Brief Fact Summary. Credithrift of America, Inc., (Respondent), held a second deed of trust securing future advances on a property owned by Hobart W. Gentry, Jr. and Georgia C. Gentry. Respondent made an advance after Thomas E. Shutze, (Petitioner), perfected a judgment lien on the same property. Petitioner appeals the Chancery Court decision to enforce the future advance clause and assign its lien a priority relating back to the original deed of trust.
Synopsis of Rule of Law. The lien securing the future advance takes its date from the recording of the original deed of trust and by operation of law reaches forward to secure the advance made after intervening rights became perfected.
No sensible reason is offered why we should seize on this added security precaution and thereby render the creditor less secure.
View Full Point of LawIssue.
Whether “dragnet clauses” are valid and enforceable in Mississippi.
Whether a lien securing a future advance takes its date from the recording of the original deed.
Held.
Yes. “Dragnet clauses” are valid and enforceable in Mississippi.
Yes. The lien securing the future advance takes its date from the recording of the original deed, which in this case occurred three years prior to Petitioner’s perfected judgment lien.
Discussion. Dragnet clauses are enforceable and valid just like any other provision in a contract and are subject only to conventional contract defenses. Dragnet clauses make available additional funds without having to execute additional security documents saving time and costs.
Respondent’s dragnet clause was sufficient to put a purchaser or encumbrancer on inquiry. Third parties dealing with the debtor are given notice that the recorded lien secures any future advances and are charged at their peril to inquire of the debtor and prior secured creditors. The lien securing the future advance took its date from the recording of the original deed of trust and by operation of law reached forward to secure the advance made after intervening fights became perfected. Petitioner’s judgment lien was perfected three years after Respondent’s lien securing the future advance therefore, Respondent’s lien has priority.