GR 151040; (October, 2005) (Digest)
G.R. No. 151040 & 154109. October 6, 2005.
Allied Banking Corporation, Petitioner, vs. Cheng Yong and Lilia Gaw, Respondents. (and the consolidated case).
FACTS
Philippine Pacific Fishing Company, Inc. obtained a loan from Allied Bank. Spouses Cheng Yong and Lilia Gaw executed a Continuing Guaranty for this obligation. Subsequently, Philippine Pacific defaulted. A management committee was created by the SEC to take over the corporation’s assets and operations, requiring prior SEC approval for encumbering assets. Despite this, two days before the committee’s formal creation, Philippine Pacific and Allied Bank restructured the loan into a promissory note dated August 12, 1981. The spouses Cheng signed this note as corporate officers and as personal co-makers. They later secured this note with a chattel mortgage over their vessel, “Jean III.” After default, Allied Bank moved to foreclose on the vessel, which subsequently sank and was rendered a total loss. The spouses also mortgaged their San Juan property to secure a separate loan to Glee Chemicals Phils., Inc. (GCPI), a company where they also held office. After GCPI fully paid its loan, Allied Bank refused to release the mortgage, claiming it also secured the spouses’ personal obligation under the Philippine Pacific promissory note.
ISSUE
The primary issues were: (1) Whether the promissory note dated August 12, 1981, and the consequent chattel mortgage over “Jean III” were valid and enforceable; and (2) Whether the real estate mortgage on the San Juan property secured the spouses’ personal obligation under the Philippine Pacific promissory note, notwithstanding the full payment of the GCPI loan it was originally intended to secure.
RULING
The Supreme Court denied the petitions and affirmed the Court of Appeals. On the first issue, the promissory note and chattel mortgage were declared valid. The Court ruled that the management committee’s powers, requiring prior SEC approval for encumbrances, were intended to bind the corporation, Philippine Pacific. The spouses Cheng, however, signed the note in their personal capacities as co-makers. Their personal undertaking to pay was not an act of the corporation and thus did not require SEC approval. Their personal obligation was separate and distinct from the corporate obligation, making them personally liable.
On the second issue, the Court held that the real estate mortgage on the San Juan property did not secure the Philippine Pacific obligation. Applying the parole evidence rule, the terms of the written mortgage contract were clear and conclusive: it was constituted specifically to secure the loan of GCPI. The mortgage contract contained no stipulation extending its coverage to any other future or pre-existing obligation of the spouses. Since the GCPI loan was paid in full, the accessory real estate mortgage was extinguished. Allied Bank could not unilaterally impose a new obligation upon a satisfied contract. Therefore, the foreclosure on the San Juan property was invalid.