SIMPLICIO PALANCA v.

ULYSIUS GUIDES and LORENZO GUIDES

G.R. No. 146365 February 28, 2005

FACTS:
In August 1983, petitioner Palanca executed a contract to sell a parcel of
land on installment with Jopson for P11,250. Jopson paid petitioner P1,650 as
downpayment, leaving a balance of P9600. In December 1983, Jopson
assigned ad transferred all her rights and interests over the property to
respondent Guides. Believing that she had fully paid the purchase prize,
respondent found out when she verified with the Register of Deeds that the
property in question was still in the name of de Leon. Petitioner stated that
she refused to execute the document of sale in favor of the respondent since
the latter failed with the said obligation- that he was not paid the complete
amount in the contract. RTC ruled in favor of the plaintiff and against
Palanca, ordering him to execute a Deed of Absolute Sale and the issuance of
TCT, reimburse plaintiff the amount paid n excess and for damages.

ISSUE:
Whether the petitioners claim of unpaid charges from the respondent proper

HELD:
Petitioner was deemed to have waived his right to present evidence and thus
was unable to adduce evidence of such inflation or fluctuation. Even if there
were such, petitioner did not make a demand on respondent for the
satisfaction of the claim.
When petitioner accepted respondents installment payments despite the
alleged charges, and without any showing that he protested the irregularity
of such payment, nor demanded the payment of the alleged charges,
respondents liability, if any for said charges is deemed fully satisfied.

ALONZO VS SAN JUAN

GR No. 137549 February 11, 2005

FACTS:
A complaint for recovery of possession was filed by Aurelio P. Alonzo and
Teresita A. Sison against Jaime and Perlita San Juan docketed as Civil Case
No. Q-96-29415 before the Regional Trial Court (RTC) of Quezon City, Branch
77. In their Complaint, plaintiffs alleged that they are the registered owners
of a parcel of land. At around June of 1996, plaintiffs discovered that a
portion on the left side of the said parcel of land with an area of one hundred
twenty-five (125) square meters, more or less, was occupied by the
defendants for more than a year, without their prior knowledge or consent. A
demand letter was sent to the defendants in August of 1996 requiring them
to vacate the property but they refused to comply; hence, the filing of the
Complaint. During the pendency of the case, the parties agreed to enter into
a Compromise Agreement which the trial court approved in a Judgment.
Alleging that they failed to abide by the provisions of the Compromise
Agreement by their failure to pay the amounts due thereon, plaintiffs sent a
letter demanding that the defendants vacate the premises. Plaintiffs
subsequently filed an Amended Motion for Execution. Acting on the motion,
the trial court issued its Order dated 11 August 1998 denying the motion.

ISSUE:
Is the RTC decision correct?

RULING:
In herein case, the respondents failed to discharge their burden of proving
payment. Even assuming that payments were made, it has not been shown
to the full satisfaction of this Court whether the payments were made
specifically to satisfy respondents obligation under the Compromise
Agreement, nor were the circumstances under which the payments were
made explained, taking into consideration the conditions of the Compromise
Agreement. Respondents contract with the petitioners have the force of law

between them. Respondents are thus bound to fulfill what has been
expressly stipulated therein. Items 11 and 12 of the Compromise Agreement
provided, in clear terms, that in case of failure to pay on the part of the
respondents, they shall vacate and surrender possession of the land that
they are occupying and the petitioners shall be entitled to obtain
immediately from the trial court the corresponding writ of execution for the
ejectment of the respondents. This provision must be upheld, because the
Agreement supplanted the Complaint itself. When the parties entered into a
Compromise Agreement, the original action for recovery of possession was
set aside and the action was changed to a monetary obligation. Once
approved judicially, the Compromise Agreement can not and must not be
disturbed except for vices of consent or forgery.

ALLANDALE SPORTLINE, INC AND MELBAROSE R. SASOT VS.THE

GOOD DEVELOPMENT CORPORATION GR# 164521

FACTS:
The Allandale Sportline, Inc (ASI) obtained a loan amounting to P204, 000.00
from The Good Development Corporation (GDI) after having executed a
promissory note and provided an additional security in the form of a deed of
mortgage in favor of GDC. The terms and conditions of the promissory note
signed by Melbarose S. Sasot and Allandale R. Sasot, the President and VicePresident of the company respectively and the deed of mortgage are as
follows:
The loan is to be paid daily in equal installments amounting to P 2,000.00 at
an interest of 26 % per annum;
In case of default in payment the whole obligation shall be due and
demandable and shall be subject to liquidate penalty/collection charge at a
rate of 2 % of the principal amount;
The failure of the Mortgagors to comply with the terms of the promissory
note and the mortgage contract, the mortgagee shall automatically have the
absolute right without a need of demand to foreclose the mortgage and
proceed against all or any of the mortgaged rights, interests and properties
for the full satisfaction of the mortgagors entire obligation to the mortgagee;

The mortgagee shall also be liable for the payment of attorneys fees
equivalent to 25%of the unpaid debt and all expenses and incidental cost.

On June 24, 1991, ASI failed to comply with their obligation and GDC
demanded that the unpaid account of 179,000. On October 31, 1991 ASI
sent the respondent a posted check amounting to 171,000.00 which GDC
eventually rejected since the check amount is insufficient for the loan
balance of the principal loan. On October 15, 1997, petitioners tendered
cash payment of 171,000.00 and on October 29, 1991 amounting to
174,986.96 and still the respondent still refused to accept the payment due
to insufficiency of the amount. When no payment was made, GDC filed a
complaint for sum of Money with damages against ASI.

ISSUE:
Whether or not ASI tender of payment and GDC refusal thereof discharged
petitioners from their obligation

RULING:
NO. The tender of payment do not result in the payment and extinguishment
of the loan obligation. Tender of payment must be followed by a valid
consignation in order to produce the effect of payment and extinguish the
obligation. It is but a preparatory act to consignation. It is the manifestation
by the debtor of a desire to comply with or pay an obligation. If refused
without just cause, the tender of payment will discharge the debtor of the
obligation to pay but only after a valid consignation of the sum due shall
have been made with the proper court. ASI did not allege or prove that their
tender of payment was rejected by respondents; they attempted or pursed
consignation

TELENGTAN BROTHERS and SONS v.UNITED STATES LINES G.R.No.

132284,February 28,2006
FACTS:

Petitioner is a domestic corporation while US Lines is a foreign corporation

engaged in overseas shipping. It was made applicable that consignees who
fail to take delivery of their containerized cargo within the 10-day free period
are liable to pay demurrage charges. On June 22, 1981, US Lines filed a suit
against petitioner seeking payment of demurrage charges plus interest and
damages. Petitioner incurred P94,000 which the latter refused to pay despite
repeated demands. Petitioner disclaims liability alleging that it has never
entered into a contract nor signed an agreement to be bound by it. RTC ruled
that petitioner is liable to respondent and all be computed as of the date of
payment in accordance with Article 1250 of the Civil Code. CA affirmed the
decision.

ISSUE:

Whether the re-computation of the judgment award in accordance with

Article 1250 of the Civil Code proper

RULING:

The Supreme Court found as erroneous the trial courts decision as affirmed
y the Court of Appeals. The Court holds that there has been an extraordinary
inflation within the meaning of Article 1250 of the Civil Code. There is no
reason for ordering the payment of an obligation in an amount different from
what has been agreed upon because of the purported supervention of an
extraordinary inflation.
The assailed decision is affirmed with modification that the order for recomputation as of the date of payment in accordance with the provisions of
Article 1250 of New Civil Code is deleted.
EUFEMIA and ROMEL ALMEDA v. BATHALA MARKETING
G.R.No. 150806, January 28, 2008

FACTS:
In May 1997, Bathala Marketng, renewed its Contract of Lease with Ponciano
Almeda. Under the contract, Ponciano agreed to lease a portion of Almeda
Compound for a monthly rental of P1, 107, 348.69 for four years. On January
26, 1998, petitioner informed respondent that its monthly rental be
increased by 73% pursuant to the condition No. 7 of the contract and Article
1250. Respondent refused the demand and insisted that there was no
extraordinary inflation to warrant such application. Respondent refused to
pay the VAT and adjusted rentals as demanded by the petitioners but
continually paid the stipulated amount. RTC ruled in favor of the respondent
and declared that plaintiff is not liable for the payment of VAT and the
adjustment rental, there being no extraordinary inflation or devaluation. CA
affirmed the decision deleting the amounts representing 10% VAT and rental
adjustment.

ISSUE:
Whether the amount of rentals due the petitioners should be adjusted by
reason of extraordinary inflation or devaluation

RULING:
Petitioners are stopped from shifting to respondent the burden of paying the
VAT. 6th Condition states that respondent can only be held liable for new
taxes imposed after the effectivity of the contract of lease, after 1977, VAT
cannot be considered a new tax. Neither can petitioners legitimately
demand rental adjustment because of extraordinary inflation or devaluation.
Absent an official pronouncement or declaration by competent authorities of
its existence, its effects are not to be applied.
Petition is denied. CA decision is affirmed.
JOSEPH TYPINGCO,
Petitioner,
vsLINA WONG LIM, JERRY SYCHINGHO, JACKSON SYCHINGHO,
JOHNSON SYCHINGHO, and FAR EAST BANK AND TRUST COMPANY,

Respondents
.CARPIO MORALES,
J.
October 23, 2009
Facts:
Respondents-spouses Lina Wong Lim (Lina) and Johnson Sychingho (Johnson)
borrowed from petitioner Joseph Typingco (Typingco) the sum of US$600,000
which was later restructured, payable on or before December 31, 1997,
under a promissory note executed by the spouses and co-signed by their
children-co-respondents as sureties. Following their default in payment, Lina,
Jerry, and Jackson conveyed on January 29, 1998 to Typingco via dacion en
pago their house and lot in Greenhills, San Juan, covered by TCT No. 6259-R,
after first paying respondent Far East Bank and Trust Company (FEBTC) the
balance of a promissory note to clear the title of a Real Estate Mortgage
annotated thereon in favor of FEBTC. However, FEBTC refused to hand over
the title, contending that the respondent-Sychinghos had unsettled
obligations as sureties.

Issue:
Whether or not respondent Sychinghos had the right to sell or convey title
to the subject property at the time of the dacion en pago

Ruling:
Sychinghos had the right to convey title. As there was no previous
foreclosure of the mortgage on the subject property, Sychinghos ownership
thereof remained intact. Indeed, a mortgage does not affect the ownership
of the property as it is nothing more than a lien thereon serving as security
for a debt. The mortgagee does not acquire title thereto. Whatever obligation
the Sychinghos may still owe BPI (then FEBTC), this is not a concern of
petitioner as he is not a party to the loan documents covering it. Since
petitioner agreed to the full extinguishment of respondent-spouses then
outstanding obligation in view of the unconditional conveyance to him of the
subject property, there is a perfected and enforceable dacion en pago. He

should thus enjoy full entitlement to the subject property. However,

surrender of the certificate of title will not impair any existing mortgage on
the subject property. It is an elementary principle in civil law that a real
estate mortgage subsists notwithstanding changes in ownership, and all
subsequent purchasers of the property must respect the mortgage.

LO VS. COURT OF APPEALS

G.R. No. 141434, September 23, 2003
411 SCRA 523

FACTS:
Antonio Lo acquired two parcels of land with an office constructed thereon in
an auction sale on November 9,1995 from the Land Bank of the Philippines.
At variance, private respondent National Onion Growers Cooperative
Marketing Association, Inc. was the occupant of the parcels of land under a
subsisting contract of lease with Land Bank. The lease was valid until
December 31,1995.
Upon the expiration of the lease contract, Lo demanded that private
respondent vacate the leased premises and surrender its possession to him.
The agricultural cooperative refused on the ground of a contest against
petitioners acquisition of the parcels of land in an action for annulment of
sale, redemption and damages.
On February 23,1996, petitioner filed an action for ejectment and
subsequently asked for imposition of the contractually stipulated penalty of
P5, 000 per day of delay in surrendering the possession of the property.
Thereafter, the trial court decided the case in favor of petitioner. Private
respondent was ordered to vacate the leased premises. On appeal to the
Regional Trial Court, the MTC decision was affirmed in toto. The agricultural
cooperative then elevated the case to the court of Appeals that affirmed the
lower courts decision but modified that the penalty to be imposed must be
reduced to P1, 000.
Unsatisfied with the decision of the CA, Lo filed the instant petition for
review.

ISSUE:
The issue raised by the petitioner is whether or not the Court of Appeals has
the authority to reduce the penalty awarded by the trial court, the same
having been stipulated by the parties in their Contract of Lease.

RULING:
YES, the Court of Appeals has the authority to do so. While courts are not at
liberty to ignore the freedom of the parties to agree on such terms and
conditions as they see fit as long as they are not contrary to law, morals,
good customs, public order or public policy, courts may equitably reduce a
stipulated penalty if it is iniquitous or unconscionable, or if the principal
obligation has been partly or irregularly complied with. This power of the
courts is explicitly sanctioned by Article 1229 of the Civil Code which
provides that the judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by courts if
it is iniquitous or unconscionable.
CASENT REALTY DEVELOPMENT CORP., Petitioner, versus
PHILBANKING CORPORATION, Respondent.
G.R. No. 150731 | 2007-09-14(Failure of plaintiff to deny genuineness and
due execution of a document constitutes judicial admission)

Facts:
Casent Realty Development Corp. executed two promissory notes in favor of
Rare Realty. These promissory notes were used by Rare Realty as a security
for a loan that Rare Realty obtained from Philbanking wherein a Deed of
Assignment was executed. When Rare Realty failed to pay its debt, the bank
went after the security of the loan. The bank demanded payment based on
the promissory notes issued by Casent Realty Corp to Rare Realty by virtue
of the deed of assignment. On a separate loan with Philbanking, Casent
Realty satisfied its obligation by executing a Dacion en pago. Philbanking
filed for a complaint for the collection of payment against Casent based on
the promissory notes. Casent Realty, in its answer, raised that a Dacion en

pago was already executed which extinguished its obligation. Philbanking

failed to file a reply. Casent Realty points out that the defense of Dacion and
Confirmation Statement, which were submitted in the Answer, should have
been specifically denied under oath by respondent in accordance with Rule 8,
Section 8 of the Rules of Court. Its failure constituted an admission on the
part of the bank. Philbanking claimed that even though it failed to file a
Reply, all the new matters alleged in the Answer are deemed controverted
anyway, pursuant to Rule 6, Section 10: Section 10. Reply.--A reply is a
pleading, the office or function of which is to deny, or allege facts in denial or
avoidance of new matters alleged by way of defense in the answer and
thereby join or make issue as to such new matters. If a party does not file
such reply, all the new matters alleged in the answer are deemed
controverted.
Nisce vs Equitable PCI Bank
G.R. No. 167434
February 19, 2007

Facts:
Spouses Ramon and Natividad Nisce contracted loans evidenced by
promissory notes with herein respondent Equitable PCI Bank, Inc. secured by
a real mortgage on the formers parcel of land. Having defaulted, respondent
as creditor-mortgagee filed a petition for extrajudicial foreclosure. Petitioners
alleged, among others, that the bank should have compensated their debt
with their dollar account which they maintain with PCI Capital Asia Ltd. (Hong
Kong), a subsidiary of Equitable.
The Bank, for its part, contends that although the spouses debt was
restructured, they nevertheless failed to pay. Moreover, it alleged that there
cannot be legal compensation because PCI Capital had a separate and
distinct personality from the PCIB, and a claim against the former cannot be
made against the latter.

Issue:
Whether or not legal compensation may operate to extinguish the
petitioners obligation?

Ruling: Admittedly, PCI Capital is a subsidiary of respondent Bank. Even then,

PCI Capital [PCI Express Padala (HK)Ltd.] has an independent and separate
juridical personality from that of the respondent Bank, its parent company;
hence, any claim against the subsidiary is not a claim against the parent
company and vice versa. On hindsight, petitioners could have spared
themselves the expenses and tribulation of a litigation had they just
withdrawn their deposit from the PCI Capital and remitted the same
to respondent. However, petitioner insisted on their contention of setoff.
Technogas Philippines Manufacturing Corporation
Vs.
Philippine National Bank
Quisumbing, J.
Facts:
Petitioner obtained a loan from respondent secured by a Real Estate
Mortgage.
On several occasions, the load had been restructured upon petitioners
request
whenever it could not pay the loan in maturity dates. Finally, respondent
sent collection letters from petitioner but the latter proposed dacion en pago
as a mode of payment for the obligation which was rejected by respondent.
Issues:
WON the proposal of dacion en pago caonstitutes a valid tender of payment.
Ruling;
No. The assignment of property of the debtor to his creditors in payments of
his
debts is allowed by law according to Art. 1255 of the NCC but such
assignment have no effect without acceptance. The petitioners proposal of
dacion en pago was rejected by respondent thus the unaccepted proposal
neither novates the parties mortgage contract nor suspends its execution as
there was no meeting of the minds between the parties.
WHEREFORE, the petition is DENIED for lack of merit. Thus, auction sale is
valid. Cost against petitioner.
UNITED PLANTERS MILLING CO. V. CA
GR No. 126890; April 2, 2009
FACTS:

In 1987, the Republic of the Philippines lost around 1.5 Billion Pesos after it
had waived its right to collect on an outstanding indebtedness from
petitioner, by virtue of a so-called friendly foreclosure agreement that
ultimately was friendly only to petitioner.
Petitioner United Planters Sugar Milling Co. (UPSUMCO) was engaged in the
business of milling sugar. In 1974, as UPSUMCO commenced operations, it
obtained a set of loans from respondent Philippine National Bank (PNB). The
loans were secured over two parcels of land where the milling plant stood
and chattel mortgages over the machineries and equipment.
On 27 February 1987, through a Deed of Transfer, PNB assigned to the
Government its rights, titles and interests over UPSUMCO, among several
other assets.[6] The Deed of Transfer acknowledged that said assignment
was being undertaken in compliance with Presidential Proclamation No.
50. The Government subsequently transferred these rights, titles and
interests over UPSUMCO to the respondent Asset and Privatization Trust
(APT).

ISSUE:
Whether or not there was compensation in the present case.

RULING:
The right of PNB to set-off payments from UPSUMCO arose out of
conventional compensation rather than legal compensation, even though all
of the requisites for legal compensation were present as between those two
parties. The determinative factor is the mutual agreement between PNB and
UPSUMCO to set-off payments. Even without an express agreement
stipulating compensation, PNB and UPSUMCO would have been entitled to
set-off of payments, as the legal requisites for compensation under Article
1279 were present.
As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation
between PNB and UPSUMCO ceased to exist. However, PNB and UPSUMCO
had agreed to a conventional compensation, a relationship which does not
require the presence of all the requisites under Article 1279. And PNB too
had assigned all its rights as creditor to APT, including its rights under

conventional compensation. The absence of the mutual creditor-debtor

relation between the new creditor APT and UPSUMCO cannot negate the
conventional compensation. Accordingly, APT, as the assignee of credit of
PNB, had the right to set-off the outstanding obligations of UPSUMCO on the
basis of conventional compensation before the condonation took effect on 3
September 1987.

Sueno vs. LBP G.R. No. 174711

On different occasions, Sueno obtained loans from LBP, the total sum of
which reached P2, 500, 000.00, as evidenced by the Contracts of Loan
executed by the partieson28 February 1996 and 9 October 1996. The loans
were secured by Real Estate Mortgages over two parcels of land (subject
properties) covered by Transfer Certificates of Title (TCTs) No. T-299900 and
No. T-314839 registered in Suenos name and registered with the Registry of
Deeds of Marikina City. Subsequently, Sueno incurred default, which
prompted LBP to cause the extrajudicial foreclosure of the mortgage
constituted on the subject properties, and the sale of said properties at a
public auction. LBP was the highest bidder in the auction sale, as shown in
the Certificate of Sale dated 6 March2000 in its favor. Before the expiration
on 6 March 2001 of the one-year period for the redemption of the subject
properties, Sueno wrote LBP a letter dated 16 February 2001 requesting a
six-month extension of her period to redeem. Upon receipt of Suenos letter,
LBP informed her that she needed to post an initial amount of P115, 000.00,
so that LBP would not consolidate the titles to the subject properties in its
name. The said amount shall be used to answer for penalties and surcharges
that the Registry of Deeds may impose as a result of the failure of LBP to
consolidate the titles to the subject properties within the required period. In
partial compliance with the aforesaid condition, Sueno issued a check
on 23February 2001 in the amount of P50, 000.00 with LBP as the payee.
Upon receipt of Suenos partial payment, LBP, in a letter dated 6 March 2001,
reiterated its previous condition thatSueno must post the full amount
of P115, 000.00 for LBP to approve her request for the extension of the
redemption period. The LBP further warned Sueno that should she fail topay
the balance of P65, 000.00 by 7 March 2001, it would proceed to consolidate
the ownership of the subject properties in its name. Despite such warning,
Sueno failed to remit the balance of P65, 000.00. Thus, in a letter dated 7
March 2001, LBP denied Suenos request for an extension of the period to

redeem the subject properties, and proceeded to consolidate ownership of

the said properties in its name.
Accordingly, TCTs No. 299900 and No. 314839 in Suenosname were
cancelled and were replaced by TCTs No. 411101 and 411102, respectively,
in the name of LBP. In order to acquire physical possession of the subject
properties, LBP filed an Ex Parte Petition/Motion for the Issuance of Writ of
Possession before the RTC, docketed as LRC Case No. R-2002-551-MK. During
the hearing set by the court for the issuance of the writ, Sueno manifested
her Opposition thereto on the ground that a novation of the original
obligation was already effected by her and LBP, thereby extending the
original period for the redemption of the subject properties. Therefore, the
right of LBP to consolidate the titles to the subject properties in its name was
held in abeyance pending Suenos exercise of her right of redemption within
the extended period.
In a Decision dated 24 January 2003, the RTC recognized the right of LBP to
the possession of the subject properties as the registered owner thereof after
having lawfully acquired the same at the auction sale. It dismissed Suenos
opposition to the pending Petition/Motion for utter lack of merit, since she
failed to establish that she and LBP indeed agreed to extend the
redemption period for the subject properties. Hence, the RTC granted the
Petition/Motion of LBP for the issuance of a Writ of Possession.
ISSUE:
Is there a valid novation entered by the parties for the extension of
the redemption period.
HELD
There was no valid novation. Novation is the extinguishment of an obligation
by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or principal
conditions, or by substituting another in place of the debtor, or
by subrogating a third person in the rights of the creditor. In order for
novation to take place, the concurrence of the following requisites are
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. The elements of novation clearly do not exist in
the instant case. While it is true that there is a previous valid obligation (i.e.,

the obligation of LBP to honor Suenos right to redeem the subject property
within a period of one year), such obligation expired at the same time as the
redemption period on 6 March 2001. There is, however, no clear agreement
between the parties to a new contract, again imposing upon LBP the
obligation of honoring Suenos right to redeem the subject properties within
an extended period of six months. Without a new contract, the old contract
cannot be considered extinguished.
ROMEO GARCIA VS. DIONISIO LLAMAS
G.R. No. 154127. December 8, 2003
Facts: A complaint for sum of money was filed by respondent Dionisio Llamas
against Petitioner Romeo Garcia and Eduardo de Jesus alleging that the two
borrowed Php 400, 000 from him. They bound themselves jointly and
severally to pay the loan on or before January 23, 1997 with a 15% interest
per month. The loan remained unpaid despite repeated demands by
respondent.
Petitioner resisted the complaint alleging that he signed the promissory note
merely as an accommodation party for de Jesus and the latter had already
paid the loan by means of a check and that the issuance of the check and
acceptance thereof novated or superseded the note.
The trial court rendered a judgment on the pleadings in favor of the
respondent and directed petitioner to pay jointly and severally respondent
the amounts of Php 400, 000 representing the principal amount plus interest
at 15% per month from January 23, 1997 until the same shall have been fully
paid, less the amount of Php 120,000 representing interests already paid.
The Court of Appeals ruled that no novation, express or implied, had taken
place when respondent accepted the check from de Jesus. According to the
CA, the check was issued precisely to pay for the loan that was covered by
the promissory note jointly and severally undertaken by petitioner and de
Jesus. Respondents acceptance of the check did not serve to make de Jesus
the sole debtor because first, the obligation incurred by him and petitioner
was joint and several; and second, the check which had been intended to
extinguish the obligation bounced upon its presentment.
Issues: (1) Whether or not there was novation of the obligation
(2) Whether or not the defense that petitioner was only an accommodation
party had any basis.

Held: 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; and (4)
there must be a valid new contract.
The parties did not unequivocally declare that the old obligation had been
extinguished by the issuance and the acceptance of the check or that the
check would take the place of the note. There is no incompatibility between
the promissory note and the check.
Neither could the payment of interests, which in petitioners view also
constitutes novation, change the terms and conditions of the obligation. Such
payment was already provided for in the promissory note and, like the check,
was totally in accord with the terms thereof.
Also unmeritorious is petitioners argument that the obligation was novated
by the substitution of debtors. In order to change the person of the debtor,
the old must be expressly released from the obligation, and the third person
or new debtor must assume the formers place in the relation. Well-settled is
the rule that novation is never presumed. 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. Note also that for novation to be valid
and legal, the law requires that the creditor expressly consent to the
substitution of a new debtor.
In a solidary obligation, the creditor is entitled to demand the satisfaction of
the whole obligation from any or all of the debtors. It is up to the former to
determine against whom to enforce collection. Having made himself jointly
and severally liable with de Jesus, petitioner is therefore liable for the entire
obligation.
(2) By its terms, the note was made payable to a specific person rather than
bearer to or ordera requisite for negotiability. Hence, petitioner cannot
avail himself of the NILs provisions on the liabilities and defenses of an
accommodation party. Besides, a non-negotiable note is merely a simple
contract in writing and evidence of such intangible rights as may have been
created by the assent of the parties. The promissory note is thus covered by
the general provisions of the Civil Code, not by the NIL.
Even granting that the NIL was applicable, still petitioner would be liable for
the note. 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. It is a

settled rule that a surety is bound equally and absolutely with the principal
and is deemed an original promissory debtor from the beginning. The liability
is immediate and direct.
SWAGMAN V CA
G.R.No. 161135 April 8, 2005
FACTS:
Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc.,
through Atty. Leonor L. Infante and Rodney David Hegerty, its president and
vice-president, respectively, obtained from private respondent Neal B.
Christian loans evidenced by three promissory notes dated 7 August 1996,
14 March 1997, and 14 July 1997. Each of the promissory notes is in the
amount of US$50,000 payable after three years from its date with an interest
of 15% per annum payable every three months. In a letter dated 16
December 1998, Christian informed the petitioner corporation that he was
terminating the loans and demanded from the latter payment in the total
amount of US$150,000 plus unpaid interests in the total amount of
US$13,500. On 2 February 1999, private respondent Christian filed with the
Regional Trial Court of Baguio City, Branch 59, a complaint for a sum of
money and damages against the petitioner corporation, Hegerty, and Atty.
Infante. The petitioner corporation, together with its president and vicepresident, filed an Answer raising as defenses lack of cause of action and
novation of the principal obligations. According to them, Christian had no
cause of action because the three promissory notes were not yet due and
demandable.
ISSUE:
Where there is a valid novation, may the original terms of contract which has
been novated still prevail?
HELD:
The receipts, as well as private respondents summary of payments, lend
credence to petitioners claim that the payments were for the principal loans
and that the interests on the three consolidated loans were waived by the
private respondent during the undisputed renegotiation of the loans on
account of the business reverses suffered by the petitioner at the time.
There was therefore a novation of the terms of the three promissory notes in
that the interest was waived and the principal was payable in monthly
installments of US$750. Alterations of the terms and conditions of the
obligation would generally result only in modificatory novation unless such
terms and conditions are considered to be the essence of the obligation
itself.[25] The resulting novation in this case was, therefore, of the
modificatory type, not the extinctive type, since the obligation to pay a sum
of money remains in force.

Thus, since the petitioner did not renege on its obligation to pay the monthly
installments conformably with their new agreement and even continued
paying during the pendency of the case, the private respondent had no
cause of action to file the complaint. It is only upon petitioners default in the
payment of the monthly amortizations that a cause of action would arise and
give the private respondent a right to maintain an action against the
petitioner.