Duero v. Green Bank
CLARIFICATIONFacts
1. The Antecedents: Spouses Gabriel and Luisa Duero owned a parcel of land covered by TCT No. T-5930 and executed a Special Power of Attorney appointing spouses Wilson and Elsie Sadernas to obtain a first loan not exceeding PHP 550,000.00 from Green Bank of Caraga, Inc., secured by a Deed of Real Estate Mortgage (subject REM) executed on September 29, 2004, annotated on the title. The first loan was fully paid on February 28, 2006, prior to maturity, but the bank did not return the title or cancel the mortgage. On June 3, 2006, spouses Sadernas obtained a second loan of PHP 150,000.00 from the bank, which they failed to pay, leading to extrajudicial foreclosure on November 2, 2006, and issuance of new TCT No. 13695 in the bank's name. 2. Procedural History: Spouses Duero filed a complaint for nullification of foreclosure proceedings before the Regional Trial Court (RTC) of Tandag City, which ruled in their favor on May 12, 2010, annulling the foreclosure and ordering restoration of TCT No. T-5930. On appeal, the Court of Appeals (CA) reversed the RTC on June 27, 2014, upholding the dragnet clause as covering the second loan, and denied reconsideration on November 13, 2014. 3. The Petition: Spouses Duero filed a Petition for Review on Certiorari under Rule 45 of the Rules of Court on January 12, 2015, arguing that the subject REM secured only the first loan, was extinguished upon its full payment, and did not cover the second loan due to lack of specific connection or reference, rendering the foreclosure invalid.
Issue(s)
Whether the dragnet clause in the subject REM secured the second loan obtained by spouses Sadernas. Whether payment of the first loan extinguished the subject REM, preventing its use to secure the second loan.
Ruling
The Petition for Review on Certiorari is GRANTED. The June 27, 2014 Decision and November 13, 2014 Resolution of the Court of Appeals in CA-G.R. CV No. 02207-MIN are REVERSED. The May 12, 2010 Decision of the Regional Trial Court in Civil Case No. 1731 is REINSTATED.
Ratio Decidendi
On Issue 1: A blanket mortgage or dragnet clause extends coverage to future advances but must specifically describe them or have the subsequent document refer to the mortgage as security, as held in Prudential Bank v. Alviar and Philippine Charity Sweepstakes Office v. New Dagupan Metro Gas Corporation. Here, the second promissory note merely stated 'SECURED WITH REM' without referencing the subject REM dated September 29, 2004, or showing relation to the first loan, creating ambiguity. No annotation of the second loan on TCT No. T-5930 or evidence of a series of transactions exists, so the clause cannot cover the second loan. Courts strictly construe dragnet clauses against banks due to their adhesive nature, applying contra proferentem. Thus, banks cannot invoke ambiguous dragnet clauses without clear connection between loans. On Issue 2: Although dragnet clauses create continuing guaranties not automatically extinguished by primary payment per Article 2053, Civil Code, the subject REM's Paragraph 3 explicitly states the mortgage becomes 'null and void' upon fulfillment of the obligation. Contracts are the law between parties, binding per their clear terms absent contravention of law. Payment of the first loan on February 28, 2006, thus extinguished the REM, negating reliance on its dragnet clause for the second loan obtained afterward. Ambiguity from conflicting provisions resolves against the bank-drafter. Foreclosure based on an extinguished accessory contract for an unsecured note is invalid, as clarified in Quiambao v. China Banking Corp.
Main Doctrine
A dragnet clause in a real estate mortgage (REM) is valid as a continuing guaranty for future advances under Article 2053 of the Civil Code, but it will not secure subsequent loans unless they are specifically described, refer to the mortgage, or are of the same kind as the original obligation; ambiguities are strictly construed against the drafter-bank (contra proferentem), and explicit contract stipulations extinguishing the mortgage upon fulfillment of the primary obligation prevail, rendering foreclosure improper for unrelated debts.