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Millar v CA result in implied novation.

In the case at bar, the

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