G.R. No. L-4036
H. J. ANDREWS, plaintiff-appellee, vs. JUAN MORENTE ROSARIO, ET AL., defendants-appellants.
January 17, 1908

FACTS: H. J. Andrews, as assignee of Jose Maria Torres, filed an action on June 22, 1906, to recover the first two installments, amounting to P5,000, from Juan Morente Rosario, Justo Porcuna, and Felizarda J. Martinez Magadier de Porcuna. This payment was due under a contract dated March 14, 1906, where Torres sold 700 shares of stock in the Compańia Explotadora Mercantil Filipina to the defendants. The 700 shares constituted the entire capital stock, and the company’s sole asset was a launch named “San Jose II.”

The contract included a clause stating that Torres would be liable for damages existing and pointed out by a boiler inspector at the time of delivery, but not for damages discovered later. The launch was delivered after initial repairs at Torres’ expense. After two voyages, the launch was condemned by port authorities, and extensive repairs were ordered.

On May 19, 1906, the same day the contract was assigned to Andrews, Torres executed an obligation in favor of two defendants (Juan Morente Rosario and Felizarda) for P4,000, representing the value of 140 shares. The lower court interpreted this as a resale of 140 shares to Torres, reducing the defendants’ total obligation. The defendants argued that this P4,000 obligation constituted a novation, releasing them from their original liability.

ISSUE: Whether the execution of an obligation by Jose Maria Torres for P4,000 in favor of two defendants constituted a novation that released the defendants from their liability on the original contract of sale.

RULING: No, the execution of the P4,000 obligation did not constitute a novation that completely released the defendants from their liability.

The Court held that there was nothing in the contract or evidence to indicate that the defendants had been released from their obligations on the original contract, except to the extent of P4,000. While the lower court construed the P4,000 obligation as a resale of 140 shares, thereby reducing the defendants’ liability, and the Supreme Court expressed some doubt about this construction, it upheld the finding because the plaintiff (Andrews) did not appeal it. Therefore, the defendants’ liability was merely reduced by P4,000, and they remained liable for the balance (at least P16,000). The P4,000 obligation did not create a new contract that extinguished the old one entirely or substantially altered its principal conditions, which is essential for novation.

The judgment of the lower court, which limited the recovery to a proportionate part of the P16,000, was affirmed.