Millar vs CA

1. Eusebio Millar obtained a favourable judgment from the Court of First Instance of Manila
condemning Antonio Gabriel to pay him the sum of P1,746.98 with interest at 12% per annum
from the date of the judgment, and attorney’s cost of P400.
2. Petitioner then obtained a write of execution to enforce the judgment.
3. Acting on the order, the sheriff seized the respondent’s jeep.
4. The respondent pleaded to the petitioner to release the jeep under an arrangement whereby
the respondent agreed to mortgage the vehicle in favour of the petitioner to secure the
payment of the judgment debt.
5. Thus, they executed a chattel mortgage, with the following conditions:
a. P850 – March 31, 157
b. P850 – April 30, 1957
6. However, respondent failed to comply with his obligation. As such, petitioner filed an alias writ
of execution and then the sheriff levied on certain personal properties belonging to the
respondent, and then scheduled for their sale.
7. The respondent filed an urgent motion to suspend on the ground of payment of the obligation.
8. RTC – ruled that the parties had taken the chattel mortgage only to get better security for the
judgment debt.
9. CA – set aside RTC, holding that the chattel mortgage impliedly novated the judgment
obligation. It stated the following circumstances on why there was an implied novation:
a. The judgment order was P1,746.98 with interest at 12% per annum plus the amount
of attorney’s cost. But the deed of chattel mortgage limits itself only to P1,700.
b. The judgment mentions no specific mode of payment, the chattel mortgage
obligates the respondent to pay P300 as liquidated damages in case of default of the
respondent.
c. Judgment debt was unsecured, while the chattel mortgage may be foreclosed
extrajudically in case of default.
10. SC – WON the chattel mortgage novated the judgment obligation:
a. On the first above, petitioner said that in the interim, respondent made partial
payments thus decreasing the outstanding balance of the judgment debt, hence the
reduction of the amount in the chattel mortgage. When the new obligation merely
reiterates or ratifies the old obligation, although the former effects but minor
alterations or slight modifications with respect to the cause, or object or
conditions of the latter, such changes do not effectuate any substantial
incompatibility between the two obligations. Only those essential or principal
changes introduced in the new obligation result in implied novation. Mere
reduction of an amount in no sense constitutes incompatibility. The deed of
chattel mortgaged only showed how much still the respondent owed to the
petitioner. The discrepancy also of P300 and P400 was due to the partial payments
of the respondent.
b. The stipulation under the chattel mortgage only serves to provide an express and
specific method for its extinguishment – thru instalment. The mortgage only ratified
or confirmed the existence of the old obligation.
c. The provision of security is not a substantial modification.

Dormitorio vs Fernandez

Magdalena Estate vs Rodriguez

 1. Rodriguez bought from Magdalena Estate a parcel of land in Quezon City. Inview of an unpaid
balance of P5K, they executed a promissory note promising to pay jointly and severally the
amount within 60 days, at 9% per annum interest.
2. Rodriguez and Luzon Surety executed a bond in favour of Magdalena.
3. When the obligation bcame due and demandable, Luzon Surety paid to Magdalena the sum of
P5K. Subsequently, Magdalena demanded the payment of accumulated interests. However,
they refused to pay such.
4. Magdalena then filed a collection suit before Municipal Court for the accumulated interest of
P655.89. Ordered the payment of the interest.
5. Rodriguez filed an appeal before CFI. The contention was that the promissory note was novated
when Magdalena unqualifiedly accepted surety bond which merely guaranteed payment of the
principal of P5K. Also, that the acceptance of Magdalena of the payment of 5K is tantamount to
waiver of the interest.
6. SC – appeal is not meritorious.
a. Magdalena did not protest the acceptant of 5K because it knew because that that
was the complete to be undertaken by the Surety as shown in the Surety Bond.
b. The liability of the surety is not extended by implication beyond the terms of his
contract.
c. It is for the same reason that it cannot apply part of the 5K to the amount of the
interest.
d. No novation – the mere fact that the 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. The
creditor can still enforce the obligation against the original obligation. The surety
bond is not a new and separate contract but an accessory to the promissory note.

Reyes vs CA
1. 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
organized primarily to perform welfare services for the Armed Forces of the Philippines.
2. 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.
3. 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.
4. 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.
5. 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.
 6. 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 AFP-MBAI
directly.
7. 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?
8. 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.
9. 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.
10. 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.
11. 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.
12. 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 AFP-MBAI 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.

Molino vs Security Diners

1. Security Diners International Corporation operates a credit card system. It offers two kinds of
cards:
a. Regular Card – entitles the cardholder to purchase goods and pay services from
member establishments in an amount not exceeding P10K;
b. Diamond – entitles the cardholder to purchase goods and pay services from
member establishments in unlimited amount.
2. Requirement is to have a surety. The contract provides that the surety shall subsist
notwithstanding any novation in the future.
3. Danilo Alto applied for a Regular Card and he got his sister in law Jeanette Alto as surety.
4. Then Danilo wrote a letter to SDIC to upgrade his card to Diamond.
5. As a requirement, Danilo secured the approval of Jeanette. Jeanette acceded to the request of
Danilo by signing a note that she approves of Danilo’s request for upgrading. Diamond Card of
Danilo was approved.
6. Danilo incurred credit charges amounting to P166K, where he defaulted payments.
7. SDIC demanded Danilo and Jeanette to pay the obligation. SDIC filed a complaint in RTC.
 8. Defendant Danilo moved to dimiss the case without prejudice to refilling, so Jeanette was left as
sole defendant.
9. Jeanette interposed that her liability was only up to P10K.
10. RTC dismissed the case saying that there was no preponderance of evidence that Jeanette
bound herself to act as surety for the Diamond Card. The note that bears Jeanette’s signature
should be viewed as only a “no objection” statement and not an assumption of liability. RTC
went too far by saying that Jeanette had in fact no liability even for the 10K since at the time of
the upgrading, Danilo had no outstanding liability which in fact why his upgrading was approved.
11. CA – reversed RTC. Based on the Surety Undertaking, the surety subsists even in case of
novation. The Surety Undertaking remained valid and subsisting. Also, petitioner even admitted
that she owed 10K.
12. SC:
a. Petitioner asserts that the note that she signed registering her approval of Danilo’s
upgrading to Diamond Card rendered the Surety Undertaking without probative
value, immaterial, and irrelevant as it covered only the liability of the surety in the
use of regular credit card.
b. She further argues that because Danilo was dropped as defendant, she should also
be dropped.
c. Issue: was the upgrading a novation as to extinguish the original obligation and the
Surety Undertaking which was simple accessory to ti?
d. There is no doubt that the upgrading was a novation since it was committed with
the intent of cancelling and replacing the regular credit card.
e. However, the novation did not serve to release petitioner from her surety
obligations because in the Surety Undertaking she expressly waived discharge in
case of novation in the agreement.

Garcia vs Llamas
1. The parties did not equivocally 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.
2. There is no incompatibility between the promissory note and the check.
3. The check was issued precisely to answer for the obligation.
4. On one hand, the note evidences the obligation. On the other hand, the check answers for it.
5. Unmeritorious also is the contention that there is a novation by substitution of debtors. The old
one must be expressly released from the obligation. And the third person must assume the
former’s place in the relation.
6. For novation to be valid, consent of the creditor must be express since it is tantamount of a
waiver of his right. It cannot be supposed without clear proof.
7.