Celones vs. Metropolitan Bank and Trust Company

A conditional notice of approval for redemption is not novated by a subsequent memorandum of agreement assigning the mortgagee's rights to the third-party financier where the two instruments are compatible and deal with distinct legal transactions—the former with the mortgagor's redemption right and the latter with the assignment of credit—such that the mortgagors remain the redemptioners entitled to the certificate of redemption, while the third-party lender acquires only the rights of the assignor mortgagee and may recover the redemption amount from the mortgagors as a payment made on their behalf.

Spouses Francis N. Celones and Felicisima Celones, together with their company Processing Partners and Packaging Corporation (PPPC), obtained various loans from Metropolitan Bank and Trust Company (Metrobank) secured by mortgages on several properties, accumulating a total obligation of P64,474,058.73. Upon default, Metrobank foreclosed the mortgaged properties and emerged as the winning bidder at the foreclosure sale in July 2007, receiving certificates of sale. Prior to the expiration of the one-year redemption period, Metrobank filed petitions for writs of possession in various courts to take possession of the foreclosed properties. In late 2007, the Spouses Celones offered to redeem the properties for P55 million, which Metrobank approved in a Conditional Notice of Approval for Redemption (CNAR) dated December 13, 2007, requiring payment on or before December 20, 2007. Unable to raise the funds independently, the Spouses Celones secured a loan from Atty. Crisolito O. Dionido, who issued two manager's checks totaling P55 million. On December 20, 2007, the parties executed a Memorandum of Agreement (MOA) wherein Dionido agreed to pay Metrobank the P55 million in exchange for the assignment of Metrobank's rights and interests over the foreclosed properties.

• The Loan Obligation and Foreclosure: Spouses Celones and their company PPPC mortgaged various properties to secure loans totaling P64,474,058.73 from Metrobank. Following default, Metrobank foreclosed the mortgages and was declared the winning bidder at the foreclosure sale conducted in July 2007, with certificates of sale issued accordingly.
• The Conditional Redemption Offer: Prior to the expiration of the redemption period, Spouses Celones offered to redeem the foreclosed properties for P55 million. Metrobank issued a Conditional Notice of Approval for Redemption (CNAR) dated December 13, 2007, approving the redemption amount and setting a payment deadline of December 20, 2007.
• The Financing Arrangement: Pressed for time, Spouses Celones sought financing from banking institutions and found Atty. Dionido, who agreed to provide the P55 million. Dionido issued two manager's checks—one for P35 million and another for P20 million—payable to Metrobank.
• The Memorandum of Agreement: On December 20, 2007, Spouses Celones, PPPC, Metrobank, and Atty. Dionido executed a MOA stipulating that Dionido would pay Metrobank P55 million, and in consideration thereof, Metrobank would assign and transfer all its rights, interests, and authorities over the foreclosed properties and the loan obligation to Dionido, including the authority to sign the Deed of Redemption.
• Post-Payment Acts: Upon receipt of the manager's checks, Metrobank issued Payment Slips in the name of Spouses Celones (not Dionido) and caused the dismissal of its pending petitions for writs of possession on the ground that the Spouses Celones had redeemed the properties.
• The Dispute Over Redemption: Spouses Celones demanded that Metrobank issue Certificates of Redemption, but Metrobank refused, claiming its rights had been transferred to Dionido. Meanwhile, Dionido sent demand letters to Spouses Celones to vacate the properties, asserting that the redemption period had expired without redemption by the spouses.
• Trial Court Proceedings: Spouses Celones filed an action for Declaratory Relief and Injunction before the RTC of Pasig City, Branch 154. On September 1, 2010, the RTC declared the MOA without force and effect, held that the Spouses Celones were the redemptioners, and ordered Metrobank to issue Certificates of Redemption and turn over the transfer certificates of title.
• Appellate Proceedings: Metrobank and Dionido appealed to the Court of Appeals. The CA reversed the RTC in a Decision dated April 14, 2014, declaring the MOA a Contract of Subrogation that entitled Dionido to be subrogated to Metrobank's rights as foreclosure buyer, and ordered the Spouses Celones to surrender possession and pay Dionido P2.5 million plus damages. The CA denied the Motion for Reconsideration on December 11, 2014.

• Nature of Transaction: Spouses Celones maintained that the transaction between them and Atty. Dionido was a simple loan, not an assignment of rights or subrogation. They argued that Dionido merely lent them the P55 million to finance the redemption.
• Completion of Redemption: Petitioners argued that Metrobank's subsequent acts—specifically the issuance of payment slips in their names and the dismissal of the writ of possession petitions—conclusively demonstrated that the redemption was effected by them, not by Dionido. They contended that these acts recognized them as the redemptioners.

• Novation of Redemption Agreement: Metrobank and Dionido countered that the CNAR had been novated by the MOA executed on December 20, 2007. They argued that the MOA, being of later date, superseded the CNAR and transformed the transaction from a redemption by the mortgagors into an assignment of Metrobank's rights to Dionido.
• Assignment of Rights: Respondents maintained that under the MOA, the P55 million paid by Dionido was consideration for the transfer and assignment of Metrobank's rights over the foreclosed properties to Dionido. Consequently, they argued that if any redemption occurred, it was Dionido who redeemed the properties as assignee, and he—not Metrobank—should issue the Certificate of Redemption.

• Novation: Whether the Conditional Notice of Approval for Redemption was novated by the Memorandum of Agreement such that the mortgagors lost their right to redeem.
• Redemption: Whether the Spouses Celones validly redeemed the foreclosed properties using the funds provided by Atty. Dionido.

• Novation: The MOA did not novate the CNAR. Novation requires either an express declaration in unequivocal terms or total incompatibility between the old and new obligations such that they cannot stand together. The CNAR and MOA were not incompatible: the CNAR dealt exclusively with the redemption right of the Spouses Celones, while the MOA constituted an assignment of credit by Metrobank to Dionido. These distinct transactions could coexist, with the MOA merely assigning Metrobank's rights as of the date of execution, which included the obligation to issue a Certificate of Redemption since redemption had already been effected.
• Redemption: The Spouses Celones validly redeemed the properties. The issuance of payment slips by Metrobank in the name of Spouses Celones (rather than Dionido), coupled with the bank's dismissal of the writ of possession petitions on the ground that the spouses had redeemed the properties, demonstrated that the redemption was completed by the mortgagors themselves. Dionido, as assignee of Metrobank's rights, stepped into the shoes of the bank and could acquire no greater right than that pertaining to Metrobank as of the date of assignment. Since Metrobank was obligated to issue the Certificate of Redemption to the Spouses Celones as of the date of the MOA, Dionido assumed this obligation.
• Recovery by Third-Party Lender: Under Article 1236 of the Civil Code, Dionido, having paid for the Spouses Celones, had the right to demand from them the P55 million he paid to Metrobank, with legal interest from the date of finality of the decision.

• Novation (Extinctive) — Novation is a mode of extinguishing an obligation by changing its objects or principal conditions, substituting a new debtor, or subrogating a third person to the rights of the creditor. Extinctive novation is never presumed; there must be an express intention to novate, or in cases of implied novation, the acts of the parties must demonstrate total incompatibility between the old and new obligations on every point such that the old obligation is completely superseded. The test of incompatibility is whether the obligations can stand together, each having an independent existence.
• Assignment of Credit — An assignment of credit is the process of transferring the right of the assignor to the assignee, who then has the right to proceed against the debtor. The assignee merely steps into the shoes of the assignor and acquires no greater right than that pertaining to the assignor as of the date of the assignment.
• Payment by Third Person (Article 1236) — A creditor is not bound to accept payment by a third person who has no interest in the fulfillment of the obligation unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.

• "Novation is done by the substitution or change of the obligation by a subsequent one which extinguishes the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor." — Defining the mechanism of novation.
• "Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one." — Emphasizing the strict requirements for finding extinctive novation.
• "An assignment of credit has been defined as the process of transferring the right of the assignor to the assignee who would then have the right to proceed against the debtor." — Defining assignment of credit.
• "Atty. Dionido being an assignee of Metrobank, he merely steps into the shoes of the assignor, Metrobank. Atty. Dionido can acquire no greater right than that pertaining to his assignor." — Stating the fundamental principle of assignment of credit.

• Salazar v. J.Y. Brothers Marketing Corp., 648 Phil. 314 (2010) — Controlling precedent on the nature of novation, distinguishing between extinctive and modificatory novation, and enumerating the four essential requisites of extinctive novation: (1) a previous valid obligation, (2) an agreement of all parties to a new contract, (3) extinguishment of the old obligation, and (4) birth of a valid new obligation.
• Arco Pulp and Paper Co., Inc. v. Lim, 737 Phil. 133 (2014) — Cited for the principle that novation must be stated in clear and unequivocal terms and cannot be presumed.
• Licaros v. Gatmaitan, 414 Phil. 857 (2001) — Cited for the definition of assignment of credit and the principle that the assignee steps into the shoes of the assignor.

• Article 1291, Civil Code of the Philippines — Enumerates the modes of modifying obligations, including changing the object or principal conditions, substituting the person of the debtor, or subrogating a third person in the rights of the creditor.
• Article 1292, Civil Code of the Philippines — Requires that for an obligation to be extinguished by another which substitutes it, the novation must be declared in unequivocal terms, or the old and new obligations must be incompatible on every point.
• Article 1236, Civil Code of the Philippines — Governs payment by a third person, providing that whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.
• Section 29, Rule 39, Revised Rules of Court — Governs the procedure for redemption of foreclosed properties, including the issuance of certificates of redemption.

Bersamin (Acting Chairperson), Del Castillo, Jardeleza, and Gesmundo.