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G.R. No.

79518 January 13, 1989 The lower court decided in favor of the
defendants and against the plaintiffs, thus
REBECCA C. YOUNG assisted by her dismissing the complaint together with
husband ANTONIO GO, petitioner, defendants' counterclaims. With regards to
vs. Plaintiff Rebecca Young was rejected on the
COURT OF APPEALS, PH CREDIT CORP., basis that she was not a party to the
PHIL. HOLDING, INC. FRANCISCO compromise agreement.
FONG and THE REGISTER OF DEEDS OF Chui Wan and Felisa Tan Yu and Rebecca C.
MANILA, respondents. Young, assisted by her husband, appealed to
the Court of Appeals which dismissed the same.
Defendant Philippine Holding, Inc. secured an
order from the City Engineer of Manila to Hence this petition, which was brought to this
demolish a building it owned. Antonio Young, Court only by Rebecca Young, assisted by her
then a tenant, filed an action to annul the City husband Antonio Go.
Engineer's demolition Order. As an incident in
said case, the parties submitted a The petition is devoid of merit.
Compromise Agreement. Paragraph 3 of said
agreement provides that the tenants and all The main issue in this case is whether or not
persons claiming rights under them bind petitioner can enforce a compromise
themselves to voluntarily and peacefully vacate agreement to which she was not a party. This
the premises which they were, subject to the issue has already been squarely settled by this
proviso that should defendant decided to sell the Court in the negative in J.M. Tuason & Co., Inc.
subject property or portion thereof, "plaintiff v. Cadampog where it was ruled that appellant
and Rebecca C. Young have the right of first is not entitled to enforce a compromise
refusal thereof." agreement to which he was not a party and
that as to its effect and scope, it has been
Philippine Holding, Inc. had previously sold the determined in the sense that its effectivity if
above said property described in the at all, is limited to the parties thereto and
compromise agreement by way of dacion in those mentioned in the exhibits From the
payment to PH Credit Corporation terms of this agreement, the conditions are very
clear, such as: (1) that Rebecca C. Young shall
PH Credit Corporation sold the property to be impleaded in the action as the daughter of
spouses Fong Yook Lu and Ellen Yee Fong. one of the tenants party to the compromise
agreement and (2) that she shall signify her
Thereafter, petitioners filed for the annulment of written conformity thereto.
the sale in favor of herein respondent spouses,
Fong Yook Lu and Ellen Yee Fong and for The parties did not make any move to
specific performance and damages against the implead Rebecca as necessary party in the
PH Credit Corporation and Philippine Holding, case. Neither did her written conformity
Incorporated. appear in said agreement. Rebecca C. Young
did not affix her signature above her printed
Plaintiffs claim that the property was sold without name, nor on the left margin of each and every
affording them the right of first refusal to page thereof.
purchase that portion of the property which they
are renting. The actions of the parties and by Rebecca the
intention is evident, not to include the latter
either in the said agreement.
Petitioner further argued that the stipulation ANAMER SALAZAR, Petitioner,
giving her the right of first refusal is a vs.
stipulation pour autrui or a stipulation in J.Y. BROTHERS MARKETING
favor of a third person under Article 1311 of CORPORATION, Respondent.
the Civil Code.
The requisites of a stipulation pour autrui or a
stipulation in favor of a third person are the PERALTA, J.:
J.Y. Brothers Marketing is a corporation engaged
(1) there must be a stipulation in in the business of selling sugar, rice and
favor of a third person. other commodities. Anamer Salazar, assisting
Calleja and Kallos procured from J. Y. Bros. 300
(2) the stipulation must be a cavans of rice worth P214,000.00. As
part, not the whole of the payment, Salazar negotiated and indorsed to
contract. J.Y. Bros. Prudential two Bank Checks dated
October 15, 1996 issued by Timario in the
(3) the contracting parties must amount of P214,000.00 with the assurance
have clearly and deliberately that the check is good as cash. On that
conferred a favor upon a third assurance, J.Y. Bros. parted with 300 cavans of
person, not a mere incidental rice to Salazar. However, upon presentment,
benefit or interest. the check was dishonored due to "closed
(4) the third person must have
communicated his acceptance . When despite the demand letter Salazar failed
to the obligor before its to settle the amount due J.Y. Bros., the latter
revocation. charged Salazar and Timario with the crime of
estafa before the Regional Trial Court of Legaspi
(5) neither of the contracting City.After the prosecution rested its case and
parties bears the legal with prior leave of court, Salazar submitted a
representation or authorization demurrer to the court acquitted Salazar of the
of the third party. (Florentino v. criminal charge.The Regional Trial Court (RTC)
Encarnacion, Sr., 79 SCRA 193 then proceeded with the trial on the civil aspect
[1977]). of the criminal case.

However, Rebecca had not communicate her the RTC again dismissed.
acceptance whether expressly or impliedly. She
insists however, that the stipulation has not yet The RTC found that the Prudential Bank check
been revoked, so that her present claim or drawn by Timario was payable to the order of
demand is still timely. respondent, and such check was a negotiable
order instrument; that petitioner was not the
The above argument is pointless, considering payee appearing in the check, but respondent
that the sale of subject property to some who had not endorsed the check, much less
other person or entity constitutes in effect a delivered it to petitioner. \Since petitioner had
revocation of the grant of the right of first never been the holder of the check, petitioner's
refusal to Rebecca C. Young. signing of her name did not produce the
technical effect of an indorsement arising from
G.R. No. 171998 October 20, 2010 negotiation.The solid bank check that followed
was a crossed check, which meant that such old obligation is completely superceded by the
check was only for deposit in payees account, new one. The test of incompatibility is whether
rendering it non-negotiable, the substitution of a they can stand together, each one having an
non-negotiable check for a negotiable check independent existence; if they cannot and are
was an essential change which had the effect irreconcilable, the subsequent obligation would
of discharging from the obligation whoever also extinguish the first.
may be the endorser of the negotiable check.
The RTC concluded that the absence of An extinctive novation would thus have the twin
negotiability rendered nugatory the obligation effects of, first, extinguishing an existing
arising from the technical act of indorsing a obligation and, second, creating a new one in its
check and, thus, had the effect of novation; and stead. It has four essential requisites: (1) a
that the ultimate effect of such substitution was previous valid obligation, (2) an agreement of all
to extinguish the obligation arising from the parties concerned to a new contract, (3) the
issuance of the Prudential Bank check. extinguishment of the old obligation, and (4) the
birth of a valid new obligation. Novation is
The CA reversed.the CA found that petitioner as merely modificatory where the change brought
an accommodation indorser.WON THERE WAS about by any subsequent agreement is merely
NOVATION. incidental to the main obligation (e.g., a change
in interest rates or an extension of time to pay; in
We find no merit in this petition. this instance, the new agreement will not have
the effect of extinguishing the first but would
Petitioner's claim that respondent's acceptance merely supplement it or supplant some but not
of the Solid Bank check which replaced the all of its provisions.)
dishonored Prudential bank check resulted to
novation which discharged the latter check is The obligation to pay a sum of money is not
unmeritorious. novated by an instrument that expressly
recognizes the old, changes only the terms of
payment, adds other obligations not
incompatible with the old ones or the new
x x x Novation is done by the substitution or contract merely supplements the old one.13
change of the obligation by a subsequent one
which extinguishes the first, either by changing In Nyco Sales Corporation v. BA Finance
the object or principal conditions, or by Corporation,14 we found untenable petitioner
substituting the person of the debtor, or by Nyco's claim that novation took place when the
subrogating a third person in the rights of the dishonored BPI check it endorsed to BA Finance
creditor. Novation may: Corporation was subsequently replaced by a
Security Bank check,15 and said:
[E]ither be extinctive or modificatory, much being
dependent on the nature of the change and the
intention of the parties. Extinctive novation is
never presumed; there must be an express In this case, respondents acceptance of the
intention to novate; in cases where it is implied, Solid Bank check, which replaced the
the acts of the parties must clearly demonstrate dishonored Prudential Bank check, did not result
their intent to dissolve the old obligation as the to novation as there was no express agreement
moving consideration for the emergence of the to establish that petitioner was already
new one. Implied novation necessitates that the discharged from his liability to pay respondent
incompatibility between the old and new the amount of P214,000.00 as payment for the
obligation be total on every point such that the 300 bags of rice. As we said, novation is never
presumed, there must be an express intention to Sps. Maalac obtained a P1,300,000.00 loan
novate. In fact, when the Solid Bank check was from PSBank covered by promissory note. As
delivered to respondent, the same was also security for the loan, Maalac executed a Real
indorsed by petitioner which shows petitioners Estate Mortgage in favor of the bank over 8
recognition of the existing obligation to parcels of land.
respondent to pay P214,000.00 subject of the
replaced Prudential Bank check. In view of Maalacs inability to pay the loan
installments as they fell due, their loan
Moreover, respondents acceptance of the Solid obligation was restructured. Accordingly,
Bank check did not result to any incompatibility, Maalac signed another promissory note for
since the two checks Prudential and Solid P1,550,000.00.[4] To secure the payment of the
Bank checks were precisely for the purpose of restructured loan, Maalac executed a Real
paying the amount of the credit obtained from Estate Mortgage over the same
the purchase of the 300 bags of rice from aforementioned 8 real properties.
respondent. Indeed, there was no substantial
change in the object or principal condition of the Maalac and spouses Galicia, with the prior
obligation of petitioner as the indorser of the consent of PSBank,[5] entered into a Deed of
check to pay the amount of P214,000.00. It Sale with Assumption of Mortgage involving
would appear that respondent accepted the 3 of the mortgaged properties.
Solid Bank check to give petitioner the chance to
pay her obligation. Thereafter, the 3 parcels of land purchased
by the Galicias, together with another property,
Petitioner also contends that the acceptance of were in turn mortgaged by them to secure a loan
the Solid Bank check, a non-negotiable check which they obtained from PSBank. [7] This loan is
being a crossed check, which replaced the evidenced by Promissory Note.[8]
dishonored Prudential Bank check, a negotiable
check, is a new obligation in lieu of the old Maalac paid PSBank an amount covering
obligation arising from the issuance of the the amount of the parcels of land now registered
Prudential Bank check, since there was an under the spouses Galicia. Accordingly, PSBank
essential change in the circumstance of each executed a partial release of the real estate
check. mortgage covered by the aforesaid properties.[9]

Such argument deserves scant consideration. the spouses Galicia obtained a second loan
from PSBank for which they executed
the effect of crossing a check relates to the Promissory Note. They also executed a Real
mode of payment, meaning that the drawer had Estate Mortgage in favor of the bank over the
intended the check for deposit only by the properties sold to them. Since Maalac defaulted
rightful person.21 The change in the mode of again in the payment of their loan installments,
paying the obligation was not a change in any of PSBank filed for extrajudicial foreclosure of their
the objects or principal condition of the contract 5 remaining mortgaged propertiesTThe
for novation to take place.22 foreclosure sale of the subject real properties
proceeded with PSBank as the highest bidder.
MAALAC, respondents.
Thereafter, Maalac instituted an action for 2. There must be an agreement of the
damages, before the Regional Trial Court, parties concerned to a new
against PSBank and its officers, and spouses contract,
Alejandro and Teresita Jalbuena(buyers).
3. There must be the extinguishment
The bank also filed a petition, before the of the old contract, and
Regional Trial Court of Pasig, for the issuance of
a writ of possession against and the ejectment 4. There must be the validity of the
of the respondents. new contract.[26]

The RTC annulled the Certificate of Sale and The elements of novation are patently
the Contract to Sell executed in favor of defendants lacking in the instant case. Maalac tendered a
spouses Jalbuena, and dismissed the banks action. check for the release of 4 parcels of land under
the loan account of the Galicias and under the
The Court of Appeals affirmed with loan account of Maalac. However, while the
modification of damages bank applied the tendered amount to the
accounts as specified by Maalac, it
On the issue of novation, the Court of nevertheless refused to release the subject
Appeals held that novation occurred when properties. Instead, it issued a receipt with a
PSBank applied P1,000,000.00 of the notation that the acceptance of the check is
P1,200,000.00 PCIB Check tendered by Maalac not a commitment on the part of the bank to
to the loan account of the Galicias and the release the TCTs as requested by Maalac.
remaining P200,000.00 thereof to Maalacs
account. It held that when the bank applied the From the foregoing, it is obvious that there
amount of the check in accordance with the was no agreement to form a new contract by
instructions contained therein, there was novating the mortgage contracts of the Maalacs
novation of the previous mortgage of the and the Galicias. In accepting the check, the
properties. It further observed that the bank was bank only acceded to Maalacs instruction on
fully aware that the issuance of the check was whose loan accounts the proceeds shall be
conditional hence, when it made the application applied but rejected the other condition that
thereof, it agreed to be bound by the conditions the 4 parcels of land be released from
imposed by Maalac.[25] mortgage. Clearly, there is no mutual consent to
replace the old mortgage contract with a new
Novation is the extinguishment of an obligation. The extinguishment of the old
obligation by the substitution or change of the obligation by the new one is a necessary
obligation by a subsequent one which element of novation, which may be effected
extinguishes or modifies the first, either by either expressly or impliedly. The term
changing the object or principal conditions, or, "expressly" means that the contracting parties
by substituting another in place of the debtor, or incontrovertibly disclose that their object in
by subrogating a third person in the rights of the executing the new contract is to extinguish the
creditor. In order for novation to take place, the old one. Upon the other hand, no specific form is
concurrence of the following requisites is required for an implied novation, and all that is
indispensable: prescribed by law would be an incompatibility
between the two contracts. 3 of the 4
1. There must be a previous valid properties sought to be released from
obligation, mortgage, have already been sold by Maalac
to Galicia who thereafter mortgaged the same
as security to a separate loan they obtained
from the bank. Thus, without the consent of Thereafter, Philguarantee, with the
PSBank as the mortgagee bank, Maalac, not consent of Astro, guaranteed in favor of
being a party to the mortgage contract Philtrust the payment of 70% of Astros loan,
between the Galicias and the bank, cannot subject to the condition that upon payment by
demand much less impose upon the bank Philguanrantee of said amount, it shall be
the release of the subject properties. Unless proportionally subrogated to the rights of
there is a stipulation to the contrary, the release Philtrust against Astro.[5]
of the mortgaged property can only be made
upon the full satisfaction of the loan obligation As a result of Astros failure to pay its loan
upon which the mortgage attaches. Neither can obligations, Philguarantee paid 70% of the
Maalac be deemed substitute debtor within the guaranteed loan to Philtrust. Subsequently,
contemplation of Article 1293 of the Civil Code, Philguarantee filed against Astro and Roxas a
which states that: complaint for sum of money with the RTC of
Art. 1293. Novation which consists in substituting a
new debtor in the place of the original one, may be Roxas disclaims any liability on the
made without the knowledge or against the will of the instruments, alleging, that he merely signed the
latter, but not without the consent of the creditor. same in blank and the phrases in his personal
Payment by the new debtor gives him the rights capacity and in his official capacity were
mentioned in articles 1236 and 1237.[28] fraudulently inserted without his knowledge.[6]

In order to change the person of the debtor, the After trial, the RTC rendered its decision in
old one must be expressly released from the favor of Philguarantee
obligation, and the third person or new debtor
must assume the formers place in the relation. It The trial court observed that if Roxas really
is thus incumbent on Maalac to show clearly and intended to sign the instruments merely in his
unequivocally that novation has indeed taken capacity as President of Astro, then he should
place Maalac has not shown by competent have signed only once in the promissory note.[8]
evidence that they were expressly taking the
place of Galicia as debtor, or that the latter were On appeal, the Court of Appeals affirmed
being released from their solidary obligation. the RTC decision .[9]

ASTRO ELECTRONICS CORP. and PETER In the present petition, the principal issue to
ROXAS, petitioner, vs. PHILIPPINE be resolved is whether or not Roxas should be
EXPORT AND FOREIGN LOAN jointly and severally liable (solidary) with Astro
GUARANTEE for the sum awarded by the RTC.
CORPORATION, respondent.
The answer is in the affirmative.
Astro was granted several loans by the
Philippine Trust Company (Philtrust) amounting Astros loan with Philtrust Bank is secured
to P3,000,000.00 and secured by three by three promissory notes. These promissory
promissory notes. In each of these promissory notes are valid and binding against Astro and
notes, it appears that petitioner Roxas signed Roxas. As it appears on the notes, Roxas
twice, as President of Astro and in his signed twice: first, as president of Astro and
personal capacity.[2] Roxas also signed a second, in his personal capacity. In signing
Continuing Surety ship Agreement in favor of his name aside from being the President of
Philtrust Bank, as President of Astro and as Asro, Roxas became a co-maker of the
surety.[3] promissory notes and cannot escape any
liability arising from it. Under the Negotiable wherein he guaranteed, jointly and severally with
Instruments Law, persons who write their Astro the repayment of the loan due to
names on the face of promissory notes are Philtrust. Such continuing suretyship agreement
makers,[10] promising that they will pay to the even re-enforced his solidary liability to Philtrust
order of the payee or any holder according to its because as a surety, he bound himself jointly
tenor.[11] Thus, even without the phrase personal and severally with Astros obligation.[18] Lastly,
capacity, Roxas will still be primarily liable as a Philguarantee has all the right to proceed
joint and several debtor under the notes against petitioner, it is subrogated to the rights of
considering that his intention to be liable as such Philtrust to demand for and collect payment from
is manifested by the fact that he affixed his both Roxas and Astro since it already paid the
signature on each of the promissory notes value of 70% of roxas and Astro Electronics
twicel. Corp.s loan obligation. In compliance with its
contract of Guarantee in favor of Philtrust.
The three promissory notes uniformly
provide: FOR VALUE RECEIVED, I/We jointly, Subrogation is the transfer of all the rights
severally and solidarily, promise to pay to of the creditor to a third person, who substitutes
PHILTRUST BANK or order...[12] An instrument him in all his rights.[19] It may either be legal or
which begins with I, We, or Either of us promise conventional. Legal subrogation is that which
to pay, when signed by two or more persons, takes place without agreement but by
makes them solidarily liable.[13] Also, the phrase operation of law because of certain acts.
joint and several binds the makers jointly and Instances of legal subrogation are those
individually to the payee so that all may be sued provided in Article 1302 of the Civil
together for its enforcement, or the creditor may Code. Conventional subrogation, on the
select one or more as the object of the suit. other hand, is that which takes place by
Having signed under such terms, Roxas agreement of the parties.[21]
assumed the solidary liability of a debtor and
Philtrust Bank may choose to enforce the notes Roxas acquiescence is not necessary
against him alone or jointly with Astro. for subrogation to take place because the
instant case is one of the legal subrogation
that occurs by operation of law, and without
need of the debtors knowledge.[22] Further,
Roxas is the President of Astro and Philguarantee, as guarantor, became the
reasonably, a businessman who is presumed to transferee of all the rights of Philtrust as against
take ordinary care of his concerns. Absent any Roxas and Astro because the guarantor who
countervailing evidence, it cannot be gainsaid pays is subrogated by virtue thereof to all the
that he will not sign document without first rights which the creditor had against the debtor.
informing himself of its contents and
consequences. Clearly, he knew the nature of
the transactions and documents involved as he
not only executed these notes on two different
dates but he also executed, and again, signed
twice, a continuing Surety ship Agreement,