G.R. No. L-27434 September 23, 1986
GENARO GOÑI, RUFINA P. VDA. DE VILLANUEVA, ET AL., petitioners-appellants, vs. THE COURT OF APPEALS and GASPAR VICENTE, respondents-appellees.

FACTS

The late Praxedes T. Villanueva, predecessor-in-interest of the petitioners, negotiated to purchase three haciendas from Compañia General de Tabacos de Filipinas (TABACALERA). Lacking sufficient funds, he arranged to sell Hacienda Sarria to Joaquin Villegas. Private respondent Gaspar Vicente acted as guarantor for Villegas’s balance in favor of TABACALERA. In consideration of this guaranty, Villanueva, through his attorney-in-fact Genaro Goñi, executed a document on October 24, 1949, promising to sell Fields Nos. 3, 4, and 13 of Hacienda Dulce Nombre de Maria to Vicente for P13,807.00. Vicente subsequently paid P12,460.24 directly to TABACALERA to complete Villanueva’s purchase price for the haciendas.
Petitioners alleged that after Villanueva raised funds elsewhere, he and Vicente agreed to novate the promise to sell into a five-year lease agreement over Fields Nos. 4 and 13 only, starting crop-year 1950-51, at an annual rental equivalent to 15% of the gross income. This rental would be deducted from Vicente’s advance payment of P12,460.24, with any balance and possession of the fields to be returned to Villanueva after the lease. Vicente took possession of Fields Nos. 4 and 13 but not Field No. 3. After Villanueva’s death, Vicente filed an action for recovery of Field No. 3 based on the 1949 document. Petitioners, as defendants, counterclaimed for the return of Fields Nos. 4 and 13 and an accounting of their produce.

ISSUE

Whether the original contract of promise to sell was novated by a subsequent verbal lease agreement.

RULING

Yes, the Supreme Court ruled that the contract of promise to sell was novated by a subsequent verbal lease agreement. The Court found that the petitioners successfully proved the existence of a subsequent verbal agreement that modified the original written contract. This novation was established through the clear and convincing testimonial evidence presented, which demonstrated that the parties had mutually agreed to convert the promise to sell into a lease over only two fields (Nos. 4 and 13) for a fixed period. The Court emphasized that novation, as a mode of extinguishing an obligation, can be established by parol evidence when it shows a subsequent agreement incompatible with the former contract. The conduct of the parties was consistent with a lease, not a sale, as Vicente only took possession of two fields and paid what was treated as an advance rental. Consequently, Vicente’s action to recover Field No. 3, based on the extinguished promise to sell, had no legal basis. The Court reversed the Court of Appeals and ordered the respondents to surrender possession of Fields Nos. 4 and 13 to the petitioners, render an accounting of the produce from crop-year 1950-51, and pay the stipulated rent, deducting the advanced amount.