D.

Expromision and Delegacion Effect on New There can be no subrogation Subrogation may take place by
Debtor in terms because of the express virtue of the provisions of Art.
of Subrogation provision of Art.1237 (Whoever 1302, par. 2 (It is presumed that
Art. 1293 pays on behalf of the debtor there is legal subrogation when a
Novation which consists in substituting a new debtor in the place of the original without the knowledge or against third person, not interested in the
one the will of the latter, cannot obligation, pays with the express
 may be made even without compel the creditor to subrogate or tacit approval of the debtor)
 the knowledge OR him in his rights, such as those
 against the will of the latter, arising from a mortgage, guaranty,
 BUT not without the consent of the creditor. or penalty)

Payment by the new debtor gives him the rights mentioned in Articles 1236 and
1237. Subrogation
 substitution of one person or group by another in respect of a debt or insurance
claim, accompanied by the transfer of any associated rights and duties.
Trigger: Novation which consists in substituting a new debtor in the place of the original one
(subjective novation, no. 1 in Art.1291) Why the consent of creditor is necessary in both expromision and delegacion
 In this kind of novation, it is not enough to extend the juridical relation to a third  Substitution of one debtor may delay or prevent the fulfilment of the
person obligation by reason of the inability or insolvency of the new debtor;
 it is necessary that the old debtor be released from the obligation, and hence, the creditor should accept the substitution in order that it may be binding
the third person or new debtor take his place in the relation on him.
 Without such release, there is no novation; the third person merely  The consent of the creditor to the substitution
becomes a co-debtor or a surety.  may be express or implied.
 It need not be given simultaneously with that of the debtor and of
Effect: This kind of novation may be made even without the knowledge or against the will of the third party,
the original debtor, but not without the consent of the creditor. Payment by the new debtor  Not required to be in any specific or particular form, but it must
gives him the rights mentioned in Articles 1236 and 1237. be given by the creditor in one way or another.
 When the original contract authorizes the debtor to transfer his obligation to a
There are two forms of subjective novation: third person, the novation by substitution of debtor is effected when the creditor is
EXPROMISION DELEGACION notified that such transfer has been made.
 The consent of the creditor cannot be presumed from his acceptance of
How change/ Does not emanate from the Debtor offers and creditor payments by a third party for the benefit of the debtor, without further
substitution is debtor accepts a third person who acts
initiated consents to the substitution
May be made even without Why the consent of the new debtor is necessary in both expromision and
debtor’s knowledge, since it Consent need not be given delegacion
consists in a third person simultaneously  because he is to assume the obligation.
assuming the obligation
Examples
Whose consent is Creditor and Third Person only Debtor (delegante), (1) D (debtor) tells C (creditor) that X will pay D’s debt. C agrees. It does not necessarily
necessary Creditor (delegatario), and Third mean that there is delegacion here. But if D tells B that X will pay his debt and he asks C to
Person (delegado) release him from his obligation, to which C agrees, delegacion results.

Effect on Old New debtor who pays the New debtor who pays the (2) Suppose, in the same example, it is X who approaches C and tells him that X will pay the
Debtor in terms obligation w/o consent of old obligation could demand from debt of D. C agrees. There is no expromision in this case, unless there is an agreement that D
of Recovery debtor can recover only insofar the old debtor what he has paid shall be released from his obligation to C.
(governed by as the payment has been
rules on payment beneficial to the old debtor
by 3rd party in
Art. 1236)
Illustrative cases
1. Contract permits adding to the number of persons liable.
Facts: R (lessor) leased his property to partnership X, with the stipulation in the contract that
the provisions of the lease should be obligatory upon and redound to the benefi t not only of
the lessee (X) but to its assignee. X was succeeded as lessee by partnership Y, and the latter,
by partnership Z, and the last to be itself succeeded by W, a corporation. R, who was
informed of these successive changes, accepted the monthly rents from whoever was the
possessor. As W was not able to continue paying, R brought action against X to recover the
rents in arrears.
Issue: Was X discharged by a novation of the original contract whereby the lessee (X) was
changed and a new debtor (W) substituted for the original one?
Held: No. The transfer of the lease was anticipated in the contract and stipulated for, and R
(lessor) had no right to complain as the leased premises passed from one entity to another.
The contract does not stipulate that X (original lessee) should be discharged by any such
assignment and an agreement to this effect cannot be implied from the forced acquiescence
of R in the transfer of the lease. In this case, the new obligation assumed by the successive
entities was not at all incompatible with the continued liability of X. It is a very common thing
in business affairs for a stranger to a contract to assume its obligations; and while this may
have the effect of adding to the number of persons liable, it by no means necessarily implies
the extinguishment of the liability of the first debtor.
Note: Under Article 1650 of the Civil Code, when in the contract of lease there is no express
prohibition, the lessee may sublet the thing leased. The rule is different with respect to
assignments of lease. Article 1649 provides that “the lessee cannot assign the lease without
the consent of the lessor, unless there is a stipulation to the contrary. The consent of the
lessor is necessary if the assignment would involve the transfer not only of rights but also of
obligations of the lessee. Such assignment would constitute novation by the substitution of
one of the parties, i.e., the lessee.
2. Debtor merely authorized another to pay creditor.
Facts: D obtained a loan in the sum of P3,000.00 from C. D authorized B (bank) to pay his
indebtedness to C out of whatever crop loan might be granted to him by B. The crop was
granted under certain conditions, one of which, that whatever D owed B in connection with
the crop loan granted him for the previous year would be charged against the loan for
the current year. In reality, there were no funds to the credit of D that could be applied to
the payment of D’s obligation to C. The branch manager of B paid P2,000.00 to C. For the
error thus committed, he was reprimanded by his employer. C sued D and B for the balance
of P1,000.00.
Issue: Is B liable to C for the remainder of D’s indebtedness?
Held: No. B did not assume the obligation of D to C, neither as coprincipal, nor as a surety
or guarantor. D simply authorized B to pay the amount D owed C out of the proceeds of the
crop loan which B would grant D. The error committed by the branch manager of B cannot
be construed as binding his principal to pay the remainder of D’s obligation.
3. Mortgagor sold the mortgaged property to another who made partial payments.
Facts: S sold to B a building, B promising to pay the unpaid balance of the price with interest
and mortgaging the property as security. Subsequently, B sold the property to C, the latter
agreeing to pay the balance and to respect the mortgage. C made several payments to S.
When neither B nor C made further payment, S brought action for recovery of the remaining
balance with interest and the foreclosure of the mortgage.
Issue: Is B released from his obligation to S on the ground of substitution of C as the new
debtor?
Held: No. Novation cannot be presumed. S did not intervene in thecontract between B and C
and did not expressly give his consent to the substitution. The fact that S did not oppose the
sale of the mortgaged property could not prejudice him. The mortgage was merely an
encumbrance and, therefore, B had the right to make the sale, which S could not oppose and
which at all events, could not affect the mortgage, as the latter follows the property whoever
the possessor may be. (Art. 2126.) The fact that S has received payments from C on account
of B’s obligation is of no importance, for this is, at most, a payment by a third person which,
while it may create a juridical relation between B and C, cannot affect the relation between S
and B except that the obligation thus paid is discharged
4. First mortgagee consented to registration of second mortgage on condition of full payment of
debtor’s outstanding obligation but second mortgagee made partial payment only.
Facts: DBP agreed to guarantee LC’s foreign loan subject to the condition that LC should
deposit with DBP the proceeds of the loan which should be made available for payments of
LC’s obligation to local financial institution and to serve as working capital. DBP informed
PCIB that the former had guaranteed LC’s foreign loan and asked that it be lent the titles
covering parcels of land mortgaged to PCIB by LC for DBP to be able to register its
mortgage thereon. PCIB interposed no objection on the condition that it would “be favored
immediately with a remittance in full of LC’s outstanding obligations, after which it would
issue the necessary Deed of Release of Real Estate Mortgage.’’ DBP made a partial payment
only of LC’s outstanding obligation.
Issue: Is PCIB estopped from foreclosing the mortgage on the ground of novation?
Held: No. Under the facts, DBP did not substitute LC as debtor to PCIB. PCIB agreed to the
registration of DBP’s second mortgage and to cancel or release the fi rst mortgage upon
receipt in full of the payment of LC’s mortgage debt. In substitution, it is not enough that the
juridical relation of the parties to the original contract is extended to a third person; it is
necessary that the old debtor be released from the obligation and the third person or new
debtor takes his place in the new relation. Without such release, there is no novation, the
third person who has assured the obligation of the debtor merely becomes a co-debtor or
surety. If there is no agreement as to solidarity, the first and new debtors are considered
obligated jointly.

Garcia v Llamas (2003)
In order to change the person of the debtor, the old one must be expressly released from
the obligation, and the third person or new debtor must assume the formers place in the
relation
Plaintiffs acceptance of the bum check did not result in substitution by de Jesus
 the nature of the obligation being solidary due to the fact that the promissory
note expressly declared that the liability of appellants thereunder is joint and
solidary.
Respondent’s acceptance of his check did not change the person of the debtor, because a
joint and solidary obligor is required to pay the entirety of the obligation
SUMMARY
A complaint for sum and damages by respondent against petitioner and de Jesus. It was alleged that
petitioner and de Jesus borrowed 400, 000 pesos from respondent. The former executed a
promissory note wherein the bound themselves to solidarily pay the loan. Despite repeated demands,
they have failed and refused to pay. Petitioner argues that he has no liability under the promissory
note because it has already been paid by de Jesus by check and respondent’s acceptance novated
the note.
FACTS
Respondent alleged petitioner and de Jesus borrowed P400,000.00 from respondent
 on the same day, they executed a promissory note wherein they bound themselves
jointly and severally to pay the
 the loan has long been overdue and, despite repeated demands, petitioner and de
Jesus have failed and refused to pay it
 by reason of the unjustified refusal, respondent was compelled to engage the
services of counsel
Resisting the complaint, petitioner averred that he assumed no liability under the promissory
note
 he signed it merely as an accommodation party for de Jesus
 alternatively, he is relieved from any liability arising from the note inasmuch as the
loan had been paid by de Jesus by means of a check
 the issuance of the check and respondent’s acceptance thereof novated or
superseded the note.
Respondent’s answer
 loan remained unpaid for the reason that the check issued by de Jesus bounced,
 petitioner’s answer was not even accompanied by a certificate of non-forum
shopping
de Jesus’ answer
 that out of the supposed P400,000.00 loan, he received only P360,000.00
 P40,000.00 having been advance interest thereon for two months (January and
February)
 he paid the sum of P120,000.00 by way of interests
 this was made when respondent’s daughter received from the Central
Police District Command at Bicutan, Taguig, Metro Manila (where de
Jesus worked), the sum of
 P40,000.00, representing the peso equivalent of his accumulated
leave credits,
 another P40,000.00 as advance interest,
 and still another P40,000.00 as interest for the months of
March and April 1997;
 he had difficulty in paying the loan and had asked respondent for an extension of
time
 respondent acted in bad faith in instituting the case
 respondent agreed to accept the benefits he (de Jesus) would receive for
his retirement,
 but respondent filed the instant case while his retirement was
being processed
RTC rendered decision in favor of respondent
CA ruled that the trial court had erred when it rendered a judgment on the pleadings against
De Jesus.
 he was still required to present his evidence ex parte.
 even though De Jesus had been declared in default.
 The case against the de Jesus was therefore remanded by the CA to the trial court
 no novation had taken place when respondent accepted the check from De Jesus.
 the check was issued precisely to pay for the loan that was covered by the
promissory note jointly and severally undertaken by petitioner and De
Jesus.
 Respondent’s acceptance of the check did not serve to make De Jesus the
sole debtor because
 first, the obligation incurred by him and petitioner was joint and
several
 second, the check bounced upon its presentment
ISSUE
Whether or not CA gravely erred in not holding that novation applies in the instant case as
Eduardo de Jesus had expressly assumed sole and exclusive liability for the loan obligation –
NO
RATIO
Petitioner seeks to extricate himself from his obligation as joint
and solidary debtor by insisting
 novation took place
 either through the substitution of De Jesus as sole debtor or
 the replacement of the promissory note by the check
 original obligation was extinguished when the latter, who was his co-obligor, paid
the loan with the check.
The check could not have extinguished the obligation
 bounced upon presentment.
 the delivery of a check produces the effect of payment only when it
is encashed.

Novation is a mode of extinguishing an obligation by
 changing its objects or principal obligations
 substituting a new debtor in place of the old one
 subrogating a third person to the rights of the creditor
Two modes of substituting the person of the debtor
 expromision
 the initiative for the change does not come from the debtor, since it
consists of a third persons assumption of the obligation
 requires the consent of the third person and the creditor
 delegacion
 the debtor offers, and the creditor accepts, a third person who consents
to the substitution and assumes the obligation
 the consent of these three persons are necessary.
 Both modes of substitution by the debtor require the consent of the
creditor
Novation may also be
 extinctive
 old obligation is terminated by the creation of a new one that takes the
place of the former
 modificatory
 old obligation subsists to the extent that it remains compatible with the
amendatory agreement.
Whether extinctive or modificatory, novation is made either by
 objective or real novation
 changing the object or the principal conditions
 subjective or personal novation
 substituting the person of the debtor or subrogating a third person to the
rights of the creditor
For novation to take place, the following requisites must concur:
 There must be a previous valid obligation
 The parties concerned must agree to a new contract
 The old contract must be extinguished
 There must be a valid new contract
Novation may also be express or implied
 Express
 new obligation declares in unequivocal terms that the old obligation is
extinguished
 Implied
 new obligation is incompatible with the old one on every point
 The test of incompatibility is whether the two obligations can stand
together, each one with its own independent existence
Applying the foregoing to the instant case, we hold that no novation took place.
 Express or implied
 The parties did not unequivocally declare that the old obligation had been
extinguished by the issuance and the acceptance of the check, or that the
check would take the place of the note.
 There is no incompatibility between the promissory note and the check
 check had been issued precisely to answer for the obligation
 note evidences the loan obligation; and on the other, the check
answers for it.
 Neither could the payment of interests change the terms and conditions of the
obligation.
 Such payment was already provided for in the promissory note and, like
the check, was totally in accord with the terms thereof.
Also unmeritorious is petitioners argument that the obligation was novated by the
substitution of debtors.
 In order to change the person of the debtor, the old one must be expressly
released from the obligation, and the third person or new debtor must assume
the formers place in the relation.
Well-settled is the rule that novation is never presumed. Consequently, that which arises
from a purported change in the person of the debtor must be clear and express.
 incumbent on petitioner to show clearly and unequivocally that novation has indeed
taken place.
 petitioner has not shown that
 he was expressly released from the obligation,
 that a third person was substituted in his place, or
 that the joint and solidary obligation was cancelled and substituted by the
solitary undertaking of De Jesus
Plaintiff’s acceptance of the bum check did not result in substitution by de Jesus
 the nature of the obligation being solidary due to the fact that the promissory note
expressly declared that the liability of appellants thereunder is joint and solidary
 Reason: under the law, a creditor may demand payment or performance from one
of the solidary debtors or some or all of them simultaneously, and payment made
by one of them extinguishes the obligation. It therefore follows that in case the
creditor fails to collect from one of the solidary debtors, he may still proceed
against the other or others
For novation to be valid and legal, the law requires that the creditor expressly consent
to the substitution of a new debtor.
 It cannot be supposed, without clear proof, that the present respondent has done
away with his right to exact fulfillment from either of the solidary debtors.
De Jesus was not a third person to the obligation
 From the beginning, he was a joint and solidary obligor of the P400,000 loan
 he can be released from it only upon its extinguishment
 Respondent’s acceptance of his check did not change the person of the debtor,
because a joint and solidary obligor is required to pay the entirety of the obligation.
 Having made himself jointly and severally liable with De Jesus, petitioner is
therefore liable for the entire obligation

Bognot v RRI Lending (2014)
Novation by substitution of debtor must always be made with the consent of the
creditor.
In order to give novation legal effect, the creditor should consent to the substitution of a
new debtor. Novation must be clearly and unequivocally shown, and cannot be presumed.
Mere acquiescence to the renewal of the loan, when there is clearly no agreement to
release the petitioner from his responsibility, does not constitute novation.
SUMMARY
Petitioner together with his brother applied for and obtained a loan. This was evidenced by a
promisory note and was secured by a post dated check. The petitioners renewed the loan several
times. Several days before the loans maturity on June 30, 1997, Mrs. Bognot applied for the renewal
of the loan, and asked the clerk to release to her the promisory notes, disclosure statement and the
check. She never returned them. Petitioner claimed that is obligation was extinguished through
novation because Mrs. Bognot already assumed the obligation by paying the renewal fee which was
done through respondent’s consent.
FACTS
Respondent is an entity engaged in the business of lending money to its borrowers within
Metro Manila. It is duly represented by its General Manager, Mr. Dario J. Bernardez.
Petitioner and his younger brother, Rolando A. Bognot, applied for and obtained a loan of
₱500,000.00 from the respondent
 evidenced by a promissory note and was secured by a post dated check
 Evidence on record shows that the petitioner renewed the loan several times on a
monthly basis.
 paid a renewal fee of ₱54,600.00 for each renewal
 issued a new post-dated check as security
 executed and/or renewed the promissory note previously issued.
 The respondent on the other hand, cancelled and returned to the petitioner the
post-dated checks issued prior to their renewal.
Petitioner applied for another loan renewal. Subsequently, the loan was again renewed on a
monthly basis and the Disclosure Statement duly signed by Bernardez.
 The petitioner purportedly paid the renewal fees and issued a post-date check as
security
 the respondent superimposed the date "June 30, 1997" on the upper right portion
of Promissory Note to make it appear that it would mature on the said date
Several days before the loan’s maturity, Rolando’s wife went to the respondent’s office and
applied for another renewal of the loan.
 She issued in favor of the respondent Promissory Note and International Bank
Exchange (IBE) Check in the amount of ₱54,600.00 as renewal fee.
On the excuse that she needs to bring home the loan documents for the Bognot siblings’
signatures and replacement, Mrs. Bognot asked the respondent’s clerk to release to her the
promissory note, the disclosure statement, and the check
 Mrs. Bognot, however, never returned these documents nor issued a new post-
dated check.
 Consequently, the respondent sent the petitioner follow-up letters demanding
payment of the loan, plus interest and penalty charges. These demands went
unheeded.
Respondent, through Bernardez, filed a complaint for sum of money before the RTC against
the Bognot siblings.
 The respondent mainly alleged that the loan renewal payable on June 30, 1997
which the Bognot siblings applied for remained unpaid;
 that before June30, 1997, Mrs. Bognot applied for another loan extension and
issued IBE Check as payment for the renewal fee;
 that Mrs. Bognot convinced the respondent’s clerk to release to her the
promissory note and the other loan documents;
 since Mrs. Bognot never issued any replacement check, no loan extension took
place and the loan, originally payable on June 30, 1997, became due on this date;
 and despite repeated demands, the Bognot siblings failed to pay their joint and
solidary obligation.
Petitioner claimed that the complaint states no cause of action
 the respondent’s claim had been paid, waived, abandoned or otherwise
extinguished.
 denied being a party to any loan application and/or renewal in May 1997
 also denied having issued the BPI check post-dated to June 30, 1997, as well as the
promissory note dated June 30, 1997
 claiming that this note had been tampered.
 He claimed that the 1 month loan contracted by Rolando and his wife in November
1996 which was lastly renewed in March 1997 had already been fully paid and
extinguished in April 1997.11
The RTC ruled in the respondent’s favor and ordered the Bognot siblings to pay the amount
of the loan, plus interest and penalty charges.
 It considered the wordings of the promissory note and found that the loan they
contracted was joint and solidary.
 It also noted that the petitioner signed the promissory note as a principal, while
Rolando was the co-maker.
CA affirmed the RTC’s findings
 It found the petitioner’s defense of payment untenable and unsupported by clear
and convincing evidence.
 It observed that the petitioner did not present any evidence showing that the check
dated June 30, 1997 had, in fact, been encashed by the respondent and the
proceeds applied to the loan, or any official receipt evidencing the payment of the
loan.
 It further stated that the only document relied upon by the petitioner to
substantiate his defense was the April 1, 1997 check he issued which was cancelled
and returned to him by the respondent.

ISSUE
Whether the parties’ obligation was extinguished by novation by substitution of debtors.
RATIO
The petitioner never raised this issue before the lower courts.
 It is a settled principle of law that no issue may be raised on appeal unless it has
been brought before the lower tribunal for its consideration.
In any event, we find no merit in the defense of novation as we discuss at length below.
 To give novation legal effect, the original debtor must be expressly released from
the obligation, and the new debtor must assume the original debtor’s place in the
contractual relationship. Depending on who took the initiative, novation by
substitution of debtor has two forms – substitution by expromision and
substitution by delegacion.
Novation by substitution of debtor must always be made with the consent of the
creditor.
 The petitioner contends that
 novation took place through a substitution of debtors when Mrs. Bognot
renewed the loan and assumed the debt.
 Mrs. Bognot assumed the obligation by paying the renewal fees and
charges, and by executing a new promissory note.
 she issued her own check to cover the renewal fees, which fact,
according to the petitioner, was done with the respondent’s consent.
Contrary to the petitioner’s contention, Mrs. Bognot did not substitute the petitioner
as debtor.
 She merely attempted to renew the original loan by executing a new promissory
note and check
 The purported 1 month renewal of the loan, however, did not push through, as
Mrs. Bognot did not return the documents or issue a new post dated check.
 Since the loan was not renewed for another month, the original due date, June
30,1997, continued to stand.
More importantly, the respondent never agreed to release the petitioner from his
obligation.
 respondent initially allowed Mrs. Bognot to bring home the promissory note,
disclosure statement and the petitioner’s previous check dated June 30, 1997, does
not ipso facto result in novation.
 Neither will this acquiescence constitute an implied acceptance of the
substitution of the debtor.
In order to give novation legal effect, the creditor should consent to the substitution
of a new debtor. Novation must be clearly and unequivocally shown, and cannot
be presumed.
 Since the petitioner failed to show that the respondent assented to the
substitution, no valid novation took place with the effect of releasing the petitioner
from his obligation to the respondent.
 in the absence of showing that Mrs. Bognot and the respondent had agreed to
release the petitioner, the respondent can still enforce the payment of the
obligation against the original debtor.
 Mere acquiescence to the renewal of the loan, when there is clearly no agreement
to release the petitioner from his responsibility, does not constitute novation.
BPI v Domingo (2015)
The acceptance by a creditor of payments from a third person, who has assumed the
obligation, will result merely to the addition of debtors and not novation.
The party asserting novation, bears the burden of proving its existence.
SUMMARY
Respondent executed a promissory note in favor of Makati Auto Center. They also executed a deed
of chattel mortgages over a 1993 Mazda. The latter assigned its rights and interest over the
promissory note to FEBTC. FEBTC was absorbed by BPI. Respondents defaulted when they failed to
pay 21 monthly installments. When they still failed to pay, BPI filed a complaint for replevin and
included a John Doe who was said to be in possession of the Mazda.
FACTS
Respondent his wife executed a Promissory Note in favor of Makati Auto Center, Inc.
 They simultaneously executed a Deed of Chattel Mortgage over a 1993 Mazda to
secure the payment of their Promissory Note.
 Makati Auto Center, Inc. then assigned, ceded, and transferred all its rights and
interests over the said Promissory Note and chattel mortgage to Far East Bank and
Trust Company (FEBTC).
SEC approved and issued the Certificate of Filing of the Articles of Merger and Plan of
Merger between BPI and FEBTC (absorbed corporation).
 By virtue of said merger, all the assets and liabilities of FEBTC were transferred to
and absorbed by BPI.
The spouses Domingo defaulted when they failed to pay 21 monthly installments
 BPI, being the surviving corporation after the merger, demanded that the spouses
Domingo pay the balance of the Promissory Note When the spouses Domingo still
failed to comply with its demands
 BPI filed a Complaint for Replevin and Damages (or in the alternative, for
the collection of sum of money, interest and other charges, and
attorney's fees)
 BPI included a John Doe as defendant because at the time of filing of the
Complaint, BPI was already aware that the subject vehicle was in the
possession of a third person but did not yet know the identity of said
person.
During trial, the prosecution presented as witness Vicente Magpusao, a former employee of
FEBTC and now an Account Analyst of BPI.
 Just affirmed the previous facts mentioned
 Based on the subsidiary ledger, there were three (3) checks that bounced and
these are payments from the new buyer.
  They only have 1 photocopy of these checks in the amount of
P325,431.60 while the other 2 are missing.
 He was not aware who owns Cargo and Hardware Corporation but the check was
issued by a certain Miss Gonzales.
 anyone can pay the monthly amortization as long as the payment is for the account
of Maryden Domingo
 They cannot include Carmelita Gonzales as one of the defendants in this
case because they don't have a document executed by the latter in behalf
of Far East Bank and Trust Co.
 The bank did not approve the Deed of Sale with Assumption of Mortgage.
 he found the photocopy of the Deed of Sale in the records of Maryden
Domingo.
 The Promissory Note and Chattel Mortgage were executed by the respondents
 There was no assumption of obligation
 Witness however admitted that Far East Bank did not turn over to BPI all the
records pertaining to the account of the spouses
Respondent (husband) claimed
 his wife and co-defendant Mercy Maryden Domingo died
 his wife bought a car and was mortgaged to Far East Bank and Trust Company.
 his wife issued 48 checks
 12 checks were cleared by the bank and his wife was able to obtain a
discount for prompt payments up to October 1994.
 While they were still paying for the car, Carmelita Gonzales got interested to buy
the car and is willing to assume the mortgage.
 After furnishing the bank with the Deed of Sale duly notarized, Carmelita Gonzales
subsequently issued a check payable to Far East Bank and Trust Company and the
remaining postdated checks were returned to them
 he received a phone call from a certain Marvin Orence asking for their assistance
to locate the car which Carmelita Gonzales bought from them
 From the time Ms. Gonzales started to pay, they never received any demand letter
from Far East Bank.
 Thereafter, on February 29, 1997, they received a demand letter from
Espino Law Office on behalf of FEBTC.
 His lawyer made a reply stating therein that the motor vehicle
for which the loan was obtained had been sold to Carmelita
Gonzales with the knowledge and approval of their client.
 After three years, they received another demand letter from
Labaguis Law Office. His lawyer made the same reply
 elaborates that when his wife presented to Far East Bank the Deed of Sale with
Assumption of Mortgage
 the bank made no objection and returned all their postdated checks
 wife was the one who dealt with Carmelita Gonzales but he always
provided assistance with respect to paper works.
 Aside from the aforesaid Deed of Sale, there is no other document which
shows the conformity of the bank.
 They were only verbally assured by Mr. Orence that their papers are in
order.
MeTC rendered a Decision in favor of BPI as the bank was able to establish by
preponderance of evidence a valid cause of action against the spouses Domingo.
 novation is never presumed and must be clearly shown by express agreement or by
acts of equal import.
 To effect a subjective novation by a change in the person of the debtor, it is
necessary that the old debtor be released expressly from the obligation and the
third person or new debtor assumes his place.
 Amador's bare testimony as insufficient evidence to prove that he and his wife
Mercy had been expressly released from their obligations and that Carmelita
Gonzales assumed their place as the new debtor within the context of subjective
novation;
 and if at all, Carmelita only became the spouses Domingo's co-debtor or surety.
Dissatisfied, Amador appealed his case before RTC
 in novation, consent of the creditor to the substitution of the debtor need not be
by express agreement, it can be merely implied.
 consent is not required to be in any specific or particular form;
 the only requirement being that it must be given by the creditor in one
way or another.
 following circumstances demonstrated the implied consent of BPI to the novation:
 BPI had knowledge of the Deed of Sale and Assumption of Mortgage
executed between Mercy and Carmelita, but did not interpose any
objection to the same; and
 BPI (through FEBTC) returned the personal checks of the spouses
Domingo and accepted the payments made by Carmelita.
 also noted that BPI made a demand for payment upon the spouses
Domingo only after 30 months from the time Carmelita assumed
payments for the installments due.
 if the spouses Domingo truly remained as debtors, BPI would
not have wasted time in demanding payments from them.
Aggrieved by the foregoing RTC judgment, BPI filed a Petition for Review
 CA affirmed the finding of the RTC that novation took place.
 The Court of Appeals, relying on the declaration in Babst v. Court of Appeals
 that consent of the creditor to the substitution of debtors need not
always be express and may be inferred from the acts of the creditor
ISSUE
Whether or not there had been a novation of the loan obligation with chattel mortgage of
the spouses Domingo to BPI
RATIO
The debtor offers and the creditor accepts a third person who consents to the substitution
and assumes the obligation, so that the intervention and the consent of these three persons
are necessary. In these two modes of substitution, the consent of the creditor is an
indispensable requirement
 emphasized in De Cortes the indispensability of the creditor's consent to the
novation, whether expromision or delegacion,
 the "substitution of one debtor for another may delay or prevent the
fulfillment of the obligation by reason of the financial inability or
insolvency of the new debtor

Both the RTC and the Court of Appeals found that there was novation by delegacion in the
case at bar.
 The Deed of Sale with Assumption of Mortgage was executed between Mercy and
Carmelita
 Their consent to the substitution as debtors and third person,
respectively, are deemed undisputed.
 It is the existence of the consent of BPI as creditor that is being challenged herein.
As a general rule, since novation implies a waiver of the right the creditor had before the
novation, such waiver must be express.
 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
praesumitor, 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.
However, in Asia Banking Corporation v. Elser,
 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
 Supreme Court of Spain 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."
Enciclopedia Juridica
 "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."
Hence, based on the aforequoted ruling in Asia Banking, the existence of the creditor's
consent may also be inferred from the creditor's acts, but such acts still need to
be "a clear and unmistakable expression of the creditor's consent."
The burden of establishing a novation is on the party who asserts its existence.
 Contrary to the findings of the Court of Appeals and the RTC, Amador failed to
discharge such burden as he was unable to present proof of the clear and
unmistakable consent of BPI to the substitution of debtors.
 no express consent of BPI to the substitution of debtor
 First, that BPI (or FEBTC) had a copy of the Deed of Sale and
Assumption of Mortgage executed between Mercy and Carmelita in its
file does not mean that it had consented to the same.
 The Court notes that the documents of BPI concerning the car
loan and chattel mortgage are still in the name of the spouses
Domingo.
 No new promissory note or chattel mortgage had been
executed between BPI (or FEBTC) and Carmelita.
 Even the account itself is still in the names of the spouses
Domingo.
 The absence of objection on the part of BPI (or FEBTC) cannot
be presumed as consent. Jurisprudence requires presentation of
proof of consent, not mere absence of objection.
 Second, the consent of BPI to the substitution of debtors cannot be
deduced from its acceptance of payments from Carmelita, absent proof
of its clear and unmistakable consent to release the spouses Domingo
from their obligation.
 Since the spouses Domingo remained as debtors of BPI,
together with Carmelita, the fact that BPI demanded payment
from the spouses Domingo 30 months after accepting payment
from Carmelita is insignificant.
 The acceptance by a creditor of payments from a third
person, who has assumed the obligation, will result
merely to the addition of debtors and not novation.
 And third, there is no sufficient or competent evidence to establish the
return of the checks to the spouses Domingo and the assurance made by
FEBTC that the spouses Domingo were already released from their
obligation.
 proof of the issuance of the checks, their delivery to the bank,
and the return of the checks flimsily consists of Amador's
unsubstantiated testimony.
 Amador only stated that when Mercy provided FEBTC with a
copy of the Deed of Sale and Assumption of Mortgage, the bank
returned the checks to them "subsequently" or "afterwards."
Amador did not say how the checks were returned and to
whom.
 Aside from Amador's bare testimony, no other supporting
evidence of the return of the checks to the spouses Domingo
was submitted during trial.
 the party asserting novation, bears the burden of
proving its existence. Amador cannot simply rely on the
failure of BPI to produce the checks if these were not actually
returned to the spouses Domingo. There is simply not enough
evidence to establish the prima facie existence of novation to
shift the burden of evidence to BPI to controvert the same.
 The verbal assurances purportedly given by a Mr. Marvin
Orence of FEBTC to Amador over the telephone that the
spouses Domingo's documents were in order do not constitute
the clear and unmistakable consent of the bank to the
substitution of debtors. Once again, except for Amador's bare
testimony, there is no other evidence of such telephone
conversations taking place and the subject of such telephone
conversations.
  Oronce's identity, position at FEBTC, and authority
to represent and bind the bank, were not even clearly
established.
The letter of Atty. Ricardo J.M. Rivera (Rivera), counsel for the spouses Domingo, addressed
to Atty. Cresenciano L. Espino, counsel for FEBTC, does not serve as supporting evidence
for Amador's testimony regarding the return of the checks and the verbal assurances given
by Mr. Orence
 The contents of such letter are mere hearsay because the events stated therein did
not personally happen to Atty. Rivera or in his presence, and he merely relied on
what his clients, the spouses Domingo, told him.
The Court is therefore convinced that there is no novation by delegacion in this case and
Amador remains a debtor of BPI.
1. Consequence of Expromision
Art. 1293
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.
Art. 1294.
If the substitution is without the knowledge or against the will of the debtor,
 the new debtor's
 insolvency or
 non-fulfillment of the obligations
 shall not give rise to any liability on the part of the original debtor
Trigger: If the substitution is without the knowledge or against the will of the debtor
(expromision)
Effect: the new debtor’s (1) insolvency or (2) non-fulfilment of the obligation shall not give
rise to any liability on the part of the original debtor
Ratio: If the novation was by expromision, no liability for the new debtor’s insolvency can be
enforced against the old debtor because the latter did not have the initiative in making
the change, which might have been made even without his knowledge
 The intent of the Code Commission is to generally release the old debtor
from any further liability in passive subjective novation, except in the
exceptional cases contemplated in Art. 1295 which are limited to delegacion.
 Art. 1294 should not be interpreted as to imply that if the old debtor had
knowledge of the substitution or had consented thereto, the exemption from
liability provided in this article does not apply.
 To consider the old debtor in expromision as liable simply because he
knew of the assumption of his debt by another, or that he assented to it,
would make his liability even greater than that of a debtor who took the
initiative and offered a new debtor in his case. This result is certainly
absurd.
 The literal wording of the law should yield to its obvious intention, which
is to exempt the old debtor from future liability when he did not propose the new
debtor.
Example
D owes C P1,000.00. D proposed to C that X would substitute him as debtor. C agreed to
the proposal. If, at the time of the delegacion, X was already insolvent but his insolvency was
neither of public knowledge nor known to D, then D is not liable. Neither is D liable if the
insolvency of X took place after he delegated his debt.
It is believed that D is also not liable if C had knowledge that X was insolvent at the time the
debt was delegated to him.
2. Consequence of Delegacion
Art. 1295
The insolvency of the new debtor
 who has been proposed by the original debtor and accepted by the creditor
 shall not revive the action of the latter against the original obligor
 EXCEPT
 when said insolvency was already existing and of public knowledge,
or
 known to the debtor, when the delegated his debt.
Trigger:
 A new debtor has been proposed by the original debtor and accepted by the
creditor (delegacion)
 The new debtor becomes insolvent
Effect (General Rule): The insolvency will not revive the action against the original debtor
Exception: At the time of delegation,
 The insolvency was already existing and of public knowledge; or
 The insolvency was known to the debtor
Purpose: The article provides for the consequences of delegacion with respect to the
original debtor, if the new debtor becomes insolvent.
 The article is applicable only to substitution by delegacion. In case of
insolvency of the new debtor, if the exceptions apply, the creditor can sue the old
debtor.
  However, the knowledge of the creditor that the new debtor was
insolvent at the time of delegation will bar him from recovering from the
old debtor.
 Other Exceptions:
 If the new debtor is only secondarily liable
 If the third person is only an agent of the debtor
 Where the new debtor is bound solidarily with the old debtor
Note: In these cases/ “exceptions”, there was no novation, so the old debtor has not really
been released from the obligation.
E. Effect on Accessory Obligations
Art. 1296
When the principal obligation is extinguished in consequence of a novation
 accessory obligations may subsist
 only insofar as they may benefit third persons who did not give
their consent.
Trigger: The principal obligation was extinguished because of a novation.
Effect (General Rule): Accessory obligations are generally extinguished as well.
Exception: Accessory obligations subsist insofar as they may benefit the third persons who did
not give their consent.
Purpose: The article provides for the effects of extinguishment of the principal obligation, by
novation, on the accessory obligations.
The extinguishment of the principal obligation by novation
 Extinguishes the obligation to pay interests (unless otherwise stipulated)
 Releases pledges and mortgages, as well as guarantors and sureties
(unless they agreed to be bound by the new obligation)
 Reason: Mortgage, pledge, or guaranty was given (1) to answer
for a particular obligation, or (2) for the insolvency of a
particular debtor. Such basis of the consent given was
destroyed by the novation.
● The exception refers to a stipulation in favor of a third person, which is
subordinated to the principal obligation (See Article 1311, par. 2)
 Reason for the Exception: Although technically it is an accessory
obligation, it is in reality a distinct obligation in favor of a third person,
and cannot be extinguished by novation without the consent of the latter.
Example
A owes B P2,000.00 with interest at 14%. B owes C P280.00.
It was agreed among the parties that A would pay the interest of P280.00 to C. In this case,
besides the principal obligation of A, there is a stipulation in favor of C, a third person. (see
Art. 1311, par. 2.) Later on, A and B executed another contract whereby they agreed that A
would deliver to B a television set in payment of the loan. In spite of the novation, the
accessory obligation to pay the interest of P280.00 to C still subsists unless C gives his
consent to the novation.
F. Void Obligations
Art. 1297.
If the new obligation is void,
 the original one shall subsist,
 UNLESS the parties intended that the former relation should be
extinguished in any event.
Trigger: The original obligation shall subsist…
Effect: The original obligation shall subsist.
General Rule: The original obligation shall subsist if the new obligation is void.
Exception: When the parties intended that the former relation should be extinguished in
any event.
Purpose: To show what happens to the original obligation if the new one is void, and its
exception.
New valid obligation
● In order that a contract may be considered as novated, it is indispensable that the
new contract which purports to annul the previous one, be valid and effective.
● A mere draft of a contract which is not perfected because of the lack of consent of
the parties thereto, cannot annul a prior valid and effective contract that produces
rights and obligations between the parties thereto.
● Where a new contract was to become effective only after the signature of other
parties thereto had been secured, a novation does not take place when such other
signatures are not obtained, because then it is no more than a mere executory
agreement subject to a condition.
New obligation voidable
● If the new obligation is not entirely void, but only voidable, the novation
becomes effective.
● But if the action to annul is brought, and the obligation is set aside, it will be
deemed as if there had been no novation, and the original obligation subsists, unless
the parties intended to definitely extinguish it at all events.
● Thus, where the new contract is set aside on the ground of minority of one of the
parties the attempted novation fails, and the original contract subsists.
Conditional new obligation
● The original obligation may be pure, and the new obligation subject to suspensive
condition.
● If the condition is merely to attach the condition to the original obligation, there is
no novation.
 ● But if the new conditional obligation is intended to substitute the original pure
obligation, the novation itself, and the consequent extinguishment of the original
obligation, is subject to the condition.
● Therefore, pending the happening of the condition, the old obligation cannot be
considered as extinguished, nor can its performance be enforced; it is as much in a
state of suspense as the new one.
● If the condition is not fulfilled before one of the parties withdraws from the
proposed conditional contract, there is no novation at all.
Extinguishment of new obligatio
● After a novation has taken place, by the change of the object of the obligation, the
old obligation can no longer be enforced.
● Hence, if the new obligation is extinguished by the loss of its object, the creditor
cannot demand the object of the original obligation.
Art. 1298
The novation is void if the original obligation was void
 EXCEPT when
 annulment may be claimed only by the debtor or
 when ratification validates acts which are voidable.
Trigger: The novation is void…
Effect: The novation is void.
General Rule: The novation is void if the original obligation was void.
Exceptions:
1. When annulment may be claimed only by the debtor.
2. When ratification validates acts which are voidable.
Purpose: To show when a novation may be void and its exceptions.
Original obligation void
 When the original obligation is void, that is, wanting in some essential requisite
or otherwise inexistent, there can be no novation, because one of the requisites
for novation would be lacking.
 Thus, a promissory note which represents a gambling debt and is, therefore,
unenforceable in the hands of the payee, obtains no greater validity in the hands of

an assignee.
The rule in this article applies to a voidable contract which has already been
set aside or annulled by decree of a competent court.
 An obligation which has already been extinguished is also inexistent; hence,
it cannot be novated.
Old obligation voidable
 If the original obligation is (1) voidable or (2) if the voidable obligation has been
ratified, novation is valid
 Even if there had been no previous ratification at the time of novation, if the nullity
can be claimed only by the debtor, the consent of the debtor to the novation will
render the novation effective, because such consent is impliedly a waiver of the
action for nullity.
 To have a valid novation when the original obligation is voidable at the
instance of the debtor, it is necessary that
 such obligation should have the essential requisites for its
existence, and that
 the debtor consent to the novation with knowledge of the cause
for nullity and after it has ceased.
 The defect, however, is not completely cured if the novation takes place by
expromision, where the old debtor may avail himself of the defense of the nullity of
the original obligation, in the event that an action for reimbursement is brought
against him by the new debtor.
 On the other hand, in his relation to the creditor, the new debtor cannot
set up the nullity as a defense or as a ground for recovery, if he knew of
the cause of nullity.
● PRESCRIPTION
 When a debt is already barred by prescription, it cannot be enforced by
the creditor.
 But a new contract, recognizing and assuming the prescribed debt, would
be valid and enforceable.
 The prescription, being available only to the debtor, can be waived by
him; and he does so by voluntarily promising to pay the prescribed debt.
 The novation of a prescribed debt is thus valid.
Examples
(1) S agreed to deliver prohibited drugs to B. Later on, it was agreed that S would pay B
P100,000.00 instead of delivering the drugs. The novation is void because the original
obligation is void.
(2) Suppose S was induced through fraud committed by B to sign a contract whereby S
obliged himself to deliver a specific car to B. Subsequently, it was agreed between S and B
that S would give B P100,000.00 instead of the car. The original obligation of S is voidable. As
it has not yet been annulled at the instance of S (see Art. 1397.), the second contract is valid
(3) In the same example, if S subsequently confirmed his obligation to deliver the car and the
right of B thereto, his ratification cleanses the contract from all its defects (Art. 1396.) and
makes it valid and, therefore, the novation is also valid.
G. Conditional Obligations
Art. 1299
If the original obligation was subject to a suspensive or resolutory condition
 the new obligation shall be under the same condition,
 UNLESS it is otherwise stipulated. (n)
Trigger: If the original obligation was subject to a suspensive or resolutory condition…
Effect: The new obligation shall be under the same condition.
General Rule: If the original obligation was subject to a suspensive or resolutory condition,
the new obligation shall be under the same condition.
Exception: Unless it is otherwise stipulated.
Purpose: To show what happens in a novation of an original obligation under a conditional
obligation, that is, resolutory or suspensive condition.
Old obligation conditional
 The original obligation may be conditional, and the new obligation pure.
Note: remember that a pure obligation is one which is not subject to any condition and
no specific date is mentioned for its fulfillment, and is therefore demandable at once
 If the intention is
 merely to suppress the condition = no novation;
 extinguish the original obligation itself by the creation of a new obligation,
the latter does not arise except from the fulfillment of the condition of
the original obligation
 The reason is, if the suspensive condition of the original obligation is not
performed, that obligation does not come into existence, and the cause for the
new obligation would then be wanting.
 Note: remember that a suspensive condition is defined as “the fulfillment
of which give rise to the obligation)
 On the other hand, if the condition of the old obligation is resolutory, its happening
would resolve the old obligation and place it in the same category as a void
obligation or one which has been extinguished.
 Note: remember that resolutory condition is defined as “the fulfillment of
which will extinguish as obligation already existing”
 In either case, therefore, one requisite of every novation – a pre-existing valid
obligation – would be lacking.
 Therefore, where the original obligation is conditional, the novation itself
must be held to be conditional also, and its efficacy depends upon whether the
condition which affects the former is complied with or not.
 But the parties may, by their express will, substitute a pure obligation for a
conditional one.
Both obligations conditional
● It may happen that the old and the new obligations are both conditional.
● If the conditions in the 2 obligations are not incompatible with each
other, and they can stand together, they must all be fulfilled in order that the
novation may become effective and the new obligation be enforceable.
● If only the conditions affecting the old obligation are fulfilled, and those affecting
the new obligation are not
 then there is no novation, and
 the old obligation subsists, because the requisite of a new valid obligation
would be lacking.
● Likewise, if only the conditions affecting the new obligation are fulfilled, but the
conditions of the old obligation are not,
 there will be no novation, since the requisite of a previous existing obligation
would be wanting.
● If the conditions of the old and the new obligations are incompatible with
each other
 there is an obvious intention to substitute the new conditional obligation for
the old conditional obligation;
 the result is the extinguishment of the old obligation, leaving only the new
obligation, subject to its conditions.
 Only the conditions of the new obligation, therefore, have to be fulfilled, in
order that such obligation may become enforceable.
H. Kinds of Subrogation
Art. 1300.
Subrogation of a third person in the rights of the creditor is either
 legal or
 conventional.
The former is not presumed
 EXCEPT in cases expressly mentioned in this Code;
The latter must be clearly established in order that it may take effect.
Subrogation is the transfer of all rights of the creditor to a third person, who
substitutes him in all his rights.
Legal Subrogation is that which takes place without agreement but by operation of law
because of certain acts.
Conventional Subrogation is that which takes place by agreement of the parties.
Ledonio v Capitol Development Corp (2007)
Unlike in assignment of credit, debtor’s consent is necessary in conventional
subrogation.
SUMMARY
Petitioner obtained two loans totaling P60,000.00 from Ms. Picache, for which he executed
promissory notes. He failed to pay any of the said loans. Ms. Picache executed an Assignment of
Credit covering petitioner's loans in favor of respondent for the consideration of P60,000.00.
Petitioner had knowledge of the assignment of credit. Petitioner still failed to pay his indebtedness
despite repeated demands by respondent and its counsel.
FACTS
Respondent filed a Complaint for the collection of a sum of money against petitioner
 petitioner obtained from a Ms. Patrocinio S. Picache two loans, with the aggregate
principal amount of P60,000.00, and covered by promissory notes duly signed by
petitioner.
  In the first promissory note
 petitioner promised to pay to the order of Ms. Picache the principal
amount of P30,000.00, in monthly installments
 In the second promissory note
 petitioner again promised to pay to the order of Ms. Picache the principal
amount of P30,000.00, with 36% interest per annum
 In case of default in payment, both promissory notes provide that
 petitioner shall be liable for a penalty equivalent to 20% of the total
outstanding balance;
 unpaid interest shall be compounded or added to the balance of the
principal amount and shall bear the same rate of interest as the latter; and
 in case the creditor, Ms. Picache, shall engage the services of counsel to
enforce her rights and powers under the promissory notes, petitioner
shall pay as attorney's fees and liquidated
Ms. Picache executed an Assignment of Credit in favor of respondent
 The foregoing document was signed by two witnesses and duly acknowledged by
Ms. Picache before a Notary Public
Since petitioner did not pay any of the loans covered by the promissory notes when they
became due, respondent -- through its Vice President Nina P. King and its counsel King,
Capuchino, Banico & Associates -- sent petitioner several demand letters.
 Despite receiving the said demand letters, petitioner still failed and refused to settle
his indebtedness, thus, prompting respondent to file the Complaint with the RTC
RTC ruled in favor of respondent. CA affirmed.
Petitioner argued he never gave consent to such assignment of credit and therefore should
have no effect.
ISSUE
Whether or not the CA erred in ruling that there was an assignment of credit and that there
was no novation/subrogation in the case at bar. – NO
RATIO
This Court cannot sustain petitioner's contention and hereby declares that the transaction
between Ms. Picache and respondent was an assignment of credit, not conventional
subrogation, and does not require petitioner's consent as debtor for its validity and
enforceability.
An assignment of credit
 agreement by virtue of which the owner of a credit (known as the assignor), by a
legal cause - such as sale, dation in payment or exchange or donation - and without
need of the debtor's consent, transfers that credit and its accessory rights to
another (known as the assignee), who acquires the power to enforce it, to the
same extent as the assignor could have enforced it against the debtor.
Subrogation
 transfer of all the rights of the creditor to a third person, who substitutes him in all
his rights. It may either be legal or conventional.
 Legal subrogation is that which takes place without agreement but by operation of
law because of certain acts.
 Conventional subrogation is that which takes place by agreement of parties
Although it may be said that the effect of the assignment of credit is to subrogate the
assignee in the rights of the original creditor, this Court still cannot definitively rule that
assignment of credit and conventional subrogation are one and the same.
Difference between these two transactions, to wit –
Conventional Subrogation Assignment of Credit
Requires the consent of the debtor Consent of debtor not required
Extinguishes an obligation and gives rise to Refers to the same rights passed by one
a new one person to another
Invalidity of the original obligation is cured Assignment cannot remedy an invalid
by subrogation by creating a new and valid obligation
obligation
Article 1300 of the Civil Code provides that conventional subrogation must be clearly
established in order that it may take effect.
 Since it is petitioner who claims that there is conventional subrogation in this case,
the burden of proof rests upon him to establish the same by a preponderance of
evidence.
The Assignment of Credit executed by Ms. Picache in favor of respondent, was a simple deed
of assignment.
 nothing in the said Assignment of Credit which imparts to this Court, whether
literally or deductively, that a conventional subrogation was intended by the parties
thereto.
 The terms of the Assignment of Credit only convey the straightforward intention
of Ms. Picache to "sell, assign, transfer, and convey" to respondent the debt due her
from petitioner
 The Assignment of Credit was signed solely by Ms. Picache, witnessed by two other
persons.
 No reference was made to securing the conforme of petitioner to the transaction,
nor any space provided for his signature on the said document.
Since the Assignment of Credit is just as its title suggests, then petitioner's consent as debtor
is not necessary in order that the assignment may fully produce legal effects. The duty to pay
does not depend on the consent of the debtor; otherwise, all creditors would be prevented
from assigning their credits because of the possibility of the debtors' refusal to give consent.
Moreover, this Court had already noted previously that there does not appear to be anything
in Philippine statutes or jurisprudence which prohibits a creditor, without the consent of the
debtor, from making an assignment of his credit and the rights accessory thereto; and,
certainly, an assignment of credit and its accessory rights does not at all obliterate the
obligation of the debtor to pay, but merely puts the assignee in the place of the assignor.
It bears to emphasize that even if the consent of petitioner as debtor is unnecessary for the
validity and enforceability of the assignment of credit
 the petitioner must have knowledge, acquired either by formal notice or some
other means, of the assignment so that he may pay the debt to the proper party,
which shall now be the assignee.
 This much can be gathered from a reading of Article 1626 of the Civil Code
providing that, "The debtor who, before having knowledge of the assignment, pays
his creditor shall be released from the obligation."
If not notified
 the debtor shall be free from the obligation, inasmuch as it has been legally
extinguished by a payment which fully redounds to his benefit.
 The assignee can take advantage of all civil and criminal actions against the assignor,
but he can ask nothing from the debtor, because the latter did not know of the
assignment, nor was he bound to know it;
 the assignor should blame himself for his failure to have the notice made.
Since his consent is immaterial, the only other matter which this Court must determine is
whether petitioner had knowledge of the Assignment of Credit
 Both the Court of Appeals and the RTC ruled in the affirmative, and so must this
Court.
 Petitioner does not deny having knowledge of the assignment of credit by Ms.
Picache to the respondent.
 When petitioner's loans became overdue, it was respondent and its counsel who
sent several demand letters to him.
 It can be reasonably presumed that petitioner received said letters for
they were sent by registered mail, and the return cards were signed by
petitioner's agent.
 Petitioner expressly acknowledged receipt of respondent's demand letter,
to which he replied with another letter stating that he would settle his
account with respondent but also requesting consideration of the losses
he suffered from the electric power disconnection at the property he
leased from MRMC.
 It further appears that petitioner had never questioned why it was
respondent seeking payment of the loans and not the original creditor,
Ms. Picache.
1. Conventional
Art. 1301
Conventional subrogation of a third person requires the consent of
 the original parties and of
 the third person.
2. Legal
Art. 1302
It is presumed that there is legal subrogation
 When a creditor pays another creditor who is preferred, even without
the debtor's knowledge
 When a third person, not interested in the obligation, pays with the express
or tacit approval of the debtor
 When, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, without prejudice to the effects of
confusion as to the latter's share.
Circumstances:
1. Preferred creditor  a creditor that the debtor has to pay first.
 For example, A is the debtor of two separate creditors, B and C. A owes B a
mortgage debt. A owes C a simple unsecured debt. If C pays B the mortgage
of debt of A, there is legal subrogation because C pays B, a preferred creditor
(because the debt is secured), allowing C to become A’s new creditor for the
mortgage debt.
2. Payment by a Third Person with the Debtor’s approval.
3. Interested Party  someone who is interested in the fulfillment of the obligation
(like in Figuera).
Metrobank v Rural Bank of Gerona (2010)
Legal subrogation is presumed when a 3rd person, not interested in the obligation, pays
with the express or tacit approval of the debtor
SUMMARY
CB and respondent entered into an agreement where RBG shall facilitate the loan applications of
farmer-borrowers. However, respondent should open a separate bank account where the load
proceeds shall be deposited. RBG opened a special savings account with Metrobank. CB approved
application of 3 farmer-borrowers. More than a month after which, CB issued a debit advice,
reversing all the approved loans. Metrobank, in turn, debited special savings account. Metrobank,
however, claimed that these amounts were insufficient to cover all the credit advices that were
reversed by the CB. Thus, Metrobank claimed that RBG had an outstanding balance of P334,220. To
collect this amount, it filed a complaint for collection of sum of money against RBG before the RTC.
TERMS
Debit advice  A banker sends a debit note to customers to inform them of deductions from
their accounts. In other words, a debit refers to a decrease in a deposit account balance,
such as a check posted to the account.
Credit advice  A note from a bank informing a customer that an amount of money has been
put into their account.
FACTS
The Central Bank (CB) and the Rural Bank of Gerona (RBG) entered into an agreement
providing that
  RBG shall facilitate the loan applications of farmers-borrowers.
 The agreement required RBG to open a separate bank account where the IBRD loan
proceeds shall be deposited.
 The RBG opened a special savings account with Metrobank (designated to receive
the credit advice released by CB).
 Metrobank, in turn, credited the proceeds to RBG’s special savings account for RBG’s
release to the farmers-borrowers.
CB approved the application of three farmer-borrowers and credited the amounts to
Metrobank’s demand deposit account.
 Metrobank, in turn, credited RBG’s special savings account.
 RBG then withdrew these credited amounts from its account with Metrobank.
More than a month after RBG had made the above withdrawals, the CB issued debit advices,
reversing all the approved loans.
 Metrobank, in turn, debited special savings account.
 Metrobank, however, claimed that these amounts were insufficient to cover all the
credit advices that were reversed by the CB.
 Thus, Metrobank claimed that RBG had an outstanding balance of P334,220. To
collect this amount, it filed a complaint for collection of sum of money against RBG
before the RTC.
RTC favored Metrobank, finding that legal subrogation had ensued.
CA held that this was not a case of legal subrogation, and declared that the Central Bank
should be impleaded as a necessary party so it could shed light on the IBRD loan
ISSUE
W/N it is proper to implead Central Bank as a necessary party – NO
RATIO
A basic first step in resolving this case is to determine who the liable parties are on the
loans that the CB extended.
 RBG was not a mere conduit and collector.
 While the farmers-borrowers were the principal debtors,
 RBG assumed liability under their agreement by solidarily binding itself with the
principal debtors to fulfill the obligation.
 CB was further authorized to deduct the amount due from RBG’s demand deposit
reserve should the latter become delinquent in payment.
Based on such arrangement, the Central Bank’s immediate recourse, therefore should
have been against the farmers-borrowers and the RBG
 it erred when it deducted the amounts covered by the debit advices from
Metrobank’s demand deposit account.
 Metrobank had no responsibility over the proceeds of the loans--other than serving
as a conduit for their transfer from the CB to the RBG once credit advice has been
issued.
 Thus, the agreement governed only the parties involved—CB and the RBG.
Metrobank was an outsider to the agreement.
Legal subrogation occurred
While Metrobank was a third party to the CB-RBG agreement, it was Metrobank’s demand
deposit account (instead of RBG’s) which the Central Bank proceeded against, on the
assumption perhaps that this was the most convenient means of recovering the cancelled loans.
Article 1303 NCC states that subrogation transfers to the person subrogated the credit with
all the rights thereto appertaining, either against the debtor or against third persons. As the
entity against which the collection was enforced
 Metrobank was subrogated to the rights of Central Bank and has a cause of action to
recover from RBG the amounts it paid to the Central Bank, plus interest.
Under this situation, impleading the Central Bank as a party is completely unnecessary.
 CA erroneously believed that the Central Bank’s presence is necessary “in order to
shed light on the matter of reversals made by it concerning the loan applications of
the end users and to have a complete determination or settlement of the claim.”
 In so far as Metrobank is concerned, however, the Central Bank’s
presence and the reasons for its reversals of the loans are immaterial after
subrogation has taken place;
 Metrobank’s interest is simply to collect the amounts it paid the Central
Bank.
 Whatever cause of action RBG may have against the Central Bank for the
unexplained reversals and any undue deductions is for RBG to ventilate as a third-
party claim; if it has not done so at this point, then the matter should be dealt with
in a separate case that should not in any way further delay the disposition of the
present case that had been pending before the courts since 1980.
Figuera v Ang (2016)
A person interested in the fulfilment of the obligation is one who stands to be benefited
or injured in the enforcement of the obligation
The, consent or approval of the debtor is required only if a third person who is not
interested in the fulfilment of the obligation pays such. On the other hand, no such
requirement exists in cases of payment by a creditor to another creditor who is
preferred, and by a person interested in the fulfilment of the obligation. Notably, Article
1302 (1) and (3) does not require the debtor's knowledge.
SUMMARY
Ang executed a deed of assignment transferring all of her business rights over EIDC to Figuera. The
parties agreed that Ang shall pay the bills for electricity, telephone, rentals, etc. up to Dec. 2004.
However, Figuera paid all these utility bills before Dec. 2004, without Ang’s consent. Petitioner
tendered an amount to respondent, deducting the amount paid for the utility bills. Ang argued
there was nothing in the Deed that grants her the option to pay the utilities nor
allows any deduction from the agreed consideration upon her payment of the utility
bills.
FACTS
Maria Remedios Ang (Ang) is the registered owner of a single proprietorship business named
"Enhance Immigration and Documentation Consultants" (EIDC).
Ang executed a "Deed of Assignment of Business Rights" (Deed) transferring all of her
business rights over the EIDC to Figuera for P150,000.00.
 In addition to the assignment of rights, the parties also agreed that Ang shall pay
the bills for electricity, telephone, office rentals, and the employees' salaries up to
the month of December 2004.
Without Ang's consent, Figuera paid all the utility bills amounting to P107,903.21 as of
December 2004.
 Figuera tendered only the amount of P42,096.79 to Ang, after deducting the
amount paid for the utility bills from the P150,000.00 consideration of the Deed.
 Ang refused to accept Figuera's payment.
Figuera filed a complaint for specific performance.
 RTC and CA ruled in favor of Ang
Figuera argues
 she had been subrogated to the rights of Ang's creditor's (i.e., the Telephone
Company, electric company, office space lessor, and company employees) upon
payment of the utility bills even if the payment was made without Ang's knowledge.
 Consequently, Ang became Figuera's debtor. Figuera and Ang became debtors and
creditors of one another for a sum of money that is liquidated, due, demandable,
and without controversy.
 she validly consigned the amount of P42,096.79.
Ang argued there was nothing in the Deed that grants her the option to pay the utilities nor
allows any deduction from the agreed consideration upon her payment of the utility bills.
ISSUE
WON there has been a legal subrogation of rights?
RATIO
In the present case, Figuera based her claim on the third type of subrogation. She claims that
 as the EIDC's new owner, she is interested in fulfilling Ang's obligation to pay the
utility bills.
 Since the payment of the bills was long overdue prior to the assignment of
business rights to Figuera, the failure to settle the bills would eventually
result in "the disconnection of the electricity and telephone services,
ejectment from the office premises, and resignation by some, if not all,
of the company's employees with the possibility of subsequent labor claims for
sums of money."
 These utilities are obviously necessary for the continuation of Figuera's business
transactions.
A person interested in the fulfilment of the obligation is one who stands to be benefited or
injured in the enforcement of the obligation. The Court agrees with Figuera that it became
absolutely necessary for her to pay the bills since Ang did not do so when the
obligation became due.
We note that both the RTC and the CA held that Figuera failed to prove that Ang had
consented to the payment of the EIDC bills; therefore, Figuera cannot deduct the amount
she paid for the utility bills from the P150,000.00 consideration.
A clear reading, however, of Article 1302 of the New Civil Code would lead to a different
conclusion. The, consent or approval of the debtor is required only if a third
person who is not interested in the fulfilment of the obligation pays such. On the
other hand, no such requirement exists in cases of payment by a creditor to
another creditor who is preferred, and by a person interested in the fulfilment of
the obligation. Notably, Article 1302 (1) and (3) does not require the debtor's knowledge.
Therefore, legal subrogation took place despite the absence of Ang's consent to Figuera's
payment of the EIDC bills. Figuera is now deemed as Ang's creditor by operation of law.
I. Effect on Subrogation
Art. 1303
Subrogation transfers to the persons subrogated the credit with all the rights
thereto appertaining, either
 against the debtor or
 against third person, be they guarantors or possessors of mortgages,
 subject to stipulation in a conventional subrogation.
Effect of subrogation
 Transfers to 3rd person or new creditor: ENTIRE CREDIT
 With ALL rights, either against debtor or 3rd persons (guarantors,
possessors of mortgages)
 Suspensive condition attached to the credit transferred
 must first be fulfilled so that new creditor may exercise his right
 Prestations which couldn’t have been required of the original creditor can’t be
demanded from the new one
 Subrogation in insurance. When insurer pays for the loss, he is entitled to be
subrogated pro tanto to any right of action which the insured may have had, against
the 3rd person whose negligence or wrongful act caused the loss
J. Partial Subrogation
Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for
the remainder, and he shall be preferred to the person who has been subrogated in his
place in virtue of the partial payment of the same credit. (1213)
Tolentino’s example (Somes v Molina):
FACTS
 Note: Tolentino uses the words vendee/vendor in this example but for me buyer/seller is
easier to understand
  Contract of sale of a business – buyer promised to pay in 4 installments
 2 sureties bound themselves solidarily with the buyer
 Buyer failed to pay the first installment so the seller brought an action against the
buyer and sureties
 First installment satisfied from property of one of the sureties
 Seller brought two more actions for the other installments and obtained judgments
in his favor
 Surety who paid for 1st installment – brought an action to declare himself
subrogated in the rights of the seller
 Argument: The property of the buyer should first be satisfied for what he
(surety) paid before seller is paid from buyer’s property for the 2 other
judgments
HELD
 3 judgments are all for one debt, one purchase price – simply installments
 Partial subrogation took place because of payment by surety of one of the
installments – Surety subrogated as seller for that one installment
 Applying 1304: Seller as creditor should be entitled to preference in payment of
the remaining installments before surety can exercise any rights under subrogation
 Conforms to justice and equity