G.R. No. L-18377, December 29, 1962
Anastacio G. Duñgo, petitioner, vs. Adriano Lopena, Rosa Ramos and Hon. Andres Reyes, Judge of the Court of First Instance of Rizal, respondents.

FACTS

Petitioner Anastacio Duñgo and Rodrigo Gonzales purchased land from respondents Adriano Lopena and Rosa Ramos, executing a real estate mortgage to secure the balance. Upon default, respondents filed a foreclosure complaint. This case was consolidated with two other related foreclosure suits. Before trial, a compromise agreement was submitted to the court, signed by respondents and Gonzales, but not by Duñgo. Gonzales signed for both, and Duñgo’s counsel of record, Atty. Manuel O. Chan, was present and also signed the agreement. The agreement extended the payment deadline to June 30, 1960, waived the legal redemption period, and stipulated joint sale of the properties if payment failed. The court approved it on January 15, 1960.
Subsequently, a Tri-Party Agreement was executed among Duñgo, Gonzales (debtors), respondents (creditors), and a third party, Emma R. Santos (payor). Santos agreed to pay the consolidated debt of P503,000 in installments on behalf of the debtors. The agreement incorporated the court-approved compromise as an annex. Duñgo later failed to pay, and the court ordered execution. Duñgo appealed, but the lower court dismissed the appeal, ruling the compromise was final and executory. Duñgo then filed this petition, arguing the Tri-Party Agreement novated the obligation, releasing him.

ISSUE

Whether the Tri-Party Agreement constituted a novation that extinguished Duñgo’s obligation under the approved compromise agreement.

RULING

No, the Tri-Party Agreement did not effect a novation. Novation requires either the substitution of a new obligation or the substitution of a new debtor, with the express or implied release of the original debtor. The legal logic is clear: for novation by change of debtor to occur, the old debtor must be expressly released from the obligation, and the third person must take his place in the juridical relation. Without such release, the third party merely becomes a co-debtor or guarantor.
The Court examined the Tri-Party Agreement and found no stipulation releasing Duñgo from his liability. The agreement explicitly made the court-approved compromise an integral part thereof. Its purpose was to provide a mechanism for payment through a third-party payor, not to extinguish the original debtors’ obligations. The involvement of Emma R. Santos constituted merely an assumption of the obligation, which, under settled jurisprudence, adds to the number of persons liable but does not imply the extinguishment of the original debtor’s liability unless a release is clearly agreed upon. Since Duñgo was not released, he remained solidarily liable with Santos. Consequently, the compromise agreement remained valid and enforceable against Duñgo, and the lower court correctly dismissed his appeal for being frivolous and dilatory. The petition for certiorari and mandamus was dismissed.