate of Sale and Damages against BPI as the successor of FEBTC
alleging that the REMs and their foreclosure were null and void.
ISSUE:
Did novation take place when FEBTC approved Sengkon’s request to
change the account name to STI?
RULING:
The Supreme Court rule in the negative. The Court held that the rule
is that novation is never presumed. Novation will not be allowed unless it is
clearly shown by express agreement, or by acts of equal import. Thus, to
effect an objective novation it is imperative that the new obligation is thereby
extinguished, or that the new obligation expressly declare that the old
obligation is thereby extinguished, or that a new obligation be on every point
incompatible with the new one. In the same vein, to effect a subjective
novation by a change in the person of the debtor it is necessary that the old
debtor be released expressly from the obligation, and the third person who
has assumed the debtor’s obligation becomes merely a codebtor or surety.

In this case, PDCP failed to probe by preponderance of evidence that


Sengkon was already expressly released from the obligation and that STI
assumed the former’s obligation. The Deed of Assumption of Line/Loan with
Mortgage which was supposed to embody STI”s assumption of all the
obligations of Sengkon under the line, including but not necessarily limited
to the repayment of all the outstanding availments thereon, as well as all
applicable interests and damages, was not signed by the parties.
Also, the mere approval of FEBTC of Sengkon’s request for the change
in account name from Sengkon to STI does not meet the required degree of
certainty to establish novation absent any other circumstance to bolster said
conclusion.
CELONES v. METROPOLITAN BANK AND TRUST COMPANY
G.R. No. 215691 November 21, 2018

FACTS:
The Spouses Celones together with their company, Processing
Partners and Packaging Corporation (PPPC), obtained various loans from
Metrobank and for which they mortgaged various properties. Upon spouses’
default, Metrobank foreclosed all the mortgaged properties. During the
foreclosure sale, Metrobank was declared as the winning bidder and the
certificates of sale were issued.
Sometime in 2007, the spouses Celones offered to redeem the
properties from Metrobank. The latter issued a Conditional Notice of
Approval for Redemption (CNAR). Pressed for time, Spouses Celones sought
for help and found Atty. Dionido who agreed to loan them the said amount.
In a Memorandum of Agreement, the parties agreed for the subrogation of
Atty. Dionido to all the rights and interests of Metrobank over the loan
obligation of Spouses Celones and the foreclosed properties.
On the belief that they have redeemed the foreclosed properties, the
Spouses Celones demanded from Metrobank the issuance of a Certificate of
Redemption. However, the latter refused to issue the same on the ground
that all its rights and interests over the foreclosed properties had been
transferred to Atty. Dionido, as such, he should be the one to issue the said
certificate.
Meanwhile, Atty. Dionido sent several demand letters to Spouses
Celones to vacate the foreclosed properties in view of the expiration of the
redemption period without Spouses Celones redeeming the same.
Aggrieved, Spouses Celones filed before the trial court a case for
Declaratory Relief and Injunction to compel Metrobank to issue the
certificates of redemption and to deliver to them the certificates of title over
the foreclosed properties.
ISSUE:
Was there novation?
RULING:
The Supreme Court ruled in the negative. The Court held that
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 order that an
obligation may be extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or that the old and
the new obligations be on every point incompatible with each other. Thus,
"novation must be stated in clear and unequivocal terms to extinguish an
obligation. It cannot be presumed and may be implied only if the old and
new contracts are incompatible on every point." Examination of the MOA
showed no express stipulation as to the novation or extinction of the CNAR.
Thus, for implied novation to exist, it is necessary to determine whether the
CNAR and the MOA are incompatible on every point such that they cannot
be reconciled and stand together.
Under the CNAR, it is provided that Metrobank approved the offer of
Spouses Celones to redeem the property in the amount of P55 Million. While
under the MOA, Metrobank assigned all its rights and interests to Atty.
Dionido over the foreclosed properties including the issuance of a certificate
of redemption.
After careful scrutiny of the records, we find that the CNAR only deals
with the redemption right of Spouses Celones while the MOA deals with the
assignment of credit of Metrobank to Atty. Dionido. As such, the CNAR and
the MOA can be reconciled and can both stand together.
Under the MOA, Metrobank assigned all its rights and interests over
the foreclosed properties to Atty. Dionido. "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." Atty.
Dionido being an assignee of Metrobank, he merely steps into the shoes of
the assignor, Metrobank. Atty. Dionido can acquire no greater right than
that pertaining to his assignor. Thus, when Atty. Dionido agreed to the
assignment of Metrobank's rights and interests over the foreclosed
properties under the MOA, he acquires exactly the rights and interests over
the foreclosed properties as of the date of the signing of the MOA.
However, Atty. Dionido has the right to demand payment of the
amount of P55 Million from Spouses Celones since it is undisputed that
such amount came from Atty. Dionido. It is unjust enrichment on the part
of Spouses Celones to acquire the amount of P55 Million and not be
required to pay the same.
ACE FOODS, INC. v. MICRO PACIFIC TECHNOLOGIES CO., LTD.
G.R. No. 200602 December 11, 2013

FACTS:
ACE Foods is a domestic corporation engaged in the trading and
distribution of consumer goods in wholesale and retail bases, while Micro
Pacific Technologies Co., Ltd. (MTCL) is one engaged in the supply of
computer hardware and equipment.
On September 26, 2001, MTCL sent a letter-proposal for the delivery
and sale of the subject products to be installed at various offices of ACE
Foods, which the later accepted. Thereafter, or on March 4, 2002, MTCL
delivered the said products to ACE Foods. The fine print of the invoice
states, inter alia, that "title to sold property is reserved in MTCL until full
compliance of the terms and conditions of above and payment of the price".
After delivery, the subject products were then installed and configured in
ACE Foods’s premises. MTCL’s demands against ACE Foods to pay the
purchase price, however, remained unheeded. Instead of paying the
purchase price, ACE Foods informed MTCL that the former will pull out the
said products but had failed to do so up to now.
On October 16, 2002, ACE Foods lodged a Complaint against MTCL
before the RTC, praying that the latter pull out from its premises the subject
products and that the subject products MTCL delivered are defective and
not working.
In its Answer with Counterclaim, MTCL maintained that it had duly
complied with its obligations to ACE Foods and that the subject products
were in good working condition when they were delivered, installed and
configured in ACE Foods’s premises. MTCL even conducted a training
course for ACE Foods’s representatives/employees. It posited that ACE
Foods refused and failed to pay the purchase price for the subject products
despite the latter’s use of the same for a period of nine (9) months. As such,
MTCL prayed that ACE Foods be compelled to pay the purchase price, as
well as damages related to the transaction.
ISSUE:
Is there a valid contract?
RULING:
The Supreme Court ruled in the affirmative. The Court held that the
parties have agreed to a contract of sale and not to a contract to sell. Article
1475 of the Civil Code makes this clear in its provision stating that “The
contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.”
Bearing in mind its consensual nature, a contract of sale had been
perfected at the precise moment ACE Foods, as evinced by its act of sending
MTCL the Purchase Order, accepted the latter’s proposal to sell the subject
products in consideration of the purchase price of ₱646,464.00. From that
point in time, the reciprocal obligations of the parties – i.e., on the one hand,
of MTCL to deliver the said products to ACE Foods, and, on the other hand,
of ACE Foods to pay the purchase price therefor within thirty (30) days from
delivery – already arose and consequently may be demanded.
In the case, the Court also dispelled the notion that the stipulation
anent MTCL’s reservation of ownership of the subject products as reflected
in the Invoice Receipt, i.e., the title reservation stipulation, changed the
complexion of the transaction from a contract of sale into a contract to sell.
Furthermore, it has not been shown that the title reservation stipulation
appearing in the Invoice Receipt had been included or had subsequently
modified or superseded the original agreement of the parties. However,
absent any clear indication that the title reservation stipulation was actually
agreed upon, the Court deemed the same to be a mere unilateral imposition
on the part of MTCL which has no effect on the nature of the parties’ original
agreement as a contract of sale. Perforce, the obligations arising thereto,
among others, ACE Foods’s obligation to pay the purchase price as well as
to accept the delivery of the goods, remain enforceable and subsisting.
HUR TIN YANG v. PEOPLE OF THE PHILIPPINES
G.R. No. 195117 August 14, 2013

FACTS:
Supermax Philippines, Inc. (Supermax) is a domestic corporation
engaged in the construction business. Metropolitan Bank and Trust
Company (Metrobank) extended several commercial letters of credit (LCs) to
Supermax to pay for the delivery of several construction materials which will
be used in their construction business. Thereafter, Metrobank required
petitioner, as representative and Vice-President for Internal Affairs of
Supermax, to sign twenty-four (24) trust receipts as security for the
construction materials and to hold those materials or the proceeds of the
sales in trust for Metrobank to the extent of the amount stated in the trust
receipts.
When the 24 trust receipts fell due and despite the receipt of a
demand letter, Supermax failed to pay or deliver the goods or proceeds to
Metrobank. Instead, Supermax, through petitioner, requested the
restructuring of the loan. When the intended restructuring of the loan did
not materialize, Metrobank sent another demand letter. As the demands fell
on deaf ears, Metrobank, through its representative, Winnie M. Villanueva,
filed the instant criminal complaints against petitioner.
For his defense, while admitting signing the trust receipts, petitioner
argued that said trust receipts were demanded by Metrobank as additional
security for the loans extended to Supermax for the purchase of
construction equipment and materials. In support of this argument,
petitioner presented as witness, Priscila Alfonso, who testified that the
construction materials covered by the trust receipts were delivered way
before petitioner signed the corresponding trust receipts. Further, petitioner
argued that Metrobank knew all along that the construction materials
subject of the trust receipts were not intended for resale but for personal
use of Supermax relating to its construction business.
ISSUE:
Is there a valid contract?
RULING:
The Supreme Court ruled in the affirmative. The Court held that in
determining the nature of a contract, courts are not bound by the title or
name given by the parties. The decisive factor in evaluating such agreement
is the intention of the parties, as shown not necessarily by the terminology
used in the contract but by their conduct, words, actions and deeds prior to,
during and immediately after executing the agreement. As such, therefore,
documentary and parol evidence may be submitted and admitted to prove
such intention.
In the instant case, the factual findings of the trial and appellate
courts reveal that the dealing between petitioner and Metrobank was not a
trust receipt transaction but one of simple loan. Petitioner’s admission that
he signed the trust receipts on behalf of Supermax, which failed to pay the
loan or turn over the proceeds of the sale or the goods to Metrobank upon
demand does not conclusively prove that the transaction was, indeed, a
trust receipts transaction. In contrast to the nomenclature of the
transaction, the parties really intended a contract of loan. The Court in Ng v.
People and Land Bank of the Philippines v. Perez, cases which are in all four
corners the same as the instant case ruled that the fact that the entruster
bank knew even before the execution of the trust receipt agreements that
the construction materials covered were never intended by the entrustee for
resale or for the manufacture of items to be sold is sufficient to prove that
the transaction was a simple loan and not a trust receipts transaction.
RODOLFO CRUZ and IBIAS v. ATTY. GRUSPE
G.R. 191431 MARCH 13, 2013

FACTS:
On October 24, 1999, the mini bus owned and operated by Cruz and
driven by one Arturo Davin collided with the Toyota Corolla car of Gruspe.
The next day, Cruz and Ibias went to Gruspe’s office, apologized for the
incident, and executed a Joint Affidavit of Undertaking promising jointly and
severally to replace the Gruspe’s damaged car until November 15, 1999, of
the same model and of at least the same quality; or, alternatively, they
would pay the cost of Gruspe’s car amounting to ₱350,000.00, with interest
at 12% per month for any delayed payment after November 15, 1999, until
fully paid. When Cruz and Leonardo failed to comply with their undertaking,
Gruspe filed a complaint for collection of sum of money against them on
November 19, 1999 before the RTC.
In their answer, Cruz and Leonardo claimed that Gruspe, a lawyer,
prepared the Joint Affidavit of Undertaking and forced them to affix their
signatures thereon, without explaining and informing them of its contents.
Leonardo died during the pendency of the case and was substituted by his
widow, Esperanza. Meanwhile, Gruspe sold the wrecked car.
ISSUES:
1. Whether the agreement is a mere Joint Affidavit of Undertaking or a
contract; and
2. Whether the consent of Cruz and Ibias were vitiated.
RULING:
1. On the first issue, the Supreme Court ruled in the affirmative. The
Court, in ruling so, held that a simple reading of the terms of the Joint
Affidavit of Undertaking readily discloses that it contains stipulations
characteristic of a contract. Contracts are obligatory no matter what their
forms may be, whenever the essential requisites for their validity are
present. In determining whether a document is an affidavit or a contract, the
Court looks beyond the title of the document, since the denomination or title
given by the parties in their document is not conclusive of the nature of its
contents. In the construction or interpretation of an instrument, the
intention of the parties is primordial and is to be pursued. If the terms of the
document are clear and leave no doubt on the intention of the contracting
parties, the literal meaning of its stipulations shall control. If the words
appear to be contrary to the parties’ evident intention, the latter shall prevail
over the former.

In this case, the Joint Affidavit of Undertaking contained a stipulation


where Cruz and Leonardo promised to replace the damaged car of Gruspe
up to November 15, 1999, of the same model and of at least the same
quality. In the event that they cannot replace the car within the same
period, they would pay the cost of Gruspe’s car in the total amount of
₱350,000.00, with interest at 12% per month for any delayed payment after
November 15, 1999, until fully paid. These are very simple terms that both
Cruz and Leonardo could easily understand.
2. On the second issue, the Court ruled in the negative. It ruled that
the consent of Cruz and Ibias were not vitiated. An allegation of vitiated
consent must be proven by preponderance of evidence; Cruz and Leonardo
failed to support their allegation. Although the undertaking in the affidavit
appears to be onerous and lopsided, this does not necessarily prove the
alleged vitiation of consent. They, in fact, admitted the genuineness and due
execution of the Joint Affidavit and Undertaking when they said that they
signed the same to secure possession of their vehicle. If they truly believed
that the vehicle had been illegally impounded, they could have refused to
sign the Joint Affidavit of Undertaking and filed a complaint, but they did
not. That the release of their mini bus was conditioned on their signing the
Joint Affidavit of Undertaking does not, by itself, indicate that their consent
was forced – they may have given it grudgingly, but it is not indicative of a
vitiated consent that is a ground for the annulment of a contract.
SPOUSES CABAHUG v. NAPOCOR
GR No. 186069 January 30, 2013

FACTS:
Spouses Cabahug were the owners of a parcel of land subject of
expropriation filed by the National Power Corporation (NPC). However, the
same was dismissed when NPC opted to settle with the landowners by
paying an easement fee equivalent to 10% of value of their property.
Thereafter, Jesus Cabahug executed two documents denominated as Right
of Way Grant in favor of NPC. For and in consideration of the easement fees,
he granted NPC a continuous easement of right of way for the latter’s
transmissions lines over the land. Under paragraph 4 of the grant, however,
Jesus reserved the option to seek additional compensation for easement fee,
based on the Supreme Court’s 18 January 1991 Decision in G.R. No. 60077,
entitled National Power Corporation v. Spouses Misericordia Gutierrez and
Ricardo Malit, et al. (Gutierrez).
Then, Spouses Cabahug filed the complaint for the payment of just
compensation, damages and attorney’s fees against NPC. Claiming to have
been totally deprived of the use of the land, the Spouses alleged that with
the reservation provided under paragraph 4 of the aforesaid grant, they have
demanded from NPC payment of the balance of the just compensation for
the subject properties. However, NPC averred that it already paid in full the
easement fee and that the reservation in the grant referred to was additional
compensation for easement fee, not the full just compensation sought by the
Spouses Cabahug.
Issue:
Is the Grant of Right of Way a valid and binding contract between the
Spouses and NPC?
Ruling:
The Supreme Court ruled in the affirmative. It ruled that the Grant of
Right of Way executed by Jesus Cabahug in favor of NPC is a valid and
binding contract between the parties, a fact affirmed by the OSG in its
Comment. Indeed, the rule is settled that a contract constitutes the law
between the parties who are bound by its stipulations which, when couched
in clear and plain language, should be applied according to their literal
tenor. Courts cannot supply material stipulations, read into the contract
words it does not contain or, for that matter, read into it any other intention
that would contradict its plain import. Neither can they rewrite contracts
because they operate harshly or inequitably as to one of the parties, or alter
them for the benefit of one party and to the detriment of the other, or by
construction, relieve one of the parties from the terms which he voluntarily
consented to, or impose on him those which he did not.
Moreover, based from paragraph 4 of the Grant, and considering that
Gutierrez was specifically made the point of reference for Jesus Cabahug’s
reservation to seek further compensation from NPC, it is evident that the
Spouses Cabahug’s receipt of the easement fee did not bar them from
seeking further compensation from NPC. Even by the basic rules in the
interpretation of contracts, the payment of additional sums to the Spouses
Cabahug would not be violative of the parties’ contract and amount to
unjust enrichment.