Iloilo Traders Finance, Inc. vs. Heirs of Oscar Soriano, Jr. G.R. No. 149683; June 16, 2003
Subject: Obligations and Contracts
FACTS
Spouses Oscar Soriano and Marta Soriano executed 2
promissory notes, secured by real property mortgages, in favor of petitioner
Iloilo Traders Finance, Inc. (ITF). When Sorianos defaulted on the notes, ITF
moved for the extrajudicial foreclosure of the mortgages. The parties entered
into an “Amicable Settlement” but the trial court required the parties to first
give some clarifications on a number of items. The parties failed to comply
with the court order.
The trial court disapproved the amicable settlement and set
case for pre-trial. Seven years later when the Soriano couple filed a motion to
submit anew amicable settlement, the motion was opposed by ITF on the ground
that the amount expressed in the settlement would no longer be accurate
considering the lapse of seven years. Trial Court denied the Soriano motion and
affirmed by the Court of Appeals
ISSUE
Whether or not the amicable settlement entered into between
the parties has novated the original obligation
RULING
No. An extinctive novation would thus have the twin effects
of, first, extinguishing an existing obligation and, second, creating a new one
in its stead. This kind of novation presupposes a confluence of four essential
requisites: (1) a previous valid obligation, (2) an agreement of all parties
concerned to a new contract, (3) the extinguishment of the old obligation, and
(4) the birth of a valid new obligation.[6] Novation is merely modificatory where
the change brought about by any subsequent agreement is merely incidental to
the main obligation (e.g., a change in interest rates[7] or an extension of
time to pay[8]); in this instance, the new agreement will not have the effect
of extinguishing the first but would merely supplement it or supplant some but
not all of its provisions.
An amicable settlement or a compromise is a contract
whereby the parties, by making reciprocal concessions, avoid a litigation or
put an end to one already commenced. It may be judicial or extrajudicial; the
absence of court approval notwithstanding, the agreement can become the source
of rights and obligations of the parties.
In the case at bar, the amicable settlement contained
modificatory changes. Thus, (1) it increased the indebtedness; (2) it extended
the period of payment; and (3) it provided for a waiver of claims,
counterclaims, attorney’s fees or damages that the debtor spouses might have
against their creditor, but the settlement neither cancelled, nor materially altered
the usual clauses in, the real estate mortgages.
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