[Syllabus]

SECOND DIVISION

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

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

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

DECISION
TORRES, JR., J.:

Petitioner assails the respondent court’s decision dated May 12, 1995 which
i[1]

sustained the two resolutions of the respondent Secretary of Justice, namely: 1)

the Resolution dated January 23, 1992 affirming the resolution of the Provincial
Prosecutor of Rizal dismissing the complaints of petitioner against private
respondent Eleazar in I.S. Nos. 91-2853, 91-4328 to 29, 91-4585 to 91 and 91-
4738 to 39 for violations of B.P. Blg. 22 and estafa under Article 315, par. 4, no. 2
(d) of the Revised Penal Code, and 2) the Resolution dated January 12, 1993
affirming the resolution of the City Prosecutor of Quezon City finding a prima
facie case in I.S. No. 92-926 for violation of B.P. Blg. 22 and estafa filed by
respondent AFP-Mutual Benefit Association, Inc. (AFP-MBAI, for brevity) against
petitioner Reyes.
The facts as summarized by the respondent court are as follows:
“Elsa Reyes is the president of Eurotrust Capital Corporation
(EUROTRUST), a domestic corporation engaged in credit financing. Graciela
Eleazar, private respondent, is the president of B.E. Ritz Mansion International
Corporation (BERMIC), a domestic enterprise engaged in real estate
development. The other respondent, Armed Forces of the Philippines Mutual
Benefit Asso., Inc. (AFP-MBAI), is a corporation duly organized primarily to
perform welfare services for the Armed Forces of the Philippines.
A. Re: Resolution dated January 23, 1992
In her various affidavits-complaints with the Office of the Provincial
Prosecutor of Rizal, Elsa Reyes alleges that Eurotrust and Bermic entered into
a loan agreement. Pursuant to the said contract, Eurotrust extended to Bermic
P216,053,126.80 to finance the construction of the latter’s Ritz Condominium
and Gold Business Park. The loan was without collateral but with higher
interest rates than those allowed by the banks. In turn, Bermic issued 21
postdated checks to cover payments of the loan packages. However, when
those checks were presented for payment, the same were dishonored by the
drawee bank, Rizal Commercial Banking Corporation (RCBC), due to stop
payment order made by Graciela Eleazar. Despite Eurotrust’s notices and
repeated demands to pay, Eleazar failed to make good the dishonored checks,
prompting Reyes to file against her several criminal complaints for violation of
B.P. 22 and estafa under Article 315, 4th paragraph, No. 2 (d) of the Revised
Penal Code.
Graciela Eleazar, in her counter-affidavits, asserts that beginning
December 1989, Eurotrust extended to Bermic several loan packages
amounting to P190,336,388.86. For its part, Bermic issued several postdated
checks to cover payments of the principal and interest of every loan packages
involved.
Subsequently, Elsa Reyes was investigated by the Senate Blue Ribbon
Committee. She was involved in a large scale scam amounting to millions of
pesos belonging to Instructional Material Corporation (IMC), an agency under
the Department of Education, Culture and Sports.
Meanwhile, respondent AFP-MBAI which invested its funds with Eurotrust,
by buying from it government securities, conducted its own investigation and
found that after Eurotrust delivered to AFP-MBAI the securities it purchased,
the former borrowed the same securities but failed to return them to AFP-MBAI;
and that the amounts paid by AFP-MBAI to Eurotrust for those securities were
in turn lent by Elsa Reyes to Bermic and others.
When Eleazar came to know that the funds originally loaned by Eurotrust to
Bermic belonged to AFP-MBAI, she, as President of Bermic, requested a
meeting with Eurotrust representatives. Thus, on February 15,1991, the
representatives of Eurotrust and Bermic agreed that Bermic would directly
settle its obligations with the real owners of the fund-AFP-MBAI and DECS-
IMC. This agreement was formalized in two letters dated March 19, 1991.
Pursuant to this understanding, Bermic negotiated with AFP-MBAI and DECS-
IMC and made payments to the latter. In fact, Bermic paid AFP-MBAI
P31,711.11 and a check of P1-million.
However, Graciela Eleazar later learned that Elsa Reyes continued to
collect on the postdated checks issued by her (Eleazar) contrary to their
agreement. So, Bermic wrote to Eurotrust to hold the amounts “in constructive
trust” for the real owners. But Reyes continued to collect on the other postdated
checks dated April 17 to June 28, 1991. Upon her counsel’s advise, Eleazar
had the payment stopped. Hence, her checks issued in favor of Eurotrust were
dishonored.
After investigation, the Office of the Provincial Prosecutor of Rizal issued a
resolution dismissing the complaints filed by Elsa Reyes against Graciela
Eleazar on the ground that when the latter assumed the obligation of Reyes to
AFP-MBAI, it constituted novation, extinguishing any criminal liability on the part
of Eleazar.
Reyes filed a petition for review of the said resolution with respondent
Secretary of Justice contending that novation did not take place.
The Secretary of Justice dismissed the petition holding that “the novation of
the loan agreement prevents the rise of any incipient criminal liability since the
novation had the effect of canceling the checks and rendering without effect the
subsequent dishonor of the already cancelled checks.”
B. Re: Resolution dated January 12, 1993
At the time of the pendency of the cases filed by Elsa Reyes against
Graciela Eleazar, AFP-MBAI lodged a separate complaint for estafa and a
violation of BP 22 against Elsa Reyes with the office of the city prosecutor of
Quezon city docketed as I.S. 92-926. The affidavit of Gudelia Dinapo a member
of the investigating committee formed by AFP-MBAI to investigate the
anomalies committed by Eurotrust/Reyes, shows that between August 1989
and September 1990, Eurotrust offered to sell to AFP-MBAI various marketable
securities, including government securities, such as but not limited to treasury
notes, treasury bills, Land Bank of the Philippines Bonds and Asset
Participation Certificates.
Relying on a canvass conducted by one of its employees, Cristina
Cornista, AFP-MBAI decided to purchase several securities amounting to
P120,000,000.00 from Eurotrust. From February 1990 to September 1990, a
total of 21 transactions were entered into between Eurotrust and AFP-MBAI.
Eurotrust delivered to AFP-MBAI treasury notes amounting to P73 million.
However, Eurotrust fraudulently borrowed all those treasury notes from the
AFP-MBAI for purposes of verification with the Central Bank. Despite AFP-
MBAI’s repeated demands, Eurotrust failed to return the said treasury notes.
Instead it delivered 21 postdated checks in favor of AFP-MBAI which were
dishonored upon presentment for payment. Eurotrust nonetheless made partial
payment to AFP-MBAI amounting to P35,151,637.72. However, after deducting
this partial payment, the amounts of P73 million treasury notes with interest and
P35,151,637.72 have remained unpaid. Consequently, AFP-MBAI filed with the
Office of the City Prosecutor of Quezon City a complaint for violation of BP 22
and estafa against Elsa Reyes.
Reyes interposed the defense of novation and insisted that AFP-MBAI’s
claim of unreturned P73 million worth of government securities has been
satisfied upon her payment of P30 million. With respect to the remaining P43
million, the same was paid when Eurotrust assigned its Participation
Certificates to AFP-MBAI.
Eventually, the Office of the City Prosecutor of Quezon City issued a
resolution recommending the filing of an information against Reyes for violation
of BP 22 and estafa.
Whereupon, Reyes filed a petition for review with respondent Secretary of
Justice. The latter dismissed the petition on the ground that only resolutions of
the prosecutors dismissing criminal complaints are cognizable for review by the
Department of Justice.”ii[2]
On February 2, 1994, petitioner seeking the nullification of either of the two
resolutions of the respondent Secretary of Justice filed a petition for certiorari,

i[1]
Penned by Associate Justice Angelina Sandoval Gutierrez and concurred in by Associate
Justices Emeterio Cui and Conrado Vasquez, Jr.
ii[2]
Decision, pp. 2-5; Rollo, pp. 83-86.
prohibition and mandamus with the respondent court which, however, denied
iii[3]

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

in a Resolution dated June 27, 1995. Hence, this present petition.

v[5]

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

Reyes, directly paid her obligations to AFP-MBAI.

We cannot see how novation can take place considering the surrounding
circumstances which negate the same. The principle of novation by substitution
of creditor was erroneously applied in the first questioned resolution involving the
contract of loan between petitioner and respondent Eleazar.
Admittedly, in order that a novation can take place, the concurrence of the
following requisites is indispensable: vii[7]

1. there must be a previous valid obligation,

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

formalized petitioner’s and respondent Eleazar’s agreement that BERMIC would

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

iii[3]
Rollo, pp. 52-80.
iv[4]
Rollo, pp. 92-102.
v[5]
Rollo, p. 91.
vi[6]
Decision, p. 6; Rollo, p. 87.
vii[7]
Tiu Siuco vs. Habana, No. 21106; 45 Phil. 707.
viii[8]
Rollo, pp. 272-275.
ix[9]
Decision, p. 3; Rollo, p. 84.
clearly and unmistakably shows that there was nothing therein that would evince
that respondent AFP-MBAI agreed to substitute for the petitioner as the new
creditor of respondent Eleazar in the contract of loan. It is evident that the two
letters merely gave respondent Eleazar an authority to directly settle the
obligation of petitioner to AFP-MBAI and DECS-IMC. It is essentially an
agreement between petitioner and respondent Eleazar only. There was no
mention whatsoever of AFP-MBAI’s consent to the new agreement between
petitioner and respondent Eleazar much less an indication of AFP-MBAI’s
intention to be the substitute creditor in the loan contract. Well settled is the rule
that novation by substitution of creditor requires an agreement among the three
parties concerned - the original creditor, the debtor and the new creditor. It is a x[10]

new contractual relation based on the mutual agreement among all the
necessary parties. Hence, there is no novation if no new contract was executed
by the parties. Article 1301 of the Civil Code is explicit, thus:
“Conventional subrogation of a third person requires the consent of the
original parties and of the third person.”
The fact that respondent Eleazar made payments to AFP-MBAI and the latter
accepted them does not ipso facto result in novation. There must be an express
intention to novate - animus novandi. Novation is never presumed. Article
xi[11] xii[12]

1300 of the Civil Code provides inter alia that conventional subrogation must be
clearly established in order that it may take effect.
Notwithstanding our disagreement with the decision of the respondent court
and the ruling of the Secretary of Justice that a novation by substitution of
creditor has taken place, we opt not to disturb the Resolution of the respondent
Secretary of Justice dated January 23, 1992 finding a prima facie case against
the petitioner in as much as it had already become final. It appears that petitioner
filed two motions for reconsideration to the said resolution, the first one on
February 6, 1992 and the second one in June 2, 1992. These two motions were,
however, denied by the respondent Secretary of Justice, the last denial was
contained in a Resolution dated June 25, 1992 which was received by petitioner
on July 9, 1992. Petitioner made no prompt attempt to question the said
resolutions before the proper forum. It took her almost seventeen months (from
July 9, 1992 to February 2, 1994) to challenge the January 23, 1992 Resolution
when she filed the petition for certiorari with the respondent court on February 2,
1994, which resolved to affirm the aforesaid resolution of the Secretary of
xiii[13]

Justice.

x[10]
8 Manresa 447, cited in Commentaries and Jurisprudence on the Civil Code of the Philippines,
Tolentino, 1985 Ed., Volume 4, p. 402.
xi[11]
Tui Siuco vs. Habana, supra; La Tondeña, Inc. vs. Alto Surety and Ins. Co., 101 Phil. 879 No.
L-10132.
xii[12]
Pacific Commercial Co. vs. Sotto, 34 Phil. 237 No. 10578; Martinez vs. Cavives, 25 Phil. 581
No. 7663; Goni vs. CA, 144 SCRA 222 No. L-27434.
xiii[13]
Rollo, pp. 120-136.
Petitioner who chose her forum but unfortunately lost her claim is bound by
such adverse judgment on account of finality of judgment, otherwise, there would
be no end to litigation. Litigation must end and terminate sometime and
somewhere, and it is essential to an effective administration of justice that once a
judgment has become final, the issue or cause therein should be laid at rest. xiv[14]

While the respondent Secretary of Justice was in error in applying the rule on
novation in the January 23, 1992 Resolution, such irregularity, however, does not
affect the validity of the proceedings in the Department of Justice. Erroneous
application of a legal principle cannot bring a judgment that has already attained
the status of finality to an absolute nullity under the well entrenched rule of finality
of judgment. The basic rule of finality of judgment is grounded on the
fundamental principle of public policy and sound practice that at the risk of
occasional error, the judgment of court and award of quasi-judicial agencies must
become final at some definite date fixed by law. xv[15]

We find no plausible explanation nor justifiable reason offered by petitioner

for the obvious delay or omission to take a timely action against the questioned
resolution. She is apparently guilty of laches which bars her from seeking relief
in a court of law after she intentionally and unreasonably fails to guard of her
rights. Laches is the failure or neglect for an unreasonable and unexplained
length of time to do that which by exerting due diligence could/should have been
done earlier. Petitioner’s omission to assert her right to avail of the remedies in
xvi[16]

law within a reasonable time warrants a presumption that she abandoned it or

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

It bears emphasis that the above pronouncement we laid down applies only
pro hac vice. This Court in affirming the questioned resolution despite the
erroneous application of a legal principle acted according to what the peculiar
circumstances of the instant case demand. Its factual setting led us to consider
that to sustain the resolution is but the proper action to take in this particular
case.
Regarding the second Resolution of respondent Secretary of Justice dated
January 12, 1993 which affirms the City Prosecutor’s finding of a prima facie
case against petitioner for violation of B.P. Blg. 22 and estafa involving the
contract of sale of securities, petitioner avers that she could not be held criminally
liable for the crime charged because the contract of sale of securities between
her and respondent AFP-MBAI was novated by substitution of debtor. According
to petitioner, the obligation assumed by respondent Eleazar pursuant to the

xiv[14]
Zansibarian Residents vs. Makati, 135 SCRA 235 No. L-62136; Gonzales vs. Hon.
Secretary, 116 SCRA 575 No. L-49524.
xv[15]
Soliven vs. WCC, No. L-44763, Malijan vs. WCC, No. L-45381, 77 SCRA 518; Carreon vs.
WCC, No. L-43307, 77 SCRA 297.
xvi[16]
La Campana Food Products vs. CA, 223 SCRA 151, G. R. No. 88246.
xvii[17]
Marcelino vs. CA, 210 SCRA 444, G.R No. 94422.
authority given by her to respondent Eleazar in a letter dated March 19, 1991
was precisely her (petitioner’s) obligation to respondent AFP-MBAI under the
contract of sale of securities. She claims that private respondent Eleazar,
instead of fulfilling her obligation under the contract of loan to pay petitioner the
amount of debts, assumed petitioner’s obligation under the contract of sale to
make payments to respondent AFP-MBAI directly. xviii[18]

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

explicit, thus:
“Novation which consists in substituting a new debtor in the place of the
original one, may be made even without or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor gives him the
rights mentioned in Articles 1236 and 1237.”
The consent of the creditor to a novation by change of debtor is as indispensable
as the creditor’s consent in conventional subrogation in order that a novation
shall legally take place. The mere circumstance of AFP-MBAI receiving
payments from respondent Eleazar who acquiesced to assume the obligation of
petitioner under the contract of sale of securities, when there is clearly no
agreement to release petitioner from her responsibility, does not constitute
novation, at most, it only creates a juridical relation of co-debtorship or suretyship
on the part of respondent Eleazar to the contractual obligation of petitioner to
AFP-MBAI and the latter can still enforce the obligation against the petitioner. In
Ajax Marketing and Development Corporation vs. Court of Appeals, which is xx[20]

relevant in the instant case, we stated that -

“In the same vein, to effect a subjective novation by a change in the person
of the debtor, it is necessary that the old debtor be released expressly from the
obligation, and the third person or new debtor assumes his place in the relation.
There is no novation without such release as the third person who has
assumed the debtor’s obligation becomes merely a co-debtor or surety. XXX.
Novation arising from a purported change in the person of the debtor must be
clear and express XXX.”
In the civil law setting, novatio is literally construed as to make new. So it is
deeply rooted in the Roman Law jurisprudence, the principle - novatio non
praesumitur - that novation is never presumed. At bottom, for novation to be a
jural reality, its animus must be ever present, debitum pro debito — basically

xviii[18]
Rollo, p. 70.
xix[19]
Testate Estate of Mota vs. Serra, 47 Phil. 465, No. 22825.
xx[20]
248 SCRA 223, G.R. No. 118585, Sept. 14, 1995.
extinguishing the old obligation for the new one.
The foregoing elements are found wanting in the case at bar.
ACCORDINGLY, finding no reversible error in the decision appealed from
dated May 12, 1995, the same is hereby AFFIRMED in all respects.
SO ORDERED.
Regalado (Chairman), Romero, Puno, and Mendoza, JJ., concur.

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