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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 clauseoperates 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 Nicholsons 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. Metrobanks 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 soquando 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 mortgagors foreign currency savings account with the bank and by CleanPhase 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 PNBs 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 Rocamoras 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 PNBs 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 PNBs 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.
PNBs argument completely misses the point. The issue is the effect of the delay in
commencing foreclosure proceedings on PNBs 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.