Published 01 October 2018, The Daily Tribune

The long and tight reach of a real estate mortgage contract is oftentimes amplified by the so-called Dragnet Clause. Otherwise referred to as Blanket Mortgage Clause, this ostensibly innocent stipulation extends the applicability of a contract of a real estate mortgage beyond the amount of consideration originally contemplated by the parties if the mortgage agreement clearly intends to secure future and other obligations which the debtor may incur simultaneous to or after the execution of the contract of security.

To the creditor, the Blanket Clause mitigates the exposure to the risk of non-payment of several loans, given that the security of the mortgage stipulation covers not only the amount initially agreed upon by the parties but also includes “all other loans or advances already obtained, or still to be obtained” by the debtor. As plainly expounded in decided cases, the dragnet clause subsumes all debts of past and future origins that enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and therefore avoid the expense and inconvenience of executing a new security on each new transaction (See: Unionbank vs. Court of Appeals, G.R. No. 164910, September 30, 2005, reiterated in Producers Bank vs. Excelsa Industries, G.R. No. 152071, May 8, 2009).

The dragnet clause has been consistently declared valid in a long line of Philippine jurisprudence. In Banate v. Philippine Countryside Rural Bank (Liloan, Cebu), Inc., (G.R. No. 163825, July 13, 2010), the High Court held that while the general rule is that a mortgage liability is usually limited to the amount mentioned in the contract, the amounts named as consideration in a contract of mortgage 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.  The cross-collateral stipulation in the mortgage contract between the parties is thus simply a variety of a dragnet clause. After agreeing to such stipulation, the mortgagor cannot insist that the subject properties be released from the mortgage because the security covers not only the subject loan but other loans as well

On the part of the debtor, however, he should observe reasonable caution and preferably, seek legal advice before signing real estate mortgage contracts containing dragnet clauses. Payment of the principal loan which the parties initially considered will not necessarily permit him to demand the release of the mortgage if the security agreement obviously incorporates the Blanket Clause. In fact,  even if another security is given for a subsequent loan, that alone will not necessarily remove such loan from the sphere of operation of the Dragnet Clause in the previous real estate mortgage contract, so long as the terms of the Dragnet Clause are clear.

Perhaps, the sturdiest  succor that the debtor may have against the pitfall of Dragnet Clause is the declared policy that such clauses are carefully scrutinized and strictly construed and when classified as  contracts of adhesion, any ambiguity in the mortgage contract  will be construed against the party who drafted it, usually the one who typically stands in the stronger contractual position to dictate the terms of the agreement and in the preparation the loan documents — the Creditor.

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