TENDER OF PAYMENT

SPOUSES BONROSTRO VS. SPOUSES LUNA

G.R. No. 172346, July 24, 2013

Facts: Constancia Luna, as buyer, entered into a contract to sell with Bliss Development Corporation involving a
house located in Quezon City. A year after, Luna sold it to Lourdes Bonrostro under the ff. terms:

The stipulated price of P1,250,000.00 shall be paid by the VENDEE to the VENDOR in the following manner:
(a) P200,000.00 upon signing x x x [the] Contract To Sell,
(b) P300,000.00 payable on or before April 30, 1993,
(c) P330,000.00 payable on or before July 31, 1993,
(d) P417,000.00 payable to the New Capitol Estate, for 15 years at [P6,867.12] a month,

x x x [I]n the event the VENDEE fails to pay the second installment on time, [t]he VENDEE will pay starting May 1,
1993 a 2% interest on the P300,000.00 monthly. Likewise, in the event the VENDEE fails to pay the amount of
P630,000.00 on the stipulated time, this CONTRACT TO SELL shall likewise be deemed cancelled and rescinded and
x x x 5% of the total contract price [of] P1,250,000.00 shall be deemed forfeited in favor of the VENDOR. Unpaid
monthly amortization shall likewise be deducted from the initial down payment in favor of the VENDOR.

After execution of the contract, Bonrostro took possession of the property. However, except for P200,000.00
downpayment, she failed to pay subsequent amortization. Luna then filed before the RTC a Complaint for Rescission
of Contract and Damages. In its decision, the RTC ruled that the delay could not be considered a substantial breach
considering that Lourdes (1) requested for an extension within which to pay; (2) was willing and ready to pay as early
as the last week of October 1993 and even wrote Atty. Carbon about this on November 24, 1993; (3) gave Constancia
a down payment of P200,000.00; and, (4) made payment to Bliss. This decision was affirmed by the CA. Hence, this
appeal.

Issue: Whether or not accrual of interest by the spouses Bonrostro should be suspended as Lourdes' letter of
November 24, 1993 amounts to tender of payment of the remaining balance amounting to P630,000.00.

Held: No. Tender of payment "is the manifestation by the debtor of a desire to comply with or pay an obligation. If
refused without just cause, the tender of payment will discharge the debtor of the obligation to pay but only after a
valid consignation of the sum due shall have been made with the proper court." "Tender of payment, without more,
produces no effect." "[T]o have the effect of payment and the consequent extinguishment of the obligation to pay,
the law requires the companion acts of tender of payment and consignation."

As to the effect of tender of payment on interest, noted civilist Arturo M. Tolentino explained as follows: When a
tender of payment is made in such a form that the creditor could have immediately realized payment if he had
accepted the tender, followed by a prompt attempt of the debtor to deposit the means of payment in court by way
of consignation, the accrual of interest on the obligation will be suspended from the date of such tender. But when
the tender of payment is not accompanied by the means of payment, and the debtor did not take any immediate
step to make a consignation, then interest is not suspended from the time of such tender.
______________________________________________________________________________

TENDER OF PAYMENT
ALLANDATESPORTSLINE, INC. VS. THE GOOD DEVELOPMENT
G.R. No. 164521, December 18, 2008

Facts: Allandale Sportsline, Inc. (ASI) obtained a loan of P204,000.00 from The Good Development Corp. (GDC). A
Deed of Mortgage was also executed in favor of GDC accessory to the loan. The loan was not paid, and so GDC filed
a Complaint for Replevin with the RTC and/or Sum of Money with Damages against ASI, Melbarose, Manipon,
Florante Edrino and John Doe. It is significant that at the trial that ensued, GDC disclosed that after it obtained
possession of the properties subject of the writs of replevin, it caused the auction sale of some of them and realized
proceeds amounting to P78,750.00.

The RTC rendered a Decision, the dispositive portion of which orders ASI and Ma. Theresa Manipon to pay GDC the
amount of P269,611.82 plus legal interest thereon effective to date until the full amount is fully paid, and 25% of
the total amount due as liquidated damages.

Meanwhile, ASI and Melbarose Eled their Answer with Counterclaim. They claimed that their loan obligation to GDC
was only for P200,000.00, and after deducting P18,000.00, which amount was retained by GDC as advanced interest
payment, and P29,000.00, which represents payments made from June 4, 1991 to July 8, 1991, their unpaid
obligation was only P171,000.00; that they repeatedly tendered payment of this amount, but GDC rejected their
efforts for no valid reason; that the unreasonable refusal of GDC to accept their tender of payment relieved them of
their loan obligation; that its Complaint being obviously without merit, GDC should be held liable to them for
damages.

Issue: Whether or not petitioners' check payment of Php171,000.00, PCIB Check No. 851688, to cover the total
balance of their loan to respondent, became a valid tender of payment by virtue of the respondent's acceptance
thereof.

Held: No. Tender of payment, without more, produces no effect; rather, tender of payment must be followed by a
valid consignation in order to produce the effect of payment and extinguish an obligation. Tender of payment is but
a preparatory act to consignation. Petitioners did not allege or prove that after their tender of payment was refused
by respondents, they attempted or pursued consignation of the payment with the proper court. Their tender of
payment not having been followed by a valid consignation, it produced no effect whatsoever, least of all the
extinguishment of the loan obligation.
_____________________________________________________________________________________________

TENDER OF PAYMENT
DALTON VS. FGR REALTY AND DEVELOPMENT CORP.
G.R. No. 172577, January 19, 2011

Facts: Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the corner of Rama Avenue and
Velez Street in Cebu City. Petitioner Soledad Dalton (Dalton) and Sasam et al. leased portions of the property.

In June 1985, Dayrit sold the property to respondent FGR Realty and Development Corporation (FGR). In August
1985, Dayrit and FGR stopped accepting rental payments because they wanted to terminate the lease agreements
with Dalton and Sasam, et al.

In a complaint dated 11 September 1985, Dalton and Sasam, et al. consigned the rental payments with the RTC. They
failed to notify Dayrit and FGR about the consignation. In motions dated 27 March 1987, 10 November 1987, 8 July
1988, and 28 November 1994, Dayrit and FGR withdrew the rental payments. In their motions, Dayrit and FGR
reserved the right to question the validity of the consignation. Dayrit, FGR and Sasam, et al. entered into compromise
agreements dated March 1997 and 20 June 1997. In the compromise agreements, they agreed to abandon all claims
against each other. Dalton did not enter into a compromise agreement with Dayrit and FGR.

Issue: Whether or not the consignation made by Dalton, et. al. is void

Held: Yes. Compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of
the requisites will render the consignation void. Substantial compliance is not enough. The giving of notice to the
persons interested in the performance of the obligation is mandatory. Failure to notify the persons interested in the
performance of the obligation will render the consignation void.
Under Art. 1257 of our Civil Code, in order that consignation of the thing due may release the obligor, it must first
be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if
it is not made strictly in consonance with the provisions which regulate payment. In said Article 1258, it is further
stated that the consignation having been made, the interested party shall also be notified thereof.

We hold that the essential requisites of a valid consignation must be complied with fully and strictly in accordance
with the law, Articles 1256 to 1261, New Civil Code. That these Articles must be accorded a mandatory construction
is clearly evident and plain from the very language of the codal provisions themselves which require absolute
compliance with the essential requisites therein provided. Substantial compliance is not enough for that would
render only a directory construction to the law. The use of the words "shall" and "must" which are imperative,
operating to impose a duty which may be enforced, positively indicate that all the essential requisites of a valid
consignation must be complied with.
______________________________________________________________________________

CONSIGNATION
CACAYORIN VS. AFP AND POLICE MUTUAL BENEFIT ASSOCIATION
G.R. No. 171298, April 15, 2013

Facts: Oscar Cacayorin filed an application with AFPMBAI to purchase a property which the latter owned, specifically
Lot 5, Block 8, Phase I, Kalikasan Mutual Homes, San Pedro, Puerto Princesa City (the property), through a loan
facility. Oscar and his wife, Thelma, and the Rural Bank of San Teodoro executed a Loan and Mortgage
Agreement with the former as borrowers and the Rural Bank as lender, under the auspices of PAG-IBIG. On the basis
of the Rural Bank's letter of guaranty, AFPMBAI executed in petitioners' favor a Deed of Absolute Sale, and a new
title was issued in their name.

Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank closed and was placed under
receivership by the Philippine Deposit Insurance Corporation (PDIC). Meanwhile, AFPMBAI somehow was able to
take possession of petitioners' loan documents and the TCT, while petitioners were unable to pay the loan for the
property. AFPMBAI made written demands for petitioners to pay the loan for the property.

Then, petitioners filed with the RTC a complaint for consignation of loan payment, recovery of title and cancellation
of mortgage annotation against AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa City. Petitioners alleged
in their Complaint that as a result of the Rural Bank's closure and PDIC's claim that their loan papers could not be
located, they were left in a quandary as to where they should tender full payment of the loan and how to secure
cancellation of the mortgage annotation on TCT No. 37017.

AFPMBAI filed a motion to dismiss claiming that petitioners' Complaint falls within the jurisdiction of the Housing
and Land Use Regulatory Board (HLURB), as it was filed by petitioners in their capacity as buyers of a subdivision lot
and it prays for specific performance of contractual and legal obligations decreed under Presidential Decree No.
957(PD 957). It added that since no prior valid tender of payment was made by petitioners, the consignation case
was fatally defective and susceptible to dismissal.

Issue: Whether or not the case falls within the exclusive jurisdiction of the HLURB.

Held: No. Unlike tender of payment which is extrajudicial, consignation is necessarily judicial; hence, jurisdiction lies
with the RTC, not with the HLURB.

Issue: Whether or not the consignation made by the petitioners extinguishes the obligation

Held: Yes. Under Article 1256 of the Civil Code, 24 the debtor shall be released from responsibility by the
consignation of the thing or sum due, without need of prior tender of payment, when the creditor is absent or
unknown, or when he is incapacitated to receive the payment at the time it is due, or when two or more persons
claim the same right to collect, or when the title to the obligation has been lost. Applying Article 1256 to the
petitioners' case as shaped by the allegations in their Complaint, the Court finds that a case for consignation has
been made out, as it now appears that there are two entities which petitioners must deal with in order to fully secure
their title to the property: 1) the Rural Bank (through PDIC), which is the apparent creditor under the July 4, 1994
Loan and Mortgage Agreement; and 2) AFPMBAI, which is currently in possession of the loan documents and the
certificate of title, and the one making demands upon petitioners to pay. Clearly, the allegations in the Complaint
present a situation where the creditor is unknown, or that two or more entities appear to possess the same right to
collect from petitioners. Whatever transpired between the Rural Bank or PDIC and AFPMBAI in respect of petitioners'
loan account, if any, such that AFPMBAI came into possession of the loan documents and TCT No. 37017, it appears
that petitioners were not informed thereof, nor made privy thereto.
______________________________________________________________________________

COMPENSATION
TRADERSROYAL BANK VS. CASTEÑARES
G.R. No. 172020, December 6, 2010

Facts: Respondent-spouses Norberto and Milagros Castañares are engaged in the business of exporting shell crafts
and other handicrafts. Between 1977 and 1978, respondents obtained from petitioner Traders Royal Bank various
loans and credit accommodations. Respondents executed two real estate mortgages (REMs) dated April 18, 1977
and January 25, 1978 covering their properties (TCT Nos. T-38346, T- 37536, T-37535, T-37192 and T-37191). As
evidenced by Promissory Note No. BD-77- 113 dated May 10, 1977, petitioner released only the amount of
P35,000.00 although the mortgage deeds indicated the principal amounts as P86,000.00 and P60,000.00.

On June 22, 1977, petitioner transferred the amount of P1,150.00 from respondents' current account to their savings
account, which was erroneously posted as P1,500.00 but later corrected to reflect the figure P1,150.00 in the savings
account passbook. By the second quarter of 1978, the loans began to mature and the letters of credit against which
the packing advances were granted started to expire. Meanwhile, on December 7, 1979, petitioner, without notifying
the respondents, applied to the payment of respondents' outstanding obligations the sum of $4,220.00 or
P30,930.49 which was remitted to the respondents thru telegraphic transfer from AMROBANK, Amsterdam by one
Richard Wagner. The aforesaid entries in the passbook of respondents and the $4,220.00 telegraphic transfer were
the subject of respondents' letter-complaint dated September 20, 1982 addressed to the Manager of the Regional
Office of the Central Bank of the Philippines.

The RTC consolidated the cases and ruled in favor of the petitioner but was overturned by the CA.

Issue: Whether or not the petitioner had authority to apply the loan account of respondents worth $4,220.00 by
way of compensation or set off.

Held: Yes. Agreements for compensation of debts or any obligations when the parties are mutually creditors and
debtors are allowed under Art. 1282 of the Civil Code even though not all the legal requisites for legal compensation
are present. Voluntary or conventional compensation is not limited to obligations which are not yet due. The only
requirements for conventional compensation are (1) that each of the parties can fully dispose of the credit he seeks
to compensate, and (2) that they agree to the extinguishment of their mutual credits. Consequently, no error was
committed by the trial court in holding that petitioner validly applied, by way of compensation, the $4,220.00
telegraphic transfer remitted by respondents foreign client through the petitioner.
_____________________________________________________________________________________________
COMPENSATION
INSULARINVESTMENT & TRUST VS. CAPITAL ONE EQUITIES
G.R. No. 183308, April 25, 2012

Facts: Insular Investment and Trust Corporation (IITC) and Capital One Equities Corp. (COEC) and Planters
Development Bank (PDB) have been regularly engaged in trading, sale and purchase of Philippine Treasury bills. On
various dates, IITC had purchased from COEC. IITC purchased from COEC treasury bills worth P 260, 683, 392.51.
However, COEC was only able to deliver 121, 050,000. On May 2, 1994, COEC purchased from IITC P 186,790,000
worth of treasury bills. PDC issued confirmation on the sale in favor of IITC.

On May 10, 1994, COEC demanded a letter from IITC the physical delivery of the securities last May 2, 1994. Then,
on its May 18, 1994 letter to PDB, IITC requested, on behalf of COEC, the delivery of IITC treasury bills, which had
been fully paid. On May 30, 1994, COEC protested the tenor of IITC’s letter to PDB and took exception to IITC’s
assertion that it merely acted as a facilitator with regard to the sale of the treasury bills.

IITC sent COEC a letter dated June 3, 1994, demanding that COEC deliver to it (IITC) the P139,833,392.00 worth of
treasury bills or return the full purchase price. In either case, it also demanded that COEC (1) pay IITC the amount of
P1,729,069.50 representing business opportunity lost due to the non-delivery of the treasury bills, and (2) deliver
treasury bills worth P121,050,000 with the same maturity dates originally purchased by IITC.

COEC sent a letter-reply dated June 9, 1994 to IITC in which it acknowledged its obligation to deliver the treasury
bills worth P139,833,392.00 which it sold to IITC and formally demanded the delivery of the treasury bills
worthP186,774,739.49 which it purchased from IITC. COEC also demanded the payment of lost profits in the amount
ofP3,253,250.00. Considering that COEC and IITC both have claims against each other for the delivery of treasury
bills, COEC proposed that a legal set-off be effected, which would result in IITC owing COEC the difference
of P46,941,446.49.

In its June 13, 1994 letter to COEC, IITC rejected the suggestion for a legal setting-off of obligations, alleging that it
merely acted as a facilitator between PDB and COEC. Despite repeated demands, however, PDB failed to deliver the
balance of P136,790,000.00 worth of treasury bills which IITC purchased from PDB allegedly for COEC. COEC was
likewise unable to deliver the remaining IITC T-Bills amounting to P119,633,392.00. Neither PDB and COEC returned
the purchase price for the duly paid treasury bills.

Thus COEC filed a complaint with the RTC which found that COEC still has obligations to pay IITC P119,633,392.00
worth of treasury bills. However, since IITC and COEC were both debtors and creditors of each other, the RTC off-set
their debts, resulting in a difference of P17,056,608.00 in favor of COEC. As to PDB’s liability, it ruled that PDB had
the obligation to pay P136,790,000.00 to IITC. Thus, the trial court ordered (a) IITC to pay COEC P17,056,608.00 with
interest at the rate of 6% from June 10, 1994 until full payment and (b) PDB to pay IITC P136,790,000.00 with interest
at the rate of 6% from March 21, 1995 until full payment.

The aggrieved parties appealed with the CA and affirmed the decision of the RTC and absolved PDB from any liability
because PDB was not involved with any of the transactions.

Issue: Whether or not COEC can set-off its obligation to IITC as against the latter’s obligation to it.
Held: Yes. As against the contention of IITC, COEC had proven that IITC is a principal on its sale of the treasury bills
thus holding them liable for paying such. Therefore, both IITC and COEC are principal creditors of the other over
debts which consist of consumable things or a sum of money, the RTC correctly ruled that COEC may validly set-off
its claims for undelivered treasury bills against that of IITC’s claims.

The court ruled the applicable provisions of law are Articles 1278, 1279 and 1290 of the Civil Code of the Philippines.
In Article 1278 states that compensation shall take place when two persons, in their own right, are creditors and
debtors of each other. Also, in Article 1290, states that when all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though
the creditors and debtors are not aware of the compensation.

The requisites of a valid compensation are present in the cases of the debts between IITC and COEC. As stated in
Article 1279 of the Civil Code of the Philippines, such requisites are (1) That each one of the obligors be bound
principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of
money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has
been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; and (5) That over neither
of them there be any retention or controversy, commenced by third persons and communicated in due time to the
debtor. Therefore, both shall be allowed to set-off their obligations with each other.

_____________________________________________________________________________________________

COMPENSATION
LAO VS. SPECIAL PLANS, INC.
G.R. No. 164791, June 29, 2010

Facts: The Petitioners Lao and Manansala entered into a Contract of Lease with Special Plans Incorporated (SPI) over
SPI's building at No.354 Quezon Avenue, Quezon City. Petitioners intended to use the premises for their karaoke
and restaurant business known as "Saporro Restaurant". Upon expiration of the contract, it was further renewed for
another eight months at a rental rate of P23,000.00 per month.

Receiving no payment, SPI file a complaint for the sum of money at the MeTC of Quezon City. In their defense,
petitioners fault SPI for making them believe that it owns the leased property. They likewise asserted that SPI did
not deliver the leased premises in a condition fit for petitioners' intended use. Thus, petitioners claimed that they
were constrained to incur expenses for necessary repairs as well as expenses for the repair of structural defects,
which SPI failed and refused to reimburse. Petitioners prayed that the complaint be dismissed and judgment on their
counterclaims be rendered ordering SPI to pay them the sum of P422,920.40 as actual damages, as well as moral
damages, attorney's fees and exemplary damages.

The Metropolitan Court found that the unpaid rentals only amounted to 95,000 pesos and declared SPI responsible
for repairing the structural defects of the leased premises and thus dismissed SPI’s case. SPI then appealed to the
Regional Trail Court of Quezon City which then modified the decision of the lower court, disagreeing on the off-
setting of the amount allegedly spent by the petitioners for the repairs of the structural defects of subject property
with their unpaid rentals and ordered the Petitioners to pay 95,000 for unpaid rentals. The petitioners then appealed
to the Court of Appeals wherein they asserted that the amount of 545,000.00 that they spent for
repairs, P125,000.00 of which was spent on structural repairs, should be judicially compensated against the said
unpaid rentals amounting to 95,000.00.

Issue: Whether or not the unpaid rentals should be judicially compensated with the expenses incurred by the
Plaintiffs.
Held: No. In order that compensation take place, two persons, in their own right, should be creditors and debtors
of each other. In order for compensation to be proper, it is necessary that:
1) Each one of the obligors be bound principally and that he be at the same time a principal creditor of the
other;
2) Both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
3) The two debts are due:
4) The debts are liquidated and demandable;
5) Over neither of them be any retention or controversy, commenced by third parties and communicated in
due time to the debtor.

Petitioners failed to properly discharge their burden to show that the debts are liquidated and demandable.
Consequently, legal compensation is inapplicable. A claim is liquidated when the amount and time of payment is
fixed. If acknowledged by the debtor, although not in writing, the claim must be treated as liquidated. When the
defendant, who has an unliquidated claim, sets it up by way of counterclaim, and a judgment is rendered liquidating
such claim, it can be compensated against the plaintiff's claim from the moment it is liquidated by judgment. We
have restated this in Solinap v. Hon. Del Rosario 28 where we held that compensation takes place only if both
obligations are liquidated.

In addition, paragraph 6 of the contract of lease between the petitioners and the respondent reads: The lessee shall
maintain the leased premises including the parking lot in good, clean and sanitary condition and shall make all the
necessary repairs thereon at their own expense except repairs of the structural defects which shall be the
responsibility of the lessor. . . . (Emphasis supplied)
______________________________________________________________________________
NOVATION
PNB VS. SORIANO
G.R. No. 164051, October 3, 2012

Facts: Lisam Enterprises, Inc. [LISAM], a family-owned and controlled corporation that maintains Current
Account No. 445830099-8 with petitioner PNB avail a Floor Stock Line (FSL) in the increased amount of Thirty Million
Pesos (30 Million), Soriano as the chairman and president of LISAM and the authorized signatory in all
LISAMs Transactions 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].

PNBs authorized personnel conducted an actual physical inventory of LISAMs motor vehicles and motorcycles and
found that only four (4) units covered by the TRs remained unsold.

Total availments on the line covered by TRs, [LISAM] should have remitted to PNB, P29,487,844.55. Despite several
formal demands, respondent Soriano failed and refused to turn over the said amount to the prejudice of PNB. 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. LISAM submitted proposals to PNB for the restructuring of all of LISAMs credit facilities. PNB LISAM informing
PNBs lack of objection to LISAMs proposal of restructuring all its obligations; and
2. PNB Boards minutes of meeting informed that the Board of Directors of PNB has approved the conversion of
LISAMs existing credit facilities at PNB. PNB filed a reply-affidavit maintaining Sorianos criminal liability under the
TRs:
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.

The DOJ, in a Resolution dated 25 June 2002, reversed and set aside the earlier resolution of the Naga City Prosecutor
and 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. PNB filed a petition for certiorari before the Court of Appeals. The
appellate court did not find grave abuse of discretion in the questioned resolution of the DOJ, and
dismissed PNBs petition for certiorari.

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

Held: Respondent Soriano, despite several opportunities to do so, failed to file a Memorandum as
required in the Court Resolution dated 16 January 2008. Thus, on 8 July 2009, the Court resolved to dispense with
the filing of Soriano’s Memorandum. 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. PNB is adamant that the events concerning the restructuring of LISAMs loan did not
affect the TR security, thus, Sorianos criminal liability there under subsists.

The Court did not subscribe to the appellate courts reasoning. The DOJ Secretarys and the Court of Appeals
holding that, the supposed restructuring novated the loan agreement between the parties is myopic.
The purported restructuring of the loan agreement did not constitute novation.

Article 1292 of the Civil Code which provides:cbrary

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.

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.

The approval of LISAMs restructuring proposal is not the bone of contention in this case. The pitch 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.

The Court look to whether there is an incompatibility between the Floor Stock Line secured by TRs and the
subsequent restructured Omnibus Line which was supposedly approved by PNB. 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.

The Court 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.

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 Sorianos obligation to "sell the merchandise for cash for
LISAMs account and to deliver the proceeds thereof to PNB to be applied against its acceptance on LISAMs account."

Soriano further agreed to hold the "vehicles and proceeds of the sale thereof in Trust for the payment of said
acceptance and of any of its other indebtedness to PNB."

Well-settled is the rule that, with respect to obligations to pay a sum of money, the obligation is not novated by an
instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not
incompatible with the old ones, or the new contract merely supplements the old one. Besides, novation
does not extinguish criminal liability. It stands to reason therefore, that Sorianos criminal liability under the TRs
subsists considering that the civil obligations under the Floor Stock Line secured by TRs were not extinguished by the
purported restructured Omnibus Line.

Based on all the foregoing, we find grave error in the Court of Appeals dismissal of PNBs 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.
_____________________________________________________________________________________________

NOVATION
SIMEDARBY PILIPINAS, INC. VS. GOODYYEAR PHILS., INC.
G.R. No. 182148, June 8, 2011

Facts: Macgraphics owned several billboards across Metro Manila and other surrounding municipalities, one of
which was a 35 x 70 neon billboard located at the Magallanes Interchange in Makati City.The Magallanes billboard
was leased by Macgraphics to Sime Darby in April 1994 at a monthly rental of P120,000.00. The lease had a term of
four years and was set to expire on March 30, 1998. Upon signing of the contract, Sime Darby paid Macgraphics a
total ofP1.2 million representing the ten-month deposit which the latter would apply to the last ten months of the
lease. Thereafter, Macgraphics configured the Magallanes billboard to feature Sime Darby's name and logo.

On April 22, 1996, Sime Darby executed a Memorandum of Agreement[(MOA)with Goodyear, whereby it agreed to
sell its tire manufacturing plants and other assets to the latter for a total ofP1.5 billion.

Just a day after, on April 23, 1996, Goodyear improved its offer to buy the assets of Sime Darby from P1.5 billion
toP1.65 billion. The increase of the purchase price was made in consideration, among others, of the assignment by
Sime Darby of the receivables in connection with its billboard advertising in Makati City and Pulilan, Bulacan.

On May 9, 1996, Sime Darby and Goodyear executed a deed entitled "Deed of Assignment in connection with
Microwave Communication Facility and in connection with Billboard Advertising in Makati City and Pulilan,
Bulacan"(Deed of Assignment),through which Sime Darby assigned, among others, its leasehold rights and deposits
made to Macgraphics pursuant to its lease contract over the Magallanes billboard.

Sime Darby then notified Macgraphics of the assignment of the Magallanes billboard in favor of Goodyear through
a letter-notice datedMay 3, 1996.
After submitting a new design for the Magallanes billboard to feature its name and logo, Goodyear requested that
Macgraphics submit its proposed quotation for the production costs of the new design. In a letterdated June 21,
1996 Macgraphics informed Goodyear that the monthly rental of the Magallanes billboard isP250,000.00 and
explained that the increase in rental was in consideration of the provisions and technical aspects of the submitted
design.

Goodyear replied on July 8, 1996 stating that due to budget constraints, it could not accept Macgraphics offer to
integrate the cost of changing the design to the monthly rental. Goodyear stated that it intended to honor the
P120,000.00 monthly rental rate given by Macgraphics to Sime Darby. It then requested that Macgraphics send its
quotation for the simple background repainting and re-lettering of the neon tubing for the Magallanes billboard.

Macgraphics then sent a letter to Sime Darby, dated July 11, 1996, informing the latter that it could not give its
consent to the assignment of lease to Goodyear. Macgraphics explained that the transfer of Sime Darbys leasehold
rights to Goodyear would necessitate drastic changes to the design and the structure of the neon display of the
Magallanes billboard and would entail the commitment of manpower and resources that it did not foresee at the
inception of the lease.

Attaching a copy of this letter to a correspondence dated July 15, 1996, Macgraphics advised Goodyear that any
advertising service it intended to get from them would have to wait until after the expiration or valid pre-termination
of the lease then existing with Sime Darby.

On September 23, 1996, due to Macgraphics refusal to honor the Deed of Assignment, Goodyear sent Sime Darby a
letter,via facsimile, demanding partial rescission of the Deed of Assignment and the refund ofP1,239,000.00, the
pro-rata value of Sime Darby's leasehold rights over the Magallanes billboard.

As Sime Darby refused to accede to Goodyears demand for partial rescission, the latter commenced Civil Case No.
97-561 with the RTC. In its complaint, Goodyear alleged that Sime Darby [1] was unable to deliver the object of the
Deed of Assignment and [2] was in breach of its warranty under Title VII, Section B, paragraph 2 of the MOA, stating
that "no consent of any third party with whom Sime Darby has a contractual relationship is required in connection
with the execution and delivery of the MOA, or the consummation of the transactions contemplated therein."

Including Macgraphics as an alternative defendant, Goodyear argued that should the court find the partial rescission
of the Deed of Assignment not proper, it must be declared to have succeeded in the rights and interest of Sime Darby
in the contract of lease and Macgraphics be ordered to pay it the amount ofP1,239,000.00.

Issue: Whether partial rescission of the Deed of Assignment is proper.

Held: The petition of Sime Darby remains bereft of any merit. Article 1649 of the New Civil Code provides:

Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the
contrary.

In an assignment of a lease, there is a novation by the substitution of the person of one of the parties the lessee.
The personality of the lessee, who dissociates from the lease, disappears. Thereafter, a new juridical relation arises
between the two persons who remain the lessor and the assignee who is converted into the new lessee. The
objective of the law in prohibiting the assignment of the lease without the lessors consent is to protect the owner
or lessor of the leased property.

Broadly, a novation may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by
the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation
subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either
by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or
subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would
have dual functions one to extinguish an existing obligation, the other to substitute a new one in its place. This
requires a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.

While there is no dispute that the first requisite is present, the Court, after careful consideration of the facts and the
evidence on record, finds that the other requirements of a valid novation are lacking. A review of the lease contract
between Sime Darby and Macgraphics discloses no stipulation that Sime Darby could assign the lease without the
consent of Macgraphics.

Moreover, contrary to the assertions of Sime Darby, the records are bereft of any evidence that clearly shows that
Macgraphics consented to the assignment of the lease. As aptly found by the RTC and the CA, Macgraphics was
never part of the negotiations between Sime Darby and Goodyear.Neither did it give its conformity to the assignment
after the execution of the Deed of Assignment.

The consent of the lessor to an assignment of lease may indeed be given expressly or impliedly. It need not be given
simultaneously with that of the lessee and of the assignee. Neither is it required to be in any specific or particular
form. It must, however, be clearly given. In this case, it cannot be said that Macgraphics gave its implied consent to
the assignment of lease.
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