Quiambao v. China Banking Corporation

 

Quiambao v. China Banking Corporation

G.R. No. 238462

May 12, 2021

 

FACTS:

Elena R. Quiambao obtained a loan of P1.4M from China Banking Corporation (CBC) to augment the working capital of her general merchandising business. To secure the loan, she and her common-law husband and business partner, Daniel S. Sy, executed a Real Estate Mortgage on a parcel of land. Over time, the REM was amended several times, increasing the loan amount to P4 million. The amendments included a "blanket mortgage clause," indicating that the REM would secure both existing and future obligations. Subsequently, CBC filed for foreclosure claiming P5M in loan accommodations covered by 8 promissory notes. RTC scheduled an extra-judicial sale, and the mortgaged property was eventually sold to the bank. Despite efforts, Elena and Daniel failed to redeem the property, leading to the consolidation of the title in the name of CBC. Elena then filed a petition to annul the mortgage and foreclosure proceedings, arguing that the REM only covered the initial loan and its amendments, not the subsequent P5 million loans. The RTC ruled in favor of Elena, determining that certain promissory notes were unsecured, thus invalidating the foreclosure proceedings.

ISSUES:

1. Whether the amendments to the REM are contracts of adhesion.

2. Whether the REM amendments and foreclosure proceedings are void.

HELD:

1. YES. In a contract of adhesion, one imposes a ready-made contract to the other whose sole participation is either to accept or reject the agreement. It was CBC which drafted and prepared the standard forms on which Elena and Daniel merely affixed their signatures. It was established that Elena and Daniel signed the amendments to the REM in blank. They presented pro forma blank documents that China Banking Corporation is giving to all borrowers for signature. Corollarily, any ambiguity in the provisions of these documents must be interpreted against China Banking Corporation.

2. YES. A "blanket mortgage clause" or "dragnet clause" subsumes all debts of past or future origins and makes additional funds available to a borrower without the need to execute separate security documents, thus, saving time, costs, and other resources. While jurisprudence recognizes the validity of such clauses, the court argues that the 8 PNs failed to reference the REM as security, and CBC did not provide evidence that the REM and its amendments secured these obligations. Due to these lapses and the lack of clarity, the court deems the foreclosure proceedings void. The court also took into consideration the educational background of Elena and Daniel, arguing that they lacked the understanding to comprehend the legal implications of the REM amendments. Thus, the court ruled in favor of Elena, declaring the REM amendments and foreclosure proceedings void, rendering her motion to hold in abeyance the removal of personal belongings from the foreclosed property unnecessary in light of the favorable decision.