by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

MORTGAGES; DRAGNET CLAUSE: Dragnet clause securing all debts to bank, present or future, owed by husband and wife, or one of them, is valid as drafted, and secures loans known only to one of the parties. Iuka Guaranty Bank v. Beard, 658 So.2d 1367 (Miss. 1995) (dicta).

When the husband and wife executed deeds of trust on property to secure the husband's business debt, the deed of trust contained a dragnet clause that applied to all existing debts. The husband had other preexisting debts of which the wife was not aware. Subsequently, the parties divorced, and the wife received one of the parcels subject to the dragnet mortgage. The wife eventually prepaid the debt of which she had been aware when she made the mortgage, apparently in the belief that this would cancel that mortgage. The bank insisted that the mortgage continued to secure the debt of which the wife had not been aware.

Although the court observed that the Mississippi authority would support such a broad construction of the dragnet clause, the court further found that the bank consented to release the mortgage if the wife paid early one of the loans secured by the mortgage. The court found that the early payment was sufficient consideration to support a modification of the mortgage, permitting its cancellation notwithstanding the remaining outstanding debt. Even though the payment was on a preexisting debt, the payment was earlier than scheduled, and such early payment constituted an economic detriment, and thus was valid as consideration.

Note: Although the loan was a business loan, the security consisted in part of the mortgagor's residence. In such cases, other jurisdictions are much more cautious about giving the dragnet clause its literal sweep.

See, e.g.: United National Bank v. Tellam, 644 So. 2d 97 (Fla. Dist. Ct. App. 1994). (Dragnet clauses are strictly construed against drafter; pre-existing obligations are not included within the scope of dragnet clause unless specifically identified by name in the mortgage.) Federal Deposit Insurance Corporation v. Bodin Concrete Co., 869 S.W.2d 372 (Tex. Ct. App. 1993). (Clause providing that deed of trust secures all debts that may "hereafter be owing" secures only obligations arising after execution of deed of trust.) (These last two cases are reported in the new book: SURVEY OF RECENT DEVELOPMENTS IN REAL ESTATE LAW - 1994, about to be released by the ABA).

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