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COURT OF APPEALS
Facts:
Ylang-Ylang Merchandising Company, a partnership between Angelita Rodriquez and Antonio Tan,
obtained a loan of P250,000.00 from Metropolitan Bank and Trust Company, and to secure payment of
the same, spouses Marcial See and Lilian Tan constituted a real estate mortgage in favor of the said bank
over the property in the District of Paco, Manila. The partnership had changed its name to Ajax Marketing
Company without changing its composition and it obtained a loan of P150,000.00 from the same bank
and executed a second real estate mortgage over the same property. As the partnership converted into a
corporation and changed its name into Ajax Marketing and Development Corporation with the original
partners and additional incorporators, another loan was obtained from the same mortgagee of
P600,000.00. In December 1980, the three loans were re-structured into one loan and Ajax Marketing
represented by Antonio Tan and Elisa Tan in their capacity as solidary co-obligor executed a Promissory
Note. The petitioner argue that a novation occurs when their three loans which are all secured by the
same real estate property were consolidated, thereby extinguishing their monetary obligations and
releasing the mortgaged property from liability.
Issue:
Whether or not there is a novation occurred when the three loans which are all secured by the same real
estate property were consolidated into one single loan under a Promissory Note?
Held: