DIONISIO MOJICA, IN BEHALF OF SPOUSES LEONARDO MOJICA (NOW DECEASED) AND MARINA RUFIDO, PETITIONER, VS. HON. COURT OF APPEALS, AND RURAL BANK OF KAWIT, INC., RESPONDENTS.

Mojica versus Rural Bank of Kawit

The Case

This is a petition for review on certiorari brought by Dionisio Mojica, acting on behalf of the spouses Leonardo Mojica, now deceased, and Marina Rufido, against the Rural Bank of Kawit, Incorporated. The spouses had borrowed money from the bank twice, secured by a single registered real estate mortgage over a large parcel of land in Naic, Cavite. When they defaulted on the second loan, the bank foreclosed the mortgage extrajudicially, and the spouses' son later tried to pay off the balance and recover the land. The case matters because it settles a question every secured-transactions examinee must know: whether a mortgage may validly stand as security not only for the loan named in it, but also for future loans and advances, even without a new mortgage deed.

Procedural History

The spouses, through Dionisio Mojica, filed a complaint in the trial court after the bank refused to accept payment of the balance shown in its own computation slip. On September 3, 1984, the trial court rendered judgment dismissing the complaint. The petitioner moved for reconsideration, which was denied, and he then filed a notice of appeal with the Intermediate Appellate Court, later the Court of Appeals. On February 15, 1990, the appellate court affirmed the trial court's decision in full, with costs against the plaintiffs. Its motion for reconsideration having been denied, the petitioner came to the Supreme Court by petition for review on certiorari. The Supreme Court initially dismissed the petition for non-compliance with certain requisites, but later reinstated it, and it is that reinstated petition which the Court resolved on the merits.

Facts

On February 1, 1971, Leonardo Mojica obtained a loan of 20,000 pesos from the Rural Bank of Kawit. On the same date, he and his wife Marina Rufido executed a real estate mortgage over a parcel of land consisting of 218,794 square meters in Naic, Cavite, covered by a transfer certificate of title, and the mortgage was duly registered. The spouses fully and completely paid that 20,000-peso loan.

On March 5, 1974, the spouses obtained a new loan of 18,000 pesos from the same bank, maturing on March 5, 1975. No new mortgage deed was executed. The promissory note for the new loan merely carried a notation at the top stating that it was secured by the real estate mortgage executed in 1971, which was the very mortgage that had guaranteed the already paid loan. The spouses failed to pay the new loan at maturity, and the bank extrajudicially foreclosed the mortgage, treating it as security for the 18,000-peso loan. The property was set for auction on June 27, 1979; the bank was the highest bidder, its bid corresponding to the total outstanding obligation, and the proceeds were applied to that obligation. The certificate of sale was registered on June 29, 1979, and the one-year redemption period expired in June 1980 without redemption.

In July and August 1980, Dionisio Mojica made partial payments on the past due loan, which the bank received and acknowledged by official receipts, though it treated them as deposits for the repurchase of the foreclosed property. In August 1981, upon his inquiry, the bank issued a computation slip showing an outstanding balance of 21,272.50 pesos as of that date. The bank then consolidated its ownership, and a new transfer certificate of title was issued in its favor in January 1982. It scheduled a public auction of the land in February 1982, but no sale was consummated. When the bank refused to allow Dionisio Mojica to pay the balance per the computation slip, the complaint was filed.

Issues

• Whether or not the foreclosure sale conducted by the Sheriff on June 27, 1979 rested on a valid and subsisting mortgage contract, that is, whether the 1971 mortgage validly secured the 1974 loan of 18,000 pesos.
• Whether or not the bank validly consolidated its ownership over the foreclosed property and was entitled to retain it despite the partial payments and the computation slip.

Applicable Provisions

The decision does not quote a statutory article; it construes the stipulation of the mortgage contract itself, which it treats as the law between the parties. The mortgage provided:

This mortgage is executed for the payment of the loan of 20,000 pesos and such other loans or other advances already obtained or still to be obtained by the mortgagors.

This stipulation is decisive because it expressly extends the security to future loans, which is exactly what the 1974 loan was.

The mortgage likewise provided for its own discharge:

But if the mortgagors shall well and truly fulfill the obligation above stated according to the terms thereof then this mortgage shall become null and void.

This clause shows that the mortgage subsists until the full obligation, including later advances, is paid, and is not extinguished by payment of the original 20,000 pesos alone.

Ruling

On the first issue, the Court held that the foreclosure sale rested on a valid and subsisting mortgage. Contracts which are not ambiguous are to be interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment; where the intent of the parties is shown unmistakably by the language used, the literal meaning controls; and stipulations in the mortgage document constitute the law between the parties, which must be complied with faithfully. The Court quoted the mortgage's express guaranty:

For the payment of the loan of 20,000 pesos and such other loans or other advances already obtained or still to be obtained by the mortgagors as makers.

From this, the Court ruled that mortgages given to secure future advancements are valid and legal contracts; that the amounts named as consideration do not limit the amount for which the mortgage may stand as security if the intent to secure future and other indebtedness can be gathered from the four corners of the instrument; and that such a mortgage is a continuing security, not discharged by repayment of the amount named until the full amount of the advancements is paid. No new notation of the later loan on the title was necessary.

On the second issue, the Court held that the bank rightfully consolidated its title as the highest bidder. The partial payments were accepted as deposits for conventional redemption after the property had become the bank's acquired asset and after the petitioner had lost all right of legal redemption, more than one year having elapsed from the registration of the certificate of sale. The bank even gave the spouses first preference to repurchase, which they failed to avail of. It would be unfair to impute that the trial court allowed the bank to appropriate the property, since the spouses' failure to repurchase, and their action with a notice of lis pendens, prevented the bank from negotiating a sale to other buyers.

Doctrine

A mortgage given to secure future advancements is a valid and legal contract. The amount named as consideration does not limit the amount for which the mortgage may stand as security, provided the intent to secure future and other indebtedness appears from the four corners of the instrument. Such a mortgage is a continuing security: it is not discharged by repayment of the amount named until the full amount of the advancements is paid. Where the language of the mortgage is clear, its literal meaning controls, and its stipulations are the law between the parties. After the one-year redemption period lapses, the purchaser at the foreclosure sale may consolidate title, and later payments may be treated as deposits for a conventional redemption rather than as legal redemption.

Disposition

The petition was dismissed, and the decision and resolution of the Court of Appeals were affirmed, with the bank prevailing.

Remember This

Memorize the line that a mortgage securing future advancements is a continuing security, not discharged by repayment of the named amount until all advancements are paid. Examiners use this case to test whether a second loan is covered by an old mortgage, and whether payments after the redemption period are legal or merely conventional redemption.