Prudential Bank v.

Don Alviar and Georgia Alviar Facts: On July 1975, Sps Alviar executed a REM in favor of Prudential Bank. The mortgage was registered and it states that it will secure the payment of the 250k loan and those that may hereafter be obtained by the Mortgagor and/or Debtor. The Loan matured on August 1976. On October 1976, Don Alviar executed a PN for P2.64M. This was secured by a hold out on his foreign currency SA with the bank. On December 1976, the Sps executed for Donalco Trading, as President/Chairman of the Board, and VP, another PN worth P545k. The loan was secured by Clean-Phase out Temporary Overdraft (TOD). This means that the TOD incurred by Donalco with the Bank is converted into an ordinary loan in compliance with CB circular on the discontinuance of overdrafts. On March 1977, Bank informed Donalco of the approval of the loan, which will be used to liquidate the overdraft. This loan PN was secured by Deeds of assignment on two PN executed by Bancom Realty and the chattel mortgage on various heavy and transpo equipment. On March 1979, the Sps paid the Bank 2M to be applied to the obligations of ALviar Realty, and for the release of the REM for the P450k PN. The Bank accepted the payment and released the mortgage. On January 1980, the Bank moved for extrajudicial foreclosure of the mortgage due to the total unpaid obligation of P1.6M on the 3 PNs. Resp. Sps the foreclosure is unlawful since they had already paid the loan that was secured by the REM Pet. Bank the payment was for Alviar Realty and not for the P450k PN. TC dismissed the complaint and ordered the Sheriff to proceed with the extra-judicial foreclosure. But it later set aside its earlier decision, on the ground that the blanket mortgage clause applies only to future loans obtained by the mortgagors (Sps) and not by other parties. CA affirmed. It ruled that the Sps executed different PNs which were secured separately. Pet. Bank the blanket mortgage clause or dragnet clause covers not only the P250k loan but all subsequent loans obtained by the Sps, therefore the foreclosure was valid. Resp. Sps the dragnet clause cannot be applied because the PNs were secured by different forms of security. Issues: 1. Validity of dragnet clauses valid 2. Coverage of the dragnet clause first PN only

3. Validity of foreclosure Not valid Held: SC first comment: The loan obtained by the Sps for Donalco was executed as corporate officers, therefore they are not liable, even if the REM states as well as those obtained by the Mortgagors and/or debtor. The corporation has a personality separate and distinct from that of its officers. THe officers are not personally liable for the acts of the corporation UNLESS it is shown that they have exceeded their authority. Piercing the veil doctrine is applied if corporate personality is used as a means to perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation. The Bank failed to show that the Sps are hiding behind the corporate structure to evade payment of their obligations. There was no proof showing that the loan was used for their personal consumption (even if the PN stated that is was for house construction and personal consumption). 1. Blanket mortgage clause or dragnet clause is one which is specifically phrased to subsume all debts past or future origins. Such clauses are carefully scrutinized and strictly construed. It enables 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. These type of mortgage given to secure future advancements are valid and legal. Based on the wording of the REM, it is a dragnet mortgage. 2. Two schools of thought: (1) Dragnet clause cover all debts, including future ones; (2) it will not secure a note that is separately covered by another security. The SC chose the 2nd school of thought. It held that dragnet clauses are entered into with an implied understanding that subsequent loans need not be secured by other securities, as said loans will be secured by the first mortgage. The court held that the first security (dragnet) is a continuing offer by the borrower to secure future loans, and when the lender accepts a different security, then he did not accept the offer. The 1st and 2nd PNs were secured by different securities. 1st PN by the blanket mortgage in question, and the 2nd PN by the foreign currency savings account. 3. The foreclosure of the REM should only be for the P250k loan. It can only be foreclosed as to the 2nd note if the proceeds of the FC/SA that secures it is not enough to cover the 2nd loan. The Court also mentioned that because the REM was a contract of adhesion, then any ambiguity in the contract must be construed against the Bank who caused said ambiguity. The Bank may foreclose the REM for the unpaid P250k note, and for any deficiency after the FC/SA has been exhausted for the 2nd PN. Petition denied.