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113 Union Bank of The Phil Vs CA GR 164910 Sept. 30 2005 DIGESTf

This case involves a dispute over the extent of liability of an accommodation mortgagor, DRI, for loans obtained by JMTC from Union Bank. While DRI mortgaged properties to secure an initial P3M loan of JMTC, the loan was later increased to P27M. When JMTC defaulted, Union Bank foreclosed on DRI's properties. The Court of Appeals found DRI liable only up to P3M initially, but the Supreme Court ruled DRI was liable for the total outstanding amount, as the mortgage agreement expressed an intent for DRI's properties to secure both current and future obligations of JMTC.

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92 views1 page

113 Union Bank of The Phil Vs CA GR 164910 Sept. 30 2005 DIGESTf

This case involves a dispute over the extent of liability of an accommodation mortgagor, DRI, for loans obtained by JMTC from Union Bank. While DRI mortgaged properties to secure an initial P3M loan of JMTC, the loan was later increased to P27M. When JMTC defaulted, Union Bank foreclosed on DRI's properties. The Court of Appeals found DRI liable only up to P3M initially, but the Supreme Court ruled DRI was liable for the total outstanding amount, as the mortgage agreement expressed an intent for DRI's properties to secure both current and future obligations of JMTC.

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Ayra Cadigal
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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G.R. No.

164910 September 30, 2005


UNION BANK OF THE  PHILIPPINES, Petitioner, versus HON. COURT OF APPEALS and DROSSA,
INCORPORATED, Respondents

TOPIC: REAL ESTATE MORTGAGE

FACTS:
Josephine Marine Trading Corporation (JMTC) availed P3M from its credit line in Union Bank of
the Philippines, and as a security for the credit facility, DRossa Incorporated (DRI) agreed to mortgage
its two parcels of land in favor of the said bank. Subsequently, Union Bank increased the credit facility
of JMTC to P27 million, in which P18M was availed by JMTC. Upon JMTC’s failure to pay its obligation,
DRI’s properties were foreclosed with Union Bank as the highest bidder. DRI filed a supplemental
complaint seeking to declare the public sale as null claiming that its liability is only P3 million which was
the liability incurred by JMTC under its first agreement with Union Bank. Union Bank alleged that DRI
was liable to JMTC’s total outstanding obligations, regardless of whether it was incurred during or
subsequent to the first agreement.
While CA upheld Union Bank’s right to foreclose, it found that DRI’s mortgage liability is pegged
at P3 million and which was later amended and increased to P8.61 million (due to charges, etc.).

ISSUE:
Whether DRI’s mortgage liability, as an accommodation mortgagor only, includes the
subsequent loan.

HELD:
Yes. Provisions of Real Estate Mortgage clearly show the parties’ intent to constitute DRI’s real
estate properties as continuing securities, thus liable for the current as well as the future obligations of
JMTC. DRI also actively participated in facilitating the increase of JMTC’s credit facility. 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. In this case, DRI expressly agreed to
secure all the obligations of JMTC, whether presently owing or subsequently incurred. This applies
even if DRI is considered as an accommodation mortgagor only.

(Optional only)
In Prudential Bank v. Don A. Alviar and Georgia B. Alviar, this provision was referred to as
blanket mortgage clause or dragnet clause, portions of which state that: “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. 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.”

-harl- 1

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