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AJAX MARKETING v. CA

FACTS:

The case involves the extrajudicial foreclosure of the real estate property of spouses Marcial See and Lilian Tan by Metropolitan Bank and Trust Company (Metrobank). The petitioners argue that their monetary obligations were extinguished and the mortgaged property released from liability due to the consolidation of their three separate loans into a single loan of P1 million. The Court of Appeals ruled in favor of the validity of the foreclosure, which led to the filing of a petition for review on certiorari. According to the Court of Appeals, Ylang-Ylang Merchandising Company, a partnership between Angelita Rodriguez and Antonio Tan, borrowed P250,000 from Metrobank and used the spouses' property as collateral. After changing its name to Ajax Marketing Company, the partnership obtained an additional loan of P150,000 from Metrobank, with another real estate mortgage executed by the spouses. Later on, the partnership was converted into Ajax Marketing and Development Corporation, and it acquired a loan of P600,000 from Metrobank, secured by another real estate mortgage executed by the spouses. In December 1980, the three loans were restructured and consolidated into one loan amounting to P1 million, and a promissory note was executed by Ajax Marketing and Development Corporation, with Antonio Tan and Elisa Tan as solidary co-obligors.

ISSUES:

  1. Whether the consolidation of three separate loans into a single loan extinguished the accessory mortgage contracts, thereby releasing the mortgaged property from liability.

  2. Whether the consolidated loan was unsecured due to the absence of a new Real Estate Mortgage (REM) as executed in the earlier loans.

  3. Whether the inclusion of the unsecured loan in the extra-judicial foreclosure invalidated said foreclosure.

  4. Whether the extra-judicial foreclosure undertaken by Metrobank on the property of the spouses Marcial See and Lilian Tan should be declared null and void.

RULING:

  1. The Court ruled that the consolidation of the three loans into a single loan did not extinguish the accessory mortgage contracts. Novation, or the extinguishment of an obligation by substitution or change, was not established as the new loan did not explicitly declare the old obligation to be extinguished. Furthermore, the new loan was not on every point incompatible with the old one. Therefore, the original mortgage contracts remained valid and enforceable.

  2. The Court held that the consolidated loan was still secured by the original mortgage contracts executed in the earlier loans. The absence of a new REM did not render the consolidated loan unsecured as the existing mortgages, which were duly annotated on the title, continued to secure the payment of the consolidated loan.

  3. The Court ruled that the inclusion of the unsecured loan in the extra-judicial foreclosure did not invalidate the foreclosure. C & C Commercial Corp. vs. PNB, which was cited by the petitioners, was distinguishable from the present case as it involved the inclusion of a completely unrelated obligation in the foreclosure. In this case, the unsecured loan was related to the same debtor and property, making it merely a mistake in the computation of the amount to be paid in the foreclosure.

  4. The Court did not find any ground to declare the extra-judicial foreclosure undertaken by Metrobank as null and void.

PRINCIPLES:

  • Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first. Novation is never presumed and requires a clear expression of intent or acts of equal import.

  • Objective novation occurs when there is a change in the object or principal conditions of an existing obligation, while subjective novation occurs when there is a change in the person of the debtor or creditor. Mixed novation occurs when there is a change in both the object or conditions and the person of the debtor or creditor.

  • An obligation secured by a mortgage remains valid and enforceable even after the consolidation of multiple loans into a single loan, as long as the original mortgage contracts are not explicitly extinguished and continue to secure the consolidated loan.