G.R. No. 179441; August 9, 2010
ST. JAMES COLLEGE OF PARAÑAQUE; JAIME T. TORRES, represented by his legal representative, JAMES KENLEY M. TORRES; and MYRNA M. TORRES, Petitioners, vs. EQUITABLE PCI BANK, Respondent.

FACTS

Petitioners-spouses Jaime and Myrna Torres, owners of St. James College of Parañaque, obtained a credit line from Philippine Commercial and International Bank (PCIB), secured by a real estate mortgage. Following a merger, the obligation was assumed by respondent Equitable PCI Bank (EPCIB). Petitioners defaulted, and by September 2001, their unpaid obligation stood at PhP 18,300,000. After negotiations, the parties agreed via a January 9, 2003 letter to restructure the loan, with petitioners opting for equal annual amortizations of PhP 6,100,000 payable every May. Petitioner Jaime Torres affixed his “conforme” to this option.
Petitioners failed to pay the first annual amortization in May 2003. Following a demand, they made a partial payment in June 2003, which EPCIB accepted but explicitly noted was without prejudice to its rights given the overdue status of the account. Petitioners later issued a check for a second partial payment but subsequently ordered it stopped. EPCIB then demanded full payment and initiated extrajudicial foreclosure proceedings on the mortgaged property.

ISSUE

Whether the Regional Trial Court (RTC) correctly issued a writ of preliminary injunction to halt the foreclosure sale based on petitioners’ claim of a novation of the loan agreement through the partial payments.

RULING

The Supreme Court ruled in favor of the respondent bank, reversing the CA and dissolving the injunction. The legal logic is anchored on the absence of novation. For novation to extinguish an obligation and prevent foreclosure, it must be clearly established that a new contract supersedes the old one, either by changing the object or principal conditions, or by substituting the person of the debtor. The mere acceptance of partial payments by the creditor does not, by itself, constitute novation, especially when such acceptance is explicitly made without prejudice to the creditor’s rights under the original agreement.
Here, EPCIB’s consistent qualification—stating that receipt of payments was “without prejudice” to its claims—negated any implied consent to a new arrangement. The bank’s actions demonstrated a clear intent to preserve its rights under the original mortgage contract despite accepting delayed and partial sums. Petitioners’ failure to comply with the very restructuring plan they agreed to (the annual amortizations) constituted a default that validly triggered the foreclosure right under the original real estate mortgage. Consequently, the RTC gravely abused its discretion in issuing the injunction, as petitioners failed to establish a clear and unmistakable right to such relief given the absence of novation and their admitted default.