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[142] Romeo Garcia vs. Dionisio Llamas (GR. 154127, December 8, 2003)

[142] Romeo Garcia vs. Dionisio Llamas (GR. 154127, December 8, 2003)

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Published by: Fides Damasco on Mar 12, 2010
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FIRST DIVISION[G.R. No. 154127. December 8, 2003]ROMEO C. GARCIA,
 petitioner, vs.
Novation cannot be presumed. It must be clearlyshown either by the express assent of the parties orby the complete incompatibility between the oldand the new agreements. Petitioner herein fails toshow either requirement convincingly; hence, thesummary judgment holding him liable as a joint andsolidary debtor stands. The CaseBefore us is a Petition for Review under Rule 45 of the Rules of Court, seeking to nullify the November26, 2001 Decision and the June 26, 2002 Resolutionof the Court of Appeals (CA) in CA-GR CV No.60521. The appellate court disposed as follows:
the judgment appealed from, insofar as itpertains to [Petitioner] Romeo Garcia, must be, as ithereby is,
, subject to the modificationthat the award for attorney’s fees and cost of suit is
. The portion of the judgment thatpertains to x x x Eduardo de Jesus is
. Accordingly, the case against x x xEduardo de Jesus is
to the court of origin for purposes of receiving
ex parte
[Respondent] Dionisio Llamas’ evidence against x xx Eduardo de Jesus.” The challenged Resolution, on the other hand,denied petitioner’s Motion for Reconsideration. The Antecedents The antecedents of the case are narrated by the CAas follows:“This case started out as a complaint for sum of money and damages by x x x [Respondent] DionisioLlamas against x x x [Petitioner] Romeo Garcia andEduardo de Jesus. Docketed as Civil Case No. Q97-32-873, the complaint alleged that on 23 December1996[,] [petitioner and de Jesus] borrowedP400,000.00 from [respondent]; that, on the sameday, [they] executed a promissory note whereinthey bound themselves jointly and severally to paythe loan on or before 23 January 1997 with a 5%interest per month; that the loan has long beenoverdue and, despite repeated demands, [petitionerand de Jesus] have failed and refused to pay it; andthat, by reason of the[ir] unjustified refusal,[respondent] was compelled to engage the servicesof counsel to whom he agreed to pay 25% of thesum to be recovered from [petitioner and de Jesus],plus P2,000.00 for every appearance in court.Annexed to the complaint were the promissory noteabove-mentioned and a demand letter, dated 02May 1997, by [respondent] addressed to [petitionerand de Jesus].“Resisting the complaint, [Petitioner Garcia,] in his[Answer,] averred that he assumed no liability underthe promissory note because he signed it merely asan accommodation party for x x x de Jesus; and,alternatively, that he is relieved from any liabilityarising from the note inasmuch as the loan hadbeen paid by x x x de Jesus by means of a checkdated 17 April 1997; and that, in any event, theissuance of the check and [respondent’s]acceptance thereof novated or superseded the note.“[Respondent] tendered a reply to [Petitioner]Garcia’s answer, thereunder asserting that the loanremained unpaid for the reason that the checkissued by x x x de Jesus bounced, and that[Petitioner] Garcia’s answer was not evenaccompanied by a certificate of non-forumshopping. Annexed to the reply were the face of thecheck and the reverse side thereof.“For his part, x x x de Jesus asserted in his [A]nswerwith [C]ounterclaim that out of the supposedP400,000.00 loan, he received only P360,000.00,the P40,000.00 having been advance interestthereon for two months, that is, for January andFebruary 1997; that[,] in fact[,] he paid the sum of P120,000.00 by way of interests; that this was madewhen [respondent’s] daughter, one Nits Llamas-Quijencio, received from the Central Police DistrictCommand at Bicutan, Taguig, Metro Manila (where xx x de Jesus worked), the sum of P40,000.00,representing the peso equivalent of his accumulatedleave credits, another P40,000.00 as advanceinterest, and still another P40,000.00 as interest forthe months of March and April 1997; that he haddifficulty in paying the loan and had asked[respondent] for an extension of time; that[respondent] acted in bad faith in instituting thecase, [respondent] having agreed to accept thebenefits he (de Jesus) would receive for hisretirement, but [respondent] nonetheless filed theinstant case while his retirement was beingprocessed; and that, in defense of his rights, heagreed to pay his counsel P20,000.00 [as]attorney’s fees, plus P1,000.00 for every courtappearance.“During the pre-trial conference, x x x de Jesus andhis lawyer did not appear, nor did they file any pre-trial brief. Neither did [Petitioner] Garcia file a pre-trial brief, and his counsel even manifested that hewould no [longer] present evidence. Given thisdevelopment, the trial court gave [respondent]permission to present his evidence
ex parte
againstx x x de Jesus; and, as regards [Petitioner] Garcia,the trial court directed [respondent] to file a motionfor judgment on the pleadings, and for [Petitioner]Garcia to file his comment or opposition thereto.“Instead, [respondent] filed a [M]otion to declare[Petitioner] Garcia in default and to allow him to
present his evidence
ex parte
. Meanwhile,[Petitioner] Garcia filed a [M]anifestation submittinghis defense to a judgment on the pleadings.Subsequently, [respondent] filed a [M]anifestation/[M]otion to submit the case for judgement on thepleadings, withdrawing in the process his previousmotion. Thereunder, he asserted that [petitioner’sand de Jesus’] solidary liability under the promissorynote cannot be any clearer, and that the checkissued by de Jesus did not discharge the loan sincethe check bounced.”On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case asfollows:“WHEREFORE, premises considered, judgment onthe pleadings is hereby rendered in favor of [respondent] and against [petitioner and De Jesus],who are hereby ordered to pay, jointly andseverally, the [respondent] the following sums, towit:‘1) P400,000.00 representing the principalamount plus 5% interest thereon per month from January 23, 1997 until the same shall have beenfully paid, less the amount of P120,000.00representing interests already paid by x x x de Jesus;‘2) P100,000.00 as attorney’s fees plusappearance fee of P2,000.00 for each day of [c]ourtappearance, and;‘3) Cost of this suit.’”Ruling of the Court of Appeals The CA ruled that the trial court had erred when itrendered a judgment on the pleadings against De Jesus. According to the appellate court, his Answerraised genuinely contentious issues. Moreover, hewas still required to present his evidence
ex parte.
  Thus, respondent was not
ipso facto
entitled to theRTC judgment, even though De Jesus had beendeclared in default.
 The case against the latter wastherefore remanded by the CA to the trial court forthe
ex parte
reception of the former’s evidence.As to petitioner, the CA treated his case as asummary judgment, because his Answer had failedto raise even a single genuine issue regarding anymaterial fact. The appellate court ruled that no novation -- expressor implied -- had taken place when respondentaccepted the check from De Jesus. According to theCA, the check was issued precisely to pay for theloan that was covered by the promissory note jointlyand severally undertaken by petitioner and De Jesus. Respondent’s acceptance of the check did notserve to make De Jesus the sole debtor because,
, the obligation incurred by him and petitionerwas joint and several; and,
, the check --which had been intended to extinguish theobligation -- bounced upon its presentment.Hence, this Petition.IssuesPetitioner submits the following issues for ourconsideration:“IWhether or not the Honorable Court of Appealsgravely erred in not holding that novation applies inthe instant case as x x x Eduardo de Jesus hadexpressly assumed sole and exclusive liability forthe loan obligation he obtained from x x xRespondent Dionisio Llamas, as clearly evidencedby:a) Issuance by x x x de Jesus of acheck in payment of the fullamount of the loan of P400,000.00 in favor of Respondent Llamas, althoughthe check subsequentlybounced[;]b) Acceptance of the check bythe x x x respondent x x xwhich resulted in [the]substitution by x x x de Jesusor [the superseding of] thepromissory note;c) x x x de Jesus having paidinterests on the loan in thetotal amount of P120,000.00;d) The fact that RespondentLlamas agreed to the proposalof x x x de Jesus that due tofinancial difficulties, he begiven an extension of time topay his loan obligation andthat his retirement benefitsfrom the Philippine NationalPolice will answer for saidobligation.“IIWhether or not the Honorable Court of Appealsseriously erred in not holding that the defense of petitioner that he was merely an accommodationparty, despite the fact that the promissory noteprovided for a joint and solidary liability, shouldhave been given weight and credence consideringthat subsequent events showed that the principalobligor was in truth and in fact x x x de Jesus, asevidenced by the foregoing circumstances showinghis assumption of sole liability over the loanobligation.“IIIWhether or not judgment on the pleadings orsummary judgment was properly availed of byRespondent Llamas, despite the fact that there aregenuine issues of fact, which the Honorable Court of 
Appeals itself admitted in its Decision, which call forthe presentation of evidence in a full-blown trial.”Simply put, the issues are the following: 1) whetherthere was novation of the obligation; 2) whether thedefense that petitioner was only an accommodationparty had any basis; and 3) whether the judgmentagainst him -- be it a judgment on the pleadings or asummary judgment -- was proper. The Court’s Ruling The Petition has no merit.First Issue:
Petitioner seeks to extricate himself from hisobligation as joint and solidary debtor by insistingthat novation took place, either through thesubstitution of De Jesus as sole debtor or thereplacement of the promissory note by the check.Alternatively, the former argues that the originalobligation was extinguished when the latter, whowas his co-obligor, “paid” the loan with the check. The fallacy of the second (alternative) argument isall too apparent. The check could not haveextinguished the obligation, because it bouncedupon presentment. By law, the delivery of a checkproduces the effect of payment only when it isencashed.We now come to the main issue of whether novationtook place.Novation is a mode of extinguishing an obligation bychanging its objects or principal obligations, bysubstituting a new debtor in place of the old one, orby subrogating a third person to the rights of thecreditor. Article 1293 of the Civil Code definesnovation as follows:“Art. 1293. Novation which consists in substituting anew debtor in the place of the original one, may bemade even without the knowledge or against thewill of the latter, but not without the consent of thecreditor. Payment by the new debtor gives himrights mentioned in articles 1236 and 1237.”In general, there are two modes of substituting theperson of the debtor: (1)
and (2)
. In
, the initiative for thechange does not come from -- and may even bemade without the knowledge of -- the debtor, sinceit consists of a third person’s assumption of theobligation. As such, it logically requires the consentof the third person and the creditor. In
,the debtor offers, and the creditor accepts, a thirdperson who consents to the substitution andassumes the obligation; thus, the consent of thesethree persons are necessary. Both modes of substitution by the debtor require the consent of thecreditor.Novation may also be extinctive or modificatory. It isextinctive when an old obligation is terminated bythe creation of a new one that takes the place of theformer. It is merely modificatory when the oldobligation subsists to the extent that it remainscompatible with the amendatory agreement.Whether extinctive or modificatory, novation ismade either by changing the object or the principalconditions, referred to as objective or real novation;or by substituting the person of the debtor orsubrogating a third person to the rights of thecreditor, an act known as subjective or personalnovation. For novation to take place, the followingrequisites must concur:1) There must be a previous valid obligation.2) The parties concerned must agree to a newcontract.3) The old contract must be extinguished.4) There must be a valid new contract.Novation may also be express or implied. It isexpress when the new obligation declares inunequivocal terms that the old obligation isextinguished. It is implied when the new obligationis incompatible with the old one on every point. Thetest of incompatibility is whether the two obligationscan stand together, each one with its ownindependent existence.Applying the foregoing to the instant case, we holdthat no novation took place. The parties did not unequivocally declare that theold obligation had been extinguished by theissuance and the acceptance of the check, or thatthe check would take the place of the note. There isno incompatibility between the promissory note andthe check. As the CA correctly observed, the checkhad been issued precisely to answer for theobligation. On the one hand, the note evidences theloan obligation; and on the other, the check answersfor it. Verily, the two can stand together.Neither could the payment of interests -- which, inpetitioner’s view, also constitutes novation --change the terms and conditions of the obligation.Such payment was already provided for in thepromissory note and, like the check, was totally inaccord with the terms thereof.Also unmeritorious is petitioner’s argument that theobligation was novated by the substitution of debtors. In order to change the person of thedebtor, the old one must be expressly released fromthe obligation, and the third person or new debtormust assume the former’s place in the relation.Well-settled is the rule that novation is neverpresumed. Consequently, that which arises from apurported change in the person of the debtor mustbe clear and express. It is thus incumbent onpetitioner to show clearly and unequivocally thatnovation has indeed taken place.In the present case, petitioner has not shown thathe was expressly released from the obligation, thata third person was substituted in his place, or that

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