AM MTJ 02 1430; (September, 2003) (Digest)
March 17, 2026AM 11 10 03 O; (July, 2013) (Digest)
March 17, 2026G.R. No. 118585 September 14, 1995
AJAX MARKETING & DEVELOPMENT CORPORATION, ANTONIO TAN, ELISA TAN, TAN YEE, and SPS. MARCIAL SEE and LILIAN TAN, petitioners, vs. HON. COURT OF APPEALS, METROPOLITAN BANK AND TRUST COMPANY, and THE SHERIFF OF MANILA, respondents.
FACTS
Petitioners, spouses Marcial See and Lilian Tan, mortgaged their property three separate times to Metrobank to secure loans obtained by related business entities: first for P250,000 by Ylang-Ylang Merchandising Company, then for P150,000 by Ajax Marketing Company, and finally for P600,000 by Ajax Marketing and Development Corporation. All mortgages were duly annotated on the same title. In December 1980, these three loans were consolidated into a single P1,000,000 loan under a new promissory note (PN BDS-3605) executed by the corporation and its officers. The bank later extra-judicially foreclosed the mortgage, including in the bid price this consolidated loan and an additional unsecured loan of P970,000.
ISSUE
The core issues were whether the loan consolidation novated the original obligations and extinguished the mortgages, and whether the inclusion of an unsecured loan in the foreclosure invalidated the entire proceeding.
RULING
The Supreme Court affirmed the Court of Appeals, ruling no novation occurred. Novation is never presumed and requires clear intent to extinguish the old obligation. The promissory note for the consolidated loan expressly indicated it was “secured by REM,” demonstrating the parties’ intent to keep the original real estate mortgages alive as security. The consolidation was a mere restructuring for convenience, not a novation that would discharge the accessory mortgage contracts. Regarding the inclusion of the unsecured P970,000 loan in the bid price, the Court distinguished this case from C & C Commercial Corp. v. PNB. Here, the mortgage contracts contained a “dragnet” clause securing future advancements, unlike in C & C where unsecured obligations were included without contractual basis. While the inclusion of the unsecured amount was improper, it did not nullify the entire foreclosure. The remedy was to apply the auction proceeds only to the valid secured obligation, with any surplus returned to the mortgagor. The foreclosure was thus upheld as valid.