Civil Case 86-37374
August 12, 1982 P78,212.29 Nov. 10, 1982 Feb. 8, 1983
May 9, 1983
Aug. 7, 1983
Civil Case 86-37388
July 19, 1982 P632,911.39 Jan. 15, 1983 May 16, 1983
Aug. 14, 1983
Civil Case 86-37543
September 14, 1982 P510,000.00 March 13, 1983 June 11, 1983
Sept. 9, 1983
October 1, 1982 P494,936.71 March 30, 1983 June 28, 1983
Sept. 26, 1983
In their answer, petitioners interposed the defense of novation and insisted there was a valid substitution of debtor. They alleged that the addendum specifically states that although the promissory notes were in their names, Wonderland shall be responsible for the payment thereof.
The trial court held that petitioners are liable, to wit:chanrob1es virtual 1aw library
The evidences, however, disclose that Wonderland did not comply with its obligation under said ‘Addendum’ (Exh.’S’) as the agreement to turn over the farmland to it, did not materialize (57 tsn, May 29, 1990), and there was, actually no sale of the land (58 tsn, ibid). Hence, Wonderland is not answerable. And since the loans obtained under the four promissory notes (Exhs.’A’, ‘C’, ‘G’, and ‘E’) have not been paid, despite opportunities given by plaintiff to defendants to make payments, it stands to reason that defendants are liable to pay their obligations thereunder to plaintiff. In fact, defendants failed to file a third-party complaint against Wonderland, which shows the weakness of its stand that Wonderland is answerable to make said payments. 7
Petitioners appealed to the Court of Appeals. The trial court’s decision was affirmed by the appellate court.
Hence, this recourse, wherein petitioners raise the sole issue of:chanrob1es virtual 1aw library
WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ADDENDUM, SIGNED BY THE PETITIONERS, RESPONDENT BANK AND WONDERLAND INC., CONSTITUTES A NOVATION OF THE CONTRACT BY SUBSTITUTION OF DEBTOR, WHICH EXEMPTS THE PETITIONERS FROM ANY LIABILITY OVER THE PROMISSORY NOTES.
Revealed by the facts on record, the conflict among the parties started from a contract of sale of a farmland between petitioners and Wonderland Food Industries, Inc. As found by the trial court, no such sale materialized.
A contract of sale is a reciprocal transaction. The obligation or promise of each party is the cause or consideration for the obligation or promise by the other. The vendee is obliged to pay the price, while the vendor must deliver actual possession of the land. In the instant case the original plan was that the initial payments would be paid in cash. Subsequently, the parties (with the participation of respondent bank) executed an addendum providing instead, that the petitioners would secure a loan in the name of Agro Conglomerates Inc. for the total amount of the initial payments, while the settlement of said loan would be assumed by Wonderland. Thereafter, petitioner Soriano signed several promissory notes and received the proceeds in behalf of petitioner-company.chanrob1es virtua1 1aw 1ibrary
By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as maker and accommodation party for the benefit of Wonderland. Petitioners became liable as accommodation party. An accommodation party is a person who has signed the instrument as maker, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person and is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an accommodation party. 8 He has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation between them has in effect become one of principal and surety, the accommodation party being the surety. 9 Suretyship is defined as the relation which exists where one person has undertaken an obligation and another person is also under the obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, one rather than the other should perform. 10 The surety’s liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. 11 And the creditor may proceed against any one of the solidary debtors. 12
We do not give credence to petitioners’ assertion that, as provided by the addendum, their obligation to pay the promissory notes was novated by "substitution" of a new debtor, Wonderland. Contrary to petitioners’ contention, the attendant facts herein do not make a case of novation.
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. 13 In order that a novation can take place, the concurrence of the following requisites 14 are indispensable:chanrob1es virtual 1aw library
1) There must be a previous valid obligation;
2) There must be an agreement of the parties concerned to a new contract;
3) There must be the extinguishment of the old contract; and
4) There must be the validity of the new contract.
In the instant case, the first requisite for a valid novation is lacking. There was no novation by "substitution" of debtor because there was no prior obligation which was substituted by a new contract. It will be noted that the promissory notes, which bound the petitioners to pay, were executed after the addendum. The addendum modified the contract of sale, not the stipulations in the promissory notes which pertain to the surety contract. At this instance, Wonderland apparently assured the payment of future debts to be incurred by the petitioners. Consequently, only a contract of surety arose. It was wrong for petitioners to presume a novation had taken place. The well-settled rule is that novation is never presumed, 15 must be clearly and unequivocally shown. 16
As it turned out, the contract of surety between Wonderland and the petitioners was extinguished by the rescission of the contract of sale of the farmland. With the rescission, there was confusion or merger in the persons of the principal obligor and the surety, namely the petitioners herein. The addendum which was dependent thereon likewise lost its efficacy.
It is true that the basic and fundamental rule in the interpretation of contract is that, if the terms thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning shall control. However, in order to judge the intention of the parties, their contemporaneous and subsequent acts should be considered. 17
The contract of sale between Wonderland and petitioners did not materialize. But it was admitted that petitioners received the proceeds of the promissory notes obtained from respondent bank.chanrob1es virtua1 1aw 1ibrary
Sec. 22 of the Civil Code provides:chanrob1es virtual 1aw library
Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.
Petitioners had no legal or just ground to retain the proceeds of the loan at the expense of private Respondent. Neither could petitioners excuse themselves and hold Wonderland still liable to pay the loan upon the rescission of their sales contract. If petitioners sustained damages as a result of the rescission, they should have impleaded Wonderland and asked damages. The non-inclusion of a necessary part does not prevent the court from proceeding in the action, and the judgment rendered therein shall be without prejudice to the rights of such necessary party. 18 But respondent appellate court did not err in holding that petitioners are duty-bound under the law to pay the claims of respondent bank from whom they had obtained the loan proceeds.
WHEREFORE, the petition is DENIED for lack of merit. The assailed decision of the Court of Appeals dated October 17, 1994 is AFFIRMED. Costs against petitioners.
SO ORDERED.chanrob1es virtua1 1aw 1ibrary
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
Endnotes:
1. Rollo, pp. 49-55.
2. Id. at 68-70.
3. Id. at 71-73.
4. Id. at 74-75.
5. Id. at 74 only.
6. Records, pp. 159, 162, 167, 171.
7. Rollo, p. 68.
8. The Negotiable Instruments Law, Section 29.
9. People v. Maniego, 148 SCRA 30, 35 (1987); Philippine National Bank v. Maza and Mecenas, 48 Phil. 207 (1925).
10. 74 Am Jur 2d, Suretyship, Sec. 1.
11. Garcia, Jr. v. Court of Appeals, 191 SCRA 493, 496 (1990).
12. Civil Code of the Philippines, Art. 1216.
13. Ajax Marketing & Development Corporation v. Court of Appeals, 248 SCRA 222, 226 (1995); citing FRANCISCO, V. J. Civil Code of the Philippines Annotated and Committed, Bk IV Part 1, p. 676, citing 8 Manresa 417; De Cortes v. Venturanza, 79 SCRA 709, 722-723 (1977).
14. Reyes v. Court of Appeals 264 SCRA 35, 43 (1996).
15. Ajax Marketing and Development Corporation v. Court of Appeals, 248 SCRA 222, 227 (1995); Goñi v. Court of Appeals 144 SCRA 222, (1986).
16. Mercantile Insurance Co., Inc., v. Court of Appeals, 196 SCRA 197, 204 (1991).
17. Manila Surety & Fidelity Co., Inc. v. Court of Appeals, 191 SCRA 805, 812 (1990); citing Mercantile Insurance Co., Inc. v. Felipe Ysmael, Jr. & Co. Inc., 169 SCRA 66, 74 (1989); Sy v. Court of Appeals, 131 SCRA 116 (1984); GSIS v. Court of Appeals, Et Al., 145 SCRA 311 (1986).
18. Revised Rules of Court, Civil Procedure; Sec. 9, Rule 3, par. 3.