Land Bank vs.

Ong
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 theloan 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 BankBanch Head told Alfredo that there was nothing wrong
with agreement with the Spouses Sy and provided him requirements for theassumption of mortgage. Alfredo later
found out that his application for assumption of mortgage was not approved by Land Bank. OnDecember 12, 1997,
Alfredo initiated an action for recovery of sum of money with damages against Land Bank, as Alfredos payment
wasnot 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 themortgage.
He also claimed incurring expenses for attorneys fees of PhP 150,000, filing fee of PhP 15,000, and PhP 250,000 in
moraldamages.
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 creditinvestigation 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 Article1236 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 thereis 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 courtagreed with Land Bank on the point mentioned as to the first part of
paragraph 1 of Art. 1236. However,. Alfredo made a conditionalpayment so that the properties subject of the Deed of
Sale with Assumption of Mortgage which Land Bank required from him would beapproved. Thus, he made payment
not as a debtor but as a prospective mortgagor. Furthermore, the contract between Alfredo and LandBank was not
perfected nor consummated because of the adverse disapproval of the proposed assumption. The Supreme Court did
notagree with the Court of Appeals that there was novation in the contract between the parties because not all
elements of novation werepresent.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 toobserve in this case.The
petitionersappeal was denied by the Supreme Court and the decision of the Court of Appeals was affirmed with
modification in thatthe amount of PhP 750,000 will earn interest at 6% per annum and the total aggregate monetary
awards will in turn earn 12% per annumfrom the finality of this Decision until fully paid.