Francia Vs IAC and Ho Fernandez

Francia vs IAC and Ho Fernandez
Facts: Francia is the registered owner of a house and lot in

Pasay City. A portion of this house was expropriated by the
Republic of the Philippines. Francia was not able to pay his
real estate taxes and so this property was sold at public aution
with Ho Fernandez as the highest bidder. And title to the
properties was ordered to be transferred by the RTC to Ho
Fernandez. This was affirmed by the CA.
Francia contends that his tax delinquency has been
extinguished by legal compensation. He claims that the
Government owed him 4,116 when a portion of his land was
expropriated back in 1977.
Issue: WON there was legal compensation as to amount to
extinguishment of Francias obligation.
Ruling: No. By legal compensation, obligations of person, who
in their own right are reciprocally debtors and creditors of each
other, are extinguished.
There can be no off-setting of taxes against the claims that the
tax payer may have against the government. A claim for taxes
is not such a debt, demand, contract or judgment as is allowed
to be set off.
BPI vs CA and Jimmy Go
Facts: BPI granted a total of 8 loans in favor of Noahs Arc
Merchandising. It was evidenced by promissory notes all
issued by Looyuko, Jimmy Go, and Wilson Go. Petitioner
claims that Looyuko defaulted in its obligations and it wants the
mortgages be foreclosed. The lower court issued an injunction
and enjoined the impending foreclosure and public auction. A
motion for reconsideration was denied in the CA.
Respondent argues that by withholding the lease payments
BPI owed Noahs Ark for the space BPI was leasing from
Noahs Ark, as expressed in a letter from BPI that BPI has
waived default, novated the contract of loan as embodied in the
promissory notes and is therefor stopped from foreclosing on
the mortgaged property.
Issue: WON theres legal compensation.
Ruling: Yes, BPIs act of withholding the lease payments and
applying them to the outstanding obligation of Noahs Ark is
merely an acknowledgement of the Legal compensation that
occurred by operation of law between the parties.
Compensation is a mode of extinguishing to the concurrent
amount the obligations of persons who in their own right and as
principals are reciprocally debtors and creditors of each other.
Legal compensation takes place by operation of law when all
the requisites which takes place when the parties agree to
compensate their mutual obligations even in the absence of
some requisites.
It requires 1) that each one of the obligors be bound principally,

and that he be at the same time a principal creditor of the
other, 2) that both debts consists in a sum of money, or if the
things due are consumable, they be of the same kind, and also
of the same quality if the latter has been stated, 3) that the two
debts are due, 4) that the debts are liquidated and
demandable, 5) that over neither of them there be any
retention or controversy, commenced by third persons over
either of the debts.
It is clear from the facts that BPI and Noahs Ark are both
principal obligors and creditors of each other. Their debts to
each other both consist in a sum of money. The eight
promissory notes of Noahs Ark are all due, and the lease
payments owed by BPI are liquidated and are demandable
every month as they fell due. Lastly, there is no retention or
controversy commenced by third persons over either of the
debts.
Since the compensation between the parties occurred by
operation of law, BPI did not waive Noahs Arks default. As a
result of the absence of novation or waiver of default, BPI is
therefore not stopped from proceeding with the foreclosure.
Peoples Bank vs Syvels
Facts: Petitioner granted a credit commercial line in the amount
of 900,000 in favor of Syvels Incorporated. This was secured
by a chattel mortgaged of its stocks of goods, personal
properties and other materials owned by it located at its stores
or warehouses. Defendants Syyap executed an undertaking in
favor of the plaintiff whereby they both agreed to guarantee
absolutely and unconditionally and with the benefit of
excussion the full and prompt payment of any indebtedness to
be incurred on account of the said credit line.
Defendants failed to settle its obligation prompting the Bank to
foreclose the chattel mortgage. But after filing of this case,
Syyap requested that the case be dismissed since he did not
want to have the goodwill of Syvels Incorporated impared, and
offered to execute a real estate mortgage on his real property.
RTC ruled in favor of the Bank, and ordered that all the
defendants pay the obligation.
The appellants argue that the Real Estate Mortgage that they
executed with the Bank, the obligation secured by the chattel
mortgage subject of this case was novated, and therefore,
appellees cause of action thereon was extinguished.
Issue: WON there is novation which amounts to the
extinguishment of the obligation.
Ruling: No, novation takes place when the object or principal
condition of an obligation is changed or altered. It is elementary
that novation is never presumed; it must be explicitly stated or
there must be manifest incompatibility between the old and the
new obligations in every aspect.
Here, there is nothing in the REM which supports appellants
submission. The contract on its face does not show the
existence of an explicit novation nor incompatibility on every
point between the old and the new agreements as the

second contract evidently indicates that the same was
executed as new additional security to the chattel mortgage
previously entered into by the parties.
Young vs CA
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Francia Vs IAC and Ho Fernandez

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Francia Vs IAC and Ho Fernandez

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Francia vs IAC and Ho Fernandez

Facts: Francia is the registered owner of a house and lot in

It requires 1) that each one of the obligors be bound principally,

point between the old and the new agreements as the

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