GR 118552; (February, 1996) (Digest)
G.R. No. 118552 ; February 5, 1996
PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. COURT OF APPEALS and THE SPOUSES ALEJANDRO and AMPARO CASAFRANCA, respondents.
FACTS
The spouses Casafranca acquired a lot previously owned by Carlos Po, who had mortgaged it to Philippine Bank of Communications (PBCom) to secure a loan. After a prior foreclosure by PBCom was annulled by the court, which ruled the secured obligation was only the principal of P330,000 plus stipulated interest and charges, PBCom initiated a second foreclosure. The bank claimed an amount that included penalties stipulated in the promissory notes. The Casafrancas filed an action, ultimately amended to a claim for the residue or surplus from the foreclosure sale, contesting PBCom’s computation of the outstanding obligation. The trial court computed the amount due, allowing compound interest as per the mortgage contract but disallowing the penalties.
ISSUE
Whether penalties stipulated in the promissory notes, but not mentioned in the real estate mortgage contract, may be charged against the mortgagors as part of the sums secured by the mortgage.
RULING
No. The Supreme Court affirmed the Court of Appeals’ decision, holding that the penalties could not be included. The legal logic is anchored on the nature and function of a real estate mortgage as an accessory contract securing the fulfillment of a principal obligation. The extent of the security is strictly limited to the obligations expressly described in the mortgage contract. The Court applied the principle of ejusdem generis, interpreting the mortgage clause stating it secured the payment of the promissory note “and such other obligations as are described in said promissory note” to refer only to obligations of the same kind as those explicitly stated—namely, the principal, interest, and attorney’s fees. Penalties constitute a distinct category of obligation. Since the mortgage contract was silent on penalties, they were not encompassed by the security. The promissory notes and the mortgage contract must be read together, but where the mortgage—the specific security instrument—does not include penalties, they cannot form part of the secured amount recoverable in foreclosure. The bank’s failure to incorporate the penalty clause into the mortgage contract was fatal to its claim.