Cochingyan, Jr. v. R&B Surety and Insurance Co.

, turn, extinguished the obligations of the petitioners

Inc. under the Indemnity Agreements
>In November 1963, Pacific Agricultural Suppliers, Inc. Ruling: NO.
(PAGRICO) was granted an increase in its line of >It is at once evident that the Trust Agreement does
credit from P400,000.00 to P800,000.00 (the not expressly terminate the obligation of R & B
Principal Obligation), with the Philippine National Surety under the Surety Bond. On the contrary, the
Bank (PNB). Trust Agreement expressly provides for the
>PAGRICO submitted Surety Bond No. 4765, continuing subsistence of that obligation by
issued by respondent R&B Surety and Insurance stipulating that "[the Trust Agreement] shall not
Co., (R&B Surety) in the amount of P400,000.00 in in any manner release" R & B Surety from its
favor of the PNB. requirement. obligation under the Surety Bond.
terms of bond: Pagrico and RnB bound themselves >NOT implied novation. noshowing of complete
jointly and severally to comply with the terms of the incompatibility as the parties to the new obligation
credit line in PNB. expressly recognize the continuing existence and
In consideration of R & B Surety's issuance of the validity of the old one
Surety Bond, two identical indemnity agreements >What the trust agreement did was, at most, merely
were entered into with R & B Surety executed by to bring in another person or persons-the
(a) the Catholic Church Mart (CCM) and by Trustor[s]-to assume the same obligation that R
petitioner Joseph Cochingyan, Jr, and (b) another & B Surety was bound to perform under the Surety
agreement dated 24 December 1963 was executed by Bond. It is not unusual in business for a stranger to a
PAGRICO. contract to assume obligations thereunder; a contract
>Under both indemnity agreements, the of suretyship or guarantee is the classical
indemnitors bound themselves jointly and example.
severally to R & B Surety to pay an annual when there is no agreement that the first debtor shall
premium of P5,103.05 and "for the faithful be released from responsibility, does not constitute a
compliance of the terms and conditions set forth in novation, and the creditor can still enforce the
said SURETY BOND for a period beginning ... until the obligation against the original debtor.
same is CANCELLED and/or DISCHARGED." >the CCM, was already previously bound to R &
>When PAGRICO failed to comply with its B Surety under its Indemnity Agreement. Under
Principal Obligation to the PNB, the PNB the Trust Agreement, the Trustor also became directly
demanded payment from R & B Surety of the sum liable to the PNB. There would now be three
of P400,000.00, the full amount of the Principal obligors directly and solidarily bound in favor of
Obligation. R & B Surety made a series of the PNB: PAGRICO, R & B Surety and the Trustor.
payments to PNB by virtue of that demand totalling >Thus, R & B Surety, which was not a party to the
P70,000.00 evidenced by detailed vouchers and Trust Agreement, could not have intended to
receipts. release any of its own indemnitors simply because
>R & B Surety in turn sent formal demand letters one of those indemnitors, the Trustor under the Trust
to petitioners Joseph Cochingyan, Jr. and Jose K. Agreement, became also directly liable to the PNB.
Villanueva for reimbursement of the payments > PNB's undertaking under the Trust Agreement
made by it to the PNB and for a discharge of its "to hold in abeyance any action to enforce its
liability to the PNB under the Surety Bond. When claims" against R & B Surety did not extend the
petitioners failed to heed its demands, R & B Surety maturity of R & B Surety's obligation under the
brought suit against Joseph Cochingyan, Jr., Jose K. Surety Bond. The Principal Obligation had in fact
Villanueva and Liu Tua Ben. already matured, along with that of R &B Surety,
The lower court rendered a decision in favor of R & B by the time the Trust Agreement was entered into.
Surety, ordering the Cochingyan and Villanueva to pay Petitioner's Obligation had in fact already matured, for
the plaintiff, jointly and severally, the total amount of those obligations were to amture "as soon as [R & B
their liability on Surety Bond No. 4765, at the interest Surety] became liable to make payment of any sum
rate of 6% per annum. under the terms of the [Surety Bond] whether the
> 1. The Trust Agreement referred to by both said sum or sums or part thereof have been actually
petitioners in their separate briefs, was paid or not."
executed on 28 December 1965 (two years after
the Surety Bond and the Indemnity Agreements
were executed) between: (1) Jose and Susana
Cochingyan, Sr., doing business under the name and
style of the Catholic Church Mart, represented by
Joseph Cochingyan, Jr., as Trustor[s]; TRUSTOR has
guaranteed a bond in the amount of P400,000.00
issued by the R & B. (2) TRUSTOR is, therefore, bound
to comply with his obligation under the indemnity
agreements and in order to forestall impending suits by
the BENEFICIARY against said companies, he is willing
as he hereby agrees to pay the obligations of said
companies
Issue: Whether or not the Trust Agreement had
extinguished, by novation, the obligation of R & B
Surety to the PNB under the Surety Bond which, in
BOGNOT v RRI LENDING former. It is merely modificatory when the old
Petitioner and Eduardo De Jesus borrowed P400,000.00 obligation subsists to the extent that it remains
from respondent. Both executed a promissory note compatible with the amendatory agreement (Babst v.
wherein they bound themselves jointly and severally to CA). Whether extinctive or modificatory, novation is
pay the loan on or before 23 January 1997 with a 5% made either by changing the object or the principal
interest per month. The loan has long been overdue conditions, referred to as objective or real novation; or
and, despite repeated demands, both have failed and by substituting the person of the debtor or subrogating
refused to pay it. Hence, a complaint was filed against a third person to the rights of the creditor, an act
both. known as subjective or personal novation (Spouses
Resisting the complaint, Garcia averred that he Bautista v. Pilar Development Corporation, 371 Phil.
assumed no liability because he signed merely as an 533, August 17, 1999). For novation to take place, the
accommodation party for De Jesus; and that he is following requisites must concur:
relieved from any liability arising from the note 1) There must be a previous valid obligation.
inasmuch as the loan had been paid by De Jesus by 2) The parties concerned must agree to a new contract.
means of a check dated 17 April 1997; and that, in any 3) The old contract must be extinguished.
event, the issuance of the check and respondents 4) There must be a valid new contract (Security Bank v
acceptance thereof novated or superseded the note. Cuenca, October 3, 2000)
Respondent answered that there was no novation to Novation may also be express or implied. It is express
speak of because the check bounced. when the new obligation declares in unequivocal terms
Issues: that the old obligation is extinguished. It is implied
1. Whether or not there was novation in the when the new obligation is incompatible with the old
obligation one on every point (Article 1292, NCC). The test of
2. Whether or not the defense that petitioner incompatibility is whether the two obligations can
was only an accommodation party had any basis stand together, each one with its own independent
Held: existence (Molino v. Security Diners International
1. No. In order to change the person of the debtor, the Corporation, August 16, 2001).
old one must be expressly released from the obligation, 2. No. The note was made payable to a specific person
and the third person or new debtor must assume the rather than to bearer or to order a requisite for
formers place in the relation (Reyes v. CA). Well- negotiability under the Negotiable Instruments Law
settled is the rule that novation is never presumed (NIL). Hence, petitioner cannot avail himself of the
(Security Bank v. Cuenca). Consequently, that which NILs provisions on the liabilities and defenses of an
arises from a purported change in the person of the accommodation party.
debtor must be clear and express. It is thus incumbent Even granting arguendo that the NIL was applicable,
on petitioner to show clearly and unequivocally that still, petitioner would be liable for the promissory note.
novation has indeed taken place. Petitioner failed to do Under Article 29 of the NIL, an accommodation party is
this. In the present case, petitioner has not shown that liable for the instrument to a holder for value even if,
he was expressly released from the obligation, that a at the time of its taking, the latter knew the former to
third person was substituted in his place, or that the be only an accommodation party. The relation between
joint and solidary obligation was cancelled and an accommodation party and the party accommodated
substituted by the solitary undertaking of De Jesus. is, in effect, one of principal and surety the
Novation is a mode of extinguishing an obligation by accommodation party being the surety. It is a settled
changing its objects or principal obligations, by rule that a surety is bound equally and absolutely with
substituting a new debtor in place of the old one, or by the principal and is deemed an original promissor and
subrogating a third person to the rights of the creditor debtor from the beginning.
(Idolor v. CA, February 7, 2001). Article 1293 of the ___
Civil Code defines novation as follows: Bognot vs. RRI Lending
Art. 1293. Novation which consists in substituting a In September 1996, Leonardo Bognot and his younger
new debtor in the place of the original one, may be brother, Rolando Bognot applied for and obtained a
made even without the knowledge or against the will of loan of P500,000.00 from RRI Lending, payable on
the latter, but not without the consent of the creditor. November 30, 1996. The loan was evidenced by a
Payment by the new debtor gives him rights mentioned promissory note and was secured by a post dated
in articles 1236 and 1237. check dated November 30, 1996.
In general, there are two modes of substituting the Evidence on record shows that Leonardo renewed the
person of the debtor: (1) expromision and (2) loan several times on a monthly basis. He paid a
delegacion. In expromision, the initiative for the renewal fee of P54,600.00 for each renewal, issued a
change does not come from and may even be made new post-dated check as security, and executed and/or
without the knowledge of the debtor, since it renewed the promissory note previously issued. RRI
consists of a third persons assumption of the Lending on the other hand, cancelled and returned to
obligation. As such, it logically requires the consent of Leonardo the post-dated checks issued prior to their
the third person and the creditor. In delegacion, the renewal.
debtor offers, and the creditor accepts, a third person Leonardo purportedly paid the renewal fees and issued
who consents to the substitution and assumes the a post-dated check dated June 30, 1997 as security. As
obligation; thus, the consent of these three persons are had been done in the past, RRI Lending superimposed
necessary. Both modes of substitution by the debtor the date "June 30, 1997" on the promissory note to
require the consent of the creditor. make it appear that it would mature on the said date.
Novation may also be extinctive or modificatory. It is Several days before the loans maturity, Rolandos
extinctive when an old obligation is terminated by the wife, Julieta, went to the respondents office and
creation of a new one that takes the place of the applied for another renewal of the loan. She issued in
favor of RRI Lending a promissory note and a check where a private document evidencing a credit was
dated July 30, 1997, in the amount of P54,600.00 as voluntarily returned by the creditor to the debtor), this
renewal fee. presumption is merely prima facie and is not
On the excuse that she needs to bring home the loan conclusive; the presumption loses efficacy when faced
documents for the Bognot siblings signatures and with evidence to the contrary.
replacement, Julieta asked the RRI Lending clerk to
release to her the promissory note, the disclosure Moreover, the cited provision merely raises a
statement, and the check dated July 30, 1997. Julieta, presumption, not of payment, but of the renunciation
however, never returned these documents nor issued a of the credit where more convincing evidence would be
new post-dated check. Consequently, RRI Lending sent required than what normally would be called for to
Leonardo follow-up letters demanding payment of the prove payment. Thus, reliance by the petitioner on the
loan, plus interest and penalty charges. These legal presumption to prove payment is misplaced.
demands went unheeded.
In his Answer, Leonardo, claimed, among other things, To reiterate, no cash payment was proven by the
that the complaint states no cause of action because petitioner. The cancellation and return of the check
RRI Lendings claim had been paid, waived, abandoned dated April 1, 1997, simply established his renewal of
or otherwise extinguished, and that the one (1) month the loan not the fact of payment. Furthermore, it has
loan contracted by Rolando and his wife in November been established during trial, through repeated acts,
1996 which was lastly renewed in March 1997 had that the respondent cancelled and surrendered the
already been fully paid and extinguished in April 1997. post-dated check previously issued whenever the loan
Issue: is renewed.
Whether the parties obligation was
extinguished by payment
Held:
Jurisprudence tells us that one who pleads payment
has the burden of proving it; the burden rests on the
defendant to prove payment, rather than on the
plaintiff to prove non-payment. Indeed, once the BANK OF THE PHILIPPINE ISLANDS vs. DOMINGO
existence of an indebtedness is duly established by R. DANDO
evidence, the burden of showing with legal certainty The instant Petition stemmed from a Complaint for
that the obligation has been discharged by payment Sum of Money and Damages by BPI against Dando
rests on the debtor. before the RTC.Dando availed of a loan in the amount
In the present case, Leonardo failed to satisfactorily of P750,000.00 from Far East Bank and Trust Company
prove that his obligation had already been (FEBTC), BPI's predecessor in interest. Dando defaulted
extinguished by payment. As the CA correctly noted, in the payment and despite repeated demands, Dando
the petitioner failed to present any evidence that RRI refused and/or failed to pay his just and valid
Lending had in fact encashed his check and applied the obligation.
proceeds to the payment of the loan. Neither did he >After Dando filed with the RTC his Answer with
present official receipts evidencing payment, nor any Counterclaim, BPI filed its Motion to Set Case for Pre-
proof that the check had been dishonored. Trial. The RTC issued a Notice of Pre-Trial Conference,
We note that the petitioner merely relied on the which directed the parties to submit their respective
respondents cancellation and return to him of the pre-trial briefs at least three days before the scheduled
check dated April 1, 1997. The evidence shows that date of pre-trial.
this check was issued to secure the indebtedness. The >Dando submitted his Pre-trial Brief on time while BPI
acts imputed on the respondent, standing alone, do not filed its Pre-trial Breif with the RTC and furnished Dando
constitute sufficient evidence of payment. with a copy thereof on the very day of the scheduled
Article 1249, paragraph 2 of the Civil Code provides: Pre-Trial Conference. Dando then moved for the
xxxx dismmissal of the case on the ground of late filing of
The delivery of promissory notes payable to order, or the Pre-trial Brief. RTC granted Dandos Motion to
bills of exchange or other mercantile documents shall Dismiss.
produce the effect of payment only when they have >BPI filed a Motion for Reconsideration with the RTC
been cashed, or when through the fault of the creditor which reconsidered and set aside it former order.
they have been impaired. (Emphasis supplied) Dando filed a Motion for Reconsideration
Also, we held in Bank of the Philippine Islands v. but was denied.
Spouses Royeca: >Dando sought recourse from the Court of Appeals by
Settled is the rule that payment must be made in legal filing a Petition for Certiorari. CA held that BPI's excuse
tender. A check is not legal tender and, therefore, is too flimsy to justify the reversal of an earlier order
cannot constitute a valid tender of payment. Since a dismissing the action. The BPI did not come forward
negotiable instrument is only a substitute for money with the most convincing reason for the relaxation of
and not money, the delivery of such an instrument the rules, or has not shown any persuasive reason why
does not, by itself, operate as payment. Mere delivery it should be exempt from abiding by the rules. The RTC
of checks does not discharge the obligation under a decision was ANNULLED and SET ASIDE by the CA.
judgment. The obligation is not extinguished and Hence, this Petition.
remains suspended until the payment by commercial IS THE HONORABLE COURT OF APPEALS, IN
document is actually realized.(Emphasis supplied) ISSUING THE DECISION AND RESOLUTION,
CORRECT WHEN IT STRICTLY APPLIED THE RULES
Although Article 1271 of the Civil Code provides for a OF PROCEDURE.
legal presumption of renunciation of action (in cases RULING:
It is a basic legal construction that where words of wanton failure to observe a mandatory requirement of
command such as shall, must, or ought are the Rules. In fact, BPI, for the most part, exhibited
employed, they are generally and ordinarily regarded diligence and reasonable dispatch in prosecuting its
as mandatory. Thus, where, as in Rule 18, Sections 5 claim against Dando by immediately moving to set the
and 6 of the Rules of Court, the word shall is used, a case for Pre-Trial Conference after its receipt of Dandos
mandatory duty is imposed, which the courts ought to Answer to the Complaint; and in instantaneously filing
enforce. a Motion for Reconsideration of the 10 October 2003
x x x However, it is equally true that litigation is not Order of the RTC dismissing the case.
merely a game of technicalities. Law and
jurisprudence grant to courts the prerogative to relax Accordingly, the ends of justice and fairness would be
compliance with procedural rules of even the most best served if the parties are given the full opportunity
mandatory character, mindful of the duty to reconcile to thresh out the real issues and litigate their claims in
both the need to put an end to litigation speedily and a full-blown trial. Besides, Dando would not be
the parties right to an opportunity to be heard. x x x prejudiced should the RTC proceed with the hearing of
This is in line with the time-honored principle that the case, as he is not stripped of any affirmative
cases should be decided only after giving all parties defenses nor deprived of due process of law.
the chance to argue their causes and defenses.
Technicality and procedural imperfection should, thus, WHEREFORE, premises considered, the instant Petition
not serve as basis of decisions. In that way, the ends is GRANTED.
of justice would be better served. For, indeed, the
general objective of procedure is to facilitate the
application of justice to the rival claims of contending
parties, bearing always in mind that procedure is not to
hinder but to promote the administration of justice.

In Sanchez v. Court of Appeals, the Court restated the

reasons that may provide justification for a court to
suspend a strict adherence to procedural rules, such
as: (a) matters of life, liberty, honor or property; (b)
the existence of special or compelling circumstances;
(c) the merits of the case; (d) a cause not entirely
attributable to the fault or negligence of the party
favored by the suspension of the rules; (e) a lack of
any showing that the review sought is merely frivolous
and dilatory; and (f) the fact that the other party will
not be unjustly prejudiced thereby.
x x x The substantive right of BPI to recover a due and
demandable obligation cannot be denied or diminished
by a rule of procedure, more so, since Dando admits
that he did avail himself of the credit line extended by
FEBTC, the predecessor-in-interest of BPI, and disputes
only the amount of his outstanding liability to BPI. To
dismiss the case with prejudice and, thus, bar BPI from
recovering the amount it had lent to Dando would be to
unjustly enrich Dando at the expense of BPI.
x x x BPI did not manifest an evident pattern or
scheme to delay the disposition of the case or a