Supreme Court of the Philippines

47 Phil. 464

G.R. No. 22825, February 14, 1925

DECISION

VILLAMOR, J.:
On February 1, 1919, plaintiffs and defendant entered into a
contract of partnership, marked Exhibit A, for the construction and
exploitation of a railroad line from the "San Isidro" and "Palma"
centrals to the place known as "Nandong." The original capital
stipulated was P150,000. It was covenanted that the parties should
pay this amount in equal parts and the plaintiffs were entrusted with
the administration of the partnership. The agreed capital of
P150,000, however, did not prove sufficient, as the expenses up to
May 15, 1920, had reached the amount of P226,092.92, as per
statement Exhibit B, presented by the administrator and O. K.'d by
the defendant.
January 29, 1920, the defendant entered into a contract of sale with
Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de
Luzuriaga, whereby he sold to the latter the estate and central
known as "Palma" with its running business, as well as all the
improvements, machineries and buildings, real and personal
properties, rights, choses in action and interests, including the sugar
plantation of the harvest year of 1920 to 1921, covering all the
property of the vendor. This contract was executed before a notary
public of Iloilo and is evidenced by Exhibit 1 of the defendant,
paragraph 5 of which reads as follows:
"5. The party of the first part hereby states that he has
entered into a contract with the owners of the 'San Isidro'
Central for the construction, operation, and exploitation
 of a railroad line of about 10 kilometers extending from
the 'Palma' Central and 'San Isidro' Central to a point
known as 'Nandong,' the expenses until the termination of
which shall be for the account of the 'San Isidro' Central,
and of which expenses, one-half shall be borne by the
'Palma' Central with the obligation to reimburse same
within five (5) years with interest at the rate of 10 per
cent per annum to the said 'San Isidro' Central. The
vendee hereby obligates himself to respect the aforesaid
contract and all obligations arising therefrom."
Before the delivery to the purchasers of the hacienda thus sold,
Eusebio R. de Luzuriaga renounced all his rights under the contract
of January 29, 1920, in favor of Messrs. Venancio Concepcion and
Phil. C. Whitaker. This gave rise to the fact that on July 17, 1920,
Venancio Concepcion and Phil. C. Whitaker and the herein
defendant executed before Mr. Antonio Sanz, a notary public in and
for the City of Manila, another deed of absolute sale of the said
"Palma" Estate for the amount of P1,695,961.90, of which the
vendor received at the time of executing the deed the amount of
P945,861.90, and the balance was payable by installments in the
form and manner stipulated in the contract. The purchasers
guaranteed the unpaid balance of the purchase price by a first and
special mortgage in favor of the vendor upon the hacienda and the
central with all the improvements, buildings, machineries, and
appurtenances then existing on the said hacienda.
Clause 6 of the deed of July 17, 1920, contains the following
stipulations:
"6. Messrs. Phil. C. Whitaker and Venancio Concepcion
hereby state that they are aware of the contract that Mr.
Salvador Serra has with the proprietors of the 'San Isidro'
Central for the operation and exploitation of a railroad
line about 10 kilometers long from the 'Palma' and 'San
Isidro' centrals to the place known as 'Nandong;' and
hereby obligate themselves to respect the said contract
and subrogate themselves into the rights and obligations
thereunder. They also bind themselves to comply with all
 the contracts heretofore entered by the vendor with the
customers, coparceners on shares and employees."
Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C.
Whitaker bought from the plaintiffs the one-half of the railroad line
pertaining to the latter, executing therefor the document Exhibit 5.
The price of this sale was P237,722,15, excluding any amount
which the defendant might be owing to the plaintiffs. Of the
purchase price, Venancio Concepcion and Phil. C. Whitaker paid
the sum of P47,544.43 only. In the deed Exhibit 5, the plaintiffs and
Concepcion and Whitaker agreed, among other things, that the
partnership "Palma" and "San Isidro," formed by the agreement of
February 1, 1919, between Serra, Lazaro Mota, now deceased, and
Juan J. Vidaurrazaga for himself and in behalf of his brothers, Felix
and Dionisio Vidaurrazaga, should be dissolved upon the execution
of this contract, and that the said partnership agreement should be
totally cancelled and of no force and effect whatever.
So it results that the "Hacienda Palma," with the entire railroad, the
subject-matter of the contract of partnership between plaintiffs and
defendant, became the property of Whitaker and Concepcion. Phil.
C. Whitaker and Venancio Concepcion having failed to pay to the
defendant a part of the purchase price, that is, P750,000, the vendor,
the herein defendant, foreclosed the mortgage upon the said
hacienda, which was adjudicated to him at the public sale held by
the sheriff for the amount of P500,000, and the defendant put in
possession thereof, including what was planted at the time, together
with all the improvements made by Messrs. Phil. C. Whitaker and
Venancio Concepcion.
Since the defendant Salvador Serra failed to pay one-half of the
amount expended by the plaintiffs upon the construction of the
railroad line, that is, P113,046.46, as well as Phil. C. Whitaker and
Venancio Concepcion, the plaintiffs instituted the present action
praying: (1) That the deed of February 1,1919, be declared valid
and binding; (2) that after the execution of the said document the
defendant improved economically so as to be able to pay the
plaintiffs the amount owed, but that he refused to pay either in part
or in whole the said amount notwithstanding the several demands
made on him for the purpose; and (3) that the defendant be
sentenced to pay the plaintiffs the aforesaid sum of P113,046.46,
with the stipulated interest at 10 per cent per annum beginning June
4, 1920, until full payment thereof, with the costs of the present
action.
Defendant set up three special defenses: (1) The novation of the
contract by the substitution of the debtor with the conformity of the
creditors; (2) the confusion of the rights of the creditor and debtor;
and (3) the extinguishment of the contract, Exhibit A.
The court a quo in its decision held that there was a novation of the
contract by the substitution of the debtor, and therefore absolved the
defendant from the complaint with costs against the plaintiffs. With
regard to the prayer that the said contract be declared valid and
binding, the court held that there was no way of reviving the
contract which the parties themselves in interest had spontaneously
and voluntarily extinguished. (Exhibit 5.)
Plaintiffs have appealed from this judgment and as causes for the
review, they allege that the trial court erred: (a) In holding that
Messrs. Whitaker and Concepcion, upon purchasing the "Palma"
Central, were subrogated in the place of the defendant in all his
rights and obligations under the contract relating to the railroad line
existing between the "Palma" and the "San Isidro" centrals and that
the plaintiffs agreed to this subrogation; (b) in holding that the deed
Exhibit A of February 1, 1919, had been extinguished in its entirety
and made null and void by the agreement Exhibit 5 dated December
16, 1920; (c) in absolving the defendant from the complaint and in
sentencing the plaintiffs to pay the costs; and (d) in not sentencing
the defendant to pay the plaintiffs the sum of P118,046.46, with
legal interest at 10 per cent per annum from June 4, 1920, until full
payment, with costs against the defendant.
Taking for granted that the defendant was under obligation to pay
the plaintiffs one-half of the cost of the construction of the railroad
line in question, by virtue of the contract of partnership Exhibit A,
the decisive point here to determine is whether there was a novation
of the contract by the substitution of the debtor with the consent of
the creditor, as required by article 1205 of the Civil Code. If so, it is
clear that the obligation of the defendant was, in accordance with
article 1156 of the same code, extinguished.
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 that renuntiatio non
praesumitur, recognized by the law in declaring that a waiver of
right may not be performed unless the will to waive is indisputably
shown by him who holds the right.
The fact that Phil. C. Whitaker and Venancio Concepcion were
willing to assume the defendant's obligation to the plaintiffs is of no
avail, if the latter have not expressly consented to the substitution of
the first debtor. Neither can the letter, Exhibit 6, on page 87 of the
record be considered as proof of the consent of the plaintiffs to the
substitution of the debtor, because that exhibit is a letter written by
plaintiffs to Phil. C. Whitaker and Venancio Concepcion for the
very reason that the defendant had told them (plaintiffs) that after
the sale of the "Hacienda Palma" to Messrs. Phil. C. Whitaker and
Venancio Concepcion, the latter from then on would bear the cost
of the repairs and maintenance of the railroad line and of the
construction of whatever addition thereto might be necessary. So
the plaintiffs by their letter of August 14th, submitted a statement of
account to Phil. C. Whitaker and Venancio Concepcion containing
the accounts of the "San Isidro" Central, as stated June 30, 1920,
saying that they had already explained previously the reason for the
increase in the expenses and since the retiring partner, Mr. Serra,
had already given his conformity with the accounts, as stated May
15,1920, it remained only to hear the conformity of the new
purchasers for the accounts covering the period from May 15 to
June 30,1920, and their authority for future investments, or their
objection, if any, to the amounts previously expended. Neither can
the testimony of Julio Infante in connection with Exhibit 7 be taken
as evidence of the consent of the plaintiffs to the change of the
person of the debtor for that of Messrs. Phil. C. Whitaker and
Venancio Concepcion. This witness testified, in substance, that he
is acquainted with the partnership formed by the owners of the
"Hacienda Palma" and "Hacienda San Isidro" for the construction
of the railroad line; that the cost of the construction thereof was
originally estimated at P150,000; that the owner of the "Hacienda
Palma" would pay one-half of this amount; that when the
"Hacienda Palma" was sold to Messrs. Phil. C. Whitaker and
Venancio Concepcion, the latter agreed to pay one-half of the cost
of P150,000; that as the cost of construction exceeded P200,000,
he, as an employee of Messrs. Phil. C. Whitaker and Venancio
Concepcion, could not O. K. the accounts as presented by the
plaintiffs, and suggested that they take up in writing their points of
view directly with Messrs. Phil. C. Whitaker and Venancio
Concepcion. Then the plaintiffs did as suggested, and wrote the
letter Exhibit 7 in which they asked the new owners of the
"Hacienda Palma" their decision upon the following three
questions: 1. Will the "Palma" Central accept the statement of
account as presented by the "San Isidro" Central regarding the
actual cost of the railroad line "Palma-San Isidro-Nandong? " 2. Is
the "Palma" Central willing to continue as co-proprietor of the
railroad line for the exploitation of the sugar-cane business of
"Nandong" and neighboring barrios, and therefore to pay 50 per
cent of the expenses that may be incurred in completing the line?
It was but natural that the plaintiffs should have done this.
Defendant transferred his hacienda to Messrs. Phil. C. Whitaker and
Venancio Concepcion and made it known to the plaintiffs that the
new owners would hold themselves liable for the cost of
constructing the said railroad line. Plaintiffs could not prevent the
defendant from selling to Phil. C. Whitaker and Venancio
Concepcion his "Hacienda Palma" with the rights that he had over
the railroad in question. The defendant ceased to be a partner in the
said line and, therefore, the plaintiffs had to take the vendees as
their new partners. Plaintiffs had to come to an understanding with
the new owners of the "Hacienda Palma" in connection with the
railroad line "Palma-San Isidro-Nandong." But in all of this, there
was nothing to show the express consent, the manifest and
deliberate intention of the plaintiffs to exempt the defendant from
his obligation and to transfer it to his successors in interest, Messrs.
Phil. C. Whitaker and Venancio Concepcion.
The plaintiffs were not a party to the document Exhibit 1. Neither in
this document, nor in others in the record, do we find any
stipulation whereby the obligation of the defendant was novated
with the consent of the creditor, and as it has been held in the case
of Martinez vs. Cavives (25 Phil., 581), the oral evidence tending to
prove such a fact as this is not in law sufficient.
As has been said, in all contracts of novation consisting in the
change of the debtor, the consent of the creditor is indispensable,
pursuant to article 1205 of the Civil Code which reads as follows:
"Novation which consists in the substitution of a new
debtor in the place of the original one may be made
without the knowledge of the latter, but not without the
consent of the creditor."
Mr. Manresa in his commentaries on articles 1205 and 1206 of the
Civil Code (vol. 8, 1907 ed., pp. 424-426) says as follows:
"Article 1205 clearly says in what this kind of novation
must consist, because in stating that another person must
be substituted in lieu of the debtor, it means that it is not
enough to extend the juridical relation to that other
person, but that it is necessary to place the latter in the
same position occupied by the original debtor.
"Consequently, the obligation contracted by a third
person to answer for the debtor, as in the case of
suretyship, in the last analysis, does not work as a true
novation, because the third person is not put in the same
position as the debtor—the latter continues in his same
place and with the same obligation which is guaranteed
by the former.
"Since it is necessary that the third person should become
a debtor in the same position as the debtor whom he
substitutes, this change and the resulting novation may be
respected as to the whole debt, thus untying the debtor
from his obligation, except the eventual responsibilities of
which we shall speak later, or he may continue with the
character of such debtor and also allow the third person to
participate in the obligation. In the first case, there is a
complete and perfect novation; in the second, there is a
change that does not free the debtor nor authorize the
extinguishment of the accessory obligations of the latter.
In this last hypothesis, if there has been no agreement as
to solidarity, the first and the new debtor should be
considered as obligated severally.
"The provisions of article 1205 which require the consent
of the creditor as an indispensable requisite in this kind of
novation and not always that of the debtor, while not
making it impossible to express the same, imply the
distinction between these two forms of novation and it is
based on the simple consideration of justice that since the
consequences of the substitution may be prejudicial to the
creditor, but not to the debtor, the consent of the creditor
alone is necessary.
"The two forms of this novation, also impliedly
recognized by article 1206 which employs the word
'delegate,' as applied to the debt, are the expromission and
the delegation. Between these, there is a marked
difference of meaning and, as a consequence, a logical
difference of requisite and another clear difference as to
their effects, of which we shall speak later.
"In the expromission, the initiative of the change does not
emanate from the debtor and may be made even without
his consent, since it consists in a third person assuming
his obligation; it logically requires the consent of this
third man and of the creditor and in this last requisite lies
the difference between novation and payment, as the
latter can be effected by a third person even against the
will of the creditor, whereas in the former case it cannot.
"In the delegation, the debtor offers and the creditor
accepts a third person who consents to the substitution so
 that the intervention and the consent of these three
persons are necessary and they are respectively known as
delegante, delegatario, and delegado. It must be noted
that the consent need not be given simultaneously and
that it may be given afterwards, as for example, that of
the creditor delegatario to the proposition of the debtor
accepted by the delegado.
"Delegation notably differs from the mere indication
made by the debtor that a third person shall pay the debt;
in this case, there is no novation and the former is not
acquitted of his obligation and his relations with the third
person are regulated by the rules of agency. The French
Code in article 1276 expressly provides for this case, as
well as the inverse one where the debtor points out
somebody else to answer for the payment, declaring that
there is no novation in either case. The same sound
criterion is impliedly accepted by our Code."
In the case of E. C. McCullough & Co. vs. Veloso and Serna (46
Phil., 1), it appears that McCullough & Co., Inc., sold to Veloso a
real estate worth P700,000 on account of which Veloso paid
P50,000, promising to pay the balance at the times and manner
stipulated in the contract. He further bound himself to pay 10 per
cent of the amount of the debt as attorney's fees in case of litigation.
To secure the unpaid balance of the purchase price he executed a
first mortgage upon the property in favor of the vendor.
Subsequently, Veloso sold the property for P100,000 to Joaquin
Serna who bound himself to respect the mortgage in favor of
McCullough & Co., Inc., and to assume Veloso's obligation to pay
the unpaid balance of the purchase price of the property at the times
agreed upon in the contract between Veloso and McCullough &
Co., Inc.
Veloso had paid on account of the price the amount of P50,000, and
Serna also made several payments aggregating the total amount of
P250,000. But after this, neither Veloso nor Serna made further
payments and thus gave cause for a litigation. The court in deciding
the case said:
 "The defendant contends that having sold the property to
Serna, and the latter having assumed the obligation to pay
the plaintiff the unpaid balance of the price secured by the
mortgage upon the property, he was relieved from this
obligation and it then devolved upon Serna to pay the
plaintiff. This means that as a consequence of the contract
between the defendant and Serna, the contract between
the defendant and the plaintiff was novated by the
substitution of Serna as a new debtor. This is untenable.
In order that this novation may take place, the law
requires the consent of the creditor (art. 1205 of the Civil
Code). The plaintiff did not intervene in the contract
between Veloso and Serna and did not expressly give his
consent to this substitution. Novation must be express,
and cannot be presumed."
In Martinez vs. Cavives (25 Phil., 581), it was held that:
" * * * The consent of the new debtor is as essential to the
novation as is that of the creditor. * * *
"There is no express stipulation in any of the documents
of record that the obligation of the defendant was
novated, and the parol evidence tending to show that it
was novated is not sufficient in law to establish that fact."
The same doctrine was upheld in the case of Vaca vs. Kosca (26
Phil., 388):
"A new debtor cannot be substituted for the original
obligor in the first contract without the creditor's
consent."
The supreme court of Spain has constantly laid down the same
doctrine with regard to novation of contracts:
"The obligations and rights in a contract cannot be
novated with regard to a third person who has not
intervened in the execution thereof." (Decision of June
28, 1860.)
"Novation by the change of debtors cannot be effected
without the express approval of the creditor." (Decisions
of February 8, 1862 and June 12, 1867.)
"Novation should not be established by presumptions but
by the express will of the parties." (Decisions of February
14, 1876 and June 16, 1883.)
"In order that novation of a contract by subrogation of the
debtor may take effect and thus liberate the first debtor
from the obligation, it is necessary that the subrogation be
made with the consent of the creditor." (Decision of
March 2, 1897.)
"It is undeniable that obligations judicially declared, as
well as those acquired by any other title, can be novated
by substituting a new debtor in place of the primitive,
only when the creditor gives his consent to the
substitution." (Decision of November 15, 1899.)
"Novation can in no case be presumed in contracts, but it
is necessary that it should result from the will of the
parties, or that the old and the new one be altogether
incompatible." (Decision of December 31, 1904.)
"An obligation cannot be deemed novated by means of
modifications which do not substantially change the
essence thereof, nor when it is not extinguished by
another obligation, nor when the debtor is not
substituted." (Decision of March 14, 1908.)
"The consent of the creditor required in a novation
consisting of the change of debtors (art. 1205, Civil Code)
must appear in an express and positive manner and must
be given with the deliberate intention of exonerating the
primitive debtor of his obligations and transfer them
wholly upon the new debtor." (Decision of June 22,
1911.)
In the decision in the case of Martinez vs. Cavives, supra, the
following decisions of the several courts of the United States are
cited, wherein this question was decided in the same manner:
"In Latiolais, admrx. vs. Citizens' Bank of Louisiana (33
La. Ann., 1444), one Duclozel mortgaged property to the
defendant bank for the triple purpose of obtaining shares
in the capital stock of the bank, bonds which the bank
was authorized to issue, and loans to him as a
stockholder. Duclozel subsequently sold this mortgaged
property to one Sproule, who, as one of the terms of the
sale, assumed the liabilities of his vendor to the bank.
Sproule sold part of the property to Graff and Chalfant.
The debt becoming due, the bank brought suit against the
last two named and Sproule as owners, Duclozel was not
made a party. The bank discontinued these proceedings
and subsequently brought suit against Latiolais,
administratrix of Duclozel, who had died.
"The court said: 'But the plaintiff insists that in its petition
in the proceeding first brought the bank ratified the sale
made by Duclozel to Sproule, and by the latter to other
parties, in treating them as owners. Be that so, but it does
not follow in the absence of either a formal and express or
of an implied consent to novate, which should be
irresistibly inferred from surrounding circumstances, that
it has discharged Duclozel unconditionally, and has
accepted those parties as new delegated debtors in his
place. Nemo presumitur donare.
" 'Novation is a contract, the object of which is: either to
extinguish an existing obligation and to substitute a new
one in its place; or to discharge an old debtor and
substitute a new one to him; or to substitute a new
creditor to an old creditor with regard to whom the debtor
is discharged.
" 'It is never presumed. The intention must clearly result
from the terms of the agreement or by a full discharge of
the original debt. Novation by the substitution of a new
 debtor can take place without the consent of the debtor,
but the delegation does not operate a novation, unless the
creditor has expressly declared that he intends to
discharge with delegating debtor, and the delegating
debtor was not in open failure or insolvency at the time.
The mere indication by a debtor of a person who is to pay
in his place does not operate a novation. Delegatus
debitor est odiosus in lege.
" 'The most that could be inferred would be that the bank
in the exercise of a sound discretion, proposed to better its
condition by accepting an additional debtor to be and
remain bound with the original one.'
"In Fidelity L. & T. Co. vs. Engleby (99 Va., 168), the
court said: 'Whether or not a debt has been novated is a
question of fact and depends entirely upon the intention
of the parties to the particular transaction claimed to be
novated. In the absence of satisfactory proof to the
contrary, the presumption is that the debt has not been
extinguished by taking the new evidence in the absence of
an intention expressed or implied, being treated as a
conditional payment merely.'
""In Hamlin vs. Drummond (91 Me., 175; 39 A., 551), it
was said that novation is never presumed but must always
be proven. In Netterstorn vs. Gallistel (110 111. App.,
352), it was said that the burden of establishing a
novation is on the party who asserts its existence; that
novation is not easily presumed; and that it must clearly
appear before the court will recognize it."
Notwithstanding the doctrines above quoted, defendant's counsel
calls our attention to the decision of the supreme court of Spain of
June 16, 1908, wherein it was held that the provisions of article
1205 of the Code do not mean nor require that the consent of the
creditor to the change of a debtor must be given just at the time
when the debtors agree on the substitution, because its evident
object being the full protection of the rights of the creditor, it is
sufficient if the latter manifests his consent in any form and at any
time as long as the agreement among the debtors holds good. And
defendant insists that the acts performed by the plaintiffs after the
"Hacienda Palma" was sold to Messrs. Phil. C. Whitaker and
Venancio Concepcion constitute evidence of the consent of the
creditor. First of all, we should have an idea of the facts upon which
that decision was rendered by the supreme court of Spain.
A partnership known as "La Azucarera de Pravia" obtained a fire
insurance policy from the company "La Union y Fenix Español," by
virtue of which, said company insured in consideration of an annual
premium of 3,000 pesetas, the buildings, machinery and other
apparatuses pertaining to the "Pravia Factory" for ten years and for
half their value, and another insurance from another insurance
company insuring the same property and effects for the other half of
their value.
Later, "La Azucarera de Pravia," with other sugar companies, ceded
all its property to another company known as "Sociedad General
Azucarera de España," in which in consideration of a certain
amount of stock that the said "Sociedad General Azucarera de
España" issued to the "La Azucarera de Pravia," the latter was
merged with the former. After the cession, "La Union y Fenix
Español" sued the "Sociedad General Azucarera da España"
demanding the payment of the premium that should have been paid
by the "La Azucarera de Pravia," which payment the "Sociedad
General Azucarera de España" refused to make on the ground that
the "La Azucarera de Pravia" was not merged with the "Sociedad
General Azucarera de España," but merely transferred its properties
to the latter in consideration of the stock that was issued to the "La
Azucarera de Pravia." It was further contended by the "Sociedad
General Azucarera de España" that even if it were true that in the
contract of cession it appeared that the "La Azucarera de Pravia"
was merged with the "Sociedad General Azucarera de España,"
nevertheless, there was no such merger in law, for in truth and in
fact, the "La Azucarera de Pravia" had ceded only its property, but
not its rights and obligations; that the existence of the partnership
known as "La Azucarera de Pravia" was proven by its registration
in the mercantile register, which was not cancelled, nor did it
contain any statement to the effect that the "La Azucarera de
Pravia" had been extinguished or had ceased to do business even
after the cession of properties to the "Sociedad General Azucarera
de España." Another argument advanced by the "Sociedad General"
was that at the time the "Azucarera de Pravia" ceded its properties
to the "Sociedad General Azucarera de España," the insurance
company "La Union y Fenix Español" did not assent to the
subrogation of the "Sociedad General Azucarera" into the rights and
obligations of the "Azucarera de Pravia," assuming that there had
been such a subrogation or substitution of a debtor by another.
The supreme court of Spain gave judgment in favor of the "La
Union y Fenix Español" insurance company for the following
reasons:
"1. While it is true that it cannot be strictly said that 'La
Azucarera de Pravia' was merged with the 'Sociedad
General Azucarera de España,' the document whereby the
property of the 'La Azucarera de Pravia' was ceded to the
'Sociedad General Azucarera de España' clearly and
expressly recites that this company upon taking charge of
the immovable property of the 'La Azucarera de Pravia'
accepted in general, with respect to the property ceded,
'everything belonging to the same,' after making
provisions about active and passive easements, contracts
for transportation and other matters."
The supreme court held that by virtue of the words hereinabove
quoted, the "Sociedad General Azucarera de España" took over the
obligation to pay the insurance premiums of the "La Azucarera de
Pravia" inasmuch as said insurance pertained to the property that
was ceded.
"2. While it is true that 'La Union y Fenix Español'
insurance company did not give its consent to the contract
of cession at the moment of its execution, yet the mere
fact that the said insurance company now sues the
'Sociedad General Azucarera de España' is an
incontrovertible proof that the said insurance company
accepts the substitution of the new debtor."
By comparing the facts of that case with the defenses of the case at
bar, it will be seen that, whereas in the former case the creditor sued
the new debtor, in the instant case the creditor sues the original
debtor. The supreme court of Spain in that case held that the fact
that the creditor sued the new debtor was proof incontrovertible of
his assent to the substitution of the debtor. This would seem evident
because the judicial demand made on the new debtor to comply
with the obligation of the first debtor is the best proof that the
creditor accepts the change of the debtor. His complaint is an
authentic document where his consent is given to the change of the
debtor. We are not holding that the creditor's consent must
necessarily be given in the same instrument between the first and
the new debtor. The consent of the creditor may be given
subsequently, but in either case it must be expressly manifested. In
the present case, however, the creditor makes judicial demand upon
the first debtor for the fulfillment of his obligation, evidently
showing by this act that he does not give his consent to the
substitution of the new debtor. We are of the opinion that the
decision of the supreme court of Spain of June 16, 1908, cannot be
successfully invoked in support of defendant's contention.
Wherefore, we hold that in accordance with article 1205 of the
Civil Code, in the instant case, there was no novation of the
contract, by the change of the person of the debtor.
Another defense urged by the defendant is the merger of the rights
of debtor and creditor, whereby under article 1192 of the Civil
Code, the obligation, the fulfillment of which is demanded in the
complaint, became extinguished. It is maintained in appellee's brief
that the debt of the defendant was transferred to Phil. C. Whitaker
and Venancio Concepcion by the document Exhibit 1. These in turn
acquired the credit of the plaintiffs by virtue of the debt, Exhibit 5;
thus the rights of the debtor and creditor were merged in one
person. The argument would at first seem to be incontrovertible, but
if we bear in mind that the rights and titles which the plaintiffs sold
to Phil. C. Whitaker and Venancio Concepcion refer only to one-
half of the railroad line in question, it will be seen that the credit
which they had against the defendant for the amount of one-half of
the cost of construction of the said line was not included in the sale
contained in Exhibit 5. That the plaintiffs sold their rights and titles
over one-half of the line, is evident from the very Exhibit 5. The
purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure
the payment of the price, executed a mortgage in favor of the
plaintiffs on the same rights and titles that they had bought and also
upon what they had purchased from Mr. Salvador Serra, In other
words, Phil. C. Whitaker and Venancio Concepcion mortgaged unto
the plaintiffs what they had bought from the plaintiffs and also what
they had bought from Salvador Serra. If Messrs. Phil. C. Whitaker
and Venancio Concepcion had purchased something from Mr.
Salvador Serra, the herein defendant, regarding the railroad line, it
was undoubtedly the one-half thereof pertaining to Mr. Salvador
Serra. This clearly shows that the rights and titles transferred by the
plaintiffs to Phil. C. Whitaker and Venancio Concepcion were only
those they had over the other half of the railroad line. Therefore, as
already stated, since there was no novation of the contract between
the plaintiffs and the defendant, as regards the obligation of the
latter to pay the former one-half of the cost of the construction of
the said railroad line, and since the plaintiffs did not include in the
sale, evidenced by Exhibit 5, the credit that they had against the
defendant, the allegation that the obligation of the defendant
became extinguished by the merger of the rights of creditor and
debtor by the purchase of Messrs. Phil. C. Whitaker and Venancio
Concepcion is wholly untenable.
Appellants assign also as a ground of their appeal the holding of the
court that by the termination of the partnership, as shown by the
document Exhibit 5, no legal rights can be derived therefrom.
By virtue of the contract Exhibit 5, the plaintiffs and Phil. C.
Whitaker and Venancio Concepcion, by common consent, decided
to dissolve the partnership between the "Hacienda Palma" and
"Hacienda San Isidro," thus cancelling the contract of partnership
of February 1, 1919.
Counsel for appellee in his brief and oral argument maintains that
the plaintiffs cannot enforce any right arising out of that contract of
partnership, which has been annulled, such as the right to claim
now a part of the cost of the construction of the railroad line
stipulated in that contract.
Defendant's contention signifies that any person, who has
contracted a valid obligation with a partnership, is exempt from
complying with his obligation by the mere fact of the dissolution of
the partnership. Defendant's contention is untenable. The
dissolution of a partnership must not be understood in the absolute
and strict sense so that at the termination of the object for which it
was created the partnership is extinguished, pending, the winding
up of some incidents and obligations of the partnership, but in such
case, the partnership will be reputed as existing until the juridical
relations arising out of the contract are dissolved. This doctrine has
been upheld by the supreme court of Spain in its decision of
February 6, 1903, in the following case: There was a partnership
formed between several persons to purchase some lands sold by the
state. The partnership paid the purchase price and distributed
among its members the lands so acquired, but after the lapse of
some time, one of the partners instituted an action in the court of
Badajoz, praying that he be accepted as a partner with the same
rights and obligations as the others, for the reason that he had not
been allowed all that he had a right to. The court granted the
petition which judgment was affirmed by the Audiencia de Caceres.
From that decision the defendant sued out a writ of error alleging
infringement of articles 1680 and 1700 of the Civil Code, on the
proposition that all contracts are reputed consummated and
therefore extinguished, when the contracting parties fulfill all the
obligations arising therefrom and that by the payment of the money
and the granting and distribution of the lands without any
opposition, the juridical relations between the contracting parties
become extinguished and none of the parties has any right of action
under the contract. The supreme court, holding that some
corrections and liquidations asked by the actor were still pending,
denied the writ, ruling that the articles cited were not infringed
because a partnership cannot be considered as extinguished until all
the obligations pertaining to it are fulfilled. (11 Manresa, page 312.)
The dissolution of a firm does not relieve any of its members from
liability for existing obligations, although it does save them from
new obligations to which they have not expressly or impliedly
assented, and any of them may be discharged from old obligations
by novation or other form of release. It is often said that a
partnership continues, even after dissolution, for the purpose of
winding up its affairs. (30 Cyc., page 659.)
Another question presented by appellee's counsel in his
memorandum and oral argument is that as in the partnership articles
of February 1, 1919, it was covenanted that the defendant would put
up one-half of the cost of the railroad line within five years from
that date, that is, from February 1, 1919, with interest at 10 per cent
per annum, the present action is premature since, from the
execution of the contract until October 25, 1922, the date of the
complaint, the five years, within which the defendant could pay his
part of the cost of the construction of the line, had not yet elapsed.
Suffice it to say that the plaintiffs and the successors in interest of
the defendant, by mutual consent, dissolved the partnership on June
16, 1920, cancelling the contract Exhibit A to all of which the
defendant consented as evidence by his allegations in his answer. If
this is so, there is no reason for waiting for the expiration of the five
years which the parties themselves had seen fit to stipulate and
therefore the provisions of article 1113, regarding the fulfillment of
pure obligations, must be applied in this case.
For all of the foregoing, the judgment appealed from is reversed,
and we hold that the defendant Salvador Serra is indebted to the
plaintiffs, the Testate Estate of Lazaro Mota, et al., in the amount of
P113,046.46, and said defendant is hereby sentenced to pay the
plaintiffs the said amount, together with the agreed interest at the
rate of 10 per cent per annum from the date of the filing of the
complaint.
Without special pronouncement as to costs, it is so ordered.
Johnson, Street, Malcolm, Ostrand, Johns, and Romualdez, JJ.,
concur.
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