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33.

PNB vs CA

Obligations are extinguished, among others, by payment or performance,

Under Article 1232 of the Civil Code, payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.

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

In contracts of loan, the debtor is expected to deliver the sum of money due the creditor.

These provisions must be read in relation with the other rules on payment under the Civil Code,[14]
which rules implicitly require acceptance by the creditor of the payment in order to extinguish an
obligation.
Admittedly, the delivery of the SPA was not, strictly speaking, a delivery of the sum of money due to
MTLC, and Ester could not be compelled to accept it as payment based on Article 1233. Nonetheless,
the SPA stood as an authority to collect the proceeds of the already-approved PNB loan that, upon
receipt by Ester, would have constituted as payment of the MTLC loan.

While Esters refusal was unjustified and unreasonable, we cannot agree with Manuels position that
this refusal had the effect of payment that extinguished his obligation to MTLC. Article 1256 is clear
and unequivocal on this point when it provides that

ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or
sum due. [Emphasis supplied.]

In short, a refusal without just cause is not equivalent to payment; to have the effect of payment and
the consequent extinguishment of the obligation to pay, the law requires the companion acts of tender
of payment and consignation.

Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc.,[18] is the
definitive act of offering the creditor what is due him or her, together with the demand that the creditor
accept the same. When a creditor refuses the debtors tender of payment, the law allows the
consignation of the thing or the sum due. Tender and consignation have the effect of payment, as by
consignation, the thing due is deposited and placed at the disposal of the judicial authorities for the
creditor to collect.[19]

34. EGV vs CA

Compensation or offset takes place by operation of law when two (2) persons, in their own right, are
creditor and debtor of each other. For compensation to take place, a distinction must be made
between a debt and a mere claim. A debt is a claim which has been formally passed upon by the
highest authority to which it can in law be submitted and has been declared to be a debt. A claim, on
the other hand, is a debt in embryo. It is mere evidence of a debt and must pass thru the process
prescribed by law before it develops into what is properly called a debt.[11]

Tested by the foregoing yardstick, it has not been sufficiently established that compensation or set-off
is proper here as there is lack of evidence to show that petitioners E.G.V. Realty and CCC and
respondent Unisphere are mutually debtors and creditors to each other.

In Article 1278 of the Civil Code, compensation is said to take place when two persons, in their own
right, are creditors and debtors of each other. Compensation is a mode of extinguishing to the
concurrent amount, the obligations of those persons who in their own right are reciprocally debtors an
creditors of each other and the offsetting of two obligations which are reciprocally extinguished if they
are of equal value, or extinguished to the concurrent amount if of different values.[8] See Article 1279
of the same Code.

35. Metro bank vs Tonda

the handwritten note by the METROBANK officer acknowledging receipt of the checks amounting to
P2.8 Million made no reference to the TONDAS' trust receipt obligations, and we cannot presume that
it was anything more than an ordinary bank deposit. The Court of Appeals citing the case of Tan Tiong
Tick vs. American Apothecories[15] implied that in making the deposit, the TONDAS are entitled to set
off, by way of compensation, their obligations to METROBANK. However, Article 1288 of the Civil
Code provides that "compensation shall not be proper when one of the debts consists in civil liability
arising from a penal offense" as in the case at bar. The raison d'etre for this is that, "if one of the debts
consists in civil liability arising from a penal offense, compensation would be improper and inadvisable
because the satisfaction of such obligation is imperative.

36. PNB vs UY

There could not be any compensation between PNEI's receivables from PNB MADECOR and
thelatter's obligation to the former because PNB MADECOR's supposed debt to PNEI is the subject of
attachment proceedings initiated by a third party, herein respondent Gerardo Uy. This is a controversy
that would prevent legal compensation from taking place, per the requirements set forth in Article 1279
of the Civil Code. Moreover, the Court of Appeals stressed that it was not clear whether, at the time
compensation was supposed to have taken place, the rentals being claimed by petitioner were indeed
still unpaid. The CA pointed out that petitioner did not present evidence in this regard, apart from a
statement of account. The CA also questioned petitioner's inaction in claiming the unpaid rentals from
PNEI, when the latter started defaulting in its payment as early as 1994. This, according to the CA,
indicates that the debt was either already settled or not yet demandable and liquidated.

37. Bautista vs. Pilar development corporation

The first promissory note was cancelled by the express terms of the second promissory note. To
cancel is to strike out, to revoke, rescind or abandon, to terminate.[16] In fine, the first note was
revoked and terminated. Simply put, it was novated. The extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one which extinguishes or modifies the first is
a novation.[17] Novation is made either by changing the object or principal conditions, referred to as
an objective or real novation; or by substituting the person of the debtor or subrogating a third person
to the rights of the creditor, which is known as subjective or personal novation.[18] In both objective
and subjective novation, a dual purpose is achieved-- an obligation is extinguished and a new one is
created in lieu thereof.[19] Novation may either be express, when the new obligation declares in
unequivocal terms that the old obligation is extinguished; or implied, when the new obligation is on
every point incompatible with the old one.[20] Express novation takes place when the contracting
parties expressly disclose that their object in making the new contract is to extinguish the old contract,
otherwise the old contract remains in force and the new contract is merely added to it, and each gives
rise to an obligation still in force.[21]

Novation has four (4) essential requisites: (1) the existence of a previous valid obligation; (2) the
agreement of all parties to the new contract; (3) the extinguishment of the old contract; and (4) the
validity of the new one.[22] In the instant case, all four requisites have been complied with. The first
promissory note was a valid and subsisting contract when petitioner spouses and Apex executed the
second promissory note. The second promissory note absorbed the unpaid principal and interest of
P142,326.43 in the first note which amount became the principal debt therein, payable at a higher
interest rate of 21% per annum. Thus, the terms of the second promissory note provided for a higher
principal, a higher interest rate, and a higher monthly amortization, all to be paid within a shorter
period of 16.33 years. These changes are substantial and constitute the principal conditions of the
obligation.[23] Both parties voluntarily accepted the terms of the second note; and also in the same
note, they unequivocally stipulated to extinguish the first note. Clearly, there was animus novandi, an
express intention to novate.[24] The first promissory note was cancelled and replaced by the second
note. This second note became the new contract governing the parties' obligations.

38. Espina vs CA

The question is, did the provisional deed of sale novate the existing lease contract? The answer is no.

The novation must be clearly proved since its existence is not presumed.[10] "In this light, novation is
never presumed; it must be proven as a fact either by express stipulation of the parties or by
implication derived from an irreconcilable incompatibility between old and new obligations or
contracts."[11]

Novation takes place only if the parties expressly so provide, otherwise, the original contract remains
in force. In other words, the parties to a contract must expressly agree that they are abrogating their
old contract in favor of a new one.[12] Where there is no clear agreement to create a new contract in
place of the existing one, novation cannot be presumed to take place, unless the terms of the new
contract are fully incompatible with the former agreement on every point.[13] Thus, a deed of cession
of the right to repurchase a piece of land does not supersede a contract of lease over the same
property.[14] In the provisional deed of sale in this case, after the initial down payment, respondent's
checks in payment of six installments all bounced and were dishonored upon presentment for the
reason that the bank account was closed.[15] Consequently, on July 26, 1992, petitioner terminated
the provisional deed of sale by a notarial notice of cancellation.[16] Nonetheless, respondent Diaz
continued to occupy the premises, as lessee, but failed to pay the rentals due. On October 28, 1992,
respondent made a payment of P100,000.00 that may be applied either to the back rentals or for the
purchase of the condominium unit. On February 13, 1993, petitioner gave respondent a notice to
vacate the premises and to pay his back rentals.[17] Failing to do so, respondent's possession
became unlawful and his eviction was proper. Hence, on February 24, 1993, petitioner filed with the
Municipal Trial Court, Antipolo, Rizal, Branch 01 an action for unlawful detainer against respondent
Diaz.[18]

Now respondent contends that the petitioner's subsequent acceptance of such payment effectively
withdrew the cancellation of the provisional sale. We do not agree. Unless the application of payment
is expressly indicated, the payment shall be applied to the obligation most onerous to the debtor.[19]
In this case, the unpaid rentals constituted the more onerous obligation of the respondent to petitioner.
As the payment did not fully settle the unpaid rentals, petitioner's cause of action for ejectment
survives. Thus, the Court of Appeals erred in ruling that the payment was "additional payment" for the
purchase of the property.

39. Idolor vs CA

Novation is the extinguishment of an obligation by the substitution or change of the obligation by a


subsequent one which terminates it, either by changing its objects or principal conditions, or by
substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the
creditor.[14] Under the law, novation is never presumed. The parties to a contract must expressly
agree that they are abrogating their old contract in favor of a new one.[15] Accordingly, it was held that
no novation of a contract had occurred when the new agreement entered into between the parties was
intended to give life to the old one.

40. Molina vs Security Diners

Novation, as a mode of extinguishing obligations, may be done in two ways: by explicit declaration, or
by material incompatibility (implied novation). As we stated in Fortune Motors vs. Court of Appeals,
supra:

xxx The test of incompatibility is whether the two obligations can stand together, each one having
its independent existence. If they cannot, they are incompatible and the latter obligation novates
the first. Novation must be established either by the express terms of the new agreement or by
the acts of the parties clearly demonstrating the intent to dissolve the old obligation as a
consideration for the emergence of the new one. The will to novate, whether totally or partially,
must appear by express agreement of the parties, or by their acts which are too clear or
unequivocal to be mistaken.

The resolution of whether petitioner is liable as surety under the Diamond card revolves around the
effect of the upgrading by Danilo Alto of his card. Was the upgrading a novation of the original
agreement governing the use of Danilo Altos first credit card, as to extinguish that obligation and the
Surety Undertaking which was simply accessory to it?

ANS. There is no doubt that the upgrading was a novation of the original agreement covering the first
credit card issued to Danilo Alto, basically since it was committed with the intent of cancelling and
replacing the said card. However, the novation did not serve to release petitioner from her surety
obligations because in the Surety Undertaking she expressly waived discharge in case of change or
novation in the agreement governing the use of the first credit card.

Any changes of or novation in the terms and conditions in connection with the issuance or use of said
Pacificard, or any extension of time to pay such obligations, charges or liabilities shall not in any
manner release me/us from the responsibility hereunder, it being understood that the undertaking is a
continuing one and shall subsist and bind me/us until all the liabilities of the said Celia Syjuco Regala
have been fully satisified or paid.
41. Garcia vs Llamas

The check could not have extinguished the obligation, because it bounced upon presentment. By law,
[9] the delivery of a check produces the effect of payment only when it is encashed.
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the change does not come from -- and may even be made
without the knowledge of -- the debtor, since it consists of a third persons assumption of the obligation.
As such, it logically requires the consent of the third person and the creditor. In delegacion, the debtor
offers, and the creditor accepts, a third person who consents to the substitution and assumes the
obligation; thus, the consent of these three persons are necessary.[11] Both modes of substitution by
the debtor require the consent of the creditor.[12]

Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by
the creation of a new one that takes the place of the former. It is merely modificatory when the old
obligation subsists to the extent that it remains compatible with the amendatory agreement.[13]
Whether extinctive or modificatory, novation is made either by changing the object or the principal
conditions, referred to as objective or real novation; or by substituting the person of the debtor or
subrogating a third person to the rights of the creditor, an act known as subjective or personal
novation.[14] For novation to take place, the following requisites must concur:

1) There must be a previous valid obligation.

2) The parties concerned must agree to a new contract.

3) The old contract must be extinguished.

4) There must be a valid new contract.[15]

Novation may also be express or implied. It is express when the new obligation declares in
unequivocal terms that the old obligation is extinguished. It is implied when the new obligation is
incompatible with the old one on every point.[16] The test of incompatibility is whether the two
obligations can stand together, each one with its own independent existence.[17]

Applying the foregoing to the instant case, we hold that no novation took place.

The parties did not unequivocally declare that the old obligation had been extinguished by the
issuance and the acceptance of the check, or that the check would take the place of the note. There is
no incompatibility between the promissory note and the check. As the CA correctly observed, the
check had been issued precisely to answer for the obligation. On the one hand, the note evidences
the loan obligation; and on the other, the check answers for it. Verily, the two can stand together.

Neither could the payment of interests -- which, in petitioners view, also constitutes novation[18] --
change the terms and conditions of the obligation. Such payment was already provided for in the
promissory note and, like the check, was totally in accord with the terms thereof.

Also unmeritorious is petitioners argument that the obligation was novated by the substitution of
debtors. In order to change the person of the debtor, the old one must be expressly released from the
obligation, and the third person or new debtor must assume the formers place in the relation.[19] Well-
settled is the rule that novation is never presumed.[20] Consequently, that which arises from a
purported change in the person of the debtor must be clear and express.[21] It is thus incumbent on
petitioner to show clearly and unequivocally that novation has indeed taken place.

In the present case, petitioner has not shown that he was expressly released from the obligation, that
a third person was substituted in his place, or that the joint and solidary obligation was cancelled and
substituted by the solitary undertaking of De Jesus. The CA aptly held:

x x x. Plaintiffs acceptance of the bum check did not result in substitution by de Jesus either, the
nature of the obligation being solidary due to the fact that the promissory note expressly declared that
the liability of appellants thereunder is joint and [solidary.] Reason: under the law, a creditor may
demand payment or performance from one of the solidary debtors or some or all of them
simultaneously, and payment made by one of them extinguishes the obligation. It therefore follows that
in case the creditor fails to collect from one of the solidary debtors, he may still proceed against the
other or others. x x x [22]

Moreover, it must be noted that for novation to be valid and legal, the law requires that the creditor
expressly consent to the substitution of a new debtor.[23] Since novation implies a waiver of the right
the creditor had before the novation, such waiver must be express.[24] It cannot be supposed, without
clear proof, that the present respondent has done away with his right to exact fulfillment from either of
the solidary debtors.[25]

More important, De Jesus was not a third person to the obligation. From the beginning, he was a joint
and solidary obligor of the P400,000 loan; thus, he can be released from it only upon its
extinguishment. Respondents acceptance of his check did not change the person of the debtor,
because a joint and solidary obligor is required to pay the entirety of the obligation.

It must be noted that in a solidary obligation, the creditor is entitled to demand the satisfaction of the
whole obligation from any or all of the debtors.[26] It is up to the former to determine against whom to
enforce collection.[27] Having made himself jointly and severally liable with De Jesus, petitioner is
therefore liable[28] for the entire obligation.[29]

42. California vs state investment

1. W O N t h e R e s t r u c t u r i n g A g r e e m e n t b e t w e e n C B L I a n d D e l t a
novated t h e 5 p r o m i s s o r y n o t e s D e l t a a s s i g n e d t o
r e s p o n d e n t SIHI. Ans. NO
an agreement subsequently executed between a seller and a buyer that provided 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 tantamount to novation.

2 . W O N t h e C o m p r o m i s e A g r e e m e n t between Delta and


CBLI superseded and/or discharged the subject 5 promissory notes. Ans. NO
Even in the absence of such a provision, the compromise agreement still cannot bind SIHI under the
settled rule that a compromise agreement determines the rights and obligations of only the parties to
it.[67] Therefore, we hold that the compromise agreement covered the rights and obligations only of
Delta and CBLI and only with respect to the eleven (11) other promissory notes that remained with
Delta.

43. Philippine Savings Bank vs. Maalac, Jr.


Whether or not there was novation in applying the payment made by respondent to loan account of
Galicia.

NO. Novation is never presumed. Novation is the extinguishment of an obligation by the substitution or
change of the obligation by a subsequent one which extinguishes or modifies the first, either by
changing the object or principal conditions, or, by substituting another in place of the debtor, or by
subrogating a third person in the rights of the creditor. It is obvious that there was no agreement to
form a new contract by novating the mortgage contracts of the Maalacs and the Galicias. Neither can
Maalac be deemed substitute debtor within the contemplation of Article 1293 of the Civil Code. The
Decision of the Court of Appeals was reversed and set aside.

44. Villamaria vs CA

The Kasunduan did not extinguish the employer-employee relationship of the parties extant before the
execution of said deed.

Under the Kasunduan, respondent was required to remit P550.00 daily to petitioner, an amount which
represented the boundary of petitioner as well as respondents partial payment (hulog) of the purchase
price of the jeepney. Respondent was entitled to keep the excess of his daily earnings as his daily
wage. Thus, the daily remittances also had a dual purpose: that of petitioners boundary and
respondents partial payment (hulog) for the vehicle. This dual purpose was expressly stated in the
Kasunduan. The well-settled rule is that an obligation is not novated by an instrument that expressly
recognizes the old one, changes only the terms of payment, and adds other obligations not
incompatible with the old provisions or where the new contract merely supplements the previous one.
[47] The two obligations of the respondent to remit to petitioner the boundary-hulog can stand
together.

45. Licaros vs. Gatmaitan

Under our Code, however, conventional subrogation is not identical to assignment of credit. In the
former, the debtors consent is necessary; in the latter it is not required. Subrogation extinguishes the
obligation and gives rise to a new one; assignment refers to the same right which passes from one
person to another. The nullity of an old obligation may be cured by subrogation, such that a new
obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of
the creditors right to another.[9]

Petitioner argues that the parties to the Memorandum of Agreement could not have intended the same
to be a conventional subrogation considering that no new obligation was created. According to
petitioner, the obligation of Anglo-Asean Bank to pay under Contract No. 00193 was not extinguished
and in fact, it was the basic intention of the parties to the Memorandum of Agreement to enforce the
same obligation of Anglo-Asean Bank under its contract with petitioner. Considering that the old
obligation of Anglo-Asean Bank under Contract No. 00193 was never extinguished under the
Memorandum of Agreement, it is contended that the same could not be considered as a conventional
subrogation.

We are not persuaded.

It is true that conventional subrogation has the effect of extinguishing the old obligation and giving rise
to a new one. However, the extinguishment of the old obligation is the effect of the establishment of a
contract for conventional subrogation. It is not a requisite without which a contract for conventional
subrogation may not be created. As such, it is not determinative of whether or not a contract of
conventional subrogation was constituted.

Moreover, it is of no moment that the subject of the Memorandum of Agreement was the collection of
the obligation of Anglo-Asean Bank to petitioner Licaros under Contract No. 00193. Precisely, if
conventional subrogation had taken place with the consent of Anglo-Asean Bank to effect a change in
the person of its creditor, there is necessarily created a new obligation whereby Anglo-Asean Bank
must now give payment to its new creditor, herein respondent.

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