G.R. No. 164910 September 30, 2005UNION BANK OF THE PHILIPPINES,vs.HON. COURT OF APPEALS and DROSSA, INCORPORATED

Union Bank of the Philippines vs ca

1. Incorporated (DRI) agreed to mortgage its parcels of land covered by TCT Nos. S-24740 and S-24747 in favor of Union Bank of the Philippines (Union Bank) as security for the credit facility of Josephine Marine Trading Corporation (JMTC). JMTC availed P3 million from the credit line.

2. Union Bank increased the credit facility of JMTC to P27 million, from which JMTC availed US$700,503.64 or P18,318,170.18.

3. Upon JMTCs failure to pay its obligation, Union Bank instituted foreclosure proceedings on DRIs properties.

4. DRIs properties were auctioned where Union Bank was declared the highest bidder for P15,300,000.00.5

Contention of the union bank: , Union Bank alleged that DRI was liable to JMTCs total outstanding obligations, regardless of whether it was incurred during or subsequent to the first agreement.Contention of DRI: its liability is only P3 million which was the liability incurred by JMTC under its first agreement with Union Bank.

issue: whether or not the liability of DRI is only 3 million pesos.

HELD:

The pertinent provisions of the Real Estate Mortgage provide:Section 1. Secured Obligations. The obligations secured by this Mortgage (the "Secured Obligations") are the following:a) All the obligations of the Borrower and/or the Mortgagor under: (i) the Notes, the Agreement and this Mortgage; (ii) any and all instruments or documents issued upon the renewal, extension, amendment or novation of the Notes, the Agreement and this Mortgage, irrespective of whether such obligations as renewed, extended, amended or novated are in the nature of new, separate or additional obligations; and (iii) any and all instruments or documents issued pursuant to the Notes, the Agreement and this Mortgage;b) All other obligations of the Borrower and/or the Mortgagor in favor of the Mortgagee, whether presently owing or hereinafter incurred and whether or not arising from or connected with the Agreement, the Notes and/or this Mortgage; andc) Any and all expenses which may be incurred in collecting any and all of the above and in enforcing any and all rights, powers and remedies of the Mortgagee under this Mortgage.11 (Emphasis supplied)

The foregoing provisions clearly show the parties intent to constitute DRIs real estate properties as continuing securities, liable for the current as well as the future obligations of JMTC. Indeed, a mortgage liability is usually limited to the amount mentioned in the contract, but where the intent of the contracting parties is manifest that the mortgage property shall also answer for future loans or advancements, the same is valid and binding between the parties.12 In this case, DRI expressly agreed to secure all the obligations of JMTC, whether presently owing or subsequently incurred. Thus, its liability is not limited to P8.61 million only.In Prudential Bank v. Don A. Alviar and Georgia B. Alviar,13 we referred to this provision as "blanket mortgage clause" or "dragnet clause". Thus:A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one which is specifically phrased to subsume all debts of past or future origins. Such clauses are "carefully scrutinized and strictly construed." 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, 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.Even if DRI is considered as an accommodation mortgagor only, its liability would still exceed P8.61 million. It is well to note that DRI, through its President, Rose D. Teodoro, agreed to secure not only the present obligations of JMTC but also those that may be incurred after the execution of the mortgage contract. DRI also actively participated in facilitating the increase of JMTCs credit facility.

TRADERS ROYAL BANK VS CASTANARES

1. Norberto and Milagros Castanares obtained various loans and credit accommodations from Traders Royal Bank and executed two real estate mortgage.

2. For failure of the respondents to pay their outstanding loans with the petitioner, the latter proceeded with the extrajudicial foreclosure of the real estate mortgage.

3. contention of petitioner: On November 24, 1982, petitioner instituted Civil Case No. R-22608 for deficiency judgment, claiming that after applying the proceeds of foreclosure sale to the total unpaid obligations of respondents (P200,397.78), respondents were still indebted to petitioner for the sum of P83,397.68.8

4. contention of respondent: the REM covered only a separate loan for P86,000.00.

issue: won the REM covered only 86,000.00

ruling:

The subject REMs contain the following provision:That, for and in consideration of certain loans, overdrafts and other credit accommodations obtained, from the Mortgagee by the Mortgagor and/or SPS. NORBERTO V. CASTAARES & MILAGROS M. CASTAARES and to secure the payment of the same, the principal of all of which is hereby fixed at EIGHTY-SIX THOUSAND PESOS ONLY (P86,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may hereafter extend to the Mortgagor x x x, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the Mortgagee x x x.24 (Emphasis supplied.)The above stipulation is also known as "dragnet clause" or "blanket mortgage clause" in American jurisprudence that would subsume all debts of past and future origins. It has been held as a valid and legal undertaking, the amounts specified as consideration in the contracts do not limit the amount for which the pledge or mortgage stands as security, if from the four corners of the instrument, the intent to secure future and other indebtedness can be gathered. A pledge or mortgage given to secure future advancements is a continuing security and is not discharged by the repayment of the amount named in the mortgage until the full amount of all advancements shall have been paid.25 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.26 While a real estate mortgage may exceptionally secure future loans or advancements, these future debts must be sufficiently described in the mortgage contract. An obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage contract.