Essay Flashcards

A bank granted a PHP 12,000,000 loan to Elena Santos to purchase a parcel of land, with the land mortgaged to secure the loan. Elena asks her sister-in-law, Carla Reyes, to assume the debt and continue payments. The bank and the parties exec ute a written Novation Agreement in which Elena is expressly released from the obligation; Carla signs to pay the loan on the same terms; a new promissory note is issued in Carla’s name; and the old note is canceled. After five months, Carla defaults. The bank continues to send statements to Elena and accepts occasional payments from Elena, even though the novation document purports to release Elena.
(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 Elena. Instead, Carla and Elena sign a separate Assumption of Debt, and the bank accepts Carla’s payments without releasing Elena in writing. Is there implied novation in this scenario? Explain the controlling factors and apply them to the facts.