In Spouses Francis N. Celones and Felicisima Celones v. Metropolitan Bank and Trust Company and Atty. Crisolito O. Dionido, the Supreme Court clarified the rights of parties in a foreclosure redemption scenario. The Court held that when a borrower redeems foreclosed property using funds from a third party, and the bank subsequently assigns its rights to that third party, the borrower is still entitled to a certificate of redemption. This decision underscores the principle that an assignee of credit cannot acquire greater rights than the assignor, protecting borrowers who have already fulfilled their redemption obligations.

The Tangled Web of Redemption: Loan, Foreclosure, and the Fight for Property Titles

The case revolves around Spouses Celones, who obtained loans from Metrobank, secured by mortgaged properties. Upon defaulting, Metrobank foreclosed these properties and emerged as the winning bidder. Before the redemption period expired, the Spouses Celones sought to redeem the properties, leading Metrobank to issue a Conditional Notice of Approval for Redemption (CNAR) for P55 million. Facing a tight deadline, the Spouses Celones secured a loan from Atty. Dionido.

Instead of a loan agreement, a Memorandum of Agreement (MOA) was executed among the Spouses Celones, their company, Metrobank, and Atty. Dionido. This agreement stipulated the subrogation of Atty. Dionido to Metrobank’s rights and interests over the loan obligation and foreclosed properties. Metrobank received manager’s checks from Atty. Dionido and dismissed its petitions for writs of possession, leading the Spouses Celones to believe they had redeemed their properties.

However, Metrobank refused to issue a Certificate of Redemption, claiming its rights had been transferred to Atty. Dionido, who then demanded the Spouses Celones vacate the properties. This prompted the Spouses Celones to file a case for Declaratory Relief and Injunction, seeking to compel Metrobank to issue the certificate of redemption and deliver the property titles. The central legal question became whether the Spouses Celones successfully redeemed the foreclosed properties, given the involvement of Atty. Dionido and the subsequent MOA.

The Regional Trial Court (RTC) initially ruled in favor of the Spouses Celones, declaring the MOA without force and effect and recognizing the spouses as the redeemers of the properties. However, the Court of Appeals (CA) reversed this decision, declaring the MOA a contract of subrogation that entitled Atty. Dionido to Metrobank’s rights as a foreclosure buyer. The CA directed the Spouses Celones to surrender possession of the properties and pay Atty. Dionido the loan amount, along with damages.

The Supreme Court, in reversing the Court of Appeals, focused on whether the MOA effectively novated the original Conditional Notice of Approval for Redemption (CNAR). The Court emphasized the principle that novation, the extinguishment of an old obligation by a new one, must be explicitly stated or implied through complete incompatibility between the old and new agreements. Citing Article 1292 of the New Civil Code:

Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.

The Court found no express declaration of novation in the MOA. The CNAR addressed the redemption right of the Spouses Celones, while the MOA concerned the assignment of Metrobank’s credit to Atty. Dionido. These agreements, the Court reasoned, could be reconciled and coexist. As the Supreme Court emphasized in Salazar v. J.Y. Brothers Marketing Corp., 648 Phil. 314 (2010):

[E]xtinctive 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. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superceded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconcilable, the subsequent obligation would also extinguish the first.

The Court clarified that Atty. Dionido, as an assignee, merely stepped into Metrobank’s shoes and could acquire no greater right than Metrobank possessed at the time of the assignment. By the time the MOA was signed, the Spouses Celones had already redeemed the properties, evidenced by the payment slips issued in their name and Metrobank’s dismissal of the petitions for writs of possession. The Supreme Court held that the Certificate of Redemption should be issued by Atty. Dionido, the assignee, recognizing the Spouses Celones’ successful redemption.

This ruling underscores the principle of **assignment of credit**, where the assignee cannot acquire more rights than the assignor. In essence, since Metrobank’s right was limited to issuing a Certificate of Redemption at the time of assignment, Atty. Dionido’s right was similarly limited. The Court noted the critical evidence supporting the redemption: payment slips issued in the Spouses Celones’ names and Metrobank’s dismissal of the possessory suits. This illustrates how crucial documentary evidence and conduct of the parties are in determining the nature of the transactions.

The Supreme Court, however, did not leave Atty. Dionido without recourse. Invoking Article 1236 of the Civil Code, the Court acknowledged Atty. Dionido’s right to demand payment from the Spouses Celones for the P55 million used to redeem the properties. This prevented unjust enrichment, ensuring that the Spouses Celones would not benefit from the funds without compensating Atty. Dionido. The Court ordered the Spouses Celones to pay Atty. Dionido the P55 million with legal interest from the date of finality of the decision.

Art. 1236. The creditor is not bound to accept payment or performance 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.

This aspect of the decision highlights the importance of understanding the interplay between redemption rights, assignment of credit, and the equitable principle of unjust enrichment. While the Spouses Celones retained their properties, they were obligated to reimburse Atty. Dionido for the funds used for the redemption.

The decision offers valuable insights into the complexities of foreclosure redemption and the importance of carefully documenting transactions. It highlights the significance of understanding the legal implications of agreements like the MOA, especially in relation to prior agreements such as the CNAR. The ruling also underscores the principle that courts will strive to prevent unjust enrichment, ensuring fairness in financial transactions.

FAQs

What was the key issue in this case?	The key issue was whether the Spouses Celones were able to redeem their foreclosed properties from Metrobank, considering the loan they obtained from Atty. Dionido and the subsequent Memorandum of Agreement (MOA).
What is a Certificate of Redemption?	A Certificate of Redemption is a document issued by the mortgagee (usually a bank) to the mortgagor (borrower) after the mortgagor has paid the amount necessary to redeem a foreclosed property within the redemption period. This document confirms that the property has been successfully redeemed.
What is an assignment of credit?	An assignment of credit is the process of transferring the right of the assignor (Metrobank, in this case) to the assignee (Atty. Dionido), who then has the right to proceed against the debtor (Spouses Celones). The assignee steps into the shoes of the assignor, acquiring the same rights and obligations.
What is novation?	Novation is the extinguishment of an existing obligation by substituting a new one. For novation to occur, it must be explicitly stated or the old and new obligations must be completely incompatible.
What did the Supreme Court decide about the MOA?	The Supreme Court decided that the MOA did not novate the Conditional Notice of Approval for Redemption (CNAR). The Court reasoned that the MOA and CNAR could be reconciled, with the CNAR addressing the redemption right and the MOA addressing the assignment of credit.
Why was Metrobank ordered to issue the Certificate of Redemption through Atty. Dionido?	Because the Spouses Celones had already effectively redeemed the property before the MOA was signed, Metrobank’s only remaining right was to issue the Certificate of Redemption. Since Atty. Dionido stepped into Metrobank’s shoes through the assignment of credit, he was obligated to fulfill this remaining obligation.
Did Atty. Dionido have any recourse for the money he paid?	Yes, the Supreme Court ruled that Atty. Dionido has the right to demand payment of the P55 million from Spouses Celones, to prevent unjust enrichment on their part. They were ordered to pay the amount with legal interest from the date of finality of the decision.
What is the significance of payment slips issued in the name of Spouses Celones?	The payment slips issued in the name of Spouses Celones served as evidence that the redemption payment was made by them, not by Atty. Dionido as a consideration for the assignment of credit. This was a crucial factor in the Court’s determination that the redemption was valid.
What happens if a foreclosed property is not redeemed within the allowed period?	If a foreclosed property is not redeemed within the allowed period (typically one year from the foreclosure sale), the buyer at the foreclosure sale (usually the bank) consolidates ownership of the property. The mortgagor loses all rights to the property.

In conclusion, this case clarifies the interplay between redemption rights and assignment of credit in foreclosure scenarios. It underscores the importance of protecting borrowers’ redemption rights while also ensuring equitable compensation for third parties involved in the process. The ruling serves as a guide for understanding the obligations and rights of parties in similar foreclosure disputes.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Spouses Francis N. Celones and Felicisima Celones, vs. Metropolitan Bank and Trust Company and Atty. Crisolito O. Dionido, G.R. No. 215691, November 21, 2018