S.C. Megaworld Construction and Development Corporation(petitioner) bought electrical lighting materials from Genlite Industries,a sole proprietorship owned by Engineer Luis U. Parada (respondent), for its Read-Rite project in Canlubang, Laguna. The petitioner wasunable to pay for the above purchase on due date, but blamed it onits failure to collect under its sub-contract with the Enviro KleenTechnologies, Inc. (Enviro Kleen). It was however able to persuadeEnviro Kleen to agree to settle its above purchase, but after payingthe respondent P250,000.00 on June 2, 1999,4 Enviro Kleen stoppedmaking further payments, leaving an outstanding balance ofP816,627.00. It also ignored the various demands of the respondent,who then filed a suit in the RTC. The petitioner in its answer denied liability, claiming that it wasreleased from its indebtedness to the respondent by reason of thenovation of their contract, which, it reasoned, took place when the latteraccepted the partial payment of Enviro Kleen in its behalf, and therebyacquiesced to the substitution of Enviro Kleen as the new debtor in thepetitioner’s place.On appeal to the CA, the petitioner maintained that the trialcourt erred in ruling that no novation of the contract took placethrough the substitution of Enviro Kleen as the new debto

ISSUES:NOVATIONREAL PARTY IN INTEREST ~ GENTILE? PARADA?

Novation is a mode of extinguishing an obligation by changing itsobjects or principal obligations, by substituting a new debtor in place of theold one, or by subrogating a third person to the rights of the creditor.27 It is“the substitution of a new contract, debt, or obligation for an existing onebetween the same or different parties.”28 Article 1293 of the Civil Codedefines novation as follows:Art. 1293. Novation which consists in substituting a new debtor inthe place of the original one, may be made even without the knowledge oragainst the will of the latter, but not without the consent of the creditor.Payment by the new debtor gives him rights mentioned in Articles 1236and 1237.Thus, in order to change the person of the debtor, the formerdebtor must be expressly released from the obligation, and the thirdperson or new debtor must assume the former’s place in thecontractual relation.29 Article 1293 speaks of substitution of the debtor,which may either be in the form of expromision or delegacion, asseems to be the case here. In both cases, the old debtor must bereleased from the obligation, otherwise, there is no valid novation. Asexplained in Garcia30:In general, there are two modes of substituting the person of thedebtor: (1) expromision and (2) delegacion. In expromision, the initiativefor the change does not come from—and may even be made without theknowledge of—the debtor, since it consists of a third person’s assumptionof the obligation. As such, it logically requires the consent of the thirdperson and the creditor. In delegacion, the debtor offers, and the creditoraccepts, a third person who consents to the substitution and assumes the

obligation; thus, the consent of these three persons are necessary. Bothmodes of substitution by the debtor require the consent of the creditor.31(Citations omitted)

From the circumstances obtaining below, we can infer no clear andunequivocal consent by the respondent to the release of the petitioner fromthe obligation to pay the cost of the lighting materials. In fact, from theletters of the respondent to Enviro Kleen, it can be said that he retained hisoption to go after the petitioner if Enviro Kleen failed to settle thepetitioner’s debt. As the trial court held:The fact that Enviro Kleen Technologies, Inc. made payments tothe [respondent] and the latter accepted it does not ipso facto result innovation. Novation to be given its legal effect requires that the creditorshould consent to the substitution of a new debtor and the old debtor bereleased from its obligation (Art. 1293, New Civil Code). A reading of theletters dated 14 April 1999 (Exh. 1) and dated 16 June 1999 (Exh[s]. 4 &4-a) sent by the [respondent] to Enviro Kleen Technologies, Inc. clearlyshows that there was nothing therein that would evince that the[respondent] has consented to the exchange of the person of the debtorfrom the [petitioner] to Enviro Kleen Technologies, Inc.

The settled rule is that novation is never presumed,33 but mustbe clearly and unequivocally shown.34

It appears from the recital of facts in the trial court’s decision that therespondent demanded interest of two percent (2%) per month upon thebalance of the purchase price of P816,627.00, from judicial demand untilfull payment. There is then an obvious clerical error committed in the falloof the trial court’s decision, for it incorrectly ordered the defendant thereinto pay “the sum equivalent to twenty percent (20%) per month of theprincipal obligation due from date of judicial demand until fully paid as andfor interest.”42A clerical mistake is one which is visible to the eyes or obvious to theunderstanding; an error made by a clerk or a transcriber; a mistake incopying or writing.43 The Latin maxims Error placitandi aequitatem nontollit (“A clerical error does not take away equity”), and Error scribentisnocere non debit (“An error made by a clerk ought not to injure; a clericalerror may be corrected”) are apt in this case.44 Viewed against the landmarkcase of Medel v. CA45, an award of interest of 20% per month on the amountdue is clearly excessive and iniquitous. It could not have been the intentionof the trial court, not to mention that it is way beyond what the plaintiff hadprayed for below.

Article 2209 of the Civil Code provides that “[i]f the obligationconsists in the payment of a sum of money, and the debtor incurs in delay,the indemnity for damages, there being no stipulation to the contrary, shallbe the payment of the interest agreed upon, and in the absence of stipulation,the legal interest, which is six percent per annum.” Pursuant to the saidprovision, then, since there is no finding of a stipulation by the parties as tothe imposition of interest, only the amount of 12% per annum47 may beawarded by the court by way of damages in its discretion, not two percent

(2%) per month, following the guidelines laid down in the landmark case ofEastern Shipping Lines v. Court of Appeals,

AFTIL

Petitioner “Advocates for Truth in Lending, Inc.” (AFTIL) is a nonprofit,non-stock corporation organized to engage in pro bono concerns andactivities relating to money lending issues. It was incorporated on July 9,2010,2 and a month later, it filed this petition, joined by its founder andpresident, Eduardo B. Olaguer, suing as a taxpayer and a citizen.R.A. No. 265, which created the Central Bank (CB) of the Philippineson June 15, 1948, empowered the CB-MB to, among others, set themaximum interest rates which banks may charge for all types of loans andother credit operations, within limits prescribed by the Usury Law.

On March 17, 1980, the Usury Law was amended by PresidentialDecree (P.D.) No. 1684, giving the CB-MB authority to prescribe differentmaximum rates of interest which may be imposed for a loan or renewalthereof or the forbearance of any money, goods or credits, provided that thechanges are effected gradually and announced in advance.

In its Resolution No. 2224 dated December 3, 1982,3 the CB-MBissued CB Circular No. 905, Series of 1982, effective on January 1, 1983.Section 1 of the Circular, under its General Provisions, removed the ceilingson interest rates on loans or forbearance of any money, goods or credits,

To justify their skipping the hierarchy of courts and going directly tothis Court to secure a writ of certiorari, petitioners contend that thetranscendental importance of their Petition can readily be seen in the issuesraised therein, to wit:a) Whether under R.A. No. 265 and/or P.D. No. 1684, theCB-MB had the statutory or constitutional authority toprescribe the maximum rates of interest for all kinds ofcredit transactions and forbearance of money, goods orcredit beyond the limits prescribed in the Usury Law;b) If so, whether the CB-MB exceeded its authority when itissued CB Circular No. 905, which removed all interestceilings and thus suspended Act No. 2655 as regardsusurious interest rates;c) Whether under R.A. No. 7653, the new BSP-MB maycontinue to enforce CB Circular No. 905.5

HELD

PROCEDURALLY INFIRMNO STANDINGIn Prof. David v. Pres. Macapagal-Arroyo,26 the Court summarizedthe requirements before taxpayers, voters, concerned citizens, and legislatorscan be accorded a standing to sue, viz:(1) the cases involve constitutional issues;(2) for taxpayers, there must be a claim of illegaldisbursement of public funds or that the tax measure isunconstitutional;(3) for voters, there must be a showing of obvious interest in

the validity of the election law in question;(4) for concerned citizens, there must be a showing that theissues raised are of transcendental importance whichmust be settled early; and(5) for legislators, there must be a claim that the officialaction complained of infringes upon their prerogatives aslegislators.

In the instant case, there is no allegation of misuse of public funds inthe implementation of CB Circular No. 905. Neither were borrowers whowere actually affected by the suspension of the Usury Law joined in thispetition. Absent any showing of transcendental importance, the petitionmust fail.More importantly, the Court notes that the instant petition adverted tothe regime of high interest rates which obtained at least 15 years ago, whenthe banks’ prime lending rates ranged from 26% to 31%,30 or even 29 yearsago, when the 91-day Jobo bills reached 40% per annum. In contrast,according to the BSP, in the first two (2) months of 2012 the bank lendingrates averaged 5.91%, which implies that the banks’ prime lending rateswere lower; moreover, deposit interests on savings and long-term depositshave also gone very low, averaging 1.75% and 1.62%, respectively.

Cb merely suspended usury lawBsp has authority to enforce

The lifting of the ceilings forinterest rates does not authorizestipulations charging excessive,unconscionable, and iniquitousinterest.