PEOPLE'S BANK AND TRUST COMPANY vs.

SYVEL'S INCORPORATED, ANTONIO and ANGEL SYYAP

People’s Bank and Trust Co. vs Syvel’s Incorporated
August 11, 1988 | J. Paras
Modes of Extinguishment – Novation

Appeal from the decision of the CFI Manila

FACTS:
ANTONIO Y. SYYAP and ANGEL Y SYYAP
││
SYVEL'S INCORPORATED, PEOPLE'S BANK AND TRUST COMPANY

 Chattel mortgage was executed in connection w/ credit commercial line (loan) of P900k granted to Syvel’s Inc.
 When credit expired, Antonio and Angel Syyap executed undertaking in favor of People’s Bank whereby they both agreed to guarantee, and
without benefit of excussion the full and prompt payment of any indebtedness incurred on account of said credit line.

 When Syvel’s failed to make payment, People’s Bank started to foreclose extrajudicially the chattel mortgage, which was not pushed through in
an attempt to settle. But there was still no payment…

 People’s Bank filed action for foreclosure of chattel mortgage was executed on its stocks of goods, personal properties, and other
materials owned by it and located at it stores or warehouses.
On petition, plaintiff People’s Bank claimed that defendants are disposing their properties to defraud their creditors e.g. People’s Bank.
A preliminary writ of attachment was issued.
 Hence, defendants Syyap set up counterclaim for damages.
 During pendency of case, Antonio Syyap proposed to settle the case, hence, a conference was held wherein Syyap requested for dismissal of
case and instead, offered to execute a REM on his real property in Cavite.
 People’s Bank consented.

 In same case, defendants Syyap filed Motion to Dismiss case, but defendants refused to agree if it meant the dismissal of their counterclaim.
Instead, they filed their own Motion to Dismiss on the ground that by execution of real estate mortgage, obligation secured by chattel mortgage
was novated, and therefore, People Bank’s cause of action to (ELAM: which was to foreclose the chattel mortgage) was extinguished.

ISSUES + RULING:
WoN novation occurred when the real estate mortgage was executed. -- NO.
Court ruled (with People’s Bank):
 Novation takes place when the object or principal condition of an obligation is changed or altered. Novation is never presumed; it
must be explicitly stated or there must be manifest incompatibility between old and new obligations in every aspect.
In this case:
 (1) Contract on its face does not show existence of explicit novation nor incompatibility between old and new agreements. 2nd contract indicates
that real estate mortgage was executed as new additional security only.
 (2) In the real estate mortgage, appellants agreed that chattel mortgage shall remain in full force and shall not be impaired by the real estate
mortgage.
Contracts provides --- “That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439, Book No. I, Series of 1965, Notary Public Jose C.
Merris, Manila); real estate mortgage executed by Angel V. Syyap and Rita V. Syyap (Doc. No. 441, Page No. 90, Book No. I, Series of 1965,
Notary Public Jose C. Merris, Manila) shall remain in full force and shall not be impaired by this mortgage (par. 5, Exhibit"A,").
 It is clear, therefore, that a novation was not intended. The real estate mortgage was evidently taken as additional security for the performance of
the contract (Bank of P.I. v. Herrige, 47 Phil. 57).

WoN respondent judge gravely erred in the issuance of the writ of preliminary attachment. -- NO.
Court ruled (with People’s Bank):
 Act of debtor in taking his stock of goods from the rear of his store at night, is sufficient to support an attachment upon ground of fraudulent
concealment of property for the purpose of delaying and defrauding creditors.
 Appellant failed to adduce evidence of bad faith or malice in the procurement of the writ of preliminary attachment.

DISPOSITION:
Ruling: Appeal dismissed for lack of merit and judgment appealed from affirmed.