Doctrine:

Novation cannot be presumed. It must be clearly and unequivocally shown that it indeed took place, either by the

express assent of the parties or by the complete incompatibility between the old and the new agreements.

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.

Facts:

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respondents acceptance thereof novated or superseded the note.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

Bognot vs. RRI Lending
GR No. 180144, September 24, 2014
Brion, J.:
Facts:
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.
Posted by Rahrah Miravit
__

BANK OF THE PHILIPPINE ISLANDS vs. DOMINGO R.

DANDO G.R. No. 177456 September 4, 2009 (Case Digest)
FACTS:

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.

ISSUE:

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
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.

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 wanton
failure to observe a mandatory requirement of the Rules. In fact, BPI, for the most part, exhibited
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.