GAW vs INTERMEDIATE APPELLATE COURT

G.R. No. 70451. March 24, 1993

FACTS:
Henry Gaw is a businessman engaged in the buy and sell of hardware and construction
materials. Through a dealership agreement, on December 12, 1978, his trading firm, the K.H.
Gaw Enterprises, was appointed as one of the four (4) exclusive dealers of white cement of Prime
White Cement Corporation (PWCC for brevity). Among others, the agreement stipulated that for
five (5) years, the dealer would take delivery from PWCC at least 2,600 bags of white cement a
month; that in consideration of the execution of the contract, the dealer would deposit Two
Hundred Thousand Pesos (P200, 000.00) "to be repaid or returned" to the dealer under a scheme
set forth in the same contract, and that the dealer would increase its allocation to 6,5000 bags a
month and "increase its loan" to PWCC to Five Hundred Thousand Pesos (P500,000.00) "in a
contract akin, so as to abreast itself, or cope up with other dealers, within ninety (90) days" from
the execution of the agreement.
To avail of the provision on the increased volume of monthly delivery of cement, on February 2,
1979, Gaw entered into a marketing agreement with Foundation Commercial, a single
proprietorship, through Uy Diet Tan
March 5, 1979.Tan filed a case against Gaw in the Court of First Instance of Rizal. Tan alleged that
when he tried to deposit the money to PWCC, the auditor of PWCC said that he should write the
check under the name of Gaw. Tan praying that Gaw should honor his contract and pay him for
moral damages, litigation costs and atty.s fees. Tan also filed a restraining order against Gaw to
prevent Gaw from disposing the cement bags.
Gaw filed a case against Tan on the ground that the case against him caused him to lose profit.
Court held in favor of Gaw, thus ordering Tan to pay Gaw. Tan filed a motion for reconsideration
but was denied. Tan appealed in the Immediate Appellate Court. The said court reversed the
decision of the lower court and ordered Gaw to pay P100,000 to Tan for actual damages. Gaw
filed a motion for reconsideration but was denied.
ISSUE : Whether or not there is novation if PWCC accepted the payment from Tan.
HELD:
NO. While in a sense the marketing agreement between Gaw and Tan is related to the original
dealership agreement between the former and PWCC, as the term of the former is co-terminous
with that latter, we cannot subscribe to petitioner's contention that the marketing agreement
was "an attempted novation" of the dealership agreement. Arguing that "Tan intended to step
into the shoes of petitioner Gaw as debtor of Prime White in respect to the additional deposit of
P250,000.00," Gaw cites Article 1293 of the Civil Code which provides that '(n)ovation which
consists in substituting a new debtor in the place of the original one may even without the
knowledge or against the will of the latter, but not without the consent of the creditor." Yet Gaw
fails to prove that PWCC, the creditor, knew all about the so-called substitution.
It is axiomatic that novation is never presumed. It must be explicitly stated in the contract and
there must be a manifest incompatibility between the old and the new obligation in every aspect.
The fact that the two agreements are co-terminous with each other does not imply that a new
obligation had arisen when the marketing agreement was signed, thus displacing the dealership
contract. Not only was Gaw not released from complying with the terms and conditions of the
dealership agreement but he was, in a sense, already implementing the latter.