G.R. No. L-10132 July 18, 1957
LA TONDEÑA, INC., plaintiff-appellant, vs. ALTO SURETY & INSURANCE CO., INC., ET AL., defendants-appellees.

FACTS

On April 21, 1949, Primitivo P. Ferrer executed a second chattel mortgage in favor of La Tondeña, Inc. over certain properties, some of which were already subject to a first mortgage in favor of Pedro Ruiz. All mortgages were duly registered. On August 18, 1949, Pedro Ruiz foreclosed his first mortgage, and Ferrer secured the release of the properties via a redelivery bond guaranteed by Alto Surety. Ruiz obtained a judgment against Ferrer on December 1, 1950, which Alto Surety paid on June 19, 1952. Meanwhile, on November 15, 1949, La Tondeña sued to foreclose its second mortgage and obtained a judgment on June 7, 1950, with a decree for foreclosure. The sheriff levied on the properties but, on December 13, 1950, released the levy at La Tondeña’s request, conditioned on Ferrer paying by March 31, 1951, failing which La Tondeña could proceed with foreclosure. Ferrer did not pay. On March 13, 1951, Alto Surety sued Ferrer for bond premiums and secured writs of preliminary attachment. On April 23, 1951, the sheriff, at Alto Surety’s behest, attached the same properties mortgaged to La Tondeña. When La Tondeña obtained an alias writ of execution on May 26, 1951, the properties were already under Alto Surety’s attachment, preventing the foreclosure sale. La Tondeña filed a third-party claim; Alto Surety posted an indemnity bond; and the properties were sold at auction to Alto Surety on May 19, 1952. La Tondeña then filed a complaint for damages. The trial court dismissed the complaint, ruling that (1) the release of the levy extinguished La Tondeña’s lien; (2) the judgment was novated by the extension of time; and (3) Alto Surety, having paid the first mortgagee, was subrogated to his superior rights. La Tondeña appealed.

ISSUE

Whether the trial court erred in dismissing La Tondeña’s complaint, specifically in ruling that: (1) the release of the execution levy extinguished La Tondeña’s mortgage lien; (2) the arrangement granting Ferrer time to pay constituted a novation that extinguished the foreclosure judgment; and (3) Alto Surety, by paying the first mortgagee, acquired rights superior to La Tondeña’s second mortgage.

RULING

The Supreme Court reversed the trial court’s decision. (1) The release of the execution levy did not extinguish La Tondeña’s mortgage lien. The mortgage lien, based on registration, is independent of the execution levy. The foreclosure judgment did not merge with or absorb the mortgage lien until consummated by sale and satisfaction. The purpose of the mortgage lien is to ensure the judgment remains collectible from the mortgaged property. (2) The arrangement granting Ferrer time to pay did not constitute extinctive novation. For novation to occur, the intent to novate must be expressed or clearly apparent from the incompatibility of the old and new obligations. Merely giving more time to pay, while expressly recognizing the continued force of the judgment, does not extinguish the original obligation. (3) Alto Surety’s payment of the first mortgagee did not subrogate it to the first mortgagee’s rights in a manner superior to La Tondeña’s second mortgage. Subrogation requires the debt paid to be the very one for which the guarantor is liable. Alto Surety, as surety on Ferrer’s redelivery bond in the first mortgage foreclosure case, paid its own obligation under that bond, not Ferrer’s debt to the first mortgagee. Therefore, it did not acquire the first mortgagee’s priority. La Tondeña’s registered second mortgage lien remained superior to Alto Surety’s subsequent attachment. The attachment was declared illegal and void. The case was remanded to the trial court to receive evidence on the damages caused by the illegal attachment. Costs were taxed against Alto Surety and Associated Insurance Co.