G.R. No. 181873 ; November 27, 2013
Spouses Pio Dato and Sonia Y. Sia, Petitioners, vs. Bank of the Philippine Islands, Respondent.

FACTS

Petitioners Spouses Sia obtained a ₱240,000.00 loan and a ₱4 Million Revolving Promissory Note Line from respondent BPI, both secured by a real estate mortgage over a parcel of land (TCT No. 102434). They later applied for and were granted a ₱5.7 Million Credit Facility, secured by the same lot and four additional parcels. From this facility, they drew ₱800,000.00. The spouses defaulted on their principal loans. BPI, to assist them, released the mortgage on the four additional lots so the spouses could sell them to pay their debts, executing a cancellation document stating the ₱5.7 Million obligation was “fully and completely paid.” The spouses failed to sell the properties or settle their debts.
BPI extrajudicially foreclosed the mortgage on TCT No. 102434. The spouses sued, alleging BPI reneged on a promise to endorse their loans to the IGLF for better terms. Upon seeing the cancellation document, they amended their complaint, arguing the notation constituted payment and extinguishment of all their obligations, including the ₱240,000.00 and ₱4 Million loans, rendering the foreclosure void. The RTC dismissed their complaint and upheld the foreclosure sale, a decision affirmed by the CA.

ISSUE

Whether the notation in the mortgage cancellation document, stating the ₱5.7 Million obligation was “fully and completely paid,” operated to extinguish the petitioners’ separate and distinct loan obligations of ₱240,000.00 and ₱4 Million, thereby nullifying the foreclosure.

RULING

No. The Supreme Court denied the petition and affirmed the CA’s decision. The legal logic rests on the principle of relativity of contracts and the distinct nature of the obligations. The ₱5.7 Million Credit Facility was a separate and distinct loan agreement from the earlier ₱240,000.00 and ₱4 Million loans, even though they shared some collateral. The cancellation document pertained solely to the release of the four lots that secured the ₱5.7 Million facility. Its notation of “full and complete payment” referred only to the consideration for that specific cancellation—the release of those collaterals—and not an actual payment or novation of the older, outstanding loans. The petitioners failed to prove that the notation constituted a payment application to extinguish the prior debts. Since the ₱240,000.00 and ₱4 Million loans remained unpaid and validly secured by the mortgage on TCT No. 102434, BPI’s right to foreclose that mortgage upon default was proper and legal. The Court found no basis to invalidate the foreclosure proceedings.