Millar v.

CA the obligation under the terms of the deed of chattel mortgage serves only to provide an express and

specific method for its extinguishment — payment in two equal installments. The chattel mortgage

simply gave the respondent a method and more time to enable him to fully satisfy the judgment
G.R. No. L-29981, 30 April 1971
indebtedness. The chattel mortgage agreement in no manner introduced any substantial modification

or alteration of the judgment. Instead of extinguishing the obligation of the respondent arising from
FACTS: Millar obtained a favorable condemning Antonio P. Gabriel to pay him the sum of P1,746.98
the judgment, the deed of chattel mortgage expressly ratified and confirmed the existence of the
with interest at 12% per annum from the date of the filing of the complaint, the sum of P400 as
same, amplifying only the mode and period for compliance by the respondent.
attorney’s fees, and the costs of suit. The lower court issued the writ of execution on the basis of

which the sheriff seized the respondent’s Willy’s Ford jeep. The respondent, however, pleaded with
The defense of implied novation requires clear and convincing proof of complete incompatibility
the petitioner to release the jeep under an arrangement whereby the respondent, to secure the
between the two obligations. The law requires no specific form for an effective novation by
payment of the judgment debt, agreed to mortgage the vehicle in favor of the petitioner. The
implication. The test is whether the two obligations can stand together. If they cannot,
petitioner agreed to the arrangement; thus, the parties executed a chattel mortgage on the jeep.
incompatibility arises, and the second obligation novates the first. If they can stand together, no
Resolution of the controversy posed by the petition at bar hinges entirely on a determination of
incompatibility results and novation does not take place.
whether or not the subsequent agreement of the parties as embodied in the deed of chattel

mortgage impliedly novated the judgment obligation.

Magdalena Estate v. Rodriguez

ISSUE:
G.R. No. L-18411, 17 December 1966

Whether or not there is novation?

FACTS: Spouses Rodriguez bought form the petitioner a parcel of land in Quezon City. There was an

RULING: unpaid balance of P5,000.00 on account of the price of the lot which was covered by the promissory

note issued by respondents. On the same date, Respondents and Luzon Surety Co., Inc. executed a
No substantial incompatibility between the mortgage obligation and the judgment liability of the bond in favor of petitioner, the latter being the surety of the respondents. When the promissory note
respondent sufficient to justify a conclusion of implied novation. The stipulation for the payment of
becomes due and demandable, Luzon Surety Com., Inc. paid the amount to petitioner. Subsequently, contract. The liability of a surety is not extended, by implication, beyond the terms of his contract. It

petitioner demanded payment from respondents herein on the alleged accumulated interests on the is for the same reason that the petitioner cannot apply a part of the P5,000.00 as payment for the

principal amount. Respondents refuse to pay. accrued interest.

Respondents alleged that petitioner waived or condoned the interests due upon its unqualified Appellants are relying on Article 1253 of the Civil Code which states that “If the debt produces

acceptance of the principal payment knowing its incompleteness and without exercising its rights to interest, payment of the principal shall not be deemed to have been made until the interests have

apply a portion thereof to the interest as provided in the Articles 1235 and 1253 of the Civil Code. been recovered.” This law cannot be made applicable to a person whose obligation as a mere surety

They claimed that there was a novation and/or modification of the obligation of the appellants in is both contingent and singular; his liability is confined to such obligation, and he is entitled to have

favor of the appellee because the appellee accepted without reservation the subsequent agreement all payments made applied exclusively to said application and to no other. It is merely directory, and

set forth in the surety bond despite its failure to provide that it also guaranteed payment of accruing not mandatory. Inasmuch as the appellee cannot protest for non-payment of the interest when it

interest. accepted the amount of P5,000.00 from the Luzon Surety Co., Inc., nor apply a part of that amount as

payment for the interest, we cannot now say that there was a waiver or condonation on the interest
ISSUE:
due.

Whether or not there was a waiver, novation and/or modification of the obligation?
The rule is settled that novation by presumption has never been favored. To be sustained, it needs to

be established that the old and new contracts are incompatible in all points, or that the will to novate
RULING:
appears by express agreement of the parties or in acts of similar import. The mere fact that the

No.It is very clear in the promissory note that the principal obligation is the balance of the purchase creditor receives a guaranty or accepts payments from a third person who has agreed to assume the

price of the parcel of land, which is the sum of P5,000.00, and in the surety bond, the Luzon Surety obligation, when there is no agreement that the first debtor shall be released from responsibility

Co., Inc. undertook “to pay the amount of P5,000.00 representing balance of the purchase price of a does not constitute a novation, and the creditor can still enforce the obligation against the original

parcel of land. Petitioner did not protest nor object when it accepted the payment of P5,000.00 debtor.

because it knew that that was the complete amount undertaken by the surety as appearing in the
WHEREFORE, the judgment appealed from should be, as it is hereby, affirmed, with costs against the were borrowed by EUROTRUST to AFP-MBAI but failed to return the same. And the securities were in

appellants. turn lent by Reyes to BERMIC.

* Case digest Frilin Lomosad, LLB-1, Andres Bonifacio Law School, SY 2017-2018 EUROTRUST and BERMIC agreed that BERMIC will settle its obligation to the real owners of the fund

which are the AFP-MBAI and DECS-IMC, this was formalized by two letters. BERMIC the negotiated
Reyes v. Secretary of Justice with AFP-MBAI and DECS-IMC.

G.R. No. 120817,4 November 1996 ISSUE:

FACTS: Whether or not there was a novation by substitution of creditor.

Reyes is the president of EUROTRUST, a domestic corporation engaged in credit finance, entered into RULING:

a contract of loan with Eleazar the president of BERMIC, a domestic enterprise engaged in real estate
The Supreme Court ruled that there was no novation by substitution of creditor. In order that
development. Based on their contract EUROTRUST extended financial support for the construction of
novation can take place the following requisites must first be followed:
BERMIC’s Condominium and Business Park. The loan was without collateral but with higher interest

rate. BERMIC issued 21 post-dated checks to cover the payments of the loan; however, the said
1. There must be a previous valid obligation,
checks were dishonored by the drawee bank, due to stop payment order by Eleazar. Despite notice
2. There must be an agreement of the parties concerned to a new contract,
and repeated demands Eleazar still failed to pay.
3. There must be the extinguishment of the old contract, and

4. There must be the validity of the new contract.

Subsequently, Reyes was investigated in the Blue Ribbon Committee and found out that she was

involved in large scale scam belonging to IMC, an agency under the department of education, culture In the case according to it, formalized petitioners and respondent Eleazars agreement that BERMIC
and sports. AFP-MBAI invested to EUROTRUST for government securities, conducted its own would directly settle its obligation with the real owners of the funds – the AFP MBAI and DECS IMC.
investigation and found out that after the securities were delivered to AFP-MBAI the said securities Be that as it may, a cursory reading of these letters, however, clearly and unmistakably shows that

there was nothing therein that would evince that respondent AFP-MBAI agreed to substitute for the
petitioner as the new creditor of respondent Eleazar in the contract of loan. It is evident that the two
letters merely gave respondent Eleazar an authority to directly settle the obligation of petitioner to
AFP-MBAI and DECS-IMC. It is essentially an agreement between petitioner and respondent Eleazar
only. There was no mention whatsoever of AFP-MBAI’s consent to the new agreement between
petitioner and respondent Eleazar much less an indication of AFP-MBAI’s intention to be the
substitute creditor in the loan contract. Well settled is the rule that novation by substitution of
creditor requires an agreement among the three parties concerned – the original creditor, the debtor
and the new creditor. It is a new contractual relation based on the mutual agreement among all the
necessary parties. Hence, there is no novation if no new contract was executed by the parties.
Article 1301 of the Civil Code is explicit, thus:
Conventional subrogation of a third person requires the consent of the original parties and of the
third person.
The fact that respondent Eleazar made payments to AFP-MBAI and the latter accepted them does
not ipso facto result in novation. There must be an express intention to novate – animus
novandi.Novation is never presumed.Article 1300 of the Civil Code provides inter alia that
conventional subrogation must be clearly established in order that it may take effect.
* Case digest by Lea Caipang, LLB-1, Andres Bonifacio Law School, SY 2017-2018
CALIFORNIA BUS LINES INC. vs STATE INVESTMENT HOUSE, INC. G.R. No. 147950. December 11, 2003
QUISUMBING, J:
Facts:
Delta Motors Corporation applied for financial assistance from respondent State Investment House,
Inc., a domestic corporation engaged in the business of quasi-banking. SIHI agreed to extend a credit
line to Delta which eventually became indebted to SIHI. Meanwhile, petitioner purchased on
installment basis several buses to Delta. To secure the payment of the obligation petitioner executed
promissory notes in favor of Delta. When petitioner defaulted on the payments of the debts, it
entered into an agreement with delta to cover its due obligations. However, petitioner still had
trouble meeting its obligations with delta. Pursuant to the memorandum of agreement delta
executed a deed of sale assigning to respondent, the promissory notes from petitioner. Respondent
subsequently sent a demand letter to petitioner requiring remitting payments due on the promissory
notes. Petitioner replied informing respondent of the fact that delta had taken over its management
and operations.
Issue:
Whether the Restructuring Agreement dated October 7, 1981, between petitioner CBLI and Delta
Motors, Corp. novated the five promissory notes Delta Motors, Corp. assigned to respondent SIHI,
Held:
The attendant facts do not make out a case of novation. The restructuring agreement between Delta
and CBLI executed on October 7, 1981, shows that the parties did not expressly stipulate that the
restructuring agreement novated the promissory notes. Absent an unequivocal declaration of
extinguishment of the pre-existing obligation, only a showing of complete incompatibility between
the old and the new obligation would sustain a finding of novation by implication. 59 However, our
review of its terms yields no incompatibility between the promissory notes and the restructuring
SIHI later filed for an urgent motion for the sale of the 16 buses. The RTC of Manila initially ruled in
agreement.
favor of CBLI, discharging from liability on the five promissory notes. The trial court likewise favorably
CALIFORNIA BUS LINES, INC., PETITIONER VS. STATE INVESTMENT HOUSE, ruled on CBLIs compulsory counterclaim.
INC., RESPONDENT
SIHI appealed the decision to the Court of Appeals. The decision of the RTC of Manila was

February 8, 2016 reversed stating that the defendant-appellee CBLI was liable for the value of the five (5) promissory
notes subject of the complaint a quo less the proceeds from the attached sixteen (16) buses.
G.R. No. 147950. December 11, 2003
ISSUE: Whether or not the Court of Appeals erred in declaring that the restructuring agreement
between Delta and CBLI did not substantially novate the terms of the five promissory notes.
Quisumbing, J.:
HELD: Novations is never presumed, and the animus novandi whether totally or partially, must
FACTS: Delta Motors Corporation (Delta) applied for financial assistance from respondent State
appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be
Investment House, Inc., (SIHI) a domestic corporation engaged in the business of quasi-banking. SIHI
mistaken.
agreed to extend a credit line to Delta in three separate agreements, and the latter eventually
Changes that breed incompatibility must be essential in nature and note merely accidental.
became indebted to the former.
Meanwhile, the petitioner (CBLI) purchased buses from Delta which were secured through 16
With respect to obligations to pay a sum of money, the well-settled rule is that the obligation is not
promissory notes. Unfortunately CBLI failed to meet its obligations to Delta. In order to cover the
novated by an instrument that expressly recognizes the old, changes only the terms of payment, and
obligations due, Delta issued a restructuring agreement, stipulating taking over the management and
adds other obligatinos incompatible with the old ones, or where the new contract merely
operations in case of default.
supplementes the old one.

On the other hand, Delta executed a Continuing Deed of Assignment of Receivables in favor of SIHI as Ong v. Bognabal
security for the payment of its obligations to SIHI per the credit agreements. Subsequently, the loan
agreements were restructured under a Memorandum of Agreement in view of Delta’s failure to pay.
G.R. No. 149140, 12 September 2006

CBLI continued to have problems paying its debt to Delta. Delta executed a Deed of Sale assigning to
FACTS:
SIHI five (5) of the sixteen (16) promissory notes from California Bus Lines, Inc. SIHI sent a demand
letter to petitioner requiring remitting payments due on the promissory notes. Petitioner replied
informing respondent of the fact that delta had taken over its management and operations.
Petitioner contracted services of the respondent for construction of a boutique which were to be paid If petitioner’s allegation was true, then the fourth partial billing’s principal condition that the:

by progress billings to be paid every 2 weeks. Petitioner refused to pay progress billing no. 4 which “balance shall be collected every 2-weeks, based on the accomplishment of work value submitted by

prompted the suit for collection. Respondent alleged that petitioner unjustifiably demanded to the contractor to the Owner and to be certified for payment by the architect assigned on site” –

change floor tiles and rush said work which resulted in an outcome that petitioner found would have been modified to include another condition, that of the finishing of the new flooring by

unsatisfactory. Petitioner filed an answer alleging among other reasons that the bill was not paid the respondent. The petition is dismissed.

because of novation. Petitioner contended that respondent agreed to be paid only upon the
* Case digest by Ariel M. Acopiado, LLB-1, Andres Bonifacio Law School, SY 2017-2018
completion of the change of floor tiles which respondent allegedly abandoned (instead of every 2

weeks). By jurist|May 15th, 2018|Case Digests|0 Comments

Sps. Reyes v. BPI Family

ISSUE:

G.R. No. 149840, 31 March 2006

WON there was a novated agreement between the parties.

FACTS:
RULING:

Reyes spouses executed a real estate mortgage on their property in favor BPI-FSB to secure
No. There was no novation on the contract.
a P15,000,000 loan of Transbuilders. The mortgage contract between petitioners and BPI-FSB

SC ruled that novation is never presumed and that Article 1291 of the Civil Code states the means to provides:

accomplish the same which are: (1) Changing their object or principal conditions; (2) Substituting the
That for and in consideration of the above-mentioned sum received by way of a loan, and other credit
person of the debtor; and (3) Subrogating a third person in the rights of the creditor. Novation may
accommodations of whatever nature obtained by the Borrower/Mortgagor, the Borrower/Mortgagor
be partial or total. There is partial novation when there is only a modification or change in some
by this Agreement, hereby constitutes a first mortgage, special and voluntary over the property/ies
principal conditions of the obligation. It is total when the obligation is completely extinguished.
specifically described in Annex “A”, together with all existing improvements as well as those that may
hereafter be made to exist or constructed thereon, inclusive of all fruits and rents, in favor of the With respect to obligations to pay a sum of money, the obligation is not novated by an instrument

Bank, its successors and assigns. that expressly recognizes the old, changes only the terms of payment, adds other obligations not

incompatible with the old ones, or the new contract merely supplements the old one.
When Transbuilders failed to pay its P15M loan within the stipulated period of one year, the bank

restructured the loan through a promissory note executed by Transbuilders in its favor. The pertinent * Case digest by Cherry Mae Aguilla-Granada, LLB-1, Andres Bonifacio Law School, SY 2017-2018

provisions of the promissory note stated that:

Garcia v. Llamas
1. The proceeds of the Note shall be applied to loan account no. 21108336; and

2. The new obligation of Transbuilders to respondent Bank for fifteen million (P15,000,000.00) G.R. No. 154127, 8 December 2003
shall be paid in twenty (20) quarterly installments commencing on September 28, 1996, and

at an interest rate of eighteen (18%) per annum. FACTS:

ISSUE: Petitioner Romeo Garcia and de Jesus borrowed P400,000.00 from respondent Dionisio Llamas. They

executed a promissory note wherein they bound themselves jointly and severally to pay the loan with
Is there novation? a 5% interest/month.

RULING: The loan has long been overdue and, despite repeated demands, petitioner and de Jesus have failed

and refused to pay it. Which leads respondent to file a complaint. Petitioner averred that he assumed
None. In every novation, there are four essential requisites:(1) a previous valid obligation; (2) the
no liability under the promissory note because he signed it merely as an accommodation party for de
agreement of all the parties to the new contract; (3) the extinguishment of the old contract; and (4)
Jesus; and, that he is relieved from any liability arising from the note since the loan had been paid by
validity of the new one.
de Jesus thru a check; and that, the issuance of the check and respondents acceptance thereof

novated the note.

Respondent asserted that the loan remained unpaid for because the check issued by de Jesus substituted by the solitary undertaking of De Jesus. The law requires that the creditor expressly

bounced. RTC rendered judgment in favor of respondent, ordering petitioner & de Jesus to pay jointly consents to the substitution of a new debtor.

& severally. CA ruled that no novation, express or implied, had taken place.
* Case digest by Neah Hope L. Bato, LLB-1, Andres Bonifacio Law School, SY 2017-2018

ISSUE:
Quinto v. People
Whether or Not there was a novation of the obligation.

G.R. No. 126712, 14 April 1999

RULING:

FACTS:
No. There was no novation of obligation that took place.

Quinto was convicted of the crime estafa, the case started when Quinto asked Cariaga to allow her to
The parties did not declare that the old obligation had been extinguished by the issuance and the
have the jewelries for some prospective buyer. They made an agreement that after 5 days if Quinto
acceptance of the check, or that the check would take the place of the note. There is no
have not sell the jewelries it will be return to the owner. After 5 days Quinto failed to deliver back the
incompatibility between the promissory note and the check. The check had been issued only to
jewelries and asked for extension that results for almost six months. After Cariaga send demand
answer for the obligation. On the one hand, the note evidences the loan obligation; and on the other,
letters to Quinto for the return of the jewelries in which Cariaga failed to do again the former then
the check answers for it. Hence, the two can stand together.
filed a case of estafa against the latter.

In the Quinto’s defense she narrated that the solo ring was sold by certain Mrs. Camacho, the buyer
Neither could the payment of interests, Such payment was already provided for in the promissory
paid in check on half amount only and the remaining half was paid by installments directly to Cariaga.
note and, like the check, was totally in accord with the terms and conditions thereof.
Quinto also transacted with Mrs. Camacho the marques and the ring, Mrs. Camacho then failed to

Petitioners argue that the obligation was novated by the substitution of debtors is without merit pay the full amount. Quinto brought Cariaga to Mrs. Camacho and both of them agreed that the

because petitioner has not shown that he was expressly released from the obligation, that a third payment will be in installments. Quinto was also able to sell the diamond ring to Mrs. Ramos,

person was substituted in his place, or that the joint and solidary obligation was canceled and unfortunately she was unable to pay the whole amount again Quinto brought Cariago to Mrs. Ramos
and they talked about the terms of payment. In the first payment Mrs. Ramos gave Quinto a ring, in of extinctive novation. Not too uncommon is when a stranger to a contract agrees to assume an

the next payment was P5,000. Quinto herself paid the P2,000. obligation; and while this may have the effect of adding to the number of persons liable, it does not

necessarily imply the extinguishment of the liability of the first debtor. Neither would the fact alone
ISSUE:
that the creditor receives guaranty or accepts payments from a third person who has agreed to

assume the obligation, constitute an extinctive novation absent an agreement that the first debtor
Whether or not there was a novation when the private complainant consented to receive payment
shall be released from responsibility.
on installments directly to the buyer.

* Case digest by Aileen B. Buenafe, LLB-1, Andres Bonifacio Law School, SY 2017-2018
RULING:

LICAROS vs. GATMAITAN [2001]

The extinguishment of the old obligation by the new one is a necessary element of novation which
7:01 AM conventional subrogation, evidence, Licaros v. Gatmaitan, MOA No comments
may be effected either expressly or impliedly. The term “expressly” means that the contracting

parties incontrovertibly disclose that their object in executing the new contract is to extinguish the

old one. Upon the other hand, no specific form is required for an implied novation, and all that is

prescribed by law would be an incompatibility between the two contracts. While there is really no
doctrine
hard and fast rule to determine what might constitute to be a sufficient change that can bring about

novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken jointly." Under our Rules of Court, it is mandated
between the old and the new obligations.
that "(I)n the construction of an instrument where there are several provisions or particulars, such a
The changes alluded to by petitioner consists only in the manner of payment. There was really no construction is, if possible, to be adopted as will give effect to all." Contracts should be so construed
substitution of debtors since private complainant merely acquiesced to the payment but did not give as to harmonize and give effect to the different provisions thereof.

her consent to enter into a new contract.

It is thus easy to see why Cariaga’s acceptance of Ramos and Camacho’s payment on installment basis

cannot be construed as a case of either expromision or delegacion sufficient to justify the attendance
 contested provision petitioner arguments

"WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their 1. MOA did not create a new obligation and, as such, the same cannot be a conventional subrogation;
mutual prestations which hey now record herein with the express conformity of the third
2. the consent of Anglo-Asean Bank was not necessary for the validity of the MOA;
parties concerned"

facts 3. assuming that such consent was necessary, respondent failed to secure the same as was incumbent
upon him;
· The Anglo-Asean Bank is a bank somewhere in Cat Heaven which receive fund placements from
4. respondent himself admitted that the transaction was one of assignment of credit.
different parts of the world and invest such deposits in money market placements in HK, Europe and
the United States. issue: Whether the MOA is one of assignment of credit or one of conventional subrogation.

· Licaros decided to make a fund placement (USD 150K) with said bank sometime in the 1980's. difference of assignment of credit and conventional subrogation
Licaros encountered tremendous difficulties in retrieving the investments he had put in.
Assignment of Credit Conventional Subrogation
· Licaros then decide to seek the counsel of Antonio P. Gatmaitan (banker). Gatmaitan voluntarily
offered to assume the payment of Anglo-Asean's indebtedness to Licaros subject to certain terms and process of transferring the right of the assignor to transfer of all the rights of the creditor to a third
conditions. The two executed a notarized MOA. Gatmaitan presented to Anglo-Asean the MOA for the assignee who would then have the right to person, who substitutes him in all his rights.
the purpose of collecting. No formal response was ever made by said bank. proceed against the debtor.

· Gatmaitan did not bother anymore to make good his promise to pay Licaros the PN. Licaros felt that Debtor’s consent is not necessary Debtor’s consent is necessary
he had a right to collect on the basis of the PN regardless of the outcome of Gatmaitan's recovery
efforts. nullity of an old obligation may be cured by nullity of an obligation is not remedied by the
lower courts subrogation, such that a new obligation will be assignment of the creditor's right to another.
perfectly valid
· RTC found Gatmaitan liable under the MOA and PN for P3,150K plus 12% interest pa. (assignment
of credit. moa was a conventional subrogation (whereas clause and “with our conforme”)

· CA reversed and held that Gatmaitan did not at any point become obligated to pay to Licaros the · Gatmaitan and Licaros had intended to treat their agreement as one of conventional subrogation:
amount stated in the PN. (conventional subrogation) "WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their
mutual prestations which hey now record herein with the express conformity of the third
parties concerned"
· Had the intention been merely to confer the status of a mere "assignee", there is simply no sense give effect to all." Contracts should be so construed as to harmonize and give effect to the different
for them to have stipulated that the same is conditioned on the "express conformity" thereto of provisions thereof.
Anglo-Asean Bank.
irrelevant on who was required of obtaining the consent
· On the signature page, right under the place reserve for the signatures of Peaches and respondent,
there is, typewritten, the words "WITH OUR CONFORME." Under this notation, the words "ANGLO- Peaches: it was incumbent on the part of the respondent to secure the conformity of Anglo-Asean
ASEAN BANK AND TRUST" were written by hand.
SC: irrelevant. The determinative fact is that such consent was not secured by either Peaches or
respondent which consequently resulted in the invalidity of the said memo.
· This provision which contemplates the signed conformity of Anglo-Asean Bank, taken together with
the preambulatory clause leads to the conclusion that both parties intended that Anglo-Asean Bank use of the word “assignment” during testimony
should signify its agreement to the MOA.
· Pet: respondent himself admitted that the transaction was one of assignment of credit in his
EXTINGUISHMENT Of the old obligation is the effect not the requisite
testimony

· Peaches: Considering that the old obligation of Anglo-Asean Bank was never extinguished under the
· SC: respondent apparently used the word "assignment" in his testimony in the general sense.
MOA, it is contended that the same could not be considered as a conventional subrogation.
Respondent is not a lawyer and as such, he is no so well versed in law that he would be able to
distinguish between the concepts of conventional subrogation and of assignment of credit.
· SC: The extinguishment of the old obligation is the effect of the establishment of a contract for
conventional subrogation. It is not a requisite without which a contract for conventional subrogation
may not be created. Negotiable Instruments Case Digest: Astro Electronics Corp. V. Phil. Export And Foreign Loan

provisions may not simply be disregarded or dismissed as superfluous Guarantee Corp. (2003)

· Peaches: the preambulatory clause requiring the express conformity of third parties is a mere
surplusage which is not necessary to the validity of the agreement.
G.R. No. 136729 September 23 ,2003
· SC: the intention of the parties to treat the MOA as embodying a conventional subrogation is shown Lessons Applicable: Promissory notes and checks (Negotiable Instruments Law)
not only by the "whereas clause" but also by "WITH OUR CONFORME" reserved for Anglo-Asean
FACTS:
Bank. These provisions may not simply be dismissed as superfluous. The various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that sense which may result
 Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting P3M w/
from all of them taken jointly." It is mandated that "(I)n the construction of an instrument where
interest and secured by 3 promissory notes:
there are several provisions or particulars, such a construction is, if possible, to be adopted as will

 December 14, 1981: P600,000.00


 December 14, 1981: P400,000.00
 August 27, 1981: P2,000,000.00
 Roxas signed twice the promissory notes
 as President of Astro
 in his personal capacity
 Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as President of
Astro and as surety
 Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of
Astros loan, subject to the condition that upon payment by Philguanrantee, it shall be
proportionally subrogated to the rights of Philtrust against Astro
 Upon Astros failure to pay, Philguarantee paid 70% of the guaranteed loan to Philtrust.
 Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with
the RTC
 Roxas: alleged that he merely signed the same in blank and the phrases in his personal capacity
and in his official capacity were fraudulently inserted without his knowledge
 RTC: favored Philguarantee holding Astro and Roxas jointly and severally liable
 if Roxas really intended to sign the instruments merely in his capacity as President of Astro, then
he should have signed only once
 CA affirmed RTC
ISSUE: W/N Roxas should be jointly and severally liable with Astro
HELD: YES. CA affirmed
 Under the Negotiable Instruments Law, persons who write their names on the face of promissory
notes are makers,promising that they will pay to the order of the payee or any holder according
to its tenor.
 even without the phrase personal capacity, Roxas will still be primarily liable as a joint and
several debtor under the notes considering that his intention to be liable as such is manifested
by the fact that he affixed his signature on each of the promissory notes twice which necessarily
would imply that he is undertaking the obligation in 2 different capacities, official and personal.
 3 promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and
solidarily, promise to pay to PHILTRUST BANK or order...
 begins with I, We, or Either of us promise to pay, when signed by two or more persons
= solidarily liable
 Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him
in all his rights
 Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights of
Philtrust to demand for and collect payment from both Roxas and Astro since it already paid the
value of 70% of roxas and Astro Electronics Corp.s loan obligation
 Roxas acquiescence is not necessary 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
 Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as against Roxas
and Astro because the guarantor who pays is subrogated by virtue thereof to all the rights which
the creditor had against the debtor
Metrobank v. Rural Bank of Gerona
G.R. No. 159057, 5 July 2010
FACTS:
The Central Bank and the RBG entered into an agreement providing that RBG shall facilitate the loan
applications of farmers-borrowers. The agreement required RBG to open a separate bank account
where the IBRD loan proceeds shall be deposited. The RBG accordingly opened a special savings
account with Metrobanks Tarlac Branch. As the depository bank of RBG, Metrobank was designated
to receive the credit advice released by the Central Bank representing the proceeds of the IBRD loan
of the farmers-borrowers; Metrobank, in turn, credited the proceeds to RBGs special savings account
for the latter’s release to the farmers-borrowers.
The Central Bank released a credit advice in Metrobanks favor and accordingly credited Metrobanks
demand deposit account in the amount of P178,652.00, for the account of RBG. The Central Bank
approved the loan application of another farmer-borrower and credited the amount to Metrobanks
demand deposit account. Metrobank, in turn, credited RBGs special savings account. Metrobank
claims that the RBG also withdrew the entire credited amount from its account. The Central Bank
approved another loan application. As with the two other IBRD loans, the amount was credited to
Metrobanks demand deposit account, which amount Metrobank later credited in favor of RBGs
special savings account.
More than a month after RBG had made the above withdrawals from its account with Metrobank, the
Central Bank issued debit advices, reversing all the approved IBRD loans. The Central Bank
implemented the reversal by debiting from Metrobanks demand deposit account the amount
corresponding to all three IBRD loans.Upon receipt of debit advices, Metrobank, in turn, debited the
amounts from RBGs special savings account but however, Metrobank claimed that these amounts
were insufficient to cover all the credit advices that were reversed by the Central Bank. It demanded
payment from RBG which could make partial payments. To collect this amount, it filed a complaint for
collection of sum of money against RBG before the RTC.
ISSUE:
Whether or not there was legal subrogation that took place in the case.
RULING:
Yes. The Terms and Conditions of the IBRD 4th Rural Credit Project executed by the Central Bank and (2) When a third person, not interested in the obligation, pays with the express or tacit approval of

the RBG shows that the farmers-borrowers to whom credits have been extended, are primarily liable the debtor;

for the payment of the borrowed amounts. The loans were extended through the RBG which also
(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the
took care of the collection and of the remittance of the collection to the Central Bank. RBG, however,
obligation pays, without prejudice to the effects of confusion as to the latter’s share.
was not a mere conduit and collector. While the farmers-borrowers were the principal debtors, RBG

assumed liability under the Project Terms and Conditions by solidarily binding itself with the principal
Metrobank was a third party to the Central Bank-RBG agreement, had no interest except as a conduit,
debtors to fulfill the obligation.
and was not legally answerable for the IBRD loans. Despite this, it was Metrobanks demand deposit

account, instead of RBGs, which the Central Bank proceeded against, on the assumption perhaps that
The Central Bank was further authorized to deduct the amount due from RBGs demand deposit
this was the most convenient means of recovering the cancelled loans. That Metrobanks payment
reserve should the latter become delinquent in payment. Based on these arrangements, the Central
was involuntarily made does not change the reality that it was Metrobank which effectively answered
Banks immediate recourse, therefore should have been against the farmers-borrowers and the RBG;
for RBGs obligations.
thus, it erred when it deducted the amounts covered by the debit advices from Metrobanks demand

deposit account. Metrobank had no responsibility over the proceeds of the IBRD loans other than
After Metrobank received the Central Banks debit advices, it (Metrobank) accordingly debited the
serving as a conduit for their transfer from the Central Bank to the RBG once credit advice has been
amounts it could from RBGs special savings account without any objection from RBG. RBGs President
issued. The agreement governed only the parties involved the Central Bank and the RBG. Metrobank
and Manager, Dr. Aquiles Abellar, even wrote Metrobank with proposals regarding possible means of
was simply an outsider to the agreement. Our disagreement with the appellate court is in its
settling the amounts debited by Central Bank from Metrobank’s demand deposit account. These
conclusion that no legal subrogation took place; the present case, in fact, exemplifies the
instances are all indicative of RBGs approval of Metrobank’s payment of the IBRD loans. That RBGs
circumstance contemplated under paragraph 2, of Article 1302 of the Civil Code which provides:
tacit approval came after payment had been made does not completely negate the legal subrogation

that had taken place.

Art. 1302. It is presumed that there is legal subrogation:

Article 1303 of the Civil Code states that subrogation transfers to the person subrogated the credit
(1) When a creditor pays another creditor who is preferred, even without the debtors knowledge;
with all the rights thereto appertaining, either against the debtor or against third persons. As the
entity against which the collection was enforced, Metrobank was subrogated to the rights of Central

Bank and has a cause of action to recover from RBG the amounts it paid to the Central Bank.

* Case digest by Paula Bianca B. Eguia, LLB-1, Andres Bonifacio Law School, SY 2017-2018