Prudential Bank vs. Alviar 464 SCRA 353, July 28, 2005
Prudential Bank vs. Alviar 464 SCRA 353, July 28, 2005
Prudential Bank vs. Alviar 464 SCRA 353, July 28, 2005
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* SECOND DIVISION.
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of statutes, or to confuse legitimate issues. PN BD#76/C430,
being an obligation of Donalco Trading, Inc., and not of the
respondents, is not within the contemplation of the “blanket
mortgage clause.” Moreover, petitioner is unable to show that
respondents are hiding behind the corporate structure to evade
payment of their obligations. Save for the notation in the
promissory note that the loan was for house construction and
personal consumption, there is no proof showing that the loan was
indeed for respondents’ personal consumption.
Civil Law; Mortgages; Foreclosures; A “blanket mortgage
clause,” also known as a “dragnet clause” in American
jurisprudence, is one which is specifically phrased to subsume all
debts of past or future origins; Mortgages given to secure future
advancements are valid and legal contracts.—A “blanket
mortgage clause,” also known as a “dragnet clause” in American
jurisprudence, is one which is specifically phrased to subsume all
debts of past or future origins. Such clauses are “carefully
scrutinized and strictly construed.” Mortgages of this character
enable the parties to provide continuous dealings, the nature or
extent of which may not be known or anticipated at the time, and
they avoid the expense and inconvenience of executing a new
security on each new transaction. A “dragnet clause” operates as a
convenience and accommodation to the borrowers as it makes
available additional funds without their having to execute
additional security documents, thereby saving time, travel, loan
closing costs, costs of extra legal services, recording fees, et cetera.
Indeed, it has been settled in a long line of decisions that
mortgages given to secure future advancements are valid and
legal contracts, and the amounts named as consideration in said
contracts do not limit the amount for which the mortgage may
stand as security if from the four corners of the instrument the
intent to secure future and other indebtedness can be gathered.
Same; Same; Same; Any ambiguity in a contract whose terms
are susceptible of different interpretations must be read against the
party who drafted it.—If the parties intended that the “blanket
mortgage clause” shall cover subsequent advancement secured by
separate securities, then the same should have been indicated in
the mortgage contract. Consequently, any ambiguity is to be
taken con
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tra proferentum, that is, construed against the party who caused
the ambiguity which could have avoided it by the exercise of a
little more care. To be more emphatic, any ambiguity in a contract
whose terms are susceptible of different interpretations must be
read against the party who drafted it, which is the petitioner in
this case.
TINGA, J.:
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service charge, and that the note
3
is secured by a real estate
mortgage as aforementioned. Significantly, the real estate
mortgage contained the following clause:
_______________
3 Ibid.
4 Real Estate Mortgage, RTC Records, p. 47.
5 Rollo, p. 46.
6 TSN, 22 October 1982, p. 6.
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provided in the note, the loan is secured by “CleanPhase
out TOD CA 3923,” which means that the temporary
overdraft incurred by Donalco Trading, Inc. with petitioner
is to be converted into an ordinary loan in compliance with
a Central 7Bank circular directing the discontinuance of
overdrafts.
On 16 March 1977, petitioner wrote Donalco Trading,
Inc., informing the latter of its approval of a straight loan
of P545,000.00, the proceeds of which shall be used to
liquidate the outstanding loan of P545,000.00 TOD. The
letter likewise mentioned that the securities for the loan
were the deed of assignment on two promissory notes
executed by Bancom Realty Corporation with Deed of
Guarantee in favor of A.U. Valencia and Co. and the
chattel mortgage
8
on various heavy and transportation
equipment.
On 06 March 1979, respondents paid petitioner
P2,000,000.00, to be applied to the obligations of G.B.
Alviar Realty and Development, Inc. and for the release of
the real estate mortgage for the P450,000.00 loan covering
the two (2) lots located at Vam Buren and Madison Streets,
North Greenhills, San Juan, Metro Manila. The payment
was acknowledged by petitioner who9 accordingly released
the mortgage over the two properties.
On 15 January 1980, petitioner moved for the
extrajudicial foreclosure of the mortgage on the property
covered by TCT No. 438157. Per petitioner’s computation,
respondents had the total obligation of P1,608,256.68,
covering the three (3) promissory notes, to wit: PN
BD#75/C252 for P250,000.00, PN BD#76/C345 for
P382,680.83, and PN BD#76/C340 for P545,000.00, plus
assessed past due interests and penalty charges. The public
auction sale of10
the mortgaged property was set on 15
January 1980.
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7 Rollo, p. 46.
8 Id., at p. 47.
9 Ibid.
10 Ibid.
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Respondents filed a complaint for damages with a prayer
for the issuance
11
of a writ of preliminary injunction with the
RTC of Pasig, claiming that they have paid their principal
loan secured by the mortgaged property, and thus the
mortgage should not be foreclosed. For its part, petitioner
averred that the payment of P2,000,000.00 made on 6
March 1979 was not a payment made by respondents, but
by G.B. Alviar Realty and Development Inc., which has a
separate 12loan with the bank secured by a separate
mortgage.
On 15 March 1994, the trial court dismissed the
complaint and ordered the 13Sheriff to proceed with the
extrajudicial foreclosure. 14 Respondents sought
reconsideration of the decision. On 24 August 1994, the
trial court issued an Order setting aside its earlier
15
decision
and awarded attorney’s fees to respondents. It found that
only the P250,000.00 loan is secured by the mortgage on
the land covered by TCT No. 438157. On the other hand,
the P382,680.83 loan is secured by the foreign currency
deposit account of Don A. Alviar, while the P545,000.00
obligation was an unsecured loan, being a mere conversion
of the temporary overdraft of Donalco Trading, Inc. in
compliance with a Central Bank circular. According to the
trial court, the “blanket mortgage clause” relied upon by
petitioner applies only to future loans obtained by the
mortgagors, and not by parties other than the said
mortgagors, such as Donalco Trading, Inc., for which
respondents merely signed as officers thereof.
On appeal to the Court of Appeals, petitioner made the
following assignment of errors:
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II. The trial court erred in holding that the promissory
note BD#76/C345 for P2,640,000.00 (P382,680.83
outstanding principal balance) is not covered by the
real estate mortgage by expressed agreement.
III. The trial court erred in holding that Promissory
Note BD#76/C430 for P545,000.00 is not covered
by the real estate mortgage.
IV. The trial court erred in holding that the real estate
mortgage is a contract of adhesion.
V. The trial court erred in holding defendantappellant
liable to pay
16
plaintiffsappellees attorney’s fees for
P20,000.00.
The Court of Appeals affirmed the Order of17 the trial court
but deleted the award of attorney’s fees. It ruled that
while a continuing loan or credit accommodation based on
only one security or mortgage is a common practice in
financial and commercial institutions, such agreement
must be clear and unequivocal. In the instant case, the
parties executed different promissory notes agreeing to a
particular security for each loan. Thus, the appellate court
ruled that the extrajudicial foreclosure
18
sale of the property
for the three loans is improper.
The Court of Appeals, however, found that respondents
have not yet paid the P250,000.00 covered by PN BD#75/C
252 since the payment of P2,000,000.00 adverted to by
respondents was issued for the 19
obligations of G.B. Alviar
Realty and Development, Inc.
_______________
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expressly covers not only the P250,000.00 under PN
BD#75/C252, but also the two other promissory notes
included in the application
20
for extrajudicial foreclosure of
real estate mortgage. Thus, it claims that it acted within
the terms of the mortgage contract when it filed its petition
for extrajudicial foreclosure of real estate mortgage. 21
Petitioner relies on the cases of Lim Julian 22
v. Lutero,
TadyY v. Philippine National 23
Bank, Quimson v.
Philippine National Bank, 24
C & C Commercial v. 25
Philippine National Bank, Mojica v. Court of Appeals, 26
and China Banking Corporation v. Court of Appeals, all of
which upheld the validity of mortgage contracts securing
future advancements.
Anent the Court of Appeals’ conclusion that the parties
did not intend to include PN BD#76/C345 in the real
estate mortgage because the same was specifically secured
by a foreign currency deposit account, petitioner states that
there is no law or rule which prohibits an obligation
27
from
being covered by more than one security. Besides,
respondents even continued to withdraw from the same
foreign currency account even while the promissory note
was still outstanding, strengthening the belief that it was
the real estate mortgage that28 principally secured all of
respondents’ promissory notes.
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Moreover, petitioner insists that respondents attempt to
evade foreclosure by the expediency of stating that the
promissory notes were executed by them not in their
personal capacity but as corporate officers. It claims that
PN BD#76/C430 was in fact for home construction and
personal consumption of respondents. Thus, it states 30
that
there is a need to pierce the veil of corporate fiction.
Finally, petitioner alleges that the mortgage contract
was executed by respondents with knowledge and
understanding of the “dragnet clause,” being highly
educated individuals,31 seasoned businesspersons, and
political personalities. There was no oppressive use of
superior bargaining power in the execution 32
of the
promissory notes and the real estate mortgage.
For their part, respondents claim that the “dragnet
clause” cannot be applied to the subsequent loans extended
to Don Alviar and Donalco Trading, Inc. since these loans
are covered by separate promissory notes 33
that expressly
provide for a different form of security. They reiterate the
holding of the trial court that the “blanket mortgage
clause” would apply only to loans obtained jointly by 34
respondents, and not to loans obtained by other parties.
Respondents also place a premium on the finding of the
lower courts that the real estate mortgage clause is a
contract of adhesion
35
and must be strictly construed against
petitioner bank.
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29 Id., at p. 36.
30 Id., at p. 37.
31 Id., at p. 39.
32 Id., at p. 40.
33 Id., at p. 69.
34 Id., at p. 73.
35 Id., at p. 74.
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foreclosure of the mortgaged property for the nonpayment
of the three loans.
At this point, it is important to note that one of the loans
sought to be included in the “blanket mortgage clause” was
obtained by respondents for Donalco Trading, Inc. Indeed,
PN BD#76/C430 was executed by respondents on behalf of
Donalco Trading, Inc. and not in their personal capacity.
Petitioner asks the Court to pierce the veil of corporate
fiction and hold respondents liable even for obligations they
incurred for the corporation. The mortgage contract states
that the mortgage covers “as well as those that the
Mortgagee may extend to the Mortgagor and/or DEBTOR,
including interest and expenses or any other obligation
owing to the Mortgagee, whether direct or indirect,
principal or secondary.” Wellsettled is the rule that a
corporation has a personality separate and distinct from
that of its officers and stockholders. Officers of a
corporation are not personally liable for their acts as such
officers unless
36
it is shown that they have exceeded their
authority. However, the legal fiction that a corporation
has a personality separate and distinct from stockholders
and members may be disregarded if it is used as a means to
perpetuate fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention
37
of
statutes, or to confuse legitimate issues. PN BD#76/C
430, being an obligation of Donalco Trading, Inc., and not of
the respondents, is not within the contemplation of the
“blanket
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showing that the loan was indeed for respondents’ personal
consumption. Besides, petitioner agreed to the terms of the
promissory note. If respondents were indeed the real
parties to the loan, petitioner, a big, wellestablished
institution of long standing that it is, should have insisted
that the note be made in the name of respondents
themselves, and not to Donalco Trading Inc., and that they
sign the note in their personal capacity and not as officers
of the corporation.
Now on the main issues.
A “blanket mortgage clause,” also known as a “dragnet
clause” in American jurisprudence, is one which is
specifically phrased to subsume all debts of past or future
origins. Such 38
clauses are “carefully scrutinized and strictly
construed.” Mortgages of this character enable the parties
to provide continuous dealings, the nature or extent of
which may not be known or anticipated at the time, and
they avoid the expense and inconvenience 39
of executing a
new security on each new transaction. A “dragnet clause”
operates as a convenience and accommodation to the
borrowers as it makes available additional funds without
their having to execute additional security documents,
thereby saving time, travel, loan closing costs, 40
costs of
extra legal services, recording fees, et cetera. Indeed, it
has been settled in a long line of decisions that mortgages
given to secure
41
future advancements are valid and legal
contracts, and the amounts named as consideration in
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That for and in consideration of certain loans, overdraft and other
credit accommodations obtained from the Mortgagee by the
Mortgagor and/or ________________ hereinafter referred to,
irrespective of number, as DEBTOR, and to secure the
payment of the same and those that may hereafter be
obtained, the principal or all of which is hereby fixed at Two
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine
Currency, as well as those that the Mortgagee may extend
to the Mortgagor and/or DEBTOR, including interest and
expenses or any other obligation owing to the Mortgagee,
whether direct or indirect, principal or secondary as
appears in the accounts, books and records of the Mortgagee, the
Mortgagor does hereby transfer and convey by way of mortgage
unto the Mortgagee, its successors or assigns, the parcels of land
which are described in the list inserted on the back of this
document, and/or appended hereto, together with all the buildings
and improvements now existing or which may hereafter be
erected or constructed thereon, of which the Mortgagor declares
that he/it is the absolute owner free from all liens and
43
incumbrances. . . . (Emphasis supplied.)
_______________
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In the case at bar, the subsequent loans obtained by
respondents were secured by other securities, thus: PN
BD#76/C345, executed by Don Alviar was secured by a
“holdout” on his foreign currency savings account, while PN
BD#76/C430, executed by respondents for Donalco
Trading, Inc., was secured by “CleanPhase out TOD CA
3923” and eventually by a deed of assignment on two
promissory notes executed by Bancom Realty Corporation
with Deed of Guarantee in favor of A.U. Valencia and Co.,
and by a chattel mortgage on various heavy and
transportation equipment. The matter of PN BD#76/C430
has already been discussed. Thus, the critical issue is
whether the “blanket mortgage” clause applies even to
subsequent advancements for which other securities were
intended, or particularly, to PN BD#76/C345.
Under American jurisprudence, two schools of thought
have emerged on this question. One school advocates that a
“dragnet clause” so worded as to be broad enough to cover
all other debts in addition to the one specifically secured
will be construed to cover a different debt,44although such
other debt is secured by another mortgage. The contrary
thinking maintains that a mortgage with such a clause will
not secure a note that expresses on its face that it is
otherwise secured as to its entirety, at least to anything
other than a deficiency
45
after exhausting the security
specified therein, such defi
_______________
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subsequent loans will be secured by the first mortgage. In
other words, the sufficiency of the first security is a
corollary component of the “dragnet clause.” But of course,
there is no prohibition, as in the mortgage contract in
issue, against contractually requiring other securities for
the subsequent loans. Thus, when the mortgagor takes
another loan for which another security was given it could
not be inferred that such loan was made in reliance solely
on the original security with the “dragnet clause,” but
rather, on the new security given. This is the “reliance on
the security test.”
Hence, based on the “reliance on the security test,” the
California court in the cited case made an inquiry whether
the second loan was made in reliance on the original
security containing a “dragnet clause.” Accordingly, finding
a different security was taken for the second loan no intent
that the parties relied on the security of the first loan could
be inferred, so it was held. The rationale involved, the court
said, was that the “dragnet clause” in the first security
instrument constituted a continuing offer by the borrower
to secure further loans under the security of the first
security instrument, and that when the lender 47
accepted a
different security he did not accept the offer.
_______________
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second note and chattel mortgage were signed by the
mortgagor doing business under an assumed name; and (4)
there was no allegation by the bank, and apparently no
proof, that it relied on the security
48
of the real estate
mortgage in making the advance.
Indeed, in some instances, it has been held that in the
absence of clear, supportive evidence of a contrary
intention, a mortgage containing a “dragnet clause” will not
be extended to cover future advances unless the document
evidencing the subsequent advance
49
refers to the mortgage
as providing security therefor.
It was therefore improper for petitioner in this case to
seek foreclosure of the mortgaged property because of non
payment of all the three promissory notes. While the
existence and validity of the “dragnet clause” cannot be
denied, there is a need to respect the existence of the other
security given for PN BD#76/C345. The foreclosure of the
mortgaged property should only be for the P250,000.00
loan covered by PN BD#75/C252, and for any amount not
covered by the security for the second promissory note. As
held in one case, where deeds absolute in form were
executed to secure any and all
_______________
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contract of adhesion is one in which a party imposes a
readymade form of contract which the other party 52
may
accept or reject, but which the latter cannot modify.
The real estate mortgage in issue appears in a standard
form, drafted and prepared solely by petitioner, and which,
according to jurisprudence must be strictly construed53
against the party responsible for its preparation. If the
parties intended that the “blanket mortgage clause” shall
cover subsequent advancement secured by separate
securities, then the same should have been indicated in the
mortgage contract. Consequently, any ambiguity is to be
taken contra proferentum, that is, construed against the
party who caused the ambiguity which could 54
have avoided
it by the exercise of a little more care. To be more
emphatic, any ambiguity in a
_______________
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their claim that they paid the said amount when they paid
petitioner P2,000,000.00. Thus, the mortgaged property
could still be properly subjected to foreclosure proceedings
for the unpaid P250,000.00 loan, and as mentioned earlier,
for any deficiency after D/A SFDX#129, security for PN
BD#76/C345, has been exhausted, subject of course to
defenses which are available to respondents.
WHEREFORE, the petition is DENIED. The Decision of
the Court of Appeals in CAG.R. CV No. 59543 is
AFFIRMED.
Costs against petitioner.
SO ORDERED.
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55 Ibid.
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