LICAROS VS GATMAITAN

Facts: Abelardo Licaros, decided to make a fundplacement with Anglo-Asean Bank in the 1980’s.Licaros, after having invested, encounteredtremendous and unexplained difficulties inretrieving, not only the interest or profits, buteven the very investments he had put in Anglo-Asean.

Confronted with the dire prospect of not gettingback any of his investments, Licaros then decideto seek the counsel of Antonio P. Gatmaitan.Gatmaitan voluntarily offered to assume thepayment of Anglo-Asean’s indebtedness toLicaros. In order to effectuate and formalize theparties’ respective commitments, the twoexecuted a notarized MEMORANDUM OFAGREEMENT on July 29, 1988.

Thereafter, Gatmaitan presented to Anglo-Aseanthe Memorandum of Agreement for the purposeof collecting the placement thereat of $150,000.No formal response was ever made by said bankto either Licaros or Gatmaitan. To date, Anglo-Asean has not acted on Gatmaitan’s monetaryclaims.

Evidently, because of his inability to collect fromAnglo-Asean, Gatmaitan did not bother anymoreto make good his promise to pay Licaros theamount stated in his promissory note. Licaros,however, felt that he had a right to collect on thebasis of the promissory note regardless of theoutcome of Gatmaitan’s recovery efforts. Thus,Licaros addressed successive demand letters toGatmaitan. Gatmaitan, however, did not accedeto these demands.

Issue: W/N the Memorandum of Agreement betweenpetitioner and respondent is one of assignment ofcredit or conventional subrogation. Conventionalsubrogation.

Held: An assignment of credit has been defined as theprocess of transferring the right of the assignor tothe assignee who would then have the right toproceed against the debtor. The assignment maybe done gratuitously or onerously, in which case,the assignment has an effect similar to that of asale.

On the other hand, subrogation has been definedas the transfer of all the rights of the creditor to athird person, who substitutes him in all his rights.It may either be legal or conventional. Legalsubrogation is that which takes place withoutagreement but by operation of law because of

certain acts. Conventional subrogation is thatwhich takes place by agreement of parties.

Conventional subrogation is not identical toassignment of credit. In the former, the debtor’sconsent is necessary; in the latter, it is notrequired. Subrogation extinguishes the obligationand gives rise to a new one; assignment refers tothe same right which passes from one person toanother. The nullity of an old obligation may becured by subrogation, such that a new obligationwill be perfectly valid; but the nullity of anobligation is not remedies by the assignment ofthe creditor’s right to another.

In an assignment of credit, the consent of thedebtor is not necessary in order that theassignment may fully produce legal effects. Whatthe law requires in an assignment of credit is notthe consent of the debtor but merely notice tohim as the assignment takes effect only from thetime he has knowledge thereof. A creditor, may,therefore, validly assign his credit and itsaccessories without the debtor’s consent. On theother hand, conventional subrogation requires anagreement among the 3 parties concerned – theoriginal creditor, the debtor, and the new creditor.It is a new contractual relation based on themutual agreement among all the necessaryparties. Thus, Article 1301 of the Civil Codeexplicitly states that “Conventional subrogation ofa third person requires the consent of the originalparties and of the third person.

The Memorandum of Agreement dated July 29,1988 was in the nature of a conventionalsubrogation which requires the consent of thedebtor, Anglo-Asean Bank, for its validity.

Gatmaitan and Licaros intended their agreementas one of conventional subrogation as it is plainlyborne by a stipulation in their memorandum, towit:

“WHEREAS, the parties herein have come to anagreement on the nature, form and extent oftheir mutual prestations which they now recordherein with the express conformity of the thirdparties concerned”, which third party isadmittedly Anglo-Asean Bank.

Had the intention been merely to confer onappellant the status of a mere “assignee” ofappellee’s credit, there is simply no sense forthem to have stipulated in their agreement thatthe same is conditioned on the “expressconformity” thereto of Anglo-Asean Bank.

It bears stressing that the subject Memorandumof Agreement expressly requires the consent ofAnglo-Asean to the subrogation. Upon whom the

task of securing such consent devolves, be it onLicaros or Gatmaitan, is of no significance. Whatcounts most is the hard reality that there hasbeen an abject failure to get Anglo-Asean’s nod ofapproval over Gatmaitan’s being subrogated inthe place of Licaros. The absence of suchconformity on the part of Anglo-Asean, which isthereby made a party to the same Memorandumof Agreement, prevented the agreement frombecoming effective, much less from being asource of any cause of action for the signatoriesthereto.

GARCIA VS LLAMAS

Facts: On December 23, 1996, petitioner and De Jesusborrowed P400,00 from respondent. On the sameday, they executed a promissory note whereinthey bound themselves jointly and severally topay the loan on or before January 23, 1997 with a5% interest per month.

After the loan has long been overdue and despiterepeated demands, petitioner and De Jesus havefailed and refused to pay it; and by reason oftheir unjustified refusal, respondent wascompelled to engage the services of a counsel.

Petitioner averred that he assumed no liabilityunder the promissory note because he signed itmerely as an accommodation party for De Jesus;and alternatively, he is relieved from any liabilityfrom the note inasmuch as the load had beenpaid by De Jesus by means of a check dated 17April 1997 and the respondent’s acceptancenovated or superseded the note.

Respondent replied that the loan remainedunpaid for the reason that the check issued by DeJesus bounced.

Petitioner seeks to extricate himself from theobligation as joint and solidary debtor by insistingthat novation took place, either through thesubstitution of De Jesus as sole debtor or thereplacement of the promissory note by the check.

Issue: W/N there was novation of the obligation. No.

Held: Novation is a mode of extinguishing an obligationby changing its objects or principal obligations,by substituting a new debtor in place of the oldone, or by subrogating a third person to the rightsof the creditor.

In general, there are two modes of substitutingthe person of the debtor: (1) expromision and (2)delegacion. In expromision, the initiative for the

change does not come from and may even bemade without the knowledge of the debtor, sinceit consists of a third person’s assumption of theobligation. As such, it logically requires theconsent of the third person and the creditor. Indelegacion, the debtor offers, and the creditoraccepts, a third person who consents to thesubstitution and assumes the obligation; thus, theconsent of these three persons are necessary.Both modes of substitution by the debtor requirethe consent of the creditor.

Novation may also be extinctive or modificatory.It is extinctive when an old obligation isterminated by the creation of a new one thattakes the place of the former. It is merelymodificatory when the old obligation susbsists tothe extent that it remains compatible with theamendatory agreement. Whether extinctive ormodificatory, novation is made either bychanging the object or principal conditions,referred to as objective or real novation; or bysubstituting the person of the debtor orsubrogating a third person to the rights of thecreditor, an act known as subjective or personalnovation. For novation to take place, the followingrequisites must concur:

1. There must be a previous valid obligation.

2. The parties concerned must a agree to a newcontract.

3. The old contract must be extinguished.

4. There must be a valid new contract.

Novation may also be express or implied. It isexpress when the new obligation declares inunequivocal terms that the old obligation isextinguished. It is implied when the newobligation is incompatible with the old one onevery point. The test of incompatibility is whetherthe two obligations can stand together, each onewith its own independent existence.

In the instant case, no novation took place.

The parties did not unequivocally declare that theold obligation had been extinguished by theissuance and the acceptance of the check, or thatthe check would take the place of the note. Thereis no incompatibility between the promissory noteand the check. As the CA correctly observed, thecheck had been issued precisely to answer for theobligation. On the one hand, the note evidencesthe loan obligation; and on the other, the checkanswerws for it. verily, the two can standtogether.

Neither could the payment of interests – which, inpetitioner’s view, also constitutes novation –change the terms and conditions of theobligation. Such payment was already providedfor in the promissory note and, like the check,was totally in accord with the terms thereof.

Also unmeritorious is petitioner’s argument thatthe obligation was novated by the substitution ofdebtors. In order to change the person of thedebtor, the old one must be expressly releasedfrom the obligation, and the third person or newdebtor must assume the former’s place in therelation. Well-settled is the rule that novation isnever presumed. Consequently, that which arisesfrom a purported change in the person of thedebtor must be clear and express. It is thusincumbent on petitioner to show clearly andunequivocally that novation has indeed takenplace.

In the present case, petitioner has not shown thathe was expressly released from the obligation,that a third person was substituted in his place,or that the joint and solidary obligation wascancelled and substituted by the solitaryundertaking of De Jesus. Moreover, it must be noted that for novation tobe valid and legal, the law requires that thecreditor expressly consent to the substitution of anew debtor.

De Jesus was not a third person to the obligation.From the beginning, he was a joint and solidaryobligor of the P400,000 loan; thus he can bereleased from it only upon its extinguishment.Respondent’s acceptance of his check did notchange the person of the debtor, because a jointand solidary obligor is required to pay the entiretyof the obligation.

CALIFORNIA BUS LINES, INC. vs. STATEINVESTMENT HOUSE, INC. G.R. No. 147950December 11, 2003

Facts: In 1979, Delta Motors Corporation—

M.A.N. Division (Delta) applied for financialassistance from respondent StateInvestment House, Inc. (SIHI), a domesticcorporation engaged in the business ofquasi-banking for P25,000,000.00 in threeseparate credit agreements. Deltaeventually became indebted to SIHI in theamount of P24,010,269.32.

From April 1979 to May 1980, petitionerCalifornia Bus Lines, Inc. (CBLI), purchasedon installment basis 35 units of M.A.N.Diesel Buses and two (2) units of M.A.N.Diesel Conversion Engines from Delta. Tosecure the payment of the purchase price of

the 35 buses, CBLI and its president, Mr.Dionisio O. Llamas, executed sixteen (16)promissory notes in favor of Delta.

o In each promissory note, CBLIpromised to pay Delta or order,P2,314,000 payable in 60 monthlyinstallments with interest at 14% perannum. o In addition to the notes, CBLIexecuted chattel mortgages over the35 buses in Delta’s favor.

When CBLI defaulted on all paymentsdue, it entered into a restructuringagreement on October 7, 1981 with Delta tocover its overdue obligations under thepromissory notes.

o The restructuring agreementprovided for a new schedule ofpayments of CBLI’s past dueinstallments, extending the period topay, and stipulating daily remittanceinstead of the previously agreedmonthly remittance of payments.

In case of default, Deltawould have the authority totake over the management andoperations of CBLI until CBLIand/or its president remittedand/or updated CBLI’s past dueaccount. CBLI and Delta alsoincreased the interest rate to16% p.a. and added adocumentation fee of 2% p.a.and a 4% p.a. restructuringfee.

Delta executed a Continuing Deed ofAssignment of Receivables in favor of SIHIas security for the payment of itsobligations to SIHI per the creditagreements.

CBLI continued having trouble meetingits obligations to Delta. This promptedDelta to threaten CBLI with the enforcementof the management takeover clause. To pre-empt the take-over, CBLI filed a complaintfor injunction.

On September 15, 1983, pursuant to theMemorandum of Agreement, Delta executeda Deed of Sale assigning to SIHI five (5) ofthe sixteen (16) promissory notes fromCalifornia Bus Lines, Inc. At the time ofassignment, these five promissory noteshad a total value of P16,152,819.80inclusive of interest at 14% per annum.

SIHI subsequently sent a demand letterto CBLI requiring CBLI to remit thepayments due on the five promissory notesdirectly to it. CBLI replied informing SIHI ofCivil Case No. 0023-P and of the fact thatDelta had taken over its management andoperations.

When SIHI was unable to take possessionof the buses, SIHI filed a petition forrecovery of possession with prayer forissuance of a writ of replevin before theRTC.

Thereafter, Delta and CBLI entered into acompromise agreement. CBLI agreed thatDelta would exercise its right toextrajudicially foreclose on the chattelmortgages over the 35 bus units.

o CBLI refused to pay SIHI the valueof the five promissory notes,contending that the compromiseagreement was in full settlement ofall its obligations to Delta includingits obligations under the promissorynotes.

SIHI filed a complaint against CBLI in theRTC to collect on the five (5) promissorynotes with interest at 14% p.a. SIHI alsoprayed for the issuance of a writ ofpreliminary attachment against theproperties of CBLI.

Issue: Whether the RestructuringAgreement dated October 7, 1981, betweenpetitioner CBLI and Delta Motors, Corp.novated the five promissory notes DeltaMotors, Corp. assigned to respondent SIHI.

Held: There was no novation in this case.The restructuring agreement between Deltaand CBLI executed on October 7, 1981,shows that the parties did not expresslystipulate that the restructuring agreementnovated the promissory notes. Absent anunequivocal declaration of extinguishmentof the pre-existing obligation, only ashowing of complete incompatibilitybetween the old and the new obligationwould sustain a finding of novation byimplication. However, in reviewing its termsyields no incompatibility between thepromissory notes and the restructuringagreement.

The restructuring agreement, instead ofcontaining provisions “absolutelyincompatible” with the obligations of thejudgment, expressly ratifies previousobligations and contains provisions forsatisfying them. There was no change in theobject of the prior obligations. Therestructuring agreement merely providedfor a new schedule of payments andadditional security giving Delta authority totake over the management and operationsof CBLI in case CBLI fails to pay installmentsequivalent to 60 days. Where the parties tothe new obligation expressly recognize thecontinuing existence and validity of the old

one, there can be no novation. Moreover,the Court has ruled that an agreementsubsequently executed between a sellerand a buyer that provided for a differentschedule and manner of payment, torestructure the mode of payments by thebuyer so that it could settle its outstandingobligation in spite of its delinquency inpayment, is not tantamount to novation.

AGRIFINA AQUINTEY vs. SPOUSESFELICIDAD AND RICO TIBONG G.R. No.166704 December 20, 2006

Facts:

On May 6, 1999, petitioner Agrifa filedbefore RTC a complaint for sum of moneyand damages against respondents.

o Agrifina alleged that Felicidadsecured loans from her on severaloccasions at monthly interest rates of6% to 7%.

Despite demands, spouses Tibong failedto pay their outstanding loans ofP773,000,00 exclusive of interests.However, spouses Tiong alleged that theyhad executed deeds of assignment in favorof Agrifina amounting to P546,459 and thattheir debtors had executed promissorynotes in favor of Agrifina.

Spouses insisted that by virtue of thesedocuments, Agrifina became the newcollector of their debts.

Agrifina was able to collect the totalamount of P301,000 from Felicdad’sdebtors. She tried to collect the balance ofFelicidad and when the latter reneged onher promise, Agrifina filed a complaint inthe office of the barangay for the collectionof P773,000.00. There was no settlement.

xxx

Agrifina alleged that Felicidad hadsecured loans from her on severaloccasions, totaling P773,000 but thespouses failed to pay despite repeateddemands.

The spouses, for their part, admitted thatthey had secured loans from Agrifina butthey assert that the proceeds of the loanwere re-lent to other borrowers at higherinterest rates.

They likewise alleged that they hadexecuted deeds of assignment in favor ofpetitioner, and that their debtors hadexecuted promissory notes in Agrifina’sfavor.

It is now the spouses’ contention that re-lending the loan resulted in a novation of

the original obligation to Agrifina; as such,she became the new collector of thedebtors, and the spouses’ obligation to paythe balance has been extinguished.

The trial court ruled that the deeds ofassignment and promissory notes did notcontain any express agreement to novateand extinguish Felicidad’s obligation.

The CA affirmed with modification thedecision of the RTC and stated that, thesecured loans amount to P637,000, and notP773,000.

Issue: Whether or not respondentsobligation is extinguished through theassignment of credit

Held: Novation which consists in substituting anew debtor (delegado) in the place of theoriginal one (delegante) may be made evenwithout the knowledge or against the will ofthe latter but not without the consent ofthe creditor. Substitution of the person ofthe debtor may be effected by delegacion,meaning, the debtor offers, and the creditor(delegatario), accepts a third person whoconsents to the substitution and assumesthe obligation. Thus, the consent of thosethree persons is necessary. In this kind ofnovation, it is not enough to extend thejuridical relation to a third person; it isnecessary that the old debtor be releasedfrom the obligation, and the third person ornew debtor take his place in the relation.Without such release, there is no novation;the third person who has assumed theobligation of the debtor merely becomes acodebtor or a surety. If there is noagreement as to solidarity, the first and thenew debtor are considered obligated jointly.

The theory of novation is that the newdebtor contracts with the old debtor that hewill pay the debt, and also to the sameeffect with the creditor, while the latteragrees to accept the new debtor for the old.Moreover, the agreement must be based onthe consideration of the creditor'sagreement to look to the new debtorinstead of the old.

CA correctly found that respondents'obligation to pay the balance of theiraccount with petitioner was extinguished,pro tanto, by the deeds of assignment ofcredit executed by respondent Felicidad infavor of petitioner.

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No. Case law is that, an assignment will,ordinarily, be interpreted or construed inaccordance with the rules of constructiongoverning contracts generally, the primaryobject being always to ascertain and carryout the intention of the parties. Thisintention is to be derived from aconsideration of the whole instrument, allparts of which should be given effect, and isto be sought in the words and languageemployed. Indeed, the Court must not gobeyond the rational scope of the wordsused in construing an assignment, wordsshould be construed according to theirordinary meaning, unless something in theassignment indicates that they are beingused in a special sense. So, if the words arefree from ambiguity and expressed plainlythe purpose of the instrument, there is nooccasion for interpretation; but wherenecessary, words must be interpreted in thelight of the particular subject matter. Andsurrounding circumstances may beconsidered in order to understand moreperfectly the intention of the parties. Thus,the object to be accomplished through theassignment, and the relations and conductof the parties may be considered inconstruing the document.

Although it has been said that anambiguous or uncertain assignment shouldbe construed most strictly against theassignor, the general rule is that anyambiguity or uncertainty in the meaning ofan assignment will be resolved against theparty who prepared it; hence, if theassignment was prepared by the assignee,it will be construed most strictly againsthim or her. One who chooses the words bywhich a right is given ought to be held tothe strict interpretation of them, ratherthan the other who only accepts them.Considering all the foregoing, we find thatrespondents still have a balance on theiraccount to petitioner in the principalamount of P33,841.00

RICARZE VS. CA

Facts: Eduardo G. Ricarze was employed as a collector-messenger by City Service Corporation, adomestic corporation engaged in messengerialservices. He was assigned to the main office ofCaltex where his primary task was to collectchecks payable to Caltex and deliver them to thecashier. In 1997 Caltex filed a criminal complaintagainst Ricarze for estafa through falsification ofcommercial documents when Caltex discovered

that several checks were missing and forged andhave subsequently been cleared throught itsdepositary bank PCIB. Upon further investigation,it was found out that the cleared checks weredeposited in an account opened by Ricarze.Meanwhile, the PCIB credited the amount ofP581,229.00 to the account of Caltex withoutinforming the City prosecutor. Hence 2informations for estafa were filed against Ricarzewith Caltex Philippines as the privatecomplainant. Ricarze was then arraigned.

During trial, SRMO Law Office presented evidencein behalf of PCIB, Ricarze then opposed suchpleading contending that the private complainantis Caltex and not PCIB. SRMO then contendedthat when PCIB re-credited the amount to Caltexto the extent of the indemnity; PCIB had beensubrogated to the rights and interests of Caltexas private complainant.

Petitioner however argues that PCIB cannot besubrogated to the rights of Caltex, consideringthat he has no knowledge of the subrogationmuch less gave his consent to it.

Issue: WON There is a valid subrogation betweenPCIBank and Caltex.

Ruling: Petitioner’s argument on subrogation ismisplaced. The Court agrees with respondentPCIB’s comment that petitioner failed to make adistinction between legal and conventionalsubrogation. Subrogation is the transfer of all therights of the creditor to a third person, whosubstitutes him in all his rights.28 It may eitherbe legal or conventional. Legal subrogation is thatwhich takes place without agreement but byoperation of law because of certain acts.29Instances of legal subrogation are those providedin Article 1302 of the Civil Code. Conventionalsubrogation, on the other hand, is that whichtakes place by agreement of the parties.31 Thus,petitioner’s acquiescence is not necessary forsubrogation to take place because the instantcase is one of legal subrogation that occurs byoperation of law, and without need of thedebtor’s knowledge.

Thus, being subrogated to the right of Caltex,PCIB, through counsel, has the right to intervenein the proceedings, and under substantive laws isentitled to restitution of its properties or funds,reparation, or indemnification.

LEDONIO VS. CAPITOL DEVELOPMENT

Facts:

Ledonio on a certain date obtained from a Ms.Picache two loans covered by promissory notes.Subsequently, Ms. Picache executed anAssignment of Credit in favor of CapitolDevelopment Corporaiton.

When the loans became due however, petitionerfailed to settle his indebtedness despite Capitol’sdemands. Hence, Capitol instituted a Complaintfor the collection of a sum of money againstherein petitioner Edgar Ledonio.

Ledonio on the otherhand sought the dismissal ofthe complaint averring that Capitol had no causeof action against him as he never consented oragreed to the said assignment. It is his contentionthat consent of the debtor to the assignment ofcredit is a basic/essential element in order for theassignee to have a cause of action against thedebtor.

According to petitioner, the assignment of creditconstitutes conventional subrogation whichrequires the consent of the original parties to theloan contract, namely, Ms. Picache (the creditor)and Ledonio (the debtor); and the third person,Capitol(the assignee). Since petitioner never gavehis consent to the assignment of credit, then thesubrogation of respondent in the rights of Ms.Picache as creditor by virtue of said assignment iswithout force and effect. In support of saidargument, petitioner invokes the followingprovisions of the Civil Code –

ART. 1300. Subrogation of a third person in therights of the creditor is either legal orconventional. The former is not presumed, exceptin cases expressly mentioned in this Code; thelatter must be clearly established in order that itmay take effect.

ART. 1301. Conventional subrogation of a thirdperson requires the consent of the original partiesand the third person.

Issue: WON the consent of Ledonio to the assignment ofcredit is essential in order for Capitol to have acause of action against Him? No.

Ruling: The transaction between Ms. Picache and Capitolwas an assignment of credit and not conventionalsubrogation(novation), and does not requireLedonio’s consent asdebtor for its validity andenforceability.

An assignment of credit has been defined as anagreement by virtue of which the owner of acredit (known as the assignor), by a legal cause -such as sale, dation in payment or exchange or

donation - and without need of the debtor'sconsent, transfers that credit and its accessoryrights to another (known as the assignee), whoacquires the power to enforce it, to the sameextent as the assignor could have enforced itagainst the debtor.

On the other hand, subrogation, by definition, isthe transfer of all the rights of the creditor to athird person, who substitutes him in all his rights.It may either be legal or conventional. Legalsubrogation is that which takes place withoutagreement but by operation of law because ofcertain acts. Conventional subrogation is thatwhich takes place by agreement of parties.

Although it may be said that the effect of theassignment of credit is to subrogate the assigneein the rights of the original creditor, this Court stillcannot definitively rule that assignment of creditand conventional subrogation are one and thesame.

Under our Code, conventional subrogation is notidentical to assignment of credit. In the former,the debtor's consent is necessary; in the latter, itis not required. Subrogation extinguishes anobligation and gives rise to a new one; whileassignment refers to the same right which passesfrom one person to another. The nullity of an oldobligation may be cured by subrogation, suchthat the new obligation will be perfectly valid; butthe nullity of an obligation is not remedied by theassignment of the creditor's right to another.(Emphasis supplied.)

The Courts has consistently adhered to theforegoing distinction between anassignment of credit and a conventionalsubrogation. Such distinction is crucialbecause it would determine the necessity ofthe debtor's consent. In an assignment ofcredit, the consent of the debtor is notnecessary in order that the assignment mayfully produce the legal effects. What the lawrequires in an assignment of credit is notthe consent of the debtor, but merely noticeto him as the assignment takes effect onlyfrom the time he has knowledge thereof. Acreditor may, therefore, validly assign hiscredit and its accessories without thedebtor's consent. On the other hand,conventional subrogation requires anagreement among the parties concerned –the original creditor, the debtor, and thenew creditor. It is a new contractual relationbased on the mutual agreement among allthe necessary parties.

VALENZUELA VS. KALAYAAN DEVELOPMENT

Facts: Kalayaan is the owner of a parcel of land whichwas being illegally occupied by petitioner sps.Valenzuela. Upon discovery of such, Kalayaandemanded the petitioners to immediately vacatethe premises. The petitionrs however negotiatedwith Kalayaan to purchase the portion of the lotthat they were already occupying and by virtue ofwhich, the parties executed a Contract to Sell.Petitioners commenced the paying of monthlyinstallments, however, upon their payment ofone-half of the purchase price,they manifestedtheir inability to pay the remaining balance andproposed to Kalayaan, thate substitution of JulietFlores Gilon who was willing to assume thepayment of the remaining balance payable toKalayaan. Thereafter, Juliet made payments of10,000 per montht to Kalayaan, which the latteraccepted for and in behalf of Gloria Valenzuela.

Thereafter, Kalayaan demanded that Sps.Valenzuela pay their outstanding obligation butthesedemands remained unheeded thusKalayaan filed a Complaint for Rescission ofContract and Damages against Sps. Valenzuela.

Petitioners on the otherhand claim that there wasalready a valid novation in the present case. Theyaver that the CA failed to see that the originalcontract between the petitioners and Kalayaanwas altered, changed, modified and restructured,as a consequence of the change in the person ofthe principal debtor and the monthly amortizationto be paid for the subject property. When theyagreed to a monthly amortization of P10,000.00per month, the original contract was changed;and Kalayaan recognized Juliet’s capacity to pay,as well as her designation as the new debtor. Theoriginal contract was novated and the principalobligation to pay for the remaining half of thesubject property was transferred from petitionersto Juliet. When Kalayaan accepted the paymentsmade by the new debtor, Juliet, it waived its rightto rescind the previous contract. Thus, the actionfor rescission filed by Kalayaan against them, wasunfounded, since the contract sought to berescinded was no longer in existence.

Issue: WON there is novation in this case. No.

Ruling: Novation is the extinguishment of an obligationby the substitution or change of the obligation bya subsequent one which extinguishes or modifiesthe first, either by changing the object orprincipal conditions, or by substituting another inplace of the debtor, or by subrogating a thirdperson in the rights of the creditor.

Article 1292 of the Civil Code provides that "[i]norder that an obligation may be extinguished byanother which substitutes the same, it isimperative that it be so declared in unequivocalterms, or that the old and the new obligations beon every point incompatible with each other."Novation is never presumed. Parties to a contractmust expressly agree that they are abrogatingtheir old contract in favor of a new one. In theabsence of an express agreement, novation takesplace only when the old and the new obligationsare incompatible on every point. The test ofincompatibility is whether or not the twoobligations can stand together, each one havingits independent existence. If they cannot, theyare incompatible and the latter obligation novatesthe first.

Thus, in order that a novation can take place, theconcurrence of the following requisites areindispensable:

1) There must be a previous valid obligation; 2) There must be an agreement of the partiesconcerned to a new contract; 3) There must be the extinguishment of the oldcontract; and 4) There must be the validity of the new contract.

In the instant case, none of the requisites arepresent. There is only one existing and bindingcontract between the parties, because Kalayaannever agreed to the creation of a new contractbetween them or Juliet. True, petitioners mayhave offered that they be substituted by Juliet asthe new debtor to pay for the remainingobligation. Nonetheless, Kalayaan did notacquiesce to the proposal.

Its acceptance of several payments after itdemanded that petitioners pay their outstandingobligation did not modify their original contract.Petitioners, admittedly, have been in default; andKalayaan’s acceptance of the late payments is, atbest, an act of tolerance on the part of Kalayaanthat could not have modified the contract.

TOMIMBANG VS. TOMIMBANG

Facts: Petitioner and respondent are siblings. Thepetitioner in this case want3ed to renovate theproperty their parents has given him so heentered into a loan agreement with therespondent witht the agreement that thepetitioner will only start paying after thecompletion of the renovation. However due tocertain misunderstandings, the parties enteredinto a new agreement stating that the petitionershall start paying off the loan in a monthly basisand this was initially complied with by the

petitioner. However, when another misunderstandarouse between the parties, the petitionerstopped paying his monthly obligations thusprompting respondent to file the instand case forthe payment of the loan plus interest from date ofdefault.

Petitioner does not deny that she obtained a loanfrom respondent. She, however, contends thatthe loan is not yet due and demandable becausethe suspensive condition – the completion of therenovation of the apartment units - has not yetbeen fulfilled.

Issue: WON the petitioner's obligation has alreadybecome due and demandable?Yes.

Ruling: The evidence on record clearly shows that afterrenovation of seven out of the eight apartmentunits had been completed, petitioner andrespondent agreed that the former shall alreadystart making monthly payments on the loan evenif renovation on the last unit was still pending.

Evidently, by virtue of the subsequentagreement, the parties mutually dispensed withthe condition that petitioner shall only beginpaying after the completion of all renovations.There was, in effect, a modificatory or partialnovation, of petitioner's obligation. Article 1291of the Civil Code provides, thus:

Art. 1291. Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of thecreditor. (Emphasis supplied)

In Iloilo Traders Finance, Inc. v. Heirs of Sps.Soriano,10 the Court expounded on the nature ofnovation, to wit:

Novation may either be extinctive ormodificatory, much being dependent on thenature of the change and the intention of theparties. Extinctive novation is never presumed;there must be an express intention to novate.

An extinctive novation would thus have the twineffects of, first, extinguishing an existingobligation and, second, creating a new one in itsstead. This kind of novation presupposes aconfluence of four essential requisites: (1) aprevious valid obligation; (2) an agreement of allparties concerned to a new contract; (3) theextinguishment of the old obligation; and (4) thebirth of a new valid obligation. Novation is merelymodificatory where the change brought about byany subsequent agreement is merely incidental

to the main obligation (e.g., a change in interestrates or an extension of time to pay); in thisinstance, the new agreement will not have theeffect of extinguishing the first but would merelysupplement it or supplant some but not all of itsprovisions.

As can be gleaned from the foregoing, theaforementioned four essential elements and therequirement that there be total incompatibilitybetween the old and new obligation, apply only toextinctive novation. In partial novation, only theterms and conditions of the obligation are altered,thus, the main obligation is not changed and itremains in force.

Petitioner stated in her Answer with Counterclaimthat she agreed and complied with respondent'sdemand for her to begin paying her loan, sinceshe believed this was in accordance with hercommitment to pay whenever she was able. Herpartial performance of her obligation isunmistakable proof that indeed the originalagreement between her and respondent hadbeen novated by the deletion of the conditionthat payments shall be made only aftercompletion of renovations. Hence, by her veryown admission and partial performance of herobligation, there can be no other conclusion butthat under the novated agreement, petitioner'sobligation is already due and demandable.

MILLA VS PEOPLE

Facts: In this case, a criminal case was filed againstMilla for having committed estafa throughfalsification of the notarized deed of absolute saleand TCT purportedly issued by the ROD of Makati.Milla by misrepresenting himself and throughfalsification of the said documents was ableto getthe total amount of P2m from Carlo Lopez ofMarket Pursuits, Inc. When Lopez discoveredMilla’s scheme however, Lopez demanded thereturn of the amount of P2m which Millaacquiesced into by issuing 2 checks for the saidamount. These checks were later on dishonoredand Milla for his part consistently ignored thedemands made by Lopez. This led to the filing ofthe present case.

Now Milla contends that his issuance of the 2checks reprenting the amount of 2m before theinstitution of the criminal complaint against himnovated his obligation to MPI, thereby enablinghim to avoid any incipient criminal liability andconverting his obligation into a purely civil one.

Issue: So the issue in this cse is whether or not thepayment of an obligation before the institution ofa criminal complaint, in itself constitute novationthat may prevent criminal liability or WON thereis novation in this case. No.

Ruling: In Quinto v. People, this Court exhaustivelyexplained the concept of novation in relation toincipient criminal liability, viz:

Novation is never presumed, and the animusnovandi, whether totally or partially, must appearby express agreement of the parties, or by theiracts that are too clear and unequivocal to bemistaken.

There are two ways which could indicate, in fine,the presence of novation and thereby producethe effect of extinguishing an obligation byanother which substitutes the same. The first iswhen novation has been explicitly stated anddeclared in unequivocal terms. The second iswhen the old and the new obligations areincompatible on every point. The test ofincompatibility is whether or not the twoobligations can stand together, each one havingits independent existence. If they cannot, theyare incompatible and the latter obligation novatesthe first. Corollarily, changes that breedincompatibility must be essential in nature andnot merely accidental. The incompatibility musttake place in any of the essential elements of theobligation, such as its object, cause or principal

conditions thereof; otherwise, the change wouldbe merely modificatory in nature and insufficientto extinguish the original obligation.

In the case at bar, the acceptance by MPI ofthe Equitable PCI checks tendered by Millacould not have novated the originaltransaction, as the checks were onlyintended to secure the return of the P2million the former had already given him.Even then, these checks bounced and werethus unable to satisfy his liability. Moreover,the estafa involved here was not for simplemisappropriation or conversion, but wascommitted through Milla’s falsification ofpublic documents, the liability for whichcannot be extinguished by mere novation.In view of the foregoing, the petition ofMilla was denied.

HEIRS OF SERVANDO FRANCO vs. SPOUSESVERONICA AND DANILO GONZALES G.R. No.159709 June 27, 2012

Facts: On November 7, 1985, Servando Franco

and Leticia Medel obtained a loan fromVeronica R. Gonzales, who was engaged inthe money lending business under the name“Gonzales Credit Enterprises”, in theamount of P50,000.00, payable in twomonths. Veronica gave only the amount ofP47,000.00, to the borrowers, as sheretained P3,000.00, as advance interest forone month at 6% per month. Servado andLeticia executed a promissory note forP50,000.00, to evidence the loan, payableon January 7, 1986.

On November 19, 1985, Servando andLeticia obtained from Veronica another loanin the amount of P90,000.00, payable in twomonths, at 6% interest per month. Theyexecuted a promissory note to evidence theloan, maturing on January 19, 1986. Theyreceived only P84,000.00, out of theproceeds of the loan.

On June 11, 1986, Servando and Leticiasecured from Veronica still another loan inthe amount of P300,000.00, maturing in onemonth, secured by a real estate mortgageover a property belonging to LeticiaMakalintal Yaptinchay, who issued a specialpower of attorney in favor of Leticia Medel,authorizing her to execute the mortgage.Servando and Leticia executed a promissorynote in favor of Veronica to pay the sum ofP300,000.00, after a month, or on July 11,1986. However, only the sum ofP275,000.00, was given to them out of theproceeds of the loan.

On July 23, 1986, Servando and Leticiawith the latter’s husband, consolidated alltheir previous unpaid loans totalingP440,000.00, and sought from Veronicaanother loan in the amount of P60,000.00,bringing their indebtedness to a total ofP500,000.00, payable on August 23, 1986.They executed a promissory note.

On maturity of the loan, the borrowersfailed to pay the indebtedness ofP500,000.00, plus interests and penalties,evidenced by the above-quoted promissorynote.

Veronica R. Gonzales, joined by herhusband filed with the RTC a complaint forcollection of the full amount of the loanincluding interests and other charges.

Issue:Whether or not a novation of theAugust 23, 1986 promissory note whenrespondent Veronica Gonzales issued theFebruary 5, 1992 receipt was present.

Held: The Court held that novation did nottranspire because no irreconcilableincompatibility existed between thepromissory note and the receipt. A novationarises when there is a substitution of anobligation by a subsequent one thatextinguishes the first, either by changingthe object or the principal conditions, or bysubstituting the person of the debtor, or bysubrogating a third person in the rights ofthe creditor.

For a valid novation to take place, theremust be, therefore: (a) a previous validobligation; (b) an agreement of the partiesto make a new contract; (c) anextinguishment of the old contract; and (d)a valid new contract. In short, the newobligation extinguishes the prior agreementonly when the substitution is unequivocallydeclared, or the old and the new obligationsare incompatible on every point. Acompromise of a final judgment operates asa novation of the judgment obligation uponcompliance with either of these twoconditions.

Novation is not presumed. This means thatthe parties to a contract should expresslyagree to abrogate the old contract in favorof a new one. In the absence of the expressagreement, the old and the new obligationsmust be incompatible on every point.

There is incompatibility when the twoobligations cannot stand together, each onehaving its independent existence. If the twoobligations cannot stand together, the

latter obligation novates the first. Changesthat breed incompatibility must be essentialin nature and not merely accidental. Theincompatibility must affect any of theessential elements of the obligation, suchas its object, cause or principal conditionsthereof; otherwise, the change is merelymodificatory in nature and insufficient toextinguish the original obligation.

In light of the foregoing, the issuance of thereceipt created no new obligation. Instead,the respondents only thereby recognizedthe original obligation by stating in thereceipt that the P400,000.00 was “partialpayment of loan” and by referring to “thepromissory note subject of the case inimposing the interest.” The loan mentionedin the receipt was still the same loaninvolving the P500,000.00 extended toServando. Advertence to the intereststipulated in the promissory note indicatedthat the contract still subsisted, notreplaced and extinguished, as thepetitioners claim.

G.R. No. 164051 October 3, 2012

PHILIPPINE NATIONAL BANK, Petitioner, vs.LILIAN S. SORIANO, Respondent.

D E C I S I O N

PEREZ, J.:

We arc urged in this petition for review on certiorari toreverse and set aside the Decision of the Court ofAppeals in C A-G.R. SP No. 762431 finding no graveabuse of discretion in the ruling of the Secretary of theDepartment of Justice ( DOJ) which, in turn,dismissed the criminal complaint for Estafa,i.e., violation of Section 13 of Presidential Decree No.1 15 (Trust Receipts Law), in relation to Article 315,paragraph (b) of the Revised Penal Code, filed bypetitioner Philippine National Bank (PNB) againstrespondent Lilian S. Soriano (Soriano).2

First, the ostensibly simple facts as found by theCourt of Appeals and adopted by PNB in its petitionand memorandum:

On March 20, 1997, [PNB] extended a credit facility inthe form of [a] Floor Stock Line (FSL) in the increasedamount of Thirty Million Pesos ( 30 Million) to Lisam₱Enterprises, Inc. [LISAM], a family-owned andcontrolled corporation that maintains Current AccountNo. 445830099-8 with petitioner PNB.

x x x. Soriano is the chairman andpresident of LISAM, she is also theauthorized signatory in all LISAM’sTransactions with [PNB].

On various dates, LISAM made severalavailments of the FSL in the total amountof Twenty Nine Million Six Hundred FortyFive Thousand Nine Hundred Forty FourPesos and Fifty Five Centavos(P29,645,944.55), the proceeds of whichwere credited to its current account with[PNB]. For each availment, LISAMthrough [Soriano], executed 52 TrustReceipts (TRs). In addition to thepromissory notes, showing its receipt ofthe items in trust with the duty to turn-over the proceeds of the sale thereof to[PNB].

Sometime on January 21-22, 1998,[PNB’s] authorized personnel conductedan actual physical inventory of LISAM’smotor vehicles and motorcycles andfound that only four (4) units covered bythe TRs amounting to One Hundred FortyThousand Eight Hundred Pesos( 158,100.00) (₱ sic) remained unsold.

Out of the Twenty Nine Million SixHundred Forty Four Thousand NineHundred Forty Four Pesos and Fifty FiveCentavos ( 29,644,944.55) as the₱outstanding principal balance [of] the totalavailments on the line covered by TRs,[LISAM] should have remitted to [PNB],Twenty Nine Million Four Hundred EightySeven Thousand Eight Hundred FortyFour Pesos and Fifty Five Centavos( 29,487,844.55). Despite several formal₱demands, respondent Soriano failed andrefused to turn over the said [amount to]the prejudice of [PNB].3

Given the terms of the TRs which read, inpertinent part:

RECEIVED in Trust from the [PNB], NagaBranch, Naga City, Philippines, the motorvehicles ("Motor Vehicles") specified anddescribed in the Invoice/s issued byHONDA PHILIPPINES, INC. (HPI) toLisam Enterprises, Inc., (the "Trustee")hereto attached as Annex "A" hereof, andin consideration thereof, the trusteehereby agrees to hold the Motor Vehiclesin storage as the property of PNB, withthe liberty to sell the same for cash for theTrustee’s account and to deliver theproceeds thereof to PNB to be appliedagainst its acceptance on the Trustee’saccount. Under the terms of the Invoicesand (sic) the Trustee further agrees to

hold the said vehicles and proceeds ofthe sale thereof in Trust for the paymentof said acceptance and of any [of] itsother indebtedness to PNB.

x x x x

For the purpose of effectively carrying outall the terms and conditions of the Trustherein created and to insure that theTrustee will comply strictly and faithfullywith all undertakings hereunder, theTrustee hereby agrees and consents toallow and permit PNB or itsrepresentatives to inspect all of theTrustee’s books, especially thosepertaining to its disposition of the MotorVehicles and/or the proceeds of the salehereof, at any time and whenever PNB, atits discretion, may find it necessary to doso.

The Trustee’s failure to account to PNBfor the Motor Vehicles received in Trustand/or for the proceeds of the salethereof within thirty (30) days fromdemand made by PNB shallconstitute prima facie evidence that theTrustee has converted or misappropriatedsaid vehicles and/or proceeds thereof forits benefit to the detriment and prejudiceof PNB.4

and Soriano’s failure to account for the proceeds ofthe sale of the motor vehicles, PNB, as previouslyadverted to, filed a complaint-affidavit before theOffice of the City Prosecutor of Naga City chargingSoriano with fifty two (52) counts of violation of theTrust Receipts Law, in relation to Article 315,paragraph 1(b) of the Revised Penal Code.

In refutation, Soriano filed a counter-affidavit assertingthat:

1. The obligation of [LISAM] which Irepresent, and consequently[,] myobligation, if any, is purely civil in nature.All of the alleged trust receipt agreementswere availments made by the corporation[LISAM] on the PNB credit facility knownas "Floor Stock Line" (FSL), which is justone of the several credit facilities grantedto [LISAM] by PNB. When my husbandLeandro A. Soriano, Jr. was still alive,[LISAM] submitted proposals to PNB forthe restructuring of all of [LISAM’s] creditfacilities. After exchanges of severalletters and telephone calls, Mr. JosefinoGamboa, Senior Vice President of PNB

on 12 May 1998 wrote [LISAM] informingPNB’s lack of objection to [LISAM’s]proposal of restructuring all itsobligations. x x x.

2. On September 22, 1998 Mr. Avengozasent a letter to [LISAM], complete withattached copy of PNB Board’s minutes ofmeeting, with the happy information thatthe Board of Directors of PNB hasapproved the conversion of [LISAM’s]existing credit facilities at PNB, whichincludes the FSL on which the Trustreceipts are availments, to [an] OmnibusLine (OL) available by way of RevolvingCredit Line (RCL), Discounting LineAgainst Post-Dated Checks (DLAPC),and Domestic Bills Purchased Line(DBPL) and with a "Full waiver of penaltycharges on RCL, FSL (which is the FloorStock Line on which the trust receipts areavailments) and Time Loan. x x x.

3. The [FSL] and the availments thereonallegedly secured by Trust Receipts,therefore, was (sic) already convertedinto[,] and included in[,] an Omnibus Line(OL) of 106 million on September 22,₱1998, which was actually a RevolvingCredit Line (RCL)[.]5

PNB filed a reply-affidavit maintaining Soriano’scriminal liability under the TRs:

2. x x x. While it is true that said restructuring wasapproved, the same was never implemented because[LISAM] failed to comply with the conditions ofapproval stated in B/R No. 6, such as the payment ofthe interest and other charges and the submission ofthe title of the 283 sq. m. of vacant residential lot, x xx Tandang Sora, Quezon City, as among the commonconditions stated in paragraph V, of B/R 6. Thenonimplementation of the approved restructuring ofthe account of [LISAM] has the effect of reverting theaccount to its original status prior to the said approval.Consequently, her claim that her liability for violationof the Trust Receipt Agreement is purely civil does nothold water.6

In a Resolution,7 the City Prosecutor ofNaga City found, thus:

WHEREFORE, the undersignedfinds prima facie evidence thatrespondent LILIAN SORIANO is probablyguilty of violation of [the] Trust ReceiptLaw, in relation to Article 315 par. 1 (b) ofthe Revised Penal Code, let therefore 52

counts of ESTAFA be filed against therespondent.8

Consequently, on 1 August 2001, the same office filedInformations against Soriano for fifty two (52) countsofEstafa (violation of the Trust Receipts Law),docketed as Criminal Case Nos. 2001-0641 to 2001-0693, which were raffled to the Regional Trial Court(RTC), Branch 21, Naga City.

Meanwhile, PNB filed a petition for review of the NagaCity Prosecutor’s Resolution before the Secretary ofthe DOJ.

In January 2002, the RTC ordered the dismissal ofone of the criminal cases against Soriano, docketedas Criminal Case No. 2001-0671. In March of thesame year, Soriano was arraigned in, and pled notguilty to, the rest of the criminal cases. Thereafter, on16 October 2002, the RTC issued an Order resettingthe continuation of the pre-trial on 27 November 2002.

On the other litigation front, the DOJ, in aResolution9 dated 25 June 2002, reversed and setaside the earlier resolution of the Naga CityProsecutor:

WHEREFORE, the questioned resolutionis REVERSED and SET ASIDE and the CityProsecutor of Naga City is hereby directed to move,with leave of court, for the withdrawal of theinformations for estafa against Lilian S. Soriano inCriminal Case Nos. 2001-0641 to 0693 and to reportthe action taken thereon within ten (10) days fromreceipt thereof.10

On various dates the RTC, through Pairing JudgeNovelita Villegas Llaguno, issued the followingOrders:

1. 27 November 200211

When this case was called forcontinuation of pre-trial, [Soriano’s]counsel appeared. However, ProsecutorEdgar Imperial failed to appear.

Records show that a copy of theResolution from the Department ofJustice promulgated on October 28, 2002was received by this Court, (sic) denyingthe Motion for Reconsideration of theResolution No. 320, series of 2002reversing that of the City Prosecutor ofNaga City and at the same time directingthe latter to move with leave of court forthe withdrawal of the informations forEstafa against Lilian Soriano.

Accordingly, the prosecution is herebygiven fifteen (15) days from receipt hereof

within which to comply with the directiveof the Department of Justice.

2. 21 February 200312

Finding the Motion to WithdrawInformations filed by Pros. Edgar Imperialduly approved by the City Prosecutor ofNaga City to be meritorious the same ishereby granted. As prayed for, theInformations in Crim. Cases Nos. RTC2001-0641 to 2001-0693 entitled, Peopleof the Philippines vs. Lilian S. Soriano,consisting of fifty-two (52) cases exceptfor Crim. Case No. RTC 2001-0671 whichhad been previously dismissed, arehereby ordered WITHDRAWN.

3. 15 July 200313

The prosecution of the criminal casesherein filed being under the control of theCity Prosecutor, the withdrawal of thesaid cases by the Prosecution leaves thisCourt without authority to re-instate,revive or refile the same.

Wherefore, the Motion forReconsideration filed by the privatecomplainant is hereby DENIED.

With the denial of its Motion for Reconsideration ofthe 25 June 2002 Resolution of the Secretary of theDOJ, PNB filed a petition for certiorari before theCourt of Appeals alleging that:

A. THE SECRETARY OF THE DOJ COMMITTEDGRAVE ABUSE OF DISCRETION AMOUNTING TOWANT OR EXCESS OF JURISDICTION INREVERSING AND SETTING ASIDE THERESOLUTON OF THE CITY PROSECUTOR OFNAGA CITY FINDING A PRIMA FACIE CASEAGAINST PRIVATE RESPONDENT [SORIANO],FOR THE SAME HAS NO LEGAL BASES AND ISNOT IN ACCORD WITH THE JURISPRUDENTIALRULINGS ON THE MATTER.14

As stated at the outset, the appellate court did not findgrave abuse of discretion in the questioned resolutionof the DOJ, and dismissed PNB’s petitionfor certiorari.

Hence, this appeal by certiorari.

Before anything else, we note that respondentSoriano, despite several opportunities to do so, failedto file a Memorandum as required in our Resolutiondated 16 January 2008. Thus, on 8 July 2009, we

resolved to dispense with the filing of Soriano’sMemorandum.

In its Memorandum, PNB posits the following issues:

I. Whether or not the Court of Appealsgravely erred in concurring with thefinding of the DOJ that the approval byPNB of [LISAM’s] restructuring proposalof its account with PNB had changed thestatus of [LISAM’s] obligations secured byTrust Receipts to one of an ordinary loan,non-payment of which does not give riseto a criminal liability.

II. Whether or not the Court of Appealsgravely erred in concluding andconcurring with the June 25, 2002Resolution of the DOJ directing thewithdrawal of the Information for Estafaagainst the accused in Criminal CaseNos. 2001-0641 up to 0693 consideringthe well-established rule that oncejurisdiction is vested in court, it is retainedup to the end of the litigation.

III. Whether or not the reinstatement ofthe 51 counts (Criminal Case No. 2001-0671 was already dismissed) of criminalcases for estafa against Soriano wouldviolate her constitutional right againstdouble jeopardy.15

Winnowed from the foregoing, we find that the basicquestion is whether the Court of Appeals gravelyerred in affirming the DOJ’s ruling that therestructuring of LISAM’s loan secured by trust receiptsextinguished Soriano’s criminal liability therefor.

It has not escaped us that PNB’s second and thirdissues delve into the three (3) Orders of the RTCwhich are not the subject of the petition before us. Toclarify, the instant petition assails the Decision of theappellate court in CA-G.R. SP No. 76243 which,essentially, affirmed the ruling of the DOJ in I.S. Nos.2000-1123, 2000-1133 and 2000-1184. As previouslynarrated, the DOJ Resolution became the basis of theRTC’s Orders granting the withdrawal of theInformations against Soriano. From these RTCOrders, the remedy of PNB was to file a petitionfor certiorari before the Court of Appeals alleginggrave abuse of discretion in the issuance thereof.

However, for clarity and to obviate confusion, we shallfirst dispose of the peripheral issues raised by PNB:

1. Whether the withdrawal of Criminal Cases Nos.2001-0641 to 2001-0693 against Soriano as directedby the DOJ violates the well-established rule that

once the trial court acquires jurisdiction over a case, itis retained until termination of litigation.

2. Whether the reinstatement of Criminal Cases Nos.2001-0641 to 2001-0693 violate the constitutionalprovision against double jeopardy.

We rule in the negative.

Precisely, the withdrawal of Criminal Cases Nos.2001-0641 to 2001-0693 was ordered by the RTC. Inparticular, the Secretary of the DOJ directed CityProsecutor of Naga City to move, with leave ofcourt, for the withdrawal of the Informationsfor estafa against Soriano. Significantly, the trial courtgave the prosecution fifteen (15) days within which tocomply with the DOJ’s directive, and thereupon,readily granted the motion. Indeed, the withdrawal ofthe criminal cases did not occur, nay, could not haveoccurred, without the trial court’s imprimatur. As such,the DOJ’s directive for the withdrawal of the criminalcases against Soriano did not divest nor oust the trialcourt of its jurisdiction.

Regrettably, a perusal of the RTC’s Orders revealsthat the trial court relied solely on the Resolution ofthe DOJ Secretary and his determination that theInformations for estafa against Soriano ought to bewithdrawn. The trial court abdicated its judicial powerand refused to perform a positive duty enjoined bylaw. On one occasion, we have declared that whilethe recommendation of the prosecutor or the ruling ofthe Secretary of Justice is persuasive, it is not bindingon courts.16 We shall return to this point shortly.

In the same vein, the reinstatement of the criminalcases against Soriano will not violate herconstitutional right against double jeopardy.

Section 7,17 Rule 117 of the Rules of Court providesfor the requisites for double jeopardy to set in: (1) afirst jeopardy attached prior to the second; (2) the firstjeopardy has been validly terminated; and (3) asecond jeopardy is for the same offense as in the first.A first jeopardy attaches only (a) after a validindictment; (b) before a competent court; (c) afterarraignment; (d) when a valid plea has been entered;and (e) when the accused has been acquitted orconvicted, or the case dismissed or otherwiseterminated without his express consent.18

In the present case, the withdrawal of the criminalcases did not include a categorical dismissal thereofby the RTC. Double jeopardy had not set in becauseSoriano was not acquitted nor was there a valid andlegal dismissal or termination of the fifty one (51)cases against her. It stands to reason therefore thatthe fifth requisite which requires conviction or acquittalof the accused, or the dismissal of the case withoutthe approval of the accused, was not met.

On both issues, the recent case of Cerezo v.People,19 is enlightening. In Cerezo, the trial court

simply followed the prosecution’s lead on how toproceed with the libel case against the three accused.The prosecution twice changed their mind on whetherthere was probable cause to indict the accused forlibel. On both occasions, the trial court granted theprosecutor’s motions. Ultimately, the DOJ Secretarydirected the prosecutor to re-file the Informationagainst the accused which the trial court forthwithreinstated. Ruling on the same issues raised by PNBin this case, we emphasized, thus:

x x x. In thus resolving a motion to dismiss a case orto withdraw an Information, the trial court should notrely solely and merely on the findings of the publicprosecutor or the Secretary of Justice. It is the court’sbounden duty to assess independently the merits ofthe motion, and this assessment must be embodied ina written order disposing of the motion. x x x.

In this case, it is obvious from the March17, 2004 Order of the RTC, dismissingthe criminal case, that the RTC judgefailed to make his own determination ofwhether or not there was a primafaciecase to hold respondents for trial. Hefailed to make an independent evaluationor assessment of the merits of the case.The RTC judge blindly relied on themanifestation and recommendation of theprosecutor when he should have beenmore circumspect and judicious inresolving the Motion to Dismiss andWithdraw Information especially so whenthe prosecution appeared to be uncertain,undecided, and irresolute on whether toindict respondents.

The same holds true with respect to theOctober 24, 2006 Order, which reinstatedthe case. The RTC judge failed to make aseparate evaluation and merely awaitedthe resolution of the DOJ Secretary. Thisis evident from the general tenor of theOrder and highlighted in the followingportion thereof:

As discussed during thehearing of the Motion forReconsideration, the Courtwill resolve it depending onthe outcome of the Petitionfor Review. Considering thefindings of the Department ofJustice reversing theresolution of the CityProsecutor, the Court givesfavorable action to the Motionfor Reconsideration.

By relying solely on the manifestation ofthe public prosecutor and the resolutionof the DOJ Secretary, the trial courtabdicated its judicial power and refusedto perform a positive duty enjoined bylaw. The said Orders were thus stainedwith grave abuse of discretion andviolated the complainant’s right to dueprocess. They were void, had no legalstanding, and produced no effectwhatsoever.

x x x x

It is beyond cavil that double jeopardy didnot set in. Double jeopardy exists whenthe following requisites are present: (1) afirst jeopardy attached prior to thesecond; (2) the first jeopardy has beenvalidly terminated; and (3) a secondjeopardy is for the same offense as in thefirst. A first jeopardy attaches only (a)after a valid indictment; (b) before acompetent court; (c) after arraignment; (d)when a valid plea has been entered; and(e) when the accused has beenacquitted or convicted, or the casedismissed or otherwise terminatedwithout his express consent.

Since we have held that the March 17,2004 Order granting the motion todismiss was committed with grave abuseof discretion, then respondents were notacquitted nor was there a valid and legaldismissal or termination of the case.Ergo, the fifth requisite which requires theconviction and acquittal of the accused,or the dismissal of the case without theapproval of the accused, was not met.Thus, double jeopardy has not setin.20 (Emphasis supplied)

We now come to the crux of the matter: whether therestructuring of LISAM’s loan account extinguishedSoriano’s criminal liability.

PNB admits that although it had approved LISAM’srestructuring proposal, the actual restructuring ofLISAM’s account consisting of several credit lines wasnever reduced into writing. PNB argues that thestipulations therein such as the provisions on theschedule of payment of the principal obligation,interests, and penalties, must be in writing to be validand binding between the parties. PNB furtherpostulates that assuming the restructuring wasreduced into writing, LISAM failed to comply with theconditions precedent for its effectivity, specifically, thepayment of interest and other charges, and the

submission of the titles to the real propertiesin Tandang Sora, Quezon City. On the whole, PNB isadamant that the events concerning the restructuringof LISAM’s loan did not affect the TR security, thus,Soriano’s criminal liability thereunder subsists.

On the other hand, the appellate court agreed with theruling of the DOJ Secretary that the approval ofLISAM’s restructuring proposal, even if not reducedinto writing, changed the status of LISAM’s loan frombeing secured with Trust Receipts (TR’s) to one of anordinary loan, non-payment of which does not giverise to criminal liability. The Court of Appeals declaredthat there was no breach of trust constitutiveof estafa through misappropriation or conversionwhere the relationship between the parties is simplythat of creditor and debtor, not as entruster andentrustee.

We cannot subscribe to the appellate court’sreasoning. The DOJ Secretary’s and the Court ofAppeals holding that, the supposed restructuringnovated the loan agreement between the parties ismyopic.

To begin with, the purported restructuring of the loanagreement did not constitute novation.

Novation is one of the modes of extinguishment ofobligations;21 it is a single juridical act with a diptychfunction. The substitution or change of the obligationby a subsequent one extinguishes the first, resultingin the creation of a new obligation in lieu of theold.22 It is not a complete obliteration of the obligor-obligee relationship, but operates as a relativeextinction of the original obligation.

Article 1292 of the Civil Code which provides:

Art. 1292. In order that an obligation maybe extinguished by another whichsubstitutes the same, it is imperative thatit be so declared in unequivocal terms, orthat the old and the new obligations be onevery point incompatible with each other.

contemplates two kinds of novation: express orimplied. The extinguishment of the old obligation bythe new one is a necessary element of novation,which may be effected either expressly or impliedly.

In order for novation to take place, the concurrence ofthe following requisites is indispensable:

(1) There must be a previous valid obligation;

(2) There must be an agreement of theparties concerned to a new contract;

(3) There must be the extinguishment ofthe old contract; and

(4) There must be the validity of the newcontract.23

Novation is never presumed, and the animus novandi,whether totally or partially, must appear by expressagreement of the parties, or by their acts that are tooclear and unmistakable. The contracting parties mustincontrovertibly disclose that their object in executingthe new contract is to extinguish the old one. Uponthe other hand, no specific form is required for animplied novation, and all that is prescribed by lawwould be an incompatibility between the twocontracts.24 Nonetheless, both kinds of novation muststill be clearly proven.25

In this case, without a written contract stating inunequivocal terms that the parties were novating theoriginal loan agreement, thus undoubtedly eliminatingan express novation, we look to whether there is anincompatibility between the Floor Stock Line securedby TR’s and the subsequent restructured OmnibusLine which was supposedly approved by PNB.

Soriano is confident with her assertion that PNB’sapproval of her proposal to restructure LISAM’s loannovated the loan agreement secured by TR’s. Sorianorelies on the following:

1. x x x. All the alleged trust receipt agreements wereavailments made by [LISAM] on the PNB credit facilityknown as "Floor Stock Line," (FSL) which is just oneof the several credit facilities granted to [LISAM] byPNB. When my husband Leandro A. Soriano, Jr. wasstill alive, [LISAM] submitted proposals to PNB for therestructuring of all of [LISAM’s] credit facilities. Afterexchanges of several letters and telephone calls, Mr.Josefino Gamboa, Senior Vice President of PNB on12 May 1998 wrote [LISAM] informing PNB’s lack ofobjection to [LISAM’s] proposal of restructuring all itsobligations. x x x.

2. On September 22, 1998, Mr. Avengozasent a letter to [LISAM], complete withattached copy of PNB’s Board’s minutesof meeting, with the happy informationthat the Board of Directors of PNB hasapproved the conversion of [LISAM’s]existing credit facilities at PNB, whichincludes the FSL on which the trustreceipts are availments, to [an] OmnibusLine (OL) available by way of RevolvingCredit Line (RCL), Discounting LineAgainst Post-Dated Checks (DLAPC),and Domestic Bills Purchased Line(DBPL) and with a "Full waiver of penaltycharges on RCL, FSL (which is the FloorStock Line on which the trust receipts areavailments) and Time Loan. x x x.26

Soriano’s reliance thereon is misplaced. The approvalof LISAM’s restructuring proposal is not the bone ofcontention in this case. The pith of the issue lies inwhether, assuming a restructuring was effected, itextinguished the criminal liability on the loanobligation secured by trust receipts, by extinguishingthe entruster-entrustee relationship and substituting itwith that of an ordinary creditor-debtor relationship.Stated differently, we examine whether the FloorStock Line is incompatible with the purportedrestructured Omnibus Line.

The test of incompatibility is whether the twoobligations can stand together, each one having itsindependent existence. If they cannot, they areincompatible and the latter obligation novates the first.Corollarily, changes that breed incompatibility must beessential in nature and not merely accidental. Theincompatibility must take place in any of the essentialelements of the obligation, such as its object, causeor principal conditions thereof; otherwise, the changewould be merely modificatory in nature andinsufficient to extinguish the original obligation.27

We have scoured the records and found noincompatibility between the Floor Stock Line and thepurported restructured Omnibus Line. While therestructuring was approved in principle, the effectivitythereof was subject to conditions precedent such asthe payment of interest and other charges, and thesubmission of the titles to the real propertiesin Tandang Sora, Quezon City. These conditionsprecedent imposed on the restructured Omnibus Linewere never refuted by Soriano who, oddly enough,failed to file a Memorandum. To our mind, Soriano’sbare assertion that the restructuring was approved byPNB cannot equate to a finding of an implied novationwhich extinguished Soriano’s obligation as entrusteeunder the TR’s.

Moreover, as asserted by Soriano in her counter-affidavit, the waiver pertains to penalty charges on theFloor Stock Line. There is no showing that the waiverextinguished Soriano’s obligation to "sell the[merchandise] for cash for [LISAM’s] account and todeliver the proceeds thereof to PNB to be appliedagainst its acceptance on [LISAM’s] account." Sorianofurther agreed to hold the "vehicles and proceeds ofthe sale thereof in Trust for the payment of saidacceptance and of any of its other indebtedness toPNB." Well-settled is the rule that, with respect toobligations to pay a sum of money, the obligation isnot novated by an instrument that expresslyrecognizes the old, changes only the terms ofpayment, adds other obligations not incompatible withthe old ones, or the new contract merely supplementsthe old one.28 Besides, novation does not extinguishcriminal liability.29 It stands to reason therefore, thatSoriano’s criminal liability under the TR’s subsistsconsidering that the civil obligations under the Floor

Stock Line secured by TR’s were not extinguished bythe purported restructured Omnibus Line.

In Transpacific Battery Corporation v. Security Bankand Trust Company,30 we held that the restructuringof a loan agreement secured by a TR does not perse novate or extinguish the criminal liability incurredthereunder:

x x x Neither is there an implied novation since therestructuring agreement is not incompatible with thetrust receipt transactions.

Indeed, the restructuring agreementrecognizes the obligation due under thetrust receipts when it required "paymentof all interest and other charges prior torestructuring." With respect to Michael,there was even a proviso under theagreement that the amount due is subjectto "the joint and solidary liability ofSpouses Miguel and Mary Say andMichael Go Say." While the names ofMelchor and Josephine do not appear onthe restructuring agreement, it cannot bepresumed that they have been relievedfrom the obligation. The old obligationcontinues to subsist subject to themodifications agreed upon by the parties.

The circumstance that motivated theparties to enter into a restructuringagreement was the failure of petitionersto account for the goods received in trustand/or deliver the proceeds thereof. Toremedy the situation, the parties executedan agreement to restructureTranspacific's obligations.

The Bank only extended the repaymentterm of the trust receipts from 90 days toone year with monthly installment at 5%per annum over prime rate or 30% perannum whichever is higher. Furthermore,the interest rates were flexible in that theyare subject to review every amortizationdue. Whether the terms appeared to bemore onerous or not isimmaterial. 1âwphi1 Courts are not authorized toextricate parties from the necessaryconsequences of their acts. The partieswill not be relieved from their obligationsas there was absolutely no intention bythe parties to supersede or abrogate thetrust receipt transactions. The intention ofthe new agreement was precisely torevive the old obligation after the originalperiod expired and the loan remainedunpaid. Well-settled is the rule that, withrespect to obligations to pay a sum of

money, the obligation is not novated byan instrument that expressly recognizesthe old, changes only the terms ofpayment, adds other obligations notincompatible with the old ones, or thenew contract merely supplements the oldone.31

Based on all the foregoing, we find grave error in theCourt of Appeals dismissal of PNB’s petitionfor certiorari. Certainly, while the determination ofprobable cause to indict a respondent for a crime lieswith the prosecutor, the discretion must not beexercised in a whimsical or despotic mannertantamount to grave abuse of discretion.

WHEREFORE, the petition is GRANTED. TheDecision of the Court of Appeals in CA-G.R. SP No.76243 finding no grave abuse of discretion on the partof the Secretary of Justice is REVERSED and SETASIDE.

The Resolution of the Secretary of Justice dated 25June 2002, directing the City Prosecutor of Naga Cityto move for the withdrawal of the Informationsfor estafa in relation to the Trust Receipts Law againstrespondent Lilian S. Soriano, and his 29 October2002 Resolution, denying petitioner's Motion forReconsideration, are ANNULLEDand SET ASIDE forhaving been issued with grave abuse of discretion;and the Resolution or the Naga City Prosecutor'sOffice dated 19 March 2001, finding probable causeagainst herein respondent,is REINSTATED.Consequently, the Orders of theRegional Trial Court, Branch 21 of Naga City inCriminal Cases Nos. 2001-0641 to 2001-0693, exceptCriminal Case No. 2001-0671, dated 27 November2002, 21 February 2003 and 15 July 2003 are SETASIDE and its Order of 16 October 2002 resetting thecontinuation or the pre-trial is REINSTATED.The RTCis further ordered to conduct the pretrial with dispatch.

SO ORDERED.