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Obligations and Contracts | Novation

Eusebio S. Millar (creditor) v. The Hon. Court of Appeals and Antonio P. Gabriel (debtor)
Petition for certiorari to review a decision of the CA
April 30, 1971
Fred Ruiz Castro, J.

1. Gabriel did not pay the first installment due on a chattel mortgage on a jeep he had executed with Millar.
[Background] The CFI of Manila issued a writ of execution ordering Gabriel to return a Willys Ford jeep to
Gabriel pleaded with Millar to release the jeep under an arrangement whereby he was to mortgage the jeep
in order to pay the judgment debt in favor of the latter. Gabriel executed a chattel mortgage on the jeep.
o Gabriel was to pay a total of PHP 1700 in two installments at PHP 850 each.
2. Gabriel failed to pay the first installment.
3. Millar then obtained a writ of execution but even after the lapse of the entire chattel mortgage period, it was
returned unsatisfied.
After five unsatisfied writs of execution, the sheriff levied on certain personal properties belonging to
Gabriel and scheduled them for execution sale.
Respondent Gabriel: Filed an urgent motion for suspension of execution sale on the ground of payment of
the judgment debt.
4. The lower court ordered the suspension of the execution sale and ruled that novation had taken place and that
the parties had executed the chattel mortgage only to secure or get better security for the judgment.
CA held that there the chattel mortgage agreement impliedly novated the CFI judgment.
CA held that the following circumstances demonstrated the incompatibility between the judgment debt and
the deed of chattel mortgage:

Judgment Debt Chattel Mortgage
Orders Gabriel to pay PHP 1746.98 with
interest at 12% per annum from the filing of
complaint plus PHP 400 in attorneys fees and
the costs of suit
Only PHP 1700
No specific mode of payment Payment of the sum of PHP 1700 in two equal
No mention of damages Obligates Gabriel to pay liquidated damages in
the amount of PHP 300 in case of default
Unsecured Jeep may be foreclosed extrajudicially in case of

WON the deed of chattel mortgage novated the judgment of the CFI.

Ratio Decidendi
No novation shall be implied, unless there is clear and convincing proof of complete incompatibility between the
two obligations.

1. NO. There was no clear and convincing proof that there was an implied novation in the execution of the Chattel
Mortgage Agreement.
On the first circumstance: Only modifications that alter the essence of the old obligation result in implied
o The mere reduction of the amount due does not constitute a sufficient indicium of incompatibility
especially in the light of Millar and Gabriels admission that the reduced amount was due to partial
payments made by the latter before the execution of the chattel mortgage agreement.
o The deed of chattel mortgage was a mere specification of how much exactly Gabriel owed to Millar
in order to avoid confusion.
On the third circumstance: Discrepancy between the PHP 400 and PHP 300 fixed as attorneys fees and
damages in the judgment and the deed respectively explained:
o Partial payments made by Gabriel before the execution of the chattel mortgage agreement were
applied in satisfaction of part of the judgment debt and of part of the attorneys fees fixed in the
judgment, thereby reducing both amounts. (I dont understand the reasoning here)
Obligations and Contracts | Novation
o There was no clear and convincing evidence that the PHP 300 in attorneys fees stipulated in the
deed of chattel mortgage intended the same as an obligation for payment of liquidated damages in
case of default.
On the second circumstance: The chattel mortgage simply gave Gabriel an express and specific method of
payment and more time to enable him to satisfy the judgment indebtedness. It did not constitute any
substantial modification of the judgment.
On the fourth circumstance: The debt security in the form of the jeep was stipulated to secure the
satisfaction of the liability. It effectuated no substantial alteration in Gabriels liability.

Gabriel directed to pay the PHP 1700.

Antonio P. Barredo, J.: The sense in which the parties contemplated to have bound themselves may be considered
in the determination of WON there is implied novation.

Trivia: We owned a Willys jeep for more than 30 years! Binigay siya ng adoptive Filipino mom ng tatay ko nung
binata pa siya sa Navotas. Dinala niya sa Bacolod nung nagmove kami doon. It was my service vehicle to school
until 2005! Ikinahihiya ko dati yun dahil basag ang windshield. Isang cube na siya ng metal ngayon huhu.

Digest by: Dawn Chua