Title
Bank of Commerce vs. Spouses Flores
Case
G.R. No. 174006
Decision Date
Dec 8, 2010
Spouses Flores claimed full loan payment, sought mortgage cancellation; bank foreclosed, citing unpaid future debts. SC ruled mortgage a continuing guaranty, upheld foreclosure validity.
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Case Digest (G.R. No. 174006)

Facts:

Ownership and Mortgage of the Property
Respondents, Spouses Andres and Eliza Flores, are the registered owners of a condominium unit in Embassy Garden Homes, Quezon City, covered by Condominium Certificate of Title (CCT) No. 2130. On October 22, 1993, they borrowed P900,000 from petitioner Bank of Commerce, secured by a Real Estate Mortgage annotated on CCT No. 2130. On October 3, 1995, they borrowed an additional P1,100,000, also secured by a mortgage on the same property.

Payment of Loans and Dispute
On January 2, 1996, respondents paid P1,011,555.54, which they claimed was in full payment of the loans and interest. They requested the bank to cancel the mortgage annotations, but the bank refused, claiming an outstanding obligation of P4,633,916.67 as of February 27, 1998. The bank applied for extra-judicial foreclosure of the property, and the auction sale was scheduled for September 4, 1998.

Legal Proceedings
Respondents filed a case for specific performance, damages, and injunction before the Regional Trial Court (RTC) of Quezon City, arguing that the loans had been fully paid and that the foreclosure proceedings violated Act No. 3135 (requiring proper publication and posting of notices). The RTC dismissed the case, ruling that respondents had not fully paid their obligations and that the foreclosure complied with legal requirements. The Court of Appeals (CA) reversed the RTC decision, declaring the foreclosure null and void and ordering the cancellation of the mortgage annotations.

Issue:

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Ruling:

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Ratio:

  1. Continuing Guaranty
    A continuing guaranty is an exception to the rule that a mortgage must be limited to the amount stated in the contract. Under Article 2053 of the Civil Code, a guaranty may secure future debts, even if the amount is unknown at the time of execution. The language of the mortgage contracts in this case clearly indicated that the mortgages were intended to secure all amounts owed by the respondents, including future loans.

  2. Extinguishment of Principal Obligation
    The Court emphasized that the full payment of the loans annotated on the title did not extinguish the mortgage because the mortgage was intended to secure all future debts. The mortgage remained valid until all obligations, including future loans, were fully paid.

  3. Validity of Foreclosure
    The Court upheld the validity of the foreclosure proceedings, as the mortgage was a continuing security for all debts incurred by the respondents. The foreclosure was not limited to the loans annotated on the title but extended to all outstanding obligations.

  4. Interpretation of Mortgage Contracts
    The Court reiterated that the intent of the parties, as reflected in the mortgage contracts, governs the interpretation of such agreements. The contracts explicitly stated that the mortgages secured all amounts owed, including future debts, and this intent was binding on the parties.

Conclusion:

The Supreme Court ruled that the real estate mortgage was a continuing guaranty securing all debts, including future loans, and that the foreclosure was valid. The CA decision was reversed, and the RTC decision was reinstated.


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