VIII

X obtained a Php10Million loan from BBB Banking Corporation. The loan is secured by Real Estate Mortgage on his
vacation house in Tagaytay City. The original Deed of Real Estate Mortgage for the Php10Million was duly
registered. The Deed of Real Estate Mortgage also provides that "The mortgagor also agrees that this mortgage will
secure the payment of additional loans or credit accommodations that may be granted by the mortgagee ... "
Subsequently, because he needed more funds, he obtained another Php5Million loan. On due dates of both loans,
X failed to pay the Php5Million but fully paid the Php10Million. BBB Banking Corporation instituted extrajudicial
foreclosure proceedings.

a. Will the extrajudicial foreclosure prosper considering that the additional Php5Million was not covered by the
registration? (5%)

Yes. X executed a real estate mortgage containing a “blanket mortgage clause.” 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. (Prudential Bank v. Alviar, G.R. No.
150197, 28 July 2005)

b. What is the meaning of a "dragnet clause" in a Deed of Real Estate Mortgage? Under what circumstances
will the "dragnet clause" be applicable? ( 5%)

Generally, a dragnet clause is a clause in a deed of real estate mortgage stating that the mortgage secures all the
loans and advances that the mortgagor may at any time owe to the mortgagee. The word “dragnet” is a reference to
a net drawn through a river or across ground to trap fish or game. It is also known in American jurisprudence as a
“blanket mortgage clause” or an “anaconda clause.” A mortgage with a dragnet clause 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 on each new transaction. It operates as a
convenience and accommodation to the borrower as it makes available additional funds to him without his having to
execute additional security documents, thereby saving time, travel, cost of extra legal services, recording fees, etc.
(Prudential Bank v. Alviar, id.)

The “dragnet clause” may not apply to other loans extended by the mortgagee to the mortgagor for which other
securities were given. In the case of Prudential Bank v. Alviar, the Supreme Court adopted the “reliance on the
security test” to the effect that “when the mortgagor takes another loan [from the mortgage] 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 means that the existence of the new security must
be respected and the foreclosure of the old security should only be for the other loans not separately collateralized
and for any amount not covered by the new security for the new loan.
 X

AAA Corporation is a bank. The operations of AAA Corporation as a bank was not doing well. So, to avert any bank
run, AAA Corporation, with the approval of the Monetary Board, sold all its assets and liabilities to BBB Banking
Corporation which includes all deposit accounts. In effect then, BBB Corporation will service all deposits of all
depositors of AAA Corporation.

a. Will the sale of all assets and liabilities of AAA Corporation to BBB Banking Corporation automatically dissolve
or terminate the corporate existence of AAA Corporation? Explain your answer. (5%)

No, the sale of all the assets and liabilities of AAA Corporation to BBB Banking Corporation will not
result in the automatic dissolution or termination of the existence of the former. A decision to dissolve AAA
Corporation or to terminate its corporate existence would require a separate approval by a majority of the
Board of Directors of AAA Corporation and its stockholders holding at least 2/3 of the total outstanding
capital stock, as well as the separate approval by the Monetary Board.

b. What are the legal requirements in order that a corporation may be dissolved? (5%)

A corporation may be dissolved voluntarily under Section 118 (where no creditors are affected) or
under Section 119 (where creditors are affected) or by shortening of the corporate term under Section 120,
or involuntarily by the SEC under Section 122, all of the Corporation Code. Dissolution under Sections 118,
119, and 120 require the same corporate approvals stated in (a) above.

The SEC has the authority under Section 6 of PD 902-A to revoke the certificate of registration of a
corporation upon any grounds provided by law, including the aforementioned Section 6-A. (BAR 2012)

1. Modes of Dissolution
Name 3 methods by which a stock corporation may be voluntarily dissolved. Explain each
method.

Answer:

The 3 methods by which a stock corporation may be voluntarily dissolved are:

Voluntary dissolution where no creditors are affected. This is done by a majority vote of the
directors, and resolution of at least 2/3 vote of stockholders, submitted to the SEC.

Voluntary dissolution where creditors are affected. This is done by a petition for dissolution
which must be filed with the SEC, signed by a majority of the members of the board of
directors, verified by the president or secretary, and upon affirmative vote of stockholders
representing at least 2/3 of the outstanding capital stock.

Dissolution by shortening of the corporate term. This is done by amendment of the articles of
incorporation. (BAR 2002)

Voluntary

Where No Creditors Are Affected

Where Creditors Are Affected

By Shortening of Corporate Term

Involuntary

By Expiration of Corporate Term