Philippine National Bank vs. Soriano

The restructuring of a loan secured by trust receipts does not per se novate or extinguish criminal liability incurred thereunder, where the restructuring is not incompatible with the original trust receipt obligation and is subject to unfulfilled conditions precedent. Novation requires either an express declaration in unequivocal terms or clear incompatibility between the old and new obligations, and in any event, novation does not extinguish criminal liability.

Philippine National Bank (PNB) is a banking institution that extended credit facilities to corporate borrowers, including Lisam Enterprises, Inc. (LISAM), a family-owned and controlled corporation. Lilian S. Soriano served as LISAM's chairman and president and was the authorized signatory for all of LISAM's transactions with PNB. The credit facility at issue was a Floor Stock Line (FSL), a form of financing under which trust receipts are executed: the borrower receives goods in trust from the bank, with liberty to sell them for cash, and is obligated to turn over the proceeds of sale to the bank. Non-payment or failure to account for the goods or proceeds under a trust receipt may give rise to criminal liability under Section 13 of Presidential Decree No. 115 (the Trust Receipts Law), in relation to Article 315, paragraph 1(b) of the Revised Penal Code (estafa through misappropriation or conversion).

On March 20, 1997, PNB extended a credit facility in the form of a Floor Stock Line (FSL) in the amount of ₱30 Million to LISAM Enterprises, Inc. (LISAM), a family-owned and controlled corporation that maintained Current Account No. 445830099-8 with PNB. Soriano, as chairman and president of LISAM, was the authorized signatory in all of LISAM's transactions with PNB. On various dates, LISAM made several availments of the FSL totaling ₱29,645,944.55, the proceeds of which were credited to its current account with PNB. For each availment, LISAM, through Soriano, executed 52 Trust Receipts (TRs) in addition to promissory notes, acknowledging receipt of the motor vehicles in trust and undertaking to turn over the proceeds of their sale to PNB.

Sometime on January 21–22, 1998, PNB's authorized personnel conducted an actual physical inventory of LISAM's motor vehicles and motorcycles and found that only four units covered by the TRs, amounting to ₱158,100.00, remained unsold. Out of the total availments on the line covered by TRs, LISAM should have remitted ₱29,487,844.55 to PNB. Despite several formal demands, Soriano failed and refused to turn over the said amount, to the prejudice of PNB.

The trust receipts expressly provided that the vehicles were received in trust from PNB, with liberty to sell them for cash for LISAM's account and to deliver the proceeds to PNB. The TRs further stipulated that failure to account for the vehicles or proceeds within thirty days from demand would constitute prima facie evidence of conversion or misappropriation. PNB accordingly filed a complaint-affidavit before the Office of the City Prosecutor of Naga City charging Soriano with 52 counts of violation of the Trust Receipts Law, in relation to Article 315, paragraph 1(b) of the Revised Penal Code.

In refutation, Soriano asserted in her counter-affidavit that the obligation was purely civil in nature. She contended that while her husband Leandro A. Soriano, Jr. was still alive, LISAM submitted proposals to PNB for the restructuring of all its credit facilities, and that on May 12, 1998, PNB Senior Vice President Josefino Gamboa wrote LISAM informing it of PNB's lack of objection to the restructuring proposal. On September 22, 1998, according to Soriano, PNB's Board of Directors approved the conversion of LISAM's existing credit facilities—including the FSL on which the trust receipts were availments—into an Omnibus Line of ₱106 million, available by way of Revolving Credit Line, Discounting Line Against Post-Dated Checks, and Domestic Bills Purchased Line, with a full waiver of penalty charges on the FSL and Time Loan. PNB, in its reply-affidavit, maintained that while the restructuring was approved, it was never implemented because LISAM failed to comply with the conditions precedent for its effectivity, specifically the payment of interest and other charges and the submission of titles to real properties in Tandang Sora, Quezon City.

The City Prosecutor of Naga City found prima facie evidence of probable cause and directed the filing of 52 counts of estafa against Soriano. Informations were filed on August 1, 2001, and raffled to the RTC, Branch 21, Naga City. Meanwhile, PNB filed a petition for review before the Secretary of the DOJ, who, on June 25, 2002, reversed the City Prosecutor's Resolution and directed the withdrawal of the Informations. The RTC, through Pairing Judge Novelita Villegas Llaguno, issued orders granting the Motion to Withdraw Informations on February 21, 2003, and denying PNB's Motion for Reconsideration on July 15, 2003, in both instances relying solely on the DOJ Secretary's Resolution without independent evaluation of the merits.

• Restructuring Did Not Novate the Trust Receipt Obligation: PNB argued that the restructuring of LISAM's loan account was never reduced into writing and that the stipulations on the schedule of payment, interests, and penalties must be in writing to be valid and binding. PNB further asserted that even 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 titles to real properties in Tandang Sora, Quezon City.
• Criminal Liability Subsists: PNB maintained that the events concerning the restructuring of LISAM's loan did not affect the trust receipt security, and thus Soriano's criminal liability thereunder subsisted.
• Jurisdiction Retained by Trial Court: PNB contended that the withdrawal of the criminal cases violated the well-established rule that once a trial court acquires jurisdiction over a case, it is retained until termination of litigation.
• No Double Jeopardy: PNB argued that the reinstatement of the criminal cases against Soriano would not violate her constitutional right against double jeopardy.

• Obligation Is Purely Civil: Soriano asserted that the obligation of LISAM, and consequently her obligation if any, was purely civil in nature, as the trust receipt agreements were merely availments on the FSL credit facility.
• Restructuring Novated the Loan: Soriano contended that PNB's approval of LISAM's restructuring proposal, including the Board of Directors' approval on September 22, 1998 converting the FSL into an Omnibus Line with a full waiver of penalty charges, novated the loan agreement secured by trust receipts and extinguished her criminal liability thereunder.

• Novation: Whether the restructuring of LISAM's loan account secured by trust receipts constituted novation that extinguished Soriano's criminal liability under the Trust Receipts Law.
• Jurisdiction: Whether the withdrawal of the criminal cases against Soriano as directed by the DOJ violated the rule that once a trial court acquires jurisdiction, it is retained until termination of litigation.
• Double Jeopardy: Whether the reinstatement of the criminal cases against Soriano would violate her constitutional right against double jeopardy.

• Novation: No. The purported restructuring did not constitute novation—whether express or implied—because there was no written contract declaring novation in unequivocal terms, and no incompatibility existed between the Floor Stock Line secured by trust receipts and the purported restructured Omnibus Line. Moreover, novation does not extinguish criminal liability.
• Jurisdiction: No. The withdrawal of the criminal cases was ordered by the RTC itself, which gave its imprimatur; the DOJ's directive did not divest the trial court of jurisdiction. However, the RTC abdicated its judicial power by relying solely on the DOJ Secretary's resolution without independent evaluation.
• Double Jeopardy: No. Double jeopardy had not set in because the withdrawal of the criminal cases did not constitute a valid acquittal or a valid dismissal or termination without the accused's express consent, as the RTC orders were issued with grave abuse of discretion and were void.

• Novation: Novation requires the concurrence of four requisites: (1) a previous valid obligation; (2) an agreement of the parties to a new contract; (3) the extinguishment of the old contract; and (4) the validity of the new contract. Novation is never presumed; the animus novandi must appear by express agreement of the parties or by acts too clear and unmistakable. In this case, there was no written contract declaring novation in unequivocal terms, eliminating express novation. As to implied novation, the test of incompatibility is whether the two obligations can stand together, each having an independent existence; if they cannot, they are incompatible. The Court found no incompatibility between the Floor Stock Line secured by TRs and the purported restructured Omnibus Line. The restructuring was approved only in principle and was subject to conditions precedent—payment of interest and other charges, and submission of titles to real properties in Tandang Sora—that were never fulfilled. The waiver of penalty charges on the FSL did not extinguish Soriano's obligation as entrustee to sell the merchandise and deliver the proceeds to PNB. Changes that breed incompatibility must be essential in nature, not merely accidental; the changes here were merely modificatory. Furthermore, even if novation had occurred, Article 89 of the Revised Penal Code provides that novation does not extinguish criminal liability. The Court relied on Transpacific Battery Corporation vs. Security Bank and Trust Company, which held that restructuring of a loan secured by a trust receipt does not per se novate or extinguish criminal liability incurred thereunder.

• Jurisdiction: The Secretary of the DOJ directed the City Prosecutor to move for withdrawal of the Informations with leave of court. The trial court gave the prosecution fifteen days to comply and thereafter granted the motion. The withdrawal could not have occurred without the trial court's imprimatur, so the DOJ's directive did not divest the trial court of jurisdiction. However, the RTC's orders revealed that the trial court relied solely on the DOJ Secretary's resolution and abdicated its judicial power. While the recommendation of the prosecutor or the ruling of the Secretary of Justice is persuasive, it is not binding on courts. The trial court failed to make its own determination of whether there was a prima facie case, failing in its bounden duty to assess independently the merits of the motion. The RTC orders were thus stained with grave abuse of discretion, were void, and produced no legal effect.

• Double Jeopardy: Under Section 7, Rule 117 of the Rules of Court, double jeopardy requires: (1) a first jeopardy attached prior to the second; (2) the first jeopardy validly terminated; and (3) a second jeopardy for the same offense. A first jeopardy attaches only after a valid indictment, before a competent court, after arraignment, when a valid plea has been entered, and when the accused has been acquitted or convicted, or the case dismissed or otherwise terminated without his express consent. Because the RTC orders granting withdrawal were issued with grave abuse of discretion and were void, Soriano was not acquitted nor was there a valid and legal dismissal or termination of the cases. The fifth requisite—conviction or acquittal, or dismissal without the accused's express consent—was not met. The Court relied on Cerezo vs. People, which addressed the same issues and reached the same conclusion.

• Novation — Novation is a mode of extinguishment of obligations by the substitution or change of the obligation by a subsequent one, which extinguishes the first and creates a new obligation. It may be express (declared in unequivocal terms) or implied (by incompatibility between the old and new obligations). The concurrence of four requisites is indispensable: (1) a previous valid obligation; (2) an agreement of the parties to a new contract; (3) the extinguishment of the old contract; and (4) the validity of the new contract. Novation is never presumed; the animus novandi must appear by express agreement or by acts too clear and unmistakable. In this case, the Court found neither express nor implied novation because there was no written contract declaring novation in unequivocal terms, and no incompatibility existed between the Floor Stock Line secured by trust receipts and the purported restructured Omnibus Line, the latter being subject to unfulfilled conditions precedent.

• Test of Incompatibility for Implied Novation — The test of incompatibility is whether the two obligations can stand together, each having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. 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. In this case, the changes were merely modificatory—waiver of penalty charges and extension of repayment terms—insufficient to extinguish the original trust receipt obligation.

• Novation Does Not Extinguish Criminal Liability — Under Article 89 of the Revised Penal Code, novation does not extinguish criminal liability. Even if the civil obligation under the trust receipts had been novated by the restructuring, Soriano's criminal liability under the Trust Receipts Law would subsist.

• Restructuring of Trust Receipt Loan Does Not Per Se Extinguish Criminal Liability — The restructuring of a loan agreement secured by a trust receipt does not per se novate or extinguish the criminal liability incurred thereunder, where the restructuring agreement is not incompatible with the trust receipt transactions and expressly recognizes the obligation due under the trust receipts.

• Trial Court's Duty to Independently Evaluate Motions to Withdraw Information — While the recommendation of the prosecutor or the ruling of the Secretary of Justice is persuasive, it is not binding on courts. In resolving a motion to dismiss or withdraw an information, the trial court must not rely solely on the findings of the public prosecutor or the DOJ Secretary; it is the court's bounden duty to assess independently the merits of the motion, and this assessment must be embodied in a written order. Failure to do so constitutes grave abuse of discretion rendering the order void.

• Double Jeopardy Requisites — Double jeopardy attaches only when: (1) a first jeopardy attached prior to the second; (2) the first jeopardy has been validly terminated; and (3) a second jeopardy is for the same offense as in the first. A first jeopardy attaches only (a) after a valid indictment; (b) before a competent court; (c) after arraignment; (d) when a valid plea has been entered; and (e) when the accused has been acquitted or convicted, or the case dismissed or otherwise terminated without his express consent. A dismissal effected with grave abuse of discretion is void and does not constitute valid termination, so double jeopardy does not attach.

• "The DOJ Secretary's and the Court of Appeals holding that, the supposed restructuring novated the loan agreement between the parties is myopic." — This passage frames the Court's rejection of the lower tribunals' reasoning on novation, signaling the core ratio decidendi of the case.

• "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." — This is the canonical formulation of the novation doctrine as applied in this case, frequently cited in subsequent jurisprudence on implied and express novation.

• "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." — This defines the controlling test for implied novation through incompatibility, a key doctrinal formulation for bar review.

• "In thus resolving a motion to dismiss a case or to withdraw an Information, the trial court should not rely solely and merely on the findings of the public prosecutor or the Secretary of Justice. It is the court's bounden duty to assess independently the merits of the motion, and this assessment must be embodied in a written order disposing of the motion." — This articulates the trial court's independent duty of evaluation, quoted from Cerezo vs. People and applied to the RTC's abdication of judicial power in this case.

• Cerezo vs. People, G.R. No. 185230, June 1, 2011 — Controlling precedent on the issues of trial court abdication of judicial power and double jeopardy. The Court applied Cerezo's holding that a trial court's blind reliance on the prosecutor's or DOJ Secretary's recommendation, without independent evaluation, constitutes grave abuse of discretion rendering its orders void, and that double jeopardy does not attach when the dismissal was void.

• Transpacific Battery Corporation vs. Security Bank and Trust Company, G.R. No. 173565, May 8, 2009 — Controlling precedent on the effect of loan restructuring on trust receipt criminal liability. The Court followed Transpacific's holding that restructuring of a loan secured by a trust receipt does not per se novate or extinguish criminal liability, where the restructuring is not incompatible with the trust receipt transactions.

• California Bus Lines, Inc. vs. State Investment House, Inc., 463 Phil. 689 (2003) — Cited for the test of incompatibility in implied novation: whether the two obligations can stand together, each having its independent existence.

• Spouses Reyes vs. BPI Family Savings Bank, Inc., 520 Phil. 801 (2006) — Cited for the rule that an 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 merely supplements the old one.

• Article 1292, Civil Code — Provides that for an obligation to be extinguished by another substituting it, it must be so declared in unequivocal terms, or the old and new obligations must be incompatible on every point. The Court applied this provision to determine that neither express nor implied novation occurred, as there was no written declaration of novation and no incompatibility between the Floor Stock Line and the purported restructured Omnibus Line.

• Article 1231, Civil Code — Lists novation as one of the modes of extinguishment of obligations. The Court referenced this provision in explaining the nature of novation as a mode of extinguishing obligations.

• Article 89, Revised Penal Code — Provides that novation does not extinguish criminal liability. The Court invoked this provision to hold that even if the civil obligation had been novated by the restructuring, Soriano's criminal liability under the trust receipts would subsist.

• Section 13, Presidential Decree No. 115 (Trust Receipts Law), in relation to Article 315, paragraph 1(b), Revised Penal Code — The substantive criminal provision under which Soriano was charged with estafa through misappropriation or conversion of goods or proceeds held in trust. The Court reinstated the finding of probable cause for violation of this provision.

• Section 7, Rule 117, Rules of Court — Defines the requisites for double jeopardy to attach. The Court applied this provision to hold that double jeopardy had not set in because the fifth requisite—acquittal, conviction, or dismissal without the accused's express consent—was not met, the RTC's withdrawal orders being void for grave abuse of discretion.

Justice Antonio T. Carpio (Chairperson), Justice Teresita J. Leonardo-De Castro, Justice Arturo D. Brion, and Justice Estela M. Perlas-Bernabe concurred.