Ruling: There was no novation by substitution of debtor because there
AGRO CONGLOMERATES, INC. and MARIO
was no prior obligation which was substituted by a new contract. Only
SORIANO, petitioners, vs. THE HON. COURT OF APPEALS and
REGENT SAVINGS and LOAN BANK, INC., respondents. a contract of surety arose. Petitioners are liable as accomodation party.
In the instant case the original plan was that the initial payments would
Facts: On July 17, 1982, Agro Conglomerates, Inc. as vendor, sold two be paid in cash. Subsequently, the parties (with the participation of
parcels of land to Wonderland Food Industries, Inc. On July 19, 1982, respondent bank) executed an addendum providing instead, that the
the vendor, the vendee, and the respondent bank Regent Savings & Loan
petitioners would secure a loan in the name of Agro Conglomerates Inc.
Bank (formerly Summa Savings & Loan Association), executed an
for the total amount of the initial payments, while the settlement of said
Addendum to the previous Memorandum of Agreement. It provided,
among others, that the vendee undertakes to pay the loan procured in the loan would be assumed by Wonderland. Thereafter, petitioner Soriano
name of the VENDOR, and the VENDEE will be the one liable to pay signed several promissory notes and received the proceeds in behalf of
the entire proceeds thereof including interest and other charges. petitioner-company. By this time, we note a subsidiary contract of
suretyship had taken effect since petitioners signed the promissory notes
Consequently, petitioner Mario Soriano (of Agro) signed as maker as maker and accommodation party for the benefit of Wonderland.
several promissory notes, payable to the respondent bank. Thereafter,
Petitioners became liable as accommodation party.
the bank released the proceeds of the loan to petitioners. However,
petitioners failed to meet their obligations as they fell due. The bank
gave petitioners opportunity to settle their account by extending Wonderland is not liable for the loan and was not the substitute debtor
payment due dates. Mario Soriano manifested his intention to re- of the promissory notes.
structure the loan, yet did not show up nor submit his formal written
request. The contract of sale between Wonderland and petitioners did not
Respondent bank filed three separate complaints before the materialize. But it was admitted that petitioners received the proceeds
Regional Trial Court of Manila for Collection of Sums of money. Trial of the promissory notes obtained from respondent bank. Petitioners had
court held that petitioners are liable. The evidences, disclose that no legal or just ground to retain the proceeds of the loan at the expense
Wonderland did not comply with its obligation under said Addendum of private respondent bank. Neither could petitioners excuse
as the agreement to turn over the farmland to it, did not materialize, and themselves and hold Wonderland still liable to pay the loan upon the
there was, actually no sale of the land. Hence, Wonderland is not rescission of their sales contract.
answerable.
If petitioners sustained damages as a result of the rescission, they
Petitioners appealed to the Court of Appeals. The trial courts decision should have impleaded Wonderland and asked damages. The non-
was affirmed by the appellate court. inclusion of a necessary party does not prevent the court from
proceeding in the action, and the judgment rendered therein shall be
Issue: Whether the court of appeals erred in not finding that the without prejudice to the rights of such necessary party. But respondent
addendum, signed by the Petitioners, Respondent Bank and Wonderland appellate court did not err in holding that petitioners are duty-
Inc., constitutes a novation of the contract by substitution of debtor, bound under the law to pay the claims of respondent bank from
which exempts the petitioners from any liability over the promissory whom they had obtained the loan proceeds.
notes?
