Cochingyan, Jr. v. R&B Surety and Insurance Co.
, turn, extinguished the obligations of the petitioners
Inc.
>In November 1963, Pacific Agricultural Suppliers, Inc.
(PAGRICO) was granted an increase in its line of
credit from P400,000.00 to P800,000.00 (the
Principal Obligation), with the Philippine National
Bank (PNB).
>PAGRICO submitted Surety Bond No. 4765,
issued by respondent R&B Surety and Insurance
Co., (R&B Surety) in the amount of P400,000.00 in
favor of the PNB. requirement.
terms of bond: Pagrico and RnB bound themselves
jointly and severally to comply with the terms of the
credit line in PNB.
In consideration of R & B Surety's issuance of the
Surety Bond, two identical indemnity agreements
were entered into with R & B Surety executed by
(a) the Catholic Church Mart (CCM) and by
petitioner Joseph Cochingyan, Jr, and (b) another
agreement dated 24 December 1963 was executed by
PAGRICO.
>Under both indemnity agreements, the
indemnitors bound themselves jointly and
severally to R & B Surety to pay an annual
premium of P5,103.05 and "for the faithful
compliance of the terms and conditions set forth in
said SURETY BOND for a period beginning ... until the
same is CANCELLED and/or DISCHARGED."
>When PAGRICO failed to comply with its
Principal Obligation to the PNB, the PNB
demanded payment from R & B Surety of the sum
of P400,000.00, the full amount of the Principal
Obligation. R & B Surety made a series of
payments to PNB by virtue of that demand totalling
P70,000.00 evidenced by detailed vouchers and
receipts.
>R & B Surety in turn sent formal demand letters
to petitioners Joseph Cochingyan, Jr. and Jose K.
Villanueva for reimbursement of the payments
made by it to the PNB and for a discharge of its
liability to the PNB under the Surety Bond. When
petitioners failed to heed its demands, R & B Surety
brought suit against Joseph Cochingyan, Jr., Jose K.
Villanueva and Liu Tua Ben.
The lower court rendered a decision in favor of R & B
Surety, ordering the Cochingyan and Villanueva to pay
the plaintiff, jointly and severally, the total amount of
their liability on Surety Bond No. 4765, at the interest
rate of 6% per annum.
> 1. The Trust Agreement referred to by both
petitioners in their separate briefs, was
executed on 28 December 1965 (two years after
the Surety Bond and the Indemnity Agreements
were executed) between: (1) Jose and Susana
Cochingyan, Sr., doing business under the name and
style of the Catholic Church Mart, represented by
Joseph Cochingyan, Jr., as Trustor[s]; TRUSTOR has
guaranteed a bond in the amount of P400,000.00
issued by the R & B. (2) TRUSTOR is, therefore, bound
to comply with his obligation under the indemnity
agreements and in order to forestall impending suits by
the BENEFICIARY against said companies, he is willing
as he hereby agrees to pay the obligations of said
companies
Issue: Whether or not the Trust Agreement had
extinguished, by novation, the obligation of R & B
Surety to the PNB under the Surety Bond which, in
under the Indemnity Agreements
Ruling: NO.
>It is at once evident that the Trust Agreement does
not expressly terminate the obligation of R & B
Surety under the Surety Bond. On the contrary, the
Trust Agreement expressly provides for the
continuing subsistence of that obligation by
stipulating that "[the Trust Agreement] shall not
in any manner release" R & B Surety from its
obligation under the Surety Bond.
>NOT implied novation. noshowing of complete
incompatibility as the parties to the new obligation
expressly recognize the continuing existence and
validity of the old one
>What the trust agreement did was, at most, merely
to bring in another person or persons-the
Trustor[s]-to assume the same obligation that R
& B Surety was bound to perform under the Surety
Bond. It is not unusual in business for a stranger to a
contract to assume obligations thereunder; a contract
of suretyship or guarantee is the classical
example.
when there is no agreement that the first debtor shall
be released from responsibility, does not constitute a
novation, and the creditor can still enforce the
obligation against the original debtor.
>the CCM, was already previously bound to R &
B Surety under its Indemnity Agreement. Under
the Trust Agreement, the Trustor also became directly
liable to the PNB. There would now be three
obligors directly and solidarily bound in favor of
the PNB: PAGRICO, R & B Surety and the Trustor.
>Thus, R & B Surety, which was not a party to the
Trust Agreement, could not have intended to
release any of its own indemnitors simply because
one of those indemnitors, the Trustor under the Trust
Agreement, became also directly liable to the PNB.
> PNB's undertaking under the Trust Agreement
"to hold in abeyance any action to enforce its
claims" against R & B Surety did not extend the
maturity of R & B Surety's obligation under the
Surety Bond. The Principal Obligation had in fact
already matured, along with that of R &B Surety,
by the time the Trust Agreement was entered into.
Petitioner's Obligation had in fact already matured, for
those obligations were to amture "as soon as [R & B
Surety] became liable to make payment of any sum
under the terms of the [Surety Bond] whether the
said sum or sums or part thereof have been actually
paid or not."
BOGNOT v RRI LENDING
Petitioner and Eduardo De Jesus borrowed P400,000.00
from respondent. Both executed a promissory note
wherein they bound themselves jointly and severally to
pay the loan on or before 23 January 1997 with a 5%
interest per month. The loan has long been overdue
and, despite repeated demands, both have failed and
refused to pay it. Hence, a complaint was filed against
both.
Resisting the complaint, Garcia averred that he
assumed no liability because he signed merely as an
accommodation party for De Jesus; and that he is
relieved from any liability arising from the note
inasmuch as the loan had been paid by De Jesus by
means of a check dated 17 April 1997; and that, in any
event, the issuance of the check and respondents
acceptance thereof novated or superseded the note.
Respondent answered that there was no novation to
speak of because the check bounced.
Issues:
1. Whether or not there was novation in the
obligation
2. Whether or not the defense that petitioner
was only an accommodation party had any basis
Held:
1. No. In order to change the person of the debtor, the
old one must be expressly released from the obligation,
and the third person or new debtor must assume the
formers place in the relation (Reyes v. CA). Well-
settled is the rule that novation is never presumed
(Security Bank v. Cuenca). Consequently, that which
arises from a purported change in the person of the
debtor must be clear and express. It is thus incumbent
on petitioner to show clearly and unequivocally that
novation has indeed taken place. Petitioner failed to do
this. In the present case, petitioner has not shown that
he was expressly released from the obligation, that a
third person was substituted in his place, or that the
joint and solidary obligation was cancelled and
substituted by the solitary undertaking of De Jesus.
Novation is a mode of extinguishing an obligation by
changing its objects or principal obligations, by
substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor
(Idolor v. CA, February 7, 2001). Article 1293 of the
Civil Code defines novation as follows:
Art. 1293. Novation which consists in substituting a
new debtor in the place of the original one, may be
made even without the knowledge or against the will of
the latter, but not without the consent of the creditor.
Payment by the new debtor gives him rights mentioned
in articles 1236 and 1237.
In general, there are two modes of substituting the
person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the
change does not come from and may even be made
without the knowledge of the debtor, since it
consists of a third persons assumption of the
obligation. As such, it logically requires the consent of
the third person and the creditor. In delegacion, the
debtor offers, and the creditor accepts, a third person
who consents to the substitution and assumes the
obligation; thus, the consent of these three persons are
necessary. Both modes of substitution by the debtor
require the consent of the creditor.
Novation may also be extinctive or modificatory. It is
extinctive when an old obligation is terminated by the
creation of a new one that takes the place of the
former. It is merely modificatory when the old
obligation subsists to the extent that it remains
compatible with the amendatory agreement (Babst v.
CA). Whether extinctive or modificatory, novation is
made either by changing the object or the principal
conditions, referred to as objective or real novation; or
by substituting the person of the debtor or subrogating
a third person to the rights of the creditor, an act
known as subjective or personal novation (Spouses
Bautista v. Pilar Development Corporation, 371 Phil.
533, August 17, 1999). For novation to take place, the
following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract (Security Bank v
Cuenca, October 3, 2000)
Novation may also be express or implied. It is express
when the new obligation declares in unequivocal terms
that the old obligation is extinguished. It is implied
when the new obligation is incompatible with the old
one on every point (Article 1292, NCC). The test of
incompatibility is whether the two obligations can
stand together, each one with its own independent
existence (Molino v. Security Diners International
Corporation, August 16, 2001).
2. No. The note was made payable to a specific person
rather than to bearer or to order a requisite for
negotiability under the Negotiable Instruments Law
(NIL). Hence, petitioner cannot avail himself of the
NILs provisions on the liabilities and defenses of an
accommodation party.
Even granting arguendo that the NIL was applicable,
still, petitioner would be liable for the promissory note.
Under Article 29 of the NIL, an accommodation party is
liable for the instrument to a holder for value even if,
at the time of its taking, the latter knew the former to
be only an accommodation party. The relation between
an accommodation party and the party accommodated
is, in effect, one of principal and surety the
accommodation party being the surety. It is a settled
rule that a surety is bound equally and absolutely with
the principal and is deemed an original promissor and
debtor from the beginning.
___
Bognot vs. RRI Lending
In September 1996, Leonardo Bognot and his younger
brother, Rolando Bognot applied for and obtained a
loan of P500,000.00 from RRI Lending, payable on
November 30, 1996. The loan was evidenced by a
promissory note and was secured by a post dated
check dated November 30, 1996.
Evidence on record shows that Leonardo renewed the
loan several times on a monthly basis. He paid a
renewal fee of P54,600.00 for each renewal, issued a
new post-dated check as security, and executed and/or
renewed the promissory note previously issued. RRI
Lending on the other hand, cancelled and returned to
Leonardo the post-dated checks issued prior to their
renewal.
Leonardo purportedly paid the renewal fees and issued
a post-dated check dated June 30, 1997 as security. As
had been done in the past, RRI Lending superimposed
the date "June 30, 1997" on the promissory note to
make it appear that it would mature on the said date.
Several days before the loans maturity, Rolandos
wife, Julieta, went to the respondents office and
applied for another renewal of the loan. She issued in
favor of RRI Lending a promissory note and a check
dated July 30, 1997, in the amount of P54,600.00 as
renewal fee.
On the excuse that she needs to bring home the loan
documents for the Bognot siblings signatures and
replacement, Julieta asked the RRI Lending clerk to
release to her the promissory note, the disclosure
statement, and the check dated July 30, 1997. Julieta,
however, never returned these documents nor issued a
new post-dated check. Consequently, RRI Lending sent
Leonardo follow-up letters demanding payment of the
loan, plus interest and penalty charges. These
demands went unheeded.
In his Answer, Leonardo, claimed, among other things,
that the complaint states no cause of action because
RRI Lendings claim had been paid, waived, abandoned
or otherwise extinguished, and that the one (1) month
loan contracted by Rolando and his wife in November
1996 which was lastly renewed in March 1997 had
already been fully paid and extinguished in April 1997.
Issue:
Whether the parties obligation was
extinguished by payment
Held:
Jurisprudence tells us that one who pleads payment
has the burden of proving it; the burden rests on the
defendant to prove payment, rather than on the
plaintiff to prove non-payment. Indeed, once the
existence of an indebtedness is duly established by
evidence, the burden of showing with legal certainty
that the obligation has been discharged by payment
rests on the debtor.
In the present case, Leonardo failed to satisfactorily
prove that his obligation had already been
extinguished by payment. As the CA correctly noted,
the petitioner failed to present any evidence that RRI
Lending had in fact encashed his check and applied the
proceeds to the payment of the loan. Neither did he
present official receipts evidencing payment, nor any
proof that the check had been dishonored.
We note that the petitioner merely relied on the
respondents cancellation and return to him of the
check dated April 1, 1997. The evidence shows that
this check was issued to secure the indebtedness. The
acts imputed on the respondent, standing alone, do not
constitute sufficient evidence of payment.
Article 1249, paragraph 2 of the Civil Code provides:
xxxx
The delivery of promissory notes payable to order, or
bills of exchange or other mercantile documents shall
produce the effect of payment only when they have
been cashed, or when through the fault of the creditor
they have been impaired. (Emphasis supplied)
Also, we held in Bank of the Philippine Islands v.
Spouses Royeca:
Settled is the rule that payment must be made in legal
tender. A check is not legal tender and, therefore,
cannot constitute a valid tender of payment. Since a
negotiable instrument is only a substitute for money
and not money, the delivery of such an instrument
does not, by itself, operate as payment. Mere delivery
of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and
remains suspended until the payment by commercial
document is actually realized.(Emphasis supplied)
Although Article 1271 of the Civil Code provides for a
legal presumption of renunciation of action (in cases
where a private document evidencing a credit was
voluntarily returned by the creditor to the debtor), this
presumption is merely prima facie and is not
conclusive; the presumption loses efficacy when faced
with evidence to the contrary.
Moreover, the cited provision merely raises a
presumption, not of payment, but of the renunciation
of the credit where more convincing evidence would be
required than what normally would be called for to
prove payment. Thus, reliance by the petitioner on the
legal presumption to prove payment is misplaced.
To reiterate, no cash payment was proven by the
petitioner. The cancellation and return of the check
dated April 1, 1997, simply established his renewal of
the loan not the fact of payment. Furthermore, it has
been established during trial, through repeated acts,
that the respondent cancelled and surrendered the
post-dated check previously issued whenever the loan
is renewed.
BANK OF THE PHILIPPINE ISLANDS vs. DOMINGO
R. DANDO
The instant Petition stemmed from a Complaint for
Sum of Money and Damages by BPI against Dando
before the RTC.Dando availed of a loan in the amount
of P750,000.00 from Far East Bank and Trust Company
(FEBTC), BPI's predecessor in interest. Dando defaulted
in the payment and despite repeated demands, Dando
refused and/or failed to pay his just and valid
obligation.
>After Dando filed with the RTC his Answer with
Counterclaim, BPI filed its Motion to Set Case for Pre-
Trial. The RTC issued a Notice of Pre-Trial Conference,
which directed the parties to submit their respective
pre-trial briefs at least three days before the scheduled
date of pre-trial.
>Dando submitted his Pre-trial Brief on time while BPI
filed its Pre-trial Breif with the RTC and furnished Dando
with a copy thereof on the very day of the scheduled
Pre-Trial Conference. Dando then moved for the
dismmissal of the case on the ground of late filing of
the Pre-trial Brief. RTC granted Dandos Motion to
Dismiss.
>BPI filed a Motion for Reconsideration with the RTC
which reconsidered and set aside it former order.
Dando filed a Motion for Reconsideration
but was denied.
>Dando sought recourse from the Court of Appeals by
filing a Petition for Certiorari. CA held that BPI's excuse
is too flimsy to justify the reversal of an earlier order
dismissing the action. The BPI did not come forward
with the most convincing reason for the relaxation of
the rules, or has not shown any persuasive reason why
it should be exempt from abiding by the rules. The RTC
decision was ANNULLED and SET ASIDE by the CA.
Hence, this Petition.
IS THE HONORABLE COURT OF APPEALS, IN
ISSUING THE DECISION AND RESOLUTION,
CORRECT WHEN IT STRICTLY APPLIED THE RULES
OF PROCEDURE.
RULING:
It is a basic legal construction that where words of
command such as shall, must, or ought are the Rules. In fact, BPI, for the most part, exhibited
employed, they are generally and ordinarily regarded
as mandatory. Thus, where, as in Rule 18, Sections 5
and 6 of the Rules of Court, the word shall is used, a
mandatory duty is imposed, which the courts ought to
enforce.
x x x However, it is equally true that litigation is not
merely a game of technicalities. Law and
jurisprudence grant to courts the prerogative to relax
compliance with procedural rules of even the most
mandatory character, mindful of the duty to reconcile
both the need to put an end to litigation speedily and
the parties right to an opportunity to be heard. x x x
This is in line with the time-honored principle that
cases should be decided only after giving all parties
the chance to argue their causes and defenses.
Technicality and procedural imperfection should, thus,
not serve as basis of decisions. In that way, the ends
of justice would be better served. For, indeed, the
general objective of procedure is to facilitate the
application of justice to the rival claims of contending
parties, bearing always in mind that procedure is not to
hinder but to promote the administration of justice.
wanton failure to observe a mandatory requirement of
diligence and reasonable dispatch in prosecuting its
claim against Dando by immediately moving to set the
case for Pre-Trial Conference after its receipt of Dandos
Answer to the Complaint; and in instantaneously filing
a Motion for Reconsideration of the 10 October 2003
Order of the RTC dismissing the case.
Accordingly, the ends of justice and fairness would be
best served if the parties are given the full opportunity
to thresh out the real issues and litigate their claims in
a full-blown trial. Besides, Dando would not be
prejudiced should the RTC proceed with the hearing of
the case, as he is not stripped of any affirmative
defenses nor deprived of due process of law.
WHEREFORE, premises considered, the instant Petition
is GRANTED.

In Sanchez v. Court of Appeals, the Court restated the

reasons that may provide justification for a court to
suspend a strict adherence to procedural rules, such
as: (a) matters of life, liberty, honor or property; (b)
the existence of special or compelling circumstances;
(c) the merits of the case; (d) a cause not entirely
attributable to the fault or negligence of the party
favored by the suspension of the rules; (e) a lack of
any showing that the review sought is merely frivolous
and dilatory; and (f) the fact that the other party will
not be unjustly prejudiced thereby.
x x x The substantive right of BPI to recover a due and
demandable obligation cannot be denied or diminished
by a rule of procedure, more so, since Dando admits
that he did avail himself of the credit line extended by
FEBTC, the predecessor-in-interest of BPI, and disputes
only the amount of his outstanding liability to BPI. To
dismiss the case with prejudice and, thus, bar BPI from
recovering the amount it had lent to Dando would be to
unjustly enrich Dando at the expense of BPI.
x x x BPI did not manifest an evident pattern or
scheme to delay the disposition of the case or a