Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 164051 October 3, 2012

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
LILIAN S. SORIANO, Respondent.

DECISION

PEREZ, J.:

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. 76243 finding no grave abuse of discretion in the ruling of the
1

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 family-
owned 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
LISAM’s 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 (₱
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, [PNB’s] authorized personnel conducted an actual physical
inventory of LISAM’s 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 Trustee’s account and to deliver the proceeds thereof to
PNB to be applied against its acceptance on the Trustee’s 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 Trustee’s 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 Trustee’s 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

and Soriano’s failure to account for the proceeds of the sale of the motor vehicles, PNB, as
previously adverted to, filed a complaint-affidavit 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.

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 [LISAM’s] 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 PNB’s lack of objection to [LISAM’s] 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 Board’s minutes of meeting, with the happy information that the Board of Directors of PNB has
approved the conversion of [LISAM’s] 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.
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

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

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, the City Prosecutor of Naga City found, thus:

7

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 Prosecutor’s 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 Resolution dated 25 June 2002, reversed and set aside
9

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. 2001-0641 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 2002 11

When this case was called for continuation of pre-trial, [Soriano’s] 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.

Accordingly, the prosecution is hereby given fifteen (15) days from receipt hereof within which to
comply with the directive of the Department of Justice.

2. 21 February 2003 12

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 2003 13

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 PNB’s petition for certiorari.

Hence, this appeal by certiorari.

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 Soriano’s Memorandum.

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 [LISAM’s] restructuring proposal of its account with PNB had changed the
status of [LISAM’s] 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 DOJ’s ruling that the restructuring of LISAM’s loan secured by trust
receipts extinguished Soriano’s criminal liability therefor.

It has not escaped us that PNB’s 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 RTC’s 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 the issuance thereof.

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

1. Whether the withdrawal of Criminal Cases Nos. 2001-0641 to 2001-0693 against Soriano as
directed by the DOJ violates the well-established 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 DOJ’s 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 court’s imprimatur. As such, the DOJ’s 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 RTC’s 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. We shall
16

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, Rule 117 of the Rules of Court provides for the requisites for double jeopardy to set in:
17

(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

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.

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

simply followed the prosecution’s 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 prosecutor’s 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 court’s 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 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.

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:

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
complainant’s 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. (Emphasis supplied)
20

We now come to the crux of the matter: whether the restructuring of LISAM’s loan account
extinguished Soriano’s criminal liability.

PNB admits that although it had approved LISAM’s restructuring proposal, the actual restructuring of
LISAM’s 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 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 the ruling of the DOJ Secretary that the approval
of LISAM’s restructuring proposal, even if not reduced into writing, changed the status of LISAM’s
loan from being secured with Trust Receipts (TR’s) 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 court’s reasoning. The DOJ Secretary’s 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; it is a single juridical act with a
21

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. It is not a complete obliteration of
22

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. Nonetheless,
24

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 TR’s and the subsequent restructured
Omnibus Line which was supposedly approved by PNB.

Soriano is confident with her assertion that PNB’s approval of her proposal to restructure LISAM’s
loan novated the loan agreement secured by TR’s. 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 [LISAM’s] 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 PNB’s lack of objection to [LISAM’s] 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’s Board’s minutes of meeting, with the happy information that the Board of Directors of PNB
has approved the conversion of [LISAM’s] 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

Soriano’s reliance thereon is misplaced. The approval of LISAM’s 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 creditor-
debtor 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, Soriano’s bare assertion that the
restructuring was approved by PNB cannot equate to a finding of an implied novation which
extinguished Soriano’s obligation as entrustee under the TR’s.

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 Soriano’s obligation to "sell
the [merchandise] for cash for [LISAM’s] account and to deliver the proceeds thereof to PNB to be
applied against its acceptance on [LISAM’s] 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. Besides, novation does not extinguish criminal liability. It
28 29

stands to reason therefore, that Soriano’s criminal liability under the TR’s subsists considering that
the civil obligations under the Floor Stock Line secured by TR’s were not extinguished by the
purported restructured Omnibus Line.

In Transpacific Battery Corporation v. Security Bank and Trust Company, we held that the
30

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. Courts are not
1âwphi1
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 PNB’s 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.