GR 116805; (June, 2000) (Digest)
G.R. No. 116805 ; June 22, 2000
MARIO S. ESPINA, petitioner, vs. THE COURT OF APPEALS and RENE G. DIAZ, respondents.
FACTS
Petitioner Mario S. Espina is the registered owner of a condominium unit. Respondent Rene G. Diaz initially occupied the unit as a lessee. On November 29, 1991, the parties executed a Provisional Deed of Sale for the unit, with Diaz paying a down payment and issuing postdated checks for the balance. These checks were dishonored as Diaz’s account was closed. On July 26, 1992, Espina sent a notarial Notice of Cancellation terminating the provisional sale.
Despite the cancellation, Diaz continued occupying the premises. On October 28, 1992, Espina accepted a payment of P100,000 from Diaz. When Diaz failed to pay accrued rentals and to vacate after a demand, Espina filed an unlawful detainer case. The Municipal Trial Court and the Regional Trial Court ruled in favor of Espina, ordering Diaz to vacate and pay back rentals. The Court of Appeals reversed, holding that the Provisional Deed of Sale novated the lease and that Espina’s acceptance of the P100,000 payment withdrew the cancellation of the sale.
ISSUE
Whether the Court of Appeals erred in ruling that the Provisional Deed of Sale novated the existing contract of lease and that the petitioner had no cause of action for ejectment.
RULING
The Supreme Court reversed the Court of Appeals and reinstated the lower courts’ decisions, ruling in favor of petitioner Espina. The legal logic is anchored on the principles of novation and application of payments. Novation, which extinguishes an obligation by substituting or changing its principal conditions, is never presumed and must be proven by clear evidence of either express agreement or an irreconcilable incompatibility between the old and new contracts. Here, the Provisional Deed of Sale did not novate the lease contract. The parties did not expressly agree to extinguish the lease, and the two contracts—lease and conditional sale—were not fully incompatible, as the sale was provisional and payable in installments. The subsequent dishonor of the checks and the cancellation of the sale left the original lease agreement intact.
Furthermore, Espina’s acceptance of the P100,000 payment after cancelling the sale did not revive the sale. Applying Article 1254 of the Civil Code, when the application of a payment is not expressly indicated by the debtor, it shall be applied to the obligation most onerous to him. Diaz’s unpaid rentals constituted a more onerous obligation than the cancelled sale balance. Therefore, the payment was correctly applied to the rental arrears. Since the payment did not fully settle the back rentals, Diaz’s possession became unlawful upon his failure to comply with the demand to pay and vacate, giving Espina a valid cause of action for ejectment. The Court of Appeals erred in treating the payment as for the purchase price.