Millar vs.

CA (novation)
Held: No substantial incompatibility
between the mortgage obligation and
the judgment liability of the
respondent sufficient to justify a
conclusion of implied novation. The
stipulation for the payment of the
obligation under the terms of the deed
of chattel mortgage serves only to
provide an express and specific
method for its extinguishment
payment in two equal installments.
The chattel mortgage simply gave the
respondent a method and more time
to enable him to fully satisfy the
judgment indebtedness. The chattel
mortgage agreement in no manner
introduced any substantial
modification or alteration of the
judgment. Instead of extinguishing the
obligation of the respondent arising
from the judgment, the deed of chattel
mortgage expressly ratified and
confirmed the existence of the same,
amplifying only the mode and period
for compliance by the respondent.
The defense of implied novation
requires clear and convincing proof of
complete incompatibility between the
two obligations. The law requires no
specific form for an effective novation
by implication. The test is whether the
two obligations can stand together. If
they cannot, incompatibility arises,
and the second obligation novates the
first. If they can stand together, no
incompatibility results and novation
does not take place.
Facts: Millar obtained a favorable
condemning Antonio P. Gabriel to pay
him the sum of P1,746.98 with interest
at 12% per annum from the date of
the filing of the complaint, the sum of
P400 as attorney's fees, and the costs

of suit. The lower court issued the writ

of execution on the basis of which the
sheriff seized the respondent's Willy's
Ford jeep. The respondent, however,
pleaded with the petitioner to release
the jeep under an arrangement
whereby the respondent, to secure the
payment of the judgment debt, agreed
to mortgage the vehicle in favor of the
petitioner. The petitioner agreed to the
arrangement; thus, the parties
executed a chattel mortgage on the
jeep. Resolution of the controversy
posed by the petition at bar hinges
entirely on a determination of whether
or not the subsequent agreement of
the parties as embodied in the deed of
chattel mortgage impliedly novated
the judgment obligation.
Dormitorio v Fernandez
Doctrine:
A final executory judgment of a trial
court may be novated by subsequent
agreement of the parties.

Facts:
The Municipality of Victorias is the
owner of several parcels of lands in
Victorias, Negros Occidental. In 1948,
it sold lot No.1 Block 16 with an
area of 230 sq. m. at 1 peso per
sq. meter to Serafin Lazalita.
Payment for said lot was completed in
1958.
Lazalita had been in full and peaceful
possession of the said land for eight
continuos years and he introduced
permanent and invaluable
improvements thereon such as fruite
trees, a house of strong materials, etc.

In 1955, Agustin and Leoncia

Dormitorio also purchased a land from
the Municipality of Victorias. They
bought Lot No. 2, Block 16 having
an area of 343 sq. meters at 1 peso
per sq. meter. They, however, have
not taken actual possession of the
land.
In 1958- Dormitorios filed a suit for
ejectment against Lazalita. The
Municipal Mayor and Council tried to
settle the matter between the parties.
A private surveyor was hired and it
was found out that the lot sold by
the Municipality to Lazalita was
converted to the Municipal Road
known as Jover Street and the lot
presently occupied by him is
supposed to be Lot. No. 2 bought
by the Dormitorios.
1961- CFI rendered judgment in favor
of the Dormitorios, ordering Lazalita to
vacate the land and to pay a monthly
rental to the former at a rate of 20
pesos a month.
Lazalita, with the Dormitorios, then
filed a case against the Municipality of
Victorias because the value of the
improvement he made on the land
have far exceeded the purchase price.
The Municipality of Victorias, is willing
to amicably settle the case, by giving
the plaintiff another lot, if they
could open their newly proposed
subdivision, or pay back Lazalita
the amount necessary and just for
him to acquire another lot for his
residence and for the expenses of
transferring his present
residential house thereto.
1965- The parties agreed and
submitted an "Agreed Stipulation of
Facts" before the court. Accordingly,

judgment was rendered based on the

same.
Thereafter, the Dormitorios filed a writ
of execution for the enforcement of
the earlier judgment by the Court
ordering Lazalita to pay 20 pesos
monthly rental and to vacate said
property. The petition was granted.
However, Judge Fernandez set
aside said writ of execution on the
ground that it was obtained by
means of fraud,
misrepresentation and
concealment of the true facts of
the case by making it appear that
the case was still enforceable
(even if it had already been novated
by a subsequent agreement by the
parties). It found out that the said
order was granted based on a
decision of the Court on Sept. 5,
1961 (prior to the Agreed
Stipulation of Facts submitted by
both parties on Feb. 12, 1965)

I: WON the judgment of the court had

been novated and thus can no longer
be enforced?
H: Yes. The agreement filed by the
parties created between them new
rights and obligation which naturally
superseded the prior judgment. It is
proper to show that there is animus
novandi between the parties for
novation to properly take effect.
In the case at bar, the presence of
animus novandi is undeniable.
Secondly, the decision resulting from a
compromise had the effect of res
judicata. The parties therefore are
bound by it. The judge therefore
committed no error in setting aside

the order of execution as the same

had only set maters right.

Magdalena Estates, Inc. v. Antonio

Rodriguez and Herminia
Rodriguez
GR No. L-18411, December 17,
1966

Nature: Appeal from CFI decision

Rodriguez spouses to pay jointly and

severally P655.89 with legal interest
from Nov 10, 1958 (date of filing of the
complaint)

Rodriguez spouses appealed to CFI.

CFI also ordered Rodriguez spouses to
pay jointly and severally P655.89 +
legal interest + AF.

Issue: WoN CFI erred in its judgment /

WoN there was a novation

Facts:
The Rodriguez spouses bought a
parcel of land in Quezon City from
Magdalena Estates. They executed a
promissory note in view of an unpaid
balance of P5k. On the same day,
Rodriguez spouses and Luzon Surety
executed a bond in favor of
Magdalena.

Undertaking: P5k within a 60

days from January 7, 1957.
Luzon Surety to be notified in
writing within 10 days from
moment of default otherwise
the undertaking is automatically
NAV

June 20, 1958 when obligation

became due and demandable (DAD)
Luzon Surety paid P5k to Magdalena.
Magdalena demanded from Rodriguez
spouses P655.89, the alleged
accumulated interests on the P5k
principal.

Due to refusal to pay, Magdalena filed

suit in the Municipal Court of Manila to
enforce collection. Court rendered
judgment in favor of Magdalena.

Held: No, there was no novation.

Magdalena did not waive or condone
the interests due because it is very
clear in the promissory note that
Luzon Surety will only pay the balance
of the purchase price of P5k. The
liability of Luzon Surety is not
extended beyond the terms of his
contract.

There was no novation/modification of

the obligation just because Magdalena
accepted without reservation the
subsequent agreement in the surety
bond despite its failure to provide that
is also guaranteed payment of
accruing interest.

Novation by presumption is
never favored. To be sustained,
it needs to be established that
the old and new contracts are
incompatible in all points, or
that the will to novate appears
by express agreement of the
parties

An obligation to pay a sum of

money is not novated in a new
instrument wherein the old one

is ratified by changing only the

terms of payment and adding
other obligations not
incompatible with the old one,
or wherein the old contract is
merely supplemented by the old
one

Just because a creditor receives

a guaranty or accepts payments
from a third person who has
agreed to assume the
obligation, when there is no
agreement that the first debtor
shall be released from
responsibility does not
constitute a novation, and the
creditor can still enforce the
obligation against the original
debtor

Judgment appealed from is affirmed

G.R. No. 120817 November 4,
1996

organized primarily to perform welfare

services for the Armed Forces of the
Philippines.

Elsa Reyes alleges that Eurotrust and

Bermic entered into a loan agreement
to finance the construction of Ritz
Condominium and Gold Business Park.
Bermic issued 21 postdated checks to
cover payments of the loan packages.
However, the checks were dishonored
by the drawee bank, RCBC, due to
stop payment order made by Graciela
Eleazar. Eleazar failed to make good
dishonored checks, prompting Reyes
to file for BP 22 and Estafa.

Meanwhile, respondent AFP-MBAI

which invested its funds with
Eurotrust, found out that the amounts
paid by AFP-MBAI to Eurotrust for
those securities were in turn lent by
Elsa Reyes to Bermic and others.

ELSA B. REYES, petitioner,

vs.
COURT OF APPEALS, SECRETARY
OF JUSTICE, AFP-MUTUAL BENEFIT
ASSOCIATION, INC., and GRACIELA
ELEAZAR, respondents.

Elsa Reyes is the president of

Eurotrust Capital Corporation, a
domestic corporation engaged in
credit financing. Graciela Eleazar, is
the president of B.E. Ritz Mansion
International Corporation (BERMIC), a
domestic enterprise engaged in real
estate development. The other
respondent, Armed Forces of the
Philippines Mutual Benefit Asso., Inc.
(AFP-MBAI), is a corporation duly

When Eleazar came to know that the

funds originally loaned by Eurotrust to
Bermic belonged to AFP-MBAI, she
requested a meeting with Eurotrust
representatives. Thus, agreed that
Bermic would directly settle its
obligations with the real owners of the
fund-AFP-MBAI and DECS-IMC.

However, Graciela Eleazar later

learned that Elsa Reyes continued to
collect on the PDCs issued contrary to
their agreement. So, Bermic wrote to
Eurotrust to hold the amounts "in
constructive trust" for the real owners.
But Reyes continued to collect on.
Upon her counsel's advise, Eleazar
had the payment stopped. Hence, her

checks issued in favor of Eurotrust

were dishonored.

After investigation, the Office of the

Provincial Prosecutor of Rizal issued a
resolution dismissing the complaints
filed by Elsa Reyes against Graciela
Eleazar on the ground that when the
latter assumed the obligation of Reyes
to AFP-MBAI, it constituted novation,
extinguishing any criminal liability on
the part of Eleazar.

Petitioner avers that she could not be

held criminally liable for the crime
charged because the contract of sale
of securities between her and
respondent AFP-MBAI was novated by
substitution of debtor. She claims that
private respondent Eleazar, instead of
fulfilling her obligation under the
contract of loan to pay petitioner the
amount of debts, assumed petitioner's
obligation under the contract of sale to
make payments to respondent AFPMBAI directly.
ISSUE:
1. WON the contract of loan between
petitioner and respondent Eleazar had
been novated when they agreed that
respondent Eleazar should settle her
firm's (BERMIC) loan obligations
directly with AFP-MBAI and DECS-IMC
instead of settling it with petitioner
Reyes?
HELD
No novation took place in this case at
bar.
RULING

Admittedly, in order that a novation

can take place, the concurrence of the
following requisites 7 is indispensable:
1. there must be a previous valid
obligation,
2 there must be an agreement of the
parties concerned to a new contract,
3. there must be the extinguishment
of the old contract, and
4. there must be the validity of the
new contract.

Upon the facts shown in the record,

the last three essential requisites of
novation are wanting in the instant
case. No new agreement for
substitution of creditor war forged
among the parties concerned which
would take the place of the preceding
contract.

The absence of a new contract

extinguishing the old one destroys any
possibility of novation by conventional
subrogation, In concluding that a
novation took place, the respondent
court relied on the two letters which,
according to it, formalized the
agreement that BERMIC would directly
settle its obligation with the real
owners of the funds - the AFP MBAI
and DECS IMC.

The fact that respondent Eleazar made

payments to AFP-MBAI and the latter
accepted them does not ipso facto
result in novation. There must be an
express intention to novate animus
novandi. 1Novation is never presumed.

Article 1300 of the Civil Code provides

inter alia that conventional
subrogation must be clearly
established in order that it may take
effect.

basically extinguishing the old

obligation for the new one.

Article 1293 of the Civil Code is

explicit, thus:

Romeo C. Garcia, petitioner.

Novation which consists in substituting

a new debtor in the place of the
original one, may be made even
without or against the will of the latter,
but not without the consent of the
creditor. Payment by the new debtor
gives him the rights mentioned in
Articles 1236 and 1237.
The consent of the creditor to a
novation by change of debtor is as
indispensable as the creditor's consent
in conventional subrogation in order
that a novation shall legally take
place. The mere circumstance of AFPMBAI receiving payments from
respondent Eleazar who acquiesced to
assume the obligation of petitioner
under the contract of sale of
securities, when there is clearly no
agreement to release petitioner from
her responsibility, does not constitute
novation, at most, it only creates a
juridical relation of co-debtorship or
suretyship on the part of respondent
Eleazar to the contractual obligation of
petitioner to AFP-MBAI and the latter
can still enforce the obligation against
the petitioner.
In the civil law setting, novatio is
literally construed as to make new. So
it is deeply rooted in the Roman Law
jurisprudence, the principle novatio
non praesumitur that novation is
never presumed.
At bottom, for novation to be a jural
reality, its animus must be ever
present, debitum pro debito

G.R. No. 154127. December 8, 2003

vs.
Dionisio V. Llamas, respondent.

FACTS OF THE CASE:

On December 23, 1996 Romeo
Garcia and Eduardo de Jesus borrowed
400,000.00 from Dionisio V. Llamas.
On the same day, they executed a
promissory note wherein they bound
themselves jointly and severally to
pay the loan on or before Janaury 23,
1997 with a 5% interest per month.
The loan has long been overdue and
despite repeated demands, Garcia and
de Jesus refused to pay the same.
Garcia reasoned out that he has no
liability under the promissory note
because he signed it merely as an
accommodation party for de Jesus and
alternatively, he is relieved from any
liability arising from the note
inasmuch as the loan had been paid
by de Jesus by means of a check dated
17 April 1997. Garcia contended that
the issuance of the check by de Jesus
and the acceptance by Llamas
novated or superseded the note.
Llamas said that the loan remained
unpaid because the checks issued by
de Jesus bounced.

De Jesus mentioned in his

answer that our of the 400,000.00
loan he received, only 360,000.00.
was received by him. The 40,000.00
was for the advance interest for 2

months (January to February 1997). He

had paid 120,000.00 (40,000.00,
the equivalent value of his leave
credits, 40,000.00 as advance
interest, 40,000.00 as interest for the
month of March and April 1997). He
had difficulty paying the loan and
asked Llamas for time but Llamas
acted in bad faith in filing the case
against them despite having agreed to
accept the benefits de Jesus would
receive from his retirement.

On July 7, 1998, the Regional

Trial Court of Quezon City Branch 222
rendered judgment in favor of Llamas
and against de Jesus and Garcia
ordering them to pay jointly and
severally the following sums:

1. 400,000.00
representing the
principal amount plus
5% interest thereon
per month from
January 23, 1997 until
the same shall have
been fully paid, less
the amount of
120,000.00
representing interests
already paid by x x x
de Jesus;
2. 100,000.00 as
attorneys fees and
2,000.00 for each
day of court
appearance; and
3. Cost of the suit.

The Court of Appeals ordered the

remanding of records and presentation

of evidence as against de Jesus on the

grounds that he has yet to present
evidence while with respect to Garcia,
the said court rules that no novation
had taken place, thus, he is liable to
Llamas in the manner stated in the
promissory note. Feeling aggrieved, he
filed the appeal.

ISSUE:
1. Whether or not the Court
of Appeals erred in
holding that no novation
had taken place.
RULING:
No. Applying x x x, we hold that no
novation took place. The parties did
not unequivocally declare that the old
obligation had been extinguished by
the issuance and the acceptance of
the check, or that the check would
take place of the note. x x x As the
Court of Appeals correctly observed,
the check had been issued precisely to
answer for the obligation. On the one
hand, the note evidences the loan
obligation; and on the other, the check
answers for it.
Novation is a mode of extinguishing an
obligation by changing its objects or
principal obligations by substituting a
new debtor in place of the old one, or
by subrogating a third person to the
rights of the creditor.
Article 1291 of the Civil Code states
that: 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 right of the
creditor.

The petition was denied and the

assailed Court of Appeals decision
affirmed with costs against the
petitioner.