Article 1291 -In cases if implied the acts of the parties must clearly demonstrate their intent to dissolve

cases if implied the acts of the parties must clearly demonstrate their intent to dissolve the
old obligation as the moving consideration for the emergence of the new one.
Novation -Implied novation necessitates that the old obligation is completely superseded by the new
- Substitution or change of an obligation by another, which extinguished or modifies the first, one.
either changing its object or principal condition, or substituting another in place of the debtor -Test of incompability, each one having an independent existence, if they CANNOT and are
or subrogating a third person in the right of the creditor. IRRECONCILABLE, the subsequent obligation would also extinguish the first.
-Extinctive novation have the twin effects of first, extinguishing an existing obligation and
Principal Conditions in the NCC second, creating a new one in its stead.
– should be construed to include a change in the period to comply with the obligation, Four essential requisites:
-which change in the period would only be partial novation, since the period merely affects the 1. A previous valid obligation
performance, not the creation of the obligation. 2. An agreement of all parties concerned to a new contract
3. The extinguishments of the old obligation
*No Diffence in Civil and Common Law Concepts of Novation 4. The birth of a valid new obligation
- Between the civil and common law, with reference to the extinguishment of one obligation b. Partial or modificatory – this is also termed imperfect or improper novation
by the creation of another, there seems to be no difference.  the old obligation is merely modified; thus, it still remains in force
- In order to extinguish one obligation by the creation of another, the extinguishment must be except insofar as it has been modified.
made to clearly appear.  Should there be any doubt as to whether the novation is total or partial, it
shall be presumed to be merely modificatory.
*Dual purpose or function of novation
- Novation is a juridical act of dual function in that at the time it extinguishes an obligation = it In GENERAL ―requisites for novation‖
creates a new one in lieu of the old. 1. The existence of a VALID old obligation
 If the old obligation is VOID or NON-EXISTENT
NOTE: There is nothing to novate
While a true or proper novation extinguishes an obligation, a partial, modificatory or imperfect  If the old obligation is voidable
novation merely modifies the old obligation. Novation is still possible provided the obligation has not yet been annulled

―Obligation may be MODIFIED by…‖ 2. The intent to extinguish or to modify the old obligation
Moreover, since a new or modified obligation arises, novation ―does not operate as an absolute by a substantial difference
but only as a relative extinction. (the extinguishment or modification itself is a result of novation)

Kinds of NOVATION 3. The capacity and consent of all the parties (except in the case of expromision,
1. According to its object purpose where the old debtor does not
a. Real or Objective – (changing the object or the principal conditions of the Participate)
obligation)
b. Personal or Subjective (Change of Persons) Example: In a contract where X is the creditor and Y is the debtor, if Y enters into a
 Substituting the person of the debtor contract with Z under which he transfers to Z all his rights under the first contract,
(Expromision or Delegacion) together with the obligations thereunder, but such transfer is not consented to or
 Subrogating a third person in the rights of the creditor approved by X, there is no novation. X can still bring his action against Y for the
(change of creditor may be by agreement – ―conventional subrogation‖ or by performance of their contract or damages in case of breach.
operation of law – ―legal subrogation‖)
c. Mixed (Change of object and parties) 4. The vaidity of the new obligation
NOTE:
2. According to the Form of its Constitution If the new obligation is subject to a suspensive condition, sich as the obtaining of
a. Express some signatures, and the condition does not materialize, such new obligation never
b. Implied –when the two obligations are essentially incompatible with each other became valid or effective, so NO novation has resulted.

3. According to its extent or effect
a. Total or extinctive novation – when the old obligation is completely extinguished
NOTE:
-Novation of a contract may either be extinctive or modificatory, much being dependent on the
nature of the change and the intention of the parties
-Extinctive novation is NEVER presume; there must be express intention to novate
If the contemplated new obligation is embodied in a mere draft, which is unsigned
and therefore NOT consented to, no new obligation is created because of the
absence of novation.
*Novation is NOT one of the means recognized by the RPC whereby criminal liability
can be extinguished
- The role of novation may only be either prevent the rise of criminal liability or to cast doubt i. When a pubic instrument is executed to confirm a valid contract, whether oral or in a
on the true nature of the original basic transportation, whether or not it was such that its breach private instrument.
would not give rise to penal responsibility, as when money loaned is made to appear as a j. When payment of the purchase price for certain trucks is made by the execution of a
deposit, or other similar disguise is resorted to. promissory note for said price.
Here, there is NO novation of the contract of sale.
ARTICLE 1292
Article 1293
1. Express and Implied Novation
-According to the manner or form in which the novation has been constituted or made, *Personal or subjective Novation
novation is classified into: There are two kinds of personal or subjective novation:
a. express novation 1. Change of the debtor (passive)
- it is declared in unequivocal terms 2. Change of the creditor (active)
b. implied novation NOTE: a substitution of debtor without the consent of the creditor is binding upon the parties
- complete or substantial incompatibility to the substitution but not on the creditor.

2. How implied novation may be made *Substitution of Debtor

-It is done by making substantial changes
a. in the object or subject matter of the contract
(ex. Delivery of a car instead of a diamond ring)
b. in the cause or consideration of the contract
(ex. An upward change in the price)
NOTE: Reduction in price implies a remission
c. in the principal terms or conditions of the contract
ex. if a debt subject to a condition is made an absolute one without a condition
ex. reduction of the term or period originally stipulated.
Ex. when, without the consent of some subscribers, the capital stock of a
corporation is increased. Here the subcribers who did not consent to the increase are
Released or freed from their subscription.
*Instances when the court held that there was NO extinctive novation
- The original contract or obligation remains, subject only to the slight modifications
introduced.
-Only a Modificatory novation has been effected.
a. When there are only slight alterations or modifications in the construction plans of a
building.
b. When the new contract merely contains supplementary agreement
c. When additional interest is agreed upon
d. When additional security is given
e. When, after final judgment, a contract was entered into precisely to provide a
method of payment other than that stated in the judgment.
f. When a guarantor enters into an agreement with the creditor that he (guarantor) will
also be a principal debtor.
-Here the original principal debtor is not released from his obligation
g. When the creditor in the meantime refrains from suing the debtor or even when the
creditor merely extends the term of payment, for here the period merely affects the
performance, NOT the creation of the obligation
NOTE: Guarantors who do NOT consent to the extension of term are released form
their obligation of guaranty by express provision of the law, and NOT because of
any extinctive modification.
h. When the place of payment is changed or when there is a variation in the amount of
partial payments
-this article speaks of passive subjective novation (substitution of the debtor) , which may be
in the form of:
a. expromision – where the initiative comes from a third person
b. delegacion – where the initiative comes from the debtor, for it is he who delegates
another to pay the debt, and thus, he excuse himself.
-Here the 3 parties concerned – the old debtor, the new debtor and creditor- MUST
AGREE
*Expromision
a. Here the initiative coms from a third person
b. It is essential that the old debtor be released from his obligation, otherwise there will be no
expromision, no novation
Requisites for Expromision
a. The initiative must come from a third person
-who will be the new debtor
b. The new debtor and the creditor must consent
c. The old debtor must be excused or released from his obligation
NOTE:The old debtor’s consent or knowledge is not required
NOTE: The mere written statement of a widow that she hoped to pay part of her
husband’s bank debt does NOT result to expromision.
Delegacion
- A method of novation caused by the replacement of the old debtor by a new debtor,
who (the old debtor) has proposed him to the creditor, and which replacement has
been agreed to by said creditor and by said new debtor
NOTE: Delegacion or initiative comes from the old debtor himself
As in the case of expromision, the old debtor must be released form the obligation; otherwise,
there is NO valid delegacion.
The parties in Delegacion
a. The delegante – the original debtor
b. The delegatario – the creditor
c. The delegado – the new debtor
Requisites for Delegacion
 a. The initiative comes from the old debtor 2. OR the insolvency was already existing and KNOWN TO THE DEBTOR at
b. All the parties concerned must consent or agree the time of delegation
NOTE:
The consent of the creditor: NOTE: that if the insolvency occurred only after the delegation, the old debtor
1. May be given in any form is not liable
2. May be express, or may be implied from his acts but not from his mere
acceptance of payment by a third party, for there is no true transfer of the debt Problem
here. A owes B P1,000,000. A proposed to B that C will pay A’s
3. May be before or after the new debtor has given his consent debt, and that A will be released from all liabilities. B and C
4. May be conditional, but the condition has to be fulfilled, otherwise, there is NO agree to the proposal. Later, when B tries to collect from A, he finds out that C is insolvent. It
valid delgacion was proved that at the time of delegation, C was already insolvent but this was not known to
A. Neither was the insolvency of public knowledge. Nevertheless, B still sues A on the ground
Rights of the New Debtor that it was A who made the proposal, and that therefore A really guaranteed C’s insolvency.
-―payment by the new debtor gives him the right mentioned in Art. 1236 and 1237‖ – Decide.
beneficial reimbursement - ANS.: A is NOT liable, for the insolvency was neither of public knowledge nor
known to A at the time he delegated his debt. The law does not require A to give a
-If payment was made without the knowledge or against the will of the old debtor, ― blanket guaranty. (Art. 1295).
reimbursement and subrogation, if it is made with the old debtor’s consent
NOTE: Novation cannot bind respondent – NOT a party to the assignment When will this article does not apply?
- It is understood that Art. 1295 does NOT apply if there really was NO
Article 1294 EXTINCTIVE NOVATION, such as:

Effect of Insolvency of Non-Fulfillment by New Debtor in Expromision a. When the third person was only an agent, messenger, or employee of the debtor
- This refers to empromision b. When the third person acted only as guarantor or surety
- REASON: c. When the new debtor merely agreed to make himself solidarily liable for the
Why the old debtor will NOT be responsible for the new debtor’s insolvenct or non- obligation
fulfillment – The expromision was brought about without his initiative d. When the new debtor merely agreed to make himself jointly or partly
responsible for the obligation
NOTE: -Here the delegacion is merely with reference to the joint or proportionate
If the substitution is without the knowledge or against the will of the debtor – This article will share.
NOT apply, IOW, the old debtor would be liable.
Article 1296
BUT considering the intent of law, it is believed that the Article would still apply, the old
debtor would still not be liable for the new debtor’s insolvency or non-fulfillment Effect on Accessory Obligation
REASON: REASON:
1. After all, the initiative did NOT come from him - Extinguishment of the principal obligation carries with it the extinguishment of the
2. A contrary conclusion would put him in a worse position that in delegacion, accessory obligation (such as pledges, mortgages, guaranties)
where the liability is only for insolvency and NOT for other kinds of non- NOTE: This article does NOT apply in cases of novation by subrogation of the
fulfillment. creditor.

Article 1295 Modificatory Novation

- This article applied in particular to extinctive novation.
Effect of Insolvency by New Debtor in Delegacion - IF the novation is merely modificatory, are guarantors and sureties released, if
- This refers to delegacion thenovation is made WITHOUT their consent?
- This article deals only with insolvency, and not with other causes of non-fulfillment a. If the modified obligation is now MORE ONEROUS, they are liable only for
(In said other causes, the old debtor is NOT liable) the original obligation
b. IF the modified obligation is now LESS onerous, the gurantors and sureties are
Requisites to HOLD old debtor liable still responsible.
- For the old debtor to be liable if the new debtor is insolvent, it is required that either
of the following MUST be present Stipulation Contrary to Article 1296
1. The insolvency was already existing and of PUBLIC KNOWLEDGE at the - May it be agreed that despite the extinguishment of the old obligation, the accessory
time of delegation obligations would still remain as accessory to the new obligation?
  YES, provided that the debtors of said accessory obligations give their
consent.
Effect on Stipulation Pour Autrui
- The rule given in Art. 1296 referring to the automatic extinction of all the accessory
obligations speaks of one exception. That is:
 Accessory obligations or stipulations made in favor of
Third persons (stipulations pour autrui) remain unless said third persons have their
consent to the nocation
 REASON: Their rights to the accessory obligations (which for them is really a
distinct one) should not be prejudiced without their consent.
Article 1297
Effect if the New obligation is VOID
- It highlights one of the essential requisites of a valid novation, namely, the new
obligation must be VALID and EFFECTIVE.
- Thus, if the new obligation is VOID, there is NO novation and the obligation
generally will subsist.
OTHER FACTORS
a. If the new obligation is subject to a condition and said condition does not
materialize, the old obligation subsists.
Example:
FACTS: A and B had a contract which they agreed to novate, provided the
signatures of C and D could be obtained. But said signatures were never procured.
HELD: The old obligation subsists for failure of the novation.
b. If a new obligation was intended, but the new contract was never perfected for lack
of the necessary consent, the old obligation continues.
Rule if New obligation is merely voidable
- Suppose the new obligation is voidable, what happends to the old obligation?
 The old obligation is novated because a voidable obligation is valid until it is
annulled
 If the new obligation is annulled, the old obligation subsists, and whatever
novation has taken place will naturally have to be set aside.
FACTS: A deed of sale was made validly. There was an attempt to novate the same by two
new deeds containing, among other things, a provision for convention redemption. But one
of the parties to the new deeds was a minor.
HELD: As to said minor, said new deeds are not valid and enforceable. Therefore, the
original contract subsists.
Exception to the Rule that there is NO novation if the new obligation is VOID
- One exception is when ―the parties intended that the former relation should be
extinguished in any event‖
Problem
D and C entered into a contract whereby D was to give C P800,000 in cash. Later, they
novated the contract by stipulating that instead of cash, D would give a particular car.
Subsequently, the car was destroyed by a fortuitous event. Is D obliged to give P800,000?
ANS.: No, because the original obligation had already been extinguished by the valid
novation. Moreover, the obligation to deliver the particular car is also extinguished
because of the fortuitous event.
Article 1298
Effect if the Old obligation was VOID
- One of the requisites of a valid novation is that the obligation be valid.
THEREFORE-
a. If the old obligation is VOID,
There is NO VALID novation
b. If the old obligation was VOIDABLE and has already been annulled,
There is NO MORE OBLIGATION. Therefore, the novation is VOID
Rule if the Old obligation was voidable
- Suppose the old obligation was VOIDABLE and has NOT yet been annulled, may
there be a valid novation?
 YES, provided that:
a. Annulment maybe claimed only by the debtor;
Example: A was forced to sign a promissory note to give B P500,000. Later the
parties agreed voluntarily to let the subject matter be a precious stone. Although
the first contract was voidable, the second one is all right because in the first
contract, annulment could be claimed only by the debtor.
b. OR when ratification validates acts which are voidable.
Example: An agent, acting without authority from his principal, bought
merchandise from a company. Shortly after he had learned of his agent’s act,
the principal told the seller to deliver another kind of merchandise, completely
different from the first. The seller agreed. Although the first contract here was
unauthorized, ratification by the principal has cured its defects, and therefore
the second contract is valid.
NOTE:
-Although Art. 1298 speaks of a void original obligation, it evidently refers to a VOIDABLE
one, where annulment or ratification may exist.
-A void contract does not have to be annulled nor can it be ratified.
Rule if the old obligation was extinguished by loss
- May an old obligation that has been extinguished by LOSS of the subject matter be
novated?
 It depends:
a. If the loss was purely because of a fortuitous event without liability on the part of
the debtor, the novation is VOID for there would be NO obligation to novate.
b. If the loss made the debtor liable, there is still an existing monetary obligation
that may be the subject of novation.
May a Prescribed Obligation be the subject of novation?
- YES, because unless the defense of prescription is set up by the debtor, the
obligation continues, since this failure amounts to a WAIVER.
NOTE:
 A prescribed debt, constituting as it does a moral or natural obligation, may be the Kinds of Subrogation
cause or consideration of a new obligation to pay therefor. a. From the viewpoint of cause or origin:
1. Conventional or Voluntary Subrogation
Effect on a VOIDABLE obligation of Novation by Expromision -this requires an agreement and the consent of the original parties and of the
a. Here the debtor is no doubt released from his obligation to the creditor, for the creditor
substitution was not done thru his initiative. 2. Legal Subrogation
b. BUT when the new debtor, after payment, sues the old debtor for BENEFICIAL -this takes place by operation of law
REIMBURSEMENT, the old debtor can set up whatever defenses he could have set
against the creditor. b. From the viewpoint of extent:
Example: the defense of minority or fraud 1. Total Subrogation
2. Partial Subrogation
-here, there would now be two or more creditors.
Article 1299
Legal Subrogation NOT presumed
Effect if the Original Obligation was Conditional - Except, in the case expressly mentioned in the law
- G/R: The conditions attached to the old obligation are also attached to the new
obligation Conventional Subrogation MUST be established
- Exception: If there is a CONTRARY STIPULATION - MUST be clearly established, otherwise, it is as if no subrogation has taken place.

REASON FOR THE G/R Article 1301

- If, for example, the suspensive condition attached to the obligation is NOT fulfilled,
the old obligation never arose Conventional or Voluntary Subrogation
- Therefore, there would be nothing to novate, since novation requires the existence of - For conventional or legal subrogation, the consent of ALL the parties is required:
a previous VALID and EFFECTIVE obligation. a. The debtor
- because he becomes liable under the new obligation, and because his old
obligation ends
Illustrative Problems b. The old creditor
- because his credit is affected
(a) A promised to give B a car if B should pass the bar exams. Later, both agreed that what c. The new creditor
should be given would be a diamond ring. Nothing was mentioned in the second contract - because he becomes a party to the obligation
regarding the condition. Is the new obligation also subject to a suspensive condition? NOTE:
ANS.: Yes, unless it was otherwise stipulated in the new contract. The delivery of Generally, the debtor loses the right to present against the new creditor any defense
the diamond ring would, therefore, be due only after B has passed the bar exams. which he, the debtor, could have set up against the old creditor

(b) A promised to give B a car unless X married Y. Later A and B agreed to change the object As between conventional subrogation and assignment of the credit, the latter, insofar
to a precious stone. No mention was made regarding any condition. Is the second obligation as the creditor is concerned, should be preferred, for it has advantages, without the
subject to a resolutory condition? corresponding disadvantages of conventional subrogation. Upon the other hand,
ANS.: Yes, unless the contrary has been provided for in the contract conventional subrogation cannot present any advantage over assignment of credit.

(c) In question (b), supposing under the same facts, X had already married Y before A and B Distinctions between conventional subrogation and assignment of credit
novated their contract, what happens to the new obligation? Assignment of Credit Conventional Subrogation
ANS.: It is as if the new obligation never arose, for a contract that has already been Here, there is mere transfer of Extinguished the obligation
extinguished cannot be novated. the SAME right or credit and creates a new one
Article 1300 (the transfer did NOT
extinguish the credit)
Subrogation Defined This does NOT require the This requires the debtor’s
- Subrogation (extinctive subjective novation by change of the creditor) is the transfer debtor’s consent consent
to a third person of all the rights appertaining to the creditor, including the right to (mere notification to him is
proceed against guarantors, or processors of mortgages, subject to any legal sufficient)
provision or any modification that may be agreed upon. The defect in the credit or The defect of the old
right is not cured simply by obligation may be cured in (NOTE: Examples of such defenses are the following: causes of vitiated consent like force,
assigning the same such a way that the new intimidation, minority, undue influence, error; other causes like prior payment whether total or
(Here, the debtor generally obligation becomes entirely partial; remission; compensation, etc.)
still has the right to present valid
against the new creditor any (Thus, here, there is no right to Second Instance
defense available as against present against the new - When a third person, not interested in the obligation, pays with the express or tacit
old creditor) creditor any defense which he, approval of the debtor.
the debtor, could have set up
against the old creditor. (a) Example: Eubolo owes Luna P1,000,000 secured by a mortgage.
Blesilda, a classmate of Eubolo, and having no connection with the contract at all, paid Luna
Article 1302 the P1,000,000 with Eubolo’s approval. Is Blesilda subrogated in Luna’s place?
ANS.: Yes, because although not interested in the obligation, she nevertheless paid
Legal Subrogation off Luna with the approval of the debtor. (Art. 1302, No. 2).
- Under the old code, the word ―legal‖ was not present.
- It was inserted here for the sake of clarity (b) If in the above example, Blesilda, who is Luna’s friend, paid her only P700,000 for the
extinguishment of Eubolo’s debt, but the payment was made without the express or tacit
First Instance approval of Eubolo, what would be Blesilda’s rights, if any?
- When a creditor pays another creditor who is preferred, even without the debtor’s ANS.: There is no legal subrogation here because there was no express or implied
knowledge‖ approval of Eubolo. Therefore, all that Blesilda can recover is P700,000 for this is
the amount with which she is supposed to be REIMBURSED (a giving back to her
of what she had DISBURSED). If Eubolo does NOT pay, Blesilda cannot have the
(a) Example: Ligaya has two creditors: Gloria, who is a mortgage creditor for P1,500,000, and mortgage foreclosed. For, as has been said, there has been no subrogation here.
Solita, who is an ordinary creditor for P600,000. Solita, without Ligaya’s knowledge, paid Third Instance
Ligaya’s debt of P150,000 to Gloria. Here Solita will be subrogated in the rights of Gloria. - When, even without the knowledge of a debtor, a person interested in the fulfillment
This means that Solita will herself now be a mortgage creditor for P1,500,000, and an of the obligation pays, without prejudice to the effects of confusion as to the latter’s
ordinary creditor for P600,000. If Ligaya fails to pay the P1,500,000 debt, Solita can have the share.
mortgage foreclosed (that is, the property can be sold at public auction, with Solita being paid (a) Examples of persons ―interested:‖
from the proceeds thereof). 1) a guarantor
2) the owner of the property mortgaged as security for the debtor’s debt
(NOTE: The answer will be the SAME if Solita paid with Ligaya’s knowledge.)
(b) Example of the Third Instance:
(b) Suppose in the abovecited example, Solita paid Gloria only P1,300,000 for Ligaya’s total D owes C P1,000,000 secured by a mortgage and by a guaranty of G. If G, even
indebtedness (Gloria agreed because of friendship), how much, concerning this debt, may without D’s knowledge, pays C the P1,000,000, G will be subrogated in C’s place.
Solita successfully recover from Ligaya? But of course the guaranty is extinguished. This is what the law means when it says
ANS.: The whole P1,500,000 because concerning this debt, Solita steps completely that there is legal subrogation ―without prejudice to the effects of confusion as to the
into the shoes of Gloria. latter’s (payor’s) share in the obligation.‖ (Art. 1302, par3

(c) Suppose in problem (b), Solita paid the P1,300,000 to Gloria without Ligaya’s knowledge,
but it turns out that at said time of payment, Ligaya’s debt had already been reduced to
P300,000 (because of a prior partial payment), how much can Solita successfully recover
from Ligaya concerning this debt?
ANS.: Only said P300,000 because this is only the extent to which Ligaya had been
benefi ted. It is Solita’s fault that she did not fi rst inform Ligaya of her intention to
pay. Solita’s remedy now would be to recover the excess amount from Gloria.
(c) Is a solidary debtor included in the scope of ―a person interested?‖
1) Strictly speaking, NO, because when the solidary debtor pays the whole
obligation to the creditor, solidary obligation itself is extinguished. Therefore, it
cannot be truly said that said solidary debtor steps completely into the shoes of the
creditor. Moreover, although the other solidary debtors must reimburse him, this
obligation to reimburse is not solidary, but merely joint, except of course that they
are all proportionately liable in the meantime for the insolvency of one of them.

(NOTE: In legal subrogation caused by payment to a preferred creditor, may the debtor set up
against the new creditor defenses which he, the debtor, could have set up against the old
creditor?
ANS.: Yes, for after all, the subrogation took place by operation of law. This effect
differs from the effect of CONVENTIONAL subrogation where the debtor gave his
consent.)
2) In another (―loose‖) sense, the solidary debtor may be said to fall under the
category of an ―interested person‖ in that he steps in a way into the shoes of the old
creditor, since he would be entitled to COLLECT reimbursement, but of course he
cannot collect the whole amount anymore in view of the ―effect of confusion (or
merger) as to his share.‖ (See Art. 1217, Civil Code).
Article 1303
Effects of Subrogation
- Note that the credit and all the appurtenant rights, either against the debtor, or
against third persons, are transferred
- Thus, in a sense the obligation subsists, that is, it has not yet been extinguished or
paid
Example of the Effects of Subrogation
D owes C P1,000,000. G is the guarantor. A stranger S paid C the P1,000,000 with the
consent of D and C. S is now subrogated in the place of C. If D cannot pay the
P1,000,000, S
can proceed against the guarantor, G.
Effect of presence of a suspensive condition
- It is understood that if the transferred credit is subject to a suspensive condition, the
new creditor cannot collect until after said condition is fulfilled.
Article 1304
Partial Obligation – Here, there are TWO creditors:
a. The old creditor, who still remains a creditor as to the balance (because only a
partial payment has been made to him)
b. The new creditor who is a creditor to the extent of what he had paid the creditor
Ex. A owes B P500,000. With the consent of both, C pays B P250,000. Now B and C are the
creditors of A to the amount of P250,000. Suppose A has only P250,000 who should be
preferred?
ANS.: B, the original creditor, should be preferred inasmuch as he is granted by the
law (Art. 1304, Civil Code) preferential right to recover the remainder, over the
person subrogated in his place by virtue of the partial payment of the same credit.
Preference in the Assets
- The preference is only in the assets remaining with the debtor (not those already
transferred to others). Therefore, the old creditor must assert his claim or preference
over the assets only while they are still in the hands of the sheriff who has levied on
the properties. If done later, the preference given by this article CEASES.
DIONGZON v COURT OF APPEALS
FACTS:
Diongzon was a sales supervisor of Filipro Incorporated now (Nestle Philippines, Inc.). As
such, he had authority to allow the withdrawal of Filipro products from its warehouse for
delivery to its dealers or customers, to receive payment therefore and remit the same to Filipro
through its depository bank at Bacolod City.
Base on the finding by Filipro accounting department some delivery orders signed by
Diongzon seemed questionable as the quantities ordered were unusually big and seemed
abnormal.
Anacleto Palisoc, area sales manager, was authorized to conduct an investigation of
Diongzon’s withdrawal of goods and remittance of payments. Palisoc contacted the dealers
namely: Queensland, Queendies, and Cokins denied having received the goods listed in the
delivery orders signed by the Diongzon.
Meanwhile, Diongzon approached Rene Garibay, sales representative, and offered his
assistance in the collection of payments for the outstanding delivery orders. The next day
Diongzon presented to Garibay three checks in payment of the items listed in the invoices
allegedly issued to Queensland, Queendies, and Cokins.
The three checks were deposited with the Security Bank and Trust Company, (Filipros
depository bank). However, upon presentment to the drawee bank (Allied Banking
Corporation), the three checks were dishonored. The first two checks were dishonored because
of apparent difference between the drawer’s signatures thereon and those in the banks
files. The third check was dishonored for insufficiency of funds.
Palisoc and Garibay conferred with the dealers of Queensland and Queendies. The latter
claimed that they did not issue the checks nor receive the goods under the delivery orders
signed by Diongzon.
Diongzon acknowledged responsibility and promised to settle the same. He also admitted
having issued the three checks under his account with the Allied Banking Corporation.
However, during trial, Diongzon initially denied that the signatures in the first two checks
were his. Then he argued that the three checks were not issued on account or for value as
required in B.P. Blg. 22. Later, however, he admitted that he issued the third check to replace
the second check which, he insisted, he did not issue.
However, the Trial court held him guilty of BP 22.
On appeal, Diongzon claimed that the information charged more than one offense and that the
issuance of the third check as replacement for the second check constituted novation which
thereby extinguished his obligation.
The Court of Appeals rejected Diongzon’s contentions and affirmed his conviction. As the
Court of Appeals held, novation is not a mode of extinguishing criminal liability and criminal
liability, once incurred, cannot be compromised
Hence, this petition for review on certiorari.
ISSUE:
WON the replacement by a 3rd check for the 2nd check constitutes novation which in effect,
extinguishes obligation; and does novation extinguishes criminal liability.
HELD:
No. There was no novation. And even if there was, petitioner’s liability under B.P. Blg. 22
was not thereby extinguished.
It is well-settled that the following requisites must be present for novation to take place:
(1) A previous valid obligation;
(2) Agreement of all the parties to the new contract;
(3) Extinguishment of the old contract; and
(4) Validity of the new one.
The third requisite, were not proven in this case. As the Court of Appeals held, the transaction
became a personal undertaking of the petitioner when he received the goods for delivery but
made no delivery thereof either to the credited dealer or to the credit rider . Petitioner had an
existing obligation to pay the value of the goods for which the check was issued. This
obligation was not extinguished when the check was dishonored and a new agreement was
reached by the two parties to pay in cash its value.
Nor is novation a mode of extinguishing criminal liability. As held by this Court,
novation may prevent the rise of criminal liability as long as it occurs prior to the filing
of the criminal information in court. In other words, novation does not extinguish
criminal liability but may only prevent its rise.
Novation does not apply where the offer to pay by the debtor, and accepted by the creditor,
turns out to be merely an empty promise. In this case, the balance of the check was never paid,
as witness Anacleto B. Palisoc testified.
Petitioner violated BP 22 when the check he issued was dishonored. Though he promised to
pay its value, the fact remains that at the time it was presented to the drawee bank, it was not
sufficiently funded. His failure to pay the value of the check within 5 banking days from
notice of dishonor did not dispute the presumption that he has knowledge of the isufficiency of
the funds.
SANDICO vs. PIGUING
FACTS:
In 1960, spouses Sandico, Enrico Timbol and Teofisto Timbol, administrator of the estate of
deceased Sixta Paras, have obtained a judgment in their favor against the respondent.
The judgment sentenced Desiderio Paras, respondent, to pay a total of P6,000 to plaintiffs as
actual and exemplary damages as well as attorney’s fees.
But the parties reached a settlement where the amount of P6,000 was reduced to P4,000.
In 1964, the petitioners demanded for the respondent’s compliance of the portion of the
judgment about the reconstruction and reopening of the irrigation canal. Due to the
respondent’s refusal to rebuild and reopen the irrigation canal, petitioner’s filed with
respondent Judge Minerva Piguing, a motion to declare Paras in contempt of court (Sec. 9
Rule 39 of Rules of Court).
But respondent Judge denied petitioner’s motion, because according to the previous judgment
referred to by petitioners, Paras was only ordered to recognize the easement. Nothing in the
decision ordered him to reconstruct a canal.
The petitioners then filed for an alias writ of execution which was granted by respondent
judge, however, it was quashed later on when it was proved that the money judgment has
already been satisfied when respondent paid them P4,000.
The petitioners filed this petition for Certiorari, on the grounds that Piguing acted in excess of
jurisdiction or with grave abuse of discretion, seeking to set aside:
1) The order of the respondent judge which denied their motion to declare respondent in
contempt of court, and;
2) Orders of the respondent judge which granted motion of respondent to set aside the alias
writ of execution.
ISSUE:
WON reducing the amount due from the respondent, constitutes waiver of their claim for the
sum of P2, 000 or novation of the money judgment provided for in the Court of Appeals'
decision
HELD:
YES. Petitioner’s acceptance of the payment of the respondents of the lesser amount of P
4,000 without any protest or objection constitutes its waiver of their claim for the sum of P2,
000. The acknowledgement of the payment by the petitioners as "in full satisfaction of the
money judgment" completely extinguished the judgment debt and released the respondent
from his pecuniary liability.
However, as to whether or not the reduction of the amount due constitutes novation of the
money judgment, the court ruled in the negative.
Novation results in two stipulations, one to extinguish an existing obligation, the other to
substitute a new one in its place. Fundamental it is that novation effects a substitution or
modification of an obligation by another or an extinguishment of one obligation by the
creation of another.
ITCAH, there was no new or modified obligation which arose out of the payment of the
P4,000 .
Additionally, to sustain novation necessitates that the same be so declared in unequivocal
terms — clearly and unmistakably shown by the express agreement of the parties or by acts of
equivalent import — or that there is complete and substantial incompatibility between the two
obligations.
Therefore, the money judgment was fully satisfied by the payment of the P4,000 but such
payment does not constitute a novation.
PEOPLE’S BANK AND TRUST COMPANY (PBTC) VS. SYVEL’S
INCORPORATED, ET.AL
FACTS:
A credit commercial line in the amount of Php900, 000 was granted to defendant Syvel’s Inc.
On May 1965, defendants Antonio and Angel Syyap executed an undertaking in favor of the
plaintiff whereby they both agreed to guarantee absolutely and unconditionally and without
the benefit of excussion the full and prompt payment of any indebtedness to be incurred on
account of the said credit line.
In view of the failure of the defendant corporation to make payment in accordance with the
terms and conditions agreed upon in the Commercial Credit Agreement, plaintiff PBTC started
to foreclose extra-judicially the chattel mortgage.
However, because of an attempt to have the matter settled, the extra-judicial foreclosure was
not pushed thru. As no payment had been paid, an action for foreclosure was eventually filed
in court.
On petition of the plaintiff based on the affidavits, a preliminary writ of attachment was issued
because the defendants are disposing of their properties with the intent to defraud their
creditors. As a consequence of the issuance of the writ of attachment, the defendants, in their
answer to the complaint set up a compulsory counterclaim for damages.
During the pendency of the case defendant Antonio Syyap proposed to have the case settled
amicably. Defendant Syyap requested that the plaintiff dismiss the case because he did not
want to have the goodwill of Syvel’s Inc. impaired and offered to execute a real estate
mortgage on his property in Cavite.
Mr. de las Alas (Vice-President of the PBTC Corp.) consented and so the Real Estate
Mortgage was executed by the defendant Antonio Syyap and his wife Margarita Syyap.
Defendants did not agree with plaintiff’s motion to dismiss which included the dismissal of
their counterclaim and filed instead their own motion to dismiss on the ground that by the
execution of said real estate mortgage, the obligation secured by the chattel mortgage subject
of this case was novated.
As of June 1967, its indebtedness was in total amount of P601,633.01 (principal 568,577.76
and 33,055.25 interest). No part of the amount has been paid by either of the defendants.
ISSUE:
WON the obligation secured by the Chattel Mortgage sought to be foreclosed was novated by
the subsequent execution between petitioner PBTC and Antonio Syyap of a real estate
mortgage.
HELD:
No. Novation takes place when the object or principal condition of an obligation is changed or
altered. It is elementary that novation is never presumed. It must be explicitly stated or there
must be manifest incompatibility between the old and the new obligations in every aspect.
In the case at bar, there is nothing in the real estate mortgage which supports appellant’s
(Syyap) submission. The contract on its face does not show the existence of an explicit
novation nor incompatibility on every point between the old and the new agreements as the
second contract evidently indicates that the same was executed as new additional security to
the chattel mortgage previously entered into by the parties.
The pertinent provision of the contract is quoted as follows:
―That the chattel mortgage executed by Syvel’s Inc.; real estate mortgage executed by Angel
and Rita Syyap shall remain in full force and shall not be impaired by this mortgage‖
It is clear that a novation was NOT intended.
CRUZ V. COURT OF APPEALS
FACTS:
Delfin I. Cruz and Adoracion Cruz are spouses and their children were Thelma, Nerissa, Arnel
and Gerry Cruz. Upon the death of Delfin, his surviving spouse and children executed a
notarized Deed of Partial Partition (DPP) by virtue of which each one of them was given a
share of several parcels of land all situated in Taytay, Rizal.
A day after the execution of the DPP, the same parties executed a Memorandum of Agreement
(MOA) wherein they covenanted and agreed among themselves that they shall alike and
receive equal shares from the proceeds of the sale of any of the lot or lots allotted to and
adjudicated in their individual names by virtue of the DPP.
This Memorandum Agreement was registered and annotated in the titles of the lands covered
by the Deed of Partial Partition. The DPP was subsequently registered and titles were issued in
their names. The annotation pertaining to the MOA was carried in each of the title.
The spouses Nerissa Cruz-Tamayo and Nelson Tamayo were sued by the spouses Eliseo and
Virginia Malolos for a sum of money in the Court of First Instance of Rizal (Quezon City).
TC condemned the Tamayo spouses to pay a sum of money to the Malolos spouses with 12%
interest per annum from filing of the complaint plus atty. Fees. After the finality of the
decision, a writ of execution was issued.
Enforcing said writ, the sheriff of the court levied upon the land in question and thereafter sold
the properties in an execution sale to the highest bidders, the Malolos spouses. Accordingly,
the sheriff executed a certificate of sale.
Nerissa Cruz-Tamayo failed to exercise her right of redemption within the statutory period and
so the final deed of sale was executed by the sheriff conveying the lands to the Malolos
spouses. The latter asked Nerissa Cruz-Tamayo to give them the owners duplicate copy of the
seven titles of lands in question but she refused.
The spouses moved to compel her to surrender said titles to the Register of Deeds of Rizal for
cancellation. Motion was granted, but Nerissa was adamant. She did not comply with the
order, so the Malolos spouses asked the court to declare said titles null and void.
Petitioners filed a motion for leave to intervene and oppose the motion of the Malolos spouses.
They alleged that they are co-owners of the lands in question.
The lower court rendered a decision for private respondents from which the defendants
appealed to the Court of Appeals. The appellate court ruled in favor of herein private
respondents, holding that the DPP was not materially and substantially incompatible with the
MOA. The DPP conferred absolute ownership of the parcels of land in issue on Nerissa Cruz-
Tamayo, while the MOA merely created an obligation on her part to share with the petitioners
the proceeds of the sale of the said properties.
Hence, the present petition.
ISSUE:
WON the DPP was cancelled or novated by the MOA.
HELD:
NO. The MOA does not novate, much less cancel, the earlier DPP
Novation, one of the modes of extinguishing an obligation, requires the concurrence of the
following:
(1) There is a previous valid obligation; (2) the parties concerned agree to a new contract; (3)
the old contract is extinguished; and (4) there is a valid new contract. Novation may be express
or implied.
Article 1292 of the Code provides: "In order that an obligation may be extinguished by
another which substitutes the same, it is imperative that it be so declared in unequivocal terms
[express novation], or that the old and the new obligations be on every point incompatible with
each other [implied novation]
ITCAB, The Court ruled that the MOA falls short of producing a novation, because it does not
express a clear intent to dissolve the old obligation as a consideration for the emergence of a
new one.
Petitioners also failed to show that the DPP and the MOA are materially and substantially
incompatible with each other. The DPP granted title to the lots in question to the co-owner to
whom they were assigned, and the MOA created an obligation on the part of such co-owner to
share with the others the proceeds of the sale of such parcels. There is no incompatibility
between the two contracts. The MOA cannot be then construed as a repudiation of the earlier
DPP.
Petition denied.
QUINTO VS. PEOPLE
FACTS:
Quinto was engaged in the business of buying and selling jewelry. She, and private
complainant, Cariaga, started to transact business. It was stipulated in their agreement that
Quinto would sell the pieces of jewelry, if not, she would return the same or pay the value
thereof. 6months elapsed and Quinto failed to either pay or return the pieces of jewelry. A case
of estafa was filed against Quinto, and she was convicted.
Quinto admitted that she took some jewelry from Cariaga and sold the same to Mrs. Camacho
and Mrs. Ramos. Unfortunately, both were unable to pay the whole amount but were allowed
to pay in installments directly to Cariaga instead of paying to Quinto.
ISSUE:
WoN the agreement between Cariaga and Quinto was effectively novated when Cariaga
allowed Mrs. Camacho and Mrs. Ramos to pay on installments directly to her the amounts due
from them.
HELD:
No.
Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when
an old obligation is terminated by the creation of a new obligation that takes the place of
the former; it is merely modificatory when the old obligation subsists to the extent it
remains compatible with the amendatory agreement
An extinctive novation results either by changing the object or principal conditions (objective
or real), or by substituting the person of the debtor or subrogating a third person in the rights
of the creditor (subjective or personal).
The changes alluded to by petitioner consists only in the manner of payment. There was really
no substitution of debtors since private complainant merely acquiesced to the payment but did
not give her consent to enter into a new contract
Also, Cariaga's acceptance of Ramos and Camacho's payment on installment basis cannot be
construed as a case of either expromision or delegacion sufficient to justify the attendance of
extinctive novation.
The fact that the creditor receives guaranty or accepts payment from a third person who agrees
to assume the obligation does not constitute an extinctive novation absent an agreement that
the original debtor shall be released from responsibility. Although there was an addition to the
number or persons liable, it does not necessarily imply the extinguishment of the liability of
the first debtor.