G.R. No. 186196 . August 15, 2018.
BENEDICTO V. YUJUICO, PETITIONER, V. FAR EAST BANK AND TRUST COMPANY (NOW BANK OF THE PHILIPPINE ISLANDS), SUBSTITUTED BY PHILIPPINE INVESTMENT ONE (SPV-AMC), INC., RESPONDENT.

FACTS

Petitioner Benedicto V. Yujuico, as surety, and GTI Sportswear Corporation, of which he was president, obtained an Omnibus Credit Line from respondent Far East Bank and Trust Company. The parties later executed a Loan Restructuring Agreement (LRA) to settle GTI’s outstanding balance. Yujuico alleged that during the LRA signing, bank officers assured him that after a few payments, the peso loan would be converted to a US dollar-denominated loan, which would entail lower interest rates. This alleged oral assurance was later referenced in a letter from GTI’s financial consultant, which the bank did not immediately deny. Relying on this, Yujuico and GTI filed a Complaint for Specific Performance to compel the bank to convert the loan and to pay alleged savings from the lower interest rate.
The Regional Trial Court (RTC) ruled in favor of Yujuico and GTI, ordering the bank to convert the loan. The RTC further held that this conversion constituted a novation of the principal obligation, thereby releasing Yujuico from his suretyship under the Comprehensive Surety Agreement. The Court of Appeals (CA) partially modified the RTC decision. While it affirmed the order for specific performance regarding the loan conversion, it reversed the finding of novation and held Yujuico solidarily liable with GTI for the restructured loan obligation.

ISSUE

Whether the alleged agreement to convert the peso loan to a US dollar obligation constituted a novation that extinguished the original loan and released the surety, Benedicto V. Yujuico, from his liability.

RULING

The Supreme Court denied the petition and affirmed the CA ruling. The Court held that novation, as a mode of extinguishing an obligation, must be unequivocally established. For novation to occur, there must be a clear intent to extinguish the old obligation and substitute a new one in its place. The alleged agreement to convert the currency of the loan did not manifest such intent. The Loan Restructuring Agreement remained the governing contract, and the Comprehensive Surety Agreement explicitly secured all renewals and modifications of the credit line. A change in the currency of the obligation is merely a modification of a incidental, not a principal, condition. It does not alter the essence of the obligation to pay a sum of money. Consequently, such a modification does not constitute a novation that would extinguish the original obligation and the accompanying accessory contract of suretyship. Since there was no novation, Yujuico’s liability as surety persisted. The Supreme Court emphasized that the surety’s consent to a modification is presumed under the terms of the Comprehensive Surety Agreement, which covered future renewals and changes. Therefore, Yujuico remained solidarily liable with the principal debtor, GTI, for the restructured loan.