Case Summary (G.R. No. 81381)
Deed of Sale with Assumption of Mortgage
Facing imminent default, the Sy spouses sold three mortgaged lots to Angelina Gloria Ong for ₱150,000 under a Deed of Sale with Assumption of Mortgage. The instrument provided that upon settlement of their bank obligations, the titles would be transferred to the vendees, and the mortgage released.
Attempted Assumption of Mortgage
Alfredo Ong, Angelina’s husband, approached Land Bank Branch Head Atty. Edna Hingco to formalize the assumption. Bank requirements included partial principal payment of ₱750,000 and updated interest. Ong delivered a check for ₱750,000, obtained a receipt, and submitted financial statements. He was told the titles would be transferred, but no notice of approval or title transfer was ever issued.
Denial and Foreclosure
A credit investigation revealed Ong’s existing past-due ₱18.3 million mortgage with another bank. The Lending Center rejected his assumption application without notifying him. Meanwhile, Land Bank foreclosed the Sy spouses’ mortgage and scheduled auction, prompting Ong’s demand for return of his ₱750,000.
Recovery Action and Trial Court Decision
Ong filed an action for recovery of sum of money with damages, alleging bad faith acceptance of payment and failure to inform him of the disapproval. The RTC found the assumption contract unperfected, noted Ong received no notice of denial, and, in the interest of equity, ordered Land Bank to refund ₱750,000 with 12% p.a. interest from December 12, 1997, plus attorney’s fees of ₱50,000.
Appellate Court’s Ruling
The Court of Appeals affirmed, holding Ong’s payment was intended to secure his assumption of mortgage, not to discharge the Sy spouses’ arrears. It ruled Art. 1236 was inapplicable, and that Ong’s active preparations and Land Bank’s acceptance of payment effectively novated the original obligation.
Issues on Further Appeal
The Supreme Court identified issues: (1) applicability of Civil Code Art. 1236 and existence of novation, (2) whether the CA misconstrued evidence in ordering refund with interest, and (3) propriety of the attorney’s fees award.
Supreme Court on Third-Party Payment
Under Art. 1236, a creditor need not accept payment from a third party lacking interest in the obligation, unless stipulated. Ong’s payment was conditional on his becoming the recognized mortgagor, not a discharge of the Sy spouses’ debt. He acted for his own interest, and recourse could not lie against the Sy spouses.
Novation Analysis
Novation requires express consent of all parties, extinguishment of the old obligation, and birth of a new one. Substitution of debtor under Art. 1293 also demands creditor’s consent. No such consent or unequivocal intent to novate existed; Land Bank never agreed to recognize Ong as the new debtor.
Unjust Enrichment and Estoppel
By accepting Ong’s ₱750,000 and remaining silent on the disapproval, Land Bank misled him into believing the assumption was approve
...continue readingCase Syllabus (G.R. No. 81381)
Facts
- On March 18, 1996, spouses Johnson and Evangeline Sy obtained a PhP 16 million loan from Land Bank of the Philippines, secured by three residential lots, five cargo trucks, and a warehouse.
- The loan agreement split the amount into a PhP 6 million short-term loan maturing on February 28, 1997, and a PhP 10 million loan payable over seven years.
- The February 22, 1996 Notice of Loan Approval included an acceleration clause for any default.
- On December 9, 1996, the Sy spouses executed a Deed of Sale with Assumption of Mortgage, selling three mortgaged parcels to Angelina Gloria Ong (Alfredo’s mother-in-law) for PhP 150,000, transferring to her all rights to restructure or settle the debt with Land Bank.
- Alfredo Ong approached Land Bank with the Sy–Ong deed; Branch Head Atty. Edna Hingco required PhP 750,000 payment on principal and updated interest as conditions for approving the mortgage assumption.
- Two weeks later, Alfredo tendered a PhP 750,000 check, received a bank receipt, and submitted financial statements; Atty. Hingco promised transfer of titles in his name, but no approval or notice came.
- After discovering his assumption application was denied (due to an adverse credit report) and upon seeing foreclosure notices for the Sy properties, Alfredo demanded return of PhP 750,000, but the bank did not refund it.
Procedural History
- December 12, 1997: Alfredo filed a recovery of sum of money suit with damages (Civil Case No. T-1941) against Land Bank for refusing to return PhP 750,000.
- October 20, 2009: The Regi