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.Well-settled 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 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 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 con355

VOL. 464, JULY 28, 2005

355

Prudential Bank vs. Alviar

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

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
Prudential Bank seeks the
1
reversal of the Decision of the Court of Appeals dated 27
September 2001 in CA-G.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 Prudential
Bank to secure the payment of
2
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%
_______________
Penned by Associate Justice Juan Q. Enriquez. Jr., Associate

Justices Ruben T. Reyes and Mercedes Gozo-Dadole, concurring; Rollo,

pp. 45-53.
2

Id., at p. 46.
356

356

SUPREME COURT REPORTS ANNOTATED

Prudential Bank vs. Alviar

service charge, and that the note is secured by a real estate

3
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
4
the absolute owner free from all liens and incumbrances. . . .

On 22 October 1976, Don Alviar executed another

promissory note, PN BD#76/C-345 for P2,640,000.00,
secured by D/A SFDX #129, signifying that the loan was
secured by a hold-out on the mortgagors foreign currency
savings account with the bank under Account No. 129, and
that the mortgagors passbook is to be surrendered to the
5
bank until the amount secured by the hold-out is settled.
On 27 December 1976, respondent spouses executed for
Donalco Trading, Inc., of which the husband and wife were
6
President and Chairman of the Board and Vice President,
respectively, PN BD#76/C-430 covering P545,000.000. As
_______________
3

Ibid.

Real Estate Mortgage, RTC Records, p. 47.

Rollo, p. 46.

TSN, 22 October 1982, p. 6.

357

VOL. 464, JULY 28, 2005

357

Prudential Bank vs. Alviar

provided in the note, the loan is secured by Clean-Phase
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 Bank circular directing the discontinuance of
7
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

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 on
8
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 petitioners 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/C-345 for P382,680.83, and
PN BD#76/C-340 for P545,000.00, plus assessed past due
interests and penalty charges. The public auction10sale of the
mortgaged property was set on 15 January 1980.
_______________
7

Rollo, p. 46.

Id., at p. 47.

Ibid.

10

Ibid.
358

358

SUPREME COURT REPORTS ANNOTATED

Prudential Bank vs. Alviar

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 Sheriff to proceed with the extra-

13

judicial foreclosure.
Respondents sought reconsideration of
14
the decision. On 24 August 1994, the trial court issued an
Order setting aside its earlier
decision and awarded
15
attorneys 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. 1-6.

12

Id., at p. 60.

13

Id., at pp. 575-580.

14

Id., at pp. 585-595.

15

Id., at pp. 703-709.

359

VOL. 464, JULY 28, 2005

359

Prudential Bank vs. Alviar

I. The trial court erred in holding that the real estate
mortgage covers only the promissory note BD#75/C252 for the sum of P250,000.00.
II. The trial court erred in holding that the promissory
note BD#76/C-345 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/C-430 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 defendant-appellant
liable to pay
plaintiffs-appellees attorneys fees for
16
P20,000.00.

The Court of Appeals affirmed the Order of the trial court

17
but deleted the award of attorneys 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 sale of the property for the three
18
loans is improper.
The Court of Appeals, however, found that respondents
have not yet paid the P250,000.00 covered by PN BD#75/C252 since the payment of P2,000,000.00 adverted to by
respondents was issued for the
obligations of G.B. Alviar
19
Realty and Development, Inc.
_______________
16

Appellants Brief, CA Rollo, pp. 36-63.

17

Rollo, pp. 45-53.

18

Id., at p. 51.

19

Id., at pp. 51-52.

360

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 expressly
covers not only the P250,000.00 under PN BD#75/C-252,
but also the two other promissory notes included in the
application20 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. Petitioner
21
relies on the cases of Lim
Julian
v.
Lutero,
Tady-Y v.
22
Philippine
National Bank, Quimson v. Philippine National
23
24
Bank, C & C Commercial v. Philippine
National
Bank,
25
Mojica v. Court of Appeals,
and China Banking
26
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/C-345 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 from
27
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 that
principally secured all of
28
respondents promissory notes.
_______________
20

Id., at pp. 23-24.

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.
361

VOL. 464, JULY 28, 2005

361

Prudential Bank vs. Alviar

As for PN BD#76/C-345, which the Court of Appeals found
to be exclusively secured by the Clean-Phase out TOD 3923,
petitioner posits that such security is not exclusive, as the
dragnet clause of the real estate
mortgage covers all the
29
obligations of the respondents.
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/C-430 was in fact for home construction and
personal consumption of respondents. Thus, it states that
30
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 of the
32
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 that expressly
33
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
respondents,
34
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
and
35
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.
362

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
foreclosure of the mortgaged property for the non-payment
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/C-430 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. Well-settled 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
36
they have exceeded their authority. However, the legal

36

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
37
circumvention 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).
363

VOL. 464, JULY 28, 2005

363

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
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, well-established 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
clauses are carefully scrutinized and strictly
38
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
39
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,

their having to execute additional security documents,

thereby saving time, travel, loan closing
costs, costs of extra
40
legal services, recording fees, et cetera. Indeed, it has been
settled in a long line of decisions that mortgages given to
41
secure 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, 283-284.
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.

364

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 42
to secure future and other
indebtedness can be gathered.
The blanket mortgage clause in the instant case states:
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
43
liens and 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

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.
365

VOL. 464, JULY 28, 2005

365

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.
In the case at bar, the subsequent loans obtained by
respondents were secured by other securities, thus: PN
BD#76/C-345, executed by Don Alviar was secured by a
holdout on his foreign currency savings account, while PN
BD#76/C-430, executed by respondents for Donalco Trading,
Inc., was secured by Clean-Phase 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/C-430 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/C-345.
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, although such other
44
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
after exhausting the security
45
specified therein, such defi-

45

specified therein, such defi_______________

44

54A AM JUR 2d, Mortgages, 73, 646, citing Anglo-Californian

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.
366

366

SUPREME COURT REPORTS ANNOTATED

Prudential Bank vs. Alviar

ciency being an indebtedness within the meaning of the

mortgage, in the absence
of a special contract excluding it
46
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
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
accepted a different
47
security he did not accept the offer.
_______________
46
47

Anglo-Californian Bank, Ltd. V. Cerf, supra note 44.

3 ALR4th, Dragnet ClauseModern Status, 21[b], 741, citing

Union Bank v. Wendland, 54 Cal App 3d 393, 126 CAL RPTR 549.

Union Bank v. Wendland, 54 Cal App 3d 393, 126 CAL RPTR 549.
367

VOL. 464, JULY 28, 2005

367

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 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 the48security 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
refers to the mortgage
49
as providing security therefor.
It was therefore improper for petitioner in this case to
seek foreclosure of the mortgaged property because of nonpayment 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/C-345. The foreclosure of the
mortgaged property should only be for the P250,000.00 loan
covered by PN BD#75/C-252, 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,
notwithstanding the giving of
50
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 was51 the
affixing of their signatures or adhesion thereto. A
contract of adhesion is one in which a party imposes a
ready-made form of contract which the other party
may
52
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 construed
53
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
have avoided
54
it by the exercise of a little more care. To be more
emphatic, any ambiguity in a
_______________
50

Anglo-Californian 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
must be read against the party who drafted
55
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 petitioners 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
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/C-345, 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 CA-G.R. CV No. 59543 is
AFFIRMED.
Costs against petitioner.
SO ORDERED.
Puno (Chairman), Austria-Martinez, Callejo, Sr. and
Chico-Nazario, 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

non-payment of a mortgage indebtednessthe 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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