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Republic of the Philippines Confronted with the dire prospect of not

SUPREME COURT getting back any of his investments,


Manila Licaros then decide to seek the counsel
of Antonio P. Gatmaitan, a reputable
SECOND DIVISION banker and investment manager who
G.R. No. 142838 August 9, 2001 had been extending managerial,
financial and investment consultancy
ABELARDO B. LICAROS, petitioner,
services to various firms and
vs.
corporations both here and abroad. To
ANTONIO P. GATMAITAN, respondent.
Licaros' relief, Gatmaitan was only too
GONZAGA-REYES, J.: willing enough to help. Gatmaitan
This is a petition for review on certiorari under voluntarily offered to assume the
Rule 45 of the Rules of Court. The petition payment of Anglo-Asean's indebtedness
seeks to reverse and set aside the Decision1 to Licaros subject to certain terms and
dated February 10, 2000 of the Court of conditions. In order to effectuate and
Appeals and its Resolution2 dated April 7, 2000 formalize the parties' respective
denying petitioner's Motion for Reconsideration commitments, the two executed a
thereto. The appellate court decision reversed notarized MEMORANDUM OF
the Decision3 dated November 11, 1997 of the AGREEMENT on July 29, 1988 (Exh. "B");
Regional Trial Court of Makati, Branch 145 in also Exhibit "1"), the full text of which
Civil Case No. 96-1211. reads:

The facts of the case, as stated in the Decision 'Memorandum of Agreement


of the Court of Appeals dated February 10, KNOW ALL MEN BY THESE PRESENTS:
2000, are as follows:
This MEMORANDUM OF AGREEMENT
"The Anglo-Asean Bank and Trust made and executed this 29th day of July
Limited (Anglo-Asean, for brevity), is a 1988, at Makati by and between:
private bank registered and organized to
ABELARDO B. LICAROS, Filipino, of legal
do business under the laws of the
age and holding office at Concepcion
Republic of Vanuatu but not in the
Building, Intramuros, Manila hereinafter
Philippines. Its business consists
referred to as THE PARTY OF THE FIRST
primarily in receiving fund placements
PART,
by way of deposits from institutions and
individuals investors from different parts and
of the world and thereafter investing ANTONIO P. GATMAITAN, Filipino, of legal
such deposits in money market age and residing at 7 Mangyan St., La
placements and potentially profitable vista, hereinafter referred to as the
capital ventures in Hongkong, Europe PARTY OF THE SECOND PART,
and the United States for the purpose of
maximizing the returns on those WITNESSETH THAT:
investments. WHEREAS, ANGLO-ASEAN BANK &
Enticed by the lucrative prospects of TRUST, a company incorporated by the
doing business with Anglo-Asean, Republic of Vanuatu, hereinafter referred
Abelardo Licaros, a Filipino businessman, to as the OFFSHORE BANK, is indebted to
decided to make a fund placement with the PARTY OF THE FIRST PART in the
said bank sometime in the 1980's. As it amount of US dollars; ONE HUNDRED
turned out, the grim outcome of Licaros' FIFTY THOUSAND ONLY (US$150,000)
foray in overseas fund investment was which debt is now due and demandable.
not exactly what he envisioned it to be. WHEREAS, the PARTY OF THE FIRST PART
More particularly, Licaros, after having has encountered difficulties in securing
invested in Anglo-Asean, encountered full settlement of the said indebtedness
tremendous and unexplained difficulties from the OFFSHORE BANK and has
in retrieving, not only the interest or sought a business arrangement with the
profits, but even the very investments he PARTY OF THE SECOND PART regarding
had put in Anglo-Asean. his claims;
WHEREAS, the PARTY OF THE SECOND Hundred Fifty Thousand
PART, with his own resources and due to plus interest due and
his association with the OFFSHORE accruing thereon;
BANK, has offered to the PARTY OF THE b. Grant the PART OF THE
FIRST PART to assume the payment of SECOND PART the full
the aforesaid indebtedness, upon certain power and authority, for his
terms and conditions, which offer, the own use and benefit, but at
PARTY OF THE FIRST PART has accepted; his own cost and expense,
WHREAS, the parties herein have come to demand, collect, receive,
to an agreement on the nature, form and compound, compromise and
extent of their mutual prestations which give acquittance for the
they now record herein with the express same or any part thereof,
conformity of the third parties and in the name of the
concerned; PARTY OF THE FIRST PART,
NOW, THEREFORE, for and in to prosecute, and withdraw
consideration of the foregoing and the any suit or proceedings
mutual covenants stipulated herein, the therefor;
PARTY OF THE FIRST PART and the c. Agree and stipulate that
PARTY OF THE SECOND PART have the debt assigned herein is
agreed, as they do hereby agree, as justly owing and due to the
follows: PARTY OF THE FIRST PART
1. The PARTY OF THE SECOND from the said OFFSHORE
PART hereby undertakes to pay BANK, and that the PARTY
the PARTY OF THE FIRST PART the OF THE FIRST PART has not
amount of US DOLLARS ONE done and will not cause
HOUNDRED FIFTY THOUSAND anything to be done to
(US$150,000) payable in diminish or discharge said
Philippine Currency at the fixed debt, or to delay or prevent
exchange rate of Philippine Pesos the PARTY OF THE SECOND
21 to US$1 without interest on or PART from collecting the
before July 15, 1993. same; and;

For this purpose, the PARTY OF d. At the request of the


THE SECOND PART shall execute PARTY OF SECOND PART
and deliver a non negotiable and the latter's own cost
promissory note, bearing the and expense, to execute
aforesaid material consideration in and do all such further acts
favor of the PARTY OF THE FIRST and deeds as shall be
PART upon execution of this reasonably necessary for
MEMORANDUM OF AGREEMENT, proving said debt and to
which promissory note shall form more effectually enable the
part as ANNEX A hereof. PARTY OF THE SECOND
PART to recover the same in
2. For and in consideration of the accordance with the true
obligation of the PARTY OF THE intent and meaning of the
SECOND PART, the PARTY OF THE arrangements herein.
FIRST does hereby;
a. Sell, assign, transfer and
set over unto the PARTY OF
THE SECOND PART that
certain debt now due and
owing to the PARTY OF THE
FIRST PART by the
OFFSHORE BANK, to the
amount of US Dollars One
Philippines and is an integral part of said
Sgd. Sgd. Memorandum of Agreement.
P3,150.00.
ABELARDO B. ANTONIO P. On or before July 15, 1993, I promise to
LICAROS GATMAITAN pay to Abelardo B. Licaros the sum of
Philippine Pesos 3,150,000 (P3,150,000)
PARTY OF THE FIRST PARTY OF THE FIRST without interest as material
PART ART consideration for the full settlement of
his money claims from ANGLO-ASEAN
BANK, referred to in the Memorandum of
Agreement as the 'OFFSHORE BANK".
WITH OUR CONFORME: As security for the payment of this of
Promissory Note. I hereby ASSIGN, CEDE
and TRANSFER, Seventy Percent (70%)
ANGLO-ASEAN BANK of ALL CASH DIVIDENDS, that may be
& TRUST due or owing to me as the registered
owner of __________________
(______________) shares of stock in the
BY: (Unsigned)
Prudential Life Realty, Inc.
This assignment shall likewise include
SEVENTY PERCENT (70%) of cash
dividends that may be declared by
SIGNED IN THE
Prudential Life Realty, Inc. and due or
PRESENCE OF:
owing to Prudential Life Plan, Inc., of
which I am a stockholder, to the extent
Sgd. (Illegible) of or in proportion to my aforesaid
shareholding in Prudential Life Plan, Inc,
the latter being the holding company of
Prudential Life Realty, Inc.
______________________ _______________________ In the event that I decide to sell or
_ transfer my aforesaid shares in either or
both the Prudential Life Plan, Inc. or
IN WITNESS WHEREOF, the Prudential Life Realty, Inc. and the
parties have caused this Promissory Note remains unpaid or
MEMORANDUM OF AGREEMENT to outstanding, I hereby give Mr. Abelardo
be signed on the date and place B. Licaros the first option to buy the said
first written above. shares.

Conformably with his undertaking under Manila, Philippines


paragraph 1 of the aforequoted agreement, July ______, 1988
Gatmaitan executed in favor of Licaros a NON- (SGD.)
NEGOTIABLE PROMISSORY NOTE WITH
ASSIGNMENT OF CASH DIVIDENDS (Exhs.
"A"; Also Exh. "2"), which promissory note, ANTONIO P. GATMAITAN
appended as Annex "A" to the same 7 Mangyan St., La Vista QC
Memorandum of Agreement, states in full, thus
"NON-NEGOTIABLE PROMISSORY NOTE
WITH ASSIGNMENT OF CASH DIVIDENDS SIGNED IN THE PRESENCE OF:
(SGD.)
This promissory note is Annex A of the
Memorandum of Agreement executed __________________________________
between Abelardo B. Licaros and Antonio Francisco A. Alba
P. Gatmaitan, on ______ 1988 at Makati, President, Prudential Life Plan, Inc."
Thereafter, Gatmaitan presented to Anglo- did not at any point become obligated to pay to
Asean the Memorandum of Agreement earlier petitioner Licaros the amount stated in the
executed by him and Licaros for the purpose of promissory note. In a Resolution dated April 7,
collecting the latter's placement thereat of U.S. 2000 the Court of Appeals denied petitioner's
$150,000.00. Albeit the officers of Anglo-Asean Motion for Reconsideration of its February 10,
allegedly committed themselves to "look into 2000 Decision.
[this matter]", no formal response was ever Hence this petition for review on certiorari
made by said bank to either Licaros or where petitioner prays for the reversal of the
Gatmaitan. To date, Anglo-Asean has not acted February 10, 2000 Decision of the Court of
on Gatmaitan's monetary claims. Appeals and the reinstatement of the
Evidently, because of his inability to collect November 11, 1997 decision of the Regional
from Anglo-Asean, Gatmaitan did not bother Trial Court.
anymore to make good his promise to pay The threshold issue for the determination of
Licaros the amount stated in his promissory this Court is whether the Memorandum of
note (Exh. "A"; also Exh. 2"). Licaros, however, Agreement between petitioner and respondent
thought differently. He felt that he had a right is one of assignment of credit or one of
to collect on the basis of the promissory note conventional subrogation. This matter is
regardless of the outcome of Gatmaitan's determinative of whether or not respondent
recovery efforts. Thus, in July, 1996, Licaros, became liable to petitioner under the
thru counsel, addressed successive demand promissory note considering that its efficacy is
letters to Gatmaitan (Exhs. "C" and "D"), dependent on the Memorandum of Agreement,
demanding payment of the later's obligations the note being merely an annex to the said
under the promissory note. Gatmaitan, memorandum.6
however, did not accede to these demands.
An assignment of credit has been defined as
Hence, on August 1, 1996, in the Regional Trial the process of transferring the right of the
Court at Makati, Licaros filed the complaint in assignor to the assignee who would then have
this case. In his complaint, docketed in the the right to proceed against the debtor. The
court below as Civil case No. 96-1211, Licaros assignment may be done gratuitously or
prayed for a judgment ordering Gatmaitan to onerously, in which case, the assignment has
pay him the following: an effect similar to that of a sale.7
'a) Principal Obligation in the amount of On the other hand, subrogation has been
Three Million Five Hundred Thousand defined as the transfer of all the rights of the
Pesos (P3,500,000.00); creditor to a third person, who substitutes him
b) Legal interest thereon at the rate of in all his rights. It may either be legal or
six (6%) percent per annum from July 16, convention. Legal subrogation is that which
1993 when the amount became due until takes place without agreement but by
the obligation is fully paid; operation of law because of certain acts.
b) Twenty percent (20%) of the amount Conventional subrogation is that which takes
due as reasonable attorney's fees; place by agreement of parties.8

d) Costs of the suit.'"4 The general tenor of the foregoing definitions


of the terms "subrogation" and "assignment of
After trial on the merits, the court a quo credit" may make it seem that they are one
rendered judgment in favor of petitioner and the same which they are not. A noted
Licaros and found respondent Gatmaitan liable expert I n civil law notes their distinctions
under the Memorandum of Agreement and thus:
Promissory Note for P3,150,000.00 plus 12%
interest per annum from July 16, 1993 until the "Under our Code, however, conventional
amount is fully paid. Respondent was likewise subrogation is not identical to
ordered to pay attorney's fees of P200,000.00. 5 assignment of credit. In the former, the
debtor's consent is necessary; in the
Respondent Gatmaitan appealed the trial latter it is not required. Subrogation
court's decision to the Court of Appeals. In a extinguishes the obligation and gives
decision promulgated on February 10, 2000, rise to a new one; assignment refers to
the appellate court reversed the decision of the the same right which passes from one
trial court and held that respondent Gatmaitan
person to another. The nullity of an old "Immediately discernible from above is
obligation may be cured by subrogation, the common feature of contracts
such that a new obligation will be involving conventional subrogation,
perfectly valid; but the nullity of an namely, the approval of the debtor to the
obligation is not remedied by the subrogation of a third person in place of
assignment of the creditor's right to the creditor. That Gatmaitan and Licaros
another."9 had intended to treat their agreement as
For our purposes, the crucial distinction deals one of conventional subrogation is
with the necessity of the consent of the debtor plainly borne by a stipulation in their
in the original transaction. In an assignment of Memorandum of Agreement, to wit:
credit, the consent of the debtor is not "WHEREAS, the parties herein have
necessary in order that the assignment may come to an agreement on the nature,
fully produce legal effects.10 What the law form and extent of their mutual
requires in an assignment of credit is not the prestations which they now record herein
consent of the debtor but merely notice to him with the express conformity of the third
as the assignments takes effect only from the parties concerned" (emphasis supplied),
time he has knowledge thereof.11 A creditor which third party is admittedly Anglo-
may, therefore, validly assign his credit and its Asean Bank.
accessories without the debtor's consent.12 On Had the intention been merely to confer
the other hand, conventional subrogation on appellant the status of a mere
requires an agreement among the three parties "assignee" of appellee's credit, there is
concerned – the original creditor, the debtor, simply no sense for them to have
and the new creditor. It is a new contractual stipulated in their agreement that the
relation based on the mutual agreement same is conditioned on the "express
among all the necessary parties. Thus, Article conformity" thereto of Anglo-Asean
1301 of the Civil Code explicitly states that Bank. That they did so only accentuates
"(C)onventional subrogation of a third person their intention to treat the agreement as
requires the consent of the original parties and one of conventional subrogation. And it
of the third person." is basic in the interpretation of contracts
The trial court, in finding for the petitioner, that the intention of the parties must be
ruled that the Memorandum of Agreement was the one pursued (Rule 130, Section 12,
in the nature of an assignment of credit. As Rules of Court).
such, the court a quo held respondent liable for Given our finding that the Memorandum
the amount stated in the said agreement even of Agreement (Exh. "B"; also Exh. "1"), is
if the parties thereto failed to obtain the not one of "assignment of credit" but is
consent of Anglo-Asean Bank. On the other actually a "conventional subrogation",
hand, the appellate court held that the the next question that comes to mind is
agreement was one of conventional whether such agreement was ever
subrogation which necessarily requires the perfected at all. Needless to state, the
agreement of all the parties concerned. The perfection – or non-perfection – of the
Court of Appeals thus ruled that the subject agreement is of utmost
Memorandum of Agreement never came into relevance at this point. For, if the same
effect due to the failure of the parties to get the Memorandum of Agreement was actually
consent of Anglo-Asean Bank to the agreement perfected, then it cannot be denied that
and, as such, respondent never became liable Gatmaitan still has a subsisting
for the amount stipulated. commitment to pay Licaros on the basis
We agree with the finding of the Court of of his promissory note. If not, Licaros'
Appeals that the Memorandum of Agreement suit for collection must necessarily fail.
dated July 29, 1988 was in the nature of a Here, it bears stressing that the subject
conventional subrogation which requires the Memorandum of Agreement expressly
consent of the debtor, Anglo-Asean Bank, for its requires the consent of Anglo-Asean to
validity. We note with approval the following the subrogation. Upon whom the task of
pronouncement of the Court of Appeals: securing such consent devolves, be it on
Licaros or Gatmaitan, is of no
significance. What counts most is the subrogation considering that no new obligation
hard reality that there has been an was created. According to petitioner, the
abject failure to get Anglo-Asean's nod of obligation of Anglo-Asean Bank to pay under
approval over Gatmaitan's being Contract No. 00193 was not extinguished and
subrogated in the place of Licaros. in fact, it was the basic intention of the parties
Doubtless, the absence of such to the Memorandum of Agreement to enforce
conformity on the part of Anglo-Asean, the same obligation of Anglo-Asean Bank under
which is thereby made a party to the its contract with petitioner. Considering that
same Memorandum of Agreement, the old obligation of Anglo-Asean Bank under
prevented the agreement from becoming Contract No. 00193 was never extinguished
effective, much less from being a source under the Memorandum of Agreement, it is
of any cause of action for the signatories contended that the same could not be
thereto"13 considered as a conventional subrogation.
Aside for the "whereas clause" cited by the We are not persuaded.
appellate court in its decision, we likewise note It is true that conventional subrogation has the
that on the signature page, right under the effect of extinguishing the old obligation and
place reserve for the signatures of petitioner giving rise to a new one. However, the
and respondent, there is, typewritten, the extinguishment of the old obligation is the
words "WITH OUR CONFORME." Under this effect of the establishment of a contract for
notation, the words "ANGLO-ASEAN BANK AND conventional subrogation. It is not a requisite
TRUST" were written by hand.14 To our mind, without which a contract for conventional
this provision which contemplates the signed subrogation may not be created. As such, it is
conformity of Anglo-Asean Bank, taken not determinative of whether or not a contract
together with the aforementioned of conventional subrogation was constituted.
preambulatory clause leads to the conclusion
that both parties intended that Anglo-Asean Moreover, it is of no moment that the subject of
Bank should signify its agreement and the Memorandum of Agreement was the
conformity to the contractual arrangement collection of the obligation of Anglo-Asean Bank
between petitioner and respondent. The fact to petitioner Licaros under Contract No. 00193.
that Anglo-Asean Bank did not give such Precisely, if conventional subrogation had
consent rendered the agreement inoperative taken place with the consent of Anglo-Asian
considering that, as previously discussed, the Bank to effect a change in the person of its
consent of the debtor is needed in the creditor, there is necessarily created a new
subrogation of a third person to the rights of a obligation whereby Anglo-Asean Bank must
creditor. now give payment to its new creditor, herein
respondent.
In this petition, petitioner assails the ruling of
the Court of Appeals that what was entered Petitioner next argues that the consent or
into by the parties was a conventional conformity of Anglo-Asean Bank is not
subrogation of petitioner's rights as creditor of necessary to the validity of the Memorandum
the Anglo-Asean Bank which necessary requires of Agreement as the evidence on record
the consent of the latter. In support, petitioner allegedly shows that it was never the intention
alleges that: (1) the Memorandum of of the parties thereto to treat the same as one
Agreement did not create a new obligation and, of conventional subrogation. He claims that the
as such, the same cannot be a conventional preambulatory clause requiring the express
subrogation; (2) the consent of Anglo-Asean conformity of third parties, which admittedly
Bank was not necessary for the validity of the was Anglo-Asean Bank, is a mere surplusage
Memorandum of Agreement; (3) assuming that which is not necessary to the validity of the
such consent was necessary, respondent failed agreement.
to secure the same as was incumbent upon As previously discussed, the intention of the
him; and (4) respondent himself admitted that parties to treat the Memorandum of Agreement
the transaction was one of assignment of as embodying a conventional subrogation is
credit. shown not only by the "whereas clause" but
Petitioner argues that the parties to the also by the signature space captioned "WITH
Memorandum of Agreement could not have OUR CONFORME" reserved for the signature of
intended the same to be a conventional a representative of Anglo-Asean Bank. These
provisions in the aforementioned Memorandum With respect to the argument of petitioner that
of Agreement may not simply be disregarded respondent himself allegedly admitted in open
or dismissed as superfluous. court that an assignment of credit was
It is a basic rule in the interpretation of intended, it is enough to say that respondent
contracts that "(t)he various stipulations of a apparently used the word "assignment" in his
contract shall be interpreted together, testimony in the general sense. Respondent is
attributing to the doubtful ones that sense not a lawyer and as such, he is no so well
which may result from all of them taken versed in law that he would be able to
jointly."15 Moreover, under our Rules of Court, it distinguish between the concepts of
is mandated that "(I)n the construction of an conventional subrogation and of assignment of
instrument where there are several provisions credit. Moreover, even assuming that there was
or particulars, such a construction is, if an admission on his part, such admission is not
possible, to be adopted as will give effect to conclusive on this court as the nature and
all."16 Further, jurisprudence has laid down the interpretation of the Memorandum of
rule that contracts should be so construed as to Agreement is a question of law which may not
harmonize and give effect to the different be the subject of stipulations and admission.18
provisions thereof.17 Considering the foregoing, it cannot then be
In the case at bench, the Memorandum of said that the consent of the debtor Anglo-Asean
Agreement embodies certain provisions that Bank is not necessary to the validity of the
are consistent with either a conventional Memorandum of Agreement. As above stated,
subrogation or assignment of credit. It has not the Memorandum of Agreement embodies a
been shown that any clause or provision in the contract for conventional subrogation and in
Memorandum of Agreement is inconsistent or such a case, the consent of the original parties
incompatible with a conventional subrogation. and the third person is required.19 The absence
On the other hand, the two cited provisions of such conformity by Anglo-Asean Bank
requiring consent of the debtor to the prevented the Memorandum of Agreement
memorandum is inconsistent with a contract of from becoming valid and effective. Accordingly,
assignment of credit. Thus, if we were to the Court of Appeals did not err when it ruled
interpret the same as one of assignment of that the Memorandum of Agreement was never
credit, then the aforementioned stipulations perfected.
regarding the consent of Anglo-Asean Bank Having arrived at the above conclusion, the
would be rendered inutile and useless Court finds no need to discuss the other issues
considering that, as previously discussed, the raised by petitioner.
consent of the debtor is not necessary in an WHEREFORE, the instant petition is DENIED and
assignment of credit. the Decision of the Court of Appeals dated
Petitioner next argues that assuming that the February 10, 2000 and its Resolution dated
conformity of Anglo-Asean was necessary to April 7, 2000 are hereby AFFIRMED. Melo,
the validity of the Memorandum of Agreement, Vitug, and Panganiban, JJ., concur.
respondentl only had himself to blame for the Sandoval-Gutierrez, J. On leave.
failure to secure such conformity as was,
allegedly, incumbent upon him under the
memorandum. Footnotes:
As to this argument regarding the party 1
Penned by Associate Justice Cancio Garcia
responsible for securing the conformity of and concurred in by Associate Justices
Anglo-Asean Bank, we fail to see how this Romeo J. Callejo and Presbitero J. Velasco, Jr.;
question would have any relevance on the Rollo, pp. 38-53.
2
outcome of this case. Having ruled that the Rollo, pp. 55-56.
3
Penned by Judge Francisco Donato
consent of Anglo-Asean was necessary for the
Villanueva; Rollo, pp. 77-92.
validity of the Memorandum of Agreement, the 4
Court of Appeals Decision dated February
determinative fact is that such consent was not 10, 2000, pp. 1-7; Rollo, pp. 39-45.
secured by either petitioner or respondent 5
Rollo, p. 92.
which consequently resulted in the invalidity of 6
Rollo, p 78.
the said memorandum.
7
Rodriguez vs. Court of Appeals, 207 SCRA
533; Nyco Sales Corp. vs. BA Finance Corp.,
200 SCRA 637.
8
Chemphil Import and Export Corp. vs. Court
of Appeals, 251 SCRA 257 citing Tolentino,
Commentaries and Jurisprudence on the Civil
Code of the Philippines, Volume IV, pp. 401-
402.
9
Tolentino, Commentaries and Jurisprudence
on the Civil Code of the Philippines, 1991
Edition, Volume IV, p. 401.
10
Rodriguez vs. Court of Appeals, supra,
citing Sison and Sison vs. Yap Tico and
Avancena, 37 Phil. 587.
11
Article 1626, New Civil Code.
12
National Investment and Development Co.
vs. De los Angeles, 40 SCRA 489.
13
Court of Appeals Decision dated February
10, 2000, pp. 12-13; Rollo, pp. 50-51.
14
Rollo, p. 81.
15
Article 1374, New Civil Code; China
Banking Corporation vs. Court of Appeals,
265 SCRA 327.
16
Section 11, Rule 130, Revised Rules of
Court.
17
Phil-Am General Insurance vs. Court of
Appeals, 114 SCRA 4; Reparations
Commission vs. Northern Lines, Inc., 34 SCRA
203.
18
PCI Automation Center vs. NLRC, 252 SCRA
493; Tabas vs. California Manufacturing
Corp., 169 SCRA 497.
19
Art. 1301, New Civil Code.