Republic of the PhilippinesSUPREME COURT

Baguio City

THIRD DIVISION

G.R. No. 170141 April 22, 2008

JAPAN AIRLINES, petitioner,vs.JESUS SIMANGAN, respondent.

D E C I S I O N

REYES R.T., J.:

WHEN an airline issues a ticket to a passenger confirmed on a particular flight on a certain date, a contractof carriage arises, and the passenger has every right to expect that he would fly on that flight and on thatdate. If he does not, then the carrier opens itself to a suit for breach of contract of carriage.

The power to admit or not an alien into the country is a sovereign act which cannot be interfered with evenby Japan Airlines (JAL).

In this petition for review on certiorari, petitioner JAL appeals the: (1) Decision dated May 31, 2005 of theCourt of Appeals (CA) ordering it to pay respondent Jesus Simangan moral and exemplary damages; and(2) Resolution of the same court dated September 28, 2005 denying JAL's motion for reconsideration.

The Facts

In 1991, respondent Jesus Simangan decided to donate a kidney to his ailing cousin, Loreto Simangan, inUCLA School of Medicine in Los Angeles, California, U.S.A. Upon request of UCLA, respondent undertooka series of laboratory tests at the National Kidney Institute in Quezon City to verify whether his blood andtissue type are compatible with Loreto's. Fortunately, said tests proved that respondent's blood and tissuetype were well-matched with Loreto's.

Respondent needed to go to the United States to complete his preliminary work-up and donation surgery.Hence, to facilitate respondent's travel to the United States, UCLA wrote a letter to the American Consulatein Manila to arrange for his visa. In due time, respondent was issued an emergency U.S. visa by theAmerican Embassy in Manila.

Having obtained an emergency U.S. visa, respondent purchased a round trip plane ticket from petitionerJAL for US$1,485.00 and was issued the corresponding boarding pass. He was scheduled to a particularflight bound for Los Angeles, California, U.S.A. via Narita, Japan.

On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino International Airport in thecompany of several relatives and friends. He was allowed to check-in at JAL's counter. His plane ticket,boarding pass, travel authority and personal articles were subjected to rigid immigration and securityroutines. After passing through said immigration and security procedures, respondent was allowed by JALto enter its airplane.

While inside the airplane, JAL's airline crew suspected respondent of carrying a falsified travel documentand imputed that he would only use the trip to the United States as a pretext to stay and work in Japan. Thestewardess asked respondent to show his travel documents. Shortly after, the stewardess along with aJapanese and a Filipino haughtily ordered him to stand up and leave the plane. Respondent protested,explaining that he was issued a U.S. visa. Just to allow him to board the plane, he pleaded with JAL toclosely monitor his movements when the aircraft stops over in Narita. His pleas were ignored. He was thenconstrained to go out of the plane. In a nutshell, respondent was bumped off the flight.

Respondent went to JAL's ground office and waited there for three hours. Meanwhile, the plane took off andhe was left behind. Afterwards, he was informed that his travel documents were, indeed, inorder. Respondent was refunded the cost of his plane ticket less the sum of US$500.00 which was

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deducted by JAL. Subsequently, respondent's U.S. visa was cancelled.

Displeased by the turn of events, respondent filed an action for damages against JAL with the RegionalTrial Court (RTC) in Valenzuela City, docketed as Civil Case No. 4195-V-93. He claimed he was not able todonate his kidney to Loreto; and that he suffered terrible embarrassment and mental anguish. He prayedthat he be awarded P3 million as moral damages, P1.5 million as exemplary damages and P500,000.00 asattorney's fees.

JAL denied the material allegations of the complaint. It argued, among others, that its failure to allowrespondent to fly on his scheduled departure was due to "a need for his travel documents to beauthenticated by the United States Embassy" because no one from JAL's airport staff had encountered aparole visa before. It posited that the authentication required additional time; that respondent was advisedto take the flight the following day, July 30, 1992. JAL alleged that respondent agreed to be rebooked onJuly 30, 1992.

JAL also lodged a counterclaim anchored on respondent's alleged wrongful institution of the complaint. Itprayed for litigation expenses, exemplary damages and attorney's fees.

On September 21, 2000, the RTC presided by Judge Floro P. Alejo rendered its decision in favor ofrespondent (plaintiff), disposing as follows:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the amountofP1,000,000.00 as moral damages, the amount of P500,000.00 as exemplary damages and theamount ofP250,000.00 as attorney's fees, plus the cost of suit.

The RTC explained:

In summarily and insolently ordering the plaintiff to disembark while the latter was already settledin his assigned seat, the defendant violated the contract of carriage; that when the plaintiff wasordered out of the plane under the pretext that the genuineness of his travel documents would beverified it had caused him embarrassment and besmirched reputation; and that when the plaintiffwas finally not allowed to take the flight, he suffered more wounded feelings and social humiliationfor which the plaintiff was asking to be awarded moral and exemplary damages as well asattorney's fees.

The reason given by the defendant that what prompted them to investigate the genuineness of thetravel documents of the plaintiff was that the plaintiff was not then carrying a regular visa but just aletter does not appear satisfactory. The defendant is engaged in transporting passengers by planefrom country to country and is therefore conversant with the travel documents. The defendantshould not be allowed to pretend, to the prejudice of the plaintiff not to know that the traveldocuments of the plaintiff are valid documents to allow him entry in the United States.

The foregoing act of the defendant in ordering the plaintiff to deplane while already settled in hisassigned seat clearly demonstrated that the defendant breached its contract of carriage with theplaintiff as passenger in bad faith and as such the plaintiff is entitled to moral and exemplarydamages as well as to an award of attorney's fees.

Disagreeing with the RTC judgment, JAL appealed to the CA contending that it is not guilty of breach ofcontract of carriage, hence, not liable for damages. It posited that it is the one entitled to recover on itscounterclaim.

CA Ruling

In a Decision dated May 31, 2005, the CA affirmed the decision of the RTC with modification in that itlowered the amount of moral and exemplary damages and deleted the award of attorney's fees. The fallo ofthe CA decision reads:

WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant JAPAN AIRLINES is ordered to pay appellee JESUS SIMANGAN the reduced sums, as follows: Five HundredThousand Pesos (P500,000.00) as moral damages, and Two Hundred Fifty Thousand Pesos(P250,000.00) as exemplary damages. The award of attorney's fees is hereby DELETED.

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The CA elucidated that since JAL issued to respondent a round trip plane ticket for a lawful consideration,"there arose a perfected contract between them." It found that respondent was "haughtily ejected" by JALand that "he was certainly embarrassed and humiliated" when, in the presence of other passengers, JAL'sairline staff "shouted at him to stand up and arrogantly asked him to produce his travel papers, without theleast courtesy every human being is entitled to"; and that "he was compelled to deplane on the grounds thathis papers were fake."

The CA ratiocinated:

While the protection of passengers must take precedence over convenience, the implementation of securitymeasures must be attended by basic courtesies.

In fact, breach of the contract of carriage creates against the carrier a presumption of liability, by asimple proof of injury, relieving the injured passenger of the duty to establish the fault of the carrieror of his employees; and placing on the carrier the burden to prove that it was due to anunforeseen event or toforce majeure.

That appellee possessed bogus travel documents and that he might stay illegally in Japan areallegations without substantiation. Also, appellant's attempt to rebook appellee the following daywas too late and did not relieve it from liability. The damage had been done. Besides, its belatedtheory of novation, i.e., that appellant's original obligation to carry appellee to Narita and LosAngeles on July 29, 1992 was extinguished by novation when appellant and appellant agreed thatappellee will instead take appellant's flight to Narita on the following day, July 30, 1992, deserveslittle attention. It is inappropriate at bar. Questions not taken up during the trial cannot be raised forthe first time on appeal. (Underscoring ours and citations were omitted)

Citing Ortigas, Jr. v. Lufthansa German Airlines, the CA declared that "(i)n contracts of common carriage,inattention and lack of care on the part of the carrier resulting in the failure of the passenger to beaccommodated in the class contracted for amounts to bad faith or fraud which entitles the passengers tothe award of moral damages in accordance with Article 2220 of the Civil Code."

Nevertheless, the CA modified the damages awarded by the RTC. It explained:

Fundamental in the law on damages is that one injured by a breach of a contract, or by a wrongfulor negligent act or omission shall have a fair and just compensation commensurate to the losssustained as consequence of the defendant's act. Being discretionary on the court, the amount,however, should not be palpably and scandalously excessive.

Here, the trial court's award of P1,000,000.00 as moral damages appears to be overblown. Noother proof of appellee's social standing, profession, financial capabilities was presented exceptthat he was single and a businessman. To Us, the sum of 500,000.00 is just and fair. For, moraldamages are emphatically not intended to enrich a complainant at the expense of the defendant.They are awarded only to enable the injured party to obtain means, diversion or amusements thatwill serve to alleviate the moral suffering he has undergone, by reason of the defendant's culpableaction.

Moreover, the grant of P500,000.00 as exemplary damages needs to be reduced to a reasonablelevel. The award of exemplary damages is designed to permit the courts to mould behavior thathas socially deleterious consequences and its imposition is required by public policy to suppressthe wanton acts of the offender. Hence, the sum of P250,000.00 is adequate under thecircumstances.

The award of P250,000.00 as attorney's fees lacks factual basis. Appellee was definitelycompelled to litigate in protecting his rights and in seeking relief from appellant's misdeeds. Yet,the record is devoid of evidence to show the cost of the services of his counsel and/or the actualexpenses incurred in prosecuting his action. (Citations were omitted)

When JAL's motion for reconsideration was denied, it resorted to the petition at bar.

Issues

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JAL poses the following issues -

I.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT WASENTITLED TO MORAL DAMAGES, CONSIDERING THAT:

A. JAL WAS NOT GUILTY OF BREACH OF CONTRACT.

B. MORAL DAMAGES MAY BE AWARDED IN BREACH OF CONTRACT CASES ONLYWHEN THE BREACH IS ATTENDED BY FRAUD OR BAD FAITH.ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT ACTFRAUDULENTLY OR IN BAD FAITH AS TO ENTITLE RESPONDENT TO MORALDAMAGES.

C. THE LAW DISTINGUISHES A CONTRACTUAL BREACH EFFECTED IN GOODFAITH FROM ONE ATTENDED BY BAD FAITH.

II.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT WASENTITLED TO EXEMPLARY DAMAGES CONSIDERING THAT:

A. EXEMPLARY DAMAGES ARE NOT RECOVERABLE IN BREACH OF CONTRACT OFCARRIAGE UNLESS THE CARRIER IS GUILTY OF WANTON, FRAUDULENT,RECKLESS, OPPRESSIVE OR MALEVOLENT CONDUCT.

B. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT ACTIN A WANTON FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT MANNERAS TO ENTITLE RESPONDENT TO EXEMPLARY DAMAGES.

III.

ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO AN AWARD OF DAMAGES,WHETHER OR NOT THE COURT OF APPEALS AWARD OF P750,000 IN DAMAGES WASEXCESSIVE AND UNPRECEDENTED.

IV.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING FOR JAL ONITSCOUNTERCLAIM. (Underscoring Ours)

Basically, there are three (3) issues to resolve here: (1) whether or not JAL is guilty of contract of carriage;(2) whether or not respondent is entitled to moral and exemplary damages; and (3) whether or not JAL isentitled to its counterclaim for damages.

Our Ruling

This Court is not a trier of facts.

Chiefly, the issues are factual. The RTC findings of facts were affirmed by the CA. The CA also gave its nodto the reasoning of the RTC except as to the awards of damages, which were reduced, and that ofattorney's fees, which was deleted.

We are not a trier of facts. We generally rely upon, and are bound by, the conclusions on this matter of thelower courts, which are better equipped and have better opportunity to assess the evidence first -hand,including the testimony of the witnesses.

We have repeatedly held that the findings of fact of the CA are final and conclusive and cannot be reviewedon appeal to the Supreme Court provided they are based on substantial evidence. We have no jurisdiction,as a rule, to reverse their findings. Among the exceptions to this rule are: (a) when the conclusion is afinding grounded entirely on speculations, surmises or conjectures; (b) when the inference made is

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manifestly mistaken, absurd or impossible; (c) where there is grave abuse of discretion; (d) when thejudgment is based on a misapprehension of facts; (e) when the findings of facts are conflicting; (f) when theCA, in making its findings, went beyond the issues of the case and the same is contrary to the admissionsof both appellant and appellee.

The said exceptions, which are being invoked by JAL, are not found here. There is no indication that thefindings of the CA are contrary to the evidence on record or that vital testimonies of JAL's witnesses weredisregarded. Neither did the CA commit misapprehension of facts nor did it fail to consider relevant facts.Likewise, there was no grave abuse of discretion in the appreciation of facts or mistaken and absurdinferences.

We thus sustain the coherent facts as established by the courts below, there being no sufficient showingthat the said courts committed reversible error in reaching their conclusions.

JAL is guilty of breach ofcontract of carriage.

That respondent purchased a round trip plane ticket from JAL and was issued the corresponding boardingpass is uncontroverted. His plane ticket, boarding pass, travel authority and personal articles weresubjected to rigid immigration and security procedure. After passing through said immigration and securityprocedure, he was allowed by JAL to enter its airplane to fly to Los Angeles, California, U.S.A. via Narita,Japan. Concisely, there was a contract of carriage between JAL and respondent.

Nevertheless, JAL made respondent get off the plane on his scheduled departure on July 29, 1992. He wasnot allowed by JAL to fly. JAL thus failed to comply with its obligation under the contract of carriage.

JAL justifies its action by arguing that there was "a need to verify the authenticity of respondent's traveldocument." It alleged that no one from its airport staff had encountered a parole visa before. It furthercontended that respondent agreed to fly the next day so that it could first verify his travel document, hence,there was novation. It maintained that it was not guilty of breach of contract of carriage as respondent wasnot able to travel to the United States due to his own voluntary desistance.

We cannot agree. JAL did not allow respondent to fly. It informed respondent that there was a need to firstcheck the authenticity of his travel documents with the U.S. Embassy. As admitted by JAL, "the flight couldnot wait for Mr. Simangan because it was ready to depart."

Since JAL definitely declared that the flight could not wait for respondent, it gave respondent no choice butto be left behind. The latter was unceremoniously bumped off despite his protestations and valid traveldocuments and notwithstanding his contract of carriage with JAL. Damage had already been done whenrespondent was offered to fly the next day on July 30, 1992. Said offer did not cure JAL's default.

Considering that respondent was forced to get out of the plane and left behind against his will, he could nothave freely consented to be rebooked the next day. In short, he did not agree to the alleged novation. Sincenovation implies a waiver of the right the creditor had before the novation, such waiver must be express. Itcannot be supposed, without clear proof, that respondent had willingly done away with his right to fly on July29, 1992.

Moreover, the reason behind the bumping off incident, as found by the RTC and CA, was that JALpersonnel imputed that respondent would only use the trip to the United States as a pretext to stay andwork in Japan.

Apart from the fact that respondent's plane ticket, boarding pass, travel authority and personal articlesalready passed the rigid immigration and security routines, JAL, as a common carrier, ought to know thekind of valid travel documents respondent carried. As provided in Article 1755 of the New Civil Code: "Acommon carrier is bound to carry the passengers safely as far as human care and foresight canprovide, using the utmost diligence of very cautious persons, with a due regard for all thecircumstances." Thus, We find untenable JAL's defense of "verification of respondent's documents" in itsbreach of contract of carriage.

It bears repeating that the power to admit or not an alien into the country is a sovereign act which cannot beinterfered with even by JAL.

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In an action for breach of contract of carriage, all that is required of plaintiff is to prove the existence of suchcontract and its non-performance by the carrier through the latter's failure to carry the passenger safely tohis destination. Respondent has complied with these twin requisites.

Respondent is entitled to moral and exemplary damages and attorney's fees plus legal interest .

With reference to moral damages, JAL alleged that they are not recoverable in actions ex contractu exceptonly when the breach is attended by fraud or bad faith. It is contended that it did not act fraudulently or inbad faith towards respondent, hence, it may not be held liable for moral damages.

As a general rule, moral damages are not recoverable in actions for damages predicated on a breach ofcontract for it is not one of the items enumerated under Article 2219 of the Civil Code. As an exception,such damages are recoverable: (1) in cases in which the mishap results in the death of a passenger, asprovided in Article 1764, in relation to Article 2206(3) of the Civil Code; and (2) in the cases in which thecarrier is guilty of fraud or bad faith, as provided in Article 2220.

The acts committed by JAL against respondent amounts to bad faith. As found by the RTC, JAL breachedits contract of carriage with respondent in bad faith. JAL personnel summarily and insolently orderedrespondent to disembark while the latter was already settled in his assigned seat. He was ordered out of theplane under the alleged reason that the genuineness of his travel documents should be verified.

These findings of facts were upheld by the CA, to wit:

x x x he was haughtily ejected by appellant. He was certainly embarrassed and humiliated when, inthe presence of other passengers, the appellant's airline staff shouted at him to stand up andarrogantly asked him to produce his travel papers, without the least courtesy every human being isentitled to. Then, he was compelled to deplane on the grounds that his papers were fake. Hisprotestation of having been issued a U.S. visa coupled with his plea to appellant to closely monitorhis movements when the aircraft stops over in Narita, were ignored. Worse, he was made to waitfor many hours at the office of appellant only to be told later that he has valid traveldocuments. (Underscoring ours)

Clearly, JAL is liable for moral damages. It is firmly settled that moral damages are recoverable in suitspredicated on breach of a contract of carriage where it is proved that the carrier was guilty of fraud or badfaith, as in this case. Inattention to and lack of care for the interests of its passengers who are entitled to itsutmost consideration, particularly as to their convenience, amount to bad faith which entitles the passengerto an award of moral damages. What the law considers as bad faith which may furnish the ground for anaward of moral damages would be bad faith in securing the contract and in the execution thereof, as well asin the enforcement of its terms, or any other kind of deceit.

JAL is also liable for exemplary damages as its above-mentioned acts constitute wanton, oppressive andmalevolent acts against respondent. Exemplary damages, which are awarded by way of example orcorrection for the public good, may be recovered in contractual obligations, as in this case, if defendantacted in wanton, fraudulent, reckless, oppressive, or malevolent manner.

Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is sociallydeleterious in its consequence by creating negative incentives or deterrents against such behaviour. Inrequiring compliance with the standard of extraordinary diligence, a standard which is, in fact, that of thehighest possible degree of diligence, from common carriers and in creating a presumption of negligenceagainst them, the law seeks to compel them to control their employees, to tame their reckless instincts andto force them to take adequate care of human beings and their property.

Neglect or malfeasance of the carrier's employees could give ground for an action for damages.Passengers have a right to be treated by the carrier's employees with kindness, respect, courtesy and dueconsideration and are entitled to be protected against personal misconduct, injurious language, indignitiesand abuses from such employees.

The assessment of P500,000.00 as moral damages and P100,000.00 as exemplary damages inrespondent's favor is, in Our view, reasonable and realistic. This award is reasonably sufficient to indemnifyhim for the humiliation and embarrassment he suffered. This also serves as an example to discourage therepetition of similar oppressive acts.

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With respect to attorney's fees, they may be awarded when defendant's act or omission has compelledplaintiff to litigate with third persons or to incur expenses to protect his interest. The Court, in ConstructionDevelopment Corporation of the Philippines v. Estrella, citing Traders Royal Bank Employees Union-Independent v. National Labor Relations Commission, elucidated thus:

There are two commonly accepted concepts of attorney's fees, the so-called ordinary andextraordinary. In its ordinary concept, an attorney's fee is the reasonable compensation paid to alawyer by his client for the legal services he has rendered to the latter. The basis of thiscompensation is the fact of his employment by and his agreement with the client.

In its extraordinary concept, an attorney's fee is an indemnity for damages ordered by thecourt to be paid by the losing party in a litigation. The basis of this is any of the cases providedby law where such award can be made, such as those authorized in Article 2208, Civil Code,and is payable not to the lawyer but to the client, unless they have agreed that the awardshall pertain to the lawyer as additional compensation or as part thereof .

It was therefore erroneous for the CA to delete the award of attorney's fees on the ground that the record isdevoid of evidence to show the cost of the services of respondent's counsel. The amount is actuallydiscretionary upon the Court so long as it passes the test of reasonableness. They may be recovered asactual or compensatory damages when exemplary damages are awarded and whenever the court deems itjust and equitable, as in this case.

Considering the factual backdrop of this case, attorney's fees in the amount of P200,000.00 is reasonablymodest.

The above liabilities of JAL in the total amount of P800,000.00 earn legal interest pursuant to the Court'sruling inConstruction Development Corporation of the Philippines v. Estrella, citing Eastern Shipping Lines,Inc. v. Court of Appeals, to wit:

Regarding the imposition of legal interest at the rate of 6% from the time of the filing of thecomplaint, we held in Eastern Shipping Lines, Inc. v. Court of Appeals, that when an obligation,regardless of its source,i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached,the contravenor can be held liable for payment of interest in the concept of actual andcompensatory damages, subject to the following rules, to wit -

1. When the obligation is breached, and it consists in the payment of a sum of money,i.e., a loan or forbearance of money, the interest due should be that which may have beenstipulated in writing. Furthermore, the interest due shall itself earn legal interest from thetime it is judicially demanded. In the absence of stipulation, the rate of interest shall be12% per annum to be computed from default, i.e., from judicial or extrajudicial demandunder and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, aninterest on the amount of damages awarded may be imposed at the discretion of thecourt at the rate of 6% per annum. No interest, however, shall be adjudged onunliquidated claims or damages except when or until the demand can be established withreasonable certainty. Accordingly, where the demand is established with reasonablecertainty, the interest shall begin to run from the time the claim is made judicially orextrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonablyestablished at the time the demand is made, the interest shall begin to run only fromthe date the judgment of the court is made (at which time the quantification ofdamages may be deemed to have been reasonably ascertained). The actual base forthe computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final andexecutory, the rate of legal interest, whether the case falls under paragraph 1 orparagraph 2, above, shall be 12% per annum from such finality until its satisfaction,this interim period being deemed to be by then an equivalent to a forbearance ofcredit. (Emphasis supplied and citations omitted)

Accordingly, in addition to the said total amount of P800,000.00, JAL is liable to pay respondent legal

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interest. Pursuant to the above ruling of the Court, the legal interest is 6% and it shall be reckoned fromSeptember 21, 2000 when the RTC rendered its judgment. From the time this Decision becomes final andexecutory, the interest rate shall be 12% until its satisfaction.

JAL is not entitled to its counterclaim for damages.

The counterclaim of JAL in its Answer is a compulsory counterclaim for damages and attorney's fees arisingfrom the filing of the complaint. There is no mention of any other counter claims.

This compulsory counterclaim of JAL arising from the filing of the complaint may not be granted inasmuchas the complaint against it is obviously not malicious or unfounded. It was filed by respondent precisely toclaim his right to damages against JAL. Well-settled is the rule that the commencement of an action doesnot per se make the action wrongful and subject the action to damages, for the law could not have meant toimpose a penalty on the right to litigate.

We reiterate case law that if damages result from a party's exercise of a right, it is damnum absque injuria.Lawful acts give rise to no injury. Walang perhuwisyong maaring idulot ang paggamit sa sarilingkarapatan.

During the trial, however, JAL presented a witness who testified that JAL suffered further damages.Allegedly, respondent caused the publications of his subject complaint against JAL in the newspaper forwhich JAL suffered damages.

Although these additional damages allegedly suffered by JAL were not incorporated in its Answer as theyarose subsequent to its filing, JAL's witness was able to testify on the same before the RTC. Hence,although these issues were not raised by the pleadings, they shall be treated in all respects as if they hadbeen raised in the pleadings.

As provided in Section 5, Rule 10 of the Rules of Court, "(w)hen issues not raised by the pleadings are triedwith the express or implied consent of the parties, they shall be treated in all respects as if they had beenraised in the pleadings."

Nevertheless, JAL's counterclaim cannot be granted.

JAL is a common carrier. JAL's business is mainly with the traveling public. It invites people to availthemselves of the comforts and advantages it offers. Since JAL deals with the public, its bumping off ofrespondent without a valid reason naturally drew public attention and generated a public issue.

The publications involved matters about which the public has the right to be informed because they relate toa public issue. This public issue or concern is a legitimate topic of a public comment that may be validlypublished.

Assuming that respondent, indeed, caused the publication of his complaint, he may not be held liable fordamages for it. The constitutional guarantee of freedom of the speech and of the press includes faircommentaries on matters of public interest. This is explained by the Court in Borjal v. Court of Appeals, towit:

To reiterate, fair commentaries on matters of public interest are privileged and constitute a validdefense in an action for libel or slander. The doctrine of fair comment means that while in generalevery discreditable imputation publicly made is deemed false, because every man is presumedinnocent until his guilt is judicially proved, and every false imputation is deemed malicious,nevertheless, when the discreditable imputation is directed against a public person in his publiccapacity, it is not necessarily actionable. In order that such discreditable imputation to a publicofficial may be actionable, it must either be a false allegation of fact or a comment based on afalse supposition. If the comment is an expression of opinion, based on established facts, then it isimmaterial that the opinion happens to be mistaken, as long as it might reasonably be inferredfrom the facts. (Citations omitted and underscoring ours)

Even though JAL is not a public official, the rule on privileged commentaries on matters of public interestapplies to it. The privilege applies not only to public officials but extends to a great variety of subjects, andincludes matters of public concern, public men, and candidates for office.

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Hence, pursuant to the Borjal case, there must be an actual malice in order that a discreditable imputationto a public person in his public capacity or to a public official may be actionable. To be consideredmalicious, the libelous statements must be shown to have been written or published with the knowledge thatthey are false or in reckless disregard of whether they are false or not.

Considering that the published articles involve matters of public interest and that its expressed opinion isnot malicious but based on established facts, the imputations against JAL are not actionable. Therefore,JAL may not claim damages for them.

WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals is AFFIRMED WITHMODIFICATION. As modified, petitioner Japan Airlines is ordered to pay respondent Jesus Simangan thefollowing: (1) P500,000.00 as moral damages; (2) P100,000.00 as exemplary damages; and(3) P200,000.00 as attorney's fees.

The total amount adjudged shall earn legal interest at the rate of 6% per annum from the date of judgmentof the Regional Trial Court on September 21, 2000 until the finality of this Decision. From the time thisDecision becomes final and executory, the unpaid amount, if any, shall earn legal interest at the rate of 12%per annum until its satisfaction.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 171998 October 20, 2010

ANAMER SALAZAR, Petitioner,vs.J.Y. BROTHERS MARKETING CORPORATION, Respondent.

D E C I S I O N

PERALTA, J.:

Before us is a petition for review seeking to annul and set aside the Decision dated September 29, 2005and the Resolution dated March 2, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 83104.

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The facts, as found by the Court of Appeals, are not disputed, thus:

J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of selling sugar, riceand other commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approachedby Isagani Calleja and Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazaraccompanied the two to J.Y. Bros. As a consequence, Salazar with Calleja and Kallos procured from J. Y.Bros. 300 cavans of rice worthP214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros.Prudential Bank Check No. 067481 dated October 15, 1996 issued by Nena Jaucian Timario in the amountof P214,000.00 with the assurance that the check is good as cash. On that assurance, J.Y. Bros. partedwith 300 cavans of rice to Salazar. However, upon presentment, the check was dishonored due to "closedaccount."

Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a replacementcross Solid Bank Check No. PA365704 dated October 29, 1996 again issued by Nena Jaucian Timario inthe amount ofP214,000.00 but which, just the same, bounced due to insufficient funds. When despite thedemand letter dated February 27, 1997, Salazar failed to settle the amount due J.Y. Bros., the lattercharged Salazar and Timario with the crime of estafa before the Regional Trial Court of Legaspi City,docketed as Criminal Case No. 7474.

After the prosecution rested its case and with prior leave of court, Salazar submitted a demurrer toevidence. On November 19, 2001, the court a quo rendered an Order, the dispositive portion of whichreads:

WHEREFORE, premises considered, the accused Anamer D. Salazar is hereby ACQUITTED of the crimecharged but is hereby held liable for the value of the 300 bags of rice. Accused Anamer D. Salazar istherefore ordered to pay J.Y. Brothers Marketing Corporation the sum of P214,000.00. Costs against theaccused.

SO ORDERED.

Aggrieved, accused attempted a reconsideration on the civil aspect of the order and to allow her to presentevidence thereon. The motion was denied. Accused went up to the Supreme Court on a petition for reviewon certiorari under Rule 45 of the Rules of Court. Docketed as G.R. 151931, in its Decision datedSeptember 23, 2003, the High Court ruled:

IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The Orders dated November 19, 2001 andJanuary 14, 2002 are SET ASIDE and NULLIFIED. The Regional Trial Court of Legaspi City, Branch 5, ishereby DIRECTED to set Criminal Case No. 7474 for the continuation of trial for the reception of theevidence-in-chief of the petitioner on the civil aspect of the case and for the rebuttal evidence of the privatecomplainant and the sur-rebuttal evidence of the parties if they opt to adduce any.

SO ORDERED.

The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with the trial on the civil aspectof the criminal case.

On April 1, 2004, the RTC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, Premises Considered, judgment is rendered DISMISSING as against Anamer D. Salazarthe civil aspect of the above-entitled case. No pronouncement as to costs.

Place into the files (archive) the record of the above-entitled case as against the other accused NenaJaucian Timario. Let an alias (bench) warrant of arrest without expiry dated issue for her apprehension, andfix the amount of the bail bond for her provisional liberty at 59,000.00 pesos.

SO ORDERED.

The RTC found that the Prudential Bank check drawn by Timario for the amount of P214,000.00 waspayable to the order of respondent, and such check was a negotiable order instrument; that petitioner wasnot the payee appearing in the check, but respondent who had not endorsed the check, much lessdelivered it to petitioner. It then found that petitioners liability should be limited to the allegation in theamended information that "she endorsed and negotiated said check," and since she had never been the

10

holder of the check, petitioner's signing of her name on the face of the dorsal side of the check did notproduce the technical effect of an indorsement arising from negotiation. The RTC ruled that after thePrudential Bank check was dishonored, it was replaced by a Solid Bank check which, however, was alsosubsequently dishonored; that since the Solid Bank check was a crossed check, which meant that suchcheck was only for deposit in payees account, a condition that rendered such check non-negotiable, thesubstitution of a non-negotiable Solid Bank check for a negotiable Prudential Bank check was an essentialchange which had the effect of discharging from the obligation whoever may be the endorser of thenegotiable check. The RTC concluded that the absence of negotiability rendered nugatory the obligationarising from the technical act of indorsing a check and, thus, had the effect of novation; and that theultimate effect of such substitution was to extinguish the obligation arising from the issuance of thePrudential Bank check.

Respondent filed an appeal with the CA on the sole assignment of error that:

IN BRIEF, THE LOWER COURT ERRED IN RULING THAT ACCUSED ANAMER SALAZAR BYINDORSING THE CHECK (A) DID NOT BECOME A HOLDER OF THE CHECK, (B) DID NOT PRODUCETHE TECHNICAL EFFECT OF AN INDORSEMENT ARISING FROM NEGOTIATION; AND (C) DID NOTINCUR CIVIL LIABILITY.

After petitioner filed her appellees' brief, the case was submitted for decision. On September 29, 2005, theCA rendered its assailed Decision, the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged Decision isREVERSED and SET ASIDE, and a new one entered ordering the appellee to pay the appellant the amountof P214,000.00, plus interest at the legal rate from the written demand until full payment. Costs against theappellee.

In so ruling, the CA found that petitioner indorsed the Prudential Bank check, which was later replaced by aSolid Bank check issued by Timario, also indorsed by petitioner as payment for the 300 cavans of ricebought from respondent. The CA, applying Sections 63, 66 and 29 of the Negotiable Instruments Law,found that petitioner was considered an indorser of the checks paid to respondent and considered her as anaccommodation indorser, who was liable on the instrument to a holder for value, notwithstanding that suchholder at the time of the taking of the instrument knew her only to be an accommodation party.

Respondent filed a motion for reconsideration, which the CA denied in a Resolution dated March 2, 2006.

Hence this petition, wherein petitioner raises the following assignment of errors:

1. THE COURT OF APPEALS ERRED IN IGNORING THE RAMIFICATIONS OF THE ISSUANCEOF THE SOLIDBANK CHECK IN REPLACEMENT OF THE PRUDENTIAL BANK CHECK WHICHWOULD HAVE RESULTED TO THE NOVATION OF THE OBLIGATION ARISING FROM THEISSUANCE OF THE LATTER CHECK.

2. THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONALTRIAL COURT OF LEGASPI CITY, BRANCH 5, DISMISSING AS AGAINST THE PETITIONERTHE CIVIL ASPECT OF THE CRIMINAL ACTION ON THE GROUND OF NOVATION OFOBLIGATION ARISING FROM THE ISSUANCE OF THE PRUDENTIAL BANK CHECK.

3. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION TANTAMOUNTTO LACK OR EXCESS OF JURISDICTION WHEN IT DENIED THE MOTION FORRECONSIDERATION OF THE PETITIONER ON THE GROUND THAT THE ISSUE RAISEDTHEREIN HAD ALREADY BEEN PASSED UPON AND CONSIDERED IN THE DECISIONSOUGHT TO BE RECONSIDERED WHEN IN TRUTH AND IN FACT SUCH ISSUE HAD NOTBEEN RESOLVED AS YET.

Petitioner contends that the issuance of the Solid Bank check and the acceptance thereof by therespondent, in replacement of the dishonored Prudential Bank check, amounted to novation that dischargedthe latter check; that respondent's acceptance of the Solid Bank check, notwithstanding its eventualdishonor by the drawee bank, had the effect of erasing whatever criminal responsibility, under Article 315 ofthe Revised Penal Code, the drawer or indorser of the Prudential Bank check would have incurred in theissuance thereof in the amount of P214,000.00; and that a check is a contract which is susceptible to anovation just like any other contract.

11

Respondent filed its Comment, echoing the findings of the CA. Petitioner filed her Reply thereto.

We find no merit in this petition.

Section 119 of the Negotiable Instrument Law provides, thus:

SECTION 119. Instrument; how discharged. A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;

(b) By payment in due course by the party accommodated, where the instrument is made oraccepted for his accommodation;

(c) By the intentional cancellation thereof by the holder;

(d) By any other act which will discharge a simple contract for the payment of money;

(e) When the principal debtor becomes the holder of the instrument at or after maturity in his ownright. (Emphasis ours)

And, under Article 1231 of the Civil Code, obligations are extinguished:

x x x x

(6) By novation.

Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the dishonoredPrudential bank check resulted to novation which discharged the latter check is unmeritorious.

In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold Insurance Co., Inc. , westated the concept of novation, thus:

x x x Novation is done by the substitution or change of the obligation by a subsequent one whichextinguishes the first, either by changing the object or principal conditions, or by substituting the person ofthe debtor, or by subrogating a third person in the rights of the creditor. Novation may:

[E]ither be extinctive or modificatory, much being dependent on the nature of the change and the intentionof the parties. Extinctive novation is never presumed; there must be an express intention to novate; in caseswhere it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligationas the moving consideration for the emergence of the new one. Implied novation necessitates that theincompatibility between the old and new obligation be total on every point such that the old obligation iscompletely superceded by the new one. The test of incompatibility is whether they can stand together, eachone having an independent existence; if they cannot and are irreconcilable, the subsequent obligationwould also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligationand, second, creating a new one in its stead. This kind of novation presupposes a confluence of fouressential requisites: (1) a previous valid obligation, (2) an agreement of all parties concerned to a newcontract, (3) the extinguishment of the old obligation, and (4) the birth of a valid new obligation. Novation ismerely modificatory where the change brought about by any subsequent agreement is merely incidental tothe main obligation (e.g., a change in interest rates or an extension of time to pay; in this instance, the newagreement will not have the effect of extinguishing the first but would merely supplement it or supplantsome but not all of its provisions.)

The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old,changes only the terms of payment, adds other obligations not incompatible with the old ones or the newcontract merely supplements the old one.

In Nyco Sales Corporation v. BA Finance Corporation, we found untenable petitioner Nyco's claim thatnovation took place when the dishonored BPI check it endorsed to BA Finance Corporation wassubsequently replaced by a Security Bank check, and said:

12

There are only two ways which indicate the presence of novation and thereby produce the effect ofextinguishing an obligation by another which substitutes the same. First, novation must be explicitly statedand declared in unequivocal terms as novation is never presumed. Secondly, the old and the newobligations must be incompatible on every point.1avvphi1 The test of incompatibility is whether or not thetwo obligations can stand together, each one having its independent existence. If they cannot, they areincompatible and the latter obligation novates the first. In the instant case, there was no express agreementthat BA Finance's acceptance of the SBTC check will discharge Nyco from liability. Neither is thereincompatibility because both checks were given precisely to terminate a single obligation arising fromNyco's sale of credit to BA Finance. As novation speaks of two distinct obligations, such is inapplicable tothis case.

In this case, respondents acceptance of the Solid Bank check, which replaced the dishonored PrudentialBank check, did not result to novation as there was no express agreement to establish that petitioner wasalready discharged from his liability to pay respondent the amount of P214,000.00 as payment for the 300bags of rice. As we said, novation is never presumed, there must be an express intention to novate. In fact,when the Solid Bank check was delivered to respondent, the same was also indorsed by petitioner whichshows petitioners recognition of the existing obligation to respondent to pay P214,000.00 subject of thereplaced Prudential Bank check.

Moreover, respondents acceptance of the Solid Bank check did not result to any incompatibility, since thetwo checks Prudential and Solid Bank checks were precisely for the purpose of paying the amountof P214,000.00,i.e., the credit obtained from the purchase of the 300 bags of rice from respondent. Indeed,there was no substantial change in the object or principal condition of the obligation of petitioner as theindorser of the check to pay the amount of P214,000.00. It would appear that respondent accepted theSolid Bank check to give petitioner the chance to pay her obligation.

Petitioner also contends that the acceptance of the Solid Bank check, a non-negotiable check being acrossed check, which replaced the dishonored Prudential Bank check, a negotiable check, is a newobligation in lieu of the old obligation arising from the issuance of the Prudential Bank check, since therewas an essential change in the circumstance of each check.

Such argument deserves scant consideration.

Among the different types of checks issued by a drawer is the crossed check. The Negotiable InstrumentsLaw is silent with respect to crossed checks, although the Code of Commerce makes reference to suchinstruments. We have taken judicial cognizance of the practice that a check with two parallel lines in theupper left hand corner means that it could only be deposited and could not be converted into cash. Thus,the effect of crossing a check relates to the mode of payment, meaning that the drawer had intended thecheck for deposit only by the rightful person, i.e., the payee named therein. The change in the mode ofpaying the obligation was not a change in any of the objects or principal condition of the contract fornovation to take place.

Considering that when the Solid Bank check, which replaced the Prudential Bank check, was presented forpayment, the same was again dishonored; thus, the obligation which was secured by the Prudential Bankcheck was not extinguished and the Prudential Bank check was not discharged. Thus, we found noreversible error committed by the CA in holding petitioner liable as an accommodation indorser for thepayment of the dishonored Prudential Bank check.

WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and the Resolution datedMarch 2, 2006, of the Court of Appeals in CA-G.R. CV No. 83104, are AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTAAssociate Justice

13

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 159097 July 5, 2010

METROPOLITAN BANK AND TRUST COMPANY, Petitioner,vs.RURAL BANK OF GERONA, INC. Respondent.

D E C I S I O N

BRION, J.:

Petitioner Metropolitan Bank and Trust Company (Metrobank) filed this Petition for Review onCertiorari under Rule 45 of the Rules of Court to challenge the Court of Appeals (CA) decision datedDecember 17, 2002 and the resolution dated July 14, 2003 in CA-G.R. CV No. 46777. The CA decision setaside the July 7, 1994 decision of the Regional Trial Court (RTC) of Tarlac, Branch 65, in Civil Case No.6028 (a collection case filed by Metrobank against respondent Rural Bank of Gerona, Inc. [RBG]), andordered the remand of the case to include the Central Bank of the Philippines (Central Bank) as anecessary party.

THE FACTUAL ANTECEDENTS

RBG is a rural banking corporation organized under Philippine laws and located in Gerona, Tarlac. In the1970s, the Central Bank and the RBG entered into an agreement providing that RBG shall facilitate the loanapplications of farmers-borrowers under the Central Bank-International Bank for Reconstruction andDevelopments (IBRDs) 4th Rural Credit Project. The agreement required RBG to open a separate bankaccount where the IBRD loan proceeds shall be deposited. The RBG accordingly opened a special savingsaccount with Metrobanks Tarlac Branch. As the depository bank of RBG, Metrobank was designated to

14

receive the credit advice released by the Central Bank representing the proceeds of the IBRD loan of thefarmers-borrowers; Metrobank, in turn, credited the proceeds to RBGs special savings account for thelatters release to the farmers-borrowers.

On September 27, 1978, the Central Bank released a credit advice in Metrobanks favor and accordinglycredited Metrobanks demand deposit account in the amount of P178,652.00, for the account of RBG. Theamount, which was credited to RBGs special savings account represented the approved loan application offarmer-borrower Dominador de Jesus. RBG withdrew the P178,652.00 from its account.

On the same date, the Central Bank approved the loan application of another farmer-borrower, BasilioPanopio, for P189,052.00, and credited the amount to Metrobanks demand deposit account. Metrobank, inturn, credited RBGs special savings account. Metrobank claims that the RBG also withdrew the entirecredited amount from its account.

On October 3, 1978, the Central Bank approved Ponciano Lagmans loan application for P220,000.00. Aswith the two other IBRD loans, the amount was credited to Metrobanks demand deposit account, whichamount Metrobank later credited in favor of RBGs special savings account. Of the P220,000.00, RBG onlywithdrew P75,375.00.

On November 3, 1978, more than a month after RBG had made the above withdrawals from its accountwith Metrobank, the Central Bank issued debit advices, reversing all the approved IBRD loans. The CentralBank implemented the reversal by debiting from Metrobanks demand deposit account the amountcorresponding to all three IBRD loans.

Upon receipt of the November 3, 1978 debit advices, Metrobank, in turn, debited the following amountsfrom RBGs special savings account: P189,052.00, P115,000.00, and P8,000.41. Metrobank, however,claimed that these amounts were insufficient to cover all the credit advices that were reversed by theCentral Bank. It demanded payment from RBG which could make partial payments. As of October 17, 1979,Metrobank claimed that RBG had an outstanding balance of P334,220.00. To collect this amount, it filed acomplaint for collection of sum of money against RBG before the RTC, docketed as Civil Case No. 6028.

In its July 7, 1994 decision, the RTC ruled for Metrobank, finding that legal subrogation had ensued:

[Metrobank] had allowed releases of the amounts in the credit advices it credited in favor of [RBGs specialsavings account] which credit advices and deposits were under its supervision. Being faulted in these actsor omissions, the Central Bank [sic] debited these amounts against [Metrobanks] demand [deposit]reserve; thus[, Metrobanks] demand deposit reserves diminished correspondingly, [Metrobank as of thistime,] suffers prejudice in which case legal subrogation has ensued.

It thus ordered RBG to pay Metrobank the sum of P334,200.00, plus interest at 14% per annum until theamount is fully paid.

On appeal, the CA noted that this was not a case of legal subrogation under Article 1302 of the Civil Code.Nevertheless, the CA recognized that Metrobank had a right to be reimbursed of the amount it had paid andfailed to recover, as it suffered loss in an agreement that involved only the Central Bank and the RBG. Itclarified, however, that a determination still had to be made on who should reimburse Metrobank. Notingthat no evidence exists why the Central Bank reversed the credit advices it had previously confirmed, theCA declared that the Central Bank should be impleaded as a necessary party so it could shed light on theIBRD loan reversals. Thus, the CA set aside the RTC decision, and remanded the case to the trial court forfurther proceedings after the Central Bank is impleaded as a necessary party.1After the CA denied itsmotion for reconsideration, Metrobank filed the present petition for review on certiorari.

THE PETITION FOR REVIEW ON CERTIORARI

Metrobank disagrees with the CAs ruling to implead the Central Bank as a necessary party and to remandthe case to the RTC for further proceedings. It argues that the inclusion of the Central Bank as party to thecase is unnecessary since RBG has already admitted its liability for the amount Metrobank failed to recover.In two letters, RBGs President/Manager made proposals to Metrobank for the repayment of the amountsinvolved. Even assuming that no legal subrogation took place, Metrobank claims that RBGs letters morethan sufficiently proved its liability.

Metrobank additionally contends that a remand of the case would unduly delay the proceedings. Thetransactions involved in this case took place in 1978, and the case was commenced before the RTC more

15

than 20 years ago. The RTC resolved the complaint for collection in 1994, while the CA decided the appealin 2002. To implead Central Bank, as a necessary party in the case, means a return to square one and therestart of the entire proceedings.

THE COURTS RULING

The petition is impressed with merit.

A basic first step in resolving this case is to determine who the liable parties are on the IBRD loans that theCentral Bank extended. The Terms and Conditions of the IBRD 4th Rural Credit Project (Project Terms andConditions) executed by the Central Bank and the RBG shows that the farmers-borrowers to whom creditshave been extended, are primarily liable for the payment of the borrowed amounts. The loans wereextended through the RBG which also took care of the collection and of the remittance of the collection tothe Central Bank. RBG, however, was not a mere conduit and collector.1avvphil While the farmers-borrowers were the principal debtors, RBG assumed liability under the Project Terms and Conditions bysolidarily binding itself with the principal debtors to fulfill the obligation.1awphi1

How RBG profited from the transaction is not clear from the records and is not part of the issues before us,but if it delays in remitting the amounts due, the Central Bank imposed a 14% per annum penalty rate onRBG until the amount is actually remitted. The Central Bank was further authorized to deduct the amountdue from RBGs demand deposit reserve should the latter become delinquent in payment. On these points,paragraphs 5 and 6 of the Project Terms and Conditions read:

5. Collection received representing repayments of borrowers shall be immediately remitted to the CentralBank, otherwise[,] the Rural Bank/SLA shall be charged a penalty of fourteen [percent] (14%) p.a. until dateof remittance.

6. In case the rural bank becomes delinquent in the payment of amortizations due[,] the Central Bank isauthorized to deduct the corresponding amount from the rural banks demand deposit reserve at any time tocover any delinquency. [Emphasis supplied.]

Based on these arrangements, the Central Banks immediate recourse, therefore should have been againstthe farmers-borrowers and the RBG; thus, it erred when it deducted the amounts covered by the debitadvices from Metrobanks demand deposit account. Under the Project Terms and Conditions, Metrobankhad no responsibility over the proceeds of the IBRD loans other than serving as a conduit for their transferfrom the Central Bank to the RBG once credit advice has been issued. Thus, we agree with the CAsconclusion that the agreement governed only the parties involved the Central Bank and the RBG.Metrobank was simply an outsider to the agreement. Our disagreement with the appellate court is in itsconclusion that no legal subrogation took place; the present case, in fact, exemplifies the circumstancecontemplated under paragraph 2, of Article 1302 of the Civil Code which provides:

Art. 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the debtors knowledge;

(2) When a third person, not interested in the obligation, pays with the express or tacit approval ofthe debtor;

(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of theobligation pays, without prejudice to the effects of confusion as to the latters share. [Emphasissupplied.]

As discussed, Metrobank was a third party to the Central Bank-RBG agreement, had no interest except as aconduit, and was not legally answerable for the IBRD loans. Despite this, it was Metrobanks demanddeposit account, instead of RBGs, which the Central Bank proceeded against, on the assumption perhapsthat this was the most convenient means of recovering the cancelled loans. That Metrobanks payment wasinvoluntarily made does not change the reality that it was Metrobank which effectively answered for RBGsobligations.

Was there express or tacit approval by RBG of the payment enforced against Metrobank? After Metrobankreceived the Central Banks debit advices in November 1978, it (Metrobank) accordingly debited theamounts it could from RBGs special savings account without any objection from RBG. RBGs Presidentand Manager, Dr. Aquiles Abellar, even wrote Metrobank, on August 14, 1979, with proposals regarding

16

possible means of settling the amounts debited by Central Bank from Metrobanks demand depositaccount. These instances are all indicative of RBGs approval of Metrobanks payment of the IBRD loans.That RBGs tacit approval came after payment had been made does not completely negate the legalsubrogation that had taken place.

Article 1303 of the Civil Code states that subrogation transfers to the person subrogated the credit with allthe rights thereto appertaining, either against the debtor or against third persons. As the entity againstwhich the collection was enforced, Metrobank was subrogated to the rights of Central Bank and has acause of action to recover from RBG the amounts it paid to the Central Bank, plus 14% per annum interest.

Under this situation, impleading the Central Bank as a party is completely unnecessary. We note that theCA erroneously believed that the Central Banks presence is necessary "in order x x x to shed light on thematter of reversals made by it concerning the loan applications of the end users and to have a completedetermination or settlement of the claim." In so far as Metrobank is concerned, however, the Central Bankspresence and the reasons for its reversals of the IBRD loans are immaterial after subrogation has takenplace; Metrobanks interest is simply to collect the amounts it paid the Central Bank. Whatever cause ofaction RBG may have against the Central Bank for the unexplained reversals and any undue deductions isfor RBG to ventilate as a third-party claim; if it has not done so at this point, then the matter should be dealtwith in a separate case that should not in any way further delay the disposition of the present case that hadbeen pending before the courts since 1980.

While we would like to fully and finally resolve this case, certain factual matters prevent us from doing so.Metrobank contends in its petition that it credited RBGs special savings account with three amountscorresponding to the three credit advices issued by the Central Bank: the P178,652.00 for Dominador deJesus; the P189,052.00 for Basilio Panopio; and the P220,000.00 for Ponciano Lagman. Metrobank claimsthat all of the three credit advices were subsequently reversed by the Central Bank, evidenced by threedebit advices. The records, however, contained only the credit and debit advices for the amounts set asidefor de Jesus and Lagman; nothing in the findings of fact by the RTC and the CA referred to the amount setaside for Panopio.

Thus, what were sufficiently proven as credited and later on debited from Metrobanks demand depositaccount were only the amounts of P178,652.00 and P189,052.00. With these amounts combined, RBGsliability would amount to P398,652.00 the same amount RBG acknowledged as due to Metrobank in itsAugust 14, 1979 letter. Significantly, Metrobank likewise quoted this amount in its July 11, 1979 and July26, 1979 demand letters to RBG and its Statement of Account dated December 23, 1982.

RBG asserts that it made partial payments amounting to P145,197.40, but neither the RTC nor the CAmade a conclusive finding as to the accuracy of this claim. Although Metrobank admitted that RBG indeedmade partial payments, it never mentioned the actual amount paid; neither did it state that the P145,197.40was part of theP312,052.41 that, it admitted, it debited from RBGs special savings account.

Deducting P312,052.41 (representing the amounts debited from RBGs special savings account, asadmitted by Metrobank) from P398,652.00 amount due to Metrobank from RBG, the difference would onlybe P86,599.59. We are, therefore, at a loss on how Metrobank computed the amount of P334,220.00 itclaims as the balance of RBGs loan. As this Court is not a trier of facts, we deem it proper to remand thisfactual issue to the RTC for determination and computation of the actual amount RBG owes to Metrobank,plus the corresponding interest and penalties.

WHEREFORE, we GRANT the petition for review on certiorari, and REVERSE the decision and theresolution of the Court of Appeals, in CA-G.R. CV No. 46777, promulgated on December 17, 2002 and July14, 2003, respectively. We AFFIRM the decision of the Regional Trial Court, Branch 65, Tarlac,promulgated on July 7, 1994, insofar as it found respondent liable to the petitioner Metropolitan Bank andTrust Company, but order the REMAND of the case to the trial court to determine the actual amounts due tothe petitioner. Costs against respondent Rural Bank of Gerona, Inc.

SO ORDERED.

ARTURO D. BRIONAssociate Justice

17

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-48797 July 30, 1943

FUA CAM LU, plaintiff-appellee,vs.YAP FAUCO and YAP SINGCO, defendants-appellants.

Vicente J. Francisco for petitioner.M.H. de Joya for respondents.

The plaintiff-appellee, Fua Cam Lu, obtained in civil case No. 42125 of the Court of First Instance of Manilaa judgment sentencing the defendants-appellants, Yap Fauco and Yap Singco, to pay P1,538.04 with legalinterest and costs. By virtue of a writ of execution, a certain parcel of land belonging to the appellants,assessed at P3,550 and situated in Donsol, Sorsogon was levied upon the provincial sheriff of Sorsogonwho, on November 15, 1933, made a notice, duly posted in three conspicuous places in the municipalitiesof Donsol and Sorsogon and published in the Mamera Press, that said land would be sold at public auctionon December 12, 1933. On December 16, 1933, the appellants executed a mortgage in favor of theappellee, wherein it was stipulated that their obligation under the judgment in civil case No. 41225 was

18

reduced to P1,200 which was made payable in four installments of P300 during the period commencing onFebruary 8, 1934, and ending on August 8, 1935l that to secure the payment of the said P1,200, a camarinbelonging to the appellants and built on the above-mentioned land, was mortgaged to the appellee; that incase the appellants defaulted in the payment of any of the installments, they would pay ten per cent of theunpaid balance as attorney's fees. plus the costs of the action to be brought by the appellee by reason ofsuch default, and the further amount of P338, representing the discount conceded to the appellants. As aresult of the agreement thus reached by the parties, the sale of the land advertised by the provincial sheriffdid not take place. However, pursuant to an alias writ of execution issued by the Court of First instance ofmanila in civil case No. 42125 on March 31, 1934, the provincial sheriff, without publishing a new notice,sold said land at a public auction held on May 28, 1934, to the appellee for P1,923.32. On June 13, 1935,the provincial sheriff executed a final deed in favor of the appellee. On August 29, 1939, the appelleeinstituted the present action in the Court of First Instance of Sorsogon against the appellants in view of theirrefusal to recognize appellee's title and to vacate the land. The appellants relied on the legal defenses thattheir obligation under the judgment in civil case No. 42125 was novated by the mortgage executed by themin favor of the appellee and that the sheriffs sale was void for lack of necessary publication. Thesecontentions were overruled by the lower court which rendered judgment declaring the appellee to be theowner of the land and ordering the appellants to deliver the same to him, without special pronouncement asto costs. The appellants seek the reversal of this judgment.

We concur in the theory that appellants liability under the judgment in civil case No. 42125 had beenextinguished by the settlement evidenced by the mortgage executed by them in favor of the appellee onDecember 16, 1933. Although said mortgage did not expressly cancel the old obligation, this was impliedlynovated by reason of incompatibly resulting from the fact that, whereas the judgment was for P1,538.04payable at one time, did not provide for attorney's fees, and was not secured, the new obligation is orP1,200 payable in installments, stipulated for attorney's fees, and is secured by a mortgage. The appellee,however, argues that the later agreement merely extended the time of payment and did not take away hisconcurrent right to have the judgment executed. This court not have been the purpose for executive themortgage, because it was therein recited that the appellants promised to pay P1,200 to the appellee as asettlement of the judgment in civil case No. 42125 (en forma de transaccion de la decision . . . en el asuntocivil No. 42125). Said judgment cannot be said to have been settled, unless it was extinguished.

Moreover, the sheriff's sale in favor of the appellee is void because no notice thereof was published otherthan that which appeared in the Mamera Press regarding the sale to be held on December 12, 1933. Lackof new publication is shown by appellee's own evidence and the issue, though not raised in the pleadings,was thereby tried by implied consent of the parties, emphasized by the appellants in the memorandum filedby them in the lower court and squarely threshed out in this Court by both the appellants and the appellee.The latter had, besides, admitted that there was no new publication, and so much so that in his brief hemerely resorted to the argument that "section 460 of Act 190 authorized the sheriff to adjourn any sale uponexecution to any date agreed upon in writing by the parties . . . and does not require the sheriff to publishanew the public sale which was adjourned." The appellee has correctly stated the law but has failed to showthat it supports his side, for it is not pretended that there was any written agreement between the parties toadjourn the sale advertised for December 12, 1933, to May 28, 1934. Neither may it be pretended that thesale in favor of the appellee was by virtue of a mere adjournment, it appearing that it was made pursuant toan alias writ of execution. Appellee's admission has thus destroyed the legal presumption that official dutywas regularly performed.

The appealed judgment is, therefore, reversed and the defendants-appellants, who are hereby declared tobe the owners of the land in question are absolved from the complaint, with costs against the appellee. Soordered.

Yulo, C.J., Ozaeta and Bocobo, JJ., concur.

19

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

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

EUSEBIO S. MILLAR, petitioner,vs.THE HON. COURT OF APPEALS and ANTONIO P. GABRIEL, respondents.

CASTRO, J.:

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

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

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

This mortgage is given as security for the payment to the said EUSEBIO S. MILLAR,mortgagee, of the judgment and other incidental expenses in Civil Case No. 27116 of theCourt of First Instance of Manila against Antonio P. Gabriel, MORTGAGOR, in theamount of ONE THOUSAND SEVEN HUNDRED (P1,700.00) PESOS, Philippinecurrency, which MORTGAGOR agrees to pay as follows:

March 31, 1957 EIGHT HUNDRED FIFTY (P850) PESOS;

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

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

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

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

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

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

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

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

1. Whereas the judgment orders the respondent to pay the petitioner the sum of P1,746.98 with interest at12% per annum from the filing of the complaint, plus the amount of P400 and the costs of suit, the deed ofchattel mortgage limits the principal obligation of the respondent to P1,700;

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

3. Whereas the judgment makes no mention of damages, the deed of chattel mortgage obligates therespondent to pay liquidated damages in the amount of P300 in case of default on his part; and

4. Whereas the judgment debt was unsecured, the chattel mortgage, which may be foreclosedextrajudicially in case of default, secured the obligation.

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

Resolution of the controversy posed by the petition at bar hinges entirely on a determination of whether ornot the subsequent agreement of the parties as embodied in the deed of chattel mortgage impliedlynovated the judgment obligation in civil case 27116. The Court of Appeals, in arriving at the conclusion thatimplied novation has taken place, took into account the four circumstances heretofore already adverted toas indicative of the incompatibility between the judgment debt and the principal obligation under the deed ofchattel mortgage.

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

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

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

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

However, the petitioner contends that the respondent himself in his brief filed with the Court of Appealsadmitted his obligation, under the deed of chattel mortgage, to pay the amount of P300 by way of attorney'sfees and not as liquidated damages. Similarly, the judgment makes mention of the payment of the sum ofP400 as attorney's fees and omits any reference to liquidated damages.

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

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

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

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

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

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

The defense of implied novation requires clear and convincing proof of complete incompatibility betweenthe two obligations. 2 The law requires no specific form for an effective novation by implication. The test iswhether the two obligations can stand together. If they cannot, incompatibility arises, and the secondobligation novates the first. If they can stand together, no incompatibility results and novation does not takeplace.

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

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

Concepcion, C. J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando and Makasiar, JJ., concur.

Villamor, J., abstains.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-26115 November 29, 1971

CARLOS SANDICO, SR., and TEOPISTO P. TIMBOL, petitioners,vs.THE HONORABLE MINERVA R. INOCENCIO PIGUING, Judge of the Court of First Instance ofPampanga, and DESIDERIO PARAS, respondents.

CASTRO, J.:

On April 16, 1960 the spouses Carlos Sandico and Enrica Timbol, and Teopisto P. Timbol, administrator ofthe estate of the late Sixta Paras, obtained a judgment in their favor against Desiderio Paras (hereinafterreferred to as the respondent) in civil case 1554, an action for easement and damages in the Court of FirstInstance of Pampanga. On appeal, the Court of Appeals affirmed and modified the judgment, as follows:

IN VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant iscondemned to recognize the easement which is held binding as to him; he is sentencedto pay plaintiffs the sums of P5,000.00 actual, and P500.00 exemplary damages, andP500.00 attorney's fees; plus costs in both instances.

Thereafter, upon remand to the court a quo of civil case 1554, the Sandicos and Timbol (hereinafterreferred to as the petitioners) moved for the issuance of a writ of execution to enforce the appellate court'sjudgment which had acquired finality. Acting upon the motion, the court a quo issued a writ of execution onJuly 22, 1964. This writ the provincial sheriff served upon the respondent on August 22, 1964.

Meanwhile the petitioners and the respondent reached a settlement, finally agreeing to the reduction of themoney judgment from P6,000 to P4,000. Thus, the respondent, on August 5, 1964, paid the petitioners thesum of P3,000; he made another payment in the amount of P1,000 as evidenced by a receipt issued by thepetitioners' counsel. This receipt is hereunder reproduced in full:

P1,000.00

RECEIVED from Mr. Desiderio Paras the sum of ONE THOUSAND PESOS (P1,000.00),Philippine Currency, in full satisfaction of the money judgment rendered against him inCivil Case No. 1554 of the Court of First Instance of Pampanga, it being understood that

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the portion of the final judgment rendered in the said case ordering him to reconstruct theirrigation canal in question shall be complied with by him immediately.

City of Angeles, August 31, 1964.

(SGD.) DALMACIO P. TIMBOLCounsel for Plaintiffsin Civil Case No. 1554

I AGREE:(SGD.) DESIDERIO PARAS

Subsequently, the petitioners sent the respondent a letter dated November 5, 1964 demanding complianceby the latter with the portion of the judgment in civil case 1554 relative to the reconstruction and reopeningof the irrigation canal.

On February 12, 1965 the provincial sheriff returned the writ of execution issued on July 22, 1964unsatisfied.

Upon failure and refusal of the respondent to rebuild and reopen the irrigation canal, the petitioners, onMarch 3, 1965, filed with the court a quo, with Judge Minerva R. Inocencio Piguing (hereinafter referred toas the respondent judge) presiding, a motion to declare the said private respondent in contempt of court,pursuant to provisions of section 9, Rule 39 of the Rules of Court. Opposing the motion, the respondentalleged recognition by him of the existence of the easement and compliance with the appellate court'sjudgment, stating that he had dug a canal in its former place, measuring about one and-a-half feet deep, forthe petitioners' use.

On September 8, 1965 the respondent judge issued an order denying the petitioners' motion to declare therespondents in contempt of court, ruling that.

... it appears from the dispositive part of the decision that the defendant was only orderedto recognize the easement which is held binding as to him and to pay the plaintiffs thesums P5,000.00 of actual, and P500.00 exemplary damages.

Apparently, it is clear from the dispositive part of the decision that there is nothing to showthat the defendant was ordered to reconstruct the canal.

On September 16, 1965 the petitioners moved for issuance of an alias writ of execution to enforce thejudgement of the Court of Appeals. This motion the respondent judge granted in an order dated September25, 1965. On November 3, 1965. the respondent moved to set aside the said alias writ, alleging fullsatisfaction of the judgment per agreement of the parties when the petitioner received the sum of P4,000 inAugust, 1964 as evidenced by the receipt dated August 31, 1964.

The respondent judge then issued an order dated November 11, 1965 directing the provincial sheriff tosuspend the execution of the alias writ until further orders. On February 3, 1966 the respondent judgeissued an order calling, and directing the quashal of the alias writ of execution. The respondent judge statedin her order that the agreement of the parties "novated" the money judgment provided for in the decision ofthe Court of Appeals, ruling that the said decision.

... which is sought now to be executed by this Court, has already been fully satisfied as tothe money judgment and nothin