**Elsa B. Reyes vs. Court of Appeals, Secretary of Justice, AFP-MBAI, and Graciela Eleazar**
### Facts:
Elsa Reyes, the president of Eurotrust Capital Corporation, engaged in a loan agreement with B.E. Ritz Mansion International Corporation (BERMIC), headed by Graciela Eleazar, to finance the construction of Ritz Condominium and Gold Business Park. BERMIC issued 21 postdated checks for the loan repayments, which were dishonored due to a stop-payment order. Reyes filed criminal complaints against Eleazar for violation of B.P. 22 and estafa.
Eleazar argued the funds loaned originated from AFP-MBAI investments in securities with Eurotrust. Upon discovering this, Eleazar decided to settle BERMIC’s obligations directly with AFP-MBAI and DECS-IMC, as evidenced by two letters dated March 19, 1991. The Provincial Prosecutor dismissed Reyes’s complaints against Eleazar, ruling the shift in payment constituted novation and extinguished Eleazar’s criminal liability. Reyes’s objections were dismissed by the Department of Justice.
Meanwhile, AFP-MBAI filed a complaint against Reyes for estafa and violation of B.P. 22, as Eurotrust had failed to return purchased treasury notes. Reyes contended the obligations were novated through Eleazar assuming her debts, which the Department of Justice dismissed.
Reyes then filed a petition for certiorari, prohibition, and mandamus with the Court of Appeals, which was denied. Her further motion for reconsideration was also denied, leading to this petition to the Supreme Court.
### Issues:
1. Whether the contract of loan between Reyes and Eleazar, and the contract of sale of securities between Reyes and AFP-MBAI had been novated.
2. Whether the resolutions of the Department of Justice, dismissing Reyes’s complaints and affirming the prima facie case against her, were proper.
### Court’s Decision:
The Court found no novation in both contracts, as the essential elements for novation were missing. Novation requires a previous valid obligation, a new contract, extinguishment of the old contract, and validity of the new one. The Court observed that in both cases, no new agreement was formed that would extinguish the previous obligations. The consent of all parties involved, a crucial aspect of novation, was absent.
For the issue of the finality of the Department of Justice’s resolution, the Court noted Reyes’s failure to timely challenge the resolutions, attributing her inaction to laches. Despite recognizing an erroneous application of the principle of novation by the Department of Justice, the Court declined to reverse the decision due to the principle of finality of judgment.
### Doctrine:
1. **Novation:** For novation to occur, there must be a previous valid obligation, a new contract, the extinguishment of the old contract, and the validity of the new contract. Novation by substitution of creditor requires the consent of the original parties and of the third person.
2. **Finality of Judgment:** The principle of finality of judgment is fundamental to the efficient administration of justice, necessitating that judgments become final at a specific date, beyond which they cannot be appealed.
### Class Notes:
– **Elements of Novation:** (1) A previous valid obligation, (2) a new contract, (3) extinguishment of the old contract, and (4) validity of the new contract.
– **Principle of Novation by Substitution of Creditor:** Requires consent of all parties involved. (Civil Code, Art. 1301)
– **Doctrine of Finality of Judgment:** Once a judgment has become final, it cannot be appealed, ensuring an end to litigation.
– **Laches:** The failure or neglect for an unreasonable length of time to assert a right, typically resulting in the presumption that the party has waived or abandoned the right.
### Historical Background:
This case highlights the complexities of commercial transactions and financial dealings in the Philippines and underscores the legal principles governing novation, emphasizing the need for explicit consent and agreement among all parties for novation to occur. The case also exemplifies the Philippine justice system’s emphasis on the finality of judgments to prevent perpetual litigation.
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