EGV Realty v. CA Facts: Petitioner E.G.V. Realty Development Corporation (hereinafter referred to as E.G.V.

Realty) is the owner/developer of a seven-storey condominium building known as Cristina Condominium. Cristina Condominium Corporation (hereinafter referred to as CCC) holds title to all common areas of Cristina Condominium and is in charge of managing, maintaining and administering the condominiums common areas and providing for the buildings security. Respondent Unisphere International, Inc. (hereinafter referred to as Unisphere) is the owner/occupant of Unit 301 of said condominium. On November 28, 1981, respondent Unispheres Unit 301 was allegedly robbed of various items valued at P6,165.00. The incident was reported to petitioner CCC. On July 25, 1982, another robbery allegedly occurred at Unit 301 where the items carted away were valued at P6,130.00, bringing the total value of items lost to P12,295.00. This incident was likewise reported to petitioner CCC. On October 5, 1982, respondent Unisphere demanded compensation and reimbursement from petitioner CCC for the losses incurred as a result of the robbery. Petitioner CCC denied any liability for the losses claimed to have been incurred by respondent Unisphere, stating that the goods lost belonged to Amtrade, a third party. As a consequence of the denial, respondent Unisphere withheld payment of its monthly dues starting November 1982. On September 13, 1983, respondent Unisphere received a letter from petitioner CCC demanding payment of past dues. On December 5, 1984, petitioner E.G.V. Realty executed a Deed of Absolute Sale over Unit 301 in favor of respondent Unisphere. Thereafter, Condominium Certificate of Title No. 7010 was issued in respondent Unispheres name bearing the annotation of a lien in favor of petitioner E.G.V. Realty for the unpaid condominium dues in the amount of P13,142.67. On January 28, 1987, petitioners E.G.V. Realty and CCC jointly filed a petition with the Securities and Exchange Commission (SEC) for the collection of the unpaid monthly dues in the amount of P13,142.67 against respondent Unisphere. Unispheres Contention: It could not be deemed in default in the payment of said unpaid dues because its tardiness was occasioned by the petitioners' (CCC) failure to comply with what was incumbent upon them, that is, to provide security for the building premises in order to prevent, if not to stop, the robberies taking place therein. It asserted as counterclaim that the amount of P12,295.00 representing the total value of its loss due to the two robberies be awarded to it by way of damages for the latters failure to secure the premises. SECs Decision:

Ordered Unisphere to pay EGV the sum of P13,142.67 within fifteen (15) days from receipt of this Decision. Further, ordered CCC to pay Unisphere within fifteen (15) days from receipt of this Decision, the sum of P12,295.00. Both parties filed their respective motions for reconsideration. SEC denied Unispheres MFR but granted EGVs MFR. EGV is not liable for the stolen items of Unisphere. Unispheres MFRs were debunked by the SEC. CAs Ruling: Reversed the SECs ruling. The unpaid monthly dues of Unisphere to the Corporation should be offset by the losses suffered by the Unisphere in the amount of P12,295.00. Unisphere is hereby ordered to pay the Cristina Condominium Corporation the amount of P847.67 representing the balance after offsetting the amount of P12,295.00 against the said P13,142.67, with 12% interest per annum from January 28, 1987 when the Joint Petition of the petitioners-appellees was filed before the SEC (for collection and damages) until fully paid. EGVs MFR was denied by the CA. Issue: Whether or not set-off or compensation has taken place in the instant case. EGVs Contention: It is petitioners (EGV) assertion that the ruling of the Court of Appeals to offset the alleged losses as a result of the robberies in the amount of P12,295.00 from the unpaid monthly dues of P13,142.67 is unfounded because respondent Unisphere is not the owner of the goods lost but a third party, Amtrade. Respondent Unisphere, on its part, claims that this issue is factual, hence, not a proper issue to raise before this Court. Actually, the issue for our consideration is whether or not set-off or compensation has taken place in the instant case. The Court of Appeals dissertation on the matter is commendably instructive, but, lamentably, it reached a different conclusion. We quote pertinent portions of the assailed decision: Compensation or offset under the New Civil Code takes place only when two persons or entities in their own rights, are creditors and debtors of each other. (Art. 1278). xxx A distinction must be made between a debt and a mere claim.

DEBT v. MERE CLAIM DEBT o is an amount actually ascertained o it is a claim which has been formally passed upon by the courts or quasi-judicial bodies to which it can in law be submitted and has been declared to be a debt. CLAIM o a debt in embryo. o It is mere evidence of a debt and must pass thru the process prescribed by law before it develops into what is properly called a DEBT.

NOTE: Absent, however, any such categorical admission by an obligor or final adjudication, no compensation or off-set can take place. Unless admitted by a debtor himself, the conclusion that he is in truth indebted to another cannot be definitely and finally pronounced, no matter how convinced he may be from the examination of the pertinent records of the validity of that conclusion the indebtedness must be one that is admitted by the alleged debtor or pronounced by final judgment of a competent court or in this case by the Commission (Villanueva vs. Tantuico, 182 SCRA 263).

UNISPEHERE IS INDEED INDEBTED TO EGV BUT WHETHER EGV IS INDEBTED TO UNISHPERE IS A FACT DISPUTED BY EGV There can be no doubt that Unisphere is indebted to the Corporation for its unpaid monthly dues in the amount of P13,142.67. This is admitted. But whether the Corporation is indebted to Unisphere is vigorously disputed by the former. It appears quite clear that the offsetting of debts does not extend to UNLIQUIDATED, DISPUTING CLAIMS arising from TORT or BREACH OF CONTRACT. (Compania General de Tobacos vs. French and Unson, 39 Phil. 34; Lorenzo and Martinez vs. herrero, 17 Phil. 29). It must be noted that Unisphere just stopped paying its monthly dues to the Corporation on September 23, 1983 WITHOUT NOTIFYING EGV. It was only on February 24, 1984, or 5 MONTHS AFTER, that it informed the corporation of its suspension of payment of the condominium dues to offset the losses it suffered because of the robberies. EGVs Contention:

In resisting the finding which underscores their negligence, E.G.V. Realty and Cristina condominium corporation, would have this Court appreciate in their favor the admission of Mr. Alfonso Zamora of Unisphere that there was no such agreement among the unit owners that any member who incurred losses will be indemnified from the common contribution. EGV ADDS: IT SHUD BE THE SECURITY AGENCY THAT SHUD BE LIABLE. NOT US! The herein appellees (EGV) further argue that the cause of action for reimbursement of the value of the items lost because of the robberies should be against the security agency and not the Corporation. Unispheres Contention: On the other hand, Unisphere invokes ART. 1170 of the Civil Code which provides: ART. 1170.- Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. There is weight in the initial factual findings of the SEC Hearing Officer with respect to the losses suffered by Unisphere in the amount of P12,295.00: Plaintiff likewise does not dispute the fact of robbery that occurred on November 28, 1981 and July 26, 1982 inside 301 Cristina Condominium. Plaintiff admits that it had secured the services of Jimenez Protective and Security Agency to safeguard the Condominium premises under its instructions and supervision, but which failed to detect the robbery incidents that occurred twice at Unit 301 of respondent, canting (sic) away bulk items. xxx xxx xxx

EGV WAS REMISSED IN ITS OBLIGATION TO PROVIDE SAFETY TO UNISPHERE IN ITS CONDO UNIT DUE TO THE NEGLIGENCE OF THE HIRED GUARDS OF EGV, 2 INCIDENTS OF ROBBERIES OCCURED EGV HAS NOT COMPLIED W/ WHAT WAS INCUMBENT UPON IT From the undisputed facts, plaintiff (EGV) was remissed (sic) within its obligation to provide safety to respondent inside its unit. This was demonstrated by the fact that two robbery incidents befell respondents under the negligent eye of plaintiffs hired security guards. It can be safely pronounced that plaintiff has not complied with what was incumbent upon it to do in a proper manner. SECs Decision:

Since it has been determined and proven by the evidence presented before the hearing office of respondent SEC that Unisphere indeed suffered losses because of the robbery incidents and since it (Unisphere) did not refute its liability to the corporation for the unpaid monthly dues in the amount of P13,142. 67, this amount should be setoff against the aforestated losses of Unisphere.[7] We fully agree with the appellate courts dissertation on the nature and character of a set -off or compensation. However, we cannot subscribe to its conclusion that a set-off or compensation took place in this case. In Article 1278 of the Civil Code, compensation is said to take place when two persons, in their own right, are creditors and debtors of each other. COMPENSATION DEFN: a mode of extinguishing to the concurrent amount, the obligations of those persons who in their own right are reciprocally debtors an creditors of each other and the offsetting of two obligations which are reciprocally extinguished if they are of equal value, or extinguished to the concurrent amount if of different values.[8] Article 1279 of the same Code provides: Article 1279. In order that compensation may be proper, it is necessary: (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; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. Absent any showing that all of these requisites exist, compensation may not take place. WHILE UNISPHERE ADMITS ITS INDEBTEDNESS TO EGV, EGV DOES NOT ADMIT THAT IT IS INDEBTED TO UNISPHERE THERE IS NO COMPENSATION! THERE IS MERELY A CLAIM NOT A DEBT! While respondent Unisphere does not deny its liability for its unpaid dues to petitioners, the latter do not admit any responsibility for the loss suffered by the

former occasioned by the burglary. At best, what respondent Unisphere has against petitioners is just a claim, not a debt. THE CASE @BAR IS NOT ENFORCEABLE IN COURT ONLY DEBTS ARE ENFORCEABLE IN COURT Such being the case, it is not enforceable in court. It is only the DEBTS that are enforceable in court, there being no apparent defenses inherent in them.[9] NOTE!!! Respondent Unispheres claim for its loss has not been passed upon by any legal authority so as to elevate it to the level of a debt. Case: Alfonso Vallarta v. Court of Appeals, et al.,[10] that: Compensation or offset takes place by operation of law when two (2) persons, in their own right, are creditor and debtor of each other. For compensation to take place, a distinction must be made between a debt and a mere claim. A debt is a claim which has been formally passed upon by the highest authority to which it can in law be submitted and has been declared to be a debt. A claim, on the other hand, is a debt in embryo. It is mere evidence of a debt and must pass thru the process prescribed by law before it develops into what is properly called a debt.[11] NOTE: B4 A CLAIM BECOMES A DEBT, IT MUST PASS THE PROCESS THAT IS PRESCRIBED BY LAW. EGV AND UNISPHERE ARE NOT MUTUALLY DEBTORS TO EACH OTHER Tested by the foregoing yardstick, it has not been sufficiently established that compensation or set-off is proper here as there is lack of evidence to show that petitioners E.G.V. Realty and CCC and respondent Unisphere are mutually debtors and creditors to each other. Considering the foregoing disquisition, therefore, we find that respondent Court of Appeals committed reversible error in ruling that compensation or set-off is proper in the instant case. WHEREFORE, for all the foregoing , the instant petition is hereby GRANTED. The Decision of the Court of Appeals dated February 17, 1995 is REVERSED and SET ASIDE. The Order of the Securities and Exchange Commission dated August 21, 1990 reiterating the Hearing Officers Decision dated January 11, 1989, as amended by the Order of July 17, 1989, is hereby REINSTATED. Trinidad v. Acapulco Facts: On May 6, 1991, respondent Estrella Acapulco filed a Complaint before the RTC seeking the nullification of a sale she made in favor of petitioner Hermenegildo M. Trinidad. She alleged: Sometime in February 1991, a certain Primitivo Caete requested her to sell a Mercedes Benz for P580,000.00. Caete also said that if respondent herself will buy the car, Caete was willing to sell it for P500,000.00. Trinidad borrowed the car from respondent for two days but instead of returning the car as promised, Trinidad told Estrella to buy the car

from Caete forP500,000.00 and that Trinidad would pay respondent after petitioner returns from Davao. Following petitioners instructions, respondent requested Caete to execute a deed of sale covering the car in respondents favor forP500,000.00 for which Estrella issued three checks in favor of Caete. Estrella thereafter executed a deed of sale in favor of Trinidad even though Trinidad did not pay her any consideration for the sale. When Trinidad returned from Davao, he refused to pay Estrella the amount of P500,000.00 saying that said amount would just be deducted from whatever outstanding obligation Estrella had with him (Mr. Trinidad). Due to Mr. Trinidads failure to pay respondent, the checks that Ms. Estrella issued in favor of Caete bounced, thus criminal charges were filed against her.3 MS. ESTRELLAS PRAYER: The deed of sale between her and petitioner be declared null and void; that the car be returned to her; and that petitioner be ordered to pay damages.

Mr. Trinidads Contention: it is not true that he borrowed the car and that any demand was made to return it; he also did not give any instructions to Ms. Estrella to buy the car from Caete because as early as September 28, 1990, Caete has already sold the car to Ms. Estrella for P500,000.00; at the time Ms. Estrella executed the deed of sale in his favor on March 4, 1991, Ms. Estrella was already in possession of the deed of sale from Caete; the amount of P500,000.00 was fully paid by way of dation in payment to partially extinguish Ms. Estrellas obligation with Mr. Trinidad; the contract entered into was a true sale of a motor vehicle and the MODE OF PAYMENT was that of dation in payment agreed upon at the time of the sale. The parties filed their respective pre-trial briefs. Mr. Trinidad raised as issue: whether or not there is valid dation in payment; while Ms. Estrella put forth the questions: whether or not she is indebted to petitioner in the amount ofP566,000.00, and whether the car was ceded by her to petitioner in order to partially pay off her obligation ofP566,000.00 to petitioner as dation in payment.7 On September 6, 1991, the trial court came out with its Pre-Trial Order limiting the issue to whether there is dacion en pago between petitioner and respondent.8 RTCs Decision: Rendered a decision in favor of Ms. Estrella No dacion en pago exists.

Mr. Trinidads Contention: Filed a Motion for Reconsideration arguing that contrary to the findings of the trial court that there was no common consent, the offer to deliver the car to him actually came from respondent after petitioner told her that he was going to file estafa cases against her for her failure to pay her debt to petitioner.11 Also filed a Supplemental Motion and for the first time averred that assuming that respondent did not agree to having the purchase price charged against the P566,000.00 she owed petitioner, nonetheless, with or without her consent and/or knowledge, the obligations parties owed to each other were extinguished by operation of law or through LEGAL COMPENSATION in the amount of P500,000.00.12 RTCs Final Decision: Denied the Motion for Reconsideration and Supplemental Motion of Mr. Trinidad stating that the claim of dacion en pago is inexistent in this case and the defense of legal compensation was not alleged or pleaded in Mr. Trinidads Answer.13 CAs Decision: Affirmed the Decision of the trial court. Found that the issue of legal compensation was filed too late as it was brought up only in the supplemental motion for reconsideration; That the parties agreed that the issue to be tried was whether or not there was dacion en pago; That dacion en pago however is not present in this case as the parties did not give their consent thereto; There can also be no legal compensation as one of the obligations of this case did not entail payment of a monetary debt but the delivery of a car; and that the admission of petitioner that the sale price of the car was not paid entitled respondent to file the action for rescission of sale.14 Issue: W/N there was legal compensation in the case @ bar. Mr. Trinidads Contention: The purchase price of the car had been automatically offset by Ms. Estrellas own monetary obligation of P566,000.00, even if he and Ms. Estrella had not agreed to offsetting following Article 129016 of the Civil Code. Case: Bank of the Philippine Islands v. Court of Appeals:

Compensation shall take place when two persons, in their own right, are creditors and debtors of each other; legal compensation takes place by operation of law and may be taken up even though it is not raised in the pleadings or during trial; it is the duty of courts to grant the relief to which the parties are entitled as shown by the allegations and the facts proven at the trial. Here, while Mr. Trinidad claimed dation in payment, there was more than enough testimony and admissions to prove elements of legal compensation; failure to pay the agreed purchase price does not make the contract of sale fictitious and null and void; the CA erred in not ordering Ms. Estrella to pay Mr. Trinidad the balance of her partially extinguished indebtedness and in assessing damages against him as there was no basis therefor.18 Ms. Estrellas Contention: Ms. Estrella counters that: it was only in the Supplemental Motion for Reconsideration of the decision of the trial court that Mr. Trinidad changed his theory and started claiming legal compensation as a defense; the CA did not commit any error in rejecting the belated new defense of petitioner as it would be offensive to the basic rule of fair play, justice and due process; Article 1279 of the Civil Code also states that for legal compensation to be proper both debts should consist of sum of money; in this case, one of the obligations does not entail payment of money but delivery of a car.19 Mr. Trinidad merely reiterated his arguments in his Memorandum,20 while Ms. Estrella in hers, further averred that: she is not the owner of the car, but was only in possession thereof in order to sell it at a price of P580,000.00 withP80,000.00 going to her; both the trial court and the CA failed to make a finding as to the exact amount respondent owed petitioners.21 Stripped to its basics, what Mr. Trinidad is contending is that legal compensation should be appreciated, though not expressly stated in his Answer to the Complaint before the trial court, as his allegations therein and the facts proven at the trial show the presence of legal compensation. He further argues that, in any case, legal compensation takes place by operation of law even without the consent of the interested parties. Held: The Court resolves to grant the petition. Our rules recognize the broad discretionary power of an appellate court to waive the lack of proper assignment of errors and to consider errors not assigned.22 The interest of justice dictates that the Court consider and resolve issues even though not particularly raised if it is necessary for the complete adjudication of the rights and obligations of the parties and it falls within the issues already found by them.23 While it is true that Mr. Trinidad failed to raise the issue of legal compensation at the earliest opportunity, this should not preclude the courts from appreciating the same especially in this case, where ignoring the same would only result to unnecessary and circuitous filing of cases. Indeed, the doctrine that higher courts are precluded from entertaining matters neither alleged in the pleadings nor raised during the proceedings below but

ventilated for the first time only in a motion for reconsideration or on appeal, is subject to exceptions, such as when: (a) grounds not assigned as errors but affecting jurisdiction over the subject matter; (b) matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c) matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d) matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) matters not assigned as errors on appeal but closely related to an error assigned; and (f) matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is dependent.24 ANTECEDENTS OF THE CASE B4 IT WAS RAISED IN THE SC WHAT TRANSPIRED IN THE TC PROCEEDINGS In this case, Mr. Trinidad raised the issue of dacion en pago in his Answer to respondents Complaint. The trial court thus focused on ascertaining whether the elements of dacion en pago are present in the case at bar, i.e.: whether there is consent, object certain and cause or consideration, with common consent as an essential prerequisite to have the effect of totally extinguishing the debt or obligation.25 As Ms. Estrellas consent was not adequately proven by Mr. Trinidad, the trial court held that there could be no dacion en pago. Mr. Trinidad thereafter filed a Motion for Reconsideration and a Supplemental Motion for Reconsideration where, for the first time, he raised the issue of legal compensation. In striking down Mr. Trinidads claim of legal compensation, the trial court reasoned that it was raised too late. This was affirmed by the CA. This Court holds otherwise. Compensation takes effect by operation of law even without the consent or knowledge of the parties concerned when all the requisites mentioned in Article 1279 of the Civil Code are present.26 This is in consonance with Article 1290 of the Civil Code which provides that: Article 1290. 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. Since it takes place ipso jure,27 when used as a defense, it retroacts to the date when all its requisites are fulfilled.28

Article 1279 provides that in order that compensation may be proper, it is necessary: (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; (5) that over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. REASONS GIVEN COMPENSATION: BY MR. TRINIDAD OF WHY THERE IS LEGAL

Here, Mr. Trinidads stance is that legal compensation has taken place and operates even against the will of the parties because: (a) respondent and petitioner were personally both creditor and debtor of each other; (b) the monetary obligation of respondent was P566,000.00 and that of the petitioner was P500,000.00 showing that both indebtedness were monetary obligations the amount of which were also both known and liquidated; (c) both monetary obligations had become due and demandableMr. Trinidads obligation as shown in the deed of sale and Ms. Estrellas indebtedness as shown in the dishonored checks; and (d) neither of the debts or obligations are subject of a controversy commenced by a third person. While the proceedings in the RTC focused on ascertaining the presence of the elements of dacion en pago, it was likewise proven that Mr. Trinidad owed Ms. Estrella the amount of P500,000.00 while Ms. Estrella owed Mr. Trinidad P566,000.00; that both debts are due, liquidated and demandable, and; that neither of the debts or obligations are subject of a controversy commenced by a third person. Respondent in her cross-examination categorically admitted that she is indebted to petitioner as follows: Q But you will admit that you have borrowed several times from Mr. Trinidad some money? A Yes.

Q And in fact the total amount of money that you have borrowed from Mr. Trinidad reaches to P566,000.00, right? A Yes. Q And in fact you have issued checks to cover for this account? A Yes. Q There were several checks you have issued, right? A Yes. Q And all of these checks bounced? A Yes.29 xxxx Q x x x It is now very clear, Mrs. Acapulco, that at the time you executed a deed of absolute sale of the car in favor of Hermenegildo Trinidad you have an outstanding account with him in the amount of P566,000.00? A Yes.30 NOTE: THE PURPOSE OF WHY THERE IS LEGAL COMPENSATION Ignoring this admission would only result in added burden to Mr. Trinidad as well as the courts as Mr. Trinidad will be forced to file a separate case for collection of sum of money just so he could enforce his right to collect from Ms. Estrella. This is precisely what compensation seeks to avoid as its aim is to prevent unnecessary suits and payments through the mutual extinction of concurring debts by operation of law.31 The claim of Ms. Estrella that there could be no legal compensation in this case as one of the obligations consists of delivery of a car and not a sum of money must also fail. Ms. Estrella sold the car to Mr. Trinidad on March 4, 1991 for P500,000.00 while she filed her complaint for nullification of the sale only on May 6, 1991. As legal compensation takes place ipso jure, and retroacts to the date when its requisites are fulfilled, legal compensation has already taken place at the time of the sale. At such time, Mr. Trinidad owed respondent the sum of P500,000.00 which is the price of the vehicle. Consequently, by operation of law, the P500,000.00 which Mr. Trinidad owed Ms. Estrella is off-set against theP566,000.00 owed by Ms. Estrella to Mr. Trinidad, leaving a balance of P66,000.00, which Ms. Estrella should pay with 12% interest per annum from date of judicial or extrajudicial deed.32

Since there was no extrajudicial deed in this case, the interest shall be resolved from the date Mr. Trinidad filed its Supplemental Motion for Reconsideration invoking for the first time legal compensation, that is, May 20, 1992.33 Finally, the Court agrees with petitioner that the trial court erred in awarding damages in favor of respondent. In order that moral damages may be awarded, there must be pleading and proof of moral suffering, mental anguish, fright and the like, and while no proof of pecuniary loss is necessary in order that moral damages may be awarded, it is nevertheless essential that the claimant should satisfactorily show the existence of the factual basis of damages and its causal connection to defendants acts.34 Claims must be substantiated by clear and convincing proof 35 and there must be clear testimony on the anguish and other forms of mental sufferings as mere allegations will not suffice.36 Allegations of besmirched reputation, embarrassment and sleepless nights are insufficient for it must be shown that the proximate cause thereof was the unlawful act or omission of the opposing party.37 Indeed, for a court to arrive upon a judicious approximation of emotional or moral injury, competent and substantial proof of the suffering experienced must be laid before it.38 There must be definite findings as to what the supposed moral damages suffered consisted of. 39 The award of moral damages must be solidly anchored on a definite showing that the claiming party actually experienced emotional and mental sufferings.40 In this case, respondent merely testified that after petitioner refused the payment of the car as well as its return, she was very much worried, which if converted into monetary amount is equivalent to P200,000.00.41 We deem such testimony insufficient to warrant the award of moral damages. Similarly, in order that exemplary damages may be awarded, it must be shown that the wrongful act was accompanied by bad faith or done in a wanton, fraudulent, reckless or malevolent manner.42 Exemplary damages are also allowed only in addition to moral damages such that no exemplary damage can be awarded unless the claimant first establishes his clear right to moral damages.43 As moral damages are improper in the present case, so is the award of exemplary damages. The decision of the trial court also does not mention the reason for the award of attorneys fees and the award was simply contained in the dispositive portion of the decision. Again, the trial court erred on this score as it must explicitly state in the body of its decision and not only in the dispositive portion thereof the legal reason for the award of attorneys fees. 44 WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated February 16, 2001 is REVERSED and SET ASIDE. The P500,000.00 which Hermenegildo M. Trinidad owed Estrella Acapulco is offset against the P566,000.00 which Acapulco owed Trinidad. Acapulco is ordered to pay Trinidad the amount ofP66,000.00 plus interest at 12% per annum from May 20, 1992 until full payment. Phil. Commercial Bank v. Balmaceda Facts:

On September 10, 1993, PCIB filed an action for recovery of sum of money with damages before the RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB alleged that between 1991 and 1993, Balmaceda, by taking advantage of his position as branch manager, fraudulently obtained and encashed 31 Managers checks in the total amount of Ten Million Seven Hundred Eighty Two Thousand One Hundred Fifty Pesos (P10,782,150.00). On February 28, 1994, PCIB moved to be allowed to file an amended complaint to implead Rolando Ramos as one of the recipients of a portion of the proceeds from Balmacedas alleged fraud. PCIB also increased the number of fraudulently obtained and encashed Managers checks to 34, in the total amount of Eleven Million Nine Hundred Thirty Seven Thousand One Hundred Fifty Pesos (P11,937,150.00). The RTC granted this motion. Since Balmaceda did not file an Answer, he was declared in default. Contention of Mr. Ramos: On the other hand, Ramos filed an Answer denying any knowledge of Balmacedas scheme. According to Ramos, he is a reputable businessman engaged in the business of buying and selling fighting cocks, and Balmaceda was one of his clients. Ramos admitted receiving money from Balmaceda as payment for the fighting cocks that he sold to Balmaceda, but maintained that he had no knowledge of the source of Balmacedas money. RTCs Decision: Decided in favor of PCIB. Reason: From the evidence presented, the RTC found that Balmaceda, by taking undue advantage of his position and authority as branch manager of the Sta. Cruz, Manila branch of PCIB, successfully obtained and misappropriated the banks funds by falsifying several commercial documents. He accomplished this by claiming that he had been instructed by one of the Banks corporate clients to purchase Managers checks on its behalf, with the value of the checks to be debited

from the clients corporate bank account. First, he would instruct the Bank staff to prepare the application forms for the purchase of Managers checks, payable to several persons. Then, he would forge the signature of the clients authorized representative on these forms and sign the forms as PCIBs approving officer. Finally, he would have an authorized officer of PCIB issue the Managers checks. Balmaceda would subsequently ask his subordinates to release the Managers checks to him, claiming that the client had requested that he deliver the checks.[5] After receiving the Managers checks, he encashed them by forging the signatures of the payees on the checks. In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the Managers checks payable to Ramos were crossed checks, Balmaceda was still able to encash the checks.[6] After Balmaceda encashed three of these Managers checks, he deposited most of the money into Ramos account.[7] The RTC concluded that from the P11,937,150.00 that Balmaceda misappropriated from PCIB, P895,000.00 actually went to Ramos. Since the RTC disbelieved Ramos allegation that the sum of money deposited into his Savings Account (PCIB, Pasig branch) were proceeds from the sale of fighting cocks, it held Ramos liable to pay PCIB the amount of P895,000.00. CAs Decision: Dismissed the complaint against Ramos. No sufficient evidence existed to prove that Ramos colluded with Balmaceda in the latters fraudulent manipulations.[8] Reason: The mere fact that Balmaceda made Ramos the payee in some of the Managers checks does not suffice to prove that Ramos was complicit in Balmacedas fraudulent scheme. It observed that other persons were also named as payees in the checks that Balmaceda acquired and encashed, and PCIB only chose to go after Ramos. With PCIBs failure to prove Ramos actual participation in Balmacedas fraud, no legal and factual basis exists to hold him liable. The CA also found that PCIB acted illegally in freezing and debiting P251,910.96 from Ramos bank account. PCIBs Contention:

The circumstantial evidence shows that Ramos had knowledge of, and acted in complicity with Balmaceda in, the perpetuation of the fraud. Ramos explanation that he is a businessman and that he received the Managers checks as payment for the fighting cocks he sold to Balmaceda is unconvincing, given the large sum of money involved. While Ramos presented evidence that he is a reputable businessman, this evidence does not explain why the Managers checks were made payable to him in the first place. PCIB maintains that it had the right to freeze and debit the amount of P251,910.96 from Ramos bank account, even without his consent, since legal compensation had taken place between them by operation of law. PCIB debited Ramos bank account, believing in good faith that Ramos was not entitled to the proceeds of the Managers checks and was actually privy to the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable for moral and exemplary damages. Held: We partly grant the petition. At the outset, we observe that the petition raises mainly questions of fact whose resolution requires the re-examination of the evidence on record. As a general rule, petitions for review on certiorari only involve questions of law.[11] By way of exception, however, we can delve into evidence and the factual circumstance of the case when the findings of fact in the tribunals below (in this case between those of the CA and of the RTC) are conflicting. When the exception applies, we are given latitude to review the evidence on record to decide the case with finality.[12] Ramos participation scheme not proven in Balmacedas

From the testimonial and documentary evidence presented, we find it beyond question that Balmaceda, by taking advantage of his position as branch manager of PCIBs Sta. Cruz,

Manila branch, was able to apply for and obtain Managers checks drawn against the bank account of one of PCIBs clients. Q: The unsettled question is whether Ramos, who received a portion of the money that Balmaceda took from PCIB, should also be held liable for the return of this money to the Bank? PCIBs Contention: PCIB insists that it presented sufficient evidence to establish that Ramos colluded with Balmaceda in the scheme to fraudulently secure Managers checks and to misappropriate their proceeds. Since Ramos defense anchored on mere denial of any participation in Balmacedas wrongdoing is an intrinsically weak defense, it was error for the CA to exonerate Ramos from any liability. In civil cases, the party carrying the burden of proof must establish his case by a preponderance of evidence, or evidence which, to the court, is more worthy of belief than the evidence offered in opposition.[13] This Court, in Encinas v. National Bookstore, Inc.,[14] defined preponderance of evidence in the following manner: "Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term "greater weight of the evidence" or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto.

The party, whether the plaintiff or the defendant, who asserts the affirmative of an issue has the onus to prove his assertion in order to obtain a favorable judgment, subject to the overriding rule that the burden to prove his cause of action never leaves the plaintiff. For the defendant, an affirmative defense is one that is not merely a denial of an essential ingredient in the plaintiff's cause of action, but one which, if established, will constitute an "avoidance" of the claim.[15] Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive assertion that Ramos conspired with Balmaceda in perpetrating the latters scheme to defraud

the Bank. In PCIBs estimation, it successfully accomplished this through the submission of enidences. We cannot accept these submitted pieces of evidence as sufficient to satisfy the burden of proof that PCIB carries as plaintiff. On its face, all that PCIBs evidence proves is that Balmaceda used Ramos name as a payee when he filled up the application forms for the Managers checks. But, as the CA correctly observed, the mere fact that Balmaceda made Ramos the payee on some of the Managers checks is not enough basis to conclude that Ramos was complicit in Balmacedas fraud; a number of other people were made payees on the other Managers checks yet PCIB never alleged them to be liable, nor did the Bank adduce any other evidence pointing to Ramos participation that would justify his separate treatment from the others. Also, while Ramos is Balmacedas brother-in-law, their relationship is not sufficient, by itself, to render Ramos liable, absent concrete proof of his actual participation in the fraudulent scheme. Moreover, the evidence on record clearly shows that Balmaceda acted on his own when he applied for the Managers checks against the bank account of one of PCIBs clients, as well as when he encashed the fraudulently acquired Managers checks. Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the relevant events, testified that Balmaceda committed all the acts necessary to obtain the unauthorized Managers checks from filling up the application form by forging the signature of the clients representative, to forging the signatures of the payees in order to encash the checks. As Mrs. Costes stated in her testimony: Q: I am going into [these] particular instances where you said that Mr. Balmaceda [has] been making unauthorized withdrawals from particular account of a client or a client of yours at Sta. Cruz branch. Would you tell us how he effected his unauthorized withdrawals? A: He prevailed upon the domestic remittance clerk to prepare the application of a Managers check which [has] been debited to a clients account. This particular Managers check will be payable to a certain individual thru his account as the instruction of the client. Q: What was your findings in so far as the particular alleged instruction of a client is concerned? A: We found out that he forged the signature of the client.

Q: A:

On that particular application? Yes sir.

Q: Showing to you several applications for Managers Check previously attached as Annexes A, B, C, D and E[] of the complaint. Could you please tell us where is that particular alleged signature of a client applying for the Managers check which you claimed to have been forged by Mr. Balmaceda? A: Here sir. xxxx Q: After the accomplishment of this application form as you stated Mrs. witness, do you know what happened to the application form? A: Before that application form is processed it goes to several stages. Here for example this was signed supposed to be by the client and his signature representing that, he certified the signature based on their records to be authentic. Q: When you said he to whom are you referring to? A: Mr. Balmaceda. And at the same time he approved the transaction. xxxx Q: Do you know if the corresponding checks applied for in the application forms were issued? A: Yes sir. Q: Could you please show us where these checks are now, the one applied for in Exhibit A which is in the amount of P150,000.00, where is the corresponding check?

A: Rolando Ramos dated December 26, 1991 and one of the signatories with higher authority, this is Mr. Balmacedas signature. Q: In other words he is likewise approving signatory to the Managers check? A: Yes sir. This is an authority that the check [has] been encashed. Q: In other words this check issued to Rolando Ramos dated December 26, 1991 is a cross check but nonetheless he allowed to encash by granting it. Could you please show us? ATTY. PACES: Witness pointing to an initial of the defendant Antonio Balmaceda, the notation cross check. A: xxxx Q: How about the check corresponding to Exhibit E-2 which is an application for P125,000.00 for a certain Rolando Ramos. Do you have the check? A: Yes sir. ATTY. PACES: Witness producing a check dated December 19, 1991 the amount of P125,000.00 payable to certain Rolando Ramos. Q: Can you tell us whether the same modus operandi was ad[o]pted by Mr. Balmaceda in so far as he is concerned? A: Yes sir he is also the right signer and he authorized the cancellation of the cross check.[17] (emphasis ours) xxxx Q: These particular checks [Mrs.] witness in your findings, do you know if Mr. Balmaceda [has] again any participation in these checks? A: He is also the right signer and approved officer and he was authorized to debit on file. xxxx Q: And do you know if these particular checks marked as Exhibit G-2 to triple FFF were subsequently encashed? A: Yes sir. Q: Were you able to find out who encashed? And this is his signature.

A: Mr. Balmaceda himself and besides he approved the encashment because of the signature that he allowed the encashment of the check. xxxx Q: Do you know if this particular person having in fact withdraw of received the proceeds of [these] particular checks, the payee? A: No sir. Q: A: It was all Mr. Balmaceda dealing with you? Yes sir.

Q: In other words it would be possible that Mr. Balmaceda himself gotten the proceeds of the checks by forging the payees signature? A: Yes sir.[18] (emphases ours)

Mrs. Nilda Laforteza, the Commercial Account Officer of PCIBs Sta. Cruz, Manila branch at the time the events of this case occurred, confirmed Mrs. Costes testimony by stating that it was Balmaceda who forged Ramos signature on the Managers checks where Ramos was the payee, so as to encash the amounts indicated on the checks.[19] Mrs. Laforteza also testified that Ramos never went to the PCIB, Sta. Cruz, Manila branch to encash the checks since Balmaceda was the one who deposited the checks into Ramos bank account. As revealed during Mrs. Lafortezas cross-examination: Q: Mrs. Laforteza, these checks that were applied for by Mr. Balmaceda, did you ever see my client go to the bank to encash these checks? A: No it is Balmaceda who is depositing in his behalf. Q: Did my client ever call up the bank concerning this amount? A: Yes he is not going to call PCIBank Sta. Cruz branch because his account is maintained at Pasig.

Q: So Mr. Balmaceda was the one who just remitted or transmitted the amount that you claimed [was sent] to the account of my client? A: Yes.[20] (emphases ours)

Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to prove that Ramos encashed a Managers check forP480,000.00, could only testify that the money was deposited into Ramos PCIB bank account. She could not attest that Ramos himself presented the Managers check for deposit in his bank account.[21] These testimonies clearly dispute PCIBs theory that Ramos was instrumental in the encashment of the Managers checks. We also find no reason to doubt Ramos claim that Balmaceda deposited these large sums of money into his bank account as payment for the fighting cocks that Balmaceda purchased from him. Ramos presented two witnesses Vicente Cosculluela and Crispin Gadapan who testified that Ramos previously engaged in the business of buying and selling fighting cocks, and that Balmaceda was one of Ramos biggest clients. Quoting from the RTC decision, PCIB stresses that Ramos own witness and business partner, Cosculluela, testified that the biggest net profit he and Ramos earned from a single transaction with Balmaceda amounted to no more than P100,000.00, for the sale of approximately 45 fighting cocks.[22] In PCIBs view, this testimony directly contradicts Ramos assertion that he received approximately P400,000.00 from his biggest transaction with Balmaceda. To PCIB, the testimony also renders questionable Ramos assertion that Balmaceda deposited large amounts of money into his bank account as payment for the fighting cocks. On this point, we find that PCIB misunderstood Cosculluelas testimony. A review of the testimony shows that Cosculluela specifically referred to the net profit that they earned from the sale of the fighting cocks;[23] PCIB apparently did not take into account the capital, transportation and other expenses that are components of these transactions. Obviously, in sales transactions, the buyer has to pay not only for the value of the thing sold, but also for the shipping costs and other incidental costs that accompany the acquisition of the thing sold. Thus, while the biggest net profit that Ramos and Cosculluela earned in a single transaction amounted to no more than P100,000.00,[24] the inclusion of the actual acquisition costs of the fighting cocks, the transportation expenses (i.e., airplane tickets from Bacolod or Zamboanga to Manila) and other attendant expenses could account for theP400,000.00 that Balmaceda deposited into Ramos bank account.

Given that PCIB failed to establish Ramos participation in Balmacedas scheme, it was not even necessary for Ramos to provide an explanation for the money he received from Balmaceda. Even if the evidence adduced by the plaintiff appears stronger than that presented by the defendant, a judgment cannot be entered in the plaintiffs favor if his evidence still does not suffice to sustain his cause of action;[25] to reiterate, a preponderance of evidence as defined must be established to achieve this result.

PCIB itself at fault as employer

In considering this case, one point that cannot be disregarded is the significant role that PCIB played which contributed to the perpetration of the fraud. We cannot ignore that Balmaceda managed to carry out his fraudulent scheme primarily because other PCIB employees failed to carry out their assigned tasks flaws imputable to PCIB itself as the employer. Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the PCIB, Sta. Cruz, Manila branch at the time of the incident, testified that Balmaceda broke the Banks protocol when he ordered the Banks employees to fill up the application forms for the Managers checks, to be debited from the bank account of one of the banks clients, without providing the necessary Authority to Debit from the client.[26] PCIB also admitted that these Managers checks were subsequently released to Balmaceda, and not to the clients representative, based solely on Balmacedas word that the client had tasked him to deliver these checks.[27] Despite Balmacedas gross violations of bank procedures mainly in the processing of the applications for Managers checks and in the releasing of the Managers checks Balmacedas co-employees not only turned a blind eye to his actions, but actually complied with his instructions. In this way, PCIBs own employees were unwitting accomplices in Balmacedas fraud. Another telling indicator of PCIBs negligence is the fact that it allowed Balmaceda to encash the Managers checks that were plainly crossed checks. A crossed check is one where two parallel lines are drawn across its face or across its corner.[28]Based on jurisprudence, the crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to the one who has an account with the bank; and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due course. [29] In other words, the crossing of a check is a warning that the check should be deposited only in the account of the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the payees account.[30] In complete disregard of this duty,

PCIBs systems allowed Balmaceda to encash 26 Managers checks which were all crossed checks, or checks payable to the payees account only. The General Banking Law of 2000[31] requires of banks the highest standards of integrity and performance. The banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of a family.[32]The highest degree of diligence is expected.[33] While we appreciate that Balmaceda took advantage of his authority and position as the branch manager to commit these acts, this circumstance cannot be used to excuse the manner the Bank through its employees handled its clients bank accounts and thereby ignored established bank procedures at the branch managers mere order. This lapse is made all the more glaring by Balmacedas repetition of his modus operandi 33 more times in a period of over one year by the Banks own estimation. With this kind of record, blame must be imputed on the Bank itself and its systems, not solely on the weakness or lapses of individual employees. Principle of applicable unjust enrichment not

PCIB maintains that even if Ramos did not collude with Balmaceda, it still has the right to recover the amounts unjustly received by Ramos pursuant to the principle of unjust enrichment. This principle is embodied in Article 22 of the Civil Code which provides: Article 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

To have a cause of action based on unjust enrichment, we explained in University of the Philippines v. Philab Industries, Inc.[34] that: Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully. Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party knowingly received something of value to which he was not entitled and that the state of

affairs are such that it would be unjust for the person to keep the benefit. Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of restitution.[35] (emphasis ours)

Ramos cannot be held liable to PCIB on account of unjust enrichment simply because he received payments out of money secured by fraud from PCIB. To hold Ramos accountable, it is necessary to prove that he received the money from Balmaceda, knowing that he (Ramos) was not entitled to it. PCIB must also prove that Ramos, at the time that he received the money from Balmaceda, knew that the money was acquired through fraud. Knowledge of the fraud is the link between Ramos and PCIB that would obligate Ramos to return the money based on the principle of unjust enrichment. However, as the evidence on record indicates, Ramos accepted the deposits that Balmaceda made directly into his bank account, believing that these deposits were payments for the fighting cocks that Balmaceda had purchased. Significantly, PCIB has not presented any evidence proving that Ramos participated in, or that he even knew of, the fraudulent sources of Balmacedas funds. PCIB illegally froze and debited Ramos assets We also find that PCIB acted illegally in freezing and debiting Ramos bank account. In BPI Family Bank v. Franco,[36] we cautioned against the unilateral freezing of bank accounts by banks, noting that: More importantly, [BPI Family Bank] does not have a unilateral right to freeze the accounts of Franco based on its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant [BPI Family Bank], or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes are derived from shady transactions, would open the floodgates of public distrust in the banking industry.[37]

We see no legal merit in PCIBs claim that legal compensation took place between i t and Ramos, thereby warranting the automatic deduction from Ramos bank account. For legal compensation to take place, two persons, in their own right, must first be creditors and debtors

of each other.[38] While PCIB, as the depositary bank, is Ramos debtor in the amount of his deposits, Ramos is not PCIBs debtor under the evidence the PCIB adduced. PCIB thus had no basis, in fact or in law, to automatically debit from Ramos bank account. On the award of damages Although PCIBs act of freezing and debiting Ramos account is unlawful, we cannot hold PCIB liable for moral and exemplary damages. Since a contractual relationship existed between Ramos and PCIB as the depositor and the depositary bank, respectively, the award of moral damages depends on the applicability of Article 2220 of the Civil Code, which provides: Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. [emphasis ours]

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious commission of a wrong; it partakes of the nature of fraud.[39] As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze Ramos bank account and subsequently debited the amount of P251,910.96 therefrom. While PCIB may have acted hastily and without regard to its primary duty to treat the accounts of its depositors with meticulous care and utmost fidelity,[40] we find that its actions were propelled more by the need to protect itself, and not out of malevolence or ill will. One may err, but error alone is not a ground for granting moral damages.[41] We also disallow the award of exemplary damages. Article 2234 of the Civil Code requires a party to first prove that he is entitled to moral, temperate or compensatory damages before he can be awarded exemplary damages. Since no reason exists to award moral damages, so too can there be no reason to award exemplary damages. We deem it just and equitable, however, to uphold the award of attorneys fees in Ramos favor. Taking into consideration the time and efforts involved that went into this case, we increase the award of attorneys fees from P20,000.00 to P75,000.00.

WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the decision of the Court of Appeals dated April 29, 2003 in CA-G.R. CV No. 69955 with the MODIFICATION that the award of moral and exemplary damages in favor of Rolando N. Ramos is DELETED, while the award of attorneys fees is INCREASED to P75,000.00. Costs against the Philippine Commercial International Bank. ABELARDO B. LICAROS, petitioner, vs. ANTONIO P. GATMAITAN, respondent. DECISION GONZAGA-REYES, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court. The petition seeks to reverse and set aside the Decision[1] dated February 10, 2000 of the Court of Appeals and its Resolution[2] dated April 7, 2000 denying petitioners Motion for Reconsideration thereto. The appellate court decision reversed the Decision[3] dated November 11, 1997 of the Regional Trial Court of Makati, Branch 145 in Civil Case No. 96-1211. The facts of the case, as stated in the Decision of the Court of Appeals dated February 10, 2000, are as follows: The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for brevity), is a private bank registered and organized to do business under the laws of the Republic of Vanuatu but not in the Philippines. Its business consists primarily in receiving fund placements by way of deposits from institutions and individual investors from different parts of the world and thereafter investing such deposits in money market placements and potentially profitable capital ventures in Hongkong, Europe and the United States for the purpose of maximizing the returns on those investments. Enticed by the lucrative prospects of doing business with Anglo-Asean, Abelardo Licaros, a Filipino businessman, decided to make a fund placement with said bank sometime in the 1980s. As it turned out, the grim outcome of Licaros foray in overseas fund investment was not exactly what he envisioned it to be. More particularly, Licaros, after having invested in AngloAsean, encountered tremendous and unexplained difficulties in retrieving, not only the interest or profits, but even the very investments he had put in Anglo-Asean. Confronted with the dire prospect of not getting back any of his investments, Licaros then decided to seek the counsel of Antonio P. Gatmaitan, a reputable banker and investment manager who had been extending managerial, financial and investment consultancy services to various firms and corporations both here and abroad. To Licaros relief, Gatmaitan was only too willing enough to help. Gatmaitan voluntarily offered to assume the payment of Anglo-Aseans indebtedness to Licaros subject to certain terms and conditions. In order to effectuate and formalize the parties respective commitments, the two executed a notarized MEMORANDUM OF AGREEMENT on July 29, 1988 (Exh. B; also Exhibit 1), the full text of which reads: Memorandum of Agreement KNOW ALL MEN BY THESE PRESENTS:

This MEMORANDUM OF AGREEMENT made and executed this 29th day of July 1988, at Makati by and between: ABELARDO B. LICAROS, Filipino, of legal age and holding office at Concepcion Building, Intramuros, Manila hereinafter referred to as THE PARTY OF THE FIRST PART, and ANTONIO P. GATMAITAN, Filipino, of legal age and residing at 7 Mangyan St., La Vista, hereinafter referred to as the PARTY OF THE SECOND PART, WITNESSETH THAT: WHEREAS, ANGLO-ASEAN BANK & TRUST, a company incorporated by the Republic of Vanuatu, hereinafter referred to as the OFFSHORE BANK, is indebted to the PARTY OF THE FIRST PART in the amount of US dollars; ONE HUNDRED FIFTY THOUSAND ONLY (US$150,000) which debt is now due and demandable. WHEREAS, the PARTY OF THE FIRST PART has encountered difficulties in securing full settlement of the said indebtedness from the OFFSHORE BANK and has sought a business arrangement with the PARTY OF THE SECOND PART regarding his claims; WHEREAS, the PARTY OF THE SECOND PART, with his own resources and due to his association with the OFFSHORE BANK, has offered to the PARTY OF THE FIRST PART to assume the payment of the aforesaid indebtedness, upon certain terms and conditions, which offer, the PARTY OF THE FIRST PART has accepted; WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their mutual prestations which they now record herein with the express conformity of the third parties concerned; NOW, THEREFORE, for and in consideration of the foregoing and the mutual covenants stipulated herein, the PARTY OF THE FIRST PART and the PARTY OF THE SECOND PART have agreed, as they do hereby agree, as follows: 1. The PARTY OF THE SECOND PART hereby undertakes to pay the PARTY OF THE FIRST PART the amount of US DOLLARS ONE HUNDRED FIFTY THOUSAND ((US$150,000) payable in Philippine Currency at the fixed exchange rate of Philippine Pesos 21 to US$1 without interest on or before July 15, 1993. For this purpose, the PARTY OF THE SECOND PART shall execute and deliver a non negotiable promissory note, bearing the aforesaid material consideration in favor of the PARTY OF THE FIRST PART upon execution of this MEMORANDUM OF AGREEMENT, which promissory note shall form part as ANNEX A hereof. 2. For and in consideration of the obligation of the PARTY OF THE SECOND PART, the PARTY OF THE FIRST does hereby;

a. Sell, assign, transfer and set over unto the PARTY OF THE SECOND PART that certain debt now due and owing to the PARTY OF THE FIRST PART by the OFFSHORE BANK, to the amount of US Dollars One Hundred Fifty Thousand plus interest due and accruing thereon; b. Grant the PARTY OF THE SECOND PART the full power and authority, for his own use and benefit, but at his own cost and expense, to demand, collect, receive, compound, compromise and give acquittance for the same or any part thereof, and in the name of the PARTY OF THE FIRST PART, to prosecute, and withdraw any suit or proceedings therefor; c. Agree and stipulate that the debt assigned herein is justly owing and due to the PARTY OF THE FIRST PART from the said OFFSHORE BANK, and that the PARTY OF THE FIRST PART has not done and will not cause anything to be done to diminish or discharge said debt, or to delay or prevent the PARTY OF THE SECOND PART from collecting the same; and; d. At the request of the PARTY OF SECOND PART and the latters own cost and expense, to execute and do all such further acts and deeds as shall be reasonably necessary for proving said debt and to more effectually enable the PARTY OF THE SECOND PART to recover the same in accordance with the true intent and meaning of the arrangements herein. IN WITNESS WHEREOF, the parties have caused this MEMORANDUM OF AGREEMENT to be signed on the date and place first written above. Sgd. ABELARDO B. LICAROS PARTY OF THE FIRST PART WITH OUR CONFORME: ANGLO-ASEAN BANK & TRUST BY: (Unsigned) SIGNED IN THE PRESENCE OF: Sgd. (illegible) ________________________ ________________________ Sgd. ANTONIO P. GATMAITAN PARTY OF THE FIRST PART

Conformably with his undertaking under paragraph 1 of the aforequoted agreement, Gatmaitan executed in favor of Licaros a NON-NEGOTIABLE PROMISSORY NOTE WITH ASSIGNMENT OF CASH DIVIDENDS (Exhs. A; also Exh. 2), which promissory note, appended as Annex A to the same Memorandum of Agreement, states in full, thus NON-NEGOTIABLE PROMISSORY NOTE WITH ASSIGNMENT OF CASH DIVIDENDS This promissory note is Annex A of the Memorandum of Agreement executed between Abelardo B. Licaros and Antonio P. Gatmaitan, on ______ 1988 at Makati, Philippines and is an integral part of said Memorandum of Agreement. P3,150,000.

On or before July 15, 1993, I promise to pay to Abelardo B. Licaros the sum of Philippine Pesos 3,150,000 (P3,150,000) without interest as material consideration for the full settlement of his money claims from ANGLO-ASEAN BANK, referred to in the Memorandum of Agreement as the OFFSHORE BANK. As security for the payment of this Promissory Note, I hereby ASSIGN, CEDE and TRANSFER, Seventy Percent (70%) of ALL CASH DIVIDENDS, that may be due or owing to me as the registered owner of ___________________ (__________) shares of stock in the Prudential Life Realty, Inc. This assignment shall likewise include SEVENTY PERCENT (70%) of cash dividends that may be declared by Prudential Life Realty, Inc. and due or owing to Prudential Life Plan, Inc., of which I am a stockholder, to the extent of or in proportion to my aforesaid shareholding in Prudential Life Plan, Inc., the latter being the holding company of Prudential Life Realty, Inc. In the event that I decide to sell or transfer my aforesaid shares in either or both the Prudential Life Plan, Inc. or Prudential Life Realty, Inc. and the Promissory Note remains unpaid or outstanding, I hereby give Mr. Abelardo B. Licaros the first option to buy the said shares. Manila, Philippines July _____, 1988 (SGD.) Antonio P. 7 Mangyan St., La Vista,

Gatmaitan QC Signed in the Presence of (SGD.) _________________ Francisco A. Alba President, Prudential Life Plan, Inc..

__________________

Thereafter, Gatmaitan presented to Anglo-Asean the Memorandum of Agreement earlier executed by him and Licaros for the purpose of collecting the latters placement thereat of U.S.$150,000.00. Albeit the officers of Anglo-Asean allegedly committed themselves to look into [this matter], no formal response was ever made by said bank to either Licaros or Gatmaitan. To date, Anglo-Asean has not acted on Gatmaitans monetary claims. Evidently, because of his inability to collect from Anglo-Asean, Gatmaitan did not bother anymore to make good his promise to pay Licaros the amount stated in his promissory note (Exh. A; also Exh. 2). Licaros, however, thought differently. He felt that he had a right to collect on the basis of the promissory note regardless of the outcome of Gatmaitan's recovery efforts. Thus, in July 1996, Licaros, thru counsel, addressed successive demand letters to Gatmaitan (Exhs. C and D), demanding payment of the latters obligations under the promissory note. Gatmaitan, however, did not accede to these demands.

Hence, on August 1, 1996, in the Regional Trial Court at Makati, Licaros filed the complaint in this case. In his complaint, docketed in the court below as Civil Case No. 96-1211, Licaros prayed for a judgment ordering Gatmaitan to pay him the following: a) Principal Obligation in the amount of Three Million Five Hundred Thousand Pesos (P3,500,000.00); b) Legal interest thereon at the rate of six (6%) percent per annum from July 16, 1993 when the amount became due until the obligation is fully paid; c) Twenty percent (20%) of the amount due as reasonable attorneys fees; d) Costs of the suit.[4] After trial on the merits, the court a quo rendered judgment in favor of petitioner Licaros and found respondent Gatmaitan liable under the Memorandum of Agreement and Promissory Note for P3,150,000.00 plus 12% interest per annum from July 16, 1993 until the amount is fully paid. Respondent was likewise ordered to pay attorneys fees of P200,000.00.[5] Respondent Gatmaitan appealed the trial courts decision to the Court of Appeals. In a decision promulgated on February 10, 2000, the appellate court reversed the decision of the trial court and held that respondent Gatmaitan did not at any point become obligated to pay to petitioner Licaros the amount stated in the promissory note. In a Resolution dated April 7, 2000, the Court of Appeals denied petitioners Motion for Reconsideration of its February 10, 2000 Decision. Hence this petition for review on certiorari where petitioner prays for the reversal of the February 10, 2000 Decision of the Court of Appeals and the reinstatement of the November 11, 1997 decision of the Regional Trial Court. The threshold issue for the determination of this Court is whether the Memorandum of Agreement between petitioner and respondent is one of assignment of credit or one of conventional subrogation. This matter is determinative of whether or not respondent became liable to petitioner under the promissory note considering that its efficacy is dependent on the Memorandum of Agreement, the note being merely an annex to the said memorandum.[6] An assignment of credit has been defined as the process of transferring the right of the assignor to the assignee who would then have the right to proceed against the debtor. The assignment may be done gratuitously or onerously, in which case, the assignment has an effect similar to that of a sale.[7] On the other hand, subrogation has been defined as the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts. Conventional subrogation is that which takes place by agreement of parties.[8] The general tenor of the foregoing definitions of the terms subrogation and assignment of credit may make it seem that they are one and the same which they are not. A noted expert in civil law notes their distinctions thus: Under our Code, however, conventional subrogation is not identical to assignment of credit. In the former, the debtors consent is necessary; in the latter it is not required. Subrogation

extinguishes the obligation and gives rise to a new one; assignment refers to the same right which passes from one person to another. The nullity of an old obligation may be cured by subrogation, such that a new obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditors right to another.[9] For our purposes, the crucial distinction deals with the necessity of the consent of the debtor in the original transaction. In an assignment of credit, the consent of the debtor is not necessary in order that the assignment may fully produce legal effects.[10] What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him as the assignment takes effect only from the time he has knowledge thereof. [11] A creditor may, therefore, validly assign his credit and its accessories without the debtors consent. [12] On the other hand, conventional subrogation requires an agreement among the three parties concerned the original creditor, the debtor, and the new creditor. It is a new contractual relation based on the mutual agreement among all the necessary parties. Thus, Article 1301 of the Civil Code explicitly states that (C)onventional subrogation of a third person requires the consent of the original parties and of the third person. The trial court, in finding for the petitioner, ruled that the Memorandum of Agreement was in the nature of an assignment of credit. As such, the court a quo held respondent liable for the amount stated in the said agreement even if the parties thereto failed to obtain the consent of Anglo-Asean Bank. On the other hand, the appellate court held that the agreement was one of conventional subrogation which necessarily requires the agreement of all the parties concerned. The Court of Appeals thus ruled that the Memorandum of Agreement never came into effect due to the failure of the parties to get the consent of Anglo-Asean Bank to the agreement and, as such, respondent never became liable for the amount stipulated. We agree with the finding of the Court of Appeals that the Memorandum of Agreement dated July 29, 1988 was in the nature of a conventional subrogation which requires the consent of the debtor, Anglo-Asean Bank, for its validity. We note with approval the following pronouncement of the Court of Appeals: Immediately discernible from above is the common feature of contracts involving conventional subrogation, namely, the approval of the debtor to the subrogation of a third person in place of the creditor. That Gatmaitan and Licaros had intended to treat their agreement as one of conventional subrogation is plainly borne by a stipulation in their Memorandum of Agreement, to wit: WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their mutual prestations which they now record herein with the express conformity of the third parties concerned (emphasis supplied), which third party is admittedly Anglo-Asean Bank. Had the intention been merely to confer on appellant the status of a mere assignee of appellees credit, there is simply no sense for them to have stipulated in their agre ement that the same is conditioned on the express conformity thereto of Anglo -Asean Bank. That they did so only accentuates their intention to treat the agreement as one of conventional subrogation. And it is basic in the interpretation of contracts that the intention of the parties must be the one pursued (Rule 130, Section 12, Rules of Court).

Given our finding that the Memorandum of Agreement (Exh. B; also Exh. 1), is not one of assignment of credit but is actually a conventional subrogation, the next question that comes to mind is whether such agreement was ever perfected at all. Needless to state, the perfection or non-perfection of the subject agreement is of utmost relevance at this point. For, if the same Memorandum of Agreement was actually perfected, then it cannot be denied that Gatmaitan still has a subsisting commitment to pay Licaros on the basis of his promissory note. If not, Licaros suit for collection must necessarily fail. Here, it bears stressing that the subject Memorandum of Agreement expressly requires the consent of Anglo-Asean to the subrogation. Upon whom the task of securing such consent devolves, be it on Licaros or Gatmaitan, is of no significance. What counts most is the hard reality that there has been an abject failure to get Anglo-Aseans nod of approval over Gatmaitans being subrogated in the place of Licaros. Doubtless, the absence of such conformity on the part of Anglo-Asean, which is thereby made a party to the same Memorandum of Agreement, prevented the agreement from becoming effective, much less from being a source of any cause of action for the signatories thereto.[13] Aside for the whereas clause cited by the appellate court in its decision, we likewise note that on the signature page, right under the place reserved for the signatures of petitioner and respondent, there is, typewritten, the words WITH OUR CONFORME. Under this notation, the words ANGLO-ASEAN BANK AND TRUST were written by hand.[14] To our mind, this provision which contemplates the signed conformity of Anglo-Asean Bank, taken together with the aforementioned preambulatory clause leads to the conclusion that both parties intended that Anglo-Asean Bank should signify its agreement and conformity to the contractual arrangement between petitioner and respondent. The fact that Anglo-Asean Bank did not give such consent rendered the agreement inoperative considering that, as previously discussed, the consent of the debtor is needed in the subrogation of a third person to the rights of a creditor. In this petition, petitioner assails the ruling of the Court of Appeals that what was entered into by the parties was a conventional subrogation of petitioners rights as creditor of the Anglo Asean Bank which necessarily requires the consent of the latter. In support, petitioner alleges that: (1) the Memorandum of Agreement did not create a new obligation and, as such, the same cannot be a conventional subrogation; (2) the consent of Anglo-Asean Bank was not necessary for the validity of the Memorandum of Agreement; (3) assuming that such consent was necessary, respondent failed to secure the same as was incumbent upon him; and (4) respondent himself admitted that the transaction was one of assignment of credit. Petitioner argues that the parties to the Memorandum of Agreement could not have intended the same to be a conventional subrogation considering that no new obligation was created. According to petitioner, the obligation of Anglo-Asean Bank to pay under Contract No. 00193 was not extinguished and in fact, it was the basic intention of the parties to the Memorandum of Agreement to enforce the same obligation of Anglo-Asean Bank under its contract with petitioner. Considering that the old obligation of Anglo-Asean Bank under Contract No. 00193 was never extinguished under the Memorandum of Agreement, it is contended that the same could not be considered as a conventional subrogation. We are not persuaded. It is true that conventional subrogation has the effect of extinguishing the old obligation and giving rise to a new one. However, the extinguishment of the old obligation is the effect of the establishment of a contract for conventional subrogation. It is not a requisite without which a contract for conventional subrogation may not be created. As such, it is not determinative of whether or not a contract of conventional subrogation was constituted.

Moreover, it is of no moment that the subject of the Memorandum of Agreement was the collection of the obligation of Anglo-Asean Bank to petitioner Licaros under Contract No. 00193. Precisely, if conventional subrogation had taken place with the consent of Anglo-Asean Bank to effect a change in the person of its creditor, there is necessarily created a new obligation whereby Anglo-Asean Bank must now give payment to its new creditor, herein respondent. Petitioner next argues that the consent or conformity of Anglo-Asean Bank is not necessary to the validity of the Memorandum of Agreement as the evidence on record allegedly shows that it was never the intention of the parties thereto to treat the same as one of conventional subrogation. He claims that the preambulatory clause requiring the express conformity of third parties, which admittedly was Anglo-Asean Bank, is a mere surplusage which is not necessary to the validity of the agreement. As previously discussed, the intention of the parties to treat the Memorandum of Agreement as embodying a conventional subrogation is shown not only by the whereas clause but also by the signature space captioned WITH OUR CONFORME reserved for the signatu re of a representative of Anglo-Asean Bank. These provisions in the aforementioned Memorandum of Agreement may not simply be disregarded or dismissed as superfluous. It is a basic rule in the interpretation of contracts that (t)he various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.[15] Moreover, under our Rules of Court, it is mandated that (i)n the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all. [16] Further, jurisprudence has laid down the rule that contracts should be so construed as to harmonize and give effect to the different provisions thereof.[17] In the case at bench, the Memorandum of Agreement embodies certain provisions that are consistent with either a conventional subrogation or assignment of credit. It has not been shown that any clause or provision in the Memorandum of Agreement is inconsistent or incompatible with a conventional subrogation. On the other hand, the two cited provisions requiring consent of the debtor to the memorandum is inconsistent with a contract of assignment of credit. Thus, if we were to interpret the same as one of assignment of credit, then the aforementioned stipulations regarding the consent of Anglo-Asean Bank would be rendered inutile and useless considering that, as previously discussed, the consent of the debtor is not necessary in an assignment of credit. Petitioner next argues that assuming that the conformity of Anglo-Asean was necessary to the validity of the Memorandum of Agreement, respondent only had himself to blame for the failure to secure such conformity as was, allegedly, incumbent upon him under the memorandum. As to this argument regarding the party responsible for securing the conformity of AngloAsean Bank, we fail to see how this question would have any relevance on the outcome of this case. Having ruled that the consent of Anglo-Asean was necessary for the validity of the Memorandum of Agreement, the determinative fact is that such consent was not secured by either petitioner or respondent which consequently resulted in the invalidity of the said memorandum. With respect to the argument of petitioner that respondent himself allegedly admitted in open court that an assignment of credit was intended, it is enough to say that respondent apparently used the word assignment in his testimony in the general sense. Respondent is not a lawyer and as such, he is not so well versed in law that he would be able to distinguish between the concepts of conventional subrogation and of assignment of credit. Moreover, even assuming

that there was an admission on his part, such admission is not conclusive on this court as the nature and interpretation of the Memorandum of Agreement is a question of law which may not be the subject of stipulations and admissions.[18] Considering the foregoing, it cannot then be said that the consent of the debtor AngloAsean Bank is not necessary to the validity of the Memorandum of Agreement. As above stated, the Memorandum of Agreement embodies a contract for conventional subrogation and in such a case, the consent of the original parties and the third person is required. [19] The absence of such conformity by Anglo-Asean Bank prevented the Memorandum of Agreement from becoming valid and effective. Accordingly, the Court of Appeals did not err when it ruled that the Memorandum of Agreement was never perfected. Having arrived at the above conclusion, the Court finds no need to discuss the other issues raised by petitioner. WHEREFORE, the instant petition is DENIED and the Decision of the Court of Appeals dated February 10, 2000 and its Resolution dated April 7, 2000 are hereby AFFIRMED. ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS, respondent. DECISION PANGANIBAN, J.: Novation cannot be presumed. It must be clearly shown either by the express assent of the parties or by the complete incompatibility between the old and the new agreements. Petitioner herein fails to show either requirement convincingly; hence, the summary judgment holding him liable as a joint and solidary debtor stands.

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

The Antecedents The antecedents of the case are narrated by the CA as follows:

This case started out as a complaint for sum of money and damages by x x x [Respondent] Dionisio Llamas against x x x [Petitioner] Romeo Garcia and Eduardo de Jesus. Docketed as Civil Case No. Q97-32-873, the complaint alleged that on 23 December 1996[,] [petitioner and de Jesus] borrowed P400,000.00 from [respondent]; that, on the same day, [they] executed a promissory note wherein they bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month; that the loan has long been overdue and, despite repeated demands, [petitioner and de Jesus] have failed and refused to pay it; and that, by reason of the[ir] unjustified refusal, [respondent] was compelled to engage the services of counsel to whom he agreed to pay 25% of the sum to be recovered from [petitioner and de Jesus], plus P2,000.00 for every appearance in court. Annexed to the complaint were the promissory note above-mentioned and a demand letter, dated 02 May 1997, by [respondent] addressed to [petitioner and de Jesus]. Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he assumed no liability under the promissory note because he signed it merely as an accommodation party for x x x de Jesus; and, alternatively, that he is relieved from any liability arising from the note inasmuch as the loan had been paid by x x x de Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of the check and [respondents] acceptance thereof novated or superseded the note. [Respondent] tendered a reply to [Petitioner] Garcias answer, thereunder asserting that the loan remained unpaid for the reason that the check issued by x x x de Jesus bounced, and that [Petitioner] Garcias answer was not even accompanied by a certificate of non -forum shopping. Annexed to the reply were the face of the check and the reverse side thereof. For his part, x x x de Jesus asserted in his [A]nswer with [C]ounterclaim that out of the supposed P400,000.00 loan, he received only P360,000.00, theP40,000.00 having been advance interest thereon for two months, that is, for January and February 1997; that[,] in fact[,] he paid the sum of P120,000.00 by way of interests; that this was made when [respondents] daughter, one Nits Llamas-Quijencio, received from the Central Police District Command at Bicutan, Taguig, Metro Manila (where x x x de Jesus worked), the sum of P40,000.00, representing the peso equivalent of his accumulated leave credits, another P40,000.00 as advance interest, and still another P40,000.00 as interest for the months of March and April 1997; that he had difficulty in paying the loan and had asked [respondent] for an extension of time; that [respondent] acted in bad faith in instituting the case, [respondent] having agreed to accept the benefits he (de Jesus) would receive for his retirement, but [respondent] nonetheless filed the instant case while his retirement was being processed; and that, in defense of his rights, he agreed to pay his counsel P20,000.00 [as] attorneys fees, plus P1,000.00 for every court appearance. During the pre-trial conference, x x x de Jesus and his lawyer did not appear, nor did they file any pre-trial brief. Neither did [Petitioner] Garcia file a pre-trial brief, and his counsel even manifested that he would no [longer] present evidence. Given this development, the trial court gave [respondent] permission to present his evidence ex parte against x x x de Jesus; and, as regards [Petitioner] Garcia, the trial court directed [respondent] to file a motion for judgment on the pleadings, and for [Petitioner] Garcia to file his comment or opposition thereto. Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default and to allow him to present his evidence ex parte. Meanwhile, [Petitioner] Garcia filed a [M]anifestation submitting his defense to a judgment on the pleadings. Subsequently, [respondent] filed a [M]anifestation/[M]otion to submit the case for judgement on the

pleadings, withdrawing in the process his previous motion. Thereunder, he asserted that [petitioners and de Jesus] solidary liability under the promissory note cannot be any clearer, and that the check issued by de Jesus did not discharge the loan since the check bounced. [5] On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222) disposed of the case as follows: WHEREFORE, premises considered, judgment on the pleadings is hereby rendered in favor of [respondent] and against [petitioner and De Jesus], who are hereby ordered to pay, jointly and severally, the [respondent] the following sums, to wit: 1) P400,000.00 representing the principal amount plus 5% interest thereon per month from January 23, 1997 until the same shall have been fully paid, less the amount of P120,000.00 representing interests already paid by x x x de Jesus; 2) P100,000.00 as attorneys fees plus appearance fee of P2,000.00 for each day of [c]ourt appearance, and; 3) Cost of this suit.[6]

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

Issues Petitioner submits the following issues for our consideration: I

Whether or not the Honorable Court of Appeals gravely erred in not holding that novation applies in the instant case as x x x Eduardo de Jesus had expressly assumed sole and exclusive liability for the loan obligation he obtained from x x x Respondent Dionisio Llamas, as clearly evidenced by: a) Issuance by x x x de Jesus of a check in payment of the full amount of the loan of P400,000.00 in favor of Respondent Llamas, although the check subsequently bounced[;] Acceptance of the check by the x x x respondent x x x which resulted in [the] substitution by x x x de Jesus or [the superseding of] the promissory note; x x x de Jesus having paid interests on the loan in the total amount of P120,000.00; The fact that Respondent Llamas agreed to the proposal of x x x de Jesus that due to financial difficulties, he be given an extension of time to pay his loan obligation and that his retirement benefits from the Philippine National Police will answer for said obligation.

b)

c) d)

II Whether or not the Honorable Court of Appeals seriously erred in not holding that the defense of petitioner that he was merely an accommodation party, despite the fact that the promissory note provided for a joint and solidary liability, should have been given weight and credence considering that subsequent events showed that the principal obligor was in truth and in fact x x x de Jesus, as evidenced by the foregoing circumstances showing his assumption of sole liability over the loan obligation. III Whether or not judgment on the pleadings or summary judgment was properly availed of by Respondent Llamas, despite the fact that there are genuine issues of fact, which the Honorable Court of Appeals itself admitted in its Decision, which call for the presentation of evidence in a full-blown trial.[8] Simply put, the issues are the following: 1) whether there was novation of the obligation; 2) whether the defense that petitioner was only an accommodation party had any basis; and 3) whether the judgment against him -- be it a judgment on the pleadings or a summary judgment - was proper.

The Courts Ruling The Petition has no merit.

First Issue:

Novation Petitioner seeks to extricate himself from his obligation as joint and solidary debtor by insisting that novation took place, either through the substitution of De Jesus as sole debtor or the replacement of the promissory note by the check. Alternatively, the former argues that the original obligation was extinguished when the latter, who was his co-obligor, paid the loan with the check. The fallacy of the second (alternative) argument is all too apparent. The check could not have extinguished the obligation, because it bounced upon presentment. By law,[9] the delivery of a check produces the effect of payment only when it is encashed. We now come to the main issue of whether novation took place. Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor.[10] Article 1293 of the Civil Code defines novation as follows: Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237. In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In expromision, the initiative for the change does not come from -- and may even be made without the knowledge of -- the debtor, since it consists of a third persons assumption of the obligation. As such, it logically requires the consent of the third person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the consent of these three persons are necessary.[11] Both modes of substitution by the debtor require the consent of the creditor.[12] Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement.[13] Whether extinctive or modificatory, novation is made either by changing the object or the principal conditions, referred to as objective or real novation; or by substituting the person of the debtor or subrogating a third person to the rights of the creditor, an act known as subjective or personal novation.[14] For novation to take place, the following requisites must concur: 1) 2) 3) 4) There must be a previous valid obligation. The parties concerned must agree to a new contract. The old contract must be extinguished. There must be a valid new contract.[15]

Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. It is implied when the new obligation

is incompatible with the old one on every point.[16] The test of incompatibility is whether the two obligations can stand together, each one with its own independent existence.[17] Applying the foregoing to the instant case, we hold that no novation took place. The parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the acceptance of the check, or that the check would take the place of the note. There is no incompatibility between the promissory note and the check. As the CA correctly observed, the check had been issued precisely to answer for the obligation. On the one hand, the note evidences the loan obligation; and on the other, the check answers for it. Verily, the two can stand together. Neither could the payment of interests -- which, in petitioners view, also constitutes novation[18] -- change the terms and conditions of the obligation. Such payment was already provided for in the promissory note and, like the check, was totally in accord with the terms thereof. Also unmeritorious is petitioners argument that the obligation was novated by the substitution of debtors. In order to change the person of the debtor, the old one must be expressly released from the obligation, and the third person or new debtor must assume the formers place in the relation.[19] Well-settled is the rule that novation is never presumed.[20] Consequently, that which arises from a purported change in the person of the debtor must be clear and express.[21] It is thus incumbent on petitioner to show clearly and unequivocally that novation has indeed taken place. In the present case, petitioner has not shown that he was expressly released from the obligation, that a third person was substituted in his place, or that the joint and solidary obligation was cancelled and substituted by the solitary undertaking of De Jesus. The CA aptly held: x x x. Plaintiffs acceptance of the bum check did not result in substitution by de Jesus either, the nature of the obligation being solidary due to the fact that the promissory note expressly declared that the liability of appellants thereunder is joint and [solidary.] Reason: under the law, a creditor may demand payment or performance from one of the solidary debtors or some or all of them simultaneously, and payment made by one of them extinguishes the obligation. It therefore follows that in case the creditor fails to collect from one of the solidary debtors, he may still proceed against the other or others. x x x [22] Moreover, it must be noted that for novation to be valid and legal, the law requires that the creditor expressly consent to the substitution of a new debtor.[23] Since novation implies a waiver of the right the creditor had before the novation, such waiver must be express.[24] It cannot be supposed, without clear proof, that the present respondent has done away with his right to exact fulfillment from either of the solidary debtors.[25] More important, De Jesus was not a third person to the obligation. From the beginning, he was a joint and solidary obligor of the P400,000 loan; thus, he can be released from it only upon its extinguishment. Respondents acceptance of his check did not change the person of the debtor, because a joint and solidary obligor is required to pay the entirety of the obligation. It must be noted that in a solidary obligation, the creditor is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. [26] It is up to the former to determine against whom to enforce collection.[27] Having made himself jointly and severally liable with De Jesus, petitioner is therefore liable[28] for the entire obligation.[29]

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

Third Issue: Propriety of Summary Judgment or Judgment on the Pleadings The next issue illustrates the usual confusion between a judgment on the pleadings and a summary judgment. Under Section 3 of Rule 35 of the Rules of Court, a summary judgment may be rendered after a summary hearing if the pleadings, supporting affidavits, depositions and admissions on file show that (1) except as to the amount of damages, there is no genuine issue regarding any material fact; and (2) the moving party is entitled to a judgment as a matter of law.

A summary judgment is a procedural device designed for the prompt disposition of actions in which the pleadings raise only a legal, not a genuine, issue regarding any material fact.[35] Consequently, facts are asserted in the complaint regarding which there is yet no admission, disavowal or qualification; or specific denials or affirmative defenses are set forth in the answer, but the issues are fictitious as shown by the pleadings, depositions or admissions.[36] A summary judgment may be applied for by either a claimant or a defending party.[37] On the other hand, under Section 1 of Rule 34 of the Rules of Court, a judgment on the pleadings is proper when an answer fails to render an issue or otherwise admits the material allegations of the adverse partys pleading. The essential question is whether there are issues generated by the pleadings.[38] A judgment on the pleadings may be sought only by a claimant, who is the party seeking to recover upon a claim, counterclaim or cross-claim; or to obtain a declaratory relief. [39] Apropos thereto, it must be stressed that the trial courts judgment against petitioner was correctly treated by the appellate court as a summary judgment, rather than as a judgment on the pleadings. His Answer[40] apparently raised several issues -- that he signed the promissory note allegedly as a mere accommodation party, and that the obligation was extinguished by either payment or novation. However, these are not factual issues requiring trial. We quote with approval the CAs observations: Although Garcias [A]nswer tendered some issues, by way of affirmative defenses, the documents submitted by [respondent] nevertheless clearly showed that the issues so tendered were not valid issues. Firstly, Garcias claim that he was merely an accommodation party is belied by the promissory note that he signed. Nothing in the note indicates that he was only an accommodation party as he claimed to be. Quite the contrary, the promissory note bears the statement: It is understood that our liability under this loan is jointly and severally [sic]. Secondly, his claim that his co-defendant de Jesus already paid the loan by means of a check collapses in view of the dishonor thereof as shown at the dorsal side of said check. [41] From the records, it also appears that petitioner himself moved to submit the case for judgment on the basis of the pleadings and documents. In a written Manifestation,[42] he stated that judgment on the pleadings may now be rendered without further evidence, considering the allegations and admissions of the parties.[43] In view of the foregoing, the CA correctly considered as a summary judgment that which the trial court had issued against petitioner. WHEREFORE, this Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioner. CALIFORNIA BUS LINES, INC., petitioner, vs. STATE INVESTMENT HOUSE, INC., respondent. DECISION QUISUMBING, J.: In this petition for review, California Bus Lines, Inc., assails the decision, [1] dated April 17, 2001, of the Court of Appeals in CA-G.R. CV No. 52667, reversing the judgment[2], dated June 3, 1993, of the Regional Trial Court of Manila, Branch 13, in Civil Case No. 84-28505 entitled State

Investment House, Inc. v. California Bus Lines, Inc., for collection of a sum of money. The Court of Appeals held petitioner California Bus Lines, Inc., liable for the value of five promissory notes assigned to respondent State Investment House, Inc. The facts, as culled from the records, are as follows: Sometime in 1979, Delta Motors CorporationM.A.N. Division (Delta) applied for financial assistance from respondent State Investment House, Inc. (hereafter SIHI), a domestic corporation engaged in the business of quasi-banking. SIHI agreed to extend a credit line to Delta forP25,000,000.00 in three separate credit agreements dated May 11, June 19, and August 22, 1979.[3] On several occasions, Delta availed of the credit line by discounting with SIHI some of its receivables, which evidence actual sales of Deltas vehicles. Delta eventually became indebted to SIHI to the tune of P24,010,269.32.[4] Meanwhile, from April 1979 to May 1980, petitioner California Bus Lines, Inc. (hereafter CBLI), purchased on installment basis 35 units of M.A.N. Diesel Buses and two (2) units of M.A.N. Diesel Conversion Engines from Delta. To secure the payment of the purchase price of the 35 buses, CBLI and its president, Mr. Dionisio O. Llamas, executed sixteen (16) promissory notes in favor of Delta on January 23 and April 25, 1980.[5] In each promissory note, CBLI promised to pay Delta or order, P2,314,000 payable in 60 monthly installments starting August 31, 1980, with interest at 14% per annum. CBLI further promised to pay the holder of the said notes 25% of the amount due on the same as attorneys fees and expenses of collection, whether actually incurred or not, in case of judicial proceedings to enforce collection. In addition to the notes, CBLI executed chattel mortgages over the 35 buses in Deltas favor. When CBLI defaulted on all payments due, it entered into a restructuring agreement with Delta on October 7, 1981, to cover its overdue obligations under the promissory notes.[6] The restructuring agreement provided for a new schedule of payments of CBLIs past due installments, extending the period to pay, and stipulating daily remittance instead of the previously agreed monthly remittance of payments. In case of default, Delta would have the authority to take over the management and operations of CBLI until CBLI and/or its president, Mr. Dionisio Llamas, remitted and/or updated CBLIs past due account. CBLI and Delta also increased the interest rate to 16% p.a. and added a documentation fee of 2% p.a. and a 4% p.a. restructuring fee. On December 23, 1981, Delta executed a Continuing Deed of Assignment of Receivables[7] in favor of SIHI as security for the payment of its obligations to SIHI per the credit agreements. In view of Deltas failure to pay, the loan agreements were restructured under a Memorandum of Agreement dated March 31, 1982.[8] Delta obligated itself to pay a fixed monthly amortization of P400,000 to SIHI and to discount with SIHIP8,000,000 worth of receivables with the understanding that SIHI shall apply the proceeds against Deltas overdue accounts. CBLI continued having trouble meeting its obligations to Delta. This prompted Delta to threaten CBLI with the enforcement of the management takeover clause. To pre-empt the takeover, CBLI filed on May 3, 1982, a complaint for injunction[9], docketed as Civil Case No. 0023P, with the Court of First Instance of Rizal, Pasay City, (now Regional Trial Court of Pasay City). In due time, Delta filed its amended answer with applications for the issuance of a writ of preliminary mandatory injunction to enforce the management takeover clause and a writ of preliminary attachment over the buses it sold to CBLI.[10] On December 27, 1982,[11] the trial court granted Deltas prayer for issuance of a writ of preliminary mandatory injunction and preliminary attachment on account of the fraudulent disposition by CBLI of its assets.

On September 15, 1983, pursuant to the Memorandum of Agreement, Delta executed a Deed of Sale[12] assigning to SIHI five (5) of the sixteen (16) promissory notes[13] from California Bus Lines, Inc. At the time of assignment, these five promissory notes, identified and numbered as 80-53, 80-54, 80-55, 80-56, and 80-57, had a total value of P16,152,819.80 inclusive of interest at 14% per annum. SIHI subsequently sent a demand letter dated December 13, 1983,[14] to CBLI requiring CBLI to remit the payments due on the five promissory notes directly to it. CBLI replied informing SIHI of Civil Case No. 0023-P and of the fact that Delta had taken over its management and operations.[15] As regards Deltas remaining obligation to SIHI, Delta offered its available bus units, valued at P27,067,162.22, as payment in kind.[16] OnDecember 29, 1983, SIHI accepted Deltas offer, and Delta transferred the ownership of its available buses to SIHI, which in turn acknowledged full payment of Deltas remaining obligation.[17] When SIHI was unable to take possession of the buses, SIHI filed a petition for recovery of possession with prayer for issuance of a writ of replevin before the RTC of Manila, Branch 6, docketed as Civil Case No. 84-23019. The Manila RTC issued a writ of replevin and SIHI was able to take possession of 17 bus units belonging to Delta. SIHI applied the proceeds from the sale of the said 17 buses amounting to P12,870,526.98 to Deltas outstanding obligation. Deltas obligation to SIHI was thus reduced toP20,061,898.97. On December 5, 1984, Branch 6 of the RTC of Manila rendered judgment in Civil Case No. 84-23019 ordering Delta to pay SIHI this amount. Thereafter, Delta and CBLI entered into a compromise agreement on July 24, 1984,[18] in Civil Case No. 0023-P, the injunction case before the RTC of Pasay. CBLI agreed that Delta would exercise its right to extrajudicially foreclose on the chattel mortgages over the 35 bus units. The RTC of Pasay approved this compromise agreement the following day, July 25, 1984.[19] Following this, CBLI vehemently refused to pay SIHI the value of the five promissory notes, contending that the compromise agreement was in full settlement of all its obligations to Delta including its obligations under the promissory notes. On December 26, 1984, SIHI filed a complaint, docketed as Civil Case No. 84-28505, against CBLI in the Regional Trial Court of Manila, Branch 34, to collect on the five (5) promissory notes with interest at 14% p.a. SIHI also prayed for the issuance of a writ of preliminary attachment against the properties of CBLI.[20] On December 28, 1984, Delta filed a petition for extrajudicial foreclosure of chattel mortgages pursuant to its compromise agreement with CBLI. On January 2, 1985, Delta filed in the RTC of Pasay a motion for execution of the judgment based on the compromise agreement.[21] The RTC of Pasay granted this motion the following day.[22] In view of Deltas petition and motion for execution per the judgment of compromise, the RTC of Manila granted in Civil Case No. 84-28505SIHIs application for preliminary attachment on January 4, 1985.[23] Consequently, SIHI was able to attach and physically take possession of thirty-two (32) buses belonging to CBLI.[24] However, acting on CBLIs motion to quash the writ of preliminary attachment, the same court resolved on January 15, 1986,[25] to discharge the writ of preliminary attachment. SIHI assailed the discharge of the writ before the Intermediate Appellate Court (now Court of Appeals) in a petition for certiorari and prohibition, docketed as CA-G.R. SP No. 08378. On July 31, 1987, the Court of Appeals granted SIHIs petition in CA-GR SP No. 08378 and ruled that the writ of preliminary attachment issued by Branch 34 of the RTC Manila in Civil Case No. 84-28505 should stay.[26] The decision of the Court of Appeals attained finality on August 22, 1987.[27]

Meanwhile, pursuant to the January 3, 1985 Order of the RTC of Pasay, the sheriff of Pasay City conducted a public auction and issued a certificate of sheriffs sale to Delta on April 2, 1987, attesting to the fact that Delta bought 14 of the 35 buses for P3,920,000.[28] On April 7, 1987, the sheriff of Manila, by virtue of the writ of execution dated March 27, 1987, issued by Branch 6 of the RTC of Manila in Civil Case No. 84-23019, sold the same 14 buses at public auction in partial satisfaction of the judgment SIHI obtained against Delta in Civil Case No. 8423019. Sometime in May 1987, Civil Case No. 84-28505 was raffled to Branch 13 of the RTC of Manila in view of the retirement of the presiding judge of Branch 34. Subsequently, SIHI moved to sell the sixteen (16) buses of CBLI which had previously been attached by the sheriff in Civil Case No. 84-28505 pursuant to the January 4, 1985, Order of the RTC of Manila.[29] SIHIs motion was granted on December 16, 1987.[30] OnNovember 29, 1988, however, SIHI filed an urgent ex-parte motion to amend this order claiming that through inadvertence and excusable negligence of its new counsel, it made a mistake in the list of buses in the Motion to Sell Attached Properties it had earlier filed.[31] SIHI explained that 14 of the buses listed had already been sold to Delta on April 2, 1987, by virtue of the January 3, 1985 Order of the RTC of Pasay, and that two of the buses listed had been released to third party, claimant Pilipinas Bank, by Order dated September 16, 1987[32] of Branch 13 of the RTC of Manila. CBLI opposed SIHIs motion to allow the sale of the 16 buses. On May 3, 1989,[33] Branch 13 of the RTC of Manila denied SIHIs urgent motion to allow the sale of the 16 buses listed in its motion to amend. The trial court ruled that the best interest of the parties might be better served by denying further sales of the buses and to go direct to the trial of the case on the merits.[34] After trial, judgment was rendered in Civil Case No. 84-28505 on June 3, 1993, discharging CBLI from liability on the five promissory notes. The trial court likewise favorably ruled on CBLIs compulsory counterclaim. The trial court directed SIHI to return the 16 buses or to pay CBLIP4,000,000 representing the value of the seized buses, with interest at 12% p.a. to begin from January 11, 1985, the date SIHI seized the buses, until payment is made. In ruling against SIHI, the trial court held that the restructuring agreement dated October 7, 1981, between Delta and CBLInovated the five promissory notes; hence, at the time Delta assigned the five promissory notes to SIHI, the notes were already merged in the restructuring agreement and cannot be enforced against CBLI. SIHI appealed the decision to the Court of Appeals. The case was docketed as CA-G.R. CV No. 52667. On April 17, 2001, the Court of Appeals decided CA-G.R. CV No. 52667 in this manner: WHEREFORE, based on the foregoing premises and finding the appeal to be meritorious, We find defendant-appellee CBLI liable for the value of the five (5) promissory notes subject of the complaint a quo less the proceeds from the attached sixteen (16) buses. The award of attorneys fees and costs is eliminated. The appealed decision is hereby REVERSED. No costs. SO ORDERED.[35] Hence, this appeal where CBLI contends that I. THE COURT OF APPEALS ERRED IN DECLARING THAT THE RESTRUCTURING AGREEMENT BETWEEN DELTA AND THE PETITIONER DID

NOT SUBSTANTIALLY NOVATE THE TERMS OF THE FIVE PROMISSORY NOTES. II. THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPROMISE AGREEMENT BETWEEN DELTA AND THE PETITIONER IN THE PASAY CITY CASE DID NOT SUPERSEDE AND DISCHARGE THE PROMISSORY NOTES. III. THE COURT OF APPEALS ERRED IN UPHOLDING THE CONTINUING VALIDITY OF THE PRELIMINARY ATTACHMENT AND EXONERATING THE RESPONDENT OF MALEFACTIONS IN PRESERVING AND ASSERTING ITS RIGHTS THEREUNDER.[36] Essentially, the issues are (1) whether the Restructuring Agreement dated October 7, 1981, between petitioner CBLI and Delta Motors, Corp. novated the five promissory notes Delta Motors, Corp. assigned to respondent SIHI, and (2) whether the compromise agreement in Civil Case No. 0023-P superseded and/or discharged the subject five promissory notes. The issues being interrelated, they shall be jointly discussed. CBLI first contends that the Restructuring Agreement did not merely change the incidental elements of the obligation under all sixteen (16) promissory notes, but it also increased the obligations of CBLI with the addition of new obligations that were incompatible with the old obligations in the said notes.[37] CBLI adds that even if the restructuring agreement did not totally extinguish the obligations under the sixteen (16) promissory notes, the July 24, 1984, compromise agreement executed in Civil Case No. 0023-P did.[38] CBLI cites paragraph 5 of the compromise agreement which states that the agreement between it and CBLI was in full and final settlement, adjudication and termination of all their rights and obligations as of the date of (the) agreement, and of the issues in (the) case. According to CBLI, inasmuch as the five promissory notes were subject matters of the Civil Case No. 0023-P, the decision approving the compromise agreement operated as resjudicata in the present case.[39] Novation has been defined as the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a third person in the rights of the creditor.[40] Novation, in its broad concept, may either be extinctive or modificatory.[41] It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement.[42] An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal).[43] Novation has two functions: one to extinguish an existing obligation, the other to substitute a new one in its place.[44] For novation to take place, four essential requisites have to be met, namely, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.[45] Novation is never presumed,[46] and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.[47] The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or impliedly.[48] The term "expressly" means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one.[49] Upon the other hand, no specific form is required for an

implied novation, and all that is prescribed by law would be an incompatibility between the two contracts.[50] While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and the new obligations. There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence.[51] If they cannot, they are incompatible and the latter obligation novates the first.[52] Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatoryin nature and insufficient to extinguish the original obligation.[53] The necessity to prove the foregoing by clear and convincing evidence is accentuated where the obligation of the debtor invoking the defense of novation has already matured.[54] With respect to obligations to pay a sum of money, this Court has consistently applied the well-settled rule that the obligation is not novatedby an instrument that expressly recognizes the old, changes only the terms of payment, and adds other obligations not incompatible with the old ones, or where the new contract merely supplements the old one.[55] In Inchausti & Co. v. Yulo[56] this Court held that an obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified, by changing only the term of payment and adding other obligations not incompatible with the old one. In Tible v. Aquino[57] and Pascualv. Lacsamana[58] this Court declared that it is well settled that a mere extension of payment and the addition of another obligation not incompatible with the old one is not a novation thereof. In this case, the attendant facts do not make out a case of novation. The restructuring agreement between Delta and CBLI executed onOctober 7, 1981, shows that the parties did not expressly stipulate that the restructuring agreement novated the promissory notes. Absent an unequivocal declaration of extinguishment of the pre-existing obligation, only a showing of complete incompatibility between the old and the new obligation would sustain a finding of novation by implication.[59] However, our review of its terms yields no incompatibility between the promissory notes and the restructuring agreement. The five promissory notes, which Delta assigned to SIHI on September 13, 1983, contained the following common stipulations: 1. 2. 3. 4. They were payable in 60 monthly installments up to July 31, 1985; Interest: 14% per annum; Failure to pay any of the installments would render the entire remaining balance due and payable at the option of the holder of the notes; In case of judicial collection on the notes, the maker (CBLI) and co-maker (its president, Mr. Dionisio O. Llamas, Jr) were solidarily liable of attorneys fees and expenses of 25% of the amount due in addition to the costs of suit.

The restructuring agreement, for its part, had the following provisions: WHEREAS, CBL and LLAMAS admit their past due installment on the following promissory notes: a. PN Nos. 16 to 26 (11 units) Past Due as of September 30, 1981 P1,411,434.00 b. PN Nos. 52 to 57 (24 units) Past Due as of September 30, 1981 P1,105,353.00 WHEREAS, the parties agreed to restructure the above-mentioned past due installments under the following terms and conditions: a. PN Nos. 16 to 26 (11 units) 37 months PN Nos. 52 to 57 (24 units) 46 months b. Interest Rate: 16% per annum c. Documentation Fee: 2% per annum d. Penalty previously incurred and Restructuring fee: 4% p.a. e. Mode of Payment: Daily Remittance NOW, THEREFORE, for and in consideration of the foregoing premises, the parties hereby agree and covenant as follows: 1. That the past due installment referred to above plus the current and/or falling due amortization as of October 1, 1981 for Promissory Notes Nos. 16 to 26 and 52 to 57 shall be paid by CBL and/or LLAMAS in accordance with the following schedule of payments: Daily payments of P11,000.00 from October 1 to December 31, 1981 Daily payments of P12,000.00 from January 1, 1982 to March 31, 1982 Daily payments of P13,000.00 from April 1, 1982 to June 30, 1982 Daily payments of P14,000.00 from July 1, 1982 to September 30, 1982 Daily payments of P15,000.00 from October 1, 1982 to December 31, 1982 Daily payments of P16,000.00 from January 1, 1983 to June 30, 1983

Daily payments of P17,000.00 from July 1, 1983 2. CBL or LLAMAS shall remit to DMC on or before 11:00 a.m. everyday the daily cash payments due to DMC in accordance with the schedule in paragraph 1. DMC may send a collector to receive the amount due at CBLs premises. All delayed remittances shall be charged additional 2% penalty interest per month. 3. All payments shall be applied to amortizations and penalties due in accordance with paragraph of the restructured past due installments above mentioned and PN Nos. 16 to 26 and 52 to 57. 4. DMC may at anytime assign and/or send its representatives to monitor the operations of CBL pertaining to the financial and field operations and service and maintenance matters of M.A.N. units. Records needed by the DMC representatives in monitoring said operations shall be made available by CBL and LLAMAS. 5. Within thirty (30) days after the end of the terms of the PN Nos. 16 to 26 and 52 to 57, CBL or LLAMAS shall remit in lump sum whatever balance is left after deducting all payments made from what is due and payable to DMC in accordance with paragraph 1 of this agreement and PN Nos. 16 to 26 and 52 to 57. 6. In the event that CBL and LLAMAS fail to remit the daily remittance agreed upon and the total accumulated unremitted amount has reached and (sic) equivalent of Sixty (60) days, DMC and Silverio shall exercise any or all of the following options: (a) The whole sum remaining then unpaid plus 2% penalty per month and 16% interest per annum on total past due installments will immediately become due and payable. In the event of judicial proceedings to enforce collection, CBL and LLAMAS will pay to DMC an additional sum equivalent to 25% of the amount due for attorneys fees and expenses of collection, whether actually incurred or not, in addition to the cost of suit; To enforce in accordance with law, their rights under the Chattel Mortgage over various M.A.N. Diesel bus with Nos. CU 80-39, 80-40, 80-41, 80-42, 80-43, 8044 and 80-15, and/or To take over management and operations of CBL until such time that CBL and/or LLAMAS have remitted and/or updated their past due account with DMC.

(b)

(c)

7. DMC and SILVERIO shall insure to CBL continuous supply of spare parts for the M.A.N. Diesel Buses and shall make available to CBL at the price prevailing at the time of purchase, an inventory of spare parts consisting of at least ninety (90%) percent of the needs of CBL based on a moving 6-month requirement to be prepared and submitted by CBL, and acceptable to DMC, within the first week of each month. 8. Except as otherwise modified in this Agreement, the terms and conditions stipulated in PN Nos. 16 to 26 and 52 to 57 shall continue to govern the relationship between the parties and that the Chattel Mortgage over various M.A.N. Diesel Buses with Nos. CM No. 80-39, 80-40, 80-41,

80-42, 80-43, 80-44 and CM No. 80-15 as well as the Deed of Pledge executed by Mr. Llamas shall continue to secure the obligation until full payment. 9. DMC and SILVERIO undertake to recall or withdraw its previous request to Notary Public Alberto G. Doller and to instruct him not to proceed with the public auction sale of the shares of stock of CBL subject-matter of the Deed of Pledge of Shares. LLAMAS, on the other hand, undertakes to move for the immediate dismissal of Civil Case No. 9460-P entitled Dionisio O. Llamas vs. Alberto G. Doller, et al., Court of First Instance of Pasay, Branch XXIX.[60] It is clear from the foregoing that the restructuring agreement, instead of containing provisions absolutely incompatible with the obligations of the judgment, expressly ratifies such obligations in paragraph 8 and contains provisions for satisfying them. There was no change in the object of the prior obligations. The restructuring agreement merely provided for a new schedule of payments and additional security in paragraph 6 (c) giving Delta authority to take over the management and operations of CBLI in case CBLI fails to pay installments equivalent to 60 days. Where the parties to the new obligation expressly recognize the continuing existence and validity of the old one, there can be no novation.[61] Moreover, this Court has ruled that an agreement subsequently executed between a seller and a buyer that provided for a different schedule and manner of payment, to restructure the mode of payments by the buyer so that it could settle its outstanding obligation in spite of its delinquency in payment, is not tantamount to novation. [62] The addition of other obligations likewise did not extinguish the promissory notes. In Young v. CA[63], this Court ruled that a change in the incidental elements of, or an addition of such element to, an obligation, unless otherwise expressed by the parties will not result in its extinguishment. In fine, the restructuring agreement can stand together with the promissory notes. Neither is there merit in CBLIs argument that the compromise agreement dated July 24, 1984, in Civil Case No. 0023-P superseded and/or discharged the five promissory notes. Both Delta and CBLI cannot deny that the five promissory notes were no longer subject of Civil Case No. 0023-P when they entered into the compromise agreement on July 24, 1984. Having previously assigned the five promissory notes to SIHI, Delta had no more right to compromise the same. Deltas limited authority to collect for SIHI stipulated in the September 13, 1985, Deed of Sale cannot be construed to include the power to compromise CBLIs obligations in the said promissory notes. An authority to compromise, by express provision of Article 1878[64] of the Civil Code, requires a special power of attorney, which is not present in this case. Incidentally, Deltas authority to collect in behalf of SIHI was, by express provision of the Continuing Deed of Assignment,[65] automatically revoked when SIHI opted to collect directly from CBLI. As regards CBLI, SIHIs demand letter dated December 13, 1983, requiring CBLI to remit the payments directly to SIHI effectively revoked Deltas limited right to collect in behalf of SIHI. This should have dispelled CBLIs erroneous notion that Delta was acting in behalf of SIHI, with authority to compromise the five promissory notes. But more importantly, the compromise agreement itself provided that it covered the rights and obligations only of Delta and CBLI and that it did not refer to, nor cover the rights of, SIHI as the new creditor of CBLI in the subject promissory notes. CBLI and Delta stipulated in paragraph 5 of the agreement that:

5. This COMPROMISE AGREEMENT constitutes the entire understanding by and between the plaintiffs and the defendants as well as their lawyers, and operates as full and final settlement, adjudication and termination of all their rights and obligations as of the date of this agreement, and of the issues in this case.[66] Even in the absence of such a provision, the compromise agreement still cannot bind SIHI under the settled rule that a compromise agreement determines the rights and obligations of only the parties to it.[67] Therefore, we hold that the compromise agreement covered the rights and obligations only of Delta and CBLI and only with respect to the eleven (11) other promissory notes that remained with Delta. CBLI next maintains that SIHI is estopped from questioning the compromise agreement because SIHI failed to intervene in Civil Case No. 0023-P after CBLI informed it of the takeover by Delta of CBLIs management and operations and the resultant impossibility for CBLI to comply with its obligations in the subject promissory notes. CBLI also adds that SIHIs failure to intervene in Civil Case No. 0023-P is proof that Delta continued to act in SIHIs behalf in effecting collection under the notes. The contention is untenable. As a result of the assignment, Delta relinquished all its rights to the subject promissory notes in favor of SIHI. This had the effect of separating the five promissory notes from the 16 promissory notes subject of Civil Case No. 0023-P. From that time,CBLIs obligations to SIHI embodied in the five promissory notes became separate and distinct from CBLIs obligations in eleven (11) other promissory notes that remained with Delta. Thus, any breach of these independent obligations gives rise to a separate cause of action in favor of SIHI against CBLI. Considering that Deltas assignment to SIHI of these five promissory notes had the effect of removing the said notes from Civil Case No. 0023-P, there was no reason for SIHI to intervene in the said case. SIHI did not have any interest to protect in Civil Case No. 0023-P. Moreover, intervention is not mandatory, but only optional and permissive.[68] Notably, Section 2,[69] Rule 12 of the then 1988 Revised Rules of Procedure uses the word may in defining the right to intervene. The present rules maintain the permissive nature of intervention in Section 1, Rule 19 of the 1997 Rules of Civil Procedure, which provides as follows: SEC. 1. Who may intervene.A person who has a legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both, or is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof may, with leave of court, be allowed to intervene in the action. The court shall consider whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the original parties, and whether or not the intervenor's rights may be fully protected in a separate proceeding.[70] Also, recall that Delta transferred the five promissory notes to SIHI on September 13, 1983 while Civil Case No. 0023-P was pending. Then as now, the rule in case of transfer of interest pendente lite is that the action may be continued by or against the original party unless the court, upon motion, directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.[71] The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and the judgment rendered therein shall be without prejudice to the rights of such necessary party.[72] In light of the foregoing, SIHIs refusal to intervene in Civil Case No. 0023-P in another court does not amount to an estoppel that may prevent SIHI from instituting a separate and independent action of its own.[73] This is especially so since it does not appear that a separate

proceeding would be inadequate to protect fully SIHIs rights.[74] Indeed, SIHIs refusal to intervene is precisely because it considered that its rights would be better protected in a separate and independent suit. The judgment on compromise in Civil Case No. 0023-P did not operate as res judicata to prevent SIHI from prosecuting its claims in the present case. As previously discussed, the compromise agreement and the judgment on compromise in Civil Case No. 0023-P covered only Delta and CBLI and their respective rights under the 11 promissory notes not assigned to SIHI. In contrast, the instant case involves SIHI and CBLI and the five promissory notes. There being no identity of parties and subject matter, there is no res judicata. CBLI maintains, however, that in any event, recovery under the subject promissory notes is no longer allowed by Article 1484(3)[75] of the Civil Code, which prohibits a creditor from suing for the deficiency after it has foreclosed on the chattel mortgages. SIHI, being the successor-ininterest of Delta, is no longer allowed to recover on the promissory notes given as security for the purchase price of the 35 buses because Delta had already extrajudicially foreclosed on the chattel mortgages over the said buses on April 2, 1987. This claim is likewise untenable. Article 1484(3) finds no application in the present case. The extrajudicial foreclosure of the chattel mortgages Delta effected cannot prejudice SIHIs rights. As stated earlier, the assignment of the five notes operated to create a separate and independent obligation on the part of CBLI to SIHI, distinct and separate from CBLIs obligations to Delta. And since there was a previous revocation of Deltas authority to collect for SIHI, Delta was no longer SIHIs collecting agent. CBLI, in turn, knew of the assignment and Deltas lack of authority to compromise the subject notes, yet it readily agreed to the foreclosure. To sanction CBLIs argument and to apply Article 1484 (3) to this case would work injustice to SIHI by depriving it of its right to collect against CBLI who has not paid its obligations. That SIHI later on levied on execution and acquired in the ensuing public sale in Civil Case No. 84-23019 the buses Delta earlierextrajudicially foreclosed on April 2, 1987, in Civil Case No. 0023-P, did not operate to render the compromise agreement and the foreclosure binding on SIHI. At the time SIHI effected the levy on execution to satisfy its judgment credit against Delta in Civil Case No. 84-23019, the said buses already pertained to Delta by virtue of the April 2, 1987 auction sale. CBLI no longer had any interest in the said buses. Under the circumstances, we cannot see how SIHIs belated acquisition of the foreclosed buses operates to hold the compromise agreementand consequently Article 1484(3)applicable to SIHI as CBLI contends. CBLIs last contention must, therefore, fail. We hold that the writ of execution to enforce the judgment of compromise in Civil Case No. 0023-P and the foreclosure sale of April 2, 1987, done pursuant to the said writ of execution affected only the eleven (11) other promissory notes covered by the compromise agreement and the judgment on compromise in Civil Case No. 0023-P. In support of its third assignment of error, CBLI maintains that there was no basis for SIHIs application for a writ of preliminary attachment.[76]According to CBLI, it committed no fraud in contracting its obligation under the five promissory notes because it was financially sound when it issued the said notes on April 25, 1980.[77] CBLI also asserts that at no time did it falsely represent to SIHI that it would be able to pay its obligations under the five promissory notes.[78] According to CBLI, it was not guilty of fraudulent concealment, removal, or disposal, or of fraudulent intent to conceal, remove, or dispose of its properties to defraud its creditors;[79] and that SIHIs bare allegations on this matter were insufficient for the preliminary attachment of CBLIs properties.[80]

The question whether the attachment of the sixteen (16) buses was valid and in accordance with law, however, has already been resolved with finality by the Court of Appeals in CA-G.R. SP No. 08376. In its July 31, 1987, decision, the Court of Appeals upheld the legality of the writ of preliminary attachment SIHI obtained and ruled that the trial court judge acted with grave abuse of discretion in discharging the writ of attachment despite the clear presence of a determined scheme on the part of CBLI to dispose of its property. Considering that the said Court of Appeals decision has already attained finality on August 22, 1987, there exists no reason to resolve this question anew. Reasons of public policy, judicial orderliness, economy and judicial time and the interests of litigants as well as the peace and order of society, all require that stability be accorded the solemn and final judgments of courts or tribunals of competent jurisdiction.[81] Finally, in the light of the justness of SIHIs claim against CBLI, we cannot sustain CBLIs contention that the Court of Appeals erred in dismissing its counterclaim for lost income and the value of the 16 buses over which SIHI obtained a writ of preliminary attachment. Where the party who requested the attachment acted in good faith and without malice, the claim for damages resulting from the attachment of property cannot be sustained. [82] WHEREFORE, the decision dated April 17, 2001, of the Court of Appeals in CA-G.R. CV No. 52667 is AFFIRMED. Petitioner California Bus Lines, Inc., is ORDERED to pay respondent State Investment House, Inc., the value of the five (5) promissory notes subject of the complaint in Civil Case No. 84-28505 less the proceeds from the sale of the attached sixteen (16) buses. No pronouncement as to costs. AGRIFINA vs. SPOUSES FELICIDAD AND RICO TIBONG, respondents. AQUINTEY, petitioner,

DECISION

CALLEJO, SR., J.: Before us is a petition for review under Rule 45 of the Revised Rules on Civil Procedure of the Decision1 of the Court of Appeals in CA-G.R. CV No. 78075, which affirmed with modification the Decision2 of the Regional Trial Court (RTC), Branch 61, Baguio City, and the Resolution 3 of the appellate court denying reconsideration thereof. The Antecedents On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of money and damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured loans from her on several occasions, at monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong failed to pay their outstanding loan, amounting to P773,000.00 exclusive of interests. The complaint contained the following prayer:

WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court, after due notice and hearing, to render judgment ordering defendants to pay plaintiff the following: a). SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) representing the principal obligation of the defendants with the stipulated interests of six (6%) percent per month from May 11, 1999 to date and or those that are stipulated on the contracts as mentioned from paragraph two (2) of the complaint. b). FIFTEEN PERCENT (15%) of the total accumulated obligations as attorney's fees. c). Actual expenses representing the filing fee and other charges and expenses to be incurred during the prosecution of this case. Further prays for such other relief and remedies just and equitable under the premises.4 Agrifina appended a copy of the Counter-Affidavit executed by Felicidad in I.S. No. 93-334, as well as copies of the promissory notes and acknowledgment receipts executed by Felicidad covering the loaned amounts.5 In their Answer with Counterclaim,6 spouses Tibong admitted that they had secured loans from Agrifina. The proceeds of the loan were then re-lent to other borrowers at higher interest rates. They, likewise, alleged that they had executed deeds of assignment in favor of Agrifina, and that their debtors had executed promissory notes in Agrifina's favor. According to the spouses Tibong, this resulted in a novation of the original obligation to Agrifina. They insisted that by virtue of these documents, Agrifina became the new collector of their debtors; and the obligation to pay the balance of their loans had been extinguished. The spouses Tibong specifically denied the material averments in paragraphs 2 and 2.1 of the complaint. While they did not state the total amount of their loans, they declared that they did not receive anything from Agrifina without any written receipt. 7 They prayed for that the complaint be dismissed. In their Pre-Trial Brief, the spouses Tibong maintained that they have never obtained any loan from Agrifina without the benefit of a written document.8 On August 17, 2000, the trial court issued a Pre-Trial Order where the following issues of the case were defined: Whether or not plaintiff is entitled to her claim of P773,000.00; Whether or not plaintiff is entitled to stipulated interests in the promissory notes; and Whether or not the parties are entitled to their claim for damages.9 The Case for Petitioner

Agrifina and Felicidad were classmates at the University of Pangasinan. Felicidad's husband, Rico, also happened to be a distant relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to lend money to Felicidad. According to Felicidad, Agrifina would be earning interests higher than those given by the bank for her money. Felicidad told Agrifina that since she (Felicidad) was engaged in the sale of dry goods at the GP Shopping Arcade, she would use the money to buy bonnels and thread.10 Thus, Agrifina lent a total sum of P773,000.00 to Felicidad, and each loan transaction was covered by either a promissory note or an acknowledgment receipt.11Agrifina stated that she had lost the receipts signed by Felicidad for the following amounts: P100,000.00,P34,000.00 and P2,000.00.12 The particulars of the transactions are as follows: Amount P 100,000.00 4,000.00 50,000.00 60,000.00 205,000.00 128,000.00 2,000.00 10,000.00 80,000.00 34,000.00 100,000.00 Date Obtained May 11, 1989 June 8, 1989 June 13, 1989 Aug. 16, 1989 Oct. 13, 1989 Oct. 19, 1989 Nov. 12, 1989 June 13, 1990 Jan. 4, 1990 July 14, 1989 Interest Per Due Date Mo. 6% August 11, 1989 6% On demand 7% January 1990 7% January 1990 7% January 1990 6% April 28, 1990 6% October 19, 1989 5% October 198913

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

confirmed that her debtors were no longer indebted to her for their respective loans. For her part, Agrifina conformed to the deeds of assignment relative to the loans of Virginia Morada and Corazon Dalisay.24 She was furnished copies of the deeds as well as the promissory notes.25 The following debtors of Felicidad executed promissory notes where they obliged themselves to pay directly to Agrifina: Debtors Account Juliet & Tommy Tibong P50,000.00 Corazon Dalisay Rita Chomacog Antoinette Manuel Rosemarie Bandas Fely Cirilo Virginia Morada Carmelita Casuga Merlinda Gelacio Total 8,000.00 4,480.00 12,000.00 8,000.00 63,600.00 62,379.00 59,000.00 17,200.00 P284,659.00 Date of Instrument August 7, 1990 August 7, 1990 August 8, 1990 October 19, 1990 August 8, 1990 September 13, 1990 August 9, 1990 August 28, 1990 August 29, 1990 Date Payable November 4, 1990 and February 4, 1991 No date September 23, 1990 March 30, 1991 February 3, 1991 No date February 9, 1991 February 28, 1991 November 29, 199026

Agrifina narrated that Felicidad showed to her the way to the debtors' houses to enable her to collect from them. One of the debtors, Helen Cabang, did not execute any promissory note but conformed to the Deed of Assignment of Credit which Felicidad executed in favor of Agrifina.27 Eliza Abance conformed to the deed of assignment for and in behalf of her sister, Fely Cirilo.28 Edna Papat-iw was not able to affix her signature on the deed of assignment nor sign the promissory note because she was in Taipei, Taiwan.29 Following the execution of the deeds of assignment and promissory notes, Agrifina was able to collect the total amount of P301,000.00 from Felicidad's debtors.30 In April 1990, she tried to collect the balance of Felicidad's account, but the latter told her to wait until her debtors had money.31 When Felicidad reneged on her promise, Agrifina filed a complaint in the Office of the Barangay Captain for the collection of P773,000.00. However, no settlement was arrived at.32 The Case for Respondents Felicidad testified that she and her friend Agrifina had been engaged in the money-lending business.33 Agrifina would lend her money with monthly interest,34 and she, in turn, would relend the money to borrowers at a higher interest rate. Their business relationship turned sour when Agrifina started complaining that she (Felicidad) was actually earning more than Agrifina.35 Before the respective maturity dates of her debtors' loans, Agrifina asked her to pay her account since Agrifina needed money to buy a house and lot in Manila. However, she told Agrifina that she could not pay yet, as her debtors' loan payments were not yet due. 36 Agrifina then came to her store every afternoon to collect from her, and persuaded her to go to Atty. Torres G. A-ayo for legal advice.37 The lawyer suggested that she indorse the accounts of her debtors to Agrifina so that the latter would be the one to collect from her debtors and she would no longer have any obligation to Agrifina.38 She then executed deeds of assignment in favor of Agrifina covering the sums of money due from her debtors. She signed the deeds prepared by Atty. A-ayo in the presence of Agrifina.39 Some of the debtors signed the promissory notes which

were likewise prepared by the lawyer. Thereafter, Agrifina personally collected from Felicidad's debtors.40 Felicidad further narrated that she received P250,000.00 from one of her debtors, Rey Rivera, and remitted the payment to Agrifina.41 Agrifina testified, on rebuttal, that she did not enter into a re-lending business with Felicidad. When she asked Felicidad to consolidate her loans in one document, the latter told her to seek the assistance of Atty. A-ayo.42 The lawyer suggested that Felicidad assign her credits in order to help her collect her loans.43 She agreed to the deeds of assignment to help Felicidad collect from the debtors.44 On January 20, 2003, the trial court rendered its Decision45 in favor of Agrifina. The fallo of the decision reads: WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants ordering the latter to pay the plaintiffs (sic) the following amounts: 1. P472,000 as actual obligation with the stipulated interest of 6% per month from May 11, 1999 until the said obligation is fully paid. However, the amount of P50,000 shall be deducted from the total accumulated interest for the same was already paid by the defendant as admitted by the plaintiff in her complaint, 2. P25,000 as attorney's fees, 3. [T]o pay the costs. SO ORDERED.46 The trial court ruled that Felicidad's obligation had not been novated by the deeds of assignment and the promissory notes executed by Felicidad's borrowers. It explained that the documents did not contain any express agreement to novate and extinguish Felicidad's obligation. It declared that the deeds and notes were separate contracts which could stand alone from the original indebtedness of Felicidad. Considering, however, Agrifina's admission that she was able to collect from Felicidad's debtors the total amount of P301,000.00, this should be deducted from the latter's accountability.47 Hence, the balance, exclusive of interests, amounted to P472,000.00. On appeal, the CA affirmed with modification the decision of the RTC and stated that, based on the promissory notes and acknowledgment receipts signed by Felicidad, the appellants secured loans from the appellee in the total principal amount of only P637,000.00, not P773,000.00 as declared by the trial court. The CA found that, other than Agrifina's bare testimony that she had lost the promissory notes and acknowledgment receipts, she failed to present competent documentary evidence to substantiate her claim that Felicidad had, likewise, borrowed the amounts of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total account, P585,659.00 was covered by the deeds of assignment and promissory notes; hence, the balance of Felicidad's account amounted to only P51,341.00. The fallo of the decision reads: WHEREFORE, in view of the foregoing, the decision dated January 20, 2003 of the RTC, Baguio City, Branch 61 in Civil Case No. 4370-R is hereby MODIFIED. Defendants-appellants are hereby ordered to pay the balance of the total indebtedness in

the amount of P51,341.00 plus the stipulated interest of 6% per month from May 11, 1999 until the finality of this decision. SO ORDERED.48 The appellate court sustained the trial court's ruling that Felicidad's obligation to Agrifina had not been novated by the deeds of assignment and promissory notes executed in the latter's favor. Although Agrifina was subrogated as a new creditor in lieu of Felicidad, Felicidad's obligation to Agrifina under the loan transaction remained; there was no intention on their part to novate the original obligation. Nonetheless, the appellate court held that the legal effects of the deeds of assignment could not be totally disregarded. The assignments of credits were onerous, hence, had the effect of payment, pro tanto, of the outstanding obligation. The fact that Agrifina never repudiated or rescinded such assignments only shows that she had accepted and conformed to it. Consequently, she cannot collect both from Felicidad and her individual debtors without running afoul to the principle of unjust enrichment. Agrifina's primary recourse then is against Felicidad's individual debtors on the basis of the deeds of assignment and promissory notes. The CA further declared that the deeds of assignment executed by Felicidad had the effect of payment of her outstanding obligation to Agrifina in the amount of P585,659.00. It ruled that, since an assignment of credit is in the nature of a sale, the assignors remained liable for the warranties as they are responsible for the existence and legality of the credit at the time of the assignment. Both parties moved to have the decision reconsidered,49 but the appellate court denied both motions on December 21, 2004.50 Agrifina, now petitioner, filed the instant petition, contending that 1. The Honorable Court of Appeals erred in ruling that the deeds of assignment in favor of petitioner has the effect of payment of the original obligation even as it ruled out that the original obligation and the assigned credit are distinct and separate and can stand independently from each other; 2. The Honorable Court of Appeals erred in passing upon issues raised for the first time on appeal; and 3. The Honorable Court of Appeals erred in resolving fact not in issue.51 Petitioner avers that the appellate court erred in ruling that respondents' original obligation amounted to onlyP637,000.00 (instead of P773,000.00) simply because she lost the promissory notes/receipts which evidenced the loans executed by respondent Felicidad Tibong. She insists that the issue of whether Felicidad owed her less thanP773,000.00 was not raised by respondents during pre-trial and in their appellate brief; the appellate court was thus proscribed from taking cognizance of the issue. Petitioner avers that respondents failed to deny, in their verified answer, that they had secured the P773,000.00 loan; hence, respondents are deemed to have admitted the allegation in the complaint that the loans secured by respondent from her amounted to P773,000.00. As gleaned from the trial court's pre-trial order, the main issue is whether or not she should be made to pay this amount.

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

We have carefully reviewed the brief of respondents as appellants in the CA, and find that, indeed, they had raised the issue of whether they received P773,000.00 by way of loans from petitioner. They averred that, as gleaned from the documentary evidence of petitioner in the RTC, the total amount they borrowed was onlyP673,000.00. They asserted that petitioner failed to adduce concrete evidence that they received P773,000.00 from her.55 We agree, however, with petitioner that the appellate court erred in reversing the finding of the RTC simply because petitioner failed to present any document or receipt signed by Felicidad. Section 10, Rule 8 of the Rules of Civil Procedure requires a defendant to "specify each material allegation of fact the truth of which he does not admit and, whenever practicable, x x x set forth the substance of the matters upon which he relies to support his denial.56 Section 11, Rule 8 of the same Rules provides that allegations of the complaint not specifically denied are deemed admitted.57 The purpose of requiring the defendant to make a specific denial is to make him disclose the matters alleged in the complaint which he succinctly intends to disprove at the trial, together with the matter which he relied upon to support the denial. The parties are compelled to lay their cards on the table.58 A denial is not made specific simply because it is so qualified by the defendant. A general denial does not become specific by the use of the word "specifically." When matters of whether the defendant alleges having no knowledge or information sufficient to form a belief are plainly and necessarily within the defendant's knowledge, an alleged "ignorance or lack of information" will not be considered as a specific denial. Section 11, Rule 8 of the Rules also provides that material averments in the complaint other than those as to the amount of unliquidated damages shall be deemed admitted when not specifically denied.59 Thus, the answer should be so definite and certain in its allegations that the pleader's adversary should not be left in doubt as to what is admitted, what is denied, and what is covered by denials of knowledge as sufficient to form a belief.60 In the present case, petitioner alleged the following in her complaint: 2. That defendants are indebted to the plaintiff in the principal amount of SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) Philippine Currency with a stipulated interest which are broken down as follows. The said principal amounts was admitted by the defendants in their counter-affidavit submitted before the court. Such affidavit is hereby attached as Annex "A;"61 xxxx H) The sum of THIRTY FOUR THOUSAND PESOS (P34,000.00) with interest at six (6%) per cent per month and payable on October 19, 1989, however[,] the receipt for the meantime cannot be recovered as it was misplaced by the plaintiff but the letter of defendant FELICIDAD TIBONG is hereby attached as Annex "H" for the appreciation of the Honorable court; I) The sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) with interest at five (5%) percent per month, obtained on July 14, 1989 and payable on October 14, 1989.

Such receipt was lost but admitted by the defendants in their counter-affidavit as attached [to] this complaint and marked as Annex "A" mentioned in paragraph one (1); x x x62 In their Answer, respondents admitted that they had secured loans from petitioner. While the allegations in paragraph 2 of the complaint were specifically denied, respondents merely averred that petitioner and respondent Felicidad entered into an agreement for the lending of money to interested borrowers at a higher interest rate. Respondents failed to declare the exact amount of the loans they had secured from petitioner. They also failed to deny the allegation in paragraph 2 of the complaint that respondent Felicidad signed and submitted a counter-affidavit in I.S. No. 93-334 where she admitted having secured loans from petitioner in the amount of P773,000.00. Respondents, likewise, failed to deny the allegation in paragraph 2(h) of the complaint that respondents had secured a P34,000.00 loan payable on October 19, 1989, evidenced by a receipt which petitioner had misplaced. Although respondents specifically denied in paragraph 2.11 of their Answer the allegations in paragraph 2(I) of the complaint, they merely alleged that "they have not received sums of money from the plaintiff without any receipt therefor." Respondents, likewise, failed to specifically deny another allegation in the complaint that they had secured aP100,000.00 loan from petitioner on July 14, 1989; that the loan was payable on October 14, 1989; and evidenced by a receipt which petitioner claimed to have lost. Neither did respondents deny the allegation that respondents admitted their loan of P100,000.00 in the counter-affidavit of respondent Felicidad, which was appended to the complaint as Annex "A." In fine, respondents had admitted the existence of their P773,000.00 loan from petitioner. We agree with the finding of the CA that petitioner had no right to collect from respondents the total amount ofP301,000.00, which includes more than P178,980.00 which respondent Felicidad collected from Tibong, Dalisay, Morada, Chomacog, Cabang, Casuga, Gelacio, and Manuel. Petitioner cannot again collect the same amount from respondents; otherwise, she would be enriching herself at their expense. Neither can petitioner collect from respondents more than P103,500.00 which she had already collected from Nimo, Cantas, Rivera, Donguis, Fernandez and Ramirez. There is no longer a need for the Court to still resolve the issue of whether respondents' obligation to pay the balance of their loan account to petitioner was partially extinguished by the promissory notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog, Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because, as admitted by petitioner, she was able to collect the amounts under the notes from said debtors and applied them to respondents' accounts. Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by which obligations are extinguished. Obligations may be modified by changing their object or principal creditor or by substituting the person of the debtor. 63 The burden to prove the defense that an obligation has been extinguished by novation falls on the debtor.64 The nature of novation was extensively explained in Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano, Jr.,65 as follows: Novation may either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the

incompatibility between the old and new obligation be total on every point such that the old obligation is completely superseded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconciliable, the subsequent obligation would also extinguish the first. An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.66 (Citations Omitted) Novation which consists in substituting a new debtor (delegado) in the place of the original one (delegante) may be made even without the knowledge or against the will of the latter but not without the consent of the creditor. Substitution of the person of the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor (delegatario), accepts a third person who consents to the substitution and assumes the obligation. Thus, the consent of those three persons is necessary.67 In this kind of novation, it is not enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the relation.68 Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a codebtor or a surety. If there is no agreement as to solidarity, the first and the new debtor are considered obligated jointly.69 In Di Franco v. Steinbaum,70 the appellate court ruled that as to the consideration necessary to support a contract of novation, the rule is the same as in other contracts. The consideration need not be pecuniary or even beneficial to the person promising. It is sufficient if it be a loss of an inconvenience, such as the relinquishment of a right or the discharge of a debt, the postponement of a remedy, the discontinuance of a suit, or forbearance to sue. In City National Bank of Huron, S.D. v. Fuller,71 the Circuit Court of Appeals ruled that the theory of novation is that the new debtor contracts with the old debtor that he will pay the debt, and also to the same effect with the creditor, while the latter agrees to accept the new debtor for the old. A novation is not made by showing that the substituted debtor agreed to pay the debt; it must appear that he agreed with the creditor to do so. Moreover, the agreement must be based on the consideration of the creditor's agreement to look to the new debtor instead of the old . It is not essential that acceptance of the terms of the novation and release of the debtor be shown by express agreement. Facts and circumstances surrounding the transaction and the subsequent conduct of the parties may show acceptance as clearly as an express agreement, albeit implied.72 We find in this case that the CA correctly found that respondents' obligation to pay the balance of their account with petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in favor of petitioner. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without

the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.73 It may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person.74 In Vda. de Jayme v. Court of Appeals,75 the Court held that dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's obligation. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.76 The requisites for dacion en pago are: (1) there must be a performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) there must be some difference between the prestation due and that which is given in substitution (aliud pro alio); and (3) there must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due.77 All the requisites for a valid dation in payment are present in this case. As gleaned from the deeds, respondent Felicidad assigned to petitioner her credits "to make good" the balance of her obligation. Felicidad testified that she executed the deeds to enable her to make partial payments of her account, since she could not comply with petitioner's frenetic demands to pay the account in cash. Petitioner and respondent Felicidad agreed to relieve the latter of her obligation to pay the balance of her account, and for petitioner to collect the same from respondent's debtors. Admittedly, some of respondents' debtors, like Edna Papat-iw, were not able to affix their conformity to the deeds. In an assignment of credit, however, the consent of the debtor is not essential for its perfection; the knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment that might have been made. The assignment binds the debtor upon acquiring knowledge of the assignment but he is entitled, even then, to raise against the assignee the same defenses he could set up against the assignor 78 necessary in order that assignment may fully produce legal effects. Thus, the duty to pay does not depend on the consent of the debtor. The purpose of the notice is only to inform that debtor from the date of the assignment. Payment should be made to the assignee and not to the original creditor. The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory rights, is acquired by the assignee79 who steps into the shoes of the original creditor as subrogee of the latter80 from that amount, the ownership of the right is acquired by the assignee. The law does not require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it.

If the document of assignment is public, it is evidence even against a third person of the facts which gave rise to its execution and of the date of the latter. The transfer of the credit must therefore be held valid and effective from the moment it is made to appear in such instrument, and third persons must recognize it as such, in view of the authenticity of the document, which precludes all suspicion of fraud with respect to the date of the transfer or assignment of the credit.81 As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other debtors, petitioner was authorized to collect the amounts of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent Felicidad, likewise, unequivocably declared that Cabang and Cirilo no longer had any obligation to her. Equally significant is the fact that, since 1990, when respondent Felicidad executed the deeds, petitioner no longer attempted to collect from respondents the balance of their accounts. It was only in 1999, or after nine (9) years had elapsed that petitioner attempted to collect from respondents. In the meantime, petitioner had collected from respondents' debtors the amount of P301,000.00. While it is true that respondent Felicidad likewise authorized petitioner in the deeds to collect the debtors' accounts, and for the latter to pay the same directly, it cannot thereby be considered that respondent merely authorized petitioner to collect the accounts of respondents' debtors and for her to apply her collections in partial payments of their accounts. It bears stressing that petitioner, as assignee, acquired all the rights and remedies passed by Felicidad, as assignee, at the time of the assignment.82 Such rights and remedies include the right to collect her debtors' obligations to her. Petitioner cannot find solace in the Court's ruling in Magdalena Estates. In that case, the Court ruled that the mere fact that novation does not follow as a matter of course when the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation when there is no agreement that the first debtor would be released from responsibility. Thus, the creditor can still enforce the obligation against the original debtor. In the present case, petitioner and respondent Felicidad agreed that the amounts due from respondents' debtors were intended to "make good in part" the account of respondents. Case law is that, an assignment will, ordinarily, be interpreted or construed in accordance with the rules of construction governing contracts generally, the primary object being always to ascertain and carry out the intention of the parties. This intention is to be derived from a consideration of the whole instrument, all parts of which should be given effect, and is to be sought in the words and language employed.83 Indeed, the Court must not go beyond the rational scope of the words used in construing an assignment, words should be construed according to their ordinary meaning, unless something in the assignment indicates that they are being used in a special sense. So, if the words are free from ambiguity and expressed plainly the purpose of the instrument, there is no occasion for interpretation; but where necessary, words must be interpreted in the light of the particular subject matter.84 And surrounding circumstances may be considered in order to understand more perfectly the intention of the parties. Thus, the object to be accomplished through the assignment, and the relations and conduct of the parties may be considered in construing the document.

Although it has been said that an ambiguous or uncertain assignment should be construed most strictly against the assignor, the general rule is that any ambiguity or uncertainty in the meaning of an assignment will be resolved against the party who prepared it; hence, if the assignment was prepared by the assignee, it will be construed most strictly against him or her. 85 One who chooses the words by which a right is given ought to be held to the strict interpretation of them, rather than the other who only accepts them.86 Considering all the foregoing, we find that respondents still have a balance on their account to petitioner in the principal amount of P33,841.00, the difference between their loan of P773,000.00 less P585,659.00, the payment of respondents' other debtors amounting to P103,500.00, and the P50,000.00 payment made by respondents. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision and Resolution of the Court of Appeals are AFFIRMED with MODIFICATION in that the balance of the principal account of the respondents to the petitioner is P33,841.00. No costs.