G.R. No.

71694 August 16, 1991

NYCO SALES CORPORATION, petitioner, vs. BA FINANCE CORPORATION, JUDGE ROSALIO A. DE

LEONREGIONAL TRIAL COURT, BR. II, INTERMEDIATE APPELLATE COURT, FIRST CIVIL CASES
DIVISION, respondents.

PARAS, J.:

In this petition for review on certiorari, petitioner challenges the April 22, 1985 decision* and the July 16,
1985 resolution* of the then Intermediate Appellate Court in AC-G.R. CV No. 02553 entitled "BA Finance
Corporation v. Nyco Sales Corporation, et al." which affirmed with modification the July 20, 1983
decision** of the Regional Trial Court, National Capital Region, Manila, Branch II in the same case docketed
as Civil Case No. 125909 ordering petitioner to pay respondent the amount of P60,000.00 as principal
obligation plus corresponding interest, the sum of P10,000.00 as and for, attomey's fees and 1/3 of the
costs of suit.

It appears on record that petitioner Nyco Sales Corporation (hereinafter referred to as Nyco) whose
president and general manager is Rufino Yao, is engaged in the business of selling construction materials
with principal office in Davao City. Sometime in 1978, the brothers Santiago and Renato Fernandez
(hereinafter referred to as the Fernandezes), both acting in behalf of Sanshell Corporation, approached
Rufino Yao for credit accommodation. They requested Nyco, thru Yao, to grant Sanshell discounting
privileges which Nyco had with BA Finance Corporation (hereinafter referred to as BA Finance). Yao
apparently acquiesced, hence on or about November 15, 1978, the Fernandezes went to Yao for the
purpose of discounting Sanshell's post-dated check which was a BPI-Davao Branch Check No. 499648
dated February 17, 1979 for the amount of P60,000.00. The said check was payable to Nyco. Following
the discounting process agreed upon, Nyco, thru Yao, endorsed the check in favor of BA Finance.
Thereafter, BA Finance issued a check payable to Nyco which endorsed it in favor of Sanshell. Sanshell
then made use of and/or negotiated the check. Accompanying the exchange of checks was a Deed of
Assignment executed by Nyco in favor of BA Finance with the conformity of Sanshell. Nyco was
represented by Rufino Yao, while Sanshell was represented by the Fernandez brothers. Under the said
Deed, the subject of the discounting was the aforecited check (Rollo, pp- 26-28). At the back thereof and
of every deed of assignment was the Continuing Suretyship Agreement whereby the Fernandezes
unconditionally guaranteed to BA Finance the full, faithful and prompt payment and discharge of any and
all indebtedness of Nyco (Ibid., pp. 36, 46). The BPI check, however, was dishonored by the drawee bank
upon presentment for payment. BA Finance immediately reported the matter to the Fernandezes who
thereupon issued a substitute check dated February 19,1979 for the same amount in favor of BA Finance.
It was a Security Bank and Trust Company check bearing the number 183157, which was again
dishonored when it was presented for payment. Despite repeated demands, Nyco and the Fernandezes
failed to settle the obligation with BA Finance, thus prompting the latter to institute an action in court
(Ibid., p 28). Nyco and the Fernandezes, despite having been served with summons and copies of the
complaint, failed to file their answer and were consequently declared in default. On May 16, 1980, the
lower court ruled in favor of BA Finance ordering them to pay the former jointly and severally, the sum of
P65,536.67 plus 14% interest per annum from July 1, 1979 and attorney's fees in the amount of P3, 000.
00 as well as the costs of suit (Rollo, pp. 51-52). Nyco, however, moved to set aside the order of default,
to have its answer admitted and to be able to implead Sanshell. The prayer was granted through an order
dated June 23, 1980, wherein the decision of the court was set aside only as regards Nyco. Trial ensued
once more until the court reached a second decision which states:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Nyco
Sales Corporation by ordering the latter to pay the former the following:

1) P60,000.00 as principal obligation, plus interest thereon at the rate of 14% per annum from
February 1, 1979 until fully paid;
SALES ***** RAMIL O. MALIPOL Page 1
 2) The amount of P100,000.00 as and for attorney's fees; and

3) One-third (1/3) of the costs of this suit.

With respect to defendants Santiago and Renato Fernandez, the decision of May 16, 1980 stands.

The cross-claim of defendant Nyco Sales Corporation against codefendants Santiago B. Fernandez
and Renato B. Fernandez is hereby denied, as there is no showing that Nyco's Answer with cross-
claim dated May 29, 1980 was ever received by said Fernandez brothers, even as it is noted that
the latter have not been declared in default with respect to said cross-claim, nor were evidence
adduced in connection therewith.

As to the would-be litigant Sanshell Construction and Development Corporation, defendant Nyco
Sales Corporation did not properly implead said corporation which should have been by way of a
third-party complaint instead of a mere cross-claim. The same observations are noted as regard this
cross-claim against Sanshell as those made with respect to the Fernandez brothers.

SO ORDERED.

On appeal, the appellate court also upheld BA Finance but modified the lower court's decision by ordering
that the interest should run from February 19, 1979 until paid and not from February 1, 1979. Nyco's
subsequent motion for reconsideration was denied (Ibid., pp. 33, 62). Hence, the present recourse.

The crux of the controversy is whether or not the assignor is liable to its assignee for its dishonored
checks.

For its defense, Nyco anchors its arguments on the following premises: a) that the appellate court erred in
affirming its liability for the BPI check despite a similar finding of liability for the SBTC check rendered by
the same lower court; b) that it was actually discharged of its liability over the SBTC check when BA
Finance failed to give it a notice of dishonor; c) that there was novation when BA Finance accepted the
SBTC check in replacement of the BPI check; and d) that it cannot be held liable for its Presidents
unauthorized acts.

The petition is devoid of merit.

An assignment of credit is the process of transferring the right of the assignor to the assignee, who would
then be allowed to proceed against the debtor. It may be done either gratuitously or generously, in which
case, the assignment has an effect similar to that of a sale.

According to Article 1628 of the Civil Code, the assignor-vendor warrants both the credit itself (its
existence and legality) and the person of the debtor (his solvency), if so stipulated, as in the case at bar.
Consequently, if there be any breach of the above warranties, the assignor-vendor should be held
answerable therefor. There is no question then that the assignor-vendor is indeed liable for the invalidity
of whatever he as signed to the assignee-vendee.

Considering now the facts of the case at bar, it is beyond dispute that Nyco executed a deed of
assignment in favor of BA Finance with Sanshell Corporation as the debtor-obligor. BA Finance is actually
enforcing said deed and the check covered thereby is merely an incidental or collateral matter. This
particular check merely evidenced the credit which was actually assigned to BA Finance. Thus, the
designation is immaterial as it could be any other check. Both the lower and the appellate courts
recognized this and so it is utterly misplaced to say that Nyco is being held liable for both the BPI and the
SBTC checks. It is only what is represented by the said checks that Nyco is being asked to pay. Indeed,

SALES ***** RAMIL O. MALIPOL Page 2

nowhere in the dispositive parts of the decisions of the courts can it be gleaned that BA Finance may
recover from the two checks.

Nyco's pretension that it had not been notified of the fact of dishonor is belied not only by the formal
demand letter but also by the findings of the trial court that Rufino Yao of Nyco and the Fernandez
Brothers of Sanshell had frequent contacts before, during and after the dishonor (Rollo, p. 40). More
importantly, it fails to realize that for as long as the credit remains outstanding, it shall continue to be
liable to BA Finance as its assignor. The dishonor of an assigned check simply stresses its liability and the
failure to give a notice of dishonor will not discharge it from such liability. This is because the cause of
action stems from the breach of the warranties embodied in the Deed of Assignment, and not from the
dishonoring of the check alone (See Art. 1628, Civil Code).

Novation is the third defense set up by petitioner Nyco.1wphi1 It insists that novation took place when
BA Finance accepted the SBTC check in replacement of the BPI cheek. Such is manifestly untenable.

There are only two ways which indicate the presence of novation and thereby produce the effect of
extinguishing an obligation by another which substitutes the same. First, novation must be explicitly
stated and declared in unequivocal terms as novation is never presumed (Mondragon v. Intermediate
Appellate Court, G.R. No. 71889, April 17, 1990; Caneda Jr. v. Court of Appeals, G.R. No. 81322, February
5, 1990). Secondly, the old and the new obligations must be 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 (Mondragon v.
Intermediate Appellate Court, supra; Caneda Jr. v. Court of Appeals, supra). In the instant case, there
was no express agreement that BA Finance's acceptance of the SBTC check will discharge Nyco from
liability. Neither is there incompatibility because both checks were given precisely to terminate a single
obligation arising from Nyco's sale of credit to BA Finance. As novation speaks of two distinct obligations,
such is inapplicable to this case.

Finally, Nyco disowns its President's acts claiming that it never authorized Rufino Yao (Nyco's President) to
even apply to BA Finance for credit accommodation. It supports its argument with the fact that it did not
issue a Board resolution giving Yao such authority. However, the very evidence on record readily belies
Nyco's contention. Its corporate By-Laws clearly provide for the powers of its President, which
include, inter alia, executing contracts and agreements, borrowing money, signing, indorsing and
delivering checks, all in behalf of the corporation. Furthermore, the appellate court correctly adopted the
lower court's observation that there was already a previous transaction of discounting of checks involving
the same personalities wherein any enabling resolution from Nyco was dispensed with and yet BA Finance
was able to collect from Nyco and Sanshell was able to discharge its own undertakings. Such effectively
places Nyco under estoppel in pais which arises when one, by his acts, representations or admissions, or
by his silence when he ought to speak out, intentionally or through culpable negligence, induces another
to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be
prejudiced if the former is permitted to deny the existence of such facts (Panay Electric Co., Inc. v. Court
of Appeals, G.R. No. 81939, June 29,1989). Nyco remained silent in the course of the transaction and
spoke out only later to escape liability. This cannot be countenanced. Nyco is estopped from denying
Rufino Yao's authority as far as the latter's transactions with BA Finance are concerned.

PREMISES CONSIDERED, the decision appealed from is AFFIRMED. SO ORDERED.

SALES ***** RAMIL O. MALIPOL Page 3

NYCO SALES CORP v BA FINANCE

FACTS: NYCO Sales Corp extended a credit accommodation to the Fernandez Brothers. The brothers,
acting in behalf of Sanshell Corp, discounted a BPI check for P60,000 with NYCO, which then indorsed the
said check to BA Finance accompanied by a Deed of Assignment. BA Finance, in turn, released the funds,
which were used by the brothers. The BPI check was dishonored. The brothers issued a substitute check,
which was also dishonored. Now BA Finance goes after NYCO, which disclaims liability.

ISSUE: W/N NYCO, as the assignor, is liable for breach of warranties

HELD: YES. The assignor (NYCO) warrants both the existence and legality of the credit, as well as the
solvency of the debtor. If there is a breach of any of the 2 warranties, the assignor is liable to the
assignee. That being the case, NYCO cannot evade liability. So long as the credit remains unpaid, the
assignor remains liable notwithstanding failure to give notice of dishonor that is because the liability of
NYCO stems form the assignment, not on the checks alone.

SALES ***** RAMIL O. MALIPOL Page 4

 [G.R. No. 142838. August 9, 2001]

ABELARDO B. LICAROS, petitioner, vs. ANTONIO P. GATMAITAN, respondent.

DECISION
GONZAGA-REYES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court. The petition seeks to reverse and set
aside the Decision[1] dated February 10, 2000 of the Court of Appeals and its Resolution[2] dated April 7, 2000 denying
petitioners Motion for Reconsideration thereto. The appellate court decision reversed the Decision[3] dated November 11,
1997 of the Regional Trial Court of Makati, Branch 145 in Civil Case No. 96-1211.
The facts of the case, as stated in the Decision of the Court of Appeals dated February 10, 2000, are as follows:

The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for brevity), is a private bank registered and
organized to do business under the laws of the Republic of Vanuatu but not in the Philippines. Its business
consists primarily in receiving fund placements by way of deposits from institutions and individual investors
from different parts of the world and thereafter investing such deposits in money market placements and
potentially profitable capital ventures in Hongkong, Europe and the United States for the purpose of
maximizing the returns on those investments.

Enticed by the lucrative prospects of doing business with Anglo-Asean, Abelardo Licaros, a Filipino
businessman, decided to make a fund placement with said bank sometime in the 1980s. As it turned out, the
grim outcome of Licaros foray in overseas fund investment was not exactly what he envisioned it to be. More
particularly, Licaros, after having invested in Anglo-Asean, encountered tremendous and unexplained
difficulties in retrieving, not only the interest or profits, but even the very investments he had put in Anglo-
Asean.

Confronted with the dire prospect of not getting back any of his investments, Licaros then decided to seek the
counsel of Antonio P. Gatmaitan, a reputable banker and investment manager who had been
extendingmanagerial, financial and investment consultancy services to various firms and corporations both
here and abroad. To Licaros relief, Gatmaitan was only too willing enough to help. Gatmaitan voluntarily
offered to assume the payment of Anglo-Aseans indebtedness to Licaros subject to certain terms and
conditions. In order to effectuate and formalize the parties respective commitments, the two executed a
notarized MEMORANDUM OF AGREEMENT on July 29, 1988 (Exh. B; also Exhibit 1), the full text of
which reads:

Memorandum of Agreement

KNOW ALL MEN BY THESE PRESENTS:

This MEMORANDUM OF AGREEMENT made and executed this 29th day of July 1988, at Makati by and
between:

ABELARDO B. LICAROS, Filipino, of legal age and holding office at Concepcion Building, Intramuros,
Manila hereinafter referred to as THE PARTY OF THE FIRST PART,

SALES ***** RAMIL O. MALIPOL Page 5

and

ANTONIO P. GATMAITAN, Filipino, of legal age and residing at 7 Mangyan St., La Vista, hereinafter
referred to as the PARTY OF THE SECOND PART,

WITNESSETH THAT:

WHEREAS, ANGLO-ASEAN BANK & TRUST, a company incorporated by the Republic of Vanuatu,
hereinafter referred to as the OFFSHORE BANK, is indebted to the PARTY OF THE FIRST PART in the
amount of US dollars; ONE HUNDRED FIFTY THOUSAND ONLY (US$150,000) which debt is now due
and demandable.

WHEREAS, the PARTY OF THE FIRST PART has encountered difficulties in securing full settlement of
the said indebtedness from the OFFSHORE BANK and has sought a business arrangement with the PARTY
OF THE SECOND PART regarding his claims;

WHEREAS, the PARTY OF THE SECOND PART, with his own resources and due to his association with
the OFFSHORE BANK, has offered to the PARTY OF THE FIRST PART to assume the payment of the
aforesaid indebtedness, upon certain terms and conditions, which offer, the PARTY OF THE FIRST PART
has accepted;

WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their mutual
prestations which they now record herein with the express conformity of the third parties concerned;

NOW, THEREFORE, for and in consideration of the foregoing and the mutual covenants stipulated herein,
the PARTY OF THE FIRST PART and the PARTY OF THE SECOND PART have agreed, as they do
hereby agree, as follows:

1. The PARTY OF THE SECOND PART hereby undertakes to pay the PARTY OF THE FIRST PART the
amount of US DOLLARS ONE HUNDRED FIFTY THOUSAND ((US$150,000) payable in Philippine
Currency at the fixed exchange rate of Philippine Pesos 21 to US$1 without interest on or before July 15,
1993.

For this purpose, the PARTY OF THE SECOND PART shall execute and deliver a non negotiable
promissory note, bearing the aforesaid material consideration in favor of the PARTY OF THE FIRST PART
upon execution of this MEMORANDUM OF AGREEMENT, which promissory note shall form part as
ANNEX A hereof.

2. For and in consideration of the obligation of the PARTY OF THE SECOND PART, the PARTY OF THE
FIRST does hereby;

a. Sell, assign, transfer and set over unto the PARTY OF THE SECOND PART that certain debt now due and
owing to the PARTY OF THE FIRST PART by the OFFSHORE BANK, to the amount of US Dollars One
Hundred Fifty Thousand plus interest due and accruing thereon;

b. Grant the PARTY OF THE SECOND PART the full power and authority, for his own use and benefit, but
at his own cost and expense, to demand, collect, receive, compound, compromise and give acquittance for the
SALES ***** RAMIL O. MALIPOL Page 6
same or any part thereof, and in the name of the PARTY OF THE FIRST PART, to prosecute, and withdraw
any suit or proceedings therefor;

c. Agree and stipulate that the debt assigned herein is justly owing and due to the PARTY OF THE FIRST
PART from the said OFFSHORE BANK, and that the PARTY OF THE FIRST PART has not done and will
not cause anything to be done to diminish or discharge said debt, or to delay or prevent the PARTY OF THE
SECOND PART from collecting the same; and;

d. At the request of the PARTY OF SECOND PART and the latters own cost and expense, to execute and do
all such further acts and deeds as shall be reasonably necessary for proving said debt and to more effectually
enable the PARTY OF THE SECOND PART to recover the same in accordance with the true intent and
meaning of the arrangements herein.

IN WITNESS WHEREOF, the parties have caused this MEMORANDUM OF AGREEMENT to be signed
on the date and place first written above.

Sgd. Sgd.
ABELARDO B. LICAROS ANTONIO P. GATMAITAN
PARTY OF THE FIRST PART PARTY OF THE FIRST PART

WITH OUR CONFORME:

ANGLO-ASEAN BANK & TRUST
BY: (Unsigned)

SIGNED IN THE PRESENCE OF:

Sgd. (illegible)

________________________ ________________________

Conformably with his undertaking under paragraph 1 of the aforequoted agreement, Gatmaitan executed in
favor of Licaros a NON-NEGOTIABLE PROMISSORY NOTE WITH ASSIGNMENT OF CASH
DIVIDENDS (Exhs. A; also Exh. 2), which promissory note, appended as Annex A to the same
Memorandum of Agreement, states in full, thus

NON-NEGOTIABLE PROMISSORY NOTE

WITH ASSIGNMENT OF CASH DIVIDENDS

This promissory note is Annex A of the Memorandum of Agreement executed between Abelardo B. Licaros
and Antonio P. Gatmaitan, on ______ 1988 at Makati, Philippines and is an integral part of said
Memorandum of Agreement.

P3,150,000.

On or before July 15, 1993, I promise to pay to Abelardo B. Licaros the sum of Philippine Pesos 3,150,000
(P3,150,000) without interest as material consideration for the full settlement of his money claims from
ANGLO-ASEAN BANK, referred to in the Memorandum of Agreement as the OFFSHORE BANK.

SALES ***** RAMIL O. MALIPOL Page 7

As security for the payment of this Promissory Note, I hereby ASSIGN, CEDE and TRANSFER, Seventy
Percent (70%) of ALL CASH DIVIDENDS, that may be due or owing to me as the registered owner of
___________________ (__________) shares of stock in the Prudential Life Realty, Inc.

This assignment shall likewise include SEVENTY PERCENT (70%) of cash dividends that may be declared
by Prudential Life Realty, Inc. and due or owing to Prudential Life Plan, Inc., of which I am a stockholder, to
the extent of or in proportion to my aforesaid shareholding in Prudential Life Plan, Inc., the latter being the
holding company of Prudential Life Realty, Inc.

In the event that I decide to sell or transfer my aforesaid shares in either or both the Prudential Life Plan, Inc.
or Prudential Life Realty, Inc. and the Promissory Note remains unpaid or outstanding, I hereby give Mr.
Abelardo B. Licaros the first option to buy the said shares.

Manila, Philippines
July _____, 1988

(SGD.)
Antonio P. Gatmaitan
7 Mangyan St., La Vista, QC

Signed in the Presence of

(SGD.)
_________________ __________________
Francisco A. Alba
President, Prudential Life Plan, Inc..

Thereafter, Gatmaitan presented to Anglo-Asean the Memorandum of Agreement earlier executed by him and
Licaros for the purpose of collecting the latters placement thereat of U.S.$150,000.00. Albeit the officers of
Anglo-Asean allegedly committed themselves to look into [this matter], no formal response was ever made
by said bank to either Licaros or Gatmaitan. To date, Anglo-Asean has not acted on Gatmaitans monetary
claims.

Evidently, because of his inability to collect from Anglo-Asean, Gatmaitan did not bother anymore to make
good his promise to pay Licaros the amount stated in his promissory note (Exh. A; also Exh. 2). Licaros,
however, thought differently. He felt that he had a right to collect on the basis of the promissory note
regardless of the outcome of Gatmaitan's recovery efforts. Thus, in July 1996, Licaros, thru counsel,
addressed successive demand letters to Gatmaitan (Exhs. C and D), demanding payment of the latters
obligations under the promissory note. Gatmaitan, however, did not accede to these demands.

Hence, on August 1, 1996, in the Regional Trial Court at Makati, Licaros filed the complaint in this case. In
his complaint, docketed in the court below as Civil Case No. 96-1211, Licaros prayed for a judgment
ordering Gatmaitan to pay him the following:

a) Principal Obligation in the amount of Three Million Five Hundred Thousand Pesos (P3,500,000.00);

b) Legal interest thereon at the rate of six (6%) percent per annum from July 16, 1993 when the amount
became due until the obligation is fully paid;
SALES ***** RAMIL O. MALIPOL Page 8
c) Twenty percent (20%) of the amount due as reasonable attorneys fees;

d) Costs of the suit. [4]

After trial on the merits, the court a quo rendered judgment in favor of petitioner Licaros and found respondent
Gatmaitan liable under the Memorandum of Agreement and Promissory Note for P3,150,000.00 plus 12% interest per
annum from July 16, 1993 until the amount is fully paid. Respondent was likewise ordered to pay attorneys fees of
P200,000.00.[5]
Respondent Gatmaitan appealed the trial courts decision to the Court of Appeals. In a decision promulgated on
February 10, 2000, the appellate court reversed the decision of the trial court and held that respondent Gatmaitan did not at
any point become obligated to pay to petitioner Licaros the amount stated in the promissory note. In a Resolution dated
April 7, 2000, the Court of Appeals denied petitioners Motion for Reconsideration of its February 10, 2000 Decision.
Hence this petition for review on certiorari where petitioner prays for the reversal of the February 10, 2000 Decision of
the Court of Appeals and the reinstatement of the November 11, 1997 decision of the Regional Trial Court.
The threshold issue for the determination of this Court is whether the Memorandum of Agreement between petitioner
and respondent is one of assignment of credit or one of conventional subrogation. This matter is determinative of whether
or not respondent became liable to petitioner under the promissory note considering that its efficacy is dependent on the
Memorandum of Agreement, the note being merely an annex to the said memorandum.[6]
An assignment of credit has been defined as the process of transferring the right of the assignor to the assignee who
would then have the right to proceed against the debtor. The assignment may be done gratuitously or onerously, in which
case, the assignment has an effect similar to that of a sale.[7]
On the other hand, subrogation has been defined as the transfer of all the rights of the creditor to a third person, who
substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes place without
agreement but by operation of law because of certain acts. Conventional subrogation is that which takes place by
agreement of parties.[8]
The general tenor of the foregoing definitions of the terms subrogation and assignment of credit may make it seem that
they are one and the same which they are not. A noted expert in civil law notes their distinctions thus:

Under our Code, however, conventional subrogation is not identical to assignment of credit. In the former, the
debtors consent is necessary; in the latter it is not required. Subrogation extinguishes the obligation and gives
rise to a new one; assignment refers to the same right which passes from one person to another. The nullity of
an old obligation may be cured by subrogation, such that a new obligation will be perfectly valid; but the
nullity of an obligation is not remedied by the assignment of the creditors right to another. [9]

For our purposes, the crucial distinction deals with the necessity of the consent of the debtor in the original
transaction. In an assignment of credit, the consent of the debtor is not necessary in order that the assignment may fully
produce legal effects.[10] What the law requires in an assignment of credit is not the consent of the debtor but merely notice
to him as the assignment takes effect only from the time he has knowledge thereof.[11] A creditor may, therefore, validly
assign his credit and its accessories without the debtors consent.[12] On the other hand, conventional subrogation requires an
agreement among the three parties concerned the original creditor, the debtor, and the new creditor. It is a new contractual
relation based on the mutual agreement among all the necessary parties. Thus, Article 1301 of the Civil Code explicitly
states that (C)onventional subrogation of a third person requires the consent of the original parties and of the third person.
The trial court, in finding for the petitioner, ruled that the Memorandum of Agreement was in the nature of an
assignment of credit. As such, the court a quo held respondent liable for the amount stated in the said agreement even if the
parties thereto failed to obtain the consent of Anglo-Asean Bank. On the other hand, the appellate court held that the
agreement was one of conventional subrogation which necessarily requires the agreement of all the parties concerned. The
Court of Appeals thus ruled that the Memorandum of Agreement never came into effect due to the failure of the parties to
SALES ***** RAMIL O. MALIPOL Page 9
get the consent of Anglo-Asean Bank to the agreement and, as such, respondent never became liable for the amount
stipulated.
We agree with the finding of the Court of Appeals that the Memorandum of Agreement dated July 29, 1988 was in the
nature of a conventional subrogation which requires the consent of the debtor, Anglo-Asean Bank, for its validity. We note
with approval the following pronouncement of the Court of Appeals:

Immediately discernible from above is the common feature of contracts involving conventional subrogation,
namely, the approval of the debtor to the subrogation of a third person in place of the creditor. That
Gatmaitan and Licaros had intended to treat their agreement as one of conventional subrogation is plainly
borne by a stipulation in their Memorandum of Agreement, to wit:

WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their mutual
prestations which they now record herein with the express conformity of the third parties concerned
(emphasis supplied),

which third party is admittedly Anglo-Asean Bank.

Had the intention been merely to confer on appellant the status of a mere assignee of appellees credit, there is
simply no sense for them to have stipulated in their agreement that the same is conditioned on the express
conformity thereto of Anglo-Asean Bank. That they did so only accentuates their intention to treat the
agreement as one of conventional subrogation. And it is basic in the interpretation of contracts that the
intention of the parties must be the one pursued (Rule 130, Section 12, Rules of Court).

Given our finding that the Memorandum of Agreement (Exh. B; also Exh. 1), is not one of assignment of
credit but is actually a conventional subrogation, the next question that comes to mind is whether such
agreement was ever perfected at all. Needless to state, the perfection or non-perfection of the subject
agreement is of utmost relevance at this point. For, if the same Memorandum of Agreement was actually
perfected, then it cannot be denied that Gatmaitan still has a subsisting commitment to pay Licaros on the
basis of his promissory note. If not, Licaros suit for collection must necessarily fail.

Here, it bears stressing that the subject Memorandum of Agreement expressly requires the consent of Anglo-
Asean to the subrogation. Upon whom the task of securing such consent devolves, be it on Licaros or
Gatmaitan, is of no significance. What counts most is the hard reality that there has been an abject failure to
get Anglo-Aseans nod of approval over Gatmaitans being subrogated in the place of Licaros. Doubtless, the
absence of such conformity on the part of Anglo-Asean, which is thereby made a party to the same
Memorandum of Agreement, prevented the agreement from becoming effective, much less from being a
source of any cause of action for the signatories thereto. [13]

Aside for the whereas clause cited by the appellate court in its decision, we likewise note that on the signature page,
right under the place reserved for the signatures of petitioner and respondent, there is, typewritten, the words WITH OUR
CONFORME. Under this notation, the words ANGLO-ASEAN BANK AND TRUST were written by hand.[14] To our
mind, this provision which contemplates the signed conformity of Anglo-Asean Bank, taken together with the
aforementioned preambulatory clause leads to the conclusion that both parties intended that Anglo-Asean Bank should
signify its agreement and conformity to the contractual arrangement between petitioner and respondent. The fact that
Anglo-Asean Bank did not give such consent rendered the agreement inoperative considering that, as previously discussed,
the consent of the debtor is needed in the subrogation of a third person to the rights of a creditor.

SALES ***** RAMIL O. MALIPOL Page 10

 In this petition, petitioner assails the ruling of the Court of Appeals that what was entered into by the parties was a
conventional subrogation of petitioners rights as creditor of the Anglo-Asean Bank which necessarily requires the consent
of the latter. In support, petitioner alleges that: (1) the Memorandum of Agreement did not create a new obligation and, as
such, the same cannot be a conventional subrogation; (2) the consent of Anglo-Asean Bank was not necessary for the
validity of the Memorandum of Agreement; (3) assuming that such consent was necessary, respondent failed to secure the
same as was incumbent upon him; and (4) respondent himself admitted that the transaction was one of assignment of credit.
Petitioner argues that the parties to the Memorandum of Agreement could not have intended the same to be a
conventional subrogation considering that no new obligation was created. According to petitioner, the obligation of Anglo-
Asean Bank to pay under Contract No. 00193 was not extinguished and in fact, it was the basic intention of the parties to
the Memorandum of Agreement to enforce the same obligation of Anglo-Asean Bank under its contract with
petitioner. Considering that the old obligation of Anglo-Asean Bank under Contract No. 00193 was never extinguished
under the Memorandum of Agreement, it is contended that the same could not be considered as a conventional subrogation.
We are not persuaded.
It is true that conventional subrogation has the effect of extinguishing the old obligation and giving rise to a new
one. However, the extinguishment of the old obligation is the effect of the establishment of a contract for conventional
subrogation. It is not a requisite without which a contract for conventional subrogation may not be created. As such, it is
not determinative of whether or not a contract of conventional subrogation was constituted.
Moreover, it is of no moment that the subject of the Memorandum of Agreement was the collection of the obligation of
Anglo-Asean Bank to petitioner Licaros under Contract No. 00193. Precisely, if conventional subrogation had taken place
with the consent of Anglo-Asean Bank to effect a change in the person of its creditor, there is necessarily created a new
obligation whereby Anglo-Asean Bank must now give payment to its new creditor, herein respondent.
Petitioner next argues that the consent or conformity of Anglo-Asean Bank is not necessary to the validity of the
Memorandum of Agreement as the evidence on record allegedly shows that it was never the intention of the parties thereto
to treat the same as one of conventional subrogation. He claims that the preambulatory clause requiring the express
conformity of third parties, which admittedly was Anglo-Asean Bank, is a mere surplusage which is not necessary to the
validity of the agreement.
As previously discussed, the intention of the parties to treat the Memorandum of Agreement as embodying a
conventional subrogation is shown not only by the whereas clause but also by the signature space captioned WITH OUR
CONFORME reserved for the signature of a representative of Anglo-Asean Bank. These provisions in the aforementioned
Memorandum of Agreement may not simply be disregarded or dismissed as superfluous.
It is a basic rule in the interpretation of contracts that (t)he various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken jointly.[15] Moreover, under our
Rules of Court, it is mandated that (i)n the construction of an instrument where there are several provisions or particulars,
such a construction is, if possible, to be adopted as will give effect to all.[16] Further, jurisprudence has laid down the rule
that contracts should be so construed as to harmonize and give effect to the different provisions thereof.[17]
In the case at bench, the Memorandum of Agreement embodies certain provisions that are consistent with either a
conventional subrogation or assignment of credit. It has not been shown that any clause or provision in the Memorandum
of Agreement is inconsistent or incompatible with a conventional subrogation. On the other hand, the two cited provisions
requiring consent of the debtor to the memorandum is inconsistent with a contract of assignment of credit. Thus, if we were
to interpret the same as one of assignment of credit, then the aforementioned stipulations regarding the consent of Anglo-
Asean Bank would be rendered inutile and useless considering that, as previously discussed, the consent of the debtor is not
necessary in an assignment of credit.
Petitioner next argues that assuming that the conformity of Anglo-Asean was necessary to the validity of the
Memorandum of Agreement, respondent only had himself to blame for the failure to secure such conformity as was,
allegedly, incumbent upon him under the memorandum.

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 As to this argument regarding the party responsible for securing the conformity of Anglo-Asean Bank, we fail to see
how this question would have any relevance on the outcome of this case. Having ruled that the consent of Anglo-Asean
was necessary for the validity of the Memorandum of Agreement, the determinative fact is that such consent was not
secured by either petitioner or respondent which consequently resulted in the invalidity of the said memorandum.
With respect to the argument of petitioner that respondent himself allegedly admitted in open court that an assignment
of credit was intended, it is enough to say that respondent apparently used the word assignment in his testimony in the
general sense. Respondent is not a lawyer and as such, he is not so well versed in law that he would be able to distinguish
between the concepts of conventional subrogation and of assignment of credit. Moreover, even assuming that there was an
admission on his part, such admission is not conclusive on this court as the nature and interpretation of the Memorandum
of Agreement is a question of law which may not be the subject of stipulations and admissions.[18]
Considering the foregoing, it cannot then be said that the consent of the debtor Anglo-Asean Bank is not necessary to
the validity of the Memorandum of Agreement. As above stated, the Memorandum of Agreement embodies a contract for
conventional subrogation and in such a case, the consent of the original parties and the third person is required.[19] The
absence of such conformity by Anglo-Asean Bank prevented the Memorandum of Agreement from becoming valid and
effective. Accordingly, the Court of Appeals did not err when it ruled that the Memorandum of Agreement was never
perfected.
Having arrived at the above conclusion, the Court finds no need to discuss the other issues raised by petitioner.
WHEREFORE, the instant petition is DENIED and the Decision of the Court of Appeals dated February 10, 2000
and its Resolution dated April 7, 2000 are hereby AFFIRMED.

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LICAROS v GATMAITAN

FACTS: Abelardo Licaros invested his money worth $150,000 with Anglo-Asean Bank, a money market placement by way
of deposit, based in the Republic of Venatu. Unexpectedly, he had a hard time getting back his investments as well as the
interest earned. He then sought the counsel of Antonio Gatmaitan, a reputable banker and investor. They entered into an
agreement, where a non-negotiable promissory note was to be executed in favor of Licaros worth $150,000, and that
Gatmaitan would take over the value of the investment

made by Licaros with the Anglo-Asean Bank at the former's expense. When Gatmaitan contacted the foreign bank, it said
they will look into it, but it didn't prospered. Because of the inability to collect, Gatmaitan did not bother to pay Licaros the
value of the promissory note. Licaros, however, believing that he had a right to collect from Gatmaitan regardless of the
outcome, demanded payment, but was ignore. Licaros filed a complaint against Gatmaitan for the collection of the note.
The trial court ruled in favor of Licaros, but CA reversed.

ISSUE: Whether the memorandum of agreement between petitioner and respondent is one of assignment of credit or one
of conventional subrogation

RULING: It is a conventional subrogation. An assignment of credit has been defined as the process of transferring the
right of the assignor to the assignee who would then have a right to proceed against the debtor. Consent of the debtor is
not required is not necessary to product its legal effects, since notice of the assignment would be enough. On the other
hand, subrogation of credit has been defined as the transfer of all the rights of the creditor to a third person, who
substitutes him in all his rights. It requires that all the related parties thereto, the original creditor, the new creditor and the
debtor, enter into a new agreement, requiring the consent of the debtor of such transfer of rights. In the case at hand, it
was clearly stipulated by the parties in the memorandum of agreement that the express conformity of the third party
(debtor) is needed. The memorandum contains a space for the signature of the Anglo-Asean Bank written therein "with
our conforme". Without such signature, there was no transfer of rights. The usage of the word "Assignment" was used as
a general term, since Gatmaitan was not a lawyer, and therefore was not well-versed with the language of the law.

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