ROWENA R. CABASObligations and Contracts

G.R. No. 154127. December 8, 2003Romeo C. Garcia, petitioner.vs.Dionisio V. Llamas, respondent.

FACTS OF THE CASE:

On December 23, 1996 Romeo Garcia and Eduardo de Jesus borrowed 400,000.00 from Dionisio V. Llamas. On the same day, they executed a promissory note wherein they bound themselves jointly and severally to pay the loan on or before Janaury 23, 1997 with a 5% interest per month. The loan has long been overdue and despite repeated demands, Garcia and de Jesus refused to pay the same. Garcia reasoned out that he has no liability under the promissory note because he signed it merely as an accommodation party for de Jesus and alternatively, 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. Garcia contended that the issuance of the check by de Jesus and the acceptance by Llamas novated or superseded the note. Llamas said that the loan remained unpaid because the checks issued by de Jesus bounced.

De Jesus mentioned in his answer that our of the 400,000.00 loan he received, only 360,000.00. was received by him. The 40,000.00 was for the advance interest for 2 months (January to February 1997). He had paid 120,000.00 (40,000.00, the equivalent value of his leave credits, 40,000.00 as advance interest, 40,000.00 as interest for the month of March and April 1997). He had difficulty paying the loan and asked Llamas for time but Llamas acted in bad faith in filing the case against them despite having agreed to accept the benefits de Jesus would receive from his retirement.

On July 7, 1998, the Regional Trial Court of Quezon City Branch 222 rendered judgment in favor of Llamas and against de Jesus and Garcia ordering them to pay jointly and severally the following sums:

1. 400,000.00 representing the principal amount plus 5% interest thereon per month from January 23, 1997 until the same shall have been fully paid, less the amount of 120,000.00 representing interests already paid by x x x de Jesus;2. 100,000.00 as attorneys fees and 2,000.00 for each day of court appearance; and3. Cost of the suit.

The Court of Appeals ordered the remanding of records and presentation of evidence as against de Jesus on the grounds that he has yet to present evidence while with respect to Garcia, the said court rules that no novation had taken place, thus, he is liable to Llamas in the manner stated in the promissory note. Feeling aggrieved, he filed the appeal.

ISSUE:

1. Whether or not the Court of Appeals erred in holding that no novation had taken place.

RULING:

No. Applying x x x, we hold that no novation took place. The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the acceptance of the check, or that the check would take place of the note. x x x As the Court of Appeals correctly observed, the check had been issued precisely to answer for the obligation. On the one hand, the note evidences the loan obligation; and on the other, the check answers for it.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.Article 1291 of the Civil Code states that: Obligations may be modified by:(1) Changing their object or principal conditions;(2) Substituting the person of the debtor;(3) Subrogating a third person in the right of the creditor.

The petition was denied and the assailed Court of Appeals decision affirmed with costs against the petitioner.