Title
Ramos vs. Philippine National Bank
Case
G.R. No. 178218
Decision Date
Dec 14, 2011
In 1973, Luis Ramos mortgaged land for an agricultural loan; in 1989, he secured a sugar queádán loan. Despite paying the agricultural loan, PNB refused to release the mortgage, claiming it also secured the unpaid sugar loan. The Supreme Court upheld PNB’s claim, ruling the mortgage’s dragnet clause covered future loans, and no dation in payment occurred.

Case Summary (G.R. No. 178218)

Background and Loan Agreements

In 1973, Luis Ramos obtained an agricultural loan from PNB amounting to P83,000.00, secured by a real estate mortgage covering several parcels of land in Batangas under various Transfer Certificates of Title (TCTs). This mortgage contained a blanket or dragnet clause stipulating it would secure not only the current loan but also any other accommodations from PNB, whether existing or future, including all obligations of whatever nature. Ramos repeatedly renewed this loan over the years.

On March 31, 1989, Ramos entered into a separate Credit Line Agreement with PNB for P50,000,000.00 under the bank’s sugar quedan financing program, evidenced by various promissory notes and secured by two official warehouse receipts (quedans) for sugar issued by Noahas Ark Sugar Refinery. Ramos issued an authorization permitting PNB to sell these quedans upon loan maturity if conditions warranted.

Meanwhile, on August 7, 1989, Luis Ramos and his wife Ramona obtained a further agricultural crop loan of P160,000.00 from PNB, also secured by the existing real estate mortgage. This agricultural loan was fully paid on November 2, 1990, after which the Ramos spouses demanded the release of the mortgage, which PNB refused.

Procedural Posture and Trial Court Ruling

In 1996, the Ramos spouses filed a complaint for specific performance against PNB to compel release of the mortgage and return the titles, claiming PNB’s refusal impaired their rights and business opportunities. PNB contended that the mortgage secured not only the agricultural loan but also the unsettled sugar quedan financing loan. The trial court ruled in favor of the plaintiffs, finding that issuance of the authorization letter transferring ownership of the quedans to PNB operated as a dacion en pago (payment in kind), extinguishing the Ramos spouses’ obligations and thus entitling them to mortgage release.

Court of Appeals Decision and Reasoning

PNB appealed, and the Court of Appeals reversed the trial court. The appellate court held that:

  • The authorization letter was not a dacion en pago because it did not contain a clear transfer of ownership to PNB of the pledged quedans; the letter merely authorized PNB to dispose of the pledged items upon maturity of the loan.
  • A contract of pledge allows the pledgee to foreclose and alienate the pledged property if the principal obligation becomes due, in line with Article 2087 of the Civil Code.
  • There was no meeting of the minds indicating that the parties intended to extinguish the loan by dacion en pago.
  • When doubt exists between whether a transaction is a pledge or dacion en pago, the presumption favors pledge, which is the lesser transfer of rights.
  • Consequently, since the sugar quedan financing loan remained unpaid, the real estate mortgage securing these obligations could not be released.

Petitioners’ Arguments on Appeal to the Supreme Court

The petitioners argued:

  1. The real estate mortgage did not clearly or expressly cover the sugar quedan financing loan obtained years after the mortgage was executed.
  2. The blanket or dragnet clause should not apply to subsequent loans that were not obtained in reliance on the mortgage.
  3. The authorization letter amounted to a novation and dacion en pago, and thus extinguished the sugar quedan loan secured by pledge.
  4. PNB acted in bad faith by wrongfully retaining the mortgage collateral despite full payment of the agricultural loan.
  5. The doctrine of mutuality of contract was violated since the mortgage terms, particularly the dragnet clause, were a contract of adhesion.

Supreme Court Analysis and Ruling

The Supreme Court denied the petition based on the following grounds:

Procedural Bar

The core new issue — that the sugar quedan financing loan was excluded from the real estate mortgage — was raised for the first time only in the motion for reconsideration of the Court of Appeals decision and then repeated during the Supreme Court appeal. The Court applied the general rule that issues not raised or litigated in the lower courts are barred on appeal unless falling under specific exceptions, such as jurisdiction or when no additional evidence is needed to meet the new issue. None of these exceptions applied since further evidence was necessary, and the issue was not jurisdictional.

Substantive Interpretation of the Mortgage Contract

The Court found no ambiguity in the real estate mortgage. It unequivocally provided that the mortgage secured all obligations of the mortgagor of whatever nature, whether contracted before, during, or after the mortgage’s constitution. Such blanket or dragnet clauses are well recognized in Philippine jurisprudence and lawful as agreements binding the parties. The mortgage did not limit itself to agricultural loans alone.

The petitioners’ reliance on the absence of reference to the mortgage in the subsequent credit line agreement and related documents was insufficient to supplant the explicit broad terms of the mortgage contract executed years earlier. Contracts are to be interpreted according to their clear and literal terms unless ambiguous — which was not the case here.

Dacion en Pago and Pledge Doctrine

The Court reaffirmed that under Article 2103 of the Civil Code, ownership of pledged goods remains with the pledgor until foreclosure. The authorization letter granted PNB the power to dispose of pledged sugar quedans as a means to satisfy the loan but did not transfer ownership, thus the pledged goods remained with the borrower pending foreclosure.

Furthermore, Article 2115 mandates that sale of pledged property extinguishes the debt but requires actual foreclosure and sal

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