SBTC vs. Cuenca (G.R. No. 138544. October 3, 2000).

FACTS:
1. In 1980, Security Bank (‘SBTC”) entered into a loan agreement with Sta. Ines Melale (“SIMC”)
amounting to PHP 8M to assist the latter in meeting the capitalization requirement for its logging opera-
tions.
2. Mr. Cuenca, President and Chairman of the Board of SIMC, executed an indemnity agreement which
stated that he shall be solidarily liable with SIMC by virtue of said credit accommodation including re-
newals, extensions, and amendments.
3. SIMC had difficulty in paying the loan, hence they entered into another loan agreement in 1989 with
SBTC to restructure the loan. In this agreement, it was provided that the amount of the new loan would
now be PHP 12.2M, PHP 8.8M of which would be applied to liquidate the principal portion of the out-
standing indebtedness of SIMC, while the remaining PHP 3.4M would be applied to the past interest due
and penalty incurred by SIMC.
4. SIMC still failed to settle its accounts, prompting SBTC to file a complaint for collection of sum of
money. SBTC also seeks to hold Cuenca solidarily liable with SIMC by virtue of the indemnity agree-
ment executed by him.
ISSUE:
1. WON Cuenca can be held solidarily liable with SIMC — NO
HELD:

1. In the absence of an express agreement, there is novation when the following requisites are met: 1).
previous valid obligation; 2). parties concerned agreed to a new contract; 3). old contract is extinguished;
and 4). valid new contract. In this case, the court found that the 1989 loan agreement extinguished the
1980 loan agreement because the elements of novation were present.

2. Since the 1980 loan agreement was found by the courts to have been effectively novated, the Indemnity
Agreement, which is accessory to the 1980 loan agreement was also necessarily extinguished by virtue of
Art. 1296.