SPOUSES RAMON R. NACU AND LOURDES I. NACU, PETITIONERS, VS. THE COURT OF APPEALS AND PILIPINAS BANK, RESPONDENTS.

The pith of the issues in this petition is the question of whether
or not the real estate mortgage undertaken by Spouses Ramon R. Nacu and Lourdes
Nacu, in favor of Home Construction – Joint Venture was extended, amplified or
modified to cover the loan transaction of Ramon R. Nacu, in his capacity as one
of the executive officers of the Joint Venture of JBS Construction, Inc. and
P.I. Construction and Services Co., Inc., by virtue alone of the comprehensive
provision in the mortgage contract that:

“x x x it shall also stand as security for the payment of the
said promissory note or notes, and/or accommodations without the necessity of
executing a new contract and this mortgage shall have the same force and effect
as if the said promissory note or notes and/or accommodations were existing as
of the date thereof. x x x.”^[1]

Briefly, the facts established below show that petitioners
spouses are the registered owners of the subject property covered by Transfer
Certificate of Title No. 276891 of the Registry of Deeds for Quezon City,
located at 12 Yakan Street, La Vista Subdivision, Quezon City.

On July 12, 1982, respondent Pilipinas Bank extended to Home
Construction-Joint Venture, represented by Horacio Mendoza, Julio Matias and
Ramon Nacu, Irrevocable Stand-by LC No. 82/408-HO in the amount of
P4,400,000.00 to guarantee the ten per cent (10%) mobilization fund to be
released by the Ministry of Public Works and Highways in connection with a
Lucena Fishing Port and Construction Project.

To secure this Home Construction-Joint Venture credit
accommodation, petitioners spouses, together with Spouses Horacio S. Mendoza
and Leonisa D. Mendoza and Spouses Julio D. Matias and Lydia Sison constituted
real estate mortgages on five (5) distinct properties in favor of respondent
Bank.

The subject deed of real estate mortgage dated June 7, 1982
executed by petitioners spouses, together with the aforementioned
co-mortgagors, provides, among other things, that the mortgage shall secure the
payment of the said loan and those others that the mortgagee may extend to the
mortgagor including interest thereon and expenses incurred incidental thereto
and other obligations owing by the mortgagor to the mortgagee, whether direct
or indirect, principal or secondary as appearing in the accounts, books and
records of the mortgagee.

In due time, the principal obligation mentioned in the said real
estate mortgage extended to the Home Construction – Joint Venture was fully
paid and extinguished.

Upon request, respondent Bank effected the cancellation/release
of the titles subject of the said real estate mortgage, particularly the
properties of the co-mortgagors, Horacio Mendoza and Julio Matias.

Petitioners spouses did not immediately request for the issuance
of the corresponding certificate of cancellation/release of mortgage of TCT No.
276891 from respondent Bank.

On February 24, 1983, two (2) corporations under the Joint
Venture – JBS Construction, Inc., represented by its president, Jose B. Sahagun
and P.I. Construction and Services Co., Inc., represented by its president,
petitioner Nacu secured from respondent Bank, under letters of credit (L/C)
Nos. 83/13786-HO and 83/13801-HO, a loan accommodation for the importation of
several pieces of construction machinery and equipment to be used by said joint
venture in a construction project, located at Mindanao.

In consideration of this JBS and PI Construction Joint Venture
credit accommodation, Jose Sahagun and petitioner Nacu executed in their
capacities as executive officers thereof, a Continuing Security Agreement in
favor of respondent Bank. Said debtor corporations,
represented by their respective presidents, were also made to sign trust
receipts in favor of respondent Bank.

Later, petitioners spouses requested from respondent Bank the
issuance of the Certificate of Cancellation/Release of the Real Estate Mortgage
on TCT No. 276891. The respondent Bank
refused despite its admission that the Home Construction loan had been fully
paid and despite the release of the properties of the co-mortgagors, Horacio
Mendoza and Julio Matias.

The demands in writing for the release of the questioned
encumbrance were not heeded. Petitioners spouses thereby decided to file an action against respondent
Bank before the Regional Trial Court of Quezon City docketed as Civil Case No.
49233 for cancellation of the encumbrance on TCT No. 276891.

After trial on the merits, the trial court, through Presiding
Judge Ignacio L. Salvador, rendered its decision in Civil Case No. 49233, the
pertinent portions of which, are quoted herein:

“x x x, as correctly pointed out by the plaintiffs, this loan
accommodation which was subsequently contracted by J.B.S. Construction
Corporation on April 19, 1983 and in which TCT 272689 is allegedly made to
answer is not duly annotated on said title. And it is fundamental that real property constituted to secure an
obligation by way of mortgage, must be registered and shall take effect upon
the title only from the time of registration. (Sec. 60, Act 496)

“Furthermore, co-plaintiff, Lourdes Nacu (co-owner of the
property covered by TCT No. 276891) was not privy to the subsequent
transactions aforesaid.

“‘Since the principal obligation covered by LC No. 82/408-HO
in the amount of P4,400,000.00 had subsequently been fully paid and the
obligation extinguished, as expressly admitted by defendant bank the real
estate mortgage is discharged, (Art. 2135) and consequently the defendant bank
may now be compelled to release x x x plaintiffs Transfer Certificate of Title
No. 276891.

“‘PREMISES CONSIDERED’, judgment is hereby rendered in favor
of the plaintiffs and against the defendant, ordering said defendant bank to
immediately release/discharge the second encumbrance annotated on TCT No.
276891-Registry of Deeds of Quezon City and ordering said defendant bank to pay
plaintiffs attorney’s fees in the amount of P5,000.00.'”^[2]

The respondent Bank appealed from the aforesaid decision of the
trial court before respondent Court of Appeals on June 15, 1990.

On October 28, 1992, respondent Court rendered its decision
reversing the judgment of the trial court, the pertinent portions stating,
thus:

“Everything considered, plaintiffs’ property stands as
continuing security for the subject credit accommodations guaranteed by
plaintiff Ramon Nacu, and the mortgage lien thereon cannot be discharged until
these obligations are fully settled.

“WHEREFORE, judgment is
hereby rendered reversing the appealed decision and dismissing the
complaint. Costs against
appellees.”^[3]

On November 18, 1992, petitioners spouses seasonably filed a
motion for reconsideration of the said assailed decision.

On January 25, 1993, respondent Court promulgated its resolution
denying petitioners spouses’ motion for reconsideration. Hence, this instant petition of petitioners
spouses assigning the following as errors:

“A

“THE RESPONDENT HONORABLE COURT OF APPEALS
ERRED IN FINDING THAT PETITIONERS SPOUSES’ LA VISTA PROPERTY WAS ENCUMBERED AS
SECURITY NOT ONLY FOR THE (1982)
HOME CONSTRUCTION LOAN, BUT ALSO FOR THE (1983) JBS & PIC JOINT VENTURE
LOAN;

“B

“THE RESPONDENT HONORABLE COURT OF
APPEALS ERRED IN FINDING THAT JBS CONSTRUCTION, INC. IS THE ONLY DEBTOR
CORPORATION, AND AS SUCH, IT COULD NOT HAVE SIMULTANEOUSLY ASSUMED THE ROLE OF
A SURETY/GUARANTOR OF THE LOAN OBLIGATION WHICH ITSELF CONTRACTED;

“C

“THE RESPONDENT HONORABLE COURT OF
APPEALS ERRED IN FINDING THAT EXHIBITS ‘C’; ‘5’; ‘9’; AND, ’10’ CLEARLY REVEAL
THAT PETITIONER RAMON NACU SIGNED SAID DOCUMENTS IN HIS PERSONAL CAPACITY AND
NOT AS A REPRESENTATIVE OR EXECUTIVE OFFICER OF THE DEBTOR CORPORATIONS;

“D

“THE RESPONDENT HONORABLE COURT OF
APPEALS ERRED IN GIVING WEIGHT AND CREDENCE TO EXHIBIT ‘4’; MINUTES OF THE
MEETING OF RESPONDENT BANK’S BOARD OF DIRECTORS AND THE REPORT SUBMITTED BY THE
BANK’S PRESIDENT PERTAINING TO THE APPLICATION FOR LETTERS OF CREDIT BY THE
DEBTOR CORPORATIONS SHOWING THAT A SECOND REAL ESTATE MORTGAGE ON PETITIONERS’
LA VISTA PROPERTY WAS INTENDED TO SECURE SAID (1983) JBS & PIC JOINT
VENTURE OBLIGATION;

“E

“RESPONDENT HONORABLE COURT OF APPEALS
ERRED IN NOT SUSTAINING THE TRIAL COURT’S DECISION THAT PETITIONERS SPOUSES ARE
NOT PRIVY TO THE SUBSEQUENT TRANSACTIONS, PARTICULARLY THE CONTRACTS ENTERED
INTO BY (1983) JBS-PIC CONSTRUCTION – JOINT VENTURE, THE DEBTOR CORPORATIONS (JBS & PIC) BEING SEPARATE AND DISTINCT
JURIDICAL PERSONALITIES FROM PETITIONERS SPOUSES;

“F

“RESPONDENT HONORABLE COURT OF APPEALS
ERRED IN FINDING THAT PETITIONER RAMON NACU SIGNED THE CONTINUING SURETY
AGREEMENT AND TRUST RECEIPTS IN HIS PERSONAL CAPACITY;

“G

“RESPONDENT HONORABLE COURT ERRED IN
FINDING THAT THE (1983) JBS-PIC JOINT VENTURE BOUND THE JUNE 7, 1982 REAL
ESTATE MORTGAGE DESPITE THE FACT THAT PETITIONER LOURDES NACU DID NOT GIVE HER
CONSENT THERETO;

“H

“RESPONDENT HONORABLE COURT OF APPEALS
ERRED IN FINDING THAT THERE WAS NO NEED TO ANNOTATE THE JULY 1983 LOAN
ACCOMMODATION ALLEGEDLY GUARANTEED BY PETITIONER RAMON NACU ON TCT NO. 276891
SINCE THE SAME HAVE BEEN EXPRESSLY COVERED BY THE MORTGAGE CONTRACT; AND,

“I

“RESPONDENT HONORABLE COURT OF APPEALS
ERRED AND ACTED IN GRAVE ABUSE OF DISCRETION WHEN IT ‘CREATED’ AN OBLIGATION ON
THE PART OF PETITIONERS WHERE NONE EXISTED.”^[4]

Arising from the foregoing assignments of errors are the
following issues:

“1) Whether or not the (1983) JBS & PIC
JOINT VENTURE loan transaction is another direct or indirect, principal or
secondary obligation owing by the MORTGAGOR (HOME CONSTRUCTION – JOINT VENTURE
to the MORTGAGEE (RESPONDENT BANK);

“2)     Whether or not the 1983 LOAN DOCUMENTS,
Surety Agreement and Trust Receipts were executed by Petitioner Ramon Nacu in
his personal capacity or in behalf of a corporate entity;

“3)     Whether or not the TRUST RECEIPT is an
extension of the Real Estate Mortgage dated June 7, 1982;

“4)     Whether or not the JBS CONSTRUCTION, INC.
is the only DEBTOR CORPORATION in the 1983 loan transaction, and as such, it
could not have simultaneously assumed the role of a surety/guarantor of the
loan obligation which itself contracted;

“5)     Whether or not weight and credence to
Exhibit ‘4’, the minutes of the meeting of Respondent Bank’s Board of Directors
and the Report submitted by the bank’s president pertaining to the application
for letters of credit by the debtor
corporation, showing that a second real estate mortgage on Petitioners’ La
Vista property was intended to secure said obligation, could be given
evidentiary weight and credence;

“6)     Whether
or not the July 1983 loan accommodation allegedly guaranteed by Petitioner
Ramon Nacu should have been annotated on Petitioners’ TCT to bind their subject
property;

“7)     Whether or not the want of Petitioner
Lourdes Nacu’s consent in the 1983 loan agreements signed by Petitioner Ramon
Nacu renders the same voidable;

“8)     Whether or not Petitioner Spouses are privy
to the 1983 loan transactions entered into by JBS-PI CONSTRUCTION JOINT
VENTURE, the debtor corporations being separate and distinct juridical
personalities from that of Spouses Petitioners; and,

“9)     Whether or not the ambiguity in the
interpretation of the intention of the parties in the case at bar should be
resolved in favor of the Petitioners Spouses.”^[5]

The assailed decision of respondent Court held that in view of
the provisions of the real estate mortgage more particularly that which
provides that the real estate mortgage secures “. . . other obligations
owing by the Mortgagor to the Mortgagee, whether direct or indirect, principal
or secondary, as appearing in the accounts, books and records of the
Mortgagee,” the bank may legally refuse to release the second mortgage on
TCT No. 276891 considering that the same was used as security for another loan
accommodation extended to P.I. Construction and Services Co., Inc. headed by
plaintiff Ramon R. Nacu, and J.B.S. Construction, Inc., headed by Jose B.
Sahagun, a joint venture.

True, the real estate mortgage categorically provides that it
shall also stand as security for the payment of the said promissory note or
notes; and/or accommodations
without the necessity of executing a new contract and that the mortgage shall
have the same force and effect as if the said promissory note or notes and/or
accommodations were existing on the date thereof.

However, the July 12, 1982 Home Construction loan transaction and
the February 24, 1983 JBS and P.I. Construction – Joint Venture loan
transaction are totally alien to each
other. Noteworthy is the fact that the
1982 loan transaction was extended to Home Construction – Joint Venture,
represented by Spouses Horacio S. Mendoza and Leonisia D. Mendoza; Spouses
Julio D. Matias and Lydia Sison and Spouses Ramon R. Nacu and Lourdes I. Nacu. On the other hand, the 1983 loan transaction
was applied for and extended to the Joint Venture­-JBS Construction, Inc.,
represented by its president Jose B. Sahagun and P.I. Construction and Services
Co., Inc., represented by its president, Ramon Nacu.

Clearly, the two (2) loan
transactions involved different sets of parties. While it is true that petitioner Nacu is a party in both
transactions, he acted in totally different capacities.

Thus, we find the findings
of facts of the trial court accurate as they are positively supported by
documentary evidence, to wit:

“‘x x x. A careful
reading of the Continuing Surety Agreement (Exhibit ‘5’) will reveal the fact
that plaintiff Ramon R. Nacu, and Jose B. Sahagun
signed said Continuing Surety Agreement in their capacities as Executive
Officers of the J.B.S. Construction Corporation. It is therefore the J.B.S. Construction Corporation that is the
Surety. The plaintiff Ramon N. Nacu,
and/or Jose B. Sahagun cannot be made answerable for the liability or
obligation or the corporation. If at
all said Ramon R. Nacu and Jose B. Sahagun can be liable only to the extent of
their stocks in the corporation. In
other words, this contract (Exhibit ‘5’) entered into by J.B.S. Construction
Corporation with defendant bank is a distinct contract and cannot in any way be
related to the provisions of the Real Estate Mortgage (Exhibit ‘C’ and Exhibit
‘6’) because the parties thereto are different.'”^[6]

To allow the 1982 mortgage
contract to be amplified to include the 1983 Continuing
Surety Agreement would be stretching too far the former contract’s extent. Interpreting the same as respondent Bank
would want us to do would make the provision too comprehensive and
all-encompassing as to amount to absurdity.

Besides, there is nothing
in the loan accommodation subsequently contracted that TCT 276891 is
mortgaged. Said loan was not even duly
annotated on said title. Under
Section 60 of Act No. 496, a mortgage deed and all instruments assigning,
discharging and otherwise dealing with the mortgage are required to be
registered. Without registration, they
cannot have any effect on the title.

The respondent Court in reversing the decision of the trial
court, linked the trust receipts, signed by petitioner Nacu, together with Jose
Sahagun, with the real estate mortgage dated June 7, 1982 by finding that under
the express terms of the trust receipts in favor of respondent Bank, petitioner
Nacu again bound himself “jointly and severally” with the Trustees
(JBS Corporation and PI Construction) for the value of the goods covered by the
instruments.

Rather than support the position of respondent Bank, the trust
receipt agreement shows that the 1982 real estate mortgage is no longer
operative because otherwise, there would have been no need for the execution of
said trust agreement to secure the second loan.

Under pertinent laws, the trust receipt is a separate and
independent security transaction intended to aid in financing importers whereby
the imported goods are held as security by the lending institution for the loan
obligation.

In the case and Vintola v. Insular Bank of Asia and America^[7]
this Court explained the nature and usage of trust receipts as follows:

“‘x x x. A letter of credit-trust receipt arrangement is
endowed with its own distinctive features and characteristics. Under that set-up, a bank extends a loan
covered by the letter of credit, with the trust receipt as a security for the
loan. In other words, the transaction
involves a loan feature represented by the letter of credit, and a security feature
which is in the covering trust receipt. x x x.

“‘A trust receipt, therefore, is a security agreement,
pursuant to which a bank acquires a security interest in the goods. It secures an indebtedness and there can be
no such thing as security interest that secures no obligation.

“‘x x x. A trust receipt is considered as a security
transaction intended to aid in financing importers and retail dealers who do
not have sufficient funds or resources to finance the importation or purchase
of merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased. x x x.'”

Moreover, by virtue of the trust receipt
agreement, respondent Bank should proceed against the same because the trust receipt
theoretically transferred the ownership of the imported personal property to
respondent Bank.

Worth mentioning is also the fact that the trust receipts and the
Continuing Surety Agreement were signed only by petitioner Nacu. Assuming that both documents duly
constituted a real estate mortgage on the property of petitioners spouses, they
are voidable for want of petitioner Lourdes Nacu’s acquiescence and/or consent
thereto. Article 166 of the Civil Code,
the law then applicable, provides that unless the wife has been declared a non compos mentis, a spendthrift, is under civil
interdiction or is confined in a leprosarium, the husband cannot alienate or
encumber any real property of the conjugal partnership without the wife’s
consent.

In resolving in favor of respondent Bank, respondent Court
likewise appreciated the weight of Exhibit “4,” the purported minutes
of the meeting of respondent Bank’s Board of Directors and Report pertaining to
the application for letters of credit by the JBS and P.I. Construction Joint
Venture. In giving evidentiary weight
thereto, the decision of respondent Court said:

“Still another important consideration negates the trial
court’s finding that plaintiffs’ property could not be held as continuing
security for the obligations of the debtor corporation. The minutes of the meeting of defendant
bank’s Board of Directors (Exhibit 4) and the report submitted by the bank’s
president pertaining to the application for letters of credit by the debtor
corporation show that a second real estate mortgage on plaintiffs’ La Vista
property was intended to secure such obligation. From the evidence adduced, there is ample basis to hold plaintiff
Ramon Nacu liable as surety for the accommodation extended to the debtor
corporation, and consequently gives defendant bank reason to hold on to the
subject mortgaged property until the obligations are fully settled.”^[8]

However, petitioners spouses were not privy to Exhibit
“4” as these documents are internal to respondent Bank. Whether or not they gave their consent
thereto cannot be ascertained.

Finally, if the parties intended the 1982 real estate mortgage to
apply to the 1983 loan transaction, respondent Bank should have required
petitioners spouses to execute the proper loan documents clearly and
categorically constituting upon the same property a real estate mortgage. The respondent Bank failed in this regard
and must therefore suffer the consequences. In Orient Air Services and Hotel Representatives v. Court of Appeals,^[9]
this Court upheld the doctrine that any ambiguity in a contract whose terms are
susceptible of different interpretation, must be read against the party who
drafted it.

Indisputably, respondent Bank was the party responsible for the
preparation of the 1982 and 1983 loan agreements which are contracts of
adhesion. Consequently, any ambiguity
in the loan agreement should be construed against it on the assumption that it
could have avoided it by the exercise of a little more care.

More emphatic and appropriate is our pronouncement in La
Insular v. Machuca Go Tanco, et al.^[10]
where we held:

“It is undoubtedly true that the law looks upon the contract
of suretyship with a jealous eye, and the rule is settled that the obligation
of the surety cannot be extended by implication beyond specified limits.”

It is crystal clear from the foregoing that respondent Bank’s
actuation in refusing to cancel the encumbrance annotated on petitioners
spouses’ Transfer Certificate of Title on the ground that the latter’s property
is still liable for an unpaid loan obligation of J.B.S. Construction, Inc. and
P.I. Construction and Services Co., Inc. was a clever attempt to extend by
implication, beyond the terms of the real estate mortgage contract, the
latter’s force and effect. Respondent
Bank should not be allowed to take this “short-cut” to collect an
indebtedness due it. Principles of fair
play demand that it should not resort to the expedience of enforcing a real
estate mortgage when there is none duly constituted.

WHEREFORE, the petition is GRANTED. The assailed decision of the respondent
Court of Appeals in CA–G.R. No. CV 276693 is hereby REVERSED
and the decision of the trial court in Civil Case No. Q-49223 ordering, among
other things, respondent Pilipinas Bank to release and/or discharge the encumbrance
on Transfer Certificate of Title No. 276891 of the Registry of Deeds of Quezon
City is hereby REINSTATED in toto.

SO ORDERED.

Narvasa, C.J., (Chairman), Regalado, and Puno, JJ., concur.

Padilla, J., took no part.

^[1]
Rollo, p. 61.

^[2]
Rollo, p. 34.

^[3]
Penned by Associate Justice Alfredo L.
Benipayo and concurred in by Associate Justices Luis A. Javellana and Fermin A.
Martin, Jr., Rollo, p. 45.

^[4]
Rollo, pp. 116-118.

^[5]
Rollo, pp. 118-119.

^[6]
Rollo, p.
34.

^[7]
G.R. No. 73271, 150 SCRA 578 (1987)

^[8]
Rollo, p. 44.

^[9]
G.R. No. 76931, 197 SCRA 645 (1991)

^[10]
39 Phil. 571.