Novation and Accommodation

August 11, 2008

Can novation of contract be presumed?  Can there be an accommodation when the instrument is non-negotiable instrument?

These are the two main questions raised in the case of Romeo Garcia vs. Dionisio Llamas, GR 154127, Dec. 8, 2003.

Garcia and his partner De Jesus drew a promissory note which they acknowledged solidary obligation on the loan they receive from Llamas amounting to Php 400,000.00

Llmas filed a complaint for collection of sum of money and for damages as a result of the issuance of dishonored check issued by De Jesus and his failure to pay the oblgation despite Llamas repeated demands for payment.  

For his part, Garcia put up as defense that he was merely an accommodation party and that issuance of the check of De Jesus and acceptance of Llmas, despite the fact that it was subsequently dishonored, novated their obligation and that De Jesus assumed the entire obligation.  

In deciding the case, the SC defined what novation and accommodation mean.  As to the former, novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor.  The Civil Code provides that, (more…)