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UP LAW A-2015 DIGEST SYSTEM A-2015 | AY 2011-2012

[Obligations and Contracts| Prof. JJ Disini] 2nd

Novation BPI argued that it did not give consent to the

Art. 1291 DBP take-over of ELISCON. Hence, no valid
--- novation has been effected.

Babst v CA Issue:
WON BPI consented to the assumption by
Date of Promulgation: Jan. 26, 2001
DBP of the obligations of ELISCON. YES. The
Ponente: J. Ynares-Santiago original obligation having been extinguished,
the contracts of suretyship executed by
Facts: Babst and MULTI are also extinguished.
Elizalde Steel Consolidated, Inc. (ELISCON)
obtained a loan from Commercial Bank and Ratio:
Trust Company (CBTC) in the amount of BPI contends that there must be an express
P8,015,900.84, evidenced by a promissory consent of the creditor. However, the rule
note. ELISCON defaulted on its payments, that it must be express is not absolute
leaving an outstanding balance of for the existence of the consent may well be
P2,795,240.67. inferred from the acts of the creditor, since
volition may as well be expressed by deeds
The letters of credit, on the other hand, were as by words. In short, there can be implied
opened for ELISCON by CBTC using the consent of the creditor to the
credit facilities of Pacific Multi-Commercial substitution of debtors.
Corporation (MULTI) with the said bank.
Subsequently, Antonio Roxas Chua and In the instant case, the failure of BPI to
Chester Babst executed a Continuing register its objection to the take-over by DBP
Suretyship, whereby they bound themselves of ELISCONs assets at the creditors
jointly and severally liable to pay any meeting is deemed to be a form of implied
existing indebtedness of MULTI to CBTC. consent on the part of BPI. BPI merely
objected to the payment formula, not the
The Bank of the Philippine Islands (BPI) and substitution of debtors.
CBTC entered into a merger, wherein BPI, as
the surviving corporation, acquired all the BPIs conduct evinced a clear and
assets and assumed all the liabilities of unmistakable consent to the substitution of
CBTC. Meanwhile, ELISCON became heavily DBP for ELISCON as debtor. Hence, there
indebted to DBP as it suffered financial was a valid novation which resulted in the
difficulties. release of ELISCON from its obligation to BPI,
whose cause of action should be directed
ELISCON called its creditors to a meeting to against DBP as the new debtor.
announce the take-over by DBP of its assets,
including its indebtedness to BPI. Thereafter,
DBP proposed formulas for the settlement of
all of ELISCONs obligations to its creditors, Vina Villarroya
but BPI rejected the formula.

BPI then filed a complaint for sum of money

against ELISCON, MULTI, and Babst. ELISCON
argued that the complaint was premature
since DBP had made serious efforts to settle
its obligations with BPI. Babst, on the other
hand, asserted that his suretyship covers
only obligations which MULTI incurred solely
for its benefit and not for any third party
liability. MULTI denied knowledge of the BPI-
CBTC merger.

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