G.R. No. 149840, 31 March 2006


Reyes spouses executed a real estate mortgage on their property in favor BPI-FSB to secure a P15,000,000 loan of Transbuilders. The mortgage contract between petitioners and BPI-FSB provides:

That for and in consideration of the above-mentioned sum received by way of a loan, and other credit accommodations of whatever nature obtained by the Borrower/Mortgagor, the Borrower/Mortgagor by this Agreement, hereby constitutes a first mortgage, special and voluntary over the property/ies specifically described in Annex “A”, together with all existing improvements as well as those that may hereafter be made to exist or constructed thereon, inclusive of all fruits and rents, in favor of the Bank, its successors and assigns.

When Transbuilders failed to pay its P15M loan within the stipulated period of one year, the bank restructured the loan through a promissory note executed by Transbuilders in its favor. The pertinent provisions of the promissory note stated that:

  1. The proceeds of the Note shall be applied to loan account no. 21108336; and
  2. The new obligation of Transbuilders to respondent Bank for fifteen million (P15,000,000.00) shall be paid in twenty (20) quarterly installments commencing on September 28, 1996, and at an interest rate of eighteen (18%) per annum.


Is there novation?


None. In every novation, there are four essential requisites:(1) a previous valid obligation; (2) the agreement of all the parties to the new contract; (3) the extinguishment of the old contract; and (4) validity of the new one.

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.

 * Case digest by Cherry Mae Aguilla-Granada, LLB-1, Andres Bonifacio Law School, SY 2017-2018