G.R. No. L-46405 June 30, 1986
LA CAMPANA FOOD PRODUCTS, INC., petitioner-appellant, vs. PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK, and L.F. VILLASEÑOR, in his capacity as City Sheriff of Quezon City, respondents-appellees.

FACTS

Petitioner La Campana Food Products, Inc. had a credit line with respondent Philippine Commercial and Industrial Bank (PCIB) secured by real estate mortgages. To obtain a foreign loan guaranteed by the Development Bank of the Philippines (DBP), petitioner needed DBP to register its own mortgage on the same properties. In a 1968 letter, PCIB informed DBP it had no objection to the registration of DBP’s mortgage, provided PCIB received full payment of petitioner’s outstanding obligations, after which it would issue a deed of release. DBP registered its mortgage and later made a partial payment to PCIB, but the full obligation was never settled.
When PCIB initiated foreclosure proceedings in 1971, petitioner filed a petition for certiorari, mandamus, and prohibition. Petitioner argued PCIB lost its right of action because, by allowing DBP to register its mortgage and accepting partial payment, PCIB had consented to DBP assuming the obligation, resulting in novation. Petitioner also claimed estoppel based on a statement of account showing a zero balance and invoked a provision of the DBP Charter allegedly prohibiting foreclosure while a DBP mortgage existed.

ISSUE

The core issue is whether the actions of PCIB—allowing DBP to register a mortgage and accepting a partial payment—effected a novation that substituted DBP as the new debtor, thereby releasing petitioner from its original obligation to PCIB and barring foreclosure.

RULING

The Supreme Court ruled there was no novation, and PCIB retained the right to foreclose the mortgage. The legal logic is anchored on the requirements for novation by change of debtor. For such novation to occur, it is essential that the old debtor be expressly released from the obligation and the new debtor completely take his place. Mere acceptance of payment from, or a guarantee by, a third party does not automatically extinguish the original debtor’s liability unless there is a clear agreement to that effect.
Here, PCIB’s consent was explicitly conditional upon full payment. Since DBP did not fully pay the obligation, the condition was not fulfilled, and no release of petitioner was effected. The partial payment and registration of DBP’s mortgage did not constitute an assumption of obligation by DBP that discharged petitioner. At most, DBP could have become a joint debtor or surety, but petitioner remained primarily liable. The statement of account showing a zero balance was correctly explained by PCIB as merely reflecting an internal transfer of the account for legal action, not an extinguishment of the debt. Consequently, the original mortgage obligation subsisted, and PCIB’s foreclosure was valid. The trial court’s dismissal of the petition was affirmed.