Cuyco vs Cuyco G.R. No. 168736, Apr 19, 2006 Ynares-Santiago, J.:

Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the amount of P1,500,000.00 from respondents, spouses Renato and Filipina Cuyco, payable within one year at 18% interest per annum, and secured by a Real Estate Mortgage over a parcel of land with improvements in Cubao, Quezon City.

Petitioners obtained additional loans from the respondents in the aggregate amount of P1,250,000.00, broken down as follows: (1) P150,000.00 on May 30, 1992; (2) P150,000.00 on July 1, 1992; (3) P500,000.00 on September 5, 1992; (4) P200,000.00 on October 29, 1992; and (5) P250,000.00 on January 13, 1993.

Petitioners made payments amounting to P291,700.00 but failed to settle their outstanding loan obligations. Respondents filed a complaint for foreclosure of mortgage with the RTC of QC. Petitioners admitted their loan obligations but argued that only the original loan of P1,500,000.00 was secured by the real estate mortgage at 18% per annum and that there was no agreement that the same will be compounded monthly. As regards what loans were secured by the real estate mortgage, respondents contended that all five additional loans were intended by the parties to be secured by the real estate mortgage. RTC held that all the additional loans were secured by the real estate mortgage. CA held that the original loan & the additional loans (2) & (3) were secured by the REM.

Issue: Does the mortgage contract contain a blanket mortgage clause?

Ruling: NO. CA erred in ruling that only two of the five additional loans were secured by the real estate mortgage when the documents evidencing said loans would show at least three loans were secured by the real estate mortgage, namely: (1) P150,000.00 obtained on May 31, 1992; (2) P150,000.00 obtained on July 1, 1992; and (3) P500,000.00 obtained on September 5, 1992.

As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. However, the amounts named as consideration in a contract of mortgage 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. This stipulation is valid and binding between the parties and is known in American Jurisprudence as the “blanket mortgage clause,” also known as a “dragnet clause.”

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.

While a real estate mortgage may exceptionally secure future loans or advancements, these future debts must be sufficiently described in the mortgage contract. An obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage contract.

There is no stipulation that the mortgaged realty shall also secure future loans and advancements. Thus, what applies is the general rule above stated.

Even if the parties intended the additional loans of P150,000.00 obtained on May 30, 1992, P150,000.00 obtained on July 1, 1992, and P500,00.00 obtained on September 5, 1992 to be secured by the same real estate mortgage, as shown in the acknowledgement receipts, it is not sufficient in law to bind the realty for it was not made substantially in the form prescribed by law.

Metropolitan Bank vs Pascual GR 163744, Feb 29, 2008 Velasco Jr., J.:

Respondent Nicholson Pascual and Florencia Nevalga were married on January 19, 1985. During the union, Florencia bought from spouses Clarito and Belen Sering a 250-square meter lot with a three-door apartment standing thereon located in Makati City.

Their marriage was annulled in 1995 and they went on their separate ways without liquidating their properties. Florencia, together with spouses Norberto and Elvira Oliveros, obtained a PhP 58 million loan from petitioner Metropolitan Bank and Trust Co. (Metrobank).

To secure the obligation, Florencia and the spouses Oliveros executed several REMs on their properties. Due to the failure of Florencia and the spouses Oliveros to pay their loan obligation when it fell due, Metrobank, on November 29, 1999, initiated foreclosure proceedings.

Nicholson filed to declare the nullity of the mortgage of the disputed property because it is still conjugal property and mortgaged without his consent.

RTC declared the REM void. The said lot is a conjugal property, the same having been acquired during the existence of the marriage of Nicholson and Florencia. (Art 116 NCC) Metrobank had not overcome the presumptive conjugal nature of the lot. And being conjugal, the RTC concluded that the disputed property may not be validly encumbered by Florencia without Nicholson’s consent.

CA affirmed with modification.

Issue: (1.) Is the subject property conjugal?

(2.) Is the mortgage contract valid?

Ruling: 1. Yes. While the declared nullity of marriage of Nicholson and Florencia severed their marital bond and dissolved the conjugal partnership, the character of the properties acquired before such declaration continues to subsist as conjugal properties until and after the liquidation and partition of the partnership

2. Not totally. The mortgage contract insofar as it covered the remaining 1/2 undivided portion of the lot is null and void, Nicholson not having consented to the mortgage of his undivided half. Metrobank’s right, as mortgagee and as the successful bidder at the auction of the lot, is confined only to the 1/2 undivided portion thereof heretofore pertaining in ownership to Florencia. The other undivided half belongs to Nicholson. As owner pro indiviso of a portion of the lot in question, Metrobank may ask for the partition of the lot and its property rights “shall be limited to the portion which may be allotted to [the bank] in the division upon the termination of the co-ownership.” This disposition is in line with the well-established principle that the binding force of a contract must be recognized as far as it is legally possible to do so––quando res non valet ut ago, valeat quantum valere potes

Roberts vs Papio

Respondents secured a loan from Amparo Investments and executed a real estate mortgage on their property. In order to prevent foreclosure of said property, they executed a Deed of Absolute Sale over the property in favor of the Petitioner Amelia Roberts. Ownership was then transferred to Roberts by virtue of the TCT.

The Parties executed a 2-year contract of lease over the property. Respondent failed to pay rentals, but he and his family remained in possession for a period of almost 13 years.

Petitioner demanded respondent to vacate the property and the latter refused to leave the premises. The petitioner thereafter filed a complaint for unlawful detainer and damages against Martin Papio.

ISSUE: Whether the contract of sale entered into by the parties is actually an equitable mortgage.

RULING: Absolute Sale

An equitable mortgage is one that, although lacking in some formality, form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to change a real property as security for a debt and contain nothing impossible or contrary to law.

A contract between the parties is an equitable mortgage if the following requisites are present: (a) the parties entered into a contract denominated as a contract of sale; and (b) the intention was to secure an existing debt by way of mortgage. The decisive factor is the intention of the parties.

In an equitable mortgage, the mortgagor retains ownership over the property but subject to foreclosure and sale at public auction upon failure of the mortgagor to pay his obligation.51 In contrast, in a pacto de retro sale, ownership of the property sold is immediately transferred to the vendee a retro subject only to the right of the vendor a retro to repurchase the property upon compliance with legal requirements for the repurchase. The failure of the vendor a retro to exercise the right to repurchase within the agreed time vests upon the vendee a retro, by operation of law, absolute title over the property.

Prudential Bank vs Alviar

FACTS: Respondents executed a deed of real estate mortgage of the said property in favor of Prudential Bank to secure the payment of a loan. PN was then issued covering the said loan and that the note is secured by a real estate mortgage as aforementioned with a “blanket mortgage clause” or the “dragnet clause”

The spouses thereafter issued two more promissory notes secured by “hold-out” on the mortgagor’s foreign currency savings account with the bank and by “Clean-Phase out TOD. Bank also mentioned in their approval letter that additional securities for the loan were the deed of assignment on two PNs executed by Bancom Realty and the chattel mortgage on various heavy and transportation equipment.

Spoused Alviar 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 in San Juan, Metro Manila. The payment was acknowledged by petitioner who accordingly released the mortgage over the two properties

Prudential Bank moved for the extrajudicial foreclosure of the mortgage on the property since respondents had the total obligation of P1,608,256.68, covering the three (3) promissory notes.

Respondents then filed a complaint for damages with a prayer for the issuance 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

RTC, on its final decision, favored respondents saying that the extrajudicial foreclosure was improper for the mortgage only covers the first loan of P250,000

CA affirmed the decision of the RTC

Issue: WON real estate mortgage secures only the first loan of P250,000.

RULING: Yes.

While the existence and validity of the “dragnet clause” cannot be denied, there is a need to respect the existence of the other securities given for the two other promissory notes. The foreclosure of the mortgaged property should only then be for the first loan. Petitioner and respondents intended the real estate mortgage to secure not only the P250,000.00 loan from the petitioner, but also future credit facilities and advancements that may be obtained by the respondents. However, the subsequent loans obtained by respondents were secured by other securities. 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.”

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. This ambiguity shall be interpreted strictly against petitioner for having drafted the same.

Petitioner, however, is not without recourse. Both the lower courts found that respondents have not yet paid the P250,000.00. 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/C-345, has been exhausted, subject of course to defenses which are available to respondents.

PNB vs ROCAMORA

FACTS: Respondents obtained a loan from PNB secured by a real estate mortgage and a chattel mortgage. The spouses Rocamora only paid a total of P32,383.65] on the loan. Hence, the PNB commenced foreclosure proceedings in August and October 1990. The foreclosure of the mortgaged properties yielded P75,500.00 as total proceeds.

PNB claimed that the outstanding principal balance as of foreclosure date (September 19, 1990) was P79,484.65, plus interest and penalties, for a total due and demandable obligation ofP250,812.10.

ISSUE: (1) WON Proof of deficiency claim is necessary

(2)WON the grant of PNB’s deficiency claim would amount to undisputed disregard of PD 385

RULING:

(1)NO. A mortgagee must be able to prove the basis for the deficiency judgment it seeks. The right of

the mortgagee to pursue the debtor arises only when the proceeds of the foreclosure sale are

ascertained to be insufficient to cover the obligation and the other costs at the time of the sale .  Thus, 

the amount of the obligation prior to foreclosure and the proceeds of the foreclosure are material in a 

claim for deficiency.

PNB failed to prove the claimed deficiency; its own testimonial and documentary evidence in fact

contradicted one another.

The PNB alleged that the spouses Rocamora’s obligation at the time of foreclosure (September 19, 1990)

amounted to P250,812.10, yet its own documentary evidence showed that, as of that date, the total

obligation was only P206,664.34; the PNB’s own witness, Mr. Reynaldo Caso, testified that the amount

due from the spouses Rocamora was only P206,664.34.

(2)YES. Under PD 385, government PNB’s is mandated to immediately foreclose the securities given for

any loan when the arrearages amount to at least 20% of the total outstanding obligation.

PNB commenced foreclosure proceedings in 1990 or three years after the spouses defaulted on their

obligation in 1987. On this factual premise, the PNB now insists as a legal argument that its right to

foreclose should not be affected by the mandatory tenor of PD 385, since it exercised its right still within

the 10-year prescription period allowed under Articles 1142 and 1144 (1) of the Civil Code.

PNB’s argument completely misses the point. The issue is the effect of the delay in commencing

foreclosure proceedings on PNB’s right to recover the deficiency, not on its right to foreclose. The delay

in commencing foreclosure proceedings bears a significant function in the deficiency amount being

claimed, as the amount undoubtedly includes interest and penalty charges which accrued during the

period covered by the delay. The depreciation of the mortgaged properties during the period of delay

must also be factored in, as this affects the proceeds that the mortgagee can recover in the foreclosure

sale, which in turn affects its deficiency claim. There was also, in this case, the four-year gap between

the foreclosure proceedings and the filing of the complaint for deficiency judgment – during which time

interest, whether at the 12% per annum rate or higher, and penalty charges also accrued.