August 2010 Philippine Supreme Court Decisions on Civil Law

Here are selected August 2010 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Contract; novation; requirements; novation cannot be presumed.  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. 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. 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.  The test of incompatibility lies on whether the two obligations can stand together, each one with its own independent existence.

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.

Novatio non praesumitur, or novation is never presumed, 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. On petitioners thus rests the onus of showing clearly and unequivocally that novation has indeed taken place.

It has often been said that the minds that agree to contract can agree to novate. And the agreement or consent to novate may well be inferred from the acts of a creditor, since volition may as well be expressed by deeds as by words. In the instant case, however, 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. Far from it.  Thus, a novation through an alleged implied consent by EPCIB, as proffered and argued by petitioners, cannot be given imprimatur by the Court. St. James College of Parañaque; Jaime T. Torres, represented by his legal representative, James Kenley M. Torres; and Myrna M. Torres vs. Equitable PCI Bank, G.R. No. 179441, August 9, 2010.

Contracts; rescission. Under Article 1191 of the Civil Code, the aggrieved party has a choice between specific performance and rescission with damages in either case.  However, we have ruled that if specific performance becomes impractical or impossible, the court may order rescission with damages to the injured party.  After the lapse of more than 30 years, it is now impossible to implement the loan agreement as it was written, considering the absence of evidence as to the rising costs of construction, as well as the obvious changes in market conditions on the viability of the operations of the hotel.    We deem it equitable and practicable to rescind the obligation of DBP to deliver the balance of the loan proceeds to Maceda.  In exchange, we order DBP to pay Maceda the value of  Maceda’s cash equity of  P6,153,398.05 by way of actual damages, plus the applicable interest rate.  The present ruling comes within the purview of Maceda’s and DBP’s prayers for “other reliefs, just or equitable under the premises.” Bonifacio Sanz Maceda, Jr. vs. DBO / DBP Vs. Bonifacio Sanz Maceda, Jr., G.R. No. 174979 & G.R. No. 175010, August 11, 2010.

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