THIRD DIVISION
HEIRS OF RENATO P. DRAGON, REPRESENTED BY PATRICIA ANGELI D. NUBLA,
PETITIONERS, v. THE MANILA BANKING CORPORATION, RESPONDENT.
G.R. No. 205068, March 06, 2019
LEONEN, J.:
NATURE OF THE CASE:
Petition for Review on Certiorari1 assailing the Decision and Resolution of the Court of Appeals (CA)
which upheld the Decision of the Regional Trial Court (RTC)
FACTS:
From 1976 to 1982, Dragon obtained several loans from Manila Banking, evidenced by four (4)
Promissory Notes: the two (2) were both dated March 30, 1976 while the other two (2) were dated June
28, 1979 dated February 26, 1982. Each Promissory Note stipulated a rate of interest, penalty interest in
case of default, and attorney's fees, and due dates from 1976 to 1983.
In 1987, Manila Banking was placed under receivership by the Bangko Sentral ng Pilipinas. The bank's
receiver sent Dragon several demand letters requiring him to pay his outstanding loans, the final letter
being dated August 12, 1998. Dragon failed to pay his outstanding obligation. Thus, on January 1999,
Manila Banking filed before the Regional Trial Court a Complaint for collection of sum of money. The
prayer of the Complaint read:
Dragon, in his Answer claimed that he had already partially paid his debts to Manila Banking, and that his
loans with the bank had been extinguished by Novation. Allegedly, in 1984, Kalilid Wood Industries
Corporation (Kalilid Wood), of which he was an officer and stockholder, requested that Kalilid Wood's
loans and the accounts, as well as that of other persons, including that of Dragon's, be restructured.
Manila Banking allegedly agreed to the restructuring, allowing Kalilid Wood to assume Dragon's loan
obligations, including those covered by the four (4) Promissory Notes. Supposedly, this novation was
confirmed in a Decision of the RTC, in Civil Case No. 4696.
Dragon further claimed that Manila Banking's cause of action had prescribed, since it failed to demand
payment on the Promissory Notes within 10 years from their due date. He alleged that he never received
the demand letters sent by Manila Banking, which would have otherwise interrupted the prescriptive
period.
The RTC ruled in favor of Manila Banking. The RTC noted that Dragon's defenses of prescription and
novation were neither pleaded in his Answer nor raised in a motion to dismiss. And even if it could have
taken cognizance of these defenses, the Regional Trial Court found that Manila Banking's cause of action
had not prescribed since the cause of action began to accrue only on August 1998, when Dragon refused
to pay, and not on the maturity dates stated in the promissory notes. Further, Dragon could not prove that
the obligations had been novated. It ruled that Decision of te RTC in another Civil case could not be proof
of the alleged novation since the facts and subject matter of that case were different from this case.
On appeal, the CA affirmed the lower Court’s decision. The CA found that the correspondence between
Manila Banking and Kalilid Wood could not serve as basis for Dragon's claim of novation. Manila
Banking's reply did not expressly state that Dragon had been released from his obligations under the
Promissory Notes, or that there was an agreement that Kalilid Wood would assume Dragon's obligations
under the Promissory Notes. Since novation is never presumed, but must be shown through an express
agreement or by the parties' intent. Further, the 10-year prescriptive period on the enforcement of the
Promissory Notes, which matured from 1982 to 1983, was interrupted by Manila Banking's demand
letters to Dragon. It did not give credence to Dragon's claim that he never received the demand letters, as
he admitted in his Answer that they had been sent to him.
Dragon died on 2012 as such he was substituted by his heirs. The Heirs of Dragon filed the present
Petition.
Respondent points out that the issues raised in the Petition were never raised during pre-trial in the
Regional Trial Court. For being belatedly raised, these defenses should be waived. In particular,
petitioners were estopped from questioning the non-payment of correct docket fees since they only raised
this issue after the Regional Trial Court rendered its September 26, 2007 Decision against Dragon.54
ISSUE:
(1) Whether or not Khalid Woods has assumed the obligation of Dragon to Respondent and thereby
effecting a Novation? – (NO)
(2) Whether or not Repondent’s cause of action based on the Promissory Notes has prescribed? – (NO)
RULING:
(1) Novation must be clear and unequivocal, and is never presumed. It is the burden of the party
asserting that novation has taken place to prove that all the elements exist.
Based on the Decision of the Regional Trial Court in Civil Case No. 46961, Builders Wood Products, Inc.
obtained a loan from respondent, with Dragon as surety, in 1980. When Builders Wood Products, Inc.
defaulted, respondent filed an action for sum of money against it and its sureties. In 1983, while the action
was pending, Builders Wood Products, Inc. ceded its timber concession to Kalilid Wood, of which
Dragon was an officer. Thus, Kalilid Wood assumed all the existing obligations of Builders Wood
Products, Inc. and, later on, the obligations of Dragon as part of its repayment schedule. The Decision
does not mention the Promissory Notes included in the loans Kalilid Wood had assumed from Dragon.
What Kalilid Wood had assumed were Dragon's obligations as surety for Builders Wood Products, Inc. It
did not include his personal loans to respondent.
The April 22, 1991 Decision declares that "the proposed repayment plan by [Kalilid Wood] regarding the
various accounts mentioned in the letter (Exh. 1-Dragon) and the letter dated September 19, 1984 (Exhs.
2-Dragon, 2-A-Dragon), including that of Builders and Dragon were accepted by plaintiff Manila
Banking Corporation."69 Yet, petitioners were unable to prove or even claim that the Promissory Notes
were included in these "various accounts." These exhibits should have been easy to present, as they
should be extant judicial records, but they have not been presented by petitioners.
(2) It cannot be said that appellant-bank's cause of action based on such promissory notes had
prescribed. Actions based upon a written contract should be brought within ten (10) years from the
time the right of action accrues. Indubitably, such right of action accrue from the moment the breach
of right or duty occurs. Prescription of actions is, nevertheless, interrupted when they are filed before
the courts, when there is a written extrajudicial demand by the creditors, and when there is any
written acknowledgement of the debt by the debtor. In the present case, the ten-year (10) prescriptive
period on the enforcement of said promissory notes that matured in 1982 - 1983, was timely interrupted
by appellant-bank's demand letters to defendant-appellant in November 1988, October 1991, February
1993, November 1994, January 1996 and August 1998. Verily, every time the defendant-appellant
receives said demand letters, a new ten-year (10) period is added, and the elapsed period is,
thereby, eliminated. Indeed, a written extrajudicial demand wipes out the period which has already
elapsed, and it starts anew the prescriptive period.
