CD: Garcia v. Llamas

September 22, 2010 at 3:31 pm (2003, Case Digests) (, , , , )

ROMEO C. GARCIA v. DIONISIO V. LLAMAS
G.R. No. 154127 December 8, 2003
Panganiban, J.

Doctrine:
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dated 17 April 1997; and that, in any event, the issuance of the check and respondent’s acceptance thereof novated or superseded the note.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

Held:
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 former’s 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 person’s 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 NIL’s 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.

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