G.R. No. 118585 - Ajax Marketing and Development Corp. vs. Court of Appeals

Ylang-Ylang Merchandising Company, a partnership composed of Angelita Rodriguez and Antonio Tan, obtained a loan of ₱250,000.00 from Metropolitan Bank and Trust Company (Metrobank). To secure this loan, spouses Marcial See and Lilian Tan executed a real estate mortgage over their property located in Paco District, Manila, covered by TCT No. 105233. This mortgage was annotated at the back of the title.
After the partnership changed its name to Ajax Marketing Company without changing its constituents, it secured a second loan of ₱150,000.00 from Metrobank. Spouses See and Tan executed another real estate mortgage over the same property, duly annotated on TCT No. 105233.
On February 19, 1979, the partnership was converted into Ajax Marketing and Development Corporation with the original partners plus three additional incorporators. This corporation obtained a third loan of ₱600,000.00 from Metrobank, secured by a third real estate mortgage over the same property, also annotated on the title.

In December 1980, the three loans totaling ₱1,000,000.00 were restructured and consolidated into a single loan under Promissory Note (PN) No. BDS-3605. This was executed by Ajax Marketing and Development Corporation represented by Antonio Tan and Elisa Tan, both in their personal capacities as solidary co-obligors.

Petitioners, spouses Marcial See and Lilian Tan, contested the validity of the extra-judicial foreclosure of their Paco District property by Metrobank.
They argued that the consolidation of the three loans into one extinguished the original loans and the accessory real estate mortgages (REMs), hence the foreclosure was invalid.
The Court of Appeals affirmed the trial court’s judgment upholding the validity of the extra-judicial foreclosure. It held that the consolidation was a mere restructuring without novation that would extinguish the mortgages. Also, the inclusion of an unsecured loan of ₱970,000.00 in the foreclosure was an error that did not invalidate the proceedings.

Whether the consolidation of three separate loans into a single loan of ₱1,000,000.00 constituted novation that extinguished the original loans and the accessory real estate mortgages.
Whether the consolidated loan without the execution of a new real estate mortgage was unsecured and thus not validly foreclosed.
Whether the inclusion of an unsecured loan of ₱970,000.00 in the extra-judicial foreclosure invalidated the foreclosure proceedings.
Whether the extra-judicial foreclosure undertaken by Metrobank on the property of spouses Marcial See and Lilian Tan was void.