[G.R. No. 142838. August 9, 2001] ABELARDO B. LICAROS, petitioner, vs. ANTONIO P. GATMAITAN, respondent. DECISION GONZAGA-REYES, J.

: 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 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: 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; 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 an d 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 PARTY OF THE FIRST PART WITH OUR CONFORME: ANGLO-ASEAN BANK & TRUST Sgd. ANTONIO P. GATMAITAN PARTY OF THE FIRST PART

BY: (Unsigned) SIGNED IN THE PRESENCE OF: Sgd. (illegible) ________________________ ________________________

President, Prudential Life Plan, Inc.. 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 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; d) Costs of the suit.[4]

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 ANGLO-ASEAN 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 (SGD.) Antonio P. Gatmaitan 7 Mangyan St., La Vista, QC Signed in the Presence of (SGD.) _________________ Francisco A. Alba __________________

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 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 ANGLO-ASEAN 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.

[G.R. No. 154127. December 8, 2003]

accompanied by a certificate of non-forum shopping. Annexed to the reply were the face of the check and the reverse side thereof. For his part, x x x de Jesus asserted in his [A]nswer with [C]ounterclaim that out of the supposed P400,000.00 loan, he received only P360,000.00, the P40,000.00 having been advance interest thereon for two months, that is, for January and February 1997; that[,] in fact[,] he paid the sum of P120,000.00 by way of interests; that this was made when [respondents] daughter, one Nits Llamas-Quijencio, received from the Central Police District Command at Bicutan, Taguig, Metro Manila (where x x x de Jesus worked), the sum of P40,000.00, representing the peso equivalent of his accumulated leave credits, another P40,000.00 as advance interest, and still another P40,000.00 as interest for the months of March and April 1997; that he had difficulty in paying the loan and had asked [respondent] for an extension of time; that [respondent] acted in bad faith in instituting the case, [respondent] having agreed to accept the benefits he (de Jesus) would receive for his retirement, but [respondent] nonetheless filed the instant case while his retirement was being processed; and that, in defense of his rights, he agreed to pay his counsel P20,000.00 [as] attorneys fees, plus P1,000.00 for every court appearance. During the pre-trial conference, x x x de Jesus and his lawyer did not appear, nor did they file any pre-trial brief. Neither did [Petitioner] Garcia file a pre-trial brief, and his counsel even manifested that he would no [longer] present evidence. Given this development, the trial court gave [respondent] permission to present his evidence ex parte against x x x de Jesus; and, as regards [Petitioner] Garcia, the trial court directed [respondent] to file a motion for judgment on the pleadings, and for [Petitioner] Garcia to file his comment or opposition thereto. Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to allow him to present his evidence ex parte. Meanwhile, [Petitioner] Garcia filed a [M]anifestation submitting his defense to a judgment on the pleadings. Subsequently, [respondent] filed a [M]anifestation/[M]otion to submit the case for judgement on the pleadings, withdrawing in the process his previous motion. Thereunder, he asserted that [petitioners and de Jesus] solidary liability under the promissory note cannot be any clearer, and that the check issued by de Jesus did not discharge the loan since the check bounced.[5] On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case as follows: WHEREFORE, premises considered, judgment on the pleadings is hereby rendered in favor of [respondent] and against [petitioner and De Jesus], who are hereby ordered to pay, jointly and severally, the [respondent] the following sums, to wit: 1) P400,000.00 representing the principal amount plus 5% interest thereon per month from January 23, 1997 until the same shall have been fully paid, less the amount of P120,000.00 representing interests already paid by x x x de Jesus; 2) P100,000.00 as attorneys fees plus appearance fee of P2,000.00 for each day of [c]ourt appearance, and; 3) Cost of this suit.[6]

ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS, respondent. DECISION PANGANIBAN, J.: Novation cannot be presumed. It must be clearly shown either by the express assent of the parties or by the complete incompatibility between the old and the new agreements. Petitioner herein fails to show either requirement convincingly; hence, the summary judgment holding him liable as a joint and solidary debtor stands.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the November 26, 2001 Decision[2] and the June 26, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 60521. The appellate court disposed as follows: UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from, insofar as it pertains to [Petitioner] Romeo Garcia, must be, as it hereby is, AFFIRMED, subject to the modification that the award for attorneys fees and cost of suit is DELETED. The portion of the judgment that pertains to x x x Eduardo de Jesus is SET ASIDE and VACATED. Accordingly, the case against x x x Eduardo de Jesus isREMANDED to the court of origin for purposes of receiving ex parte [Respondent] Dionisio Llamas evidence against x x x Eduardo de Jesus.[4] The challenged Resolution, on the other hand, denied petitioners Motion for Reconsideration.

The Antecedents

The antecedents of the case are narrated by the CA as follows: This case started out as a complaint for sum of money and damages by x x x [Respondent] Dionisio Llamas against x x x [Petitioner] Romeo Garcia and Eduardo de Jesus. Docketed as Civil Case No. Q97-32-873, the complaint alleged that on 23 December 1996[,] [petitioner and de Jesus] borrowed P400,000.00 from [respondent]; that, on the same day, [they] executed a promissory note wherein they bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month; that the loan has long been overdue and, despite repeated demands, [petitioner and de Jesus] have failed and refused to pay it; and that, by reason of the[ir] unjustified refusal, [respondent] was compelled to engage the services of counsel to whom he agreed to pay 25% of the sum to be recovered from [petitioner and de Jesus], plus P2,000.00 for every appearance in court. Annexed to the complaint were the promissory note above-mentioned and a demand letter, dated 02 May 1997, by [respondent] addressed to [petitioner and de Jesus]. Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he assumed no liability under the promissory note because he signed it merely as an accommodation party for x x x de Jesus; and, alternatively, that he is relieved from any liability arising from the note inasmuch as the loan had been paid by x x x de Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of the check and [respondents] acceptance thereof novated or superseded the note. [Respondent] tendered a reply to [Petitioner] Garcias answer, thereunder asserting that the loan remained unpaid for the reason that the check issued by x x x de Jesus bounced, and that [Petitioner] Garcias answer was not even

Ruling of the Court of Appeals

The CA ruled that the trial court had erred when it rendered a judgment on the pleadings against De Jesus. According to the appellate court, his Answer raised genuinely contentious issues. Moreover, he was still required to present his evidence ex parte. Thus, respondent was not ipso facto entitled to the RTC judgment, even though De Jesus had been declared in default. The case against the latter was therefore remanded by the CA to the trial court for the ex parte reception of the formers evidence. As to petitioner, the CA treated his case as a summary judgment, because his Answer had failed to raise even a single genuine issue regarding any material fact. The appellate court ruled that no novation -- express or implied -- had taken place when respondent accepted the check from De Jesus. According to the CA, the check was issued precisely to pay for the loan that was covered by the promissory note jointly and severally undertaken by petitioner and De Jesu s. Respondents acceptance of the check did not serve to make De Jesus the sole debtor because, first, the obligation incurred by him and petitioner was joint and several; and, second, the check -- which had been intended to extinguish the obligation -- bounced upon its presentment. Hence, this Petition.[7]

Issues

note by the check. Alternatively, the former argues that the original obligation was extinguished when the latter, who was his co-obligor, paid the loan with the check. The fallacy of the second (alternative) argument is all too apparent. The check could not have extinguished the obligation, because it bounced upon presentment. By law,[9] the delivery of a check produces the effect of payment only when it is encashed. We now come to the main issue of whether novation took place.

Petitioner submits the following issues for our consideration: I Whether or not the Honorable Court of Appeals gravely erred in not holding that novation applies in the instant case as x x x Eduardo de Jesus had expressly assumed sole and exclusive liability for the loan obligation he obtained from x x x Respondent Dionisio Llamas, as clearly evidenced by: a) Issuance by x x x de Jesus of a check in payment of the full amount of the loan of P400,000.00 in favor of Respondent Llamas, although the check subsequently bounced[;] Acceptance of the check by the x x x respondent x x x which resulted in [the] substitution by x x x de Jesus or [the superseding of] the promissory note; x x x de Jesus having paid interests on the loan in the total amount of P120,000.00; The fact that Respondent Llamas agreed to the proposal of x x x de Jesus that due to financial difficulties, he be given an extension of time to pay his loan obligation and that his retirement benefits from the Philippine National Police will answer for said obligation. II Whether or not the Honorable Court of Appeals seriously erred in not holding that the defense of petitioner that he was merely an accommodation party, despite the fact that the promissory note provided for a joint andsolidary liability, should have been given weight and credence considering that subsequent events showed that the principal obligor was in truth and in fact x x x de Jesus, as evidenced by the foregoing circumstances showing his assumption of sole liability over the loan obligation. III Whether or not judgment on the pleadings or summary judgment was properly availed of by Respondent Llamas, despite the fact that there are genuine issues of fact, which the Honorable Court of Appeals itself admitted in its Decision, which call for the presentation of evidence in a full-blown trial.[8] Simply put, the issues are the following: 1) whether there was novation of the obligation; 2) whether the defense that petitioner was only an accommodation party had any basis; and 3) whether the judgment against him -- be it a judgment on the pleadings or a summary judgment -- was proper.\

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. [10] Article 1293 of the Civil Code defines novation as follows: Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237. In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In expromision, the initiative for the change does not come from -- and may even be made without the knowledge of -- the debtor, since it consists of a third persons assumption of the obligation. As such, it logically requires the consent of the third person and the creditor. Indelegacion, the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the consent of these three persons are necessary.[11]Both modes of substitution by the debtor require the consent of the creditor. [12] Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. It is merely modificatorywhen the old obligation subsists to the extent that it remains compatible with the amendatory agreement.[13] Whether extinctive or modificatory, novation is made either by changing the object or the principal conditions, referred to as objective or real novation; or by substituting the person of the debtor or subrogating a third person to the rights of the creditor, an act known as subjective or personal novation.[14] For novation to take place, the following requisites must concur: 1) 2) 3) 4) There must be a previous valid obligation. The parties concerned must agree to a new contract. The old contract must be extinguished. There must be a valid new contract.[15]

b)

c) d)

Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every point.[16] The test of incompatibility is whether the two obligations can stand together, each one with its own independent existence.[17] Applying the foregoing to the instant case, we hold that no novation took place. The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the acceptance of the check, or that the check would take the place of the note. There is no incompatibility between the promissory note and the check. As the CA correctly observed, the check had been issued precisely to answer for the obligation. On the one hand, the note evidences the loan obligation; and on the other, the check answers for it. Verily, the two can stand together. Neither could the payment of interests -- which, in petitioners view, also constitutes novation[18] -- change the terms and conditions of the obligation. Such payment was already provided for in the promissory note and, like the check, was totally in accord with the terms thereof. Also unmeritorious is petitioners argument that the obligation was novated by the substitution of debtors. In order to change the person of the debtor, the old one must be expressly released from the obligation, and the third person or new debtor must assume the formers place in the relation.[19] Well-settled is the rule that novation is never presumed.[20] Consequently, that which arises from a purported change in the person of the debtor must be clear and express.[21] It is thus incumbent on petitioner to show clearly and unequivocally that novation has indeed taken place.

The Courts Ruling The Petition has no merit.

First Issue: Novation

Petitioner seeks to extricate himself from his obligation as joint and solidary debtor by insisting that novation took place, either through the substitution of De Jesus as sole debtor or the replacement of the promissory

In the present case, petitioner has not shown that he was expressly released from the obligation, that a third person was substituted in his place, or that the joint and solidary obligation was cancelled and substituted by the solitary undertaking of De Jesus. The CA aptly held: x x x. Plaintiffs acceptance of the bum check did not result in substitution by de Jesus either, the nature of the obligation being solidary due to the fact that the promissory note expressly declared that the liability of appellants thereunder is joint and [solidary.] Reason: under the law, a creditor may demand payment or performance from one of the solidary debtors or some or all of them simultaneously, and payment made by one of them extinguishes the obligation. It therefore follows that in case the creditor fails to collect from one of the solidary debtors, he may still proceed against the other or others. x x x [22] Moreover, it must be noted that for novation to be valid and legal, the law requires that the creditor expressly consent to the substitution of a new debtor.[23] Since novation implies a waiver of the right the creditor had before the novation, such waiver must be express.[24] It cannot be supposed, without clear proof, that the present respondent has done away with his right to exact fulfillment from either of the solidary debtors.[25] More important, De Jesus was not a third person to the obligation. From the beginning, he was a joint and solidary obligor of the P400,000 loan; thus, he can be released from it only upon its extinguishment. Respondents acceptance of his check did not change the person of the debtor, because a joint and solidary obligor is required to pay the entirety of the obligation. It must be noted that in a solidary obligation, the creditor is entitled to demand the satisfaction of the whole obligation from any or all of the debtors.[26] It is up to the former to determine against whom to enforce collection.[27] Having made himself jointly and severally liable with De Jesus, petitioner is therefore liable [28] for the entire obligation.[29] Second Issue: Accommodation Party

Third Issue: Propriety of Summary Judgment or Judgment on the Pleadings

The next issue illustrates the usual confusion between a judgment on the pleadings and a summary judgment. Under Section 3 of Rule 35 of the Rules of Court, a summary judgment may be rendered after a summary hearing if the pleadings, supporting affidavits, depositions and admissions on file show that (1) except as to the amount of damages, there is no genuine issue regarding any material fact; and (2) the moving party is entitled to a judgment as a matter of law. A summary judgment is a procedural device designed for the prompt disposition of actions in which the pleadings raise only a legal, not a genuine, issue regarding any material fact.[35]Consequently, facts are asserted in the complaint regarding which there is yet no admission, disavowal or qualification; or specific denials or affirmative defenses are set forth in the answer, but the issues are fictitious as shown by the pleadings, depositions or admissions. [36] A summary judgment may be applied for by either a claimant or a defending party.[37] On the other hand, under Section 1 of Rule 34 of the Rules of Court, a judgment on the pleadings is proper when an answer fails to render an issue or otherwise admits the material allegations of the adverse partys pleading. The essential question is whether there are issues generated by the pleadings. [38] A judgment on the pleadings may be sought only by a claimant, who is the party seeking to recover upon a claim, counterclaim or cross-claim; or to obtain a declaratory relief. [39] Apropos thereto, it must be stressed that the trial courts judgment against petitioner was correctly treated by the appellate court as a summary judgment, rather than as a judgment on the pleadings. His Answer[40] apparently raised several issues -- that he signed the promissory note allegedly as a mere accommodation party, and that the obligation was extinguished by either payment or novation. However, these are not factual issues requiring trial. We quote with approval the CAs observations: Although Garcias [A]nswer tendered some issues, by way of affirmative defenses, the documents submitted by [respondent] nevertheless clearly showed that the issues so tendered were not valid issues. Firstly, Garcias claim that he was merely an accommodation party is belied by the promissory note that he signed. Nothing in the note indicates that he was only an accommodation party as he claimed to be. Quite the contrary, the promissory note bears the statement: It is understood that our liability under this loan is jointly and severally [sic]. Secondly, his claim that his co-defendant de Jesus already paid the loan by means of a check collapses in view of the dishonor thereof as shown at the dorsal side of said check.[41] From the records, it also appears that petitioner himself moved to submit the case for judgment on the basis of the pleadings and documents. In a written Manifestation,[42] he stated that judgment on the pleadings may now be rendered without further evidence, considering the allegations and admissions of the parties.[43] In view of the foregoing, the CA correctly considered as a summary judgment that which the trial court had issued against petitioner. WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED.

Petitioner avers that he signed the promissory note merely as an accommodation party; and that, as such, he was released as obligor when respondent agreed to extend the term of the obligation. This reasoning is misplaced, because the note herein is not a negotiable instrument. The note reads: PROMISSORY NOTE P400,000.00 RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED THOUSAND PESOS, Philippine Currency payable on or before January 23, 1997 at No. 144 K-10 St. Kamias, Quezon City, with interest at the rate of 5% per month or fraction thereof. It is understood that our liability under this loan is jointly and severally [sic]. Done at Quezon City, Metro Manila this 23rd day of December, 1996.[30] By its terms, the note was made payable to a specific person rather than to bearer or to order[31] -- a requisite for negotiability under Act 2031, the Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the NILs provisions on the liabilities and defenses of an accommodation party. Besides, a non-negotiable note is merely a simple contract in writing and is evidence of such intangible rights as may have been created by the assent of the parties.[32] The promissory note is thus covered by the general provisions of the Civil Code, not by the NIL. Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note. Under Article 29 of Act 2031, an accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety -- the accommodation party being the surety.[33] It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an originalpromissor and debtor from the beginning. The liability is immediate and direct.[34]

[G.R. No. 147950. December 11, 2003]

SIHI subsequently sent a demand letter dated December 13, 1983,[14] to CBLI requiring CBLI to remit the payments due on the five promissory notes directly to it. CBLI replied informing SIHI of Civil Case No. 0023-P and of the fact that Delta had taken over its management and operations.[15] As regards Deltas remaining obligation to SIHI, Delta offered its available bus units, valued at P27,067,162.22, as payment in kind.[16] On December 29, 1983, SIHI accepted Deltas offer, and Delta transferred the ownership of its available buses to SIHI, which in turn acknowledged full payment of Deltas remaining obligation. [17] When SIHI was unable to take possession of the buses, SIHI filed a petition for recovery of possession with prayer for issuance of a writ of replevin before the RTC of Manila, Branch 6, docketed as Civil Case No. 84-23019. The Manila RTC issued a writ of replevin and SIHI was able to take possession of 17 bus units belonging to Delta. SIHI applied the proceeds from the sale of the said 17 buses amounting to P12,870,526.98 to Deltas outstanding obligation. Deltas obligation to SIHI was thus reduced to P20,061,898.97. On December 5, 1984, Branch 6 of the RTC of Manila rendered judgment in Civil Case No. 84-23019 ordering Delta to pay SIHI this amount. Thereafter, Delta and CBLI entered into a compromise agreement on July 24, 1984,[18] in Civil Case No. 0023-P, the injunction case before the RTC of Pasay. CBLI agreed that Delta would exercise its right to extrajudicially foreclose on the chattel mortgages over the 35 bus units. The RTC of Pasay approved this compromise agreement the following day, July 25, 1984.[19] Following this, CBLI vehemently refused to pay SIHI the value of the five promissory notes, contending that the compromise agreement was in full settlement of all its obligations to Delta including its obligations under the promissory notes. On December 26, 1984, SIHI filed a complaint, docketed as Civil Case No. 84-28505, against CBLI in the Regional Trial Court of Manila, Branch 34, to collect on the five (5) promissory notes with interest at 14% p.a. SIHI also prayed for the issuance of a writ of preliminary attachment against the properties of CBLI. [20] On December 28, 1984, Delta filed a petition for extrajudicial foreclosure of chattel mortgages pursuant to its compromise agreement with CBLI. On January 2, 1985, Delta filed in the RTC ofPasay a motion for execution of the judgment based on the compromise agreement.[21] The RTC of Pasay granted this motion the following day.[22] In view of Deltas petition and motion for execution per the judgment of compromise, the RTC of Manila granted in Civil Case No. 84-28505 SIHIs application for preliminary attachment onJanuary 4, 1985.[23] Consequently, SIHI was able to attach and physically take possession of thirty-two (32) buses belonging to CBLI.[24] However, acting on CBLIs motion to quash the writ of preliminary attachment, the same court resolved on January 15, 1986,[25] to discharge the writ of preliminary attachment. SIHI assailed the discharge of the writ before the Intermediate Appellate Court (now Court of Appeals) in a petition for certiorari and prohibition, docketed as CA-G.R. SP No. 08378. On July 31, 1987, the Court of Appeals granted SIHIs petition in CA-GR SP No. 08378 and ruled that the writ of preliminary attachment issued by Branch 34 of the RTC Manila in Civil Case No. 84-28505 should stay.[26] The decision of the Court of Appeals attained finality onAugust 22, 1987.[27] Meanwhile, pursuant to the January 3, 1985 Order of the RTC of Pasay, the sheriff of Pasay City conducted a public auction and issued a certificate of sheriffs sale to Delta on April 2, 1987, attesting to the fact that Delta bought 14 of the 35 buses for P3,920,000.[28] On April 7, 1987, the sheriff of Manila, by virtue of the writ of execution dated March 27, 1987, issued by Branch 6 of the RTC of Manila in Civil Case No. 84-23019, sold the same 14 buses at public auction in partial satisfaction of the judgment SIHI obtained against Delta in Civil Case No. 84-23019. Sometime in May 1987, Civil Case No. 84-28505 was raffled to Branch 13 of the RTC of Manila in view of the retirement of the presiding judge of Branch 34. Subsequently, SIHI moved to sell the sixteen (16) buses of CBLI which had previously been attached by the sheriff in Civil Case No. 84-28505 pursuant to the January 4, 1985, Order of the RTC of Manila.[29] SIHIs motion was granted on December 16, 1987.[30] On November 29, 1988, however, SIHI filed an urgent ex-parte motion to amend this order claiming that through inadvertence and excusable negligence of its new counsel, it made a mistake in the list of buses in the Motion to Sell Attached Properties it had earlier filed.[31] SIHI explained that 14 of the buses listed had already been sold to Delta on April 2, 1987, by virtue of the January 3, 1985 Order of the RTC of Pasay, and that two of the buses listed had been released to third party, claimant Pilipinas Bank, by Order dated September 16, 1987[32] of Branch 13 of the RTC of Manila. CBLI opposed SIHIs motion to allow the sale of the 16 buses. On May 3, 1989,[33] Branch 13 of the RTC of Manila denied SIHIs urgent motion to allow the sale of the 16 buses listed in its motion to amend. The trial court ruled that the best interest of the parties might be better served by denying further sales of the buses and to go direct to the trial of the case on the merits.[34] After trial, judgment was rendered in Civil Case No. 84-28505 on June 3, 1993, discharging CBLI from liability on the five promissory notes. The trial court likewise favorably ruled on CBLIscompulsory counterclaim. The trial court directed SIHI to return the 16 buses or to pay CBLI P4,000,000 representing the value of the seized buses, with interest at 12% p.a. to begin from January 11, 1985, the date SIHI seized the buses, until payment is made. In ruling against SIHI, the trial court held that the restructuring agreement dated October 7, 1981, between Delta and

CALIFORNIA BUS LINES, INC., petitioner, vs. STATE INVESTMENT HOUSE, INC., respondent. DECISION QUISUMBING, J.: In this petition for review, California Bus Lines, Inc., assails the decision, [1] dated April 17, 2001, of the Court of Appeals in CA-G.R. CV No. 52667, reversing the judgment[2], dated June 3, 1993, of the Regional Trial Court of Manila, Branch 13, in Civil Case No. 84-28505 entitled State Investment House, Inc. v. California Bus Lines, Inc., for collection of a sum of money. The Court of Appeals held petitioner California Bus Lines, Inc., liable for the value of five promissory notes assigned to respondent State Investment House, Inc. The facts, as culled from the records, are as follows: Sometime in 1979, Delta Motors CorporationM.A.N. Division (Delta) applied for financial assistance from respondent State Investment House, Inc. (hereafter SIHI), a domestic corporation engaged in the business of quasibanking. SIHI agreed to extend a credit line to Delta for P25,000,000.00 in three separate credit agreements dated May 11, June 19, and August 22, 1979.[3]On several occasions, Delta availed of the credit line by discounting with SIHI some of its receivables, which evidence actual sales of Deltas vehicles. Delta eventually became indebted to SIHI to the tune of P24,010,269.32.[4] Meanwhile, from April 1979 to May 1980, petitioner California Bus Lines, Inc. (hereafter CBLI), purchased on installment basis 35 units of M.A.N. Diesel Buses and two (2) units of M.A.N. Diesel Conversion Engines from Delta. To secure the payment of the purchase price of the 35 buses, CBLI and its president, Mr. Dionisio O. Llamas, executed sixteen (16) promissory notes in favor of Delta on January 23 and April 25, 1980.[5] In each promissory note, CBLI promised to pay Delta or order, P2,314,000 payable in 60 monthly installments starting August 31, 1980, with interest at 14% per annum. CBLI further promised to pay the holder of the said notes 25% of the amount due on the same as attorneys fees and expenses of collection, whether actually incurred or not, in case of judicial proceedings to enforce collection. In addition to the notes, CBLI executed chattel mortgages over the 35 buses in Deltas favor. When CBLI defaulted on all payments due, it entered into a restructuring agreement with Delta on October 7, 1981, to cover its overdue obligations under the promissory notes.[6] The restructuring agreement provided for a new schedule of payments of CBLIs past due installments, extending the period to pay, and stipulating daily remittance instead of the previously agreed monthly remittance of payments. In case of default, Delta would have the authority to take over the management and operations of CBLI until CBLI and/or its president, Mr. Dionisio Llamas, remitted and/or updated CBLIs past due account. CBLI and Delta also increased the interest rate to 16% p.a. and added a documentation fee of 2% p.a. and a 4% p.a. restructuring fee. On December 23, 1981, Delta executed a Continuing Deed of Assignment of Receivables [7] in favor of SIHI as security for the payment of its obligations to SIHI per the credit agreements. In view of Deltas failure to pay, the loan agreements were restructured under a Memorandum of Agreement dated March 31, 1982.[8] Delta obligated itself to pay a fixed monthly amortization ofP400,000 to SIHI and to discount with SIHI P8,000,000 worth of receivables with the understanding that SIHI shall apply the proceeds against Deltas overdue accounts. CBLI continued having trouble meeting its obligations to Delta. This prompted Delta to threaten CBLI with the enforcement of the management takeover clause. To pre-empt the take-over, CBLI filed on May 3, 1982, a complaint for injunction[9], docketed as Civil Case No. 0023-P, with the Court of First Instance of Rizal, Pasay City, (now Regional Trial Court of Pasay City). In due time, Delta filed its amended answer with applications for the issuance of a writ of preliminary mandatory injunction to enforce the management takeover clause and a writ of preliminary attachment over the buses it sold to CBLI.[10] On December 27, 1982,[11] the trial court granted Deltas prayer for issuance of a writ of preliminary mandatory injunction and preliminary attachment on account of the fraudulent disposition by CBLI of its assets. On September 15, 1983, pursuant to the Memorandum of Agreement, Delta executed a Deed of Sale [12] assigning to SIHI five (5) of the sixteen (16) promissory notes [13] from California Bus Lines, Inc. At the time of assignment, these five promissory notes, identified and numbered as 80-53, 80-54, 80-55, 80-56, and 80-57, had a total value of P16,152,819.80 inclusive of interest at 14% per annum.

CBLInovated the five promissory notes; hence, at the time Delta assigned the five promissory notes to SIHI, the notes were already merged in the restructuring agreement and cannot be enforced against CBLI. SIHI appealed the decision to the Court of Appeals. The case was docketed as CA-G.R. CV No. 52667. On April 17, 2001, the Court of Appeals decided CA-G.R. CV No. 52667 in this manner: WHEREFORE, based on the foregoing premises and finding the appeal to be meritorious, We find defendantappellee CBLI liable for the value of the five (5) promissory notes subject of the complaint a quo less the proceeds from the attached sixteen (16) buses. The award of attorneys fees and costs is eliminated. The appealed decision is hereby REVERSED. No costs. SO ORDERED.[35] Hence, this appeal where CBLI contends that I. THE COURT OF APPEALS ERRED IN DECLARING THAT THE RESTRUCTURING AGREEMENT BETWEEN DELTA AND THE PETITIONER DID NOT SUBSTANTIALLY NOVATE THE TERMS OF THE FIVE PROMISSORY NOTES. II. THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPROMISE AGREEMENT BETWEEN DELTA AND THE PETITIONER IN THE PASAY CITY CASE DID NOT SUPERSEDE AND DISCHARGE THE PROMISSORY NOTES. III. THE COURT OF APPEALS ERRED IN UPHOLDING THE CONTINUING VALIDITY OF THE PRELIMINARY ATTACHMENT AND EXONERATING THE RESPONDENT OF MALEFACTIONS IN PRESERVING AND ASSERTING ITS RIGHTS THEREUNDER.[36] Essentially, the issues are (1) whether the Restructuring Agreement dated October 7, 1981, between petitioner CBLI and Delta Motors, Corp. novated the five promissory notes Delta Motors, Corp. assigned to respondent SIHI, and (2) whether the compromise agreement in Civil Case No. 0023-P superseded and/or discharged the subject five promissory notes. The issues being interrelated, they shall be jointly discussed. CBLI first contends that the Restructuring Agreement did not merely change the incidental elements of the obligation under all sixteen (16) promissory notes, but it also increased the obligations of CBLI with the addition of new obligations that were incompatible with the old obligations in the said notes. [37] CBLI adds that even if the restructuring agreement did not totally extinguish the obligations under the sixteen (16) promissory notes, the July 24, 1984, compromise agreement executed in Civil Case No. 0023-P did.[38] CBLI cites paragraph 5 of the compromise agreement which states that the agreement between it and CBLI was in full and final settlement, adjudication and termination of all their rights and obligations as of the date of (t he) agreement, and of the issues in (the) case. According to CBLI, inasmuch as the five promissory notes were subject matters of the Civil Case No. 0023-P, the decision approving the compromise agreement operated as res judicata in the present case.[39] Novation has been defined as the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a third person in the rights of the creditor. [40] Novation, in its broad concept, may either be extinctive or modificatory.[41] It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. [42] An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). [43] Novation has two functions: one to extinguish an existing obligation, the other to substitute a new one in its place. [44] For novation to take place, four essential requisites have to be met, namely, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.[45] Novation is never presumed,[46] and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.[47] The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or impliedly.[48] The term "expressly" means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one.[49] Upon the other hand, no specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts.[50] While there is really no hard and fast rule to determine what might constitute to be a sufficient change that

can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and the new obligations. There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence.[51] If they cannot, they are incompatible and the latter obligation novates the first.[52] Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation.[53] The necessity to prove the foregoing by clear and convincing evidence is accentuated where the obligation of the debtor invoking the defense of novation has already matured.[54] With respect to obligations to pay a sum of money, this Court has consistently applied the well-settled rule that the obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, and adds other obligations not incompatible with the old ones, or where the new contract merely supplements the old one. [55] In Inchausti & Co. v. Yulo[56] this Court held that an obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified, by changing only the term of payment and adding other obligations not incompatible with the old one. In Tible v. Aquino[57] and Pascual v. Lacsamana[58] this Court declared that it is well settled that a mere extension of payment and the addition of another obligation not incompatible with the old one is not a novation thereof. In this case, the attendant facts do not make out a case of novation. The restructuring agreement between Delta and CBLI executed on October 7, 1981, shows that the parties did not expressly stipulate that the restructuring agreement novated the promissory notes. Absent an unequivocal declaration of extinguishment of the pre-existing obligation, only a showing of complete incompatibility between the old and the new obligation would sustain a finding of novation by implication.[59] However, our review of its terms yields no incompatibility between the promissory notes and the restructuring agreement. The five promissory notes, which Delta assigned to SIHI on September 13, 1983, contained the following common stipulations: 1. 2. 3. They were payable in 60 monthly installments up to July 31, 1985; Interest: 14% per annum; Failure to pay any of the installments would render the entire remaining balance due and payable at the option of the holder of the notes; In case of judicial collection on the notes, the maker (CBLI) and co-maker (its president, Mr. Dionisio O. Llamas, Jr) were solidarily liable of attorneys fees and expenses of 25% of the amount due in addition to the costs of suit.

4.

The restructuring agreement, for its part, had the following provisions: WHEREAS, CBL and LLAMAS admit their past due installment on the following promissory notes: a. PN Nos. 16 to 26 (11 units) Past Due as of September 30, 1981 P1,411,434.00 b. PN Nos. 52 to 57 (24 units) Past Due as of September 30, 1981 P1,105,353.00 WHEREAS, the parties agreed to restructure the above-mentioned past due installments under the following terms and conditions:

a. PN Nos. 16 to 26 (11 units) 37 months PN Nos. 52 to 57 (24 units) 46 months b. Interest Rate: 16% per annum c. Documentation Fee: 2% per annum d. Penalty previously incurred and Restructuring fee: 4% p.a. e. Mode of Payment: Daily Remittance NOW, THEREFORE, for and in consideration of the foregoing premises, the parties hereby agree and covenant as follows: 1. That the past due installment referred to above plus the current and/or falling due amortization as of October 1, 1981 for Promissory Notes Nos. 16 to 26 and 52 to 57 shall be paid by CBL and/or LLAMAS in accordance with the following schedule of payments: Daily payments of P11,000.00 from October 1 to December 31, 1981 Daily payments of P12,000.00 from January 1, 1982 to March 31, 1982 Daily payments of P13,000.00 from April 1, 1982 to June 30, 1982 Daily payments of P14,000.00 from July 1, 1982 to September 30, 1982 Daily payments of P15,000.00 from October 1, 1982 to December 31, 1982 Daily payments of P16,000.00 from January 1, 1983 to June 30, 1983 Daily payments of P17,000.00 from July 1, 1983 2. CBL or LLAMAS shall remit to DMC on or before 11:00 a.m. everyday the daily cash payments due to DMC in accordance with the schedule in paragraph 1. DMC may send a collector to receive the amount due atCBLs premises. All delayed remittances shall be charged additional 2% penalty interest per month. 3. All payments shall be applied to amortizations and penalties due in accordance with paragraph of the restructured past due installments above mentioned and PN Nos. 16 to 26 and 52 to 57. 4. DMC may at anytime assign and/or send its representatives to monitor the operations of CBL pertaining to the financial and field operations and service and maintenance matters of M.A.N. units. Records needed by the DMC representatives in monitoring said operations shall be made available by CBL and LLAMAS. 5. Within thirty (30) days after the end of the terms of the PN Nos. 16 to 26 and 52 to 57, CBL or LLAMAS shall remit in lump sum whatever balance is left after deducting all payments made from what is due and payable to DMC in accordance with paragraph 1 of this agreement and PN Nos. 16 to 26 and 52 to 57. 6. In the event that CBL and LLAMAS fail to remit the daily remittance agreed upon and the total accumulated unremitted amount has reached and (sic) equivalent of Sixty (60) days, DMC and Silverio shall exercise any or all of the following options: (a) The whole sum remaining then unpaid plus 2% penalty per month and 16% interest per annum on total past due installments will immediately become due and payable. In the event of judicial proceedings to enforce collection, CBL and LLAMAS will pay to DMC an additional sum equivalent to 25% of the amount due for attorneys fees and expenses of collection, whether actually incurred or not, in addition to the cost of suit;

(b)

To enforce in accordance with law, their rights under the Chattel Mortgage over various M.A.N. Diesel bus with Nos. CU 80-39, 80-40, 80-41, 80-42, 80-43, 80-44 and 80-15, and/or To take over management and operations of CBL until such time that CBL and/or LLAMAS have remitted and/or updated their past due account with DMC.

(c)

7. DMC and SILVERIO shall insure to CBL continuous supply of spare parts for the M.A.N. Diesel Buses and shall make available to CBL at the price prevailing at the time of purchase, an inventory of spare parts consisting of at least ninety (90%) percent of the needs of CBL based on a moving 6-month requirement to be prepared and submitted by CBL, and acceptable to DMC, within the first week of each month. 8. Except as otherwise modified in this Agreement, the terms and conditions stipulated in PN Nos. 16 to 26 and 52 to 57 shall continue to govern the relationship between the parties and that the Chattel Mortgage over various M.A.N. Diesel Buses with Nos. CM No. 80-39, 80-40, 80-41, 80-42, 80-43, 80-44 and CM No. 80-15 as well as the Deed of Pledge executed by Mr. Llamas shall continue to secure the obligation until full payment. 9. DMC and SILVERIO undertake to recall or withdraw its previous request to Notary Public Alberto G. Doller and to instruct him not to proceed with the public auction sale of the shares of stock of CBL subject-matter of the Deed of Pledge of Shares. LLAMAS, on the other hand, undertakes to move for the immediate dismissal of Civil Case No. 9460P entitled Dionisio O. Llamas vs. Alberto G. Doller, et al., Court of First Instance of Pasay, Branch XXIX.[60] It is clear from the foregoing that the restructuring agreement, instead of containing provisions abs olutely incompatible with the obligations of the judgment, expressly ratifies such obligations in paragraph 8 and contains provisions for satisfying them. There was no change in the object of the prior obligations. The restructuring agreement merely provided for a new schedule of payments and additional security in paragraph 6 (c) giving Delta authority to take over the management and operations of CBLI in case CBLI fails to pay installments equivalent to 60 days. Where the parties to the new obligation expressly recognize the continuing existence and validity of the old one, there can be no novation.[61] Moreover, this Court has ruled that an agreement subsequently executed between a seller and a buyer that provided for a different schedule and manner of payment, to restructure the mode of payments by the buyer so that it could settle its outstanding obligation in spite of its delinquency in payment, is not tantamount to novation. [62] The addition of other obligations likewise did not extinguish the promissory notes. In Young v. CA[63], this Court ruled that a change in the incidental elements of, or an addition of such element to, an obligation, unless otherwise expressed by the parties will not result in its extinguishment. In fine, the restructuring agreement can stand together with the promissory notes. Neither is there merit in CBLIs argument that the compromise agreement dated July 24, 1984, in Civil Case No. 0023-P superseded and/or discharged the five promissory notes. Both Delta and CBLI cannot deny that the five promissory notes were no longer subject of Civil Case No. 0023-P when they entered into the compromise agreement on July 24, 1984. Having previously assigned the five promissory notes to SIHI, Delta had no more right to compromise the same. Deltas limited authority to collect for SIHI stipulated in the September 13, 1985, Deed of Sale cannot be construed to include the power to compromise CBLIs obligations in the said promissory notes. An authority to compromise, by express provision of Article 1878[64]of the Civil Code, requires a special power of attorney, which is not present in this case. Incidentally, Deltas authority to collect in behalf of SIHI was, by express provision of the Continuing Deed of Assignment,[65] automatically revoked when SIHI opted to collect directly from CBLI. As regards CBLI, SIHIs demand letter dated December 13, 1983, requiring CBLI to remit the payments directly to SIHI effectively revoked Deltas limited right to collect in behalf of SIHI. This should have dispelled CBLIs erroneous notion that Delta was acting in behalf of SIHI, with authority to compromise the five promissory notes. But more importantly, the compromise agreement itself provided that it covered the rights and obligations only of Delta and CBLI and that it did not refer to, nor cover the rights of, SIHI as the new creditor of CBLI in the subject promissory notes. CBLI and Delta stipulated in paragraph 5 of the agreement that: 5. This COMPROMISE AGREEMENT constitutes the entire understanding by and between the plaintiffs and the defendants as well as their lawyers, and operates as full and final settlement, adjudication and termination of all their rights and obligations as of the date of this agreement, and of the issues in this case.[66]

Even in the absence of such a provision, the compromise agreement still cannot bind SIHI under the settled rule that a compromise agreement determines the rights and obligations of only the parties to it. [67] Therefore, we hold that the compromise agreement covered the rights and obligations only of Delta and CBLI and only with respect to the eleven (11) other promissory notes that remained with Delta. CBLI next maintains that SIHI is estopped from questioning the compromise agreement because SIHI failed to intervene in Civil Case No. 0023-P after CBLI informed it of the takeover by Delta of CBLIs management and operations and the resultant impossibility for CBLI to comply with its obligations in the subject promissory notes. CBLI also adds that SIHIs failure to intervene in Civil Case No. 0023-P is proof that Delta continued to act in SIHIs behalf in effecting collection under the notes. The contention is untenable. As a result of the assignment, Delta relinquished all its rights to the subject promissory notes in favor of SIHI. This had the effect of separating the five promissory notes from the 16 promissory notes subject of Civil Case No. 0023-P. From that time, CBLIs obligations to SIHI embodied in the five promissory notes became separate and distinct from CBLIsobligations in eleven (11) other promissory notes that remained with Delta. Thus, any breach of these independent obligations gives rise to a separate cause of action in favor of SIHI against CBLI. Considering that Deltas assignment to SIHI of these five promissory notes had th e effect of removing the said notes from Civil Case No. 0023-P, there was no reason for SIHI to intervene in the said case. SIHI did not have any interest to protect in Civil Case No. 0023-P. Moreover, intervention is not mandatory, but only optional and permissive.[68] Notably, Section 2,[69] Rule 12 of the then 1988 Revised Rules of Procedure uses the word may in defining the right to intervene. The present rules maintain the permissive nature of intervention in Section 1, Rule 19 of the 1997 Rules of Civil Procedure, which provides as follows: SEC. 1. Who may intervene.A person who has a legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both, or is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof may, with leave of court, be allowed to intervene in the action. The court shall consider whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the original parties, and whether or not the intervenor's rights may be fully protected in a separate proceeding.[70] Also, recall that Delta transferred the five promissory notes to SIHI on September 13, 1983 while Civil Case No. 0023-P was pending. Then as now, the rule in case of transfer of interestpendente lite is that the action may be continued by or against the original party unless the court, upon motion, directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.[71] The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and the judgment rendered therein shall be without prejudice to the rights of such necessary party.[72] In light of the foregoing, SIHIs refusal to intervene in Civil Case No. 0023-P in another court does not amount to an estoppel that may prevent SIHI from instituting a separate and independent action of its own. [73] This is especially so since it does not appear that a separate proceeding would be inadequate to protect fully SIHIs rights.[74] Indeed, SIHIs refusal to intervene is precisely because it considered that its rights would be better protected in a separate and independent suit. The judgment on compromise in Civil Case No. 0023-P did not operate as res judicata to prevent SIHI from prosecuting its claims in the present case. As previously discussed, the compromise agreement and the judgment on compromise in Civil Case No. 0023-P covered only Delta and CBLI and their respective rights under the 11 promissory notes not assigned to SIHI. In contrast, the instant case involves SIHI and CBLI and the five promissory notes. There being no identity of parties and subject matter, there is no res judicata. CBLI maintains, however, that in any event, recovery under the subject promissory notes is no longer allowed by Article 1484(3)[75] of the Civil Code, which prohibits a creditor from suing for the deficiency after it has foreclosed on the chattel mortgages. SIHI, being the successor-in-interest of Delta, is no longer allowed to recover on the promissory notes given as security for the purchase price of the 35 buses because Delta had already extrajudicially foreclosed on the chattel mortgages over the said buses on April 2, 1987. This claim is likewise untenable. Article 1484(3) finds no application in the present case. The extrajudicial foreclosure of the chattel mortgages Delta effected cannot prejudice SIHIs rights. As stated earlier, the assignment of the five notes operated to create a separate and independent obligation on the part of CBLI to SIHI, distinct and separate from CBLIs obligations to Delta. And since there was a previous revocation of Deltas authority to collect for SIHI, Delta was no longer SIHIs collecting agent. CBLI, in turn, knew of the assignment and Deltas lack of authority to compromise the

subject notes, yet it readily agreed to the foreclosure. To sanction CBLIs argument and to apply Article 1484 (3) to this case would work injustice to SIHI by depriving it of its right to collect against CBLI who has not paid its obligations. That SIHI later on levied on execution and acquired in the ensuing public sale in Civil Case No. 84-23019 the buses Delta earlier extrajudicially foreclosed on April 2, 1987, in Civil Case No. 0023-P, did not operate to render the compromise agreement and the foreclosure binding on SIHI. At the time SIHI effected the levy on execution to satisfy its judgment credit against Delta in Civil Case No. 84-23019, the said buses already pertained to Delta by virtue of the April 2, 1987 auction sale. CBLI no longer had any interest in the said buses. Under the circumstances, we cannot see how SIHIs belated acquisition of the foreclosed buses operates to hold the compromise agreement and consequently Article 1484(3)applicable to SIHI as CBLI contends. CBLIslast contention must, therefore, fail. We hold that the writ of execution to enforce the judgment of compromise in Civil Case No. 0023-P and the foreclosure sale of April 2, 1987, done pursuant to the said writ of execution affected only the eleven (11) other promissory notes covered by the compromise agreement and the judgment on compromise in Civil Case No. 0023-P. In support of its third assignment of error, CBLI maintains that there was no basis for SIHIs application for a writ of preliminary attachment.[76] According to CBLI, it committed no fraud in contracting its obligation under the five promissory notes because it was financially sound when it issued the said notes on April 25, 1980.[77] CBLI also asserts that at no time did it falsely represent to SIHI that it would be able to pay its obligations under the five promissory notes.[78] According to CBLI, it was not guilty of fraudulent concealment, removal, or disposal, or of fraudulent intent to conceal, remove, or dispose of its properties to defraud its creditors;[79] and that SIHIs bare allegations on this matter were insufficient for the preliminary attachment of CBLIsproperties.[80] The question whether the attachment of the sixteen (16) buses was valid and in accordance with law, however, has already been resolved with finality by the Court of Appeals in CA-G.R. SP No. 08376. In its July 31, 1987, decision, the Court of Appeals upheld the legality of the writ of preliminary attachment SIHI obtained and ruled that the trial court judge acted with grave abuse of discretion in discharging the writ of attachment despite the clear presence of a determined scheme on the part of CBLI to dispose of its property. Considering that the said Court of Appeals decision has already attained finality on August 22, 1987, there exists no reason to resolve this question anew. Reasons of public policy, judicial orderliness, economy and judicial time and the interests of litigants as well as the peace and order of society, all require that stability be accorded the solemn and final judgments of courts or tribunals of competent jurisdiction.[81] Finally, in the light of the justness of SIHIs claim against CBLI, we cannot sustain CBLIs contention that the Court of Appeals erred in dismissing its counterclaim for lost income and the value of the 16 buses over which SIHI obtained a writ of preliminary attachment. Where the party who requested the attachment acted in good faith and without malice, the claim for damages resulting from the attachment of property cannot be sustained.[82] WHEREFORE, the decision dated April 17, 2001, of the Court of Appeals in CA-G.R. CV No. 52667 is AFFIRMED. Petitioner California Bus Lines, Inc., is ORDERED to pay respondent State Investment House, Inc., the value of the five (5) promissory notes subject of the complaint in Civil Case No. 84-28505 less the proceeds from the sale of the attached sixteen (16) buses. No pronouncement as to costs. SO ORDERED.

G.R. No. 166704

December 20, 2006

Whether or not plaintiff is entitled to her claim of P773,000.00; Whether or not plaintiff is entitled to stipulated interests in the promissory notes; and Whether or not the parties are entitled to their claim for damages.9 The Case for Petitioner Agrifina and Felicidad were classmates at the University of Pangasinan. Felicidad's husband, Rico, also happened to be a distant relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to lend money to Felicidad. According to Felicidad, Agrifina would be earning interests higher than those given by the bank for her money. Felicidad told Agrifina that since she (Felicidad) was engaged in the sale of dry goods at the GP Shopping Arcade, she would use the money to buy bonnels and thread.10 Thus, Agrifina lent a total sum of P773,000.00 to Felicidad, and each loan transaction was covered by either a promissory note or an acknowledgment receipt.11Agrifina stated that she had lost the receipts signed by Felicidad for the following amounts: P100,000.00,P34,000.00 and P2,000.00.12 The particulars of the transactions are as follows: Amount P 100,000.00 4,000.00 50,000.00 60,000.00 205,000.00 128,000.00 2,000.00 10,000.00 80,000.00 34,000.00 100,000.00 Date Obtained May 11, 1989 June 8, 1989 June 13, 1989 Aug. 16, 1989 Oct. 13, 1989 Oct. 19, 1989 Nov. 12, 1989 June 13, 1990 Jan. 4, 1990 July 14, 1989 Interest Per Mo. 6% 6% 7% 7% 7% 6% 6% 5% Due Date August 11, 1989 On demand January 1990 January 1990 January 1990 April 28, 1990 October 19, 1989 October 198913

AGRIFINA AQUINTEY, petitioner, vs. SPOUSES FELICIDAD AND RICO TIBONG, respondents. DECISION CALLEJO, SR., J.: Before us is a petition for review under Rule 45 of the Revised Rules on Civil Procedure of the Decision of the Court of Appeals in CA-G.R. CV No. 78075, which affirmed with modification the Decision2 of the Regional Trial Court (RTC), Branch 61, Baguio City, and the Resolution3 of the appellate court denying reconsideration thereof. The Antecedents On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of money and damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured loans from her on several occasions, at monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong failed to pay their outstanding loan, amounting to P773,000.00 exclusive of interests. The complaint contained the following prayer: WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court, after due notice and hearing, to render judgment ordering defendants to pay plaintiff the following: a). SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) representing the principal obligation of the defendants with the stipulated interests of six (6%) percent per month from May 11, 1999 to date and or those that are stipulated on the contracts as mentioned from paragraph two (2) of the complaint. b). FIFTEEN PERCENT (15%) of the total accumulated obligations as attorney's fees. c). Actual expenses representing the filing fee and other charges and expenses to be incurred during the prosecution of this case. Further prays for such other relief and remedies just and equitable under the premises.
4 1

According to Agrifina, Felicidad was able to pay only her loans amounting to P122,600.00.14 In July 1990, Felicidad gave to Agrifina City Trust Bank Check No. 126804 dated August 25, 1990 in the amount ofP50,000.00 as partial payment.15 However, the check was dishonored for having been drawn against insufficient funds.16 Agrifina then filed a criminal case against Felicidad in the Office of the City Prosecutor. An Information for violation of Batas Pambansa Bilang 22 was filed against Felicidad, docketed as Criminal Case No. 11181-R. After trial, the court ordered Felicidad to pay P50,000.00. Felicidad complied and paid the face value of the check.17 In the meantime, Agrifina learned that Felicidad had re-loaned the amounts to other borrowers.18 Agrifina sought the assistance of Atty. Torres G. A-ayo who advised her to require Felicidad to execute deeds of assignment over Felicidad's debtors. The lawyer also suggested that Felicidad's debtors execute promissory notes in Agrifina's favor, to "turn over" their loans from Felicidad. This arrangement would facilitate collection of Felicidad's account. Agrifina agreed to the proposal.19 Agrifina, Felicidad, and the latter's debtors had a conference20 where Atty. A-ayo explained that Agrifina could apply her collections as payments of Felicidad's account.21 From August 7, 1990 to October, 1990, Felicidad executed deeds of assignment of credits (obligations)22 duly notarized by Atty. A-ayo, in which Felicidad transferred and assigned to Agrifina the total amount of P546,459.00 due from her debtors.23 In the said deeds, Felicidad confirmed that her debtors were no longer indebted to her for their respective loans. For her part, Agrifina conformed to the deeds of assignment relative to the loans of Virginia Morada and Corazon Dalisay.24 She was furnished copies of the deeds as well as the promissory notes.25 The following debtors of Felicidad executed promissory notes where they obliged themselves to pay directly to Agrifina:

Agrifina appended a copy of the Counter-Affidavit executed by Felicidad in I.S. No. 93-334, as well as copies of the promissory notes and acknowledgment receipts executed by Felicidad covering the loaned amounts. 5 In their Answer with Counterclaim,6 spouses Tibong admitted that they had secured loans from Agrifina. The proceeds of the loan were then re-lent to other borrowers at higher interest rates. They, likewise, alleged that they had executed deeds of assignment in favor of Agrifina, and that their debtors had executed promissory notes in Agrifina's favor. According to the spouses Tibong, this resulted in a novation of the original obligation to Agrifina. They insisted that by virtue of these documents, Agrifina became the new collector of their debtors; and the obligation to pay the balance of their loans had been extinguished. The spouses Tibong specifically denied the material averments in paragraphs 2 and 2.1 of the complaint. While they did not state the total amount of their loans, they declared that they did not receive anything from Agrifina without any written receipt.7 They prayed for that the complaint be dismissed. In their Pre-Trial Brief, the spouses Tibong maintained that they have never obtained any loan from Agrifina without the benefit of a written document.8 On August 17, 2000, the trial court issued a Pre-Trial Order where the following issues of the case were defined:

Debtors Juliet & Tommy Tibong Corazon Dalisay Rita Chomacog Antoinette Manuel Rosemarie Bandas Fely Cirilo Virginia Morada Carmelita Casuga Merlinda Gelacio Total

Account Date of Instrument P50,000.00 August 7, 1990 8,000.00 August 7, 1990 4,480.00 August 8, 1990 12,000.00 October 19, 1990 8,000.00 August 8, 1990 63,600.00 September 13, 1990 62,379.00 August 9, 1990 59,000.00 August 28, 1990 17,200.00 August 29, 1990 P284,659.00

3. [T]o pay the costs. Date Payable November 4, 1990 and February 4, 1991 SO ORDERED.46 No date September 23, 1990 March 30, 1991 The trial court ruled that Felicidad's obligation had not been novated by the deeds of assignment and the promissory executed by Felicidad's borrowers. It explained that the documents did not contain any express agreement to Februarynotes 3, 1991 novate and extinguish Felicidad's obligation. It declared that the deeds and notes were separate contracts which could No date stand alone from the original indebtedness of Felicidad. Considering, however, Agrifina's admission that she was able to Februarycollect 9, 1991 from Felicidad's debtors the total amount of P301,000.00, this should be deducted from the latter's 47 Februaryaccountability. 28, 1991 Hence, the balance, exclusive of interests, amounted to P472,000.00. 26 November 29, 1990 On appeal, the CA affirmed with modification the decision of the RTC and stated that, based on the promissory notes and acknowledgment receipts signed by Felicidad, the appellants secured loans from the appellee in the total principal amount of only P637,000.00, not P773,000.00 as declared by the trial court. The CA found that, other than Agrifina's bare testimony that she had lost the promissory notes and acknowledgment receipts, she failed to present competent documentary evidence to substantiate her claim that Felicidad had, likewise, borrowed the amounts of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total account, P585,659.00 was covered by the deeds of assignment and promissory notes; hence, the balance of Felicidad's account amounted to only P51,341.00. The fallo of the decision reads: WHEREFORE, in view of the foregoing, the decision dated January 20, 2003 of the RTC, Baguio City, Branch 61 in Civil Case No. 4370-R is hereby MODIFIED. Defendants-appellants are hereby ordered to pay the balance of the total indebtedness in the amount of P51,341.00 plus the stipulated interest of 6% per month from May 11, 1999 until the finality of this decision. SO ORDERED.48 The appellate court sustained the trial court's ruling that Felicidad's obligation to Agrifina had not been novated by the deeds of assignment and promissory notes executed in the latter's favor. Although Agrifina was subrogated as a new creditor in lieu of Felicidad, Felicidad's obligation to Agrifina under the loan transaction remained; there was no intention on their part to novate the original obligation. Nonetheless, the appellate court held that the legal effects of the deeds of assignment could not be totally disregarded. The assignments of credits were onerous, hence, had the effect of payment, pro tanto, of the outstanding obligation. The fact that Agrifina never repudiated or rescinded such assignments only shows that she had accepted and conformed to it. Consequently, she cannot collect both from Felicidad and her individual debtors without running afoul to the principle of unjust enrichment. Agrifina's primary recourse then is against Felicidad's individual debtors on the basis of the deeds of assignment and promissory notes. The CA further declared that the deeds of assignment executed by Felicidad had the effect of payment of her outstanding obligation to Agrifina in the amount of P585,659.00. It ruled that, since an assignment of credit is in the nature of a sale, the assignors remained liable for the warranties as they are responsible for the existence and legality of the credit at the time of the assignment. Both parties moved to have the decision reconsidered,49 but the appellate court denied both motions on December 21, 2004.50 Agrifina, now petitioner, filed the instant petition, contending that 1. The Honorable Court of Appeals erred in ruling that the deeds of assignment in favor of petitioner has the effect of payment of the original obligation even as it ruled out that the original obligation and the assigned credit are distinct and separate and can stand independently from each other; 2. The Honorable Court of Appeals erred in passing upon issues raised for the first time on appeal; and 3. The Honorable Court of Appeals erred in resolving fact not in issue. 51

Agrifina narrated that Felicidad showed to her the way to the debtors' houses to enable her to collect from them. One of the debtors, Helen Cabang, did not execute any promissory note but conformed to the Deed of Assignment of Credit which Felicidad executed in favor of Agrifina.27 Eliza Abance conformed to the deed of assignment for and in behalf of her sister, Fely Cirilo.28 Edna Papat-iw was not able to affix her signature on the deed of assignment nor sign the promissory note because she was in Taipei, Taiwan.29 Following the execution of the deeds of assignment and promissory notes, Agrifina was able to collect the total amount of P301,000.00 from Felicidad's debtors.30 In April 1990, she tried to collect the balance of Felicidad's account, but the latter told her to wait until her debtors had money.31 When Felicidad reneged on her promise, Agrifina filed a complaint in the Office of the Barangay Captain for the collection of P773,000.00. However, no settlement was arrived at.32 The Case for Respondents Felicidad testified that she and her friend Agrifina had been engaged in the money-lending business.33 Agrifina would lend her money with monthly interest,34 and she, in turn, would re-lend the money to borrowers at a higher interest rate. Their business relationship turned sour when Agrifina started complaining that she (Felicidad) was actually earning more than Agrifina.35 Before the respective maturity dates of her debtors' loans, Agrifina asked her to pay her account since Agrifina needed money to buy a house and lot in Manila. However, she told Agrifina that she could not pay yet, as her debtors' loan payments were not yet due.36 Agrifina then came to her store every afternoon to collect from her, and persuaded her to go to Atty. Torres G. A-ayo for legal advice.37 The lawyer suggested that she indorse the accounts of her debtors to Agrifina so that the latter would be the one to collect from her debtors and she would no longer have any obligation to Agrifina.38 She then executed deeds of assignment in favor of Agrifina covering the sums of money due from her debtors. She signed the deeds prepared by Atty. A-ayo in the presence of Agrifina.39 Some of the debtors signed the promissory notes which were likewise prepared by the lawyer. Thereafter, Agrifina personally collected from Felicidad's debtors.40 Felicidad further narrated that she received P250,000.00 from one of her debtors, Rey Rivera, and remitted the payment to Agrifina.41 Agrifina testified, on rebuttal, that she did not enter into a re-lending business with Felicidad. When she asked Felicidad to consolidate her loans in one document, the latter told her to seek the assistance of Atty. A-ayo.42 The lawyer suggested that Felicidad assign her credits in order to help her collect her loans.43 She agreed to the deeds of assignment to help Felicidad collect from the debtors.44 On January 20, 2003, the trial court rendered its Decision45 in favor of Agrifina. The fallo of the decision reads: WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants ordering the latter to pay the plaintiffs (sic) the following amounts: 1. P472,000 as actual obligation with the stipulated interest of 6% per month from May 11, 1999 until the said obligation is fully paid. However, the amount of P50,000 shall be deducted from the total accumulated interest for the same was already paid by the defendant as admitted by the plaintiff in her complaint, 2. P25,000 as attorney's fees,

Petitioner avers that the appellate court erred in ruling that respondents' original obligation amounted to onlyP637,000.00 (instead of P773,000.00) simply because she lost the promissory notes/receipts which evidenced the loans executed by respondent Felicidad Tibong. She insists that the issue of whether Felicidad owed her less thanP773,000.00 was not raised by respondents during pre-trial and in their appellate brief; the appellate court was thus proscribed from taking cognizance of the issue. Petitioner avers that respondents failed to deny, in their verified answer, that they had secured the P773,000.00 loan; hence, respondents are deemed to have admitted the allegation in the complaint that the loans secured by respondent from her amounted to P773,000.00. As gleaned from the trial court's pre-trial order, the main issue is whether or not she should be made to pay this amount. Petitioner further maintains that the CA erred in deducting the total amount of P585,659.00 covered by the deeds of assignment executed by Felicidad and the promissory notes executed by the latter's debtors, and that the balance of respondents' account was only P51,341.00. Moreover, the appellate court's ruling that there was no novation runs counter to its holding that the primary recourse was against Felicidad's debtors. Petitioner avers that of the 11 deeds of assignment and promissory notes, only two bore her signature.52 She insists that she is not bound by the deeds which she did not sign. By assigning the obligation to pay petitioner their loan accounts, Felicidad's debtors merely assumed the latter's obligation and became co-debtors to petitioner. Respondents were not released from their obligation under their loan transactions, and she had the option to demand payment from them or their debtors. Citing the ruling of this Court in Magdalena Estates, Inc. v. Rodriguez,53 petitioner insists that the first debtor is not released from responsibility upon reaching an agreement with the creditor. The payment by a third person of the first debtor's obligation does not constitute novation, and the creditor can still enforce the obligation against the original debtor. Petitioner also cites the ruling of this Court in Guerrero v. Court of Appeals.54 In their Comment on the petition, respondents aver that by virtue of respondent Felicidad's execution of the deeds of assignment, and the original debtors' execution of the promissory notes (along with their conformity to the deeds of assignment with petitioner's consent), their loan accounts with petitioner amounting to P585,659.00 had been effectively extinguished. Respondents point out that this is in accordance with Article 1291, paragraph 2, of the Civil Code. Thus, the original debtors of respondents had been substituted as petitioner's new debtors. Respondents counter that petitioner had been subrogated to their right to collect the loan accounts of their debtors. In fact, petitioner, as the new creditor of respondents' former debtors had been able to collect the latter's loan accounts which amounted to P301,000.00. The sums received by respondents' debtors were the same loans which they obliged to pay to petitioner under the promissory notes executed in petitioner's favor. Respondents aver that their obligation to petitioner cannot stand or exist separately from the original debtors' obligation to petitioner as the new creditor. If allowed to collect from them as well as from their original debtors, petitioner would be enriching herself at the expense of respondents. Thus, despite the fact that petitioner had collected P172,600.00 from respondents and P301,000.00 from the original debtors, petitioner still sought to collect P773,000.00 from them in the RTC. Under the deeds of assignment executed by Felicidad and the original debtors' promissory notes, the original debtors' accounts were assigned to petitioner who would be the new creditor. In fine, respondents are no longer liable to petitioner for the balance of their loan account inclusive of interests. Respondents also insist that petitioner failed to prove that she (petitioner) was merely authorized to collect the accounts of the original debtors so as to to facilitate the payment of respondents' loan obligation. The Issues The threshold issues are: (1) whether respondent Felicidad Tibong borrowed P773,000.00 from petitioner; and (2) whether the obligation of respondents to pay the balance of their loans, including interest, was partially extinguished by the execution of the deeds of assignment in favor of petitioner, relative to the loans of Edna Papat-iw, Helen Cabang, Antoinette Manuel, and Fely Cirilo in the total amount of P371,000.00. The Ruling of the Court We have carefully reviewed the brief of respondents as appellants in the CA, and find that, indeed, they had raised the issue of whether they received P773,000.00 by way of loans from petitioner. They averred that, as gleaned from the documentary evidence of petitioner in the RTC, the total amount they borrowed was onlyP673,000.00. They asserted that petitioner failed to adduce concrete evidence that they received P773,000.00 from her.55

We agree, however, with petitioner that the appellate court erred in reversing the finding of the RTC simply because petitioner failed to present any document or receipt signed by Felicidad. Section 10, Rule 8 of the Rules of Civil Procedure requires a defendant to "specify each material allegation of fact the truth of which he does not admit and, whenever practicable, x x x set forth the substance of the matters upon which he relies to support his denial.56 Section 11, Rule 8 of the same Rules provides that allegations of the complaint not specifically denied are deemed admitted.57 The purpose of requiring the defendant to make a specific denial is to make him disclose the matters alleged in the complaint which he succinctly intends to disprove at the trial, together with the matter which he relied upon to support the denial. The parties are compelled to lay their cards on the table.58 A denial is not made specific simply because it is so qualified by the defendant. A general denial does not become specific by the use of the word "specifically." When matters of whether the defendant alleges having no knowledge or information sufficient to form a belief are plainly and necessarily within the defendant's knowledge, an alleged "ignorance or lack of information" will not be considered as a specific denial. Section 11, Rule 8 of the Rules also provides that material averments in the complaint other than those as to the amount of unliquidated damages shall be deemed admitted when not specifically denied.59 Thus, the answer should be so definite and certain in its allegations that the pleader's adversary should not be left in doubt as to what is admitted, what is denied, and what is covered by denials of knowledge as sufficient to form a belief.60 In the present case, petitioner alleged the following in her complaint: 2. That defendants are indebted to the plaintiff in the principal amount of SEVEN HUNDRED SEVENTYTHREE THOUSAND PESOS (P773,000.00) Philippine Currency with a stipulated interest which are broken down as follows. The said principal amounts was admitted by the defendants in their counter-affidavit submitted before the court. Such affidavit is hereby attached as Annex "A;"61 xxxx H) The sum of THIRTY FOUR THOUSAND PESOS (P34,000.00) with interest at six (6%) per cent per month and payable on October 19, 1989, however[,] the receipt for the meantime cannot be recovered as it was misplaced by the plaintiff but the letter of defendant FELICIDAD TIBONG is hereby attached as Annex "H" for the appreciation of the Honorable court; I) The sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) with interest at five (5%) percent per month, obtained on July 14, 1989 and payable on October 14, 1989. Such receipt was lost but admitted by the defendants in their counter-affidavit as attached [to] this complaint and marked as Annex "A" mentioned in paragraph one (1); x x x62 In their Answer, respondents admitted that they had secured loans from petitioner. While the allegations in paragraph 2 of the complaint were specifically denied, respondents merely averred that petitioner and respondent Felicidad entered into an agreement for the lending of money to interested borrowers at a higher interest rate. Respondents failed to declare the exact amount of the loans they had secured from petitioner. They also failed to deny the allegation in paragraph 2 of the complaint that respondent Felicidad signed and submitted a counter-affidavit in I.S. No. 93-334 where she admitted having secured loans from petitioner in the amount of P773,000.00. Respondents, likewise, failed to deny the allegation in paragraph 2(h) of the complaint that respondents had secured a P34,000.00 loan payable on October 19, 1989, evidenced by a receipt which petitioner had misplaced. Although respondents specifically denied in paragraph 2.11 of their Answer the allegations in paragraph 2(I) of the complaint, they merely alleged that "they have not received sums of money from the plaintiff without any receipt therefor." Respondents, likewise, failed to specifically deny another allegation in the complaint that they had secured aP100,000.00 loan from petitioner on July 14, 1989; that the loan was payable on October 14, 1989; and evidenced by a receipt which petitioner claimed to have lost. Neither did respondents deny the allegation that respondents admitted their loan

of P100,000.00 in the counter-affidavit of respondent Felicidad, which was appended to the complaint as Annex "A." In fine, respondents had admitted the existence of their P773,000.00 loan from petitioner. We agree with the finding of the CA that petitioner had no right to collect from respondents the total amount ofP301,000.00, which includes more than P178,980.00 which respondent Felicidad collected from Tibong, Dalisay, Morada, Chomacog, Cabang, Casuga, Gelacio, and Manuel. Petitioner cannot again collect the same amount from respondents; otherwise, she would be enriching herself at their expense. Neither can petitioner collect from respondents more than P103,500.00 which she had already collected from Nimo, Cantas, Rivera, Donguis, Fernandez and Ramirez. There is no longer a need for the Court to still resolve the issue of whether respondents' obligation to pay the balance of their loan account to petitioner was partially extinguished by the promissory notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog, Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because, as admitted by petitioner, she was able to collect the amounts under the notes from said debtors and applied them to respondents' accounts. Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by which obligations are extinguished. Obligations may be modified by changing their object or principal creditor or by substituting the person of the debtor.63 The burden to prove the defense that an obligation has been extinguished by novation falls on the debtor.64 The nature of novation was extensively explained in Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano, Jr.,65 as follows: 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 irreconciliable, the subsequent obligation would also extinguish the first. An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.66 (Citations Omitted) Novation which consists in substituting a new debtor (delegado) in the place of the original one (delegante) may be made even without the knowledge or against the will of the latter but not without the consent of the creditor. Substitution of the person of the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor (delegatario), accepts a third person who consents to the substitution and assumes the obligation. Thus, the consent of those three persons is necessary.67 In this kind of novation, it is not enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the relation.68 Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first and the new debtor are considered obligated jointly.69 In Di Franco v. Steinbaum,70 the appellate court ruled that as to the consideration necessary to support a contract of novation, the rule is the same as in other contracts. The consideration need not be pecuniary or even beneficial to the person promising. It is sufficient if it be a loss of an inconvenience, such as the relinquishment of a right or the discharge of a debt, the postponement of a remedy, the discontinuance of a suit, or forbearance to sue. In City National Bank of Huron, S.D. v. Fuller,71 the Circuit Court of Appeals ruled that the theory of novation is that the new debtor contracts with the old debtor that he will pay the debt, and also to the same effect with the creditor, while the latter agrees to accept the new debtor for the old. A novation is not made by showing that the substituted debtor agreed to pay the debt; it must appear that he agreed with the creditor to do so. Moreover, the agreement must be based on the consideration of the creditor's agreement to look to the new debtor instead of the old. It is not essential that acceptance of the terms of the novation and release of the debtor be shown by express

agreement. Facts and circumstances surrounding the transaction and the subsequent conduct of the parties may show acceptance as clearly as an express agreement, albeit implied.72 We find in this case that the CA correctly found that respondents' obligation to pay the balance of their account with petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in favor of petitioner. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.73 It may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person.74 In Vda. de Jayme v. Court of Appeals,75 the Court held that dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's obligation. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.76 The requisites for dacion en pago are: (1) there must be a performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) there must be some difference between the prestation due and that which is given in substitution (aliud pro alio); and (3) there must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due.77 All the requisites for a valid dation in payment are present in this case. As gleaned from the deeds, respondent Felicidad assigned to petitioner her credits "to make good" the balance of her obligation. Felicidad testified that she executed the deeds to enable her to make partial payments of her account, since she could not comply with petitioner's frenetic demands to pay the account in cash. Petitioner and respondent Felicidad agreed to relieve the latter of her obligation to pay the balance of her account, and for petitioner to collect the same from respondent's debtors. Admittedly, some of respondents' debtors, like Edna Papat-iw, were not able to affix their conformity to the deeds. In an assignment of credit, however, the consent of the debtor is not essential for its perfection; the knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment that might have been made. The assignment binds the debtor upon acquiring knowledge of the assignment but he is entitled, even then, to raise against the assignee the same defenses he could set up against the assignor78 necessary in order that assignment may fully produce legal effects. Thus, the duty to pay does not depend on the consent of the debtor. The purpose of the notice is only to inform that debtor from the date of the assignment. Payment should be made to the assignee and not to the original creditor. The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory rights, is acquired by the assignee79 who steps into the shoes of the original creditor as subrogee of the latter80 from that amount, the ownership of the right is acquired by the assignee. The law does not require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it. If the document of assignment is public, it is evidence even against a third person of the facts which gave rise to its execution and of the date of the latter. The transfer of the credit must therefore be held valid and effective from the moment it is made to appear in such instrument, and third persons must recognize it as such, in view of the authenticity of the document, which precludes all suspicion of fraud with respect to the date of the transfer or assignment of the credit. 81 As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other debtors, petitioner was authorized to collect the amounts of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent Felicidad, likewise, unequivocably declared that Cabang and Cirilo no longer had any obligation to her.

Equally significant is the fact that, since 1990, when respondent Felicidad executed the deeds, petitioner no longer attempted to collect from respondents the balance of their accounts. It was only in 1999, or after nine (9) years had elapsed that petitioner attempted to collect from respondents. In the meantime, petitioner had collected from respondents' debtors the amount of P301,000.00. While it is true that respondent Felicidad likewise authorized petitioner in the deeds to collect the debtors' accounts, and for the latter to pay the same directly, it cannot thereby be considered that respondent merely authorized petitioner to collect the accounts of respondents' debtors and for her to apply her collections in partial payments of their accounts. It bears stressing that petitioner, as assignee, acquired all the rights and remedies passed by Felicidad, as assignee, at the time of the assignment.82 Such rights and remedies include the right to collect her debtors' obligations to her. Petitioner cannot find solace in the Court's ruling in Magdalena Estates. In that case, the Court ruled that the mere fact that novation does not follow as a matter of course when the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation when there is no agreement that the first debtor would be released from responsibility. Thus, the creditor can still enforce the obligation against the original debtor. In the present case, petitioner and respondent Felicidad agreed that the amounts due from respondents' debtors were intended to "make good in part" the account of respondents. Case law is that, an assignment will, ordinarily, be interpreted or construed in accordance with the rules of construction governing contracts generally, the primary object being always to ascertain and carry out the intention of the parties. This intention is to be derived from a consideration of the whole instrument, all parts of which should be given effect, and is to be sought in the words and language employed.83 Indeed, the Court must not go beyond the rational scope of the words used in construing an assignment, words should be construed according to their ordinary meaning, unless something in the assignment indicates that they are being used in a special sense. So, if the words are free from ambiguity and expressed plainly the purpose of the instrument, there is no occasion for interpretation; but where necessary, words must be interpreted in the light of the particular subject matter.84 And surrounding circumstances may be considered in order to understand more perfectly the intention of the parties. Thus, the object to be accomplished through the assignment, and the relations and conduct of the parties may be considered in construing the document. Although it has been said that an ambiguous or uncertain assignment should be construed most strictly against the assignor, the general rule is that any ambiguity or uncertainty in the meaning of an assignment will be resolved against the party who prepared it; hence, if the assignment was prepared by the assignee, it will be construed most strictly against him or her.85 One who chooses the words by which a right is given ought to be held to the strict interpretation of them, rather than the other who only accepts them.86 Considering all the foregoing, we find that respondents still have a balance on their account to petitioner in the principal amount of P33,841.00, the difference between their loan of P773,000.00 less P585,659.00, the payment of respondents' other debtors amounting to P103,500.00, and the P50,000.00 payment made by respondents. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision and Resolution of the Court of Appeals are AFFIRMED with MODIFICATION in that the balance of the principal account of the respondents to the petitioner is P33,841.00. No costs. SO ORDERED.

G.R. No. 160451

February 9, 2007

EDUARDO G. RICARZE, Petitioner, vs. COURT OF APPEALS, PEOPLE OF THE PHILIPPINES, CALTEX PHILIPPINES, INC., PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK (PCIBANK), Respondents. DECISION

of payee Dante R. Gutierrez, causing it to appear that Ramon Romano and Victor Goquingco have participated in the issuance of PCIBank check no. 72922 and that Dante R. Gutierrez had endorsed it, when in truth and in fact, as said accused well knew, such was not the case, since said check previously stolen from Payables Section of CALTEX, was neither duly signed by Ramon Romano and Victor Goquingco nor endorsed by Dante R. Gutierrez, after the check, a commercial document, was falsified in the manner above set forth, the said accused purporting himself to be the payee, Dante R. Gutierrez, deposited the check with Banco De Oro under Account No. 2004-0047245-7, thereby appropriating the proceeds of the falsified but cleared check, to the damage and prejudice of complainant herein represented by Ramon Romano, in the amount of Php1,790,757.50. Criminal Case No. 98-1612

CALLEJO, SR., J.: Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. SP No. 68492, and its Resolution2 which denied the Motion for Reconsideration and the Supplemental Motion for Reconsideration thereof. The Antecedents Petitioner Eduardo G. Ricarze was employed as a collector-messenger by City Service Corporation, a domestic corporation engaged in messengerial services. He was assigned to the main office of Caltex Philippines, Inc. (Caltex) in Makati City. His primary task was to collect checks payable to Caltex and deliver them to the cashier. He also delivered invoices to Caltexs customers.3 On November 6, 1997, Caltex, through its Banking and Insurance Department Manager Ramon Romano, filed a criminal complaint against petitioner before the Office of the City Prosecutor of Makati City for estafa through falsification of commercial documents. Romano alleged that, on October 16, 1997, while his department was conducting a daily electronic report from Philippine Commercial & Industrial Bank (PCIB) Dela Rosa, Makati Branch, one of its depositary banks, it was discovered that unknown to the department, a company check, Check No. 74001 dated October 13, 1997 in the amount of P5,790,570.25 payable to Dante R. Gutierrez, had been cleared through PCIB on October 15, 1997. An investigation also revealed that two other checks (Check Nos. 73999 and 74000) were also missing and that in Check No. 74001, his signature and that of another signatory, Victor S. Goquinco, were forgeries. Another check, Check No. 72922 dated September 15, 1997 in the amount ofP1,790,757.25 likewise payable to Dante R. Gutierrez, was also cleared through the same bank on September 24, 1997; this check was likewise not issued by Caltex, and the signatures appearing thereon had also been forged. Upon verification, it was uncovered that Check Nos. 74001 and 72922 were deposited at the Banco de Oros SM Makati Branch under Savings Account No. S/A 2004 -0047245-7, in the name of a regular customer of Caltex, Dante R. Gutierrez. Gutierrez, however, disowned the savings account as well as his signatures on the dorsal portions thereof. He also denied having withdrawn any amount from said savings account. Further investigation revealed that said savings account had actually been opened by petitioner; the forged checks were deposited and endorsed by him under Gutierrezs name. A bank teller from the Banco de Oro, Winnie P. Donable Dela Cruz, positively identified petitioner as the person who opened the savings account using Gutierrezs name.4 In the meantime, the PCIB credited the amount of P581,229.00 to Caltex on March 29, 1998. However, the City Prosecutor of Makati City was not informed of this development. After the requisite preliminary investigation, the City Prosecutor filed two (2) Informations for estafa through falsification of commercial documents on June 29, 1998 against petitioner before the Regional Trial Court (RTC) of Makati City, Branch 63. The Informations are worded as follows: Criminal Case No. 98-1611 That on or about the 24th day of September 1997 in the City of Makati, Metro Manila, Philippines, a place within the jurisdiction of this Honorable Court, the above-named accused, a private individual, with intent to defraud and intent to gain, without the knowledge and consent of Caltex Philippines, Inc. through its duly authorized officers/representatives, and by means of falsification of commercial document, did then and there willfully, unlawfully and feloniously defraud Caltex Phils., Inc., in the following manner, to wit: said accused, having obtained possession of PCIBank check no. 72922 dated September 15, 1997 payable to Dante R. Gutierrez, in the amount of Php1,790,757.50 with intent to defraud or cause damage to complainant Caltex Phils., Inc., willfully, unlawfully and feloniously affixed or caused to be affixed signatures purporting to be those of Ramon Romano and Victor Goquingco, Caltex authorized officers/signatories, and That on or about the 15th day of October 1997 in the City of Makati, Metro Manila, Philippines, a place within the jurisdiction of this Honorable Court, the above-named accused, a private individual, with intent to defraud and intent to gain, without the knowledge and consent of Caltex Philippines, Inc. through its duly authorized officers/representatives, and by means of falsification of commercial document, did then and there willfully, unlawfully and feloniously defraud Caltex Phils., Inc., in the following manner, to wit: said accused, having obtained possession of PCIBank check no. 74001 dated October 13, 1997 payable to Dante R. Gutierrez, in the amount of Php5,790,570.25 with intent to defraud or cause damage to complainant Caltex Phils., Inc., willfully, unlawfully and feloniously affixed or caused to be affixed signatures purporting to be those of Ramon Romano and Victor Goquingco, Caltex authorized officers/signatories, and of payee Dante R. Gutierrez, causing it to appear that Ramon Romano and Victor Goquingco have participated in the issuance of PCIBank check no. 74001 and that Dante R. Gutierrez had endorsed it, when in truth and in fact, as said accused well knew, such was not the case, since said check previously stolen from Payables Section of CALTEX, was neither duly signed by Ramon Romano and Victor Goquingco nor endorsed by Dante R. Gutierrez, after the check, a commercial document, was falsified in the manner above set forth, the said accused purporting himself to be the payee, Dante R. Gutierrez, deposited the check with Banco De Oro under Account No. 2004-0047245-7, thereby appropriating the proceeds of the falsified but cleared check, to the damage and prejudice of complainant herein represented by Ramon Romano, in the amount of Php5,790,570.25.5 Petitioner was arraigned on August 18, 1998, and pleaded not guilty to both charges. 6 Pre-trial ensued and the cases were jointly tried. The prosecution presented its witnesses, after which the Siguion Reyna, Montecillio and Ongsiako Law Offices (SRMO) as private prosecutor filed a Formal Offer of Evidence.7 Petitioner opposed the pleading, contending that the private complainant was represented by the ACCRA Law Offices and the Balgos and Perez Law Office during trial, and it was only after the prosecution had rested its case that SRMO entered its appearance as private prosecutor representing the PCIB. Since the ACCRA and Balgos and Perez Law Offices had not withdrawn their appearance, SRMO had no personality to appear as private prosecutor. Under the Informations, the private complainant is Caltex and not PCIB; hence, the Formal Offer of Evidence filed by SRMO should be stricken from the records. Petitioner further averred that unless the Informations were amended to change the private complainant to PCIB, his right as accused would be prejudiced. He pointed out, however, that the Informations can no longer be amended because he had already been arraigned under the original Informations.8 He insisted that the amendments of the Informations to substitute PCIB as the offended party for Caltex would place him in double jeopardy. PCIB, through SRMO, opposed the motion. It contended that the PCIB had re-credited the amount to Caltex to the extent of the indemnity; hence, the PCIB had been subrogated to the rights and interests of Caltex as private complainant. Consequently, the PCIB is entitled to receive any civil indemnity which the trial court would adjudge against the accused. Moreover, the re-credited amount was brought out on cross-examination by Ramon Romano who testified for the Prosecution. PCIB pointed out that petitioner had marked in evidence the letter of the ACCRA Law Office to PCIBank dated October 10, 1997 and the credit memo sent by PCIB to Caltex.9 Petitioner filed a Motion to Expunge the Opposition of SRMO.10 In his Rejoinder, he averred that the substitution of PCIB as private complainant cannot be made by mere oral motion; the Information must be amended to allege that the private complainant was PCIB and not Caltex after the preliminary investigation of the appropriate complaint of PCIB before the Makati City Prosecutor. In response, the PCIB, through SRMO, averred that as provided in Section 2, Rule 110 of the Revised Rules of Criminal Procedure, the erroneous designation of the name of the offended party is a mere formal defect which can be cured by inserting the name of the offended party in the Information. To support its claim, PCIB cited the ruling of this Court in Sayson v. People.11

On July 18, 2001, the RTC issued an Order granting the motion of the private prosecutor for the substitution of PCIB as private complainant for Caltex. It however denied petitioners motion to have the formal offer of evidence of SRMO expunged from the record.12 Petitioner filed a motion for reconsideration which the RTC denied on November 14, 2001.13 Petitioner filed a Petition for Certiorari under Rule 65 of the Rules of Court with Urgent Application for Temporary Restraining Order with the Court of Appeals (CA,) praying for the annulment of the RTCs Orders of July 18, 2001 and November 14, 2001. The petitioner averred that: I RESPONDENT JUDGE GRIEVEOUSLY (SIC) ERRED IN RENDERING ITS ORDER ISSUED WITH GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OF OR IN EXCESS OF JURISDICTION BY ALLOWING THE SUBSTITUTION OF PRIVATE COMPLAINANT, AFTER THE ACUSED WAS ALREADY ARRAIGNED AND PROSECUTION HAS ALREADY TERMINATED PRESENTING ITS EVIDENCE THEREBY PATENTLY VIOLATING THE STRICT CONDITION IMPOSED UPON BY RULE 110 SEC. 14 RULES ON CRIMINAL ROCEDURE. II AND AS A COROLLARY GROUND RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION IN EXCESS OF JURISDICTION IN RENDERING AN ORDER RECOGNIZING THE APPEARANCE OF A NEW PROSECUTOR WITHOUT WRITTEN OR EVEN ORAL WITHDRAWAL OF THE COUNSEL ON RECORD.14 According to petitioner, damage or injury to the offended party is an essential element of estafa. The amendment of the Informations substituting the PCIBank for Caltex as the offended party would prejudice his rights since he is deprived of a defense available before the amendment, and which would be unavailable if the Informations are amended. Petitioner further insisted that the ruling in the Sayson case did not apply to this case. On November 5, 2002, the appellate court rendered judgment dismissing the petition. The fallo reads: WHEREFORE, premises considered, the petition to annul the orders dated July 18, 2001 and November 14, 2001 of the Regional Trial Court, Branch 63, Makati City in Criminal Case Nos. 98-1611 and 98-1612 is hereby DENIED and consequently DISMISSED. SO ORDERED.15 The appellate court declared that when PCIB restored the amount of the checks to Caltex, it was subrogated to the latters right against petitioner. It further declared that in offenses against property, the designation of the name of the offended party is not absolutely indispensable for as long as the criminal act charged in the complaint or information can be properly identified. The appellate court cited the rulings of this Court in People v. Ho16 and People v. Reyes.17 On October 17, 2003, the CA issued a Resolution denying petitioners Motion for Reconsideration and Supplemental Motion for Reconsideration.18 Hence, petitioner filed the instant petition which is anchored on the following grounds:

IV. THERE IS NO VALID SUBROGATION BETWEEN CALTEX AND PCIBANK. ASSUMING THERE IS, THE CIVIL CASE SHOULD BE DISMISSED TO PROSECUTE. V. THE TWIN INFORMATIONS UPON WHICH PETITIONER WAS INDICTED, ARRAIGNED, PRETRIAL HELD AND PUBLIC PROSECUTOR TERMINATED THE PRESENTATION OF ITS EVIDENCE IN CHIEF ARE DEFECTIVE AND VOID, HENCE THE DISMISSAL IS IN ORDER. VI. PETITIONER TIMELY OBJECTED TO THE APPEARANCE OF PRIVATE PROSECUTOR FOR PCIBANK. VII. THE FINDINGS OF MATERIAL FACTS ARE NOT SUPORTED BY THE RECORD NOR EVIDENCE AND BASED ON MISAPPRECIATION OF FACTS. VIII. PETITIONERS SUPPLEMENTAL MOTION FOR RECONSIDERATION DID NOT VIOLATE THE OMNIBUS MOTION RULE UNDER SEC. 8, RULE 15 OF THE 1997 RULES OF CIVIL PROCEDURE.19 The Courts Ruling Petitioner argues that the substitution of Caltex by PCIB as private complainant at this late stage of the trial is prejudicial to his defense. He argues that the substitution is tantamount to a substantial amendment of the Informations which is prohibited under Section 14, Rule 110 of the Rules of Court. Under Section 5, Rule 11020 of the Revised Rules of Rules, all criminal actions covered by a complaint or information shall be prosecuted under the direct supervision and control of the public prosecutor. Thus, even if the felonies or delictual acts of the accused result in damage or injury to another, the civil action for the recovery of civil liability based on the said criminal acts is impliedly instituted, and the offended party has not waived the civil action, reserved the right to institute it separately or instituted the civil action prior to the criminal action, the prosecution of the action (including the civil) remains under the control and supervision of the public prosecutor. The prosecution of offenses is a public function. Under Section 16, Rule 110 of the Rules of Criminal Procedure, the offended party may intervene in the criminal action personally or by counsel, who will act as private prosecutor for the protection of his interests and in the interest of the speedy and inexpensive administration of justice. A separate action for the purpose would only prove to be costly, burdensome and time-consuming for both parties and further delay the final disposition of the case. The multiplicity of suits must be avoided. With the implied institution of the civil action in the criminal action, the two actions are merged into one composite proceeding, with the criminal action predominating the civil. The prime purpose of the criminal action is to punish the offender in order to deter him and others from committing the same or similar offense, to isolate him from society, reform and rehabilitate him or, in general, to maintain social order.21 On the other hand, the sole purpose of the civil action is for the resolution, reparation or indemnification of the private offended party for the damage or injury he sustained by reason of the delictual or felonious act of the accused. 22 Under Article 104 of the Revised Penal Code, the following are the civil liabilities of the accused: ART. 104. What is included in civil liability. The civil liability established in Articles 100, 101, 102 and 103 of this Code includes: 1. Restitution; 2. Reparation of the damage caused;

I. THE PEOPLE V. YU CHAI HO 53 PHILIPPINES 874 IS INAPPLICABLE TO THE CASE AT BAR CONSIDERING THE PACTS ARE SUBSTANTIALLY DIFFERENT. II. LIKEWISE, THE CASE OF PEOPLE VS. REYES CA, 50 (2) OG 665, NOVEMBER 11, 1953 HAS NO MATERIAL BEARING TO THE PRESENT CASE. III. THE SUBSTITUTION OF PCIBANK WILL SUBSTANTIALLY PREJUDICE THE RIGHTS OF THE PETITIONER HENCE, IT IS PROHIBITED BY SEC. 14 OF RULE 110.

3. Indemnification for consequential damages. On the other hand, Section 14, Rule 110 of the Revised Rules of Criminal Procedure states:

Section 14. Amendment or substitution. A complaint or information may be amended, in form or in substance, without leave of court, at any time before the accused enters his plea. After the plea and during the trial, a formal amendment may only be made with leave of court and when it can be done without causing prejudice to the rights of the accused. However, any amendment before plea, which downgrades the nature of the offense charged in or excludes any accused from the complaint or information, can be made only upon motion by the prosecutor, with notice to the offended party and with leave of court. The court shall state its reasons in resolving the motion and copies of its order shall be furnished all parties, especially the offended party. Thus, before the accused enters his plea, a formal or substantial amendment of the complaint or information may be made without leave of court. After the entry of a plea, only a formal amendment may be made but with leave of court and if it does not prejudice the rights of the accused. After arraignment, a substantial amendment is proscribed except if the same is beneficial to the accused.23 A substantial amendment consists of the recital of facts constituting the offense charged and determinative of the jurisdiction of the court. All other matters are merely of form.24 The following have been held to be mere formal amendments: (1) new allegations which relate only to the range of the penalty that the court might impose in the event of conviction; (2) an amendment which does not charge another offense different or distinct from that charged in the original one; (3) additional allegations which do not alter the prosecutions theory of the case so as to cause surprise to the accused and affect the form of defense he has or will assume; (4) an amendment which does not adversely affect any substantial right of the accused; and (5) an amendment that merely adds specifications to eliminate vagueness in the information and not to introduce new and material facts, and merely states with additional precision something which is already contained in the original information and which adds nothing essential for conviction for the crime charged. 25 The test as to whether a defendant is prejudiced by the amendment is whether a defense under the information as it originally stood would be available after the amendment is made, and whether any evidence defendant might have would be equally applicable to the information in the one form as in the other. An amendment to an information which does not change the nature of the crime alleged therein does not affect the essence of the offense or cause surprise or deprive the accused of an opportunity to meet the new averment had each been held to be one of form and not of substance. 26 In the case at bar, the substitution of Caltex by PCIB as private complaint is not a substantial amendment. The substitution did not alter the basis of the charge in both Informations, nor did it result in any prejudice to petitioner. The documentary evidence in the form of the forged checks remained the same, and all such evidence was available to petitioner well before the trial. Thus, he cannot claim any surprise by virtue of the substitution. Petitioner next argues that in no way was PCIB subrogated to the rights of Caltex, considering that he has no knowledge of the subrogation much less gave his consent to it. Alternatively, he posits that if subrogation was proper, then the charges against him should be dismissed, the two Informations being "defective and void due to false allegations." Petitioner was charged of the crime of estafa complex with falsification document. In estafa one of the essential elements "to prejudice of another" as mandated by article 315 of the Revise Penal Code. The element of "to the prejudice of another" being as essential element of the felony should be clearly indicated and charged in the information with TRUTH AND LEGAL PRECISION. This is not so in the case of petitioner, the twin information filed against him alleged the felony committed " to the damage and prejudice of Caltex." This allegation is UNTRUE and FALSE for there is no question that as early as March 24, 1998 or THREE (3) LONG MONTHS before the twin information were filed on June 29, 1998, the prejudice party is already PCIBank since the latter Re-Credit the value of the checks to Caltex as early as March 24, 1998. In effect, assuming there is valid subrogation as the subject decision concluded, the subrogation took place an occurred on March 24, 1998 THREE (3) MONTHS before the twin information were filed. The phrase "to the prejudice to another" as element of the felony is limited to the person DEFRAUDED in the very act of embezzlement. It should not be expanded to other persons which the loss may ultimately fall as a result of a contract which contract herein petitioner is total stranger.

In this case, there is no question that the very act of commission of the offense of September 24, 1997 and October 15, 1997 respectively, Caltex was the one defrauded by the act of the felony. In the light of these facts, petitioner submits that the twin information are DEFECTIVE AND VOID due to the FALSE ALLEGATIONS that the offense was committed to the prejudice of Caltex when it truth and in fact the one prejudiced here was PCIBank. The twin information being DEFECTIVE AND VOID, the same should be dismissed without prejudice to the filing of another information which should state the offense was committed to the prejudice of PCIBank if it still legally possible without prejudicing substantial and statutory rights of the petitioner.27 Petitioners argument on subrogation is misplaced. The Court agrees with respondent PCIBs comment that petitioner failed to make a distinction between legal and conventional subrogation. Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights.28 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.29 Instances of legal subrogation are those provided in Article 130230 of the Civil Code. Conventional subrogation, on the other hand, is that which takes place by agreement of the parties.31 Thus, petitioners acquiescence is not necessary for subrogation to take place because the instant case is one of legal subrogation that occurs by operation of law, and without need of the debtors knowledge. Contrary to petitioners asseverations, the case of People v. Yu Chai Ho32 relied upon by the appellate court is in point. The Court declared We do not however, think that the fiscal erred in alleging that the commission of the crime resulted to the prejudice of Wm. H. Anderson & Co. It is true that originally the International Banking Corporation was the prejudiced party, but Wm. H. Anderson & Co. compensated it for its loss and thus became subrogated to all its rights against the defendant (article 1839, Civil Code). Wm. H. Anderson & Co., therefore, stood exactly in the shoes of the International Banking Corporation in relation to the defendant's acts, and the commission of the crime resulted to the prejudice of the firm previously to the filing of the information in the case. The loss suffered by the firm was the ultimate result of the defendant's unlawful acts, and we see no valid reason why this fact should not be stated in the information; it stands to reason that, in the crime of estafa, the damage resulting therefrom need not necessarily occur simultaneously with the acts constituting the other essential elements of the crime. Thus, being subrogated to the right of Caltex, PCIB, through counsel, has the right to intervene in the proceedings, and under substantive laws is entitled to restitution of its properties or funds, reparation, or indemnification. Petitioners gripe that the charges against him should be dismissed because the allegations in both Informations failed to name PCIB as true offended party does not hold water. Section 6, Rule 110 of the Rules on Criminal Procedure states: Sec. 6. Sufficiency of complaint or information. A complaint or information is sufficient if it states the name of the accused; the designation of the offense by the statute; the acts or omissions complained of as constituting the offense; the name of the offended party; the approximate time of the commission of the offense; and the place wherein the offense was committed. When the offense is committed by more than one person, all of them shall be included in the complaint or information. On the other hand, Section 12 of the same Rule provides: Section. 12. Name of the offended party. The complaint or information must state the name and surname of the person against whom or against whose property the offense was committed, or any appellation or nickname by which such person has been or is known. If there is no better way of identifying him, he must be described under a fictitious name. (a) In offenses against property, if the name of the offended party is unknown, the property must be described with such particularity as to properly identify the offense charged.

(b) If the true name of the person against whom or against whose property the offense was committed is thereafter disclosed or ascertained, the court must cause such true name to be inserted in the complaint or information and the record. (c) If the offended party is a juridical person, it is sufficient to state its name, or any name or designation by which it is known or by which it may be identified, without need of averring that it is a juridical person or that it is organized in accordance with law. (12a) In Sayson v. People,33 the Court held that in case of offenses against property, the designation of the name of the offended party is not absolutely indispensable for as long as the criminal act charged in the complaint or information can be properly identified: The rules on criminal procedure require the complaint or information to state the name and surname of the person against whom or against whose property the offense was committed or any appellation or nickname by which such person has been or is known and if there is no better way of Identifying him, he must be described under a fictitious name (Rule 110, Section 11, Revised Rules of Court; now Rule 110, Section 12 of the 1985 Rules on Criminal Procedure.] In case of offenses against property, the designation of the name of the offended party is not absolutely indispensable for as long as the criminal act charged in the complaint or information can be properly identified. Thus, Rule 110, Section 11 of the Rules of Court provides that: Section 11. Name of the offended party

ROMEO J. CALLEJO, SR. Associate Justice WE CONCUR: CONSUELO YNARES-SANTIAGO Associate Justice MA. ALICIA AUSTRIA-MARTINEZ Asscociate Justice

MINITA V. CHICO-NAZARIO Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. CONSUELO YNARES-SANTIAGO Associate Justice Chairperson CERTIFICATION

(a) In cases of offenses against property, if the name of the offended party is unknown, the property, subject matter of the offense, must be described with such particularity as to properly Identify the particular offense charged. (b) If in the course of the trial, the true name of the person against whom or against whose property the offense was committed is disclosed or ascertained, the court must cause the true name to be inserted in the complaint or information or record. In U.S. v. Kepner [1 Phil. 519 (1902)], this Court laid down the rule that when an offense shall have been described in the complaint with sufficient certainty as to Identify the act, an erroneous allegation as to the person injured shall be deemed immaterial as the same is a mere formal defect which did not tend to prejudice any substantial right of the defendant. Accordingly, in the aforementioned case, which had a factual backdrop similar to the instant case, where the defendant was charged with estafa for the misappropriation of the proceeds of a warrant which he had cashed without authority, the erroneous allegation in the complaint to the effect that the unlawful act was to the prejudice of the owner of the cheque, when in reality the bank which cashed it was the one which suffered a loss, was held to be immaterial on the ground that the subject matter of the estafa, the warrant, was described in the complaint with such particularity as to properly Identify the particular offense charged. In the instant suit for estafa which is a crime against property under the Revised Penal Code, since the check, which was the subject-matter of the offense, was described with such particularity as to properly identify the offense charged, it becomes immaterial, for purposes of convicting the accused, that it was established during the trial that the offended party was actually Mever Films and not Ernesto Rufino, Sr. nor Bank of America as alleged in the information. Lastly, on petitioners claim that he timely objected to the appearance of SRMO34 as private prosecutor for PCIB, the Court agrees with the observation of the CA that contrary to his claim, petitioner did not question the said entry of appearance even as the RTC acknowledged the same on October 8, 1999.35 Thus, petitioner cannot feign ignorance or surprise of the incident, which are "all water under the bridge for [his] failure to make a timely objection thereto."36 WHEREFORE, the petition is DENIED. The assailed decision and resolution of the Court of Appeals are AFFIRMED. This case is REMANDED to the Regional Trial Court of Makati City, Branch 63, for further proceedings. SO ORDERED.

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

G.R. No. 149040

July 4, 2007

The foregoing document was signed by two witnesses and duly acknowledged by Ms. Picache before a Notary Public also on 1 April 1989. Since petitioner did not pay any of the loans covered by the promissory notes when they became due, respondent -through its Vice President Nina P. King and its counsel King, Capuchino, Banico & Associates -- sent petitioner several demand letters.8 Despite receiving the said demand letters, petitioner still failed and refused to settle his indebtedness, thus, prompting respondent to file the Complaint with the RTC, docketed as Civil Case No. Q-90-5247. In his Answer filed with the RTC, petitioner sought the dismissal of the Complaint averring that respondent had no cause of action against him. He denied obtaining any loan from Ms. Picache and questioned the genuineness and due execution of the promissory notes, for they were the result of intimidation and fraud; hence, void. He asserted that there had been no transaction or privity of contract between him, on one hand, and Ms. Picache and respondent, on the other. The assignment by Ms. Picache of the promissory notes to respondent was a mere ploy and simulation to effect the unjust enforcement of the invalid promissory notes and to insulate Ms. Picache from any direct counterclaims, and he never consented or agreed to the said assignment. Petitioner then presented his own narration of events leading to the filing of Civil Case No. Q-90-5247. According to him, on 24 February 1988, he entered into a Contract of Lease9 of real property located in Quezon City with Mission Realty & Management Corporation (MRMC), of which Ms. Picache is an incorporator and member of the Board of Directors.10 Petitioner relocated the plant and machines used in his garments business to the leased property. After a month or two, a foreign investor was interested in doing business with him and sent a representative to conduct an ocular inspection of petitioner's plant at the leased property. During the inspection, a group of Meralco employees entered the leased property to cut off the electric power connections of the plant. The event gave an unfavorable impression to the foreign investor who desisted from further transacting with petitioner. Upon verification with Meralco, petitioner discovered that there were unpaid electric bills on the leased property amounting to hundreds of thousands of pesos. These electric bills were supposedly due to the surreptitious electrical connections to the leased property. Petitioner claimed that he was never informed or advised by MRMC of the existence of said unpaid electric bills. It took Meralco considerable time to restore electric power to the leased property and only after petitioner pleaded that he was not responsible for the illegal electrical connections and/or the unpaid electric bills, for he was only a recent lessee of the leased property. Because of the work stoppage and loss of business opportunities resulting from the foregoing incident, petitioner purportedly suffered damages amounting to United States $60,000.00, for which petitioner verbally attempted to recover compensation from MRMC. Having failed to obtain compensation from MRMC, petitioner decided to vacate and pull out his machines from the leased property but he can only do so, unhampered and uninterrupted by MRMC security personnel, if he signed, as he did, blank promissory note forms. Petitioner alleged that when he signed the promissory note forms, the allotted spaces for the principal amount of the loans, interest rates, and names of the promisee/s were in blank; and that Ms. Picache took advantage of petitioner's signatures on the blank promissory note forms by filling up the blanks. To raise even more suspicions of fraud and spuriousness of the promissory notes and their subsequent assignment to respondent, petitioner called attention to the fact that Ms. Picache is an incorporator and member of the Board of Directors of both MRMC and respondent.11 After the pre-trial conference and the trial proper, the RTC rendered a Decision 12 on 6 August 1993, ruling in favor of respondent. The RTC gave more credence to respondent's version of the facts, finding that [Herein petitioner]'s disclaimer of the promissory note[s] does not inspire belief. He is a holder of a degree in Bachelor of Science in Chemical Engineering and has been a manufacturer of garments since 1979. As a matter of fact, [petitioner]'s testimony that he was made to sign blank sheets of paper is contrary to his admission in paragraphs 12 and 13 of his Answer that as a condition to his removal of his machines [from] the leased premises, he was made to sign blank promissory note forms with respect to the amount, interest and promisee. It thus appears incredulous that a businessman like [petitioner] would simply sign blank sheets of paper or blank promissory notes just [to] be able to vacate the leased premises. Moreover, the credibility of [petitioner]'s testimony leaves much to be desired. He contradicted his earlier testimony that he only met Patrocinio Picache once, which took place in the office of Mission Realty and Management Corporation, by stating that he saw Patrocinio Picache a second time when she went to his house. Likewise, his claim that the electric power in the leased premises was cut off only two months after he occupied the same is belied by his own evidence. The contract of lease submitted by [petitioner] is dated

EDGAR LEDONIO, petitioner, vs. CAPITOL DEVELOPMENT CORPORATION, respondent. DECISION CHICO-NAZARIO, J.: Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Revised Rules of Court praying that (1) the Decision,2 dated 20 March 2001, of the Court of Appeals in CA-G.R. CV No. 43604, affirming in toto the Decision,3 dated 6 August 1993, of the Quezon City Regional Trial Court (RTC), Branch 91, in Civil Case No. Q-905247, be set aside; and (2) the Complaint4 in Civil Case No. Q-90-5247 be dismissed. Herein respondent Capitol Development Corporation instituted Civil Case No. Q-90-5247 by filing a Complaint for the collection of a sum of money against herein petitioner Edgar Ledonio. In its Complaint, respondent alleged that petitioner obtained from a Ms. Patrocinio S. Picache two loans, with the aggregate principal amount of P60,000.00, and covered by promissory notes duly signed by petitioner. In the first promissory note,5 dated 9 November 1988, petitioner promised to pay to the order of Ms. Picache the principal amount of P30,000.00, in monthly installments of P3,000.00, with the first monthly installment due on 9 January 1989. In the second promissory note,6 dated 10 November 1988, petitioner again promised to pay to the order of Ms. Picache the principal amount of P30,000.00, with 36% interest per annum, on 1 December 1988. In case of default in payment, both promissory notes provide that (a) petitioner shall be liable for a penalty equivalent to 20% of the total outstanding balance; (b) unpaid interest shall be compounded or added to the balance of the principal amount and shall bear the same rate of interest as the latter; and (c) in case the creditor, Ms. Picache, shall engage the services of counsel to enforce her rights and powers under the promissory notes, petitioner shall pay as attorney's fees and liquidated damages the sum equivalent to 20% of the total amount sought to be recovered, but in no case shall the said sum be less that P10,000.00, exclusive of costs of suit. On 1 April 1989, Ms. Picache executed an Assignment of Credit 7 in favor of respondent, which reads KNOW ALL MEN BY THESE PRESENTS: That I, PAT S. PICACHE of legal age and with postal address at 373 Quezon Avenue, Quezon City for and in consideration of SIXTY THOUSAND PESOS (P60,000.00) Philippine Currency, to me paid by [herein respondent] CAPITOL DEVELOPMENT CORPORATION, a corporation organized and existing under the laws of the Republic of the Philippines with principal office at 373 Quezon Avenue, Quezon City receipt whereof is hereby acknowledged have sold, transferred, assigned and conveyed and (sic) by me these presents do hereby sell, assign, transfer and convey unto the said [respondent] CAPITOL DEVELOPMENT CORPORATION, a certain debt due me from [herein petitioner] EDGAR A. LEDONIO in the principal sum of SIXTY THOUSAND PESOS (P60,000.00) Philippine Currency, under two (2) Promissory Notes dated November 9, 1988 and November 10, 1988, respectively, photocopies of which are attached to as annexes A & B to form integral parts hereof with full power to sue for, collect and discharge, or sell and assign the same. That I hereby declare that the principal sum of SIXTY THOUSAND PESOS (P60,000.00) with interest thereon at THIRTY SIX (36%) PER CENT per annum is justly due and owing to me as aforesaid. IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of April, 1989 at Quezon City.

(SGD)PAT S. PICACHE

February 24, 1988 and took effect on March 1, 1988. His letter to Mission Realty and Management Corporation dated September 21, 1988, complained of the electric power disconnection that took place on September 6, 1988, that is, six (6) months after he had occupied the leased premises, and did not even give a hint of his intention to vacate the premises because of said incident. It appears that [petitioner] was already advised to pay his rental arrearages in a letter dated August 9, 1988 (Exh. "2") and was notified of the termination of the lease contract in a letter dated September 19, 1988 (Exh. "4"). However, in a letter dated September 26, 1988, [petitioner] requested for time to look for a place to transfer. The RTC also sustained the validity and enforceability of the Assignment of Credit executed by Ms. Picache in favor of respondent, even in the absence of petitioner's consent to the said assignment, based on the following reasoning The promissory notes (Exhs. "A" and "B") were assigned by Ms. Patrocinio Picache to [herein respondent] by virtue of a notarized Assignment of Credit dated April 1, 1989 for a consideration of P60,000.00 (Exh. "C"). The fact that the assignment of credit does not bear the conformity of [herein petitioner] is of no moment. In C & C Commercial Corporation vs. Philippine National Bank, 175 SCRA 1, 11, the Supreme Court held thus: "x x x Article 1624 of the Civil Code provides that 'an assignment of credits and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475' which in turn states that 'the contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.' The meeting of the minds contemplated here is that between the assignor of the credit and his assignee, there being no necessity for the consent of the debtor, contrary to petitioner's claim. It is sufficient that the assignment be brought to his knowledge in order to be binding upon him. This may be inferred from Article 1626 of the Civil Code which declares that 'the debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation.'" [Petitioner] does not deny having been notified of the assignment of credit by Patrocinio Picache to the [respondent]. Thus, [respondent] sent several demand letters to the [petitioner] in connection with the loan[s] (Exhs. "D", "E", "F" and "G"). [Petitioner] acknowledged receipt of [respondent]'s letter of demand dated June 13, 1989 (Exh. "F") and assured [respondent] that he would settle his account, as per their telephone conversation (Exhs. "H" and "9"). Such communications between [respondent] and [petitioner] show that the latter had been duly notified of the said assignment of credit. x x x. Given its aforequoted findings, the RTC proceeded to a determination of petitioner's liabilities to respondent, taking into account the provisions of the promissory notes, thus x x x Consequently, [herein respondent] is entitled to recover from [herein petitioner] the principal amount ofP30,000.00 for the promissory note dated November 9, 1988. As said note did not provide for any interest, [respondent] may only recover interest at the legal rate of 12% per annum from April 18, 1990, the date of the filing of the complaint. With respect to the promissory note dated November 10, 1988, the same provided for interest at 36% per annum and that interest not paid when due shall be added to and shall become part of the principal and shall bear the same rate of interest as the principal. Likewise, both promissory notes provided for a penalty of 20% of the total outstanding balance thereon and attorney's fees equivalent to 20% of the sum sought to be recovered in case of litigation. In Garcia vs. Court of Appeals, 167 SCRA 815, it was held that penalty interests are in the nature of liquidated damages and may be equitably reduced by the courts if they are iniquitous or unconscionable, pursuant to Articles 1229 and 2227 of the Civil Code. Considering that the promissory note dated November 10, 1988 already provided for interest at 36% per annum on the principal obligation, as well as for the capitalization of the unpaid interest, the penalty charge of 20% of the total outstanding balance of the obligation thus appears to be excessive and unconscionable. The interest charges are enough punishment for [petitioner]'s failure to comply with his obligation under the promissory note dated November 10, 1988. With respect to the attorney's fees, the court is likewise empowered to reduce the same if they are unreasonable or unconscionable, notwithstanding the express contract therefor. (Insular Bank of Asia and America vs. Spouses Salazar, 159 SCRA 133, 139). Thus, an award of P10,000.00 as and for attorney's fees appears to be enough.

Consequently, the fallo of the RTC Decision reads WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the [herein respondent] and against [herein petitioner] ordering the latter as follows: 1. To pay [respondent], on the promissory note dated November 9, 1988, the amount of P30,000.00 with interest thereon at the legal rate of 12% per annum from April 18, 1990 until fully paid and a penalty of 20% on the total amount; 2. To pay [respondent], on the promissory note dated November 10, 1988, the amount of P30,000.00 with interest thereon at 36% per annum compounded at the same rate until fully paid; 3. To pay [respondent] the amount of P10,000.00, as and for attorney's fees; and 4. To pay the costs of the suit.13 Aggrieved by the RTC Decision, dated 6 August 1993, petitioner filed an appeal with the Court of Appeals, which was docketed as CA-G.R. CV No. 43604. The appellate court, in a Decision,14 dated 20 March 2001, found no cogent reason to depart from the conclusions arrived at by the RTC in its appealed Decision, dated 6 August 1993, and affirmed the latter Decision in toto. The Court of Appeals likewise denied petitioner's Motion for Reconsideration in a Resolution,15 dated 16 July 2001, stating that the grounds relied upon by petitioner in his Motion were mere reiterations of the issues and matters already considered, weighed and passed upon; and that no new matter or substantial argument was adduced by petitioner to warrant a modification, much less a reversal, of the Court of Appeals Decision, dated 20 March 2001. Comes now petitioner to this Court, via a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, raising the sole issue16 of whether or not the Court of Appeals committed grave abuse of discretion in affirming in toto the RTC Decision, dated 6 August 1993. Petitioner's main argument is that the Court of Appeals erred when it ruled that there was an assignment of credit and that there was no novation/subrogation in the case at bar. Petitioner asserts the position that consent of the debtor to the assignment of credit is a basic/essential element in order for the assignee to have a cause of action against the debtor. Without the debtor's consent, the recourse of the assignee in case of non-payment of the assigned credit, is to recover from the assignor. Petitioner further argues that even if there was indeed an assignment of credit, as alleged by the respondent, then there had been a novation of the original loan contracts when the respondent was subrogated in the rights of Ms. Picache, the original creditor. In support of said argument, petitioner invokes the following provisions of the Civil Code ART. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. ART. 1301. Conventional subrogation of a third person requires the consent of the original parties and the third person. According to petitioner, the assignment of credit constitutes conventional subrogation which requires the consent of the original parties to the loan contract, namely, Ms. Picache (the creditor) and petitioner (the debtor); and the third person, the respondent (the assignee). Since petitioner never gave his consent to the assignment of credit, then the subrogation of respondent in the rights of Ms. Picache as creditor by virtue of said assignment is without force and effect. This Court finds no merit in the present Petition. Before proceeding to a discussion of the points raised by petitioner, this Court deems it appropriate to emphasize that the findings of fact of the Court of Appeals and the RTC in this case shall no longer be disturbed. It is axiomatic that this Court will not review, much less reverse, the factual findings of the Court of Appeals, especially where, as in this case, such findings coincide with those of the trial court, since this Court is not a trier of facts.17

The jurisdiction of this Court in a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless it is shown, inter alia, that: (a) the conclusion is grounded entirely on speculations, surmises and conjectures; (b) the inference is manifestly mistaken, absurd and impossible; (c) there is grave abuse of discretion; (d) the judgment is based on a misapplication of facts; (e) the findings of fact of the trial court and the appellate court are contradicted by the evidence on record and (f) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both parties.18 None of these circumstances are present in the case at bar. After a perusal of the records, this Court can only conclude that the factual findings of the Court of Appeals, affirming those of the RTC, are amply supported by evidence and are, resultantly, conclusive on this Court.19 Therefore, the following facts are already beyond cavil: (1) petitioner obtained two loans totaling P60,000.00 from Ms. Picache, for which he executed promissory notes, dated 9 November 1988 and 10 November 1988; (2) he failed to pay any of the said loans; (3) Ms. Picache executed on 1 April 1989 an Assignment of Credit covering petitioner's loans in favor of respondent for the consideration of P60,000.00; (4) petitioner had knowledge of the assignment of credit; and (5) petitioner still failed to pay his indebtedness despite repeated demands by respondent and its counsel. Petitioner's persistent assertions that he never acquired any loan from Ms. Picache, or that he signed the promissory notes in blank and under duress, deserve scant consideration. They were already found by both the Court of Appeals and the RTC to be implausible and inconsistent with petitioner's own evidence. Now this Court turns to the questions of law raised by petitioner, all of which hinges on the contention that a conventional subrogation occurred when Ms. Picache assigned the debt, due her from the petitioner, to the respondent; and without petitioner's consent as debtor, the said conventional subrogation should be deemed to be without force and effect. This Court cannot sustain petitioner's contention and hereby declares that the transaction between Ms. Picache and respondent was an assignment of credit, not conventional subrogation, and does not require petitioner's consent as debtor for its validity and enforceability. An assignment of credit has been defined as an agreement by virtue of which the owner of a credit (known as the assignor), by a legal cause - such as sale, dation in payment or exchange or donation - and without need of the debtor's consent, transfers that credit and its accessory rights to another (known as the assignee), who acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor.20 On the other hand, subrogation, by definition, is 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.21 Although it may be said that the effect of the assignment of credit is to subrogate the assignee in the rights of the original creditor, this Court still cannot definitively rule that assignment of credit and conventional subrogation are one and the same. A noted authority on civil law provided a discourse on the difference between these two transactions, to wit Conventional Subrogation and Assignment of Credits. In the Argentine Civil Code, there is essentially no difference between conventional subrogation and assignment of credit. The subrogation is merely the effect of the assignment. In fact it is expressly provided (article 769) that conventional redemption shall be governed by the provisions on assignment of credit. Under our Code, however, conventional subrogation is not identical to assignment of credit. In the former, the debtor's consent is necessary; in the latter, it is not required. Subrogation extinguishes an 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 the new obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditor's right to another. (Emphasis supplied.) This Court has consistently adhered to the foregoing distinction between an assignment of credit and a conventional subrogation.23 Such distinction is crucial because it would determine the necessity of the debtor's consent. In an
22

assignment of credit, the consent of the debtor is not necessary in order that the assignment may fully produce the legal effects. 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. A creditor may, therefore, validly assign his credit and its accessories without the debtor's consent. On the other hand, conventional subrogation requires an agreement among the 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.24 Article 1300 of the Civil Code provides that conventional subrogation must be clearly established in order that it may take effect. Since it is petitioner who claims that there is conventional subrogation in this case, the burden of proof rests upon him to establish the same25 by a preponderance of evidence.26 In Licaros v. Gatmaitan,27 this Court ruled that there was conventional subrogation, not just an assignment of credit; thus, consent of the debtor is required for the effectivity of the subrogation. This Court arrived at such a conclusion in said case based on its following findings 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 appellee's 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). xxxx 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 "ANGLO-ASEAN BANK AND TRUST" were written by hand. 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. None of the foregoing circumstances are attendant in the present case. The Assignment of Credit, dated 1 April 1989, executed by Ms. Picache in favor of respondent, was a simple deed of assignment. There is nothing in the said Assignment of Credit which imparts to this Court, whether literally or deductively, that a conventional subrogation was intended by the parties thereto. The terms of the Assignment of Credit only convey the straightforward intention of Ms. Picache to "sell, assign, transfer, and convey" to respondent the debt due her from petitioner, as evidenced by the two promissory notes of the latter, dated 9 November 1988 and 10 November 1988, for the consideration of P60,000.00. By virtue of the same document, Ms. Picache gave respondent full power "to sue for, collect and discharge, or sell and assign" the very same debt. The Assignment of Credit was signed solely by Ms. Picache, witnessed by two other persons.

No reference was made to securing the conformeof petitioner to the transaction, nor any space provided for his signature on the said document. Perhaps more in point to the case at bar is Rodriguez v. Court of Appeals, 28 in which this Court found that The basis of the complaint is not a deed of subrogation but an assignment of credit whereby the private respondent became the owner, not the subrogee of the credit since the assignment was supported by HK $1.00 and other valuable considerations. xxxx The petitioner further contends that the consent of the debtor is essential to the subrogation. Since there was no consent on his part, then he allegedly is not bound. Again, we find for the respondent. The questioned deed of assignment is neither one of subrogation nor a power of attorney as the petitioner alleges. The deed of assignment clearly states that the private respondent became an assignee and, therefore, he became the only party entitled to collect the indebtedness. As a result of the Deed of Assignment, the plaintiff acquired all rights of the assignor including the right to sue in his own name as the legal assignee. Moreover, in assignment, the debtor's consent is not essential for the validity of the assignment (Art. 1624 in relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of the payment he might make (Article 1626, Civil Code). Since the Assignment of Credit, dated 1 April 1989, is just as its title suggests, then petitioner's consent as debtor is not necessary in order that the assignment may fully produce legal effects. The duty to pay does not depend on the consent of the debtor; otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtors' refusal to give consent.29 Moreover, this Court had already noted previously that there does not appear to be anything in Philippine statutes or jurisprudence which prohibits a creditor, without the consent of the debtor, from making an assignment of his credit and the rights accessory thereto; and, certainly, an assignment of credit and its accessory rights does not at all obliterate the obligation of the debtor to pay, but merely puts the assignee in the place of the assignor.30 Hence, the obligation of petitioner to pay his debt subsists despite the assignment thereof; only, his obligation after he came to know of the said assignment would be to pay the debt to the respondent (the assignee), instead of Ms. Picache (the original creditor). It bears to emphasize that even if the consent of petitioner as debtor is unnecessary for the validity and enforceability of the assignment of credit, nonetheless, the petitioner must have knowledge, acquired either by formal notice or some other means, of the assignment so that he may pay the debt to the proper party, which shall now be the assignee. This much can be gathered from a reading of Article 1626 of the Civil Code providing that, "The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation." This Court, in Sison v. Yap Tico,31 presented and adopted Manresa's analysis of Article 1626 of the Civil Code (then Article 1527 of the old Civil Code) Manresa, in commenting upon the provisions of article 1527 of the Civil Code, after discussing the articles of the Mortgage Law, says: "We have said that article 1527 deals with the individual phase or aspect which presupposes the existence of a relationship with third parties, that is, with the person of the debtor. Let us see in what way. "The above-mentioned article states that a debtor who, before having knowledge of the assignment, should pay the creditor shall be released from the obligation. "In the first place, the necessity for the notice to the debtor in order that the assignment may fully produce its legal effects may be inferred from the above. It refers to a notice and not to a petition for the consent which is not necessary. We say that the notice is not necessary in order that the legal effects may be fully produced, because if it should be omitted, such omission will not imply that the assignment will not exist legally, but that its effects will be limited to the parties thereto; at least, they will not reach the debtor.

"* * * * * * * * "Let us go to the legal effects produced by the failure to give the notice. In the beginning, we have said that the contract does not lose its efficacy with respect to the parties who made it; but article 1527 determines specifically one of the consequences arising from the failure to give notice, for it evidently takes for granted that the debtor who, before having knowledge of the assignment, should pay the creditor shall be released from the obligation. So that if the creditor assigned his credit, acting in bad faith and taking advantage of the fact that the debtor does not know anything about the assignment because the latter has not been notified, and collects its amount, the debtor shall be free from the obligation, inasmuch as it has been legally extinguished by a payment which fully redounds to his benefit. The assignee can take advantage of all civil and criminal actions against the assignor, but he can ask nothing from the debtor, because the latter did not know of the assignment, nor was he bound to know it; the assignor should blame himself for his failure to have the notice made. "* * * * * * * * "Hence, there not having been any notice to the debtor, the existence of his knowledge of the assignment should be proved by him who is interested therein; and the debtor is not bound to prove his ignorance." In a more recent case, Aquintey v. Spouses Tibong,32 this Court stated: "The law does not require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it." Since his consent is immaterial, the only other matter which this Court must determine is whether petitioner had knowledge of the Assignment of Credit, dated 1 April 1989, between Ms. Picache and respondent. Both the Court of Appeals and the RTC ruled in the affirmative, and so must this Court. Petitioner does not deny having knowledge of the assignment of credit by Ms. Picache to the respondent. In 1989, when petitioner's loans became overdue, it was respondent and its counsel who sent several demand letters to him. It can be reasonably presumed that petitioner received said letters for they were sent by registered mail, and the return cards were signed by petitioner's agent. Petitioner expressly acknowledged receipt of respondent's demand letter, dated 13 June 1989, to which he replied with another letter, dated 21 June 1989, stating that he would settle his account with respondent but also requesting consideration of the losses he suffered from the electric power disconnection at the property he leased from MRMC. It further appears that petitioner had never questioned why it was respondent seeking payment of the loans and not the original creditor, Ms. Picache. All these circumstances tend to establish that respondent already knew of the assignment of credit made by Ms. Picache in favor of respondent and explains his acceptance of all the demands for payment of the loans made upon him by the respondent. Finally, assuming arguendo that this Court considers petitioner a third person to the Assignment of Credit, dated 1 April 1989, the fact that the said document was duly notarized makes it legally enforceable even as to him. According to Article 1625 of the Civil Code ART. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. Notarization converted the Assignment of Credit, dated 1 April 1989, a private document, into a public document, 33 thus, complying with the mandate of the afore-quoted provision and making it enforceable even as against third persons. WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED, and the Decision, dated 20 March 2001, of the Court of Appeals in CA-G.R. CV No. 43604, affirming in toto the Decision, dated 6 August 1993, of the Quezon City Regional Trial Court, Branch 91, in Civil Case No. Q-90-5247, is hereby AFFIRMED. Costs against the petitioner. SO ORDERED.

G.R. No. 163244

June 22, 2009

SPOUSES JOSE T. VALENZUELA and GLORIA VALENZUELA, Petitioners, vs. KALAYAAN DEVELOPMENT & INDUSTRIAL CORPORATION, Respondent. DECISION PERALTA, J.: This is a petition for review on certiorari assailing the Decision1 dated January 23, 2004 of the Court of Appeals in CAG.R. CV No. 69814, and its Resolution2 dated April 20, 2004, denying petitioners motion for reconsideration. The factual and procedural antecedents are as follows: Kalayaan Development and Industrial Corporation (Kalayaan) is the owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-1330263 issued by the Register of Deeds of Metro Manila, District III. Later, petitioners, Spouses Jose T. Valenzuela and Gloria Valenzuela (Gloria), occupied the said property and introduced several improvements thereon. When Kalayaan discovered that the lot was being illegally occupied by the petitioners, it demanded that they immediately vacate the premises and surrender possession thereof. Petitioners then negotiated with Kalayaan to purchase the portion of the lot they were occupying. On August 5, 1994, the parties executed a Contract to Sell4wherein they stipulated that petitioners would purchase 236 square meters of the subject property forP1,416,000.00. Petitioners initially gave P500,000.00 upon signing the contract and agreed to pay the balance ofP916,000.00 in twelve (12) equal monthly installments, or P76,333.75 a month until fully paid.5 The parties also agreed that, in case petitioners failed to pay any of the installments, they would be liable for liquidated penalty at the rate of 3% a month compounded monthly until fully paid. It was also stipulated that Kalayaan shall execute the corresponding deed of absolute sale over the subject property only upon full payment of the total purchase price.6 Thereafter, petitioners made the following payments: P70,000.00 on October 20, 1994; P70,000.00 on November 23, 1994; and P68,000.00 on December 20, 1994, or a total of P208,000.00. After these payments, petitioners failed to pay the agreed monthly installments. In a letter7 dated September 6, 1995, petitioners requested Kalayaan that they be issued a deed of sale for the 118 sq. m. portion of the lot where their house was standing, considering that they no longer had the resources to pay the remaining balance. They reasoned that, since they had already paid one-half of the purchase price, or a total of P708,000.00 representing 118 sq. m. of the subject property, they should be issued a deed of sale for the said portion of the property. In a letter8 dated December 15, 1995, Kalayaan reminded petitioners of their unpaid balance and asked that they settle it within the next few days. In a demand letter9 dated January 30, 1996, Kalayaan, through counsel, demanded that petitioners pay their outstanding obligation, including the agreed penalties, within ten (10) days from receipt of the letter, or they would be constrained to file the necessary actions against them. Again, in a letter10 dated March 30, 1996, Kalayaan gave petitioners another opportunity to settle their obligation within a period of ten (10) days from receipt thereof.1avvphi1 On June 13, 1996, petitioners wrote Atty. Atilano Huaben Lim, then counsel of Kalayaan, and requested him to intercede on their behalf and to propose to Kalayaan that Glorias sister, Juliet Flores Giron (Juliet), was willing to assume payment of the remaining balance for the 118 sq. m. portion of the subject property at P10,000.00 a month.11 Petitioners stated that they had already separated the said 118 sq. m. portion and had the property surveyed by a licensed geodetic engineer to determine the unpaid portion of the property that needed to be separated from their lot. On January 20, 1997, March 20, 1997, April 20, 1997, June 20, 1997, July 20, 1997, September 20, 1997, October 20, 1997, and December 20, 1997, Juliet made payments of P10,000.00 per month to Kalayaan, which the latter accepted for and in behalf of her sister Gloria.12

Thereafter, Kalayaans in-house counsel, Atty. Reynaldo Romero, demanded that petitioners pay their outstanding obligation. However, his demands remained unheeded. Thus, on June 19, 1998, Kalayaan filed a Complaint for Rescission of Contract and Damages13 against petitioners before the Regional Trial Court (RTC) of Caloocan City, Branch 126, which was later docketed as Civil Case No. C-18378. On September 3, 1998, petitioners filed their Answer with Counterclaim14 praying, among other things, that the RTC dismiss the complaint and for Kalayaan to deliver the corresponding TCT to the subject property, so that the same may be cancelled and a new one issued in the name of the petitioners. Petitioners also prayed for the award of exemplary damages, moral damages, attorneys fees, and cost of suit.15 After filing their respective pleadings, trial on the merits ensued. On August 2, 2000, the RTC rendered a Decision 16 in favor of Kalayaan, rescinding the contract between the parties; ordering the petitioners to vacate the premises; and to pay the amount of P100,000.00 as attorneys fees. The decretal portion of the Decision reads: IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered rescinding the contract between the plaintiff and the defendants and ordering the defendants and all persons claiming rights under them to vacate the premises and to surrender possession thereof to the plaintiff. Moreover, defendants shall pay the amount of P100,000.00 as attorneys fees. The counterclaim of the defendants is hereby ordered DISMISSED for lack of merit. SO ORDERED.17 Aggrieved, petitioners sought recourse before the Court of Appeals (CA) in their appeal docketed as CA-G.R. CV No. 163244. Petitioners argued that the RTC erred when: IT RULED THAT THE PLAINTIFF-APPELLEE MADE A VALID FORMAL DEMAND UPON THE DEFENDANTS-APPELANTS TO PAY THE LATTERS DUE AND OUTSTANDING OBLIGATION; IT RULED THAT THE PRINCIPLE OF NOVATION OF AN EXISTING OBLIGATION IS NOT APPLICABLE IN THE INSTANT CASE; IT RULED THAT THE PRINCIPLE OF RESCISSION IS APPLICABLE IN THE CASE AND THAT THE PLAINTIFF-APPELLEE IS ENTITLED THERETO VIS--VIS THE DEFENDANTS-APPELLANTS; IT FAILED TO RULE THAT THE PLAINTIFF-APPELLEE IS BARRED BY ESTOPPEL FROM ASKING FOR THE RESCISSION OF THE CONTRACT TO SELL. IT RULED THAT THE DEFENDANTS-APPELLANTS DID NOT HAVE THE FINANCIAL CAPACITY TO PAY THE REMAINING BALANCE OF THE OBLIGATION AND THAT, CONSEQUENTLY, COMPLIANCE WITH THE TERMS OF THE SAID OBLIGATION HAS BECOME IMPOSSIBLE. IT RULED THAT THE PLAINTIFF-APPELLEE IS ENTITLED TO ITS CLAIM FOR ATTORNEYS FEES AND THE COST OF SUIT.18 On January 23, 2004, the CA rendered a Decision affirming the Decision of the RTC, the dispositive portion of which reads: WHEREFORE, premises considered, the assailed decision dated August 2, 2000 is hereby AFFIRMED, and the present appeal is hereby DISMISSED for lack of merit. SO ORDERED. (Emphasis supplied.)19

Petitioners filed a Motion for Reconsideration,20 but it was denied for lack of merit in a Resolution21 dated April 20, 2004. Hence, the present petition assigning the following errors: I. THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO APPLY THE PROVISIONS OF THE NEW CIVIL CODE REGARDING SUBSTANTIAL PERFORMANCE IN THE JUST RESOLUTION OF THE PETITIONERS APPEAL. II. THE HONORABLE COURT OF APPEALS SHOULD HAVE APPLIED THE APPLICABLE PROVISIONS OF THE LAW VIS--VIS THE RESCISSION OF CONTRACTS TO SELL REAL PROPERTY, SPECIFICALLY THE REQUIREMENT OF A PRIOR AND VALIDLY NOTARIZED LETTER OF DEMAND. III. THE HONORABLE COURT OF APPEALS FAILED TO APPLY TO THE INSTANT CASE THE PERTINENT PROVISIONS OF THE NEW CIVIL CODE REGARDING THE PRINCIPLE OF NOVATION AS A MODE OF EXTINGUISHING AN OBLIGATION. IV. THE AWARD, BY THE COURT OF APPEALS, OF ATTORNEYS FEES, WAS NOT IN ACCORD WITH THE FACTS AND THE LAW. Petitioners maintain that they should have been entitled to get at least one-half of the subject property, because payment equivalent to its value has been made to, and received by Kalayaan. Petitioners posit that the RTC should have applied Article 123422 of the Civil Code to the present case, considering that it has been factually established that they were able to pay at least one-half of the total obligation in good faith. Petitioners contend that Kalayaan allowed Juliet to continue with the payment of the other half of the property in installments of P10,000.00 a month. They also insist that they or Juliet was not given proper demand. They maintain that the demand letters that were previously sent to them were for their previous obligation with Kalayaan and not for the new agreement between Juliet and Kalayaan to assume payment of the unpaid portion of the subject property. Petitioners aver that, for a demand of rescission to be valid, it is an absolute requirement that should be made by way of a duly notarized written notice. Petitioners likewise claim that there was a valid novation in the present case. They aver that the CA failed to see that the original contract between the petitioners and Kalayaan was altered, changed, modified and restructured, as a consequence of the change in the person of the principal debtor and the monthly amortization to be paid for the subject property. When they agreed to a monthly amortization of P10,000.00 per month, the original contract was changed; and Kalayaan recognized Juliets capacity to pay, as well as her designation as the new debtor. The original contract was novated and the principal obligation to pay for the remaining half of the subject property was transferred from petitioners to Juliet. When Kalayaan accepted the payments made by the new debtor, Juliet, it waived its right to rescind the previous contract. Thus, the action for rescission filed by Kalayaan against them, was unfounded, since the contract sought to be rescinded was no longer in existence. Finally, petitioners question the RTCs award of attorneys fees. They maintain that there was no basis for the R TC to have awarded the same. They claim that Kalayaan was not forced, by their acts, to litigate, because Juliet was offering to pay the installments, but the offer was denied by Kalayaan. Moreover, since there were no awards for moral and exemplary damages, the award of attorneys fees would have no basis and should be deleted. The petition is devoid of merit. In the present case, the nature and characteristics of a contract to sell is determinative of the propriety of the remedy of rescission and the award of attorneys fees. Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment of which is not a breach of contract, but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect.23 Unlike a contract of sale, where the title to the property passes to the vendee upon the delivery of the thing sold, in a contract to sell, ownership is, by agreement,

reserved to the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the purchase price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.24 Since the obligation of respondent did not arise because of the failure of petitioners to fully pay the purchase price, Article 119125 of the Civil Code would have no application. Rayos v. Court of Appeals26 elucidates: Construing the contracts together, it is evident that the parties executed a contract to sell and not a contract of sale. The petitioners retained ownership without further remedies by the respondents until the payment of the purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the obligation of the petitioners to convey title from arising, in accordance with Article 1184 of the Civil Code. x x x xxxx The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant. There can be no rescission of an obligation that is still nonexisting, the suspensive condition not having happened. The parties contract to sell explicitly provides that Kalayaan "shall execute and deliver the corresponding deed of absolute sale over" the subject property to the petitioners "upon full payment of the total purchase price." Since petitioners failed to fully pay the purchase price for the entire property, Kalayaans obligation to convey title to the property did not arise. Thus, Kalayaan may validly cancel the contract to sell its land to petitioner, not because it had the power to rescind the contract, but because their obligation thereunder did not arise. Petitioners failed to pay the balance of the purchase price. Such payment is a positive suspensive condition, failure of which is not a breach, serious or otherwise, but an event that prevents the obligation of the seller to convey title from arising.27 The non-fulfillment by petitioners of their obligation to pay, which is a suspensive condition for the obligation of Kalayaan to sell and deliver the title to the property, rendered the Contract to Sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed.28Inasmuch as the suspensive condition did not take place, Kalayaan cannot be compelled to transfer ownership of the property to petitioners. As regards petitioners claim of novation, we do not give credence to petitioners assertion that the contract to sell was novated when Juliet was allegedly designated as the new debtor and substituted the petitioners in paying the balance of the purchase price. 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. 29 Article 1292 of the Civil Code provides that "[i]n 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." Novation is never presumed. 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. 30 The test of incompatibility is whether or not 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.31 Thus, in order that a novation can take place, the concurrence of the following requisites are indispensable: 1) There must be a previous valid obligation;

2) There must be an agreement of the parties concerned to a new contract; 3) There must be the extinguishment of the old contract; and 4) There must be the validity of the new contract. In the instant case, none of the requisites are present. There is only one existing and binding contract between the parties, because Kalayaan never agreed to the creation of a new contract between them or Juliet. True, petitioners may have offered that they be substituted by Juliet as the new debtor to pay for the remaining obligation. Nonetheless, Kalayaan did not acquiesce to the proposal. Its acceptance of several payments after it demanded that petitioners pay their outstanding obligation did not modify their original contract. Petitioners, admittedly, have been in default; and Kalayaans acceptance of the late paym ents is, at best, an act of tolerance on the part of Kalayaan that could not have modified the contract. As to the partial payments made by petitioners from September 16, 1994 to December 20, 1997, amounting toP788,000.00, this Court resolves that the said amount be returned to the petitioners, there being no provision regarding forfeiture of payments made in the Contract to Sell. To rule otherwise will be unjust enrichment on the part of Kalayaan at the expense of the petitioners. Also, the three percent (3%) penalty interest appearing in the contract is patently iniquitous and unconscionable as to warrant the exercise by this Court of its judicial discretion. Article 2227 of the Civil Code provides that "[l]iquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable." A perusal of the Contract to Sell reveals that the three percent (3%) penalty interest on unpaid monthly installments (per condition No. 3) would translate to a yearly penalty interest of thirty-six percent (36%). Although this Court on various occasions has eliminated altogether the three percent (3%) penalty interest for being unconscionable,32 We are not inclined to do the same in the present case. A reduction is more consistent with fairness and equity. We should not lose sight of the fact that Kalayaan remains an unpaid seller and that it has suffered, one way or another, from petitioners non-performance of its contractual obligations. In view of such glaring reality, We invoke the authority granted to us by Article 122933 of the Civil Code, and as equity dictates, the penalty interest is accordingly reimposed at a reduced rate of one percent (1%) interest per month, or twelve percent (12%) per annum, 34 to be deducted from the partial payments made by the petitioners.1avvphi1 As to the award of attorneys fees, the undeniable source of the present controversy is the failure of petitioners to pay the balance of the purchase price. It is elementary that when attorneys fees is awarded, they are so adjudicated, because it is in the nature of actual damages suffered by the party to whom it is awarded, as he was constrained to engage the services of a counsel to represent him for the protection of his interest.35 Thus, although the award of attorneys fees to Kalayaan was warranted by the circumstances obtained in this case, we find it equitable to reduce the award from P100,000.00 to P50,000.00. WHEREFORE, premises considered, the Decision of the Regional Trial Court in Civil Case No. C-18378, dated August 2, 2000, is hereby MODIFIED to the extent that the contract between the parties is cancelled and the attorneys fees is reduced to P50,000.00. Respondent is further ordered to refund the amount paid by the petitioners after deducting the penalty interest due. In all other aspects, the Decision stands. Subject to the above disquisitions, the Decision dated January 23, 2004 and the Resolution dated April 20, 2004, of the Court of Appeals in CA-G.R. CV No. 69814, are AFFIRMED. SO ORDERED.

MARIA SOLEDAD TOMIMBANG, Petitioner,

longer be found. Petitioner being the owner of the apartments, renovations on Unit A were discontinued when her whereabouts could not be located. She also stopped making monthly payments and ignored the demand letter dated December 2, 1997 sent by respondent's counsel. On February 2, 1998, respondent filed a Complaint against petitioner, demanding the latter to pay the former the net amount of P3,989,802.25 plus interest of 12% per annum from date of default.

-versus At the pre-trial conference, the issues were narrowed down as follows:

ATTY. JOSE TOMIMBANG, Respondent. G.R. No. 165116 Present: YNARES-SANTIAGO, J., Chairperson, CHICO-NAZARIO, VELASCO, JR., NACHURA, and PERALTA, JJ. Promulgated: August 4, 2009 x-----------------------------------------------------x

1.

Whether or not a loan was duly constituted between the plaintiff and the defendant in connection with the improvements or renovations on apartment units A-H, which is in the name of the defendant [herein petitioner];

2.

Assuming that such a loan was duly constituted in favor of plaintiff [herein respondent], whether or not the same is already due and payable;

3. DECISION

Assuming that said loan is already due and demandable, whether or not it is to be paid out of the rental proceeds from the apartment units mentioned, presuming that such issue was raised in the Answer of the Defendant;

PERALTA, J.: This resolves the petition for review on certiorari under Rule 45 of the Rules of Court, praying that the Decision[1] dated July 1, 2004 and Resolution[2] dated August 31, 2004 promulgated by the Court of Appeals (CA), be reversed and set aside. The antecedent facts are as follows.

4.

Petitioner and respondent are siblings. Their parents donated to petitioner an eight-door apartment located at 149 Santolan Road, Murphy, Quezon City, with the condition that during the parents' lifetime, they shall retain control over the property and petitioner shall be the administrator thereof. 5. In 1995, petitioner applied for a loan from PAG-IBIG Fund to finance the renovations on Unit H, of said apartment which she intended to use as her residence. Petitioner failed to obtain a loan from PAG-IBIG Fund, hence, respondent offered to extend a credit line to petitioner on the following conditions: (1) petitioner shall keep a record of all the advances; (2) petitioner shall start paying the loan upon the completion of the renovation; (3) upon completion of the renovation, a loan and mortgage agreement based on the amount of the advances made shall be executed by petitioner and respondent; and (4) the loan agreement shall contain comfortable terms and conditions which petitioner could have obtained from PAG-IBIG.[3] Petitioner accepted respondent's offer of a credit line and work on the apartment units began. Renovations on Units B to G were completed, and the work has just started on Unit A when an altercation broke out between herein parties. In view of said conflict, respondent and petitioner, along with some family members, held a meeting in the house of their brother Genaro sometime in the second quarter of 1997. Respondent and petitioner entered into a new agreement whereby petitioner was to start making monthly payments on her loan. Upon respondent's demand, petitioner turned over to respondent all the records of the cash advances for the renovations. Subsequently, or from June to October of 1997, petitioner made monthly payments of P18,700.00, or a total of P93,500.00. Petitioner never denied the fact that she started making such monthly payments. In October of 1997, a quarrel also occurred between respondent and another sister, Maricion, who was then defending the actions of petitioner. Because of said incident, they had a hearing at the Barangay. At said hearing, respondent had the occasion to remind petitioner of her monthly payment. Petitioner allegedly answered, Kalimutan mo na ang pera mo wala tayong pinirmahan. Hindi ako natatakot sa 'yo! Thereafter, petitioner left Unit H and could no

Assuming that the said loan was duly constituted in favor of plaintiff [herein respondent], whether or not it is in the amount of P3,909,802.20 and whether or not it will earn legal interest at the rate of 12% per annum, compounded, as provided in Article 2212 of the Civil Code of the Philippines, from the date of the extrajudicial demand; and

Whether or not the plaintiff [herein respondent] is entitled to the reliefs prayed for in his Complaint or whether or not it is the defendant [herein petitioner] who is entitled to the reliefs prayed for in her Answer with Counterclaim.[4]

On November 15, 2002, the Regional Trial Court (RTC) of Quezon City, Branch 82, rendered a Decision,[5] the dispositive portion of which reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the latter to pay the former the following:

1.

The sum of P3,989,802.25 with interest thereon at the legal rate of 12% per annum computed from the date of default until the whole obligation is fully paid; The sum of P50,000.00 as and by way of attorney's fees; and The cost of suit.

2. 3.

For his part, respondent admits that initially, they agreed that payment of the loan shall be made upon completion of the renovations. However, respondent claims that during their meeting with some family members in the house of their brother Genaro sometime in the second quarter of 1997, he and petitioner entered into a new agreement whereby petitioner was to start making monthly payments on her loan, which she did from June to October of 1997. In respondent's view, there was a novation of the original agreement, and under the terms of their new agreement, petitioner's obligation was already due and demandable. Respondent also maintains that when petitioner disappeared from the family compound without leaving information as to where she could be found, making it impossible to continue the renovations, petitioner thereby prevented the fulfillment of said condition. He claims that Article 1186 of the Civil Code, which provides that the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment, is applicable to this case. In his Comment to the present petition, respondent raised for the first time, the issue that the loan contract between him and petitioner is actually one with a period, not one with a suspensive condition. In his view, when petitioner began to make partial payments on the loan, the latter waived the benefit of the term, making the loan immediately demandable. Respondent also believes that he is entitled to attorney's fees, as petitioner allegedly showed bad faith by absconding and compelling him to litigate. The Court finds the petition unmeritorious.

SO ORDERED.[6]

Petitioner appealed the foregoing RTC Decision to the CA, but on July 1, 2004, the Court of Appeals promulgated its Decision affirming in toto said RTC judgment. A motion for reconsideration of the CA Decision was denied per Resolution dated August 31, 2004. Hence, this petition where petitioner alleges that:

I. It is undisputed that herein parties entered into a valid loan contract. The only question is, has petitioner's obligation become due and demandable? The Court resolves the question in the affirmative. THE COURT OF APPEALS ACTED NOT IN ACCORD WITH LAW AND APPLICABLE JURISPRUDENCE OF THE SUPREME COURT WHEN IT AFFIRMED THE LOWER COURT'S FINDING THAT THE LOAN BETWEEN PETITIONER AND RESPONDENT IS ALREADY DUE AND DEMANDABLE. The evidence on record clearly shows that after renovation of seven out of the eight apartment units had been completed, petitioner and respondent agreed that the former shall already start making monthly payments on the loan even if renovation on the last unit (Unit A) was still pending. Genaro Tomimbang, the younger brother of herein parties, testified that a meeting was held among petitioner, respondent, himself and their eldest sister Maricion, sometime during the first or second quarter of 1997, wherein respondent demanded payment of the loan, and petitioner agreed to pay. Indeed, petitioner began to make monthly payments from June to October of 1997 totalling P93,500.00.[8] In fact, petitioner even admitted in her Answer with Counterclaim that she had started to make payments to plaintiff [herein respondent] as the same was in accord with her commitment to pay whenever she was able; x x x .[9] Evidently, by virtue of the subsequent agreement, the parties mutually dispensed with the condition that petitioner shall only begin paying after the completion of all renovations. There was, in effect, a modificatory or partial novation, of petitioner's obligation. Article 1291 of the Civil Code provides, thus: Art. 1291. Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor. (Emphasis supplied) In Iloilo Traders Finance, Inc. v. Heirs of Sps. Soriano,[10] the Court expounded on the nature of novation, to wit:

II.

THE COURT OF APPEALS ERRED BY DEPARTING FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS OF AFFIRMING THE DUE AND DEMANDABILITY OF THE LOAN CONTRARY TO THE EVIDENCE PRESENTED IN THE LOWER COURT AND SANCTIONING SUCH DEPARTURE BY THE LOWER COURT IN THE INSTANT CASE. III. THE COURT OF APPEALS ERRED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS OF AFFIRMING THE AWARD OF ATTORNEY'S FEES TO THE RESPONDENT WITHOUT ANY BASIS AND SANCTIONING SUCH DEPARTURE BY THE LOWER COURT IN THE INSTANT CASE.[7] The main issues in this case boil down to (1) whether petitioner's obligation is due and demandable; (2) whether respondent is entitled to attorney's fees; and (3) whether interest should be imposed on petitioner's indebtedness and, if in the affirmative, at what rate. Petitioner does not deny that she obtained a loan from respondent. She, however, contends that the loan is not yet due and demandable because the suspensive condition the completion of the renovation of the apartment units - has not yet been fulfilled. She also assails the award of attorney's fees to respondent as baseless.

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; x x x . An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a new valid obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.[11]

In Ong v. Bogalbal,[12] the Court also stated, thus: x x x the effect of novation may be partial or total. There is partial novation when there is only a modification or change in some principal conditions of the obligation. It is total, when the obligation is completely extinguished. Also, the term principal conditions in Article 1291 should be construed to include a change in the period to comply with the obligation. Such a change in the period would only be a partial novation since the period merely affects the performance, not the creation of the obligation.[13] As can be gleaned from the foregoing, the aforementioned four essential elements and the requirement that there be total incompatibility between the old and new obligation, apply only to extinctive novation. In partial novation, only the terms and conditions of the obligation are altered, thus, the main obligation is not changed and it remains in force. Petitioner stated in her Answer with Counterclaim[14] that she agreed and complied with respondent's demand for her to begin paying her loan, since she believed this was in accordance with her commitment to pay whenever she was able. Her partial performance of her obligation is unmistakable proof that indeed the original agreement between her and respondent had been novated by the deletion of the condition that payments shall be made only after completion of renovations. Hence, by her very own admission and partial performance of her obligation, there can be no other conclusion but that under the novated agreement, petitioner's obligation is already due and demandable. With the foregoing finding that petitioner's obligation is due and demandable, there is no longer any need to discuss whether petitioner's disappearance from the family compound prevented the fulfillment of the original condition, necessitating application of Article 1186 of the Civil Code, or whether the obligation is one with a condition or a period. As to attorney's fees, however, the award therefor cannot be allowed by the Court. It is an oft-repeated rule that the trial court is required to state the factual, legal or equitable justification for awarding attorney's fees. [15] The Court explained in Buing v. Santos,[16] to wit: x x x While Article 2208 of the Civil Code allows attorney's fees to be awarded if the claimant is compelled to litigate with third persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is sought, there must be a showing that the losing party acted willfully or in bad faith and practically compelled the claimant to litigate and incur litigation expenses. In view of the declared policy of the law that awards of attorney's fees are the exception rather than the rule, it is necessary for the trial court to make express findings of facts and law that would bring the case within the exception and justify the grant of such award. x x x. Thus, the matter of attorney's fees cannot be touched upon only in the dispositive portion of the decision. The text itself must state the reasons why attorney's fees are being awarded. x x x[17]

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

The foregoing rule on legal interest was explained in Sunga-Chan v. Court of Appeals,[19] in this wise:

In the above-quoted case, there was a finding that defendants therein had no intention of fulfilling their obligation in complete disregard of the plaintiffs right, and yet, the Court did not deem this as sufficient justification for the award of attorney's fees. Verily, in the present case, where it is understandable that some misunderstanding could arise as to when the obligation was indeed due and demandable, the Court must likewise disallow the award of attorney's fees. We now come to a discussion of whether interest should be imposed on petitioner's indebtedness. In Royal Cargo Corp. v. DFS Sports Unlimited, Inc.,[18] the Court reiterated the settled rule on imposition of interest, thus: As to computation of legal interest, the seminal ruling in Eastern Shipping Lines, Inc. v. Court of Appeals controls, to wit: xxxx

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general, with the application of both rates reckoned from the time the complaint was filed until the [adjudged] amount is fully paid. In either instance, the reckoning period for the commencement of the running of the legal interest shall be subject to the condition that the courts are vested with discretion, depending on the equities of each case, on the award of interest.[20] In accordance with the above ruling, since the obligation in this case involves a loan and there is no stipulation in writing as to interest due, the rate of interest shall be 12% per annum computed from the date of extrajudicial demand. IN VIEW OF THE FOREGOING, the petition is AFFIRMED with the MODIFICATION that the award for attorney's fees is DELETED.

SO ORDERED.