PCSO vs New Dagupan Metro Gas
G.R. No. 173171 July 11, 2012
A mortgage that provides for a dragnet clause is in the nature of a continuing guaranty and constitutes
an exception to the rule than an action to foreclose a mortgage must be limited to the amount
mentioned in the mortgage contract. Its validity is anchored on Article 2053 of the Civil Code and is not
limited to a single transaction, but contemplates a future course of dealing, covering a series of
transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is
generally intended to provide security with respect to future transactions within certain limits, and
contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. In other
words, a continuing guaranty is one that covers all transactions, including those arising in the future,
which are within the description or contemplation of the contract of guaranty, until the expiration or
termination thereof
FACTS:
Peralta is the registered owner of a parcel of land located in Dagupan City. A real estate’s mortgage was
constituted over the said property in favor of PCSCO to secure the payment of the sweepstakes ticket
purchased by Galang, its provincial distributor. The salient provisions of the Deed of undertaking with
first Real Estate Mortgage where Galang , PCSO and Peralta were respectively designated as “Principal”,
“Mortgagee”, and” Mortgagor”
Peralta sold under a Conditional Sale the subject property to New Dagupan , the conveyance to be
absolute upon the latters full payment of the price of 800k
Peralta then showed New Dagupan a photocopy of its TCT which bore no liens and encumbrances and
undertook to deliver the owner’s duplicate within 3 months from the execution of the contract. New
Dagupan executed an affidavit of adverse claim which was annotated on the TCT.
Due to Peralta’s failure to deliver a deed of absolute sale and the owner’s duplicate of the title , New
Dagupan filed a complaint for specific performance against her with the RTC.
During the pendency of New Dagupan’s complaint against Peralta , PCSO caused the registration of the
mortgage.
PCSO then filed an application for the extrajudicial foreclosure sale of the subject property in view of
Galang’s failure to fully pay the sweepstakes she purchased . a public auction took place where PCSO
was the highest bidder .
ISSUE:
The rise and fall of this recourse is dependent on the resolution of the issue who between New Dagupan
and PCSO has a better right to the property in question.
RULING:
PCSO is undeterred by the denial of its appeal to the CA and now seeks to convince this Court that it has
a superior right over the subject property. However, PCSO s resolve fails to move this Court
As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract.
However, 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. 26ςrνll
Alternatively, while a real estate mortgage may exceptionally secure future loans or advancements,
these future debts must be specifically described in the mortgage contract. An obligation is not secured
by a mortgage unless it comes fairly within the terms of the mortgage contract.
The stipulation extending the coverage of a mortgage to advances or loans other than those already
obtained or specified in the contract is valid and has been commonly referred to as a "blanket
mortgage" or "dragnet" clause. In Prudential Bank v. Alviar, this Court elucidated on the nature and
purpose of such a clause as follows:ςrαlαω
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.
A mortgage that provides for a dragnet clause is in the nature of a continuing guaranty and constitutes
an exception to the rule than an action to foreclose a mortgage must be limited to the amount
mentioned in the mortgage contract. Its validity is anchored on Article 2053 of the Civil Code and is not
limited to a single transaction, but contemplates a future course of dealing, covering a series of
transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is
generally intended to provide security with respect to future transactions within certain limits, and
contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. In other
words, a continuing guaranty is one that covers all transactions, including those arising in the future,
which are within the description or contemplation of the contract of guaranty, until the expiration or
termination thereof.
This Court has to disagree with PCSO in view of the principles quoted above. A reading of the other
pertinent clauses of the subject mortgage, not only of the provision invoked by PCSO, does not show
that the security provided in the subject mortgage is continuing in nature. That the subject mortgage
shall only secure Galang s liability in the amount of P450,000.00 is evident from the following:ςrαlαω
WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and unpaid account with the
MORTGAGEE in the amount of FOUR HUNDRED FIFTY THOUSAND (P450,000.00), representing the
balance of his/her ticket accountabilities for all draws
