TESTATE ESTATE OF LAZARO MOTA, DECEASED, ET AL., PLAINTIFFS AND APPELLANTS, VS. SALVADOR SERRA, DEFENDANT AND APPELLEE.

On
February 1, 1919, plaintiffs and defendant entered into a contract of
partnership, marked Exhibit A, for the construction and exploitation of
a railroad line from the “San Isidro” and “Palma” centrals to the place
known as “Nandong.” The original capital stipulated was P150,000. It
was covenanted that the parties should pay this amount in equal parts
and the plaintiffs were entrusted with the administration of the
partnership. The agreed capital of P150,000, however, did not prove
sufficient, as the expenses up to May 15, 1920, had reached the amount
of P226,092.92, as per statement Exhibit B, presented by the
administrator and O. K.’d by the defendant.

January 29,
1920, the defendant entered into a contract of sale with Venancio
Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby he
sold to the latter the estate and central known as “Palma” with its
running business, as well as all the improvements, machineries and
buildings, real and personal properties, rights, choses in action and
interests, including the sugar plantation of the harvest year of 1920
to 1921, covering all the property of the vendor. This contract was
executed before a notary public of Iloilo and is evidenced by Exhibit 1
of the defendant, paragraph 5 of which reads as follows:

“5.
The party of the first part hereby states that he has entered into a
contract with the owners of the ‘San Isidro’ Central for the
construction, operation, and exploitation of a railroad line of about
10 kilometers extending from the ‘Palma’ Central and ‘San Isidro’
Central to a point known as ‘Nandong,’ the expenses until the
termination of which shall be for the account of the ‘San Isidro’
Central, and of which expenses, one-half shall be borne by the ‘Palma’
Central with the obligation to reimburse same within five (5) years
with interest at the rate of 10 per cent per annum to the said ‘San
Isidro’ Central. The vendee hereby obligates himself to respect the aforesaid contract and all obligations arising therefrom.“

Before the delivery to the purchasers of the hacienda
thus sold, Eusebio R. de Luzuriaga renounced all his rights under the
contract of January 29, 1920, in favor of Messrs. Venancio Concepcion
and Phil. C. Whitaker. This gave rise to the fact that on July 17,
1920, Venancio Concepcion and Phil. C. Whitaker and the herein
defendant executed before Mr. Antonio Sanz, a notary public in and for
the City of Manila, another deed of absolute sale of the said “Palma”
Estate for the amount of P1,695,961.90, of which the vendor received at
the time of executing the deed the amount of P945,861.90, and the
balance was payable by installments in the form and manner stipulated
in the contract. The purchasers guaranteed the unpaid balance of the
purchase price by a first and special mortgage in favor of the vendor
upon the hacienda and the central with all the improvements, buildings, machineries, and appurtenances then existing on the said hacienda.

Clause 6 of the deed of July 17, 1920, contains the following stipulations:

“6.
Messrs. Phil. C. Whitaker and Venancio Concepcion hereby state that
they are aware of the contract that Mr. Salvador Serra has with the
proprietors of the ‘San Isidro’ Central for the operation and
exploitation of a railroad line about 10 kilometers long from the
‘Palma’ and ‘San Isidro’ centrals to the place known as ‘Nandong;’ and
hereby obligate themselves to respect the said contract and subrogate
themselves into the rights and obligations thereunder. They also bind
themselves to comply with all the contracts heretofore entered by the
vendor with the customers, coparceners on shares and employees.”

Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C.
Whitaker bought from the plaintiffs the one-half of the railroad line
pertaining to the latter, executing therefor the document Exhibit 5.
The price of this sale was P237,722,15, excluding any amount which the
defendant might be owing to the plaintiffs. Of the purchase price,
Venancio Concepcion and Phil. C. Whitaker paid the sum of P47,544.43
only. In the deed Exhibit 5, the plaintiffs and Concepcion and Whitaker
agreed, among other things, that the partnership “Palma” and “San
Isidro,” formed by the agreement of February 1, 1919, between Serra,
Lazaro Mota, now deceased, and Juan J. Vidaurrazaga for himself and in
behalf of his brothers, Felix and Dionisio Vidaurrazaga, should be
dissolved upon the execution of this contract, and that the said
partnership agreement should be totally cancelled and of no force and
effect whatever.

So it results that the “Hacienda Palma,”
with the entire railroad, the subject-matter of the contract of
partnership between plaintiffs and defendant, became the property of
Whitaker and Concepcion. Phil. C. Whitaker and Venancio Concepcion
having failed to pay to the defendant a part of the purchase price,
that is, P750,000, the vendor, the herein defendant, foreclosed the
mortgage upon the said hacienda, which was adjudicated to him
at the public sale held by the sheriff for the amount of P500,000, and
the defendant put in possession thereof, including what was planted at
the time, together with all the improvements made by Messrs. Phil. C.
Whitaker and Venancio Concepcion.

Since the defendant
Salvador Serra failed to pay one-half of the amount expended by the
plaintiffs upon the construction of the railroad line, that is,
P113,046.46, as well as Phil. C. Whitaker and Venancio Concepcion, the
plaintiffs instituted the present action praying: (1) That the deed of
February 1,1919, be declared valid and binding; (2) that after the
execution of the said document the defendant improved economically so
as to be able to pay the plaintiffs the amount owed, but that he
refused to pay either in part or in whole the said amount
notwithstanding the several demands made on him for the purpose; and
(3) that the defendant be sentenced to pay the plaintiffs the aforesaid
sum of P113,046.46, with the stipulated interest at 10 per cent per
annum beginning June 4, 1920, until full payment thereof, with the
costs of the present action.

Defendant set up three special
defenses: (1) The novation of the contract by the substitution of the
debtor with the conformity of the creditors; (2) the confusion of the
rights of the creditor and debtor; and (3) the extinguishment of the
contract, Exhibit A.

The court a quo in its
decision held that there was a novation of the contract by the
substitution of the debtor, and therefore absolved the defendant from
the complaint with costs against the plaintiffs. With regard to the
prayer that the said contract be declared valid and binding, the court
held that there was no way of reviving the contract which the parties
themselves in interest had spontaneously and voluntarily extinguished.
(Exhibit 5.)

Plaintiffs have appealed from this judgment and as causes for the review, they allege that the trial court erred: (a)
In holding that Messrs. Whitaker and Concepcion, upon purchasing the
“Palma” Central, were subrogated in the place of the defendant in all
his rights and obligations under the contract relating to the railroad
line existing between the “Palma” and the “San Isidro” centrals and
that the plaintiffs agreed to this subrogation; (b) in holding
that the deed Exhibit A of February 1, 1919, had been extinguished in
its entirety and made null and void by the agreement Exhibit 5 dated
December 16, 1920; (c) in absolving the defendant from the complaint and in sentencing the plaintiffs to pay the costs; and (d)
in not sentencing the defendant to pay the plaintiffs the sum of
P118,046.46, with legal interest at 10 per cent per annum from June 4,
1920, until full payment, with costs against the defendant.

Taking for granted that the defendant was under obligation to pay the
plaintiffs one-half of the cost of the construction of the railroad
line in question, by virtue of the contract of partnership Exhibit A,
the decisive point here to determine is whether there was a novation of
the contract by the substitution of the debtor with the consent of the
creditor, as required by article 1205 of the Civil Code. If so, it is
clear that the obligation of the defendant was, in accordance with
article 1156 of the same code, extinguished.

It should be
noted that in order to give novation its legal effect, the law requires
that the creditor should consent to the substitution of a new debtor.
This consent must be given expressly for the reason that, since
novation extinguishes the personality of the first debtor who is to be
substituted by a new one, it implies on the part of the creditor a
waiver of the right that he had before the novation, which waiver must
be express under the principle that renuntiatio non praesumitur,
recognized by the law in declaring that a waiver of right may not be
performed unless the will to waive is indisputably shown by him who
holds the right.

The fact that Phil. C. Whitaker and
Venancio Concepcion were willing to assume the defendant’s obligation
to the plaintiffs is of no avail, if the latter have not expressly
consented to the substitution of the first debtor. Neither can the
letter, Exhibit 6, on page 87 of the record be considered as proof of
the consent of the plaintiffs to the substitution of the debtor,
because that exhibit is a letter written by plaintiffs to Phil. C.
Whitaker and Venancio Concepcion for the very reason that the defendant
had told them (plaintiffs) that after the sale of the “Hacienda Palma”
to Messrs. Phil. C. Whitaker and Venancio Concepcion, the latter from
then on would bear the cost of the repairs and maintenance of the
railroad line and of the construction of whatever addition thereto
might be necessary. So the plaintiffs by their letter of August 14th,
submitted a statement of account to Phil. C. Whitaker and Venancio
Concepcion containing the accounts of the “San Isidro” Central, as
stated June 30, 1920, saying that they had already explained previously
the reason for the increase in the expenses and since the retiring
partner, Mr. Serra, had already given his conformity with the accounts,
as stated May 15,1920, it remained only to hear the conformity of the
new purchasers for the accounts covering the period from May 15 to June
30,1920, and their authority for future investments, or their
objection, if any, to the amounts previously expended. Neither can the
testimony of Julio Infante in connection with Exhibit 7 be taken as
evidence of the consent of the plaintiffs to the change of the person
of the debtor for that of Messrs. Phil. C. Whitaker and Venancio
Concepcion. This witness testified, in substance, that he is acquainted
with the partnership formed by the owners of the “Hacienda Palma” and
“Hacienda San Isidro” for the construction of the railroad line; that
the cost of the construction thereof was originally estimated at
P150,000; that the owner of the “Hacienda Palma” would pay one-half of
this amount; that when the “Hacienda Palma” was sold to Messrs. Phil.
C. Whitaker and Venancio Concepcion, the latter agreed to pay one-half
of the cost of P150,000; that as the cost of construction exceeded
P200,000, he, as an employee of Messrs. Phil. C. Whitaker and Venancio
Concepcion, could not O. K. the accounts as presented by the
plaintiffs, and suggested that they take up in writing their points of
view directly with Messrs. Phil. C. Whitaker and Venancio Concepcion.
Then the plaintiffs did as suggested, and wrote the letter Exhibit 7 in
which they asked the new owners of the “Hacienda Palma” their decision
upon the following three questions: 1. Will the “Palma” Central accept
the statement of account as presented by the “San Isidro” Central
regarding the actual cost of the railroad line “Palma-San
Isidro-Nandong? ” 2. Is the “Palma” Central willing to continue as
co-proprietor of the railroad line for the exploitation of the
sugar-cane business of “Nandong” and neighboring barrios, and therefore
to pay 50 per cent of the expenses that may be incurred in completing
the line?

It was but natural that the plaintiffs should have
done this. Defendant transferred his hacienda to Messrs. Phil. C.
Whitaker and Venancio Concepcion and made it known to the plaintiffs
that the new owners would hold themselves liable for the cost of
constructing the said railroad line. Plaintiffs could not prevent the
defendant from selling to Phil. C. Whitaker and Venancio Concepcion his
“Hacienda Palma” with the rights that he had over the railroad in
question. The defendant ceased to be a partner in the said line and,
therefore, the plaintiffs had to take the vendees as their new
partners. Plaintiffs had to come to an understanding with the new
owners of the “Hacienda Palma” in connection with the railroad line
“Palma-San Isidro-Nandong.” But in all of this, there was nothing to
show the express consent, the manifest and deliberate intention of the
plaintiffs to exempt the defendant from his obligation and to transfer
it to his successors in interest, Messrs. Phil. C. Whitaker and
Venancio Concepcion.

The plaintiffs were not a party to the
document Exhibit 1. Neither in this document, nor in others in the
record, do we find any stipulation whereby the obligation of the
defendant was novated with the consent of the creditor, and as it has
been held in the case of Martinez vs. Cavives (25 Phil., 581), the oral evidence tending to prove such a fact as this is not in law sufficient.

As has been said, in all contracts of novation consisting in the change
of the debtor, the consent of the creditor is indispensable, pursuant
to article 1205 of the Civil Code which reads as follows:

“Novation
which consists in the substitution of a new debtor in the place of the
original one may be made without the knowledge of the latter, but not
without the consent of the creditor.”

Mr. Manresa in his commentaries on articles 1205 and 1206 of the Civil Code (vol. 8, 1907 ed., pp. 424-426) says as follows:

“Article
1205 clearly says in what this kind of novation must consist, because
in stating that another person must be substituted in lieu of the
debtor, it means that it is not enough to extend the juridical relation
to that other person, but that it is necessary to place the latter in
the same position occupied by the original debtor.

“Consequently,
the obligation contracted by a third person to answer for the debtor,
as in the case of suretyship, in the last analysis, does not work as a
true novation, because the third person is not put in the same position
as the debtor—the latter continues in his same place and with the same
obligation which is guaranteed by the former.

“Since it is
necessary that the third person should become a debtor in the same
position as the debtor whom he substitutes, this change and the
resulting novation may be respected as to the whole debt, thus untying
the debtor from his obligation, except the eventual responsibilities of
which we shall speak later, or he may continue with the character of
such debtor and also allow the third person to participate in the
obligation. In the first case, there is a complete and perfect
novation; in the second, there is a change that does not free the
debtor nor authorize the extinguishment of the accessory obligations of
the latter. In this last hypothesis, if there has been no agreement as
to solidarity, the first and the new debtor should be considered as
obligated severally.

“The provisions of article 1205 which
require the consent of the creditor as an indispensable requisite in
this kind of novation and not always that of the debtor, while not
making it impossible to express the same, imply the distinction between
these two forms of novation and it is based on the simple consideration
of justice that since the consequences of the substitution may be
prejudicial to the creditor, but not to the debtor, the consent of the
creditor alone is necessary.

“The two forms of this
novation, also impliedly recognized by article 1206 which employs the
word ‘delegate,’ as applied to the debt, are the expromission and the delegation.
Between these, there is a marked difference of meaning and, as a
consequence, a logical difference of requisite and another clear
difference as to their effects, of which we shall speak later.

“In the expromission,
the initiative of the change does not emanate from the debtor and may
be made even without his consent, since it consists in a third person
assuming his obligation; it logically requires the consent of this
third man and of the creditor and in this last requisite lies the
difference between novation and payment, as the latter can be effected
by a third person even against the will of the creditor, whereas in the
former case it cannot.

“In the delegation, the debtor
offers and the creditor accepts a third person who consents to the
substitution so that the intervention and the consent of these three
persons are necessary and they are respectively known as delegante, delegatario, and delegado.
It must be noted that the consent need not be given simultaneously and
that it may be given afterwards, as for example, that of the creditor delegatario to the proposition of the debtor accepted by the delegado.

“Delegation
notably differs from the mere indication made by the debtor that a
third person shall pay the debt; in this case, there is no novation and
the former is not acquitted of his obligation and his relations with
the third person are regulated by the rules of agency. The French Code
in article 1276 expressly provides for this case, as well as the
inverse one where the debtor points out somebody else to answer for the
payment, declaring that there is no novation in either case. The same
sound criterion is impliedly accepted by our Code.”

In the case of E. C. McCullough & Co. vs.
Veloso and Serna (46 Phil., 1), it appears that McCullough & Co.,
Inc., sold to Veloso a real estate worth P700,000 on account of which
Veloso paid P50,000, promising to pay the balance at the times and
manner stipulated in the contract. He further bound himself to pay 10
per cent of the amount of the debt as attorney’s fees in case of
litigation. To secure the unpaid balance of the purchase price he
executed a first mortgage upon the property in favor of the vendor.
Subsequently, Veloso sold the property for P100,000 to Joaquin Serna
who bound himself to respect the mortgage in favor of McCullough &
Co., Inc., and to assume Veloso’s obligation to pay the unpaid balance
of the purchase price of the property at the times agreed upon in the
contract between Veloso and McCullough & Co., Inc.

Veloso had paid on account of the price the amount of P50,000, and
Serna also made several payments aggregating the total amount of
P250,000. But after this, neither Veloso nor Serna made further
payments and thus gave cause for a litigation. The court in deciding
the case said:

“The defendant contends that
having sold the property to Serna, and the latter having assumed the
obligation to pay the plaintiff the unpaid balance of the price secured
by the mortgage upon the property, he was relieved from this obligation
and it then devolved upon Serna to pay the plaintiff. This means that
as a consequence of the contract between the defendant and Serna, the
contract between the defendant and the plaintiff was novated by the
substitution of Serna as a new debtor. This is untenable. In order that
this novation may take place, the law requires the consent of the
creditor (art. 1205 of the Civil Code). The plaintiff did not intervene
in the contract between Veloso and Serna and did not expressly give his
consent to this substitution. Novation must be express, and cannot be
presumed.”

In Martinez vs. Cavives (25 Phil., 581), it was held that:

” * * * The consent of the new debtor is as essential to the novation as is that of the creditor. * * *

“There
is no express stipulation in any of the documents of record that the
obligation of the defendant was novated, and the parol evidence tending
to show that it was novated is not sufficient in law to establish that
fact.”

The same doctrine was upheld in the case of Vaca vs. Kosca (26 Phil., 388):

“A new debtor cannot be substituted for the original obligor in the first contract without the creditor’s consent.”

The supreme court of Spain has constantly laid down the same doctrine with regard to novation of contracts:

“The
obligations and rights in a contract cannot be novated with regard to a
third person who has not intervened in the execution thereof.”
(Decision of June 28, 1860.)

“Novation by the change of
debtors cannot be effected without the express approval of the
creditor.” (Decisions of February 8, 1862 and June 12, 1867.)

“Novation
should not be established by presumptions but by the express will of
the parties.” (Decisions of February 14, 1876 and June 16, 1883.)

“In
order that novation of a contract by subrogation of the debtor may take
effect and thus liberate the first debtor from the obligation, it is
necessary that the subrogation be made with the consent of the
creditor.” (Decision of March 2, 1897.)

“It is undeniable
that obligations judicially declared, as well as those acquired by any
other title, can be novated by substituting a new debtor in place of
the primitive, only when the creditor gives his consent to the
substitution.” (Decision of November 15, 1899.)

“Novation
can in no case be presumed in contracts, but it is necessary that it
should result from the will of the parties, or that the old and the new
one be altogether incompatible.” (Decision of December 31, 1904.)

“An
obligation cannot be deemed novated by means of modifications which do
not substantially change the essence thereof, nor when it is not
extinguished by another obligation, nor when the debtor is not
substituted.” (Decision of March 14, 1908.)

“The consent of
the creditor required in a novation consisting of the change of debtors
(art. 1205, Civil Code) must appear in an express and positive manner
and must be given with the deliberate intention of exonerating the
primitive debtor of his obligations and transfer them wholly upon the
new debtor.” (Decision of June 22, 1911.)

In the decision in the case of Martinez vs. Cavives, supra,
the following decisions of the several courts of the United States are
cited, wherein this question was decided in the same manner:

“In Latiolais, admrx. vs.
Citizens’ Bank of Louisiana (33 La. Ann., 1444), one Duclozel mortgaged
property to the defendant bank for the triple purpose of obtaining
shares in the capital stock of the bank, bonds which the bank was
authorized to issue, and loans to him as a stockholder. Duclozel
subsequently sold this mortgaged property to one Sproule, who, as one
of the terms of the sale, assumed the liabilities of his vendor to the
bank. Sproule sold part of the property to Graff and Chalfant. The debt
becoming due, the bank brought suit against the last two named and
Sproule as owners, Duclozel was not made a party. The bank discontinued
these proceedings and subsequently brought suit against Latiolais,
administratrix of Duclozel, who had died.

“The court said:
‘But the plaintiff insists that in its petition in the proceeding first
brought the bank ratified the sale made by Duclozel to Sproule, and by
the latter to other parties, in treating them as owners. Be that so,
but it does not follow in the absence of either a formal and express or
of an implied consent to novate, which should be irresistibly inferred
from surrounding circumstances, that it has discharged Duclozel
unconditionally, and has accepted those parties as new delegated
debtors in his place. Nemo presumitur donare.

”
‘Novation is a contract, the object of which is: either to extinguish
an existing obligation and to substitute a new one in its place; or to
discharge an old debtor and substitute a new one to him; or to
substitute a new creditor to an old creditor with regard to whom the
debtor is discharged.

” ‘It is never presumed. The
intention must clearly result from the terms of the agreement or by a
full discharge of the original debt. Novation by the substitution of a
new debtor can take place without the consent of the debtor, but the
delegation does not operate a novation, unless the creditor has
expressly declared that he intends to discharge with delegating debtor,
and the delegating debtor was not in open failure or insolvency at the
time. The mere indication by a debtor of a person who is to pay in his
place does not operate a novation. Delegatus debitor est odiosus in lege.

”
‘The most that could be inferred would be that the bank in the exercise
of a sound discretion, proposed to better its condition by accepting an
additional debtor to be and remain bound with the original one.’

“In Fidelity L. & T. Co. vs.
Engleby (99 Va., 168), the court said: ‘Whether or not a debt has been
novated is a question of fact and depends entirely upon the intention
of the parties to the particular transaction claimed to be novated. In
the absence of satisfactory proof to the contrary, the presumption is
that the debt has not been extinguished by taking the new evidence in
the absence of an intention expressed or implied, being treated as a
conditional payment merely.’

“”In Hamlin vs. Drummond (91 Me., 175; 39 A., 551), it was said that novation is never presumed but must always be proven. In Netterstorn vs.
Gallistel (110 111. App., 352), it was said that the burden of
establishing a novation is on the party who asserts its existence; that
novation is not easily presumed; and that it must clearly appear before
the court will recognize it.”

Notwithstanding the doctrines above quoted, defendant’s counsel calls
our attention to the decision of the supreme court of Spain of June 16,
1908, wherein it was held that the provisions of article 1205 of the
Code do not mean nor require that the consent of the creditor to the
change of a debtor must be given just at the time when the debtors
agree on the substitution, because its evident object being the full
protection of the rights of the creditor, it is sufficient if the
latter manifests his consent in any form and at any time as long as the
agreement among the debtors holds good. And defendant insists that the
acts performed by the plaintiffs after the “Hacienda Palma” was sold to
Messrs. Phil. C. Whitaker and Venancio Concepcion constitute evidence
of the consent of the creditor. First of all, we should have an idea of
the facts upon which that decision was rendered by the supreme court of
Spain.

A partnership known as “La Azucarera de Pravia”
obtained a fire insurance policy from the company “La Union y Fenix
Español,” by virtue of which, said company insured in consideration of
an annual premium of 3,000 pesetas, the buildings, machinery
and other apparatuses pertaining to the “Pravia Factory” for ten years
and for half their value, and another insurance from another insurance
company insuring the same property and effects for the other half of
their value.

Later, “La Azucarera de Pravia,” with other
sugar companies, ceded all its property to another company known as
“Sociedad General Azucarera de España,” in which in consideration of a
certain amount of stock that the said “Sociedad General Azucarera de
España” issued to the “La Azucarera de Pravia,” the latter was merged
with the former. After the cession, “La Union y Fenix Español” sued the
“Sociedad General Azucarera da España” demanding the payment of the
premium that should have been paid by the “La Azucarera de Pravia,”
which payment the “Sociedad General Azucarera de España” refused to
make on the ground that the “La Azucarera de Pravia” was not merged
with the “Sociedad General Azucarera de España,” but merely transferred
its properties to the latter in consideration of the stock that was
issued to the “La Azucarera de Pravia.” It was further contended by the
“Sociedad General Azucarera de España” that even if it were true that
in the contract of cession it appeared that the “La Azucarera de
Pravia” was merged with the “Sociedad General Azucarera de España,”
nevertheless, there was no such merger in law, for in truth and in
fact, the “La Azucarera de Pravia” had ceded only its property, but not
its rights and obligations; that the existence of the partnership known
as “La Azucarera de Pravia” was proven by its registration in the
mercantile register, which was not cancelled, nor did it contain any
statement to the effect that the “La Azucarera de Pravia” had been
extinguished or had ceased to do business even after the cession of
properties to the “Sociedad General Azucarera de España.” Another
argument advanced by the “Sociedad General” was that at the time the
“Azucarera de Pravia” ceded its properties to the “Sociedad General
Azucarera de España,” the insurance company “La Union y Fenix Español”
did not assent to the subrogation of the “Sociedad General Azucarera”
into the rights and obligations of the “Azucarera de Pravia,” assuming
that there had been such a subrogation or substitution of a debtor by
another.

The supreme court of Spain gave judgment in favor
of the “La Union y Fenix Español” insurance company for the following
reasons:

“1. While it is true that it
cannot be strictly said that ‘La Azucarera de Pravia’ was merged with
the ‘Sociedad General Azucarera de España,’ the document whereby the
property of the ‘La Azucarera de Pravia’ was ceded to the ‘Sociedad
General Azucarera de España’ clearly and expressly recites that this
company upon taking charge of the immovable property of the ‘La
Azucarera de Pravia’ accepted in general, with respect to the property
ceded, ‘everything belonging to the same,’ after making provisions
about active and passive easements, contracts for transportation and
other matters.”

The supreme court held that
by virtue of the words hereinabove quoted, the “Sociedad General
Azucarera de España” took over the obligation to pay the insurance
premiums of the “La Azucarera de Pravia” inasmuch as said insurance
pertained to the property that was ceded.

“2.
While it is true that ‘La Union y Fenix Español’ insurance company did
not give its consent to the contract of cession at the moment of its
execution, yet the mere fact that the said insurance company now sues
the ‘Sociedad General Azucarera de España’ is an incontrovertible proof
that the said insurance company accepts the substitution of the new
debtor.”

By comparing the facts of that
case with the defenses of the case at bar, it will be seen that,
whereas in the former case the creditor sued the new debtor, in the
instant case the creditor sues the original debtor. The supreme court
of Spain in that case held that the fact that the creditor sued the new
debtor was proof incontrovertible of his assent to the substitution of
the debtor. This would seem evident because the judicial demand made on
the new debtor to comply with the obligation of the first debtor is the
best proof that the creditor accepts the change of the debtor. His
complaint is an authentic document where his consent is given to the
change of the debtor. We are not holding that the creditor’s consent
must necessarily be given in the same instrument between the first and
the new debtor. The consent of the creditor may be given subsequently,
but in either case it must be expressly manifested. In the present
case, however, the creditor makes judicial demand upon the first debtor
for the fulfillment of his obligation, evidently showing by this act
that he does not give his consent to the substitution of the new
debtor. We are of the opinion that the decision of the supreme court of
Spain of June 16, 1908, cannot be successfully invoked in support of
defendant’s contention. Wherefore, we hold that in accordance with
article 1205 of the Civil Code, in the instant case, there was no
novation of the contract, by the change of the person of the debtor.

Another defense urged by the defendant is the merger of the rights of
debtor and creditor, whereby under article 1192 of the Civil Code, the
obligation, the fulfillment of which is demanded in the complaint,
became extinguished. It is maintained in appellee’s brief that the debt
of the defendant was transferred to Phil. C. Whitaker and Venancio
Concepcion by the document Exhibit 1. These in turn acquired the credit
of the plaintiffs by virtue of the debt, Exhibit 5; thus the rights of
the debtor and creditor were merged in one person. The argument would
at first seem to be incontrovertible, but if we bear in mind that the
rights and titles which the plaintiffs sold to Phil. C. Whitaker and
Venancio Concepcion refer only to one-half of the railroad line in
question, it will be seen that the credit which they had against the
defendant for the amount of one-half of the cost of construction of the
said line was not included in the sale contained in Exhibit 5. That the
plaintiffs sold their rights and titles over one-half of the line, is
evident from the very Exhibit 5. The purchasers, Phil. C. Whitaker and
Venancio Concepcion, to secure the payment of the price, executed a
mortgage in favor of the plaintiffs on the same rights and titles that
they had bought and also upon what they had purchased from Mr. Salvador
Serra, In other words, Phil. C. Whitaker and Venancio Concepcion
mortgaged unto the plaintiffs what they had bought from the plaintiffs
and also what they had bought from Salvador Serra. If Messrs. Phil. C.
Whitaker and Venancio Concepcion had purchased something from Mr.
Salvador Serra, the herein defendant, regarding the railroad line, it
was undoubtedly the one-half thereof pertaining to Mr. Salvador Serra.
This clearly shows that the rights and titles transferred by the
plaintiffs to Phil. C. Whitaker and Venancio Concepcion were only those
they had over the other half of the railroad line. Therefore, as
already stated, since there was no novation of the contract between the
plaintiffs and the defendant, as regards the obligation of the latter
to pay the former one-half of the cost of the construction of the said
railroad line, and since the plaintiffs did not include in the sale,
evidenced by Exhibit 5, the credit that they had against the defendant,
the allegation that the obligation of the defendant became extinguished
by the merger of the rights of creditor and debtor by the purchase of
Messrs. Phil. C. Whitaker and Venancio Concepcion is wholly untenable.

Appellants assign also as a ground of their appeal the holding of the
court that by the termination of the partnership, as shown by the
document Exhibit 5, no legal rights can be derived therefrom.

By virtue of the contract Exhibit 5, the plaintiffs and Phil. C.
Whitaker and Venancio Concepcion, by common consent, decided to
dissolve the partnership between the “Hacienda Palma” and “Hacienda San
Isidro,” thus cancelling the contract of partnership of February 1,
1919.

Counsel for appellee in his brief and oral argument
maintains that the plaintiffs cannot enforce any right arising out of
that contract of partnership, which has been annulled, such as the
right to claim now a part of the cost of the construction of the
railroad line stipulated in that contract.

Defendant’s
contention signifies that any person, who has contracted a valid
obligation with a partnership, is exempt from complying with his
obligation by the mere fact of the dissolution of the partnership.
Defendant’s contention is untenable. The dissolution of a partnership
must not be understood in the absolute and strict sense so that at the
termination of the object for which it was created the partnership is
extinguished, pending, the winding up of some incidents and obligations
of the partnership, but in such case, the partnership will be reputed
as existing until the juridical relations arising out of the contract
are dissolved. This doctrine has been upheld by the supreme court of
Spain in its decision of February 6, 1903, in the following case: There
was a partnership formed between several persons to purchase some lands
sold by the state. The partnership paid the purchase price and
distributed among its members the lands so acquired, but after the
lapse of some time, one of the partners instituted an action in the
court of Badajoz, praying that he be accepted as a partner with the
same rights and obligations as the others, for the reason that he had
not been allowed all that he had a right to. The court granted the
petition which judgment was affirmed by the Audiencia de Caceres.

From that decision the defendant sued out a writ of error alleging
infringement of articles 1680 and 1700 of the Civil Code, on the
proposition that all contracts are reputed consummated and therefore
extinguished, when the contracting parties fulfill all the obligations
arising therefrom and that by the payment of the money and the granting
and distribution of the lands without any opposition, the juridical
relations between the contracting parties become extinguished and none
of the parties has any right of action under the contract. The supreme
court, holding that some corrections and liquidations asked by the
actor were still pending, denied the writ, ruling that the articles
cited were not infringed because a partnership cannot be considered as
extinguished until all the obligations pertaining to it are fulfilled.
(11 Manresa, page 312.)

The dissolution of a firm does not
relieve any of its members from liability for existing obligations,
although it does save them from new obligations to which they have not
expressly or impliedly assented, and any of them may be discharged from
old obligations by novation or other form of release. It is often said
that a partnership continues, even after dissolution, for the purpose
of winding up its affairs. (30 Cyc., page 659.)

Another
question presented by appellee’s counsel in his memorandum and oral
argument is that as in the partnership articles of February 1, 1919, it
was covenanted that the defendant would put up one-half of the cost of
the railroad line within five years from that date, that is, from
February 1, 1919, with interest at 10 per cent per annum, the present
action is premature since, from the execution of the contract until
October 25, 1922, the date of the complaint, the five years, within
which the defendant could pay his part of the cost of the construction
of the line, had not yet elapsed. Suffice it to say that the plaintiffs
and the successors in interest of the defendant, by mutual consent,
dissolved the partnership on June 16, 1920, cancelling the contract
Exhibit A to all of which the defendant consented as evidence by his
allegations in his answer. If this is so, there is no reason for
waiting for the expiration of the five years which the parties
themselves had seen fit to stipulate and therefore the provisions of
article 1113, regarding the fulfillment of pure obligations, must be
applied in this case.

For all of the foregoing, the judgment
appealed from is reversed, and we hold that the defendant Salvador
Serra is indebted to the plaintiffs, the Testate Estate of Lazaro Mota,
et al., in the amount of P113,046.46, and said defendant is
hereby sentenced to pay the plaintiffs the said amount, together with
the agreed interest at the rate of 10 per cent per annum from the date
of the filing of the complaint.

Without special pronouncement as to costs, it is so ordered.

Johnson, Street, Malcolm, Ostrand, Johns, and Romualdez, JJ., concur.