AMPARO JOVEN DE CORTES & NOEL J. CORTES (JESUS NOEL), PLAINTIFFS-APPELLEES, VS. MARY E. VENTURANZA, ETC., JOSE OLEDAN & ERLINDA M. OLEDAN, DEFENDANTS-APPELLANTS.

Direct appeal by the defendants-appellants from the decision of
the Court of First Instance of Bulacan against them in its Civil Case No. 2693,
entitled “Felix Cortes y Ochoa, and Noel J. Cortes (Jesus Noel),
plaintiffs, versus Gregorio Venturanza, Mary E. Venturanza, Jose Oledan and
Erlinda M. Oledan, defendants.”

The original plaintiffs in this case were Felix Cortes y Ochoa
and Noel J. Cortes, and the original defendants were Gregorio Venturanza, Mary
E. Venturanza, Jose Oledan and Erlinda M. Oledan.  On December 11, 1967, defendant Gregorio
Venturanza died.  Accordingly, as prayed
for by appellees, Mary E. Venturanza, Edna, Lucille, Greymar, Sylvia, Edward
and Mary Grace, all surnamed Venturanza, surviving spouse and children of the
deceased Gregorio Venturanza, were substituted as appellants, in place of the
deceased, by resolution of this Court dated February 28, 1968.  On September 12, 1968, Felix Cortes y Ochoa died.  Appellees, through counsel, thereupon filed a petition praying that the title of this case
be changed to read:  “Amparo Joven
de Cortes and Noel J. Cortes (Jesus Noel), plaintiffs-appellees, versus Mary E.
Venturanza, etc., Jose Oledan and Erlinda M. Oledan,
defendants-appellants”, which petition was granted by this Court in its
resolution dated April 11, 1969.

The background facts may
be gleaned from the pertinent portions of the decision of the court a quo,
as follows:

“Plaintiff Felix Cortes y Ochoa and Noel J. Cortes filed the
instant action for foreclosure of real estate against the defendants Gregorio
Venturanza, Mary E. Venturanza, Jose Oledan and Erlinda M. Oledan.  The complaint alleges that plaintiff Felix
Cortes y Ochoa was the original owner of nine (9) parcels of land covered by
Transfer Certificates of Title Nos. 21334 to 21342, inclusive, while plaintiff
Noel J. Cortes was likewise the original owner of twenty-four (24) parcels of
land covered by Transfer Certi­ficates of Title Nos. 21343, 21345, 21347 to
21367, inclusive, all of the land records of Bulacan; that on October 24, 1958
said plaintiffs sold and delivered to the defendants all the above-mentioned
thirty-three (33) parcels of land with all the improvements thereon for the
total sum of P716,573.90 of which defendants agreed to pay jointly and
severally the plaintiffs the sum of P100,000.00 upon the signing and execution
of a deed of sale and P40,000.00 on January 1, 1959 thereby leaving a balance
of P576,573.90 which the defendants agreed and bound themselves ,to pay
plaintiffs jointly and severally within three (3) years from January 1, 1959
with interest thereon at the rate of 6% per annum; that defendants further
agreed and bound them­selves to secure the payment of the said balance of
P576,573.90 with a first mortgage upon the said 33 parcels of land with
improvements; that the defendants have already paid the plaintiffs the total
sum of P140,000.00 that of the unpaid balance owing to plaintiffs, P169,484.24 pertain(ing)s to plaintiff Felix Cortes and
P407,089.66 pertains to plaintiff Noel J. Cortes; that upon the registration of
the deed of sale and mortgage with the office of the register of deeds of
Bulacan new certificates of title for the 33 parcels of land were issued in the
names of the defendants and the mortgage obligation was noted thereon; that the
mortgage obligation fell due on January 1, 1962, but despite repeated demands
for payment, defendants failed and refused to pay the said balance of
P576,573.90 to plaintiffs; that from the time the mortgage obligation fell due
and demandable up to December 1, 1962 the total interest due from the
defendants on the balance of their obligation is 8103,783.32 computed at the
stipulated interest of 6% per annum; that it is stipulated in the deed of sale
with purchase money mortgage that in the event of default by defendants to pay
the obligation secured by the mortgage and a suit is brought for the
foreclosure of the mortgage or any other legal proceedings is instituted for
the enforcement of plaintiffs’ right, defendants would be obligated and bound
to pay the plaintiffs’ reasonable compensation for attorney’s fees which
plaintiffs fixed at P50,000.00.

“Defendants Spouses Venturanza admit the allegations of the
complaint regarding plaintiffs’ former ownership of the lands in question as
well as their execution of the
mortgage in favor of plaintiffs but allege that they are at present the
registered owners of the same parcels of land by virtue of the sale thereof
made to them; they likewise admit the allotment of payment to plaintiffs of the
balance of their obligation, but allege that the said balance has not yet
become due and demandable so that they have not incurred in default.  As special affirmative defense defendants
Venturanza allege that the document designated as deed of sale with purchase
money mortgage does not express the true intent and agreement of the parties
with respect to the manner of payment of the balance of the purchase price, the
truth being that defendants will pay the balance of the purchase price in the amount of P576,573.90 to the
plaintiffs, and the latter agreed, as soon as defendants will have received
from the Land Tenure Administration the purchase price of their
(defendants’) hacienda in Bugo, Cagayan de Oro in the amount of P360,000.00
which hacienda is the object of expropriation proceedings before the Court of
First Instance of said City; that it was agreed moreover that defendants will
complete payment of the balance of the purchase price upon the consummation of
the sale of their other hacienda at Buhi, Camarines Sur to one Mr. de Castro for
P837,000.00 more or less; that this negotiation was known to plaintiffs who
agreed to wait for the sale of the same properties by defendants; that, the
property in question was bought by defendant for speculative purposes.  As second special and affirmative defenses
defendants allege that the deed pf sale with purchase money mortgage had been
novated by a subsequent agreement regarding the manner and period of payment to
be made by defendants and that, there­fore, the cause of action has not yet
accrued.

“Defendants Jose Oledan and Erlinda M. Oledan deny the
material allegations of the complaint with
respect to the mortgage obligation alleging that plaintiff’s cause of
action against them has been extinguished and, therefore, did not become due
against them on January 1, 1962; that even as regards their co-defendants
Venturanzas the mortgage obligation did not become due on January 1, 1962 there having been a novation of the original
agreement which affected material changes in the manner and condition of time
of payment of the balance of the mortgage obligation.  By way of affirmative defenses defendants
Oledans alleged that the deed of sale with purchase money mortgage fails to
express the true intent and agreement of the parties thereto insofar as the nature
of the liability of the defendants is concerned, the true intention being to
hold them (defendants Oledan) obligated unto plaintiffs only to the extent of
the proportion of their share, ownership and interests in the property
conveyed; that their obligation to plaintiffs has been extinguished by
novation; that their obligation to plaintiffs has been extinguished by the
assumption of the obligation by defendants Venturanza as provided for in the
agreement among defendants dated December 28, 1959, such assumption of the
obligation being made with full knowledge(of)and consent of plaintiffs which
partakes of the character of a novation of the original’ agreement and that by
their failure to seasonably interrupt any opposition to the assumption of any
obligation by defendants Venturanza and to take appropriate action thereon,
plaintiffs have waived their right to proceed against them.

“By way of cross-claim against their co-defendants Venturanza,
defendants Oledan allege that on December 28, 1958 they and their co-defendants
executed and entered into an agreement whereby they sold, transferred unto
their co-defendants all their shares, ownership and interest in the property
subject of a deed of sale with purchase money mortgage for and in consideration
of the sum of P44,571.66 payable at the time and in the manner specified in the
written agreement; that of the aforementioned consideration cross-defendants
have paid to them the sum of P22,285.83 thereby leaving a ‘balance still due
and unpaid in the amount of P22,285.83 which cross-defendants have failed to
pay within the period stipulated in their agreement; that it is further
stipulated in their agreement with cross-defendants that in the event of
failure by the latter to pay the said balance within the period agreed upon
they (cross-defendants) shall pay to them the sum of P6,367.30 for the period
August 8, 1960 to August 28, 1961; another amount of P6,367.30 for the period
August 28, 1961 to August 28, 1962 and still another amount of P6,367.30 for
the period August 28, 1963 by way of penalty, which despite repeated demands
cross-defendants have failed to pay; that it is further stipulated in their agreement that in the event
of default on the part of cross-defendants, interest in the legal rate of 6%
per annum shall be borne by the unpaid balance in the amount of P22,285.83 plus
the penalties afore­mentioned.

“By way of
counter-claim, defendants cross-plaintiffs allege that at the time defendants
executed the agreement dated December 28, 1958 plaintiffs had full knowledge of
and gave their consent to the transfer of their shares, ownership and interest
in favor of their co-defendants, as well as the assumption by the latter of the
mortgage obligation; that despite such knowledge and consent, plaintiffs induced
cross-defendants not to register the agree­ment and effect the issuance of new
transfer certificate of title in the name solely of defendants Venturanza,
evidently for the purpose of preserving cause of action against them under the
deed of sale with purchase money mortgage; that as a consequence of-plaintiffs’
injurious and malicious suit against them they suffered mental anguish, serious
anxiety, besmirched reputation and moral shock on the basis of which plaintiffs
should be held answerable to them in moral damages in the amount of P100,000.00
aside from exemplary damages; and that as a consequence of plaintiffs’ having
filed the instant action against them they were compelled to engage the
services of counsel and incurred expenses of litigation in the total amount of
P20,000.00 for which plaintiffs should be held liable to them” (pp.
93-100, Corrected Rec. on Appeal, pp. 320-323, rec.).

After due trial, the court a quo rendered its
judgment with the following rationale and dispositive portion:

“There is no question that defendants are indebted to
plaintiffs on the mortgage executed by them contained in the document
denominated as ‘Deed of Sale with Purchase Money Mortgage’ (Exhibit ‘A’) to the
tune of P576,573.90 with interest thereon at the stipulated rate of 6% per
annum.  The pertinent portion of the
document in question is quoted, as follows:

‘(c)  The remaining balance of the purchase price,
after deducting the sums of P100,000.00 and P40,000.00, mentioned in Paragraphs
(a) and (b) of this Article II, aggregating the sum of Five Hundred Seventy Six
Thousand Five Hundred Seventy Three Pesos and Ninety Centavos (P576,573.90)
shall be paid jointly and severally, by the vendees to the vendors within three
(3) years from January 1, 1959, with interest thereon at the rate of six per
centum (6%) per annum, until fully paid, of which the sum of P169,484.24, plus the cor­responding interest
thereon, shall be paid by the vendees to the vendor, Felix Cortes y Ochoa, and
the balance of P407,089.66, plus the corresponding interest thereon, shall be
paid by the Vendees to the Vendor, Noel J. Cortes.’

“Defendants do not deny their failure to make good their
obligation to pay plaintiffs the balance of the purchase price within the
three-year period agreed upon in their document.  However, defendants Venturanzas explained
their failure as being due to their inability to collect the payment pf the
sale of their own property located in
Buhi Camarines Sur, and Bugo, Cagayan de Oro.  In this con­nection, we are again quoting a
specific provision of the agreement between the parties as regards the payment
of the obligation, thus:

‘C.   In the event that the vendees shall fail to
pay to the vendors, in the form and manner provided in Paragraphs (b) and (c)
of Article II hereof, the said sums of P40,000.00 and P576,573.90, and the
interest thereon, or should the vendees make default in the performance of any
one or more of the conditions stipulated herein, the Vendors shall have the
right, at their election, to foreclos(ur)e this mortgage, and to that end the
vendors are hereby appointed the attorneys-in-fact, for the Vendees, with full
power of substitution, to enter upon and take possession of the mortgaged
properties, without the order of any court or any other authority other than
herein granted, and to sell and dispose of the same to the highest bidder at
public auction, x x.’

“Defendants claim that there had been a novation of the
contract between them and plaintiffs on account of the transfer made by
defendants Oledans of their interest in the property in favor of their
co-defendants Venturanzas, with the knowledge and consent of the
plaintiffs.  As regards this claim of
defendants, we have another pertinent provision of their contract which reads
as follows:

‘B.   The vendees may, during the existence of this
mortgage, sell the property hereby mortgaged, or any part thereof, or encumber
the same with a second mortgage, with the
previous written consent of the vendors. 
x x x’

“In view of the foregoing stipulations in the contract between
the parties, while plaintiffs may have knowledge of the transfer made by
defendants Oledans of their interest in the property in question in favor of
their co-defendants, yet insofar as the original contract between plaintiffs
and defendants are concerned, the provisions thereof shall govern.  For plaintiffs’ written consent to any
transfer is required by the provisions of their contract.  Since defendants were aware of the said
provision, they should have taken steps to obtain plaintiffs’ written consent
if only to effect a novation.  To the
mind of the court, it must have been due to a premonition on the part of
plaintiffs that there might be a substi­tution of debtor that gave rise to the
inclusion of the aforequoted provision in their original contract.

“It having been satisfactorily established that defendants are
indeed indebted to plaintiffs on the mortgage constituted by them over the
parcels of land in question, the period
of payment of the obligations having become due, plaintiffs are, therefore,
entitled to a foreclosure of the said mortgage.

“The next question that crops up for determination is whether
or not defendants Oledans have aright against their co-defendants Venturanzas
in this case.  Exhibit 1-Oledan which is
an Agreement and Deed of Sale of Undivided Share in Real Estate entered into by
and between the Venturanzas and the Oledans clearly shows that by virtue of
said document, the Venturanzas assumed the whole obligation to plaintiffs for
and in consideration of the sum of P44,571.66, one-half of which amount was
paid to the Oledans upon the execution
and signing thereof and the balance payable within 8 months
therefrom.  The Venturanzas do not assail
the veracity of the document.  However,
they seem to deny having agreed to the provisions of the penalty clause
claiming that the Oledans assured them that the same was just incorporated
therein as a matter of form but
that it would not be enforced.  The
Venturanzas having agreed to assume, as in fact, they have assumed the whole
obligation to the plaintiffs, they should, therefore, be held liable to the
Oleans for whatever the latter shall be bound to pay to plaintiffs under the
original contract known as Deed of Sale with Purchase Money Mortgage.

“WHEREFORE, judgment is hereby rendered in favor of plaintiffs
and against the defendants, ordering the latter jointly and severally to pay to
the former or to deposit with the clerk of court the sum of P576,573.90 with
interest thereon at the stipulated rate of 6% per annum until fully paid, within
90 days from notice hereof.  In default
of such payment the mortgaged property will be sold at public auction to
realize the mortgage indebtedness and costs, in accordance with law.

“On the cross-claim filed by defendants-cross-claimants
Oledans, cross-defendants Venturanzas are ordered to reimburse to the former
the amount which cross-claimants are to pay to plaintiffs under the above
judgment.

“The parties will bear their own costs and expenses of
litigation” (pp. 107-113, Corrected Record on Appeal, pp. 327-330, rec.).

Not satisfied with the foregoing decision of the court a quo, particularly with respect to its dis­positive
portion, plaintiffs filed a motion for reconsideration and/or new trial, dated
October 19, 1965, and an urgent supplemental motion for reconsi­deration, dated
November 2, 1965. The defendants Oledans likewise filed their motion for
reconsideration dated November 2, 1965, and the defendants Venturanzas also
filed a motion for reconsideration dated November
10, 1965.

Resolving the aforesaid
motions of the parties litigants, the trial court amended the dispositive
portion of its decision in question in its order dated November 22, 1965, which
reads as follows:

“This case is again before the Court upon a motion for reconsideration
and/or new trial filed by plaintiffs dated October 19, 1965, an urgent
supplemental motion for reconsideration dated November 2, 1965 filed by the
same plaintiffs, a motion for reconsideration dated November 2, 1965 filed by
defendants Oledans, and a motion for reconsideration dated November 10, 1965
filed by defendants Venturanzas.

“After a careful deliberation of the different motions for
reconsideration filed by the parties, the Court believes a further modification
of the decision of September 30, 1965, as amended by the order of October 15,
1965, is in order.  This, in accordance
with the agreement entered into by the parties embodied in the document
designated as Deed of Sale with Purchase Money Mortgage.

“WHEREFORE, the dispositive part of the decision of September
30, 1965 is hereby re-amended so as to read as follows:

‘WHEREFORE, judgment is hereby rendered in favor of plaintiffs and
against the defendants ordering the latter, jointly and severally, to pay the
former or to deposit with the clerk of court the sum of P576,573.90 with
interest thereon at the stipulated rate of 6% per annum from January 1, 1959
until fully paid, within 90 days from notice hereof.  In default of such payment the mort­gaged
property will be sold at public auction
to realize the mortgage indebtedness
and costs, in accordance with law.

‘On the cross-claim by the defendants-cross-­claimants Oledans,
cross-defendants Venturanzas are ordered to reimburse to the former the amount
which cross-claimants are to pay to plaintiffs, under the above judgment.

‘The parties will bear their own costs and expenses of litigation.’

“With the foregoing resolution, the motion for reconsideration
filed by defendants Venturanzas and Oledans are, therefore, DENIED” (pp.
151-152, Corrected Record on Appeal, pp. 349-­350, rec.).

From the foregoing judgment, as amended, the defendants
Venturanzas and Oledans now appeal directly before this Court.  The Venturanzas assigned four (4) errors
while the Oledans assigned five (5) errors allegedly committed by the trial
court, WE believe these errors taken together all boil down to the following
issues:

a.  Whether, upon the filing
by plaintiffs of their complaint against the defendants on December 12, 1962,
the obligation of the defendants had not yet become due and demandable and,
hence, the complaint was filed prematurely.

b.  Whether the payment of
P576,573.90 with interest thereon at the stipulated rate of 6% per annum was to
be made dependent upon the consummation of the sale of the two haciendas of
defendants Venturanzas and, hence, there was a novation of the contract of sale with purchase money mortgage,
Exhibit B, as a result of a change in the manner of payment.

c.  Whether the sale on
December 28, 1959 by the defendants Oledans to their co-defendants Venturanzas,
of all their rights and interests in the property, subject-matter of the deed
of sale with purchase money mortgage, Exhibit B, likewise consti­tuted a novation thereof and, therefore, had
the effect of discharging the
defendants Oledans from their original obligation to the plaintiffs.

1.  The first and second
issues involve an inter­pretation of paragraph II (c) of the Deed of Sale with
Purchase Money Mortgage, Exhibit B, which provides as follows:

“(c)  The remaining balance of the purchase price,
after deducting the sums of P100,000.00 and P40,000.00, mentioned in Paragraphs
(a) and (b) of this Article II, aggregating the sum of FIVE HUNDRED SEVENTY-SIX
THOUSAND FIVE HUNDRED SEVENTY-THREE PESOS AND NINETY CENTAVOS (P576,573.90)
shall be paid, jointly and severally, by the VENDEES to the VENDORS WITHIN
THREE (3) years from January 1, 1959, with interest at the rate of Six Per
Centum (6%) per annum, until fully paid, of which the sum of P169,484.24, plus the corresponding interest thereon, shall be
paid by the VENDEES to the VENDOR, FELIX CORTES y OCHOA, and the balance of
P407,089.66, plus the corresponding interest thereon, shall be paid by the
VENDEES to the VENDOR, NOEL J. CORTES.  x
x x .”

With respect to the first issue – whether the complaint was filed
prematurely – there is no dispute that plaintiffs filed their complaint on
December 12, 1962; that under the terms
of the contract, the pertinent portion of which is quoted above, the defendants
were given until January 1, 1962 within which to pay their obligation; and that
January 1, 1962 had passed without the defendants having paid to the plaintiffs
the sum of P576,573.90 and the corresponding interest thereon notwithstanding
repeated demands for payment made upon and duly received by them (Exhs. D, D-3,
E, E-3, pp. 72, 73, 73-A, 74-75, Folder of Exhibits).  Therefore, when plaintiffs filed the
complaint on December 12, 1962; the effects of default as against the
defendants had already arisen.  Besides,
no less than the defendants Venturanzas themselves admitted in their brief that
they were delayed in the payment of the balance of their obliga­tion to the
plaintiffs.  Let us turn to page 25 of
their brief:

“The delay in the payment of the balance of the purchase price
due to the plaintiffs-appellees was caused by the delay in the receipt of the
payment of the purchase price of the two haciendas of the herein
defendants-appellants Venturanza spouses. 
The non-compliance of herein defendants-appellants with their
obligations to plaintiffs-appellees was due to circumstances not within their
control.  x x x”

One cannot admit being delayed in the payment of his obligation
unless he believes that his obligation is already due and demandable. Stated
otherwise, there is no delay if the obligation is not yet due.

The alleged cause of
their default in paying the balance of the price, is not force majeure nor an
act of God.  Hence, their failure to pay
is not justified.

2.  With respect to the,
second issue, defendants Venturanzas contend that the three-year period
provided for in the Deed of Sale with Purchase Money Mortgage, Exhibit B, was
dependent on the date when they would be able to collect the purchase price of
the two properties they were trying to sell. 
For this purpose, they claim that Dr. Cortes, one of the plaintiffs,
granted them an extension of time within which to pay and this act of Dr.
Cortes constituted a novation of the contract.

This claim of defendants Venturanzas is equally devoid of merit.  A careful reading of the Deed of Sale with
Purchase Money Mortgage, Exhibit B, reveals the conspicuous absence of any
provision making the consummation of the said contract dependent on the ability
of defendants Venturanzas to collect the purchase price of their two
haciendas.  If this were the intention of
the parties, they should have clearly stated it in the contract.  It is true the defendants wrote two letters
to Dr. Cortes and/or his lawyer (Exhibits H and I-Venturanza, p. 90, Folder of Exhibits), wherein the defendants
Venturanzas requested an extension of time within which to pay and Dr. Cortes
admitted having been informed of the alleged projected sale of defendants
Venturanzas’ properties.  Dr. Cortes, however,
vehemently denied having given said defendants any extension of time.

The deed of sale with purchase money mortgage clearly indicates
that the balance of P576,573.90 shall be paid by the defendants, jointly and
severally, within three (3) years from January 1, 1959, with interest at the rate
of 6% per annum, until fully paid.  On
January 1, 1962, the defendants failed and refused to pay their
obligation.  This is a clear case of an
obligation with a definite period ex die, which period was
incidentally established for the benefit of the defendants.  The evidence presented by the plaintiffs to
substantiate these facts approaches moral certainty, not merely preponderance
of evidence.  Hence, defendants’ defense
of novation as to the period for payment, fails.

Furthermore, according to Article 1159 of the New Civil Code,
obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.  The deed, Exhibit B, does not show on its
face that any of the limitations of the freedom of contract under Article 1306
of the same Code, such as law, morals, good customs, public order, or public
policy, exists.  On the contrary, the
terms of said exhibit are so clear and leave no doubt with respect to the intention
of the contracting parties.  Hence, the
literal meaning of its stipulations shall control (Art. 1370, New Civil
Code).  This is so because the intention of the parties is
clearly manifested and they are presumed to intend the consequences of their
voluntary acts (Sec. 5, par. [c], Rule
131, Revised Rules of Court).  There being nothing in the deed, Exhibit B,
which would argue against its enforcement, it follows that there is no ground
or reason why it should not be given effect.

WE, therefore, see no,
reason to overturn the finding of the court a quo that the defendants are indebted to the
plaintiffs on the mortgage constituted by them over the 33 parcels of land in
question since the period for payment of the obligation had become due and, therefore, plaintiffs are entitled
to a foreclosure of the said mortgage.

3.  The third and last issue
pertains to the principal defense of the defendants Oledans.  These defendants claim that because they
transferred their interest and participation in the property subject of the
Deed of Sale with Purchase Money Mortgage, Exhibit B, to the defendants
Venturanzas allegedly with the knowledge and consent of the plaintiffs,
novation by substitution of the person of the debtor took place and, therefore,
their obligation to the plaintiffs had been extinguished.

In resolving this issue, it is important to state some principles
and jurisprudence underlying the concept and nature of novation as a mode of
extinguishing obligations.

According to Manresa, 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 the person of the debtor, or by
subrogating a third person to the rights of the creditor (8 Manresa 428, cited
in IV Civil Code of the Philippines by Tolentino, 1962 ed., p. 352).  Unlike other modes of extinction of
obligations, novation is a juridical act with a dual function – it extinguishes
an obligation and creates a new one in lieu of the old.

Article 1293 of the New
Civil Code provides:

“Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the knowledge or against
the will of the latter, but not without the consent of the creditor”
(underscoring supplied).

Under this provision, there are two forms of novation by
substituting the person of the debtor, and they are:  (1) expromision and (2) delegacion.  In the former, the initiative for the change
does not come from the debtor and may even be made without his knowledge, since
it consists in a third person assuming the obligation.  As such, it logically requires the consent of
the third person and the creditor.  In
the latter, the debtor offers and the creditor accepts a third person who consents to the substitution and assumes the obligation, so that the intervention and
the consent of these three persons are necessary (8 Manresa 436-437, cited in
IV Civil Code of the Philippines by Tolentino, 1962 ed., p. 360).  In these two modes of substitution, the
consent of the creditor is an indispensable requirement (Garcia vs. Khu Yek
Chiong, 65 Phil. 466, 468).

Defendants Oledans’ theory is that the Agree­ment and Deed of
Sale of Undivided Share in Real Estate (Exhibit 1-Oledan, p. 91, Folder of
Exhibits), executed and entered into by and between them and their
co-defendants Venturanzas, and which in effect transferred all their interest
and participation in the property subject of the deed of mortgage (Exhibit. B)
to their co-defendants Venturanzas, extinguished their obligation to the
plaintiffs.  In support of their theory,
they cited Article 1293 of the New Civil Code, quoted above, and then concluded
that the creditor’s consent to the novation which consists in substituting a
new debtor in place of the original one “is entirely unnecessary and
senseless.” They also cited the cases of Rio Grande Oil Co. vs. Coleman
(39 O.G. No. 38, 986) and Santisimo Rosario de Molo vs. Gemperle (39 O.G. No.
59, 1410), both decided by the Court of Appeals, through the learned Mr.
Justice Sabino Padilla, who later became an active and respected member of this
Court.

A perusal of the aforecited cases shows the following:

From the Coleman case:

“x x x A personal novation by substitution of another in place
of the debtor may be effected with or without the knowledge of the debtor but
not without the consent of the creditor (Art. 1205, Civil Code [now Art. 1293,
New Civil Code]).  This is the legal
provision applicable to the case at bar. 
The reason for the requirement that the creditor give his consent to the
substitution is obvious.  The substitution of another in place of the
debtor may prevent or delay the fulfillment or performance of the obligation by
reason of the inability or insolvency of the new debtor; hence, the consent of
the creditor is necessary.  This kind of
substitution may take place without the knowledge of the debtor when a third
party assumes the obligation of the debtor with the consent of the creditor.  The novation effected in this way is called expromision.  Substitution may also take place when the debtor offers and the
creditor accepts a third party who assumes the obligation of the debtor.  The novation made in this manner is called delegacion.  (Art. 1206, Civil Code [now Art. 1295, New Civil Code]).  In these two modes of substitution, the consent of the creditor is
always required.  x
x x” (Underscoring supplied).

From the Gemperle case:

“A personal novation by substitution of another in place of
the debtor may take place with or without the knowledge of the debtor but not
without the consent of the creditor (article 1205, Civil Code [now Art. 1293,
New Civil Code]).  The reason for the
requirement of the creditor’s consent to such subsitution is obvious.  Substitution of one debtor for another may delay or prevent the fulfillment or performance
of the obligation by reason of the temporary inability or insolvency of the new
debtor.  In a novation that takes place when the debtor offers and the creditor accepts a third party in place of the former debtor, the consent of the creditor
is also necessary (art. 1206, Civil Code [now Art. 1295, New Civil
Code]).  x x x”

After going over carefully the aforecited portions of the
decisions of the Court of Appeals, cited by the defendants Oledans, WE find
that they do not help any the cause of said defendants; on the contrary, they
both militate against their theory.  Be
that as it may, suffice it to
state that while the Agreement and Deed of Sale of Undivided Share in Real
Estate, Exhibit 1-Oledan, might have created a juridical relation as between
defendants Venturanzas and Oledans, it cannot however affect the relation
between them on one hand, and the plaintiffs, on the other, since the latter
are not privies to the said agreement, and this kind of novation cannot be made
without the consent of the plaintiffs (Garcia vs. Khu Yek Chiong, et al.,
supra).  One reason for the requirement
of the creditor’s consent to such substitution is obvious.  Substitution of one debtor for another may
delay or prevent the fulfillment of the obligation by reason, of the financial
inability or insolvency of the new debtor; hence, the creditor should agree to
accept the substitution in order that it may be binding on him.

Incidentally, this case is, in practically all respects, similar
to, if not identical with, the case of McCullough & Co. vs. Veloso and
Serna (46 Phil. 1).  In that case,
plaintiff sold to defendant Veloso its property known as “McCullough Building” consisting of
a land with the building thereon, for the price of P700,000.00.  Veloso paid a down payment of P50,000.00 cash
on account at the execution of the contract, and the balance of P650,000.00 to
be paid on installment basis.  To secure
the payment of the balance, Veloso mortgaged the property purchased in favor of
McCullough.  It was stipulated that in
case of failure on the part of Veloso to comply with any of the stipulations
contained in the mortgage deed, all the installments with the interest thereon
at the rate of 7% per annum shall become due, and the creditor shall then have the right to bring the proper action in court.

Subsequently, Veloso sold the property with the improvements
thereon for P100,000.00 to Serna, who agreed to respect the mortgage on the
property in favor of McCullough and to assume Veloso’s obligation to pay the
plaintiff the balance.  Veloso paid
P50,000.00 on account of the P650,000.00 and Serna made several payments up to
the total sum of P250,000.00.  Subsequently, however, neither Veloso nor
Serna made any payment upon the last installments, by virtue of which delay,
the whole obligation became due. 
McCullough went to court.

After due trial, the court sentenced defendant Veloso to pay the
plaintiff the sum of P510,047.34, with interest thereon at 7% per annum, within
three months; otherwise, the property mortgaged shall be sold at public auction
to the highest bidder and in the manner provided by law, the proceeds of the
sale to be applied to the payment of the judgment, after deducting the fees of
the court’s officer.

On appeal, defendant Veloso contended that having sold the
property to Serna, and the latter having assumed the obligation to pay the
plaintiff the unpaid balance of the price secured by the mortgage upon the
property, he was relieved from the obligation and it then devolved upon Serna
to pay the plaintiff.  This means that as
a consequence of the contract between the appellant and Serna, the contract
between him and the plaintiff was novated by the substitution of Serna as a new
debtor.

The Supreme Court ruled –

“In order that this novation may take place, the law requires
the consent of the creditor (Art. 1205 of the Old Civil Code; now Art. 1293 of
the New Civil Code).  The plaintiff did
not intervene in the contract between Veloso and Serna and did not expressly
give his consent to this substitution. 
Novation must be express, and cannot be presumed.”

In the case at bar, the agreement, Exhibit 1- Oledan, relied upon
by the defendants Oledans, does not show on its face that the plaintiffs
intervened in, much less gave their consent to, the substitution; as a matter
of fact, plaintiff Cortes vehemently denied having consented to the transfer of
rights from the Oledans to the Venturauzas alone.  Res inter alios actor alteri nocere non
debet.  Besides, no less than
defendant Jose Oledan himself testified that he did not personally see Dr.
Cortes about the transfer of rights in
Exhibit 1-Oledan, despite his commitment with his co-defendants in said
agreement “to inform Messrs. Felix Cortes and Noel J. Cortes (Jesus Noel)
of the execution of the said agreement” (p. 15, t.s.n. hearing of January
19, 1965).  There is thus a complete
absence of animus novandi, whether express or implied, on the
part of the creditors – the Corteses.

With respect to the claim
of plaintiffs for reasonable attorney’s fees, paragraph III (G) of the Deed of
Sale with Purchase Money Mortgage, Exhibit B, provides:

“G.  In the event of default on the part of the
VENDEES and by reason thereof a suit is brought for the foreclosure of this
mortgage or any other legal proceeding is instituted for the enforcement of any
of the rights of the VENDORS hereunder, a reasonable compensation shall be
paid, jointly and severally, by the VENDEES to the VENDORS for attorney’s fees,
in addition to the fees and costs allowed by the Rules of Court.”

The validity of, the
above agreement for reasonable attorney’s fees was questioned in the pleadings
of the defendants before the trial court. 
Before this Court, the plaintiffs in their brief (pp. 121-123, 126),
called OUR attention to the oversight in respect thereto com­mitted by the
court a quo.

With respect, however, to the interest due to the plaintiffs on the
indebtedness of the defendants, WE are reminded of the mandate of Article 2212
of the New Civil Code, which provides:

“Interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent upon this point.”

Per stipulation, plaintiffs are entitled to collect from
defendants interest at the rate of six per centum (6%) per annum on the
remaining balance of P576,573.90 from January 1, 1959.  Hence, for the period from January 1, 1959 to
December 12, 1962, the date of the filing of the complaint, plaintiffs are
entitled to collect from the defendants, by way of interest at six percent per
annum, the sum of P136,482.13.  Applying
the aforequoted legal provision, this amount of P136,482.13 should be added to
the principal of P576,573.90. making a total of P713,056.03, which shall earn
legal interest stipulated at six percent per annum from December 13, 1962 until
fully paid.  Such interest is not due to stipulation; rather it is due
to the mandate of the law hereinabove quoted.

Now, considering that the total amount recoverable in this case
approximates 1.4 million pesos as of October 31, 1977 (consisting of principal
of P576,573.90, plus P136,482.13 interest from January 1, 1959 to December 12,
1962, plus P636,827.37 interest from December 13, 1962 to October 31, 1977),
and that every step in the foreclosure proceedings had been tenaciously
contested, not to mention the work it will still require counsel for the
plaintiffs to collect the same by judicial proceedings, WE find that P50,000.00
is a reasonable amount to which the plaintiffs are entitled as and for
attorney’s fees.

Anent the cross-claim of defendants Oledans against their
co-defendants Venturanzas to the effect “that the defendants Venturanzas
are liable to them for the balance of P22,285.83 in addition to the penalties stipulated in the agreement and
deed of sale, Exhibit 1-Oledan, and the interests provided therein, WE find the
claim for the balance of P22,285.83 meritorious.

On their claim for
penalties and interests as provided for in the same agreement, cross-claimants
and defendants Oledans rely on the pertinent portions of the agreement, which
read:

“x x x x x

“2.  That upon the execution and signing of this
Agreement, the PARTIES OF THE FIRST PART (the Venturanzas) will pay to the
PARTIES OF THE SECOND PART (the Oledans), and the latter hereby acknowledge
receipt thereof, of the sum of TWENTY TWO THOUSAND (TWO HUNDRED) AND EIGHTY
FIVE PESOS AND EIGHTY THREE CENTAVOS (P22,285.83), Philippine Currency (Prudential
Bank Check No. 965159) and the balance of Twenty Two Thousand Two Hundred and
Eighty Five Pesos and Eighty Three Centavos (P22,285.83), Philippine Currency,
shall be paid by the PARTIES OF THE FIRST PART to the PARTIES OF THE SECOND
PART within eight (8) months from the date and execution of this Agreement and
Deed of Sale;

“x x x x x x x x x x x

“4.  That in the event of failure on the part of
the PARTIES OF THE FIRST PART to pay the said balance of Twenty Two Thousand Two
Hundred and Eighty Five Pesos and Eighty Centavos (P22,285.80) within the said
period of eight (8) months stipulated above, the said PARTIES OF THE FIRST PART
will pay to the PARTIES OF THE SECOND PART a penalty of Six Thousand Three
Hundred Sixty Seven Pesos and Thirty Centavos (P6,367.30) for the period from
August 28, 1960 to August 28, 1961; another penalty of P6,367.30 for the period
from August 28, 1961 to August 28, 1962; and another penalty of P6,367.30 for
the period from August 28, 1962 to August 28, 1963.  It is agreed that any part payment on the
said balance of P22,285.80 has no effect on the payment of the penalty provided
for herein, and in case of non-payment of the full amount of the balance of P22,285.80
within the said period of three years
aforementioned or up to August 28, 1963, then the said balance left unpaid plus
the penalties due, as provided for herein, shall bear an interest at the legal
rate.  It is of course understood, that
the penalties and interest provided for herein shall not apply if the PARTIES
OF THE FIRST PART shall pay the said balance of Twenty Two Thousand Two Hundred
and Eighty Five Pesos and Eighty Centavos (P22,285.80) within the eight (8)
months stipulated in paragraph 2 above, or on or before August 28, 1960;

“x x x x x x x x x x

(Brief for defendants Oledans, pp. 32-34,
Folder of Exhibits, pp. 92-93).

A meticulous analysis of the aforequoted portions of Exhibit
1-Oledan shows:

1.  That the Venturanzas were
given a period of eight (8) months from and after December 28, 1959 – the date
of the execution of the agreement – within which to pay the balance of
P22,285.80;

2.  That in the event of
failure on the part of the Venturanzas to pay the said balance of P22,285.80
within the said period of eight (8) months, the Venturanzas would pay to the
Oledans a penalty of P6,367.30 annually, beginning August 28, 1960, for a
period of three (3) years up to August 28, 1963, regard­less of any partial
payment which the Venturanzas might make on the balance of P22,285.80; and

3.  That in case of
non-payment of the whole obligation of P22,285.80 within the stipulated period
of three (3) years from August 28, 1960 to August 28, 1963, such obligation or
any balance thereof remaining unpaid, plus the penalties due at the rate of
P6,367.30 annually for three (3) years, shall earn interest at the legal rate.

Going over the entire agreement,
Exhibit 1-Oledan, WE have noted the following:

1.  That in connection with
the deed of sale with mortgage, Exhibit B, the Venturanzas were the ones who paid out of their own personal
funds the One Hundred Thousand Pesos (P100,000.00) to the plaintiffs,
representing the down payment on the purchase price of the property, with the
under­standing that the Oledans would reimburse the Venturanzas their one-half (1/2) share of P50,000.00;

2.  That subsequently, the
Oledans decided not to continue with the payment or reimbursement to the
Venturanzas of their one-half (1/2) share
of P50,000.00 as above indicated, but they agreed to share in the amount of
their investment of only P20,000.00;

3.  That the Venturanzas were
again the ones who paid out of
their own personal funds the succeeding P40,000.00, which fell due on January
1, 1959, to the plaintiffs;

4.  That it was only on
January 16, 1959 that the Oledans were able to reimburse to the Venturanzas
their one-half (½) share of the P40,000.00; and

5.  That the sum of
P20,000.00 was the only amount paid by the Oledans to and/or invested with the
Venturanzas in their joint venture envisioned in the deed of sale with mortgage,
Exhibit B.

In support of their claim for penalties and interests, the
cross-claimants and defendants Oledans contend that “this is a normal
stipulation contracts of–this character.” WE do not agree and hereby reject such claim for a ties as well as
for interests.

Settled is the rule that the contracting parties may establish
such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or
public policy (Art. 1306, New Civil Code). 
The records show that cross-claimants and defendants Oledans more than
broke even on their investment of P20,000.00 when they received from their
co-defendants Venturanzas the sum of P22,285.83 on December 28, 1959.  From all indications, it would seem that
defendants Venturanzas threw caution to the four winds, so to say, and bound
themselves to pay to their co-defendants Oledans the stipulated penalty of P6,367.30 annually for three (3)
years, beginning August 28, 1960, in their belief that within the said period
of time they would have more than enough money with which to pay their
obligation to the plaintiffs. 
Unfortunately, however, to their great disappointment, the unexpected
happened as they ended up with no money with which to pay not only the balance
of their obligation to the plaintiffs in the sum of P576,573.90, but also the
balance of their obligation to their co-defendants Oledans in the sum of
P22,285.30.  Be that as it may, justice
and morality cannot consent to and sanction a clearly iniquitous deprivation of
property, repulsive to the common sense of man. 
This is what this Court said some sixty (60) years ago in the case of
Ibarra vs. Aveyro and Pre (37 Phil. 273, 282), which WE cannot help but quote
hereunder:

“Notwithstanding the imprudence and temerity shown by the
defendants by their execution of a ruinous engagement, assumed, as it appears,
knowingly and voluntarily, morality and justice cannot consent to and sanction
a repugnant spoliation and iniquitous deprivation of property, repulsive to the
common sense of man; and therefore, as all acts performed against the
provisions of law are null and void, and as the penal clause referred to,
notwithstanding its being an ostensible violation of morals, was inserted in
said promissory note, and as there is no law that expressly authorizes it, we must conclude that the
contracting party favored by said penal clause totally lacks all right of
action to enforce its fulfillment” (underscoring supplied).

WHEREFORE, THE APPEALED JUDGMENT IS MODIFIED AND ANOTHER
ONE IS RENDERED, DIRECTING:

I.   ALL THE DEFENDANTS-APPELLANTS VENTURANZAS AND
OLEDANS TO PAY JOINTLY AND SEVERALLY THE PLAINTIFFS-APPELLEES:

A.   THE SUM OF FIVE HUNDRED SEVENTY SIX THOUSAND
FIVE HUNDRED SEVENTY THREE PESOS AND NINETY CENTAVOS (P576,573.90), PLUS ONE
HUNDRED THIRTY SIX THOUSAND FOUR HUNDRED EIGHTY TWO PESOS AND THIRTEEN CENTAVOS
(P136,482.13) INTEREST AT THE RATE OF SIX PER CENTUM (6%) PER ANNUM FROM
JANUARY 1, 1959 TO DECEMBER 12, 1962, PLUS INTEREST AT THE SAME RATE ON THE
PRINCIPAL AMOUNT OF P576,573.90 ADDED TO THE ACCRUED INTEREST, FOR THE PERIOD
FROM DECEMBER 13, 1962 UNTIL THE WHOLE OBLIGATION IS FULLY PAID, WITHIN NINETY
(90) DAYS FROM NOTICE HEREOF IN DEFAULT OF SUCH PAYMENT, THE MORTGAGED PROPERTIES
SHALL BE SOLD AT PUBLIC AUCTION TO REALIZE THE MORTGAGE INDEBTEDNESS AND COSTS
IN ACCORDANCE WITH LAW; AND

B.   THE SUM OF FIFTY THOUSAND PESOS (P50,000.00)
AS ATTORNEY’S FEES:

II.  THE CROSS-DEFENDANTS VENTURANZAS TO
PAY AND/OR REIMBURSE THE CROSS-CLAIMANTS OLEDANS:

A.   THE SUM OF TWENTY TWO THOUSAND TWO HUNDRED
AND EIGHTY FIVE PESOS AND EIGHTY THREE CENTAVOS (P22,285.83), PLUS INTEREST AT
THE RATE OF SIX PERCENT (6%) PER ANNUM COUNTED FROM THE FINALITY OF THIS
DECISION, UNTIL THE SAME IS FULLY PAID;

B.   THE AMOUNT WHICH SAID CROSS-CLAIMANTS MAY PAY
TO PLAINTIFFS-APPELLEES UNDER THIS JUDGMENT; AND

III. THE DEFENDANTS-APPELLANTS
VENTURANZAS TO PAY TREBLE COSTS.

SO ORDERED.

Teehankee, (Chairman), Muñoz Palma, Martin, Fernandez, and Guerrero, JJ., concur.