403 Phil. 244
WHEREAS, at least 90% of the Company's gross sales is generated by the sale of tin-plates manufactured by Elizalde Steel Consolidated, Inc.;Subsequently, on September 26, 1978, Antonio Roxas Chua and Chester G. Babst executed a Continuing Suretyship, whereby they bound themselves jointly and severally liable to pay any existing indebtedness of MULTI to CBTC to the extent of P8,000,000.00 each.
WHEREAS, it is to the best interests of the Company to continue handling said tin-plate line;
WHEREAS, Elizalde Steel Consolidated, Inc. has requested the assistance of the Company in obtaining credit facilities to enable it to maintain the present level of its tin-plate manufacturing output and the Company is willing to extend said requested assistance;
NOW, THEREFORE, for and in consideration of the foregoing premises ---
BE IT RESOLVED AS IT IS HEREBY RESOLVED, That the PRESIDENT & GENERAL MANAGER, ANTONIO ROXAS CHUA, be, as he is hereby empowered to allow and authorize ELIZALDE STEEL CONSOLIDATED, INC. to avail and make use of the Credit Line of PACIFIC MULTI-COMMERCIAL CORPORATION with the COMMERCIAL BANK & TRUST COMPANY OF THE PHILIPPINES, Makati, Metro Manila;
RESOLVED, FURTHER, That the Pacific Multi-Commercial Corporation guarantee, as it does hereby guarantee, solidarily, the payment of the corresponding Letters of Credit upon maturity of the same;
RESOLVED, FINALLY, That copies of this resolution be furnished the Commercial Bank & Trust Company of the Philippines, Makati, Metro Manila, for their information.
WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor of the plaintiff and against all the defendants:In due time, ELISCON, MULTI and Babst filed their respective notices of appeal.
1) Ordering defendant ELISCON to pay the plaintiff the amount of P2,795,240.67 due on the promissory note, Annex "A" of the Complaint as of 31 October 1982 and the amount of P3,963,372.08 due on the three (3) domestic letters of credit, also as of 31 October 1982;
2) Ordering defendant ELISCON to pay the plaintiff interests and related charges on the principal of said promissory note of P2,102,232.02 at the rates provided in said note from and after 31 October 1982 until full payment thereof, and on the principal of the three (3) domestic letters of credit of P3,564,349.25 interests and related charges at the rates provided in said letters of credit, from and after 31 October 1982 until full payment;
3) Ordering defendant ELISCON to pay interests at the legal rate on all interests and related charges but unpaid as of the filing of this complaint, until full payment thereof;
4) Ordering defendant ELISCON to pay attorney's fees equivalent to 10% of the total amount due under the preceding paragraphs;
5) Ordering defendants Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally with defendant ELISCON, the total sum of P3,963,372.08 due on the three (3) domestic letters of credit as of 31 October 1982 with interests and related charges on the principal amount of P3,963,372.08 at the rates provided in said letters of credit from 30 October 1982 until fully paid, but to the extent of not more than P8,000,000.00 in the case of defendant Chester Babst;
6) Ordering defendant Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally plaintiff interests at the legal rate on all interests and related charges already accrued but unpaid on said three (3) domestic letters of credit as of the date of the filing of this Complaint until full payment thereof;
7) Ordering defendant Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally, attorney's fees of not less than 10% of the total amount due under paragraphs 5 and 6 hereof. With costs.
WHEREFORE, the judgment appealed from is MODIFIED, to now read (with the underlining to show the principal changes from the decision of the lower court) thus:ELISCON filed a Motion for Reconsideration of the Decision of the Court of Appeals which was, however, denied in a Resolution dated March 9, 1992. Subsequently, ELISCON filed a petition for review on certiorari, docketed as G.R. No. 104625, on the following grounds:
1) Ordering appellant ELISCON to pay the appellee BPI the amount of P2,731,005.60 due on the promissory note, Annex "A" of the Complaint as of 31 October 1982 and the amount of P3,963,372.08 due on the three (3) domestic letters of credit, also as of 31 October 1982;
2) Ordering appellant ELISCON to pay the appellee BPI interests and related charges on the principal of said promissory note of P2,102,232.02 at the rates provided in said note from and after 31 October 1982 until full payment thereof, and on the principal of the three (3) domestic letters of credit of P3,564,349.25 interests and related charges at the rates provided in said letters of credit, from and after 31 October 1982 until full payment;
3) Ordering appellant ELISCON to pay appellee BPI interest at the legal rate on all interests and related charges but unpaid as of the filing of this complaint, until full payment thereof;
4) Ordering appellant Pacific Multi-Commercial Corporation and appellant Chester G. Babst to pay appellee BPI, jointly and severally with appellant ELISCON, the total sum of P3,963,372.08 due on the three (3) domestic letters of credit as of 31 October 1982 with interest and related charges on the principal amount of P3,963,372.08 at the rates provided in said letters of credit from 30 October 1982 until fully paid, but to the extent of not more than P8,000,000.00 in the case of defendant Chester Babst;
5) Ordering appellant Pacific Multi-Commercial Corporation and defendant Chester Babst to pay, jointly and severally, appellee BPI interests at the legal rate on all interests and related charges already accrued but unpaid on said three (3) domestic letters of credit as of the date of the filing of this Complaint until full payment thereof and the plaintiff's lawyer's fees in the nominal amount of P200,000.00;
6) Ordering appellant ELISCON to reimburse appellants Pacific Multi-Commercial Corporation and Chester Babst whatever amount they shall have paid in said Eliscon's behalf particularly referring to the three (3) letters of credit as of 31 October 1982 and other related charges.
BPI filed its Comment raising the following arguments, to wit:
- THE BANK OF THE PHILIPPINE ISLANDS IS NOT ENTITLED TO RECOVER FROM PETITIONER ELISCON THE LATTER'S OBLIGATION WITH COMMERCIAL BANK AND TRUST COMPANY (CBTC)
- THERE WAS A VALID NOVATION OF THE CONTRACT BETWEEN ELISCON AND BPI THERE BEING A PRIOR CONSENT TO AND APPROVAL BY BPI OF THE SUBSTITUTION BY DBP AS DEBTOR IN LIEU OF THE ORIGINAL DEBTOR, ELISCON, THEREBY RELEASING ELISCON FROM ITS OBLIGATION TO BPI.
- PACIFIC MULTI COMMERCIAL CORPORATION AND CHESTER BABST CANNOT LAWFULLY RECOVER FROM ELISCON WHATEVER AMOUNT THEY MAY BE REQUIRED TO PAY TO BPI AS SURETIES OF ELISCON'S OBLIGATION TO BPI; THEIR CAUSE OF ACTION MUST BE DIRECTED AGAINST DBP AS THE NEWLY SUBSTITUTED DEBTOR IN PLACE OF ELISCON.
- THE DBP TAKEOVER OF THE ENTIRE ELISCON AMOUNTED TO AN ACT OF GOVERNMENT WHICH WAS A FORTUITOUS EVENT EXCULPATING ELISCON FROM FURTHER LIABILITIES TO RESPONDENT BPI.
- PETITIONER ELISCON SHOULD NOT BE HELD LIABLE TO PAY RESPONDENT BPI THE AMOUNTS STATED IN THE DISPOSITIVE PORTION OF RESPONDENT COURT OF APPEALS' DECISION.
Chester Babst filed a Comment with Manifestation, wherein he contends that the suretyship agreement he executed with Antonio Roxas Chua was in favor of MULTI; and that there is nothing therein which authorizes MULTI, in turn, to guarantee the obligations of ELISCON.
- Respondent BPI is legally entitled to recover from ELISCON, MULTI and Babst the past due obligations with CBTC prior to the merger of BPI with CBTC.
- BPI did not give its consent to the DBP take-over of ELISCON. Hence, no valid novation has been effected.
- Express consent of creditor to substitution should be recorded in the books.
- Petitioner Chester G. Babst and respondent MULTI are jointly and solidarily liable to BPI for the unpaid letters of credit of ELISCON.
- The question of the liability of ELISCON to BPI has been clearly established.
- Since MULTI and Chester G. Babst are guarantors of the debts incurred by ELISCON, they may recover from the latter what they may have paid for on account of that guaranty.
Petitioner Babst alleged that DBP sold all of ELISCON's assets to the National Development Company, for the latter to take over and continue the operation of its business. On September 11, 1981, the Board of Governors of the DBP adopted Resolution No. 2817 which states that DBP shall enter into a contractual arrangement with NDC for the latter to pay ELISCON's creditors, including BPI in the amount of P4,015,534.54. This was followed by a Memorandum of Agreement executed on May 4, 1983 by and between DBP and NDC, wherein they stipulated, inter alia, that NDC shall pay to ELISCON's creditors, through DBP, the amount of P299,524,700.00. Among the creditors mentioned in the agreement was BPI, with a listed credit of P4,015,534.54.
- IT AFFIRMED THE LOWER COURT'S HOLDING THAT THERE WAS NO NOVATION INASMUCH AS RESPONDENT BANK OF THE PHILIPPINE ISLANDS (OR BPI) HAD PRIOR CONSENT TO AND APPROVAL OF THE SUBSTITUTION AS DEBTOR BY THE DEVELOPMENT BANK OF THE PHILIPPINES (OR DBP) IN THE PLACE OF ELIZALDE STEEL CONSOLIDATED, INC. (OR ELISCON) IN THE LATTER'S OBLIGATION TO BPI.
- IT CONFIRMED THE LOWER COURT'S CONCLUSION THAT THERE WAS NO IMPLIED CONSENT OF THE CREDITOR BANK OF THE PHILIPPINE ISLANDS TO THE SUBSTITUTION BY DEVELOPMENT BANK OF THE PHILIPPINES OF THE ORIGINAL DEBTOR ELIZALDE STEEL CONSOLIDATED, INC.
- IT AFFIRMED THE LOWER COURT'S FINDING OF LACK OF MERIT OF THE CONTENTION OF ELISCON THAT THE FAILURE OF THE OFFICER OF BPI, WHO WAS PRESENT DURING THE MEETING OF ELISCON'S CREDITORS IN JUNE 1981 TO VOICE HIS OBJECTION TO THE ANNOUNCED TAKEOVER BY THE DBP OF THE ASSETS OF ELISCON AND ASSUMPTION OF ITS LIABILITIES, CONSTITUTED AN IMPLIED CONSENT TO THE ASSUMPTION BY DBP OF THE OBLIGATIONS OF ELISCON TO BPI.
- IN NOT TAKING JUDICIAL NOTICE THAT THE DBP TAKEOVER OF THE ENTIRE ELISCON WAS AN ACT OF GOVERNMENT CONSTITUTING A FORTUITOUS EVENT EXCULPATING ELISCON FROM ANY LIABILITY TO BPI.
- IN NOT FINDING THAT THE DACION EN PAGO BETWEEN DBP AND BPI RELIEVED ELISCON, MULTI AND BABST OF ANY LIABILITY TO BPI.
- IN FINDING THAT MULTI AND BABST BOUND THEMSELVES SOLIDARILY WITH ELISCON WITH RESPECT TO THE OBLIGATION INVOLVED HERE.
- IN RENDERING JUDGMENT IN FAVOR OF BPI AND AGAINST ELISCON ORDERING THE LATTER TO PAY THE AMOUNTS STATED IN THE DISPOSITIVE PORTION OF THE DECISION; AND ORDERING PETITIONER AND MULTI TO PAY SAID AMOUNTS JOINTLY AND SEVERALLY WITH ELISCON.
Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237.BPI contends that in order to have a valid novation, there must be an express consent of the creditor. In the case of Testate Estate of Mota, et al. v. Serra, this Court held:
It should be noted that in order to give novation its legal effect, the law requires that the creditor should consent to the substitution of a new debtor. This consent must be given expressly for the reason that, since novation extinguishes the personality of the first debtor who is to be substituted by a new one, it implies on the part of the creditor a waiver of the right that he had before the novation, which waiver must be express under the principle of renuntiatio non præsumitur, recognized by the law in declaring that a waiver of right may not be performed [should read: presumed] unless the will to waive is indisputably shown by him who holds the right.The import of the foregoing ruling, however, was explained and clarified by this Court in the later case of Asia Banking Corporation v. Elser in this wise:
The aforecited article 1205 [now 1293] of the Civil Code does not state that the creditor's consent to the substitution of the new debtor for the old be express, or given at the time of the substitution, and the Supreme Court of Spain, in its judgment of June 16, 1908, construing said article, laid down the doctrine that "article 1205 of the Civil Code does not mean or require that the creditor's consent to the change of debtors must be given simultaneously with the debtor's consent to the substitution, its evident purpose being to preserve the creditor's full right, it is sufficient that the latter's consent be given at any time and in any form whatever, while the agreement of the debtors subsists." The same rule is stated in the Enciclopedia Jurídica Española, volume 23, page 503, which reads: "The rule that this kind of novation, like all others, must be express, is not absolute; for the existence of the consent may well be inferred from the acts of the creditor, since volition may as well be expressed by deeds as by words." The understanding between Henry W. Elser and the principal director of Yangco, Rosenstock & Co., Inc., with respect to Luis R. Yangco's stock in said corporation, and the acts of the board of directors after Henry W. Elser had acquired said shares, in substituting the latter for Luis R. Yangco, are a clear and unmistakable expression of its consent. When this court said in the case of Estate of Mota vs. Serra (47 Phil., 464), that the creditor's express consent is necessary in order that there may be a novation of a contract by the substitution of debtors, it did not wish to convey the impression that the word "express" was to be given an unqualified meaning, as indicated in the authorities or cases, both Spanish and American, cited in said decision.Subsequently, in the case of Vda. e Hijos de Pio Barretto y Cía., Inc. v. Albo & Sevilla, Inc., et al., this Court reiterated the rule that there can be implied consent of the creditor to the substitution of debtors.
"the Development Bank of the Philippines (DBP), for a time, had proposed a formula for the settlement of Eliscon's past obligations to its creditors, including the plaintiff [BPI], but the formula was expressly rejected by the plaintiff as not acceptable (long before the filing of the complaint at bar)."The Court of Appeals held that even if the account officer who attended the June 1981 creditors' meeting had expressed consent to the assumption by DBP of ELISCON's debts, such consent would not bind BPI for lack of a specific authority therefor. In its petition, ELISCON counters that the mere presence of the account officer at the meeting necessarily meant that he was authorized to represent BPI in that creditors' meeting. Moreover, BPI did not object to the substitution of debtors, although it objected to the payment formula submitted by DBP.
ART. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.BPI's conduct evinced a clear and unmistakable consent to the substitution of DBP for ELISCON as debtor. Hence, there was a valid novation which resulted in the release of ELISCON from its obligation to BPI, whose cause of action should be directed against DBP as the new debtor.
ART. 1159. Obligations arising from contract have the force of law between the contracting parties and should be complied with in good faith.
Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions - one to extinguish an existing obligation, the other to substitute a new one in its place - requiring a conflux of four essential requisites, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.The original obligation having been extinguished, the contracts of suretyship executed separately by Babst and MULTI, being accessory obligations, are likewise extinguished.