G.R. No.

164051
October 3, 2012
PHILIPPINE NATIONAL BANK, Petitioner, vs.LILIAN S.
SORIANO, Respondent.
We arc urged in this petition for review on certiorari to reverse and
set aside the Decision of the Court of Appeals in C A-G.R. SP No.
762431 finding no grave abuse of discretion in the ruling of the
Secretary of the Department 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 by petitioner Philippine National Bank (PNB) against
respondent Lilian S. Soriano (Soriano).2
First, the ostensibly simple facts as found by the Court of Appeals
and adopted by PNB in its petition and memorandum:
On March 20, 1997, [PNB] extended a credit facility in the form of
[a] Floor Stock Line (FSL) in the increased amount of Thirty Million
Pesos (30 Million) to Lisam Enterprises, Inc. [LISAM], a familyowned and controlled corporation that maintains Current Account
No. 445830099-8 with petitioner PNB.
x x x. Soriano is the chairman and president of LISAM, she is also
the authorized signatory in all LISAMs Transactions with [PNB].
On various dates, LISAM made several availments of the FSL in the
total amount of Twenty Nine Million Six Hundred Forty Five
Thousand Nine Hundred Forty Four Pesos and Fifty Five Centavos (P
29,645,944.55), the proceeds of which were credited to its current
account with [PNB]. For each availment, LISAM through [Soriano],
executed 52 Trust Receipts (TRs). In addition to the promissory
notes, showing its receipt of the items in trust with the duty to
turn-over the proceeds of the sale thereof to [PNB].
Sometime on January 21-22, 1998, [PNBs] authorized personnel
conducted an actual physical inventory of LISAMs motor vehicles

and motorcycles and found that only four (4) units covered by the
TRs amounting to One Hundred Forty Thousand Eight Hundred
Pesos (158,100.00) (sic) remained unsold.
Out of the Twenty Nine Million Six Hundred Forty Four Thousand
Nine Hundred Forty Four Pesos and Fifty Five Centavos
(29,644,944.55) as the outstanding principal balance [of] the total
availments on the line covered by TRs, [LISAM] should have
remitted to [PNB], Twenty Nine Million Four Hundred Eighty Seven
Thousand Eight Hundred Forty Four Pesos and Fifty Five Centavos
(29,487,844.55). Despite several formal demands, respondent
Soriano failed and refused to turn over the said [amount to] the
prejudice of [PNB].3
Given the terms of the TRs which read, in pertinent part:
RECEIVED in Trust from the [PNB], Naga Branch, Naga City,
Philippines, the motor vehicles ("Motor Vehicles") specified and
described in the Invoice/s issued by HONDA PHILIPPINES, INC. (HPI)
to Lisam Enterprises, Inc., (the "Trustee") hereto attached as Annex
"A" hereof, and in consideration thereof, the trustee hereby agrees
to hold the Motor Vehicles in storage as the property of PNB, with
the liberty to sell the same for cash for the Trustees account and
to deliver the proceeds thereof to PNB to be applied against its
acceptance on the Trustees account. Under the terms of the
Invoices and (sic) the Trustee further agrees to hold the said
vehicles and proceeds of the sale thereof in Trust for the payment
of said acceptance and of any [of] its other indebtedness to PNB.
xxxx
For the purpose of effectively carrying out all the terms and
conditions of the Trust herein created and to insure that the Trustee
will comply strictly and faithfully with all undertakings hereunder,
the Trustee hereby agrees and consents to allow and permit PNB or
its representatives to inspect all of the Trustees books, especially
those pertaining to its disposition of the Motor Vehicles and/or the
proceeds of the sale hereof, at any time and whenever PNB, at its
discretion, may find it necessary to do so.

The Trustees failure to account to PNB for the Motor Vehicles

received in Trust and/or for the proceeds of the sale thereof within
thirty (30) days from demand made by PNB shall constitute prima
facie evidence that the Trustee has converted or misappropriated
said vehicles and/or proceeds thereof for its benefit to the
detriment and prejudice of PNB.4

Time Loan. x x x.

and Sorianos failure to account for the proceeds of the sale of the
motor vehicles, PNB, as previously adverted to, filed a complaintaffidavit before the Office of the City Prosecutor of Naga City
charging Soriano with fifty two (52) counts of violation of the Trust
Receipts Law, in relation to Article 315, paragraph 1(b) of the
Revised Penal Code.

PNB filed a reply-affidavit maintaining Sorianos criminal liability

under the TRs:

In refutation, Soriano filed a counter-affidavit asserting that:

1. The obligation of [LISAM] which I represent, and consequently[,]
my obligation, if any, is purely civil in nature. All of the alleged
trust receipt agreements were availments made by the corporation
[LISAM] on the PNB credit facility known as "Floor Stock Line" (FSL),
which is just one of the several credit facilities granted to [LISAM]
by PNB. When my husband Leandro A. Soriano, Jr. was still alive,
[LISAM] submitted proposals to PNB for the restructuring of all of
[LISAMs] credit facilities. After exchanges of several letters and
telephone calls, Mr. Josefino Gamboa, Senior Vice President of PNB
on 12 May 1998 wrote [LISAM] informing PNBs lack of objection to
[LISAMs] proposal of restructuring all its
obligations. x x x.
2. On September 22, 1998 Mr. Avengoza sent a letter to [LISAM],
complete with attached copy of PNB Boards minutes of meeting,
with the happy information that the Board of Directors of PNB has
approved the conversion of [LISAMs] existing credit facilities at
PNB, which includes the FSL on which the Trust receipts are
availments, to [an] Omnibus Line (OL) available by way of
Revolving Credit Line (RCL), Discounting Line Against Post-Dated
Checks (DLAPC), and Domestic Bills Purchased Line (DBPL) and
with a "Full waiver of penalty charges on RCL, FSL (which is the
Floor Stock Line on which the trust receipts are availments) and

3. The [FSL] and the availments thereon allegedly secured by Trust

Receipts, therefore, was (sic) already converted into[,] and
included in[,] an Omnibus Line (OL) of 106 million on September
22, 1998, which was actually a Revolving Credit Line (RCL)[.]5

2. x x x. While it is true that said restructuring was approved, the

same was never implemented because [LISAM] failed to comply
with the conditions of approval stated in B/R No. 6, such as the
payment of the interest and other charges and the submission of
the title of the 283 sq. m. of vacant residential lot, x x x Tandang
Sora, Quezon City, as among the common conditions stated in
paragraph V, of B/R 6. The nonimplementation of the approved
restructuring of the account of [LISAM] has the effect of reverting
the account to its original status prior to the said approval.
Consequently, her claim that her liability for violation of the Trust
Receipt Agreement is purely civil does not hold water.6
In a Resolution,7 the City Prosecutor of Naga City found, thus:
WHEREFORE, the undersigned finds prima facie evidence that
respondent LILIAN SORIANO is probably guilty of violation of [the]
Trust Receipt Law, in relation to Article 315 par. 1 (b) of the Revised
Penal Code, let therefore 52 counts of ESTAFA be filed against the
respondent.8
Consequently, on 1 August 2001, the same office filed Informations
against Soriano for fifty two (52) counts of Estafa (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 Naga City
Prosecutors Resolution before the Secretary of the DOJ.
In January 2002, the RTC ordered the dismissal of one of the

criminal cases against Soriano, docketed as Criminal Case No.

2001-0671. In March of the same year, Soriano was arraigned in,
and pled not guilty to, the rest of the criminal cases. Thereafter, on
16 October 2002, the RTC issued an Order resetting the
continuation of the pre-trial on 27 November 2002.
On the other litigation front, the DOJ, in a Resolution9 dated 25
June 2002, reversed and set aside the earlier resolution of the
Naga City Prosecutor:
WHEREFORE, the questioned resolution is REVERSED and SET
ASIDE and the City Prosecutor of Naga City is hereby directed to
move, with leave of court, for the withdrawal of the informations
for estafa against Lilian S. Soriano in Criminal Case Nos. 20010641 to 0693 and to report the action taken thereon within ten (10)
days from receipt thereof.10
On various dates the RTC, through Pairing Judge Novelita Villegas
Llaguno, issued the following Orders:
1. 27 November 200211
When this case was called for continuation of pre-trial, [Sorianos]
counsel appeared. However, Prosecutor Edgar Imperial failed to
appear.
Records show that a copy of the Resolution from the Department of
Justice promulgated on October 28, 2002 was received by this
Court, (sic) denying the Motion for Reconsideration of the
Resolution No. 320, series of 2002 reversing that of the City
Prosecutor of Naga City and at the same time directing the latter to
move with leave of court for the withdrawal of the informations for
Estafa against Lilian Soriano.

Finding the Motion to Withdraw Informations filed by Pros. Edgar

Imperial duly approved by the City Prosecutor of Naga City to be
meritorious the same is hereby granted. As prayed for, the
Informations in Crim. Cases Nos. RTC 2001-0641 to 2001-0693
entitled, People of the Philippines vs. Lilian S. Soriano, consisting of
fifty-two (52) cases except for Crim. Case No. RTC 2001-0671 which
had been previously dismissed, are hereby ordered WITHDRAWN.
3. 15 July 200313
The prosecution of the criminal cases herein filed being under the
control of the City Prosecutor, the withdrawal of the said cases by
the Prosecution leaves this Court without authority to re-instate,
revive or refile the same.
Wherefore, the Motion for Reconsideration filed by the private
complainant is hereby DENIED.
With the denial of its Motion for Reconsideration of the 25 June
2002 Resolution of the Secretary of the DOJ, PNB filed a petition for
certiorari before the Court of Appeals alleging that:
A. THE SECRETARY OF THE DOJ COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO WANT OR EXCESS OF JURISDICTION IN
REVERSING AND SETTING ASIDE THE RESOLUTON OF THE CITY
PROSECUTOR OF NAGA CITY FINDING A PRIMA FACIE CASE
AGAINST PRIVATE RESPONDENT [SORIANO], FOR THE SAME HAS
NO LEGAL BASES AND IS NOT IN ACCORD WITH THE
JURISPRUDENTIAL RULINGS ON THE MATTER.14
As stated at the outset, the appellate court did not find grave
abuse of discretion in the questioned resolution of the DOJ, and
dismissed PNBs petition for certiorari.

Accordingly, the prosecution is hereby given fifteen (15) days from

receipt hereof within which to comply with the directive of the
Department of Justice.

Hence, this appeal by certiorari.

2. 21 February 200312

Before anything else, we note that respondent Soriano, despite

several opportunities to do so, failed to file a Memorandum as

required in our Resolution dated 16 January 2008. Thus, on 8 July

2009, we resolved to dispense with the filing of Sorianos
Memorandum.

the issuance thereof.

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

In its Memorandum, PNB posits the following issues:

I. Whether or not the Court of Appeals gravely erred in concurring
with the finding of the DOJ that the approval by PNB of [LISAMs]
restructuring proposal of its account with PNB had changed the
status of [LISAMs] obligations secured by Trust Receipts to one of
an ordinary loan, non-payment of which does not give rise to a
criminal liability.
II. Whether or not the Court of Appeals gravely erred in concluding
and concurring with the June 25, 2002 Resolution of the DOJ
directing the withdrawal of the Information for Estafa against the
accused in Criminal Case Nos. 2001-0641 up to 0693 considering
the well- established rule that once jurisdiction is vested in court, it
is retained up to the end of the litigation.
III. Whether or not the reinstatement of the 51 counts (Criminal
Case No. 2001-0671 was already dismissed) of criminal cases for
estafa against Soriano would violate her constitutional right against
double jeopardy.15
Winnowed from the foregoing, we find that the basic question is
whether the Court of Appeals gravely erred in affirming the DOJs
ruling that the restructuring of LISAMs loan secured by trust
receipts extinguished Sorianos criminal liability therefor.
It has not escaped us that PNBs second and third issues delve into
the three (3) Orders of the RTC which are not the subject of the
petition before us. To clarify, the instant petition assails the
Decision of the appellate 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 previously narrated, the DOJ
Resolution became the basis of the RTCs Orders granting the
withdrawal of the Informations against Soriano. From these RTC
Orders, the remedy of PNB was to file a petition for certiorari
before the Court of Appeals alleging grave abuse of discretion in

1. Whether the withdrawal of Criminal Cases Nos. 2001- 0641 to

2001-0693 against Soriano as directed by the DOJ violates the wellestablished rule that once the trial court acquires jurisdiction over
a case, it is retained until termination of litigation.
2. Whether the reinstatement of Criminal Cases Nos. 2001-0641 to
2001-0693 violate the constitutional provision 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. In particular, the Secretary of
the DOJ directed City Prosecutor of Naga City to move, with leave
of court, for the withdrawal of the Informations for estafa against
Soriano. Significantly, the trial court gave the prosecution fifteen
(15) days within which to comply with the DOJs directive, and
thereupon, readily granted the motion. Indeed, the withdrawal of
the criminal cases did not occur, nay, could not have occurred,
without the trial courts imprimatur. As such, the DOJs directive for
the withdrawal of the criminal cases against Soriano did not divest
nor oust the trial court of its jurisdiction.
Regrettably, a perusal of the RTCs Orders reveals that the trial
court relied solely on the Resolution of the DOJ Secretary and his
determination that the Informations for estafa against Soriano
ought to be withdrawn. The trial court abdicated its judicial power
and refused to perform a positive duty enjoined by law. On one
occasion, we have declared that while the recommendation of the
prosecutor or the ruling of the Secretary of Justice is persuasive, it
is not binding on courts.16 We shall return to this point shortly.
In the same vein, the reinstatement of the criminal cases against
Soriano will not violate her constitutional right against double
jeopardy.

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

own determination of whether or not there was a prima facie case

to hold respondents for trial. He failed to make an independent
evaluation or assessment of the merits of the case. The RTC judge
blindly relied on the manifestation and recommendation of the
prosecutor when he should have been more circumspect and
judicious in resolving the Motion to Dismiss and Withdraw
Information especially so when the prosecution appeared to be
uncertain, undecided, and irresolute on whether to indict
respondents.

In the present case, the withdrawal of the criminal cases did not
include a categorical dismissal thereof by the RTC. Double jeopardy
had not set in because Soriano was not acquitted nor was there a
valid and legal dismissal or termination of the fifty one (51) cases
against her. It stands to reason therefore that the fifth requisite
which requires conviction or acquittal of the accused, or the
dismissal of the case without the approval of the accused, was not
met.

The same holds true with respect to the October 24, 2006 Order,
which reinstated the case. The RTC judge failed to make a separate
evaluation and merely awaited the resolution of the DOJ Secretary.
This is evident from the general tenor of the Order and highlighted
in the following portion thereof:

On both issues, the recent case of Cerezo v. People,19 is

enlightening. In Cerezo, the trial court simply followed the
prosecutions lead on how to proceed with the libel case against
the three accused. The prosecution twice changed their mind on
whether there was probable cause to indict the accused for libel.
On both occasions, the trial court granted the prosecutors
motions. Ultimately, the DOJ Secretary directed the prosecutor to
re-file the Information against the accused which the trial court
forthwith reinstated. Ruling on the same issues raised by PNB in
this case, we emphasized, thus:
x x x. In thus resolving a motion to dismiss a case or to withdraw
an Information, the trial court should not rely solely and merely on
the findings of the public prosecutor or the Secretary of Justice. It is
the courts bounden duty to assess independently the merits of the
motion, and this assessment must be embodied in a
written order disposing of the motion. x x x.
In this case, it is obvious from the March 17, 2004 Order of the RTC,
dismissing the criminal case, that the RTC judge failed to make his

As discussed during the hearing of the Motion for Reconsideration,

the Court will resolve it depending on the outcome of the Petition
for Review. Considering the findings of the Department of Justice
reversing the resolution of the City Prosecutor, the Court gives
favorable action to the Motion for Reconsideration.
By relying solely on the manifestation of the public prosecutor and
the resolution of the DOJ Secretary, the trial court abdicated its
judicial power and refused to perform a positive duty enjoined by
law. The said Orders were thus stained with grave abuse of
discretion and violated the complainants right to due process.
They were void, had no legal standing, and produced no effect
whatsoever.
xxxx
It is beyond cavil that double jeopardy did not set in. Double
jeopardy exists when the following requisites are present: (1) a first
jeopardy attached prior to the second; (2) the first jeopardy has
been validly terminated; and (3) a second jeopardy is for the same
offense as in the first. A first jeopardy attaches only (a) after a valid
indictment; (b) before a competent court; (c) after arraignment; (d)
when a valid plea has been entered; and (e) when the accused has
been acquitted or convicted, or the case dismissed or otherwise

terminated without his express consent.

Since we have held that the March 17, 2004 Order granting the
motion to dismiss was committed with grave abuse of discretion,
then respondents were not acquitted nor was there a valid and
legal dismissal or termination of the case. Ergo, the fifth requisite
which requires the conviction and acquittal of the accused, or the
dismissal of the case without the approval of the accused, was not
met. Thus, double jeopardy has not set in.20 (Emphasis supplied)
We now come to the crux of the matter: whether the restructuring
of LISAMs loan account extinguished Sorianos criminal liability.
PNB admits that although it had approved LISAMs restructuring
proposal, the actual restructuring of LISAMs account consisting of
several credit lines was never reduced into writing. PNB argues
that the stipulations therein such as the provisions on the schedule
of payment of the principal obligation, interests, and penalties,
must be in writing to be valid and binding between the parties. PNB
further postulates that assuming the restructuring was reduced
into writing, LISAM failed to comply with the conditions precedent
for its effectivity, specifically, the payment of interest and other
charges, and the submission of the titles to the real properties in
Tandang Sora, Quezon City. On the whole, PNB is adamant that the
events concerning the restructuring of LISAMs loan did not affect
the TR security, thus, Sorianos criminal liability thereunder
subsists.
On the other hand, the appellate court agreed with the ruling of
the DOJ Secretary that the approval of LISAMs restructuring
proposal, even if not reduced into writing, changed the status of
LISAMs loan from being secured with Trust Receipts (TRs) to one
of an ordinary loan, non-payment of which does not give rise to
criminal liability. The Court of Appeals declared that there was no
breach of trust constitutive of estafa through misappropriation or
conversion where the relationship between the parties is simply
that of creditor and debtor, not as entruster and entrustee.
We cannot subscribe to the appellate courts reasoning. The DOJ
Secretarys and the Court of Appeals holding that, the supposed

restructuring novated the loan agreement between the parties is

myopic.
To begin with, the purported restructuring of the loan agreement
did not constitute novation.
Novation is one of the modes of extinguishment of obligations;21 it
is a single juridical act with a diptych function. The substitution or
change of the obligation by a subsequent one extinguishes the
first, resulting in the creation of a new obligation in lieu of the
old.22 It is not a complete obliteration of the obligor-obligee
relationship, but operates as a relative extinction of the original
obligation.
Article 1292 of the Civil Code which provides:
Art. 1292. In order that an obligation may be extinguished by
another which substitutes the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
contemplates two kinds of novation: express or implied. The
extinguishment of the old obligation by the 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 of the following
requisites is indispensable:
(1) There must be a previous valid obligation;
(2) There must be an agreement of the parties concerned to a new
contract;
(3) There must be the extinguishment of the old contract; and
(4) There must be the validity of the new contract.23

Novation is never presumed, and the animus novandi, whether

totally or partially, must appear by express agreement of the
parties, or by their acts that are too clear and unmistakable. The
contracting parties must incontrovertibly disclose that their object
in executing the new contract is to extinguish the old one. Upon
the other hand, no specific form is required for an implied novation,
and all that is prescribed by law would be an incompatibility
between the two contracts.24 Nonetheless, both kinds of novation
must still be clearly proven.25
In this case, without a written contract stating in unequivocal terms
that the parties were novating the original loan agreement, thus
undoubtedly eliminating an express novation, we look to whether
there is an incompatibility between the Floor Stock Line secured by
TRs and the subsequent restructured Omnibus Line which was
supposedly approved by PNB.
Soriano is confident with her assertion that PNBs approval of her
proposal to restructure LISAMs loan novated the loan agreement
secured by TRs. Soriano relies on the following:
1. x x x. All the alleged trust receipt agreements were availments
made by [LISAM] on the PNB credit facility known as "Floor Stock
Line," (FSL) which is just one of the several credit facilities granted
to [LISAM] by PNB. When my husband Leandro A. Soriano, Jr. was
still alive, [LISAM] submitted proposals to PNB for the restructuring
of all of [LISAMs] credit facilities. After exchanges of several letters
and telephone calls, Mr. Josefino Gamboa, Senior Vice President of
PNB on 12 May 1998 wrote [LISAM] informing PNBs lack of
objection to [LISAMs] proposal of restructuring all its obligations. x
x x.
2. On September 22, 1998, Mr. Avengoza sent a letter to [LISAM],
complete with attached copy of PNBs Boards minutes of meeting,
with the happy information that the Board of Directors of PNB has
approved the conversion of [LISAMs] existing credit facilities at
PNB, which includes the FSL on which the trust receipts are
availments, to [an] Omnibus Line (OL) available by way of
Revolving Credit Line (RCL), Discounting Line Against Post-Dated
Checks (DLAPC), and Domestic Bills Purchased Line (DBPL) and

with a "Full waiver of penalty charges on RCL, FSL (which is the

Floor Stock Line on which the trust receipts are availments) and
Time Loan. x x x.26
Sorianos reliance thereon is misplaced. The approval of LISAMs
restructuring proposal is not the bone of contention in this case.
The pith of the issue lies in whether, assuming a restructuring was
effected, it extinguished the criminal liability on the loan obligation
secured by trust receipts, by extinguishing the entruster- entrustee
relationship and substituting it with that of an ordinary creditordebtor relationship. Stated differently, we examine whether the
Floor Stock Line is incompatible with the purported restructured
Omnibus Line.
The test of incompatibility is whether the two obligations can stand
together, each one having its independent existence. If they
cannot, they are incompatible and the latter obligation novates the
first. Corollarily, changes that breed incompatibility must be
essential in nature and not merely accidental. The incompatibility
must take place in any of the essential elements of the obligation,
such as its object, cause or principal conditions thereof; otherwise,
the change would be merely modificatory in nature and insufficient
to extinguish the original obligation.27
We have scoured the records and found no incompatibility between
the Floor Stock Line and the purported restructured Omnibus Line.
While the restructuring was approved in principle, the effectivity
thereof was subject to conditions precedent such as the payment
of interest and other charges, and the submission of the titles to
the real properties in Tandang Sora, Quezon City. These conditions
precedent imposed on the restructured Omnibus Line were never
refuted by Soriano who, oddly enough, failed to file a
Memorandum. To our mind, Sorianos bare assertion that the
restructuring was approved by PNB cannot equate to a finding of
an implied novation which extinguished Sorianos obligation as
entrustee under the TRs.
Moreover, as asserted by Soriano in her counter- affidavit, the
waiver pertains to penalty charges on the Floor Stock Line. There is
no showing that the waiver extinguished Sorianos obligation to

"sell the [merchandise] for cash for [LISAMs] account and to

deliver the proceeds thereof to PNB to be applied against its
acceptance on [LISAMs] account." Soriano further agreed to hold
the "vehicles and proceeds of the sale thereof in Trust for the
payment of said acceptance and of any of its other indebtedness to
PNB." Well- settled is the rule that, with respect to obligations to
pay a sum of money, the obligation is not novated by an
instrument that expressly recognizes the old, changes only the
terms of payment, adds other obligations not incompatible with the
old ones, or the new contract merely supplements the old one.28
Besides, novation does not extinguish criminal liability.29 It stands
to reason therefore, that Sorianos criminal liability under the TRs
subsists considering that the civil obligations under the Floor Stock
Line secured by TRs were not extinguished by the purported
restructured Omnibus Line.
In Transpacific Battery Corporation v. Security Bank and Trust
Company,30 we held that the restructuring of a loan agreement
secured by a TR does not per se novate or extinguish the criminal
liability incurred thereunder:
x x x Neither is there an implied novation since the restructuring
agreement is not incompatible with the trust receipt transactions.
Indeed, the restructuring agreement recognizes the obligation due
under the trust receipts when it required "payment of all interest
and other charges prior to restructuring." With respect to Michael,
there was even a proviso under the agreement that the amount
due is subject to "the joint and solidary liability of Spouses Miguel
and Mary Say and Michael Go Say." While the names of Melchor
and Josephine do not appear on the restructuring agreement, it
cannot be presumed that they have been relieved from the
obligation. The old obligation continues to subsist subject to the
modifications agreed upon by the parties.
The circumstance that motivated the parties to enter into a
restructuring agreement was the failure of petitioners to account
for the goods received in trust and/or deliver the proceeds thereof.
To remedy the situation, the parties executed an agreement to

restructure Transpacific's obligations.

The Bank only extended the repayment term of the trust receipts
from 90 days to one year with monthly installment at 5% per
annum over prime rate or 30% per annum whichever is higher.
Furthermore, the interest rates were flexible in that they are
subject to review every amortization due. Whether the terms
appeared to be more onerous or not is immaterial.1wphi1 Courts
are not authorized to extricate parties from the necessary
consequences of their acts. The parties will not be relieved from
their obligations as there was absolutely no intention by the parties
to supersede or abrogate the trust receipt transactions. The
intention of the new agreement was precisely to revive the old
obligation after the original period expired and the loan remained
unpaid. Well-settled is the rule that, with respect to obligations to
pay a sum of money, the obligation is not novated by an
instrument that expressly recognizes the old, changes only the
terms of payment, adds other obligations not incompatible with the
old ones, or the new contract merely supplements the old one.31
Based on all the foregoing, we find grave error in the Court of
Appeals dismissal of PNBs petition for certiorari. Certainly, while
the determination of probable cause to indict a respondent for a
crime lies with the prosecutor, the discretion must not be exercised
in a whimsical or despotic manner tantamount to grave abuse of
discretion.
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. SP No. 76243 finding no grave abuse of
discretion on the part of the Secretary of Justice is REVERSED and
SET ASIDE.
The Resolution of the Secretary of Justice dated 25 June 2002,
directing the City Prosecutor of Naga City to move for the
withdrawal of the Informations for estafa in relation to the Trust
Receipts Law against respondent Lilian S. Soriano, and his 29
October 2002 Resolution, denying petitioner's Motion for
Reconsideration, are ANNULLED and SET ASIDE for having been
issued with grave abuse of discretion; and the Resolution or the
Naga City Prosecutor's Office dated 19 March 2001, finding

probable cause against herein respondent, is REINSTATED.

Consequently, the Orders of the Regional Trial Court, Branch 21 of
Naga City in Criminal Cases Nos. 2001-0641 to 2001-0693, except
Criminal Case No. 2001-0671, dated 27 November 2002, 21
February 2003 and 15 July 2003 are SET ASIDE and its Order of 16
October 2002 resetting the continuation or the pre-trial is
REINSTATED. The RTC is further ordered to conduct the pretrial with
dispatch.
SO ORDERED.

G.R. No. 171845

October 10, 2012
SPOUSES GODFREY and GERARDINA SERFINO, Petitioners,
vs. FAR EAST BANK AND TRUST COMPANY, INC., now BANK
OF THE PHILIPPINE ISLANDS, Respondent.
DECISION

BRION, J.:
Before the Court is a petition for review on certiorari, 1 filed under
Rule 45 of the Rules of Court, assailing the decision2 dated
February 23, 2006 of the Regional Trial Court (RTC) of Bacolod City,
Branch 41, in Civil Case No. 95-9344.
FACTUAL ANTECEDENTS
The present case traces its roots to the compromise judgment
dated October 24, 19953 of the RTC of Bacolod City, Branch 47, in
Civil Case No. 95-9880. Civil Case No. 95-9880 was an action for
collection of sum of money instituted by the petitioner spouses
Godfrey and Gerardina Serfino (collectively, spouses Serfino)
against the spouses Domingo and Magdalena Cortez (collectively,
spouses Cortez). By way of settlement, the spouses Serfino and the
spouses Cortez executed a compromise agreement on October 20,
1995, in which the spouses Cortez acknowledged their
indebtedness to the spouses Serfino in the amount of P
108,245.71. To satisfy the debt, Magdalena bound herself "to pay
in full the judgment debt out of her retirement benefits[.]"4
Payment of the debt shall be made one (1) week after Magdalena
has received her retirement benefits from the Government Service
Insurance System (GSIS). In case of default, the debt may be
executed against any of the properties of the spouses Cortez that
is subject to execution, upon motion of the spouses Serfino.5 After
finding that the compromise agreement was not contrary to law,
morals, good custom, public order or public policy, the RTC
approved the entirety of the parties agreement and issued a
compromise judgment based thereon.6 The debt was later reduced
to P 155,000.00 from P 197,000.00 (including interest), with the
promise that the spouses Cortez would pay in full the judgment
debt not later than April 23, 1996.7
No payment was made as promised. Instead, Godfrey discovered
that Magdalena deposited her retirement benefits in the savings
account of her daughter-in-law, Grace Cortez, with the respondent,
Far East Bank and Trust Company, Inc. (FEBTC). As of April 23,
1996, Graces savings account with FEBTC amounted to P
245,830.37, the entire deposit coming from Magdalenas

retirement benefits.8 That same day, the spouses Serfinos counsel

sent two letters to FEBTC informing the bank that the deposit in
Graces name was owned by the spouses Serfino by virtue of an
assignment made in their favor by the spouses Cortez. The letter
requested FEBTC to prevent the delivery of the deposit to either
Grace or the spouses Cortez until its actual ownership has been
resolved in court.
On April 25, 1996, the spouses Serfino instituted Civil Case No. 959344 against the spouses Cortez, Grace and her husband, Dante
Cortez, and FEBTC for the recovery of money on deposit and the
payment of damages, with a prayer for preliminary attachment.
On April 26, 1996, Grace withdrew P 150,000.00 from her savings
account with FEBTC. On the same day, the spouses Serfino sent
another letter to FEBTC informing it of the pending action; attached
to the letter was a copy
of the complaint filed as Civil Case No. 95-9344.
During the pendency of Civil Case No. 95-9344, the spouses Cortez
manifested that they were turning over the balance of the deposit
in FEBTC (amounting to P 54,534.00) to the spouses Serfino as
partial payment of their obligation under the compromise
judgment. The RTC issued an order dated July 30, 1997, authorizing
FEBTC to turn over the balance of the deposit to the spouses
Serfino.
On February 23, 2006, the RTC issued the assailed decision (a)
finding the spouses Cortez, Grace and Dante liable for fraudulently
diverting the amount due the spouses Serfino, but (b) absolving
FEBTC from any liability for allowing Grace to withdraw the deposit.
The RTC declared that FEBTC was not a party to the compromise
judgment; FEBTC was thus not chargeable with notice of the
parties agreement, as there was no valid court order or processes
requiring it to withhold payment of the deposit. Given the nature of
bank deposits, FEBTC was primarily bound by its contract of loan
with Grace. There was, therefore, no legal justification for the bank
to refuse payment of the account, notwithstanding the claim of the
spouses Serfino as stated in their three letters.

THE PARTIES ARGUMENTS

The spouses Serfino appealed the RTCs ruling absolving FEBTC
from liability for allowing the withdrawal of the deposit. They allege
that the RTC cited no legal basis for declaring that only a court
order or process can justify the withholding of the deposit in
Graces name. Since FEBTC was informed of their adverse claim
after they sent three letters, they claim that:
Upon receipt of a notice of adverse claim in proper form, it
becomes the duty of the bank to: 1. Withhold payment of the
deposit until there is a reasonable opportunity to institute legal
proceedings to contest ownership; and 2) give prompt notice of the
adverse claim to the depositor. The bank may be held liable to the
adverse claimant if it disregards the notice of adverse claim and
pays the depositor.
When the bank has reasonable notice of a bona fide claim that
money deposited with it is the property of another than the
depositor, it should withhold payment until there is reasonable
opportunity to institute legal proceedings to contest the
ownership.9 (emphases and underscoring supplied)
Aside from the three letters, FEBTC should be deemed bound by
the compromise judgment, since Article 1625 of the Civil Code
states that an assignment of credit binds third persons if it appears
in a public instrument.10 They conclude that FEBTC, having been
notified of their adverse claim, should not have allowed Grace to
withdraw the deposit.
While they acknowledged that bank deposits are governed by the
Civil Code provisions on loan, the spouses Serfino allege that the
provisions on voluntary deposits should apply by analogy in this
case, particularly Article 1988 of the Civil Code, which states:
Article 1988. The thing deposited must be returned to the
depositor upon demand, even though a specified period or time for
such return may have been fixed.
This provision shall not apply when the thing is judicially attached

while in the depositarys possession, or should he have been

notified of the opposition of a third person to the return or the
removal of the thing deposited. In these cases, the depositary must
immediately inform the depositor of the attachment or opposition.
Based on Article 1988 of the Civil Code, the depository is not
obliged to return the thing to the depositor if notified of a third
partys adverse claim.
By allowing Grace to withdraw the deposit that is due them under
the compromise judgment, the spouses Serfino claim that FEBTC
committed an actionable wrong that entitles them to the payment
of actual and moral damages.
FEBTC, on the other hand, insists on the correctness of the RTC
ruling. It claims that it is not bound by the compromise judgment,
but only by its contract of loan with its depositor. As a loan, the
bank deposit is owned by the bank; hence, the spouses Serfinos
claim of ownership over it is erroneous.
Based on these arguments, the case essentially involves a
determination of the obligation of banks to a third party who claims
rights over a bank deposit standing in the name of another.
THE COURTS RULING
We find the petition unmeritorious and see no reason to reverse
the RTCs ruling.
Claim for actual damages not meritorious because there could be
no pecuniary loss that should be compensated if there was no
assignment of credit
The spouses Serfinos claim for damages against FEBTC is
premised on their claim of ownership of the deposit with FEBTC.
The deposit consists of Magdalenas retirement benefits, which the
spouses Serfino claim to have been assigned to them under the
compromise judgment. That the retirement benefits were
deposited in Graces savings account with FEBTC supposedly did
not divest them of ownership of the amount, as "the money

already belongs to the [spouses Serfino] having been absolutely

assigned to them and constructively delivered by virtue of the x x x
public instrument[.]"11 By virtue of the assignment of credit, the
spouses Serfino claim ownership of the deposit, and they posit that
FEBTC was duty bound to protect their right by preventing the
withdrawal of the deposit since the bank had been notified of the
assignment and of their claim.
We find no basis to support the spouses Serfinos claim of
ownership of the deposit.
"An assignment of credit is an agreement by virtue of which the
owner of a credit, known as the assignor, by a legal cause, such as
sale, dation in payment, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to
another, known as the assignee, who acquires the power to
enforce it to the same extent as the assignor could enforce it
against the debtor. It may be in the form of sale, but at times it
may constitute a dation in payment, such as when a debtor, in
order to obtain a release from his debt, assigns to his creditor a
credit he has against a third person."12 As a dation in payment,
the assignment of credit operates as a mode of extinguishing the
obligation;13 the delivery and transmission of ownership of a thing
(in this case, the credit due from a third person) by the debtor to
the creditor is accepted as the
equivalent of the performance of the obligation.14
The terms of the compromise judgment, however, did not convey
an intent to equate the assignment of Magdalenas retirement
benefits (the credit) as the equivalent of the payment of the debt
due the spouses Serfino (the obligation). There was actually no
assignment of credit; if at all, the compromise judgment merely
identified the fund from which payment for the judgment debt
would be sourced:
(c) That before the plaintiffs file a motion for execution of the
decision or order based [on this] Compromise Agreement, the
defendant, Magdalena Cortez undertake[s] and bind[s] herself to
pay in full the judgment debt out of her retirement benefits as

Local [T]reasury Operation Officer in the City of Bacolod,

Philippines, upon which full payment, the plaintiffs waive, abandon
and relinquish absolutely any of their claims for attorneys fees
stipulated in the Promissory Note (Annex "A" to the Complaint).15
[emphasis ours]
Only when Magdalena has received and turned over to the spouses
Serfino the portion of her retirement benefits corresponding to the
debt due would the debt be deemed paid.
In Aquitey v. Tibong,16 the issue raised was whether the obligation
to pay the loan was extinguished by the execution of the deeds of
assignment. The Court ruled in the affirmative, given that, in the
deeds involved, the respondent (the debtor) assigned to the
petitioner (the creditor) her credits "to make good" the balance of
her obligation; the parties agreed to relieve the respondent of her
obligation to pay the balance of her account, and for the petitioner
to collect the same from the respondents debtors.17 The Court
concluded that the respondents obligation to pay the balance of
her accounts with the petitioner was extinguished, pro tanto, by
the deeds of assignment of credit executed by the respondent in
favor of the petitioner.18
In the present case, the judgment debt was not extinguished by
the mere designation in the compromise judgment of Magdalenas
retirement benefits as the fund from which payment shall be
sourced. That the compromise agreement authorizes recourse in
case of default on other executable properties of the spouses
Cortez, to satisfy the judgment debt, further supports our
conclusion that there was no assignment of Magdalenas credit
with the GSIS that would have extinguished the obligation.
The compromise judgment in this case also did not give the
supposed assignees, the spouses Serfino, the power to enforce
Magdalenas credit against the GSIS. In fact, the spouses Serfino
are prohibited from enforcing their claim until after the lapse of one
(1) week from Magdalenas receipt of her retirement benefits:
(d) That the plaintiffs shall refrain from having the judgment based
upon this Compromise Agreement executed until after one (1)

week from receipt by the defendant, Magdalena Cortez of her

retirement benefits from the [GSIS] but fails to pay within the said
period the defendants judgment debt in this case, in which case
[this] Compromise Agreement [may be] executed upon any
property of the defendants that are subject to execution upon
motion by the plaintiffs.19
An assignment of credit not only entitles the assignee to the credit
itself, but also gives him the power to enforce it as against the
debtor of the assignor.
Since no valid assignment of credit took place, the spouses Serfino
cannot validly claim ownership of the retirement benefits that were
deposited with FEBTC. Without ownership rights over the amount,
they suffered no pecuniary loss that has to be compensated by
actual damages. The grant of actual damages presupposes that
the claimant suffered a duly proven pecuniary loss.20
Claim for moral damages not meritorious because no duty exists
on the part of the bank to protect interest of third person claiming
deposit in the name of another
Under Article 2219 of the Civil Code, moral damages are
recoverable for acts referred to in Article 21 of the Civil Code.21
Article 21 of the Civil Code, in conjunction with Article 19 of the
Civil Code, is part of the cause of action known in this jurisdiction
as "abuse of rights." The elements of abuse of rights are: (a) there
is a legal right or duty; (b) exercised in bad faith; and (c) for the
sole intent of prejudicing or injuring another.1wphi1
The spouses Serfino invoke American common law that imposes a
duty upon a bank receiving a notice of adverse claim to the fund in
a depositors account to freeze the account for a reasonable length
of time, sufficient to allow the adverse claimant to institute legal
proceedings to enforce his right to the fund.22 In other words, the
bank has a duty not to release the deposits unreasonably early
after a third party makes known his adverse claim to the bank
deposit. Acknowledging that no such duty is imposed by law in this
jurisdiction, the spouses Serfino ask the Court to adopt this foreign
rule.23

To adopt the foreign rule, however, goes beyond the power of this
Court to promulgate rules governing pleading, practice and
procedure in all courts.24 The rule reflects a matter of policy that is
better addressed by the other branches of government,
particularly, the Bangko Sentral ng Pilipinas, which is the agency
that supervises the operations and activities of banks, and which
has the power to issue "rules of conduct or the establishment of
standards of operation for uniform application to all institutions or
functions covered[.]"25 To adopt this rule will have significant
implications on the banking industry and practices, as the
American experience has shown. Recognizing that the rule
imposing duty on banks to freeze the deposit upon notice of
adverse claim adopts a policy adverse to the bank and its
functions, and opens it to liability to both the depositor and the
adverse claimant,26 many American states have since adopted
adverse claim statutes that shifted or, at least, equalized the
burden. Essentially, these statutes do not impose a duty on banks
to freeze the deposit upon a mere notice of adverse claim; they
first require either a court order or an indemnity bond.27
In the absence of a law or a rule binding on the Court, it has no
option but to uphold the existing policy that recognizes the
fiduciary nature of banking. It likewise rejects the adoption of a
judicially-imposed rule giving third parties with unverified claims
against the deposit of another a better right over the deposit. As
current laws provide, the banks contractual relations are with its
depositor, not with the third party;28 "a bank is under obligation to
treat the accounts of its depositors with meticulous care and
always to have in mind the fiduciary nature of its relationship with
them."29 In the absence of any positive duty of the bank to an
adverse claimant, there could be no breach that entitles the latter
to moral damages.
WHEREFORE, in view of the foregoing, the petition for review on
certiorari is DENIED, and the decision dated February 23, 2006 of
the Regional Trial Court of Bacolod City, Branch 41, in Civil Case
No. 95-9344 is AFFIRMED. Costs against the petitioners.
SO ORDERED.

DECISION
ABAD, J.:
These cases pertain to the defense of novation by virtue of the
debtors assignment to a third party of its contractual liability to
the creditor.
The Facts and the Case
In order to convert former military reservations and installations to
productive use and raise funds out of the sale of portions of the
countrys military camps,1 in 1992 Congress enacted Republic Act
7227,2 creating the Bases Conversion and Development Authority
(BCDA). Pursuant to this law, the President issued Executive Order
40,3 Series of 1992, setting aside portions of Fort Bonifacio in
Taguig, Metro Manila, for the Heritage Park Project, aimed at
converting a 105-hectare land into a world class memorial park for
the purpose of generating funds for the BCDA.4

G.R. No. 174665 September 18, 2013

PHILIPPINE RECLAMATION AUTHORITY (Formerly known as
the PUBLIC ESTATES AUTHORITY), Petitioner,vs.
ROMAGO, INCORPORATED, Respondent.
x-----------------------x
G.R. No. 175221
ROMAGO, INCORPORATED, Petitioner,vs.PHILIPPINE
RECLAMATION AUTHORITY (Formerly known as the PUBLIC
ESTATES AUTHORITY), Respondent.

On August 9, 1993 the BCDA entered into a Memorandum of

Agreement5 (MOA) with the Philippine Reclamation Authority
(PRA),formerly the Public Estates Authority, designating it as the
Project Manager. On September 9, 1994 the BCDA, PRA, and the
Philippine National Bank (PNB) executed a Pool Formation Trust
Agreement (PFTA)6 under which BCDA, as project owner, was to
issue Heritage Park Investment Certificates that would evidence
the holders right to the perpetual use and care of specific
interment plots. The PFTA designated PRA as Project Manager,
tasked with the physical development of the park. The PNB was to
act as trustee for the Heritage Park securitization.7
After public bidding, the PRA awarded the outdoor electrical and
lighting works for the park to respondent Romago, Inc. (Romago)
with which it entered into a Construction Agreement on March 18,
1996 for the contract price of P176,326,794.10.8 On receipt of the
PRAs notice to proceed,9 Romago immediately began construction
works.10 Meanwhile, the parties to the PFTA organized the
Heritage Park Management Corporation (HPMC) to take over the
management of the project.11 On February 24, 2000 the Chairman

of HPMC Board of Trustees, Mr. Rogelio L. Singson, sent a notice of

termination of management to then PRA General Manager Carlos P.
Doble with a demand for the turnover of the park to HPMC.12 The
letter reads:
Pursuant to Article 11 of the Pool Formation Trust Agreement(PFTA),
the certificate holders of the Heritage Park Management
Corporation (HPMC) duly elected its Board of Trustees at the 03
January2000 meeting held at the BCDA Corporate Center. Attached
is a copy of the Secretarys Certificate attesting to said election of
the HPMC Board of Trustees.
Section 11.07 of the PFTA provides that upon the election of the
Board of Trustees, the PNB shall turnover to the Board all its
functions and responsibilities, and all documents in its custody,
including all Heritage Park Accounts, except the General Fund,
which will go to BCDA. Upon such turnover and upon the complete
and faithful performance by PNB and [PRA] of their respective
obligations under this Agreement, the respective obligations of
[PRA] and PNB under this Agreement shall be deemed terminated.
[PRA] shall turnover to the Board of Trustees all the documents and
equipment it has in its possession relating to the Project and the
Park, including the computer hardware and software pertaining to
the geographical information system of the Park."
Pursuant to the foregoing provision, we hereby formally advise you
of the termination of [PRAs] obligations, duties and responsibilities
as Project Manager under the PFTA, effective upon receipt of this
letter. We also formally request for [PRA] to turn over, within fifteen
(15) days from receipt of this letter, the documents and equipment
relating to the Heritage Park Project, including the computer
hardware and software in [PRAs] possession pertaining to the
geographical information system of the Park.13
The PRA lost no time in informing Romago of the consequent
termination of its services. Thus, it wrote
Romago a letter14 on March 13,2000:

As a consequence of the assumption of functions, duties and

responsibilities by the Heritage Park Management Corporation, as
provided for under the provisions of the Pool Formation Trust
Agreement, we are constrained to assign the Electrical Works
contract entered with you on March 18, 1996 including all
supplemental agreements relative thereto, effective March 18,
2000 in favor of the Heritage Park Management Corporation. The
formal turnover on March 17, 2000 by[PRA] to the Heritage Park
Management Corporation of all its obligations, duties and
responsibilities, and all documents relating to the Heritage Park
Project, was made pursuant to the attached letter of the Chairman
of HPMC Board of Trustees, Mr. Rogelio L. Singson to the [PRA],
received by us on March 02, 2000.
By virtue of this assignment, all the contractual functions,
responsibilities and liabilities, if any, as well as any cause of action
for or against [PRA] shall hereafter accrue to and devolve upon the
assignee hereof.
Please be guided accordingly.15
Because the HPMC refused to recognize the PRAs contract with it,
on March 17, 2004 Romago filed with the Construction Industry
Arbitration Commission (CIAC) a complaint,16 docketed as CIAC
Case 18-2004,seeking to collect its claims totaling P24,467,621.64,
plus interest from the PRA, HPMC, and Rosehills Memorial
Management (Phils.), Inc. (RMMI). Romago claimed that it won the
bidding for the construction of the electrical and lighting facilities
at the Heritage Park for P181,779,800.0017 but PRA deducted 3%
from the bid amount, reducing the contract price
toP176,326,794.10.18
Because of problems encountered with illegal settlers, only around
60of the 105-hectare park was delivered to Romago for lighting
work, reducing the contract price to P101,083,636.16.19 But this
amount was adjusted to P109,330,032.81 due to PRA variation
orders.20 Although Romago completed 96.15% of the works, it
claimed that the PRA paid it onlyP82,929,577.22 instead of the
P105,120,826.50 due it.21 Romago also claimed that it should be
reimbursed the P9,336,054.15 retention money that it posted since

its services had already been terminated and since it had

substantially completed the Heritage Park Project.22
Romago also sought payment of the additional costs and expenses
that it incurred by reason of PRAs delays in turning over the
project area, in delivering the owner- supplied equipment, and in
solving the security problems at the work site. These included price
escalation of materials and supplies, at P857,799.10; and extended
overhead costs, at P10,051,870.61.23 And, for mobilizations costs
that it spent preparing for works on the entire105-hectare project
area, Romago sought additional payment of P7,524,315.79 plus
interest of P517,923.74 from April 12, 1999 to May 31,1999 or a
total of P8,042,239.53. It also claimed proportionate refund of
P2,327,107.97 out of the 3% discount applied to its original bid 24
and P420,944.02 in damages for the unceremonious termination of
its services.25
Romago admitted, however, owing the PRA P15,475,835.42 in
unrecouped prepaid materials and P12,286,795.12 in unrecouped
down payment.26

For its part, RMMI averred that it was merely the undertaker at the
Heritage Park, tasked with providing services for embalming,
burial, cremation, and other activities for the care of the dead.29
On July 22, 2004 the CIAC issued an order dropping RMMI as
respondent but denying the HPMCs motion to dismiss the case
against it.30 The HPMC elevated the CIAC order to the Court of
Appeals (CA) by special civil action of certiorari and prohibition in
CA-G.R. SP 86342.
Meantime, after due proceedings, on October 22, 2004 the CIAC
rendered a decision,31 holding the PRA and the HPMC jointly and
severally liable to Romago for the following amounts:
The unpaid balance of the 96.15%accomplishment
----------------------------------------------------- ---------- P22,191,249.38
Interest from 15 May 2002 to 31January 2004 at 6% per annum
--------------------------------- ----------- 2,276,372.31Plus:
1.1.1 Retention Charges ----------------

In its answer, the PRA denied liability, claiming that it entered into
the construction agreement with Romago after its approval by the
Heritage Park Executive Committee, the policy-making and
governing body of the Heritage Park Project. The PRA merely
processed and recommended payment of all the works done. The
money came from the projects Construction and Development
Fund that PRA did not control. PNB acted as trustee of the fund
under the PFTA. Since these funds had all been turned over to the
HPMC when the latter came into being, Romago should not address
its claims to PRA.27

1.1.2 Price Escalation -------------------

Rather than answer the complaint, the HPMC and RMMI moved to
dismiss it, claiming that CIAC had no jurisdiction over them since
they never agreed to arbitration.28 Additionally, the HPMC said
that the PRAs turnover of the Heritage Park project to it did not
amount to assignment of the PRAs liabilities under the
construction agreement. Further, its termination of the PRAs
authority over the project carried with it the termination of any
Construction Agreement that the PRA entered into.

(not entitled) Stoppage

1.1.3 Damages for Closure of Area -1.1.4 Reimbursement for Pro-rata

discount ---------------------------1.1.5 Damages 420,944.02

of
Works
for P18,575,031.25

Sub-Total -------Less:Unrecouped prepaid materials andunrecouped

downpayment --------------------------------------- ----------- 27,762,642.54
Actual Damages Due --------------------------

liable to Romago after turning over and assigning the project,

including all its duties and obligations relating to it, to the HPMC.
Romago was not a party to the PFTA and it did not give consent to
the PRAs supposed assignment of its obligations to the HPMC.

Additional 6% interest from February 1, 2004to August 31, 2004 on

the P15,280,012.35 ------------------ ----------- 534,800.43Costs of
Arbitration:

The PRA and Romago separately moved for reconsideration of the

decision but the CA denied both motions in its August 24,
2006Resolution.36 Undeterred, both parties filed separate petitions
for review before this Court in G.R. 174665 for the PRA and in G.R.
175221 for Romago.

Filing Fee ------------------- P26,834.39

The Issues Presented

Administrative Fee -------Arbitrators Fees ----------ADF

-------------------------Total Cost of Arbitration -----------------------

These consolidated cases present the following issues:

P15,280,012.35 Plus:

P396,608.73Total Award -------------------------------------P16,211,421.51 32

Not satisfied with the CIAC decision, the PRA filed a petition for
review of the same with the CA in CA-G.R. SP 88059.
Meantime on February 18, 2005 the CA rendered a Decision in CAG.R. SP 86342, dismissing Romagos complaint before the CIAC
against the HPMC on the ground that the latter did not have an
arbitration agreement with Romago.33
On December 20, 2005 the CA rendered a Decision34 in CA-G.R.
SP88059, the main case, finding that the unpaid accomplishment
of Romago should be reduced from P22,191,249.33 to
P18,641,208.89, and that interests on the damages awarded to
Romago arising from the reduction in project area and on its
unpaid accomplishment from May 15, 2002 to January 31, 2004
should be deleted, therefore entitling it to actual damages in the
amount of P8,935,673.8635 plus interest from February 1, 2004 to
August 31, 2004 and the costs of arbitration.
The CA rejected the PRAs argument that it can no longer be held

1. Whether or not the CA erred in holding the PRA still liable to

Romago under the Construction Agreement despite the subsequent
turnover of the Heritage Park Project to the HPMC; and
2. Whether or not the CA erred in reducing the CIAC award for
actual damages to Romago to just P8,935,673.86.
The Rulings of the Court
The PRA claims that its liability under its contract with Romago had
been extinguished by novation when it assigned all its obligations
to the HPMC pursuant to the provisions of the PFTA. The PRA insists
that the CA erroneously applied to the case the 2001 ruling of the
Court in Public Estates Authority v. Uy37 that also involved the
Heritage Park Project. Uy dealt only with the PRA and the HPMC
came into the picture only after the case has been filed. Here,
while Romago first dealt with the PRA, it eventually dealt with the
HPMC before the construction company can finish the contracted
works, evidencing novation of parties.
In novation, a subsequent obligation extinguishes a previous one
through substitution either by changing the object or principal
conditions, by substituting another in place of the debtor, or by
subrogating a third person into the rights of the creditor.38
Novation requires (a) the existence of a previous valid obligation;

(b) the agreement of all parties to the new contract; (c) the
extinguishment of the old contract; and (d) the validity of the new
one.39
There cannot be novation in this case since the proposed
substituted parties did not agree to the PRAs supposed
assignment of its obligations under the contract for the electrical
and light works at Heritage Park to the HPMC. The latter definitely
and clearly rejected the PRAs assignment of its liability under that
contract to the HPMC. Romago tried to follow up its claims with the
HPMC, not because of any new contract it entered into with the
latter, but simply because the PRA told it that the HPMC would
henceforth assume the PRAs liability under its contract with
Romago.1wphi1
Besides, Section 11.07 of the PFTA makes it clear that the
termination of the PRAs obligations is conditioned upon the
turnover of documents, equipment, computer hardware and
software on the geographical information system of the Park; and
the completion and faithful performance of its respective duties
and responsibilities under the PFTA. More importantly, Section
11.07 did not say that the HPMC shall, thereafter, assume the
PRAs obligations. On the contrary, Section 7.01 of the PFTA
recognizes that contracts that the PRA entered into in its own name
and makes it liable for the same. Thus:
Section 7.01. Liability of BCDA and [PRA]. BCDA and [PRA]shall be
liable in accordance herewith only to the extent of the obligations
specifically undertaken by BCDA and [PRA] herein and any other
documents or agreements relating to the Project, and in which they
are parties.40
Romago claims that the CA award should be increased
toP13,598,139.24 based on the detailed account of expenses and
cash payments as of December 31, 2005 that it submitted. But the
Court cannot agree. Engineer J. R. Milan testified that Romago
received P86,479,617.61 out of P105,120,826.50 worth of work
that it accomplished, thereby leaving a deficiency of only
P18,641,208.89. Thus:

ATTY. S.B. GARCIA:

Mr. Witness, from the time you became the Project Manager of
Heritage Park Project up to the time it turned over its
responsibilities to HPMC, can you recall how much [PRA] already
paid to Romago? You can refer to any documents we have now with
you for recollection.
ENGR. J.R. MILLAN:
Based on progress Report No. 50, which was submitted by the
Managing Consultant of Robert Espiritu, the accomplishment as of
February 29, 2000, the amount disbursed as of Billing no. 14A
isP86,479,617.61.
ATTY. S.B. GARCIA:
What document again are you referring to, Mr. Witness?
ENGR. J.R. MILLAN:This is a Progress Report dated March 8, 2000
addressed to the [Philippine Reclamation Authority], Progress
Report No. 50 submitted by Mr. Roberto Espiritu.
ATTY. S.B. GARCIA: And the one where the P86,479,617.61, the
document which reflects that amount, that is what the document?
ENGR. J.R. MILLAN:
This is the attachment to the accomplishment of Romago kasi the
Managing Consultant who made the report, they were the ones
computing the accomplishments of the contractors. All the
contractors in the project, bale ito yong report nila . For Romago,
ito yong report niya as of February29, 2000.
ATTY. S.B. GARCIA:
Your Honor, please, may I request that this accomplishment report
as February 29, 2000 for outdoor electrical and lighting works be
marked as our exhibit "R- 2-10."41

Had the above testimony been untrue, Romago should have

refuted the same considering that it had every opportunity to do
so. On the contrary, it even adopted the same document as its own
exhibit.42 In effect, Romago conceded the correctness of the PRAs
valuation of the balance due it.
In keeping with this Courts ruling in Eastern Shipping Lines, Inc. v.
Court of Appeals,43 the Court deems it proper to impose legal
interest of 6% per annum on the amount finally adjudged,
reckoned from October 22,2004, the date the CIAC rendered
judgment until the same is wholly satisfied.44
WHEREFORE , the Court AFFIRMS the Decision dated December 20,
2005 and Resolution dated August 24, 2006 of the Court of Appeals
in CA-G.R. SP 88059 with MODIFICATION , directing the Philippine
Reclamation Authority to pay Romago in addition to the
P8,935,673.86award of actual damages, legal interest of 6% per
annum from October 22,2004 until the judgment against it is
wholly paid; and the costs of arbitration in the amount of
P396,608.73.
SO ORDERED.

ROBERTO R. DAVID, Petitioner, vs.EDUARDO C. DAVID,

Respondent.
DECISION
BERSAMIN, J.:
In a sale with right to repurchase, title and ownership of the
property sold are immediately vested in the vendee, subject to the
resolutory condition of repurchase by the vendor within the
stipulated period.
The Case
Under review at the defendant's instance is the decision
promulgated on October 10, 2003,1 whereby the Court of Appeals
(CA) affirmed the judgment rendered on December 5, 2001 by the
Regional Trial Court (RTC), Branch 61, in Baguio City ordering him

to return to the plaintiff the motor vehicle and trailer subject of the
complaint, or to pay their value of P500,000.00 should the return
not be effected, and to pay the plaintiff P20,000.00 as litigation
expenses, P50,000.00 as attorney's fees, and the costs of suit.2
Antecedents
Respondent Eduardo C. David (Eduardo) initiated this replevin suit
against Roberto R. David (Roberto), his first cousin and former
business partner, to recover the possession of one unit of
International CO 9670 Truck Tractor and Mi-Bed Trailer.
It appears that on July 7, 1995, Eduardo and his brother Edwin C.
David (Edwin), acting on their own and in behalf of their co-heirs,
sold their inherited properties to Roberto, specifically: (a) a parcel
of land with an area of 1,231 square meters, together with all the
improvements existing thereon, located in Baguio City and covered
by Transfer Certificate of Title No. T-22983 of the Registry of Deeds
of Baguio City (Baguio City lot); and (b) two units International CO
9670 Truck Tractor with two Mi- Bed Trailers.3 A deed of sale with
assumption of mortgage (deed of sale)4 embodied the terms of
their agreement, stipulating that the consideration for the sale was
P6,000,000.00, of which P2,000,000 was to be paid to Eduardo and
Edwin, and the remaining P4,000,000.00 to be paid to
Development Bank of the Philippines (DBP) in Baguio City to settle
the outstanding obligation secured by a mortgage on such
properties. The parties further agreed to give Eduardo and Edwin
the right to repurchase the properties within a period of three
years from the execution of the deed of sale based on the purchase
price agreed upon, plus 12% interest per
annum.
In April 1997, Roberto and Edwin executed a memorandum of
agreement (MOA)5 with the Spouses Marquez and Soledad Go
(Spouses Go), by which they agreed to sell the Baguio City lot to
the latter for a consideration of P10,000,000.00. The MOA
stipulated that "in order to save payment of high and multiple
taxes considering that the x x x subject matter of this sale is
mortgaged with DBP, Baguio City, and sold [to Roberto], Edwin will

execute the necessary Deed of Absolute Sale in favor of [the

Spouses Go], in lieu of [Roberto]."6 The Spouses Go then deposited
the amount of P10,000,000.00 to Robertos account.7
After the execution of the MOA, Roberto gave Eduardo
P2,800,000.00 and returned to him one of the truck tractors and
trailers subject of the deed of sale. Eduardo demanded for the
return of the other truck tractor and trailer, but Roberto refused to
heed the demand.
Thus, Eduardo initiated this replevin suit against Roberto, alleging
that he was exercising the right to repurchase under the deed of
sale; and that he was entitled to the possession of the other motor
vehicle and trailer.
In his answer, Roberto denied that Eduardo could repurchase the
properties in question; and insisted that the MOA had extinguished
their deed of sale by novation.
Judgment of the RTC
On December 5, 2001,8 the RTC rendered judgment in favor of
Eduardo, holding that the stipulation giving Eduardo the right to
repurchase had made the deed of sale a conditional sale; that
Eduardo had fulfilled the conditions for the exercise of the right to
repurchase; that the ownership of the properties in question had
reverted to Eduardo; that Robertos defense of novation had no
merit; and that due to Robertos bad faith in refusing to satisfy
Eduardos claim, Eduardo should be awarded litigation expenses
and attorneys fees. The dispositive portion of the judgment reads:
WHEREFORE, premises considered, judgment is hereby rendered
for the plaintiff and against the defendant ORDERING the latter to
return to the former the motor vehicle and trailer subject matter of
the case or to pay its value in the amount of P500,000 in case
manual delivery can not be effected; to pay plaintiff the amount of
P20,000 as litigation expenses; the amount of P50,000 as
attorney's fees and the costs of this suit.
SO ORDERED.9Roberto appealed to the CA. Ruling of the CA

On October 10, 2003,10 the CA promulgated its decision affirming

the RTC. It opined that although there was no express exercise of
the right to repurchase, the sum of all the relevant circumstances
indicated that there was an exercise of the right to repurchase
pursuant to the deed of sale, that the findings of the RTC to the
effect that the conditions for the exercise of the right to repurchase
had been adequately satisfied by Eduardo, and that no novation as
claimed by Roberto had intervened.

upon." Conformably with Article 1616,14 the seller given the right
to repurchase may exercise his right of redemption by paying the
buyer: (a) the price of the sale, (b) the expenses of the contract, (c)
legitimate payments made by reason of the sale, and (d) the
necessary and useful expenses made on the thing sold.

On February 16, 2004,11 the CA denied Robertos motion for

reconsideration.12

x x x the Vendors are given the right to repurchase the aforesaid

described real property, together with the improvements thereon,
and the two (2) motor vehicles, together with their respective
trailers from the Vendee within a period of three (3) years from the
execution of this document on the purchase price agreed upon by
the parties after considering the amount previously paid to the
Vendors in the amount of TWO MILLION PESOS (P2,000,000.00),
Philippine Currency, with an interest of twelve percent (12%) per
annum and the amount paid with the Development Bank of the
Philippines with an

Hence, this petition for review on certiorari.

Issues
Roberto seeks a reversal, claiming that the CA erred:
x x x IN HOLDING THAT THE RESPONDENT HAS EXERCISED THEIR
RIGHT TO REPURCHASE;
x x x IN HOLDING THAT THERE WAS NO NOVATION OF THE DEED
OF SALE WITH ASSUMPTION OF MORTGAGE WHEN THE PARTIES
EXECUTED A MEMORANDUM OF AGREEMENT FOR THE SALE OF
THE SUBJECT HOUSE AND LOT AND, THEREAFTER SOLD THE SAID
PROPERTY TO THIRD PERSONS;
x x x IN RESOLVING THE INSTANT CASE IN FAVOR OF
RESPO[N]DENT.13
Ruling of the Court
The petition for review has no merit.
A sale with right to repurchase is governed by Article 1601 of the
Civil Code, which provides that: "Conventional redemption shall
take place when the vendor reserves the right to repurchase the
thing sold, with the obligation to comply with the provisions of
Article 1616 and other stipulations which may have been agreed

The deed of sale entered into by Eduardo and Roberto contained

the following stipulation on the right to repurchase, to wit:

interest of twelve percent (12%) per annum.15

The CA and the RTC both found and held that Eduardo had
complied with the conditions stipulated in the deed of sale and
prescribed by Article 1616 of the Civil Code. Pertinently, the CA
stated:
It should be noted that the alleged repurchase was exercised within
the stipulated period of three (3) years from the time the Deed of
Sale with Assumption of Mortgage was executed. The only question
now, therefore, which remains to be resolved is whether or not the
conditions set forth in the Deed of Sale with Assumption of
Mortgage, i.e. the tender of the purchase price previously agreed
upon, which is Php2.0 Million, plus 12% interest per annum, and
the amount paid by the defendant to DBP, had been satisfied.
From the testimony of the defendant himself, these preconditions
for the exercise of plaintiff's right to repurchase were adequately
satisfied by the latter. Thus, as stated, from the Php10 Million
purchase price which was directly paid to the defendant, the latter

deducted his expenses plus interests and the loan, and the
remaining amount he turned over to the plaintiff. This testimony is
an unequivocal acknowledgement from defendant that plaintiff and
his co-heirs exercised their right to repurchase the property within
the agreed period by satisfying all the conditions stipulated in the
Deed of Sale with Assumption of Mortgage. Moreover, defendant
returned to plaintiff the amount of Php2.8 Million from the total
purchase price of Php10.0 Million. This only means that this is the
excess amount pertaining to plaintiff and co-heirs after the
defendant deducted the repurchase price of Php2.0 Million plus
interests and his expenses. Add to that is the fact that defendant
returned one of the trucks and trailers subject of the Deed of Sale
with Assumption of Mortgage to the plaintiff. This is, at best, a tacit
acknowledgement of the defendant that plaintiff and his co-heirs
had in fact exercised their right to repurchase.16 x x x
Considering that the factual findings of the trial court, when
affirmed by the CA, are binding on the Court,17 the Court affirms
the judgment of the CA upholding Eduardos exercise of the right of
repurchase. Roberto could no longer assail the factual findings
because his petition for review on certiorari was limited to the
review and determination of questions of law only. A question of
law exists when the doubt centers on what the law is on a certain
set of undisputed facts, while a question of fact exists when the
doubt centers on the truth or falsity of the alleged facts.18
Whether the conditions for the right to repurchase were complied
with, or whether there was a tender of payment, is a question of
fact. With both the RTC and the CA finding and holding that
Eduardo had fulfilled the conditions for the exercise of the right to
repurchase, therefore, we conclude that Eduardo had effectively
repurchased the properties subject of the deed of sale.
In Metropolitan Bank and Trust Company v. Tan,19 the Court ruled
that a redemption within the period allowed by law is not a matter
of intent but of payment or valid tender of the full redemption price
within the period. Verily, the tender of payment is the sellers
manifestation of his desire to repurchase the property with the
offer of immediate performance.20 As we stated in Legaspi v. Court
of Appeals,21 a sincere tender of payment is sufficient to show the
exercise of the right to repurchase. Here, Eduardo paid the

repurchase price to Roberto by depositing the proceeds of the sale

of the Baguio City lot in the latters account. Such payment was an
effective exercise of the right to repurchase.
On the other hand, the Court dismisses as devoid of merit
Robertos insistence that the MOA had extinguished the obligations
established under the deed of sale by novation.
The issue of novation involves a question of fact, as it necessarily
requires the factual determination of the existence of the various
requisites of novation, namely: (a) there must be a previous valid
obligation; (b) the parties concerned must agree to a new contract;
(c) the old contract must be extinguished; and (d) there must be a
valid new contract.22 With both the RTC and the CA concluding
that the MOA was consistent with the deed of sale, novation
whereby the deed of sale was extinguished did not occur. In that
regard, it is worth repeating that the factual findings of the lower
courts are binding on the Court.
In sales with the right to repurchase, the title and ownership of the
property sold are immediately vested in the vendee, subject to the
resolutory condition of repurchase by the vendor within the
stipulated period.23 Accordingly, the ownership of the affected
properties reverted to Eduardo once he complied with the
condition for the repurchase, thereby entitling him to the
possession of the other motor vehicle with trailer.
WHEREFORE, the Court AFFIRMS the decision promulgated on
October 10, 2003; and ORDERS the petitioner to pay the costs of
suit.
SO ORDERED.