X brought a house and lot from Y valued at ₱5M. He paid ₱3M and for the balance, he executed a promissory note with interest at 10% to be paid within 90 days. ABC Corporation executed a surety for the balance. X failed to pay, hence, ABC paid the amount and sued X for the interest and the principal. X contended that he is not bound due to novation when Y accepted the security. Is X correct?
A)Yes, because there is complete incompatibility between the PN and the surety bond.
B)No, because the two contracts, PN and surety can stand together, the surety being merely an accessory to the original contract.
C)Yes, because of implied novation.
D)Yes, because the surety is a new and separate contract.

Question

Quizplus · Accepted Answer

The correct answer is B because the presence of a surety agreement does not extinguish the original obligation under the promissory note. The surety agreement acts as an accessory contract, providing additional security for the fulfillment of the principal obligation. There is no novation unless there is a clear and unequivocal agreement to replace the original obligation with a new one, which is not implied by merely taking a surety.

X Brought a House and Lot from Y Valued at ₱5M