A contract of adhesion is a veritable trap for the weaker party whom the
courts are bound to protect from abuse and imposition. Hence, in case
of doubt which will cause a great imbalance of rights, the contract
shall be construed strictly against the party who prepared it.
[1] This resolves the Petition for Review on
Certiorari[2] under Rule 45 of the Rules of Court assailing the Court of Appeals' (CA) Decision
[3] dated September 11, 2017 and Resolution
[4] dated March 21, 2018 in CA-G.R. CV No. 97888.
ANTECEDENTS
On April 3, 1990, Elena R. Quiambao (Elena) borrowed P1,400,000.00
[5] from China Banking Corporation to increase the working capital of her general merchandising business.
[6] On even date, Elena and her common-law husband and business partner Daniel S. Sy (Daniel) executed a Real Estate Mortgage
[7] (REM) over a parcel of land registered under Transfer Certificate of Title (TCT) No. 227449-PR21432 as security for the loan.
[8] Later, the REM was amended several times increasing the loan to P1,770,000.00 on April 29, 1993,
[9] P2,600,000.00 on April 28, 1995;
[10] and P4,000,000.00 on April 29, 1997.
[11] The amendments contained a "
blanket mortgage clause" stating that the REM would secure the payment of obligations already incurred or which may be subsequently incurred.
On March 1, 2005, China Banking Corporation filed a petition for
foreclosure of the REM with the Regional Trial Court (RTC) alleging that
Elena and Daniel obtained P5,000,000.00 succeeding loan accommodations
covered by eight promissory notes (PNs),
[12] thus:
Promissory Note No. |
Dated of Execution |
Description |
1. PN No. 001071438686 for P500,000.00 |
March 19, 2004 |
Renewal of the initial PN No. T-134040-6 dated June 16, 2000, for P500,000.00 |
2. PN No. 001071438693 for P1,000,000.00 |
March 19, 2004 |
Renewal of the initial PN No. S-136992-6 dated July 24, 2001, for P1,000,000.00 |
3. PN No. 001071438723 for P500,000.00 |
March 19, 2004 |
Renewal of the initial PN No. S-137764-4 dated October 30, 2001, for P500,000.00 |
4. PN No. 001071438730 for P1,000,000.00 |
March 19, 2004 |
Renewal of the initial PN No. S-138142-1 dated December 20, 2001, for P1,000,000.00 |
5. PN No. 001071445042 for P400,000.00 |
June 16, 2004 |
Renewal of the initial PN No. S-141161-2 dated March 12, 2003, for P400,000.00 |
6. PN No. 001071445035 for P600.000.00 |
June 16, 2004 |
Renewal of the initial PN No. S-137041-4 dated July 30, 2001, for P600,000.00 |
7. PN No. 001071445011 for P500,000.00 |
June 16, 2004 |
Renewal of the initial PN No. S-137526-6 dated September 28, 2001, for P500,000.00 |
8. PN No. 001071445004 for P500,000.00 |
June 16, 2004 |
Renewal of the initial PN No. S-136971-1 dated July 20, 2001, for P500,000.00 |
In due course, the RTC issued a notice of extra-judicial sale scheduled on May 5, 2005.
[13] The notice was published in a newspaper of general circulation
[14]
and posted in public places. At the public auction sale, the mortgaged
property was sold to China Banking Corporation for the amount of
P5,254,708.00. On May 6, 2005, the Ce1iificate of Sale was issued to
China Banking Corporation.
[15]
However, Elena and Daniel failed to redeem the property. Thus, the
title was consolidated in the name of China Banking Corporation.
[16] Accordingly, TCT No. 227449-PR 21432
[17] in the name of Elena was cancelled and TCT No. N-307380
[18] was issued in the name of China Banking Corporation.
Thereafter, Elena filed against China Banking Corporation a petition to
annul the mortgage and the extra-judicial foreclosure proceedings with
prayer for injunctive relief before the RTC.
[19]
Elena argued that the REM only covered the loan secured on April 3,
1990, and its amendments but not her succeeding loans for P5,000,000.00.
[20]
In contrast, China Banking Corporation maintained that Elena's loan on
April 3, 1990, was extended and renewed up to March 2004. Yet, Elena
merely paid the interests but not the principal.
[21]
At the trial, Elena testified that she was made to sign blank documents
and blank PNs when she transacted with China Banking Corporation. The
last mortgage document that she signed was on April 29, 1997. On the
other hand, China Banking Corporation's loan assistant testified that PN
No. 001071438693 executed on March 19, 2004 was not subject of the REM.
[22]
On February 22, 2011, the RTC granted the petition and ruled that the
eight PNs executed from March 19, 2004 to June 16, 2004 cannot be the
basis for the foreclosure proceedings since one PN was clean or
unsecured,
[23] thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the petitioner and against the respondents [sic].
The Amendment to the Real Estate Mortgage dated April 29, 1997 is
declared null and void and the Extra-judicial foreclosure sale executed
on May 5, 2005 is likewise declared null and void.
x x x x
SO ORDERED.[24]
On September 11, 2017, the CA reversed the RTC's findings and held that
the REM was intended to secure all succeeding obligations of Elena in
view of the blanket mortgage clause.
[25]
The CA noted that Elena and Daniel were capable of understanding the
legal effects of contracts given their business experience, thus:
[Elena] and [Daniel's] lengthy actual experience and
dealings in running their complex money[-]changing business and various
other businesses, more than equipped them with the business acumen that
earned them millions. [Elena] and [Daniel] have long been engaged in
business even prior to 1990. The latter affim1ed that he managed their
general merchandising business continuously up to the time he testified
on June 28, 2006. The contracting parties, being of age and businessmen
of experience, were presumed to have acted with due care and to have
signed the contracts with full knowledge of their import.[26] (Citation omitted.)
Hence, this recourse. Elena maintains that she and Daniel signed the
eight PNs in blank or without the material particulars. They thought
that these are character loans without any renewal of mortgage. Lastly,
Elena only finished high school while Daniel reached only grade two.
They both have limited educational attainment which prevented them from
discerning the effects of the transactions.
[27]
Meantime, China Banking Corporation advised Elena to remove her
personal belongings from the foreclosed property, otherwise it will be
forced to dispose them. Aggrieved, Elena moved to hold in abeyance the
hauling off, and disposal of her personal properties.
RULING
The petition is meritorious.
Elena raises a question regarding the appreciation of evidence which is
one of fact, and is beyond the ambit of this Court's jurisdiction in a
petition for review on
certiorari. It is not this Court's task to go over the proofs presented below to ascertain if they were weighed correctly.
[28]
However, this rule of limited jurisdiction admits of exceptions and one
of them is when the factual findings of the CA and the RTC are
contradictory.
[29] In this
case, the RTC concluded that the eight promissory notes from March 19,
2004 to June 16, 2004 cannot be the bases for foreclosure proceedings
while the CA ruled that the REM validly secured these succeeding loan
obligations. Considering these conflicting findings warranting the
examination of evidence, this Court will entertain the factual issues
raised in the petition.
In a contract of adhesion, one imposes a ready-made contract to the
other whose sole participation is either to accept or reject the
agreement.
[30] The parties do not bargain on equal footing in the execution of this kind of contract given that the debtor is limited "
to take it or leave it" option
[31] and there is no room for negotiation.
[32]
However, such contract is not entirely prohibited. The one adhering is
free to give his consent inasmuch as he is also free to reject it
completely.
[33] Inarguably,
the amendments to the REM are contracts of adhesion. It was China
Banking Corporation which drafted and prepared the standard forms on
which Elena and Daniel merely affixed their signatures. At the trial, it
was established that Elena and Daniel signed the amendments to the REM
in blank. They presented
pro forma blank documents that China
Banking Corporation is giving to all borrowers for signature.
Corollarily, any ambiguity in the provisions of these documents must be
interpreted against China Banking Corporation.
Notably, there is a controversy on whether the "
blanket mortgage clause"
in the latest amendment to the REM dated April 29, 1997 covers the
P5,000,000.00 succeeding loans under the eight PNs for which the
mortgage was foreclosed. We stress that a "
blanket mortgage clause" or "
dragnet clause" subsumes all debts of past or future origins
[34]
and makes additional funds available to a borrower without the need to
execute separate security documents, thus, saving time, costs, and other
resources.
[35] Jurisprudence recognizes the validity of this clause
[36] but its terms must still be judiciously examined.
[37]
In
Paradigm Development Corporation of the Phils. v. Bank of the Philippine Islands,
[38]
this Court held that while a REM may exceptionally secure future loans
or advancements, these future debts must be specifically described or
must come fairly within the terms of the mortgage contract. 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 as providing security therefor, or unless there are
clear and supportive evidence to the contrary. In that case, the
foreclosure proceedings were declared void because there is uncertainty
on whether the promissory notes were secured or not. It was not shown
that the PNs are within the terms of the limited liability of the
debtor, thus:
Nonetheless, the parties do not dispute that what the REMs
secured were only Sengkon's availments under the Credit Line and not all
of Sengkon's availments under other sub-facilities which are also
secured by other collaterals. Since the liability of PDCP's properties
was not unqualified, the PNs, used as basis of the Petition for
Extrajudicial Foreclosure of Mortgage should sufficiently indicate that it is within the terms of PDCP's limited liability.
In this case, the PNs failed to make any reference to PDCP's
availments, if any, under its Credit Line. In fact, it did not even
mention Sengkon's securities under the Credit Line. Notably, the
Disclosure Statements, which were "certified correct" by FEBTC's
authorized representative, Ma. Luisa C. Ellescas, and which accompanied
the PNs, failed to disclose whether the loan secured thereby was actually secured or not.[39] (Emphases supplied and citation omitted.)
Here, the eight PNs likewise failed to allude to Elena and Daniel's
liability under the latest amendment to the REM dated April 29, 1997.
The PNs do not even make any reference to the REM as a security.
Further, China Banking Corporation did not adduce any evidence proving
that the REM and its amendments secured these obligations. Worse, China
Banking Corporation's loan assistant categorically testified that one of
the PNs was not subject of the REM. Hence, the doubt on whether the
rest of the PNs are secured or not must be construed against China
Banking Corporation or the party who prepared the contracts. The bank
could have avoided the ambiguity had it exercised a little more care in
drafting the instruments. Consequently, the latest amendment to the REM
cannot be interpreted to cover the P5,000,000.00 succeeding loans under
the eight PNs for which the mortgage was foreclosed. As such, the
foreclosure proceedings are void. The bank cannot validly foreclose a
mortgage based on non-payment of unsecured PNs.
Moreover, it is undisputed that Elena only finished high school while
Daniel reached only grade two. They cannot be expected to understand all
the technicalities and foresee the legal implications of the
transactions despite their business experience. Differently stated,
Elena and Daniel lacked the adeptness to fully comprehend the effects of
the amendments to the REM. On the other hand, China Banking Corporation
merely concluded that Elena and Daniel freely, voluntarily, and
willingly entered into the amendments to the REM but did not prove, let
alone allege, that it made an effort to explain to them and ensure that
they indeed understand the stipulations in the contract. Hence, there is
reason for the court to step in and protect the interest of the weaker
party, thus:
The peculiar nature of such contracts behooves the Court
to closely scrutinize the factual milieu to which the provisions are
intended to apply. Thus, just as consistently and unhesitatingly, but without categorically invalidating such contracts, the
Court has construed obscurities and ambiguities in the restrictive
provisions of contracts of adhesion strictly albeit not unreasonably
against the drafter thereof when justified in light of the operative
facts and surrounding circumstances.[40] (Emphases supplied and citation omitted.)
We reiterate that the validity or enforceability of the impugned
contracts will have to be determined by the peculiar circumstances
obtaining in each case and the situation of the parties concerned.
[41]
The stringent treatment towards a contract of adhesion is pursuant to
the mandate that in all contractual, property, or other relations, when
one of the parties is at a disadvantage on account of his moral
dependence, ignorance, indigence, mental weakness, tender age or other
handicap, the courts must be vigilant for his protection.
[42]
Lastly, there is no need to rule on Elena's motion to hold in abeyance
the removal of her personal belongings from the foreclosed property
considering the favorable decision on the merits declaring void the
amendments to the REM and the foreclosure proceedings.
FOR THESE REASONS, the petition is
GRANTED. The Court of Appeals' Decision dated September 11, 2017 and Resolution
[43] dated March 21, 2018 in CA-G.R. CV No. 97888 are
REVERSED. The Regional Trial Court's Decision dated February 22, 2011 is
REINSTATED.
SO ORDERED.
Perlas-Bernabe, (Chairperson), Lazaro-Javier, Rosario, and
J. Lopez,
* JJ., concur.
* Designated additional Member
per Special Order No. 2822 dated April 7, 2021.
[1] Asiatrust Development Bank v. Tuble, 691 Phil. 732, 745 (2012).
[2] Rollo, pp. 10-52.
[3] Id. at 55-68;
penned by Associate Justice Myra V. Garcia-Fernandez, with the
concurrence of Associate Justices Romeo F. Barza and Rafael Antonio M.
Santos.
[4] Id. at 69-70.
[5] Id. at 88-89.
[6] Id. at 55-56.
[7] Id. at 283-287.
[8] Id. at 90-92.
[9] Id. at 288-290. The blanket mortgage clause provided:
WHEREAS,
to secure the payment of certain obligation already incurred
or which may hereafter be incurred by the MORTGAGOR(S) and/or to the
MORTGAGEE, up to the principal sum of ONE MILLION FOUR HUNDRED
THOUSAND [PESOS] ONLY x x x (P1,400,000.00), the MORTGAGOR(S) x x x
mortgaged to the MORTGAGEE for the same amount the parcel(s) of land
situated in Quezon City, x x x.
Id. at 288. (Emphasis supplied.)
[10] Id. at 291-293. The blanket mortgage clause provided:
WHEREAS,
to secure the payment of certain obligations already
incurred or which may hereafter be incurred by the MORTGAGOR(S) and/or
to the MORTGAGEE, up to the principal sum of ONE MILLION SEVEN
HUNDRED [THOUSAND] PESOS ONLY x x x (P1,770,00.00), the MORTGAGOR(S) x x
x mortgaged to the MORTGAGEE for the same amount the parcel(s) of land
situated in Quezon City, x x x.
Id. at 291. (Emphasis supplied.)
[11] Id. at 294-296. The blanket mortgage clause provided:
WHEREAS, to secure the payment of certain obligations already incurred
or which may hereafter be incurred by the MORTGAGOR(S) and/or to the
MORTGAGEE, up to the principal sum of TWO MILLION SIX HUNDRED THOUSAND
PESOS ONLY x x x (P2,600,000.00), the MORTGAGOR(S) x x x mortgaged to
the MORTGAGEE for the same amount the parcel(s) of land situated in
Quezon City, x x x.
x x x x
WHEREAS, upon application of the MORTGAGORS(S) and/or the MORTGAGEE has
agreed to extend to the MORTGAGOR(S) and/or - increased credit
facilities up to the principal sum of FOUR MILLION PESOS ONLY x x x (P4,000,000.00), Philippine Currency, only[.] Id. at 294. (Emphasis supplied.)
[12] Id. at 297-304; and 305-308.
[13] Id. at 309.
[14] Id. at 310-313.
[15] Id. at 315.
[16] Id. at 322-323.
[17] Id. at 316-321.
[18] Id. at 324-328.
[19] Id. at 75-86.
[20] Id. at 83.
[21] Id., pp. 134-135.
[22] Id. at 137.
[23] Id. at 134-140; penned by Presiding Judge Tita Marilyn Payoyo-Villordon.
[24] Id. at 140.
[25] Supra note 3. The CA Decision, disposed as follows:
WHEREFORE, the appeal is GRANTED. The decision of the [RTC] x x x in
Civil Case No. Q-05-55289 dated February 22, 2011 is REVERSED and SET
ASIDE. The petition for annulment of mortgage and extrajudicial
foreclosure sale is dismissed.
SO ORDERED. Supra at 67.
[26] Supra note 2, at 61.
[27] Supra note 2, at 19.
[28] Galan v. Vinarao, 820 Phil. 257, 266 (2017);
Heirs of Teresita Villanueva v. Heirs of Petronila Syquia Mendoza, 810 Phil. 172, 178 (2017); and
Bacsasar v. Civil Service Commission, 596 Phil. 858, 867 (2009).
[29] Office of the Ombudsman v. De Villa, 760 Phil. 937, 949-950 (2015);
Miro v. Vda. de Erederos, 721 Phil. 772, 787 (2013);
Office of the Ombudsman v. Dechavez, 721 Phil. 124, 129-130 (2013); and
Medina v. Mayor Asistio, Jr., 269 Phil. 225, 232 ( 1990).
[30] Prudential Bank v. Alviar, 502 Phil. 595, 610 (2005).
[31] Phil. National Bank v. The Hon. Court of Appeals, G.R. No. 88880, April 30, 1991, citing
Qua [Chee Gan] v. Law Union & Rock Insurance Co., [Ltd., G.R. No. L-4611, December 17, 1955].
[32] RCPI v. Verchez, 516 Phil. 725, 742 (2006).
[33] Norton Resources and Dev't. Corp. v. All Asia Bank Corp., 620 Phil. 381, 392 (2009).
[34] Philippine Bank of Communications v. CA, 323 Phil. 297, 312 (1996).
[35] Prudential Bank v. Alviar, supra note 30, at 606.
[36] Mojica v. Hon. Court of Appeals, G.R. No. 94247, September 11, 1991.
[37] Philippine Bank of Communications v. CA, supra note 34.
[38] 810 Phil. 539 (2017).
[39] Id. at 561.
[40] Philippine Airlines, Inc. v. CA, 325 Phil. 303, 314 (1996).
[41] Cabanting v. BPI Family Savings Bank, Inc., 781 Phil. 164, 169 (2016).
[42] NEW CIVIL CODE, Art. 24.
[43] Rollo, pp. 68-69.