G.R. No. L-18411 December 17, 1966
Magdalena Estates, Inc., plaintiff-appellee, vs. Antonio A. Rodriguez and Herminia C. Rodriguez, defendants-appellants.

FACTS

Defendants-appellants Antonio A. Rodriguez and Herminia C. Rodriguez bought a parcel of land from plaintiff-appellee Magdalena Estates, Inc. On January 4, 1957, they executed a promissory note for an unpaid balance of P5,000.00 on the purchase price, promising to pay the amount with 9% interest per annum within sixty (60) days from January 7, 1957. On the same date, the appellants and Luzon Surety Co., Inc. executed a surety bond in favor of the appellee, guaranteeing payment of the P5,000.00 balance within the same period. On June 20, 1958, Luzon Surety Co., Inc. paid the appellee the sum of P5,000.00. The appellee subsequently demanded from the appellants the payment of P655.89, representing accumulated interest on the principal. Upon the appellants’ refusal to pay, the appellee filed a suit in the Municipal Court of Manila, which ruled in favor of the appellee. The appellants appealed to the Court of First Instance of Manila, which affirmed the judgment, ordering the appellants to pay jointly and severally the sum of P655.89 plus legal interest, attorney’s fees, and costs.

ISSUE

1. Whether the appellee waived or condoned the payment of accrued interest by unqualifiedly accepting the payment of the principal from the surety.
2. Whether the obligation of the appellants was totally extinguished by payment and/or condonation.
3. Whether the promissory note was novated by the appellee’s unqualified acceptance of the surety bond which guaranteed only the principal.

RULING

The Supreme Court affirmed the decision of the lower court.
1. The appellee did not waive or condone the interest. The surety’s liability was strictly limited to the terms of its contract, which was to pay the principal of P5,000.00. The appellee could not protest the non-payment of interest or apply part of the P5,000.00 to interest when accepting payment from the surety, as the surety’s obligation was confined to the principal amount. Article 1253 of the Civil Code, which provides that payment of the principal is not deemed made until interests are covered, is merely directory and not mandatory, and its rules apply to a debtor with several debts, not to a surety with a singular, contingent obligation.
2. The obligation was not totally extinguished. Payment by the surety extinguished only the principal obligation it guaranteed. The appellants, as the primary debtors, remained liable for the accrued interest stipulated in the promissory note.
3. There was no novation. Novation is never presumed and requires clear incompatibility between old and new contracts or an express will to novate. The surety bond was an accessory contract to the promissory note, not a new and separate obligation. The acceptance of a guaranty from a third party, without an agreement releasing the original debtor, does not constitute novation. The creditor may still enforce the obligation against the original debtor.