Dear PAO,
I authorized Amy to obtain a loan from a bank payable in two (2) years. A real estate mortgage with dragnet clause was executed in favor of the bank. I paid the loan in full before its maturity but I inadvertently failed to retrieve the certificate of title from the bank. Amy obtained another loan from the bank and executed a promissory note which provides that the “same shall be secured by a real estate mortgage.” She failed to pay the loan. The bank now intends to foreclose the mortgage furnished to them claiming that there is a dragnet clause in the contract that the mortgage will secure the prevailing loan and future loans. Is the intended foreclosure proper under the circumstances?
Amarillo
Dear Amarillo,
A valid real estate mortgage must comply with Article 2085 of the New Civil Code of the Philippines which provides that:
“The following requisites are essential to the contracts of pledge and mortgage:
“(1) That they be constituted to secure the fulfillment of a principal obligation;
“(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
“(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.
“Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property.”
The concept of a dragnet clause or blanket mortgage clause was explained by the high court in Paradigm Development Corporation of the Philippines vs. Bank of the Philippine Islands, G.R. No. 191174, June 7, 2017, which was penned by Honorable Associate Justice Bienvenido L. Reyes, in this wise:
“A dragnet clause is a stipulation in a REM contract that extends the coverage of a mortgage to advances or loans other than those already obtained or specified in the contract. Where there are several advances, however, a mortgage containing a dragnet clause will not be extended to cover future advances, unless the document evidencing the subsequent advance refers to the mortgage as providing security therefor or unless there are clear and supportive evidence to the contrary. xxx”
Thus, for a dragnet clause to be upheld, it must be supported by evidence that the parties intended to secure a future loan. This finds support in Spouses Duero vs. Green Bank of Caraga, Inc. and the Hon. Registrar of Deeds for the Province of Surigao del Sur, G.R. No. 215776, August 27, 2025, where the Supreme Court, speaking through Honorable Associate Justice Jose Midas P. Marquez, stated that:
“Thus, when there is no clear, supportive evidence that the parties intended a particular transaction to be secured under a future advances clause, courts will not find the transactions to be secured unless: (1) the advances are of the same kind and quality; or (2) the subsequent document refers to the mortgage as providing security for the later advance. Stated conversely, courts may find subsequent transactions to be secured under a dragnet or future advances clause where the later document refers to the mortgage as providing security, or where the later advances are of the same kind and quality or relate to the same transaction or series of transactions as the original obligation secured. In the absence of both of the foregoing, clear, supportive evidence of an intention to secure the later transaction is necessary. The court sees this rule as giving rise to no presumptions of fact.”
Applying the above-quoted jurisprudence to your situation, the promissory note executed by Amy containing a provision t hat it shall be secured by a real estate mortgage appears to be vague. There is no showing that the second loan is the same kind or at least forming a series of transactions. Neither does it directly allude to the first loan with real estate mortgage. Hence, absent clear or supportive evidence to prove the intention of the parties to secure the second loan obtained by Amy, the dragnet clause cannot be applied.
We hope that we were able to answer your queries. This advice is solely based on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.
Thank you for your continued trust and support.
Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net.
