Arrieta v.
NARIC Both the carrier and Manila Port Service refused to pay such
Petitioner Arrieta won a bid called by NARIC for the supply of
20,000 metric tons of Burmese rice. Thus, the two parties
entered into a contract where Arrieta would deliver the rice
to NARIC and NARIC, in turn, would be liable for a letter of
credit (a letter issued by a bank to another bank, typically in a
different country, to serve as a guarantee for payments made
to a specified person under specified conditions) in favor of
Arrieta and the Burmese supplier. Arrieta told NARIC of the
urgency in opening the letter of credit since downpayment to
the supplier was necessary in keeping an allocated space on
the ship for the importation of the rice. Despite Arrieta
informing NARIC that the supplier in Rangoon would keep the
space open only until Aug. 4, 1952, NARIC still failed to satisfy
the requirements for the letter of credit, and the Burmese
supplier cancelled the contract, which meant that the
downpayment and the space in the ship was also forfeited
(costing Arrieta approx.. P200,000). Arrieta tried to
renegotiate the contract with the Burmese supplier, to no
avail. Arrieta also offered NARIC an alternative: she will
substitute the supply with Thai rice, but NARIC declined, and
now Arrieta is asking for compensation for unrealized profit.
Arrieta is entitled to compensation because it was NARIC's
fault that the space was closed and the 5% downpayment
was forfeited by the supplier. Art. 1170 of the NCC is
applicable: "Those who in the performance of their obligation
are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable in damages."
The phrase "any manner contravene the tenor" of the
obligation includes any illicit act which impairs the strict and
faithful fulfillment of the obligation or every kind of defective
performance. Given this, it may be said that NARIC's liability
stems not only from its failure to satisfy the requirements of
the bank for the letter of credit, but also from its deliberate
assumption of contractual obligations despite knowledge of
its financial incapacity (NARIC knew that it would not be able
to meet the financial requirement for the letter of credit but
it still attempted to secure one).
St. Paul Fire & Marine Insurance Co. vs. Macondray & Co.,
Winthrop Products, Inc. of New York – Shipper
SS ‘Tai Ping’ – owned and operated by Wilhelm Wilhemsen
Winthrop Stearns, Inc. Manila – Consignee
Barber Steamship Lines, Inc. – agent of Wilhelm Wilhelmsen
St. Paul Fire & Marine Insurance Company – Insurer
Manila Port Service – arrastre contractor
Macondray & Co., Inc. – carrier
Winthrop Products, Inc. of New York shipped aboard the SS
‘Tai Ping’, 218 cartons and drums of drugs and medicine which
were consigned to Winthrop Stearns, Inc. Manila Philippines
Barber Steamship Lines, Inc. issued a Bill of Lading in the name
of Winthrop Products, Inc. as shipper, with arrival notice in
Manila to consignee Wintrhop Stearns, Inc. Manila
The shipment was insured by the shipper against loos and/or
damage with St. Paul Fire and Marine Insurance Company
SS Tai Ping arrived at the Port of Manila and discharged the
shipment into the custody of Manila Port Service
The shipment was discharged complete and in good order with
the exception of 1 drum and serveral cartons which were in
bad order condition
The consignee filed a claim in the amount of P1,109.47
representing the C.I.F value of the damaged drum and cartons
of medine with the carrier and Manila Port Service
claim
The consignee then filed its claim with the insurer. On the basis
of such claim, the insurance company paid to the consignee
the insured value of the lost and damaged goods, including
other expenses in connection therewith in the total amount of
$1,134.46
As subrogee of the rights of the shipper and/or cosignee, the
insurer instituted with the CFI an action against the defendants
for the recovery of the amount of $1,134.46
ISSUES: Whether or not, in case of loss or damage, the liability
of the carrier to the consignee is limited to the C.I.F value of
the goods which were lost or damaged
HELD: Yes
The liabilities of the dendants with respect to the lost or
damaged shipments are expressly limited to the C.I.F. value of
the goodsas per contract of sea carriage emobodied in the bill
of lading. It reads: “The limitation of liability xxx shall inure not
only to the benefit of the carrier xxx but also to the benefit of
any independent contractor performing services xxx” The
shipper and consignee are, therefore, bound by such
stipulations. It is for this reason that the consignee filed its
claim against the defendant on the basis of the C.I.F. value of
the lost or damaged goods in the aggregate amount of
P1,109.67
Papa v AU
Papa, administrator of the estate of one Butte, allegedly sold
to respondent Pearroyo a parcel of land owned by the late
Butte. The property was mortgaged to the Associated Banking
Corp., who refused to release the title to the subject property
until all other properties of Butte were redeemed. When the
title to the property was released to respondents, they
discovered that the mortgage rights had been assigned to the
late Parpana, administrator of the Estate of Ramon Papa, Jr.
The RTC and CA both ruled in favor of respondents, and
ordered Papa to deliver the title of the property to the
respondents in exchange for the purchase price. Petitioner
Papa, in this appeal to the SC, claims that he never cashed the
check given to him by the respondent, and therefore, the sale
was never consummated.
ISSUE: WON the alleged sale of the property to the
respondents had been consummated — YES
Art. 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired. It
was undisputed that respondents had given Papa P5000 in
cash, and P40,000 in check payment of the purchase price of
the lot, because Papa had admitted to receiving the amounts
and issued receipts. After more than 10 years from receiving
the check, the presumption is that the check has been cashed.
Granting that he never encashed it, his failure to do so
undoubtedly resulted in the impairment of the check through
his unreasonable and unexplained delay.
Philippine Airlines v. Court of Appeals
CFI Manila rendered judgment against PAL and ordered it to
indemnify Amelia Tan. It ordered a Writ of Execution in favor
of Tan and duly referred it to Deputy Sheriff Reyes. PAL filed a
motion to quash said Writ on the bases that it had already paid
the obligation through a check payable to Reyes, as evidenced
by the cash vouchers and receipts. Said sheriff absconded with
the check and could not be found. W/N the check had the
effect of extinguishing the judgement debts
A negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself,
operate as payment. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is
not extinguished and remains suspended until the payment by
commercial document is actually realized (Art. 1249, Civil
Code, par. 3)Acceptance by the sheriff of petitioner's check
does not, per se, operate as a discharge of a judgment debt
The checks drawn against the name of the Sherriff's is
comparable to the situation where Tan was issued bouncing
checks. The theory under the two situations is that she has
received no value for what had been awarded her. Therefore,
she can seek other properties of PAL.
Paculdo v. Regalado
Petitioner leased several properties from respondent.
Petitioner also purchased 8 heavy equipment from
respondent. Respondent applied several of the petitioner's
payments to his other obligations which was contrary to the
latter's wishes. The issue at hand is whether respondent's
application of payment is valid despite petitioner's lack of clear
and definite consent to such.
Court ruled that petitioner's silence does not amount to
consent. Article 1252 of the New Civil Code clearly states a
debtor who has many obligations to the same creditor, may
declare at the time of making the payment, to which of them
the same must be applied. Only when the debtor failed to
choose which obligation is to be satisfied first may the creditor
exercise his right to apply the payments to the other
obligations of the debtor subject still to the latter's consent.
When creditor exercises his right to apply the payments, it
must be remebered that payment is not to be made to a debt
that is not yet due, and that payment has to be applied first to
the debt most onerous to the debtor.
DEVELOPMENT BANK OF THE PHILIPPINES vs. CA
Lydia Cuba obtained a 3 loans from DBP in which she offered
her property (fishpond). She failed to pay her loan and so the
DBP appropriated the property without a forclosure
proceeding. She tried to negotiate a repurchase of the
property . The DBP however sold the property to Agripina
Caperal. Cuba then filed a case to question the sale. The court
ruled that there was no foreclosure, and thus was violative of
Art 2088 of NCC. There was an appeal. CA ruled in favor of DBP.
Hence this petition.
The assignment of the property was in the nature of a
mortgage and was therefore merely a security and not a
satisfaction of indebtedness. There was therefore no dation.
DE GUZMAN V CA
Petitioners and private respondent executed a Contract to Sell
covering two parcels of land owned by petitioners. After a
compromise agreement was settled, petitioners filed a motion
for the issuance of a writ of execution, alleging that private
respondent failed to abide by its terms and pay the amount
specified within the period stipulated. Issue: WON the private
respondent complied with the compromise agreement
Yes. The Court ruled that there was substantial compliance
with the terms and conditions of the compromise agreement
when private respondent deposited the amount of P30,000.00
with the cashier of the Office of the Clerk of the CFI of Rizal,
Pasay City Branch 2 days late, as the failure to deliver to
petitioners the full amount on the agreed date was the fault of
the petitioners.
Meat Packaging Corp v Sandiganbayan
MPCP entered into a lease purchase agreement with PIMECO,
which stipulates that the contract is automatically deemed
cancelled and forfeited upon default in payments of rentals
equivalent to the cumulative sum total of 3 annual payments.
In 1986, PCGG sequestered all assets of PIMECO including the
leased property.
MPCP sent PIMECO a notice of rescission for nonpayment of
rentals. PCGG tendered to MPCP checks amounting to ₱5M
which the former refused, arguing that agreement already
rescinded since outstanding debt of more than ₱12M is
already more than 3 years' worth of installments.
MPCP's ground for refusal of tender of payment is the
rescission clause. However, since PCGG's tender and
consignation of P5M was approved by Sandiganbayan, and is
therefore a valid tender, the accumulated back rental were
reduced to around P7M, which is less than 3 years' worth of
installments. As such, rescission cannot lie.
Pabugais v. Sahijwani
Petitioner sold a parcel of land in Forbes Park to respondent
for P15M, P600,000 of which the latter paid as
option/reservation fee and the remaining balance to be paid
within 60 days, simultaneous with petitioner's delivery of
necessary documents. Agreement also included a penal clause
which states that failure of respondent to pay balance would
forfeit the reservation fee in favor of petitioner and
nondelivery of documents would obligate petitioner to return
P600, 000 + 18% annual interest. Petitioner failed to deliver so
he twice tried to tender his payment to respondent but latter
refused to accept, arguing that it did not include the monthly
interest and attorney's fees that they orally agreed upon.
Because of refusals, petitioner sent notice that he is consigning
amount with Makati RTC
All essential requisites of a valid consignation were present.
Amount tendered is sufficient since it is only the option fee
plus interest which are stated in the default clause. Also,
manager's check was deemed to be valid since respondent did
not object to the form.
Occena v. CA
Petitioners who are landowners had a subdivision contract
with Tropical Homes Inc, for the development of their land.
Tropical Homes filed a complaint for modification of the terms
and conditions of their contract, alleging that due to the
increase in the price of oil and its derivatives and the
concomitant worldwide spiralling of prices of all commodities
including basic raw materials for the development work, the
cost of development has risen to levels which are
unanticipated, unimagined, and not within the remotest
contemplation of the parties at the time the agreement was
made, such that the conditions and factors which formed the
original basis of the contract have been totally changed.
Tropical Homes Inc.'s complaint for modification of contract
cannot be granted. Art. 1267 - When the service has become
so difficult as to be manifestly beyond the contemplation of
the parties, the obligor may also be released therefrom, in
whole or in part.
Such cannot be granted for it is not provided for by Art 1267.
Performance is not excused by the fact that the contract turns
out to be hard and improvident, unprofitable or impracticable,
ill-advised or even foolish, or less profitable, or unexpectedly
burdensome, since in case a part desires to be excused from
performance in the event of such contingencies arising, it is his
duty to provide therefore in the contract.
Naga Telephone Co.
The parties entered into a contract for the use by NATELCO of
CASURECO's electric light posts in Naga City. In consideration,
petitioners agreed to install, free of charge, 10 telephone
connections for the use by CASURECO. "That the term or
period of this contract shall be as long as NATELCO has need
for the electric light posts of the party of CASURECO it being
understood that this contract shall be terminated when for any
reason whatsoever, CASURECO is forced to stop, abandon its
operation as a public service and it becomes necessary to
remove the electric lightpost." CASURECO filed a petition for
reformation of contract with the RTC of Naga City on the
ground that the agreement it entered into with NATELCO has
become one-sided, inequitous and disadvantageous to the
former. The trial court ruled in favor of CASURECO. The CA
affirmed the trial court's decision but on a different legal
basis—Article 1267 of the Civil Code and ruling that the
contract contains a purely potestative prestation making that
stipulation void. The Court affirmed the decision of the CA but
ruled that the supposed purely potestative stipulation is a
mixed prestation and is therefore valid. Is Art. 1267 applicable?
Yes. The aforesaid contract has become inequitous or
unfavorable or disadvantageous to the plaintiff with the
expansion of the business of NATELCO and the increase in the
volume of its subscribers in Naga City and environs through the
years. This made the stringing of more and bigger telephone
cable wires by appellant to plaintiff's electric posts necessary
without a corresponding increase in the 10 telephone
connections given by appellant to plaintiff free of charge in the
agreement as consideration for its use of the latter's electric
posts in Naga City. It is not a requirement that the contract be
for future service w/future unusual change. It states the
doctrine of unforeseen events, based on the principle of rebus
sic stantibus. Under this theory, parties stipulate in light of
certain prevailing conditions, and once these conditions cease
to exist, the contract also ceases to exist. (Karichi) Art. 1267.
When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also
be released therefrom, in whole or in part.
PNCC v CA
Private respondents leased a parcel of land to PNCC, to be used
as premises for a rock crushing plant and field office. The lease
was to run for five years, with rent at a monthly rate of P20k,
paid yearly in advance. To begin the rock crushing project,
PNCC required industrial clearance from the Ministry of
Human Settlement, but it was only able to obtain a Temporary
Use Permit, valid for two years unless revoked sooner by the
Ministry. Respondents then requested the first annual rental
of P240k. PNCC refused to pay, reasoning that the payment of
rental would begin from the date of issuance of the industrial
clearance, and not from the date of the signing of the contract.
It also expressed the intention to terminate the contract,
because financial and technical difficulties had forced it to
discontinue the rock crushing project.
Art. 1266 states that the debtor in obligations to do shall also
be released when the prestation becomes legally or physically
impossible without the fault of the obligor. PNCC only stated
the alleged uncertainties in government policies on
infrastructure projects, and failed to identify specifically the
circumstances brought about by the change in political
climate. The unforeseen event and causes mentioned by PNCC
are not the legal/physical impossibilities contemplated by Art.
1266. The principle of rebus sic stantibus is said to be the basis
for Art. 1267, which enunciates the doctrine of unforeseen
events. However, this is not an absolute application. The
parties to the contract are presumed to have assumed the risks
of unfavorable developments; therefore, only absolutely
exceptional changes of circumstance are considered under this
article. Mere pecuniary inability to fulfill an engagement does
not discharge a contractual obligation; neither is it a defense
to an action for specific performance. Regarding the fact that
PNCC s purpose for the lease contract the use of the premises
as a site for a rock crushing plant not materializing, this also
does not invalidate the contract. The cause or essential
purpose in a lease contract is the use or enjoyment of the
thing. Thus, the party's purpose for contracting does not affect
the validity of the contract, or its existence. The fact that its
purpose did not arise does not mean PNCC is entitled to a
release from its obligation.
Yam v CA
Petitioners Victor Yam and Yek Sun obtained an IGLF loan from
respondent Manphil Invest Corporation in the amount of Php
300,000 with interest. It was secured by chattel mortgage. On
April 2, 1985, respondent was placed under receivership of
Central Bank. Petitioners paid on July 31, 1986 which was
received by Central Bank. It contained a notation on the
voucher that there was already a full payment of IGLF loan.
However, respondent filed a collection case against petitioner
after it failed to pay the remaining balance. Petitioner
contended that through respondent’s president, Carlos
Sobrepeñas, it was agreed to condone or waive the penalties
and service charges as well as a voucher showing the full
payment of the petitioners. The trial court rendered a decision
in favor of respondents which was sustained by CA.
Whether or not there was condonation on petitioner’s loan
NO. The appointment of a receiver operates to suspend the
authority of a corporation and of its directors and officers over
its property and effects, such authority being reposed in the
receiver. Sobrepeñas has no authority to condone the debt.
The notation on the voucher covering the check payment that
a “full payment of IGLF loan” was made does not bind
respondent. It would have been different if the notated
appeared in the receipt issued by the corporation through its
receiver, which would be an admission against interest.
Express condonation must comply the forms of donation.
Where the value exceeds Php 5,000, the donation and
acceptance must be made in writing; otherwise, void.
Gan Tion v CA
Ong Wan Sieng was a tenant in certain premises owned by Gan
Tion. In 1961 the latter filed an ejectment case against the
former, alleging non-payment of rents for August and
September of that year, at P180 a month, or P360 altogether.
The plaintiff obtained a favourable judgment in the municipal
court (of Manila), but upon appeal the Court of First Instance,
on July 2, 1962, reversed the judgment and dismissed the
complaint, and ordered the plaintiff to pay the defendant the
sum of P500 as attorney’s fees. That judgment became final.
Gan Tion served notice on Ong Wan Sieng that he was
increasing the rent to P180 a month, effective November 1st,
and at the same time demanded the rents in arrears at the old
rate in the aggregate amount of P4,320.00, corresponding to a
period from August 1961 to October 1963.Gan Tion’s
opposition, Ong Wan Sieng was able to obtain a writ of
execution of the judgment for attorney’s fees in his favor. Gan
Tion went on certiorari to the Court of Appeals, where he
pleaded legal compensation, claiming that Ong Wan Sieng was
indebted to him in the sum of P4,320 for unpaid rents. The
appellate court accepted the petition but eventually decided
for the respondent, holding that although “respondent Ong is
indebted to the petitioner for unpaid rentals in an amount of
more than P4,000.00,” the sum of P500 could not be the
subject of legal compensation, it being a “trust fund for the
benefit of the lawyer, which would have to be turned over by
the client to his counsel.”
Whether or not there has been legal compensation between
petitioner Gan Tion and respondent Ong Wan Sieng.
The award is made in favor of the litigant, not of his counsel,
and is justified by way of indemnity for damages recoverable
by the former in the cases enumerated in Article 2208 of the
Civil Code. It is the litigant, not his counsel, who is the
judgment creditor and who may enforce the judgment by
execution. Such credit, therefore, may properly be the subject
of legal compensation. Quite obviously it would be unjust to
compel petitioner to pay his debt for P500 when admittedly
his creditor is indebted to him for more than P4,000.
Silahis v IAC
De Leon sold various items of merchandise to Silahis for P
22,913.75; latter failed to pay. De Leon filed complaint for
collection. Silahis filed counterclaim, presenting a Debit Memo
for P22,200 as unrealized profit for supposed commission that
he should have received from De Leon for the sale of sprockets
made directly to Dole Philippines. W/N De Leon liable to Silahis
for the commission or margin for the direct sales
Compensation takes place when two persons, in their own
right, are creditors and debtors to each other. Article 1279
requires that in order that legal compensation shall take place,
"the two debts be due" and "they be liquidated and
demandable." Compensation is likewise not proper where the
claim of the person asserting the set off against the other is
neither clear nor liquidated; compensation cannot extend to
unliquidated, disputed claim existing from breach of contract.
It can't be said that the debit memo was a contract binding
between the parties considering that the same was not signed
by private respondent nor was there any mention therein of
any commitment by the latter to pay any commission to the
former involving the sale of sprockets to Dole Philippines, Inc.
in the amount of P 111,000.00.
BPI v Reyes
Reyes fraudulently claimed and deposited a US Treasury
Warrant on behalf of his (already deceased) grandmother. The
check was dishonored when the US Department of Treasury
got word that his grandmother had passed away 3 days prior
to its issuance. Reyes then verbally authorized BPI to debit
from his joint account the amount stated in the dishonored US
Treasury Warrant. Thereafter, he filed a suit for damages
against BPI before the RTC of Quezon City, demanding for
restitution for the debited amount. The RTC dismissed his suit,
but the CA reversed the RTC ruling.
ISSUE: WON the CA erred when it failed to rule that legal
compensation is proper in this case — YES
Art. 1279. In order that compensation may be proper, it is
necessary: (1) That each one of the obligors be bound
principally, and that he be at the same time a principal creditor
of the other; (2) That both debts consist in a sum of money, or
if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated; (3)
That the two debts be due; (4) That they be liquidated and
demandable; (5) That over neither of them there be any
retention or controversy, commenced by third persons and
communicated in due time to the debtor.
The SC ruled in favor of BPI, finding not only that Reyes had
indeed verbally authorized BPI to debit the amount, but that
the requisites of legal compensation under Art. 1279 were
present in this case. BPI was a debtor to Reyes as the latter was
a depositor, but at the same time BPI was a creditor to Reyes
for the amount of the dishonored Treasury check. Their mutual
obligations to each other must be considered extinguished,
and Reyes's suit for restitution has no cause of action.
PNB v CA
PNB, herein petitioner, doubly credited the private
respondent’s account erroneously. Petitioner then demanded
the private respondent to return the amount in excess, equal
to P34,340.58. Thereafter, remittances from abroad to the
private respondent were coursed through petitioner PNB.
Without his knowledge and consent, the bank deducted
P34,340.58 from the remittances, by virtue of compensation.
Private respondent averred contending that the bank does not
have a legal justification to make compensation on the
remittances. The trial and the CA ruled in favor of the private
respondent and ordered the amount taken by the petitioner
to be returned the private respondent.
WON a local correspondent bank can make compensation
against remittances coursed through it.
No. The Court affirms the decision of the lower courts. The trial
court correctly ruled that the petitioner and the private
respondent are not debtors and creditors of each other. Article
1279 of the Civil Code provides:
In order that compensation may prosper, it is necessary:
That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
That both debts consist in a sum of money, or if the things due
are consumable, they are of the same kind, and also of the
same quality if the latter has been stated;
That the two debts be due;
That they are liquidated and demandable;
That over neither of them there by any retention or
controversy commenced by third persons and communicated
in due time to the debtor.
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 autrui. the parties are not both principally
bound with respect to the $2,627.11 from Jeddah; neither are
they at the same time principal creditor of the other.
Therefore, as matters stand, the parties’ obligations are not
subject to compensation or set off under Art. 1279 of 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 of $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 of $2,627.11.
Mirasol v CA
Mirasols' sugar production was financed by PNB, under which
was a chattel mortgage, in which the latter was allowed to sell
Mirasols'sugar and apply proceeds to the payment of their
obligation. PD 579 was passed, directing that the profits that
PNB made be remitted to a special fund of the government.
Mirasols defaulted in their payment and tried to argue that
they had fully paid by virtue of legal compensation, since their
debt was offset by unliquidated amounts that PNB failed to
release to them.
The court rules that the alleged compensation does not fall
under the requirements for just compensation set by ART 1278
and ART 1279 of the civil code. First of all, neither are mutual
creditors and debtors of each other. And second,
compensation could not take place because one of the claims
was still the subject of litigation, as it cannot be deemed
liquidated.
Broadway Centrum v Tropical Hut
Facts: Petitioner Broadway and respondent Tropical executed
a Lease Contract on Nov. 28, 1980. However, due to financial
difficulties of respondent Tropical, Broadway agreed to a
"provisional and temporary agreement" on Apr. 20, 1982
reducing Tropical's monthly rental, but stipulating that such
provisional arrangement is not an amendment to the Lease
Contract they entered into. When Broadway increased
Tropical's monthly rental once again, the RTC ruled in favor of
Tropical because the Lease Contract was partially novated.
Issue: WON the letter-agreement dated Apr. 20, 1982 novated
the Lease Contract of Nov. 28, 1980
No. The will to novate, whether totally or partially, must
appear by express agreement of the parties, by their acts too
clear and unequivocal to be mistaken. The Apr. 20, 1992 letter-
agreement was a provisional and temporary agreement to a
reduction of Tropical's monthly rental. Likewise, the formal
notarized Nov. 28, 1990 Lease Contract made it clear that a
temporary and provisional concessional reduction of rentals
which Broadway might grant to Tropical was not to be
construed as alteration or waiver of any of the terms of the
Lease Contract itself. Thus, the SC held that the Apr. 20, 1982
letteragreement did not constitute a novation, whether partial
or total, of the Nov. 28, 1980 Lease Contract.
California Bus v State Investment
Delta applied for financial assistance from SIHI for P25M. CBLI
purchased 35 buses and 2 conversion engines from Delta. To
secure payment, CBLIE and Mr. Llama executed 16 promissory
notes in favor of Delta (P2.3M each). CBLI also executed chattel
mortgages over the 35 buses in Delta's favor. When CBLI
defaulted, it entered into a restructuring agreement with
Delta: provided for a new schedule of payments and a security
clause that in case of default, Delta would have the authority
to take over the management of CBLI. Delta executed a Deed
of Continuing Assignment of Receivables in favor of SIHI as
security. CBLI had trouble meeting its obligations to Delta, so
the latter filed action to enforce takeover clause. Delta
executed a Deed of Sale, assigning to SIHI 5 of the 16
promissory notes from CBLI. Delta and CBLI entered into a
compromise agreement. CBLI agreed that Delta would exercise
its right to extrajudicial foreclosure on the chattel mortgages
over the 35 bus units.
Issue: W/N the restructuring agreement novated the
promissory notes.
No. The restructuring agreement between Delta and CBLI did
not expressly stipulate that such would novate the promissory
notes, hence, only a showing of incompatibility would sustain
novation. Such incompatibility isn't present in the case. The
agreement merely provided for a new schedule of payment
and a security clause. Where the parties to the new obligation
recognize the continuing existence and validity of the old one,
there could be no novation.
Garcia v. Llamas
Romeo Garcia and Eduardo de Jesus borrowed P400,000 in
solidum from Dionisio Llamas. They executed a promissory
note where they bound themselves jointly and severally to pay
the loan on or before Jan 23, '97 with a 5% interest per month.
The two failed to pay despite demands from Respondent.
Garcia claims that: he assumed no liability under the
promissory note because he signed it merely as an
accommodation party and that he is relieved from any liability
since the load has been paid by de Jesus by means of a check.
He claims that the acceptance of the check novated the loan.
However, said check bounced.
No novation. The check couldn't have extinguished the
obligation since it bounced. There was no express declaration
of novation, nor incompatibility between the promissory note
and the check. Subjective novation must release the old debtor
and a third person must assume it" Garcia didn't show that he
was released and there was no express consent from the
creditor. Also, de Jesus wasn't a third party to the obligation
since they were solidary debtors who could only be released
upon extinguishment of obligation.
Quinto v. People
Quinto was indicted for the crime of estafa. She received from
Aurelia Cariaga pieces of jewelry valued at P36,000.00. She
was supposed to sell it and give the proceeds to Aurelia or
return the jewelry if not sold after 5 days. When the 5-day
period given to her had lapsed, Leonida requested for and was
granted additional time within which to vend the items.
Leonida failed to conclude any sale and, about six (6) months
later, Aurelia asked that the pieces of jewelry be returned. She
has sold jewelry from Aurelia to a Mrs. Camacho who paid part
of the price in installments directly to Aurelia. Another
customer, Mrs. Ramos, was also said to pay directly to Aurelia.
Quinto argues that the agreement between petitioner and
private complainant was effectively novated when the latter
consented to receive payment on installments directly
No novation. The extinguishment of the old obligation by the
new one is a necessary element of novation which may be
effected either expressly or impliedly. Adding to the number
of persons liable does not necessarily imply the
extinguishment of the liability of the first debtor. Neither
would the fact alone that the creditor receives guaranty or
accepts payments from a third person who has agreed to
assume the obligation, constitute an extinctive novation
absent an agreement that the first debtor shall be released
from responsibility.
Astro Electronics Corp
Astro was granted several loans by Philtrust in the amount of
P3M with interest, secured by 3 promissory notes. Petitioner
Roxas signed the instruments twice: both as President of Astro
and in his personal capacity. Phil Guarantee (respondent) with
consent of Astro, guaranteed in favor of Philtrust the payment
of 70% of Astro's loan, subject to the condition that upon
payment it shall be proportionally subrogated to the rights of
Philtrust against Astro. Since Astro failed to pay, Philguarantee
paid 70% of the loan and proceeded file a complaint against
Astro and Roxas for sum of money. Roxas disclaims any liability
on the instrument because he allegedly signed the instruments
in blank, and the words "in his personal capacity" were
fraudulently added after.
Roxas is solidarily liale with Astro. The promissory notes signed
by Roxas twice were valid and binding. Signatures covered
portions of the typewritten words show that the typewritten
words were already existing when Roxas signed it. Given this,
Philguarantee has all the rights to proceed against Roxas and
Astro and to be subrogated to the rights of Philtrust. Roxas'
consent isn't necessary for subrogation to take place because
the case is one of legal subrogation which occurs by operation
of law and without the need of debtor's knowledge.
Licaros v. Gatmaitan
Licaros invested in Anglo-Asean Bank but after having trouble
collecting interest, profit, and initial investment he asked
Gatmaitan for help which resulted in Gatmaitan undertaking
to pay Licaros the debt of AngloAsean on the condition that
Licaros transfer the right to collect from Anglo-Asean to
Gatmaitan. They then entered into a Memorandum of
Agreement and as stipulated Gatmaitan executed a non-
negotiable promissory note. Upon failure of Gatmaitan to
collect from Anglo-Asean, he refused to pay Licaros the
amount stated in the promissory note. Licaros filed a case
against him in the RTC of Makati which ruled in his favor
treating the MoA as an assignment of credit but when
Gatmaitan appealed, the CA reversed the decision of the RTC
treating the MoA as a conventional subrogation. The Court
affirmed the CA's ruling saying that based on the stipulations
of the MoA it is a conventional subrogation which requires the
consent of Anglo-Asean (the debtor) and because this is lacking
the MoA is not binding on the parties. Is the MoA one of
assignment of credit or of a conventional subrogation?
It is a conventional subrogation. The agreement between them
is a conventional subrogation and not a transfer of credit.
Anglo-Asean's (debtor) consent is necessary and it
extinguished the obligation and gave rise to a new one. Nullity
of an obligation may be cured, such that the new obligation
will be perfectly valid. In this case, the crucial distinction deals
with the necessity of he consent of the debtor in the original
transaction. In the wherease clause of their agreement, they
stipulate tat their agreement is conditioned on the express
conformity of Anglo-Asean. Also, they reserved a spot for
Anglo-Asean's signature. Absent Anglo-Asean's consent, the
Memorandum did not become valid and effective. A crucial
distinction between Assignment of credit and Subrogation is
the necessity of the debtor's consent. The former does not
require such consent but the latter does. Legal Basis:
Assignment of Credit Debtor's consent is necessary Refers to
the same right which passes from one person to another
Nullity of an obligation is not remedied by the assignment of
the creditors right to another Subrogation: Debtor's consent
not required Extinguishes the obligation and gives rise to a new
one The nullity of an old obligation may be cured by
subrogation, such that a new obligation will be perfectly valid