G.R. No. 164051

October 3, 2012

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

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

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

On March 20, 1997, [PNB] extended a credit facility in the form of [a] Floor Stock Line (FSL) in the increased amount of Thirty Million Pesos (₱30 Million) to Lisam Enterprises, Inc. [LISAM], a family-owned and controlled corporation that maintains Current Account No. 445830099-8 with petitioner PNB.

x x x. Soriano is the chairman and president of LISAM, she is also the authorized signatory in all LISAM’s Transactions with [PNB].

On various dates, LISAM made several availments of the FSL in the total amount of Twenty Nine Million Six Hundred Forty Five Thousand Nine Hundred Forty Four Pesos and Fifty Five Centavos (P 29,645,944.55), the proceeds of which were credited to its current account with [PNB]. For each availment, LISAM through [Soriano], executed 52 Trust Receipts (TRs). In addition to the promissory notes, showing its receipt of the items in trust with the duty to turn-over the proceeds of the sale thereof to [PNB].

Sometime on January 21-22, 1998, [PNB’s] authorized personnel conducted an actual physical inventory of LISAM’s motor vehicles and motorcycles and found that only four (4) units covered by the TRs amounting to One Hundred Forty Thousand Eight Hundred Pesos (₱158,100.00) (sic) remained unsold.

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

Given the terms of the TRs which read, in pertinent part:

RECEIVED in Trust from the [PNB], Naga Branch, Naga City, Philippines, the motor vehicles ("Motor Vehicles") specified and described in the Invoice/s issued by HONDA PHILIPPINES, INC. (HPI) to Lisam Enterprises, Inc., (the "Trustee") hereto attached as Annex "A" hereof, and in consideration thereof, the trustee hereby agrees to hold the Motor Vehicles in storage as the property of PNB, with the liberty to sell the same for cash for the Trustee’s account and to deliver the proceeds thereof to PNB to be applied against its acceptance on the Trustee’s account. Under the terms of the Invoices and (sic) the Trustee further agrees to hold the said vehicles and proceeds of the sale thereof in Trust for the payment of said acceptance and of any [of] its other indebtedness to PNB.

xxxx

For the purpose of effectively carrying out all the terms and conditions of the Trust herein created and to insure that the Trustee will comply strictly and faithfully with all undertakings hereunder, the Trustee hereby agrees and consents to allow and permit PNB or its representatives to inspect all of the Trustee’s books, especially those pertaining to its disposition of the Motor Vehicles and/or the proceeds of the sale hereof, at any time and whenever PNB, at its discretion, may find it necessary to do so.

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

and Soriano’s failure to account for the proceeds of the sale of the motor vehicles,

PNB, as previously adverted to, filed a complaint-affidavit before the Office of the City Prosecutor of Naga City charging Soriano with fifty two (52) counts of violation of the Trust Receipts Law, in relation to Article 315, paragraph 1(b) of the Revised Penal Code.

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

1. The obligation of [LISAM] which I represent, and consequently[,] my obligation, if any, is purely civil in nature. All of the alleged trust receipt agreements were availments made by the corporation [LISAM] on the PNB credit facility known as "Floor Stock Line" (FSL), which is just one of the several credit facilities granted to [LISAM] by PNB. When my husband Leandro A. Soriano, Jr. was still alive, [LISAM] submitted proposals to PNB for the restructuring of all of [LISAM’s] credit facilities. After exchanges of several letters and telephone calls, Mr. Josefino Gamboa, Senior Vice President of PNB on 12 May 1998 wrote [LISAM] informing PNB’s lack of objection to [LISAM’s] proposal of restructuring all its

obligations. x x x.

2. On September 22, 1998 Mr. Avengoza sent a letter to [LISAM], complete with attached copy of PNB Board’s minutes of meeting, with the happy information that the Board of Directors of PNB has approved the conversion of [LISAM’s] existing credit facilities at PNB, which includes the FSL on which the Trust receipts are availments, to [an] Omnibus Line (OL) available by way of Revolving Credit Line (RCL), Discounting Line Against Post-Dated Checks (DLAPC), and Domestic Bills Purchased Line (DBPL) and with a "Full waiver of penalty charges on RCL, FSL (which is the Floor Stock Line on which the trust receipts are availments) and Time Loan. x x x.

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

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

2. x x x. While it is true that said restructuring was approved, the same was never implemented because [LISAM] failed to comply with the conditions of approval

stated in B/R No. 6, such as the payment of the interest and other charges and the submission of the title of the 283 sq. m. of vacant residential lot, x x x Tandang Sora, Quezon City, as among the common conditions stated in paragraph V, of B/R 6. The nonimplementation of the approved restructuring of the account of [LISAM] has the effect of reverting the account to its original status prior to the said approval. Consequently, her claim that her liability for violation of the Trust Receipt Agreement is purely civil does not hold water.6

In a Resolution,7 the City Prosecutor of Naga City found, thus:

WHEREFORE, the undersigned finds prima facie evidence that respondent LILIAN SORIANO is probably guilty of violation of [the] Trust Receipt Law, in relation to Article 315 par. 1 (b) of the Revised Penal Code, let therefore 52 counts of ESTAFA be filed against the respondent.8

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

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

In January 2002, the RTC ordered the dismissal of one of the criminal cases against Soriano, docketed as Criminal Case No. 2001-0671. In March of the same year, Soriano was arraigned in, and pled not guilty to, the rest of the criminal cases. Thereafter, on 16 October 2002, the RTC issued an Order resetting the continuation of the pre-trial on 27 November 2002.

On the other litigation front, the DOJ, in a Resolution9 dated 25 June 2002, reversed and set aside the earlier resolution of the Naga City Prosecutor:

WHEREFORE, the questioned resolution is REVERSED and SET ASIDE and the City Prosecutor of Naga City is hereby directed to move, with leave of court, for the withdrawal of the informations for estafa against Lilian S. Soriano in Criminal Case Nos. 2001- 0641 to 0693 and to report the action taken thereon within ten (10) days from receipt thereof.10

On various dates the RTC, through Pairing Judge Novelita Villegas Llaguno, issued the following Orders:

1. 27 November 200211

When this case was called for continuation of pre-trial, [Soriano’s] counsel appeared. However, Prosecutor Edgar Imperial failed to appear.

Records show that a copy of the Resolution from the Department of Justice promulgated on October 28, 2002 was received by this Court, (sic) denying the Motion for Reconsideration of the Resolution No. 320, series of 2002 reversing that of the City Prosecutor of Naga City and at the same time directing the latter to move with leave of court for the withdrawal of the informations for Estafa against Lilian Soriano.

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

2. 21 February 200312

Finding the Motion to Withdraw Informations filed by Pros. Edgar Imperial duly approved by the City Prosecutor of Naga City to be meritorious the same is hereby granted. As prayed for, the Informations in Crim. Cases Nos. RTC 2001-0641 to 2001-0693 entitled, People of the Philippines vs. Lilian S. Soriano, consisting of fifty-two (52) cases except for Crim. Case No. RTC 2001-0671 which had been previously dismissed, are hereby ordered WITHDRAWN.

3. 15 July 200313

The prosecution of the criminal cases herein filed being under the control of the City Prosecutor, the withdrawal of the said cases by the Prosecution leaves this Court without authority to re-instate, revive or refile the same.

Wherefore, the Motion for Reconsideration filed by the private complainant is hereby DENIED.

With the denial of its Motion for Reconsideration of the 25 June 2002 Resolution of the Secretary of the DOJ, PNB filed a petition for certiorari before the Court of

Appeals alleging that:

A. THE SECRETARY OF THE DOJ COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO WANT OR EXCESS OF JURISDICTION IN REVERSING AND SETTING ASIDE THE RESOLUTON OF THE CITY PROSECUTOR OF NAGA CITY FINDING A PRIMA FACIE CASE AGAINST PRIVATE RESPONDENT [SORIANO], FOR THE SAME HAS NO LEGAL BASES AND IS NOT IN ACCORD WITH THE

JURISPRUDENTIAL RULINGS ON THE MATTER.14

As stated at the outset, the appellate court did not find grave abuse of discretion in the questioned resolution of the DOJ, and dismissed PNB’s petition for certiorari.

Hence, this appeal by certiorari.

Before anything else, we note that respondent Soriano, despite several opportunities to do so, failed to file a Memorandum as required in our Resolution dated 16 January 2008. Thus, on 8 July 2009, we resolved to dispense with the filing of Soriano’s Memorandum.

In its Memorandum, PNB posits the following issues:

I. Whether or not the Court of Appeals gravely erred in concurring with the finding of the DOJ that the approval by PNB of [LISAM’s] restructuring proposal of its account with PNB had changed the status of [LISAM’s] obligations secured by Trust Receipts to one of an ordinary loan, non-payment of which does not give rise to a criminal liability.

II. Whether or not the Court of Appeals gravely erred in concluding and concurring with the June 25, 2002 Resolution of the DOJ directing the withdrawal of the Information for Estafa against the accused in Criminal Case Nos. 2001-0641 up to 0693 considering the well- established rule that once jurisdiction is vested in court, it is retained up to the end of the litigation.

III. Whether or not the reinstatement of the 51 counts (Criminal Case No. 2001-0671 was already dismissed) of criminal cases for estafa against Soriano would violate her constitutional right against double jeopardy.15

Winnowed from the foregoing, we find that the basic question is whether the Court of Appeals gravely erred in affirming the DOJ’s ruling that the restructuring of LISAM’s loan secured by trust receipts extinguished Soriano’s criminal liability therefor.

It has not escaped us that PNB’s second and third issues delve into the three (3) Orders of the RTC which are not the subject of the petition before us. To clarify, the instant petition assails the Decision of the appellate court in CA-G.R. SP No. 76243 which, essentially, affirmed the ruling of the DOJ in I.S. Nos. 2000-1123, 2000-1133 and 2000-1184. As previously narrated, the DOJ Resolution became the basis of the RTC’s Orders granting the withdrawal of the Informations against Soriano. From these RTC Orders, the remedy of PNB was to file a petition for certiorari before the Court of Appeals alleging grave abuse of discretion in the issuance thereof.

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

1. Whether the withdrawal of Criminal Cases Nos. 2001- 0641 to 2001-0693 against Soriano as directed by the DOJ violates the well-established rule that once the trial court acquires jurisdiction over a case, it is retained until termination of litigation.

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

We rule in the negative.

Precisely, the withdrawal of Criminal Cases Nos. 2001- 0641 to 2001-0693 was ordered by the RTC. In particular, the Secretary of the DOJ directed City Prosecutor of Naga City to move, with leave of court, for the withdrawal of the Informations for estafa against Soriano. Significantly, the trial court gave the prosecution fifteen (15) days within which to comply with the DOJ’s directive, and thereupon, readily granted the motion. Indeed, the withdrawal of the criminal cases did not occur, nay, could not have occurred, without the trial court’s imprimatur. As such, the DOJ’s directive for the withdrawal of the criminal cases against Soriano did not divest nor oust the trial court of its jurisdiction.

Regrettably, a perusal of the RTC’s Orders reveals that the trial court relied solely on the Resolution of the DOJ Secretary and his determination that the Informations

for estafa against Soriano ought to be withdrawn. The trial court abdicated its judicial power and refused to perform a positive duty enjoined by law. On one occasion, we have declared that while the recommendation of the prosecutor or the ruling of the Secretary of Justice is persuasive, it is not binding on courts.16 We shall return to this point shortly.

In the same vein, the reinstatement of the criminal cases against Soriano will not violate her constitutional right against double jeopardy.

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

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

On both issues, the recent case of Cerezo v. People,19 is enlightening. In Cerezo, the trial court simply followed the prosecution’s lead on how to proceed with the libel case against the three accused. The prosecution twice changed their mind on whether there was probable cause to indict the accused for libel. On both occasions, the trial court granted the prosecutor’s motions. Ultimately, the DOJ Secretary directed the prosecutor to re-file the Information against the accused which the trial court forthwith reinstated. Ruling on the same issues raised by PNB in this case, we emphasized, thus:

x x x. In thus resolving a motion to dismiss a case or to withdraw an Information, the trial court should not rely solely and merely on the findings of the public prosecutor or the Secretary of Justice. It is the court’s bounden duty to assess independently the merits of the motion, and this assessment must be embodied in a

written order disposing of the motion. x x x.

In this case, it is obvious from the March 17, 2004 Order of the RTC, dismissing the criminal case, that the RTC judge failed to make his own determination of whether or not there was a prima facie case to hold respondents for trial. He failed to make an independent evaluation or assessment of the merits of the case. The RTC judge blindly relied on the manifestation and recommendation of the prosecutor when he should have been more circumspect and judicious in resolving the Motion to Dismiss and Withdraw Information especially so when the prosecution appeared to be uncertain, undecided, and irresolute on whether to indict respondents.

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

As discussed during the hearing of the Motion for Reconsideration, the Court will resolve it depending on the outcome of the Petition for Review. Considering the findings of the Department of Justice reversing the resolution of the City Prosecutor, the Court gives favorable action to the Motion for Reconsideration.

By relying solely on the manifestation of the public prosecutor and the resolution of the DOJ Secretary, the trial court abdicated its judicial power and refused to perform a positive duty enjoined by law. The said Orders were thus stained with grave abuse of discretion and violated the complainant’s right to due process. They were void, had no legal standing, and produced no effect whatsoever.

xxxx

It is beyond cavil that double jeopardy did not set in. Double jeopardy exists when the following requisites are present: (1) a first jeopardy attached prior to the second; (2) the first jeopardy has been validly terminated; and (3) a second jeopardy is for the same offense as in the first. A first jeopardy attaches only (a) after a valid indictment; (b) before a competent court; (c) after arraignment; (d) when a valid plea has been entered; and (e) when the accused has been acquitted or convicted, or the case dismissed or otherwise terminated without his express consent.

Since we have held that the March 17, 2004 Order granting the motion to dismiss was committed with grave abuse of discretion, then respondents were not acquitted nor was there a valid and legal dismissal or termination of the case. Ergo, the fifth requisite which requires the conviction and acquittal of the accused, or the dismissal of the case without the approval of the accused, was not met. Thus, double jeopardy has not set in.20 (Emphasis supplied)

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

PNB admits that although it had approved LISAM’s restructuring proposal, the actual restructuring of LISAM’s account consisting of several credit lines was never reduced into writing. PNB argues that the stipulations therein such as the provisions on the schedule of payment of the principal obligation, interests, and penalties, must be in writing to be valid and binding between the parties. PNB further postulates that assuming the restructuring was reduced into writing, LISAM failed to comply with the conditions precedent for its effectivity, specifically, the payment of interest and other charges, and the submission of the titles to the real properties in Tandang Sora, Quezon City. On the whole, PNB is adamant that the events concerning the restructuring of LISAM’s loan did not affect the TR security, thus, Soriano’s criminal liability thereunder subsists.

On the other hand, the appellate court agreed with the ruling of the DOJ Secretary that the approval of LISAM’s restructuring proposal, even if not reduced into writing, changed the status of LISAM’s loan from being secured with Trust Receipts (TR’s) to one of an ordinary loan, non-payment of which does not give rise to criminal liability. The Court of Appeals declared that there was no breach of trust constitutive of estafa through misappropriation or conversion where the relationship between the parties is simply that of creditor and debtor, not as entruster and entrustee.

We cannot subscribe to the appellate court’s reasoning. The DOJ Secretary’s and the Court of Appeals holding that, the supposed restructuring novated the loan agreement between the parties is myopic.

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

Novation is one of the modes of extinguishment of obligations;21 it is a single juridical act with a diptych function. The substitution or change of the obligation by a subsequent one extinguishes the first, resulting in the creation of a new obligation in lieu of the old.22 It is not a complete obliteration of the obligor-obligee relationship, but operates as a relative extinction of the original obligation.

Article 1292 of the Civil Code which provides:

Art. 1292. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.

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

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

(1) There must be a previous valid obligation;

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

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

(4) There must be the validity of the new contract.23

Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unmistakable. The contracting parties must incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts.24 Nonetheless, both kinds of novation must still be clearly proven.25

In this case, without a written contract stating in unequivocal terms that the parties were novating the original loan agreement, thus undoubtedly eliminating an express novation, we look to whether there is an incompatibility between the Floor Stock Line secured by TR’s and the subsequent restructured Omnibus Line which was supposedly approved by PNB.

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

1. x x x. All the alleged trust receipt agreements were availments made by [LISAM] on the PNB credit facility known as "Floor Stock Line," (FSL) which is just one of the several credit facilities granted to [LISAM] by PNB. When my husband Leandro A. Soriano, Jr. was still alive, [LISAM] submitted proposals to PNB for the restructuring of all of [LISAM’s] credit facilities. After exchanges of several letters and telephone calls, Mr. Josefino Gamboa, Senior Vice President of PNB on 12 May 1998 wrote [LISAM] informing PNB’s lack of objection to [LISAM’s] proposal of restructuring all its obligations. x x x.

2. On September 22, 1998, Mr. Avengoza sent a letter to [LISAM], complete with attached copy of PNB’s Board’s minutes of meeting, with the happy information that the Board of Directors of PNB has approved the conversion of [LISAM’s] existing credit facilities at PNB, which includes the FSL on which the trust receipts are availments, to [an] Omnibus Line (OL) available by way of Revolving Credit Line (RCL), Discounting Line Against Post-Dated Checks (DLAPC), and Domestic Bills Purchased Line (DBPL) and with a "Full waiver of penalty charges on RCL, FSL (which is the Floor Stock Line on which the trust receipts are availments) and Time Loan. x x x.26

Soriano’s reliance thereon is misplaced. The approval of LISAM’s restructuring proposal is not the bone of contention in this case. The pith of the issue lies in whether, assuming a restructuring was effected, it extinguished the criminal liability on the loan obligation secured by trust receipts, by extinguishing the entruster- entrustee relationship and substituting it with that of an ordinary creditor-debtor relationship. Stated differently, we examine whether the Floor Stock Line is incompatible with the purported restructured Omnibus Line.

The test of incompatibility is whether the two obligations can stand together, each

one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation.27

We have scoured the records and found no incompatibility between the Floor Stock Line and the purported restructured Omnibus Line. While the restructuring was approved in principle, the effectivity thereof was subject to conditions precedent such as the payment of interest and other charges, and the submission of the titles to the real properties in Tandang Sora, Quezon City. These conditions precedent imposed on the restructured Omnibus Line were never refuted by Soriano who, oddly enough, failed to file a Memorandum. To our mind, Soriano’s bare assertion that the restructuring was approved by PNB cannot equate to a finding of an implied novation which extinguished Soriano’s obligation as entrustee under the TR’s.

Moreover, as asserted by Soriano in her counter- affidavit, the waiver pertains to penalty charges on the Floor Stock Line. There is no showing that the waiver extinguished Soriano’s obligation to "sell the [merchandise] for cash for [LISAM’s] account and to deliver the proceeds thereof to PNB to be applied against its acceptance on [LISAM’s] account." Soriano further agreed to hold the "vehicles and proceeds of the sale thereof in Trust for the payment of said acceptance and of any of its other indebtedness to PNB." Well- settled is the rule that, with respect to obligations to pay a sum of money, the obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the old ones, or the new contract merely supplements the old one.28 Besides, novation does not extinguish criminal liability.29 It stands to reason therefore, that Soriano’s criminal liability under the TR’s subsists considering that the civil obligations under the Floor Stock Line secured by TR’s were not extinguished by the purported restructured Omnibus Line.

In Transpacific Battery Corporation v. Security Bank and Trust Company,30 we held that the restructuring of a loan agreement secured by a TR does not per se novate or extinguish the criminal liability incurred thereunder:

x x x Neither is there an implied novation since the restructuring agreement is not incompatible with the trust receipt transactions.

Indeed, the restructuring agreement recognizes the obligation due under the trust receipts when it required "payment of all interest and other charges prior to restructuring." With respect to Michael, there was even a proviso under the agreement that the amount due is subject to "the joint and solidary liability of Spouses Miguel and Mary Say and Michael Go Say." While the names of Melchor and Josephine do not appear on the restructuring agreement, it cannot be presumed that they have been relieved from the obligation. The old obligation continues to subsist subject to the modifications agreed upon by the parties.

The circumstance that motivated the parties to enter into a restructuring agreement was the failure of petitioners to account for the goods received in trust and/or deliver the proceeds thereof. To remedy the situation, the parties executed an agreement to

restructure Transpacific's obligations.

The Bank only extended the repayment term of the trust receipts from 90 days to one year with monthly installment at 5% per annum over prime rate or 30% per annum whichever is higher. Furthermore, the interest rates were flexible in that they are subject to review every amortization due. Whether the terms appeared to be more onerous or not is immaterial.1âwphi1 Courts are not authorized to extricate parties from the necessary consequences of their acts. The parties will not be relieved from their obligations as there was absolutely no intention by the parties to supersede or abrogate the trust receipt transactions. The intention of the new agreement was precisely to revive the old obligation after the original period expired and the loan remained unpaid. Well-settled is the rule that, with respect to obligations to pay a sum of money, the obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the old ones, or the new contract merely supplements the old one.31

Based on all the foregoing, we find grave error in the Court of Appeals dismissal of PNB’s petition for certiorari. Certainly, while the determination of probable cause to indict a respondent for a crime lies with the prosecutor, the discretion must not be exercised in a whimsical or despotic manner tantamount to grave abuse of

discretion.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 76243 finding no grave abuse of discretion on the part of the Secretary of Justice is REVERSED and SET ASIDE.

The Resolution of the Secretary of Justice dated 25 June 2002, directing the City Prosecutor of Naga City to move for the withdrawal of the Informations for estafa in relation to the Trust Receipts Law against respondent Lilian S. Soriano, and his 29 October 2002 Resolution, denying petitioner's Motion for Reconsideration, are ANNULLED and SET ASIDE for having been issued with grave abuse of discretion; and the Resolution or the Naga City Prosecutor's Office dated 19 March 2001, finding probable cause against herein respondent, is REINSTATED. Consequently, the Orders of the Regional Trial Court, Branch 21 of Naga City in Criminal Cases Nos. 2001-0641 to 2001-0693, except Criminal Case No. 2001-0671, dated 27 November 2002, 21 February 2003 and 15 July 2003 are SET ASIDE and its Order of 16 October 2002 resetting the continuation or the pre-trial is REINSTATED. The RTC is further ordered to conduct the pretrial with dispatch.

SO ORDERED.

G.R. No. 171845

October 10, 2012

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

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari, 1 filed under Rule 45 of the Rules of Court, assailing the decision2 dated February 23, 2006 of the Regional Trial Court (RTC) of Bacolod City, Branch 41, in Civil Case No. 95-9344.

FACTUAL ANTECEDENTS

The present case traces its roots to the compromise judgment dated October 24, 19953 of the RTC of Bacolod City, Branch 47, in Civil Case No. 95-9880. Civil Case No. 95-9880 was an action for collection of sum of money instituted by the petitioner spouses Godfrey and Gerardina Serfino (collectively, spouses Serfino) against the spouses Domingo and Magdalena Cortez (collectively, spouses Cortez). By way of settlement, the spouses Serfino and the spouses Cortez executed a compromise agreement on October 20, 1995, in which the spouses Cortez acknowledged their indebtedness to the spouses Serfino in the amount of P 108,245.71. To satisfy the debt, Magdalena bound herself "to pay in full the judgment debt out of her retirement benefits[.]"4 Payment of the debt shall be made one (1) week after Magdalena has received her retirement benefits from the Government Service Insurance System (GSIS). In case of default, the debt may be executed against any of the properties of the spouses Cortez that is subject to execution, upon motion of the spouses Serfino.5 After finding that the compromise agreement was not contrary to law, morals, good custom, public order or public policy, the RTC approved the entirety of the parties’ agreement and issued a compromise judgment based thereon.6 The debt was later reduced to P 155,000.00 from P 197,000.00 (including interest), with the promise that the spouses Cortez would pay in full the judgment debt not later than April 23, 1996.7

No payment was made as promised. Instead, Godfrey discovered that Magdalena deposited her retirement benefits in the savings account of her daughter-in-law, Grace Cortez, with the respondent, Far East Bank and Trust Company, Inc. (FEBTC). As of April 23, 1996, Grace’s savings account with FEBTC amounted to P 245,830.37, the entire deposit coming from Magdalena’s retirement benefits.8 That same day, the spouses Serfino’s counsel sent two letters to FEBTC informing the bank that the deposit in Grace’s name was owned by the spouses Serfino by virtue of an assignment made in their favor by the spouses Cortez. The letter requested FEBTC to prevent the delivery of the deposit to either Grace or the spouses Cortez until its actual ownership has been resolved in court.

On April 25, 1996, the spouses Serfino instituted Civil Case No. 95- 9344 against the spouses Cortez, Grace and her husband, Dante Cortez, and FEBTC for the recovery of money on deposit and the payment of damages, with a prayer for preliminary attachment.

On April 26, 1996, Grace withdrew P 150,000.00 from her savings account with FEBTC. On the same day, the spouses Serfino sent another letter to FEBTC informing it of the pending action; attached to the letter was a copy

of the complaint filed as Civil Case No. 95-9344.

During the pendency of Civil Case No. 95-9344, the spouses Cortez manifested that they were turning over the balance of the deposit in FEBTC (amounting to P 54,534.00) to the spouses Serfino as partial payment of their obligation under the compromise judgment. The RTC issued an order dated July 30, 1997, authorizing FEBTC to turn over the balance of the deposit to the spouses Serfino.

On February 23, 2006, the RTC issued the assailed decision (a) finding the spouses Cortez, Grace and Dante liable for fraudulently diverting the amount due the spouses Serfino, but (b) absolving FEBTC from any liability for allowing Grace to withdraw the deposit. The RTC declared that FEBTC was not a party to the compromise judgment; FEBTC was thus not chargeable with notice of the parties’ agreement, as there was no valid court order or processes requiring it to withhold payment of the deposit. Given the nature of bank deposits, FEBTC was primarily bound by its contract of loan with Grace. There was, therefore, no legal justification for the bank to refuse payment of the account, notwithstanding the claim of the spouses Serfino as stated in their three letters.

THE PARTIES’ ARGUMENTS

The spouses Serfino appealed the RTC’s ruling absolving FEBTC from liability for allowing the withdrawal of the deposit. They allege that the RTC cited no legal basis for declaring that only a court order or process can justify the withholding of the deposit in Grace’s name. Since FEBTC was informed of their adverse claim after they sent three letters, they claim that:

Upon receipt of a notice of adverse claim in proper form, it becomes the duty of the bank to: 1. Withhold payment of the deposit until there is a reasonable opportunity to institute legal proceedings to contest ownership; and 2) give prompt notice of the adverse claim to the depositor. The bank may be held liable to the adverse claimant if it disregards the notice of adverse claim and pays the depositor.

When the bank has reasonable notice of a bona fide claim that money deposited with it is the property of another than the depositor, it should withhold payment until there is reasonable opportunity to institute legal proceedings to contest the ownership.9 (emphases and underscoring supplied)

Aside from the three letters, FEBTC should be deemed bound by the compromise judgment, since Article 1625 of the Civil Code states that an assignment of credit binds third persons if it appears in a public instrument.10 They conclude that FEBTC, having been notified of their adverse claim, should not have allowed Grace to withdraw the deposit.

While they acknowledged that bank deposits are governed by the Civil Code provisions on loan, the spouses Serfino allege that the provisions on voluntary deposits should apply by analogy in this case, particularly Article 1988 of the Civil Code, which states:

Article 1988. The thing deposited must be returned to the depositor upon demand, even though a specified period or time for such return may have been fixed.

This provision shall not apply when the thing is judicially attached while in the depositary’s possession, or should he have been notified of the opposition of a third person to the return or the removal of the thing deposited. In these cases, the depositary must immediately inform the depositor of the attachment or opposition.

Based on Article 1988 of the Civil Code, the depository is not obliged to return the thing to the depositor if notified of a third party’s adverse claim.

By allowing Grace to withdraw the deposit that is due them under the compromise judgment, the spouses Serfino claim that FEBTC committed an actionable wrong that entitles them to the payment of actual and moral damages.

FEBTC, on the other hand, insists on the correctness of the RTC ruling. It claims that it is not bound by the compromise judgment, but only by its contract of loan with its depositor. As a loan, the bank deposit is owned by the bank; hence, the spouses Serfino’s claim of ownership over it is erroneous.

Based on these arguments, the case essentially involves a determination of the obligation of banks to a third party who claims rights over a bank deposit standing in the name of another.

THE COURT’S RULING

We find the petition unmeritorious and see no reason to reverse the RTC’s ruling.

Claim for actual damages not meritorious because there could be no pecuniary loss that should be compensated if there was no assignment of credit

The spouses Serfino’s claim for damages against FEBTC is premised on their claim of ownership of the deposit with FEBTC. The deposit consists of Magdalena’s retirement benefits, which the spouses Serfino claim to have been assigned to them under the compromise judgment. That the retirement benefits were deposited in Grace’s savings account with FEBTC supposedly did not divest them of ownership of the amount, as "the money already belongs to the [spouses Serfino] having been absolutely assigned to them and constructively delivered by virtue of the x x x public instrument[.]"11 By virtue of the assignment of credit, the spouses Serfino claim ownership of the deposit, and they posit that FEBTC was duty bound to protect their right by preventing the withdrawal of the deposit since the bank had been notified of the assignment and of their claim.

We find no basis to support the spouses Serfino’s claim of ownership of the deposit.

"An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. It may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person."12 As a dation in payment, the assignment of credit operates as a mode of extinguishing the obligation;13 the delivery and transmission of ownership of a thing (in this case, the credit due from a third person) by the debtor to the creditor is accepted as the

equivalent of the performance of the obligation.14

The terms of the compromise judgment, however, did not convey an intent to equate the assignment of Magdalena’s retirement benefits (the credit) as the equivalent of the payment of the debt due the spouses Serfino (the obligation). There was actually no assignment of credit; if at all, the compromise judgment merely identified the fund from which payment for the judgment debt would be sourced:

(c) That before the plaintiffs file a motion for execution of the decision or order based [on this] Compromise Agreement, the defendant, Magdalena Cortez undertake[s] and bind[s] herself to pay in full the judgment debt out of her retirement benefits as Local [T]reasury Operation Officer in the City of Bacolod, Philippines, upon which full payment, the plaintiffs waive, abandon and relinquish absolutely any of their claims for attorney’s fees stipulated in the Promissory Note (Annex "A" to the Complaint).15 [emphasis ours]

Only when Magdalena has received and turned over to the spouses Serfino the portion of her retirement benefits corresponding to the debt due would the debt be deemed paid.

In Aquitey v. Tibong,16 the issue raised was whether the obligation to pay the loan was extinguished by the execution of the deeds of assignment. The Court ruled in the affirmative, given that, in the deeds involved, the respondent (the debtor) assigned to the petitioner (the creditor) her credits "to make good" the balance of her obligation; the parties agreed to relieve the respondent of her obligation to pay

the balance of her account, and for the petitioner to collect the same from the respondent’s debtors.17 The Court concluded that the respondent’s obligation to pay the balance of her accounts with the petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by the respondent in favor of the petitioner.18

In the present case, the judgment debt was not extinguished by the mere designation in the compromise judgment of Magdalena’s retirement benefits as the fund from which payment shall be sourced. That the compromise agreement authorizes recourse in case of default on other executable properties of the spouses Cortez, to satisfy the judgment debt, further supports our conclusion that there was no assignment of Magdalena’s credit with the GSIS that would have extinguished the obligation.

The compromise judgment in this case also did not give the supposed assignees, the spouses Serfino, the power to enforce Magdalena’s credit against the GSIS. In fact, the spouses Serfino are prohibited from enforcing their claim until after the lapse of one (1) week from Magdalena’s receipt of her retirement benefits:

(d) That the plaintiffs shall refrain from having the judgment based upon this Compromise Agreement executed until after one (1) week from receipt by the defendant, Magdalena Cortez of her retirement benefits from the [GSIS] but fails to pay within the said period the defendants’ judgment debt in this case, in which case [this] Compromise Agreement [may be] executed upon any property of the defendants that are subject to execution upon motion by the plaintiffs.19

An assignment of credit not only entitles the assignee to the credit itself, but also gives him the power to enforce it as against the debtor of the assignor.

Since no valid assignment of credit took place, the spouses Serfino cannot validly claim ownership of the retirement benefits that were deposited with FEBTC. Without ownership rights over the amount, they suffered no pecuniary loss that has to be compensated by actual damages. The grant of actual damages presupposes that the claimant suffered a duly proven pecuniary loss.20

Claim for moral damages not meritorious because no duty exists on the part of the bank to protect interest of third person claiming deposit in the name of another

Under Article 2219 of the Civil Code, moral damages are recoverable for acts referred to in Article 21 of the Civil Code.21 Article 21 of the Civil Code, in conjunction with Article 19 of the Civil Code, is part of the cause of action known in this jurisdiction as "abuse of rights." The elements of abuse of rights are: (a) there is a legal right or duty; (b) exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another.1âwphi1

The spouses Serfino invoke American common law that imposes a duty upon a bank receiving a notice of adverse claim to the fund in a depositor’s account to freeze the account for a reasonable length of time, sufficient to allow the adverse claimant to institute legal proceedings to enforce his right to the fund.22 In other words, the bank has a duty not to release the deposits unreasonably early after a third party makes known his adverse claim to the bank deposit. Acknowledging that no such duty is imposed by law in this jurisdiction, the spouses Serfino ask the Court to adopt this foreign rule.23

To adopt the foreign rule, however, goes beyond the power of this Court to promulgate rules governing pleading, practice and procedure in all courts.24 The rule reflects a matter of policy that is better addressed by the other branches of government, particularly, the Bangko Sentral ng Pilipinas, which is the agency that supervises the operations and activities of banks, and which has the power to issue "rules of conduct or the establishment of standards of operation for uniform application to all institutions or functions covered[.]"25 To adopt this rule will have significant implications on the banking industry and practices, as the American experience has shown. Recognizing that the rule imposing duty on banks to freeze the deposit upon notice of adverse claim adopts a policy adverse to the bank and its functions, and opens it to liability to both the depositor and the adverse claimant,26 many American states have since adopted adverse claim statutes that shifted or, at least, equalized the burden. Essentially, these statutes do not impose a duty on banks to freeze the deposit upon a mere notice of adverse claim; they

first require either a court order or an indemnity bond.27

In the absence of a law or a rule binding on the Court, it has no option but to uphold the existing policy that recognizes the fiduciary nature of banking. It likewise rejects the adoption of a judicially-imposed rule giving third parties with unverified claims against the deposit of another a better right over the deposit. As current laws provide, the bank’s contractual relations are with its depositor, not

with the third party;28 "a bank is under obligation to treat the accounts of its depositors with meticulous care and always to have in mind the fiduciary nature of its relationship with them."29 In the absence of any positive duty of the bank to an adverse claimant, there could be no breach that entitles the latter to moral damages.

WHEREFORE, in view of the foregoing, the petition for review on certiorari is DENIED, and the decision dated February 23, 2006 of the Regional Trial Court of Bacolod City, Branch 41, in Civil Case No. 95-9344 is AFFIRMED. Costs against the petitioners.

SO ORDERED.

G.R. No. 174665 September 18, 2013

PHILIPPINE RECLAMATION AUTHORITY (Formerly known as the PUBLIC ESTATES AUTHORITY), Petitioner,vs.

ROMAGO, INCORPORATED, Respondent.

x-----------------------x

G.R. No. 175221

ROMAGO, INCORPORATED, Petitioner,vs.PHILIPPINE RECLAMATION AUTHORITY (Formerly known as the PUBLIC ESTATES AUTHORITY), Respondent.

DECISION

ABAD, J.:

These cases pertain to the defense of novation by virtue of the debtor’s assignment to a third party of its contractual liability to the creditor.

The Facts and the Case

In order to convert former military reservations and installations to productive use and raise funds out of the sale of portions of the country’s military camps,1 in 1992 Congress enacted Republic Act 7227,2 creating the Bases Conversion and Development Authority (BCDA). Pursuant to this law, the President issued Executive Order 40,3 Series of 1992, setting aside portions of Fort Bonifacio in Taguig, Metro Manila, for the Heritage Park Project, aimed at converting a 105-hectare land into a world class memorial park for the purpose of generating funds for the BCDA.4

On August 9, 1993 the BCDA entered into a Memorandum of Agreement5 (MOA) with the Philippine Reclamation Authority (PRA),formerly the Public Estates Authority, designating it as the Project Manager. On September 9, 1994 the BCDA, PRA, and the Philippine National Bank (PNB) executed a Pool Formation Trust Agreement (PFTA)6 under which BCDA, as project owner, was to issue Heritage Park Investment Certificates that would evidence the holders’ right to the

perpetual use and care of specific interment plots. The PFTA designated PRA as Project Manager, tasked with the physical development of the park. The PNB was to act as trustee for the Heritage Park securitization.7

After public bidding, the PRA awarded the outdoor electrical and lighting works for the park to respondent Romago, Inc. (Romago) with which it entered into a Construction Agreement on March 18, 1996 for the contract price of P176,326,794.10.8 On receipt of the PRA’s notice to proceed,9 Romago immediately began construction works.10 Meanwhile, the parties to the PFTA organized the Heritage Park Management Corporation (HPMC) to take over the management of the project.11 On February 24, 2000 the Chairman of HPMC Board of Trustees, Mr. Rogelio L. Singson, sent a notice of termination of management to then PRA General Manager Carlos P. Doble with a demand for the turnover of the park to HPMC.12 The letter reads:

Pursuant to Article 11 of the Pool Formation Trust Agreement(PFTA), the certificate holders of the Heritage Park Management Corporation (HPMC) duly elected its Board of Trustees at the 03 January2000 meeting held at the BCDA Corporate Center. Attached is a copy of the Secretary’s Certificate attesting to said election of the HPMC Board of Trustees.

Section 11.07 of the PFTA provides that upon the election of the Board of Trustees, the PNB shall turnover to the Board all its functions and responsibilities, and all documents in its custody, including all Heritage Park Accounts, except the General Fund, which will go to BCDA. Upon such turnover and upon the complete and faithful performance by PNB and [PRA] of their respective obligations under this Agreement, the respective obligations of [PRA] and PNB under this Agreement shall be deemed terminated.

[PRA] shall turnover to the Board of Trustees all the documents and equipment it has in its possession relating to the Project and the Park, including the computer hardware and software pertaining to the geographical information system of the Park."

Pursuant to the foregoing provision, we hereby formally advise you of the termination of [PRA’s] obligations, duties and responsibilities as Project Manager under the PFTA, effective upon receipt of this letter. We also formally request for [PRA] to turn over, within fifteen (15) days from receipt of this letter, the

documents and equipment relating to the Heritage Park Project, including the computer hardware and software in [PRA’s] possession pertaining to the geographical information system of the Park.13

The PRA lost no time in informing Romago of the consequent termination of its services. Thus, it wrote

Romago a letter14 on March 13,2000:

As a consequence of the assumption of functions, duties and responsibilities by the Heritage Park Management Corporation, as provided for under the provisions of the Pool Formation Trust Agreement, we are constrained to assign the Electrical Works contract entered with you on March 18, 1996 including all supplemental agreements relative thereto, effective March 18, 2000 in favor of the Heritage Park Management Corporation. The formal turnover on March 17, 2000 by[PRA] to the Heritage Park Management Corporation of all its obligations, duties and responsibilities, and all documents relating to the Heritage Park Project, was made pursuant to the attached letter of the Chairman of HPMC Board of Trustees, Mr. Rogelio L. Singson to the [PRA], received by us on March 02, 2000.

By virtue of this assignment, all the contractual functions, responsibilities and liabilities, if any, as well as any cause of action for or against [PRA] shall hereafter accrue to and devolve upon the assignee hereof.

Please be guided accordingly.15

Because the HPMC refused to recognize the PRA’s contract with it, on March 17, 2004 Romago filed with the Construction Industry Arbitration Commission (CIAC) a complaint,16 docketed as CIAC Case 18-2004,seeking to collect its claims totaling P24,467,621.64, plus interest from the PRA, HPMC, and Rosehills Memorial Management (Phils.), Inc. (RMMI). Romago claimed that it won the bidding for the construction of the electrical and lighting facilities at the Heritage Park for P181,779,800.0017 but PRA deducted 3% from the bid amount, reducing the contract price toP176,326,794.10.18

Because of problems encountered with illegal settlers, only around 60of the 105-hectare park was delivered to Romago for lighting work, reducing the contract price to P101,083,636.16.19 But this amount was adjusted to P109,330,032.81 due

to PRA variation orders.20 Although Romago completed 96.15% of the works, it claimed that the PRA paid it onlyP82,929,577.22 instead of the P105,120,826.50 due it.21 Romago also claimed that it should be reimbursed the P9,336,054.15 retention money that it posted since its services had already been terminated and since it had substantially completed the Heritage Park Project.22

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

Romago admitted, however, owing the PRA P15,475,835.42 in unrecouped prepaid materials and P12,286,795.12 in unrecouped down payment.26

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

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

For its part, RMMI averred that it was merely the undertaker at the Heritage Park,

tasked with providing services for embalming, burial, cremation, and other activities for the care of the dead.29

On July 22, 2004 the CIAC issued an order dropping RMMI as respondent but denying the HPMC’s motion to dismiss the case against it.30 The HPMC elevated the CIAC order to the Court of Appeals (CA) by special civil action of certiorari and prohibition in CA-G.R. SP 86342.

Meantime, after due proceedings, on October 22, 2004 the CIAC rendered a decision,31 holding the PRA and the HPMC jointly and severally liable to Romago for the following amounts:

The unpaid balance of the 96.15%accomplishment ----------------------------------------------------- ---------- P22,191,249.38Interest from 15 May 2002 to 31January 2004 at 6% per annum --------------------------------- ----------- 2,276,372.31Plus:

. 1.1.1 – Retention Charges ----------------

. 1.1.2 – Price Escalation -------------------

. 1.1.3 – Damages for Closure of Area --

. 1.1.4 – Reimbursement for Pro-rata

discount ----------------------------

1.1.5 – Damages 420,944.02

(not entitled) Stoppage

of

Works

for P18,575,031.25

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

--------------------------------------- ----------- 27,762,642.54

Actual Damages Due --------------------------

P15,280,012.35 Plus:

Additional 6% interest from February 1, 2004to August 31, 2004 on the P15,280,012.35 ------------------ ----------- 534,800.43Costs of Arbitration:

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

Administrative Fee -------Arbitrator’s Fees ----------ADF -------------------------Total Cost of Arbitration -----------------------

P396,608.73Total Award --------------------------------------

P16,211,421.51 32

Not satisfied with the CIAC decision, the PRA filed a petition for review of the same with the CA in CA-G.R. SP 88059.

Meantime on February 18, 2005 the CA rendered a Decision in CA-G.R. SP 86342, dismissing Romago’s complaint before the CIAC against the HPMC on the ground that the latter did not have an arbitration agreement with Romago.33

On December 20, 2005 the CA rendered a Decision34 in CA-G.R. SP88059, the main case, finding that the unpaid accomplishment of Romago should be reduced from P22,191,249.33 to P18,641,208.89, and that interests on the damages awarded to Romago arising from the reduction in project area and on its unpaid accomplishment from May 15, 2002 to January 31, 2004 should be deleted, therefore entitling it to actual damages in the amount of P8,935,673.8635 plus interest from February 1, 2004 to August 31, 2004 and the costs of arbitration.

The CA rejected the PRA’s argument that it can no longer be held liable to Romago after turning over and assigning the project, including all its duties and obligations relating to it, to the HPMC. Romago was not a party to the PFTA and it did not give consent to the PRA’s supposed assignment of its obligations to the HPMC.

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

The Issues Presented

These consolidated cases present the following issues:

1. Whether or not the CA erred in holding the PRA still liable to Romago under the Construction Agreement despite the subsequent turnover of the Heritage Park Project to the HPMC; and

2. Whether or not the CA erred in reducing the CIAC award for actual damages to Romago to just P8,935,673.86.

The Rulings of the Court

The PRA claims that its liability under its contract with Romago had been extinguished by novation when it assigned all its obligations to the HPMC pursuant to the provisions of the PFTA. The PRA insists that the CA erroneously applied to the case the 2001 ruling of the Court in Public Estates Authority v. Uy37 that also involved the Heritage Park Project. Uy dealt only with the PRA and the HPMC came into the picture only after the case has been filed. Here, while Romago first dealt with the PRA, it eventually dealt with the HPMC before the construction company can finish the contracted works, evidencing novation of parties.

In novation, a subsequent obligation extinguishes a previous one through substitution either by changing the object or principal conditions, by substituting another in place of the debtor, or by subrogating a third person into the rights of the creditor.38 Novation requires (a) the existence of a previous valid obligation; (b) the agreement of all parties to the new contract; (c) the extinguishment of the old contract; and (d) the validity of the new one.39

There cannot be novation in this case since the proposed substituted parties did not agree to the PRA’s supposed assignment of its obligations under the contract for the electrical and light works at Heritage Park to the HPMC. The latter definitely and clearly rejected the PRA’s assignment of its liability under that contract to the

HPMC. Romago tried to follow up its claims with the HPMC, not because of any new contract it entered into with the latter, but simply because the PRA told it that the HPMC would henceforth assume the PRA’s liability under its contract with Romago.1âwphi1

Besides, Section 11.07 of the PFTA makes it clear that the termination of the PRA’s obligations is conditioned upon the turnover of documents, equipment, computer hardware and software on the geographical information system of the Park; and the completion and faithful performance of its respective duties and responsibilities under the PFTA. More importantly, Section 11.07 did not say that the HPMC shall, thereafter, assume the PRA’s obligations. On the contrary, Section 7.01 of the PFTA recognizes that contracts that the PRA entered into in its own name and makes it liable for the same. Thus:

Section 7.01. Liability of BCDA and [PRA]. BCDA and [PRA]shall be liable in accordance herewith only to the extent of the obligations specifically undertaken by BCDA and [PRA] herein and any other documents or agreements relating to the Project, and in which they are parties.40

Romago claims that the CA award should be increased toP13,598,139.24 based on the detailed account of expenses and cash payments as of December 31, 2005 that it submitted. But the Court cannot agree. Engineer J. R. Milan testified that Romago received P86,479,617.61 out of P105,120,826.50 worth of work that it accomplished, thereby leaving a deficiency of only P18,641,208.89. Thus:

ATTY. S.B. GARCIA:

Mr. Witness, from the time you became the Project Manager of Heritage Park Project up to the time it turned over its responsibilities to HPMC, can you recall how much [PRA] already paid to Romago? You can refer to any documents we have now with you for recollection.

ENGR. J.R. MILLAN:

Based on progress Report No. 50, which was submitted by the Managing Consultant of Robert Espiritu, the accomplishment as of February 29, 2000, the amount disbursed as of Billing no. 14A isP86,479,617.61.

ATTY. S.B. GARCIA:

What document again are you referring to, Mr. Witness?

ENGR. J.R. MILLAN:This is a Progress Report dated March 8, 2000 addressed to the [Philippine Reclamation Authority], Progress Report No. 50 submitted by Mr. Roberto Espiritu.

ATTY. S.B. GARCIA: And the one where the P86,479,617.61, the document which reflects that amount, that is what the document?

ENGR. J.R. MILLAN:

This is the attachment to the accomplishment of Romago kasi the Managing Consultant who made the report, they were the ones computing the accomplishments of the contractors. All the contractors in the project, bale ito yong report nila . For Romago, ito yong report niya as of February29, 2000.

ATTY. S.B. GARCIA:

Your Honor, please, may I request that this accomplishment report as February 29, 2000 for outdoor electrical and lighting works be marked as our exhibit "R- 2-10."41

Had the above testimony been untrue, Romago should have refuted the same considering that it had every opportunity to do so. On the contrary, it even adopted the same document as its own exhibit.42 In effect, Romago conceded the correctness of the PRA’s valuation of the balance due it.

In keeping with this Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,43 the Court deems it proper to impose legal interest of 6% per annum on the amount finally adjudged, reckoned from October 22,2004, the date the CIAC rendered judgment until the same is wholly satisfied.44

WHEREFORE , the Court AFFIRMS the Decision dated December 20, 2005 and Resolution dated August 24, 2006 of the Court of Appeals in CA-G.R. SP 88059 with MODIFICATION , directing the Philippine Reclamation Authority to pay Romago in addition to the P8,935,673.86award of actual damages, legal interest of 6% per

annum from October 22,2004 until the judgment against it is wholly paid; and the costs of arbitration in the amount of P396,608.73.

SO ORDERED.

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

DECISION

BERSAMIN, J.:

In a sale with right to repurchase, title and ownership of the property sold are immediately vested in the vendee, subject to the resolutory condition of repurchase by the vendor within the stipulated period.

The Case

Under review at the defendant's instance is the decision promulgated on October 10, 2003,1 whereby the Court of Appeals (CA) affirmed the judgment rendered on December 5, 2001 by the Regional Trial Court (RTC), Branch 61, in Baguio City ordering him to return to the plaintiff the motor vehicle and trailer subject of the complaint, or to pay their value of P500,000.00 should the return not be effected, and to pay the plaintiff P20,000.00 as litigation expenses, P50,000.00 as attorney's fees, and the costs of suit.2

Antecedents

Respondent Eduardo C. David (Eduardo) initiated this replevin suit against Roberto R. David (Roberto), his first cousin and former business partner, to recover the possession of one unit of International CO 9670 Truck Tractor and Mi-Bed Trailer.

It appears that on July 7, 1995, Eduardo and his brother Edwin C. David (Edwin), acting on their own and in behalf of their co-heirs, sold their inherited properties to Roberto, specifically: (a) a parcel of land with an area of 1,231 square meters, together with all the improvements existing thereon, located in Baguio City and covered by Transfer Certificate of Title No. T-22983 of the Registry of Deeds of Baguio City (Baguio City lot); and (b) two units International CO 9670 Truck Tractor with two Mi- Bed Trailers.3 A deed of sale with assumption of mortgage (deed of sale)4 embodied the terms of their agreement, stipulating that the consideration

for the sale was P6,000,000.00, of which P2,000,000 was to be paid to Eduardo and Edwin, and the remaining P4,000,000.00 to be paid to Development Bank of the Philippines (DBP) in Baguio City to settle the outstanding obligation secured by a mortgage on such properties. The parties further agreed to give Eduardo and Edwin the right to repurchase the properties within a period of three years from the execution of the deed of sale based on the purchase price agreed upon, plus 12% interest per

annum.

In April 1997, Roberto and Edwin executed a memorandum of agreement (MOA)5 with the Spouses Marquez and Soledad Go (Spouses Go), by which they agreed to sell the Baguio City lot to the latter for a consideration of P10,000,000.00. The MOA stipulated that "in order to save payment of high and multiple taxes considering that the x x x subject matter of this sale is mortgaged with DBP, Baguio City, and sold [to Roberto], Edwin will execute the necessary Deed of Absolute Sale in favor of [the Spouses Go], in lieu of [Roberto]."6 The Spouses Go then deposited the amount of P10,000,000.00 to Roberto’s account.7

After the execution of the MOA, Roberto gave Eduardo P2,800,000.00 and returned to him one of the truck tractors and trailers subject of the deed of sale. Eduardo demanded for the return of the other truck tractor and trailer, but Roberto refused to heed the demand.

Thus, Eduardo initiated this replevin suit against Roberto, alleging that he was exercising the right to repurchase under the deed of sale; and that he was entitled to the possession of the other motor vehicle and trailer.

In his answer, Roberto denied that Eduardo could repurchase the properties in question; and insisted that the MOA had extinguished their deed of sale by novation.

Judgment of the RTC

On December 5, 2001,8 the RTC rendered judgment in favor of Eduardo, holding that the stipulation giving Eduardo the right to repurchase had made the deed of sale a conditional sale; that Eduardo had fulfilled the conditions for the exercise of the right to repurchase; that the ownership of the properties in question had

reverted to Eduardo; that Roberto’s defense of novation had no merit; and that due to Roberto’s bad faith in refusing to satisfy Eduardo’s claim, Eduardo should be awarded litigation expenses and attorney’s fees. The dispositive portion of the judgment reads:

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against the defendant ORDERING the latter to return to the former the motor vehicle and trailer subject matter of the case or to pay its value in the amount of P500,000 in case manual delivery can not be effected; to pay plaintiff the amount of P20,000 as litigation expenses; the amount of P50,000 as attorney's fees and the costs of this suit.

SO ORDERED.9Roberto appealed to the CA. Ruling of the CA

On October 10, 2003,10 the CA promulgated its decision affirming the RTC. It opined that although there was no express exercise of the right to repurchase, the sum of all the relevant circumstances indicated that there was an exercise of the right to repurchase pursuant to the deed of sale, that the findings of the RTC to the effect that the conditions for the exercise of the right to repurchase had been adequately satisfied by Eduardo, and that no novation as claimed by Roberto had intervened.

On February 16, 2004,11 the CA denied Roberto’s motion for reconsideration.12

Hence, this petition for review on certiorari.

Issues

Roberto seeks a reversal, claiming that the CA erred:

x x x IN HOLDING THAT THE RESPONDENT HAS EXERCISED THEIR RIGHT TO REPURCHASE;

x x x IN HOLDING THAT THERE WAS NO NOVATION OF THE DEED OF SALE WITH ASSUMPTION OF MORTGAGE WHEN THE PARTIES EXECUTED A MEMORANDUM OF AGREEMENT FOR THE SALE OF THE SUBJECT HOUSE AND LOT AND, THEREAFTER SOLD THE SAID PROPERTY TO THIRD PERSONS;

x x x IN RESOLVING THE INSTANT CASE IN FAVOR OF RESPO[N]DENT.13

Ruling of the Court

The petition for review has no merit.

A sale with right to repurchase is governed by Article 1601 of the Civil Code, which provides that: "Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon." Conformably with Article 1616,14 the seller given the right to repurchase may exercise his right of redemption by paying the buyer: (a) the price of the sale, (b) the expenses of the contract, (c) legitimate payments made by reason of the sale, and (d) the necessary and useful expenses made on the thing sold.

The deed of sale entered into by Eduardo and Roberto contained the following stipulation on the right to repurchase, to wit:

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

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

The CA and the RTC both found and held that Eduardo had complied with the conditions stipulated in the deed of sale and prescribed by Article 1616 of the Civil Code. Pertinently, the CA stated:

It should be noted that the alleged repurchase was exercised within the stipulated period of three (3) years from the time the Deed of Sale with Assumption of Mortgage was executed. The only question now, therefore, which remains to be resolved is whether or not the conditions set forth in the Deed of Sale with Assumption of Mortgage, i.e. the tender of the purchase price previously agreed

upon, which is Php2.0 Million, plus 12% interest per annum, and the amount paid by the defendant to DBP, had been satisfied.

From the testimony of the defendant himself, these preconditions for the exercise of plaintiff's right to repurchase were adequately satisfied by the latter. Thus, as stated, from the Php10 Million purchase price which was directly paid to the defendant, the latter deducted his expenses plus interests and the loan, and the remaining amount he turned over to the plaintiff. This testimony is an unequivocal acknowledgement from defendant that plaintiff and his co-heirs exercised their right to repurchase the property within the agreed period by satisfying all the conditions stipulated in the Deed of Sale with Assumption of Mortgage. Moreover, defendant returned to plaintiff the amount of Php2.8 Million from the total purchase price of Php10.0 Million. This only means that this is the excess amount pertaining to plaintiff and co-heirs after the defendant deducted the repurchase price of Php2.0 Million plus interests and his expenses. Add to that is the fact that defendant returned one of the trucks and trailers subject of the Deed of Sale with Assumption of Mortgage to the plaintiff. This is, at best, a tacit acknowledgement of the defendant that plaintiff and his co-heirs had in fact exercised their right to repurchase.16 x x x

Considering that the factual findings of the trial court, when affirmed by the CA, are binding on the Court,17 the Court affirms the judgment of the CA upholding Eduardo’s exercise of the right of repurchase. Roberto could no longer assail the factual findings because his petition for review on certiorari was limited to the review and determination of questions of law only. A question of law exists when the doubt centers on what the law is on a certain set of undisputed facts, while a question of fact exists when the doubt centers on the truth or falsity of the alleged facts.18 Whether the conditions for the right to repurchase were complied with, or whether there was a tender of payment, is a question of fact. With both the RTC and the CA finding and holding that Eduardo had fulfilled the conditions for the exercise of the right to repurchase, therefore, we conclude that Eduardo had effectively repurchased the properties subject of the deed of sale.

In Metropolitan Bank and Trust Company v. Tan,19 the Court ruled that a redemption within the period allowed by law is not a matter of intent but of payment or valid tender of the full redemption price within the period. Verily, the tender of payment is the seller’s manifestation of his desire to repurchase the property with the offer of immediate performance.20 As we stated in Legaspi v. Court of Appeals,21 a sincere tender of payment is sufficient to show the exercise

of the right to repurchase. Here, Eduardo paid the repurchase price to Roberto by depositing the proceeds of the sale of the Baguio City lot in the latter’s account. Such payment was an effective exercise of the right to repurchase.

On the other hand, the Court dismisses as devoid of merit Roberto’s insistence that the MOA had extinguished the obligations established under the deed of sale by novation.

The issue of novation involves a question of fact, as it necessarily requires the factual determination of the existence of the various requisites of novation, namely: (a) there must be a previous valid obligation; (b) the parties concerned must agree to a new contract; (c) the old contract must be extinguished; and (d) there must be a valid new contract.22 With both the RTC and the CA concluding that the MOA was consistent with the deed of sale, novation whereby the deed of sale was extinguished did not occur. In that regard, it is worth repeating that the factual findings of the lower courts are binding on the Court.

In sales with the right to repurchase, the title and ownership of the property sold are immediately vested in the vendee, subject to the resolutory condition of repurchase by the vendor within the stipulated period.23 Accordingly, the ownership of the affected properties reverted to Eduardo once he complied with the condition for the repurchase, thereby entitling him to the possession of the other motor vehicle with trailer.

WHEREFORE, the Court AFFIRMS the decision promulgated on October 10, 2003; and ORDERS the petitioner to pay the costs of suit.

SO ORDERED.