Valenzuela vs. Kalayaan

SPOUSES JOSE T. VALENZUELA and GLORIA VALENZUELA, Petitioners,

vs.

KALAYAAN DEVELOPMENT & INDUSTRIAL CORPORATION, Respondent.

G.R. No. 163244               June 22, 2009

Ponente: Peralta, J.

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 Valenzuela’s 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 Juliet’s 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. Kalayaan’s 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.