Sime Darby Pilipinas, Inc. v.

Goodyear SD asserts that Goodyear has no right to rescind the Deed of

Philippines, Inc.
G.R. No. 182148
FACTS:
Macgraphics owned several billboards across Metro Manila
and other surrounding municipalities, one of which was a 35' x
70' neon billboard located at the Magallanes Interchange in
Makati City. The Magallanes billboard was leased by
Macgraphics to Sime Darby in April 1994 at a monthly rental
of P120,000.00. The lease had a term of four years and was
set to expire on March 30, 1998. Upon signing of the contract,
Sime Darby paid Macgraphics a total of P1.2 million
representing the ten-month deposit which the latter would
apply to the last ten months of the lease. Thereafter,
Macgraphics configured the Magallanes billboard to feature
Sime Darby's name and logo.
Assignment as Macgraphics impliedly consented to the
assignment of the lease. It argues that Macgraphics, after
being notified of the assignment, entertained Goodyear's
request for a quotation on the cost of a new design for the
Magallanes billboard. The fact that there was a negotiation,
Sime Darby posits, means that Macgraphics did not really care
who the lessee was for as long as it got paid for the lease of
the Magallanes billboard. Additional to that MG also sent
another quotation design for GY.
ISSUE:
1. Whether or not Macgraphics consent is necessary in
the transaction
2. Whether or not the negotiations between
Macgraphics and Goodyear is a separate
negotiation or still included in the lease

Sime Darby executed a Memorandum of Agreement (MOA) HELD: YES; YES

with Goodyear, whereby it agreed to sell its tire
Art. 1649. The lessee cannot assign the lease without the consent
manufacturing plants and other assets to the latter for a total
of the lessor, unless there is a stipulation to the contrary
of P1.5 billion. The following day the Goodyear increase the
offer to 1.65 billion including the billboards located in Makati
In an assignment of a lease, there is a novation by the
and Bulacan.
substitution of the person of one of the parties — the lessee.
The personality of the lessee, who dissociates from the lease,
SD and GY executed a Deed of Assignment with regard the
disappears. Thereafter, a new juridical relation arises between
leasehold rights and deposits
the two persons who remain — the lessor and the assignee who is
made to Macgraphics pursuant to its lease contract over the converted into the new lessee. The objective of the law in
Magallanes billboard.
prohibiting the assignment of the lease without the lessor's
consent is to protect the owner or lessor of the leased property.
Sime Darby then notified Macgraphics of the assignment of the
Magallanes billboard in favor of Goodyear through a letter-
Broadly, a novation may either be extinctive or modificatory.
notice dated May 3, 1996.
Extinctive when an old obligation is terminated by the creation
Macragraphics send a new quotation and production costs for
of a new obligation that takes the place of the former.
the new design and informed GY of the increase in monthly Modificatory when the old obligation subsists to the extent it
retal to P250,000 due to the provisions and technical aspects
remains compatible with the amendatory agreement.
of the submitted design. GY stated to repainting and re-
lettering honoring the P120,000 rental of Sime Darby to An extinctive novation results either by changing the object or
Macrographics.
principal conditions (objective or real), or by substituting the
person of the debtor or subrogating a third person in the rights
Macrographics sent a letter SD informing him that it could not of the creditor (subjective or personal). Under this mode,
give its consent to the assignment of lease to Goodyear.
novation would have dual functions — one to extinguish an
Macgraphics explained that the transfer of Sime Darby's
existing obligation, the other to substitute a new one in its
leasehold rights to Goodyear would necessitate drastic place.
changes to the design and the structure of the neon display of
This requires a conflux of four essential requisites:
the Magallanes billboard and would entail the commitment of
(1) A previous valid obligation;
manpower and resources that it did not foresee at the (2) An agreement of all parties concerned to a new contract;
inception of the lease.
(3) The extinguishment of the old Obligation; and
(4) The birth of a valid new obligation.
Macgraphics advised Goodyear that any advertising service it
intended to get from
While there is no dispute that the first requisite is present but
them would have to wait until after the expiration or valid pre-
the other requisites are lacking. In review of the stipulation
termination of the lease
between SD and MG there is no stipulation that Sime Darby
then existing with Sime Darby.
could assign the lease without the consent of Macgraphics.

GY demand a partial rescission (1,239,000) to SD due to the

refusal of Macrographics refusal to honor Deed of Assignment.
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Macgraphics was never part of the negotiations between Sime
Darby and Goodyear. Neither did it give its conformity to
the assignment after the execution of the Deed of Assignment.
The consent of the lessor to an assignment of lease may indeed
be given expressly or impliedly. It need not be given
simultaneously with that of the lessee and of the assignee.
Neither is it required to be in any specific or particular form. It
must, however, be clearly given. In this case, it cannot be said
that Macgraphics gave its implied consent to the assignment of
lease. As aptly explained by the CA in its decision
MG made a refusal by sending a letter:
As anticipated, the transfer of your rights over the lease will
necessitate drastic changes to the design and structure of the
neon spectacular display advertised in the billboard, which would
thus entail commitment of manpower and resources which we did
not foresee at the inception of the lease. Much as we would like
to accommodate you, these reasons constrained us to decline
giving consent to the transfer. We hope that you will understand
our position.
2. The Court rules that from the very start of the negotiations
between Goodyear and Macgraphics, the relationship
between them, as far as Macgraphics is concerned, was that of
Goodyear as a new client. Nonetheless, whether the
negotiations is separate or included in the lease between Sime
Darby and Macgraphics, the fact remains that Macgraphics
did not give its consent to the assignment of the lease.
Macgraphics and Goodyear exchanged proposals; there was
never a meeting of minds between them. Contrary to the
assertions of Sime Darby, the negotiations between
Macgraphics and Goodyear did not translate to its
(Macgraphics') consent to the assignment. Negotiations are just
a part or a preliminary phase to the birth of an obligation.
In Re: Delay of response, it is clear that by its failure to secure
the consent of Macgraphics to the assignment of lease, Sime
Darby failed to perform what was incumbent upon it under the
Deed of Assignment. The rescission of the Deed of Assignment
pursuant to Article 1191 of the New Civil Code is, thus,
justified.
Heirs of Servando Franco vs Spouses Gonzales
G.R. No. 159709
There is novation when there is an irreconcilable incompatibility
between the old and the new obligations. There is no novation in
case of only slight modifications; hence, the old obligation
prevails.
FACTS:
Servando and Leticia obtained a loan from Veronica R.
Gonzales, who was engaged in the money lending business
under the name "Gonzales Credit Enterprises", in the amount of
P50,000.00, payable in two months. Veronica gave only the
amount of P47,000.00, to the borrowers, as she retained
P3,000.00, as advance interest for one month at 6% per
month. Servado and Leticia executed a promissory note for
P50,000.00, to evidence the loan, payable on January 7,
1986.
On November 19, 1985 another loan in the amount of
P90,000.00, payable in two months, at 6% interest per month.
They executed a promissory note to evidence the loan,
maturing on January 19, 1986. They received only
P84,000.00, out of the proceeds of the loan.
On June 11, 1986 another loan in the amount of P300,000.00,
maturing in one month, secured by a real estate mortgage
over a property belonging to Leticia Makalintal Yaptinchay,
who issued a special power of attorney in favor of Leticia
Medel, authorizing her to execute the mortgage. Maturity date
after 1 month, however only P275,000 was given.
On July 23, 1986, petitioners consolidated all their debts
(P440,000) and sought for another loan P60,000 a total of
P500,000 payable on August 23, 1986.They executed a
promissory note.
During the pendency of the case: Servando Franco opposed,
claiming that he and the respondents had agreed to fix the
entire obligation at P775, 000 According to Servando, their
agreement, which was allegedly embodied in a receipt dated
February 5, 1992, whereby he made an initial payment of
P400, 000 and promised to pay the balance of P375, 000 on
February 29, 1992, superseded the July 23, 1986 promissory
note.
ISSUE:
Whether or not was there a novation of the August 23, 1986
promissory note when respondent Veronica Gonzales issued
the February 5, 1992 receipt
HELD: Petition lacks merit.
Novation did not transpire because no irreconcilable
incompatibility existed between the promissory note and the
receipt
To buttress their claim of novation, the petitioners rely on the
receipt issued on February 5, 1992 by respondent Veronica
whereby Servando's obligation was fixed at P750,000.00.
They insist that even the maturity date was extended until
February 29, 1992. Such changes, they assert, were
incompatible with those of the original agreement under the
promissory note. The petitioners' assertion is wrong.
INSERT Definition of Novation and Req’s
The new obligation extinguishes the prior agreement only when
the substitution is unequivocally declared, or the old and the new
obligations are incompatible on every point. A compromise of a
final judgment operates as a novation of the judgment
obligation upon compliance with either of these two conditions.
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The receipt dated February 5, 1992, excerpted, did not
create a new obligation incompatible with the old one under
the promissory note.
To be clear, novation is not presumed. This means that the
parties to a contract should expressly agree to abrogate the
old contract in favor of a new one. In the absence of the
express agreement, the old and the new obligations must be
incompatible on every point.
There is incompatibility when the two obligations cannot stand
together, each one having its independent existence. If the two
obligations cannot stand together, the latter obligation novates
the first. Changes that breed incompatibility must be essential in
nature and not merely accidental. The incompatibility must affect
any of the essential elements of the obligation, such as its
object, cause or principal conditions thereof; otherwise, the
change is merely modificatory in nature and insufficient to
extinguish the original obligation.
In light of the foregoing, the issuance of the receipt created no
new obligation. Instead, the respondents only thereby
recognized the original obligation by stating in the receipt that the
P400,000.00 was "partial payment of loan" and by referring to
"the promissory note subject of the case in imposing the interest."
The loan mentioned in the receipt was still the same loan
involving the P500,000.00 extended to Servando. Advertence
to the interest stipulated in the promissory note indicated that
the contract still subsisted, not replaced and extinguished, as
the petitioners claim.
The receipt dated February 5, 1992 was only the proof of
Servando's payment of his obligation as confirmed by the
decision of the RTC. It did not establish the novation of his
agreement with the respondents.
Worth noting is that Servando's liability was joint and solidary
with his co-debtors. In a solidary obligation, the creditor may
proceed against any one of the solidary debtors or some or all
of them simultaneously. The choice to determine against whom
the collection is enforced belongs to the creditor until the
obligation is fully satisfied.
Lastly, the extension of the maturity date did not constitute a
novation of the previous agreement. It is settled that an
extension of the term or period of the maturity date does not
result in novation.
Philippine National Bank vs Lilian Soriano
G.R. No. 164051
FACTS:
On March 20, 1997, [PNB] extended a credit facility in the
form of Floor Stock Line (FSL) in the increased amount of Thirty
Million Pesos (P30 Million) to Lisam Enterprises, Inc. [LISAM], a
family-owned and controlled corporation.
On various dates, LISAM made several availments of the FSL in
the total amount of P29, 645,944.55, the proceeds of which
were credited to its current account with [PNB]. For each
availment, LISAM through [Soriano], executed 52 Trust Receipts
(TRs). In addition to the promissory notes, showing its receipt of
the items in trust with the duty to turn-over the proceeds of
the sale thereof to [PNB].
January 21-22, 1998, [PNB's] authorized personnel conducted
an actual physical inventory of LISAM's motor vehicles and
motorcycles and found that only four (4) units covered by the
TRs amounting to P158,100.00 remained unsold.
Out of the P29,644,944.55 as the outstanding
principal balance of the total availments on the line covered
by TRs, [LISAM] should have remitted to PNB, P29,487,844.55.
Despite several formal demands, respondent Soriano failed
and refused to turn over the said [amount to] the prejudice of
PNB.
1. She alleged in her counter affidavit that her husband
Leandro A. Soriano, Jr. was still alive, [LISAM] submitted
proposals to PNB for the restructuring of all of [LISAM's]
credit facilities. After exchanges of several letters and
telephone calls, Mr. Josefino Gamboa, Senior Vice
President of PNB on 12 May 1998 wrote [LISAM]
informing PNB's lack of objection to [LISAM's] proposal of
restructuring all its obligations.
2. On September 22, 1998[,] Mr. Avengoza sent a letter to
[LISAM], complete with attached copy of PNB's Board's
minutes of meeting, with the happy information that the
Board of Directors of PNB has approved the conversion of
[LISAM's] existing credit facilities at PNB, which includes
the FSL on which the trust receipts are availments, to [an]
Omnibus Line (OL) available by way of Revolving Credit
Line (RCL), Discounting Line Against Post-Dated Checks
(DLAPC), and Domestic Bills Purchased Line (DBPL) and
with a "Full waiver of penalty charges on RCL, FSL (which
is the Floor Stock Line on which the trust receipts are
availments) and Time Loan. . .
PNB admits that although it had approved LISAM's
restructuring proposal, the actual restructuring of LISAM's
account consisting of several credit lines was never reduced
into writing. PNB argues that the stipulations therein such as the
provisions on the schedule of payment of the principal
obligation, interests, and penalties, must be in writing to be
valid and binding between the parties. PNB further postulates
that assuming the restructuring was reduced into writing, LISAM
failed to comply with the conditions precedent for its
effectivity, specifically, the payment of interest and other
charges, and the submission of the titles to the real properties
in Tandang Sora, Quezon City. On the whole, PNB is adamant
that the events concerning the restructuring of LISAM's loan did
not affect the TR security, thus, Soriano's criminal liability there
under subsists.
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ISSUE: PNB cannot equate to a finding of an implied novation which
Whether or not there is novation in the present case extinguished Soriano's obligation as entrustee under the TR's.

HELD: NO Moreover, as asserted by Soriano in her counter-affidavit, the

The purported restructuring of the loan agreement did not
constitute novation.
Art. 1292. In order that an obligation may be extinguished by
another which substitutes 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.
Insert definition and req's of novation
Novation is never presumed, and the animus novandi, whether
totally or partially, must appear by express agreement of the
parties, or by their acts that are too clear and unmistakable.
The contracting parties must incontrovertibly disclose that their
object in executing the new contract is to extinguish the old
one. Upon the other hand, no specific form is required for an
implied novation, and all that is prescribed by law would be
an incompatibility between the two contracts. Nonetheless,
both kinds of novation must still be clearly proven.
In this case, without a written contract stating in unequivocal
terms that the parties were novating the original loan
agreement, thus undoubtedly eliminating an express novation,
we look to whether there is an incompatibility between the
Floor Stock Line secured by TR's and the subsequent
restructured Omnibus Line which was supposedly approved by
PNB.
waiver pertains to penalty charges on the Floor Stock Line.
There is no showing that the waiver extinguished Soriano's
obligation to "sell the [merchandise] for cash for [LISAM's]
account and to deliver the proceeds thereof to PNB to be
applied against its acceptance on [LISAM's] account." Soriano
further agreed to hold the "vehicles and proceeds of the sale
thereof in Trust for the payment of said acceptance and of any
of its other indebtedness to PNB." Well-settled is the rule 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. Besides, novation does not extinguish
criminal liability.
It stands to reason therefore, that Soriano's criminal liability
under the TR's subsists considering that the civil obligations
under the Floor Stock Line secured by TR's were not
extinguished by the purported restructured Omnibus Line.

Soriano's reliance thereon is misplaced. The approval of

LISAM's restructuring proposal is not the bone of contention in
this case.

The pith of the issue lies in whether, assuming a restructuring was

effected, it extinguished the criminal liability on the loan
obligation secured by trust receipts, by extinguishing the
entruster-entrustee relationship and substituting it with that of an
ordinary creditor-debtor relationship. Stated differently, we
examine whether the Floor Stock Line is incompatible with the
purported restructured Omnibus Line.

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.

We have scoured the records and found no incompatibility

between the Floor Stock Line and the purported restructured
Omnibus Line. While the restructuring was approved in
principle, the effectivity thereof was subject to conditions
precedent such as the payment of interest and other charges, and
the submission of the titles to the real properties in Tandang
Sora, Quezon City. These conditions precedent imposed on the
restructured Omnibus Line were never refuted by Soriano who,
oddly enough, failed to file a Memorandum. To our mind,
Soriano's bare assertion that the restructuring was approved by

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