2016

Butch got a loan from Hagibis Corporation (Hagibis) but he defaulted in the
payment. A case for collection of a sum of money was filed against him. As a
defense, Butch claims that there was already an arrangement with Hagibis on
the payment of the loan. To implement the same, Butch already surrendered
five (5) service utility vehicles (SUVs) to the company for it to sell and the
proceeds to be credited to the loan as payment. Was the obligation of Butch
extinguished by reason of dacion en pago upon the surrender of the SUVs?
Decide and explain.

SUGGESTED ANSWER:

A: No, the obligation of Butch to Hagibis was not extinguished by the mere
surrender of the SUV’s to the latter. Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in money, shall be governed by the
law on sales (Art. 1245). In dacion en pago, as a special mode of payment, the
debtor offers another thing to the credtor who accepts it as equivalent of payment
of an outstanding debt. The undertaking really partakes in one sense of the nature
of sale, that is, the creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtor’s debt. As such, the essential
elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. In dacion en pago, there is in reality an objective
novation of the obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract of sale,
while the debt considered as the purchase price. In any case, common consent is an
essential pre-requisite, be it sale or innovation to have the effect of totally
extinguishing the debt or obligation. (Filinvest Credit Corporation v. Philippine
Acetylene Company, G.R. No. L-50449, January 30, 1982) There being no
mention in the facts that Hagibis has given its consent to accept the SUCs as
equivalent payment, the oblgation of Butch is not thereby extinguished by my
mere delivery of the SUVs.

2016

Jerico, the project owner, entered into a Construction Contract with Ivan for
the latter to construct his house. Jojo executed a Surety undertaking to
guarantee the performance of the work by Ivan. Jerico and Ivan later
enetered into a Memorandum of Agreement (MOA) revising the work
schedule of OVan and the subcontractors. The MOA stated that all the
stipulations of the original contract not in conflict with said agreement shall
remain valid and legally effective. Jojo filed a suit to declare him relieved of
his undertaking as a result of the MOA because of the change in the work
schedule. Jerico claims that there is no novation of the Construction Contract.
Decide the case and explain.

SUGGESTED ANSWER:

I will decide in favor of Jerico as there is no novation of the Construction Contract.

Novation is never presumed, and may only take place when the following are
present:

1. a previous valid obligation;

2. the agreement of all the parties to the new contract

3. the extinguishment of the old contract

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 new valid one. In this case, the
revision of the work schedule of Ivan and the subcontractors is not shown to be so
substantial as to extinguish the old contract, and there was also no irreconcilable
incompatibility between the old and new obligations. It has also been held in
jurisprudence that a surety may only be relieved of his undertaking if there is a
material change in the principal contract and such would make the obligation of the
surety onerous. The principal contract subject of the surety agreement still exists,
and Jojo is still bound as surety.