Dragnet clause in a mortgage contract; nature; reason.

A “blanket mortgage clause”, also known as a “dragnet clause” is one which is specifically phrased to subsume all debts of past or future origins. Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A “dragnet clause” operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera. Indeed, it has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts (Mojica vs. CA, G.R. No. 94247, September 11, 1991, 201 SCRA 517),and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. (China Banking Corp. vs. CA, 333 Phil. 158 (1996); Prudential Bank vs. Don A. Alviar, et al., G.R. No. 150197, July 28, 2005; Cuyco vs. Cuyco, 487 SCRA 693 (2006)).

The foreclosure should be limited for the amount of P250, 000.00 because the other obligations were secured by other securities. The mortgage with such a clause will not secure a note that expresses that it is secured by another security. When the mortgagor takes a loan for which another security was given it could not be inferred that such loan was made in reliance solely on the original security with the dragnet clause but rather on the new security given. It is therefore improper for the bank to foreclose the mortgaged properties because of non – payment of all the three promissory notes for there is a need to respect the existence of the other securities given for other loans. (Prudential Bank vs. Alviar, et al., G.R. No. 150197, July 28, 2005).

A mortgage with a “dragnet clause” is an “offer” by the mortgagor to the bank to provide the security of the mortgage for advances of and when they were made. It can be said that the “offer” was not accepted by the bank when a subsequent advance was made because of a new security. (Prudential Bank vs. Alviar, et al., G.R. No. 150197, July 28, 2005).

Indivisibility of mortgage.

The law provides that a pledge or mortgage is indivisible. Explaining the meaning of the law, the Supreme Court said that it simply means that there can be no partial foreclosure of the mortgage.