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PRUDENTIAL BANK v. DON A. ALVIAR

FACTS:

Respondents, spouses Don A. Alviar and Georgia B. Alviar, executed a deed of real estate mortgage in favor of petitioner Prudential Bank to secure a loan worth P250,000. They also executed promissory notes for subsequent loans, one of which was secured by a "hold-out" on a foreign currency savings account and another secured by a "Clean-Phase out TOD CA 3923." Respondents made a partial payment to petitioner for the release of a real estate mortgage covering two lots. Petitioner then moved for the extrajudicial foreclosure of the mortgage on the property covered by TCT No. 438157. Respondents filed a complaint claiming they have already paid their principal loan and opposing the foreclosure. The trial court initially dismissed the complaint but later ruled that only the P250,000.00 loan was secured by the mortgage, while the other loans were secured by separate accounts or were unsecured.

In another case, petitioner DBP and respondents Gregorio B. Alviar III and Gregorio B. Alviar, Jr. had a dispute over the interpretation of a real estate mortgage contract. The mortgage contract contained a "blanket mortgage clause" or "dragnet clause" which petitioner claims covers not only the specific loan mentioned in the contract but also future loans obtained by the mortgagors. Respondents argue that the "dragnet clause" only applies to loans obtained jointly by them and not to loans obtained by other parties.

The trial court ruled that the real estate mortgage only covers the specific loan mentioned, while the two other promissory notes were not covered as a different form of security was agreed upon. The Court of Appeals affirmed this ruling, concluding that the extrajudicial foreclosure sale of the property for the three loans was improper.

Petitioner filed a petition arguing that the "blanket mortgage clause" covers all of the promissory notes included in the application for extrajudicial foreclosure. Respondents argue that the "dragnet clause" cannot be applied to subsequent loans obtained by parties other than themselves and assert that the mortgage contract is a contract of adhesion.

The issues involved in this case are the validity and interpretation of the "blanket mortgage clause" as it applies to future loans obtained by parties other than the mortgagors, the scope of the mortgage contract, and whether the contract is a contract of adhesion.

ISSUES:

  1. Is the "blanket mortgage clause" or "dragnet clause" valid?

  2. Does the "blanket mortgage clause" cover the three promissory notes in question?

  3. Is the extrajudicial foreclosure of the mortgaged property proper?

RULING:

  1. Validity of the "Dragnet Clause" The Supreme Court upheld the validity of the "blanket mortgage clause" or "dragnet clause" under Philippine law, consistent with established jurisprudence.

  2. Coverage of the "Dragnet Clause" The "dragnet clause" applies only to the P250,000.00 loan covered by PN BD#75/C-252 and any deficiencies after exhausting the security for the subsequent promissory notes. It does not extend to the other loans (PN BD#76/C-345 and PN BD#76/C-430) which were secured by other specific securities. Therefore, the "dragnet clause" cannot be applied to the loans covered by these promissory notes since they are secured by separate instruments.

  3. Propriety of Extrajudicial Foreclosure The foreclosure of the mortgaged property should only be for the amount covered by PN BD#75/C-252 for P250,000.00 and any deficiency not covered by the other securities, but not for all the three promissory notes.

PRINCIPLES:

  1. Blanket Mortgage Clause/Dragnet Clause Valid under Philippine law and can cover future debts if clearly specified within the mortgage agreement. However, it is strictly construed, especially when other securities are present for subsequent loans.

  2. Contracts of Adhesion Contracts drafted by one party in which the other party has little to no negotiation power. Such contracts are to be construed strictly against the party who prepared them.

  3. Piercing the Corporate Veil Officers of a corporation are not personally liable for corporate obligations unless it is shown that they have exceeded their authority or used the corporate entity to commit fraud or illegal acts.

  4. Reliance on Security Test When evaluating applicability of a "dragnet clause," if loans are secured with separate instruments, the original security containing the "dragnet clause" may not apply unless there is clear evidence showing that the subsequent loans were also meant to be secured by the dragnet clause.