G.R. No.

190755

November 24, 2010

LAND BANK OF THE PHILIPPINES, Petitioner, vs. ALFREDO ONG, Respondent. Facts : On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan would be short-term and would mature on February 28, 1997, while the balance of PhP 10 million would be payable in seven (7) years. The Spouses Sy could no longer pay their loan which resulted to the sale of three (3) of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines mother, under a Deed of Sale with Assumption of Mortgage. Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform them about the sale and assumption of mortgage. Land Bank Banch Head told Alfredo that there was nothing wrong with agreement with the Spouses Sy and provided him requirements for the assumption of mortgage. Alfredo later found out that his application for assumption of mortgage was not approved by Land Bank. On December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages against Land Bank , as Alfredos payment was not returned by Land Bank. Alfredo said that Land Banks foreclosure without informing him of the denial of his assumption of the mortgage was done in bad faith and that he was made to believed that P750,000 would cause Land Bank to approve his assumption to the mortgage.6 He also claimed incurring expenses for attorneys fees of PhP 150,000, filing fee of PhP 15,000, and PhP 250,00 0 in moral damages.7 This prompted Alfredo to file a case with RTC against Land Bank. On its decision to the case, RTC held that the contract approving the assumption of mortgage was not perfected as a result of the credit investigation conducted on Alfredo where he was disapproved. . As such, it ruled that it would be incorrect to consider Alfredo a third person with no interest in the fulfillment of the obligation under Article 1236 of the Civil Code. Although Land Bank was not bound by the Deed between Alfredo and the Spouses Sy, the appellate court found that Alfredo and Land Banks active preparations for Alfredos assumption of mortgage essentially novated the agreement. Issues : 1) Whether or not the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not apply and in finding that there is novation. 2) Whether or not the Court of Appeals misconstrued the evidence and the law when it affirmed the trial court decisions ordering Land Bank to pay Ong the amount of Php750,000.00 with interest at 12% annum. Ruling : The Supreme Court affirmed with modification to the appealed decision that recourse against Land Bank. Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have sought recourse against the Spouses Sy instead of Land Bank. The court agreed with Land Bank on the point mentioned as to the first part of paragraph 1 of Art. 1236. However,. Alfredo made a conditional payment so that the properties subject of the Deed of Sale with Assumption of Mortgage which Land Bank required from him would be approved. Thus, he made payment not as a debtor but as a prospective mortgagor. Furthermore, the contract between Alfredo and Land Bank was not perfected nor consummated because of the adverse disapproval of the proposed assumption. The Supreme Court did not agree with the Court of Appeals that there was novation in the contract between the parties because not all elements of novation were present. The court further stresses that the instant case would not have been litigated had Land Bank been more circumspect in dealing with Alfredo. The bank chose to accept payment from Alfredo even before a credit investigation was underway and also failed to informed him of the disapproval. The court found that there was negligence to a certain degree on the part of Land Bank in handling the transaction with Alfredo. A bank as a business entity should observe a higher standard of diligence when dealing with the public which Land Bank neglect to observe in this case. The petitioners appeal was denied by the Supreme Court and the decision of the Court of Appeals was affirmed with modification in that the amount of PhP 750,000 will earn interest at 6% per annum and the total aggregate monetary awards will in turn earn 12% per annum from the finality of this Decision until fully paid.