Scribd
Upload
55 views1 page

1370-1379 - Interpretation of Contracts

1) The Spouses Alonday took out two loans from PNB - an agricultural loan in 1974 and a commercial loan in 1980, secured by mortgages on two different properties. 2) In 1984, after the commercial loan was paid off, the children of the Spouses Alonday demanded the release of the mortgage on the property used to secure the commercial loan. PNB refused, citing an "all-embracing clause" allowing it to foreclose on both properties due to non-payment of the agricultural loan. 3) The Supreme Court ruled that the dragnet clause could not be used to secure the unpaid agricultural loan because the mortgage contract for the commercial loan did not expressly mention the agricultural

Uploaded by

Sarah Jane Usop
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
55 views1 page

1370-1379 - Interpretation of Contracts

1) The Spouses Alonday took out two loans from PNB - an agricultural loan in 1974 and a commercial loan in 1980, secured by mortgages on two different properties. 2) In 1984, after the commercial loan was paid off, the children of the Spouses Alonday demanded the release of the mortgage on the property used to secure the commercial loan. PNB refused, citing an "all-embracing clause" allowing it to foreclose on both properties due to non-payment of the agricultural loan. 3) The Supreme Court ruled that the dragnet clause could not be used to secure the unpaid agricultural loan because the mortgage contract for the commercial loan did not expressly mention the agricultural

Uploaded by

Sarah Jane Usop
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

PNB V.

ALONDAY 805 SCRA 657


1370-1379 – Interpretation of Contracts

FACTS: On September 26, 1974, the Spouses Benedicto and Azucena Alonday (Spouses Alonday) obtained an agricultural loan of
P28,000.00 from the petitioner at its Digos, Davao del Sur Branch, and secured the obligation by constituting a real estate mortgage on
their parcel of land situated in Sta. Cruz, Davao del Sur registered under Original Certificate of Title (OCT) No. P-3599 of the Registry of
Deeds of Davao del Sur.

On June 11, 1980, the Spouses Alonday obtained a commercial loan for P16,700.00 from the petitioner's Davao City Branch, and
constituted a real estate mortgage over their 598 square meter residential lot situated in Ulas, Davao City registered under Transfer
Certificate of Title (TCT) No. T-66139 of the Registry of Deeds of Davao City.

The Spouses Alonday made partial payments on the commercial loan, which they renewed on December 23, 1983 for the balance of
P15,950.00. The renewed commercial loan, although due on December 25, 1984, was fully paid on July 5, 1984.

On August 6, 1984, respondents Mercy and Alberto Alonday, the children of the Spouses Alonday, demanded the release of the mortgage
over the property covered by TCT No. T-66139. The petitioner informed them, however, that the mortgage could not be released because
the agricultural loan had not yet been fully paid, and that as the consequence of the failure to pay, it had foreclosed the mortgage over the
property covered by OCT No. P- 3599 on August 17, 1984.

It appeared that notwithstanding such foreclosure, a deficiency balance of P91,525.22 remained. Hence, the petitioner applied for the
extra•judicial foreclosure of the mortgage on the property covered by TCT No. T-66139. A notice of extra-judicial sale was issued on
August 20, 1984, and the property covered by TCT No. T-66139 was sold on September 28, 1984 to the petitioner in the amount of
P29,900.00. Since the Alondays were unable to redeem the property, the petitioner consolidated its ownership. Later on, the property was
sold for P48,000.00 to one Felix Malmis on November 10, 1989.

According to the petitioner, the deed of mortgage relating to the property covered by TCT No. T-66139 included an "all-embracing
clause" whereby the mortgage secured not only the commercial loan contracted with its Davao City Branch but also the earlier agricultural
loan contracted with its Digos Branch.

ISSUE: Whether the all-embracing or dragnet clause contained in the first mortgage contract executed between the parties for the
security of the first loan could authorize the foreclosure of the property under the mortgage to secure a second loan despite the full
payment of the second loan.

RULING: The dragnet clause contained in the first mortgage contract executed between the parties for the security of the first loan could
not authorize the foreclosure of the property under the mortgage to secure the second loan.

In order for the all-embracing or dragnet clauses to secure future and other loans, the loans thereby secured must be sufficiently described
in the mortgage contract. Considering that the agricultural loan had been pre- existing when the mortgage was constituted on the property
covered by TCT No. T-66139, it would have been easy for the petitioner to have expressly incorporated the reference to such agricultural
loan in the mortgage contract covering the commercial loan. But the petitioner did not. Being the party that had prepared the contract of
mortgage, its failure to do so should be construed that it did not at all contemplate the earlier loan when it entered into the subsequent
mortgage.

Moreover, the mortgage contracts executed by the Spouses Alonday were contracts of adhesion exclusively prepared by the petitioner. A
contract of adhesion, albeit valid, becomes objectionable only when it takes undue advantage of one of the parties the weaker party- by
having such party just
adhere to the terms of the contract. Hence, the mortgage contracts in this case should be construed strictly against the petitioner as the
party who had drafted the same.

You might also like