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109 Arco Pulp and Paper Co. INC v. Dan Lim 4.

4. Since no payment was made by Arco Pulp despite demands, Lim filed a
G.R. No. 206806; June 25, 2014 complaint14 for collection of sum of money.
Topic: Novation (Subjective or Personal) | Ponente: J. Leonen | Author: 5. RTC: Ruled in favor of Arco Pulp and held that when Arco Pulp and Paper
Enriquez and Eric Sy entered into the memorandum of agreement, novation took
place, which extinguished Arco Pulp’s obligation to Lim. CA reversed.
Doctrine: In general, there are two modes of substituting the person of the
debtor: (1) expromision and (2) delegacion. In expromision, the initiative for Issue/Held: Whether the obligation between the parties was extinguished by
the change does not come from — and may even be made without the novation? No.
knowledge of — the debtor, since it consists of a third person’s assumption of
the obligation. As such, it logically requires the consent of the third person and Ratio:
the creditor. In delegacion, the debtor offers, and the creditor accepts, a  The MOA did not constitute a novation of the original contract.
third person who consents to the substitution and assumes the obligation; thus,  Novation extinguishes an obligation between two parties when there is a
the consent of these three persons are necessary. Both modes of substitution substitution of objects or debtors or when there is subrogation of the
by the debtor require the consent of the creditor. creditor. It occurs only when the new contract declares so "in unequivocal
terms" or that "the old and the new obligations be on every point
Emergency Recitation: Lim delivered scrap papers to Arco Pulp. Arco Pulp incompatible with each other."
issued a check as payment. However, it was dishonored. On the same day,  In general, there are two modes of substituting the person of the debtor:
Arco Pulp and Eric Sy executed a MOA where Arco Pulp bound themselves to (1) expromision and (2) delegacion. In expromision, the initiative for the
deliver their finished products to Megapack Corporation, owned by Eric Sy. change does not come from — and may even be made without the
Also, the MOA stated that the raw materials would be supplied by Lim, knowledge of — the debtor, since it consists of a third person’s assumption
through his company. Eventually, Lim filed a collection case against Arco. RTC of the obligation. As such, it logically requires the consent of the third
dismissed it since there was a MOA, novation took place, which extinguished person and the creditor. In delegacion, the debtor offers, and the creditor
Arco Pulp’s obligation to Lim. In ruling that there was no novation, the SC said accepts, a third person who consents to the substitution and assumes the
that novation requires that it be clear and unequivocal, it is never presumed. obligation; thus, the consent of these three persons are necessary. Both
There is nothing in the MOA that states that with its execution, the obligation of modes of substitution by the debtor require the consent of the creditor.
Arco Pulp to Lim would be extinguished. It also does not state that Eric Sy  Novation may also be extinctive or modificatory. It is extinctive when an
somehow substituted Arco Pulp as Lim’s debtor. Also, the consent of the old obligation is terminated by the creation of a new one that takes the
creditor (Lim) must be obtained. In this case, Lim was not privy to the MOA. place of the former. It is merely modificatory when the old obligation
Lim must have first agreed to the substitution of Eric Sy as his new debtor. The subsists to the extent that it remains compatible with the amendatory
MOA must also state in clear and unequivocal terms that it has replaced the agreement. Whether extinctive or modificatory, novation is made either
original obligation of Arco Pulp to Lim. 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
Facts: subjective or personal novation.
1. Lim works in the business of supplying scrap papers, cartons, and other  For novation to take place, the following requisites must concur: (1) There
raw materials, under the name Quality Paper and Plastic Products, must be a previous valid obligation; (2) The parties concerned must agree
Enterprises, to factories engaged in the paper mill business. He delivered to a new contract; (3) The old contract must be extinguished; and (4)
scrap papers to Arco Pulp. The parties allegedly agreed that Arco Pulp There must be a valid new contract.
would either pay Lim the value of the raw materials or deliver to him their  Novation may also be express or implied. It is express when the new
finished products of equivalent value. obligation declares in unequivocal terms that the old obligation is
2. Lim alleged that when he delivered the raw materials, Arco Pulp and extinguished. It is implied when the new obligation is incompatible with
Paper issued a post-dated check as partial payment. When he deposited the old one on every point. The test of incompatibility is whether the two
the check it was dishonored. obligations can stand together, each one with its own independent
3. On the same day, Arco Pulp and a certain Eric Sy executed a MOA where existence.
Arco Pulp bound themselves to deliver their finished products to  Because novation requires that it be clear and unequivocal, it is never
Megapack Container Corporation, owned by Eric Sy, for his account. presumed.
According to the MOA, the raw materials would be supplied by Dan T.  In this case, there is nothing in the MOA that states that with its execution,
Lim, through his company. the obligation of Arco Pulp to Lim would be extinguished. It also does not
state that Eric Sy somehow substituted Arco Pulp as Lim’s debtor. It merely
shows that Arco Pulp opted to deliver the finished products to a third
person instead.
 The consent of the creditor must also be secured for the novation to be
valid. In this case, Lim was not privy to the MOA, thus, his conformity to the
contract need not be secured. If the MOA was intended to novate the
original agreement between the parties, Lim must have first agreed to the
substitution of Eric Sy as his new debtor. The MOA must also state in clear
and unequivocal terms that it has replaced the original obligation of Arco
Pulp to Lim. Neither of these circumstances is present in this case.
 Lastly, Arco Pulp act of tendering partial payment to Lim also conflicts with
their alleged intent to pass on their obligation to Eric Sy. When Lim sent his
letter of demand to Arco Pulp, and not to Eric Sy, it showed that the Lim
neither acknowledged nor consented to Eric Sy as his new debtor. These
acts, when taken together, clearly show that novation did not take place.
Since there was no novation, Arco Pulp’s obligation to Lim remains valid
and existing. Thus, Arco Pulp must still pay respondent the full amount of
₱7,220,968.31.

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