UP Law BGC Eve 2024 Garcia v.

Llamas
Oblicon Article 1293, NCC
SUMMARY
Garcia and De Jesus jointly and severally borrowed
money from Llamas. De Jesus paid to Llamas by check
but it bounced. Llamas filed complaint for payment.
Garcia argues that upon payment by De Jesus of check, it
novated the obligation making De Jesus the sole debtor,
therefore he is no longer liable for the loan. Court ruled
that there was no novation.
2003 Panganiban
DOCTRINE
There must be a complete incompatibility between the old
and new obligation, or novation must be expressed in
unequivocal terms. It must be noted that for novation to
be valid and legal, the law requires that the creditor
expressly consent to the substitution of a new debtor.
There must be a change in the person of the debtor, or
subrogation of rights.

FACTS

 23 December 1996: GARCIA (Petitioner) and DE JESUS borrowed PhP 400k from LLAMAS (Respondent) with the
execution of a promissory note where they bound themselves jointly and severally to pay the loan on or before 23
January 1997.
 17 April 1997: De Jesus paid Llamas by check, but the check bounced.
 De Jesus have also paid Llamas a total of PhP 120k as “advanced payments”
 Llamas filed a complaint for sum of money with the RTC. Arguments of the parties are the following:
o Garcia: He assumes no liability because he signed the promissory note as an accommodation party for
de Jesus. Also, by payment of check by De Jesus to Llamas, he is relieved of liability. In fact, the issuance of
the check and its acceptance by Llamas NOVATED the promissory note.
o De Jesus: He asserts that the he only received PhP 360,000 from Llamas, and the PhP 40k are advanced
payments. (Total of PhP 160k “advanced interests” paid). Llamas also acted in bad faith in filing the case
because he previously agreed to accept the benefits De Jesus would receive while his retirement is being
processed.
o Llamas: He asserts that their solidary liability under the promissory note cannot be any clearer. Issuance of
check (which bounced) did not discharge the loan.
 RTC ruled in favor of Llamas and ordered De Jesus and Garcia to pay the remaining amount. This ruling was a
judgement on pleadings and no trial took place (since Garcia and de Jesus did not show up).
 Case was raised to CA. CA ruled the following:
o RTC erred in rendering a judgement against DE JESUS because he raised genuinely contentious issues
(meaning there should be a trial based on evidence). Case against him was remanded to RTC.
o For GARCIA, CA treated his case as summary judgement because his answer had failed to raise genuine
issues regarding any material fact.
o No novation took place when Llamas accepted the check. The check was issued precisely to pay for the loan
covered by the promissory note. Acceptance of the check did not serve to make De Jesus the sole debtor
because it is clear in the obligation that they are solidarily liable and that the check bounced.
 Hence, petition by Garcia.

RATIO

W/N there was novation in the obligation

No. 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. (see Art. 1293)

2 modes of substituting the person of the debtor:

1. Expromision: initiative for the change does not come from (or may be even without the knowledge of) the debtor,
since it consists of a third person’s assumption of the obligation.
2. Delegacion: the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes
the obligation. Consent of three persons are necessary.
*BOTH MODES required consent of the creditor.

Novation may be:

1. Extinctive: when an old obligation is terminated by the creation of a new one
2. Modificatory: when the old obligation subsists to the extent that it remains compatible with the amendatory
agreement

Novation may be:

1. Objective or real: by changing the object or the principal conditions
2. Subjective or personal: by substituting the person of the debtor or subrogating a third person to the rights of the
creditor

Requisites:
1. There must be a previous valid obligation
2. Parties concerned must agree to a new contract
3. Old contract must be extinguished
4. There must be a valid new contract
Novation may also be:
1. Express: the new obligation declares in unequivocal terms that the old obligation is extinguished
2. Implied: the new obligation is incompatible with the old one on every point
*TEST OF INCOMPATIBILITY: whether the 2 obligations can stand together, each one with its own independent
existence.

In this case, no novation took place:

 Parties did not unequivocally declare that the old obligation had been extinguished by the issuance and acceptance of
the check, or that the check would replace the note.
 No incompatibility between the promissory note and the check. Check had been issued precisely to answer for the
obligation. The note evidences the obligation; the check answers for it. The two can stand together.
 Neither could the payment of interests change the terms and conditions of the obligation. Such payment was already
provided for in the promissory note.
 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 former’s place in the relation.
 It must be noted that for novation to be valid and legal, the law requires that the creditor expressly consent to the
substitution of a new debtor.
 More importantly, De Jesus was not a third person to the obligation.

W/N CA erred in not holding that Garcia is merely an accommodation party (not under the syllabus)
No. The promissory note is NOT a negotiable instrument. The note was made payable to a specific person rather than to
bearer or to order, which is a requisite for negotiability under Act 2031. (will not delve into this)

W/N judgement against Garcia, whether be it judgement on pleadings or summary judgement, was proper
(not under the syllabus)
Yes. A summary judgement is a procedural device designed for the prompt disposition of actions in which the pleadings
raise only a legal, not a genuine, issue regarding any material fact. A judgement on the pleading is proper when an answer
fails to render an issue or otherwise admits the material allegations of the adverse party’s pleading. The trial court’s
judgement against petitioner was correctly treated by CA as a summary judgement. His answer raised several issues but are
not factual issues requiring trial. (will not delve into this)

FALLO

WHEREFORE, petition is DENIED.