OBLICON (NOVATION)

Cinco vs. C.A., G.R. No. 151903Petitioner Manuel Cinco obtained a loan in the amount 700,000.00 from respondent Maasin
Traders Lending Corporation (MTLC). The loan was evidenced by the promissory note, and secured by a real estate mortgage
over the spouses Cincos land and 4-storey building.To pay the loan in favor of MTLC, the spouses Cinco applied for a loan
with the Philippine National Bank (PNB), and offered the same properties they previously mortgage to MTLC. The PNB
approved the load application for 1.3 Million; the release was, however, conditioned on the cancellation of the mortgage in
favor of MTLC. Manuel went to Ester Servacio (Ester), MTLCs President to inform her that there was money with PNB for
Payment of his loan. Manuel executed a Special Power of Attorney (SPA) authorizing Ester to collect the proceeds of the
loan. Ester went to the PNB to inquire, the second time around, about the proceeds. The bank officer confirmed the
existence of such loan, but they required Ester to first sign a deed of release/cancellation of the mortgage before they could
release the proceeds of the loan to her. Outraged, Ester refused the deed and did not collect the 1.3 Million. Ester instituted
foreclosure proceeding. To prevent the foreclosure, the spouses Cinco filed an action for specific performance, damages, and
preliminary injunction.

Issue: Whether the loan due the MTLC had been extinguished by the act of the spouses Cinco amounted to payment.

Held: No, 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. 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., 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.
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. The Court agrees with Manuel that Esters refusal of the
payment was without basis.Under these circumstances, we hold that while no completed tender of payment and
consignation took place sufficient to constitute payment, the spouses Go Cinco duly established that they have legitimately
secured a means of paying off their loan with MTLC; they were only prevented from doing so by the unjust refusal of Ester to
accept the proceeds of the PNB loan through her refusal to execute the release of the mortgage on the properties mortgaged
to MTLC. We also find that under the circumstances, the spouses Go Cinco have undertaken, at the very least, the equivalent
of a tender of payment that cannot but have legal effect. Since payment was available and was unjustifiably refused, justice
and equity demand that the spouses Go Cinco be freed from the obligation to pay interest on the outstanding amount from
the time the unjust refusal took place

PNCC vs. CA. G. R. No. 116896. May 5, 1997Nature

: Petition for review on certiorari of decision made by the Court of Appeals (CA)

Facts

: On 18 November 1985, petitioner Philippine National Construction Corporation (PNCC) executed a contract of lease with
private respondents, stipulating to pay rent for the use of land, at the monthly rate of P 20,000.00 payable yearly in advance.
The said land is to be used by petitioner as site for a rock crushing plant. The term of lease is for five years, commencing on
the date of issuance of an industrial clearance by the Ministry of Human Settlements (Ministry).On 7 January 1986 PNCC
obtained a Temporary Use Permit from the Ministry for the proposed rock crushing project. Nine days later private
respondents wrote to PNCC, asking for the first annual rental, and assuring that they have stopped considering proposals of
other aggregates plants in favor of PNCC. In reply, PNCC argued that the contract must commence on the date of issuance by

1|Page
the Ministry of an industrial clearance in their favor. It also expressed its desire to terminate the contract it executed with
respondents, due to financial, as well as technical difficulties. Respondents refused to accede to PNCCs request for pre
termination and on 19 May 1986, instituted an action against PNCC for Specific Performance with Damages. Trial court ruled
in favor of respondents and ordered PNCC to pay rentals for two years, with legal interests plus attorneys fees. The Court of
Appeals affirmed the decision of the trial court upon appeal by PNCC; hence, this case.

Issues

:(1) WON contract commences on the date of issuance of clearance by Ministry;(2) WON PNCC should be released from its
contract with respondents due to unforeseen events and causes beyond its control;(3) WON sum of money ordered to be
paid by the court is excessive and;(4) WON PNCC was deprived of right to due process.

Held

: Petition denied.

Ratio

:(1) PNCC is estopped from claiming that Lease Contract commences on the date of issuance of clearance by Ministry,
because in its letter to respondents, PNCC recognized its obligation to pay rentals counted from the date the temporary
permit was issued.(2) PNCC cites Art. 1266, asserting that it should be released from the obligatory force of the contract
because its purpose did not materialize due to unforeseen events and causes beyond its control. However, this article applies
only to obligations to do and not to give, while obligation arising out of said contract is an obligation to do. Further,
PNCC executed the contract with open eyes on the deteriorating conditions of the country and mere pecuniary inability to
fulfill an engagement does not discharge a contractual obligation. The unforeseen events and causes beyond its control
cited by PNCC are not the legal and physical impossibilities contemplated in Art. 1266

PNCC asserts that it was not able to use and enjoy the land and is not entitled to pay damages cited by the court. However,
respondents suffered damages because of its inability to use the premises. Respondents are entitled to indemnification
under Art. 1659 of the Civil Code. (4) PNCC was not deprived of due process because trial court granted several
postponements to petitioner before it waived the presentation of evidence in petitioners behalf.

G.R. Nos. 149840-41 March 31, 2006

SPS. FRANCISCO AND RUBY REYES, Petitioners,

vs.

BPI FAMILY SAVINGS BANK, INC., and MAGDALENA L. LOMETILLO, in her capacity as ex-officio Provincial Sheriff for Iloilo,
Respondents.

DECISION

CORONA,J.:

Via this petition for review under Rule 45 of the Rules of Court, petitioners assail the decision 1 of the Court of Appeals (CA)
in CA-G.R. SP Nos. 45629 and 45877 and its resolution denying their motion for reconsideration.

The facts are simple.

2|Page
On March 24, 1995, the Reyes spouses executed a real estate mortgage on their property in Iloilo City in favor of respondent
BPI Family Savings Bank, Inc. (BPI-FSB) to secure a P15,000,000 loan of Transbuilders Resources and Development
Corporation (Transbuilders). The mortgage contract between petitioners and BPI-FSB provided, among others:

That for and in consideration of the above-mentioned sum received by way of a loan, and other credit accommodations of
whatever nature obtained by the Borrower/Mortgagor, the Borrower/Mortgagor by this Agreement, hereby constitutes a
first mortgage, special and voluntary over the property/ies specifically described in Annex "A", together with all existing
improvements as well as those that may hereafter be made to exist or constructed thereon, inclusive of all fruits and rents,
in favor of the Bank, its successors and assigns. 2

When Transbuilders failed to pay its P15M loan within the stipulated period of one year, the bank restructured the loan
through a promissory note executed by Transbuilders in its favor. The pertinent provisions of the promissory note3 stated
that:

1. The proceeds of the Note shall be applied to loan account no. 211083364; and

2. The new obligation of Transbuilders to respondent Bank for fifteen million (P15,000,000.00) shall be paid in twenty (20)
quarterly installments commencing on September 28, 1996 and at an interest rate of eighteen (18%) per annum.

Petitioners aver that they were not informed about the restructuring of Transbuilders loan. In fact, when they learned of the
new loan agreement sometime in December 1996, they wrote BPI-FSB requesting the cancellation of their mortgage and the
return of their certificate of title to the mortgaged property. They claimed that the new loan novated the loan agreement of
March 24, 1995. Because the novation was without their knowledge and consent, they were allegedly released from their
obligation under the mortgage.

When BPI-FSB refused to cancel the mortgage, petitioners filed separate petitions for mandamus and prohibition with the
Regional Trial Court (RTC) of Manila to compel the bank to return their certificate of title and cancel the mortgage. BPI-FSB,
on the other hand, instituted extrajudicial foreclosure proceedings against petitioners in Iloilo City after Transbuilders
defaulted in its payments. Consequently, a sheriffs notice of sale of petitioners property at public auction was issued.

The Manila RTC dismissed petitioners actions for mandamus and prohibition. Their appeal to the Court of Appeals was
likewise dismissed:

The mortgage contract between the petitioners and the respondent BPI does not limit the obligation or loan for which it may
stand to the loan agreement between Transbuilders and BPI, dated March 24, 1995, considering that under the terms of that
contract, the intent of all the parties, including the petitioners, to secure future indebtedness is apparent. On the whole,
the contract of loan/mortgage dated March 24, 1995, appears to include even the new loan agreement between
Transbuilders and BPI, entered into on June 28, 1996.

xxx xxx xxx

3|Page
There is likewise no merit to the petitioners submission that there was a novation of the March 24, 1995 contract. There is
no clear intent of the parties to make the new contract completely supersede and abolish the old loan/mortgage contract.
The established rule is that novation is never presumed. Novation will not be allowed unless it is clearly shown by express
agreement, or by acts of equal import. Thus, to effect an objective novation it is imperative that the new obligation expressly
declares that the old obligation is thereby extinguished or that the new obligation be on every point incompatible with the
new one. (Ajax Marketing & Development Corporation v. Court of Appeals, 248 SCRA 222 [1995]) Without such clear intent
to abolish the old contract, there is no merit to affirm the existence of a novation.

There is no basis therefore, to the charge that respondent BPI had gravely erred in not surrendering the petitioners
certificate of title, as the mortgage undertaking of the petitioners has not been cancelled. For the same reason, the
respondent BPI acted within its prerogative when it initiated extra-judicial foreclosure proceedings over the petitioners
property.

WHEREFORE, premises considered, the instant appeals from the Decision of the Regional Trial Court of Iloilo City in CA-G.R.
SP No. 45887 and the Order of dismissal of the Regional Trial Court of Manila in CA-G.R. SP No. 45629 are hereby DISMISSED.

SO ORDERED.5 (emphasis ours)

Petitioners moved for a reconsideration of the decision but were unsuccessful. Hence, this appeal.

The only issue for our consideration is whether there was a novation of the mortgage loan contract between petitioners and
BPI-FSB that would result in the extinguishment of petitioners liability to the bank.

We agree with the CA that there was none.

Novation is defined as 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.6

Article 1292 of the Civil Code on novation further provides:

Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be
so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.

The cancellation of the old obligation by the new one is a necessary element of novation which may be effected either
expressly or impliedly. While there is really no hard and fast rule to determine what might constitute sufficient change
resulting in novation, the touchstone, however, is irreconcilable incompatibility between the old and the new obligations.7

In Garcia, Jr. v. Court of Appeals,8 we held that:

4|Page
In every novation there are four essential requisites:(1) a previous valid obligation; (2) the agreement of all the parties to the
new contract; (3) the extinguishment of the old contract; and (4) validity of the new one. There must be consent of all the
parties to the substitution, resulting in the extinction of the old obligation and the creation of a valid new one. The
acceptance of the promissory note by the plaintiff is not novation of the contract. The legal doctrine is that an obligation to
pay a sum of money is not novated in a new instrument by changing the term of payment and adding other obligations not
incompatible with the old one. It is not proper to consider an obligation novated as in the case at bar by the mere granting of
extension of payment which did not even alter its essence. To sustain novation necessitates that the same be declared in
unequivocal terms or that there is complete and substantial incompatibility between the two obligations. An obligation to
pay a sum of money is not novated in a new instrument wherein the old is ratified by changing only the terms of payment
and adding other obligations not incompatible with the old one or wherein the old contract is merely supplementing the old
one.

Thus, the well-settled rule is that, with respect to obligations to pay a sum of money, the obligation is not novated by an
instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible
with the old ones, or the new contract merely supplements the old one.9

BPI-FSB and Transbuilders only extended the repayment term of the loan from one year to twenty quarterly installments at
18% interest per annum. There was absolutely no intention by the parties to supersede or abrogate the old loan contract
secured by the real estate mortgage executed by petitioners in favor of BPI-FSB. In fact, the intention of the new agreement
was precisely to revive the old obligation after the original period expired and the loan remained unpaid. The novation of a
contract cannot be presumed. In the absence of an express agreement, novation takes place only when the old and the new
obligations are incompatible on every point. 10

Moreover, under the real estate mortgage executed by them in favor of BPI-FSB, petitioners undertook to secure the P15M
loan of Transbuilders to BPI-FSB "and other credit accommodations of whatever nature obtained by the
Borrower/Mortgagor." While this stipulation proved to be onerous to petitioners, neither the law nor the courts will
extricate a party from an unwise or undesirable contract entered into with all the required formalities and with full
awareness of its consequences. 11 Petitioners voluntarily executed the real estate mortgage on their property in favor of
BPI-FSB to secure the P15M loan of Transbuilders. They cannot now be allowed to repudiate their obligation to the bank
after Transbuilders default. While petitioners liability was written in fine print and in a contract prepared by BPI-FSB, it has
been the consistent holding of this Court that contracts of adhesion are not invalid per se. On numerous occasions, we have
upheld the binding effects of such contracts. 12

WHEREFORE, the petition is hereby DENIED for lack of merit.

SO ORDERED.

NATELCO VS. CA

G.R. No. 107112 February 24, 1994

FACTS:

NATELCO: telephone company rendering local and long distance services in Naga.

Entered into contract with Camarines Sur II Electric Cooperative (electrice power service):

5|Page
 i. For the use in operation of its telephone service, electric light posts of CASURECO II.

ii. In return, free use of 10 telephone connections.

iii. Period: as long as NATELCO needs electric light posts, CASURECO understands that contract will
terminate when they are forced to stop, abandon operation and remove lightposts.

CASURECO after 10 years: filed for reformation of contract with damages, not conforming to guidelines of National
Electrification Administration (NEA)- reasonable compensation for use of posts.

i. Compensation is P10/posts but consumption of telephone cables costs P2630.

ii. NATELCO used 319 posts without any contract at P10.00; refused to pay.

iii. Poor servicing- damage not less than P100,000.

NATELCO

Compensation:

i. No cause of action for reformation of contract.

ii. Barred by prescription (10 years execution of contract)

iii. Barred by estoppel.

iv. Utilization could not have cause deterioration because already used for 11 years.

v. Value of expenses been equal to use of telephone lines.

TRIAL COURT

ORDERED REFORMATION OF AGREEMENT:

i. NATELCO to pay for electric polls sum of P10/pole from January 1989.

1. Contract eventually became unfair due to increase in volume of subscribers without increase of telephone connections
which are free of charge to CASURECO.

2. REFORMATION OF CONTACT: cannot make another contract but abolish inequities.

3. Contract does not mention use of posts outside Naga City. Contract should be reformed including provision that for the
use posts outside Naga.

CA: agreed to TRIAL COURT but for different reasons:

Article 1267 applicable

Contract POTESTATIVE CONDITION, THUS VOID.

ISSUE:

Is Article 1267 applicable? YES

6|Page
Has the filing of reformation of contract prescribed? NO.

Is the period of contract, as long as the party of the first part has need for electrive light posts potestative? YES.

HELD:

ARTICLE 1267, EVEN THOUGH NEVER RAISED BEFORE, IS APPLICABLE.

ARTICLE 1267: Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the
parties, the obligor may also be released therefrom, in whole or in part.

PRESTATION: payment of money; a toll or duty; also, the rendering of a service.

Contract was one-sided unfair, and disadvantageous to plaintiff.

PRESCRIPTION HAS NOT YET LAPSED.

What is reformed is not the contract itself, but the instrument embodying the contract. It follows that whether the contract
is disadvantageous or not is irrelevant to reformation and therefore, cannot be an element in the determination of the
period for prescription of the action to reform.

Article 1144: Action upon a written contract must be brought within 10 years from the time the right of action accrues.

i. From the time the right of action accrues not necessarily the date of execution of the
contract.

ii. As correctly ruled by respondent court, private respondent's right of action arose "sometime
during the latter part of 1982 or in 1983 when according to Atty. Luis General, Jr. . . ., he was asked by (private respondent's)
Board of Directors to study said contract as it already appeared disadvantageous to (private respondent) in 1989.

iii. 10 years had not yet elapsed.

3. PERIOD OF CONTRACT IS POTESTATIVE, THUS INVALID.

a. Leaves the continued effectivity of the aforesaid agreement to the latter's sole and exclusive will as long as plaintiff is in
operation

b. Leaves leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee.

FACTS:

FACTS: NATELCO Entered into contract with Camarines Sur II Electric Cooperative for the use in operation
of its telephone service, electric light posts of CASURECO II and in return, there will be free use of 10
telephone connections as long as NATELCO needs electric light posts. The contract will terminate when they
are forced to stop, abandon operation and remove light posts. After 10 years, CASURECO files for
reformation of contract with damages, not conforming to the guidelines of National Electrification
Administration of reasonable compensation for use of posts. Compensation is worth P10, but the
consumption of telephone cables costs P2630 NATELCO, who used 319, without the contract of P10 each,
refused to pay. The latter barred by the prescription.

7|Page
ISSUE: WON the filing of reformation of contract prescribed

RULING: Contract eventually became unfair due to increase in volume of subscribers without increase of
telephone connections which are free of charge to CASURECO. ARTICLE 1267 is applicable, since the
contract is subject to a potestative condition, the agreement is void.

8|Page