Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-29981 April 30, 1971

EUSEBIO S. MILLAR, petitioner,

vs.
THE HON. COURT OF APPEALS and ANTONIO P. GABRIEL, respondents.

Fernandez Law Office and Millar and Esguerra for petitioner.

Francisco de la Fuente for respondents.

CASTRO, J.:

On February 11, 1956, Eusebio S. Millar (hereinafter referred to as the petitioner) obtained a
favorable judgment from the Court of First Instance of Manila, in civil case 27116, condemning
Antonio P. Gabriel (hereinafter referred to as the respondent) to pay him the sum of P1,746.98 with
interest at 12% per annum from the date of the filing of the complaint, the sum of P400 as attorney's
fees, and the costs of suit. From the said judgment, the respondent appealed to the Court of Appeals
which, however, dismissed the appeal on January 11, 1957.

Subsequently, on February 15, 1957, after remand by the Court of Appeals of the case, the petitioner
moved ex parte in the court of origin for the issuance of the corresponding writ of execution to
enforce the judgment. Acting upon the motion, the lower court issued the writ of execution applied
for, on the basis of which the sheriff of Manila seized the respondent's Willy's Ford jeep (with motor
no. B-192297 and plate no. 7225, Manila, 1956).

The respondent, however, pleaded with the petitioner to release the jeep under an arrangement
whereby the respondent, to secure the payment of the judgement debt, agreed to mortgage the
vehicle in favor of the petitioner. The petitioner agreed to the arrangement; thus, the parties, on
February 22, 1957, executed a chattel mortgage on the jeep, stipulating, inter alia, that

This mortgage is given as security for the payment to the said EUSEBIO S. MILLAR,
mortgagee, of the judgment and other incidental expenses in Civil Case No. 27116 of
the Court of First Instance of Manila against Antonio P. Gabriel, MORTGAGOR, in
the amount of ONE THOUSAND SEVEN HUNDRED (P1,700.00) PESOS, Philippine
currency, which MORTGAGOR agrees to pay as follows:
 March 31, 1957 EIGHT HUNDRED FIFTY (P850) PESOS;

April 30, 1957 EIGHT HUNDRED FIFTY (P850.00) PESOS.

Upon failure of the respondent to pay the first installment due on March 31, 1957, the petitioner
obtained an alias writ of execution. This writ which the sheriff served on the respondent only on May
30, 1957 after the lapse of the entire period stipulated in the chattel mortgage for the respondent
to comply with his obligation was returned unsatisfied.

So on July 17, 1957 and on various dates thereafter, the lower court, at the instance of the petitioner,
issued several alias writs, which writs the sheriff also returned unsatisfied. On September 20, 1961,
the petitioner obtained a fifth alias writ of execution. Pursuant to this last writ, the sheriff levied on
certain personal properties belonging to the respondent, and then scheduled them for execution
sale.

However, on November 10, 1961, the respondent filed an urgent motion for the suspension of the
execution sale on the ground of payment of the judgment obligation. The lower court, on November
11, 1961, ordered the suspension of the execution sole to afford the respondent the opportunity to
prove his allegation of payment of the judgment debt, and set the matter for hearing on November
25, 1961. After hearing, the lower court, on January 25, 1962, issued an order the dispositive portion
of which reads:

IN VIEW WHEREOF, execution reiterated for P1,700.00 plus costs of execution.

The lower court ruled that novation had taken place, and that the parties had executed the chattel
mortgage only "to secure or get better security for the judgment.

The respondent duly appealed the aforesaid order to the Court of Appeals, which set aside the order
of execution in a decision rendered on October 17, 1968, holding that the subsequent agreement of
the parties impliedly novated the judgment obligation in civil case 27116.

The appellate court stated that the following circumstances sufficiently demonstrate the
incompatibility between the judgment debt and the obligation embodied in the deed of chattel
mortgage, warranting a conclusion of implied novation:

1. Whereas the judgment orders the respondent to pay the petitioner the sum of P1,746.98 with
interest at 12% per annum from the filing of the complaint, plus the amount of P400 and the costs of
suit, the deed of chattel mortgage limits the principal obligation of the respondent to P1,700;

2. Whereas the judgment mentions no specific mode of payment of the amount due to the petitioner,
the deed of chattel mortgage stipulates payment of the sum of P1,700 in two equal installments;

3. Whereas the judgment makes no mention of damages, the deed of chattel mortgage obligates the
respondent to pay liquidated damages in the amount of P300 in case of default on his part; and
4. Whereas the judgment debt was unsecured, the chattel mortgage, which may be foreclosed
extrajudicially in case of default, secured the obligation.

On November 26, 1968, the petitioner moved for reconsideration of the appellate court's decision,
which motion the Court of Appeals denied in its resolution of December 7, 1968. Hence, the present
petition for certiorari to review the decision of the Court of Appeals, seeking reversal of the appellate
court's decision and affirmance of the order of the lower court.

Resolution of the controversy posed by the petition at bar hinges entirely on a determination of
whether or not the subsequent agreement of the parties as embodied in the deed of chattel
mortgage impliedly novated the judgment obligation in civil case 27116. The Court of Appeals, in
arriving at the conclusion that implied novation has taken place, took into account the four
circumstances heretofore already adverted to as indicative of the incompatibility between the
judgment debt and the principal obligation under the deed of chattel mortgage.

1. Anent the first circumstance, the petitioner argues that this does not constitute a circumstance in
implying novation of the judgment debt, stating that in the interim from the time of the rendition of
the judgment in civil case 27116 to the time of the execution of the deed of chattel mortgage the
respondent made partial payments, necessarily resulting in the lesser sum stated in the deed of
chattel mortgage. He adds that on record appears the admission by both parties of the partial
payments made before the execution of the deed of chattel mortgage. The erroneous conclusion
arrived at by the Court of Appeals, the petitioner argues, creates the wrong impression that the
execution of the deed of chattel mortgage provided the consideration or the reason for the reduced
judgment indebtedness.

Where the new obligation merely reiterates or ratifies the old obligation, although the former effects
but minor alterations or slight modifications with respect to the cause or object or conditions of he
latter, such changes do not effectuate any substantial incompatibility between the two obligations
Only those essential and principal changes introduced by the new obligation producing an alteration
or modification of the essence of the old obligation result in implied novation. In the case at bar, the
mere reduction of the amount due in no sense constitutes a sufficient indictum of incompatibility,
especially in the light of (a) the explanation by the petitioner that the reduced indebtedness was the
result of the partial payments made by the respondent before the execution of the chattel mortgage
agreement and (b) the latter's admissions bearing thereon.

At best, the deed of chattel mortgage simply specified exactly how much the respondent still owed
the petitioner by virtue of the judgment in civil case 27116. The parties apparently in their desire to
avoid any future confusion as to the amounts already paid and as to the sum still due, decoded to
state with specificity in the deed of chattel mortgage only the balance of the judgment debt properly
collectible from the respondent. All told, therefore, the first circumstance fails to satisfy the test of
substantial and complete incompatibility between the judgment debt an the pecuniary liability of the
respondent under the chattel mortgage agreement.

2. The petitioner also alleges that the third circumstance, considered by the Court of Appeals as
indicative of incompatibility, is directly contrary to the admissions of the respondent and is without
any factual basis. The appellate court pointed out that while the judgment made no mention of
payment of damages, the deed of chattel mortgage stipulated the payment of liquidated damages in
the amount of P300 in case of default on the part of the respondent.

However, the petitioner contends that the respondent himself in his brief filed with the Court of
Appeals admitted his obligation, under the deed of chattel mortgage, to pay the amount of P300 by
way of attorney's fees and not as liquidated damages. Similarly, the judgment makes mention of the
payment of the sum of P400 as attorney's fees and omits any reference to liquidated damages.

The discrepancy between the amount of P400 and tile sum of P300 fixed as attorney's fees in the
judgment and the deed of chattel mortgage, respectively, is explained by the petitioner, thus: the
partial payments made by the respondent before the execution of the chattel mortgage agreement
were applied in satisfaction of part of the judgment debt and of part of the attorney's fee fixed in the
judgment, thereby reducing both amounts.

At all events, in the absence of clear and convincing proof showing that the parties, in stipulating the
payment of P300 as attorney's fees in the deed of chattel mortgage, intended the same as an
obligation for the payment of liquidated damages in case of default on the part of the respondent, we
find it difficult to agree with the conclusion reached by the Court of Appeals.

3. As to the second and fourth circumstances relied upon by the Court of Appeals in holding that the
montage obligation superseded, through implied novation, the judgment debt, the petitioner points
out that the appellate court considered said circumstances in a way not in accordance with law or
accepted jurisprudence. The appellate court stated that while the judgment specified no mode for the
payment of the judgment debt, the deed of chattel mortgage provided for the payment of the amount
fixed therein in two equal installments.

On this point, we see no substantial incompatibility between the mortgage obligation and the
judgment liability of the respondent sufficient to justify a conclusion of implied novation. The
stipulation for the payment of the obligation under the terms of the deed of chattel mortgage serves
only to provide an express and specific method for its extinguishment payment in two equal
installments. The chattel mortgage simply gave the respondent a method and more time to enable
him to fully satisfy the judgment indebtedness. 1 The chattel mortgage agreement in no manner
introduced any substantial modification or alteration of the judgment. Instead of extinguishing the
obligation of the respondent arising from the judgment, the deed of chattel mortgage expressly ratified
and confirmed the existence of the same, amplifying only the mode and period for compliance by the
respondent.

The Court of Appeals also considered the terms of the deed of chattel mortgage incompatible with
the judgment because the chattel mortgage secured the obligation under the deed, whereas the
obligation under the judgment was unsecured. The petitioner argues that the deed of chattel
agreement clearly shows that the parties agreed upon the chattel mortgage solely to secure, not the
payment of the reduced amount as fixed in the aforesaid deed, but the payment of the judgment
obligation and other incidental expenses in civil case 27116.

The unmistakable terms of the deed of chattel mortgage reveal that the parties constituted the
chattel mortgage purposely to secure the satisfaction of the then existing liability of the respondent
arising from the judgment against him in civil case 27116. As a security for the payment of the
judgment obligation, the chattel mortgage agreement effectuated no substantial alteration in the
liability of the respondent.

The defense of implied novation requires clear and convincing proof of complete incompatibility
between the two obligations. 2 The law requires no specific form for an effective novation by implication.
The test is whether the two obligations can stand together. If they cannot, incompatibility arises, and the
second obligation novates the first. If they can stand together, no incompatibility results and novation does
not take place.

We do not see any substantial incompatibility between the two obligations as to warrant a finding of
an implied novation. Nor do we find satisfactory proof showing that the parties, by explicit terms,
intended the full discharge of the respondent's liability under the judgment by the obligation assumed
under the terms of the deed of chattel mortgage so as to justify a finding of express novation.

ACCORDINGLY, the decision of the Court of Appeals of October 17, 1968 is set aside, and the order
of the Court of First Instance of Manila of January 25, 1962 is affirmed, at respondent Antonio
Gabriel's cost.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-25897 August 21, 1976

AGUSTIN DORMITORIO and LEONCIA D. DORMITORIO, petitioner

vs.
HONORABLE JOSE FERNANDEZ, Judge of the Court of First Instance of Negros Occidental,
Branch Bacolod City, and SERAFIN LAZALITA, respondents.

Graciano H. Arinday, Jr. for petitioners.

Antonio L. Balinas for respondent.

FERNANDO, Acting C.J.:

The filing of this suit for certiorari could have been avoided had there full awareness by petitioners of
the legal import and significance of a later decision involving the parties. If such were the case, they
would have realized that no grave abuse of discretion, no abuse of discretion for that matter, could
be imputed to respondent Judge for issuing the challenged order, 1 setting aside a writ of execution
conformably to a petition for relief by private respondent Serafin Lazalita. 2 Insofar as pertinent, it is
worded thus: "That the above-mentioned order of Execution to be set aside is based on the decision of
the Honorable Court dated September 5, 1961 in the above-entitled case which is no longer enforceable,
and executory by virtue of the "Agreed Stipulation of Facts" entered into by the Plaintiffs and Defendants
in Civil Case No. 6553, and which said "Agreed Stipulation of Facts" was the basis for the judgment of the
Honorable Court dated February 12, 1965. That the parties and subject matter in Civil Case No. 5111 and
Civil Case No. 6553 are the same except that the plaintiffs in Civil Case No. 5111 were the defendants in
Civil Case No. 6553, and vice-versa; ... That in the "Agreed Stipulation of Facts" in Civil Case No. 6553
which was the basis of the Honorable Court judgment dated February 12, 1965, it was agreed by the
defendant spouses Dormitorio, who are the plaintiffs in Civil Case No. 5111 that the defendant Serafin
Lazalita should be reimbursed for his expenses in transferring his house to another Lot to be assigned to
him by the Municipality of Victorias, and that the Decision in Civil Case No. 5111 shall not be enforced and
executed anymore; That by means of fraud, misrepresentation and concealment of the true facts of the
case, the plaintiffs were able to mislead the Honorable Court, thru an Ex-Parte Motion to issue by mistake
an Order for the issuance of a Writ of Execution by making this Honorable Court believe that the Decision
of September 5, 1961 is still enforceable and executory; ..." 3 Respondent Judge granted the relief prayed
for and set aside the writ of execution, in view of the conclusion reached by him that such later decision,
arrived at as the result of a compromise between the same parties, evidenced by the agreed stipulation of
facts, was clear proof of an animus novandi and thus superseded the previous judgment which as a result
of an ex parte motion was mistakenly ordered executed. Such a conclusion is borne out by a study of the
records of the case. certiorari does not lie.

The decision in the aforecited Civil Case No. 6553, which as contended by private respondent, a
submission that earned the approval of respondent Judge, sufficed for the lifting of the writ of
execution, pursuant to the decision in Civil Case No. 5111 deemed superseded, started with a
stipulation of facts. Thus: "When this case was called for hearing the parties submitted an Agreed
Stipulation of Facts duly signed by the parties and their respective counsel, as follows: "[Agreed
Stipulation of Facts]," Come now the parties, in the above-entitled case, represented by their
respective counsel and before this Honorable Court, respectfully submit the following agreed
stipulation of facts: 1. That the defendant Municipality of Victorias, is the owner of several parcels of
lands in Victorias, Negros Occidental, known as Lots Nos. 102 and 120 and 138 and 102-New,
which [are] consolidated and subdivided into small lots for sale to the inhabitants thereof; the lots
were sold by the Municipality, either in cash or installment for ten (10) years at [one peso] (P1.00)
per square meter; 2. That on December 7, 1948, the plaintiff Serafin Lazalita, bought from the
Municipality of Victorias, Lot No. 1, Block 16 of the consolidated-subdivision plan PCs-118 having an
area of Two Hundred Thirty (230) Square Meters, payable in installment at [one peso] (P1.00) per
square meter, and in the year 1958, upon full payment by plaintiff Lazalita of the purchase price of
the land, a deed of definite sale was executed in his favor by the then Municipal Mayor Montinola of
Victorias, Negros Occidental, and thereafter a Certificate of Title No. T-23098 covering the property,
was issued him by the Register of Deeds of Bacolod, Negros Occidental; 3. That from February 7,
1948, until about eight continuous years thereafter, plaintiff had been in full and peaceful possession
of the said land, and he introduced permanent and valuable improvements thereon, [namely] fruit
trees, like coconuts, avocados, pumelos and oranges, which have long been fruit bearing, and built a
house of strong materials, valued at P5,000.00; 4. That plaintiff Lazalita, was placed in possession of
the said Lot No. 1, Block 16 of the subdivision plan of Victorias, by the persons designated by the
Municipality to take charge of the sale of said lots to the people, and from the time, he had occupied
by same, up to the present, there has not been a change in the location thereof, as described in the
Certificate of Title covering the property, now registered in plaintiff's name; 5. That about the year
1955, however, the other co-defendants herein the spouses Agustin Dormitorio and Leoncia D.
Dormitorio, purchased also, from the defendant Municipality of Victorias, their lot known as Lot 2,
Block 16, of the same consolidation-subdivision plan PCs-118, having an area of Three Hundred
Forty-Three (343) Square meters, in cash, at [one peso) (P1.00) per square meter. Immediately
thereafter, the Dormitorios, obtained a transfer Certificate of Title known as T-18189 for their
property, from the Office of the Register of Deeds, Bacolod, Negros Occidental. However, the
spouses Dormitorio, have not taken actual possession of the land, they have purchased from the
defendant Municipality of Victorias, up to the present; 6. That on December 12, 1958, the spouses
Dormitorio, brought a suit against the plaintiff Lazalita, for Ejectment and the conflict between them
was made known to the office of the Municipal Mayor and the Council of Victorias, who tried to settle
the matter between the parties Dormitorio and Lazalita. Later, a private Land Surveyor, was hired
by the Municipality of Victorias, and it was found out, according to said Surveyor, Mr. Ceballos, that
the Lot sold by the Municipality of Victorias, to the plaintiff, was converted into the new Municipal.
Road known as "Jover Street" and that the lot presently occupied by him, is supposed to be the lot
No. 2, bought by the spouses Dormitorio from the Municipality of Victorias; and so, availing of the
said discovery, the Court of First Instance of Negros Occidental, Branch V, Presided over by Hon.
Jose F. Fernandez, rendered judgment in that case No. 5111, in favor of Dormitorio, ordering the
plaintiff herein Lazalita, to vacate the land and to pay a monthly rental of P20.00, to said Dormitorio,
besides his Attorney's fees; 7. That Lazalita, having failed to appeal from said judgment in Civil Case
No. 5111 of this Honorable Court, brought this present action, against the Municipality of Victorias,
and joined the Dormitorios, as formal parties, because of the value of his permanent improvements
and building introduced or constructed on Lot No. 2, Block 16, ascertained to be that, very lot
purchased by Dormitorio from the defendant Municipality of Victorias, which building and
improvements, have far exceed then, the original purchase price of the land; 8. That the present fair
market value of residential lots in the Poblacion of Victorias, ranges between P15.00 to P25.00 per
square meter and the lots in controversy, are saleable at present, at P20.00 per square meter; 9.
That the Municipality of Victorias, under the present administration, is willing to amicably settle the
case, now before this Honorable Court, by giving the plaintiff another lot, if they could open their
newly proposed subdivision, or pay back Lazalita the amount necessary and just for plaintiff to
acquire another lot for his residence, and for the expenses of transferring his present residential
house thereto. ....:" 4 Then, as noted in the decision, the parties did respectfully pray "that judgment be
rendered by this Honorable Court, on the basis of the foregoing agreed stipulation of facts, and on such
other basis just and equitable, without special pronouncement of costs." 5 So it was granted in the
dispositive portion of such decision: "[Wherefore], judgment is hereby rendered in accordance with the
above-mentioned Agreed Stipulation of Facts." 6

grave abuse of discretion when he set aside the writ of execution is thus clearly apparent. He had no
choice on the matter. That was made even more evident in the answer to the petition filed by
respondents. It must have been the realization by petitioners that certiorari certainly did not lie that
led to their not only failing to make an attempt at a refutation of what was asserted in the answer but
also failing to appear at the hearing when this case was set for oral argument. As noted at the
outset, this petition must be dismissed.

1. What was done by respondent Judge in setting aside the writ of execution in Civil Case No. 5111
finds support in the applicable authorities. There is this relevant excerpt in Barretta v. Lopez, 7 this
Court speaking through the then Chief Justice Paras: "Alleging that the respondent judge of the municipal
court had acted in excess of her jurisdiction and with grave abuse of discretion in issuing the writ of
execution of December 15, 1947, the petitioner has filed the present petition for certiorari and prohibition
for the purpose of having said writ of execution annulled. Said petition is meritorious. The agreement filed
by the parties in the ejectment case created as between them new rights and obligations which naturally
superseded the judgment of the municipal court." 8 In Santos v. Acua, 9 it was contended that a lower
court decision was novated by subsequent agreement of the parties. Implicit in this Court's ruling is that
such a plea would merit approval if indeed that was what the parties intended. Nonetheless, it was not
granted, for as explained by the ponente, Justice J. B. L. Reyes: "Appellants understood and expressly
agreed to be bound by this condition, when they stipulated that "they will voluntarily deliver and surrender
possession of the premises to the plaintiff in such event" ... Hence, it is plain that in no case were the
subsequent arrangements entered into with any unqualified intention to discard or replace the judgment in
favor of the plaintiff-appellee; and without such intent or animus novandi, no substitution of obligations
could possibly take place." 10 Can there be any doubt that if it could be shown, as it was in this case, that
there was such clear manifestation of will by the parties, the original decision had lost force and effect? To
ask the question is to answer it. The presence of the animus novandi is undeniable. Nor is there anything
novel in such an approach. So it was noted by then Chief Justice Concepcion in De los Santos v.
Rodriguez: 11 "As early as Molina v. De la Riva the principle has been laid down that, when, after judgment
has become final, facts and circumstances transpire which render its execution impossible or unjust, the
interested party may ask the court to modify or alter the judgment to harmonize the same with justice and
the facts" 12 Molina v. de la Riva 13 was a 1907 decision. Again, the present case is far stronger, for there is
a later decision expressly superseding the earlier one relied upon on which the writ of execution thereafter
set aside was based.

2. Nor can it be denied that as the later decision in Civil Case No. 6553 was the result of a
compromise, it had the effect of res judicata. This was made clear in Salazar v. Jarabe. 14 There are
later decisions to the same effect. 15The parties were, therefore, bound by it. There was thus an element
of bad faith when petitioners did try to evade its terms. At first, they were quite successful. Respondent
Judge, however, upon being duly informed, set matters right. He set aside the writ of execution. That was
to act in accordance with law. He is to be commended, not condemned.

3. There is no merit likewise to the point raised by petitioners that they were not informed by
respondent Judge of the petition by private respondent to set aside the writ of execution. The order
granting such petition was the subject of a motion for reconsideration. 16 The motion for
reconsideration was thereafter denied. 17 Under the circumstances, the failure to give notice to petitioners
had been cured. That is a well-settled doctrine. 18 Their complaint was that they were not heard. They
were given the opportunity to file a motion for reconsideration. So they did. That was to free the order
from the alleged infirmity. Petitioners then cannot be heard to claim that they were denied procedural due
process.

WHEREFORE, the petition for certiorari is dismissed. Costs against petitioners.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-18411 December 17, 1966

 MAGDALENA ESTATES, INC., plaintiff-appellee,
vs.
ANTONIO A. RODRIGUEZ and HERMINIA C. RODRIGUEZ, defendants-appellants.

Roxas and Sarmiento for plaintiff-appelle.

Somero, Baclig and Savello for defendants-appellants.

REGALA, J.:

Appeal from the decision of the Court of First Instance of Manila ordering the defendants-appellants
to pay jointly and severally to the plaintiff-appellee the sum of P655.89, plus legal interest thereon
from date of the judicial demand, the sum of P100.00 as attorney's fees, and to pay the costs.

The appellants bought from the appellee a parcel of land in Quezon City known as Lot 7-K-2-G, Psd-
26193. In view of an unpaid balance of P5,000.00 on account of the purchase price of the lot, the
appellants executed on January 4, 1957, the following promissory note representing the said
account:

PROMISSORY NOTE

P5,000.00

Manila, January 4, 1957

We, the Spouses ANTONIO A. RODRIGUEZ and HERMINIA C. RODRIGUEZ, jointly and severally
promise to pay the Magdalena Estates, Inc., or order, at its offices in the City of Manila, without any
demand the sum of FIVE THOUSAND PESOS (P5,000.00), Philippine currency, with interest at the rate
of Nine Per Cent 9% per annum, within sixty (60) days from January 7, 1957. The sum of P5,000.00
represents the balance of the purchase price of the parcel of land known as Lot 7-K-2-G, Psd. 26193,
containing an area of 2,191 square meters, Quezon City.

On the same date, the appellants and the Luzon Surety Co., Inc. executed a bond in favor of the
appellee, the undertaking thereof being embodied therein as follows:

. . . comply with the obligation to pay the amount of P5,000.00 representing balance of the
purchase price of a parcel of land known as Lot 7-K-2-G, Psd-26193, with an area of 2191
square meters, Quezon City, covered by Transfer Certificate of Title No. 13 (6947), Quezon
City, within a period of sixty (60) days from January 7, 1957; That the Surety shall be notified
in writing within Ten (10) days from moment of default otherwise, this undertaking is
automatically null and void.
On June 20, 1958, when the obligation of the appellants became due and demandable, the Luzon
Surety Co., Inc. paid to the appellee the sum of P5,000.00. Subsequently, the appellee demanded
from the appellants the payment of P655.89 corresponding to the alleged accumulated interests on
the principal of P5,000.00. Due to the refusal of the appellants to pay the said interest, the appellee
started this suit in the Municipal Court of Manila to enforce the collection thereof. The said court, on
February 5, 1959, rendered judgment in favor of the appellee and against the appellants, ordering
the latter to pay jointly and severally the appellee the sum of P655.89 with interest thereon at the
legal rate from November 10, 1958, the date of the filing of the complaint, until the whole amount is
fully paid. Not satisfied with that judgment, appellants appealed to the Court of First Instance of
Manila, where the case was submitted for decision on the pleadings. The Court of First Instance of
Manila rendered the judgment stated at the outset of this decision.

On appeal directly to this Court, the following errors are assigned:

I. The lower court erred in concluding as a fact from the pleadings that the plaintiff-appellee
demanded, and the Luzon Surety Co., Inc. refused, the payment of interest in the amount of
P655.89, and in not finding and declaring that said plaintiff-appellee waived or condoned the
said interests.

II. The lower court erred in not finding and declaring that the obligation of the defendants-
appellants in favor of the plaintiff-appellee was totally extinguished by payment and/or
condonation.

III. The lower court erred in not finding and declaring that the promissory note executed by
the defendants-appellants in favor of the plaintiff-appellee was, insofar as the said document
provided for the payment of interests, novated when the plaintiff-appellee unqualifiedly
accepted the surety bond which merely guaranteed payment of the principal in the sum of
P5,000.00.

Appellants claim that the pleadings do not show that there was demand made by the appellee for the
payment of accrued interest and what could be deduced therefrom was merely that the appellee
demanded from the Luzon Surety Co., Inc., in the capacity of the latter as surety, the payment of the
obligation of the appellants, and said appellee accepted unqualifiedly the amount of P5,000.00 as
performance by the obligor and/or obligors of the obligation in its favor. It is further claimed that the
unqualified acceptance of payment made by the Luzon Surety Co., Inc. of P5,000.00 or only the
amount of the principal obligation and without exercising its (appellee's) right to apply a portion of
P655.89 thereof to the payment of the alleged interest due despite its presumed knowledge of its
right to do so, the appellee showed that it waived or condoned the interests due, because Articles
1235 and 1253 of the Civil Code provide:

ART. 1235. When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is deemed fully
complied with.

ART. 1253. If the debt produces interest, payment of the principal shall not be deemed to
have been made until the interests have been recovered.

We do not agree with the contention of the appellants. It is very clear in the promissory note that the
principal obligation is the balance of the purchase price of the parcel of land known as Lot 7-K-2-G,
Psd-26193, which is the sum of P5,000.00, and in the surety bond, the Luzon Surety Co., Inc.
undertook "to pay the amount of P5,000.00 representing balance of the purchase price of a parcel of
land known as Lot 7-K-2-G, Psd-26193, . . . ." The appellee did not protest nor object when it
accepted the payment of P5,000.00 because it knew that that was the complete amount undertaken
by the surety as appearing in the contract. The liability of a surety is not extended, by implication,
beyond the terms of his contract.1 It is for the same reason that the appellee cannot apply a part of
the P5,000.00 as payment for the accrued interest. Appellants are relying on Article 1253 of the Civil
Code, but the rules contained in Articles 1252 to 1254 of the Civil Code apply to a person owing
several debts of the same kind of a single creditor. They cannot be made applicable to a person
whose obligation as a mere surety is both contingent and singular; his liability is confined to such
obligation, and he is entitled to have all payments made applied exclusively to said application and
to no other.2 Besides, Article 1253 of the Civil Code is merely directory, and not
mandatory.3 Inasmuch as the appellee cannot protest for non-payment of the interest when it
accepted the amount of P5,000.00 from the Luzon Surety Co., Inc., nor apply a part of that amount
as payment for the interest, we cannot now say that there was a waiver or condonation on the
interest due.

It is claimed that there was a novation and/or modification of the obligation of the appellants in favor
of the appellee because the appellee accepted without reservation the subsequent agreement set
forth in the surety bond despite its failure to provide that it also guaranteed payment of accruing
interest.

The rule is settled that novation by presumption has never been favored. To be sustained, it needs to
be established that the old and new contracts are incompatible in all points, or that the will to novate
appears by express agreement of the parties or in acts of similar import.4

An obligation to pay a sum of money is not novated, in a new instrument wherein the old is ratified,
by changing only the terms of payment and adding other obligations not incompatible with the old
one,5 or wherein the old contract is merely supplemented by the new one. 6 The mere fact that 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 shall be released from responsibility does
not constitute a novation, and the creditor can still enforce the obligation against the original debtor.
(Straight v. Haskel, 49 Phil. 614; Pacific Commercial Co. v. Sotto, 34 Phil. 237; Estate of Mota v.
Serra, 47 Phil. 464; Dugo v. Lopena, supra ). In the instant case, the surety bond is not a new and
separate contract but an accessory of the promissory note.

WHEREFORE, the judgment appealed from should be, as it is hereby, affirmed, with costs against
the appellants

[G.R. No. 120817. November 4, 1996]

ELSA B. REYES, petitioner, vs. COURT OF APPEALS, SECRETARY OF

JUSTICE, AFP-MUTUAL BENEFIT ASSOCIATION, INC., and
GRACIELA ELEAZAR, respondents.

DECISION

TORRES, JR., J.:

Petitioner assails the respondent courts decision dated May 12, 1995 [1]

which sustained the two resolutions of the respondent Secretary of Justice,

namely: 1) the Resolution dated January 23, 1992 affirming the resolution of
the Provincial Prosecutor of Rizal dismissing the complaints of petitioner
against private respondent Eleazar in I.S. Nos. 91-2853, 91-4328 to 29, 91-
4585 to 91 and 91-4738 to 39 for violations of B.P. Blg. 22 and estafa under
Article 315, par. 4, no. 2 (d) of the Revised Penal Code, and 2) the Resolution
dated January 12, 1993 affirming the resolution of the City Prosecutor of
Quezon City finding a prima facie case in I.S. No. 92-926 for violation of B.P.
Blg. 22 and estafa filed by respondent AFP-Mutual Benefit Association, Inc.
(AFP-MBAI, for brevity) against petitioner Reyes.

The facts as summarized by the respondent court are as follows:

Elsa Reyes is the president of Eurotrust Capital Corporation (EUROTRUST), a

domestic corporation engaged in credit financing. Graciela Eleazar, private
respondent, is the president of B.E. Ritz Mansion International Corporation
(BERMIC), a domestic enterprise engaged in real estate development. The other
respondent, Armed Forces of the Philippines Mutual Benefit Asso., Inc. (AFP-MBAI),
is a corporation duly organized primarily to perform welfare services for the Armed
Forces of the Philippines.

A. Re: Resolution dated January 23, 1992

In her various affidavits-complaints with the Office of the Provincial Prosecutor of

Rizal, Elsa Reyes alleges that Eurotrust and Bermic entered into a loan agreement.
Pursuant to the said contract, Eurotrust extended to Bermic P216,053,126.80 to
finance the construction of the latters Ritz Condominium
and Gold Business Park. The loan was without collateral but with higher interest rates
than those allowed by the banks. In turn, Bermic issued 21 postdated checks to cover
payments of the loan packages. However, when those checks were presented for
payment, the same were dishonored by the drawee bank, Rizal Commercial Banking
Corporation (RCBC), due to stop payment order made by Graciela Eleazar. Despite
Eurotrusts notices and repeated demands to pay, Eleazar failed to make good the
dishonored checks, prompting Reyes to file against her several criminal complaints
for violation of B.P. 22 and estafa under Article 315, 4th paragraph, No. 2 (d) of the
Revised Penal Code.
Graciela Eleazar, in her counter-affidavits, asserts that beginning December 1989,
Eurotrust extended to Bermic several loan packages amounting to P190,336,388.86.
For its part, Bermic issued several postdated checks to cover payments of the principal
and interest of every loan packages involved.

Subsequently, Elsa Reyes was investigated by the Senate Blue Ribbon Committee.
She was involved in a large scale scam amounting to millions of pesos belonging to
Instructional Material Corporation (IMC), an agency under the Department of
Education, Culture and Sports.

Meanwhile, respondent AFP-MBAI which invested its funds with Eurotrust, by

buying from it government securities, conducted its own investigation and found that
after Eurotrust delivered to AFP-MBAI the securities it purchased, the former
borrowed the same securities but failed to return them to AFP-MBAI; and that the
amounts paid by AFP-MBAI to Eurotrust for those securities were in turn lent by Elsa
Reyes to Bermic and others.

When Eleazar came to know that the funds originally loaned by Eurotrust to Bermic
belonged to AFP-MBAI, she, as President of Bermic, requested a meeting with
Eurotrust representatives. Thus, on February 15,1991, the representatives of Eurotrust
and Bermic agreed that Bermic would directly settle its obligations with the real
owners of the fund-AFP-MBAI and DECS-IMC. This agreement was formalized in
two letters dated March 19, 1991. Pursuant to this understanding, Bermic negotiated
with AFP-MBAI and DECS-IMC and made payments to the latter. In fact, Bermic
paid AFP-MBAI P31,711.11 and a check of P1-million.

However, Graciela Eleazar later learned that Elsa Reyes continued to collect on the
postdated checks issued by her (Eleazar) contrary to their agreement. So, Bermic
wrote to Eurotrust to hold the amounts in constructive trust for the real owners. But
Reyes continued to collect on the other postdated checks dated April 17 to June 28,
1991. Upon her counsels advise, Eleazar had the payment stopped. Hence, her checks
issued in favor of Eurotrust were dishonored.

After investigation, the Office of the Provincial Prosecutor of Rizal issued a resolution
dismissing the complaints filed by Elsa Reyes against Graciela Eleazar on the ground
that when the latter assumed the obligation of Reyes to AFP-MBAI, it constituted
novation, extinguishing any criminal liability on the part of Eleazar.
Reyes filed a petition for review of the said resolution with respondent Secretary of
Justice contending that novation did not take place.

The Secretary of Justice dismissed the petition holding that the novation of the loan
agreement prevents the rise of any incipient criminal liability since the novation had
the effect of canceling the checks and rendering without effect the subsequent
dishonor of the already cancelled checks.

B. Re: Resolution dated January 12, 1993

At the time of the pendency of the cases filed by Elsa Reyes against Graciela Eleazar,
AFP-MBAI lodged a separate complaint for estafa and a violation of BP 22 against
Elsa Reyes with the office of the city prosecutor of Quezon city docketed as I.S. 92-
926. The affidavit of Gudelia Dinapo a member of the investigating committee formed
by AFP-MBAI to investigate the anomalies committed by Eurotrust/Reyes, shows that
between August 1989 and September 1990, Eurotrust offered to sell to AFP-MBAI
various marketable securities, including government securities, such as but not limited
to treasury notes, treasury bills, Land Bank of the Philippines Bonds and Asset
Participation Certificates.

Relying on a canvass conducted by one of its employees, Cristina Cornista, AFP-

MBAI decided to purchase several securities amounting to P120,000,000.00 from
Eurotrust. From February 1990 to September 1990, a total of 21 transactions were
entered into between Eurotrust and AFP-MBAI. Eurotrust delivered to AFP-MBAI
treasury notes amounting to P73 million. However, Eurotrust fraudulently borrowed
all those treasury notes from the AFP-MBAI for purposes of verification with the
Central Bank. Despite AFP-MBAIs repeated demands, Eurotrust failed to return the
said treasury notes. Instead it delivered 21 postdated checks in favor of AFP-MBAI
which were dishonored upon presentment for payment. Eurotrust nonetheless made
partial payment to AFP-MBAI amounting to P35,151,637.72. However, after
deducting this partial payment, the amounts of P73 million treasury notes with interest
and P35,151,637.72 have remained unpaid. Consequently, AFP-MBAI filed with the
Office of the City Prosecutor of Quezon City a complaint for violation of BP 22 and
estafa against Elsa Reyes.

Reyes interposed the defense of novation and insisted that AFP-MBAIs claim of
unreturned P73 million worth of government securities has been satisfied upon her
payment of P30 million. With respect to the remaining P43 million, the same was paid
when Eurotrust assigned its Participation Certificates to AFP-MBAI.

Eventually, the Office of the City Prosecutor of Quezon City issued a resolution
recommending the filing of an information against Reyes for violation of BP 22 and
estafa.

Whereupon, Reyes filed a petition for review with respondent Secretary of Justice.
The latter dismissed the petition on the ground that only resolutions of the prosecutors
dismissing criminal complaints are cognizable for review by the Department of
Justice.
[2]

On February 2, 1994, petitioner seeking the nullification of either of the two

resolutions of the respondent Secretary of Justice filed a petition for certiorari,
prohibition and mandamus with the respondent court which, however, denied
[3]

and dismissed her petition. Her motion for reconsideration was likewise[4]

denied in a Resolution dated June 27, 1995. Hence, this present petition.
[5]

The first Department of Justice Resolution dated January 23, 1992 which
sustained the Provincial Prosecutors decision dismissing petitioners
complaints against respondent Eleazar for violation of B.P. 22 and estafa ruled
that the contract of loan between petitioner and respondent Eleazar had been
novated when they agreed that respondent Eleazar should settle her firms
(BERMIC) loan obligations directly with AFP-MBAI and DECS-IMC instead of
settling it with petitioner Reyes. This finding was affirmed by the respondent
court which pointed out that the first contract was novated in the sense that
there was a substitution of creditor when respondent Eleazar, with the
[6]

agreement of Reyes, directly paid her obligations to AFP-MBAI.

We cannot see how novation can take place considering the surrounding
circumstances which negate the same. The principle of novation by
substitution of creditor was erroneously applied in the first questioned
resolution involving the contract of loan between petitioner and respondent
Eleazar.

Admittedly, in order that a novation can take place, the concurrence of the
following requisites is indispensable:
[7]
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.

Upon the facts shown in the record, there is no doubt that the last three
essential requisites of novation are wanting in the instant case. No new
agreement for substitution of creditor was forged among the parties
concerned which would take the place of the preceding contract. The absence
of a new contract extinguishing the old one destroys any possibility of
novation by conventional subrogation. In including that a novation took place,
the respondent court relied on the two letters dated March 19, 1991, which, [8]

according to it, formalized petitioners and respondent Eleazars agreement

that BERMIC would directly settle its obligation with the real owners of the
funds - the AFP MBAI and DECS IMC. Be that as it may, a cursory reading of
[9]

these letters, however, clearly and unmistakably shows that there was nothing
therein that would evince that respondent AFP-MBAI agreed to substitute for
the petitioner as the new creditor of respondent Eleazar in the contract of
loan. It is evident that the two letters merely gave respondent Eleazar an
authority to directly settle the obligation of petitioner to AFP-MBAI and DECS-
IMC. It is essentially an agreement between petitioner and respondent
Eleazar only. There was no mention whatsoever of AFP-MBAIs consent to the
new agreement between petitioner and respondent Eleazar much less an
indication of AFP-MBAIs intention to be the substitute creditor in the loan
contract. Well settled is the rule that novation by substitution of creditor
requires an agreement among the three parties concerned - the original
creditor, the debtor and the new creditor. It is a new contractual relation
[10]

based on the mutual agreement among all the necessary parties. Hence,
there is no novation if no new contract was executed by the parties. Article
1301 of the Civil Code is explicit, thus:

Conventional subrogation of a third person requires the consent of the original parties
and of the third person.
 The fact that respondent Eleazar made payments to AFP-MBAI and the
latter accepted them does not ipso facto result in novation. There must be an
express intention to novate - animus novandi. Novation is never presumed.
[11]

Article 1300 of the Civil Code provides inter alia that conventional
[12]

subrogation must be clearly established in order that it may take effect.

Notwithstanding our disagreement with the decision of the respondent

court and the ruling of the Secretary of Justice that a novation by substitution
of creditor has taken place, we opt not to disturb the Resolution of the
respondent Secretary of Justice dated January 23, 1992 finding a prima
facie case against the petitioner in as much as it had already become final. It
appears that petitioner filed two motions for reconsideration to the said
resolution, the first one on February 6, 1992 and the second one in June 2,
1992. These two motions were, however, denied by the respondent Secretary
of Justice, the last denial was contained in a Resolution dated June 25, 1992
which was received by petitioner on July 9, 1992. Petitioner made no prompt
attempt to question the said resolutions before the proper forum. It took her
almost seventeen months (from July 9, 1992 to February 2, 1994) to
challenge the January 23, 1992 Resolution when she filed the petition
for certiorari with the respondent court on February 2, 1994, which resolved
[13]

to affirm the aforesaid resolution of the Secretary of Justice.

Petitioner who chose her forum but unfortunately lost her claim is bound
by such adverse judgment on account of finality of judgment, otherwise, there
would be no end to litigation.Litigation must end and terminate sometime and
somewhere, and it is essential to an effective administration of justice that
once a judgment has become final, the issue or cause therein should be laid
at rest. While the respondent Secretary of Justice was in error in applying the
[14]

rule on novation in the January 23, 1992 Resolution, such irregularity,

however, does not affect the validity of the proceedings in the Department of
Justice. Erroneous application of a legal principle cannot bring a judgment that
has already attained the status of finality to an absolute nullity under the well
entrenched rule of finality of judgment. The basic rule of finality of judgment is
grounded on the fundamental principle of public policy and sound practice that
at the risk of occasional error, the judgment of court and award of quasi-
judicial agencies must become final at some definite date fixed by law. [15]
 We find no plausible explanation nor justifiable reason offered by petitioner
for the obvious delay or omission to take a timely action against the
questioned resolution. She is apparently guilty of laches which bars her from
seeking relief in a court of law after she intentionally and unreasonably fails to
guard of her rights. Laches is the failure or neglect for an unreasonable and
unexplained length of time to do that which by exerting due diligence
could/should have been done earlier. Petitioners omission to assert her right
[16]

to avail of the remedies in lawwithin a reasonable time warrants a

presumption that she abandoned it or declined to assert it. The law serves
those who are vigilant and diligent and not those who sleep when the law
requires them to act.[17]

It bears emphasis that the above pronouncement we laid down applies

only pro hac vice. This Court in affirming the questioned resolution despite the
erroneous application of a legal principle acted according to what the peculiar
circumstances of the instant case demand. Its factual setting led us to
consider that to sustain the resolution is but the proper action to take in this
particular case.

Regarding the second Resolution of respondent Secretary of Justice dated

January 12, 1993 which affirms the City Prosecutors finding of a prima
facie case against petitioner for violation of B.P. Blg. 22 and estafa involving
the contract of sale of securities, petitioner avers that she could not be held
criminally liable for the crime charged because the contract of sale of
securities between her and respondent AFP-MBAI was novated by
substitution of debtor. According to petitioner, the obligation assumed by
respondent Eleazar pursuant to the authority given by her to respondent
Eleazar in a letter dated March 19, 1991 was precisely her (petitioners)
obligation to respondent AFP-MBAI under the contract of sale of
securities. She claims that private respondent Eleazar, instead of fulfilling her
obligation under the contract of loan to pay petitioner the amount of debts,
assumed petitioners obligation under the contract of sale to make payments to
respondent AFP-MBAI directly. [18]

This contention is bereft of any legal and factual basis. Just like in the first
questioned resolution, no novation took place in this case. A thorough
examination of the records shows that no hard evidence was presented which
would expressly and unequivocably demonstrate the intention of respondent
AFP-MBAI to release petitioner from her obligation to pay under the contract
of sale of securities. It is a rule that novation by substitution of debtor must
always be made with the consent of the creditor. Article 1293 of the Civil
[19]

Code is explicit, thus:

Novation which consists in substituting a new debtor in the place of the original one,
may be made even without or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him the rights mentioned
in Articles 1236 and 1237.

The consent of the creditor to a novation by change of debtor is as

indispensable as the creditors consent in conventional subrogation in order
that a novation shall legally take place. The mere circumstance of AFP-MBAI
receiving payments from respondent Eleazar who acquiesced to assume the
obligation of petitioner under the contract of sale of securities, when there is
clearly no agreement to release petitioner from her responsibility, does not
constitute novation, at most, it only creates a juridical relation of co-debtorship
or suretyship on the part of respondent Eleazar to the contractual obligation of
petitioner to AFP-MBAI and the latter can still enforce the obligation against
the petitioner. In Ajax Marketing and Development Corporation vs. Court of
Appeals, which is relevant in the instant case, we stated that -
[20]

In the same vein, to effect a subjective novation by a change in the person of the
debtor, it is necessary that the old debtor be released expressly from the obligation,
and the third person or new debtor assumes his place in the relation. There is no
novation without such release as the third person who has assumed the debtors
obligation becomes merely a co-debtor or surety. XXX. Novation arising from a
purported change in the person of the debtor must be clear and express XXX.

In the civil law setting, novatio is literally construed as to make new. So it

is deeply rooted in the Roman Law jurisprudence, the principle - novatio non
praesumitur - that novation is never presumed. At bottom, for novation to be a
jural reality, its animus must be ever present, debitum pro debito basically
extinguishing the old obligation for the new one.

The foregoing elements are found wanting in the case at bar.

 ACCORDINGLY, finding no reversible error in the decision appealed from
dated May 12, 1995, the same is hereby AFFIRMED in all respects.

SO ORDERED.