QUIAMBAO vs CHINA BANK
G.R. No. 238462. May 12, 2021
In our opinion, this case can be tagged under your 2024 CIVIL LAW syllabus
under:
● OBLIGATIONS AND CONTRACTS > B. Contracts > 2. Principles
of Contracts > Consensuality.
ESSAY QUESTION:
Elena, an experienced businesswoman with a high school education,
borrowed money from Chinabank (CB) in 1990, secured by a Real Estate
Mortgage (REM) with a “blanket mortgage clause” which forms are drafted by
CB. In 2004, Elena borrowed more money from CB where she signed a
promissory note (PN) drafted by CB, which did not refer to the REM as
security. Elena couldn't pay her 2004 loan obligation, hence, CB foreclosed the
REM on the basis of the "blanket mortgage clause." Elena argues that because
she signed a blank PN in 2004, such is considered a contract of adhesion. Thus,
CB cannot legally foreclose the REM since she was unaware that the 2004 loan
was covered by the REM. Is Elena correct?
Suggested Answer: YES, Elena is correct.
The Supreme Court has held that in a contract of adhesion, any ambiguity
in the provisions of these documents must be interpreted against the one who
drafted it.
Here, Chinabank was the one who drafted the REM and the PN forms,
making these documents a contract of adhesion. The 2004 PN failed to refer to
Elena's liability under the REM. Hence, the doubt as to whether the PN is
secured or not must be construed against Chinabank.
Thus, Elena is correct.
Note: For practice suggestions, you are free to craft your own answer and
improve the suggested answer provided above.
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EXPLANATORY NOTES:
In 1990, Elena and her partner Daniel executed a Real Estate Mortgage
(REM) to secure a loan with Chinabank, and this REM was later amended to
include a "dragnet clause" securing future loans.
In 2004, the partners obtained a loan once again with Chinabank
evidenced by eight (8) promissory notes.
In 2005, Chinabank filed a petition for foreclosure of the REM with the
(RTC) alleging that Elena and Daniel obtained P5,000,000.00 succeeding loan
accommodations covered by eight (8) promissory notes (PNs).
The RTC ruled that the eight (8) PNs from 2004 could not be used for
foreclosure because one was unsecured. The CA disagreed, saying the REM
secured all Elena's obligations due to the blanket mortgage clause, and Elena
could understand the contracts due to their business experience.
The Supreme Court ruled that the REM amendments were contracts of
adhesion because China Banking Corporation created the standard forms, and
Elena and Daniel just signed them. They signed blank amendments, which the
bank provides to all borrowers. Therefore, any unclear terms should be
interpreted against the bank.
Understanding the "blanket mortgage clause" is crucial at this point, as
the Supreme Court found the issue as to whether the 2004 loans are covered by
the REM. The rule states that a mortgage with a dragnet clause doesn't
automatically secure future advances unless the subsequent document explicitly
references the mortgage for security, or there's clear evidence to support it. In
other words, a "blanket mortgage clause" doesn't automatically secure a future
loan. So, if there's doubt or ambiguity in the contract, further clarification is
needed.
So here is now where the principle of the contract of adhesion plays-in.
Remember the fact that there was no showing that the eight (8) PNs are secured
by the REM. There was also no reference in the PN showing that it is secured
by the REM. The Supreme Court considered a “doubt” the issue of whether the
eight (8) PNs were secured by the REM. Because the forms were created by
Chinabank, any doubts will not favor Chinabank. So, the Supreme Court upheld
the RTC's decision that the eight PNs couldn't be the basis for the REM
foreclosure.
In cases involving contracts of adhesion, it appears in this case that
educational qualifications take precedence over business experience. Even if
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someone has extensive business experience, their educational level matters
more when determining if they can understand the legal implications of the
documents they're signing.
The SC said that it's clear Elena only finished high school, and Daniel
completed only second grade. They couldn't be expected to grasp all the
technicalities and legal consequences of the transactions, despite their business
experience. In contrast, China Banking Corporation didn't show evidence that
they made an effort to explain or ensure Elena and Daniel understood the
contract terms, although they claim Elena and Daniel entered into the
amendments willingly. Therefore, the court should intervene to protect the
weaker party's interests.
Elena and Daniel's lower educational level shows they're at a
disadvantage. The strict approach to contracts of adhesion is based on the
principle that when one party is disadvantaged due to factors like lack of
education, mental weakness, or poverty, the courts must protect their interests.
Here are some reminders re: Contract of adhesion:
A contract of adhesion is a veritable trap for the weaker party
whom the courts are bound to protect from abuse and imposition.
Hence, in case of doubt which will cause a great imbalance of
rights, the contract shall be construed strictly against the party who
prepared it1.
In a contract of adhesion, one imposes a ready-made contract to the
other whose sole participation is either to accept or reject the
agreement. The parties do not bargain on equal footing in the
execution of this kind of contract given that the debtor is limited
"to take it or leave it" option and there is no room for negotiation.
However, such contract is not entirely prohibited. The one adhering
is free to give his consent inasmuch as he is also free to reject it
completely2.
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1 From actual text of the case
2 From actual text of the case
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