Millar v CA
In the case at bar, the
Facts: On February 11, 1956, Eusebio S. Millar
(hereinafter referred to as the petitioner)
obtained a favorable judgment from the Court of
First Instance of Manila, in civil case 27116,
condemning Antonio P. Gabriel (hereinafter
referred to as the respondent) to pay him the
sum of P1,746.98 with interest at 12% per
annum from the date of the filing of the
complaint, the sum of P400 as attorney's fees,
and the costs of suit. From the said judgment,
the respondent appealed to the Court of Appeals
which, however, dismissed the appeal on
January 11, 1957.
Subsequently, on February 15, 1957, after
remand by the Court of Appeals of the case, the
petitioner moved ex parte in the court of origin
for the issuance of the corresponding writ of
execution to enforce the judgment. Acting upon
the motion, the lower court issued the writ of
execution applied for, on the basis of which the
sheriff of Manila seized the respondent's Willy's
Ford jeep
The respondent, however, pleaded with the
petitioner to release the jeep under an
arrangement whereby the respondent, to secure
the payment of the judgement debt, agreed to
mortgage the vehicle in favor of the petitioner.
The petitioner agreed to the arrangement; thus,
the parties, on February 22, 1957, executed a
chattel mortgage on the jeep,
Upon failure of the respondent to pay the first
installment due on March 31, 1957, the
petitioner obtained an alias writ of execution.
This writ which the sheriff served on the
respondent only on May 30, 1957 after the
lapse of the entire period stipulated in the chattel
mortgage for the respondent to comply with his
obligation was returned unsatisfied.
The lower court, on November 11, 1961, ordered
the suspension of the execution sale to afford the
respondent the opportunity to prove his
allegation of payment of the judgment debt, and
set the matter for hearing on November 25,
1961. After hearing, the lower court, on January
25, 1962, issued an order
The lower court ruled that novation had taken
place, and that the parties had executed the
chattel mortgage only "to secure or get better
security for the judgment." The respondent duly
appealed the aforesaid order to the Court of
Appeals, which set aside the order of execution
in a decision rendered on October 17, 1968,
holding that the subsequent agreement of the
parties impliedly novated the judgment
obligation in civil case 27116.
The appellate court stated that the following
circumstances sufficiently demonstrate the
incompatibility between the judgment debt and
the obligation embodied in the deed of chattel
mortgage, warranting a conclusion of implied
novation
Issue: Whether or not the subsequent agreement
of the parties as embodied in the deed of chattel
mortgage impliedly novated the judgment
obligation in civil case 27116
Ruling: The petition is granted
Where the new obligation merely reiterates or
ratifies the old obligation, although the former
effects but minor alterations or slight
modifications with respect to the cause or object
or conditions of the latter, such changes do not
effectuate any substantial incompatibility
between the two obligations. Only those
essential and principal changes introduced by
the new obligation producing an alteration or
modification of the essence of the old obligation
result in implied novation.
mere reduction of the amount due in no sense
constitutes a sufficient indicium of
incompatibility, especially in the light of (a) the
explanation by the petitioner that the reduced
indebtedness was the result of the partial
payments made by the respondent before the
execution of the chattel mortgage agreement and
(b) the latter's admissions bearing thereon
At best, the deed of chattel mortgage simply
specified exactly how much the respondent still
owed the petitioner by virtue of the judgment in
civil case 27116. The parties, apparently in their
desire to avoid any future confusion as to the
amounts already paid and as to the sum still due,
decided to state with specificity in the deed of
chattel mortgage only the balance of the
judgment debt properly collectible from the
respondent. All told, therefore, the first
circumstance fails to satisfy the test of
substantial and complete incompatibility
between the judgment debt and the pecuniary
liability of the respondent under the chattel
mortgage agreement.
As to the second and fourth circumstances relied
upon by the Court of Appeals in holding that the
mortgage obligation superseded, through
implied novation, the judgment debt, the
petitioner points out that the appellate court
considered said circumstances in a way not in
accordance with law or accepted jurisprudence.
The appellate court stated that while the
judgment specified no mode for the payment of
the judgment debt, the deed of chattel mortgage
provided for the payment of the amount fixed
therein in two equal installments.
On this point, we see no substantial
incompatibility between the mortgage obligation
and the judgment liability of the respondent
sufficient to justify a conclusion of implied
novation. The stipulation for the payment of the
obligation under the terms of the deed of chattel
mortgage serves only to provide an express and
specific method for its extinguishment
payment in two equal installments. The chattel
mortgage simply gave the respondent a method
and more time to enable him to fully satisfy the
judgment indebtedness. The chattel mortgage
agreement in no manner introduced any
substantial modification or alteration of the
judgment. Instead of extinguishing the
obligation of the respondent arising from the
judgment, the deed of chattel mortgage
expressly ratified and confirmed the existence of
the same, amplifying only the mode and period
for compliance by the respondent.
The Court of Appeals also considered the terms
of the deed of chattel mortgage incompatible
with the judgment because the chattel mortgage
secured the obligation under the deed, whereas
the obligation under the judgment was
unsecured. The petitioner argues that the deed of
chattel agreement clearly shows that the parties
agreed upon the chattel mortgage solely to
secure, not the payment of the reduced amount
as fixed in the aforesaid deed, but the payment
of the judgment obligation and other incidental
expenses in civil case 27116.
The unmistakable terms of the deed of chattel
mortgage reveal that the parties constituted the
chattel mortgage purposely to secure the
satisfaction of the then existing liability of the
respondent arising from the judgment against
him in civil case 27116. As a security for the
payment of the judgment obligation, the chattel
mortgage agreement effectuated no substantial
alteration in the liability of the respondent.
The defense of implied novation requires clear
and convincing proof of complete
incompatibility between the two obligations.
The law requires no specific form for an
effective novation by implication. The test is
whether the two obligations can stand together.
If they cannot, incompatibility arises, and the
second obligation novates the first. If they can
stand together, no incompatibility results and
novation does not take place.
Dormitorio v Fernandez
Facts: That the above-mentioned order of
Execution to be set aside is based on the
decision of the Honorable Court dated
September 5, 1961 in the above-entitled case
which is no longer enforceable, and executory
by virtue of the 'Agreed Stipulation of Facts'
entered into by the
Plaintiffs and Defendants in Civil Case No. 6553
, and which said 'Agreed Stipulation of
Facts' was the basis for the judgment of the
Honorable Court dated February 12, 1965.
That in the 'Agreed Stipulation of Facts' in Civil
Case No. 6553 which was the basis of the
Honorable Court judgment dated February 12,
1965, it was agreed by the defendant spouses
Dormitorio, who are the plaintiffs in Civil Case
No. 5111 that the defendant Serafin Lazalita
should be reimbursed for his expenses in
transferring his house to another Lot to be
assigned to him by the Municipality of Victorias,
and that the Decision in Civil Case No. 5111
shall not be enforced and executed anymore;
That by means of fraud, misrepresentation and
concealment of the true facts of the case, the
plaintiffs were able to mislead the Honorable
Court, thru an Ex-Parte Motion to issue by
mistake an Order for the issuance of a Writ of
Execution by making this Honorable Court
believe that the Decision of September 5, 1961
is still enforceable and executor
Ruling: The petition is granted.
The decision in the aforecited Civil Case No.
6553, which as contended by private respondent,
a submission that earned the approval of
respondent Judge, sufficed for the lifting of the
writ of execution, pursuant to the decision in
Civil Case No. 5111 deemed superseded, started
with a stipulation of facts. Thus: "When this
case was called for hearing the parties submitted
an Agreed Stipulation of Facts duly signed by
the parties and their respective counsel, as
follows: '[Agreed Stipulation of Facts],' Come
now the parties, in the above-entitled case,
represented by their respective counsel and
before this Honorable Court, respectfully submit
the following agreed stipulation of facts:
*That the defendant Municipality of Victorias, is
the owner of several parcels of lands in
Victorias, Negros Occidental
*That on December 7, 1948, the plaintiff Serafin
Lazalita, bought from the Municipality of
Victorias, Lot No. 1, Block 16 of the
consolidatedsubdivision plan PCs-118 having an
area of Two Hundred Thirty (230) Square
Meters, payable in installment at [one peso]
(P1.00) per square meter, and in the year 1958,
upon full payment by plaintiff Lazalita of the
purchase price of the land, a deed of definite sale
was executed in his favor by the then Municipal
Mayor Montinola of Victorias, Negros
Occidental, and thereafter a Certificate of Title
No. T-23098 covering the property, was issued
him by the Register of Deeds of Bacolod,
Negros Occidental.
*That from February 7, 1948, until about eight
continuous years thereafter, plaintiff had been in
full and peaceful possession of the said land, and
he introduced permanent and valuable
improvements thereon, [namely] fruit trees, like
coconuts, avocados, pumelos and oranges,
which have long been fruit bearing, and built a
house of strong materials, valued at P5,000.00
*That plaintiff Lazalita, was placed in
possession of the said Lot No. 1, Block 16 of the
subdivision plan of Victorias, by the persons
designated by the Municipality to take charge of
the sale of said lots to the people, and from the
time, he had occupied by same, up to the
present, there has not been a change in the
location thereof, as described in the Certificate
of Title covering the property, now registered in
plaintiff's name
*That about the year 1955, however, the other
co-defendants herein the spouses Agustin
Dormitorio and Leoncia D. Dormitorio,
purchased also, from the defendant Municipality
of Victorias, their lot known as Lot 2, Block 16,
of the same consolidation-subdivision plan PCs-
118, having an area of Three Hundred Forty-
Three (343) Square meters, in cash, at [one
peso] (P1.00) per square meter. Immediately
thereafter, the Dormitorios, obtained a transfer
Certificate of Title. However, the spouses
Dormitorio, have not taken actual possession of
the land, they have purchased from the
defendant Municipality of Victorias, up to the
present
*That on December 12, 1958, the spouses
Dormitorio, brought a suit against the plaintiff
Lazalita, for Ejectment and the conflict between
them was made known to the office of the
Municipal Mayor and the Council of Victorias,
who tried to settle the matter between the parties
Dormitorio and Lazalita
*Later, a private Land Surveyor, was hired by
the Municipality of Victorias, and it was found
out, according to said Surveyor, Mr. Ceballos,
that the Lot sold by the Municipality of
Victorias, to the plaintiff, was converted into the
new Municipal Road known as 'Jover Street' and
that the lot presently occupied by him, is
supposed to be the lot No. 2, bought by the
spouses Dormitorio from the Municipality of
Victorias; and so, availing of the said discovery,
the Court of First Instance of Negros Occidental,
Branch V, Presided over by Hon. Jose F.
Fernandez, rendered judgment in that case No.
5111, in favor of Dormitorio, ordering the
plaintiff herein Lazalita, to vacate the land
*That Lazalita, having failed to appeal from said
judgment in Civil Case No. 5111 of this
Honorable Court, brought this present action,
against the Municipality of Victorias, and joined
the Dormitorios, as formal parties, because of
the value of his permanent improvements and
building introduced or constructed on Lot No. 2,
Block 16, ascertained to be that, very lot
purchased by Dormitorio from the defendant
Municipality of Victorias, which building and
improvements, have far exceed then, the original
purchase price of the land;
*That the present fair market value of residential
lots in the Poblacion of Victorias, ranges
between P15.00 to P25.00 per square meter and
the lots in controversy, are saleable at present, at
P20.00 per square meter;
*That the Municipality of Victorias, under the
present administration, is willing to amicably
settle the case, now before this Honorable Court,
by giving the plaintiff another lot, if they could
open their newly proposed subdivision, or pay
back Lazalita the amount necessary and just for
plaintiff to acquire another lot for his residence,
and for the expenses of transferring his present
residential house thereto. So it was granted in
the dispositive portion of such decision:
"[Wherefore], judgment is hereby rendered in
accordance with the above-mentioned Agreed
Stipulation of Facts
What was done by respondent Judge in setting
aside the writ of execution in Civil
Case No. 5111 finds support in the applicable
authorities. There is this relevant excerpt in
Barretto v. Lopez, 7 this Court speaking through
the then Chief Justice Paras: "Alleging that the
respondent judge of the municipal court had
acted in excess of her jurisdiction and with grave
abuse of discretion in issuing the writ of
execution of December 15, 1947, the petitioner
has filed the present petition for certiorari and
prohibition for the purpose of having said writ of
execution annulled. Said petition is meritorious.
The agreement filed by the parties in the
ejectment case created as between them new
rights and obligations which naturally
superseded the judgment of the municipal court.
In Santos v. Acua, it was contended that a
lower court decision was novated by subsequent
agreement of the parties. Implicit in this Court's
ruling is that such a plea would merit approval if
indeed that was what the parties intended.
Nonetheless, it was not granted, for as explained
by the
ponente, Justice J. B. L. Reyes: "Appellants
understood and expressly agreed to be bound by
this condition, when they stipulated that 'they
will voluntarily deliver and surrender possession
of the premises to the plaintiff in such event' . . .
Hence, it is plain that in no case were the
subsequent arrangements entered into with any
unqualified intention to discard or replace the
judgment in favor of the plaintiff-appellee; and
without such intent or animus novandi, no
substitution of obligations could possibly take
place.
Can there be any doubt that if it could be shown,
as it was in this case, that there was such clear
manifestation of will by the parties, the original
decision had lost force and effect?
The presence of the animus novandi is
undeniable. Nor is there anything novel in such
an approach. So it was noted by then Chief
Justice Concepcion in De los Santos v.
Rodriguez: 11 "As early as Molina v. De la Riva
the principle has been laid down that, when,
after judgment has become final, facts and
circumstances transpire which render its
execution impossible or unjust, the interested
party may ask the court to modify or alter the
judgment to harmonize the same with justice
and the facts" 12 Molina v. de la
Riva 13 was a 1907 decision. Again, the present
case is far stronger, for there is a later decision
expressly superseding the earlier one relied upon
on which the writ of execution thereafter set
aside was based.
Nor can it be denied that as the later decision in
Civil Case No. 6553 was the result of a
compromise, it had the effect of res judicata.
This was made clear in Salazar v. Jarabe. There
are later decisions to the same effect. The parties
were, therefore, bound by it. There was thus an
element of bad faith when petitioners did try to
evade its terms. At first, they were quite
successful. Respondent Judge, however, upon
being duly informed, set matters right. He set
aside the writ of execution. That was to act in
accordance with law. He is to be commended,
not condemned.
There is no merit likewise to the point raised by
petitioners that they were not informed by
respondent Judge of the petition by private
respondent to set aside the writ of execution.
The order granting such petition was the subject
of a motion for reconsideration. The motion for
reconsideration was thereafter denied. Under the
circumstances, the failure to give notice to
petitioners had been cured. That is a wellsettled
doctrine. Their complaint was that they were not
heard. They were given the opportunity to file a
motion for reconsideration. So they did. That
was to free the order from the alleged infirmity.
Petitioners then cannot be heard to claim that
they were denied procedural due process.
Magdalena Estate (plaintiff-appelle)
Rodriguez (defendants-appellants)
Facts: The appellants bought from the appellee
a parcel of land in Quezon City known as Lot 7-
K- 2-G, Psd-26193. In view of an unpaid
balance of P5,000.00 on account of the purchase
price of the lot, the appellants executed on
January 4, 1957, the following promissory note
representing the said account
On the same date, the appellants and the Luzon
Surety Co., Inc. executed a bond in favor of the
appellee, the undertaking thereof being
embodied therein:
". . . comply with the obligation to pay the
amount of P5,000.00 representing balance of the
purchase price of a parcel of land known as Lot
7-K-2-C, Psd- 26193, with an area of 2,191
square meters, Quezon City, covered by Transfer
Certificate of Title No. 13 (6947), Quezon City,
within a period of sixty (60) days from January
7, 1957; That the Surety shall be notified in
writing within Ten (10) days from moment of
default otherwise, this undertaking is
automatically null and void."
On June 20, 1958, when the obligation of the
appellants became due and demandable, the
Luzon Surety Co., Inc. paid to the appellee the
sum of P5,000.00.Subsequently, the appellee
demanded from the appellants the payment of
P655.89 corresponding to the alleged
accumulated interests on the principal of
P5,000.00. Due to the refusal of the appellants to
pay the said interest, the appellee started this suit
in the Municipal Court of Manila to enforce the
collection thereof. The said court, on February 5,
1959, rendered judgment in favor of the appellee
and against the appellants, ordering the latter to
pay jointly and severally the appellee the sum of
P655.89 with interest thereon at the legal rate
from November 10, 1958, the date of the filing
of the complaint, until the whole amount is fully
paid.
Ruling: The petition is denied.
Appellants claim that the pleadings do not show
that there was demand made by the
appellee for the payment of accrued interest and
what could be deduced therefrom was merely
that the appellee demanded from the Luzon
Surety Co., Inc., in the capacity of the latter as
surety, the payment of the obligation of the
appellants, and said appellee accepted
unqualifiedly the amount of P5,000.00 as
performance by the obligor and/or obligors of
the obligation in its favor. It is further claimed
that the unqualified acceptance of payment made
by the Luzon Surety Co., Inc. of P5,000.00 or
only the amount of the principal obligation and
without exercising its (appellee's) rights to apply
a portion of P655.89 thereof to the payment of
the alleged interest due despite its presumed
knowledge of its right to do so, the appellee
showed that it waived or condoned the interests
due, because Articles 1235 and 1253 of the Civil
Code provide:
Art. 1235. When the obligee accepts the
performance, knowing its incompleteness or
irregularity, and without expressing any protest
or objection, the obligation is deemed fully
complied with."
Art. 1253. If the debt produces interest, payment
of the principal shall not be deemed to have been
made until interests have been recovered."
We do not agree with the contention of the
appellants. It is very clear in the promissory note
that the principal obligation is the balance of the
purchase price of the parcel of land known as
Lot 7-K-2-C, Psd-26193, which is the sum of
P5,000.00, and in the surety bond, the Luzon
Surety Co., Inc. undertook "to pay the amount of
P5,000.00 representing balance of the purchase
price of a parcel of land known as Lot 7-K-2-C,
Psd-26193, . . ." The appellee did not protest nor
object when it accepted the payment of
P5,000.00 because it knew that was the complete
amount undertaken by the surety as appearing in
the contract. The liability of a surety is not
extended, by implication, beyond the terms of
his contract. It is for the same reason that the
appellee cannot apply a part of the P5,000.00 as
payment for the accrued interest. Appellants are
relying on Article 1253 of the Civil Code, but
the rules contained in Articles 1252 to 1254 of
the Civil Code apply to a person owing several
debts of the same kind of* a single creditor.
They cannot be made applicable to a person
whose obligation as a mere surety is both
contingent and singular; his liability is confined
to such obligation, and he is entitled to have all
payments made applied exclusively to said
application and to no other. Besides, Article
1253 of the Civil Code is merely directory, and
not mandatory. 3 Inasmuch as the appellee
cannot protest for non-payment of the interest
when it accepted the amount of P5,000.00 from
the Luzon Surety Co., Inc., nor apply a part of
that amount as payment for the interest, we
cannot now say that there was a waiver or
condonation on the interest due.
It is claimed that there was a novation and/or
modification of the obligation of the appellants
in favor of the appellee because the appellee
accepted without reservation the subsequent
agreement set forth in the surety bond despite its
failure to provide that it also guaranteed
payment of accruing interest.
The rule is settled that novation by presumption
has never been favored. To be sustained, it needs
to be established that the old and new contracts
are incompatible in all points, or that the will to
novate appears by express agreement of the
parties or in acts of similar import. An obligation
to pay a sum of money is not novated, in a new
instrument wherein the old is ratified, by
changing only the terms of payment and adding
other obligations not incompatible with the old
one, The mere fact that the creditor receives a
guaranty or accepts payments from a third
person who has agreed to assume the obligation,
when there is no agreement that the first debtor
shall be released from responsibility, does not
constitute a novation, and the creditor can still
enforce the obligation against the original
debtor. (Straight vs. Haskell, 49 Phil. 614;
Pacific Commercial Co. vs. Sotto, 34 Phil. 237;
Estate of Mota vs. Serra, 47 Phil. 464; Dugo
vs. Lopena, supra). In the instant case, the surety
bond is not a new and separate contract but an
accessory of the promissory note.
Reyes v Secretary of Justice
Facts: Petitioner assails the respondent court's
decision 1 dated May 12, 1995 which sustained
the two resolutions of the respondent Secretary
of Justice, namely: 1) the Resolution dated
January 23, 1992 affirming the resolution of the
Provincial Prosecutor of Rizal dismissing the
complaints of petitioner against private
respondent Eleazar for violations of B.P. Blg. 22
and estafa under Article 315, par. 4, no. 2 (d) of
the Revised Penal Code, and 2) the Resolution
dated January 12, 1993 affirming the resolution
of the City Prosecutor of Quezon City finding a
prima facie case in I.S. No. 92-926 for violation
of B.P. Blg. 22 and estafa filed by respondent
AFP-Mutual Benefit Association, Inc. (AFP-
MBAI, for brevity) against petitioner
Reyes.
"Elsa Reyes is the president of Eurotrust Capital
Corporation (EUROTRUST), a domestic
corporation engaged in credit financing.
Graciela Eleazar, private respondent, is the
president of B.E. Ritz Mansion International
Corporation
(BERMIC), a domestic enterprise engaged in
real estate development. The other respondent,
Armed Forces of the Philippines Mutual Benefit
Asso., Inc. (AFPMBAI), is a corporation duly
organized primarily to perform welfare services
for the Armed Forces of the Philippines.
In her various affidavits-complaints with the
Office of the Provincial Prosecutor of
Rizal, Elsa Reyes alleges that Eurotrust and
Bermic entered into a loan agreement.
Pursuant to the said contract, Eurotrust extended
to Bermic P216,053,126.80 to finance the
construction of the latter's Ritz Condominium
and Gold Business Park. The loan was without
collateral but with higher interest rates than
those allowed by the banks. In turn, Bermic
issued 21 postdated checks to cover payments of
the loan packages. However, when those checks
were presented for payment, the same were
dishonored by the drawee bank, Rizal
Commercial Banking Corporation (RCBC), due
to stop payment order made by Graciela
Eleazar. Despite Eurotrust's notices and repeated
demands to pay, Eleazar failed to make good the
dishonored checks, prompting Reyes to file
against her several criminal complaints for
violation of B.P. 22 and estafa under Article 315,
4th paragraph, No. 2 (d) of the Revised Penal
Code.
Meanwhile, respondent AFP-MBAI which
invested its funds with Eurotrust, by buying
from it government securities, conducted its own
investigation and found that after Eurotrust
delivered to AFP-MBAI the securities it
purchased, the former borrowed the same
securities but failed to return them to AFP-
MBAI; and that the amounts paid by AFP-
MBAI to Eurotrust for those securities were in
turn lent by Elsa Reyes to Bermic and others.
After investigation, the Office of the Provincial
Prosecutor of Rizal issued a resolution
dismissing the complaints filed by Elsa Reyes
against Graciela Eleazar on the ground that
when the latter assumed the obligation of Reyes
to AFP-MBAI, it constituted novation,
extinguishing any criminal liability on the part
of Eleazar.
Reyes filed a petition for review of the said
resolution with respondent Secretary of Justice
contending that novation did not take place.
The Secretary of Justice dismissed the petition
holding that "the novation of the loan agreement
prevents the rise of any incipient criminal
liability since the novation had the effect of
canceling the checks and rendering without
effect the subsequent dishonor of the already
cancelled checks.
The first Department of Justice Resolution dated
January 23, 1992 which sustained the
Provincial Prosecutor's decision dismissing
petitioner's complaints against respondent
Eleazar for violation of B.P. 22 and estafa ruled
that the contract of loan between petitioner and
respondent Eleazar had been novated when they
agreed that respondent
Eleazar should settle her firm's (BERMIC) loan
obligations directly with AFP-MBAI and DECS-
IMC instead of settling it with petitioner Reyes.
This finding was affirmed by the respondent
court which pointed out that "the first contract
was novated in the sense that there was a
substitution of creditor" when respondent
Eleazar, with the agreement of Reyes, directly
paid her obligations to AFP-MBAI.
Ruling: The petition is granted.
We cannot see how novation can take place
considering the surrounding circumstances
which negate the same. The principle of
novation by substitution of creditor was
erroneously applied in the first questioned
resolution involving the contract of loan
between petitioner and respondent Eleazar.
Admittedly, in order that a novation can take
place, the concurrence of the following
requisites is indispensable:
1. there must be a previous valid obligation,
2. there must be an agreement of the parties
concerned to a new contract,
3. there must be the extinguishment of the old
contract, and
4. there must be the validity of the new contract.
Upon the facts shown in the record, there is no
doubt that the last three essential requisites of
novation are wanting in the instant case. No new
agreement for substitution of creditor was forged
among the parties concerned which would take
the place of the preceding contract. The absence
of a new contract extinguishing the old one
destroys any possibility of novation by
conventional subrogation. In concluding that a
novation took place, the respondent court relied
on the two letters dated March 19, 1991, 8
which, according to it, formalized petitioner's
and respondent Eleazar's agreement that
BERMIC would directly settle its obligation
with the real owners of the funds the AFP
MBAI and DECS IMC. 9 Be that as it may, a
cursory reading of these letters, however, clearly
and unmistakably shows that there was nothing
therein that would evince that respondent
AFP-MBAI agreed to substitute for the
petitioner as the new creditor of respondent
Eleazar in the contract of loan. It is evident that
the two letters merely gave respondent
Eleazar an authority to directly settle the
obligation of petitioner to AFP-MBAI and
DECSIMC.
It is essentially an agreement between petitioner
and respondent Eleazar only. There was no
mention whatsoever of AFP-MBAI's consent to
the new agreement between petitioner and
respondent Eleazar much less an indication of
AFP-MBAI's intention to be the substitute
creditor in the loan contract. Well settled is the
rule that novation by substitution of creditor
requires an agreement among the three parties
concerned the original creditor, the debtor
and the new creditor. It is a new contractual
relation based on the mutual agreement among
all the necessary parties. Hence, there is no
novation if no new contract was executed by the
parties. Article 1301 of the Civil Code is
explicit, thus:
"Conventional subrogation of a third person
requires the consent of the original parties and
of the third person."
The fact that respondent Eleazar made payments
to AFP-MBAI and the latter accepted them does
not ipso facto result in novation. There must be
an express intention to novate animus
novandi. 11 Novation is never presumed. 12
Article 1300 of the Civil Code provides inter
alia that conventional subrogation must be
clearly established in order that it may take
effect.
Notwithstanding our disagreement with the
decision of the respondent court and the
ruling of the Secretary of Justice that a novation
by substitution of creditor has taken place, we
opt not to disturb the Resolution of the
respondent Secretary of Justice dated January
23, 1992 finding a prima facie case against the
petitioner in as much as it had already become
final.
Petitioner who chose her forum but
unfortunately lost her claim is bound by such
adverse judgment on account of finality of
judgment, otherwise, there would be no end to
litigation. Litigation must end and terminate
sometime and somewhere, and it is essential to
an effective administration of justice that once a
judgment has become final, the issue or cause
therein should be laid at rest. While the
respondent Secretary of Justice was in error in
applying the rule on novation in the January 23,
1992 Resolution, such irregularity, however,
does not affect the validity of the proceedings in
the Department of Justice. Erroneous application
of a legal principle cannot bring a judgment that
has already attained the status of finality to an
absolute nullity under the well entrenched rule
of finality of judgment. The basic rule of finality
of judgment is grounded on the fundamental
principle of public policy and sound practice
that at the risk of occasional error, the judgment
of court and award of quasi-judicial agencies
must become final at some definite date fixed by
law.
We find no plausible explanation nor justifiable
reason offered by petitioner for the obvious
delay or omission to take a timely action against
the questioned resolution. She is apparently
guilty of laches which bars her from seeking
relief in a court of law after she intentionally and
unreasonably fails to guard of her rights. Laches
is the failure or neglect for unreasonable and
unexplained length of time to do that which by
exerting due diligence could/should have been
done earlier. Petitioner's omission to assert her
right to avail of the remedies in law within a
reasonable time warrants a presumption that she
abandoned it or declined to assert it. The law
serves those who are vigilant and diligent and
not those who sleep when the law requires them
to act.
Garcia v Llamas
Novation cannot be presumed. It must be
clearly and unequivocally shown that it indeed
took place, either by the express assent of the
parties or by the complete incompatibility
between the old and the new agreements.
An accommodation party is liable for the
instrument to a holder for value even if, at the
time of its taking, the latter knew the former to
be only an accommodation party. The relation
between an accommodation party and the party
accommodated is, in effect, one of principal and
surety the accommodation party being the
surety. It is a settled rule that a surety is bound
equally and absolutely with the principal and is
deemed an original promissor and debtor from
the beginning.
Facts: Petitioner and Eduardo De Jesus
borrowed P400,000.00 from respondent. Both
executed a promissory note wherein they bound
themselves jointly and severally to pay the loan
on or before 23 January 1997 with a 5% interest
per month. The loan has long been overdue and,
despite repeated demands, both have failed and
refused to pay it. Hence, a complaint was filed
against both.
Resisting the complaint, Garcia averred that he
assumed no liability because he signed merely
as an accommodation party for De Jesus; and
that he is relieved from any liability arising from
the note inasmuch as the loan had been paid by
De Jesus by means of a check dated 17 April
1997; and that, in any event, the issuance of the
check and respondents acceptance thereof
novated or superseded the note.
Respondent answered that there was no novation
to speak of because the check bounced.
Issues:
1. Whether or not there was novation in the
obligation
2. Whether or not the defense that petitioner was
only an accommodation party had any basis
Ruling: The petition is denied.
1. No. In order to change the person of the
debtor, the old one must be expressly released
from the obligation, and the third person or new
debtor must assume the formers place in the
relation (Reyes v. CA). Well-settled is the rule
that novation is never presumed (Security Bank
v. Cuenca). Consequently, that which arises from
a purported change in the person of the debtor
must be clear and express. It is thus incumbent
on petitioner to show clearly and unequivocally
that novation has indeed taken place. Petitioner
failed to do this. In the present case, petitioner
has not shown that he was expressly released
from the obligation, that a third person was
substituted in his place, or that the joint and
solidary obligation was cancelled and
substituted by the solitary undertaking of De
Jesus.
Novation is a mode of extinguishing an
obligation by changing its objects or principal
obligations, by substituting a new debtor in
place of the old one, or by subrogating a third
person to the rights of the creditor (Idolor v. CA,
February 7, 2001). Article 1293 of the Civil
Code defines novation as follows:
Art. 1293. 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. Payment
by the new debtor gives him rights mentioned in
articles 1236 and 1237.
In general, there are two modes of substituting
the person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the
change does not come from and may even be
made without the knowledge of the debtor,
since it consists of a third persons assumption
of the obligation. As such, it logically requires
the consent of the third person and the creditor.
In delegacion, the debtor offers, and the creditor
accepts, a third person who consents to the
substitution and assumes the obligation; thus,
the consent of these three persons are necessary.
Both modes of substitution by the debtor require
the consent of the creditor.
Novation may also be extinctive or modificatory.
It is extinctive when an old obligation is
terminated by the creation of a new one that
takes the place of the former. It is merely
modificatory when the old obligation subsists to
the extent that it remains compatible with the
amendatory agreement (Babst v. CA). Whether
extinctive or modificatory, novation is made
either by changing the object or the principal
conditions, referred to as objective or real
novation; or by substituting the person of the
debtor or subrogating a third person to the rights
of the creditor, an act known as subjective or
personal novation (Spouses Bautista v. Pilar
Development Corporation, 371 Phil. 533,
August 17, 1999). For novation to take place,
the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new
contract.
3) The old contract must be extinguished.
4) There must be a valid new contract (Security
Bank v Cuenca, October 3, 2000)
Novation may also be express or implied. It is
express when the new obligation declares in
unequivocal terms that the old obligation is
extinguished. It is implied when the new
obligation is incompatible with the old one on
every point (Article 1292, NCC). The test of
incompatibility is whether the two obligations
can stand together, each one with its own
independent existence (Molino v. Security
Diners International Corporation, August 16,
2001).
2. No. The note was made payable to a specific
person rather than to bearer or to order a
requisite for negotiability under the Negotiable
Instruments Law (NIL). Hence, petitioner cannot
avail himself of the NILs provisions on the
liabilities and defenses of an accommodation
party.
Even granting arguendo that the NIL was
applicable, still, petitioner would be liable for
the promissory note. Under Article 29 of the
NIL, an accommodation party is liable for the
instrument to a holder for value even if, at the
time of its taking, the latter knew the former to
be only an accommodation party. The relation
between an accommodation party and the party
accommodated is, in effect, one of principal and
surety the accommodation party being the
surety. It is a settled rule that a surety is bound
equally and absolutely with the principal and is
deemed an original promissor and debtor from
the beginning.
Quinto v People
Facts:
Petitioner Quinto took some jewelries from
private complainant Amelia Cariaga for selling
purposes. After 6 months, however, Quinto
failed to return the jewelries or pay the value
thereof. Hence, a case of estafa was filed against
Quinto as a result of which she was convicted,
affirmed by the Court of Appeals.
Quinto admitted that she took some jewelries
from Cariaga but she sold the same to Mrs.
Camacho and Mrs. Ramos. Unfortunately
however, both were unable to pay the whole
amount and promised to pay the balance in
installment to Cariaga. Petitioner thus alleged
that the agreement between her and Cariaga was
effectively novated when the latter consented to
receive payment on installments directly from
Mrs. Camacho and Mrs. Ramos.
Ruling: The petition is denied.
The changes alluded to by petitioner consists
only in the manner of payment. There was really
no substitution of debtors since Cariaga merely
acquiesced to the payment but did not give her
consent to enter into a new contract. Thus,
Cariaga's acceptance of Ramos and Camacho's
payment on installment basis cannot be
construed as a case of either expromision or
delegacion sufficient to justify the attendance of
extinctive novation.

Further the defense of novation cannot avoid the
incipient criminal liability for Estafa to which
Quinto was found guilty of. It is a public offense
which must be prosecuted and punished by the
State on its own. And pursuant to Art. 315, 1st
paragraph of the Revised Penal Code, as
amended by Presidential Decree 818, the proper
penalty here is an indeterminate penalty of from
2 years, 8 months and 1 day prision correccional
to 7 years and 1 day of prision mayor.
CIVIL LAW; OBLIGATIONS AND
CONTRACTS; EXTINGUISHMENT OF
OBLIGATIONS; NOVATION; KINDS;
ELUCIDATED. Novation, in its broad
concept, may either be extinctive or
modificatory. It is extinctive when an old
obligation is terminated by the creation of a new
obligation that takes the place of the former; it is
merely modificatory when the old obligation
subsists to the extent it remains compatible with
the amendatory agreement.
EXTINCTIVE NOVATION; ELUCIDATED.
An extinctive novation results either by
changing the object or principal conditions
(objective or real), or by substituting the person
of the debtor or subrogating a third person in the
rights of the creditor (subjective or personal).
Under this mode, novation would have dual
functions one to extinguish an existing
obligation, the other to substitute a new one in
its place requiring a conflux of four essential
requisites, (1) a previous valid obligation; (2) an
agreement of all parties concerned to a new
contract; (3) the extinguishment of the old
obligation; and (4) the birth of a valid new
obligation.
HOW EFFECTED; EXPRESSLY OR
IMPLIEDLY. Novation is never presumed,
and the animus novandi, whether totally or
partially, must appear by express agreement of
the parties, or by their acts that are too clear and
unequivocal to be mistaken. The extinguishment
of the old obligation by the new one is a
necessary element of novation which may be
effected either expressly or impliedly. The term
"expressly" means that the contracting parties
incontrovertibly disclose that their object in
executing the new contract is to extinguish the
old one. Upon the other hand, no specific form
is required for an implied novation, and all that
is prescribed by law would be an incompatibility
between the two contracts. While there is really
no hard and fast rule to determine what might
constitute to be a sufficient change that can
bring about novation, the touchstone for
contrariety, however, would be an irreconcilable
incompatibility between the old and the new
obligations.
IMPLIEDLY; ELUCIDATED. There are two
ways which could indicate, in fine, the presence
of novation and thereby produce the effect of
extinguishing an obligation by another which
substitutes the same. The first is when novation
has been explicitly stated and declared in
unequivocal terms. The second is when the old
and the new obligations are incompatible on
every point. The test of incompatibility is
whether or not the two obligations can stand
together, each one having its independent
existence. If they cannot, they are incompatible
and the latter obligation novates the first.
Corollarily, changes that breed incompatibility
must be essential in nature and not merely
accidental. The incompatibility must take place
in any of the essential elements of the
obligation, such as its object cause or principal
conditions thereof; otherwise the change would
be merely modificatory in nature and
insufficient to extinguish the original obligation.
NOT IN CASE AT BAR. The changes
alluded to by petitioner consists only in the
manner of payment. There was really no
substitution of debtors since private complainant
merely acquiesced to the payment but did not
give her consent to enter into a new contract.
SUBSTITUTING THE PERSON OF THE
DEBTOR; FORMS; EXPROMISION AND
DELEGACION; ELUCIDATED. There are
two forms of novation by substituting the person
of the debtor, depending on whose initiative it
comes from, to wit: expromision and delegacion.
In the former, the initiative for the change does
not come from the debtor and may even be made
without his knowledge. Since a third person
would substitute for the original debtor and
assume the obligation, his consent and that of
the creditor would be required. In the latter, the
debtor offers, and the creditor accepts, a third
person who consents to the substitution and
assumes the obligation, thereby releasing the
original debtor from the obligation, here, the
intervention and the consent of all parties thereto
would perforce be necessary. In either of these
two modes of substitution, the consent of the
creditor, such as can be seen, is an indispensable
requirement.
NOT PRESENT IN CASE AT BAR. It is thus
easy to see why Cariaga's acceptance of Ramos
and Camacho's payment on installment basis
cannot be construed as a case of either
expromision or delegacion sufficient to justify
the attendance of extinctive novation. Not too
uncommon is when a stranger to a contract
agrees to assume an obligation; and while this
may have the effect of adding to the number of
persons liable, it does not necessarily imply the
extinguishment of the liability of the first debtor.
Neither would the fact alone that the creditor
receives guaranty or accepts payments from a
third person who has agreed to assume the
obligation, constitute an extinctive novation
absent an agreement that the first debtor shall be
released from responsibility.