SUPREME COURT MANILA

FIRST DIVISION

ILO-ILO TRADERS FINANCE INC., Petitioner,

VS.

HEIRS OF OSCAR SORIANO JR., AND MARTA L. SORIANO., Respondents

G.R. NO. 149683 JUNE 16, 2003

FACTS:

 Oscar Soriano and Marta Soriano executed two promissory notes, secured by real property
mortgages, in favor of Iloilo Traders Finance, Inc. (ITF).
 The Sorianos defaulted on the notes, prompting ITF to move for the extrajudicial foreclosure of
the mortgages.
 In order to stop the foreclosure, the Sorianos filed a complaint for "Declaration of a Void
Contract, Injunction and Damages" in court.
 The trial court issued a writ of preliminary injunction to suspend the public sale of the property.
 The parties entered into an "Amicable Settlement" in August 1983, but the trial court
disapproved it because the parties failed to comply with a court order requiring them to clarify
certain items.
 Seven years later, the Sorianos filed a motion to submit the amicable settlement anew, which
was opposed by ITF on the ground that the amount expressed in the settlement would no longer
be accurate.
 The trial court denied the motion, but observed that the amicable settlement had novated the
original agreement of the parties as embodied in the promissory note.
 The Sorianos withdrew their complaint and filed a case for novation and specific performance.
 The trial court ruled in favor of the Sorianos, which was affirmed by the Court of Appeals.

ISSUE:

Whether or not the amicable settlement entered into by the parties had novated the original
obligation.

RULING:

The Supreme Court held through Justice Vitug that the amicable settlement had novated the
original obligation of the parties as embodied in the promissory note. The Court noted that the intention
of ITF to agree and abide by the provisions of the amicable settlement cannot be ignored, and that the
disapproval by the court pertained only to a technicality that did not intrude into the substance of the
agreement reached by the parties. The Court also ruled that the terms of the amicable settlement had
been carried out by the parties, and that the trial court did not err in its finding of novation and specific
performance.