RODZSSEN SUPPLY CO. INC. VS. FAR EAST BANK & TRUST CO.
RULING:
G.R. NO. 109087. 9 MAY 2001.
PONENTE: PANGANIBAN, J.:
FACTS: Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the
January 21, 1993 Decision2 of the CA which affirmed with modification the ruling of the RTC of Bacolod
City.
On January 15, 1979, defendant Rodzssen Supply, Inc. opened with plaintiff Far East Bank and Trust Co. a
30-day domestic letter of credit, in the amount of P190,000.00 in favor of Ekman and Company, Inc.
(Ekman) for the purchase from the latter of five units of hydraulic loaders, to expire on February 15, 1979.
The three loaders were delivered to defendant for which plaintiff paid Ekman and which defendant paid
plaintiff before expiry date of LC. The remaining two loaders were delivered to defendant but the latter
refused to pay. Ekman pressed payment to plaintiff. Plaintiff paid Ekman for the two loaders and later
demanded from defendant such amount as it paid Ekman. Defendant refused payment contending that
there was a breach of contract by plaintiff who in bad faith paid Ekman, knowing that the two units of
hydraulic loaders had been delivered to defendant after the expiry date of subject LC.
ISSUE: WON petitioner is liable to respondent.
RULING: The SC agrees with the CA that petitioner should pay respondent bank the amount the latter
expended for the equipment belatedly delivered by Ekman and voluntarily received and kept by petitioner.
Equitable considerations behoove us to allow recovery by respondent. True, it erred in paying Ekman, but
petitioner itself was not without fault in the transaction. It must be noted that the latter had voluntarily
received and kept the loaders since October 1979. When both parties to a transaction are mutually
negligent in the performance of their obligations, the fault of one cancels the negligence of the other and,
as in this case, their rights and obligations may be determined equitably under the law proscribing unjust
enrichment.
ILOILO TRADERS FINANCE. INC. VS. HEIRS OF OSCAR SORIANO, JR. (404 SCRA 67)
FACTS
Respondents executed two promissory notes secured by real property mortgages in favor of petitioner.
The respondents defaulted and petitioner moved for extra-judicial foreclosure of the mortgages.
Respondent filed a complaint against petitioner. The parties later entered into “amicable settlement” and
submitted it to the trial court for approval. The trial court required the parties to give some clarifications
on several issues that were not complied. The amicable settlement was disapproved and the court
proceeded. Respondents withdrew the case and filed a (new) case for novation and specific performance
which was decided favorably for the respondents. The Court of Appeals affirmed the judgment.
ISSUE:
Whether or not the amicable settlement entered into between parties has novated the original obligation.
NO. The parties entered into the agreement basically to put an end to Civil Case No. 14007 then pending
before the Regional Trial Court.Concededly, the provisions of the settlement were beneficial to the
respondent couple. The compromise extended the terms of payment and implicitly deferred the
extrajudicial foreclosure of the mortgaged property. It was well to the interest of respondent spouses to
ensure its judicial approval; instead, they went to ignore the order of the trial court and virtually failed to
make any further appearance in court. This conduct on the part of respondent spouses gave petitioner the
correct impression that the Sorianos did not intend to be bound by the compromise settlement, and its
non-materialization negated the very purpose for which it was executed.
The decision of the court of the Court of Appeals affirming that of the trial court was reversed and set
aside.
ILOILO TRADERS FINANCE, INC. VS. HEIRS OF OSCAR SORIANO, JR. G.R. NO. 149683; JUNE 16, 2003
FACTS:
Spouses Oscar Soriano and Marta Soriano executed 2 promissory notes, secured by real property
mortgages, in favor of petitioner Iloilo Traders Finance, Inc. (ITF).
When Sorianos defaulted on the notes, ITF moved for the extrajudicial foreclosure of the mortgages.
The parties entered into an “Amicable Settlement” but the trial court required the parties to first give some
clarifications on a number of items.
The parties failed to comply with the court order.
The trial court disapproved the amicable settlement and set case for pre-trial
Seven years later when the Soriano couple filed a motion to submit anew amicable settlement
The motion was opposed by ITF on the ground that the amount expressed in the settlement would no
longer be accurate considering the lapse of seven years
Trial Court denied the Soriano motion and affirmed by the Court of Appeals
ISSUE:
W/N the amicable settlement entered into between the parties has novated the original obligation
HELD: NO
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
[6]
An amicable settlement or a compromise is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced. It may be judicial or extrajudicial;
the absence of court approval notwithstanding, the agreement can become the source of rights and
obligations of the parties.
In the case at bar, the amicable settlement contained modificatory changes. Thus, (1) it increased the
indebtedness; (2) it extended the period of payment; and (3) it provided for a waiver of claims,
counterclaims, attorney’s fees or damages that the debtor spouses might have against their creditor, but
the settlement neither cancelled, nor materially altered the usual clauses in, the real estate mortgages.

PHILIPPINE SAVINGS BANK VS. MAÑALAC, JR. (457 SCRA 203)

FACTS:
Respondent spouses obtained a loan from petitioner covered by promissory note. As a security for the
loan, respondent executed a Real Estate Mortgage in favor of the petitioner over eight parcels of land.
Respondents were unable to pay the installments so that the loan obligations were restructured.
Respondent entered into Deed of Sale with Assumption of Mortgage on 3 real properties (and another
property) with spouses Galicia. Respondent’s repeated default in payment of past due obligations
prompted the petitioner to file for extrajudicial foreclosure of remaining mortgaged properties.
Respondent asked for partial release of mortgage after enclosing a cashier check payment. Petitioner sold
some mortgaged properties that prompted respondent to institute action for damages. Trial court annulled
the sale of mortgaged properties. The Court of appeals affirmed with modification the decision of trial
court requiring indemnification of the respondent by petitioner.

ISSUE:
Whether or not there was novation in applying the payment made by respondent to loan account of
Galicia.

RULING:
NO. Novation is never presumed. Novation is the extinguishment of an obligation by the substitution or
change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing
the object or principal conditions, or, by substituting another in place of the debtor, or by subrogating a
third person in the rights of the creditor. It is obvious that there was no agreement to form a new contract
by novating the mortgage contracts of the Mañalacs and the Galicias. Neither can Mañalac be deemed
substitute debtor within the contemplation of Article 1293 of the Civil Code. The Decision of the Court of
Appeals was reversed and set aside.