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The Court of Appeals (CA) reversed the RTC's ruling on all points. The 8. However, while the consent of the creditor need not be expressed
CA ruled that novation could not have taken place from FEBTC's mere but may be inferred from the creditor's clear and unmistakable acts,to
act of approving Sengkon's request to change account name from effect a subjective novation by a change in the person of the debtor it is
Sengkon to STI. The CA added that since the REMs contain a dragnet necessary that the old debtor be released expressly from the
clause, the other obligations not under the Credit Line were still obligation, and the third person or new debtor assumes his place in the
relation. There is no novation without such release as the third person in the absence of a special contract excluding it from the arrangement.
who has assumed the debtor's obligation becomes merely a co-debtor
or surety. 15. The latter school represents the better position. The parties having
conformed to the "blanket mortgage clause" or "dragnet clause," it
9. The well-settled rule is that novation is never presumed. Novation is reasonable to conclude that they also agreed to an implied
will not be allowed unless it is clearly shown by express agreement, or understanding that subsequent loans need not be secured by other
by acts of equal import. PDCP failed to prove by preponderance of securities, as the subsequent loans will be secured by the first
evidence that Sengkon was already expressly released from the mortgage. In other words, the sufficiency of the first security is a
obligation and that STI assumed the former's obligation. Again, the corollary component of the "dragnet clause." But of course, there is no
Deed of Assumption of Line which was supposed to embody STI's prohibition, as in the mortgage contract in issue, against contractually
assumption of all the obligations of Sengkon under the line was not requiring other securities for the subsequent loans. Thus, when the
signed by the parties. While FEBTC indeed approved Sengkon's mortgagor takes another loan for which another security was given it
request for the "change in account name" from Sengkon to STI, such could not be inferred that such loan was made in reliance solely on the
mere change in account name alone does not meet the required original security with the "dragnet clause," but rather, on the new
degree of certainty to establish novation absent any other security given. This is the "reliance on the security test.
circumstance to bolster said conclusion.
16. Here, the parties do not dispute that what the REMs secured were
The trial court's finding that Sengkon did not avail under the only Sengkon's availments under the Credit Line and not all of
Credit Line taints the foreclosure of the mortgage Sengkon's availments under other sub-facilities which are also secured
by other collaterals. Since the liability of PDCP's properties was not
10. The trial court made a factual finding that Sengkon's availment unqualified, the PNs, used as basis of the Petition for Extrajudicial
under the Credit Line, which is the one secured by PDCP's properties, Foreclosure of Mortgage should sufficiently indicate that it is within the
may be made only within one year, or from April 19, 1996 to April 30, terms of PDCP's limited liability. In this case, the PNs failed to make
1997. While FEBTC claimed that the period of said credit line was any reference to PDCP's availments, if any, under its Credit Line. In
extended up to July 31, 1997, PDCP was not notified of the extension. fact, it did not even mention Sengkon's securities under the Credit
At any rate, the RTC found that "no evidence had been adduced to Line. The foregoing observations clearly support the trial court's
show that Sengkon availed of any loan under the credit line up to July observation that FEBTC's foreclosure did not actually cover the
31, 1997". specific obligations secured by PDCP's properties.
11. There was simply no evidence to support the conclusion that the FEBTC's failure to send personal notice to the mortgagor is fatal to the
PNs were in fact availments under the Credit Line secured by PDCP's validity of the foreclosure proceedings
properties. The PNs that were used by FEBTC in its Petition for
17. FEBTC's failure to comply with its contractual obligation to send notice to
Extrajudicial Foreclosure of Mortgage were all executed beyond the PDCP of the foreclosure sale is fatal to the validity of the foreclosure
extended duration of Sengkon's Credit Line (until July 1997). While proceedings. InMetropolitan Bank v. Wong, the Court ruled that while as a rule,
FEBTC wrote a letter dated September 18, 1997, which is a few days personal notice to the mortgagor is not required, such notice may be subject of a
short of the date of the earliest PN (September 23, 1997), addressed to contractual stipulation, the breach of which is sufficient to nullify the foreclosure
STI, approving the renewal of the debtor's Credit Line subject to the sale.
condition that the Line "shall be partially secured" by the PDCP's
mortgaged properties, it is worthy to note that this letter did not bear 18. A contract is the law between the parties and, that absent any showing that
its provisions are wholly or in part contrary to law, morals, good customs, public
the conforme of the debtor, lending credence to the trial court's order, or public policy, it shall be enforced to the letter by the courts. Act No.
observation. In this light, FEBTC's failure to heed PDCP's request for 3135 only requires (1) the posting of notices of sale in three public places, and
the segregation of the amounts secured by its properties assumes (2) the publication of the same in a newspaper of general circulation. Personal
critical significance. The lack of proof that the availments subject of the notice to the mortgagor is not necessary. Nevertheless, the parties to the
foreclosure proceedings were within the coverage of PDCP's REMs mortgage contract are not precluded from exacting additional requirements.
explains FEBTC's omission.
19. The fact that FEBTC caused the sending of a notice, albeit at a wrong
address, to PDCP is itself a clear proof that the parties did intend to impose a
A mortgage containing a "dragnet clause" will not be extended to contractual requirement of personal notice, FEBTC's undisputed breach of which
cover future advances unless the document evidencing the sufficiently nullifies the foreclosure proceeding.
subsequent advance refers to the mortgage as providing security
therefor. Cortes ruling no longer good law
12. The CA applied the dragnet clause in PDCP's REMs. According to 20. While the CA acknowledged that there was indeed a contractual stipulation
the CA, since the REMs contain a dragnet clause, then PDCP's for notice to PDCP as mortgagor, it considered the absence of a particular
address in the space provided therefor in the mortgage contract as merely
properties can be made to answer even if the PNs supporting the evincing an expression of "general intent" between the parties and that this
Petition for Extrajudicial Foreclosure of Mortgage refer to Sengkon's cannot prevail against their "specific intent" that Act No. 3135 be the controlling
obligations in its other credit facilities. law between them, citing Cortes v. Intermediate Appellate Court. The Court
cannot agree with the CA. To begin with, the value of the doctrine enunciated in
13. A dragnet clause is a stipulation in a REM contract that extends Cortes has long been considered questionable by this Court.
the coverage of a mortgage to advances or loans other than those
already obtained or specified in the contract. Where there are several 21. Cortes has never been cited in subsequent rulings of the Court, nor has the
doctrine therein ever been reiterated. Its doctrinal value has been diminished by
advances, however, a mortgage containing a dragnet clause will not the policy enunciated in Wong and the subsequent cases; that is, Act 3135
be extended to cover future advances, unless the document remains the controlling law, but the parties may agree, in addition to posting and
evidencing the subsequent advance refers to the mortgage as publication, to include personal notice to the mortgagor, the non-observance of
providing security therefor or unless there are clear and supportive which renders the foreclosure proceedings null and void, since the foreclosure
evidence to the contrary. This is especially true in this case where the proceedings become an illegal attempt by the mortgagee to appropriate the
advances were not only several but were covered by different sub- property for itself.
facilities.
In case of doubt in a contract of adhesion, the doubt should be resolved
against the party who prepared it
14. Under American jurisprudence, two schools of thought have
emerged on this question. One school advocates that a "dragnet 22. The mortgage contract containing said stipulation was a standard contract
clause" so worded as to be broad enough to cover all other debts in prepared by FEBTC itself. If the latter did not intend to require personal notice, on
addition to the one specifically secured will be construed to cover a top of the statutory requirements of posting and publication, then said provision
different debt, although such other debt is secured by another should not have at all been included in the mortgage contract. In other words, the
mortgage. The contrary thinking maintains that a mortgage with such a REMs in this case are contracts of adhesion, and in case of doubt, the doubt
should be resolved against the party who prepared it.
clause will not secure a note that expresses on its face that it is
otherwise secured as to its entirety, at least to anything other than a
deficiency after exhausting the security specified therein, such
deficiency being an indebtedness within the meaning of the mortgage,