G.R. No.

L-29981 April 30, 1971

EUSEBIO S. MILLAR, petitioner,
vs.
THE HON. COURT OF APPEALS and ANTONIO P. GABRIEL, respondents
CASTRO, J.:
Facts:
E. Millar, obtained a favorable judgment from the CFI of Manila, in civil case 27116, condemning
A. Gabriel to pay him the sum of P1,746.98 with interest. The petitioner moved ex parte in the
court of origin for the issuance of the corresponding writ of execution to enforce the judgment.
The lower court issued the writ of execution applied for, on the basis of which the sheriff of
Manila seized the respondent's Willy's Ford jeep.
The respondent, pleaded with the petitioner to release the jeep under an arrangement whereby
the respondent, to secure the payment of the judgement debt, agreed to mortgage the vehicle in
favor of the petitioner
Pursuant to the writ, the sheriff levied on certain personal properties belonging to the
respondent, and then scheduled them for execution sale. the respondent filed an urgent motion
for the suspension of the execution sale on the ground of payment of the judgment obligation.
The lower court, ordered the suspension of the execution sole to afford the respondent the
opportunity to prove his allegation of payment of the judgment debt.
The lower court 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.
The respondent duly appealed the aforesaid order to the Court of Appeals, which set aside the
order of execution in a decision, holding that the subsequent agreement of the parties impliedly
novated the judgment obligation in civil case 27116.
Issue:
Whether or not the subsequent agreement of the parties as embodied in the deed of
chattel mortgage impliedly novated the judgment obligation in civil case 27116.
Ruling:
No. 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.a

Xxx the deed of chattel agreement clearly shows that the parties agreed upon the chattel
mortgage solely to secure, not the payment of the reduced amount as fixed in the aforesaid
deed, but the payment of the judgment obligation and other incidental expenses in civil case
27116.
The unmistakable terms of the deed of chattel mortgage reveal that the parties constituted the
chattel mortgage purposely to secure the satisfaction of the then existing liability of the
respondent arising from the judgment against him in civil case 27116. As a security for the
payment of the judgment obligation, the chattel mortgage agreement effectuated no substantial
alteration in the liability of 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.

G.R. No. L-67649 June 28, 1988

ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.
GUTIERREZ, JR., J.:
Facts:

Engracio Francia is the registered owner of a residential lot and a two-story house built
upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. A
125 square meter portion of Francia's property was expropriated by the Republic of the
Philippines for the sum of P4,116..
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on
December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay
City. Ho Fernandez was the highest bidder for the property.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re:
Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation
of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. Francia
filed a complaint to annul the auction sale. He later amended his complaint on January 24,
1980.
The lower court rendered a decision, the dispositive portion of which reads: The Register of
Deeds of Pasay City to issue a new Transfer Certificate of Title in favor of the defendant Ho
Fernandez over the parcel of land including the improvements thereon.
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Issue:
Whether or not the petitioners tax delinquency against the government has been
extinguished by set-off.
Ruling:
No. There is no legal basis for the contention. By legal compensation, obligations of
persons, who in their own right are reciprocally debtors and creditors of each other, are
extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the
requirements provided by Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he be at the
same time a principal creditor of the other;
xxx xxx xxx

(3) that the two debts be due.

xxx xxx xxx
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that
Internal Revenue Taxes cannot be the subject of set-off or compensation. We stated that:
A claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude the remedy in an action or
any indebtedness of the state or municipality to one who is liable to the state
or municipality for taxes. Neither are they a proper subject of recoupment
since they do not arise out of the contract or transaction sued on. ... (80
C.J.S., 7374). "The general rule based on grounds of public policy is wellsettled that no set-off admissible against demands for taxes levied for general
or local governmental purposes. The reason on which the general rule is
based, is that taxes are not in the nature of contracts between the party and
party but grow out of duty to, and are the positive acts of the government to
the making and enforcing of which, the personal consent of individual
taxpayers is not required. ..."
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated
that: "... internal revenue taxes can not be the subject of compensation: Reason:
government and taxpayer are not mutually creditors and debtors of each other' under Article
1278 of the Civil Code and a "claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off."