Essay Flashcards

A bank extends a PHP 9,000,000 loan to Natura Farms, Inc. to acquire a parcel of land, with the loan secured by a mortgage on the land. Natura Farms asks its business partner, Mr. Quinto, to assume the debt and continue payments on the same terms. The bank and the parties execute a written novation: Natura Farms is expressly released from the obligation; Mr. Quinto signs to pay the loan on the same terms; a new promissory note is issued in Mr. Quinto’s name; and the old note is canceled. After six months, Mr. Quinto defaults. The bank continues to send statements to Natura Farms and accepts occasional payments from Natura Farms, even though the novation document purports to release Natura Farms.
(a) Identify the doctrine governing this arrangement and classify it as express novation or otherwise; explain the essential elements that must be present for the classification to hold.
(b) Suppose there is no written novation and no express release of Natura Farms. Instead, Natura Farms and Mr. Quinto sign a separate Assumption of Debt, and the bank accepts Mr. Quinto’s payments without releasing Natura Farms in writing. Is there implied novation in this scenario? Explain the controlling factors and apply them to the facts.