Bank of Commerce v. Flores (G.R. No. 174006; December 8, 2010)

CASE DIGEST: BANK OF COMMERCE and STEPHEN Z. TAALA, Petitioners, v. Spouses ANDRES and ELIZA FLORES, Respondents. (G.R. No. 174006; December 8, 2010).

FACTS: Respondents are the registered owners of a condominium unit in Quezon City. Respondents borrowed money from petitioner bank in the amount of (P900,000.00). Respondents executed a Real Estate Mortgage over the condominium unit as collateral, and the same was annotated at the back of the CCT. Respondents again borrowed (P1,100,000.00) from petitioner bank, which was also secured by a mortgage over the same property.

Respondents paid (P1,011,555.54), as evidenced by an Official Receipt issued by petitioner bank. On the face of the receipt, it was written that the payment was "in full payment of the loan and interest." Respondents then asked petitioner bank to cancel the mortgage annotations since the loans secured by the real estate mortgage were already paid in full. However, the bank refused to cancel the same and demanded payment of (P4,633,916.67), representing the outstanding obligation of respondents. Petitioner bank applied for extra-judicial foreclosure of the mortgages over the condominium unit.Respondents assailed the validity of the foreclosure and auction sale of the property. They averred that the loans secured by the property had already been paid in full. Petitioner bank admitted that there were only two (2) mortgage loans annotated at the back of the CCT, but denied thatrespondents had already fully settled their outstanding obligations with the bank.It averred that several credit lines were granted by petitioner bank that were secured by promissory notes executed by him, and which were either increased or extended from time to time.

ISSUE: Was the real estate mortgage over the subject condominium unit a continuing guaranty for the future loans of respondent spouses despite the full payment of the principal loans annotated on the title of the subject property?

HELD: A continuing guaranty is a recognized exception to the rule that an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage contract. A guaranty shall be construed as continuing when, by the terms thereof, it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved.

In the instant case, the language of the real estate mortgage unambiguously reveals that the security provided in the real estate mortgage is continuing in nature. Thus, it was intended as security for the payment of the loans annotated at the back of the CCT, and as security for all amounts that respondents may owe petitioner bank.It is well settled that mortgages given to secure future advance or loans are valid and legal contracts, and that 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.