Rule 2- 1. Swagman vs. Court of Appeals - Digest

Swagman Hotel, Inc. vs Court of Appeals

GR 161135 Apr 8 2005  Full Text

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Facts:

Swagman Hotel, Inc., through its representatives, obtained from Neal a loan which is payable after 3 years and with interest per annum payable payable every 3 months. After a year, Swagman suffered suffered business reverses prompting it to to renegotiate the terms of the the loan with Neal. It was agreed that Neal waives the payment of interests and that the principal loan shall be paid every month instead of quarterly. After the renegotiation, the cash vouchers or receipts acknowledged by the parties state that the payments therein represent “Capital Investment” and “Capital Repayment”. Barely 2 years after however, Neal sent a letter informing the corporation that he is terminating the loans and demanding that the total amount of the loan and unpaid interests be paid. Subsequently, Neal filed a complaint for sum of money and damages. Swagman answered that the complaint is dismissible for lack of cause of action since the loan is not yet due and demandable and that there was novation in the contract. But the RTC held in favor of Neal, rationating that although there was no cause of action at the filing of the complaint, the debt has already matured during the days the hearings were held, thus making it due as of date. Issue 1: W/N a complaint that lacks a cause of action at the time it was filed be cured by the accrual

of a cause of action during the pendency of the case No. Jurisprudence states that unless the plaintiff has a valid and subsisting subsisting cause of action at the time his action is commenced, the defect cannot be cured or remedied by the acquisition or accrual of one while the action is pending, and a supplemental complaint or an amendment setting up such after-accrued cause of action is not permissible. (Surigao Mines vs Harris, 1935) Issue 2: W/N there was novation in the terms of of the promissory notes

Yes. Under Article 1253 of the Civil Code, it is presumed that if the debt produces interest, payments were applied first to to the interest before the principal. But in this case, the the receipts describing the payments as capital repayment  show  show that obligation to pay the interest was no longer subsisting. The receipts prove that the payments were for the principal loans and that the interests were waived by Neal. There was therefore a novation of the the terms of the loan. The resulting novation in this case was of the modificatory type, not the extinctive type, since the obligation to pay a sum of money remains in force. Thus, since Swagman did not renege on its obligation to pay the monthly installments conformably with their new agreement and even continued paying during the pendency of the case, Neal had no cause of action to file the complaint. It is only upon debtor’s default in the payment of the monthly amortizations that a cause of action would arise

and give the creditor a right to to maintain an action against the petitioner. ##