Respondent spouses obtained a loan from petitioner covered by promissory note. As a security for the loan, respondent executed a Real Estate Mortgage in favor of the petitioner over eight parcels of land. Respondents were unable to pay the installments so that the loan obligations were restructured. Respondent entered into Deed of Sale with Assumption of Mortgage on 3 real properties (and another property) with spouses Galicia. Respondent’s repeated default in payment of past due obligations prompted the petitioner to file for extrajudicial foreclosure of remaining mortgaged properties. Respondent asked for partial release of mortgage after enclosing a cashier check payment. Petitioner sold some mortgaged properties that prompted respondent to institute action for damages. Trial court annulled the sale of mortgaged properties. The Court of appeals affirmed with modification the decision of trial court requiring indemnification of the respondent by petitioner.
Whether or not there was novation in applying the payment made by respondent to loan account of Galicia.
NO. Novation is never presumed. 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, either by changing the object or principal conditions, or, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. It is obvious that there was no agreement to form a new contract by novating the mortgage contracts of the Mañalacs and the Galicias. Neither can Mañalac be deemed substitute debtor within the contemplation of Article 1293 of the Civil Code. The Decision of the Court of Appeals was reversed and set aside.