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

Case Summary (G.R. No. 178218)

Key Dates and Transactional Milestones

Real estate mortgage executed October 23, 1973. Credit Line Agreement under PNB’s sugar quedan financing program executed March 31, 1989. Promissory notes and Contracts of Pledge for sugar quedans executed April–June 1989 (availments totaling P15,600,000.00). Authorization letter from Luis Ramos to PNB dated December 28, 1989. Agricultural loan of P160,000.00 obtained August 7, 1989 and fully paid November 2, 1990. RTC decision in favor of the Ramoses dated March 26, 1999. Court of Appeals reversal dated November 8, 2006; motion for reconsideration denied May 28, 2007. Supreme Court decision affirming the Court of Appeals dated December 14, 2011.

Applicable Law and Authorities Relied On

Governing constitutional framework: 1987 Philippine Constitution (applicable because decision date is post‑1990). Procedural rule: Rule 45, Rules of Court (petition for review on certiorari). Civil Code provisions expressly relied upon in the decisions and arguments: Article 1245 (dation in payment), Article 1371 (ascertaining contractual intention via contemporaneous and subsequent acts), Article 2087 (foreclosure and alienation of pledged property), Article 2103 (ownership of pledged thing remains with debtor unless expropriated), and Article 2115 (sale of pledged thing extinguishes principal obligation). Controlling jurisprudence cited: Prisma Construction & Development Corp. v. Menchavez, Banate v. Philippine Countryside Rural Bank, Prudential Bank v. Alviar, and Philippine National Bank v. Sayo, Jr.

Terms and Scope of the 1973 Real Estate Mortgage

The 1973 mortgage secured a P83,000.00 agricultural loan and expressly contained a broad “blanket” or “dragnet” clause. The mortgage provided that it would secure “loans, overdrafts and other credit accommodations” fixed at P83,000.00 and stated additionally that, in case of subsequent promissory notes, renewals, extensions, new loans or other accommodations, “this mortgage shall also stand as security” for such obligations. It further provided that it would secure “any and all other obligations of the Mortgagor to the Mortgagee of whatever kind and nature whether such obligations have been contracted before, during or after the constitution of this mortgage.” The mortgaged parcels were identified by TCT numbers recorded at the Registry of Deeds of Batangas.

The 1989 Sugar Quedan Financing and Pledge Transactions

On March 31, 1989, Luis Ramos obtained a P50,000,000.00 credit line under PNB’s sugar quedan financing program. Ramos made availments evidenced by promissory notes (notably promissory notes dated April 3, 1989 and June 6, 1989) totaling P15,600,000.00. To secure the availments he executed Contracts of Pledge covering two official warehouse receipts (quedans) for refined sugar (NASR RS‑18080 and NASR RS‑18081), which were indorsed to PNB.

Authorization Letter and Parallel Litigation Over the Quedans

On December 28, 1989, Luis Ramos executed an Authorization in which he authorized PNB “to dispose and sell all the Quedan Receipts (Warehouse Receipts) pledged to said bank, after maturity date.” The quedans became the subject of separate litigation between PNB and Noah’s Ark Sugar Refinery; those proceedings and related appeals and enforcement actions elsewhere in the record affected whether the quedans could be realized upon and whether pledge remedies could be executed.

Agricultural Loan, Payment, and RTC Action for Release of Mortgage

The spouses Ramos obtained an agricultural loan of P160,000.00 on August 7, 1989 secured by the 1973 real estate mortgage. They fully paid that agricultural loan on November 2, 1990 and demanded release of the mortgage and return of the TCTs; PNB refused, asserting that the mortgage also secured the Ramoses’ sugar quedan financing obligations. The Ramoses filed a complaint for specific performance in the RTC (Civil Case No. 3241), alleging impairment of their property rights and loss of business opportunities due to PNB’s retention of the TCTs.

RTC Finding of Dation in Payment and Its Rationale

The RTC rendered judgment for the Ramoses on March 26, 1999, concluding that the December 1989 Authorization effected a transfer of ownership (dacion en pago) and novation as to the quedans: the RTC found that by authorizing PNB to dispose of the pledged quedans and by PNB’s acceptance and subsequent pursuit of rights against Noah’s Ark, the parties treated the quedans as accepted payment, thereby extinguishing the underlying obligations and requiring release of the mortgage and return of titles. The RTC invoked Article 1245 on dation in payment and characterized the transaction as an alienation of the quedans to PNB in satisfaction of debt.

Court of Appeals’ Reversal: No Dation, Mortgage Covers Future Obligations

The Court of Appeals reversed on November 8, 2006. It held that the Authorization did not transfer ownership of the quedans and thus did not constitute dation in payment; rather, it appointed PNB to sell the quedans if default occurred and to apply proceeds to the loan. The appellate court deemed the Authorization a standard pledge‑related provision consistent with Article 2087 and emphasized the presumption that doubtful transactions be treated as pledge rather than dation (pledge being the lesser transfer of rights). The Court of Appeals also interpreted the 1973 mortgage’s dragnet clause as clear and unambiguous, concluding it covered future obligations, including the 1989 sugar quedan financing loans, and therefore PNB could retain the mortgage until the quedans were appropriately realized or exhausted.

Issues Raised on Appeal to the Supreme Court

Petitioners posed three principal issues: (1) whether the general terms of the 1973 real estate mortgage leave no doubt that the mortgage did not cover the sugar quedan financing loan; (2) whether the mortgage should be understood to include the sugar quedan financing loan in addition to the agricultural loan; and (3) whether a mortgage executed in 1973 could validly and existingly secure a 1989 sugar quedan financing loan under the 1989 credit line agreement.

Petitioners’ Legal Theories and Contentions

Petitioners argued that the dragnet clause would secure a subsequent loan only if that subsequent loan was made in reliance on the original mortgage; they contended the 1989 sugar financing transactions (credit line agreement, promissory notes, contracts of pledge) made no reference to the real estate mortgage and thus demonstrated no such reliance. They further asserted that the Authorization effected a novation and dation in payment which extinguished the pledge and the sugar loan, entitling them to release of the mortgage. Petitioners also characterized the dragnet clause as a contract of adhesion violating mutuality, and they urged application of Article 1371 to judge contractual intention by contemporaneous acts.

Respondents’ Contentions and Procedural Objections

PNB maintained that the Ramoses had consented to a mortgage that expressly secured future loans and that the Ramoses had not timely raised the issue of whether the 1973 mortgage covered the sugar financing obligations in the trial court and earlier appellate proceedings; PNB therefore argued the Ramoses were estopped from raising the new theory on appeal. PNB contended the Authorization did not transfer ownership of the quedans and that pledge law and Civil Code provisions permitted PNB to hold the pledged property and sell it upon default, applying proceeds to the indebtedness.

Supreme Court’s Procedural Ruling on Late‑Raised Theory

The Supreme Court found that petitioners’ primary new theory (that the 1973 mortgage did not cover the 1989 sugar financing loan) was first advanced in their motion for reconsideration to the Court of Appeals and thus had not been presented at trial; the Court applied the general estoppel rule barring issues raised for the first time on appeal. The Court considered, but rejected, exceptions (jurisdictional questions and the Lianga Lumber exception that a party may change legal theory on appeal when no further evidence is needed), concluding neither applied because jurisdiction was not at issue and the new theory would require further evidence. Accordingly, petitioners were procedurally barred from succeeding on that new theory.

Supreme Court’s Substantive Contract Interpretation: Dragnet Clause Encompasses the Sugar Loan

On the substantive merits, the Supreme Court applied established contract interpretation principles: when contract terms are clear and leave no doubt, t

Case Syllabus (G.R. No. 178218)

Procedural Posture

Petition for Review on Certiorari filed under Rule 45 assails the Court of Appeals Decision dated November 8, 2006 and Resolution dated May 28, 2007 in CA-G.R. CV No. 64360.
The case originated from Civil Case No. 3241 filed in the Regional Trial Court (RTC) of Balayan, Batangas, Branch 9, docketed as a complaint for Specific Performance (spouses Ramos v. PNB).
RTC rendered judgment on March 26, 1999 in favor of petitioners (spouses Ramos), ordering release of the real estate mortgage and return of Transfer Certificates of Title (TCTs); PNB appealed to the Court of Appeals.
Court of Appeals reversed the RTC on November 8, 2006, ordering PNB to hold the release of the TCTs; a Motion for Reconsideration by petitioners was denied by the Court of Appeals on May 28, 2007.
Petitioners elevated the matter to the Supreme Court; PNB sought substitution by purchaser Golden Dragon Star Equities, Inc., and inclusion of Opal Portfolio Investments (SPV-AMC), Inc.; the Supreme Court ordered Opal and Golden Dragon Star included as respondents instead of substituting PNB (Resolution, October 10, 2007).
Petitioners’ counsel notified the Court that Luis Ramos died; Ramona Ramos acted as legal representative of Luis Ramos’ estate in subsequent proceedings.

Facts — Real Estate Mortgage (1973)

In 1973, Luis Ramos obtained a credit line under an agricultural loan account from Philippine National Bank (PNB), Balayan Branch, for P83,000.00.
To secure the loan, a Real Estate Mortgage was executed on October 23, 1973; the mortgage contained expansive security language including:
- Security for the stated P83,000.00 and “those others that the Mortgagee may extend to the Mortgagor,” including interest, expenses and “other obligations owing by the Mortgagor to the Mortgagee, whether direct or indirect principal or secondary.”
- Transfer and conveyance by way of mortgage of parcels described on the back of the document (TCTs), including buildings, easements, sugar quotas, agricultural/land indemnities, aids/subsidies and “other assets acquired with the proceeds of the loan hereby secured.”
- Clause that the mortgage “shall also stand as security” for subsequent promissory notes, renewals, extensions, new loans and “any and all other obligations of the Mortgagor to the Mortgagee of whatever kind and nature whether such obligations have been contracted before, during or after the constitution of this mortgage.”
- Condition that mortgage becomes null and void if obligations are paid when due and covenants performed; otherwise remains in full force and effect.
Properties included in the mortgage were parcels covered by TCT Nos. 17217, (T-262) RT-644, 259, (T-265) RT-646, (T-261) RT-643 in the Registry of Deeds of Batangas.
From 1973 onward, Luis Ramos renewed the loan annually by paying amounts due.

Facts — Sugar Quedan Financing Loans (1989)

On March 31, 1989, Luis Ramos and PNB entered into a Credit Line Agreement under PNB’s sugar quedan financing program in the amount of P50,000,000.00.
Pertinent terms of the credit line agreement included:
- Availability of Revolving Credit Line up to P50,000,000.00 for additional capital in sugar quedan financing.
- Availments evidenced by promissory notes, each dated on the date of availment, payable sixty (60) days from date of availment but in no case later than the Initial Repayment Date.
- Security provision (Section 3) that full payment of sums payable under the line and Notes shall be secured by a pledge on the Borrower’s quedans for the crop year, subject to a Contract of Pledge to be executed in a form acceptable to the Bank.
Luis Ramos obtained an availment of P7,800,000.00 evidenced by a promissory note dated April 3, 1989, and executed a Contract of Pledge on April 6, 1989.
Pledged as security were two official warehouse receipts (quedans) for refined sugar issued by Noah’s Ark Sugar Refinery bearing serial numbers NASR RS-18080 and NASR RS-18081; these quedans were duly indorsed to PNB.
On June 6, 1989, Ramos procured another availment of P7,800,000.00, evidenced by another promissory note and a Contract of Pledge on the same quedans.
Ramos executed renewal promissory notes dated October 3, 1989 and October 9, 1989 for the April and June availments.
Ramos failed to settle sugar quedan financing loans amounting to P15,600,000.00.
On December 28, 1989, Luis Ramos issued an Authorization letter to PNB authorizing PNB to dispose and sell the pledged quedans after the maturity date of the sugar quedan financing line; the Authorization specifically enumerated NASR RS-18081 and NASR RS-18080 with stated bag quantities.

Facts — Agricultural Crop Loan (1989) and Demand for Release

On August 7, 1989, spouses Luis and Ramona Ramos obtained an agricultural loan of P160,000.00 from PNB, evidenced by a promissory note issued the same date.
The agricultural loan was secured by the 1973 real estate mortgage.
On November 2, 1990, the spouses Ramos fully settled the agricultural loan of P160,000.00.
The spouses demanded release of the real estate mortgage and return of the TCTs; PNB refused, asserting that the mortgage secured other obligations, notably the unpaid sugar quedan financing loan(s).

RTC Decision (March 26, 1999) — Trial Court Findings

RTC found that the spouses Ramos had paid and satisfied their obligation with PNB (the agricultural loan) and that the Authorization letter effectively transferred the quedan ownership to PNB (dacion en pago) by authorizing disposal and sale of the quedans to PNB.
RTC concluded the Authorization terminated the contract of pledge and constituted a novation/dation in payment under Article 1245 of the Civil Code.
Based on dacion en pago, RTC ordered PNB to release the real estate mortgage and return the TCTs to spouses Ramos, and to pay costs.

Court of Appeals Decision (November 8, 2006) — Appellate Findings

Court of Appeals reversed the RTC, holding the Authorization letter did not transfer ownership of the pledged goods to PNB and thus did not constitute dacion en pago.
Court of Appeals characterized the Authorization as appointment of PNB as attorney-in-fact to sell or otherwise dispose of the quedans in case of default and to apply proceeds to the loan—standard pledge condition consistent with Article 2087 of the Civil Code.
Found no meeting of the minds required for dacion en pago (Article 1245) and noted presumption in doubtful cases favors pledge (lesser transmission) over dacion en pago.
Held that in case of doubt as to whether transaction is pledge or dacion en pago, pledge is presumed.
Ordered PNB to hold the release of the TCTs pledged as security for the agricultural loan.

Motion for Reconsideration and Inclusion of New Arguments

Petitioners filed Motion for Reconsideration arguing obscurity of mortgage terms, lack of reference to mortgage in credit line, promissory notes and contracts of pledge, and asserted PNB’s bad faith in retaining collateral.
Petitioners advanced a new theory: the 1973 mortgage could not have secured the 1989 sugar quedan financing loan because the credit line was only constituted in 1989 (assertion that the dragnet clause should not reach the later loan).
Court of Appeals denied the motion for reconsideration on May 28, 2007, finding no compelling reason to reverse its decision.

Issues Presented to the Supreme Court

Exact issues presented by petitioners:
- IS THE MEANING OF THE GENERAL TERMS OF THE REAL ESTATE MORTGAGE CLEAR AND LEAVE NO DOUBT THAT THERE IS NO NEED TO DETERMINE WHETHER THE PARTIES INTENDED TO CREATE AND PROVIDE SECURITY INTEREST ON THE REAL ESTATE COLLATERAL OF BORROWER LUIS T. RAMOS FOR THE SUGAR QUEDAN FINANCING LOAN GRANTED TO HIM BY LENDER PNB, IN ADDITION TO THE AGRICULTURAL CROP LOAN THAT WAS UNDISPUTEDLY AGREED UPON BY THEM TO BE COVERED BY THE COLLATERAL?
- SHOULD THE GENERAL TERMS OF THE REAL ESTATE MORTGAGE EXECUTED BY BORROWER LUIS T. RAMOS IN FAVOR OF LENDER PNB BE UNDERSTOOD TO INCLUDE IN ITS COVERAGE THE BORROWER’S SUGAR QUEDAN FINANCING LOAN THAT IS DIFFERENT FROM HIS AGRICULTURAL CROP LOAN UNDISPUTEDLY AGREED UPON BY THE PARTIES TO BE COVERED BY THE COLLATERAL?
- SHOULD THE REAL ESTATE