337 DBP v. CA | Davide, Jr. G.R. No. 118342 January 5, 1998 FACTS •
Lydia P. Cuba is a grantee of a Fishpond Lease the Government; She obtained several loans from the Development Bank of the under the terms stated in the Promissory Notes; As security for said loans, Cuba executed two Deeds of Assignment of her Leasehold Rights; • Cuba failed to pay her loan on the scheduled dates thereof in accordance with the terms of the Promissory Notes; Without foreclosure proceedings, whether judicial or extra-judicial, DBP appropriated the Leasehold Rights of Cuba over the fishpond in question; •
After DBP has appropriated the Leasehold Rights of Cuba over the fishpond in question, DBP, in turn, executed a Deed of Conditional Sale of the Leasehold Rights in favor of Cuba over the same fishpond in question; •
In the negotiation for repurchase, Cuba addressed two letters to the Manager DBP, Dagupan City. DBP thereafter accepted the offer to repurchase in a letter addressed to Cuba; •
After the Deed of Conditional Sale was executed in favor of Cuba , a new Fishpond Lease Agreement was issued by the Ministry of Agriculture and Food in favor of Cuba only, excluding her husband; • Cuba failed to pay the amortizations stipulated in the Deed of Conditional
Sale; After Cuba failed to pay the amortization as stated in Deed of Conditional
Sale, she entered with the DBP a temporary arrangement whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale, Cuba promised to make certain payments; •
DBP thereafter sent a Notice of Rescission thru Notarial Act, and which was received by Cuba ; After the Notice of Rescission, DBP took possession of the Leasehold Rights of the fishpond in question; •
That after DBP took possession of the Leasehold Rights over the fishpond in question, DBP thereafter executed a Deed of Conditional Sale in favor of defendant Agripina Caperal through a public sale; Thereafter, Caperal was awarded Fishpond Lease Agreement. ISSUES & ARGUMENTS • W/N Cuba is entitled to recover damages HOLDING & RATIO DECIDENDI YESArticle 2199 provides:
Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages.
Actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent
proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. It must point out specific facts which could afford a basis for measuring
whatever compensatory or actual damages are borne. In the present case, the trial court awarded in favor of CUBA P1,067,500 as actual damages consisting of P550,000 which represented the value of the alleged lost articles of CUBA and P517,500 which represented the value of the 230,000 pieces of bangus allegedly stocked in 1979 when DBP first ejected CUBA from the fishpond and the adjoining house. This award was affirmed by the Court of Appeals.
We find that the alleged loss of personal belongings and equipment was not proved by clear evidence. Other than the testimony of CUBA and her caretaker, there was no proof as to the existence of those items before DBP took over the fishpond in question. As pointed out by DBP, there was not "inventory of the alleged lost items before the loss which is normal in a project which sometimes, if not most often, is left to the care of other persons." Neither was a single receipt or record of acquisition presented.
Curiously, in her complaint dated 17 May 1985, CUBA included "losses of property" as among the damages resulting from DBP's take-over of the fishpond. Yet, it was only in September 1985 when her son and a caretaker went to the fishpond and the adjoining house that she came to know of the alleged loss of several articles. Such claim for "losses of property," having been made before knowledge of the alleged actual loss, was therefore speculative. The alleged loss could have been a mere afterthought or subterfuge to justify her claim for actual damages.
With regard to the award of P517,000 representing the value of the alleged 230,000 pieces of bangus which died when DBP took possession of the fishpond in March 1979, the same was not called for. Such loss was not duly proved; besides, the claim therefor was delayed unreasonably. From 1979 until after the filing of her complaint in court in May 1985, CUBA did not bring to the attention of DBP the alleged loss. The award of actual damages should, therefore, be struck down for lack of sufficient basis.
In view, however, of DBP's act of appropriating CUBA's leasehold rights which was contrary to law and public policy, as well as its false representation to the then Ministry of Agriculture and Natural Resources that it had "foreclosed the mortgage," an award of moral damages in the amount of P50,000 is in order conformably with Article 2219(10), in relation to Article 21, of the Civil Code. Exemplary or corrective damages in the amount of P25,000 should likewise be awarded by way of example or correction for the public good. 20 There being an award of exemplary damages, attorney's fees are also recoverable.
3D 2009-2010 DIGESTS – TORTS & DAMAGES Page 123 of 528 110 Co. v. CA G.R. 124922 June 22, 1998 FACTS • On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model to private respondent - which is engaged in the sale, distribution and repair of motor vehicles for job repair services and supply of parts. • Private respondent undertook to return the vehicle on July 21, 1990 fully serviced and supplied in accordance with the job contract. After petitioner paid in full the repair bill in the amount of P1,397.00 private respondent issued to him a gate pass for the release of the vehicle on said date. But came July 21, 1990, the latter could not release the vehicle as its battery was weak and was not yet replaced. Left with no option, petitioner himself bought a new battery nearby and delivered it to private respondent for installation on the same day. However, the battery was not installed and the delivery of the car was rescheduled to July 24, 1990 or three (3) days later. When petitioner sought to reclaim his car in the afternoon of July 24, 1990, he was told that it was carnapped earlier that morning while being roadtested by private respondent’s employee along Pedro Gil and Perez Streets in Paco, Manila. Private respondent said that the incident was reported to the police.
• Having failed to recover his car and its accessories or the value thereof, petitioner filed a suit for damages against private respondent anchoring his claim on the latter’s alleged negligence. For its part, private respondent contended that it has no liability because the car was lost as a result of a fortuitous event, the car napping. ISSUE & ARGUMENTS Whether a repair shop can be held liable for the loss of a customer’s vehicle while the same is in its custody for repair or other job services? HOLDING & RATIO DECIDENDI It is a not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another’s rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another’s property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. In accordance with the Rules of evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it which in this case is the private respondent. However, other than the police report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice to established the carnapping. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties’ agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent. It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New Civil Code, liability attaches even if the loss was due to a fortuitous event if “the nature of the obligation requires the assumption of risk”. Carnapping is a normal business risk for those engaged in the repair of motor vehicles. For just as the owner is exposed to that risk so is the repair shop since the car was entrusted to it. That is why, repair shops are required to first register with the Department of Trade and Industry (DTI) and to secure an insurance policy for the “shop covering the property entrusted by its customer for repair, service or maintenance” as a pre-requisite for such registration/accreditation. Violation of this statutory duty constitutes negligenceper se. Having taken custody of the vehicle, private respondent is obliged not only to repair the vehicle but must also provide the customer with some form of security for his property over which he loses immediate control. An owner who cannot exercise the seven (7)juses or attributes of ownership the right to possess, to use and enjoy, to abuse or consume, to accessories, to
dispose or alienate, to recover or vindicate and to the fruits is a crippled owner. Failure of the repair shop to provide security to a motor vehicle owner would leave the latter at the mercy of the former. Moreover, on the assumption that private respondent’s repair business is duly registered, it presupposes that its shop is covered by insurance from which it may recover the loss. If private respondent can recover from its insurer, then it would be unjustly enriched if it will not compensate petitioner to whom no fault can be attributed. Otherwise, if the shop is not registered, then the presumption of negligence applies.
EQUATORIAL REALTY DEVELOPMENT, INC., petitioner, vs. MAYFAIR THEATER, INC., respondent. G.R. No. 133879 November 21, 2001 Facts: Carmelo & Bauermann, Inc. entered into a Contract of Lease with Mayfair Theater Inc. ("Mayfair") for a period of 20 years. The lease covered a portion of the second floor and mezzanine of a two-storey used as a movie house known as Maxim Theater. Mayfair entered into a second Contract of Lease with Carmelo for the lease of another portion of the latter's -storey building, and two store spaces on the ground floor and the mezzanine, Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years. Both leases, granting Mayfair a right of first refusal to purchase the properties. However, the subject properties were sold by Carmelo to Equatorial Realty Development, Inc. ("Equatorial") without their first being offered to Mayfair. Mayfair filed a Complaint before the Regional Trial Court of Manila for (a) the annulment of the Deed of Absolute Sale between Carmelo and Equatorial, (b) specific performance, and (c) damages. The lower court rendered a Decision in favor of Carmelo and Equatorial. On appeal, the Court of Appeals (CA) completely reversed and set aside the judgment of the lower court. Mayfair filed a Motion for Execution, which the trial court granted. However, Carmelo could no longer be located Issues: Whether Equatorial is entitled to back rentals; Held: Rent is a civil fruit that belongs to the owner of the property producing it. Respondent's opposition to the transfer of the property by way of sale to Equatorial was a legally sufficient impediment that effectively prevented the passing of the property into the latter's hands. Decision in Court of Appeals shows that petitioner is not entitled to back rentals, because it never became the owner of the disputed properties due to a failure of delivery. And even assuming arguendo that there was a valid delivery, petitioner's bad faith negates its entitlement to the civil fruits of ownership, like interest and rentals
CETUS DEVELOPMENT INC V CA ; 7, 1989 MEDIALDEA August NATURE Petition for review on certiorari of the decision of the CA FACTS - Respondents Ong, Teng, Liwanag, Canlas, Sudario, Nagbuya, were lessees of premises in Quiapo, Manila, originally owned by the Susana Realty. They were individual, verbal leases, on a month-tomonth basis. Rental payments were made to a collector of the Susana Realty who went to the premises monthly. - Premises were sold to petitioner, Cetus Development, in 1984. The private respondents continued to pay monthly rentals to a collector sent by the petitioner from April to June, 1984. In August and September, they failed to pay because no collector came. - In October, petitioner sent letters demanding they vacate the premises and pay back rentals. Immediately upon receipt of the demand letters, private respondents paid arrearages, which were accepted subject to the condition that the acceptance was without prejudice to the filing of an ejectment suit. Subsequent monthly rental payments were accepted under the same condition. - For failure of the private respondents to vacate the premises as demanded in the letter, petitioner filed with the Metropolitan Trial court complaints for ejectment. - Trial court dismissed the case, and subsequently the Regional Trial Court did so, as did the CA. ISSUES WON there exists a cause of action, when the complaints for unlawful detainer were filed considering the fact that upon demand by petitioner for payment of back rentals, respondents immediately tendered payment, which was accepted. HELD -Section 2, RoC, "Landlord to proceed against tenant only after demand." states that the right to bring an action of ejectment or unlawful detainer must be counted from the time the defendants failed to pay rent after the demand therefor. The demand required partakes of an extrajudicial remedy that must be pursued before resorting to judicial action so much so that when there is full compliance with the demand, there is no need for court action.
-for purposes of bringing an ejectment suit, 2 requisites: 1) must be failure to pay rent/comply with conditions of lease, and 2) must be DEMAND to both pay or to comply and vacate. - in this case, no cause of action for ejectment has accrued. NO FAILURE YET on the part of private respondents, because upon demand, they paid. **exceptions where demand is not required: (a) when obligation or law so declares; (b) when from the nature and circumstances of obligation it can be inferred that time is of the essence of the contract, (c) when demand would be useless. -without such demand, effects of default do not arise the petitioner's demand to vacate was PREMATURE, an exercise of a non-existing right to rescind. -Petitioner claims that its failure to send a collector is not a valid defense because sending a collector is not one of the obligations of the lessor under Article 1654: but 1) it was established that it was customary for private respondents to pay the rentals through a collector, and 2) Article 1257 provides that where no agreement has been designated for the payment of rentals, the place of payment is at the domicile of the defendants. Dispositionpetition for certiorari denied, CA decision affirmed
LAFARGE CEMENT PHLIPPINES INC V CONTINENTAL CEMENT CORPORATION ; 23, 2004 PANGANIBAN November FACTS - 8/11/98: in a Letter of Intent (LOI), petitioner Lafarge—on behalf of its affiliates including Petitioner Luzon Continental Land Corp. (LCLC) agreed to purchase respondent Continental Cement Corporation (CCC). At the time, CCC were respondents in a pending case against Asset Privatization Trust (APT) [GR No. 119712] - 10/21/98: both parties entered into a Sale and Purchase Agreement (SPA) - under clause 2 of the SPA the parties allegedly agreed to retain P117,020,846.84 from the purchase price to be deposited in an interest-bearing account in Citibank NY for payment to APT - petitioners allegedly refused to pay APT; fearing foreclosure, CCC filed w/ the RTC of QC a “Complaint w/ Application for Preliminary Attachment” against petitioners *CC No. Q-00-41103] - petitioners moved to dismiss the complaint on the grounds of forum-shoppin to avoid being in default, petitioners filed their Answer and Compulsory Counterclaims ad Cautelam against Respondent CCC, its majority stockholder Gregory Lim, and its corporate secretary Anthony Mariano, praying for the sums of P2.7M as actual damages, P100M as exemplary damages, P100M as moral damages and P5M as atty’s fees and costs each - petitioners allege that the Writ of Attachment was procured in bad faith - the RTC dismissed petitioners’ counterclaims since the counterclaims against Lim and Mariano were not compulsory, the Sapugay ruling wasn’t applicable, and the Counterclaims violated procedural rules on the proper joinder of causes of action - acting for MFR, the TC admitted an error in pronouncing the counterclaim was against Lim and Mariano only; the RTC clarified that it impleaded the two, even if CCC was included then ISSUES 1. WON the RTC gravely erred in ruling that (a) petitioners’ counterclaims against Respondents Lim and Mariano are not compulsory; (b) Sapugay v. Court of Appeals is inapplicable here; and (c) petitioners violated the rule on joinder of causes of action.”
2. WON the RTC gravely erred in refusing to rule that Respondent CCC has no personality to move to dismiss petitioners’ compulsory counterclaims on Respondents Lim and Mariano’s behalf. HELD 1. 1(a) Sec 6 Rule 6 of the Rules of Civil Procedure states: “(A counterclaim is) any claim which a defending party may have against an opposing party” - they are generally allowed to facilitate the disposition of the whole controversy in a single action - a counterclaim isp ermiss ive if it is not necessarily connected w/ the subject matter of the opposing party’s claim and may be filed in a separate case - a counterclaim iscomp u ls or y if it arises out of the transaction or occurrence of the subject matter -comp u ls or y counterclaims must be set up in the same action or be barred forever NAMARCO v. Fed of United Namarco Dist. lays down the criteria to determine counterclaim type: 1. are issues of fact and law raised by the claim and by the counterclaim largely the same? 2.Would res judicata bar a subsequent suit on defendant’s claim, absent the compulsory counterclaim rule? 3. Will substantially the same evidence support or refute plaintiff’s claim/counterclaim? 4. Is there any logical relation b/w the claim and counterclaim? - a positive answer to all four would indicate it is compulsory - The court then examined petitioners’ basis for their allegations using these criteria: 1. Lim and Mariano were responsible for making the bad faith decisions and causing the plaintiff to file this baseless suit and procure an unwarranted Writ of Attachment
2. They are also the plaintiff’s co-joint tortfeasors in the commission of complained acts and as such are jointly and solidarily liable 3Lim and Mariano should pay P5M each for counsel fees and litigation costs. For damage to the reputations of defendants, a sum of P100M each for moral damages is prayed for - since the alleged damages suffered by the defendants were a consequence of petiitioners’ actions, the requisites for compulsory counterclaim are met. 1(b) In the Sugapay case, Respondent Mobil Phils. filed an action for replevin against the sps Sugapay. The sps failed to keep their end of a Dealership Agreement; they answered with a counterclaim alleging the plaintiff refused to give them gas. They still had a post surety bond w/c they couldn’t claim w/o the Agreement, later discovering Mobil and its manager, Cardenas, intended all along to award the agreement to Island Air Product Corp. - an issue raised was whether Cardenas, who wasn’t a party to the original action, could be impleaded in the counterclaim - the Court held that new parties may be brought to the action to accord complete relief to all in a single action and to avert a multiplicity of suits - respondent CCC contends that as a corporation with a separate legal personality, it has the juridical capacity to indemnify petitioners even w/o Lim and Mariano; the Court however points out that the inclusion of the co-defendants is not premised on the assumption of CCC’s financial ability but on the allegations of fraud and bad faith against them, making them indispensable parties - in Sagupay, Cardenas was furnished w/ a copy of the Answer w/ Counterclaim but he did not respond. Hence the Court considered his apparent acquiescence, despite his active participation in the trial, and adopted as his answer the allegations in the complaint, and is deemed to have submitted to the TC’s jurisdiction. Sec 12 Rule 6 of the Rules of Court state that “only upon service of summons can the TC obtain jurisdiction over them.” - in the instant case, no records show that Lim and Mariano are aware of the counterclaims or that they actively participated in the proceeding. So unlike in Sagupay, the court cannot be said to have treated CCC’s motion to dismiss as having been filed on their behalf 1(c) CCC claims that while the original complaint was a suit for specific performance based on a contract, the counterclaim was based on tortuous acts of the respondents, violating the rule on joinder of causes of action as stated in S5 Rule 2 and S6 Rule 3 of the Rules of Civil Procedure
-these rules are founded on practicality—dismissing the counterclaim for damages would likely only lead to a separate case re-filing it. Nevertheless, the two are indispensable parties 2. Art 1207 of the Civil Code provides that obligations are generally considered joint unless expressly stated or when the nature of the obligation requires solidarity. Obligations arising from tort, however, are always solidary. -the fact that liability sought against CCC is for specific performance and tort, while those against Lim and Mariano are based solely on tort does not negate the solidary nature of their liablility -petitioners’ assertion that CCC cannot move to dismiss the counterclaims on the grounds that pertain solely to its individual co-debtors cannot be given credence. A1222 of the CC provides: “With respect to (defenses) w/c personally belong to the others, (a solidary debtor) may avail himself thereof as regards that part of the debt for w/c the latter are responsible.” -the filing of CCC of a motion to dismiss on grounds pertaining to its individual debtors is allowed -however, it lacks the requisite authority to file this motion on the behalf of Lim and Mariano—thus, unless expressly adopted by Lim and Mariano, the motion has no force and effect as to them DispositionWherefore, the petition is granted and the assailed orders reversed. The court of origin is ordered to take cognizance of the counterclaims and to cause the service of summons on Lim and Mariano
ADELFA PROPERTIES INC V COURT OF APPEALS ; 25, 1995 REGALADO January NATURE - Petition for review on certiorari of the judgment of the Court of Appeals. FACTS - Private respondent Rosario Jimenez-Castañeda and Salud Jimenez and their brothers, Jose and Dominador Jimenez, were the registered co-owners of a parcel of land consisting of 17,710 sqm., situated in Barrio Culasi, Las Piñas, Metro Manila. - On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one- half of said parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa." Subsequently, a "Confirmatory Extrajudicial Partition Agreement" was executed by the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 sqm. was adjudicated to Jose and Dominador Jimenez, while the western portion was allocated to private respondents. - Thereafter, petitioner expressed interest in buying .the western portion of the property from private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase" was executed between petitioner and private respondents, under the following terms and conditions: 1. The selling price of said 8,655 sqm. of the subject property is P2,856,150; 2. The sum of P50,000 which the private respondents received from ADELFA PROPERTIES, INC. as an option money shall be credited as partial payment upon the consummation of the sale and the balance in the sum of P2,806,150 to be paid on or before November 30, 1989; 3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in accordance with paragraph 2 , the option shall be cancelled and 50% of the option money to be forfeited in our favor and we will refund the remaining 50% of said option money upon the sale of said property to a third party; 4. All expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the VENDORS, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of ADELFA PROPERTIES, INC. - Considering, however, that the owner's copy of the TCTcertificate of title issued to respondent Salud Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of title was filed in court through Atty. Bayani L
Bernardo, who acted as private respondents' counsel. Eventually, a new owner's copy of the certificate of title was issued but it remained in the possession of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc. - Before petitioner could make payment, it received summons on November 29, 1989, together with a copy of a complaint filed by the nephews and nieces of private respondents against the latter, Jose and Dominador Jimenez, and petitioner in the RTC of Makati, for annulment of the deed of sale in favor of Household Corporation and recovery of ownership of the property covered . - As a consequence, in a letter dated November 29,1989, petitioner informed private respondents that it would hold payment of the full purchase price and suggested that private respondents settle the case with their nephews and nieces, adding that "x x x if possible, although November 30, 1989 is a holiday, we will be waiting for you and said plaintiffs at our office up to 7:00 p.m." Another letter of the same tenor and of even date was sent by petitioner to Jose and Dominador Jimenez. Respondent Salud Jimenez refused to heed the suggestion of petitioner and attributed the suspension of payment-of the purchase price to "lack of word of honor." - On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract with private respondents, and its contract of said with Jose and Dominador Jimenez, - On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his capacity as petitioner's counsel, and to inform the latter that they were cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000 be deducted therefrom for the settlement of the civil case. This was rejected by private respondents. On December 22, 1989, Atty. Bernardo wrote private respondents on the same matter but this time reducing the amount from P500,000 to P300,000, and this was also rejected by the latter. - On February 23, 1990, the RTC of Makati dismissed civil case. Thus, on February 28, 1990, petitioner caused to be annotated anew on the TCT the exclusive option to purchase. On the same day, private respondents executed a Deed of Conditional Sale in favor of Emylene Chua over the same parcel of land for P3,029,250, of which P1,500,000 was paid to private respondents on said date, with the balance to be paid upon the transfer of title to the specified one-half portion. - On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of the dismissal of the case against them, petitioner was willing to pay the purchase price, and he requested that the corresponding deed of absolute sale be executed. This was ignored by private respondents. - On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a check for P25,000 representing the refund of 50% of the option money paid under the exclusive option to purchase. Private respondents then requested petitioner to return the owner's duplicate copy of the certificate of title of respondent Salud Jimenez. Petitioner failed to surrender the certificate of title, hence private respondents filed a civil case in the RTC of Pasay City for annulment of contract with damages, praying, among others, that the exclusive option to purchase be declared null and void; that defendant, herein petitioner, be ordered to return the owner's duplicate certificate of title; and that the
annotation of the option contract on the TCT be cancelled. - Emylene Chua, the subsequent purchaser of the lot, filed a complaint in intervention. - The trial court rendered judgment holding that the agreement entered into by the parties was merely an option contract, and declaring that the suspension of payment by herein petitioner constituted a counter-offer which, therefore, was tantamount to a rejection of the option. It likewise ruled that petitioner could not validly suspend payment in favor of private respondents on the ground that the vindicatory action filed by the latter's kin did not involve the western portion of the land covered by the contract between petitioner and private respondents, but the eastern portion thereof which was the subject of the sale between petitioner and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid and binding, and ordered petitioner to pay damages and attorney's fees to private respondents, with costs. - On appeal, the Court of Appeals affirmed in toto the decision of the court a quo and held that the failure of petitioner to pay the purchase price within the period agreed upon was tantamount to an election by petitioner not to buy the property; that the suspension of payment constituted an imposition of a condition which was actually a counter-offer amounting to a rejection of the option; and that Article 1590 of the Civil Code on suspension of payments applies only to a contract of sale or a contract to sell, but not to an option contract which it opined was the nature of the document subject of the case at bar. Said appellate court similarly upheld the validity of the deed of conditional sale executed by private respondents in favor of intervenor Emylene Chua. ISSUES 1. WON the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc. and private respondents is a contract to sell, rather than a contract of sale 2. WON there was a valid suspension of payment of the purchase price by said petitioner, and the legal effects thereof on the contractual relations of the parties HELD 1. YES. - In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of
the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. - The parties never intended to transfer ownership to petitioner except upon full payment of the purchase price. Firstly, the exclusive option to purchase, although it provided for automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, does not mention that petitioner is obliged to return possession or ownership of the property as a consequence of nonpayment. There is no stipulation anent reversion or reconveyance of the property to herein private respondents in the event that petitioner does not comply with its obligation. With the absence of such a stipulation, although there is a provision on the remedies available to the parties in case of breach, it may legally be inferred that the parties never intended to transfer ownership to the petitioner prior to completion of payment of the purchase price. - Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is bolstered by the fact that the deed of absolute sale would have been issued only upon the payment of the balance of the purchase price, as may be gleaned from petitioner's letter dated April 16, 1990 wherein it informed private respondents that it "is now ready and willing to pay you simultaneously with the execution of the corresponding deed of absolute sale." - Secondly, it has not been shown that there was delivery of the property, actual or constructive, made to herein petitioner. The exclusive option to purchase is not contained in a public instrument the execution of which would have been considered equivalent to delivery. Neither did petitioner take actual, physical possession of the property at any given time. It is true that after the reconstitution of private respondents' certificate of title, it remained in the possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law, such possession by the vendee is to be understood as a delivery. However, private respondents explained that there was really no intention on their part to deliver the title to herein petitioner with the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the title only because he was their counsel in the petition for reconstitution. We have no reason not to believe this explanation of private respondents, aside from the fact that such contention was never refuted or contradicted by petitioner. - The title of a contract does not necessarily determine its true nature. The fact that the document under discussion is entitled "Exclusive Option to Purchase" is not controlling where the text thereof shows that it is a contract to sell. An o p tio n, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property
at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, that is, the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms. - On the other hand, a contract like a contract to sell, involves a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Contracts, in general, are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. - The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It states the terms and conditions on which the owner is willing to sell his land, if the holder elects to accept them within the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties at the time of its execution. The offer and the acceptance are concurrent, since the minds of the contracting parties meet in the terms of the agreement. - A perusal of the contract in this case readily shows that there is indeed a concurrence of petitioner's offer to buy and private respondents' acceptance thereof. The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale. - The records also show that private respondents accepted the offer of petitioner to buy their property under the terms of their contract. At the time petitioner made its offer, private respondents suggested that their transfer certificate of title be first reconstituted, to which petitioner agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents in filing a petition for reconstitution. After the title was reconstituted, the parties agreed that petitioner would pay either in cash or manager's check the amount of P2,856,150 for the lot. Petitioner was supposed to pay the same on November 25, 1989, but, it later offered to make a down payment of P50,000, with the balance of P2,806,150 to be paid on or before November 30, 1989. Private respondents agreed to the counter-offer made by petitioner. As a result, the so-called exclusive option to purchase was prepared by petitioner and was subsequently signed by private respondents, thereby creating a perfected contract to sell between them.
- It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while the acceptance thereof was absolute and without any condition or qualification. - The agreement as to the object, the price of the property, and the terms of payment was clear and well-defined. No other significance could be given to such acts than that they were meant to finalize and perfect the transaction. The parties even went beyond the basic requirements of the law by stipulating that "all expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the vendors, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of Adelfa Properties, Inc." Hence, there was nothing left to be done except the performance of the respective obligations of the parties. - There already existed a perfected contract between the parties at the time the alleged counter-offer was made. Thus, any new offer by a party becomes binding only when it is accepted by the other. In the case of private respondents, they actually refused to concur in said offer of petitioner, by reason of which the original terms of the contract continued to be enforceable. At any rate, the same cannot be considered a counteroffer for the simple reason that petitioner's sole purpose was to settle the civil case in order that it could already comply with its obligation. In fact it was even indicative of a desire by petitioner to immediately comply therewith, except that it was being prevented from doing so because of the filing of the civil case which, it believed in good faith, rendered compliance improbable at that time. In addition, no inference can be drawn from that suggestion given by petitioner that it was totally abandoning the original contract. - More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase price within the agreed period was attributed by private respondents to "lack of word of honor" on the part of the former. The reason of "lack of word of honor" is to us a clear indication that private respondents considered petitioner already bound by its obligation to pay the balance of the consideration. In effect, private respondents were demanding or exacting fulfillment of the obligation from herein petitioner. With the arrival of the period agreed upon by the parties, petitioner was supposed to comply with the obligation incumbent upon it to perform, not merely to exercise an option or a right to buy the property. -The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or not the agreement could be specifically enforced. There is no doubt that the obligation of petitioner to pay the purchase price is specific, definite and certain, and consequently binding and enforceable. Had private respondents chosen to enforce the contract, they could have specifically compelled petitioner to pay the balance of P2,806,150. This is distinctly made manifest in the contract itself as an integral stipulation, compliance with which could legally and definitely be demanded from petitioner as a consequence. 2. YES.
- At a glance, it is easily discernible that, although the complaint prayed for the annulment only of the contract of sale executed between petitioner and the Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs share in that parcel of land. In other words, the plaintiffs therein were claiming to be co- owners of the entire parcel of land and not only of a portion thereof nor did their claim pertain exclusively to the eastern half adjudicated to the Jimenez brothers. Such being the case, petitioner was justified in suspending payment of the balance of the purchase price by reason of the aforesaid vindicatory action filed against it. The assurance made by private respondents that petitioner did not have to worry about the case because it was pure and simple harassment is not the kind of guaranty contemplated under the exceptive clause in Article 1590 wherein the vendor is bound to make payment even with the existence of a vindicatory action if the vendee should give a security for the return of the price. - Be that as it may, and the validity of the suspension of payment notwithstanding, the private respondents may no longer be compelled to sell and deliver the subject property to petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of the purchase price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had been validly rescinded by private respondents - As early as February 28, 1990 when petitioner caused its exclusive option to be annotated anew on the certificate of title, it already knew of the dismissal of the civil case. However, it was only on April 16, 1990 that petitioner, through its counsel, wrote private respondents expressing its willingness to pay the balance of the purchase price upon the execution of the corresponding deed of absolute sale. At most that was merely a notice to pay. There was no proper tender of payment nor consignation in this case as required by law. The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not considered a valid tender of payment. Besides, a mere tender of payment is not sufficient. to compel private respondents to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish petitioner's obligation to pay the balance of the purchase price. The rule is different in case of an option contract or in legal redemption or in a sale with right to repurchase; wherein consignation is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient to preserve the right or privilege. This is because the provisions on consignation are not applicable when there is no obligation to pay. A contract to sell, as in the case before us, involves the performance of an obligation, not merely the exercise of a privilege or a right. Consequently, performance or payment may be effected not by tender of payment alone but by both tender and consignation. - Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the balance again arose and resumed after it received notice of such dismissal. Unfortunately, petitioner failed to
seasonably make payment, as in fact it has failed to do so up to the present time, or even to deposit the money with the trial court when this case was originally filed therein. - By reason of petitioner's failure to comply with its obligation, private respondents, elected to resort to and did announce the rescission of the contract through its letter to petitioner dated July 27, 1990. That written notice of rescission is deemed sufficient under the circumstances. Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable to a contract to sell." Furthermore, judicial action for rescission of a contract is not necessary where the contract provides for automatic rescission in case of breach, as in the contract involved in the present controversy. - In the case at bar, it has been shown that although petitioner was duly furnished and did receive a written notice of rescission which specified the grounds therefor, it failed to reply thereto or protest against it. Its silence thereon suggests an admission of the veracity and validity of private respondents' claim. Furthermore, the initiative of instituting suit was transferred from the rescinder to the defaulter by virtue of the automatic rescission clause in the contract. But then, the records bear out the fact that aside from the lackadaisical manner with which petitioner treated private respondents' letter of cancellation, it utterly failed to seriously seek redress from the court for the enforcement of its alleged rights under the contract. If private respondents had not taken the initiative of filing a civil case, evidently petitioner had no intention to take any legal action to compel specific performance from the former. By such cavalier disregard, it has been effectively estopped from seeking the affirmative relief it now desires but which it had theretofore disdained.
BUENAVENTURA V CA ; 20, 2003 CARPIO Novermber NATURE Petition for review on certiorari of a decision of the Court of Appeals FACTS - Respondent spouses Leonardo Joaquin and Feliciana Landrito are the parents of petitioners Consolacion, Nora, Emma and Natividad as well as of respondents Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed Joaquin. The married Joaquin children are joined in this action by their respective spouses. - Sought to be declared null and void ab initio are six deeds of sale of real property executed by respondent parents in favor of their respondent children and the corresponding certificates of title issued in their names. In seeking the declaration of nullity of the said deeds of sale and certificates of title, petitioners, in their complaint, aver that the deeds of sale are simulated as they are, are null and void ab initiobecause (1) there was no actual valid consideration for the deeds of sale x x x over the properties in litis; (2) assuming that there was consideration in the sums reflected in the questioned deeds, the properties are more than three-fold times more valuable than the measly sums appearing therein; (3) the deeds of sale do not reflect and express the true intent of the parties (vendors and vendees); and (4) the purported sale of the properties in litis was the result of a deliberate conspiracy designed to unjustly deprive the rest of the compulsory heirs (petitioner children) of their legitime. - Respondents aver that (1) petitioner siblings do not have a cause of action against them as well as the requisite standing and interest to assail their titles over the properties in litIs; (2) the sales were with sufficient considerations and made by respondent parents voluntarily, in good faith, and with full knowledge of the consequences of their deeds of sale; and (3) the certificates of title were issued with sufficient factual and legal basis. - The trial court ruled in favor of the respondents and dismissed the complaint. The Court of Appeals affirmed the decision of the trial court. Hence, this petition.
Petitioners assert that their respondent siblings did not actually pay the prices stated in the Deeds of sale to their respondent father. Thus, petitioners ask the court to declare the Deeds of Sale void. Petitioners also ask that assuming that there is consideration, the same is grossly inadequate as to invalidate the Deeds of Sale. ISSUES 1. WON the Deeds of Sale are void for lack of consideration 2. WON the Deeds of Sale are void for gross inadequacy of price HELD 1. NO - It is not the payment of price that determines the validity of a contract of sale. Payment of the price has nothing to do with the perfection of the contract. Payment of the price goes into the perfection of the contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract. - Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated. To prove simulation, petitioners presented Emma Joaquin Valdoz’s testimony stating that their father, respondent Leonardo Joaquin, told her that he would transfer a lot to her through a deed of sale without need for her payment of the purchase price. The trial court did not find the allegation of absolute simulation of price credible. Petitioners’ failure to prove absolute simulation of price is magnified by their lack of knowledge of their respondent siblings’ financial capacity to buy the questioned lots. On the other hand, the Deeds of Sale which petitioners presented as evidence plainly showed the cost of each lot sold. Not only did respondents’ minds meet as to the purchase price, but the real price also stated in the Deeds of Sale. As of the filing of the complaint, respondent siblings have also fully paid the price to their respondent father. 2. NO - Art. 1355 of the Civil Code states “Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake, or undue influence. (Emphasis supplied) - Art. 1470 of the Civil Code further provides: “Gross inadequacy of price does not affect a contract of sale, except as may indicate a defect in the consent, or that the parties really intended a donation or
some other act or contract.” (Emphasis supplied) - Petitioners failed to prove any of the instances mentioned in art. 1355 and 1470 of the Civil Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that the price be equal to exact value of the subject matter of the sale. All the respondents believed that they received the commutative value of what they gave. “Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose money by them—indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in addition, a violation of the law, the commission of what the law knows as anaction ab le wrong, before the courts are authorized to lay hold of the situation and remedy it (Vales V Villa).” - Moreover, the factual findings of the appellate court are conclusive on the parties and carry greater weight when they coincide with the factual findings of the trial court. In the instant case, the trial court found that the lots were sold for a valid consideration, and that the defendant children actually paid the purchase price stipulated in their respective Deeds of Sale. Actual payment of the purchase price by the buyer to the seller is a factual finding that is now conclusive upon us.
CALIFORNIA BUS LINE V STATE INVESTMENT ; 11, 2003 QUISUMBING December NATURE Petition for Review on certiorari of a decision of the CA FACTS - In 1979, Delta Motors Corporation (Delta) applied for financial assistance from respondent State Investment House, Inc. (SIHI), a domestic corporation engaged in the business of quasi-banking. SIHI agreed to extend a credit line to Delta for P25M in 3 separate credit agreements. Delta eventually became indebted to SIHI. - In April 1979 to May 1980, petitioner California Bus Lines, Inc. (CBLI), purchased on installment basis 35 units of M.A.N. Diesel Buses and 2 units of M.A.N. Diesel Conversion Engines from Delta. To secure the payment of the 35 buses, CBLI and its president executed 16 promissory notes in favor of Delta. CBLI [a] promised to pay Delta or order, P2.314M payable in 60 monthly installments with interest at 14% per annum (p.a), [b] promised to pay the holder of the said notes 25% of the amount due on the same as attorney’s fees and expenses of collection, *c+ executed chattel mortgages over the 35 buses in Delta’s favor. - When CBLI defaulted on all payments due, it entered into ares tru ctu rin g agreement with Delta in Oct. 1981, to cover its overdue obligations under the promissory notes. The restructuring agreement provided for a new schedule of payments of CBLI’s past due installments, extending the period to pay, and stipulating daily remittance instead of the previously agreed monthly remittance of payments. In case of default, Delta would have the authority to take over the management and operations of CBLI until CBLI remitted and/or updated CBLI’s past due account. CBLI and Delta also increased the interest rate to 16%. - In Dec. 1981, Delta executed a Continuing Deed of Assignment of Receivables in favor of SIHI as security for the payment of its obligations to SIHI per the credit agreements. In view of Delta’s failure to pay, the loan agreements were restructured under a Memorandum of Agreement dated March 1982. Delta obligated itself to pay a fixed monthly amortization of P0.4M to SIHI and to discount with SIHI P8M worth of receivables with the understanding that SIHI shall apply the proceeds against Delta’s overdue accounts.
- CBLI continued having trouble meeting its obligations to Delta. This prompted Delta to threaten CBLI with the enforcement of the management takeover clause. CBLI filed a complaint for injunction at CFI Rizal, Pasay City, (now RTC Pasay City). In due time, Delta filed amended answer with applications for issuance of a writ of preliminary mandatory injunction to enforce the management takeover clause and a writ of preliminary attachment over the buses it sold to CBLI. RTC granted Delta’s prayer on account of the fraudulent disposition by CBLI of its assets. - In Sept.1983, pursuant to the Memorandum of Agreement, Delta executed a Deed of Sale assigning to SIHI 5 of the 16 promissory notes from CBLI At the time of assignment, these 5 promissory notes had a total value P16.1M inclusive of interest at 14% p.a. SIHI subsequently sent a demand letter to CBLI requiring CBLI to remit the payments due on the 5 promissory notes directly to it. CBLI replied informing SIHI that Delta had taken over its management and operations. - Thereafter, Delta and CBLI entered into a compromise agreement in July 1984. CBLI agreed that Delta would exercise its right to extrajudicially foreclose on the chattel mortgages over the 35 bus units. RTC Pasay approved this compromise agreement. Following this, CBLI vehemently refused to pay SIHI the value of the 5 promissory notes, contending that the compromise agreement was in full settlement of all its obligations to Delta including its obligations under the promissory notes. - On Dec 26, 1984, SIHI filed a complaint against CBLI in RTC Manila, to collect on the 5 promissory notes with interest at 14% p.a. SIHI also prayed for the issuance of a writ of preliminary attachment against the properties of CBLI. - On Dec 28, 1984, Delta filed a petition for extrajudicial foreclosure of chattel mortgages pursuant to its compromise agreement with CBLI. Delta then filed in the RTC Pasay a motion for execution of the judgment based on the compromise agreement which was granted. - In view of Delta’s petition and motion for execution per the judgment of compromise, the RTC Manila granted SIHI’s application for preliminary attachment on Jan. 4, 1985. Consequently, SIHI was able to attach and physically take possession of 32 buses belonging to CBLI. However, acting on CBLI’s motion to quash the writ of preliminary attachment, the same court resolved in Jan. 1986, to discharge the writ of preliminary attachment. SIHI assailed the discharge of the writ before the IAC (now Court of Appeals) CA granted SIHI’s petition in and ruled that the writ of preliminary attachment issued by RTC Manila should stay. - Meanwhile, pursuant to the Jan. 3, 1985 Order of RTC of Pasay, the sheriff of Pasay City conducted a public auction and issued a certificate of sheriff’s sale to Delta on April 2, 1987, attesting to the fact that Delta bought 14 of the 35 buses for P3.92M. On April 7, 1987, the sheriff of Manila, by virtue of the writ of execution dated March 27, 1987, sold the same 14 buses at public auction in partial satisfaction of the judgment SIHI obtained against Delta. - SIHI moved to sell the 16 buses of CBLI which had previously been attached by the sheriff pursuant to the Jan 4, 1985, Order of RTC of Manila. SIHI’s motion was granted on Dec. 16, 1987. In Nov. 1988,
however, SIHI filed an urgentex- parte motion to amend this order claiming that its new counsel made a mistake in the list of buses in the Motion to Sell it had earlier filed. SIHI explained that 14 of the buses listed had already been sold to Delta on April 2, 1987, by virtue of the Jan. 3, 1985 Order of the RTC of Pasay, and that 2 of the buses listed had been released to a third party. - CBLI opposed SIHI’s motion to allow the sale of the 16 buses. On May 3, 1989, RTC Manila denied SIHI’s urgent motion to allow the sale of the 16 buses listed in its motion to amend. RTC ruled that the best interest of the parties might be better served by denying further sales of the buses and to go direct to the trial of the case on the merits. - RTC and CA Ruling. Judgment discharged CBLI from liability on the 5 promissory notes. RTC also favorably ruled on CBLI’s compulsory counterclaim. It directed SIHI to return the 16 buses or to pay CBLI P4M representing the value of the seized buses, with interest at 12% p.a. RTC held that the restructuring agreement between Delta and CBLIn o vated the 5 promissory notes; hence, at the time Delta assigned the 5 promissory notes to SIHI, the notes were already merged in the restructuring agreement and cannot be enforced against CBLI. SIHI appealed to the Court of Appeals. CA reversed RTC ruling. Hence this appeal. ISSUES 1. WON the Restructuring Agreement between CBLI and Deltan ovated the 5 promissory notes Delta assigned to respondent SIHI 2. WON the Compromise Agreement between Delta and CBLI superseded and/or discharged the subject 5 promissory notes HELD 1. NO Ratio An agreement subsequently executed between a seller and a buyer that provides for a different schedule and manner of payment, to restructure the mode of payments by the buyer so that it could settle its outstanding obligation in spite of its delinquency in payment is not novation. Reasoning[a ] Novation Defined and its Requisites. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a third person in the rights of the creditor. 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. For novation to take place, 4 essential requisites have to be met, namely, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.[ b] Express and Implied Novation. There are 2 ways which could indicate the presence of novation and thus produce the effect of extinguishing an obligation by another which substitutes the same. Thefir s t is when novation has been explicitly or expressly stated and declared in unequivocal terms. Thes econ d is implied novation. when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the 2 obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely incidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation.[ c] In this case, the attendant facts do not make out a case of novation. The restructuring agreement between Delta and CBLI executed shows that the parties did not expressly stipulate that the restructuring agreement novated the promissory notes. Absent an unequivocal declaration of extinguishment of the pre- existing obligation, only a showing of complete incompatibility between the old and the new obligation would sustain a finding of novation by implication. However, our review of its terms yields no incompatibility between the promissory notes and the restructuring agreement. Furthermore, obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, and adds other obligations not incompatible with the old ones, or where the new contract merely supplements the old one 2. NO Ratio A compromise agreement determines the rights and obligations of only the parties to it. Reasoning:[a] Having previously assigned the 5 promissory notes to SIHI, Delta had no more right to compromise the same. Delta’s limited authority to collect for SIHI stipulated in the Sept. 13, 1985, Deed of Sale cannot be construed to include the power to compromise CBLI’s obligations in the said promissory notes. An authority to compromise, by express provision of Article 1878 of the Civil Code, requires a special power of attorney, which is not present in this case. Furthermore, the compromise agreement itself provided that it covered the rights and obligations only of Delta and CBLI and that it did not refer to, nor cover the rights of, SIHI as the new creditor of CBLI in the subject promissory notes.[ b] The assignment of the 5 notes operated to create a separate and independent obligation on the part of CBLI to SIHI, distinct and separate from CBLI’s obligations to Delta. And since there was a previous revocation of Delta’s authority to collect for SIHI, Delta was no longer SIHI’s collecting agent. CBLI, in turn, knew of the assignment and Delta’s lack of authority to compromise the subject notes, yet it readily agreed to the foreclosure
DispositionCA ruling affirmed. CBLI is ordered to pay SIHI the value of the 5 promissory notes less the proceeds from the sale of the attached 16 buses
