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VOL.

464, JULY 28, 2005 353


Prudential Bank vs. Alviar
*
G.R. No. 150197. July 28, 2005.

PRUDENTIAL BANK, petitioner, vs. DON A. ALVIAR and


GEORGIA B. ALVIAR, respondents.

Corporation Law; Piercing the Veil of Corporate Fiction; 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 it is shown
that they have exceeded their authority; 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 of statutes, or
to confuse legitimate issues.—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 it is shown
that they have exceeded their authority. However, the legal
fiction that a corporation has a personality separate and dis­

_______________

* SECOND DIVISION.

354

354 SUPREME COURT REPORTS ANNOTATED

Prudential Bank vs. Alviar

tinct 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

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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

355

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Prudential Bank vs. Alviar

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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.

PETITION for review on certiorari of a decision of the


Court of Appeals.

The facts are stated in the opinion of the Court.


     Gella, Danguilan, Nabaza & Associates for petitioner.
     Manuel M. Lazaro & Associates for respondents.

TINGA, J.:

Before us is a petition for review on certiorari under Rule


45 of the Rules of Court. Petitioner
1
Prudential Bank seeks
the reversal of the Decision of the Court of Appeals dated
27 September 2001 in CA­G.R. CV No. 59543 affirming the
Decision of the Regional Trial Court (RTC) of Pasig City,
Branch 160, in favor of respondents.
Respondents, spouses Don A. Alviar and Georgia B.
Alviar, are the registered owners of a parcel of land in San
Juan, Metro Manila, covered by Transfer Certificate of
Title (TCT) No. 438157 of the Register of Deeds of Rizal.
On 10 July 1975, they executed a deed of real estate
mortgage in favor of petitioner Prudential2 Bank to secure
the payment of a loan worth P250,000.00. This mortgage
was annotated at the back of TCT No. 438157. On 4 August
1975, respondents executed the corresponding promissory
note, PN BD#75/C­252, covering the said loan, which
provides that the loan matured on 4 August 1976 at an
interest rate of 12% per annum with a 2%

_______________

1 Penned by Associate Justice Juan Q. Enriquez. Jr., Associate Justices


Ruben T. Reyes and Mercedes Gozo­Dadole, concurring; Rollo, pp. 45­53.
2 Id., at p. 46.

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356 SUPREME COURT REPORTS ANNOTATED


Prudential Bank vs. Alviar

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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:

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
4
incumbrances. . . .

On 22 October 1976, Don Alviar executed another


promissory note, PN BD#76/C­345 for P2,640,000.00,
secured by D/A SFDX #129, signifying that the loan was
secured by a “hold­out” on the mortgagor’s foreign currency
savings account with the bank under Account No. 129, and
that the mortgagor’s passbook is to be surrendered to the 5
bank until the amount secured by the “hold­out” is settled.
On 27 December 1976, respondent spouses executed for
Donalco Trading, Inc., of which the husband and wife were6
President and Chairman of the Board and Vice President,
respectively, PN BD#76/C­430 covering P545,000.000. As

_______________

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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Prudential Bank vs. Alviar

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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.

_______________

7 Rollo, p. 46.
8 Id., at p. 47.
9 Ibid.
10 Ibid.

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358 SUPREME COURT REPORTS ANNOTATED


Prudential Bank vs. Alviar

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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:

_______________

11 RTC Records, pp. 1­6.


12 Id., at p. 60.
13 Id., at pp. 575­580.
14 Id., at pp. 585­595.
15 Id., at pp. 703­709.

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Prudential Bank vs. Alviar

I. The trial court erred in holding that the real estate


mortgage covers only the promissory note BD#75/C­
252 for the sum of P250,000.00.

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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.

_______________

16 Appellant’s Brief, CA Rollo, pp. 36­63.


17 Rollo, pp. 45­53.
18 Id., at p. 51.
19 Id., at pp. 51­52.

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360 SUPREME COURT REPORTS ANNOTATED


Prudential Bank vs. Alviar

Aggrieved, petitioner filed the instant petition, reiterating


the assignment of errors raised in the Court of Appeals as
grounds herein.
Petitioner maintains that the “blanket mortgage clause”
or the “dragnet clause” in the real estate mortgage

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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.

_______________

20 Id., at pp. 23­24.


21 49 Phil. 703 (1926).
22 120 Phil. 806; 12 SCRA 19 (1964).
23 146 Phil. 629; 36 SCRA 26 (1970).
24 G.R. No. 42449, July 5, 1989, 175 SCRA 1.
25 G.R. No. 94247, September 11, 1991, 201 SCRA 517.
26 333 Phil. 158; 265 SCRA 327 (1996).
27 Rollo, p. 33.
28 Id., at p. 34.

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Prudential Bank vs. Alviar

As for PN BD#76/C­345, which the Court of Appeals found


to be exclusively secured by the Clean­Phase out TOD
3923, petitioner posits that such security is not exclusive,
as the “dragnet clause” of the real estate
29
mortgage covers
all the obligations of the respondents.

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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.

_______________

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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362 SUPREME COURT REPORTS ANNOTATED


Prudential Bank vs. Alviar

The instant case thus poses the following issues pertaining


to: (i) the validity of the “blanket mortgage clause” or the
“dragnet clause”; (ii) the coverage of the “blanket mortgage
clause”; and consequently, (iii) the propriety of seeking

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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

_______________

36 Complex Electronics Employees Association v. National Labor


Relations Commission, 369 Phil. 666, 681; 310 SCRA 403, 418 (1999).
37 Nicario v. National Labor Relations Commission, 356 Phil. 936, 944;
295 SCRA 619, 627 (1998), citing Pabalan v. National Labor Relations
Commission, 184 SCRA 495 (1990).

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Prudential Bank vs. Alviar

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

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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

_______________

38 Philippine Bank of Communications v. Court of Appeals, 323 Phil.


297, 312; 253 SCRA 241, 255 (1996), citing 55 AM. JUR 2d, Mortgages,
§142, 283­284.
39 54 AM JUR 2d, Mortgages, § 65, 638.
40 Newton County Bank v. Jones, 229 So.2d 215.
41 Mojica v. Court of Appeals, supra note 25 at p. 522.

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364 SUPREME COURT REPORTS ANNOTATED


Prudential Bank vs. Alviar

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 42
secure future and other
indebtedness can be gathered.
The “blanket mortgage clause” in the instant case states:

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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.)

Thus, contrary to the finding of the Court of Appeals,


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.
The terms of the above provision being clear and
unambiguous, there is neither need nor excuse to construe
it otherwise.

_______________

42 China Banking Corporation v. Court of Appeals, supra note 26 at p.


170; p. 339, citing Mojica v. Court of Appeals, supra.
43 Supra note 4.

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Prudential Bank vs. Alviar

The cases cited by petitioner, while affirming the validity of


“dragnet clauses” or “blanket mortgage clauses,” are of a
different factual milieu from the instant case. There, the
subsequent loans were not covered by any security other
than that for the mortgage deeds which uniformly
contained the “dragnet clause.”

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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

_______________

44 54A AM JUR 2d, Mortgages, § 73, 646, citing Anglo­Californian


Bank, Ltd. V. Cerf, 147 Cal 384, 81 P 1077.
45 33 CAL JUR 2d § 123, 520, citing Moran v. Gardenmeyer, 82 C 102,
23 P 8.

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366 SUPREME COURT REPORTS ANNOTATED


Prudential Bank vs. Alviar

ciency being an indebtedness within the meaning of the


mortgage, in the absence
46
of a special contract excluding it
from the arrangement.
The latter school represents the better position. The
parties having conformed to the “blanket mortgage clause”
or “dragnet clause,” it is reasonable to conclude that they
also agreed to an implied understanding that subsequent
loans need not be secured by other securities, as the

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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.

_______________

46 Anglo­Californian Bank, Ltd. V. Cerf, supra note 44.


47 3 ALR4th, Dragnet Clause—Modern Status, §21[b], 741, citing Union
Bank v. Wendland, 54 Cal App 3d 393, 126 CAL RPTR 549.

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Prudential Bank vs. Alviar

In another case, it was held that a mortgage with a


“dragnet clause” is an “offer” by the mortgagor to the bank
to provide the security of the mortgage for advances of and
when they were made. Thus, it was concluded that the
“offer” was not accepted by the bank when a subsequent
advance was made because (1) the second note was secured
by a chattel mortgage on certain vehicles, and the clause
therein stated that the note was secured by such chattel
mortgage; (2) there was no reference in the second note or
chattel mortgage indicating a connection between the real
estate mortgage and the advance; (3) the mortgagor signed
the real estate mortgage by her name alone, whereas the

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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

_______________

48 Id., at §7, citing Nat. Bank v. Boyle, 99 NE2d 474.


49 Emporia State Bank & Trust Co. v. Monkes, 214 Kan 178, 519 P2d
618, Decorah State Bank v. Zidlicky (Iowa), 426 NW2d 388.

368

368 SUPREME COURT REPORTS ANNOTATED


Prudential Bank vs. Alviar

kinds of indebtedness that might subsequently become due,


a balance due on a note, after exhausting the special
security given for the payment of such note, was in the
absence of a special agreement to the contrary, within the
protection of the mortgage,
50
notwithstanding the giving of
the special security. This is recognition that while the
“dragnet clause” subsists, the security specifically executed
for subsequent loans must first be exhausted before the
mortgaged property can be resorted to.
One other crucial point. The mortgage contract, as well
as the promissory notes subject of this case, is a contract of
adhesion, to which respondents’ only participation was51the
affixing of their signatures or “adhesion” thereto. A

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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

_______________

50 Anglo­Californian Bank, Ltd. V. Cerf, supra note 44.


51 Philippine Bank of Communications v. Court of Appeals, supra note
38.
52 Unimasters Conglomeration, Inc. v. Court of Appeals, 335 Phil. 415,
437; 267 SCRA 759, 781 (1997).
53 Prudential Bank v. Intermediate Appellate Court, G.R. No. 74886, 8
December 1992, 216 SCRA 257, 275.
54 Garcia v. Court of Appeals, 327 Phil. 1097, 1111; 258 SCRA 446, 457
(1996), citations omitted.

369

VOL. 464, JULY 28, 2005 369


Prudential Bank vs. Alviar

contract whose terms are susceptible of different


interpretations
55
must be read against the party who drafted
it, which is the petitioner in this case.
Even the promissory notes in issue were made on
standard forms prepared by petitioner, and as such are
likewise contracts of adhesion. Being of such nature, the
same should be interpreted strictly against petitioner and
with even more reason since having been accomplished by
respondents in the presence of petitioner’s personnel and
approved by its manager, they could not have been
unaware of the import and extent of such contracts.
Petitioner, however, is not without recourse. Both the
Court of Appeals and the trial court found that respondents
have not yet paid the P250,000.00, and gave no credence to

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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.

          Puno (Chairman), Austria­Martinez, Callejo, Sr.


and Chico­Nazario, JJ., concur.

Petition denied, judgment affirmed.

_______________

55 Ibid.

370

370 SUPREME COURT REPORTS ANNOTATED


Heirs of Juan and Ines Panganiban vs. Dayrit

Note.—Foreclosure is but a necessary consequence of


non­payment of a mortgage indebtedness—the mortgage
can be foreclosed only when the debt remains unpaid at the
time it is due. (Producers Bank of the Philippines vs. Court
of Appeals, 365 SCRA 326 [2001])

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