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. <<<CLICK HERE FOR VERSION 2 OF THIS CASE DIGEST.>>>. (G.R. No. 174006; December 8, 2010).

FACTS: Respondents borrowed money from petitioner bank in the amount of Nine Hundred Thousand Pesos (P900,000.00). Respondents executed a Real Estate Mortgage over the condominium unit as collateral, and the same was annotated at the back of CCT No. 2130. Respondents again borrowed One Million One Hundred Thousand Pesos (P1,100,000.00) from petitioner bank, which was also secured by a mortgage over the same property annotated at the back of CCT No. 2130.

Respondents paid One Million Eleven Thousand Five Hundred Fifty-Five Pesos and 54 centavos (P1,011,555.54). 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 on CCT No. 2130. However, the bank refused to cancel the same and demanded payment of P 4,633,916.67. Respondents requested for an accounting which would explain how the said amount was arrived at.

However, instead of heeding respondents request, petitioner bank applied for extra-judicial foreclosure of the mortgages over the condominium unit.

Respondents filed suit with the RTC, Quezon City, assailing 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 CCT No. 2130, but denied that respondents had already fully settled their outstanding obligations with the bank. It averred that several credit lines were granted to respondent Andres Flores by petitioner bank that were secured by promissory notes executed by him, and which were either increased or extended from time to time.

The RTC rendered decision dismissing the Complaint for Specific Performance. The RTC stated that the evidence submitted by petitioner bank, specifically the promissory notes and statement of account dated February 27, 1998, negated this contention. Respondents filed a motion for reconsideration but the same was denied. Aggrieved, respondents appealed to the CA.

The CA reversed the RTC decision. The CA ratiocinated that the principal obligation or loan was already extinguished by the full payment thereof. Consequently, the real estate mortgages securing the principal obligation were also extinguished. The CA also noted that the two mortgages were individually annotated at the back of CCT No. 2130. Thus, the CA opined that the individual annotations clearly indicated that the said mortgages were not meant to serve as a continuing guaranty for any future loan that respondents would obtain from petitioner bank.

Petitioners filed a motion for reconsideration but the same was denied. Hence, this petition.

ISSUE: Is 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.Under Article 2053 of the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as a continuing guaranty or suretyship. A continuing guaranty is not limited to a single transaction, but contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. In other words, a continuing guaranty is one that covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof.

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 other jurisdictions, it has been held that the use of particular words and expressions, such as payment of "any debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any time" or "on such time" that the principal debtor may require, has been construed to indicate a continuing guaranty.

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 CCT No. 2130, 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.

Respondents full payment of the loans annotated on the title of the property shall not effect the release of the mortgage because, by the express terms of the mortgage, it was meant to secure all future debts of the spouses and such debts had been obtained and remain unpaid. Unless full payment is made by the spouses of all the amounts that they have incurred from petitioner bank, the property is burdened by the mortgage. GRANTED.