Case Digest: Traders Royal Bank vs. Casteres

G.R. No. 172020 : December 6, 2010




Respondent-spouses Norberto and Milagros Castares are engaged in the business of exporting shell crafts and other handicrafts.They obtained from petitioner Traders Royal Bank various loans and credit Accommodations. Respondents executed two real estate mortgages (REMs) covering their properties.As evidenced by a promissory note, petitioner released only the amount ofP35,000.00 although the mortgage deeds indicated the principal amounts asP86,000.00 andP60,000.00. Respondents were further granted additional funds on various dates under promissory notesthey executed in favor of the petitioner.

Petitioner transferred the amount ofP1,150.00 from respondents current account to their savings account. The loans began to mature and the letters of credit against which the packing advances were granted started to expire.Petitioner, without notifying the respondents, applied to the payment of respondents outstanding obligations the sum of $4,220.00 orP30,930.49 which was remitted to the respondents thru telegraphic transfer from AMROBANK, Amsterdam.

For failure of the respondents to pay their outstanding loans with petitioner, the latter proceeded with the extrajudicial foreclosure of the real estate mortgages. Thereafter, a Certificate of Sale covering all the mortgaged properties was issued by in favor of petitioner as the lone bidder.

Petitioner instituted a Civil Case for deficiency judgment, claiming that after applying the proceeds of foreclosure sale to the total unpaid obligations of respondents (P200,397.78), respondents were still indebted to petitioner for the sum ofP83,397.68. Respondents filed a Civil Case for the recovery of the sum debited from their savings account passbook and the equivalent amount of telegraphic transfer, and in addition, the damage suffered by the respondents from letters of credit left un-negotiated.

The RTC consolidated the cases and ruled in favor of the petitioner but was overturned by the CA.


I. Whether or not the real estate mortgage is valid only to the extent of the amount proved to have been actually released to respondents.

II.Whether or not petitioner had basis in withholding and subsequently applying in payment of respondents overdue account in the telegraphic transfer in the amount of $4,220.00.

HELD: The petition is meritorious.


First issue: The subject REMs contain a "dragnet clause" or "blanket mortgage clause" which in American jurisprudence would subsume all debts of past and future origins.It has been held as a valid and legal undertaking, the amounts specified as consideration in the contracts do not limit the amount for which the pledge or mortgage stands as security, if from the four corners of the instrument, the intent to secure future and other indebtedness can be gathered.A pledge or mortgage given to secure future advancements is a continuing security and is not discharged by the repayment of the amount named in the mortgage until the full amount of all advancements shall have been paid.

The provisions of the REMs show that its terms are broad enough to cover packing credits and export advances granted by the petitioner to respondents.That the respondents subsequently availed of letters of credit and export advances in various amounts as reflected in the promissory notes, buttressed the claim of petitioner that the amounts ofP86,000.00andP60,000.00 stated in the REMs merely represent the maximum total loans which will be secured by the mortgage.This must be so as respondents confirmed that the mortgage was constituted for the purpose of obtaining additional capital as dictated by the needs of their export business.


Second issue: Agreements for compensation of debts or any obligations when the parties are mutually creditors and debtors are allowed under Art. 1282 of the Civil Code even though not all the legal requisites for legal compensation are present. Voluntary or conventional compensation is not limited to obligations which are not yet due. The only requirements for conventional compensation are (1) that each of the parties can fully dispose of the credit he seeks to compensate, and (2) that they agree to the extinguishment of their mutual credits. Consequently, no error was committed by the trial court in holding that petitioner validly applied, by way of compensation, the $4,220.00 telegraphic transfer remitted by respondents foreign client through the petitioner.