G.R. No.
L-22825 February 14, termination of which shall be for the account
1925
TESTATE ESTATE OF LAZARO MOTA,
deceased, ET AL., plaintiffs-appellants,
vs.
SALVADOR SERRA, defendant-appellee.
Eduardo Gutierrez Repide for appellants.
Hilado and Hilado, Fisher, DeWitt, Perkins
and Brady, Araneta and Zaragosa, Antonio
Sanz and Jose Galan y Blanco for appellee.
VILLAMOR, J.:
On February 1, 1919, plaintiffs and
defendant entered into a contract of
partnership, marked Exhibit A, for the
construction and exploitation of a railroad
line from the "San Isidro" and "Palma"
centrals to the place known as "Nandong."
The original capital stipulated was
P150,000. It was covenanted that the
parties should pay this amount in equal
parts and the plaintiffs were entrusted with
the administration of the partnership. The
agreed capital of P150,000, however, did
not prove sufficient, as the expenses up to
May 15, 1920, had reached the amount of
P226,092.92, as per statement Exhibit B,
presented by the administrator and O.K.'d
by the defendant.
January 29, 1920, the defendant entered
into a contract of sale with Venancio
Concepcion, Phil. C. Whitaker, and Eusebio
R. de Luzuriaga, whereby he sold to the
latter the estate and central known as
"Palma" with its running business, as well as
all the improvements, machineries and
buildings, real and personal properties,
rights, choses in action and interests,
including the sugar plantation of the harvest
year of 1920 to 1921, covering all the
property of the vendor. This contract was
executed before a notary public of Iloilo and
is evidenced by Exhibit 1 of the defendant,
paragraph 5 of which reads as follows:
5. The party of the first part hereby states
that he has entered into a contract with the
owners of the "San Isidro" Central for the
construction, operation, and exploitation of a
railroad line of about 10 kilometers
extending from the "Palma" Central and
"San Isidro" Central to a point known as
"Nandong," the expenses until the
of the "San Isidro" Central, and of which
expenses, one-half shall be borne by the
"Palma" Central with the obligation to
reimburse same within five (5) years with
interest at the rate of 10 per cent per annum
to the said "San Isidro" Central. The vendee
hereby obligates himself to respect the
aforesaid contract and all obligations arising
therefrom.
Before the delivery to the purchasers of the
hacienda thus sold, Eusebio R. de
Luzuriaga renounced all his rights under the
contract of January 29, 1920, in favor of
Messrs. Venancio Concepcion and Phil. C.
Whitaker. This gave rise to the fact that on
July 17, 1920, Venancio Concepcion and
Phil. C. Whitaker and the herein defendant
executed before Mr. Antonio Sanz, a notary
public in and for the City of Manila, another
deed of absolute sale of the said "Palma"
Estate for the amount of P1,695,961.90, of
which the vendor received at the time of
executing the deed the amount of
P945,861.90, and the balance was payable
by installments in the form and manner
stipulated in the contract. The purchasers
guaranteed the unpaid balance of the
purchase price by a first and special
mortgage in favor of the vendor upon the
hacienda and the central with all the
improvements, buildings, machineries, and
appurtenances then existing on the said
hacienda.
Clause 6 of the deed of July 17, 1920,
contains the following stipulations:
6. Messrs. Phil. C. Whitaker and Venancio
Concepcion hereby state that they are
aware of the contract that Mr. Salvador
Serra has with the proprietors of the "San
Isidro" Central for the operation and
exploitation of a railroad line about 10
kilometers long from the "Palma" and "San
Isidro" centrals to the place known as
"Nandong;" and hereby obligate themselves
to respect the said contract and subrogate
themselves into the rights and obligations
thereunder. They also bind themselves to
comply with all the contracts heretofore
entered by the vendor with the customers,
coparceners on shares and employees.
Afterwards, on January 8, 1921, Venancio
Concepcion and Phil. C. Whitaker bought
from the plaintiffs the one-half of the railroad
line pertaining to the latter, executing
therefor the document Exhibit 5. The price of
this sale was P237,722.15, excluding any
amount which the defendant might be owing
to the plaintiffs. Of the purchase price,
Venancio Concepcion and Phil. C. Whitaker
paid the sum of P47,544.43 only. In the
deed Exhibit 5, the plaintiffs and Concepcion
and Whitaker agreed, among other things,
that the partnership "Palma" and "San
Isidro," formed by the agreement of
February 1, 1919, between Serra, Lazaro
Mota, now deceased, and Juan J.
Vidaurrazaga for himself and in behalf of his
brother, Felix and Dionisio Vidaurrazaga,
should be dissolved upon the execution of
this contract, and that the said partnership
agreement should be totally cancelled and
of no force and effect whatever.
So it results that the "Hacienda Palma," with
the entire railroad, the subject-matter of the
contract of partnership between plaintiffs
and defendant, became the property of
Whitaker and Concepcion. Phil. C. Whitaker
and Venancio Concepcion having failed to
pay to the defendant a part of the purchase
price, that is, P750,000, the vendor, the
herein defendant, foreclosed the mortgage
upon the said hacienda, which was
adjudicated to him at the public sale held by
the sheriff for the amount of P500,000, and
the defendant put in possession thereof,
including what was planted at the time,
together with all the improvements made by
Messrs. Phil. C. Whitaker and Venancio
Concepcion.
Since the defendant Salvador Serra failed to
pay one-half of the amount expended by the
plaintiffs upon the construction of the
railroad line, that is, P113,046.46, as well as
Phil. C. Whitaker and Venancio Concepcion,
the plaintiffs instituted the present action
praying: (1) That the deed of February 1,
1919, be declared valid and binding; (2) that
after the execution of the said document the
defendant improved economically so as to
be able to pay the plaintiffs the amount
owed, but that he refused to pay either in
part or in whole the said amount
notwithstanding the several demands made
on him for the purpose; and (3) that the
defendant be sentenced to pay plaintiffs the
aforesaid sum of P113,046.46, with the
stipulated interest at 10 per cent per annum
beginning June 4, 1920, until full payment
thereof, with the costs of the present action.
Defendant set up three special defenses: (1)
The novation of the contract by the
substitution of the debtor with the conformity
of the creditors; (2) the confusion of the
rights of the creditor and debtor; and (3) the
extinguishment of the contract, Exhibit A.
The court a quo in its decision held that
there was a novation of the contract by the
substitution of the debtor, and therefore
absolved the defendant from the complaint
with costs against the plaintiffs. With regard
to the prayer that the said contract be
declared valid and binding, the court held
that there was no way of reviving the
contract which the parties themselves in
interest had spontaneously and voluntarily
extinguished. (Exhibit 5.)
Plaintiffs have appealed from this judgment
and as causes for the review, they allege
that the trial court erred: (a) In holding that
Messrs. Whitaker and Concepcion, upon
purchasing the "Palma" Central, were
subrogated in the place of the defendant in
all his rights and obligations under the
contract relating to the railroad line existing
between the "Palma" and the "San Isidro"
centrals and that the plaintiffs agreed to this
subrogation; (b) in holding that the deed
Exhibit A of February 1, 1919, had been
extinguished in its entirety and made null
and void by the agreement Exhibit 5 dated
December 16, 1920; (c) in absolving the
defendant from the complaint and in
sentencing the plaintiffs to pay the costs;
and (d) in not sentencing the defendant to
pay the plaintiffs the sum of P113,046.46,
with legal interest at 10 per cent per annum
from June 4, 1920, until full payment, with
costs against the defendant.
Taking for granted that the defendant was
under obligation to pay the plaintiffs one-half
of the cost of the construction of the railroad
line in question, by virtue of the contract of
partnership Exhibit A, the decisive point
here to determine is whether there was a
novation of the contract by the substitution
of the debtor with the consent of the
creditor, as required by article 1205 of the
Civil Code. If so, it is clear that the obligation
of the defendant was, in accordance with
article 1156 of the same code, extinguished.
It should be noted that in order to give
novation its legal effect, the law requires that
the creditor should consent to the
substitution of a new debtor. This consent
must be given expressly for the reason that,
since novation extinguishes the personality
of the first debtor who is to be substituted by
new one, it implies on the part of the creditor
a waiver of the right that he had before the
novation which waiver must be express
under the principle that renuntiatio non
praesumitur, recognized by the law in
declaring that a waiver of right may not be
performed unless the will to waive is
indisputably shown by him who holds the
right.
The fact that Phil. C. Whitaker and Venancio
Concepcion were willing to assume the
defendant's obligation to the plaintiffs is of
no avail, if the latter have not expressly
consented to the substitution of the first
debtor. Neither can the letter, Exhibit 6, on
page 87 of the record be considered as
proof of the consent of the plaintiffs to the
substitution of the debtor, because that
exhibit is a letter written by plaintiffs to Phil.
C. Whitaker and Venancio Concepcion for
the very reason that the defendant had told
them (plaintiffs) that after the sale of the
"Hacienda Palma" to Messrs. Phil. C.
Whitaker and Venancio Concepcion, the
latter from then on would bear the cost of
the repairs and maintenance of the railroad
line and of the construction of whatever
addition thereto might be necessary. So the
plaintiffs by their letter of August 14th,
submitted a statement of account to Phil. C.
Whitaker and Venancio Concepcion
containing the accounts of the "San Isidro"
Central, as stated June 30, 1920, saying
that they had already explained previously
the reason for the increase in the expenses
and since the retiring partner, Mr. Serra, had
already given conformity with the accounts,
as stated May 15, 1920, it remained only to
hear the conformity of the new purchasers
for the accounts covering the period from
May 15 to June 30, 1920, and their authority
for future investments, or their objection, if
any, to the amounts previously expended.
Neither can the testimony of Julio Infante in
connection with Exhibit 7 be taken as
evidence of the consent of the plaintiffs to
the change of the person of the debtor for
that of Messrs. Phil. C. Whitaker and
Venancio Concepcion. This witness
testified, in substance, that he is acquainted
with the partnership formed by the owners of
the "Hacienda Palma" and Hacienda San
Isidro" for the construction of the railroad
line; that the cost of the construction thereof
was originally estimated at P150,000; that
the owner of the "Hacienda Palma" would
pay one-half of this amount; that when the
"Hacienda Palma" was sold to Messrs. Phil.
C. Whitaker and Venancio Concepcion, the
latter agreed to pay one-half of the cost of
P150,000; that as the cost of construction
exceeded P200,000, he, as an employee of
Messrs. Phil. C. Whitaker and Venancio
Concepcion, could not O.K. the accounts as
presented by the plaintiffs, and suggested
that they take up in writing their points of
view directly with Messrs. Phil. C. Whitaker
and Venancio Concepcion. Then the
plaintiffs did as suggested, and wrote the
letter Exhibit 7 in which they asked the new
owners of the "Hacienda Palma" their
decision upon the following three questions:
1. Will the "Palma" Central accept the
statement of account as presented by the
"San Isidro" Central regarding the actual
cost of the railroad line "Palma-San Isidro-
Nandong?" 2. Is the "Palma" Central willing
to continue as co-proprietor of the railroad
line for the exploitation of the sugar-cane
business of "Nandong" and neighboring
barrios, and therefore to pay 50 per cent of
the expenses that may be incurred in
completing the line?
It was but natural that the plaintiffs should
have done this. Defendant transferred his
hacienda to Messrs. Phil. C. Whitaker and
Venancio Concepcion and made it known to
the plaintiffs that the new owners would hold
themselves liable for the cost of constructing
the said railroad line. Plaintiffs could not
prevent the defendant from selling to Phil. C.
Whitaker and Venancio Concepcion his
"Hacienda Palma" with the rights that he had
over the railroad in question. The defendant
ceased to be a partner in said line and,
therefore, the plaintiffs had to take the
vendees as their new partners. Plaintiffs had
to come to an understanding with the new
owners of the "Hacienda Palma" in
connection with the railroad line "Palma-San
Isidro-Nandong." But in all of this, there was
nothing to show the express consent, the
manifest and deliberate intention of the
plaintiffs to exempt the defendant from his
obligation and to transfer it to his successors
in interest, Messrs. Phil. C. Whitaker and
Venancio Concepcion.
The plaintiffs were not a party to the
document Exhibit 1. Neither in this
document, nor in others in the record, do we
find any stipulation whereby the obligation of
the defendant was novated with the consent
of the creditor, and as it has been held in the
case of Martinez vs. Cavives (25 Phil., 581),
the oral evidence tending to prove such a
fact as this is not in law sufficient.
As has been said, in all contracts of
novation consisting in the change of the
debtor, the consent of the creditor is
indispensable, pursuant to article 1205 of
the Civil Code which reads as follows:
Novation which consists in the substitution
of a new debtor in the place of the original
one may be made without the knowledge of
the latter, but not without the consent of the
creditor.
Mr. Manresa in his commentaries on articles
1205 and 1206 of the Civil Code (vol. 8,
1907 ed., pp. 424-426) says as follows:
Article 1205 clearly says in what this kind of
novation must consist, because in stating
that another person must be substituted in
lieu of the debtor, it means that it is not
enough to extend the juridical relation to that
other person, but that it is necessary to
place the latter in the same position
occupied by the original debtor.
Consequently, the obligation contracted by a
third person to answer for the debtor, as in
the case of suretyship, in the last analysis,
does not work as a true novation, because
the third person is not put in the same
position as the debtor — the latter continues
in his same place and with the same
obligation which is guaranteed by the
former.
Since it is necessary that the third person
should become a debtor in the same
position as the debtor whom he substitutes,
this change and the resulting novation may
be respected as to the whole debt, thus
untying the debtor from his obligation,
except the eventual responsibilities of which
we shall speak later, or he may continue
with the character of such debtor and also
allow the third person to participate in the
obligation. In the first case, there is a
complete and perfect novation; in the
second, there is a change that does not free
the debtor nor authorize the extinguishment
of the accessory obligations of the latter. In
this last hypothesis, if there has been no
agreement as to solidarity, the first and the
new debtor should be considered as
obligated severally.
The provisions of article 1205 which require
the consent of the creditor as an
indispensable requisite in this kind of
novation and not always that of the debtor,
while not making it impossible to express
the same, imply the distinction between
these two forms of novation and it is based
on the simple consideration of justice that
since the consequences of the substitution
may be prejudicial to the creditor, but not to
the debtor, the consent of the creditor alone
is necessary.
The two forms of this novation, also
impliedly recognized by article 1206 which
employs the word "delegate," as applied to
the debt, are the expromission and the
delegation. Between these, there is a
marked difference of meaning and, as a
consequence, a logical difference of
requisite and another clear difference as to
their effects, of which we shall speak later.
In the expromission, the initiative of the
change does not emanate from the debtor
and may be made even without his consent,
since it consists in a third person assuming
his obligation; it logically requires the
consent of this third man and of the creditor
and in this last requisite lies the difference
between novation and payment, as the latter
can be effected by a third person even
against the will of the creditor, whereas in
the former case it cannot.
In the delegation, the debtor offers and the
creditor accepts a third person who
consents to the substitution so that the
intervention and the consent of these three
persons are necessary and they are
respectively known as delegante,
delegatario, and delegado. It must be noted
that the consent need not be given
simultaneously and that it may be given
afterwards, as for example, that of the
creditor delegatario to the proposition of the
debtor accepted by the delegado.
Delegation notably differs from the mere
indication made by the debtor that a third
person shall pay the debt; in this case, there
is no novation and the former is not
acquitted of his obligation and his relations
with the third person are regulated by the
rules of agency. The French Code in article
1276 expressly provides for this case, as
well as the inverse one where the debtor
points out somebody else to answer for the
payment, declaring that there is no novation
in either case. The same sound criterion is
impliedly accepted by our Code.
In the case of E.C. McCullough & Co. vs.
Veloso and Serna (46 Phil., 1), it appears
that McCullough and Co., Inc., sold to
Veloso a real estate worth P700,000 on
account of which Veloso paid P50,000,
promising to pay the balance at the times
and manner stipulated in the contract. He
further bound himself to pay 10 per cent of
the amount of the debt as attorney's fees in
case of litigation. To secure the unpaid
balance of the purchaser price he executed
a first mortgage upon the property in favor of
the vendor. Subsequently, Veloso sold the
property for P100,000 to Joaquin Serna who
bound himself to respect the mortgage in
favor of McCullough and Co., Inc., and to
assume Veloso's obligation to pay the
unpaid balance of the purchase price of the
property at the times agreed upon in the
contract between Veloso and McCullough
and Co., Inc.
Veloso had paid on account of the price the
amount of P50,000, and Serna also made
several payments aggregating the total
amount of P250,000. But after this, neither
Veloso nor Serna made further payments
and thus gave cause for a litigation. The
court in deciding the case said:
The defendant contends that having sold the
property to Serna, and the latter having
assumed the obligation to pay the plaintiff
the unpaid balance of the price secured by
the mortgage upon the property, he was
relieved from this obligation and it then
devolved upon Serna to pay the plaintiff.
This means that as a consequence of the
contract between the defendant and Serna,
the contract between the defendant and the
plaintiff was novated by the substitution of
Serna as a new debtor. This is untenable. In
order that this novation may take place, the
law requires the consent of the creditor (art.
1205 of the Civil Code). The plaintiff did not
intervene in the contract between Veloso
and Serna and did not expressly give his
consent to this substitution. Novation must
be express, and cannot be presumed.
In Martinez vs. Cavives (25 Phil., 581), it
was held that:
. . . The consent of the new debtor is as
essential to the novation as is that of the
creditor . . . .
There is no express stipulation in any of the
documents of record that the obligation of
the defendant was novated, and the parol
evidence tending to show that it was
novated is not sufficient in law to establish
that fact.
The same doctrine was upheld in the case
of Vaca vs. Kosca (26 Phil., 388):
A new debtor cannot be substituted for the
original obligor in the first contract without
the creditor's consent.
The supreme court of Spain has constantly
laid down the same doctrine with regard to
novation of contracts:
The obligations and rights in a contract
cannot be novated with regard to a third
person who has not intervened in the
execution thereof. (Decision of June 28,
1860.)
Novation by the change of debtors cannot
be effected without the express approval of
the creditor. (Decisions of February 8, 1862
and June 12, 1867.)
Novation should not be established by
presumptions but by the express will of the
parties. (Decisions of February 14, 1876 and
June 16, 1883.)
In order that novation of a contract by
subrogation of the debtor may take effect
and thus liberate the first debtor from the
obligation, it is necessary that the
subrogation be made with the consent of the
creditor. (Decision of March 2, 1897.)
It is undeniable that obligations judicially
declared, as well as those acquired by any
title, can be novated by substituting a new
debtor in place of the primitive, only when
the creditor gives his consent to the
substitution. (Decision of November 15,
1899.)
Novation can in no case be presumed in
contracts, but it is necessary that it should
result from the will of the parties, or that the
old and the new one be altogether
incompatible. (Decision of December 31,
1904.)
An obligation cannot be deemed novated by
means of modifications which do not
substantially change the essence thereof,
nor when it is not extinguished by another
obligation, nor when the debtor is not
substituted. (Decision of March 14, 1908.)
The consent of the creditor required in a
novation consisting of the change of debtors
(art. 1205, Civil Code) must appear in an
express and positive manner and must be
given with the deliberate intention of
exonerating the primitive debtor of his
obligations and transfer them wholly upon
the new debtor. (Decision of June 22, 1911.)
In the decision in the case of Martinez vs.
Cavives, supra, the following decisions of
the several courts of the United States are
cited, wherein this question was decided in
the same manner:
In Latiolais, admrx. vs. Citizens' Bank of
Louisiana (33 La. Ann., 1444), one Duclozel
mortgaged property to the defendant bank
for the triple purpose of obtaining shares in
the capital stock of the bank, bonds which
the bank was authorized to issue, and loans
to him as a stockholder. Duclozel
subsequently sold this mortgaged property
to one Sproule, who, as one of the terms of
the sale, assumed the liabilities of his
vendor to the bank. Sproule sold part of the
property to Graff and Chalfant. The debt
becoming due, the bank brought suit against
the last two named and Sproule as owners.
Duclozel was not made a party. The bank
discontinued these proceedings and
subsequently brought suit against Latiolais,
administratrix of Duclozel, who had died.
The court said: "But the plaintiff insists that
in its petition in the proceeding first brought
the bank ratified the sale made by Duclozel
to Sproule, and by the latter to other parties,
in treating them as owners. Be that so, but it
does not follow in the absence of either a
formal and express or of an implied consent
to novate, which should be irresistibly
inferred from surrounding circumstances,
that it has discharged Duclozel
unconditionally, and has accepted those
parties as new delegated debtors in his
place. Nemo presumitur donare.
"Novation is a contract, the object of which
is: either to extinguish an existing obligation
and to substitute a new one in its place; or
to discharge an old debtor and substitute a
new one to him; or to substitute a new
creditor to an old creditor with regard to
whom the debtor is discharged.
"It is never presumed. The intention must
clearly result from the terms of the
agreement or by a full discharge of the
original debt. Novation by the substitution of
a new debtor can take place without the
consent of the debtor, but the delegation
does not operate a novation, unless the
creditor has expressly declared that he
intends to discharge with delegating debtor,
and the delegating debtor was not in open
failure or insolvency at the time. The mere
indication by a debtor of a person who is to
pay in his place does not operate a
novation. Delegatus debitor est odiosus in
lege.
"The most that could be inferred would be
that the bank in the exercise of a sound
discretion, proposed to better its condition
by accepting an additional debtor to be and
remain bound with the original one."
In Fidelity L. & T. Co. vs. Engleby (99 Va.,
168), the court said: "Whether or not a debt
has been novated is a question of fact and
depends entirely upon the intention of the
parties to the particular transaction claimed
to be novated. In the absence of satisfactory
proof to the contrary, the presumption is that
the debt has not been extinguished by
taking the new evidence in the absence of
an intention expressed or implied, being
treated as a conditional payment merely."
In Hamlin vs. Drummond (91 Me., 175; 39
A., 551), it was said that novation is never
presumed but must always be proven. In
Netterstorn vs. Gallistel (110 Ill. App., 352),
it was said that the burden of establishing a
novation is on the party who asserts its
existence; that novation is not easily
presumed; and that it must clearly appear
before the court will recognize it.
Notwithstanding the doctrines above quoted,
defendant's counsel calls our attention to the
decision of the supreme court of Spain of
June 16, 1908, wherein it was held that the
provisions of article 1205 of Code do not
mean nor require that the consent of the
creditor to the change of a debtor must be
given just at the time when the debtors
agree on the substitution, because its
evident object being the full protection of the
rights of the creditor, it is sufficient if the
latter manifests his consent in any form and
at any time as long as the agreement
among the debtors holds good. And
defendant insists that the acts performed by
the plaintiffs after the "Hacienda Palma" was
sold to Messrs. Phil. C. Whitaker and
Venancio Concepcion constitute evidence of
the consent of the creditor. First of all, we
should have an idea of the facts upon which
that decision was rendered by the supreme
court of Spain.
A partnership known as "La Azucarera de
Pravia" obtained a fire insurance policy from
the company "La Union y Fenix Espanol," by
virtue of which, said company insured in
consideration of an annual premium of
3,000 pesetas, the buildings, machinery and
other apparatuses pertaining to the "Pravia
Factory" for ten years and for half their
value, and another insurance from another
insurance company insuring the same
property and effects for the other half of their
value.
Later, "La Azucarera de Pravia," with other
sugar companies, ceded all its property to
another company known as "Sociedad
General Azucarera de España," in which in
consideration of certain amount of stock that
the said "Sociedad General Azucarera de
España" issued to the "La Azucarera de
Pravia," the latter was merged with the
former. After the cession, "La Union y Fenix
Expañol" sued the "Sociedad General
Azucarera de España" demanding the
payment of the premium that should have
been paid by the "La Azucarera de Pravia,"
which payment the "Sociedad General
Azucarera de España" refused to make on
the ground that the "La Azucarera de
Pravia" was not merged with the "Sociedad
General Azucarera de España," but merely
transferred its properties to the latter in
consideration of the stock that was issued to
the "La Azucarera de Pravia." It was further
contended by the "Sociedad General
Azucarera de España" that even if it were
true that in the contract of cession it
appeared that the "La Azucarera de Pravia"
was merged with the "Sociedad General
Azucarera de España," nevertheless, there
was no such merger in law, for in truth and
in fact, the "La Azucarera de Pravia" had
ceded only its property, but not its rights and
obligations; that the existence of the
partnership known as "La Azucarera de
Pravia" was proven by its registration in the
mercantile register, which was not
cancelled, did it contain any statement to the
effect that the "La Azucarera de Pravia" had
been extinguished or had ceased to do
business even after the cession of
properties to the "Sociedad General
Azucarera de España." Another argument
advanced by the "Sociedad General" was
that at the time the "Azucarera de Pravia"
ceded its properties to the "Sociedad
General Azucarera de España," the
insurance company "La Union y Fenix
Espanol" did not assent to the subrogation
of the "Sociedad General Azucarera" into
the rights and obligations of the "Azucarera
de Pravia," assuming that there had been
such a subrogation or substitution of a
debtor by another.
The supreme court of Spain gave judgment
in favor of the "La Union y Fenix Español"
insurance company for the following
reasons:
1. While it is true that it cannot be strictly
said that "La Azucarera de Pravia" was
merged with the "Sociedad General
Azucarera de España," the document
whereby the property of the "La Azucarera
de Pravia" was ceded to the "Sociedad
General Azucarera de España" clearly and
expressly recites that this company upon
taking charge of the immovable property of
the "La Azucarera de Pravia" accepted in
general, with respect to the property ceded,
"everything belonging to the same," after
making provisions about active and passive
easements, contracts for transportation and
other matters.
The supreme court held that by virtue of the
words hereinabove quoted, the "Sociedad
General Azucarera de España" took over
the obligation to pay the insurance
premiums of the "La Azucarera de Pravia"
inasmuch as said insurance pertained to the
property that was ceded.
2. While it is true that "La Union y Fenix
Español" insurance company did not give its
consent to the contract of cession at the
moment of its execution, yet the mere fact
that the said insurance company now sues
the "Sociedad General Azucarera de
España" is an incontrovertible proof that the
said insurance company accepts the
substitution of the new debtor.
By comparing the facts of that case with the
defenses of the case at bar, it will be seen
that, whereas in the former case the creditor
sued the new debtor, in the instant case the
creditor sues the original debtor. The
supreme court of Spain in that case held
that the fact that the creditor sued the new
debtor was proof incontrovertible of his
assent to the substitution of the debtor. This
would seem evident because the judicial
demand made on the new debtor to comply
with the obligation of the first debtor is the
best proof that the creditor accepts the
change of the debtor. His complaint is an
authentic document where his consent is
given to the change of the debtor. We are
not holding that the creditor's consent must
necessarily be given in the same instrument
between the first and the new debtor. The
consent of the creditor may be given
subsequently, but in either case it must be
expressly manifested. In the present case,
however, the creditor makes judicial
demand upon the first debtor for the
fulfillment of his obligation, evidently
showing by this act that he does not give his
consent to the substitution of the new
debtor. We are of the opinion that the
decision of the supreme court of Spain of
June 16, 1908, cannot be successfully
invoked in support of defendant's
contention. Wherefore, we hold that in
accordance with article 1205 of the Civil
Code, in the instant case, there was no
novation of the contract, by the change of
the person of the debtor.
Another defense urged by the defendant is
the merger of the rights of debtor and
creditor, whereby under article 1192 of the
Civil Code, the obligation, the fulfillment of
which is demanded in the complaint,
became extinguished. It is maintained in
appellee's brief that the debt of the
defendant was transferred to Phil. C.
Whitaker and Venancio Concepcion by the
document Exhibit 1. These in turn acquired
the credit of the plaintiffs by virtue of the
debt, Exhibit 5; thus the rights of the debtor
and creditor were merged in one person.
The argument would at first seem to be
incontrovertible, but if we bear in mind that
the rights and titles which the plaintiffs sold
to Phil. C. Whitaker and Venancio
Concepcion refer only to one-half of the
railroad line in question, it will be seen that
the credit which they had against the
defendant for the amount of one-half of the
cost of construction of the said line was not
included in the sale contained in Exhibit 5.
That the plaintiffs sold their rights and titles
over one-half of the line, is evident from the
very Exhibit 5. The purchasers, Phil. C.
Whitaker and Venancio Concepcion, to
secure the payment of the price, executed a
mortgage in favor of the plaintiffs on the
same rights and titles that they had bought
and also upon what they had purchased
from Mr. Salvador Serra. In other words,
Phil. C. Whitaker and Venancio Concepcion
mortgaged unto the plaintiffs what they had
bought from the plaintiffs and also what they
had bought from Salvador Serra. If Messrs.
Phil. C. Whitaker and Venancio Concepcion
had purchased something from Mr. Salvador
Serra, the herein defendant, regarding the
railroad line, it was undoubtedly the one-half
thereof pertaining to Mr. Salvador Serra.
This clearly shows that the rights and titles
transferred by the plaintiffs to Phil. C.
Whitaker and Venancio Concepcion were
only those they had over the other half of
the railroad line. Therefore, as already
stated, since there was no novation of the
contract between the plaintiffs and the
defendant, as regards the obligation of the
latter to pay the former one-half of the cost
of the construction of the said railroad line,
and since the plaintiffs did not include in the
sale, evidenced by Exhibit 5, the credit that
they had against the defendant, the
allegation that the obligation of the
defendant became extinguished by the
merger of the rights of creditor and debtor
by the purchase of Messrs. Phil. C. Whitaker
and Venancio Concepcion is wholly
untenable.
Appellants assign also as a ground of their
appeal the holding of the court that by the
termination of the partnership, as shown by
the document Exhibit 5, no legal rights can
be derived therefrom.
By virtue of the contract Exhibit 5, the
plaintiffs and Phil. C. Whitaker and Venancio
Concepcion, by common consent, decided
to dissolve the partnership between the
"Hacienda Palma" and "Hacienda San
Isidro," thus cancelling the contract of
partnership of February 1, 1919.
Counsel for appellee in his brief and oral
argument maintains that the plaintiffs cannot
enforce any right arising out of that contract
of partnership, which has been annulled,
such as the right to claim now a part of the
cost of the construction of the railroad line
stipulated in that contract.
Defendant's contention signifies that any
person, who has contracted a valid
obligation with a partnership, is exempt from
complying with his obligation by the mere
fact of the dissolution of the partnership.
Defendant's contention is untenable. The
dissolution of a partnership must not be
understood in the absolute and strict sense
so that at the termination of the object for
which it was created the partnership is
extinguished, pending the winding up of
some incidents and obligations of the
partnership, but in such case, the
partnership will be reputed as existing until
the juridical relations arising out of the
contract are dissolved. This doctrine has
been upheld by the supreme court of Spain
in its decision of February 6, 1903, in the
following case: There was a partnership
formed between several persons to
purchase some lands sold by the state. The
partnership paid the purchase price and
distributed among its members the lands so
acquired, but after the lapse of some time,
one of the partners instituted an action in the
court of Badajoz, praying that he be
accepted as a partner with the same rights
and obligations as the others, for the reason
that he had not been allowed all that he had
a right to. The court granted the petition,
which judgment was affirmed by the
Audiencia de Caceres.
From that decision the defendant sued out a
writ of error alleging infringement of articles
1680 and 1700 of the Civil Code, on the
proposition that all contracts are reputed
consummated and therefore extinguished,
when the contracting parties fulfill all the
obligations arising therefrom and that by the
payment of the money and the granting and
distribution of the lands without any
opposition, the juridical relations between
the contracting parties become extinguished
and none of the parties has any right of
action under the contract. The supreme
court, holding that some corrections and
liquidations asked by the actor were still
pending, denied the writ, ruling that the
articles cited were not infringed because a
partnership cannot be considered as
extinguished until all the obligations
pertaining to it are fulfilled. (11 Manresa,
page 312.)
The dissolution of a firm does not relieve
any of its members from liability for existing
obligations, although it does save them from
new obligations to which they have not
expressly or impliedly assented, and any of
them may be discharged from old
obligations by novation of other form of
release. It is often said that a partnership
continues, even after dissolution, for the
purpose of winding up its affairs. (30 Cyc.,
page 659.)
Another question presented by appellee's
counsel in his memorandum and oral
argument is that as in the partnership
articles of February 1, 1919, it was
covenanted that the defendant would put up
one-half of the cost of the railroad line within
five years from the date, that is, from
February 1, 1919, with interest at 10 per
cent per annum, the present action is
premature since, from the execution of the
contract until October 25, 1922, the date of
the complaint, the five years, within which
the defendant could pay his part of the cost
of the construction of the line, had not yet
elapsed. Suffice it to say that the plaintiff
and the successors in interest of the
defendant, by mutual consent, dissolved the
partnership on June 16, 1920, cancelling the
contract Exhibit A to all of which the
defendant consented as evidence by his
allegations in his answer. If this is so, there
is no reason for waiting for the expiration of
the five years which the parties themselves
had seen fit to stipulate and therefore the
provisions of article 113, regarding the
fulfillment of pure obligations, must be
applied in this case.
For all of the foregoing, the judgment
appealed from is reversed, and we hold that
the defendant Salvador Serra is indebted to
the plaintiffs, the Testate Estate of Lazaro
Mota, et al., in the amount of P113,046.46,
and said defendant is hereby sentenced to
pay the plaintiffs the said amount, together
with the agreed interest at the rate of 10 per
cent per annum from the date of the filing of
the complaint.
Without special pronouncement as to costs,
it is so ordered.
G.R. No. 123855 November 20,
2000
NEREO J. PACULDO, petitioner,
vs.
BONIFACIO C. REGALADO, respondent.
DECISION
PARDO, J.:
The case before the Court is an appeal via
certiorari seeking to set aside the decision of
1 the
the Court of Appeals which affirmed that of
the Regional Trial Court, Quezon City, and
the Metropolitan Trial Court, Quezon City
ordering the ejectment of petitioner from the
property subject of the controversy.
The facts are as follows:
On December 27, 1990, petitioner Nereo J.
Paculdo (hereafter Nereo) and respondent
Bonifacio C. Regalado (hereafter Bonifacio)
entered into a contract of lease over a
16,478 square meter parcel of land with a
wet market building, located along Don
Mariano Marcos Avenue, Fairview Park,
Quezon City. The contract was for twenty
five (25) years, commencing on January 1,
1991 and ending on December 31, 2015.
For the first five (5) years of the contract
beginning December 27, 1990, Nereo would
pay a monthly rental of P450,000.00,
payable within the first five (5) days of each
month at Bonifacio’s office, with a 2%
penalty for every month of late payment.
Aside from the above lease, petitioner
leased eleven (11) other property from
respondent, ten (10) of which were located
within the Fairview compound, while the
eleventh was located along Quirino
Highway, Quezon City. Petitioner also
purchased from respondent eight (8) units of
heavy equipment and vehicles in the
aggregate amount of P1,020,000.00.
On account of petitioner’s failure to pay
2
P361,895.55 in rental for the month of
May, 1992, and the monthly rental of
P450,000.00 for the months of June and
July 1992, on July 6, 1992, respondent sent
a demand letter to petitioner demanding
payment of the back rentals, and if no
payment was made within fifteen (15) days
from receipt of the letter, it would cause the
3
cancellation of the lease contract. Another
demand letter followed this on July 17,
1992, reiterating the demand for payment
and for petitioner to vacate the subject
4
premises.
Without the knowledge of petitioner, on
August 3, 1992, respondent mortgaged the
land subject of the lease contract, including
improvements which petitioner
introduced into the land amounting to
P35,000,000.00, to Monte de Piedad
Savings Bank, as security for a loan in the
5
amount of P20,000,000.00.
On August 12, 1992, and on subsequent
dates thereafter, respondent refused to
6
accept petitioner’s daily rental payments.
On August 20, 1992, petitioner filed with the
Regional Trial Court, Quezon City an action
for injunction and damages seeking to
enjoin respondent from disturbing his
possession of the property subject of the
7
lease contract. On the same day,
respondent filed with the Metropolitan Trial
Court, Quezon City a complaint for
ejectment against petitioner. Attached to the
complaint were the two (2) demand letters
8 11
dated July 6 and July 17, 1992.
On August 25, 1992, five (5) days after the
filing of the ejectment complaint, respondent
moved to withdraw the complaint on the
ground that certain details had been omitted
in the complaint and must be re-computed.
On April 22, 1993, respondent re-filed the
ejectment complaint with the Metropolitan
Trial Court, Quezon City.Computed from
August 1992 until March 31, 1993, the
monthly reasonable compensation that
petitioner was liable for was in the total sum
9 dated January 31, 1994, for being in
of P3,924,000.00.
On January 31, 1994, the Metropolitan Trial
Court, Quezon City rendered a decision in
favor of respondent, the dispositive portion
of which reads:
"WHEREFORE, judgment is hereby
rendered in favor of the plaintiff and against
the defendant, as follows:
"1. Ordering the defendant and all persons
claiming right under him to vacate the
leased premises located at Don Mariano
Marcos Avenue, Fairview Park, Quezon
City, Metro-Manila covered by Transfer
Certificate of Title RT-6883 of the Registry
of Deeds of Quezon City;
"2. Ordering the defendant to pay the sum of
P527,119.27 representing the unpaid
monthly rentals as of June 30, 1992 plus 2%
interest thereon;
"3. Ordering the defendant to pay the sum of
P450,000.00 a month plus 2% interest
thereon starting July 1992 and every month
thereafter until the defendant and all
persons claiming right under him shall have
actually vacated the premises and surrender
possession thereof to the plaintiff;
"4. Ordering the defendant to pay the sum of
P5,000,000.00 as and for attorney’s fees;
and
"5. Ordering the defendant to pay the costs
of suit.
10
"SO ORDERED."
In time, petitioner appealed to the Regional
Trial Court, Quezon City, Branch 220.
On February 19, 1994, respondent, with the
support of fifty (50) armed security guards
forcibly entered the property and took
12
possession of the wet market building.
On July 6, 1994, the Regional Trial Court,
Quezon City, Branch 220 rendered a
decision affirming in toto the decision of the
Metropolitan Trial Court, to wit:
"WHEREFORE, the appealed decision
accordance with the evidence presented
and the law on the matter, is hereby
affirmed in toto.
"Let a writ of execution issue against
defendant and his surety, to answer for the
13
decision of the lower court."
On the same day, the Regional Trial Court
14
issued a writ of execution whereupon,
petitioner vacated the subject premises
voluntarily. By July 12, 1994, petitioner had
completely turned over possession of
subject property to respondent.
Meanwhile, on July 21, 1994, petitioner filed
a petition for review with the Court of
15
Appeals. He alleged that he had paid the
amount of P11,478,121.85 for security
deposit and rentals on the wet market
building, but respondent, without his
consent, applied portions of the payment to
his other obligations. The vouchers and
receipts indicated that the payments made
were for rentals. Thus, at the time of
payment petitioner had declared as to which
obligation the payment must be applied.
On February 10, 1995, the Court of Appeals
promulgated its decision finding that
petitioner impliedly consented to
respondent’s application of payment to his
other obligations and, thus, dismissed the
16
petition for lack of merit.
On March 3, 1995, petitioner filed a motion
17
for reconsideration; however, on
February 9, 1996 the Court of Appeals
18 8
denied the motion.

19
Hence, this appeal.
At issue is whether petitioner was truly in
arrears in the payment of rentals on the
subject property at the time of the filing of
the complaint for ejectment.
As found by the Metropolitan Trial Court and
Regional Trial Court, petitioner made a total
payment of P10,949,447.18, to respondent
as of July 2, 1992.
If the payment made by respondent applied
to petitioner’s other obligations is set aside,
and the amount petitioner paid be applied
purely to the rentals on the Fairview wet
market building, there would be an excess
payment of P1,049,447.18 as of July 2,
1992. The computation in such case would
be as follows:
Amount paid as of July 2, P10,949,44
1992 7.18
In the letter dated November 19, 1991,
respondent proposed that petitioner’s
security deposit for the Quirino lot, in the
amount of P643,276.48, be applied as
partial payment for his account under the
subject lot as well as to real estate taxes on
20
the Quirino lot. Petitioner interposed no
objection, as evidenced by his signature
signifying his conformity thereto.
21
In an earlier letter, dated July 15, 1991,
respondent informed petitioner that the
payment was to be applied not only to
petitioner’s accounts under both the subject
land and the Quirino lot but also to heavy
equipment bought by the latter from
respondent. Petitioner claimed that the
amount applied as payment for the heavy
equipment was critical because it was
equivalent to more than two (2) months
rental of the subject property, which was the
basis for the ejectment case in the
Metropolitan Trial Court.

The controversy stemmed from the fact that

Less: unlike the November 19, 1991 letter, which
bore a conformity portion with petitioner’s
signature, the July 15, 1991 letter did not
contain the signature of petitioner.
Monthly rent from January P
1991-July 1992 8,550,000.0 In nevertheless concluding that petitioner
0 gave his consent thereto, the Court of
P450,000.00 x 19 months Appeals upheld both the lower court’s and
trial court’s findings that petitioner received
the second letter and its attachment and he
Less: raised no objection thereto.

In other words, would petitioner’s failure to

object to the letter of July 15, 1991 and its
Security deposit P proposed application of payments amount to
1,350,000.0 consent to such application?
0
Petitioner submits that his silence is not
========= consent but is in fact a rejection.
=====
The right to specify which among his various
obligations to the same creditor is to be
22
Excess amount paid P satisfied first rests with the debtor, as
1,049,447.1 provided by law, to wit:
"Article 1252. He who has various debts of
the same kind in favor of one and the same
creditor, may declare at the time of making
the payment, to which of them the same
must be applied. Unless the parties so
stipulate, or when the application of
payment is made by the party for whose
benefit the term has been constituted,
application shall not be made as to debts
which are not yet due.
If the debtor accepts from the creditor a
receipt in which an application of the
payment is made, the former cannot
complain of the same, unless there is a
23
cause for invalidating the contract."
At the time petitioner made the payments,
he made it clear to respondent that they
were to be applied to his rental obligations
on the Fairview wet market property.
Though he entered into various contracts
and obligations with respondent, including a
lease contract over eleven (11) property in
Quezon City and sale of eight (8) heavy
equipment, all the payments made, about
P11, 000,000.00, were to be applied to
rental and security deposit on the Fairview
wet market property.
Respondent Regalado argues that
assuming that petitioner expressed at the
time of payment which among his
obligations were to be satisfied first,
petitioner is estopped by his assent to the
application made by the respondent. This
assent is inferred from the silence of
24
petitioner on the July 15, 1991 letter
containing a statement of the application of
payments, which was different from the
application made by petitioner. A big chunk
of the amount paid by petitioner went into
the satisfaction of an obligation which was
not yet due and demandable--the payment
of the eight (8) heavy equipment amounting
to about P1,020,000.00.
The statement of account prepared by
respondent was not the receipt
contemplated under the law. The receipt is
the evidence of payment executed at the
time of payment, and not the statement of
account executed several days thereafter.
There was no clear assent by petitioner to
the change in the manner of application of
payment. The petitioner’s silence as
1âwphi1
regards the application of payment by
respondent cannot mean that he consented
thereto. There was no meeting of the minds.
Though an offer may be made, the
acceptance of such offer must be
unconditional and unbounded in order that
concurrence can give rise to a perfected
25
contract. Hence, petitioner could not be in
estoppel.
Assuming arguendo that, as alleged by
respondent, petitioner did not, at the time
the payments were made, choose the
obligation to be satisfied first, respondent
may exercise the right to apply the
payments to the other obligations of
petitioner. But this is subject to the condition
that the petitioner must give his consent.
Petitioner’s silence is not tantamount to
consent. The consent must be clear and
definite.
Under the law, if the debtor did not declare
at the time he made the payment to which of
his debts with the creditor the payment is to
be applied, the law provided the guideline--
no payment is to be made to a debt that is
26
not yet due and the payment has to be
applied first to the debt most onerous to the
27
debtor.
In the instant case, the purchase price of the
eight (8) heavy equipment was not yet due
at the time the payment was made, for there
was no date set for such payment. Neither
was there a demand by the creditor to make
the obligation to pay the purchase price due
28
and demandable. Hence, the application
made by respondent is contrary to the
provisions of the law.
The lease over the Fairview wet market
property is the most onerous among all the
obligations of petitioner to respondent. It
was established that the wet market is a
going-concern and that petitioner has
invested about P35,000,000.00, in the form
of improvements, on the property. Hence,
petitioner would stand to lose more if the
lease would be rescinded, than if the
contract of sale of heavy equipment would
not proceed.
The decision of the Court of Appeals was
based on a misapprehension of the facts
and the law on the application of payment.
Hence, the ejectment case subject of the
instant petition must be dismissed, without
prejudice to the determination and
settlement of the money claims of the
parties inter se.

WHEREFORE, the Court GRANTS the

petition. The Court REVERSES and SETS
ASIDE the decision of the Court of Appeals
in CA-G. R. SP No. 34634.

ACCORDINGLY, the Court REVERSES the

decision of the Regional Trial Court, Quezon
City, Branch 220 in Civil Case No. 94-
20813, and dismisses the complaint filed
with the Metropolitan Trial Court, Quezon
City, Branch 36 in Civil Case No. MTC
XXXVI-7089.

No costs.

SO ORDERED.