G.R. No. 161135.

April 8, 2005

SWAGMAN HOTELS AND TRAVEL, INC., Petitioners,

vs.
HON. COURT OF APPEALS, and NEAL B. CHRISTIAN, Respondents.

DAVIDE, JR., C.J.:

Facts:

Swagman Hotel, Inc., through its representatives, obtained from Neal a loan which is payable after 3
years and with interest per annum payable every 3 months. After a year, Swagman suffered business
reverses prompting it to renegotiate the terms of the loan with Neal. It was agreed that Neal waives the
payment of interests and that the principal loan shall be paid every month instead of quarterly. After the
renegotiation, the cash vouchers or receipts acknowledged by the parties state that the payments therein
represent “Capital Investment” and “Capital Repayment”. Barely 2 years after however, Neal sent a letter
informing the corporation that he is terminating the loans and demanding that the total amount of the loan
and unpaid interests be paid. Subsequently, Neal filed a complaint for sum of money and damages.
Swagman answered that the complaint is dismissible for lack of cause of action since the loan is not yet
due and demandable and that there was novation in the contract. But the RTC held in favor of Neal,
rationating that although there was no cause of action at the filing of the complaint, the debt has already
matured during the days the hearings were held, thus making it due as of date.

Issue 1: W/N a complaint that lacks a cause of action at the time it was filed be cured by the accrual of a
cause of action during the pendency of the case.

Rulings:

No. Jurisprudence states that unless the plaintiff has a valid and subsisting cause of action at the time his
action is commenced, the defect cannot be cured or remedied by the acquisition or accrual of one while
the action is pending, and a supplemental complaint or an amendment setting up such after-accrued
cause of action is not permissible. (Surigao Mines vs Harris, 1935) Issue 2: W/N there was novation in the
terms of the promissory notes Yes. Under Article 1253 of the Civil Code, it is presumed that if the debt
produces interest, payments were applied first to the interest before the principal. But in this case, the
receipts describing the payments as capital repayment show that obligation to pay the interest was no
longer subsisting. The receipts prove that the payments were for the principal loans and that the interests
were waived by Neal. There was therefore a novation of the terms of the loan. The resulting novation in
this case was of the modificatory type, not the extinctive type, since the obligation to pay a sum of money
remains in force. Thus, since Swagman did not renege on its obligation to pay the monthly installments
conformably with their new agreement and even continued paying during the pendency of the case, Neal
had no cause of action to file the complaint. It is only upon debtor’s default in the payment of the monthly
amortizations that a cause of action would arise and give the creditor a right to maintain an action against
the petitioner.