G.R. No. 215691 - Spouses Celones vs. Metropolitan Bank and Trust Co.

Case Summary (G.R. No. 215691)

Key Dates and Procedural Landmarks

CNAR (Conditional Notice of Approval for Redemption): December 13, 2007.
Memorandum of Agreement (MOA): December 20, 2007.
RTC Order declaring MOA without force and effect: September 1, 2010.
CA Decision reversing RTC: April 14, 2014; CA Resolution denying reconsideration: December 11, 2014.
Supreme Court decision and final disposition: October 14, 2019 (G.R. No. 215691; decision delivered October 14, 2019; entry references November 21, 2018 docketing).
Applicable constitutional framework: 1987 Philippine Constitution (case decided after 1990).

Applicable Law and Legal Authorities

Relevant provisions of the New Civil Code cited and applied: Article 1291 (modes of modifying obligations), Article 1292 (requirements for novation/extinguishment by substitution), and Article 1236 (payment by a third person and right of reimbursement).
Rules of Court reference: Section 29, Rule 39 (registration following issuance of certificates of redemption).
Controlling principles from jurisprudence concerning novation, assignment of credit (subrogation), and the rule that an assignee acquires no greater right than the assignor.

Factual Background

Spouses Celones and their company (Processing Partners and Packaging Corporation) obtained loans from Metrobank and mortgaged several properties; their total obligation with Metrobank amounted to P64,474,058.73. After default, Metrobank foreclosed the mortgaged properties and was declared the winning bidder in the foreclosure sale (certificates of sale issued July 2007). Prior to expiration of the one-year redemption period, Metrobank filed petitions for writs of possession in several courts. The CNAR dated December 13, 2007 recorded Metrobank’s conditional approval of Spouses Celones’ offer to redeem for P55,000,000, payable on or before December 20, 2007.

Financing Arrangement and the MOA

Pressed for time to meet the CNAR deadline, Spouses Celones obtained financing from Atty. Dionido, who procured two manager’s checks totaling P55,000,000 (P35M and P20M). Instead of a conventional loan agreement, Metrobank, Spouses Celones, PPPC and Atty. Dionido executed a MOA dated December 20, 2007. The MOA stipulated, among other things, that Dionido would pay P55,000,000 to Metrobank and that Metrobank would assign and transfer all of its rights, interests and authorities over the assumed obligation and the foreclosed properties to Dionido — including authority to sign the deed of redemption — and that Metrobank would be subrogated in favor of Dionido and free PPPC and Spouses Celones from the assumed obligation.

Events after Payment and Initial Relief Sought

Upon receipt of the two manager’s checks, Metrobank issued payment slips in the name of Spouses Celones and caused dismissal of the writs-of-possession petitions it had filed, on the ground that the properties had been redeemed. Spouses Celones, believing they had redeemed the properties, demanded Certificates of Redemption and titles. Metrobank, however, refused to issue certificates of redemption in the spouses’ names, contending that its rights had been transferred to Atty. Dionido and that he should issue the certificates. Atty. Dionido thereafter sent demand letters to Spouses Celones to vacate the properties, asserting that the redemption period had expired without valid redemption by Spouses Celones. Spouses Celones filed a declaratory relief and injunction action to compel issuance of certificates of redemption and delivery of titles.

Procedural History and Reliefs Rendered Below

The RTC (Branch 154, Pasig City) ruled in favor of Spouses Celones on September 1, 2010, declaring the MOA without force and effect for not being fully executed, declaring Spouses Celones as the redemptioners, directing Metrobank to execute and deliver certificates of redemption and titles, and making the preliminary injunction permanent. The CA reversed the RTC on April 14, 2014, characterizing the MOA as a contract of subrogation/assignment that vested in Atty. Dionido Metrobank’s rights as foreclosure buyer, directing Spouses Celones to surrender possession to Dionido, and awarding monetary damages and attorney’s fees in favor of both Metrobank and Dionido. The CA denied reconsideration. The Spouses Celones sought review by the Supreme Court.

Central Issue Presented

Whether Spouses Celones effectively redeemed the foreclosed properties from Metrobank using the P55,000,000 paid through Atty. Dionido, and, relatedly, the legal consequences of the MOA (whether it operated as an extinctive novation or as an assignment/subrogation) and the proper remedy between the parties.

Parties’ Contentions

Spouses Celones: The transaction between them and Atty. Dionido was a loan; Metrobank’s subsequent conduct (issuing payment slips in the spouses’ names and dismissing writs-of-possession petitions) demonstrated that the spouses had redeemed the properties; Metrobank should therefore issue certificates of redemption to them.
Metrobank and Atty. Dionido: The MOA novated the CNAR and operated as an assignment/subrogation whereby Dionido became subrogated to Metrobank’s rights and interests; therefore any redemption should be recognized as vested in Dionido, who should be the one to issue or cause issuance of certificates of redemption and to enforce rights against the spouses for failure to redeem.

Supreme Court’s Legal Analysis — Novation Versus Assignment/Subrogation

The Court emphasized the established rule that novation is not presumed and must be expressed in clear and unequivocal terms to extinguish a prior obligation; implied novation requires total incompatibility between old and new obligations such that both cannot stand together. Article 1291 and Article 1292 of the New Civil Code were applied and relevant jurisprudence cited. The Court examined the CNAR and the MOA and concluded that the CNAR addressed the spouses’ right to redeem for P55,000,000 while the MOA addressed assignment of Metrobank’s credit/rights to Dionido; the two instruments could be reconciled and were not incompatible on every point. There was no express stipulation in the MOA extinguishing the CNAR or the spouses’ redemption right; consequently, extinctive novation was not established.

Assignment of Credit and the Assignee’s Rights

The Court applied the principle that an assignee obtains no greater rights than those of the assignor. As an assignee of Metrobank, Atty. Dionido stepped into Metrobank’s shoes and acquired only Metrobank’s existing rights as of the date of the MOA. The record showed Metrobank had, upon receipt of the P55,000,000, issued payment slips in the name of Spouses Celones and caused dismissal of its writs-of-possession petitions, indicating the properties had been redeemed by the spouses before or as of the MOA signing. Thus, Dionido could not acquire rights greater than Metrobank’s then-existing position; he could not assert that the spouses had lost their redemption right where Metrobank itself treated the payment as redemption by the spouses.

Remedy and the Right of Reimbursement under Article 1236

Although Atty. Dionido did not obtain superior property or possession rights by virtue of the assignment, he indisputably furnished the P55,000,000. The Court invoked Article 1236 of the Civil Code: a person who pays for another may demand reimbursement from the debtor; where payment is beneficial to the debtor, the payor is entitled to claim the amount paid. The Court found it would be unjust enrichment if Spouses Celones retained the benefit of redemption without reimbursing the source of payment. The Court therefore ruled that Spous

Case Syllabus (G.R. No. 215691)

Antecedent Facts

Spouses Francis N. Celones and Felicisima Celones (Spouses Celones), together with their company Processing Partners and Packaging Corporation (PPPC), obtained various loans from Metropolitan Bank and Trust Company (Metrobank) and mortgaged various properties as security.
The total obligation of Spouses Celones with Metrobank amounted to P64,474,058.73.
Spouses Celones defaulted on their loan obligations, and Metrobank foreclosed the mortgaged properties. Metrobank was declared the winning bidder at the foreclosure sale and certificates of sale were issued in July 2007.
Prior to the expiration of the one-year redemption period, Metrobank filed petitions for issuance of writs of possession before several courts to take possession of the foreclosed properties.
In 2007, Spouses Celones offered to redeem the foreclosed properties. Metrobank issued a Conditional Notice of Approval for Redemption (CNAR) dated December 13, 2007, stating that the offer to redeem in the amount of P55,000,000.00 had been approved and must be paid on or before December 20, 2007.
Spouses Celones sought financing to meet the CNAR deadline and obtained the assistance of Atty. Crisolito O. Dionido, who agreed to provide the required funds.
Atty. Dionido issued two manager’s checks to Metrobank: one for P35,000,000.00 and another for P20,000,000.00 (totaling P55,000,000.00).
Instead of executing a conventional loan agreement, the parties—Spouses Celones, PPPC, Metrobank, and Atty. Dionido—executed a Memorandum of Agreement (MOA) on December 20, 2007, providing for the subrogation/assignment of Metrobank’s rights and interests over the loan obligation and the foreclosed properties to Atty. Dionido.
Upon receipt of the two manager’s checks, Metrobank issued payment slips in favor of Spouses Celones and caused the dismissal of its petitions for issuance of writs of possession on the ground that Spouses Celones had redeemed the properties.
Spouses Celones demanded issuance of Certificates of Redemption from Metrobank but Metrobank refused, asserting that its rights had been transferred to Atty. Dionido and that he should issue the certificates.
Atty. Dionido sent demand letters to Spouses Celones to vacate the foreclosed properties, alleging expiration of the redemption period without redemption by Spouses Celones.
Spouses Celones filed a case in the Regional Trial Court (RTC) of Pasig City, Branch 154, for Declaratory Relief and Injunction to compel Metrobank to issue Certificates of Redemption and to deliver the certificates of title over the foreclosed properties.

Procedural History

RTC, Branch 154 (Judge Abraham B. Borreta), issued an Order dated September 1, 2010:
- Declared the MOA without force and effect for not being fully executed.
- Declared Spouses Celones to be the redemptioners of their foreclosed properties.
- Directed Metrobank to execute and deliver the corresponding Certificates of Redemption and turn over all Transfer Certificates of Title covering the properties to Spouses Celones for registration under Section 29, Rule 39 of the Revised Rules of Court.
- Found the transaction between Spouses Celones and Atty. Dionido to be a simple loan.
- Made the writ of preliminary injunction permanent.
Metrobank and Atty. Dionido appealed to the Court of Appeals (CA), docketed as CA-G.R. CV No. 96236.
CA rendered a Decision dated April 14, 2014, reversing the RTC Order:
- Declared the MOA dated December 20, 2007 a Contract of Subrogation, entitling Atty. Dionido to be subrogated to Metrobank’s rights as foreclosure buyer.
- Directed Spouses Celones to immediately and voluntarily surrender possession of the foreclosed properties to Atty. Dionido per the MOA.
- Ordered Spouses Celones to pay Atty. Dionido P2,500,000.00 with legal interest at 6% p.a. from December 20, 2007 until paid.
- Ordered Spouses Celones to pay Atty. Dionido P500,000.00 moral damages, P300,000.00 exemplary damages, and P50,000.00 attorney’s fees.
- Ordered Spouses Celones to pay Metrobank P300,000.00 exemplary damages and P50,000.00 attorney’s fees. With costs.
Spouses Celones filed a Motion for Reconsideration, which the CA denied in its Resolution dated December 11, 2014.
Spouses Celones filed a petition for review on certiorari with the Supreme Court.

Issue Presented

Whether Spouses Celones were able to redeem the foreclosed properties from Metrobank using the funds provided by Atty. Dionido.

Petitioners’ Contentions

The transaction between Spouses Celones and Atty. Dionido was a loan.
Metrobank’s subsequent acts evidenced that Spouses Celones had redeemed the properties:
- Issuance of payment slips in the name of Spouses Celones after receipt of the P55,000,000.00.
- Filing of motions to dismiss its writs of possession cases pending before different courts on the ground that Spouses Celones had already redeemed the foreclosed properties.

Respondents’ Contentions

Metrobank and Atty. Dionido argued that the CNAR was novated by the later-executed MOA dated December 20, 2007.
Under the MOA, the P55,000,000.00 paid by Atty. Dionido to Metrobank was in consideration for transfer and assignment of Metrobank’s rights and interests over the foreclosed properties to Atty. Dionido.
Metrobank asserted that if redemption occurred, the Certificate of Redemption should be issued by Atty. Dionido in view of transfer and assignment of Metrobank’s rights to him.
Atty. Dionido claimed subrogation/assignment rights under the MOA entitling him to the rights of Metrobank as foreclosure buyer.

Relevant Contractual Document: Memorandum of Agreement (MOA) — Stipulated Terms Extracted

Term 1: Atty. Dionido shall pay Metrobank P55,000,000.00 upon execution of the MOA, exclusive of taxes, fees, charges, friction costs, expenses associated with redemption, and all realty taxes, dues, and assessments on the subject properties from date of foreclosure; payment to be in the form of manager’s check in the name of METROBANK and deposited via METROBANK’s bills payment facility.
Term 2: For consideration of the payment by Atty. Dionido, METROBANK, PPPC, and Spouses Celone