G.R. No. 190755 ; November 24, 2010
LAND BANK OF THE PHILIPPINES, Petitioner, vs. ALFREDO ONG, Respondent.

FACTS

Spouses Johnson and Evangeline Sy obtained a loan from Land Bank secured by real estate mortgages. Unable to pay, they sold three mortgaged lots to Evangeline’s mother, Angelina Gloria Ong, through a Deed of Sale with Assumption of Mortgage. Respondent Alfredo Ong (Angelina’s husband) informed Land Bank of the sale. The Branch Head, Atty. Edna Hingco, provided requirements for assumption, stating nothing was wrong with the agreement, and instructed Ong to pay PhP 750,000 towards the principal and update accrued interests to facilitate approval. Ong complied, paying the amount and submitting documents. He was later informed the titles would be transferred, but this never occurred.
Land Bank subsequently denied the assumption application based on a credit report showing Ong had a past-due obligation with another bank. Without informing Ong of the denial, Land Bank foreclosed the mortgaged properties. Ong discovered the foreclosure via a public notice. His demand for the return of his PhP 750,000 payment was ignored, prompting him to file an action for recovery of sum of money with damages.

ISSUE

Whether Land Bank is obligated to return the PhP 750,000 payment made by Alfredo Ong.

RULING

Yes, Land Bank must return the payment. The Supreme Court affirmed the lower courts’ decisions ordering restitution. The legal logic rests on the principle of solutio indebiti under Article 2154 of the Civil Code, which obligates the return of what was received without a right. Land Bank accepted and applied Ong’s payment to the Sy spouses’ loan account. However, the bank’s subsequent denial of the assumption application and its foreclosure of the mortgage constituted a rejection of Ong’s role as a debtor. Consequently, the payment, made in anticipation of an approved assumption that did not materialize, was rendered without a valid juridical basis. Land Bank had no right to retain it.
The Court rejected Land Bank’s defense that the payment was for the past-due account of the original borrowers. The bank’s own actions—providing requirements, accepting the payment specifically for the assumption, and leading Ong to believe his application was being processed—created an understanding that the payment was linked to the proposed assumption. Having led Ong into making the payment under this premise and then denying the application without notice, the bank cannot unjustly enrich itself at Ong’s expense. The payment, therefore, was received by the bank without a lawful cause after the assumption was disapproved, making its retention inequitable and obligating its return under the law.