G.R. No. 44671 - Macondray and Co., Inc. vs. Ruiz

On January 21, 1932, the plaintiff sold an automobile ("De Sotto De Luxe Sedan") to defendant Antonio E. Ruiz.
The purchase price was set at P3,572, with an initial cash payment of P302 and the balance payable by several promissory notes.
The promissory notes were executed jointly by Ruiz and Ramon Borromeo, with both assuming joint and several liability for the full amount.
Simultaneously, Ruiz mortgaged the automobile by executing the corresponding deed.

Ruiz made various payments on account of the promissory notes, reducing his indebtedness initially to P2,246.18.
The reduction in the amount owed was a result of partial payments applied against his obligations under the first contract.

On March 15, 1934, the parties agreed to execute a new contract that excluded Ramon Borromeo.
Under the new arrangement, Ruiz and Ernesto Cuisia jointly executed a promissory note for the reduced sum of P2,246.18 with interest at 12% per annum.
It was expressly stipulated that the mortgage on the automobile would continue to secure the remaining debt.
Subsequent payments by Ruiz further reduced the indebtedness to P2,088.89 plus accrued interest.

Due to the defendants' failure to pay several installments as agreed, the plaintiff proceeded to foreclose the mortgage.
The sheriff subsequently sold the automobile at public auction, and the plaintiff was the successful bidder, acquiring the automobile for P500.
After accounting for the liquidated debt and deducting the proceeds from the sale along with the expenses of the proceedings, the defendants still owed the plaintiff P1,696.20.

The plaintiff initiated legal action to recover the outstanding amount, including the interest and penalty stipulated in the contract.
At trial, the court absolved the defendants from the complaint, a decision which was subsequently appealed by the plaintiff.
The plaintiff's appeal argued that the trial court erred by substituting and novating the first contract with the later agreement, and by applying Act No. 4122 which purportedly barred the action for recovery of the balance.
The bill of exceptions was timely filed, approved, and certified, setting up the issues for appellate determination.

Whether the initial promissory notes and mortgage executed on January 21, 1932, were validly substituted and novated by the subsequent contract executed on March 15, 1934.
Whether the substantial changes in the terms (specifically, the reduction of the principal amount and the change in the indebtedors) rendered the original contract incompatible with the later agreement.

Whether Act No. 4122, which went into effect on December 9, 1933, applies to the subsequent contract regarding the promissory note and mortgage.
Whether the absence of a new sale, and the mere renewal of the promissory note and mortgage, affects the applicability of the said law.

Whether the trial court properly absolved the defendants based on the novation of the original contract and the application of Act No. 4122.
Whether the court erred in denying the plaintiff’s motion for a new trial on these grounds.