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TOMIMBANG v.

TOMIMBANG
Facts:
Petitioner does not deny that she obtained a loan from
respondent. She, however, contends that the loan is not
yet due and demandable because the suspensive
condition the completion of the renovation of the
apartment units - has not yet been fulfilled. She also
assails the award of attorney's fees to respondent as
baseless.
For his part, respondent admits that initially, they agreed
that payment of the loan shall be made upon completion
of the renovations. However, respondent claims that
during their meeting with some family members in the
house of their brother Genaro sometime in the second
quarter of 1997, he and petitioner entered into a new
agreement whereby petitioner was to start making
monthly payments on her loan, which she did from June
to October of 1997. In respondent's view, there was a
novation of the original agreement, and under the terms
of their new agreement, petitioner's obligation was
already due and demandable.
Respondent also maintains that when petitioner
disappeared from the family compound without leaving
information as to where she could be found, making it
impossible to continue the renovations, petitioner
thereby prevented the fulfillment of said condition. He
claims that Article 1186 of the Civil Code, which provides
that the condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment, is applicable
to this case.
In his Comment to the present petition, respondent
raised for the first time, the issue that the loan contract
between him and petitioner is actually one with a period,
not one with a suspensive condition. In his view, when
petitioner began to make partial payments on the loan,
the latter waived the benefit of the term, making the
loan immediately demandable.
Issue: Has petitioner's obligation become due and
demandable?
Held: It is undisputed that herein parties entered into a
valid loan contract. The only question is, has
petitioner's
obligation
become
due
and
demandable? The Court resolves the question in the
affirmative.
The evidence on record clearly shows that after
renovation of seven out of the eight apartment
units had been completed, petitioner and
respondent agreed that the former shall already
start making monthly payments on the loan even
if renovation on the last unit (Unit A) was still
pending. Genaro Tomimbang, the younger brother of
herein parties, testified that a meeting was held
among petitioner, respondent, himself and their eldest
sister Maricion, sometime during the first or second
quarter of 1997, wherein respondent demanded
payment of the loan, and petitioner agreed to
pay. Indeed, petitioner began to make monthly
payments
from
June
to
October
of
1997
totalling P93,500.00.[8] In fact, petitioner even admitted
in her Answer with Counterclaim that she had started
to make payments to plaintiff [herein respondent]
as the same was in accord with her commitment
to pay whenever she was able; x x x .[9]
Evidently, by virtue of the subsequent agreement, the
parties mutually dispensed with the condition that
petitioner shall only begin paying after the completion of
all renovations. There was, in effect, a modificatory or
partial novation, of petitioner's obligation. Article
1291 of the Civil Code provides, thus:

Art. 1291. Obligations may be modified


by:
(1)
Changing their
object
or principal conditions;
(2)
Substituting the person of the
debtor;
(3)
Subrogating a third person in the
rights of the creditor. (Emphasis supplied)
In Iloilo Traders Finance, Inc. v. Heirs of Sps. Soriano,
[10]
the Court expounded on the nature of novation, to
wit:
Novation may either be extinctive or
modificatory, much being dependent on the
nature of the change and the intention of the
parties. Extinctive
novation
is
never
presumed; there must be an express
intention to novate; x x x .
An extinctive novation would thus have the
twin effects of, first, extinguishing an
existing obligation and, second, creating a
new one in its stead. This kind of novation
presupposes a confluence of four essential
requisites: (1) a previous valid obligation; (2) an
agreement of all parties concerned to a new
contract; (3) the extinguishment of the old
obligation; and (4) the birth of a new valid
obligation. Novation is merely modificatory
where the change brought about by any
subsequent agreement is merely incidental
to the main obligation (e.g., a change in
interest rates or an extension of time to
pay); in this instance, the new agreement
will not have the effect of extinguishing the
first but would merely supplement it or
supplant some but not all of its provisions.
[11]

In Ong v. Bogalbal,[12] the Court also stated, thus:


x x x the effect of novation may
be partial or total. There is partial
novation
when
there
is
only
a
modification or change in some principal
conditions of the obligation. It is total,
when the obligation is completely
extinguished. Also, the term principal
conditions in Article 1291 should be
construed to include a change in the
period
to
comply
with
the
obligation. Such a change in the period
would only be a partial novation since
the
period
merely
affects
the
performance, not the creation of the
obligation.[13]
As can be gleaned from the foregoing, the
aforementioned four essential elements and the
requirement that there be total incompatibility between
the old and new obligation, apply only to extinctive
novation. In partial novation, only the terms and
conditions of the obligation are altered, thus, the main
obligation is not changed and it remains in force.
Petitioner stated in her Answer with Counterclaim [14] that
she agreed and complied with respondent's demand for
her to begin paying her loan, since she believed this was
in accordance with her commitment to pay whenever
she was able. Her partial performance of her
obligation is unmistakable proof that indeed the
original agreement between her and respondent
had been novated by the deletion of the condition
that payments shall be made only after
completion of renovations. Hence, by her very
own admission and partial performance of her
obligation, there can be no other conclusion but
that under the novated agreement, petitioner's
obligation is already due and demandable.

With the foregoing finding that petitioner's obligation is


due and demandable, there is no longer any need to
discuss whether petitioner's disappearance from the
family compound prevented the fulfillment of the original
condition, necessitating application of Article 1186 of the
Civil Code, or whether the obligation is one with a
condition or a period.
MILLA v. PEOPLE

Facts: Respondent Carlo Lopez (Lopez) was the


Financial Officer of private respondent, Market Pursuits,
Inc. (MPI). In March 2003, Milla represented himself as a
real estate developer from Ines Anderson Development
Corporation, which was engaged in selling business
properties in Makati, and offered to sell MPI a property
therein
located.
For
this
purpose,
he
showed Lopez a photocopy of Transfer Certificate of Title
(TCT) No. 216445 registered in the name of spouses
Farley and Jocelyn Handog (Sps. Handog), as well as a
Special Power of Attorney purportedly executed by the
spouses in favor of Milla. [3] Lopez verified with the
Registry of Deeds of Makati and confirmed that the
property was indeed registered under the names of Sps.
Handog. Since Lopez was convinced by Millas authority,
MPI purchased the property for P2 million, issuing
Security Bank and Trust Co. (SBTC) Check No. 154670 in
the amount of P1.6 million. After receiving the check,
Milla gave Lopez (1) a notarized Deed of Absolute Sale
dated 25 March 2003 executed by Sps. Handog in favor
of MPI and (2) an original Owners Duplicate Copy of TCT
No. 216445.[4]
Milla then gave Regino Acosta (Acosta), Lopezs
partner, a copy of the new Certificate of Title to the
property, TCT No. 218777, registered in the name of MPI.
Thereafter, it tendered in favor of Milla SBTC Check No.
15467111 in the amount of P400,000 as payment for the
balance.[5]
Milla turned over TCT No. 218777 to Acosta, but
did not furnish the latter with the receipts for the
transfer taxes and other costs incurred in the transfer of
the property. This failure to turn over the receipts
prompted Lopez to check with the Register of Deeds,
where he discovered that (1) the Certificate of Title given
to them by Milla could not be found therein; (2) there
was no transfer of the property from Sps. Handog to MPI;
and (3) TCT No. 218777 was registered in the name of a
certain Matilde M. Tolentino.[6]
Consequently, Lopez demanded the return of the
amount of P2 million from Milla, who then issued
Equitable PCI Check Nos. 188954 and 188955 dated 20
and 23 May 2003, respectively, in the amount of P1
million each. However, these checks were dishonored for
having been drawn against insufficient funds. When Milla
ignored the demand letter sent by Lopez, the latter, by
virtue of the authority vested in him by the MPI Board of
Directors, filed a Complaint against the former on 4
August 2003. On 27 and 29 October 2003, two
Informations for Estafa Thru Falsification of Public
Documents were filed against Milla and were raffled to
the Regional Trial Court, National Capital Judicial Region,

Makati City, Branch 146 (RTC Br. 146). [7] Milla was
accused of having committed estafa through the
falsification of the notarized Deed of Absolute Sale and
TCT No. 218777 purportedly issued by the Register of
Deeds of Makati,
Issue: W/N novation is not a ground for extinction of
criminal liability for estafa

Held:
The principle of novation cannot be applied in the
case at bar
Milla contends that his issuance of Equitable PCI Check
Nos. 188954 and 188955 before the institution of the
criminal complaint against him novated his obligation to
MPI, thereby enabling him to avoid any incipient criminal
liability and converting his obligation into a purely civil
one. This argument does not persuade.
The principles of novation cannot apply to the present
case as to extinguish his criminal liability. Milla
cites People v. Nery[23] to support his contention that his
issuance of the Equitable PCI checks prior to the filing of
the criminal complaint averted his incipient criminal
liability. However, it must be clarified that mere
payment of an obligation before the institution of
a criminal complaint does not, on its own,
constitute novation that may prevent criminal
liability. This Courts ruling in Nery in fact warned:
It may be observed in this regard that novation
is not one of the means recognized by the
Penal Code whereby criminal liability can
be extinguished; hence, the role of
novation may only be to either prevent the
rise of criminal liability or to cast doubt on
the true nature of the original petition,
whether or not it was such that its breach
would not give rise to penal responsibility,
as when money loaned is made to appear
as a deposit, or other similar disguise is
resorted to (cf. Abeto vs. People, 90 Phil. 581;
Villareal, 27 Phil. 481).
Even in Civil Law the acceptance of partial
payments, without further change in the
original relation between the complainant
and the accused, can not produce novation.
For the latter to exist, there must be proof
of intent to extinguish the original
relationship, and such intent can not be
inferred from the mere acceptance of
payments on account of what is totally
due. Much less can it be said that the
acceptance of partial satisfaction can effect the
nullification of a criminal liability that is fully
matured, and already in the process of
enforcement. Thus, this Court has ruled that the
offended
partys
acceptance
of
a
promissory note for all or part of the
amount misapplied does not obliterate the
criminal offense (Camus vs. Court of Appeals,
48 Off. Gaz. 3898).

Further, in Quinto v. People,[25] this Court exhaustively


explained the concept of novation in relation to incipient
criminal liability, viz:
Novation is never presumed, and the animus
novandi, whether totally or partially, must
appear by express agreement of the parties, or
by their acts that are too clear and unequivocal
to be mistaken.

The extinguishment of the old obligation by the


new one is a necessary element of novation
which may be effected either expressly or
impliedly. The term expressly means that the
contracting parties incontrovertibly disclose that
their object in executing the new contract is to
extinguish the old one. Upon the other hand, no
specific form is required for an implied
novation, and all that is prescribed by law would
be an incompatibility between the two
contracts. While there is really no hard and
fast rule to determine what might
constitute to be a sufficient change that
can bring about novation, the touchstone
for contrariety, however, would be an
irreconcilable incompatibility between the
old and the new obligations.
There are two ways which could indicate, in fine,
the presence of novation and thereby produce
the effect of extinguishing an obligation by
another which substitutes the same. The first is
when novation has been explicitly stated and
declared in unequivocal terms. The second is
when the old and the new obligations are
incompatible on every point. The test of
incompatibility is whether or not the two
obligations can stand together, each one
having its independent existence. If they
cannot, they are incompatible and the
latter
obligation
novates
the
first. Corollarily,
changes
that
breed
incompatibility must be essential in nature
and
not
merely
accidental.
The
incompatibility must take place in any of
the essential elements of the obligation,
such as its object, cause or principal
conditions thereof; otherwise, the change
would be merely modificatory in nature and
insufficient to extinguish the original
obligation.
The changes alluded to by petitioner
consists
only
in
the
manner
of
payment. There was really no substitution of
debtors since private complainant merely
acquiesced to the payment but did not give her
consent to enter into a new contract. The
appellate court observed:
xxx
xxx
xxx
The acceptance by complainant of
partial payment tendered by the
buyer, Leonor Camacho, does not
evince
the
intention
of
the
complainant
to
have
their
agreement novated. It was simply
necessitated by the fact that, at
that time, Camacho had substantial
accounts payable to complainant,
and because of the fact that
appellant made herself scarce to
complainant. (TSN, April 15, 1981,
31-32) Thus, to obviate the situation
where complainant would end up
with nothing, she was forced to
receive
the
tender
of
Camacho. Moreover, it is to be noted
that the aforesaid payment was for the
purchase, not of the jewelry subject of
this case, but of some other jewelry
subject of a previous transaction. (Ibid.
June 8, 1981, 10-11)
xxx

xxx
xxx

Art. 315 of the Revised Penal Code defines estafa


and penalizes any person who shall defraud
another by misappropriating or converting, to
the prejudice of another, money, goods, or any
other personal property received by the offender
in trust or on commission, or for administration,
or under any other obligation involving the duty
to make delivery of or to return the same, even
though such obligation be totally or partially
guaranteed by a bond; or by denying having
received such money, goods, or other property. It
is axiomatic that the gravamen of the offense is
the appropriation or conversion of money
or property received to the prejudice of the
owner.
The
terms
convert
and
misappropriate have been held to connote an
act of using or disposing of anothers
property as if it were ones own or
devoting it to a purpose or use different
from that agreed upon. The phrase, to
misappropriate to ones own use has been
said to include not only conversion to
ones personal advantage, but also every
attempt to dispose of the property of
another without right. Verily, the sale of the
pieces of jewelry on installments (sic) in
contravention of the explicit terms of the
authority granted to her in Exhibit A (supra) is
deemed to be one of conversion. Thus, neither
the theory of delay in the fulfillment of
commission nor that of novation posed by
petitioner, can avoid the incipient criminal
liability. In People vs. Nery, this Court held:
xxx

xxx
xxx

The criminal liability for estafa already committed


is then not affected by the subsequent novation of
contract, for it is a public offense which must be
prosecuted and punished by the State in its own
conation.
In the case at bar, the acceptance by MPI of the
Equitable PCI checks tendered by Milla could not
have novated the original transaction, as the
checks were only intended to secure the return of
the P2 million the former had already given him.
Even then, these checks bounced and were thus
unable
to
satisfy
his
liability.
Moreover,
the estafa involved here was not for simple
misappropriation
or
conversion,
but
was
committed through Millas falsification of public
documents, the liability for which cannot be
extinguished by mere novation.

HEIRS OF SERVANDO v. GONZALES1


Facts: Servando and Leticia obtained a loan from
Veronica Gonzales. After obtaining such loans, they
executed 2 promissory notes as evidence. On maturity of
the two promissory notes, the borrowers failed to pay
the indebtedness. However, both Servando and Leticia
obtained again another loan secured by a real estate
mortgage over a property belonging to Leticia Makalintal
Yaptinchay, who issued a special power of attorney in
favor of Leticia Medel, authorizing her to execute the
mortgage. As an evidence to such loan, they executed
another promissory note. Since both Servando and
Leticia failed to pay the loan, Servando and Leticia with
the latter's husband, Dr. Rafael Medel, consolidated all
their previous unpaid loans totaling P440,000.00, and
sought from Veronica another loan. They again executed
another promissory note wherein they bind themselves
1

There is novation when there is an irreconcilable incompatibility


between the old and the new obligations. There is no novation in case of
only slight modifications; hence, the old obligation prevails.

solidarily in case they fail to pay the amount stipulated


in the loan. Since Servando and Leticia again failed to
pay their loan, Veronica Gonzales along with her
husband filed with the court a complaint for collection of
the full amount of the loan including interests and other
charges.
After the courts ruled that Servando and Leticia of herein
case pay Veronica Gonzales, with the reduced interest
rates fixed by the Court, Veronica Gonzales moved for
the execution of the Courts decision. Servando opposed.
He averred that he had agreed to fix the entire obligation
at P775,000.00.[7] According
to
Servando,
their
agreement, which was allegedly embodied in a receipt
dated February 5, 1992,[8] whereby he made an initial
payment of P400,000.00 and promised to pay the
balance of P375,000.00 on February 29, 1992,
superseded the July 23, 1986 promissory note.
Both the RTC
reconsideration.

and

CA

denied

his

motion

for

Hence, this case.


Issue: Was there a novation of the August 23, 1986
promissory note when respondent Veronica Gonzales
issued the February 5, 1992 receipt?
Held:
Novation did not transpire because no
irreconcilable incompatibility existed
between the promissory note and the receipt
To buttress their claim of novation, the petitioners rely
on the receipt issued on February 5, 1992 by respondent
Veronica whereby Servandos obligation was fixed
at P750,000.00. They insist that even the maturity date
was extended until February 29, 1992. Such changes,
they assert, were incompatible with those of the original
agreement under the promissory note.
The petitioners assertion is wrong.
A novation arises when there is a substitution of an
obligation by a subsequent one that extinguishes the
first, either by changing the object or the principal
conditions, or by substituting the person of the debtor,
or by subrogating a third person in the rights of the
creditor.[16] For a valid novation to take place, there must
be, therefore: (a) a previous valid obligation; (b) an
agreement of the parties to make a new contract;
(c) an extinguishment of the old contract; and (d)
a valid new contract.[17] In short, the new
obligation extinguishes the prior agreement only
when
the
substitution
is
unequivocally
declared, or the old and the new obligations are
incompatible on every point. A compromise of a
final judgment operates as a novation of the
judgment obligation upon compliance with either
of these two conditions.[18]
The receipt dated February 5, 1992, excerpted below,
did not create a new obligation incompatible with the old
one under the promissory note, viz:
February 5, 1992
Received
from
SERVANDO
FRANCO
BPI
Managers Check No. 001700 in the amount
of P400,00.00 as partial payment of loan.
Balance of P375,000.00 to be paid on or before
FEBRUARY 29, 1992. In case of default an
interest will be charged as stipulated in the
promissory note subject of this case.
(
Sgd). Gonzalez[19]

To be clear, novation is not presumed. This means


that the parties to a contract should expressly
agree to abrogate the old contract in favor of a
new one. In the absence of the express
agreement, the old and the new obligations must
be incompatible on every point.[20] According
to California Bus Lines, Inc. v. State Investment House,
Inc.:[21]
The extinguishment of the old
obligation by the new one is a
necessary element of novation
which may be effected either
expressly or impliedly. The term
expressly means that the contracting
parties incontrovertibly disclose that
their object in executing the new
contract is to extinguish the old one.
Upon the other hand, no specific form is
required for an implied novation, and
all that is prescribed by law would be an
incompatibility
between
the
two
contracts. While there is really no hard
and fast rule to determine what might
constitute to be a sufficient change that
can bring about novation, the touchstone
for contrariety, however, would be an
irreconcilable
incompatibility
between the old and the new obligations.
There is incompatibility when the two obligations
cannot stand together, each one having its
independent existence. If the two obligations
cannot stand together, the latter obligation
novates
the
first.[22] Changes
that
breed
incompatibility must be essential in nature and
not merely accidental. The incompatibility must
affect any of the essential elements of the
obligation, such as its object, cause or principal
conditions thereof; otherwise, the change is
merely modificatory in nature and insufficient to
extinguish the original obligation.[23]
In light of the foregoing, the issuance of the receipt
created
no
new
obligation.
Instead,
the
respondents only thereby recognized the original
obligation by stating in the receipt that
the P400,000.00 was partial payment of loan
and by referring to the promissory note subject
of
the
case
in
imposing
the
interest.
The loanmentioned in the receipt was still the
same loan involving the P500,000.00 extended to
Servando. Advertence to the interest stipulated
in the promissory note indicated that the contract
still subsisted, not replaced and extinguished, as
the petitioners claim.
The receipt dated February 5, 1992 was only the
proof of Servandos payment of his obligation as
confirmed by the decision of the RTC. It did not
establish the novation of his agreement with the
respondents. Indeed, the Court has ruled that an
obligation to pay a sum of money is not novated
by an instrument that expressly recognizes the
old, or changes only the terms of payment, or
adds other obligations not incompatible with the
old ones, or the new contract merely supplements
the old one.[24] A new contract that is a mere
reiteration, acknowledgment or ratification of the
old
contract
with
slight
modifications
or
alterations as to the cause or object or principal
conditions can stand together with the former
one, and there can be no incompatibility between
them.[25] Moreover, a creditors acceptance of
payment after demand does not operate as a
modification of the original contract.[26]
Worth noting is that Servandos liability was joint and
solidary with his co-debtors. In a solidary obligation, the
creditor may proceed against any one of the solidary

debtors or some or all of them simultaneously. [27] The


choice to determine against whom the collection is
enforced belongs to the creditor until the obligation is
fully satisfied.[28] Thus, the obligation was being
enforced against Servando, who, in order to
escape liability, should have presented evidence
to prove that his obligation had already been
cancelled by the new obligation or that another
debtor had assumed his place. In case of change
in the person of the debtor, the substitution must
be clear and express,[29] and made with the
consent
of
the
creditor. [30] Yet,
these
circumstances did not obtain herein, proving
precisely that Servando remained a solidary
debtor against whom the entire or part of the
obligation might be enforced.
Lastly, the extension of the maturity date did not
constitute a novation of the previous agreement.
It is settled that an extension of the term or
period of the maturity date does not result in
novation.[31]
Total liability to be reduced by P400,000.00
The petitioners argue that Servandos remaining liability
amounted to only P375,000.00, the balance indicated in
the February 5, 1992 receipt. Accordingly, the balance
was not yet due because the respondents did not yet
make a demand for payment.
The petitioners cannot be upheld.
The balance of P375,000.00 was premised on the taking
place of a novation. However, as found now, novation
did not take place. Accordingly, Servandos obligation,
being solidary, remained to be that decreed in the
December 9, 1991 decision of the RTC, inclusive of
interests, less the amount of P400,000.00 that was
meanwhile paid by him.
PNB v. SORIANO

We cannot subscribe to the appellate courts reasoning.


The DOJ Secretarys and the Court of Appeals
holding that, the supposed restructuring novated
the loan agreement between the parties is
myopic.
To begin with, the purported restructuring of the
loan agreement did not constitute novation.
Novation is one of the modes of extinguishment of
obligations;21 it is a single juridical act with a diptych
function. The substitution or change of the
obligation by a subsequent one extinguishes the
first, resulting in the creation of a new obligation
in lieu of the old.22 It is not a complete obliteration
of the obligor-obligee relationship, but operates
as a relative extinction of the original obligation.
Article 1292 of the Civil Code which provides:
Art. 1292. In order that an obligation may be
extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be
on every point incompatible with each other.
contemplates two kinds of novation: express or
implied. The extinguishment of the old obligation by the
new one is a necessary element of novation, which may
be effected either expressly or impliedly.
In order for novation to take place, the concurrence of
the following requisites is indispensable:
(1) There must be a previous valid obligation;
(2) There must be an agreement of the parties
concerned to a new contract;

Facts:

(3) There must be the extinguishment of the old


contract; and

Issue: W/N the restructuring of LISAMs loan account


extinguished Sorianos criminal liability.

(4) There
contract.23

Held: PNB admits that although it had approved LISAMs


restructuring proposal, the actual restructuring of
LISAMs account consisting of several credit lines was
never reduced into writing. PNB argues that the
stipulations therein such as the provisions on the
schedule of payment of the principal obligation,
interests, and penalties, must be in writing to be valid
and binding between the parties. PNB further postulates
that assuming the restructuring was reduced into
writing, LISAM failed to comply with the conditions
precedent for its effectivity, specifically, the payment of
interest and other charges, and the submission of the
titles to the real properties in Tandang Sora, Quezon City.
On the whole, PNB is adamant that the events
concerning the restructuring of LISAMs loan did not
affect the TR security, thus, Sorianos criminal liability
thereunder subsists.

Novation is never presumed, and the animus


novandi, whether totally or partially, must appear
by express agreement of the parties, or by their
acts that are too clear and unmistakable. The
contracting parties must incontrovertibly disclose
that their object in executing the new contract is
to extinguish the old one. Upon the other hand, no
specific form is required for an implied novation,
and all that is prescribed by law would be an
incompatibility
between
the
two
contracts.24 Nonetheless, both kinds of novation
must still be clearly proven.25

On the other hand, the appellate court agreed with the


ruling of the DOJ Secretary that the approval of LISAMs
restructuring proposal, even if not reduced into writing,
changed the status of LISAMs loan from being secured
with Trust Receipts (TRs) to one of an ordinary loan,
non-payment of which does not give rise to criminal
liability. The Court of Appeals declared that there was no
breach
of
trust
constitutive
of estafa through
misappropriation or conversion where the relationship
between the parties is simply that of creditor and debtor,
not as entruster and entrustee.

must

be

the

validity

of

the

new

In this case, without a written contract stating in


unequivocal terms that the parties were novating
the original loan agreement, thus undoubtedly
eliminating an express novation, we look to whether
there is an incompatibility between the Floor Stock Line
secured by TRs and the subsequent restructured
Omnibus Line which was supposedly approved by PNB.
Soriano is confident with her assertion that PNBs
approval of her proposal to restructure LISAMs
loan novated the loan agreement secured by TRs.
Soriano relies on the following:
1. x x x. All the alleged trust receipt agreements were
availments made by [LISAM] on the PNB credit facility
known as "Floor Stock Line," (FSL) which is just one of
the several credit facilities granted to [LISAM] by PNB.

When my husband Leandro A. Soriano, Jr. was still alive,


[LISAM] submitted proposals to PNB for the restructuring
of all of [LISAMs] credit facilities. After exchanges of
several letters and telephone calls, Mr. Josefino Gamboa,
Senior Vice President of PNB on 12 May 1998 wrote
[LISAM] informing PNBs lack of objection to [LISAMs]
proposal of restructuring all its obligations. x x x.
2. On September 22, 1998, Mr. Avengoza sent a letter to
[LISAM], complete with attached copy of PNBs Boards
minutes of meeting, with the happy information that the
Board of Directors of PNB has approved the conversion
of [LISAMs] existing credit facilities at PNB, which
includes the FSL on which the trust receipts are
availments, to [an] Omnibus Line (OL) available by way
of Revolving Credit Line (RCL), Discounting Line Against
Post-Dated Checks (DLAPC), and Domestic Bills
Purchased Line (DBPL) and with a "Full waiver of penalty
charges on RCL, FSL (which is the Floor Stock Line on
which the trust receipts are availments) and Time Loan.
x x x.26
Sorianos reliance thereon is misplaced. The approval of
LISAMs restructuring proposal is not the bone of
contention in this case. The pith of the issue lies in
whether, assuming a restructuring was effected, it
extinguished the criminal liability on the loan obligation
secured by trust receipts, by extinguishing the entrusterentrustee relationship and substituting it with that of an
ordinary creditor-debtor relationship. Stated differently,
we examine whether the Floor Stock Line is
incompatible with the purported restructured
Omnibus Line.
The test of incompatibility is whether the two
obligations can stand together, each one having
its independent existence. If they cannot, they are
incompatible and the latter obligation novates the
first.
Corollarily,
changes
that
breed
incompatibility must be essential in nature and
not merely accidental. The incompatibility must
take place in any of the essential elements of the
obligation, such as its object, cause or principal
conditions thereof; otherwise, the change would
be merely modificatory in nature and insufficient
to extinguish the original obligation.27
We have scoured the records and found no
incompatibility between the Floor Stock Line and
the purported restructured Omnibus Line. While
the restructuring was approved in principle, the
effectivity thereof was subject to conditions
precedent such as the payment of interest and
other charges, and the submission of the titles to
the real properties in Tandang Sora, Quezon City.
These conditions precedent imposed on the
restructured Omnibus Line were never refuted by
Soriano who, oddly enough, failed to file a
Memorandum. To our mind, Sorianos bare
assertion that the restructuring was approved by
PNB cannot equate to a finding of an implied
novation which extinguished Sorianos obligation
as entrustee under the TRs.
Moreover, as asserted by Soriano in her counteraffidavit, the waiver pertains to penalty charges on the
Floor Stock Line. There is no showing that the waiver
extinguished
Sorianos
obligation
to
"sell
the
[merchandise] for cash for [LISAMs] account and to
deliver the proceeds thereof to PNB to be applied against
its acceptance on [LISAMs] account." Soriano further
agreed to hold the "vehicles and proceeds of the sale
thereof in Trust for the payment of said acceptance and
of any of its other indebtedness to PNB." Well-settled is
the rule that, with respect to obligations to pay a
sum of money, the obligation is not novated by an
instrument that expressly recognizes the old,
changes only the terms of payment, adds other

obligations not incompatible with the old ones, or


the new contract merely supplements the old
one.28 Besides, novation does not extinguish
criminal liability.29 It stands to reason therefore,
that Sorianos criminal liability under the TRs
subsists considering that the civil obligations
under the Floor Stock Line secured by TRs were
not extinguished by the purported restructured
Omnibus Line.
In Transpacific Battery Corporation v. Security Bank and
Trust Company,30 we held that the restructuring of a
loan agreement secured by a TR does not per
se novate or extinguish the criminal liability
incurred thereunder:
x x x Neither is there an implied novation since
the restructuring agreement is not incompatible
with the trust receipt transactions.
Indeed, the restructuring agreement recognizes
the obligation due under the trust receipts when it
required "payment of all interest and other
charges prior to restructuring." With respect to
Michael, there was even a proviso under the agreement
that the amount due is subject to "the joint and solidary
liability of Spouses Miguel and Mary Say and Michael Go
Say." While the names of Melchor and Josephine do not
appear on the restructuring agreement, it cannot be
presumed that they have been relieved from the
obligation. The old obligation continues to subsist
subject to the modifications agreed upon by the
parties.
The circumstance that motivated the parties to enter
into a restructuring agreement was the failure of
petitioners to account for the goods received in trust
and/or deliver the proceeds thereof. To remedy the
situation, the parties executed an agreement to
restructure Transpacific's obligations.
The Bank only extended the repayment term of the trust
receipts from 90 days to one year with monthly
installment at 5% per annum over prime rate or 30% per
annum whichever is higher. Furthermore, the interest
rates were flexible in that they are subject to review
every amortization due. Whether the terms appeared to
be more onerous or not is immaterial.1wphi1 Courts are
not authorized to extricate parties from the necessary
consequences of their acts. The parties will not be
relieved from their obligations as there was absolutely
no intention by the parties to supersede or abrogate the
trust receipt transactions. The intention of the new
agreement was precisely to revive the old obligation
after the original period expired and the loan remained
unpaid. Well-settled is the rule that, with respect to
obligations to pay a sum of money, the obligation
is not novated by an instrument that expressly
recognizes the old, changes only the terms of
payment, adds other obligations not incompatible
with the old ones, or the new contract merely
supplements the old one.31
Based on all the foregoing, we find grave error in the
Court of Appeals dismissal of PNBs petition for certiorari.
Certainly, while the determination of probable cause to
indict a respondent for a crime lies with the prosecutor,
the discretion must not be exercised in a whimsical or
despotic manner tantamount to grave abuse of
discretion.
SERFINO v. FEBTC
Facts: Spouses Cortez obtained a loan from the spouses
Serfino. In a compromise agreement executed by the
parties, the wife of Cortez promised the Serfinos to pay
the loan one week after she obtained her retirement

benefits from the GSIS. After Mrs. Cortez got her


retirement benefits from the GSIS, she deposited it in the
bank account of her granddaughter Grace. The spouses
Serfino opposed, on the ground that there was a valid
assignment of credit made by the Cortez spouses in their
favor. They claimed that it was unjustifiable for the bank
to allow Grace to withdraw the account from the bank,
despite notice that there is a claim from a 3rd
person(Serfino spouses.)
RTC absolved the bank from its liability.
The spouses Serfino appealed the RTCs ruling
absolving FEBTC from liability for allowing the
withdrawal of the deposit. They allege that the RTC
cited no legal basis for declaring that only a court order
or process can justify the withholding of the deposit in
Graces name. Since FEBTC was informed of their
adverse claim after they sent three letters, they claim
that:
Upon receipt of a notice of adverse claim in proper
form, it becomes the duty of the bank to: 1. Withhold
payment of the deposit until there is a reasonable
opportunity to institute legal proceedings to contest
ownership; and 2) give prompt notice of the adverse
claim to the depositor. The bank may be held liable to
the adverse claimant if it disregards the notice of
adverse claim and pays the depositor.
When the bank has reasonable notice of a bona fide
claim that money deposited with it is the property
of another than the depositor, it should withhold
payment until there is reasonable opportunity to
institute
legal
proceedings
to
contest
the
ownership.9 (emphases and underscoring supplied)
Aside from the three letters, FEBTC should be deemed
bound by the compromise judgment, since Article 1625
of the Civil Code states that an assignment of credit
binds third persons if it appears in a public
instrument.10 They conclude that FEBTC, having been
notified of their adverse claim, should not have allowed
Grace to withdraw the deposit.
While they acknowledged that bank deposits are
governed by the Civil Code provisions on loan, the
spouses Serfino allege that the provisions on voluntary
deposits should apply by analogy in this case,
particularly Article 1988 of the Civil Code, which states:
Article 1988. The thing deposited must be returned to
the depositor upon demand, even though a specified
period or time for such return may have been fixed.
This provision shall not apply when the thing is
judicially attached while in the depositarys possession,
or should he have been notified of the opposition
of a third person to the return or the removal of
the thing deposited. In these cases, the depositary
must immediately inform the depositor of the
attachment or opposition.
Based on Article 1988 of the Civil Code, the depository is
not obliged to return the thing to the depositor if notified
of a third partys adverse claim.
By allowing Grace to withdraw the deposit that is due
them under the compromise judgment, the spouses
Serfino claim that FEBTC committed an actionable
wrong that entitles them to the payment of actual
and moral damages.
FEBTC, on the other hand, insists on the correctness of
the RTC ruling. It claims that it is not bound by the
compromise judgment, but only by its contract of loan

with its depositor. As a loan, the bank deposit is owned


by the bank; hence, the spouses Serfinos claim of
ownership over it is erroneous.
Based on these arguments, the case essentially involves
a determination of the obligation of banks to a third
party who claims rights over a bank deposit
standing in the name of another.
Issue: W/N there has been a valid assignment of credit.
Held:
Claim for actual damages not
meritorious because there could be
no pecuniary loss that should be
compensated if there was no
assignment of credit
The spouses Serfinos claim for damages against FEBTC
is premised on their claim of ownership of the deposit
with FEBTC. The deposit consists of Magdalenas
retirement benefits, which the spouses Serfino claim to
have been assigned to them under the compromise
judgment. That the retirement benefits were deposited
in Graces savings account with FEBTC supposedly did
not divest them of ownership of the amount, as "the
money already belongs to the [spouses Serfino] having
been absolutely assigned to them and constructively
delivered by virtue of the x x x public instrument[.]" 11 By
virtue of the assignment of credit, the spouses Serfino
claim ownership of the deposit, and they posit that
FEBTC was duty bound to protect their right by
preventing the withdrawal of the deposit since the bank
had been notified of the assignment and of their claim.
We find no basis to support the spouses Serfinos
claim of ownership of the deposit.
"An assignment of credit is an agreement by virtue of
which the owner of a credit, known as the assignor, by a
legal cause, such as sale, dation in payment, exchange
or donation, and without the consent of the debtor,
transfers his credit and accessory rights to another,
known as the assignee, who acquires the power to
enforce it to the same extent as the assignor could
enforce it against the debtor. It may be in the form of
sale, but at times it may constitute a dation in payment,
such as when a debtor, in order to obtain a release
from his debt, assigns to his creditor a credit he
has against a third person."12 As a dation in payment,
the assignment of credit operates as a mode of
extinguishing the obligation;13 the delivery and
transmission of ownership of a thing (in this case, the
credit due from a third person) by the debtor to the
creditor is accepted as the equivalent of the
performance of the obligation.14
The terms of the compromise judgment, however, did
not convey an intent to equate the assignment of
Magdalenas retirement benefits (the credit) as the
equivalent of the payment of the debt due the spouses
Serfino (the obligation). There was actually no
assignment of credit; if at all, the compromise
judgment merely identified the fund from which
payment for the judgment debt would be sourced:
(c) That before the plaintiffs file a motion for execution of
the decision or order based [on this] Compromise
Agreement, the
defendant,
Magdalena
Cortez
undertake[s] and bind[s] herself to pay in full the
judgment debt out of her retirement benefits as
Local [T]reasury Operation Officer in the City of Bacolod,
Philippines, upon which full payment, the plaintiffs
waive, abandon and relinquish absolutely any of their
claims for attorneys fees stipulated in the Promissory
Note (Annex "A" to the Complaint).15 [emphasis ours]

Only when Magdalena has received and turned over to


the spouses Serfino the portion of her retirement
benefits corresponding to the debt due would the debt
be deemed paid.
In Aquitey v. Tibong,16 the issue raised was whether the
obligation to pay the loan was extinguished by the
execution of the deeds of assignment. The Court ruled in
the affirmative, given that, in the deeds involved, the
respondent (the debtor) assigned to the petitioner (the
creditor) her credits "to make good" the balance of her
obligation; the parties agreed to relieve the respondent
of her obligation to pay the balance of her account, and
for the petitioner to collect the same from the
respondents debtors.17 The Court concluded that the
respondents obligation to pay the balance of her
accounts with the petitioner was extinguished, pro tanto,
by the deeds of assignment of credit executed by the
respondent in favor of the petitioner. 18
In the present case, the judgment debt was not
extinguished
by
the mere
designation in
the
compromise judgment of Magdalenas retirement
benefits as the fund from which payment shall be
sourced. That the compromise agreement authorizes
recourse in case of default on other executable
properties of the spouses Cortez, to satisfy the judgment
debt, further supports our conclusion that there was no
assignment of Magdalenas credit with the GSIS that
would have extinguished the obligation.
The compromise judgment in this case also did not give
the supposed assignees, the spouses Serfino, the power
to enforce Magdalenas credit against the GSIS. In fact,
the spouses Serfino are prohibited from enforcing their
claim until after the lapse of one (1) week from
Magdalenas receipt of her retirement benefits:
(d) That the plaintiffs shall refrain from having the
judgment based upon this Compromise Agreement
executed until after one (1) week from receipt by the
defendant, Magdalena Cortez of her retirement benefits
from the [GSIS] but fails to pay within the said period the
defendants judgment debt in this case, in which case
[this] Compromise Agreement [may be] executed upon
any property of the defendants that are subject to
execution upon motion by the plaintiffs. 19
An assignment of credit not only entitles the assignee to
the credit itself, but also gives him the power to enforce
it as against the debtor of the assignor.
Since no valid assignment of credit took place, the
spouses Serfino cannot validly claim ownership of the
retirement
benefits
that
were
deposited
with
FEBTC. Without ownership rights over the amount,
they suffered no pecuniary loss that has to be
compensated by actual damages. The grant of actual
damages presupposes that the claimant suffered a duly
proven pecuniary loss.20
PHILIPPINE RECLAMATION AUTHORITY v.
ROMAGO

Facts:
The PRA claims that its liability under its contract with
Romago had been extinguished by novation when it
assigned all its obligations to the HPMC pursuant to the
provisions of the PFTA. The PRA insists that the CA
erroneously applied to the case the 2001 ruling of the
Court in Public Estates Authority v. Uy 37 that also
involved the Heritage Park Project. Uy dealt only with the
PRA and the HPMC came into the picture only after the
case has been filed. Here, while Romago first dealt with
the PRA, it eventually dealt with the HPMC before the

construction company can finish the contracted works,


evidencing novation of parties.
Issue: W/N the CA erred in holding the PRA still liable to
Romago under the Construction Agreement despite the
subsequent turnover of the Heritage Park Project to the
HPMC.
Held: In novation, a subsequent obligation extinguishes
a previous one through substitution either by changing
the object or principal conditions, by substituting
another in place of the debtor, or by subrogating a third
person into the rights of the creditor. 38 Novation requires
(a) the existence of a previous valid obligation; (b) the
agreement of all parties to the new contract; (c) the
extinguishment of the old contract; and (d) the validity
of the new one.39
There cannot be novation in this case since the
proposed substituted parties did not agree to the
PRAs supposed assignment of its obligations
under the contract for the electrical and light
works at Heritage Park to the HPMC. The latter
definitely
and
clearly
rejected
the
PRAs
assignment of its liability under that contract to
the HPMC. Romago tried to follow up its claims
with the HPMC, not because of any new contract it
entered into with the latter, but simply because
the PRA told it that the HPMC would henceforth
assume the PRAs liability under its contract with
Romago.1wphi1
Besides, Section 11.07 of the PFTA makes it clear that
the termination of the PRAs obligations is conditioned
upon the turnover of documents, equipment, computer
hardware and software on the geographical information
system of the Park; and the completion and faithful
performance of its respective duties and responsibilities
under the PFTA. More importantly, Section 11.07 did not
say that the HPMC shall, thereafter, assume the PRAs
obligations. On the contrary, Section 7.01 of the PFTA
recognizes that contracts that the PRA entered into in its
own name and makes it liable for the same. Thus:
Section 7.01. Liability of BCDA and [PRA]. BCDA and
[PRA]shall be liable in accordance herewith only to the
extent of the obligations specifically undertaken by
BCDA and [PRA] herein and any other documents or
agreements relating to the Project, and in which they are
parties.
ACE FOODS v. MICROPACIFIC

Facts: Ace Foods and Micropacific entered into an


agreement regarding the installation of computer units
by Micropacific in Ace Foods premises.
On October 29, 2001, ACE Foods accepted MTCLs
proposal and accordingly issued Purchase Order No.
10002310 (Purchase Order) for the subject products
amounting to P646,464.00 (purchase price). Thereafter,
or on March 4, 2002, MTCL delivered the said products to
ACE Foods as reflected in Invoice No. 7733 11 (Invoice
Receipt). The fine print of the invoice states, inter alia,
that "[t]itle to sold property is reserved in MICROPACIFIC
TECHNOLOGIES CO., LTD. until full compliance of the
terms and conditions of above and payment of the
price"12(title reservation stipulation). After delivery, the
subject products were then installed and configured in
ACE Foodss premises. MTCLs demands against ACE
Foods to pay the purchase price, however, remained
unheeded.13 Instead of paying the purchase price, ACE
Foods sent MTCL a Letter 14 dated September 19, 2002,
stating that it "ha[s] been returning the [subject
products] to [MTCL] thru [its] sales representative Mr.
Mark Anteola who has agreed to pull out the said
[products] but had failed to do so up to now."

Eventually, or on October 16, 2002, ACE Foods lodged a


Complaint15 against MTCL before the RTC, praying that
the latter pull out from its premises the subject products
since MTCL breached its "after delivery services"
obligations to it, particularly, to: (a) install and configure
the subject products; (b) submit a cost benefit study to
justify the purchase of the subject products; and (c) train
ACE Foodss technicians on how to use and maintain the
subject products. 16 ACE Foods likewise claimed that the
subject products MTCL delivered are defective and not
working.17
For
its
part,
MTCL,
in
its
Answer
with
Counterclaim,18 maintained that it had duly complied
with its obligations to ACE Foods and that the subject
products were in good working condition when they were
delivered, installed and configured in ACE Foodss
premises. Thereafter, MTCL even conducted a training
course for ACE Foodss representatives/employees;
MTCL, however, alleged that there was actually no
agreement as to the purported "after delivery services."
Further, MTCL posited that ACE Foods refused and failed
to pay the purchase price for the subject products
despite the latters use of the same for a period of nine
(9) months. As such, MTCL prayed that ACE Foods be
compelled to pay the purchase price, as well as damages
related to the transaction.
Issue: W/N ACE Foods should pay MTCL the purchase
price for the subject products.
Held: A contract is what the law defines it to be, taking
into consideration its essential elements, and not what
the contracting parties call it.33 The real nature of a
contract may be determined from the express terms of
the written agreement and from the contemporaneous
and subsequent acts of the contracting parties.
However, in the construction or interpretation of an
instrument, the
intention
of
the
parties
is
primordial and is to be pursued. The denomination
or title given by the parties in their contract is not
conclusive of the nature of its contents. 34
The very essence of a contract of sale is the transfer of
ownership in exchange for a price paid or
promised. 35 This may be gleaned from Article 1458 of
the Civil Code which defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership and
to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
(Emphasis supplied)
Corollary thereto, a contract of sale is classified as
a consensual contract, which means that the sale is
perfected by mere consent. No particular form is
required for its validity. Upon perfection of the contract,
the parties may reciprocally demand performance, i.e.,
the vendee may compel transfer of ownership of the
object of the sale, and the vendor may require the
vendee to pay the thing sold.36
In contrast, a contract to sell is defined as a bilateral
contract whereby the prospective seller, while expressly
reserving the ownership of the property despite delivery
thereof to the prospective buyer, binds himself to sell
the property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, i.e., the full
payment of the purchase price. A contract to sell may
not even be considered as a conditional contract of
sale where the seller may likewise reserve title to the
property subject of the sale until the fulfillment of a
suspensive condition, because in a conditional contract
of sale, the first element of consent is present, although

it is conditioned upon the happening of a contingent


event which may or may not occur.37
In this case, the Court concurs with the CA that the
parties have agreed to a contract of sale and not to a
contract to sell as adjudged by the RTC. Bearing in
mind its consensual nature, a contract of sale had
been perfected at the precise moment ACE Foods,
as evinced by its act of sending MTCL the
Purchase Order, accepted the latters proposal to
sell the subject products in consideration of the
purchase price of P646,464.00. From that point in
time, the reciprocal obligations of the parties
i.e., on the one hand, of MTCL to deliver the said
products to ACE Foods, and, on the other hand, of
ACE Foods to pay the purchase price therefor
within thirty (30) days from delivery already
arose and consequently may be demanded. Article
1475 of the Civil Code makes this clear:
Art. 1475. The contract of sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law
governing the form of contracts.
At this juncture, the Court must dispel the notion that
the stipulation anent MTCLs reservation of ownership of
the subject products as reflected in the Invoice
Receipt, i.e., the title reservation stipulation, changed
the complexion of the transaction from a contract of sale
into a contract to sell. Records are bereft of any
showing that the said stipulation novated the
contract of sale between the parties which, to
repeat, already existed at the precise moment
ACE Foods accepted MTCLs proposal. To be sure,
novation, in its broad concept, may either be
extinctive or modificatory. It is extinctive when an
old obligation is terminated by the creation of a
new obligation that takes the place of the former;
it is merely modificatory when the old obligation
subsists to the extent it remains compatible with
the amendatory agreement. In either case,
however, novation is never presumed, and
the animus novandi, whether totally or partially,
must appear by express agreement of the parties,
or by their acts that are too clear and unequivocal
to be mistaken.38
In the present case, it has not been shown that the title
reservation stipulation appearing in the Invoice Receipt
had been included or had subsequently modified or
superseded the original agreement of the parties. The
fact that the Invoice Receipt was signed by a
representative of ACE Foods does not, by and of itself,
prove animus novandi since: (a) it was not shown that
the signatory was authorized by ACE Foods (the actual
party to the transaction) to novate the original
agreement; (b) the signature only proves that the
Invoice Receipt was received by a representative of ACE
Foods to show the fact of delivery; and (c) as matter of
judicial notice, invoices are generally issued at the
consummation stage of the contract and not its
perfection, and have been even treated as documents
which are not actionable per se, although they may
prove sufficient delivery. 39 Thus, absent any clear
indication that the title reservation stipulation was
actually agreed upon, the Court must deem the same to
be a mere unilateral imposition on the part of MTCL
which has no effect on the nature of the parties original
agreement as a contract of sale. Perforce, the obligations
arising thereto, among others, ACE Foodss obligation to
pay the purchase price as well as to accept the
delivery of the goods,40 remain enforceable and
subsisting.1wphi1

As a final point, it may not be amiss to state that


the return of the subject products pursuant to a
rescissory action41 is neither warranted by ACE
Foodss claims of breach either with respect to
MTCLs breach of its purported "after delivery
services" obligations or the defective condition of
the products - since such claims were not
adequately proven in this case. The rule is clear:
each party must prove his own affirmative
allegation; one who asserts the affirmative of the
issue has the burden of presenting at the trial
such amount of evidence required by law to obtain
a favorable judgment, which in civil cases, is by
preponderance of evidence. 42 This, however, ACE
Foods failed to observe as regards its allegations
of breach. Hence, the same cannot be sustained.
DAVID v. DAVID

Facts:
Issue:
Held: he Court dismisses as devoid of merit Robertos
insistence that the MOA had extinguished the obligations
established under the deed of sale by novation.
The issue of novation involves a question of fact, as it
necessarily requires the factual determination of the
existence of the various requisites of novation, namely:
(a) there must be a previous valid obligation; (b) the
parties concerned must agree to a new contract; (c) the
old contract must be extinguished; and (d) there must be
a valid new contract.22 With both the RTC and the CA
concluding that the MOA was consistent with the deed of
sale, novation whereby the deed of sale was
extinguished did not occur. In that regard, it is worth
repeating that the factual findings of the lower courts are
binding on the Court.
In sales with the right to repurchase, the title and
ownership of the property sold are immediately vested in
the vendee, subject to the resolutory condition of
repurchase by the vendor within the stipulated
period.23 Accordingly, the ownership of the affected
properties reverted to Eduardo once he complied with
the condition for the repurchase, thereby entitling him to
the possession of the other motor vehicle with trailer.