FIRST DIVISION G.R. No. 161135. April 8, 2005 SWAGMAN HOTELS AND TRAVEL, INC., Petitioners, vs. HON.

CO RT O! A""EALS, #$% NEAL &. CHRISTIAN, Respondents. DECISION DAVIDE, 'R., C.J.( May a complaint t at lac!s a ca"se o# action at t e time it $as #iled %e c"red %y t e accr"al o# a ca"se o# action d"rin& t e pendency o# t e case' T is is t e %asic iss"e raised in t is petition #or t e Co"rt(s consideration. Sometime in )**+ and )**,, petitioner S$a&man -otels and Travel, Inc., t ro"& .tty. /eonor /. In#ante and Rodney David -e&erty, its president and vice0president, respectively, o%tained #rom private respondent Neal 1. C ristian loans evidenced %y t ree promissory notes dated , ."&"st )**+, )2 Marc )**,, and )2 3"ly )**,. Eac o# t e promissory notes is in t e amo"nt o# 4S567,777 paya%le a#ter t ree years #rom its date $it an interest o# )68 per ann"m paya%le every t ree mont s.) In a letter dated )+ Decem%er )**9, C ristian in#ormed t e petitioner corporation t at e $as terminatin& t e loans and demanded #rom t e latter payment in t e total amo"nt o# 4S5)67,777 pl"s "npaid interests in t e total amo"nt o# 4S5):,677.; On ; Fe%r"ary )***, private respondent C ristian #iled $it t e Re&ional Trial Co"rt o# 1a&"io City, 1ranc 6*, a complaint #or a s"m o# money and dama&es a&ainst t e petitioner corporation, -e&erty, and .tty. In#ante. T e complaint alle&ed as #ollo$s< On , ."&"st )**+, )2 Marc )**,, and )2 3"ly )**,, t e petitioner, as $ell as its president and vice0president o%tained loans #rom im in t e total amo"nt o# 4S5)67,777 paya%le a#ter t ree years, $it an interest o# )68 per ann"m paya%le ="arterly or every t ree mont s. For a $ ile, t ey paid an interest o# )68 per ann"m every t ree mont s in accordance $it t e t ree promissory notes. -o$ever, startin& 3an"ary )**9 "ntil Decem%er )**9, t ey paid im only an interest o# +8 per ann"m, instead o# )68 per ann"m, in violation o# t e terms o# t e t ree promissory notes. T "s, C ristian prayed t at t e trial co"rt order t em to pay im >ointly and solidarily t e amo"nt o# 4S5)67,777 representin& t e total amo"nt o# t e loans? 4S5):,677 representin& "npaid

interests #rom 3an"ary )**9 "ntil Decem%er )**9? P)77,777 #or moral dama&es? P67,777 #or attorney(s #ees? and t e cost o# t e s"it.: T e petitioner corporation, to&et er $it its president and vice0president, #iled an .ns$er raisin& as de#enses lac! o# ca"se o# action and novation o# t e principal o%li&ations. .ccordin& to t em, C ristian ad no ca"se o# action %eca"se t e t ree promissory notes $ere not yet d"e and demanda%le. In Decem%er )**,, since t e petitioner corporation $as e@periencin& "&e losses d"e to t e .sian #inancial crisis, C ristian a&reed AaB to $aive t e interest o# )68 per ann"m, and A%B accept payments o# t e principal loans in installment %asis, t e amo"nt and period o# $ ic $o"ld depend on t e state o# %"siness o# t e petitioner corporation. T "s, t e petitioner paid C ristian capital repayment in t e amo"nt o# 4S5,67 per mont #rom 3an"ary )**9 "ntil t e time t e complaint $as #iled in Fe%r"ary )***. T e petitioner and its co0de#endants t en prayed t at t e complaint %e dismissed and t at C ristian %e ordered to pay P) million as moral dama&es? P677,777 as e@emplary dama&es? and P)77,777 as attorney(s #ees.2 In d"e co"rse and a#ter earin&, t e trial co"rt rendered a decision6 on 6 May ;777 declarin& t e #irst t$o promissory notes dated , ."&"st )**+ and )2 Marc )**, as already d"e and demanda%le and t at t e interest on t e loans ad %een red"ced %y t e parties #rom )68 to +8 per ann"m. It t en ordered t e petitioner corporation to pay C ristian t e amo"nt o# 5)77,777 representin& t e principal o%li&ation covered %y t e promissory notes dated , ."&"st )**+ and )2 Marc )**,, Cpl"s interest o# +8 per mont t ereon "ntil #"lly paid, $it all interest payments already paid %y t e de#endant to t e plainti## to %e ded"cted t ere#rom.C T e trial co"rt ratiocinated in t is $ise< A)B T ere $as no novation o# de#endant(s o%li&ation to t e plainti##. 4nder .rticle );*; o# t e Civil Code, t ere is an implied novation only i# t e old and t e ne$ o%li&ation %e on every point incompati%le $it one anot er. T e test o# incompati%ility %et$een t e t$o o%li&ations or contracts, accordin& to an imminent a"t or, is $ et er t ey can stand to&et er, eac one avin& an independent e@istence. I# t ey cannot, t ey are incompati%le, and t e s"%se="ent o%li&ation novates t e #irst ATolentino, Civil Code o# t e P ilippines, Vol. IV, )**) ed., p. :92B. Ot er$ise, t e old o%li&ation $ill contin"e to s"%sist s"%>ect to t e modi#ications a&reed "pon %y t e parties. T "s, it as %een $ritten t at accidental modi#ications in an e@istin& o%li&ation do not e@tin&"is it %y novation. Mere modi#ications o# t e de%t a&reed "pon )

%et$een t e parties do not constit"te novation. D en t e c an&es re#er to secondary a&reement and not to t e o%>ect or principal conditions o# t e contract, t ere is no novation? s"c c an&es $ill prod"ce modi#ications o# incidental #acts, %"t $ill not e@tin&"is t e ori&inal o%li&ation. T "s, t e acceptance o# partial payments or a partial remission does not involve novation Aid., p. :9,B. Neit er does t e red"ction o# t e amo"nt o# an o%li&ation amo"nt to a novation %eca"se it only means a partial remission or condonation o# t e same de%t. In t e instant case, t e Co"rt is o# t e vie$ t at t e parties merely intended to c an&e t e rate o# interest #rom )68 per ann"m to +8 per ann"m $ en t e de#endant started payin& 5,67 per mont $ ic payments $ere all accepted %y t e plainti## #rom 3an"ary )**9 on$ard. T e payment o# t e principal o%li&ation, o$ever, remains "na##ected $ ic means t at t e de#endant s o"ld still pay t e plainti## 567,777 on ."&"st *, )***, Marc )2, ;777 and 3"ly )2, ;777. A;B D en t e instant case $as #iled on Fe%r"ary ;, )***, none o# t e promissory notes $as d"e and demanda%le. .s o# t is date o$ever, t e #irst and t e second promissory notes ave already mat"red. -ence, payment is already d"e. 4nder Section 6 o# R"le )7 o# t e )**, R"les o# Civil Proced"re, a complaint $ ic states no ca"se o# action may %e c"red %y evidence presented $it o"t o%>ection. T "s, even i# t e plainti## ad no ca"se o# action at t e time e #iled t e instant complaint, as de#endants( o%li&ation are not yet d"e and demanda%le t en, e may nevert eless recover on t e #irst t$o promissory notes in vie$ o# t e introd"ction o# evidence s o$in& t at t e o%li&ations covered %y t e t$o promissory notes are no$ d"e and demanda%le. A:B Individ"al de#endants Rodney -e&erty and .tty. /eonor /. In#ante can not %e eld personally lia%le #or t e o%li&ations contracted %y t e de#endant corporation it %ein& clear t at t ey merely acted in representation o# t e de#endant corporation in t eir capacity as Eeneral Mana&er and President, respectively, $ en t ey si&ned t e promissory notes as evidenced %y 1oard Resol"tion No. )A*2B passed %y t e 1oard o# Directors o# t e de#endant corporation AE@ i%it C2CB.+ In its decision, o# 6 Septem%er ;77:, t e Co"rt o# .ppeals denied petitioner(s appeal and a##irmed in toto t e decision o# t e trial co"rt, oldin& as #ollo$s<

In t e case at %enc , t ere is no incompati%ility %eca"se t e c an&es re#erred to %y appellant S$a&man consist only in t e manner o# payment. . . . .ppellant S$a&man(s interpretation t at t e t ree A:B promissory notes ave %een novated %y reason o# appellee C ristian(s acceptance o# t e mont ly payments o# 4S5,67.77 as capital repayments contin"o"sly even a#ter t e #ilin& o# t e instant case is a little %it strained considerin& t e sti## re="irements o# t e la$ on novation t at t e intention to novate m"st appear %y e@press a&reement o# t e parties, or %y t eir acts t at are too clear and "ne="ivocal to %e mista!en. 4nder t e circ"mstances, t e more reasona%le interpretation o# t e act o# t e appellee C ristian in receivin& t e mont ly payments o# 4S5,67.77 is t at appellee C ristian merely allo$ed appellant S$a&man to pay $ atever amo"nt t e latter is capa%le o#. T is interpretation is s"pported %y t e letter o# demand dated Decem%er )+, )**9 $ erein appellee C ristian demanded #rom appellant S$a&man to ret"rn t e principal loan in t e amo"nt o# 4S5)67,777 pl"s "npaid interest in t e amo"nt o# 4S5):,677.77 ... .ppellant S$a&man, li!e$ise, contends t at, at t e time o# t e #ilin& o# t e complaint, appellee C ristian aFdG no ca"se o# action %eca"se none o# t e promissory notes $as d"e and demanda%le. .&ain, De are not pers"aded. ... In t e case at %enc , $ ile it is tr"e t at appellant S$a&man raised in its .ns$er t e iss"e o# premat"rity in t e #ilin& o# t e complaint, appellant S$a&man nonet eless #ailed to o%>ect to appellee C ristian(s presentation o# evidence to t e e##ect t at t e promissory notes ave %ecome d"e and demanda%le. T e a#ore0="oted r"le allo$s a complaint $ ic states no ca"se o# action to %e c"red eit er %y evidence presented $it o"t o%>ection or, in t e event o# an o%>ection s"stained %y t e co"rt, %y an amendment o# t e complaint $it leave o# co"rt A-errera, Remedial /a$, Vol. VII, )**, ed., p. )79B.9

Its motion #or reconsideration avin& %een denied %y t e Co"rt o# .ppeals in its Resol"tion o# 2 Decem%er ;77:,* t e petitioner came to t is Co"rt raisin& t e #ollo$in& iss"es< I. D-ERE T-E DECISION OF T-E TRI./ CO4RT DROPPINE TDO DEFEND.NTS -.S 1ECOME FIN./ .ND EHEC4TORI, M.I T-E RESPONDENT CO4RT OF .PPE./S STI// ST411ORN/I CONSIDER T-EM .S .PPE//.NTS D-EN T-EI DID NOT .PPE./' ii. D ere t ere is no ca"se o# action, is t e decision o# t e lo$er co"rt valid' III. M.I T-E RESPONDENT CO4RT OF .PPE./S V./ID/I .FFIRM . DECISION OF T-E /ODER CO4RT D-IC- IS INV./ID D4E TO /.CJ OF C.4SE OF .CTION' IV. D ere t ere is a valid novation, may t e ori&inal terms o# contract $ ic novated still prevail')7 as %een

). . ri& t in #avor o# t e plainti## %y $ atever means and "nder $ atever la$ it arises or is created? ;. .n o%li&ation on t e part o# t e named de#endant to respect or not to violate s"c ri& t? and :. .ct or omission on t e part o# s"c de#endant in violation o# t e ri& t o# t e plainti## or constit"tin& a %reac o# t e o%li&ation o# t e de#endant to t e plainti## #or $ ic t e latter may maintain an action #or recovery o# dama&es or ot er appropriate relie#.)) It is, t "s, only "pon t e occ"rrence o# t e last element t at a ca"se o# action arises, &ivin& t e plainti## t e ri& t to maintain an action in co"rt #or recovery o# dama&es or ot er appropriate relie#. It is "ndisp"ted t at t e t ree promissory notes $ere #or t e amo"nt o# P67,777 eac and "ni#ormly provided #or A)B a term o# t ree years? A;B an interest o# )6 8 per ann"m, paya%le ="arterly? and A:B t e repayment o# t e principal loans a#ter t ree years #rom t eir respective dates. -o$ever, %ot t e Co"rt o# .ppeals and t e trial co"rt #o"nd t at a rene&otiation o# t e t ree promissory notes indeed appened in Decem%er )**, %et$een t e private respondent and t e petitioner res"ltin& in t e red"ction K not $aiver K o# t e interest #rom )68 to +8 per ann"m, $ ic #rom t en on $as paya%le mont ly, instead o# ="arterly. T e term o# t e principal loans remained "nc an&ed in t at t ey $ere still d"e t ree years #rom t e respective dates o# t e promissory notes. T "s, at t e time t e complaint $as #iled $it t e trial co"rt on ; Fe%r"ary )***, none o# t e t ree promissory notes $as d"e yet? alt o"& , t$o o# t e promissory notes $it t e d"e dates o# , ."&"st )*** and )2 Marc ;777 mat"red d"rin& t e pendency o# t e case $it t e trial co"rt. 1ot co"rts also #o"nd t at t e petitioner ad %een reli&io"sly payin& t e private respondent 4S5,67 per mont #rom 3an"ary )**9 and even d"rin& t e pendency o# t e case %e#ore t e trial co"rt and t at t e private respondent ad accepted all t ese mont ly payments. Dit t ese #indin&s o# #acts, it as %ecome &larin&ly o%vio"s t at $ en t e complaint #or a s"m o# money and dama&es $as #iled $it t e trial co"rt on ; Fe%r"ary )***, no ca"se o# action as as yet e@isted %eca"se t e petitioner ad not committed any act in violation o# t e terms o# t e t ree promissory notes as modi#ied %y t e rene&otiation in Decem%er )**,. Dit o"t a ca"se o# action, t e private respondent ad no ri& t to maintain an action in co"rt, and t e trial co"rt s o"ld ave t ere#ore dismissed is complaint. :

T e petitioner arps on t e a%sence o# a ca"se o# action at t e time t e private respondent(s complaint $as #iled $it t e trial co"rt. In connection $it t is, t e petitioner raises t e iss"e o# novation %y ar&"in& t at its o%li&ations "nder t e t ree promissory notes $ere novated %y t e rene&otiation t at appened in Decem%er )**, $ erein t e private respondent a&reed to $aive t e interest in eac o# t e t ree promissory notes and to accept 4S5,67 per mont as installment payment #or t e principal loans in t e total amo"nt o# 4S5)67,777. /astly, t e petitioner ="estions t e act o# t e Co"rt o# .ppeals in considerin& -e&erty and In#ante as appellants $ en t ey no lon&er appealed %eca"se t e trial co"rt ad already a%solved t em o# t e lia%ility o# t e petitioner corporation. On t e ot er and, t e private respondent asserts t at t is petition is Ca mere ploy to contin"e delayin& t e payment o# a >"st o%li&ation.C .nent t e #act t at -e&erty and .tty. In#ante $ere considered %y t e Co"rt o# .ppeals as appellants, t e private respondent #inds it immaterial %eca"se t ey are not a##ected %y t e assailed decision any$ay. Ca"se o# action, as de#ined in Section ;, R"le ; o# t e )**, R"les o# Civil Proced"re, is t e act or omission %y $ ic a party violates t e ri& t o# anot er. Its essential elements are as #ollo$s<

Despite its #indin& t at t e petitioner corporation did not violate t e modi#ied terms o# t e t ree promissory notes and t at t e payment o# t e principal loans $ere not yet d"e $ en t e complaint $as #iled, t e trial co"rt did not dismiss t e complaint, citin& Section 6, R"le )7 o# t e )**, R"les o# Civil Proced"re, $ ic reads< Section 6. Amendment to conform to or authorize presentation of evidence. L D en iss"es not raised %y t e pleadin&s are tried $it t e e@press or implied consent o# t e parties, t ey s all %e treated in all respects as i# t ey ad %een raised in t e pleadin&s. S"c amendment o# t e pleadin&s as may %e necessary to ca"se t em to con#orm to t e evidence and to raise t ese iss"es may %e made "pon motion o# any party at any time, even a#ter >"d&ment? %"t #ail"re to amend does not a##ect t e res"lt o# t e trial o# t ese iss"es. I# evidence is o%>ected to at t e trial on t e &ro"nd t at it is not $it in t e iss"es made %y t e pleadin&s, t e co"rt may allo$ t e pleadin&s to %e amended and s all do so $it li%erality i# t e presentation o# t e merits o# t e action and t e ends o# s"%stantial >"stice $ill %e s"%served t ere%y. T e co"rt may &rant a contin"ance to ena%le t e amendment to %e made. .ccordin& to t e trial co"rt, and s"stained %y t e Co"rt o# .ppeals, t is Section allo$s a complaint t at does not state a ca"se o# action to %e c"red %y evidence presented $it o"t o%>ection d"rin& t e trial. T "s, it r"led t at even i# t e private respondent ad no ca"se o# action $ en e #iled t e complaint #or a s"m o# money and dama&es %eca"se none o# t e t ree promissory notes $as d"e yet, e co"ld nevert eless recover on t e #irst t$o promissory notes dated , ."&"st )**+ and )2 Marc )**,, $ ic %ecame d"e d"rin& t e pendency o# t e case in vie$ o# t e introd"ction o# evidence o# t eir mat"rity d"rin& t e trial. S"c interpretation o# Section 6, R"le )7 o# t e )**, R"les o# Civil Proced"re is erroneo"s. .mendments o# pleadin&s are allo$ed "nder R"le )7 o# t e )**, R"les o# Civil Proced"re in order t at t e act"al merits o# a case may %e determined in t e most e@peditio"s and ine@pensive manner $it o"t re&ard to tec nicalities, and t at all ot er matters incl"ded in t e case may %e determined in a sin&le proceedin&, t ere%y avoidin& m"ltiplicity o# s"its.); Section 6 t ereo# applies to sit"ations $ erein evidence not $it in t e iss"es raised in t e pleadin&s is presented %y t e parties d"rin& t e trial, and to con#orm to s"c evidence t e pleadin&s are s"%se="ently amended on motion o# a party. T "s, a complaint $ ic #ails to state a ca"se o# action may %e c"red %y evidence presented d"rin& t e trial.

-o$ever, t e c"rin& e##ect "nder Section 6 is applica%le only if a cause of action in fact exists at the time the complaint is filed, but the complaint is defective for failure to allege the essential facts. For e@ample, i# a complaint #ailed to alle&e t e #"l#illment o# a condition precedent "pon $ ic t e ca"se o# action depends, evidence s o$in& t at s"c condition ad already %een #"l#illed $ en t e complaint $as #iled may %e presented d"rin& t e trial, and t e complaint may accordin&ly %e amended t erea#ter.): T "s, in Roces v. Jalandoni,)2 t is Co"rt "p eld t e trial co"rt in ta!in& co&niMance o# an ot er$ise de#ective complaint $ ic $as later c"red %y t e testimony o# t e plainti## d"rin& t e trial. In t at case, t ere $as in #act a ca"se o# action and t e only pro%lem $as t e ins"##iciency o# t e alle&ations in t e complaint. T is r"lin& $as reiterated in Pascua v. Court of Appeals.)6 It t "s #ollo$s t at a complaint $ ose ca"se o# action as not yet accr"ed cannot %e c"red or remedied %y an amended or s"pplemental pleadin& alle&in& t e e@istence or accr"al o# a ca"se o# action $ ile t e case is pendin&.)+ S"c an action is premat"rely %ro"& t and is, t ere#ore, a &ro"ndless s"it, $ ic s o"ld %e dismissed %y t e co"rt "pon proper motion seasona%ly #iled %y t e de#endant. T e "nderlyin& reason #or t is r"le is t at a person s o"ld not %e s"mmoned %e#ore t e p"%lic tri%"nals to ans$er #or complaints $ ic are immat"re. .s t is Co"rt elo="ently said in Surigao ine !xploration Co., "nc. v. #arris<), It is a r"le o# la$ to $ ic t ere is, per aps, no e@ception, eit er at la$ or in e="ity, t at to recover at all )*+r+ ,-.) /+ .o,+ 0#-.+ o1 #0)io$ #) )*+ 0o,,+$0+,+$) o1 )*+ .-i). .s o%served %y co"nsel #or appellees, t ere are reasons o# p"%lic policy $ y t ere s o"ld %e no needless aste in %rin&in& "p liti&ation, and $ y people $ o are in no de#a"lt and a&ainst $ om t ere is yet no ca"se o# action s o"ld not %e s"mmoned %e#ore t e p"%lic tri%"nals to ans$er complaints $ ic are &ro"ndless. De say &ro"ndless %eca"se i# t e action is immat"re, it s o"ld not %e entertained, and an action premat"rely %ro"& t is a &ro"ndless s"it. It is tr"e t at an amended complaint and t e ans$er t ereto ta!e t e place o# t e ori&inals $ ic are t ere%y re&arded as a%andoned AReynes vs. CompaNOa Eeneral de Ta%acos F)*);G, ;) P il. 2)+? R"yman and Farris vs. Director o# /ands F)*)+G, :2 P il., 2;9B and t at Ct e complaint and ans$er avin& %een s"perseded %y t e amended complaint and ans$er t ereto, and t e ans$er to t e ori&inal complaint not avin& %een presented in evidence as an e@ i%it, t e trial co"rt $as not a"t oriMed to ta!e it into acco"nt.C A1astida vs. MenMi P Co. F)*::G, 69 P il., )99.B 1"t in none o# t ese cases or in any ot er case ave $e eld t at i# a ri& t o# action did not e@ist $ en t e ori&inal 2

complaint $as #iled, one co"ld %e created %y #ilin& an amended complaint. In some >"risdictions in t e 4nited States $ at $as termed an Cimper#ect ca"se o# actionC co"ld %e per#ected %y s"ita%le amendment A1ro$n vs. Ealena Minin& P Smeltin& Co., :; Jan., 6;9? -ooper vs. City o# .tlanta, ;+ Ea. .pp., ;;)B and t is is virt"ally permitted in 1anMon and Rosa"ro vs. Sellner AF)*::G, 69 P il., 26:B? .siatic Potrole"m FsicG Co. vs. Veloso AF)*:6G, +; P il., +9:B? and recently in Ramos vs. Ei%%on A:9 O##. EaM., ;2)B. T*#), *o2+3+r, 2*i0* i. $o 0#-.+ o1 #0)io$ 2*#).o+3+r 0#$$o) /4 #,+$%,+$) or .-ppl+,+$)#l pl+#%i$5 %e converted into a ca"se o# action< $ihil de re accrescit ei %ui nihil in re %uando &us accresceret habet. De are t ere#ore o# t e opinion, and so old, t at -$l+.. )*+ pl#i$)i11 *#. # 3#li% #$% .-/.i.)i$5 0#-.+ o1 #0)io$ #) )*+ )i,+ *i. #0)io$ i. 0o,,+$0+%, )*+ %+1+0) 0#$$o) /+ 0-r+% or r+,+%i+% /4 )*+ #06-i.i)io$ or #00r-#l o1 o$+ 2*il+ )*+ #0)io$ i. p+$%i$5, #$% # .-ppl+,+$)#l 0o,pl#i$) or #$ #,+$%,+$) .+))i$5 -p .-0* #1)+r7#00r-+% 0#-.+ o1 #0)io$ i. $o) p+r,i..i/l+. AEmp asis o"rsB. -ence, contrary to t e oldin& o# t e trial co"rt and t e Co"rt o# .ppeals, t e de#ect o# lac! o# ca"se o# action at t e commencement o# t is s"it cannot %e c"red %y t e accr"al o# a ca"se o# action d"rin& t e pendency o# t is case arisin& #rom t e alle&ed mat"rity o# t$o o# t e promissory notes on , ."&"st )*** and )2 Marc ;777. .nent t e iss"e o# novation, t is Co"rt o%serves t at t e petitioner corporation ar&"es t e e@istence o# novation %ased on its o$n version o# $ at transpired d"rin& t e rene&otiation o# t e t ree promissory notes in Decem%er )**,. 1y "sin& its o$n version o# #acts, t e petitioner is, in a $ay, ="estionin& t e #indin&s o# #acts o# t e trial co"rt and t e Co"rt o# .ppeals. .s a r"le, t e #indin&s o# #act o# t e trial co"rt and t e Co"rt o# .ppeals are #inal and concl"sive and cannot %e revie$ed on appeal to t e S"preme Co"rt)9 as lon& as t ey are %orne o"t %y t e record or are %ased on s"%stantial evidence.)* T e S"preme Co"rt is not a trier o# #acts, its >"risdiction %ein& limited to revie$in& only errors o# la$ t at may ave %een committed %y t e lo$er co"rts. .mon& t e e@ceptions is $ en t e #indin& o# #act o# t e trial co"rt or t e Co"rt o# .ppeals is not s"pported %y t e evidence on record or is %ased on a misappre ension o# #acts. S"c e@ception o%tains in t e present case.;7 T is Co"rt #inds to %e contrary to t e evidence on record t e #indin& o# %ot t e trial co"rt and t e Co"rt o# .ppeals t at t e rene&otiation in Decem%er )**, res"lted in t e

red"ction o# t e interest #rom )68 to +8 per ann"m and t at t e mont ly payments o# 4S5,67 made %y t e petitioner $ere #or t e red"ced interests. It is $ort y to note t at t e cas vo"c er dated 3an"ary )**9;) states t at t e payment o# 4S5,67 represents CINVESTMENT P.IMENT.C .ll t e s"cceedin& cas vo"c ers descri%e t e payments #rom Fe%r"ary )**9 to Septem%er )*** as CC.PIT./ REP.IMENT.C;; .ll t ese cas vo"c ers served as receipts evidencin& private respondent(s ac!no$led&ment o# t e payments made %y t e petitioner< t$o o# $ ic $ere si&ned %y t e private respondent imsel# and all t e ot ers $ere si&ned %y is representatives. T e private respondent even identi#ied and con#irmed t e e@istence o# t ese receipts d"rin& t e earin&. ;: Si&ni#icantly, co&niMant o# t ese receipts, t e private respondent applied t ese payments to t e t ree consolidated principal loans in t e s"mmary o# payments e s"%mitted to t e co"rt.;2 4nder .rticle );6: o# t e Civil Code, i# t e de%t prod"ces interest, payment o# t e principal s all not %e deemed to ave %een made "ntil t e interest as %een covered. In t is case, t e private respondent $o"ld not ave si&ned t e receipts descri%in& t e payments made %y t e petitioner as Ccapital repaymentC i# t e o%li&ation to pay t e interest $as still s"%sistin&. T e receipts, as $ell as private respondent(s s"mmary o# payments, lend credence to petitioner(s claim t at t e payments $ere #or t e principal loans and t at t e interests on t e t ree consolidated loans $ere $aived %y t e private respondent d"rin& t e "ndisp"ted rene&otiation o# t e loans on acco"nt o# t e %"siness reverses s"##ered %y t e petitioner at t e time. T ere $as t ere#ore a novation o# t e terms o# t e t ree promissory notes in t at t e interest $as $aived and t e principal $as paya%le in mont ly installments o# 4S5,67. .lterations o# t e terms and conditions o# t e o%li&ation $o"ld &enerally res"lt only in modi#icatory novation "nless s"c terms and conditions are considered to %e t e essence o# t e o%li&ation itsel#.;6 T e res"ltin& novation in t is case $as, t ere#ore, o# t e modi#icatory type, not t e e@tinctive type, since t e o%li&ation to pay a s"m o# money remains in #orce. T "s, since t e petitioner did not rene&e on its o%li&ation to pay t e mont ly installments con#orma%ly $it t eir ne$ a&reement and even contin"ed payin& d"rin& t e pendency o# t e case, t e private respondent ad no ca"se o# action to #ile t e complaint. It is only "pon petitioner(s de#a"lt in t e payment o# t e mont ly amortiMations t at a ca"se o# action $o"ld arise and &ive t e private respondent a ri& t to maintain an action a&ainst t e petitioner. 6

/astly, t e petitioner contends t at t e Co"rt o# .ppeals o%stinately incl"ded its President In#ante and Vice0President -e&erty as appellants even i# t ey did not appeal t e trial co"rt(s decision since t ey $ere #o"nd to %e not personally lia%le #or t e o%li&ation o# t e petitioner. Indeed, t e Co"rt o# .ppeals erred in re#errin& to t em as de#endants0appellants? nevert eless, t at error is no ca"se #or alarm %eca"se its r"lin& $as clear t at t e petitioner corporation $as t e one solely lia%le #or its o%li&ation. In #act, t e Co"rt o# .ppeals a##irmed in toto t e decision o# t e trial co"rt, $ ic means t at it also "p eld t e latter(s r"lin& t at -e&erty and In#ante $ere not personally lia%le #or t e pec"niary o%li&ations o# t e petitioner to t e private respondent. In s"m, %ased on o"r dis="isition on t e lac! o# ca"se o# action $ en t e complaint #or s"m o# money and dama&es $as #iled %y t e private respondent, t e petition in t e case at %ar is impressed $it merit. WHERE!ORE, t e petition is ere%y ER.NTED. T e Decision o# 6 Septem%er ;77: o# t e Co"rt o# .ppeals in C.0E.R. CV No. +9)7*, $ ic a##irmed t e Decision o# 6 May ;777 o# t e Re&ional Trial Co"rt o# 1a&"io, 1ranc 6*, &rantin& in part private respondent(s complaint #or s"m o# money and dama&es, and its Resol"tion o# 2 Decem%er ;77:, $ ic denied petitioner(s motion #or reconsideration are ere%y REVERSED and SET .SIDE. T e complaint doc!eted as Civil Case No. 2;9;0R is ere%y DISMISSED #or lac! o# ca"se o# action. No costs. SO ORDERED.