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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

L-27434 September 23, 1986


GENARO GOI, RUFINA P. vda. DE VILLANUEVA, VIOLA P. VILLANUEVA, OSCAR P. VILLANUEVA, MARINA P. VILLANUEVA, VERNA P. VILLANUEVA, PRAXEDES P. VILLANUEVA, JR., JOSE P. VILLANUEVA, SAMUEL P. VILLANUEVA, LOURDES P. VILLANUEVA, MILAGROS P. VILLANUEVA DE ARRIETA, petitioners-appellants, vs.

Hacienda Dulce Nombre de Maria for the sum of P13,807.00. This agreement was reduced to writing and signed by petitioner Genaro Goni as attorney-infact of Villanueva, thus: En consideracion a la garantia que Don Gaspar Vicente assume con la Cia. Gral. de Tabacos de Filipinas por el saldo de Don Santiago Villegas de P43,539.75 asumido por Don Joaquin Villegas el que Subscribe Praxedes T. Villanueva se compromete ceder es venta a Don Gaspar Vicente los campos nos. 3, 4 y 13 del plano de porcelario de la Hacienda Dulce Nombre de Maria, en compra projectada de la Cia. Gral. de Tabacos de Filipinas. Estas campos representan 6-90-35 hectares por valor de P13,807.00 que Don Gasper Vicente pagara directamente a Praxedes T. Villanueva Bais Central, Octubre 24, 1949. Fdo. Praxedes T. Villanueva Por: Fdo Genaro Goi Apoderado 2 Private respondent Vicente thereafter advised TABACALERA to debit from his account the amount of P13,807.00 as payment for the balance of the purchase price. However, as only the amount of P12,460.24 was actually needed to complete the purchase price, only the latter amount was debited from private respondent's account. The difference was supposedly paid by private respondent to Villanueva, but as no receipt evidencing such payment was presented in court, this fact was disputed by petitioners. It is alleged by petitioners that subsequent to the execution of the contract/promise to sell, Villanueva was able to raise funds by selling a property in Ayungon, Negros Oriental. He thus went to private respondent Vicente for the purpose of rescinding the contract/promise to sell However, as the amount of P12,460.24 had already been debited from private respondent's account, it was agreed that lots 4 and 13 of the Hacienda Dulce Nombre de Maria would merely be leased to private respondent Vicente for a period of five (5) years starting with crop-year 1950-51 at an annual rental of 15% of the gross income, said rent to be deducted from the money advanced by private respondent and any balance owing to Villanueva would be delivered by Vicente together with the lots at the end of the stipulated period of lease. On December 10, 1949, TABACALERA executed a formal deed of sale covering the three haciendas in favor of Villanueva. Fields Nos. 3, 4 and 13 of the Hacienda Dulce Nombre de Maria were thereafter registered in the name of

THE COURT OF APPEALS and GASPAR VICENTE, respondentsappellees. FERNAN, J.: This is an appeal by certiorari from the decision of the then Court of Appeals in CA-G.R. No. 27800-R entitled,"Gaspar Vicente, Plaintiff-Appellant, vs. Genaro Goni, et. al., Defendants-Appellants" as well as from the resolution denying petitioners' motion for reconsideration. The factual backdrop is as follows: The three (3) haciendas known as San Sebastian, Sarria and Dulce Nombre de Maria situated in the Municipality of Bais, Negros Oriental, were originally owned by the Compania General de Tabacos de Filipinas [TABACALERA]. Sometime in 1949, the late Praxedes T. Villanueva, predecessor-in-interest of petitioners, negotiated with TABACALERA for the purchase of said haciendas. However, as he did not have sufficient funds to pay the price, Villanueva with the consent of TABACALERA, offered to sell Hacienda Sarria to one Santiago Villegas, who was later substituted by Joaquin Villegas. Allegedly because TABACALERA did not agree to the transaction between Villanueva and Villegas, without a guaranty private respondent Gaspar Vicente stood as guarantor, for Villegas in favor of TABACALERA. The guarantee was embodied in a document denominated as "Escritura de Traspaso de Cuenta." 1 Either because the amount realized from the transaction between Villanueva and Villegas still fell short of the purchase price of the three haciendas, or in consideration of the guaranty undertaken by private respondent Vicente, Villanueva contracted or promised to sell to the latter fields nos. 3, 4 and 13 of

Villanueva under TCT No. T-4780 of the Register of Deeds of Negros Oriental. The fields were likewise mortgaged by Villanueva to the Rehabilitation Finance Corporation (RFC), later transferred to the Philippine National Bank on December 16, 1955, for a total indebtedness of P334,400.00. 3 Meanwhile, Fields nos. 4 and 13 were delivered to private respondent Vicente after the 1949-1950 milling season in January and February, 1950. On June 17, 1950, Villanueva executed a "Documento de la Venta Definitive" in favor of Joaquin Villegas, covering Lot No. 314 of the Cadastral Survey of Bais with an area of 468,627 square meters, more or less. (Hacienda Sarria). A supplemental instrument was later executed by Villanueva in favor of Villegas to include in the sale of June 17, 1950 the sugar quota of the land. On November 12, 1951, Villanueva died. Intestate proceedings were instituted on November 24, 1951 before the then Court of First Instance of Negros Oriental, docketed as Special Case No. 777. Among the properties included in the inventory submitted to the court were fields nos. 3, 4 and 13 of Hacienda Dulce Nombre de Maria. Field no. 13 with an area of 1 hectare, 44 ares and 95 centares was listed as Lot no. 723 of the inventory while fields nos. 3 and 4, with areas of 3 hectares, 75 ares and 60 centares, and 1 hectare, 69 ares and 80 centares, respectively, were included in Lot no. 257 of the inventory. On October 7, 1954, the day before the intestate proceedings were ordered closed and the estate of the late Praxedes Villanueva delivered to his heirs, private respondent Vicente instituted an action for recovery of property and damages before the then Court of First Instance of Negros Oriental against petitioner Goi in his capacity as administrator of the intestate estate of Praxedes Villanueva. In his complaint docketed as Civil Case No. 2990, private respondent Vicente sought to recover field no. 3 of the Hacienda Dulce Nombre de Maria, basing his entitlement thereto on the contract/promise to sell executed by the late Praxedes Villanueva in his favor on October 24, 1949. He likewise prayed by way of attorney's fees and other costs the sum of P2,000.00 and for such other further relief which the court may deem just and equitable in the premises. 4 On October 25, 1954, petitioner Goni as defendant in Civil Case No. 2990, filed an answer with counterclaim for accounting of the produce of fields nos. 4 and 13, as well as the surrerder thereof on June 20, 1955, the end of the fifth crop-year, plus moral damages in the sum of P30,000.00 and P3,000.00 as attorney's fees. After an answer to the counter-claim had been filed, private respondent Vicente amended his complaint on September 1, 1955, to include a

prayer for damages representing the produce of field no. 3 from 1949-50 until delivery thereof to him. An answer with counterclaim to the amended complaint was duly filed, and on April 25, 1956, private respondent Vicente amended his complaint anew to include as parties-defendants the heirs of the late Praxedes Villanueva. On July 13, 1957, the parties entered into a stipulation of facts, agreeing, among others, on the costs of production and produce of the three fields in question. The case thereafter proceeded to trial. Plaintiff presented two (2) witnesses: then party-plaintiff Gaspar Vicente, himself, who over the objection of therein defendants testified on facts occurring before the death of Praxedes Villanueva, and Epifanio Equio a clerk of TABACALERA Agency in the Bais Sugar Central. Defendants presented Genaro Goni, who testified on the alleged verbal lease agreement. On December 18, 1959, the trial court rendered a decision ordering therein defendants-heirs to deliver to Gaspar Vicente field no 3, to execute a formal deed of sale covering fields nos. 3, 4 and 13 in favor of Vicente, to pay the latter actual or compensatory damages in the amount of P 81,204.48, representing 15% of the total gross income of field no. 3 for crop-years 195051 to 1958-59, and such other amounts as may be due from said field for the crop years subsequent to crop-year 1958-59, until the field is delivered to Vicente, and to pay the sum of P2,000.00 as attorney's fees plus costs. Therein defendant Goi was relieved of any civil liability for damages, either personally or as administrator of the estate. 5 Both parties appealed the decision to the then Court of Appeals; the plaintiff from the portion awarding damages on a claim that he was entitled to more, and defendants, from the entire decision. On December 15, 1966, the Court of Appeals promulgated its decision, affirming that of the lower court, with the modification that the amount of damages to be paid by defendant-heirs to the plaintiff should be the total net income from field no. 3 from the crop year 1950-51 until said field is finally delivered to the plaintiff plus interest thereon at the legal rate per annum. 6 Petitioners filed a motion for reconsideration, but were denied the relief sought in a resolution dated February 9, 1967. Hence, the present appeal by certiorari whereby petitioners raise the following questions of law:

MAY RESPONDENT GASPAR VICENTE TESTIFY ON MATTERS OF FACT OCCURRING BEFORE THE DEATH OF PRAXEDES T. VILLANUEVA, WHICH CONSTITUTES A CLAIM OR DEMAND UPON HIS ESTATE. IN VIOLATION OF RULE 123, SEC, 26, PAR. (C), NOW RULE 130, SEC. 20 PAR. (A)? MAY NOT A WRITTEN PROMISE TO SELL DATED OCTOBER 24,1949 BE NOVATED INTO A VERBAL AGREEMENT OF LEASE DURING THE LIFETIME OF THE PROMISSOR, WHOSE DEATH OCCURRED ON NOVEMBER 12, 1951, BY FACTS AND CIRCUMSTANCES SUBSTANTIATED BY COMPETENT ORAL EVIDENCE IN THIS CASE? SHOULD THE PROMISEE IN A PROMISE TO SELL, WHO PAID P12,460.24 WHICH WAS TO BE ACCOUNTED AND TO BE CREDITED AS RENTALS AFTER FIVE (5) YEARS OF LEASE, WHO IN HIS ORIGINAL COMPLAINT DID NOT ALLEGE NOR PROVE DAMAGES, EXCEPT THE SUM OF P2,000.00 AS ATTORNEY'S FEES, RECEIVE A JUDGMENT FOR DAMAGES IN THE AMOUNT OF P74,056.35 WHICH CONSISTS OF P37,121.26 PLUS LEGAL INTEREST FOR THE CROP YEARS 1950-51 TO 1958-59 AND FOR P3,624.18 TO P4,374.78 FOR EVERY CROP YEAR SUBSEQUENT TO 1958-59 PLUS INTEREST? 7 We find that neither the trial nor appellate court erred in ruling for the admissibility in evidence of private respondent Vicente's testimony. Under ordinary circumstances, private respondent Vicente 8 would be disqualified by reason of interest from testifying as to any matter of fact occurring before the death of Praxedes T. Villanueva, such disqualification being anchored on Section 20(a) of Rule 130, commonly known as the Survivorship Disqualification Rule or Dead Man Statute, which provides as follows: Section 20. Disqualification by reason of interest or relationship.-The following persons cannot testify as to matters in which they are interested, directly or indirectly, as herein enumerated:

(a) Parties or assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an executor or administrator or other representative of a deceased person, or against a person of unsound mind, upon a claim or demand against the estate of such deceased person or against such person of unsound mind, cannot testify as to any matter of fact occurring before the death of such deceased person or before such person became of unsound mind. The object and purpose of the rule is to guard against the temptation to give false testimony in regard to the transaction in question on the part of the surviving party and further to put the two parties to a suit upon terms of equality in regard to the opportunity of giving testimony. 9 It is designed to close the lips of the party plaintiff when death has closed the lips of the party defendant, in order to remove from the surviving party the temptation to falsehood and the possibility of fictitious claims against the deceased. 10 The case at bar, although instituted against the heirs of Praxedes Villanueva after the estate of the latter had been distributed to them, remains within the ambit of the protection. The reason is that the defendants-heirs are properly the "representatives" of the deceased, not only because they succeeded to the decedent's right by descent or operation of law, but more importantly because they are so placed in litigation that they are called on to defend which they have obtained from the deceased and make the defense which the deceased might have made if living, or to establish a claim which deceased might have been interested to establish, if living. 11 Such protection, however, was effectively waived when counsel for petitioners cross-examined private respondent Vicente. "A waiver occurs when plaintiff's deposition is taken by the representative of the estate or when counsel for the representative cross-examined the plaintiff as to matters occurring during deceased's lifetime. 12 It must further be observed that petitioners presented a counterclaim against private respondent Vicente. When Vicente thus took the witness stand, it was in a dual capacity as plaintiff in the action for recovery of property and as defendant in the counterclaim for accounting and surrender of fields nos. 4 and 13. Evidently, as defendant in the counterclaim, he was not disqualified from testifying as to matters of fact occurring before the death of Praxedes Villanueva, said action not having been brought against, but by the estate or representatives of the estate/deceased person. Likewise, under a great majority of statutes, the adverse party is competent to testify to transactions or communications with the deceased or incompetent person which were made with an agent of such person in cases in which the agent is still alive and competent to testify. But the testimony of the adverse

party must be confined to those transactions or communications which were had with the agent. 13 The contract/promise to sell under consideration was signed by petitioner Goi as attorney-in-fact (apoderado) of Praxedes Villanueva. He was privy to the circumstances surrounding the execution of such contract and therefore could either confirm or deny any allegations made by private respondent Vicente with respect to said contract. The inequality or injustice sought to be avoided by Section 20(a) of Rule 130, where one of the parties no longer has the opportunity to either confirm or rebut the testimony of the other because death has permanently sealed the former's lips, does not actually exist in the case at bar, for the reason that petitioner Goi could and did not negate the binding effect of the contract/promise to sell. Thus, while admitting the existence of the said contract/promise to sell, petitioner Goi testified that the same was subsequently novated into a verbal contract of lease over fields nos. 4 and 13 of the Hacienda Dulce Nombre de Maria. Novation takes place when the object or principal condition of an obligation is changed or altered. 14 In order, however, 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. 15 "Novation is never presumed. It must be established that the old and the new contracts are incompatible in all points, or that the will to novate appear by express agreement of the parties or in acts of equivalent import. 16 The novation of the written contract/promise to sell into a verbal agreement of lease was clearly and convincingly proven not only by the testimony of petitioner Goi, but likewise by the acts and conduct of the parties subsequent to the execution of the contract/promise to sell. Thus, after the milling season of crop year 1949-50, only fields nos. 4 and 13 were delivered to private respondent Vicente. Fields nos. 3, 4 and 13 were subsequently registered in Villanueva's name and mortgaged with the RFC. Villanueva likewise executed a deed of sale covering Hacienda Sarria in favor of Joaquin Villegas. All these were known to private respondent Vicente, yet he did not take any steps toward asserting and/or protecting his claim over fields nos. 3, 4 and 13 either by demanding during the lifetime of Villanueva that the latter execute a similar document in his favor, or causing notice of his adverse claim to be annotated on the certificate of title of said lots. If it were true that he made demands on Villanueva for the surrender of field no. 3 as well as the execution of the corresponding deed of sale, he should have, upon refusal of the latter to do so, immediately or within a reasonable time thereafter, instituted an action for recovery, or as previously observed, caused his adverse claim to be annotated on the certificate of title. Considering that field no. 3, containing an area of three (3) hectares, 75 ares and 60 centares, is the biggest among the three lots, an ordinary prudent man would have taken these steps if he honestly believed

he had any right thereto. Yet, private respondent Vicente did neither. In fact such inaction persisted even during the pendency of the intestate proceedings wherein he could have readily intervened to seek exclusion of fields nos. 3, 4 and 13 from the inventory of properties of the late Praxedes Villanueva. The reason given by private respondent Vicente that field no. 3 was not delivered to him together with fields nos. 4 and 13 because there were small sugar cane growing on said field at that time belonging to TABACALERA, might be taken as a plausible explanation why he could not take immediate possession of lot no. 3, but it certainly could not explain why it took him four years before instituting an action in court, and very conveniently, as petitioners noted, after Villanueva had died and at the time when the verbal contract of lease was about to expire. Both the trial and appellate courts chose to believe in the contract/promise to sell rather than the lease agreement, simply because the former had been reduced to writing, while the latter was merely verbal. It must be observed, though, that the contract/promise to sell was signed by petitioner Goi as attorney-in-fact of the late Praxedes Villanueva, an indication, to our mind, that final arrangements were made by petitioner Goi in the absence of Villanueva. It was therefore natural for private respondent Vicente to have demanded that the agreement be in writing to erase any doubt of its binding effect upon Villanueva. On the other hand, the verbal lease agreement was negotiated by and between Villanueva and private respondent Vicente themselves. Being close friends and relatives 17 it can be safely assumed that they did not find it necessary to reduce the same into writing. In rejecting petitioners' contention respecting the verbal lease agreement, the appellate court put much weight on the failure of petitioners to demand an accounting of the produce of fields nos. 4 and 13 from 1950 to 1954, when the action for recovery of property was filed. Such failure was satisfactorily explained by petitioners in their motion for reconsideration filed before the then Court of Appeals, in this manner: ... Mr. Genaro Goni is also a farmer by profession and that there was no need for him to demand a yearly accounting of the total production because the verbal lease agreement was for a term of 5 years. The defendant Mr. Genaro Goni as a sugar planter has already full knowledge as to the annual income of said lots nos. 4 and 13, and since there was the amount of P12,460.25 to be liquidated, said defendant never deemed it wise to demand such a yearly accounting. It was only after or before the expiration of the 5 year lease that said defendant demanded the accounting from the

herein plaintiff regarding the production of the 2 lots that were then leased to him. It is the custom among the sugar planters in this locality that the Lessee usually demands an advance amount to cover the rental for the period of the lease, and the demand of an accounting will be only made after the expiration of the lease period. It was adduced during the trial that the amount of P12,460.75 was considered as an advance rental of the 2 lots which was leased to the Plaintiff, lots nos. 4 and 13; so we humbly believe that there was no necessity on the part of defendant Mr. Genaro Goi to make a yearly demand for an accounting for the total production of 2 parcels leased to the plaintiff. 18 Petitioners, having clearly and sufficiently shown that the contract/promise to sell was subsequently novated into a verbal lease agreement, it follows that they are entitled to a favorable decision on their counterclaim. Discussion of the third issue raised therefore becomes unnecessary. WHEREFORE, the decision appealed from is hereby reversed. The judicial administrator of the estate of private respondent Gaspar Vicente and/or his successors-in-interest are hereby ordered to: a) surrender possession of fields nos. 4 and 13 of the Hacienda Dulce Nombre de Maria to petitioners; b) render an accounting of the produce of said fields for the period beginning crop-year 1950-51 until complete possession thereof shall have been delivered to petitioners; and c) to pay the corresponding annual rent for the said fields in an amount equivalent to 15% of the gross produce of said fields, for the periods beginning crop-year 1950-51 until said fields shall have been surrendered to petitioners, deducting from the amount due petitioners the sum of P12,460.24 advanced by private respondent Gaspar Vicente. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 152984 November 22, 2006 WILLIAM G. KWONG, Petitioner, vs. ATTY. RAMON GARGANTOS, ANACLETO GARGANTOS, SPS. REY & REMY SANTOS, and SPS. LORNA & DANIEL ARCEO, Respondents. DECISION AUSTRIA-MARTINEZ, J.: Petitioner William G. Kwong is the owner of fifteen (15) lots located in the province of Pampanga. In an unnotarized Deed of Conditional Sale, petitioner, for himself and in behalf of William G. Kwong Management, sold said lots to respondents Anacleto Gargantos, Remy Santos and Lorna Arceo for the sum of $137,255.00 payable in two installments, with $10,000.00 being paid by respondents at the time of the execution of the contract, and the balance of $127,255.00 to be paid on or before December 15, 1986. 1 When respondents failed to pay the balance on the expected date, it was subsequently agreed that the same shall be paid on a staggered basis starting March 1989. Respondents, however, again failed to comply with their obligation. This compelled petitioner to write a letter of demand, through counsel, on November 16, 1989, asking respondents compliance with their monetary obligation; otherwise, the contract shall be rescinded. 2 The letter was addressed to respondent Gargantos. There being no reply, another letter of demand dated February 21, 1990 was sent. 3 On May 1, 1990, Atty. Ramon Gargantos (brother of respondent Anacleto Gargantos), armed with a Special Power of Attorney 4 executed by respondents, paid the amount of P1,776,200.00. 5 Thereafter, petitioner and Atty. Gargantos executed a notarized Deed of Absolute Sale, wherein petitioner sold to respondent Gargantos 11 out of the 15 lots for the sum of P500,000.00, 6 and Atty. Gargantos signed a Promissory Note for the payment of the amount of P373,074.95, on or before June 30, 1990, representing the unpaid balance of the purchase covering the remaining four lots. 7

Again, respondent Gargantos failed to pay the agreed amount, forcing petitioner to write subsequent demand letters on November 12, 1990, 8 November 10, 1994, 9 October 15, 1995, 10 and July 29, 1996. 11 Respondent Gargantos, through counsel, finally answered, claiming that it was petitioner who did not comply with his undertaking to transfer 11 of the 15 titles to respondents prior to the payment of the balance, with the remaining four titles to be transferred afterwards. 12 Petitioner then wrote respondents on September 15, 1996 asking for a conference in order to settle the matter. 13In a letter dated November 12, 1996, respondent Gargantoss counsel reiterated his demand for the delivery of the 11 titles, failing which a complaint for specific performance with damages and a criminal case for estafa will be filed against petitioner. 14 On November 14, 1996, petitioner filed before the Regional Trial Court (RTC) of Angeles City, Branch 62, a complaint for the rescission of the Deed of Conditional Sale and forfeiture of all the payments made by respondents against herein respondents. 15 Respondents filed an Answer with Compulsory Counterclaim, denying petitioners allegations, and asking for the dismissal of the complaint. Respondents also prayed for the delivery of the 11 titles indicated in the Deed of Absolute Sale in exchange for the remaining balance and for damages. 16 In a Pre-trial Order issued by the RTC on June 9, 1997, the following facts were admitted: 1. That plaintiff [petitioner] agreed to sell his real properties, consisting of 15 lots, to defendant for $137,255.00 U.S. Currency or in Philippine Currency at the rate of P20.40 per dollar, as evidenced by a deed of conditional sale dated November 1986. 2. That on the date the conditional sale was executed, defendants paid $10,000.00 U.S. Currency or P204,000.00, Philippine Currency thereby leaving a balance of $127,255.00 or P2,596,002.00 Philippine Currency which shall be paid on December 15, 1986 without interest. 3. That to guarantee payment of the balance defendants thru their attorney-infact, Atty. Ramon Gargantos, executed a promissory note dated May 1, 1990; and 4. That on the same date a deed of absolute sale was likewise executed. 17

The issues were defined as follows: 1. Whether or not the terms and conditions of the deed of conditional sale dated November 1986 has been complied with by the parties; 2. Whether or not the said deed of conditional sale has been superseded or novated by the subsequent execution of the deed of absolute sale dated May 1, 1990; and 3. Whether or not the deed of absolute sale is binding and/or enforceable. 18 On the first issue, the RTC ruled that "not only that defendants failed to comply with the terms and conditions of the Deed of Conditional Sale of 1986 but also of the Promissory Note of May 1, 1990." 19 On the second issue, the RTC ruled that there was no novation of the Deed of Conditional Sale by the execution of the Deed of Absolute Sale because the parties continued to recognize the validity of the conditional sale; the absolute sale was executed without the knowledge and consent of the other respondents; and there was no showing that the other respondents were released from their obligation under the conditional sale. 20 On the third and last issue, the RTC ruled that the Deed of Absolute Sale cannot be enforced since Atty. Gargantos exceeded his powers under the Special Power of Attorney when he entered into the transaction. 21 Thus, in its Decision dated February 4, 1999, the RTC granted rescission of the Deed of Conditional Sale and ordered petitioner to refund one-half of the amount paid by respondents, subject to 6% interest, with respondents forfeiting the other half in favor of petitioner. Respondents counterclaim was dismissed. 22 Respondents appealed to the Court of Appeals (CA), which reversed and set aside the RTC Decision, and dismissed petitioners complaint and respondents counterclaim per its Decision 23 dated December 14, 2001. The CA held that petitioner does not have any right to rescind the Deed of Conditional Sale because the Deed of Absolute Sale and the Promissory Note have already superseded it. 24 The CA also denied petitioners Motion for Reconsideration per Resolution dated April 11, 2002. 25 Petitioner now comes before the Court by way of a petition for review under Rule 45 of the Rules of Court, submitting that the CA committed a serious

reversible error when it held that it was the parties intention to supersede the Deed of Conditional Sale with the Deed of Absolute Sale. The petition lacks merit. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. 26 Under Article 1292 of the Civil Code, 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. The parties to a contract must expressly agree that they are abrogating their old contract in favor of a new one. In the absence of an express agreement, novation takes place only when the old and the new obligations are incompatible on every point. 27 In Iloilo Traders Finance, Inc, v. Heirs of Soriano, Jr., 28 the nature of novation was explained, thus: Novation may either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superseded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconcilable, the subsequent obligation would also extinguish the first. (Emphasis supplied) The test of incompatibility between two obligations or contracts is whether or not they can stand together, each one having an independent existence. If they cannot, they are incompatible, and the later obligation novates the first. 29 In this case, an examination of the Deed of Absolute Sale and the Promissory Note, as well as the surrounding circumstances of this case, shows that it was meant to novate and replace the Deed of Conditional Sale. Logically, the Deed of Conditional Sale and the Deed of Absolute Sale cannot co-exist as these are of different nature and provide for separate and distinct obligations, to wit:

A contract of sale is absolute when title to the property passes to the vendee upon delivery of the thing sold. A deed of sale is absolute when there is no stipulation in the contract that title to the property remains with the seller until full payment of the purchase price. The sale is also absolute if there is no stipulation giving the vendor the right to cancel unilaterally the contract the moment the vendee fails to pay within a fixed period. In a conditional sale, as in a contract to sell, ownership remains with the vendor and does not pass to the vendee until full payment of the purchase price. The full payment of the purchase price partakes of a suspensive condition, and non-fulfillment of the condition prevents the obligation to sell from arising. 30 The fact that the Deed of Absolute Sale of the 11 lots was executed even without respondents having fully paid the purchase price for the entire 15 parcels of land covered by the Deed of Conditional Sale enforces the conclusion that the parties intended to enter into a new agreement and discard the old one; otherwise, petitioner could have enforced his right to rescind the contract by filing a complaint instead of dealing anew with respondents and entering into the succeeding agreements. What subsequently occurred was a segregated sale of the 11 lots, while the Promissory Note covered the remaining four lots. The Court notes that respondents had already paid a substantial amount for the subject lots. Petitioner admitted that a down payment of $10,000.00 was made upon the execution of the Deed of Conditional Sale, and respondents also made further payments in the amount of $20,000.00. 31 Thereafter, Atty. Gargantos, in behalf of respondents, paid P1,776,200.00 on May 1, 1990. It was after such payment was made that the parties entered into the Deed of Absolute Sale and the Promissory Note. Obviously, the Deed of Absolute Sale was intended by the parties to close the transaction involving the 11 lots. What remained for enforcement is the Promissory Note, which covers the four remaining lots. The Court also notes that the Deed of Conditional Sale reflected the amount of $137,255.00 or its peso equivalent at the rate of P20.40 per US dollar (or P2,800,002.00), as purchase price for the entire 15 lots. On the other hand, the Deed of Absolute Sale provided that the 11 parcels of land were being sold for P500,000.00, while the Promissory Note reflects the intention of petitioner to sell the other four lots for an undisclosed amount the balance of which is P373,074.95. Apparently, these two subsequent agreements do not show the true value of the subject lots. Nevertheless, it is well-settled that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control; however, if the contract appears to

be contrary to the evident intentions of the parties, the latter shall prevail over the former. Moreover, the agreement of the parties may be embodied in only one contract or in two or more separate writings. In such event, the writings of the parties should be read and interpreted together in such a way as to render their intention effective. 32 It is at this point that the receipt 33 dated May 1, 1990 for P1,776,200.00 becomes material. Construed in conjunction with the Deed of Absolute Sale and the Promissory Note, it becomes clear that the 15 lots have already been substantially paid for by respondents, and there only remains the balance of P373,074.95. What the parties clearly intended was that the Deed of Absolute Sale will then cover the 11 lots, the purchase price of which shall be considered as fully paid, with the payment of the P500,000.00 acknowledged in the Deed of Absolute Sale, while the Promissory Note will answer for the other four lots. For whatever purpose the parties in this case may have had in undervaluing the properties, the fact remains that the Deed of Absolute Sale and the Promissory Note were meant to supplant the Deed of Conditional Sale. Whats more, it was petitioners own counsel, Atty. Avelino Liangco, who drafted the Deed of Absolute Sale and Promissory Note on May 1, 1990, after petitioner met with Atty. Gargantos at the Shanghai Restaurant, which was owned by petitioner. According to Atty. Liangco, on May 1, 1990, Atty. Gargantos paid a "considerable" sum of money to petitioner as partial fulfillment of respondents obligation under the Deed of Conditional Sale. Thereafter, Atty. Liangco prepared the Deed of Absolute Sale of the 11 lots and the Promissory Note for the remaining obligation. 34 Atty. Liangco also testified that it was petitioner himself who dictated the amount to be indicated in the Deed of Absolute Sale and the Promissory Note, and petitioner kept the original copies of these documents. 35It is settled that in order to ascertain the true intention of the parties, their actions, subsequent or contemporaneous, must be principally considered. 36 The foregoing circumstances confirm petitioners grasp of what he was entering into and was very well aware of the terms and conditions of the Deed of Absolute Sale and the Promissory Note. He cannot now turn his back on it and claim that it was merely executed so that Atty. Gargantos will have something to show his principals. To sustain this is to make a mockery of the sanctity of contracts. In addition, it is merely bare allegation supported by nothing but uncorroborated words. In fine, the Deed of Conditional Sale had ceased to exist with the execution of the Deed of Absolute Sale and the Promissory Note. There is nothing more to rescind. Petitioners complaint must therefore fail.

Petitioner cannot be compelled, in the present petition, to deliver to respondents the titles to the 11 lots because the latter did not appeal from the CAs dismissal of their counterclaim. WHEREFORE the petition is DENIED. The assailed Decision dated December 14, 2001 and Resolution dated April 11, 2002 of the Court of Appeals are AFFIRMED. Costs against petitioner. SO ORDERED.

THIRD DIVISION [G.R. No. 112191. February 7, 1997] FORTUNE MOTORS (PHILS.) CORPORATION and EDGAR L. RODRIGUEZA, Petitioners, vs. THE HONORABLE COURT OF APPEALS and FILINVEST CREDIT CORPORATION, Respondents. DECISION

2. The amount of P50,000.00 as attorneys fees and another P50,000.00 as liquidated damages; and 3. That the defendants, although spared from paying exemplary damages, are further ordered to pay, in solidum, the costs of this suit. Plaintiff therein was the financing company and the defendants the car dealer and its sureties. The Facts PANGANIBAN, J.: On or about August 4, 1981, Joseph L. G. Chua and Petitioner Edgar Lee Rodrigueza (Petitioner Rodrigueza) each executed an undated Surety Undertaking5 whereunder they absolutely, unconditionally and solidarily guarantee(d) to Respondent Filinvest Credit Corporation (Respondent Filinvest) and its affiliated and subsidiary companies the full, faithful and prompt performance, payment and discharge of any and all obligations and agreements of Fortune Motors (Phils.) Corporation (Petitioner Fortune) under or with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or otherwise) of the latter with Filinvest and its affiliated and subsidiary companies now in force or hereafter made. The following year or on April6 5, 1982, Petitioner Fortune, Respondent Filinvest and Canlubang Automotive Resources Corporation (CARCO) entered into an Automotive Wholesale Financing Agreement7 (Financing Agreement) under which CARCO will deliver motor vehicles to Fortune for the purpose of resale in the latters ordinary course of business; Fortune, in turn, will execute trust receipts over said vehicles and accept drafts drawn by CARCO, which will discount the same together with the trust receipts and invoices and assign them in favor of Respondent Filinvest, which will pay the motor vehicles for Fortune. Under the same agreement, Petitioner Fortune, as trustee of the motor vehicles, was to report and remit proceeds of any sale for cash or on terms to Respondent Filinvest immediately without necessity of demand. Subsequently, several motor vehicles were delivered by CARCO to Fortune, and trust receipts covered by demand drafts and deeds of assignment were executed in favor of Respondent Filinvest. However, when the demand drafts matured, not all the proceeds of the vehicles which Petitioner Fortune had sold were remitted to Respondent Filinvest. Fortune likewise failed to turn over to Filinvest several unsold motor vehicles covered by the trust receipts. Thus, Filinvest through counsel, sent a demand letter8 dated December 12, 1983 to Fortune for the payment of its unsettled account in the amount

To fund their acquisition of new vehicles (which are later retailed or resold to the general public), car dealers normally enter into wholesale automotive financing schemes whereby vehicles are delivered by the manufacturer or assembler on the strength of trust receipts or drafts executed by the car dealers, which are backed up by sureties. These trust receipts or drafts are then assigned and/or discounted by the manufacturer to/with financing companies, which assume payment of the vehicles but with the corresponding right to collect such payment from the car dealers and/or the sureties. In this manner, car dealers are able to secure delivery of their stock-in-trade without having to pay cash therefor; manufacturers get paid without any receivables/collection problems; and financing companies earn their margins with the assurance of payment not only from the dealers but also from the sureties. When the vehicles are eventually resold, the car dealers are supposed to pay the financing companies -- and the business goes merrily on. However, in the event the car dealer defaults in paying the financing company, may the surety escape liability on the legal ground that the obligations were incurred subsequent to the execution of the surety contract? This is the principal legal question raised in this petition for review (under Rule 45 of the Rules of Court) seeking to set aside the Decision1 of the Court of Appeals (Tenth Division)2 promulgated on September 30, 1993 in CA G.R. CV No. 09136 which affirmedin toto the decision3 of the Regional Trial Court of Manila - Branch 114 in Civil Case No. 83-21994, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, by ordering the latter to pay, jointly and severally, the plaintiff the following amounts: 1. The sum of P1,348,033.89, plus interest thereon at the rate of P922.53 per day starting April 1, 1985 until the said principal amount is fully paid;

of P1,302,811.00. Filinvest sent similar demand letters9 separately to Chua and Rodrigueza as sureties. Despite said demands, the amount was not paid. Hence, Filinvest filed in the Regional Trial Court of Manila a complaint for a sum of money with preliminary attachment against Fortune, Chua and Rodrigueza. In an order dated September 26, 1984, the trial court declared that there was no factual issue to be resolved except for the correct balance of defendants account with Filinvest as agreed upon by the parties during pretrial.10 Subsequently, Filinvest presented testimonial and documentary evidence. Defendants (petitioners herein), instead of presenting their evidence, filed a Motion for Judgment on Demurrer to Evidence11 anchored principally on the ground that the Surety Undertakings were null and void because, at the time they were executed, there was no principal obligation existing. The trial court denied the motion and scheduled the case for reception of defendants evidence. On two scheduled dates, however, defendants failed to present their evidence, prompting the court to deem them to have waived their right to present evidence. On December 17, 1985, the trial court rendered its decision earlier cited ordering Fortune, Chua and Rodrigueza to pay Filinvest, jointly and severally, the sum ofP1,348,033.83 plus interest at the rate of P922.53 per day from April 1, 1985 until fully paid, P50,000.00 in attorneys fees, another P50,000.00 in liquidated damages and costs of suit. As earlier mentioned, their appeal was dismissed by the Court of Appeals (Tenth Division) which affirmed in toto the trial courts decision. Hence, this recourse. Issues Petitioners assign the following errors in the appealed Decision: 1. that the Court of Appeals erred in declaring that surety can exist even if there was no existing indebtedness at the time of its execution. 2. that the Court of Appeals erred when it declared that there was no novation. 3. that the Court of Appeals erred when it declared, that the evidence was sufficient to prove the amount of the claim.12chanroblesvirtuallawlibrary Petitioners argue that future debts which can be guaranteed under Article 2053 of the Civil Code refer only to debts existing at the time of the constitution of the guaranty but the amount thereof is unknown, and that a guaranty being an accessory obligation cannot exist without a principal obligation. Petitioners

claim that the surety undertakings cannot be made to cover the Financing Agreement executed by Fortune, Filinvest and CARCO since the latter contract was not yet in existence when said surety contracts were entered into. Petitioners further aver that the Financing Agreement would effect a novation of the surety contracts since it changed the principal terms of the surety contracts and imposed additional and onerous obligations upon the sureties. Lastly, petitioners claim that no accounting of the payments made by Petitioner Fortune to Respondent Filinvest was done by the latter. Hence, there could be no way by which the sureties can ascertain the correct amount of the balance, if any. Respondent Filinvest, on the other hand, imputes estoppel (by pleadings or by judicial admission) upon petitioners when in their Motion to Discharge Attachment, they admitted their liability as sureties thus: Defendants Chua and Rodrigueza could not have perpetrated fraud because they are only sureties of defendant Fortune Motors x x x; x x x The defendants (referring to Rodrigueza and Chua) are not parties to the trust receipts agreements since they are ONLY sureties x x x.13chanroblesvirtuallawlibrary In rejecting the arguments of petitioners and in holding that they (Fortune and the sureties) were jointly and solidarily liable to Filinvest, the trial court declared: As to the alleged non-existence of a principal obligation when the surety agreement was signed, it is enought (sic) to state that a guaranty may also be given as security for future debts, the amount of which is not known (Art. 2053, New Civil Code). In the case of NARIC vs. Fojas, L-11517, promulgated April 10, 1958, it was ruled that a bond posted to secure additional credit that the principal debtor had applied for, is not void just because the said bond was signed and filed before the additional credit was extended by the creditor. The obligation of the sureties on future obligations of Fortune is apparent from a proviso under the Surety Undertakings marked Exhs. B and C that the sureties agree with the plaintiff as follows: In consideration of your entering into an arrangement with the party (Fortune) named above, x x x x by which you may purchase or otherwise require from, and or enter into with obligor x x x trust receipt x x x arising out of wholesale and/or retail transactions by or with obligor, the undersigned x x x absolutely,

unconditionally, and solidarily guarantee to you x x x the full, faithful and prompt performance, payment and discharge of any and all obligations x x x of obligor under and with respect to any and all such contracts and any and all agreements (whether by way of guaranty or otherwise) of obligor with you x x x now in force or hereafter made. (Underlinings supplied). On the matter of novation, this has already been ruled upon when this Court denied defendants Motion to dismiss on the argument that what happened was really an assignment of credit, and not a novation of contract, which does not require the consent of the debtors. The fact of knowledge is enough. Besides, as explained by the plaintiff, the mother or the principal contract was the Financing Agreement, whereas the trust receipts, the sight drafts, as well as the Deeds of assignment were only collaterals or accidental modifications which do not extinguish the original contract by way of novation. This proposition holds true even if the subsequent agreement would provide for more onerous terms for, at any rate, it is the principal or mother contract that is to be followed. When the changes refer to secondary agreements and not to the object or principal conditions of the contract, there is no novation; such changes will produce modifications of incidental facts, but will not extinguish the original obligation (Tolentino, Commentaries on Jurisprudence of the Civil Code of the Philippines, 1973 Edition, Vol. IV, page 367; cited in plaintiffs Memorandum of September 6, 1985, p. 3). On the evidence adduced by the plaintiff to show the status of defendants accounts, which took into consideration payments by defendants made after the filing of the case, it is enough to state that a statement was carefully prepared showing a balance of the principal obligation plus interest totalling P1,348,033.89 as of March 31, 1985 (Exh. M). This accounting has not been traversed nor contradicted by defendants although they had the opportunity to do so. Likewise, there was absolute silence on the part of defendants as to the correctness of the previous statement of account made as of December 16, 1983 (referring to Exh. I), but more important, however, is that defendants received demand letters from the plaintiff stating that, as of December 1983 (Exhs. J, K and L), this total amount of obligation was P1,302,811,00, and yet defendants were not heard to have responded to said demand letters, let alone have taken any exception thereto. There is such a thing as evidence by silence (Sec. 23, Rule 130, Revised Rules of Court).14chanroblesvirtuallawlibrary The Court of Appeals, affirming the above decision of the trial court, further explained: x x x In the case at bar, the surety undertakings in question unequivocally state that Chua and Rodrigueza absolutely, unconditionally and solidarily guarantee

to Filinvest the full, faithful and prompt performance, payment and discharge of any and all obligations and agreements of Fortune under or with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or otherwise) of the latter with Filinvest in force at the time of the execution of the Surety Undertakings or made thereafter. Indeed, if Chua and Rodrigueza did not intend to guarantee all of Fortunes future obligation with Filinvest, then they should have expressly stated in their respective surety undertakings exactly what said surety agreements guaranteed or to which obligations of Fortune the same were intended to apply. For another, if Chua and Rodrigueza truly believed that the surety undertakings they executed should not cover Fortunes obligations under the AWFA, then why did they not inform Filinvest of such fact when the latter sent them the aforementioned demand letters (Exhs. K and L) urging them to pay Fortunes liability under the AWFA. Instead, quite uncharacteristic of persons who have just been asked to pay an obligation to which they believe they are not liable, Chua and Rodrigueza elected or chose not to answer said demand letters. Then, too, considering that appellant Chua is the corporate president of Fortune and a signatory to the AWFA, he should have simply had it stated in the AWFA or in a separate document that the Surety Undertakings do not cover Fortunes obligations in the aforementioned AWFA, trust receipts or demand drafts. Appellants argue that it was unfair for Filinvest to have executed the AWFA only after two (2) years from the date of the Surety undertakings because Chua and Rodrigueza were thereby made to wait for said number of years just to know what kind of obligation they had to guarantee. The argument cannot hold water. In the first place, the Surety Undertakings did not provide that after a period of time the same will lose its force and effect. In the second place, if Chua and Rodrigueza did not want to guarantee the obligations of Fortune under the AWFA, trust receipts and demand drafts, then why did they not simply terminate the Surety Undertakings by serving ten (10) days written notice to Filinvest as expressly allowed in said surety agreements. It is highly plausible that the reason why the Surety Undertakings were not terminated was because the execution of the same was part of the consideration why Filinvest and CARCO agreed to enter into the AWFA with Fortune.15chanroblesvirtuallawlibrary

The Courts Ruling We affirm the decisions of the trial and appellate courts. First Issue: Surety May Secure Future Obligations The case at bench falls on all fours with Atok Finance Corporation vs. Court of Appeals16 which reiterated our rulings in National Rice and Corn Corporation (NARIC) vs. Court of Appeals17 and Rizal Commercial Banking Corporation vs. Arro.18 In Atok Finance,Sanyu Chemical as principal, and Sanyu Trading along with individual private stockholders of Sanyu Chemical, namely, spouses Daniel and Nenita Arrieta, Leopoldo Halili and Pablito Bermundo, as sureties, executed a continuing suretyship agreement in favor of Atok Finance as creditor. Under the agreement, Sanyu Trading and the individual private stockholders and officers of Sanyu Chemical jointly and severally unconditionally guarantee(d) to Atok Finance Corporation (hereinafter called Creditor), the full, faithful and prompt payment and discharge of any and all indebtedness of [Sanyu Chemical] x x x to the Creditor. Subsequently, Sanyu Chemical assigned its trade receivables outstanding with a total face value of P125,871.00 to Atok Finance in consideration of receipt of the amount of P105,000.00. Later, additional trade receivables with a total face value ofP100,378.45 were also assigned. Due to nonpayment upon maturity, Atok Finance commenced action against Sanyu Chemical, the Arrieta spouses, Bermundo and Halili to collect the sum of P120,240.00 plus penalty charges due and payable. The individual private respondents contended that the continuing suretyship agreement, being an accessory contract, was null and void since, at the time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance. The trial court rendered a decision in favor of Atok Finance and ordered defendants to pay, jointly and severally, aforesaid amount to Atok. On appeal, the then Intermediate Appellate Court reversed the trial court and dismissed the complaint on the ground that there was no proof that when the suretyship agreement was entered into, there was a pre-existing obligation which served as the principal obligation between the parties. Furthermore, the future debts alluded to in Article 2053 refer to debts already existing at the time of the constitution of the agreement but the amount thereof is unknown, unlike in the case at bar where the obligation was acquired two years after the agreement. We ruled then that the appellate court was in serious error. The distinction which said court sought to make with respect to Article 2053 (that future debts referred to therein relate to debts already existing at the time of the constitution

of the agreement but the amount [of which] is unknown and not to debts not yet incurred and existing at that time) has previously been rejected, citing the RCBC and NARIC cases. We further said: x x x Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. In Dio vs. Court of Appeals,19 we again had occasion to discourse on continuing guaranty/suretyship thus: x x x A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract, of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period; especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of guaranty states that the same is to secure advances to be made from time to time the guaranty will be construed to be a continuing one.

In other jurisdictions, it has been held that the use of particular words and expressions such as payment of any debt, any indebtedness, any deficiency, or any sum, or the guaranty of any transaction or money to be furnished the principal debtor at any time, or on such time that the principal debtor may require, have been construed to indicate a continuing guaranty.20chanroblesvirtuallawlibrary We have no reason to depart from our uniform ruling in the above-cited cases. The facts of the instant case bring us to no other conclusion than that the surety undertakings executed by Chua and Rodrigueza were continuing guaranties or suretyships covering all future obligations of Fortune Motors (Phils.) Corporation with Filinvest Credit Corporation. This is evident from the written contract itself which contained the words absolutely, unconditionally and solidarily guarantee(d) to Respondent Filinvest and its affiliated and subsidiary companies the full, faithful and prompt performance, payment and discharge of any and all obligations and agreements of Petitioner Fortune under or with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or otherwise) of the latter with Filinvest and its affiliated and subsidiary companies now in force or hereafter made. Moreover, Petitioner Rodrigueza and Joseph Chua knew exactly where they stood at the time they executed their respective surety undertakings in favor of Fortune. As stated in the petition: Before the execution of the new agreement, Edgar L. Rodrigueza and Joseph Chua were required to sign blank surety agreements, without informing them how much amount they would be liable as sureties. However, because of the desire of petitioners, Chua and Rodrigueza to have the cars delivered to petitioner, Fortune, they signed the blank promissory notes.21(underscoring supplied) It is obvious from the foregoing that Rodrigueza and Chua were fully aware of the business of Fortune, an automobile dealer; Chua being the corporate president of Fortune and even a signatory to the Financial Agreement with Filinvest.22 Both sureties knew the purpose of the surety undertaking which they signed and they must have had an estimate of the amount involved at that time. Their undertaking by way of the surety contracts was critical in enabling Fortune to acquire credit facility from Filinvest and to procure cars for resale, which was the business of Fortune. Respondent Filinvest, for its part, relied on the surety contracts when it agreed to be the assignee of CARCO with respect to the liabilities of Fortune with CARCO. After benefiting therefrom, petitioners cannot now impugn the validity of the surety contracts on the ground that there was no pre-existing obligation to be guaranteed at the time said surety contracts were executed. They cannot resort to equity to escape

liability for their voluntary acts, and to heap injustice to Filinvest, which relied on their signed word. This is a clear case of estoppel by deed. By the acts of petitioners, Filinvest was made to believe that it can collect from Chua and/or Rodrigueza in case of Fortunes default. Filinvest relied upon the surety contracts when it demanded payment from the sureties of the unsettled liabilities of Fortune. A refusal to enforce said surety contracts would virtually sanction the perpetration of fraud or injustice.23chanroblesvirtuallawlibrary Second Issue: No Novation Neither do we find merit in the averment of petitioners that the Financing Agreement contained onerous obligations not contemplated in the surety undertakings, thus changing the principal terms thereof and effecting a novation. We have ruled previously that there are only two ways to effect novation and thereby extinguish an obligation. First, novation must be explicitly stated and declared in unequivocal terms. Novation is never presumed. Second, the old and new obligations must be incompatible on every point. 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.24 Novation must be established either by the express terms of the new agreement or by the acts of the parties clearly demonstrating the intent to dissolve the old obligation as a consideration for the emergence of the new one. The will to novate, whether totally or partially, must appear by express agreement of the parties, or by their acts which are too clear and unequivocal to be mistaken.25chanroblesvirtuallawlibrary Under the surety undertakings however, the obligation of the sureties referred to absolutely, unconditionally and solidarily guaranteeing the full, faithful and prompt performance, payment and discharge of all obligations of Petitioner Fortune with respect to any and all contracts and other agreements with Respondent Filinvest in force at that time or thereafter made. There were no qualifications, conditions or reservations stated therein as to the extent of the suretyship. The Financing Agreement, on the other hand, merely detailed the obligations of Fortune to CARCO (succeeded by Filinvest as assignee). The allegation of novation by petitioners is, therefore, misplaced. There is no incompatibility of obligations to speak of in the two contracts. They can stand together without conflict.

Furthermore, the parties have not performed any explicit and unequivocal act to manifest their agreement or intention to novate their contract. Neither did the sureties object to the Financing Agreement nor try to avoid liability thereunder at the time of its execution. As aptly discussed by the Court of Appeals: x x x For another, if Chua and Rodrigueza truly believed that the surety undertakings they executed should not cover Fortunes obligations under the AWFA (Financing Agreement), then why did they not inform Filinvest of such fact when the latter sent them the aforementioned demand letters (Exhs. K and L) urging them to pay Fortunes liability under the AWFA. Instead, quite uncharacteristic of persons who have just been asked to pay an obligation to which they are not liable, Chua and Rodrigueza elected or chose not to answer said demand letters. Then, too, considering that appellant Chua is the corporate president of Fortune and a signatory to the AWFA, he should have simply had it stated in the AWFA or in a separate document that the Surety Undertakings do not cover Fortunes obligations in the aforementioned AWFA, trust receipts or demand drafts.26chanroblesvirtuallawlibrary Third Issue: Amount of Claim Substantiated The contest on the correct amount of the liability of petitioners is a purely factual issue. It is an oft repeated maxim that the jurisdiction of this Court in cases brought before it from the Court of Appeals under Rule 45 of the Rules of Court is limited to reviewing or revising errors of law. It is not the function of this Court to analyze or weigh evidence all over again unless there is a showing that the findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute serious abuse of discretion. Factual findings of the Court of Appeals are conclusive on the parties and carry even more weight when said court affirms the factual findings of the trial court.27 In the case at bar, the findings of the trial court and the Court of Appeals with respect to the assigned error are based on substantial evidence which were not refuted with contrary proof by petitioners. Hence, there is no necessity to depart from the above judicial dictum. WHEREFORE, premises considered, the petition is DENIED and the assailed Decision of the Court of Appeals concurring with the decision of the trial court is hereby AFFIRMED. Costs against petitioners. SO ORDERED. Melo, and Francisco, JJ., concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION


G.R. No. 116805 June 22, 2000 MARIO S. ESPINA, petitioner, vs. THE COURT OF APPEALS and RENE G. DIAZ, respondents.

PARDO, J.:

The case before the Court is an appeal from a decision of the Court of Appeals 1 reversing that of the Regional Trial Court, Antipolo, Rizal, 2 affirming in all respects the decision of the Municipal Trial Court, Antipolo, Rizal, 3ordering respondent Rene G. Diaz to vacate the condominium unit owned by petitioner and to pay back current rentals, attorney's fees and costs.1wphi1.nt The facts, as found by the Court of Appeals, are as follows: Mario S. Espina is the registered owner of a Condominium Unit No. 403, Victoria Valley Condominium, Valley Golf Subdivision, Antipolo, Rizal. Such ownership is evidenced by Condominium Certificate of Title No. N-10 (p. 31, Rollo). On November 29, 1991, Mario S. Espina, the private respondent as seller, and Rene G. Diaz, the petitioner as buyer, executed a Provisional Deed of Sale, whereby the former sold to the latter the aforesaid condominium unit for the amount of P100,000.00 to be paid upon the execution of the contract and the balance to be paid through PCI Bank postdated checks as follows:

1. P400,000.00

Check No. 301245 January 15, 1992 2. P200,000.00 Check No. 301246 February 1, 1992 3. P200,000.00 Check No. 301247 February 22, 1992 4. P200,000.00 Check No. 301248 March 14, 1992 5. P200,000.00 Check No. 301249 April 4, 1992 6. P200,000.00 Check No. 301250 April 25, 1992 (pp. 59-61, Rollo). Subsequently, in a letter dated January 22, 1992, petitioner informed private respondent that his checking account with PCI Bank has been closed and a new checking account with the same drawee bank is opened for practical purposes. The letter further stated that the postdated checks issued will be replaced with new ones in the same drawee bank (p. 63, Rollo). On January 25, 1992, petitioner through Ms. Socorro Diaz, wife of petitioner, paid private respondent Mario Espina P200,000.00, acknowledged by him as partial payment for the condominium unit subject of this controversy (p. 64, Rollo). On July 26, 1992, private respondent sent petitioner a "Notice of Cancellation" of the Provisional Deed of Sale (p. 48, Rollo). However, despite the Notice of Cancellation from private respondent, the latter accepted payment from petitioner per Metrobank Check No. 395694 dated and encashed on October 28, 1992 in the amount of P100,000.00 (p. 64, Rollo).

On February 24, 1993, private respondent filed a complaint docketed as Civil Case No. 2104 for Unlawful Detainer against petitioner before the Municipal Trial Court of Antipolo, Branch 1. On November 12, 1993, the trial court rendered its decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered ordering the defendant and all persons claiming rights under him to vacate unit 403 of the Victoria Golf Valley Condominium, Valley Golf Subdivision, Antipolo, Rizal; to pay the total arrears of P126,000.00, covering the period July 1991 up to the filing (sic) complaint, and to pay P7,000.00 every month thereafter as rentals unit (sic) he vacates the premises; to pay the amount of P5,000.00 as and attorney's fees; the amount of P300.00 per appearance, and costs of suit. However, the plaintiff may refund to the defendant the balance from (sic) P400,000.00 after deducting all the total obligations of the defendant as specified in the decision from receipt of said decision. SO ORDERED. (Decision, Annex "B"; p. 27, Rollo). From the said decision, petitioner appealed to the Regional Trial Court Branch 71, Antipolo, Rizal. On April 29, 1994, said appellate court affirmed in all respects the decision of the trial court. 4 On June 14, 1994, petitioner filed with the Court of Appeals a petition for review. On July 20, 1994, the Court of Appeals promulgated its decision reversing the appealed decision and dismissing the complaint for unlawful detainer with costs against petitioner Espina.

On August 8, 1994, petitioner filed a motion for reconsideration of the decision of the Court of Appeals. 5 On August 19, 1994, the Court of Appeals denied the motion. 6 Hence, this appeal via petition for review on certiorari. 7 The basic issue raised is whether the Court of Appeals erred in ruling that the provisional deed of sale novated the existing contract of lease and that petitioner had no cause of action for ejectment against respondent Diaz. We resolve the issue in favor of petitioner. According to respondent Diaz, the provisional deed of sale that was subsequently executed by the parties novated the original existing contract of lease. The contention cannot be sustained. Respondent originally occupied the condominium unit in question in 1987 as a lessee. 8 While he occupied the premises as lessee, petitioner agreed to sell the condominium unit to respondent by installments. 9 The agreement to sell was provisional as the consideration was payable in installments. The question is, did the provisional deed of sale novate the existing lease contract? The answer is no. The novation must be clearly proved since its existence is not presumed. 10 "In this light, novation is never presumed; it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between old and new obligations or contracts." 11 Novation takes place only if the parties expressly so provide, otherwise, the original contract remains in force. In other words, the parties to a contract must expressly agree that they are abrogating their old contract in favor of a new one. 12 Where there is no clear agreement to create a new contract in place of the existing one, novation cannot be presumed to take place, unless the terms of the new contract are fully incompatible with the former agreement on every point. 13 Thus, a deed of cession of the right to repurchase a piece of land does not supersede a contract of lease over the same property. 14 In the provisional deed of sale in this case, after the initial down payment, respondent's checks in payment of six installments all bounced and were dishonored upon presentment for the reason that the bank account was closed. 15 Consequently, on July 26, 1992, petitioner terminated the provisional deed of sale by a notarial notice of cancellation. 16 Nonetheless, respondent Diaz continued to occupy the premises, as lessee, but failed to pay the rentals due. On October 28, 1992, respondent made a payment of P100,000.00 that may be applied either to the back rentals or for the purchase of the condominium unit. On February 13, 1993, petitioner gave respondent a

notice to vacate the premises and to pay his back rentals. 17 Failing to do so, respondent's possession became unlawful and his eviction was proper. Hence, on February 24, 1993, petitioner filed with the Municipal Trial Court, Antipolo, Rizal, Branch 01 an action for unlawful detainer against respondent Diaz. 18 Now respondent contends that the petitioner's subsequent acceptance of such payment effectively withdrew the cancellation of the provisional sale. We do not agree. Unless the application of payment is expressly indicated, the payment shall be applied to the obligation most onerous to the debtor. 19 In this case, the unpaid rentals constituted the more onerous obligation of the respondent to petitioner. As the payment did not fully settle the unpaid rentals, petitioner's cause of action for ejectment survives. Thus, the Court of Appeals erred in ruling that the payment was "additional payment" for the purchase of the property. WHEREFORE, the Court GRANTS the petition for review on certiorari, and REVERSES the decision of the Court of Appeals. 20 Consequently, the Court REVIVES the decision of the Regional Trial Court, Antipolo, Rizal, Branch 71, 21 affirming in toto the decision of the Municipal Trial Court, Antipolo, Rizal, Branch 01. 22 No costs. SO ORDERED.1wphi1.nt Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-29280 August 11, 1988 PEOPLE'S BANK AND TRUST COMPANY, plaintiff-appellee, vs. SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y SYYAP, defendants-appellants. Araneta, Mendoza & Papa for plaintiff-appellee. Quasha, Asperilia, Zafra, Tayag & Ancheta for defendants-appellants.

(pp. 89-90, Record on Appeal; p. 15, Rollo) The facts of the case based on the statement of facts, made by the trial court in its decision as cited in the briefs of both parties are as follows: This is an action for foreclosure of chattel mortgage executed in favor of the plaintiff by the defendant Syvel's Incorporated on its stocks of goods, personal properties and other materials owned by it and located at its stores or warehouses at No. 406, Escolta, Manila; Nos. 764-766 Rizal Avenue, Manila; Nos. 10-11 Cartimar Avenue, Pasay City; No. 886 Nicanor Reyes, Sr. (formerly Morayta), Manila; as evidenced by Annex"A."The chattel mortgage was duly registered in the corresponding registry of deeds of Manila and Pasay City. The chattel mortgage was in connection with a credit commercial line in the amount of P900,000.00 granted the said defendant corporation, the expiry date of which was May 20, 1966. On May 20, 1965, defendants Antonio V. Syyap and Angel Y. Syyap executed an undertaking in favor of the plaintiff whereby they both agreed to guarantee absolutely and unconditionally and without the benefit of excussion the full and prompt payment of any indebtedness to be incurred on account of the said credit line. Against the credit line granted the defendant Syvel's Incorporated the latter drew advances in the form of promissory notes which are attached to the complaint as Annexes "C" to "l." In view of the failure of the defendant corporation to make payment in accordance with the terms and conditions agreed upon in the Commercial Credit Agreement the plaintiff started to foreclose extrajudicially the chattel mortgage. However, because of an attempt to have the matter settled, the extra-judicial foreclosure was not pushed thru. As no payment had been paid, this case was even tually filed in this Court. On petition of the plaintiff based on the affidavits executed by Mr. Leopoldo R. Rivera, Assistant Vice President of the plaintiff bank and Atty. Eduardo J. Berenguer on January 12, 1967, to the effect, among others, that the defendants are disposing of their properties with intent to defraud their creditors, particularly the plaintiff herein, a preliminary writ of attachment was issued. As a consequence of the issuance of the writ of attachment, the defendants, in their answer to the complaint set up a compulsory counterclaim for damages.

PARAS, J.: This is an appeal from the decision dated May 16, 1968 rendered by the Court of First Instance of Manila, Branch XII in Civil Case No. 68095, the decretal portion of which states: IN VIEW OF THE FOREGOING, judgment is rendered sentencing all the defendants to pay the plaintiff jointly and severally the sum of P601,633.01 with interest thereon at the rate of 11% per annum from June 17, 1967, until the whole amount is paid, plus 10% of the total amount due for attorney's fees and the costs of suit. Should the defendants fail to pay the same to the plaintiff, then it is ordered that all the effects, materials and stocks covered by the chattel mortgages be sold at public auction in conformity with the Provisions of Sec. 14 of the Chattel Mortgage Law, and the proceeds thereof applied to satisfy the judgment herein rendered. The counterclaim of the defendants, upon the evidence presented and in the light of the authorities above cited, is dismissed for lack of merit. SO ORDERED

After the filing of this case in this court and during its pendency defendant Antonio v. Syyap proposed to have the case settled amicably and to that end a conference was held in which Mr. Antonio de las Alas, Jr., Vice President of the Bank, plaintiff, defendant Antonio V. Syyap and Atty. Mendoza were present. Mr. Syyap requested that the plaintiff dismiss this case because he did not want to have the goodwill of Syvel's Incorporated impaired, and offered to execute a real estate mortgage on his real property located in Bacoor, Cavite. Mr. De las Alas consented, and so the Real Estate Mortgage, marked as Exhibit A, was executed by the defendant Antonio V. Syyap and his wife Margarita Bengco Syyap on June 22, 1967. In that deed of mortgage, defendant Syyap admitted that as of June 16, 1967, the indebtedness of Syvel's Incorporated was P601,633.01, the breakdown of which is as follows: P568,577.76 as principal and P33,055.25 as interest. Complying with the promise of the plaintiff thru its Vice President to ask for the dismissal of this case, a motion to dismiss this case without prejudice was prepared, Exhibit C, but the defendants did not want to agree if the dismissal would mean also the dismissal of their counterclaim Against the plaintiff. Hence, trial proceeded. As regards the liabilities of the defendants, there is no dispute that a credit line to the maximum amount of P900,000.00 was granted to the defendant corporation on the guaranty of the merchandise or stocks in goods of the said corporation which were covered by chattel mortgage duly registered as required by law. There is likewise no dispute that the defendants Syyap guaranteed absolutely and unconditionally and without the benefit of excussion the full and prompt payment of any indebtedness incurred by the defendant corporation under the credit line granted it by the plaintiff. As of June 16, 1967, its indebtedness was in the total amount of P601,633.01. This was admitted by defendant Antonio V. Syyap in the deed of real estate mortgage executed by him. No part of the amount has been paid by either of the defendants. Hence their liabilities cannot be questioned. (pp. 3-6, Brief for Appellee; p. 26, Rollo)

In their brief, appellants assign the following errors: I The lower court erred in not holding that the obligation secured by the Chattel Mortgage sought to be foreclosed in the above-entitled case was novated by the subsequent execution between appellee and appellant Antonio V, Syyap of a real estate mortgage as additional collateral to the obligation secured by said chattel mortgage. II The lower court erred in not dismissing the above-entitled case and in finding appellants liable under the complaint. III The lower court erred in not holding that the writ of preliminary attachment is devoid of any legal and factual basis whatsoever. IV The lower court erred in dismissing appellants'counterclaim and in not holding appellee liable to appellants for the consequent damages arising out of a wrongful attachment. (pp. 1-2, Brief for the Appellants, p. 25, Rollo) Appellants admit that they are indebted to the appellee bank in the amount of P601,633.01, breakdown of which is as follows: P568,577.76 as principal and P33,055.25 as interest. After the filing of the case and during its pendency, defendant Antonio V. Syyap proposed to have the case amicably settled and for that purpose a conference was held in which Mr. Antonio de las Alas, Jr., Vice President of plaintiff People's Bank and Trust Company, defendant Antonio V. Syyap and Atty. Mendoza were present. Mr. Syyap requested that the plaintiff dismiss this case as he did not want to have the goodwill of Syvel's Incorporated impaired, and offered to execute a real estate mortgage on his real property located in Bacoor, Cavite. Mr. de las Alas consented, and so the Real Estate Mortgage (Exhibit "A") was executed by defendant Antonio Syyap and his wife Margarita Bengco Syyap on June 22, 1967. Defendants did not agree with plaintiffs motion to dismiss which included the dismissal of their counterclaim and filed instead their own motion to dismiss (Record on Appeal, pp. 68-72) on the ground that by the execution of said real estate mortgage, the obligation secured by the chattel mortgage subject of this case was novated, and therefore, appellee's cause of action thereon was extinguished. In an Order dated September 23, 1967, the motion was denied for not being well founded (record on Appeal, p. 78). Appellants contention is without merit.

Novation takes place when the object or principal condition of an obligation is changed or altered. It is elementary that novation is never presumed; it must be explicitly stated or there must be manifest incompatibility between the old and the new obligations in every aspect (Goni v. CA, 144 SCRA 223 [1986]; National Power Corp. v. Dayrit, 125 SCRA 849 [1983]). In the case at bar, there is nothing in the Real Estate Mortgage which supports appellants'submission. The contract on its face does not show the existence of an explicit novation nor incompatibility on every point between the "old and the "new" agreements as the second contract evidently indicates that the same was executed as new additional security to the chattel mortgage previously entered into by the parties. Moreover, records show that in the real estate mortgage, appellants agreed that the chattel mortgage "shall remain in full force and shall not be impaired by this (real estate) mortgage." The pertinent provision of the contract is quoted as follows: That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439, Book No. I, Series of 1965, Notary Public Jose C. Merris, Manila); real estate mortgage executed by Angel V. Syyap and Rita V. Syyap (Doc. No. 441, Page No. 90, Book No. I, Series of 1965, Notary Public Jose C. Merris, Manila) shall remain in full force and shall not be impaired by this mortgage (par. 5, Exhibit"A," Emphasis ours). It is clear, therefore, that a novation was not intended. The real estate mortgage was evidently taken as additional security for the performance of the contract (Bank of P.I. v. Herrige, 47 Phil. 57). In the determination of the legality of the writ of attachment by the Court of First Instance of Manila, it is a well established rule that the grant or denial of a writ of attachment rests upon the sound discretion of the court. Records are bereft of any evidence that grave abuse of discretion was committed by respondent judge in the issuance of the writ of attachment. Appellants contend that the affidavits of Messrs. Rivera and Berenguer on which the lower court based the issuance of the writ of preliminary attachment relied on the reports of credit investigators sent to the field and not on the personal knowledge of the affiants. Such contention deserves scant consideration. Evidence adduced during the trial strongly shows that the witnesses have personal knowledge of the facts stated in their affidavits in

support of the application for the writ. They testified that Syvel's Inc. had disposed of all the articles covered by the chattel mortgage but had not remitted the proceeds to appellee bank; that the Syvel's Stores at the Escolta, Rizal Avenue and Morayta Street were no longer operated by appellants and that the latter were disposing of their properties to defraud appellee bank. Such testimonies and circumstances were given full credit by the trial court in its decision (Brief for Appellee, p. 14). Hence, the attachment sought on the ground of actual removal of property is justified where there is physical removal thereof by the debtor, as shown by the records (McTaggert v. Putnam Corset Co., 8 N.Y. S 800 cited in Moran, Comments on the Rules of Court, 1970 Ed., Vol. 3, p. 7). Besides, the actuations of appellants were clearly seen by the witnesses who "saw a Fiat Bantam Car-Fiat Car, a small car and about three or four persons hurrying; they were carrying goods coming from the back portion of this store of Syvels at the Escolta, between 5:30 and 6:00 o'clock in the evening." (Record on Appeal, pp. 45-46). Therefore, "the act of debtor (appellant) in taking his stock of goods from the rear of his store at night, is sufficient to support an attachment upon the ground of the fraudulent concealment of property for the purpose of delaying and defrauding creditors." (4 Am. Jur., 841 cited in Francisco, Revised Rules of Court, Second Edition, 1985, p. 24). In any case, intent to defraud may be and usually is inferred from the facts and circumstances of the case; it can rarely be proved by direct evidence. It may be gleaned also from the statements and conduct of the debtor, and in this connection, the principle may be applied that every person is presumed to intend the natural consequences of his acts (Francisco, Revised Rules of Court, supra, pp. 24-25), In fact the trial court is impressed "that not only has the plaintiff acted in perfect good faith but also on facts sufficient in themselves to convince an ordinary man that the defendants were obviously trying to spirit away a port;.on of the stocks of Syvel's Incorporated in order to render ineffectual at least partially anyjudgment that may be rendered in favor of the plaintiff." (Decision; Civil Case No. 68095; Record on Appeal, pp. 8889). Appellants having failed to adduce evidence of bad faith or malice on the part of appellee in the procurement of the writ of preliminary attachment, the claim of the former for damages is evidently negated. In fact, the allegations in the appellee's complaint more than justify the issuance of the writ of attachment. PREMISES CONSIDERED, this appeal is DISMISSED for lack of merit and the judgment appealed from is AFFIRMED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 74553 June 8, 1989 SERVICEWIDE SPECIALISTS, INCORPORATED, petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT, GALICANO SITON AND JUDGE JUSTINIANO DE DUMO respondents. MEDIALDEA, J.: This is a petition for review on certiorari of a decision of the Intermediate Appellate Court (now Court of Appeals) in ACG.R. CV No. 03876 affirming in toto the decision of the Regional Trial Court of Manila in Civil Case No. 82-4364 entitled, "Servicewide Specialists, Inc. vs. Galicano Siton and John Doe." The antecedent facts in this case as found by the lower court are as follows: The private respondent Galicano Siton purchased from Car Traders Philippines, Inc. a vehicle described as Mitsubishi Celeste two-door with airconditioning, Engine 2M-62799, Serial No. A73-2652 and paid P 25,000.00 as downpayment of the price. The remaining balance of P 68,400.00, includes not only the remaining principal obligation but also advance interests and premiums for motor vehicle insurance policies. On August 14, 1979, Siton executed a promissory note in favor of Car Traders Philippines, Inc. expressly stipulating that the face value of the note which is P 68,400. 00, shall "be payable, without need of notice of demand, in installments of the amounts following and at the dates hereinafter set forth, to wit: P 1,900.00 monthly for 36 months due and payable on the 14th day of each month starting September 14, 1979, thru and inclusive of August 14, 1982" (p. 84, Rollo). There are additional stipulations in the Promissory Note consisting of, among others: 1 Interest at the rate of 14% per annum to be added on each unpaid installment from maturity;

2 If default is made in the payment of any of the installments or interest thereon, the total principal sum then remaining unpaid, together with accrued interest thereon shall at once become due and demandable; 3 In case of default, and attorney's services are availed of, there shall be added a sum equal to 25% of the total sum due thereon to cover attorney's fees, aside from expenses of collection and legal costs (p. 84, Rollo). As further security, Siton executed a Chattel Mortgage over the subject motor vehicle in favor of Car Traders Philippines, Inc. (pp. 85-88, Rollo). The Chattel Mortgage Contract provides additional stipulations, such as: a) the waiver by the mortgagor of his rights under Art. 1252 of the Civil Code to designate the application of his payments and authorize the mortgagee or its assigns to apply such payments to either his promissory note or to any of his existing obligations to the mortgagee or its assigns at the latter's discretion; and b) concerning the insurance of the subject motor vehicle, the mortgagor is under obligation to secure the necessary policy in an amount not less than the outstanding balance of the mortgage obligation and that loss thereof shall be made payable to the mortgagee or its assigns as its interest may appear, with the further obligation of the mortgagor to deliver the policy to the mortgagee. The mortgagor further agrees that in default of his effecting or renewing the insurance and delivering the policy as endorsed to the mortgagee within five (5) days after the execution of the mortgage or the expiry date of the insurance, the mortgagee may, at his option but without any obligation to do so, effect such insurance or obtain such renewal for the account of the mortgagor. The credit covered by the promissory note and chattel mortgage executed by respondent Galicano Siton was first assigned by Car Traders Philippines, Inc. in favor of Filinvest Credit Corporation. Subsequently, Filinvest Credit Corporation likewise reassigned said credit in favor of petitioner Servicewide Specialists, Inc. and respondent Siton was advised of this second assignment. Alleging that Siton failed to pay the part of the installment which fell due on November 2, 1981 as well as the subsequent installments which fell due on December 2, 1981 and January 2, 1982, respectively, the petitioner filed this action against Galicano Siton and "John Doe." The relief sought by the plaintiff is a Writ of Replevin over subject motor vehicle or, in the alternative, for a sum of money of P 20,319.42 plus interest thereon at the rate of 14% per annum from January 11, 1982 until fully paid; and in either case, for defendants to pay certain sum of money for attorney's

fees, liquidated damages, bonding fees and other expenses incurred in the seizure of the motor vehicle plus costs of suit. After the service of summons, Justiniano de Dumo, identifying himself as the "John Doe" in the Complaint, inasmuch as he is in possession of the subject vehicle, filed his Answer with Counterclaim and with Opposition to the prayer for a Writ of Replevin. Said defendant, alleged the fact that he has bought the motor vehicle from Galicano Siton on November 24, 1979; that as such successor, he stepped into the rights and obligations of the seller; that he has religiously paid the installments as stipulated upon in the promissory note. He also manifested that the Answer he has filed in his behalf should likewise serve as a responsive pleading for his co-defendant Galicano Siton. On January 12, 1984, the Regional Trial Court rendered a decision, the dispositive portion of which states: WHEREFORE, judgment is hereby rendered as follows:

6. The claim of one party against the other(s) for damages, and vice-versa are hereby denied and dismissed. There is no pronouncement as to costs. SO ORDERED. (pp. 95-96, Rollo) Not satisfied with the decision of the trial court, the petitioner appealed to the Intermediate Appellate Court. On April 25, 1986, the respondent Appellate Court rendered judgment affirming in toto the decision of the trial court. The dispositive portion of the judgment states: WHEREFORE, the appealed judgment is in full accord with the evidence and the law is hereby therefore affirmed in all its parts. Costs against plaintiff-appellant. SO ORDERED. (p. 42, Rollo).

1. Denying the issuance of a Writ of Replevin in this case; 2. Ordering defendants to pay jointly and severally, the plaintiff, the remaining balance on the motor vehicle reckoned as of January 25, 1982, without additional interest and charges, and the same to be paid by installments, per the terms of the Promissory Note, payable on the 14th day of each month starting the month after this Decision shall have become final, until the full payment of the remaining obligation; 3. The Chattel Mortgage contract is deemed to cover the obligation petition stated in par. 2, supra, without prejudice to the parties, including defendant de Dumo, to now execute a new promissory note and/or chattel mortgage contract; 4. Ordering defendants to pay, jointly and severally, the sum of another P 3,859.90 to the plaintiff by way of refunding the premium payments in the past on insurance policies over subject car; 5. Each party shall bear his own expenses and attorney's fees; and Hence, the instant petition was filed, praying for a reversal of the abovementioned decision in favor of private respondents, with the petitioner assigning the following errors: 2.1 The Honorable Respondent, the Intermediate Appellate Court erred and gravely abused its discretion in concluding that there was a valid sale of the mortgaged vehicle between Siton and De Dumo; 2.2 The Honorable Respondent, the Intermediate Appellate Court erred and gravely abused its discretion in holding that the petitioner (plaintiff) and its predecessors-in-interest are bound by the questionable and invalid unnotarized Deed of Sale between Siton and De Dumo, even as neither petitioner (plaintiff) nor its predecessors-in-interest had knowledge nor had they given their written or verbal consent thereto; 2.3 The Honorable Respondent, the Intermediate Appellate Court erred and gravely abused its discretion in ruling that the mortgagee (petitioner) has the obligation to make demands to De Dumo for payment on the Promissory Note when De Dumo is not privy thereto;

2.4 The Honorable Respondent, the Intermediate Appellate Court erred and acted with grave abuse of discretion in refusing to issue the Writ of Replevin despite due compliance by petitioner of the requirements of Rule 60, Sections 1 and 2 of REVISED RULES OF COURT; 2.5 The Honorable Respondent, the Intermediate Appellate Court acted with grave abuse of discretion in ruling that petitioner (creditor-mortgagee) is obliged to inform respondent De Dumo (not privy to the mortgage) to submit the insurance policy over the mortgaged "res" and to demand the payor-third-party (De Dumo) to redeem his rubber check; (pp. 4-5, Rollo). In its first assigned error, petitioner alleges that the sale of the mortgaged vehicle between the mortgagor Siton and De Dumo was void, as the sale is prohibited under the provisions of the Deed of Chattel Mortgage, the Chattel Mortgage Act (Act 1508) and the Revised Penal Code. The Deed of Chattel Mortgage executed by the petitioner and Siton stipulates: The Mortgagor shall not sell, mortgage or in any other way, encumber or dispose of the property herein mortgaged without the previous written consent of the Mortgagee. (p. 85, Rollo). The rule is settled that the chattel mortgagor continues to be the owner of the property, and therefore, has the power to alienate the same; however, he is obliged under pain of penal liability, to secure the written consent of the mortgagee. (Francisco, Vicente, Jr., Revised Rules of Court in the Philippines, (1972), Volume IV-B Part I, p. 525). Thus, the instruments of mortgage are binding, while they subsist, not only upon the parties executing them but also upon those who later, by purchase or otherwise, acquire the properties referred to therein. The absence of the written consent of the mortgagee to the sale of the mortgaged property in favor of a third person, therefore, affects not the validity of the sale but only the penal liability of the mortgagor under the Revised Penal Code and the binding effect of such sale on the mortgagee under the Deed of Chattel Mortgage. Anent its second, third and fifth assigned errors, petitioner submits that it is not bound by the deed of sale made by Siton in favor of De Dumo, as neither

petitioner nor its predecessor has given their written or verbal consent thereto pursuant to the Deed of Chattel Mortgage. On this matter, the appellate court upheld the findings of the trial court, as follows, to wit: The first issue is whether or not the sale and transfer of the motor vehicle, subject matter of the chattel mortgage, made by Siton in favor of Atty. de Dumo is illegal and violative of the Chattel Mortgage Law. The supposition is that if it were illegal, then plaintiff has all the right to file this action and to foreclose on the chattel mortgage. Both defendants testified that, before the projected sale, they went to a certain. Atty. Villa of Filinvest Credit Corporation advising the latter of the intended sale and transfer. Defendants were accordingly advised that the verbal information given to the corporation would suffice, and that it would be tedious and impractical to effect a change of transfer of ownership as that would require a new credit investigation as to the capacity and worthiness of Atty. De Dumo, being the new debtor. The further suggestion given by Atty. Villa is that the account should be maintained in the name of Galicano Siton. Plaintiff claims that it and its predecessor had never been notified of the sale much less were they notified in writing as required by the contract. On this particular issue, it would really appear that, since the transfer, it was Atty. de Dumo who had been paying said account, almost invariably with his personal checks. In fact, one of the checks that supposedly bounced, marked Exhibit J and the relative receipt as Exhibit 16, was Atty. de Dumo's personal check. Note that plaintiff has been accepting such payments by defendant de Dumo. It would appear, therefore, that there was an implied acceptance by the plaintiff and its predecessor of the transfer. Another reasonable conclusion is that, while there was failure on the part of defendants to comply strictly and literaly with their contract, there was substantial compliance therewith. (pp. 92-93, Rollo) We agree with the aforequoted findings and conclusions of the lower court which were affirmed on appeal by the Court of Appeals. The conclusions and findings of facts by the trial court are entitled to great weight and will not be disturbed on appeal unless for strong and cogent reasons because the trial court is in a better position to examine real evidence as well as to observe the demeanor of witnesses while testifying on the case. (Macua vs. Intermediate Appellate Court, No. L-70810, October 26, 1987,155 SCRA 29)

There is no dispute that the Deed of Chattel Mortgage executed between Siton and the petitioner requires the written consent of the latter as mortgagee in the sale or transfer of the mortgaged vehicle. We cannot ignore the findings, however, that before the sale, prompt inquiries were made by private respondents with Filinvest Credit Corporation regarding any possible future sale of the mortgaged property; and that it was upon the advice of the company's credit lawyer that such a verbal notice is sufficient and that it would be convenient if the account would remain in the name of the mortgagor Siton. Even the personal checks of de Dumo were accepted by petitioner as payment of some of the installments under the promissory note (p. 92, Rollo). If it is true that petitioner has not acquiesced in the sale, then, it should have inquired as to why de Dumo's checks were being used to pay Siton's obligations. Based on the foregoing circumstances, the petitioner is bound by its predecessor company's representations. This is based on the doctrine of estoppel, through which, "an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon" (Art. 1431, Civil Code). Like the related principles of volenti non lit injuria (consent to injury), waiver and acquiescence, estoppel finds its origin generally in the equitable notion that one may not change his position, and profit from his own wrongdoing when he has caused another to rely on his former representations (Sy vs. Central Bank, No. L-41480, April 30, 1976, 70 SCRA 570). Further, it is worthy to note that despite the arguments of petitioner that it is not bound by the sale of the vehicle to de Dumo, and that the latter is a stranger to the transaction between Filinvest and Siton, nevertheless, it admitted de Dumo's obligation as purchaser of the property when it named the latter as one of the defendants in the lower court. Petitioner even manifested in its prayer in the appellant's brief and in the petition before Us, that de Dumo be ordered to pay petitioner, jointly and severally with Siton the unpaid balance on the promissory note (pp. 32 and 72, Rollo). In the fourth assigned error by petitioner, the latter claims that the appellate court gravely erred in upholding the trial court's refusal to issue that Writ of Replevin despite compliance with the requirements of the Rules. This contention is devoid of merit. Article 1484 of the New Civil Code prescribes three remedies which a vendor may pursue in a contract of sale of personal property the price of which is payable in installments, to wit: 1) to exact fulfillment of the obligation; 2)

cancel the sale; and 3) foreclose the mortgage on the thing sold. These remedies are alternative and the vendor cannot avail of them at the same time. It is clear from the prayer of petitioner in its brief on appeal to the appellate court that it had chosen the remedy of fulfillment when it asked the appellate court to order private respondents to pay the remaining unpaid sums under the promissory note (p. 31, Rollo). By having done so, it has deemed waived the third remedy of foreclosure, and it cannot therefore ask at the same time for a Writ of Replevin as preparatory remedy to foreclosure of mortgage. In a similar case, where the vendor filed an action containing three remedies: to collect the purchase price; to seize the property purchased by suing for replevin and to foreclose the mortgage executed thereon, We held that such a scheme is not only irregular but is a flagrant circumvention of the prohibition of the law (Luneta Motor Company vs. Dimagiba No. L-17061, December 30, 1961, 3 SCRA 884). Finally, the petitioner argues that the judgment of the appellate court was not in accordance with its own findings and those of the trial court showing private respondents' default in the payment of three monthly installments as a result of the dishonor of three checks issued as payments; and that as a consequence thereof, the full amount of the unpaid balance under the promissory note became due and demandable pursuant to the terms of the promissory note. This contention is impressed with merit. The findings of the trial court on this issue, which were affirmed by the appellate court, state, as follows: The second point of issue is whether or not defendants were in arrears when the complaint was filed on January 25, 1982. Plaintiff claims that there were three payments by checks made by defendants, which are ineffective (Art. 1249, Civil Code) as said checks bounced for insufficient finding. .... The debtor/obligor is allegedly obliged, as per the Chattel Mortgage Contract, to have the motor vehicle insured and, failing which, the creditor may insure the same for the account of the debtor. Such payments, therefore, together with the value of the three checks that had been dishonored, are the reasons for defendants' delinquency. On defendant's part, more particularly Atty. de Dumo's, they submit that there was no delinquency as, in fact, defendants have receipts to evidence payment for the months of November 1981 (Exhibit 18 dated November 3, 1981), December 1981 (Exhibit 17 dated December 2, 1981), and January, 1982 (Exhibit 30, dated January 5, 1982).

On cross-examination, Atty. de Dumo admitted that really one of his checks (Exhibit J) was dishonored. There is no evidence on way [or] the other whether said check was replaced subsequently with a good one. Likewise, there is no clarification in the record as to whether the two other dishonored checks had been replaced. As to the insurance policies, defendants claimed on the witness stand that they were the ones who had the vehicle insured, for, otherwise, defendant de Dumo could not have registered the motor vehicle for the years 1980 up to 1982. Defendants further contend that they complied with their undertaking by notifying verbally the creditor of that fact. There is no denying the fact however, that the insurance policies obtained were not endorsed, much less surrendered, to the plaintiff; in fact such policies were not shown in court to evidence the proper indorsement of the policies in favor of the creditor. (pp. 93-94, Rollo). (Emphasis supplied) It is evident from the foregoing findings that the checks issued by the defendants as payment for the installments for November and December, 1981 and January, 1982 were dishonored and were not shown to have been replaced. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed. (Art. 1249, Civil Code). When the existence of the debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a defense to the claim of the creditor. (Chua Chienco vs. Vargas, 11 Phil. 219). In the absence of any showing that the aforestated checks were replaced and subsequently cashed, We can only infer that the monthly installments for November, 1981, December, 1981 and January, 1982 have not been paid. In view of the above, it is not correct for the appellate court to ignore the evidence on record showing the default of private respondents in their obligations. The fact that Siton and de Dumo were not advised or notified of their failure to comply with their obligations under the note and under the Deed of Chattel Mortgage is of no importance. Article 1169 of the Civil Code provides: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist: 1. When the obligation or the law expressly so declares; xxx xxx xxx The promissory note executed by Siton in favor of Car Traders Philippines, Inc. expressly stipulates that the unpaid balance shall be payable, without need of notice or demand, in fixed monthly installments; and that if default be made in the payment of any of the installments or interest thereon as and when the same becomes due and payable as specified above, the total principal sum then remaining unpaid, together with accrued interest thereon, shall at once become due and payable (p. 84, Rollo). The parties are bound by this agreement. In view of the foregoing, We find it correct to hold both the respondents Galicano Siton and Justiniano de Dumo liable for their obligations to petitioner herein. In the case at bar, the purchase of the car by respondent de Dumo from respondent Siton does not necessarily imply the extinguishment of the liability of the latter. Since it was neither established nor shown that Siton was released from responsibility under the promissory note, the same does not constitute novation by substitution of debtors under Article 1293 of the Civil Code. Likewise, the fact that petitioner company accepts payments from a third person like respondent de Dumo, who has assumed the obligation, will result merely to the addition of debtors and not novation. Hence, the creditor may therefore enforce the obligation against both debtors. (Straight vs. Hashell, 49 Phil. 614; Mata vs. Serra, 47 Phil. 464; McCullough vs. Veloso, 46 Phil. 1; Pacific Commercial vs. Sotto, 34 Phil. 237). If there is no agreement as to solidarity, the first and new debtors are considered obligated jointly. (Lopez vs. Court of Appeals, et al., No. L-33157, June 29, 1982, 114 SCRA 671; Dungo vs. Lopena, et al., L-18377, December 29, 1962, 6 SCRA 1007). ACCORDINGLY, the petition is GRANTED and the assailed decision of the Court of Appeals dated April 25, 1986 is hereby REVERSED and SET ASIDE, and a new one entered, ordering the private respondents Galicano Siton and Justiniano de Dumo, jointly to pay to petitioner Servicewide Specialists, Incorporated, the total sum of the remaining unpaid balance on the promissory note with interest thereon at fourteen percent per annum from January 25, 1982 until fully paid, as well as stipulated attorney's fees and liquidated damages; and to reimburse to petitioner the sum of P 3,859.90 for the premium payments on the insurance policies over the subject vehicle. Costs against private respondents.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-41117 December 29, 1986 INTEGRATED CONSTRUCTION SERVICES, INC., and ENGINEERING CONSTRUCTION, INC., petitioners, vs. THE HONORABLE LORENZO RELOVA, as Judge of the Court of First Instance of Manila, and METROPOLITAN WATERWORKS & SEWERAGE SYSTEM, respondents. PARAS, J.: This is a petition for mandamus as a special civil action and/or, in the alternative, an appeal from orders of the Court of First Instance of Manila under Republic Act 5440 in Civil Case No. 80390 entitled "Integrated Construction Services, Inc. and Engineering Construction, Inc., plaintiffs, versus National Waterworks and Sewerage Authority (now Metropolitan Waterworks & Sewerage System), defendant." Petitioners complied with the requisites for both remedies. The facts are not in dispute: Petitioners on July 17, 1970 sued the respondent Metropolitan Waterworks and Sewerage System (MWSS), formerly the National Waterworks and Sewerage Authority (NAWASA), in the Court of First Instance of Manila for breach of contract, docketed as Civil Case No. 80390 in that Court. Meanwhile, the parties submitted the case to arbitration. The Arbitration Board, after extensive hearings, rendered its decision-award on August 11, 1972. Respondent Judge confirmed the Award on September 9, 1972 and the same has long since become final and executory. The decision-award ordered MWSS to pay petitioners P15,518,383.61-less P2,329,433.41, to be set aside as a trust fund to pay creditors of the joint venture in connection with the projector a net award of P13,188,950.20 with interest thereon from the filing of the complaint until fully paid.
1

Subsequently, however, petitioners agreed to give MWSS some discounts in consideration of an early payment of the award. Thus, on September 21, 1972, MWSS adopted Board Resolution No. 132-72, embodying the terms and conditions of their agreement. On October 2, 1972, MWSS sent a letteragreement to petitioners, quoting Board Resolution No. 13272, granting MWSS some discounts from the amount payable under the decision award (consisting of certain reductions in interests, in the net principal award and in the trust fund), provided that MWSS would pay the judgment, less the said discounts, within fifteen days therefrom or up to October 17, 1972. Upon MWSS' request, the petitioners signed their "Conforme" to the said letter-agreement, and extended the period to pay the judgment less the discounts aforesaid to October 31, 1972. MWSS, however, paid only on December 22, 1972, the amount stated in the decision but less the reductions provided for in the October 2, 1972 letter-agreement. Three years thereafter, or on June, 1975, after the last balance of the trust fund had been released and used to satisfy creditors' claims, the petitioners filed a motion for execution in said civil case against MWSS for the balance due under the decision-award. Respondent MWSS opposed execution setting forth the defenses of payment and estoppel. (p. 174, Rollo) On July 10, 1975, respondent judge denied the motion for execution on the ground that the parties had novated the award by their subsequent letteragreement. Petitioners moved for reconsideration but respondent judge, likewise, denied the same in his Order dated July 24, 1975. Hence, this Petition for Mandamus, alleging that respondent judge unlawfully refused to comply with his mandatory duty-to order the execution of the unsatisfied portion of the final and executory award. In a Resolution dated October 17, 1975, the Supreme Court dismissed the Petition for lack of merit. (p. 107, Rollo )and denied petitioners' Motion for Reconsideration of the same. (p. 131, Rollo) At the hearing on petitioners' Second Motion for Reconsideration, however, respondent MWSS asserted new matters, (p. 186, Rollo) arguing that: the delay in effecting payment was caused by an unforeseen circumstance the declaration of martial law, thus, placing MWSS under the management of the Secretary of National Defense, which impelled MWSS to refer the matter of payment to the Auditor General and/or the Secretary of National Defense; and that the 15-day period was merely intended to pressure MWSS officials to

process the voucher. Petitioners, however, vehemently deny these matters which are not supported by the records. We agree with the petitioners. While the tenor of the subsequent letter-agreement in a sense novates the judgment award there being a shortening of the period within which to pay (Kabangkalan Sugar Co. vs. Pacheco, 55 Phil. 555), the suspensive and conditional nature of the said agreement (making the novation conditional) is expressly acknowledged and stipulated in the 14th whereas clause of MWSS' Resolution No. 132-72, (p. 23, Rollo) which states: WHEREAS, all the foregoing benefits and advantages secured by the MWSS out of said conferences were accepted by the Joint Venture provided that the remaining net amount payable to the Joint Venture will be paid by the MWSS within fifteen (15) days after the official release of this resolution and a written CONFORME to be signed by the Joint Venture; (Emphasis supplied) MWSS' failure to pay within the stipulated period removed the very cause and reason for the agreement, rendering some ineffective. Petitioners, therefore, were remitted to their original rights under the judgment award. The placing of MWSS under the control and management of the Secretary of National Defense thru Letter of Instruction No. 2, dated September 22, 1972 was not an unforeseen supervening factor because when MWSS forwarded the letter-agreement to the petitioners on October 2, 1972, the MWSS was already aware of LOI No. 2. MWSS' contention that the stipulated period was intended to pressure MWSS officials to process the voucher is untenable. As aforestated, it is apparent from the terms of the agreement that the 15-day period was intended to be a suspensive condition. MWSS, admittedly, was aware of this, as shown by the internal memorandum of a responsible MWSS official, stating that necessary steps should be taken to effect payment within 15 days, for otherwise, MWSS would forego the advantages of the discount. " (p. 426, Rollo) As to whether or not petitioners are now in estoppel to question the subsequent agreement, suffice it to state that petitioners never acknowledged full payment; on the contrary, petitioners refused MWSS' request for a conformeor quitclaim. (p. 125, Rollo)

Accordingly, the award is still subject to execution by mere motion, which may be availed of as a matter of right any time within (5) years from entry of final judgment in accordance with Section 5, Rule 39 of the Rules of Court. WHEREFORE, We hereby set aside the assailed orders, and issue the writ of mandamus directing the present Regional Trial Judge of the Branch that handled this case originally to grant the writ of execution for the balance due under the award. SO ORDERED. Teehankee, C.J., Feria, Yap, Fernan, Narvasa, Melencio-Herrera, Alampay, Gutierrez, Jr., Cruz and Feliciano, JJ., concur.

[G.R. No. 142838. August 9, 2001]

indebtedness to Licaros subject to certain terms and conditions. In order to effectuate and formalize the parties respective commitments, the two executed a notarized MEMORANDUM OF AGREEMENT on July 29, 1988 (Exh. B; also Exhibit 1), the full text of which reads: P. Memorandum of Agreement KNOW ALL MEN BY THESE PRESENTS: This MEMORANDUM OF AGREEMENT made and executed this 29th day of July 1988, at Makati by and between: ABELARDO B. LICAROS, Filipino, of legal age and holding office at Concepcion Building, Intramuros, Manila hereinafter referred to as THE PARTY OF THE FIRST PART, and ANTONIO P. GATMAITAN, Filipino, of legal age and residing at 7 Mangyan St., La Vista, hereinafter referred to as the PARTY OF THE SECOND PART, WITNESSETH THAT: WHEREAS, ANGLO-ASEAN BANK & TRUST, a company incorporated by the Republic of Vanuatu, hereinafter referred to as the OFFSHORE BANK, is indebted to the PARTY OF THE FIRST PART in the amount of US dollars; ONE HUNDRED FIFTY THOUSAND ONLY (US$150,000) which debt is now due and demandable. WHEREAS, the PARTY OF THE FIRST PART has encountered difficulties in securing full settlement of the said indebtedness from the OFFSHORE BANK and has sought a business arrangement with the PARTY OF THE SECOND PART regarding his claims; WHEREAS, the PARTY OF THE SECOND PART, with his own resources and due to his association with the OFFSHORE BANK, has offered to the PARTY OF THE FIRST PART to assume the payment of the aforesaid indebtedness, upon certain terms and conditions, which offer, the PARTY OF THE FIRST PART has accepted;

ABELARDO B. LICAROS, petitioner, GATMAITAN, respondent. DECISION GONZAGA-REYES, J.:

vs. ANTONIO

This is a petition for review on certiorari under Rule 45 of the Rules of Court. The petition seeks to reverse and set aside the Decision[1] dated February 10, 2000 of the Court of Appeals and its Resolution[2] dated April 7, 2000 denying petitioners Motion for Reconsideration thereto. The appellate court decision reversed the Decision[3] dated November 11, 1997 of the Regional Trial Court of Makati, Branch 145 in Civil Case No. 96-1211. The facts of the case, as stated in the Decision of the Court of Appeals dated February 10, 2000, are as follows: The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for brevity), is a private bank registered and organized to do business under the laws of the Republic of Vanuatu but not in the Philippines. Its business consists primarily in receiving fund placements by way of deposits from institutions and individual investors from different parts of the world and thereafter investing such deposits in money market placements and potentially profitable capital ventures in Hongkong, Europe and the United States for the purpose of maximizing the returns on those investments. Enticed by the lucrative prospects of doing business with Anglo-Asean, Abelardo Licaros, a Filipino businessman, decided to make a fund placement with said bank sometime in the 1980s. As it turned out, the grim outcome of Licaros foray in overseas fund investment was not exactly what he envisioned it to be. More particularly, Licaros, after having invested in Anglo-Asean, encountered tremendous and unexplained difficulties in retrieving, not only the interest or profits, but even the very investments he had put in Anglo-Asean. Confronted with the dire prospect of not getting back any of his investments, Licaros then decided to seek the counsel of Antonio P. Gatmaitan, a reputable banker and investment manager who had been extending managerial, financial and investment consultancy services to various firms and corporations both here and abroad. To Licaros relief, Gatmaitan was only too willing enough to help. Gatmaitan voluntarily offered to assume the payment of Anglo-Aseans

WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their mutual prestations which they now record herein with the express conformity of the third parties concerned; NOW, THEREFORE, for and in consideration of the foregoing and the mutual covenants stipulated herein, the PARTY OF THE FIRST PART and the PARTY OF THE SECOND PART have agreed, as they do hereby agree, as follows: 1. The PARTY OF THE SECOND PART hereby undertakes to pay the PARTY OF THE FIRST PART the amount of US DOLLARS ONE HUNDRED FIFTY THOUSAND ((US$150,000) payable in Philippine Currency at the fixed exchange rate of Philippine Pesos 21 to US$1 without interest on or before July 15, 1993. For this purpose, the PARTY OF THE SECOND PART shall execute and deliver a non negotiable promissory note, bearing the aforesaid material consideration in favor of the PARTY OF THE FIRST PART upon execution of this MEMORANDUM OF AGREEMENT, which promissory note shall form part as ANNEX A hereof. 2. For and in consideration of the obligation of the PARTY OF THE SECOND PART, the PARTY OF THE FIRST does hereby; a. Sell, assign, transfer and set over unto the PARTY OF THE SECOND PART that certain debt now due and owing to the PARTY OF THE FIRST PART by the OFFSHORE BANK, to the amount of US Dollars One Hundred Fifty Thousand plus interest due and accruing thereon; b. Grant the PARTY OF THE SECOND PART the full power and authority, for his own use and benefit, but at his own cost and expense, to demand, collect, receive, compound, compromise and give acquittance for the same or any part thereof, and in the name of the PARTY OF THE FIRST PART, to prosecute, and withdraw any suit or proceedings therefor; c. Agree and stipulate that the debt assigned herein is justly owing and due to the PARTY OF THE FIRST PART from the said OFFSHORE BANK, and that the PARTY OF THE FIRST PART has not done and will not cause anything to be done to diminish or discharge said debt, or to delay or prevent the PARTY OF THE SECOND PART from collecting the same; and; d. At the request of the PARTY OF SECOND PART and the latters own cost and expense, to execute and do all such further acts and deeds as shall be

reasonably necessary for proving said debt and to more effectually enable the PARTY OF THE SECOND PART to recover the same in accordance with the true intent and meaning of the arrangements herein. IN WITNESS WHEREOF, the parties have caused this MEMORANDUM OF AGREEMENT to be signed on the date and place first written above. Sgd. ABELARDO B. LICAROS GATMAITAN PARTY OF THE FIRST PART WITH OUR CONFORME: ANGLO-ASEAN BANK & TRUST BY: (Unsigned) SIGNED IN THE PRESENCE OF: Sgd. (illegible) ________________________ ________________________ Sgd. ANTONIO P. PARTY OF THE FIRST PART

Conformably with his undertaking under paragraph 1 of the aforequoted agreement, Gatmaitan executed in favor of Licaros a NON-NEGOTIABLE PROMISSORY NOTE WITH ASSIGNMENT OF CASH DIVIDENDS (Exhs. A; also Exh. 2), which promissory note, appended as Annex A to the same Memorandum of Agreement, states in full, thus NON-NEGOTIABLE PROMISSORY NOTE WITH ASSIGNMENT OF CASH DIVIDENDS This promissory note is Annex A of the Memorandum of Agreement executed between Abelardo B. Licaros and Antonio P. Gatmaitan, on ______ 1988 at Makati, Philippines and is an integral part of said Memorandum of Agreement. P3,150,000. On or before July 15, 1993, I promise to pay to Abelardo B. Licaros the sum of Philippine Pesos 3,150,000 (P3,150,000) without interest as material consideration for the full settlement of his money claims from ANGLOASEAN BANK, referred to in the Memorandum of Agreement as the OFFSHORE BANK.

As security for the payment of this Promissory Note, I hereby ASSIGN, CEDE and TRANSFER, Seventy Percent (70%) of ALL CASH DIVIDENDS, that may be due or owing to me as the registered owner of ___________________ (__________) shares of stock in the Prudential Life Realty, Inc. This assignment shall likewise include SEVENTY PERCENT (70%) of cash dividends that may be declared by Prudential Life Realty, Inc. and due or owing to Prudential Life Plan, Inc., of which I am a stockholder, to the extent of or in proportion to my aforesaid shareholding in Prudential Life Plan, Inc., the latter being the holding company of Prudential Life Realty, Inc. In the event that I decide to sell or transfer my aforesaid shares in either or both the Prudential Life Plan, Inc. or Prudential Life Realty, Inc. and the Promissory Note remains unpaid or outstanding, I hereby give Mr. Abelardo B. Licaros the first option to buy the said shares. Manila, Philippines July _____, 1988

in his promissory note (Exh. A; also Exh. 2). Licaros, however, thought differently. He felt that he had a right to collect on the basis of the promissory note regardless of the outcome of Gatmaitan's recovery efforts. Thus, in July 1996, Licaros, thru counsel, addressed successive demand letters to Gatmaitan (Exhs. C and D), demanding payment of the latters obligations under the promissory note. Gatmaitan, however, did not accede to these demands. Hence, on August 1, 1996, in the Regional Trial Court at Makati, Licaros filed the complaint in this case. In his complaint, docketed in the court below as Civil Case No. 96-1211, Licaros prayed for a judgment ordering Gatmaitan to pay him the following: a) Principal Obligation in the amount of Three Million Five Hundred Thousand Pesos (P3,500,000.00); b) Legal interest thereon at the rate of six (6%) percent per annum from July 16, 1993 when the amount became due until the obligation is fully paid; c) Twenty percent (20%) of the amount due as reasonable attorneys fees;

(SGD.) Antonio P. Gatmaitan 7 Mangyan St., La Vista, QC Signed in the Presence of (SGD.) _________________ ___ Francisco A. Alba President, Prudential Life Plan, Inc..

d) Costs of the suit.[4] After trial on the merits, the court a quo rendered judgment in favor of petitioner Licaros and found respondent Gatmaitan liable under the Memorandum of Agreement and Promissory Note for P3,150,000.00 plus 12% interest per annum from July 16, 1993 until the amount is fully paid. Respondent was likewise ordered to pay attorneys fees of P200,000.00.[5] _______________ Respondent Gatmaitan appealed the trial courts decision to the Court of Appeals. In a decision promulgated on February 10, 2000, the appellate court reversed the decision of the trial court and held that respondent Gatmaitan did not at any point become obligated to pay to petitioner Licaros the amount stated in the promissory note. In a Resolution dated April 7, 2000, the Court of Appeals denied petitioners Motion for Reconsideration of its February 10, 2000 Decision. Hence this petition for review on certiorari where petitioner prays for the reversal of the February 10, 2000 Decision of the Court of Appeals and the reinstatement of the November 11, 1997 decision of the Regional Trial Court. The threshold issue for the determination of this Court is whether the Memorandum of Agreement between petitioner and respondent is one of assignment of credit or one of conventional subrogation. This matter is

Thereafter, Gatmaitan presented to Anglo-Asean the Memorandum of Agreement earlier executed by him and Licaros for the purpose of collecting the latters placement thereat of U.S.$150,000.00. Albeit the officers of Anglo-Asean allegedly committed themselves to look into [this matter], no formal response was ever made by said bank to either Licaros or Gatmaitan. To date, Anglo-Asean has not acted on Gatmaitans monetary claims. Evidently, because of his inability to collect from Anglo-Asean, Gatmaitan did not bother anymore to make good his promise to pay Licaros the amount stated

determinative of whether or not respondent became liable to petitioner under the promissory note considering that its efficacy is dependent on the Memorandum of Agreement, the note being merely an annex to the said memorandum.[6] An assignment of credit has been defined as the process of transferring the right of the assignor to the assignee who would then have the right to proceed against the debtor. The assignment may be done gratuitously or onerously, in which case, the assignment has an effect similar to that of a sale.[7] On the other hand, subrogation has been defined as the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts. Conventional subrogation is that which takes place by agreement of parties.[8] The general tenor of the foregoing definitions of the terms subrogation and assignment of credit may make it seem that they are one and the same which they are not. A noted expert in civil law notes their distinctions thus: Under our Code, however, conventional subrogation is not identical to assignment of credit. In the former, the debtors consent is necessary; in the latter it is not required. Subrogation extinguishes the obligation and gives rise to a new one; assignment refers to the same right which passes from one person to another. The nullity of an old obligation may be cured by subrogation, such that a new obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditors right to another.[9] For our purposes, the crucial distinction deals with the necessity of the consent of the debtor in the original transaction. In an assignment of credit, the consent of the debtor is not necessary in order that the assignment may fully produce legal effects.[10] What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him as the assignment takes effect only from the time he has knowledge thereof.[11] A creditor may, therefore, validly assign his credit and its accessories without the debtors consent.[12] On the other hand, conventional subrogation requires an agreement among the three parties concerned the original creditor, the debtor, and the new creditor. It is a new contractual relation based on the mutual agreement among all the necessary parties. Thus, Article 1301 of the Civil Code explicitly states that (C)onventional subrogation of a third person requires the consent of the original parties and of the third person.

The trial court, in finding for the petitioner, ruled that the Memorandum of Agreement was in the nature of an assignment of credit. As such, the court a quo held respondent liable for the amount stated in the said agreement even if the parties thereto failed to obtain the consent of Anglo-Asean Bank. On the other hand, the appellate court held that the agreement was one of conventional subrogation which necessarily requires the agreement of all the parties concerned. The Court of Appeals thus ruled that the Memorandum of Agreement never came into effect due to the failure of the parties to get the consent of Anglo-Asean Bank to the agreement and, as such, respondent never became liable for the amount stipulated. We agree with the finding of the Court of Appeals that the Memorandum of Agreement dated July 29, 1988 was in the nature of a conventional subrogation which requires the consent of the debtor, Anglo-Asean Bank, for its validity. We note with approval the following pronouncement of the Court of Appeals: Immediately discernible from above is the common feature of contracts involving conventional subrogation, namely, the approval of the debtor to the subrogation of a third person in place of the creditor. That Gatmaitan and Licaros had intended to treat their agreement as one of conventional subrogation is plainly borne by a stipulation in their Memorandum of Agreement, to wit: WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their mutual prestations which they now record herein with the express conformity of the third parties concerned (emphasis supplied), which third party is admittedly Anglo-Asean Bank. Had the intention been merely to confer on appellant the status of a mere assignee of appellees credit, there is simply no sense for them to have stipulated in their agreement that the same is conditioned on the express conformity thereto of Anglo-Asean Bank. That they did so only accentuates their intention to treat the agreement as one of conventional subrogation. And it is basic in the interpretation of contracts that the intention of the parties must be the one pursued (Rule 130, Section 12, Rules of Court). Given our finding that the Memorandum of Agreement (Exh. B; also Exh. 1), is not one of assignment of credit but is actually a conventional subrogation, the next question that comes to mind is whether such agreement was ever perfected at all. Needless to state, the perfection or non-perfection of the subject agreement is of utmost relevance at this point. For, if the same Memorandum of Agreement was actually perfected, then it cannot be denied

that Gatmaitan still has a subsisting commitment to pay Licaros on the basis of his promissory note. If not, Licaros suit for collection must necessarily fail. Here, it bears stressing that the subject Memorandum of Agreement expressly requires the consent of Anglo-Asean to the subrogation. Upon whom the task of securing such consent devolves, be it on Licaros or Gatmaitan, is of no significance. What counts most is the hard reality that there has been an abject failure to get Anglo-Aseans nod of approval over Gatmaitans being subrogated in the place of Licaros. Doubtless, the absence of such conformity on the part of Anglo-Asean, which is thereby made a party to the same Memorandum of Agreement, prevented the agreement from becoming effective, much less from being a source of any cause of action for the signatories thereto.[13] Aside for the whereas clause cited by the appellate court in its decision, we likewise note that on the signature page, right under the place reserved for the signatures of petitioner and respondent, there is, typewritten, the words WITH OUR CONFORME. Under this notation, the words ANGLOASEAN BANK AND TRUST were written by hand.[14] To our mind, this provision which contemplates the signed conformity of Anglo-Asean Bank, taken together with the aforementioned preambulatory clause leads to the conclusion that both parties intended that Anglo-Asean Bank should signify its agreement and conformity to the contractual arrangement between petitioner and respondent. The fact that Anglo-Asean Bank did not give such consent rendered the agreement inoperative considering that, as previously discussed, the consent of the debtor is needed in the subrogation of a third person to the rights of a creditor. In this petition, petitioner assails the ruling of the Court of Appeals that what was entered into by the parties was a conventional subrogation of petitioners rights as creditor of the Anglo-Asean Bank which necessarily requires the consent of the latter. In support, petitioner alleges that: (1) the Memorandum of Agreement did not create a new obligation and, as such, the same cannot be a conventional subrogation; (2) the consent of Anglo-Asean Bank was not necessary for the validity of the Memorandum of Agreement; (3) assuming that such consent was necessary, respondent failed to secure the same as was incumbent upon him; and (4) respondent himself admitted that the transaction was one of assignment of credit. Petitioner argues that the parties to the Memorandum of Agreement could not have intended the same to be a conventional subrogation considering that no new obligation was created. According to petitioner, the obligation of Anglo-Asean Bank to pay under Contract No. 00193 was not extinguished and in fact, it was the basic intention of the parties to the Memorandum of Agreement to enforce the same obligation of Anglo-Asean Bank under its

contract with petitioner. Considering that the old obligation of Anglo-Asean Bank under Contract No. 00193 was never extinguished under the Memorandum of Agreement, it is contended that the same could not be considered as a conventional subrogation. We are not persuaded. It is true that conventional subrogation has the effect of extinguishing the old obligation and giving rise to a new one. However, the extinguishment of the old obligation is the effect of the establishment of a contract for conventional subrogation. It is not a requisite without which a contract for conventional subrogation may not be created. As such, it is not determinative of whether or not a contract of conventional subrogation was constituted. Moreover, it is of no moment that the subject of the Memorandum of Agreement was the collection of the obligation of Anglo-Asean Bank to petitioner Licaros under Contract No. 00193. Precisely, if conventional subrogation had taken place with the consent of Anglo-Asean Bank to effect a change in the person of its creditor, there is necessarily created a new obligation whereby Anglo-Asean Bank must now give payment to its new creditor, herein respondent. Petitioner next argues that the consent or conformity of Anglo-Asean Bank is not necessary to the validity of the Memorandum of Agreement as the evidence on record allegedly shows that it was never the intention of the parties thereto to treat the same as one of conventional subrogation. He claims that the preambulatory clause requiring the express conformity of third parties, which admittedly was Anglo-Asean Bank, is a mere surplusage which is not necessary to the validity of the agreement. As previously discussed, the intention of the parties to treat the Memorandum of Agreement as embodying a conventional subrogation is shown not only by the whereas clause but also by the signature space captioned WITH OUR CONFORME reserved for the signature of a representative of Anglo-Asean Bank. These provisions in the aforementioned Memorandum of Agreement may not simply be disregarded or dismissed as superfluous. It is a basic rule in the interpretation of contracts that (t)he various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.[15] Moreover, under our Rules of Court, it is mandated that (i)n the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all.[16] Further, jurisprudence has laid down the rule that contracts should be so construed as to harmonize and give effect to the different provisions thereof.[17]

In the case at bench, the Memorandum of Agreement embodies certain provisions that are consistent with either a conventional subrogation or assignment of credit. It has not been shown that any clause or provision in the Memorandum of Agreement is inconsistent or incompatible with a conventional subrogation. On the other hand, the two cited provisions requiring consent of the debtor to the memorandum is inconsistent with a contract of assignment of credit. Thus, if we were to interpret the same as one of assignment of credit, then the aforementioned stipulations regarding the consent of Anglo-Asean Bank would be rendered inutile and useless considering that, as previously discussed, the consent of the debtor is not necessary in an assignment of credit. Petitioner next argues that assuming that the conformity of Anglo-Asean was necessary to the validity of the Memorandum of Agreement, respondent only had himself to blame for the failure to secure such conformity as was, allegedly, incumbent upon him under the memorandum. As to this argument regarding the party responsible for securing the conformity of Anglo-Asean Bank, we fail to see how this question would have any relevance on the outcome of this case. Having ruled that the consent of Anglo-Asean was necessary for the validity of the Memorandum of Agreement, the determinative fact is that such consent was not secured by either petitioner or respondent which consequently resulted in the invalidity of the said memorandum. With respect to the argument of petitioner that respondent himself allegedly admitted in open court that an assignment of credit was intended, it is enough to say that respondent apparently used the word assignment in his testimony in the general sense. Respondent is not a lawyer and as such, he is not so well versed in law that he would be able to distinguish between the concepts of conventional subrogation and of assignment of credit. Moreover, even assuming that there was an admission on his part, such admission is not conclusive on this court as the nature and interpretation of the Memorandum of Agreement is a question of law which may not be the subject of stipulations and admissions.[18] Considering the foregoing, it cannot then be said that the consent of the debtor Anglo-Asean Bank is not necessary to the validity of the Memorandum of Agreement. As above stated, the Memorandum of Agreement embodies a contract for conventional subrogation and in such a case, the consent of the original parties and the third person is required.[19] The absence of such conformity by Anglo-Asean Bank prevented the Memorandum of Agreement from becoming valid and effective. Accordingly, the Court of Appeals did not err when it ruled that the Memorandum of Agreement was never perfected.

Having arrived at the above conclusion, the Court finds no need to discuss the other issues raised by petitioner. WHEREFORE, the instant petition is DENIED and the Decision of the Court of Appeals dated February 10, 2000 and its Resolution dated April 7, 2000 are hereby AFFIRMED. Melo, (Chairman), Vitug, and Panganiban, JJ., concur. Sandoval-Gutierrez, J., on leave.