ST.

JAMES COLLEGE OF PARANAQUE V EQUITABLE PCI BANK The Facts Petitioners-spouses Jaime (now deceased) and Myrna Torres owned and operated St. James College of Paraaque[3] (St. James College), a sole proprietorship educational institution. in 1995, the Philippine Commercial and International Bank (PCIB) granted the Torres spouses and/or St. James College a credit line facility of up to PhP 25,000,000, secured by a real estate mortgage[4] (REM) over a parcel of land situated in Paraaque, in the name of St. James College, The credit line underwent several annual renewals, As petitioners had defaulted in the payment of the loan obtained from the secured credit accommodation, their total unpaid loan obligation, as of September 2001, stood at PhP 18,300,000. EPCIB proposed a restructuring package with a soft payment scheme for the outstanding loan balance of PhP 18,300,000. Under the counter-proposal, the bank would book the accumulated past due loans to current status and charge interest at a fixed rate of 13.375% per annum, payable in either options: Petitioner Jaime Torres chose and agreed to the second option,

i.e., the equal annual amortizations of PhP 6,100,000 payable every May. May 2003 came, but petitioners failed to pay the stipulated annual amortization of PhP 6,100,000 agreed upon.. On June 23, 2003, petitioners tendered, and EPCIB accepted, a partial payment of PhP 2,521,609.62, EPCIB made it abundantly clear on the OR that: THE RECEIPT OF PAYMENT IS WITHOUT PREJUDICE TO THE BANKS RIGHT AND CLAIMS ARISING FROM THE FACT THE ACCOUNT IS OVERDUE. NOR SHALL IT RENDER THE BANK LIABLE FOR ANY DAMAGE BY ITS ACCEPTANCE OF PAYMENT. EPCIB, through counsel, reminded and made it clear to petitioners that their first partial payment did not detract from the past due character of their outstanding loan for which reason it is demanding the remaining PhP 5,100,000 to complete the first PhP 6,100,000 principal payment. EPCIB proposed a new repayment scheme to which petitioners were not amenable. On November 6, 2003, petitioners issued a Stop Payment Order[12] for their PhP 921,535.42 check. On November 10, 2003, EPCIB, through counsel, demanded full settlement of petitioners loan obligation in the total amount of PhP 24,719,461.48. EPCIB filed before the Office of the Clerk

of Court and Ex-Officio Sheriff of the RTC in Paraaque City its Petition for Sale[14] to extrajudicially foreclose the mortgaged property covered On the very day of the scheduled foreclosure sale, January 9, 2004, the Pasig City RTC issued a TRO,[16] enjoining EPCIB from proceeding with the scheduled foreclosure sale, and set a date for the hearing on the application for a writ of preliminary injunction. On March 10, 2004, the RTC issued an Order granting a writ of preliminary injunction in favor of petitioners, ISSUE: whether there was indeed a novation of the contract between the parties The Courts Ruling The petition is unmeritorious. No Novation of Contract As a civil law concept, 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.[24] Novation may 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.[25] 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. [26] The test of incompatibility lies on whether the two obligations can stand together, each one with its own independent existence.[27] For novation, as a mode of extinguishing or modifying an obligation, to apply, 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.[28]

The parties did not unequivocally declare, let alone agree, that the obligation had been modified as to the terms of payment by the partial payments of the obligation.. The following acts of EPCIB readily argue against the idea of its having agreed to a modification in the stipulated terms of payment: (a) its letter-reply to petitioners June 23, 2003 letter; (b) the August 27, 2003 demandletter of EPCIB for the full principal balance of PhP 5,100,000 from petitioners; (c) the September 17, 2003 letter of EPCIB denying petitioners request for a partial payment; (d) the OR dated June 30, 2003 EPCIB issued where the following entries were written: THE RECEIPT OF PAYMENT IS WITHOUT PREJUDICE TO THE BANKS RIGHTS AND CLAIMS ARISING FROM THE FACT THE ACCOUNT IS OVERDUE. NOR SHALL IT RENDER THE BANK LIABLE FOR ANY DAMAGE BY ITS ACCEPTANCE OF PAYMENT; the notion of novation foisted by petitioners on the Court cannot be plausibly deduced from EPCIBs acceptance of such lesser

amount. there is clearly no incompatibility between EPCIBs receipt of the partial payments of the principal amounts and what was due in May 2003. As it were, EPCIB accepted the partial payments remitted, but demanded, at the same time, the full payment of what was otherwise due in May 2003. Novatio non praesumitur, or novation is never presumed,[29] is a well-settled principle. Consequently, that which arises from a purported modification in the terms and conditions of the obligation must be clear and express., the acts of EPCIB before, simultaneously to, and after its acceptance of payments from petitioners argue against the idea of its having acceded or acquiesced to petitioners request for a change of the terms of payments of the secured loan. Thus, a novation through an alleged implied consent by EPCIB, as proffered and argued by petitioners, cannot be given

HERNANDEZ- NIEVERA V HERNANDEZ Project Movers Realty & Development Corporation (PMRDC), one of the respondents herein, is a duly organized domestic corporation

engaged in real estate development. in 1995, it entered through its president, respondent Mario Villamor (Villamor), into various agreements with co-respondents Home Insurance & Guaranty Corporation (HIGC)[5] and Land Bank of the Philippines (LBP), in connection with the construction of the Isabel Homes housing project in Batangas and of the Monumento Plaza commercial and recreation complex in Caloocan City. In its Asset Pool Formation Agreement, PMRDC conveyed to HIGC the constituent assets of the two projects,[6] whereas LBP agreed to act as trustee of the resulting Asset Pool[7] for a consideration.[8] The execution of the projects would be funded largely through securitization, whereby LBP would act as the nominal issuer of such certificates with the Asset Pool itself acting as the real issuer.[10] HIGC, in turn, would provide guaranty coverage to these participation certificates in accordance with its Contract of Guaranty with PMRDC and LBP. [11] On November 13, 1997, PMRDC entered into a Memorandum of Agreement (MOA) whereby it was given the option to buy pieces of land owned by petitioners Carolina Hernandez-Nievera (Carolina), Margarita H. Malvar (Margarita) and Demetrio P. Hernandez, Jr. (Demetrio). Demetrio, under authority of a Special Power of Attorney to Sell or Mortgage,[12] signed the MOA also in

behalf of Carolina and Margarita. materially provides:

The MOA

1. THAT, the VENDEE shall have the option to purchase the above-described parcels of land within a period of twelve (12) months from the date of this instrument and that the VENDEE shall pay the vendor option money should the VENDEE fail to exercise its option to purchase the said described parcels of land within the stipulated period, the option money shall be forfeited in favor of the VENDOR and that the VENDEE shall return to the VENDOR all the Transfer Certificates of Title covering the said described parcels of land the VENDOR, at the request of the VENDEE, shall agree to convey the parcels of land to any bank or financial institution by way of mortgage or to a Trustee by way of a Trust Agreement at any time

from the date of this instrument, PROVIDED, HOWEVER, that the VENDOR is not liable for any mortgage or loans or obligations that will be incurred by way of mortgage of Trust Agreement that the VENDEE might enter into; As an implementation of the MOA, the lands within Area I were then mortgaged to Solid Bank for which petitioners received consideration from PMRDC.[14] PMRDC saw the need to convey additional properties to and augment the value of its Asset Pool to support the collateralization of additional participation certificates to be issued.[15] Thus, on March 23, 1998, it entered with LBP and Demetrio the latter purportedly acting under authority of the same special power of attorney as in the MOA into a Deed of Assignment and Conveyance whereby the lands within Area II were transferred and assigned to the Asset Pool in exchange for a number of shares of stock which supposedly had already been issued in the name and in favor of Demetrio. , petitioners instituted an action before the RTC of San Pablo City, Laguna, Branch 32 for the rescission of the MOA,

RTC rendered decision in favor petitioners. On appeal, CA reversed the ruling of RTC. Hence this petiotion. Issue: won there was novation. Ruling: This seems to suggest that with the execution of the DAC, PMRDC has already entered into the exercise of its option except that its obligation to deliver the option money has, by subsequent agreement embodied in the DAC, been substituted instead by the obligation to issue participation certificates in Demetrios name but which, likewise, has not yet been performed by PMRDC. It is in the context of this vesture of power that Demetrio, representing his shared interest with Carolina and Margarita, entered into the MOA with PMRDC. It is likewise within this same context that Demetrio later on entered into the DAC and accordingly extinguished the previously subsisting obligation of PMRDC to deliver the stipulated option money and replaced said obligation with the delivery instead of participation certificates in favor of Demetrio.

the power conferred on Demetrio to sell for such price or amount[46] is broad enough to cover the exchange contemplated in the DAC between the properties and the corresponding corporate shares in PMRDC, with the latter replacing the cash equivalent of the option money initially agreed to be paid by PMRDC under the MOA Thus, it becomes clear that Demetrios special power of attorney to sell is sufficient to enable him to make a binding commitment under the DAC in behalf of Carolina and Margarita. In particular, it does include the authority to extinguish PMRDCs obligation under the MOA to deliver option money and agree to a more flexible term by agreeing instead to receive shares of stock in lieu thereof and in consideration of the assignment and conveyance of the properties to the Asset Pool. Indeed, the terms of his special power of attorney allow much leeway to accommodate not only the terms of the MOA but also those of the subsequent agreement in the DAC which, in this case, necessarily and consequently has resulted in a novation of PMRDCs integral obligations There are two ways which could indicate, in fine, the presence of novation and thereby

produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible, and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation. [49]

G.R. No. L-29280 August 11, 1988 PEOPLE'S BANK AND TRUST COMPANY, plaintiff-appellee, vs.SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y SYYAP, defendants-appellants. This is an action for foreclosure of chattel mortgage executed in favor of the plaintiff by the defendant Syvel's Incorporated on its stocks of goods, personal properties and other materials owned by it and located at its stores or warehouses The chattel mortgage was in connection with a credit commercial line in the amount of P900,000.00 granted the said defendant corporation, the expiry date of which was May 20, 1966. On May 20, 1965, defendants Antonio V. Syyap and Angel Y. Syyap executed an undertaking in favor of the plaintiff whereby they both agreed to guarantee absolutely and unconditionally and without the benefit of excussion the full and prompt payment of any indebtedness to be incurred on account of the said credit line. Against the credit line granted the defendant Syvel's Incorporated the latter drew advances in the form of promissory notes. In view

of the failure of the defendant corporation to make payment in accordance with the terms and conditions agreed upon in the Commercial Credit Agreement the plaintiff started to foreclose extrajudicially the chattel mortgage. After the filing of this case and during its pendency, Syyap proposed to have the case settled. Mr. Syyap offered to execute a real estate mortgage on his real property located in Bacoor, Cavite. Mr. De las Alas consented, and so the Real Estate Mortgage was executed by the defendant Antonio V. Syyap and his wife Margarita Bengco Syyap on June 22, 1967. In that deed of mortgage, defendant Syyap admitted that as of June 16, 1967, the indebtedness of Syvel's Incorporated was P601,633.01. No part of the amount has been paid by either of the defendants. Hence their liabilities cannot be questioned

ISSUE: WON the obligation secured by the Chattel Mortgage sought to be foreclosed was novated by

the subsequent execution by Syyap of a real estate mortgage as additional collateral to the obligation secured by said chattel mortgage. HELD: Novation takes place when the object or principal condition of an obligation is changed or altered. It is elementary that novation is never presumed; it must be explicitly stated or there must be manifest incompatibility between the old and the new obligations in every aspect. In the case at bar, there is nothing in the Real Estate Mortgage which supports appellants'submission. The contract on its face does not show the existence of an explicit novation nor incompatibility on every point between the "old and the "new" agreements as the second contract evidently indicates that the same was executed as new additional security to the chattel mortgage previously entered into by the parties. Moreover, appellants agreed that the chattel mortgage "shall remain in full force and shall not be impaired by this (real estate) mortgage." It is clear, therefore, that a novation was not intended. The real estate mortgage was evidently

taken as additional security for the performance of the contract.

SPOUSES JOSE T. VALENZUELA and GLORIA VALENZUELA, Petitioners, vs. KALAYAAN DEVELOPMENT & INDUSTRIAL CORPORATION, Respondent. G.R. No. 163244 June 22, 2009

Facts: Kalayaan Development & Industrial Corporation discovered that Spouses Jose and Gloria Valenzuela had occupied and built a house on a parcel of land it owned, and demanded that they vacate said property. Upon negotiation, however, petitioners and Kalayaan entered a Contract to Sell wherein the petitioners would purchase 236 square meters of the subject property for P1,416,000 in twelve equal monthly installments. The contract further stated that upon failure to pay any of said installments, petitioners would be liable for liquidated penalty at 3% a month compounded monthly until fully paid. Kalayaan would also execute the deed of absolute sale only upon full payment. Petitioners were only able to pay monthly installments amounting to a total of P208, 000.00.

They then requested Kalayaan to issue a deed of sale for 118 square meters of the lot where their house stood, arguing that since they had paid half the purchase price, or a total of P708,000.00 representing 118 square meters of the property. Kalayaan, on the other hand, sent two demand letters asking petitioners to pay their outstanding obligation including agreed penalties. Gloria Valenzuelas sister, Juliet Giron, assumed the remaining balance for the 118 square meters of the subject property at P10,000.00 per month to Kalayaan, which the latter accepted for and in behalf of Gloria. Thereafter, Kalayaan demanded that petitioners pay their outstanding obligation, but were unheeded. Kalyaan then filed a Complaint fot the Rescission of Contract and Damages against petitioners. The RTC of Caloocan rendered a Decision in favor of Kalayaan, rescinding the contract between the parties and ordering petitioners to vacate the premises. Petitioners sought recourse from the CA. They aver that the CA failed to see that the original contract between petitioners and Kalayaan was altered, changed, modified and restricted as a consequence of the change in the person of the principal debtor (Sps. Valenzuela to Juliet). When Kalayaan agreed to a monthly amortization of P10,000.00 per month the original contract was changed, and that the same recognized Juliets capacity to pay and her designation as the new

debtor. Nevertheless, the CA affirmed the RTC ruling. Issue: If the original contract was novated and the principal obligation to pay for the remaining half of the subject property was transferred from petitioners to Juliet. Held: 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. Parties to a contract must expressly agree that they are abrogating their old contract in favor of a new one. In absence of an express agreement, novation takes place only when the old and new obligations are incompatible on every point. These are the indispensable requisites of novation: 1) There must be a previous valid obligation; 2) There must be an agreement of the parties concerned to a new contract; 3) There must be the extinguishment of the old contract; and 4) There must be the validity of the new contract.

In the instant case, none of the aforementioned requisites are present, as Kalayaan never agreed to the creation of a new contract between them or Juliet. Kalayaans acceptance of the late payments made by Juliet is, at best, an act of tolerance on part of Kalayaan that could not have modified the contract. The non-fulfillment by petitioners of their obligation to pay, which is a suspensive condition for the obligation of Kalayaan to sell and deliver the title to the property, rendered the Contract to Sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed; Kalayaan cannot be compelled to transfer ownership of the property to petitioners.

The Facts "'(a) The defendant applied/appropriated the amounts of $2,627.11 and P34,340.38 from remittances of the plaintiff's principals (sic) abroad. "'(b) The first remittance was made by the NCB of Jeddah for the benefit of the plaintiff, to be credited to his account at Citibank, Greenhills Branch; the second was from Libya, and was intended to be deposited at the plaintiff's account with the defendant, No. 830-2410; (c) The plaintiff made a written demand upon the defendant for remittance of the equivalent of $2,627.11 by means of a letter dated December 4, 1986 . "'(d) There were indeed two instances in the past, one in November 1980 and the other in January 1981 when the plaintiff's account No. 830-2410 was doubly credited with the equivalents of $5,679.23 and $5,885.38, respectively, which amounted to an aggregate amount of P87,380.44. "'(e) Defendant PNB made a demand upon the plaintiff for refund of the double or duplicated

PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF APPEALS and RAMON LAPEZ,[1] doing business under the name and style SAPPHIRE SHIPPING, respondents.

credits erroneously made on plaintiff's account, by means of a letter dated October 23, 1986 or 5 years and 11 months from November 1980, and 5 years and 9 months from January 1981. "'(f) The deduction of P34,340.38 was made by the defendant not without the knowledge and consent of the plaintiff, who was issued a receipt. ISSUES: whether the herein petitioner was legally justified in making the compensation or set-off against the two remittances coursed through it in favor of private respondent to recover on the double credits it erroneously made in 1980 and 1981, based on the principle of solutio indebiti HELD: "'Article 1279 of the Civil Code provides: "'In order that compensation may prosper, 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 consists 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 demandable; be liquidated and

(5) That over neither of them there by any retention or controversy, commenced by third persons and communicated in due time to the debtor."'

What the petitioner bank is effectively saying is that since the respondent Court of Appeals ruled that petitioner bank could not do a shortcut and simply intercept funds being coursed through it, for transmittal to another bank, and eventually to be deposited to the account of an individual who happens to owe some amount of money to the petitioner, and because respondent Court ordered petitioner bank to return the intercepted

amount to said individual, who in turn was found by the appellate Court to be indebted to petitioner bank, THEREFORE, there must now be legal compensation of the amounts each owes the other, and hence, there is no need for petitioner bank to actually return the amount, and finally, that petitioner bank ends up in exactly the same position as when it first took the improper and unwarranted shortcut by intercepting the said money transfer, notwithstanding the assailed Decision saying that this could not be done! We see in this petition a clever ploy to use this Court to validate or legalize an improper act of the petitioner bank, with the not impossible intention of using this case as a precedent for similar acts of interception in the future. This piratical attitude of the nation's premier bank deserves a warning that it should not abuse the justice system in its collection efforts, particularly since we are aware that if the petitioner bank had been in good faith, it could have easily disposed of this controversy in ten minutes flat by means of an exchange of checks with private respondent for the same amount. The litigation could have ended there, but it did not. Instead, this plainly unmeritorious case had to clog our docket and take up the valuable time of this Court.

SOUTH AFRICAN AIRWAYS V. COMMISSIONER OF INTERNAL REVENUE G.R. No. 180356 February 16, 2010 The Facts Petitioner South African Airways is a foreign corporation organized and existing under and by virtue of the laws of the Republic of South Africa. Its principal office is located at Airways Park, Jones Road, Johannesburg International Airport, South Africa. In the Philippines, it is an internal air carrier having no landing rights in the country. Petitioner has a general sales agent in the Philippines, Aerotel Limited Corporation (Aerotel). Aerotel sells passage documents for compensation or commission for petitioners off-line flights for the carriage of passengers and cargo between ports or points outside the territorial jurisdiction of the Philippines. Petitioner is not registered with the Securities and Exchange Commission as a corporation, branch office, or partnership. It is not licensed to do business in the Philippines. For the taxable year 2000, petitioner filed separate quarterly and annual income tax returns for its off-line flights. On February 5, 2003, petitioner filed with the

Bureau of Internal Revenue, a claim for the refund of the amount of PhP 1,727,766.38 as erroneously paid tax on Gross Philippine Billings (GPB) for the taxable year 2000. Such claim was unheeded. The CTA ruled that petitioner is a resident foreign corporation engaged in trade or business in the PhilippinesThe CTA stated that petitioner is liable to pay a tax of 32% on its income derived from the sales of passage documents in the Philippines. On this ground, the CTA denied petitioners claim for a refund. The Issue: WON such offsetting of their liability under sec.28 (a)(1) by the refund they are asking is in the nature of legal compensation. The Courts Ruling

Philippines. Sec. 28(A)(3) is an exception to this general rule. If an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while international air carriers that do not have flights to and from the Philippines ome. Article 1279 of the Civil Code contains the elements of legal compensation, to wit: 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

Petitioner Is Subject to Income Tax at the Rate of 32% of Its Taxable Income Sec. 28(A)(1) of the 1997 NIRC is a general rule that resident foreign corporations are liable for 32% tax on all income from sources within the

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. In several instances prior to the instant case, the court have already made the pronouncement that taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. Verily, petitioners argument is correct that the offsetting of its tax refund with its alleged

tax deficiency is unavailing under Art. 1279 of the Civil Code. Be that as it may, this Court is unable to affirm the assailed decision and resolution of the CTA En Banc on the outright denial of petitioners claim for a refund. Even though petitioner is not entitled to a refund due to the question on the propriety of petitioners tax return subject of the instant controversy, it would not be proper to deny such claim without making a determination of petitioners liability under Sec. 28(A)(1). It must be remembered that the tax under Sec. 28(A)(3)(a) is based on GPB, while Sec. 28(A) (1) is based on taxable income, that is, gross income less deductions and exemptions, if any WHEREFORE, the assailed July 19, 2007 Decision and October 30, 2007 Resolution of the CTA En Banc in CTA E.B. Case No. 210 are SET ASIDE. The instant case is REMANDED.