SALAZAR vs. J.Y. Brothers Marketing Corporation | SEC.

119 – Discharge of Instrument | Novation

PARTIES BEO ( Check | Crossed Check-governed by Code of Commerce)

Order Instrument
Amaner Salazar – Accommodation Indorser
J.Y. Brothers Marketing – Payee
Nena Juacian Tiamrio – Drawer
Prudential Bank – Drawee;first check
Solid Bank – Dawee; Crossed check
Isagani Calleja and Jess Kallos – Accommodated indorders
FACTS  J.Y Brothers Marketing – corporation engaged in the business of selling
sugar, rice and other commodities
 Amenar Salazar – freelance agent
 Prudential bank Check – payable to the order of J.Y.

Isagani Calleja(Calleja) and Jess Kallos (Kallos) approached Amenar Salazar

(Salazar) to inquire if she knew a supplier of rice. She, Salazar, accompanied
the two to J.Y. Brothers Marketing (J.Y). As a consequence, Salazar with Calleja
and Kallos procured from J.Y. Bros 300 cavans of rice worth P 214,000.00.
Salazar negotiated and indorsed to J.Y. a prodential bank check issue by Nena
Juacian Timario as payment for the full amount with the assurance that such
check was as good as cash. On that assurance, J.Y parted with the 300 cavans
of rice.
Prudential bank check was dishonored due to closed account. Crossed check
with the same amount from Solid bank was indorsed by Salazar as
replacement. Solidbank dishonored the check due to insufficient funds.
Salazar failed to settle the amount.
A criminal Case was instituted against Salazar and Timario for the crime of
estafa. RTC sound that salazars signature is located on the dorsal portion of
the Prudential bank check. Salazar acquitted but made to pay the liability to
J.Y. Aggreived, she went up to the SC on a petition for review on Certiorari
under Rule 45 RoC. RTC relieved her of civil liability on the ground of novation.
CA reversed RTC’s decision upon finding out that Salazar was an
accomodation indorser of the checks by virtue of Secs. 63,66 and 29 of the NIL.

ARGUMENTS  Salazar Contends that the issuance of the SolidBank Check and the
Acceptance by J.Y., amounted to Novation that discharged the
prudential bank check.
 Salazar contends that acceptance of the solid bank check, a non-
negotiable check is a new obligation in lieu of the old obligation since
there was essential change in the circumstance of each check.
ISSUE Whether the issuance of the solidbank check in replacement of the
prudential bank check resulted in novation that discharged the latter check.
RULING IT DOES NOT. Novation is done by the substitution or change of the
obligation by a subsequent one which extinguishes the first, either by changing
SALAZAR vs. J.Y. Brothers Marketing Corporation | SEC.119 – Discharge of Instrument | Novation

the object or principal conditions, or by substituting the person of the debtor,

or by subrogating a third person in the rights of the creditor.
Respondents acceptance of the Solidbank check did not result to novation
as there was no express agreement to establish that petitioner was already
discharged from liability to pay the 300 cavans of rice. Novation is never
presumed, there must be express intention to novate. The replacement of
the prudential bank check was not a novation but it merely showed Salazar’s
recognition to pay P 214,000.00 which was not paid because of the rubber
check. J.Y. ‘s acceptance of the check were for the purpose of payment of the
debt own to it. There was no substantial change in the object or principal
condition of the obligation. The obligation to pay the amount of 300 cavans
of rice persists, therefore Salazar, as accommodating indorser, is liable to pay
the amount aforementioned.
LECTURE Novation is done by the substitution or change of the obligation by a
subsequent one which extinguishes the first, either by changing the object or
principal conditions, or by substituting the person of the debtor, or by
subrogating a third person in the rights of the creditor. The test of
incompatibility is “whether they can stand together, each one having an
independent existence; if they cannot and are irreconcilable, the subsequent
obligation would also extinguish the first”. There are two kinds of novation ,
(1) extinctive novation and, (2) modificatory. Extinctive novation completely
dissolves the old obligation and replaces it with a new one. Modificatory does
not dissolve the old obligation but simple makes changes not inconsistent with
the old obligation. Change brought about by any subsequent agreement is
merely incidental.

ESSENTIAL REQUIRESITES OF EXTINCTIVE NOVATION

1. a previous valid obligation,
2. an agreement of all parties concerned to a new contract,
3. the extinguishment of the old obligation, and
4. the birth of a valid new obligation.