Facts:

This case involves the Land Bank of the Philippines as the petitioner and Alfredo Ong as the respondent. The events leading to the case began on March 18, 1996, when spouses Johnson and Evangeline Sy secured a loan from the Land Bank in Legazpi City amounting to PhP 16 million. The loan was secured by three residential lots, five cargo trucks, and a warehouse. The loan agreement stipulated that PhP 6 million would be a short-term loan maturing on February 28, 1997, while the remaining PhP 10 million would be payable over seven years. The Notice of Loan Approval included an acceleration clause, indicating that any default in payment would accelerate the loan's maturity.

However, the Spouses Sy soon found themselves unable to meet their loan obligations. On December 9, 1996, they sold three of the mortgaged parcels of land to Angelina Gloria Ong, Evangeline's mother, for PhP 150,000, under a Deed of Sale with Assumption of Mortgage. The deed included provisions for th...

Facts:

1. Loan Agreement and Mortgage
   On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan of PhP 16 million from Land Bank Legazpi City. The loan was secured by three residential lots, five cargo trucks, and a warehouse. The loan was divided into a short-term portion of PhP 6 million (due on February 28, 1997) and a long-term portion of PhP 10 million (payable in seven years). The loan agreement included an acceleration clause in case of default.

2. Sale and Assumption of Mortgage
   On December 9, 1996, the Spouses Sy sold three mortgaged parcels of land to Angelina Gloria Ong (Evangeline's mother) for PhP 150,000 under a Deed of Sale with Assumption of Mortgage. The deed stated that the buyer would assume the mortgage and restructure the loan with Land Bank.

3. Alfredo Ong's Payment and Land Bank's Requirements
   Alfredo Ong (Angelina's husband) informed Land Bank of the sale and assumption of mortgage. Atty. Edna Hingco, the branch head, provided requirements for the assumption, including a payment of PhP 750,000 to update the loan. Alfredo paid the amount and submitted the required documents, but the assumption was later denied due to a credit investigation revealing Alfredo's past-due mortgage with another bank.

4. Foreclosure and Legal Action
   Land Bank foreclosed the mortgaged properties without informing Alfredo. Alfredo filed a case for recovery of the PhP 750,000 he paid, claiming bad faith on Land Bank's part. He also sought damages for attorney's fees, filing fees, and moral damages.

5. Trial Court and Appellate Court Rulings
   The Regional Trial Court (RTC) ruled in favor of Alfredo, ordering Land Bank to return the PhP 750,000 with 12% interest and attorney's fees. The Court of Appeals (CA) affirmed the RTC decision, holding that Alfredo's payment was for the assumption of mortgage, not for the Spouses Sy's arrears.

Issue:

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Ruling:

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Ratio:

1. Article 1236 of the Civil Code
   The creditor is not bound to accept payment by a third person unless the third person has an interest in the obligation. Alfredo had no interest in the Spouses Sy's obligation, as his payment was conditional and tied to his assumption of the mortgage.

2. Novation
   Novation requires the consent of all parties, including the creditor. Land Bank did not consent to the substitution of debtors, and the old obligation was not extinguished. Therefore, novation did not occur.

3. Unjust Enrichment
   Land Bank unjustly retained Alfredo's payment without legal basis. The principle of unjust enrichment applies when one party benefits at the expense of another without just cause. Land Bank's actions misled Alfredo into believing his assumption of the mortgage would be approved.

4. Interest and Attorney's Fees
   The 6% interest rate applies to obligations not involving loans or forbearance of money. Attorney's fees were awarded because Alfredo was compelled to litigate due to Land Bank's unjust actions.

Conclusion:

The Supreme Court denied Land Bank's appeal and affirmed the CA decision with modifications. Land Bank was ordered to return the PhP 750,000 with 6% interest from December 12, 1997, and 12% interest from the finality of the decision until full payment. The award of attorney's fees was upheld.