Facts:

The case revolves around Ajax Marketing & Development Corporation, represented by Antonio Tan and Elisa Tan, with spouses Marcial See and Lilian Tan as petitioners against the Court of Appeals, Metropolitan Bank and Trust Company (Metrobank), and the Sheriff of Manila as respondents. The case was deliberated upon by the Supreme Court on September 14, 1995, following a decision by the Court of Appeals made on March 30, 1994, which upheld the validity of an extrajudicial foreclosure initiated by Metrobank on a property located in Paco District, Manila, covered by Transfer Certificate of Title (TCT) No. 105233. The background of the case involves a series of loans obtained by Ylang-Ylang Merchandising Company, later renamed Ajax Marketing Company, which eventually became Ajax Marketing & Development Corporation. Spouses See and Tan executed real estate mortgages to secure several loans from Metrobank, cumulatively amounting to P1.0 million when they were consolidated into o

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Facts:

Background of the Loan and Mortgage Transactions

• Ylang-Ylang Merchandising Company, a partnership between Angelita Rodriguez and Antonio Tan, obtained a loan of P250,000.00 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 in Paco District, Manila, as evidenced by Transfer Certificate of Title (TCT) No. 105233, with the mortgage duly annotated.

Additional Loans and Securing Instruments

• After the partnership changed its name to Ajax Marketing Company (without a change in composition), it secured a second loan of P150,000.00 from Metrobank.
• To secure the new loan, the same property was again mortgaged by Marcial See and Lilian Tan, with the mortgage annotation placed at the back of TCT No. 105233.

Conversion of the Partnership and Third Loan

• On February 19, 1979, the partnership was converted into a corporation named Ajax Marketing and Development Corporation, incorporating additional persons including Elisa Tan, Jose San Diego, and Tessie San Diego.
• Subsequently, this corporation obtained a third loan amounting to P600,000.00 from Metrobank, which was also secured by a real estate mortgage executed by the same obligors over the identical property.

Restructuring and Consolidation of the Loans

• In December 1980, the three separate loans (P250,000.00, P150,000.00, and P600,000.00) were restructured and consolidated into a single loan aggregating P1,000,000.00.
• As part of the consolidation, Ajax Marketing and Development Corporation, represented by Antonio Tan (Board Chairman/President) and Elisa Tan (Vice-President/Treasurer), executed Promissory Note (PN) No. BDS-3605.
• The consolidated transaction maintained a reference to the original real estate mortgages, as indicated by annotations on TCT No. 105233 and provisions in PN No. BDS-3605 stating “secured by REM.”

Foreclosure Proceedings

• Metrobank later initiated extra-judicial foreclosure proceedings on the mortgaged property.
• The foreclosure bid included the consolidated loan of P1,000,000.00 and also incorporated an additional unsecured loan of P970,000.00 under PN BDS No. 3583, which was later determined to be improper as it was not contemplated in the original mortgage agreements.
• The auction proceeds were directed to satisfy primarily the obligations under the secured PN, with any surplus to be returned to the mortgagors.

Issue:

Question of Novation through Consolidation

• Whether the consolidation of the three separate loans into one (via PN No. BDS-3605) constituted an objective or subjective novation that extinguished the prior obligations and released the mortgaged property from liability.
• Whether the consolidation involved an express indication or act amounting to novation, as required by established legal principles.

Nature of the Secured Transaction

• Whether the new consolidated loan was effectively secured by a new or valid re-affirmation of the mortgage given that the earlier loans had individual real estate mortgages but the consolidated PN did not specifically provide for a new Real Estate Mortgage (REM).
• Whether the absence of an accompanying new REM in the consolidation renders the consolidated loan secured or unsecured.

Inclusion of Unsecured Loan in Foreclosure Proceedings

• Whether the incorporation of the unsecured loan of P970,000.00 (PN BDS No. 3583) in the foreclosure bid invalidates the foreclosure proceedings.
• Whether the practice of including future or additional advances, even when unsecured, falls within the parties’ contractual intent as manifest in the mortgage clauses.

Validity of the Extra-Judicial Foreclosure

• Whether the overall foreclosure process should be nullified due to the inclusion of an unsecured loan in the bid price, given precedents such as C & C Commercial Corp. vs. PNB.
• Whether the foreclosure sale proper, particularly concerning the secured portion, remains valid notwithstanding the controversy regarding the unsecured advancement.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)