G.R. No. 178218 - Ramos vs. Philippine National Bank

In 1973, Luis Ramos obtained an agricultural loan of P83,000.00 from Philippine National Bank (PNB), Balayan Branch.
To secure the loan, Luis Ramos executed a Real Estate Mortgage on October 23, 1973, covering specific parcels of land and improvements, described under TCT Nos. 17217, (T-262) RT-644, 259, (T-265) RT-646, (T-261) RT-643 of Batangas Registry of Deeds.
The mortgage included a blanket or dragnet clause stating it would secure the loan, any renewals, extensions, or new loans, including other accommodations like overdrafts, letters of credit, or bills of exchange, and “any and all other obligations” of the mortgagor to the mortgagee, whether preexisting, current, or future.
Luis Ramos renewed the loan annually and paid amounts due from 1973 onwards.

On March 31, 1989, Luis Ramos entered into a Credit Line Agreement with PNB for P50,000,000.00 under the sugar quedan financing program for crop year 88/89.
The loan was for capital in sugar quedan financing and was to be evidenced by promissory notes, payable within 60 days from each availment date, but no later than August 31, 19__, and secured by a pledge of sugar quedan warehouse receipts issued by Noah’s Ark Sugar Refinery.
Luis Ramos obtained two availments of P7,800,000.00 on April 3 and June 6, 1989, evidenced by promissory notes and secured by two pledged sugar quedan receipts (serial nos. NASR RS-18080 and NASR RS-18081).
Subsequent renewals were evidenced by promissory notes dated October 3 and 9, 1989.
Luis Ramos failed to pay the sugar quedan financing loan amounting to P15,600,000.00.
On December 28, 1989, Luis Ramos issued an Authorization to PNB to dispose or sell the pledged sugar quedan receipts after the maturity date to apply proceeds to the loan.

On August 7, 1989, Luis and Ramona Ramos obtained an agricultural loan of P160,000.00 from PNB, evidenced by a promissory note and secured by the 1973 real estate mortgage.
The agricultural loan was fully settled on November 2, 1990.
The spouses then demanded the release of the real estate mortgage and the titles, but PNB refused, claiming the mortgage secured also the unpaid sugar quedan financing loan.
On February 28, 1996, the spouses filed a complaint for Specific Performance to compel release of the mortgage and titles, alleging impairment of their property rights and lost business opportunities.
PNB countered that the mortgage secured both loans and that settlement had not been completed due to the unpaid sugar quedan financing loan.
On March 26, 1999, the RTC ruled in favor of the spouses, holding that issuance of the Authorization letter to PNB to sell the pledged quedans constituted novation by dation in payment, extinguishing the obligation and requiring release of the mortgage and titles.
PNB appealed the decision.

The Court of Appeals reversed the RTC decision in its November 8, 2006 decision, ruling that:

The Authorization letter merely authorized PNB to sell the pledged sugar quedans upon default and did not transfer ownership; hence, no dacion en pago or novation occurred.
There was no meeting of the minds for dacion en pago.
In case of doubt, a transaction is presumed pledge rather than dacion en pago.
The real estate mortgage secured all obligations, including the sugar quedan loan.

The spouses filed a Motion for Reconsideration denying the applicability of the mortgage to sugar quedan financing loans and alleging bad faith on PNB's part, which was denied on May 28, 2007.
PNB moved to substitute parties in the case after assignment of its rights and obligations to other corporations, but the Court of Appeals denied the motion, adding those corporations as additional respondents.

Petitioners (Ramona Ramos and the Estate of Luis T. Ramos) filed the present Petition for Review on Certiorari before the Supreme Court.
They argue that the real estate mortgage did not cover the sugar quedan financing loan but only the agricultural crop loan, citing that the sugar quedan financing loan was not executed in reliance upon the original mortgage.
They maintain that the real estate mortgage’s blanket clause would cover subsequent loans only if those were obtained in reliance on the mortgage, which was not the case in the sugar quedan financing loan.
PNB counters that the mortgage’s blanket clause covers subsequent loans and obligations and that the issue was not previously raised and thus barred. PNB also maintains that the contract of pledge remains valid and the loan unpaid until foreclosure occurs.

Whether the general terms of the 1973 real estate mortgage clearly and unequivocally indicate that it covers not only the agricultural crop loan but also the sugar quedan financing loan.

Whether the real estate mortgage executed in 1973 can be considered valid security for a sugar quedan financing loan obtained only in 1989 under a separate credit line agreement.

Whether the Authorization letter issued by Luis Ramos in favor of PNB, permitting PNB to sell the pledged sugar quedans, terminated the contract of pledge by novation or dation in payment, thereby extinguishing the sugar quedan loan.