"x x x.
I
Novation did not transpire because no
irreconcilable incompatibility existed
between the promissory note and the receipt
To buttress their claim of novation, the petitioners rely on the receipt issued on February 5, 1992 by respondent Veronica whereby Servando’s obligation was fixed at P750,000.00. They insist that even the maturity date was extended until February 29, 1992. Such changes, they assert, were incompatible with those of the original agreement under the promissory note.
The petitioners’ assertion is wrong.
A novation arises when there is a substitution of an obligation by a subsequent one that extinguishes the first, either by changing the object or the principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor.[16] For a valid novation to take place, there must be, therefore: (a) a previous valid obligation; (b) an agreement of the parties to make a new contract; (c) an extinguishment of the old contract; and (d) a valid new contract.[17]In short, the new obligation extinguishes the prior agreement only when the substitution is unequivocally declared, or the old and the new obligations are incompatible on every point. A compromise of a final judgment operates as a novation of the judgment obligation upon compliance with either of these two conditions.[18]
The receipt dated February 5, 1992, excerpted below, did not create a new obligation incompatible with the old one under the promissory note, viz:
February 5, 1992
Received from SERVANDO FRANCO BPI Manager’s Check No. 001700 in the amount of P400,00.00 as partial payment of loan. Balance of P375,000.00 to be paid on or before FEBRUARY 29, 1992. In case of default an interest will be charged as stipulated in the promissory note subject of this case.
(Sgd)
V. Gonzalez[19]
To be clear, novation is not presumed. This means that the parties to a contract should expressly agree to abrogate the old contract in favor of a new one. In the absence of the express agreement, the old and the new obligations must be incompatible on every point.[20] According to California Bus Lines, Inc. v. State Investment House, Inc.:[21]
The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or impliedly. The term “expressly” means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and the new obligations.
There is incompatibility when the two obligations cannot stand together, each one having its independent existence. If the two obligations cannot stand together, the latter obligation novates the first.[22] Changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must affect any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change is merely modificatory in nature and insufficient to extinguish the original obligation.[23]
In light of the foregoing, the issuance of the receipt created no new obligation. Instead, the respondents only thereby recognized the original obligation by stating in the receipt that the P400,000.00 was “partial payment of loan” and by referring to “the promissory note subject of the case in imposing the interest.” The loan mentioned in the receipt was still the same loan involving the P500,000.00 extended to Servando. Advertence to the interest stipulated in the promissory note indicated that the contract still subsisted, not replaced and extinguished, as the petitioners claim.
The receipt dated February 5, 1992 was only the proof of Servando’s payment of his obligation as confirmed by the decision of the RTC. It did not establish the novation of his agreement with the respondents. Indeed, the Court has ruled that an obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, or changes only the terms of payment, or adds other obligations not incompatible with the old ones, or the new contract merely supplements the old one.[24] A new contract that is a mere reiteration, acknowledgment or ratification of the old contract with slight modifications or alterations as to the cause or object or principal conditions can stand together with the former one, and there can be no incompatibility between them.[25] Moreover, a creditor’s acceptance of payment after demand does not operate as a modification of the original contract.[26]
Worth noting is that Servando’s liability was joint and solidary with his co-debtors. In a solidary obligation, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously.[27] The choice to determine against whom the collection is enforced belongs to the creditor until the obligation is fully satisfied.[28] Thus, the obligation was being enforced against Servando, who, in order to escape liability, should have presented evidence to prove that his obligation had already been cancelled by the new obligation or that another debtor had assumed his place. In case of change in the person of the debtor, the substitution must be clear and express,[29] and made with the consent of the creditor.[30] Yet, these circumstances did not obtain herein, proving precisely that Servando remained a solidary debtor against whom the entire or part of the obligation might be enforced.
Lastly, the extension of the maturity date did not constitute a novation of the previous agreement. It is settled that an extension of the term or period of the maturity date does not result in novation.[31]
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