Dear PAO,
On February 1, 2023, R obtained a loan from me, which matured on October 1, 2023. On May 15, 2023, his brother, S, also obtained a loan from me. In our loan agreement, S obligated himself to assume the loan obligations of R without prejudice to his right for reimbursement from R. Although S was able to pay two installments, he was unable to pay the balance of his loan. He was also not able to pay R’s loan. Now, despite my repeated demands, R refuses to pay his unpaid loan. He claims that my loan agreement with S has already novated our loan agreement. So, I can no longer demand anything from him. Is he correct? I reviewed our agreement, and nowhere does it say that my contract with R is terminated in lieu of my subsequent contract with S.
Timothy
Dear Timothy,
One of the modes to extinguish a civil obligation is by novation. It takes place by “(1) changing the object or principal conditions of the contract; (2) substituting the person of the debtor; (3) subrogating a third person in the rights of the creditor.” (Article 1291, New Civil Code of the Philippines).
R may have presupposed that your contract with his brother, S, novated your contract with him because S assumed R’s loan obligations with you. However, if your loan agreement with S did not expressly state that it terminates your earlier loan agreement with R, then we submit that R’s stance is incorrect. It bears stressing that one of the requisites for a valid novation is that there must be an extinguishment of the old contract, which appears to be absent in your case. Moreover, Article 1292 of the New Civil Code requires that novation must be stipulated in unequivocal terms or that the old and the new obligations be at every point incompatible with each other. Failure to make such an express stipulation will not extinguish the first/old obligation, even if there is a second/subsequent/new obligation.
To further elucidate, the Supreme Court, through Associate Justice Bienvenido Reyes, in the case of Ever Electrical Manufacturing, Inc./Vicente Go and George Go vs. Philippine Bank of Communications (PBCom), represented by its Vice President Domingo S. Aure (GR 187822-23, Aug. 3, 2016) clearly explained:
“x x x The following requisites must be met for novation to take place:
“(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.
“However, novation is never presumed. Article 1292 of the Civil Code provides:
“Art. 1292. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.
“x x x
“In Mercantile Insurance Co., Inc. v. CA, the Court said:
“The general rule is that novation is never presumed; it must always be clearly and unequivocally shown. Thus, ‘the mere fact that the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation, when there is no agreement that the first debtor shall be released from responsibility, does not constitute novation, and the creditor can still enforce the obligation against the original debtor.'” (Emphasis supplied)
Accordingly, R is still bound to pay you his unpaid loan obligation considering that, apart from the fact that there was no valid novation, it already matured and became demandable on Oct. 1, 2023.
We hope that we were able to answer your queries. This advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated on.
Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net
