Milliar vs. CA court ruled in the negative.
The defense of implied novation
April 30, 1971 | Castro, J.| Novation
PETITIONER: EUSEBIO S. MILLAR
RESPONDENTS: THE HON. COURT OF APPEALS and ANTONIO P.
GABRIEL
DOCTRINE:
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.
SUMMARY:
Milliar won a civil suit condemning Antonio P. Gabriel to pay him
the sum of money with interest of 12% per annum from the filing
of the complaint, plus fees for attorney’s fees and the costs of the
suit. Gabriel appealed to the Court of Appeals where the
judgement was sustained. In response to this decision, the lower
court issued a writ of execution ordering the sheriff to seize the
respondent’s jeep. Respondent then pleaded to the petitioner that
exchange in for the release of his jeep, they will enter into a
chattel mortgage on the jeep where the former promises to pay a
sum of money in two installments. Petitioner agreed. However,
respondent failed to pay the first installment. So, the sheriff levied
some of his properties for execution sale. In response, the
respondent filed an urgent motion for the suspension of the
execution sale, on which the Trial and Appellate Courts ruled that
the subsequent agreement of the parties impliedly novated the
obligation in the civil suit that Milliar won.
Court is now face with an issue of whether or not the subsequent
agreement between the parties count as a novation. To which the
requires clear and convincing proof of complete incompatibility
between the two obligations.
In this case, there is no substantial incompatibility between the
mortgage obligation and the judgment liability of the respondent
that is sufficient to justify an implied novation. The chattel
mortgage was merely a means of extinguishing the obligation
arising from the judgement rendered in the previous civil case.
FACTS:
1. Milliar won civil suit 27116 condemning Antonio P. Gabriel
to pay him the sum of Php 1,746.98 pesos with interest of
12% per annum from the filing of the complaint, plus fees
for attorney’s fees and the costs of the suit.
2. Gabriel appealed to the court of Appeals which was denied.
In response to this decision, the lower court issued a writ of
execution ordering the sheriff to seize the respondent’s
Willy’s jeep.
3. Respondent then pleaded to the petitioner that exchange
in for the release of his jeep, they will enter into a chattel
mortgage on the jeep where the former promises to pay a
total of Php 1,700.00 in two installments. To which the
petitioner agreed
4. Respondent however failed to pay the installments. So, the
sheriff levied some of his properties for execution sale. In
response, the respondent filed an urgent motion for the
suspension of the execution sale, on which Trial and
Appellate Courts held that the subsequent agreement of
the parties impliedly novated the obligation in the civil suit
that Milliar won.
5. Court of Appeals particularly stated that there was
incompatibility between the obligation arising from the civil
action and the obligation embodied in the deed of chattel
mortgage, warranting a conclusion of implied novation. The
 Appellate courts lists these incompatibilities as such:
a. The judgment orders the respondent to pay the
petitioner the sum of P1,746.98 with interest at
12% per annum from the filing of the complaint,
plus the amount of P400 and the costs of suit, the
deed of chattel mortgage limits the principal
obligation of the respondent to P1,700;
b. The judgment mentions no specific mode of
payment of the amount due to the petitioner, the
deed of chattel mortgage stipulates payment of the
sum of P1,700 in two equal installments;
c. The judgment makes no mention of damages, the
deed of chattel mortgage obligates the respondent
to pay liquidated damages in the amount of P300
in case of default on his part; and
d. Whereas the judgment debt was unsecured, the
chattel mortgage, which may be foreclosed
extrajudicially in case of default, secured the
obligation.
PROCEDURAL HISTORY:
Civil Case no. 27116
1. RTC- in favor of petitioner
2. CA- Affirmed the decision
Current Case
1. RTC- In favor of respondent
a. There was implied novation
2. CA – Affirmed the decision
b. There was sufficient incompatibility between
the obligation arising from the civil suit and
the agreed chattel mortgage top warrant
implied novation.
c. Motion for Reconsideration by the petitioner -
Denied
ISSUE/S:
1. WON the chattel mortgage counts as an implied novation
RULING:
Decision of the Court of Appeals is set aside, and the order in Civil
Case no. 27116 is affirmed, at respondent Antonio Gabriel's cost.
RATIO:
1. NO
● 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.
● In this case, there is no substantial incompatibility
between the mortgage obligation and the judgment
liability of the respondent that is sufficient to justify
an 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.
SEPARATE OPINIONS:
1. J. Barredo Concurring
 As evidenced by the express terms of the chattel
mortgage by respondent Gabriel in favor of petitioner
Millar, it was unmistakably the intent of the parties that
the said mortgage be merely a "security for the
payment to the said Eusebio Millar, mortgagee, of the
judgment and other incidental expenses in Civil Case
No. 27116 of the Court of First Instance of Manila
against Antonio P. Gabriel, mortgagor," to be paid in
the amount and manner therein stated.
 Such being the case, and it appearing that respondent
Gabriel has not paid the judgment remains unimpaired
in its full existence and vigor, and the resort to the
execution thereof thru the ordinary procedure of a writ
of execution by the petitioner is an election to which
every mortgage creditor is entitled when he decides to
abandon his security.