OBC 016 - United Planters Sugar Milling Co., Lnc. v. Court of Appeals - G.R. No. 126890

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G.R. No. 126890
TodayisSaturday,November15,2014
RepublicofthePhilippines
SUPREMECOURT
Manila
ENBANC
G.R.No.126890April2,2009
UNITEDPLANTERSSUGARMILLINGCO.,INC.,(UPSUMCO),Petitioners,
vs.
THEHONORABLECOURTOFOFAPPEALS,PHILIPPINENATIONALBANK(PNB)andASSET
PRIVATIZATIONTRUST(APT),ASTRUSTEEOFTHEREPUBLICOFTHEPHILIPPINES,Respondents.
RESOLUTION
TINGA,J.:
In 1987, the Republic of the Philippines lost around 1.5 Billion Pesos after it had waived its right to collect on an
outstanding indebtedness from petitioner, by virtue of a socalled "friendly foreclosure agreement" that ultimately
wasfriendlyonlytopetitioner.Theefficacyofsuchwaiverisnowbeyonddispute,buttheCourthastheopportunity
toregretfullymitigatethelossessustainedbythegovernmentthroughmeansnomoreexoticthaninsistinguponthe
interpretationofcontractsaccordingtotheplaintermsexpressedtherein.
I.
The following statement of facts are drawn from the Decision of the Court of Appeals Tenth Division dated 29
February1996,aswellasfromtheSeparateOpiniontotheResolutionofthisCourtdated11July2007.
PetitionerUnitedPlantersSugarMillingCo.(UPSUMCO)wasengagedinthebusinessofmillingsugar.In1974,as
UPSUMCO commenced operations, it obtained a set of loans from respondent Philippine National Bank (PNB).
These loans, referred herein as the "takeoff loans," were intended to finance the construction of a sugar milling
plant. The takeoff loans were embodied in a Credit Agreement dated November 5, 1974, which was thrice
restructured through Restructuring Agreements dated 24 June and 10 December 1982, and 9 May 1984.1 The
takeoff loans were secured a real estate mortgage over two parcels of land2 where the milling plant stood and
chattel
mortgages over the machineries and equipment. As another condition to the takeoff loans, UPSUMCO agreed to
"open and/or maintain a deposit account with the [PNB] and the bank is authorized at its option to apply to the
payment of any unpaid obligations of the client any/and all monies, securities which may be in its hands on
deposit."3
Between 1984 to 1987, UPSUMCO contracted another set of loans from PNB, these ones oriented towards
financingtheoperationsoftheCompany.Thesecondsetofloans,referredhereinafteras"operationalloans,"also
contained setoff clauses relative to the application of payments from UPSUMCOs bank accounts. They were
likewisesecuredbypledgecontractswherebyUPSUMCOassignedtoPNBallitssugarproduceforPNBtoselland
applytheproceedstosatisfytheindebtednessarisingfromtheoperationalloans.
The rulings of the lower courts, as well as the petition itself, are not clear as to the amount extended by way of
takeoff loans by PNB to UPSUMCO. However, the Court of Appeals did enumerate the following transactions
consistingoftheoperationalloans,towit:
(1)TrustReceiptsdatedAugust26,1987February5,1987andJuly10,1987
(2)DeedofAssignmentByWayofPaymentdatedNovember16,1984(Exh.3[PNB]Exh.12[APT]Record,
p.545)
(3)Two(2)documentsofPledgebothdatedFebruary19,1987
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(4)SugarQuedans(Exh.13to16Record,pp.548to551)
(5)CreditAgreementsdatedFebruary19,1987(Exhs."2"[PNB]&"4"[APT]Record,pp.541544)andApril
29,1987(Exh."11"[APT]Record,pp.314317).
(6)PromissoryNotesdatedFebruary20,1987(Exh."17"Record,p.573)March2,1987(Exh."18"Record,
p.574)March3,1987(Exh."19"Record,p.575)March27,1987(Exh."20"Record,p.576)March30,
1987(Exh."21"Record,p.577)April7,1987(Exh."22"Record,p.578)May22,1987(Exh."23"Record,
p.579)andJuly30,1987(Exh."24"recordp.580).4
On27February1987,throughaDeedofTransfer,5PNBassignedtotheGovernmentits"rights,titlesandinterests"
over UPSUMCO, among several other assets.6 The Deed of Transfer acknowledged that said assignment was
being undertaken "in compliance with Presidential Proclamation No. 50."7 The Government subsequently
transferred these "rights, titles and interests" over UPSUMCO to the respondent Asset and Privatization Trust
(APT).8
Thereafter, it is alleged that APT and UPSUMCO entered into talks concerning the disposal of UPSUMCOs
mortgagedassets.TheDecisionstatedthatthepartiesthenagreedtoan"uncontestedorfriendlyforeclosureof
these mortgaged assets, in exchange for UPSUMCOs waiver of its right of redemption."9 Soon, a Petition for
ExtrajudicialForeclosureSaledated28July1987wasfiledwiththeExOfficioRegionalSheriffofDumagueteCity,
with PNB identified therein as "Mortgagee" and APT as "Assignee and Transferee of PNBs rights, titles and
interests."10 PNB and APT manifested in the petition their intent to foreclose on the real estate and chattel
mortgages which notably were executed to secure the takeoff loans. The foreclosure sale was conducted on 27
August1987,wherebyAPTpurchasedtheauctionedpropertiesforP450Million.
Seven(7)daysaftertheforeclosuresale,oron3September1987,UPSUMCOexecutedaDeedofAssignment11
whereinitassignedtoAPTitsrighttoredeemtheforeclosedproperties,inexchangefororinconsiderationofAPT
"condoninganydeficiencyamountitmaybeentitledtorecoverfromtheCorporationundertheCreditAgreement
datedNovember5,1974,andtheRestructuringAgreements[s]datedJune24andDecember10,1982,andMay9,
1984,respectively,executedbetween[UPSUMCO]andPNB"Onevendate,theBoardofDirectorsofUPSUMCO
agreed to to a Board Resolution authorizing Joaquin Montenegro, its President, to enter into the said Deed of
Assignment.12
Notwithstanding this Deed of Assignment, UPSUMCO later filed a complaint13 dated 10 March 1989 for sum of
money and damages against PNB and APT before the Regional Trial Court (RTC) of Bais City. It was alleged
thereinthatPNBandAPThadillegallyappropriatedfundsbelongingtoUPSUMCO,throughthefollowingmeans:
(1)withdrawalsmadefromthebankaccountsopenedbyUPSUMCObeginning27August1987until12February
1990(2)theapplicationoftheproceedsfromthesaleofthesugarofUPSUMCObeginning27August1987until4
December1987(3)thepaymentfromofthefundsofUPSUMCOwithPNBfortheoperatingexpensesofthesugar
millafter3September1987,allegedlyupontheinstructionofAPTwiththeconsentofPNB.
Thiscomplaintwouldbeamendedonemonthafteritwasfiled.Intheoriginalcomplaint,itwasallegedthat"after
September3,1987,[UPSUMCO]isentitle[d]toallthefundsitdepositedorbeingheldbyPNBinallitsbranches."14
Theoriginalcomplaintalsopinpointed3September1987asthegeneralreckoningdateafterwhichtheassetsof
UPSUMCO would be beyond reach of application by APT or PNB. However, petitioners then filed an amended
complaint15whereallcitationsof"3September1987"asareferencepointweredeleted,16Itwasclaimed,thistime,
intheamendedcomplaintthatUPSUMCOwasreleasedfromitsrightsandobligationsduePNBandAPT"afterthe
foreclosurebyPNB/APT."17Notably,severalofthetransactionsinquestionhadoccurredaftertheforeclosuresale
butbeforetheDeedofAssignment,orwithinthedates28Augustto3September1987.
BothAPTandPNBclaimedintheirrespectivecommentsthattheextrajudicialforeclosuresalewasunconditional
and mandatory under Presidential Decree No. 385.18 They also specifically denied the allegation regarding the
executionofthe3September1987DeedofAssignmentdueto"lackofknowledgeorinformationsufficienttoforma
belief as to the truth thereof."19 PNB further submitted that the transfer of the deposits in the name of APT was
valid, "since PNB has all the prerogatives over the same after foreclosure on August 27, 1987 and a deficiency
claimarose."20
APTlikewisefiledacounterclaim,seekingtherecoveryofover1.6BillionPesosfromUPSUMCO.Theamountwas
apparentlydeterminedwiththecalculationthattherewasnocondonationatallinfavorofUPSUMCO,andsaidsum
representedthetotalamountofindebtednesslessthe450MillionPesosforwhichtheforeclosedpropertieswere
sold.
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During the course of trial, APT (though not PNB) would eventually admit the existence of the 3 September 1987
Deedof
Assignment.21However,APTarguedthatsuchDeedcouldnot
retroactto27August1987,22contrarytotheclaimofUPSUMCO,citingSection7,Rule130oftheRulesofCourt.23
The action was eventually decided by the RTC in favor of UPSUMCO. The RTC Decision24 is rooted on the
followingassumptions:
(1) The obligation of UPSUMCO with PNB under the initial creditordebtor relation was "novated by the
subrogationofcreditors,i.e.,[APT]."25
(2)ThebankaccountsmaintainedbyUPSUMCOwithPNBcreatedacreditordebtorrelation,inadditionto
thesamerelation(albeitinreversedidentities)betweenthesamepartiesbyreasonoftheloanagreements.
However,whateverrightPNBhadtosetofftheoutstandingindebtednessfromUPSUMCOSbankaccounts
ceased the moment PNB assigned its rights to APT on 27 February 1987. Thus, only APT could be
consideredastheforeclosingcreditor.26
(3)AssumingthereremainedanydeficiencyclaiminfavorofPNBorAPT,thesamewascondonedbythe
Deed of Assignment dated 3 September 1987. The RTC considered APTs argument that the Deed of
Assignmentcouldnotbedeemedtoretroactto27August1987.Itruled,however,that"[a]softhedateofthe
foreclosure on August 27, 1987, [UPSUMCO] was a creditor as to its deposits and proceeds of sugar sale
withthedefendantPNB.Neither[PNB]nor[APT]cannot[sic]simplyappropriatethethingsofplaintiff.Ifatall,
suchdeficiencyclaimdidexistandsubsist,foreclosingcreditorshouldhaveinitiatedproperactionstorecover
thesame."27
TheRTCorderedthus,asfollows:
1.BothdefendantPhilippineNationalBankandAssetPrivatizationTrustareorderedjointlyandseverallyto
paytoplaintiffthefollowing:
a) The sum of FORTY SIX MILLION NINE HUNDRED EIGHTY SEVERN THOUSAND FOUR
HUNDRED FIFTY NINE & 49/100 (P46,987,459.49) PESOS, representing amount transferred by
defendantPNBtoAPTincreditmemodatedAugust27,1987(Exh."QQQ"),plustwelvepercent(12%)
interestperannumcomputedfromdateoffilingofthecomplaint
b) The sum of FOURTEEN MILLION THREE HUNDRED SIXTEEN THOUSAND FIVE HUNDRED
NINETYTHREE&29/100(P14,316,593.29)PESOS,representingthetotalswumofmoneywithdrawn
from Savings Account Nos. 5176994, 5188305, 5192639, 5197762, and 5208575 of plaintiff and
transferredbydefendantPNBtodefendantAPTasshownindebitmemodatedAugust27,1987(Exh.
"WWW1"),plustwelvepercent(12%)interestperannumcomputedfromdateoffilingofthecomplaint
c)ThesumofEIGHTEENMILLIONEIGHTHUNDREDNINETYSIXTHOUSANDSEVENHUNDRED
FIFTYTHREE&63/100(P18,896,753.63)PESOS,representingtheproceedsofthesaleofplaintiffs
sugarcreditedbydefendantPNBinfavorofdefendantAPTasshownincreditmemodatedAugust28,
1987 (Exh. "XX"), plus twelve percent (12%) interest per annum computed from date of filing of the
complaint
d) the sum of THREE MILLION THREE HUNDRED TWENTY THREE THOUSAND SIX HUNDRED
FORTY SEVEN & 48/100 (P3,323,647.48) PESOS, representing proceeds of sale of plaintiffs sugar
which was credited by defendant PNB to the account of defendant APT as shown by a credit memo
dated September 4, 1987 (Exh. "YY"), plus twelve percent (12%) interest per annum computed from
dateoffilingofthecomplaint
e)thesumofFOURMILLIONNINETHOUSANDFOURHUNDREDTHREE&37/100(P4,009,403.37)
PESOS, representing the proceeds of sale of plaintiffs sugar credited by defendant PNB in favor of
defendantAPTasshownbyacreditmemodatedSeptember15,1987(Exh."ZZ"),plustwelvepercent
(12%)interestperannumcomputedfromdateoffilingofthecomplaint
f) the sum of THREE HUNDRED FORTY SIX THOUSAND FIVE HUNDRED FIRTY NINE & 83/100
(P346,559.83)PESOS,representingfinaldifferentialofthesaleofplaintiffssugarfortheyear198586
which was credited by defendant PNB in favor or defendant APT as shown in a credit memo dated
December4,1987(Exh."AAA"),plustwelvepercent(12%)interestperannumcomputedfromdateof
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filingofthecomplaint
g)thesumofONEMILLION(P1,000,000.00) PESOS, representing partial payments to the 6,399.89
piculsofexport"A"sugarcreditedbydefendantPNBinfavorofdefendantAPTasshownbyacredit
memo dated December 8, 1987, plus interest at twelve (12%) percentum per annum computed from
dateoffilingofthecomplaint(Exh."BBB").
2).DefendantPhilippineNationalBankisorderedtopaysinglytoplaintiffthefollowing:
a) the sum of ELEVEN MILLION EIGHT HUNDRED THIRTY FOUR THOUSAND FOUR HUNDRED
NINETYEIGHT&45/100(P11,834,498.45)PESOS,correspondingtothepaymentmadebydefendant
PNB to the Philippine Sugar Corporation as shown in Official Receipt No. 0160 dated September 2,
1987(Exh."LLL"),plusinterestattwelvepercent(12%)perannumcomputedfromdateoffilingofthe
compliant
b) the sum of TWENTY NINE MILLION FIVE HUNDRED SEVENTY TWO THOUSAND NINE
HUNDRED FORTY SIX & 50/100 (P29,572,946.50) PESOS, corresponding to payment made by
defendantPNBtoPhilippineSugarCorporationasshowninOfficialReceiptNo.0109datedOctober
20, 1987 (Exh. "LLL1"), plus interest at twelve percent (12%) computed from date of filing of the
complaint
c)thesumofTHREEHUDREDFIRTYTWOTHOUSANDEIGHTHUNDREDSIXTYNINE&28/100
(P352,869.28) PESOS, corresponding to the credit balance as of November 26, 1986 of plaintiffs
Account No. 0120011088702 with defendant PNB (Escolta Branch ), plus twelve percent (12%)
interestperannumcomputedfromdateofthefilingofthecomplaint
d) the sum of THIRTY FOUR THOUSAND TWENTY EIGHT % 29/100 (P34,028.29) PESOS,
representing balance of deposits of Savings Account Nos. 5176994, 5188305, 5192639, 5197762,
5208578ofplaintiffwithdefendantPNBasofFebruary13,1990plustwelvepercent(12%)interestper
annumcomputedfromdateoffilingofthecomplaint.
3.DefendantAssetPrivatizationTrustisherebyorderedtopaysinglytoplaintiffthefollowing:
e) the sum of THREE HUNDRED NINETY SEVEN THOUSAND NINE HUNDRED SEVENTY SIX &
11/100(P397,976.11) PESOS, representing the total balance of plaintiffs Savings Account No. 1196
with the Rural Bank of Bais, Inc., and transferred to account of defendant APT plus twelve (12%)
percentperannumcomputedfromdateoffilingofthecomplaint
f) the sum of FIFTEEN THOUSAND NINE HUNDRED EIGHTY SEVEN & 77/100 (P15,987.77)
PESOS,representingthetotalbalanceofplaintiffsSavingsAccountNo.3642withtheRuralBankof
Manjuyod, Inc., which was transferred to defendant APT, plus interest at twelve percent (12%) per
annumcomputedfromdateoffilingofthecomplaint
g)thesumofFIVEMILLIONTHREEHUDNREDFIVETHOUSANDSEVENHUNDREDFIFTYSIX&
22/100(P5,305,756.22) PESOS, representing the expenses incurred by plaintiff for the maintenance
and operations of the sugar central after September 3, 1987, plus interest at twelve (12%) percent
annumcomputedfromdateoffilingofthecomplaint.
4. Defendant Philippine National Bank and Asset Privatization Trust are hereby ordered to pay jointly and
severallytopayattorneysfeesthesumequivalentoftwenty(20%)percentofthetotalsumtheyareordered
topayjointlyandseverally
5. Defendant Philippine National Bank is hereby ordered to pay singly [sic] attorneys fees equivalent to
twenty(20%)percentofthetotalsumitisorderedtopaysingly
6. Defendant Asset Privatization Trust is hereby ordered to pay singly [sic] attorneys fees equivalent to
twenty(20%)percent[of]thetotalsumitisorderedtopaysingly
7. Both defendants Asset Privatization Trust and Philippine National Bank are ordered to pay jointly and
severally to the plaintiff exemplary damages in the amount of FIVE HUNDRED THOUSAND (P500,000.00)
PESOS
8.Bothdefendantsareherebyorderedjointlyandseverallytopaycosts."
RespondentsappealedtheRTCdecisiontotheCourtofAppeals,arguinginmainthatthetrialcourterredinfailing
toholdUPSUMCOliableforthecreditagreementsnotcoveredbytheDeedofAssignmentandfornotfindingthe
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applicationoftheproceedsinUPSUMCOsbankaccountsasinaccordancewiththeloandocumentsexecutedby
UPSUMCO.InitsDecision,theCourtofAppealsfoundthatonlythe"takeoff"loansandnottheoperationalloans
were condoned by the Deed of Assignment. The appellate court explained that such fact was made plain by the
DeedofAssignmentitself,whichexpresslystipulatedtheparticularloanagreementswhichwerecoveredtherein.28
As such, the Court of Appeals concluded that APT was "entitled to have the funds from UPSUMCOSs savings
accountswith[PNB]transferredtoitsownaccount,totheextentofUPSUMCOSsremainingobligations[underthe
operationalloans],lesstheamountcondonedintheDeedofAssignmentandtheP450,000,000.00proceedsofthe
foreclosure."29Atthesametime,theCourtofAppealsorderedaremandofthecasetotheRTCforcomputationof
the parties remaining outstanding balances. Accordingly, the Court of Appeals disposed of the petition in this
manner:
WHEREFORE, the appealed decision is hereby SET ASIDE and judgment is herein rendered declaring that the
subjectDeedofassignmenthasNOTcondonedallofUPSUMCOsobligationstoAPTasassigneeofPNB.
TodeterminehowmuchAPTisentitledtorecoveronitscounterclaim,itisherebyrequiredtorenderanaccounting
beforetheRegionalTrialCourtofthetotalpaymentsmadebyUPSUMCOonitsobligationsincludingthefollowing
amounts:
(1) the sum seized from it by APT whether in cash or in kind (from UPSUMCOs bank deposits as well as
sugarandmolassesproceeds):
(2)thetotalobligationscoveredbythefollowingdocuments:
(a)CreditAgreementdatedNovember5,1974(Exh."1":Record,p.528)and
(b)
(c) The Restructuring Agreements dated: (i) June 24, 1982. (ii) December 10, 1982, and (iii) May 9,
1984and
(3)theP450,000,000.00proceedsoftheforeclosure.
ShouldtherebeanydeficiencydueAPTafterdeductingtheforegoingamountsfromUPSUMCOstotalobligationin
theamountofP2,137,076.433.15, the latter is hereby ordered to pay the same. However, if after such deduction
thereshouldbeanyexcesspayment,thesameshouldbeturnedovertoUPSUMCO.
The Regional Trial Court is hereby directed to receive APTs accounting and thereafter, to render the necessary
orderfortheproperdisposalofthiscaseinaccordancewiththeforegoingfindingsanddisposition.
Costsagainstappellees.
SOORDERED.30
TheCourtofAppealswasinturnreversedbythisCourtinaDecisiondated28November2006.TheCourtthen
heldthat(1)both"operationalloans"and"takeoffloans"hadbeencondonedbytheDeedofAssignmentand(2)
theDeedofAssignmentdated3September1987hadretroactedtothedateoftheforeclosuresaleon28August
1987.RespondentsfiledaMotionforReconsideration,buttheCourt,bya32vote,reaffirmeditsearlierdecision
throughaResolutiondated11July2007.However,inthe2007Resolution,theCourtacknowledgedthatonlythe
"takeoff loans" had been condoned by the Deed of Assignment. Nonetheless, it was held that respondents had
failedtoestablishthattherestillremainedoutstandingobligationsduefromUPSUMCOwithrespecttothetakeoff
loans.
Respondents filed a Second Motion for Reconsideration. After due deliberation, the Court en banc accepted the
referraltoitoftheSecondMotionforReconsideration.
II.
Thismuchisclear.TheDeedofAssignmentcondonedonlythetakeoffloans,andnottheoperationalloans.The
DeedofAssignmentinitsoperativepartprovides,thus:
ThatUnitedPlanter[s]SugarMillingCo.,Inc.(the"Corporation")(pursuanttoaresolutionpassedbyitsboardof
DirectorsonSeptember3,1987,andconfirmedbytheCorporationsstockholdersinastockholdersMeetingheld
on the same (date), for and in consideration of the Asset Privatization Trust ("APT") condoning any deficiency
amountitmaybeentitledtorecoverfromtheCorporationundertheCreditAgreementdatedNovember5,1974and
theRestructuringAgreement[s]datedJune24andDecember10,1982,andMay9,1984,respectively,executed
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betweentheCorporationandthePhilippineNationalBank("PNB"),whichfinancialclaimshavebeenassignedto
APT,throughtheNationalGovernment,byPNB,herebyirrevocablysells,assignsandtransfertoAPTitsrightto
redeemtheforeclosedrealpropertiescoveredbyTransferCertificatesofTitleNos.T16700andT16701.
INWITNESSWHEREOF,theCorporationhascausedthisinstrumenttobeexecutedonitsbehalfbyMr.JoaquinS.
Montenegro,thereuntodulyauthorized,this3rddayofSeptember,1987.31
Whereas, UPSUMCOS Board Resolution of 3 September 1987, authorizing its President Joaquin Montenegro to
signtheDeedofAssignment,readsinfull:
RESOLVED,ThatinconsiderationoftheAssetPrivatizationTrust("APT")condoninganydeficiencyamount
it may be entitled to recover from the Corporation after having foreclosed the real estate and chattel
mortgages assigned to APT, through the National Government, by the Philippine National Bank ("PNB"), which
mortgages were executed in favor of PNB by the Corporation to secure its obligations under the Credit
Agreement dated November 5, 1974 and the Restructuring Agreements dated June 24 and December 10,
1982,andMay9,1984,respectively,executedbytheCorporationandPNB,theCorporationisherebyauthorized
to irrevocably sell, assign, and transfer to APT the Corporations right to redeem the foreclosed real properties
coveredbyTransferCertificatesofTitleNos.T16700andT16701
RESOLVED,FurtherthatMr.JoaquinS.Montenegro,thePresidentDirectoroftheCorporation,beandishereby
authorizedforandinbehalfoftheCorporationtomake,sign,executeand/ordeliveranyandallsuchagreements,
undertakings,orotherdocuments,aswellastoperformanyandallsuchactsasmaybenecessarytoimplement
theforegoingresolution
RESOLVED,FINALLYThatallactionstakenbyMr.JoaquinS.Montenegropursuanttotheforegoingresolutionbe,
andthesameareherebyconfirmedandratifiedtobebindingonthisCorporation.32
Thisnotwithstanding,theRTCDecisionwasbasedonthepremisethatallofUPSUMCOsloanswerecondonedin
the Deed of Assignment. In contrast, the Court of Appeals acknowledged that only the takeoff loans were
condoned,andthusruledthatAPTwasentitledtohavethefundsfromUPSUMCOsaccountstransferredtoitsown
account"totheextentofUPSUMCOsremainingobligation,lesstheamountcondonedintheDeedofAssignment
andtheP450,000,000.00proceedsoftheforeclosure."33
The challenged acts of respondents all occurred on or after 27 August 1987, the day of the execution sale.
UPSUMCOarguesthatafterthatdate,respondentsnolongerhadtherighttocollectmoniesfromthePNBbank
accounts which UPSUMCO had opened and maintained as collateral for its operational and takeoff loans.
UPSUMCO is wrong. After 27 August 1987, there were at least two causes for the application of payments from
UPSUMCOsPNBaccounts.Thefirstwasfortherepaymentoftheoperationalloans,whichwerenevercondoned.
ThesecondwasfortherepaymentofthetakeoffloanswhichAPTcouldobtainuntil3September1987,thedaythe
condonationtookeffect.
A.
TheerroroftheCourtsearlierrulings,particularlytheResolutiondated11July2007,wasinassumingthatthenon
condonation of the operational loans was immaterial to the application of payments made in favor of APT from
UPSUMCOs PNB accounts that occurred after 27 August 1987. For as long as there remained outstanding
obligations due to APT (as PNBs successorininterest), APT would be entitled to apply payments from the bank
accounts of PNB. That right had been granted in favor of PNB, whether on account of the takeoff loans or the
operationalloans.
PetitionerfiledwiththeRTCthecomplaintwhichallegedthat"amongtheconditionsofthe'friendlyforeclosure'are:
(A) That all the accounts of [United Planters] are condoned, including the JSS notes at the time of the public
bidding."34Itwasincumbentonpetitioner,notrespondents,toprovethatparticularallegationinitscomplaint.Was
petitioner able to establish that among the conditions of the "friendly foreclosure" was that "all its accounts are
condoned"?Itdidnot,asitisnowagreedbyallthatonlythetakeoffloanswerecondoned.
Thispointismaterial,sincethe2007Resolutionnegatedthefindingthatonlythetakeoffloanswerecondonedby
faultingrespondentsforfailingtoestablishthatthereremainedoutstandingoperationalloansonwhichAPTcould
applypaymentsfromUPSUMCOsbankaccounts.BytheverylanguageoftheDeedofAssignment,itwasevident
thatUPSUMCOsallegationinitscomplaintthatallofitsaccountswerecondonedwasnotproven.Evenifneither
PNBnorAPThadfiledananswer,therewouldhavebeennobasisinfactforthetrialcourttoconcludethatallof
UPSUMCOsloanswerecondoned(astheRTCinthiscasedid),orissuereliefsasifalltheloanswerecondoned
(asthe2007Resolutiondid).
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Asnotedearlier,APThadtherighttoapplypaymentsfromUPSUMCOsbankaccounts,byvirtueofthetermsof
theoperationalloanagreements.ConsideringthatUPSUMCOwasspectacularlyunabletorepaythetakeoffloans
ithadearliertransacted,itsimplybeggarsbelieftoassumethatithadfullypaiditsoperationalloans.Moreover,APT
had the right to obtain payment of the operational loans by simply applying payments from UPSUMCOs bank
accounts, without need of filing an action for collection with the courts. The bank accounts were established
precisely to afford PNB (and later APT) extrajudicial and legal means to obtain repayment of UPSUMCOs
outstandingloanswithouthassle.
B.
ThereisnoquestionthattheDeedofAssignmentcondonedtheoutstandingtakeoffloansofUPSUMCOduethen
to APT. The Deed of Assignment was executed on 3 September 1987, as was the UPSUMCO Board Resolution
authorizingitsPresidenttosigntheDeedofAssignment.However,despitetheabsenceofanytermstothateffect
in the Deed of Assignment, it is UPSUMCOs position that the condonation actually had retroacted to 27 August
1987.ThepreviousrulingsoftheCourtunfortunatelyupheldthatposition.
It is easy to see why UPSUMCO would pose such an argument. It appears that between 27 August 1987 and 3
September 1987, APT applied payments from UPSUMCOs bank accounts in the amount of around 80 Million
Pesos. UPSUMCO obviously desires the return of the said amount. But again, under the terms of the loan
agreements, APT as successorininterest of PNB, had the right to seize any amounts deposited in UPSUMCOs
bank accounts as long as UPSUMCO remained indebted under the loan agreements. Since UPSUMCO was
released from its takeoff loans only on 3 September 1987, as indicated in the Deed of Assignment, then APTs
applicationofpaymentsisperfectlylegal.
Hence,UPSUMCOhasstrainedtoarguethatnotwithstandingtheabsenceofanystipulationinanyagreementto
the effect, the takeoff loans were actually condoned as of 27 August 1987. In fact, in its original complaint,
UPSUMCOhadeffectivelyadmittedthatanyapplicationofpaymentsmadebetween27Augustand3September
1987 were valid, when it originally alleged infirmity only as to the postSeptember 3 payments. The subsequent
amendmentofthecomplaintshouldcountinUPSUMCOsfavor,yetitdoesevincethat27August1987asthedate
ofcondonationishardlytheinstinctiveposition.
The earlier rulings of the Court were predicated on a finding that there was a "friendly foreclosure" agreement
between APT and UPSUMCO, whereby APT agreed to condone all of UPSUMCOs outstanding obligations in
exchange for UPSUMCOs waiver of its right to redeem the foreclosed property. However, no such agreement to
thateffectwasevercommittedtowritingorpresentedinevidence.Thewrittenagreementactuallysetforthwasnot
as contended by UPSUMCO. For one, not all of the outstanding loans were condoned by APT since the takeoff
loanswereleftextant.Foranother,theagreementitselfdidnotindicateanydateofeffectivityotherthanthedateof
theexecutionoftheagreement,namely3September1987.
Itisarguedthattheuseoftheword"any"in"anydeficiencyamount"sufficientlyestablishestheretroactivenatureof
the condonation. The argument hardly convinces. The phrase "any deficiency amount" could refer not only to the
remainingdeficiencyamountafterthe27Augustforeclosuresale,butalsototheremainingdeficiencyamountasof
3September1987,whentheDeedofAssignmentwasexecutedandafterAPThadexerciseditsrightascreditorto
applypaymentsfrompetitionersPNBaccounts.TheDeedofAssignmentwasnotcastinintractablypreciseterms,
andbothinterpretationscancertainlybeaccommodated.
Itisinthatcontextthatthequestionofparolevidencecomesintoplay.Theparolevidencerulestatesthatgenerally,
whenthetermsofanagreementhavebeenreducedintowriting,itisconsideredascontainingallthetermsagreed
uponandtherecanbenoevidenceofsuchtermsotherthanthecontentsofthewrittenagreement.35Assumingthat
theDeedofAssignmentfailedtoaccuratelyreflectanintentofthepartiestoretroacttheeffectofcondonationtothe
dateoftheforeclosuresale,noneoftheparties,particularlyUPSUMCO,availedofitsrighttoseekthereformation
oftheinstrumenttotheendthatsuchtrueintentionmaybeexpressed.36AsthereisnothinginthetextofDeedof
Assignmentthatclearlygivesretroactiveeffecttothecondonation,theparolevidencerulegenerallybarsanyother
evidenceofsuchtermsotherthanthecontentsofthewrittenagreement,suchasevidencethatthesaidDeedhad
retroactiveeffect.
ItisarguedthatunderSection9,Rule130,apartymaypresentevidencetomodify,explainoraddtothetermsof
thewrittenagreementifitisputinissueinthepleading,"[t]hefailureofthewrittenagreementtoexpressthetrue
intentandtheagreementofthepartiesthereto."
PetitionerdidnotexactlystateinitsAmendedComplaintthatthecondonationeffectedintheDeedofAssignment
hadretroactedtothedateoftheforeclosuresale.Whatpetitionercontendedinitsamendedcomplaintwasthatthe
Deed of Assignment "released and discharged plaintiff from any and all obligations due the defendant PNB and
defendantAPT"that"aftertheforeclosurebyPNB/APTplaintiffisentitledtoallthefundsitdepositedorbeingheld
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byPNBinallitsbranches"andthat"amongtheconditionsofthefriendlyforeclosurearethatalltheaccountsof
theplaintiffarecondoned."ItremainsunclearwhetherpetitionerhadindeedallegedinitsAmendedComplaintthat
theDeedofAssignmentexecutedon3September1987hadretroactiveeffectasofthedateoftheforeclosuresale,
oron27August1987.Ifpetitionerweretrulymindfultoinvoketheexceptiontotheparolevidenceruleandintenton
claimingthatthecondonationhadsuchretroactiveeffect,itshouldhaveemployedmorepreciselanguagetothat
effectintheiroriginalandamendedcomplaints.
ButevenassumingthatpetitionerintheAmendedComplaintdidputinissueinitspleadingthatthecondonation
effectedintheDeedofAssignmenthadretroactedto27August1987,itstillwasincumbentuponittoestablishsuch
claimthroughevidence.Thereissimplynoevidencethatunequivocallyestablishessucharetroactiveeffect.Blame
ispinnedonrespondentsforsupposedfailuretoobjecttothepresentationofparolevidenceduringthetrial,butitis
not pointed out what parol evidence exactly did petitioner present to establish the retroactive effect of the
condonation. The only submissions that emanated from petitioner are the bare allegations in the amended
complaint.Allegationsareevidence.Sotherewasnoevidencetobeobjectedto.
Itwouldbeunsurprisingifintruth,thesetransferswereundertakenbyPNBandAPTon27and28August1987in
order to alleviate the financial injury they knew would be sustained with the impending execution of the Deed of
Assignment,adocumentdesignedtomaketheGovernmentbearthelosssustainedbyaprivatecorporation.Asa
result of the consummation of these transactions, the outstanding indebtedness of UPSUMCO would have been
reduced even prior to the condonation, and in the end, the losses on paper sustained by the Government were
reduced by P78 Million, from over P2.1 Billion to P1.6 Billion. The benefit to the Government was relatively
miniscule,butitwasbenefitnonetheless.
IV.
Let us discuss briefly by what right APT could have applied payments from the bank accounts maintained by
UPSUMCOwiththePNB,undertheoperationalloansandthetakeoffloans.Asearlierstated,thecreditagreement
thatestablishedthetakeoffloansrequiredUPSUMCOtoopenadepositaccountwithPNB,fromwhichthebank
was entitled to apply to the payment of any unpaid obligations of any monies, securities which may have been
depositedundertheaccount.37AsfoundbytheCourtofAppeals,thatrighttoapplypaymentsfromUPSUMCOs
bankaccountswasestablishedbytheoperationalloansaswell.Theappellatecourtdiscussedasfollows:
It bears emphasis that plaintiff does not dispute that it incurred the obligations secured by the latter mentioned
documentswhichembodythefollowingstipulations:
(a)CreditAgreementdatedFebruary19,1987(Exhs."2"[PNB]&"4"[APT]:supra):
"7.TheCLIENTSshallopenand/ormaintainadepositaccountwiththeBANK,andtheBANKshallhavethe
righttoapplyanyamountondepositwithitorwithanyofitssubsidiariesoraffiliatestothepaymentofany
amountpastduehereunderorunderanyothercreditaccommodationgrantedtotheCLIENTSbytheBANK,
including amounts due for advances made by the BANK for insurance premiums, taxes, fees and other
charges."
(b)DeedofAssignmentbyWayofPaymentdatedNovember16,1984:
"Forandinconsiderationofthe1984/85operationalloanofTHIRTYNINEMILLIONFIVEHUNDREDSIXTY
THOUSAND (Pp39,560,000.00) pesos and other accommodations heretofore or hereafter granted by the
Assignee [PNB], the Assignor [UPSUMCO] has, by way of payment for said loan, and other credit
accommodations assigned, transferred and conveyed unto the assignee, its successors and assigns, the
following:
"Assignorsexpectedreceivablesarisingfromthesale/dispositionof(i)itsnetshare(estimatedat344,640.89
pps)ofmilledsugar:and(ii)itsmolassesthereto,bothbeginningwiththe1984/85Cropyear,andeveryyear
thereafter,untiltheassignorsobligationstotheAssigneehereunderarepaidinfull.
ThisAssignmentisexecutedasamodeofpaymentforapplicationofthefollowingobligationsoftheAssignorwith
andinfavoroftheAssignee,viz:
"(a)ThepaymentofallamountsduetotheAssigneearisingfromorinconnectionwiththe1984/85Milling
Operations Loan in the amount of PESOS THIRTY NINE MILLION FIVE HUNDRED SIXTY NINE
THOUSAND(P39,569,000.00)
"(b) All obligations of the Assignor with the Assignee of whatever kind and nature and whether said
obligationshavebeencontractedbefore,duringoraftertheexecutionofthisinstrument
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"(c)Interest,fees,penalties,chargesandotherobligationsnowdueandowingaswellasthosethatmayfrom
time to time become due and owing to the Assignee in accordance with the terms and conditions of the
coveringdocumentsexecutedbytheAssignorinfavoroftheAssignee."
(c)PromissoryNotesdatedFebruary20,1987(Exh."17"supra)March2,1987(Exh."18"supra)March3,1987
(Exh."19"supra)March27,1987(Exh."20"supra)March30,1987(Exh."21"supra)April7,1987(Exh."22")
supra)May22,1987(Exh."23"supra)andJuly30,1987(Exh."24"supra):
Intheeventthatthisnoteisnotpaidatmaturityorwhenthesamebecomesdueunderanyoftheprovisionshereof,
I/we hereby authorize the Bank at its option and without notice, to apply to the payment of this note, any and all
monies,securitiesandthingsofvaluewhichmaybeinitshandsondepositorotherwisebelongingstome/usand
forthispurpose.I/wehereby,jointlyandseverally,irrevocablyconstituteandappointtheBANKtobemy/ourtrue
AttorneyinFactwithfullpowerandauthorityforme/usandinmy/ournameandbehalfandwithoutpriornotice,to
negotiate,sellandtransferanymoneys. Securitiesandthingsofvaluewhichitmayhold,bypublicorprivatesale
andapplytheproceedsthereoftothepaymentofthisnote.
1avvphi1
(d)CreditagreementdatedApril29,1987(Exh.11CAPT]supra):
(7)TheClient(UPSUMCO)shallopenand/ormaintainadepositaccountwiththeBankandtheBankshallhavethe
righttoapplyanyamountondepositwithitorwithanyofitssubsidiariesoraffiliatestothepaymentofanyamount
past due hereunder or under any other credit accommodations granted to the Clients by the Bank, including
amountsdueforadvancesmadebytheBankforinsurancepremiums,taxes,feesandothercharges.
8.WhenevertheClientsarecarriedwithorindebtedtotheBankformorethanoneaccount,theBankshallhavethe
righttoapplytoanyaccountitchooses,regardlessofwhetheroneaccountismoreonerousthantheothers,any
andallpaymentsthatshallbemadebyorshallbereceivedfromtheClientsorfromothersourcesforandinbehalf
of the Clients, as well as all monies belonging to the Clients that shall come into possession of the Bank in any
manner. This condition shall prevail over all agreements contained in other documents or contracts executed or
whichmaythereafterbeexecutedbytheClientsunlessexpresslywaivedbytheBankinwriting.
(e)ContractofPledgedatedFebruary19,1987:
WHEREAS, the pledgor (UPSUMCO) has obtained certain loans and credit accommodations from the Pledgee
(PNB), which, including the interest and charges thereon the parties hereto have mutually agreed, should be
guaranteedandsecuredbyapledgeofthePledgorsproperty/ieshereundermentioned:
NOW,THEREFORE,forandinconsiderationoftheforegoingpremisesandmutualconditionshereunderstipulated,
thePledgorherebybindsitself,asfollows:
1.TosecurethepaymentbythePledgortothePledgeeoftheformersobligationstothelatterintheinitialamount
of PHILIPPINE PESOS: NINE MILLION ONLY (P9,000,000.00) plus interest and charges thereon as well as any
extension/renewal/regrantofanyandallaccommodationsextendedbythePledgeetothePledgorwhetherdirector
indirect,principalorsecondary,ofwhateverkindandnaturewhethersuchobligationshavebeencontractedbefore,
during or after the execution of this pledge, the Pledgor hereby conveys by way of pledge to the Pledgee, its
successorsandassigns,thefollowingpersonalproperty/ies:
"Sugar quedans sufficient to secure payment of above, computed at 80% of their market value but not
exceedingthefollowinglimits:
"A"QuedansP400perpicul
"B"QuedansP240perpicul
"C"QuedansP120perpicul
"D"QuedansP120perpicul
of which the Pledgor is the absolute owner free from all liens, provided that availments against the line shall be
limitedtotheactualoperationalrequirementsofthemillascertifiedbythePNBComptroller.Further,thattheBank
isauthorizedtodisposeoftheQuedansonemonthaftermaturityoftheloan.
xxx
"6.ItisalsoaconditionofthispledgethatifthePledgorshallpaywhenduetheobligationssecuredherebyandany
allotherloansoraccommodationswhichthepledgormayowethepledgee,thisPledgeshallautomaticallybecome
null and void. Otherwise, this Pledge shall remain in full force and effect and the Pledgee shall dispose of the
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property/ies herein pledged in the manner provided for in Article 2112 of the Civil Code of the Republic of the
Philippines.
TheprovisionsquotedaboveareclearandleavenoroomforinterpretationtheBankhasalltherighttoapplythe
proceeds of UPSUMCOs deposits with it and its affiliated banks, as well as the proceeds of the sale of
UPSUMCOssugarandmolasses,insatisfactionofUPSUMCOsobligations.ThisrightwasneverwaivedbyPNB
and was subsequently transferred to APR by virtue of the Deed of Transfer executed between them (Exh. MM).
NeitherdidAPTeverwaivesuchright.Thus,thesameshouldbeconsideredasvalidandbindingbetweenitand
UPSUMCO.38
PNBsubsequentlyassigneditsrightsascreditorofUPSUMCOtoAPT.Atthetimeofthechallengedtransactions,
APTwasthecreditorinmainofUPSUMCO.TheRTCrecognizedthis,yetconcludedthatAPTascreditorwasnot
entitledto"simplyappropriatethethingsoftheplaintiff"followingArticle208839oftheCivilCode,andassumingthat
suchdeficiencyclaimdidexist,"theforeclosingcreditorshouldhaveinitiatedproperactionstorecoverthesame."40
Letusanalyzethisclaim.
TheRTCwascorrectinobservingthatwiththetakeoffloansandthecorrespondingcreationofthebankaccounts,
thereexistedamutualcreditordebtorrelationshipbetweenPNBandUPSUMCO.Suchwouldallowthesetoffor
compensationofthelattersoutstandingobligationstotheformerfromthelattersbankaccounts,congruentlywith
Article127841oftheCivilCode,andasexpresslystipulatedinthetakeoffloanagreements.PNBthenassignedall
itsrights,titlesandinterestsoverUPSUMCOtoAPT.AsbetweenUPSUMCOandAPTorPNBandAPT,thereno
longer existed the mutual creditordebtor relationship. The RTC thus concluded that since PNB was no longer a
debtor of UPSUMCO, the bank no longer had the right to setoff payments from the bank deposits, and that
whatever disbursements made by PNB "should not be considered money or funds taken from or belonging to
[UPSUMCO]."42
ItisclearthoughAPThadarighttogoafterthebankdepositsofUPSUMCO,initscapacityasthecreditorofthe
latter.TheRTChadclaimedthatbyvirtueofPNBsDeedofAssignment,theretookplaceconventionalsubrogation
under the Civil Code,43 whereby APT as the subrogee was vested with all the rights of the PNB covered by the
deed thereto, either against the debtor or against third persons.44 But in fact, no conventional subrogation could
havetakenplacehereinsincesuchrequires"theconsentoftheoriginalpartiesandofthethirdperson"45,andthere
isnoevidencethattheconsentofdebtorUPSUMCOwassecuredwhenPNBassigneditsrightstoAPT.Moreover,
theassignmentbyPNBtoAPTarosebymandateoflawandnotthevolitionoftheparties.
Evenifconventionalsubrogationdidnottakeplace,therewasstillaperfectedassignmentofcreditasbetweenPNB
andAPT,underArticle162446oftheCivilCode.Theassignmentofacreditincludesalltheaccessoryrights,such
asaguaranty,mortgage,pledgeorpreference.47Byvirtueoftheassignmentofcredit,APTwasentitledtopursue
therightsandremediesgrantedtothepreviouscreditor,PNB.
ItmightseemthatAPThasnorighttosetoffpaymentswithUPSUMCOforunderArticle1279(1),itisnecessary
forcompensationthattheobligors"beboundprincipally,andthathebeatthesametimeaprincipalcreditorofthe
other."48 There is, concededly, no mutual creditordebtor relation between APT and UPSUMCO. However, we
recognizetheconceptofconventionalcompensation,definedasoccurring"whenthepartiesagreetocompensate
theirmutualobligationsevenifsomerequisiteislacking,suchasthatprovidedinArticle1282."49Itisintendedto
eliminateorovercomeobstacleswhichpreventipsojureextinguishmentoftheirobligations.50Legalcompensation
takesplacebyoperationoflawwhenalltherequisitesarepresent,asopposedtoconventionalcompensationwhich
takes place when the parties agree to compensate their mutual obligations even in the absence of some
requisites.51Theonlyrequisitesofconventionalcompensationare(1)thateachofthepartiescandisposeofthe
creditheseekstocompensate,and(2)thattheyagreetothemutualextinguishmentoftheircredits.52
1avvphi1
The right of PNB to setoff payments from UPSUMCO arose out of conventional compensation rather than legal
compensation,eventhoughalloftherequisitesforlegalcompensationwerepresentasbetweenthosetwoparties.
ThedeterminativefactoristhemutualagreementbetweenPNBandUPSUMCOtosetoffpayments.Evenwithout
an express agreement stipulating compensation, PNB and UPSUMCO would have been entitled to setoff of
payments,asthelegalrequisitesforcompensationunderArticle1279werepresent.
As soon as PNB assigned its credit to APT, the mutual creditordebtor relation between PNB and UPSUMCO
ceasedtoexist.However,PNBandUPSUMCOhadagreedtoaconventionalcompensation,arelationshipwhich
doesnotrequirethepresenceofalltherequisitesunderArticle1279.AndPNBtoohadassignedallitsrightsas
creditor to APT, including its rights under conventional compensation. The absence of the mutual creditordebtor
relationbetweenthenewcreditorAPTandUPSUMCOcannotnegatetheconventionalcompensation.Accordingly,
APT,astheassigneeofcreditofPNB,hadtherighttosetofftheoutstandingobligationsofUPSUMCOonthebasis
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ofconventionalcompensationbeforethecondonationtookeffecton3September1987.
V.
The conclusions are clear. First. Between 27 August to 3 September 1987, APT had the right to apply payments
fromUPSUMCOsbankaccountsmaintainedwithPNBasrepaymentforthetakeoffloansand/ortheoperational
loans.Consideringthatasof30June1987,thetotalindebtednessofUPSUMCOastothetakeoffloansamounted
to P2,137,076,433.15, and because the foreclosed properties were sold during the execution sale for only 450
Million Pesos, it is safe to conclude that the total amount of P80,200,806.41 debited from UPSUMCOs bank
accountsfrom27Augustto3September1987wasverywelllessthanthethenoutstanding
indebtednessforthetakeoffloans.Itwasonlyon3September1987thatthetakeoffloanswerecondonedbyAPT,
which lost only on that date too the right to apply payments from UPSUMCOs bank accounts to pay the takeoff
loans.
Second.After3September1987,APTretainedtherighttoapplypaymentsfromthebankaccountsofUPSUMCO
with PNB to answer for the outstanding indebtedness under the operational loan agreements. It appears that the
amountofP17,773,185.24wasdebitedfromUPSUMCOsbankaccountsafter3September.Atthesametime,it
remains unclear what were the amounts of outstanding indebtedness under the operational loans at the various
pointsafter3September1987whenthebankaccountsofUPSUMCOweredebited.
TheCourtofAppealsorderedtheremandofthecasetothetrialcourt,onthepremisethatitwasunclearhowmuch
APT was entitled to recover by way of counterclaim. It is clear that the amount claimed by APT by way of
counterclaimover1.6Billion
Pesosisoverandbeyondwhatitcanpossiblybeentitledto,sinceitisclearthatthetakeoffloanswereactually
condoned as of 3 September 1987. At the same time, APT was still entitled to repayment of UPSUMCOs
operationalloans.Itisnotcleartowhatextent,ifatall,theamountsdebitedfromUPSUMCOsbankaccountsafter
3September1987coveredUPSUMCOsoutstanding
indebtednessundertheoperationalloans.Saidamountscouldbeinsufficient,justenough,oroverandbeyondwhat
UPSUMCO actually owed, in which case the petitioner should be entitled to that excess amount debited after 3
September1987.Becauseitisnotevidentfromthevoluminousrecordswhatwastheoutstandingbalanceofthe
operational loans at the various times postSeptember 3 UPSUMCOs bank accounts were debited, the remand
orderedbytheCourtofAppealsisultimatelythewisestandfairestrecourse.
WHEREFORE, the Second Motion for Reconsiderations are hereby GRANTED. The Decision of the Court of
Appealsdated29February1996isherebyREINSTATED.Nopronouncementastocosts.
SOORDERED.
DANTEO.TINGA
AssociateJustice
WECONCUR:
REYNATOS.PUNO
ChiefJustice
LEONARDOA.QUISUMBING
AssociateJustice
CONSUELOYNARESSANTIAGO
AssociateJustice
ANTONIOT.CARPIO
AssociateJustice
(OnOfficialLeave)
MA.ALICIAAUSTRIAMARTINEZ
AssociateJustice
RENATOC.CORONA
AssociateJustice
CONCHITACARPIOMORALES
AssociateJustice
MINITAV.CHICONAZARIO
AssociateJustice
PRESBITEROJ.VELASCO,JR.
AssociateJustice
ANTONIOEDUARDOB.NACHURA
TERESITAJ.LEONARDODECASTRO
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AssociateJustice
AssociateJustice
ARTUROD.BRION
AssociateJustice
DIOSDADOM.PERALTA
AssociateJustice
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above
ResolutionwerereachedinconsultationbeforethecasewasassignedtothewriteroftheopinionoftheCourt.
REYNATOS.PUNO
ChiefJustice
Footnotes
1Seerollo,p.820.Inaddition,on14February1984,PNBassigned30%ofitscreditwithUPSUMCOtothe
PhilippineSugarCorporation(PHILSUCOR),inexchangeforsugarbonds.Id.,at821822.
2CoveredbyTransferCertificatesofTitleNos.T16701andT16700.
3Rollo,p.161.
4Rollo,p.170.
5Records,pp.328337.
6Seeid.at337.
7Id.at328.
8Rollo,p.822.
9Id.at823.
10SeeFolderofExhibitsVol.IIforthePlaintiff,thedocumentmarkedas"L".
11Records,pp.743744.
12Id.at744.
13Records,pp.1825.
14Id.at21.
15See"AmendedComplaint",Records,pp.4350.
16Id.at45,46,47,49.
17Id.at46.
18Seeid.at102103,153.
19Seeid.at103,153.
20Id.at154.
21Id.at717.
22Id.at721727.
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23Otherwiseknownastheparolevidencerule.Theprovisionreadsinpart:"Evidenceofwrittenagreements
whenthetermsofanagreementhavebeenreducedtowriting,itistobeconsideredascontainingallsuch
terms,and,therefore,therecanbe,betweenthepartiesandtheirsuccessorsininterest,noevidenceofthe
termsoftheagreementotherthanthecontentsofthewriting"
24PennedbyJudgeIsmaelO.Baldado.
25Records,p.749.
26Seeid.at749751.
27Id.at751752.
28Rollo,pp.169170.
29Id.at175.
30Rollo,p.177.
31Supranote11.Emphasissupplied.
32Rollo,pp.837838.Emphasissupplied.
33Id.at175.
34Seep.4,AmendedComplaint(RTCrecords,p.46).
35SeeRevisedRulesofCourt,Rule130,Sec.9.
36SeeCivilCode,Art.1359.
37Supranote3.
38Rollo,p.170175.
39"Thecreditorcannotappropriatethethingsgivenbywayofpledgeormortgage,ordisposeofthem.Any
stipulationtothecontraryisnullandvoid."
40Seenote27.
41 "Compensation shall take place when two persons, in their own right, are creditors and debtors of each
other."
42Records,p.751.
44SeeRecords,749.SeealsoCivilCode,Art.1303.
46"Anassignmentofcreditsandotherincorporealrightsshallbeperfectedinaccordancewiththeprovisions
ofArticle1475.
47CivilCode,Art.1627.
49 See A. Tolentino, IV The Civil Code, p. 366 citing 2 Castan 562. Art. 1282 allows that "the parties may
agreeuponthecompensationofdebtswhicharenotyetdue,"adeviationfromtherequisiteofcompensation
that"thetwodebtsbedue".
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50Id.citing2IRuggiero229231.
51Madecorv.Uy,415Phil.348,359(2001),
52SeeCKHIndustrialv.CA,338Phil.837,853(1997)citingIVTolentino,CivilCodeofthePhilippines,1985
ed.,p.368.
TheLawphilProjectArellanoLawFoundation
DISSENTINGOPINION
CARPIO,J.:
IvotetodenythesecondmotionsforreconsiderationofrespondentsPrivatizationandManagementOffice(PMO),
formerly the Asset Privatization Trust (APT), and Philippine National Bank (PNB) of the (1) Decision dated 28
November 2006 (Decision) ordering PMO and PNB to solidarily and individually pay sums of money to petitioner
UnitedPlantersSugarMillingCompany,Inc.(UPSUMCO)and(2)theResolutiondated11July2007(Resolution)
denyingwithfinalityPMOsandPNBsfirstmotionsforreconsideration.
In their second motions for reconsideration, PMO and PNB pray that that the Court set aside the Decision and
Resolution.Asbasesfortheirprayer,PMOandPNBcontend,singlyandjointly,that(1)theDeedofAssignment
dated3September1987(DeedofAssignment),whichwaivedUPSUMCOsdeficiencyliabilityaftertheforeclosure,
should be invalidated for being grossly disadvantageous to the government and violative of public trust (2) the
Courts resort to evidence aliunde in ruling that the Deed of Assignment waived UPSUMCOs deficiency liability
violatedtheParolEvidenceRuleand(3)itisUPSUMCO,notPMOorAPT,whichbearstheburdenofprovingthat
UPSUMCOsobligationsunderthe"operationalloans"havebeenfullypaid.PMOandPNBalsoreiteratetheclaims
raisedintheirfirstmotionsforreconsiderationontheretroactiveapplicationoftheDeedofAssignmentandPNBs
solidaryliabilitytoUPSUMCO.
Attheoutset,itmustbenotedthatexceptfortheissuesontheeffectivityoftheDeedofAssignment,PNBssolidary
liabilitytoUPSUMCO,andUPSUMCO'sremainingliabilitytoPNB,allthemattersrespondentsraiseintheirmotions
are new issues, brought to this Court's attention for the first time at this very late stage of the appeal. As
respondents very well know, this is a highly undesirable practice which prejudices the other party, which has to
contendwithnewtheoriesateachturn,andtrifleswiththeentireappellateproceedings.
Letusnowconsidertheissuesraisedbytherespondents.
(1)DidAPTactultraviresinenteringintotheDeedofAssignment?TheDeedofAssignmentisavalidcontractof
compromise freely entered into between APT and UPSUMCO. Although the Court, following the wording of the
DeedofAssignment,1 had referred to that contract as having "condoned" UPSUMCOs deficiency obligation after
theforeclosure,theDeedofAssignmentis,strictlyspeaking,notacontractofcondonation.UnderArticle12702of
the Civil Code, a contract of condonation is essentially gratuitous where no equivalent is received for the benefit
given.3ThisisnottrueoftheDeedofAssignment.Underthatcontract,APTagreedtofreeUPSUMCOfrompaying
"any deficiency amount" after the foreclosure in exchange for UPSUMCOs waiver of its right to redeem the
foreclosedproperties.4ThesemutualconcessionsgaverisetomutualbenefitsbyallowingAPT,ontheonehand,to
promptly dispose of the foreclosed properties (as it did sell them to Universal Robina Sugar Milling Corporation
[URSUMCO] on 29 September 1987, a little over a month after the foreclosure on 27 August 1987) and freeing
UPSUMCO,ontheotherhand,fromitsobligationtopaythedeficiencyamountaftertheforeclosure.TheDeedof
Assignment is thus a contract of compromise under which UPSUMCO and APT made reciprocal concessions to
effectanuncontestedextrajudicialforeclosureandavoidthelongdrawnlitigationwhichjudicialforeclosureentails.5
Section 12(6) of Proclamation No. 50, creating APT and the Committee on Privatization, cannot be more clear in
providingthatAPT"shall,inthedischargeofitsresponsibilities,"havethepowerto"compromiseandreleaseclaims
orsettleliabilities,"thus:
SECTION12.Powers.TheTrustshall,inthedischargeofitsresponsibilities,havethefollowingpowers:
xxxx
(6)Toleaseorownrealandpersonalpropertytotheextentrequiredorentailedbyitsfunctionstoborrowmoney
andincursuchliabilitiesmaybereasonablynecessarytopermitittocarryouttheresponsibilitiesimposeduponit
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underthisProclamationtoreceiveandcollectinterest,rentandotherincomefromthecorporationsandassetsheld
by it and to exercise in behalf of the National Committee, in respect of such corporations and assets, all rights,
powers and privileges of ownership including the ability to compromise and release claims or settle liabilities,
otherwise to do and perform any and all acts that may be necessary proper to carry out the purposes of this
Proclamation: Provided, however, that any borrowing by the Trust shall be subject to the prior approval by the
majorityvoteofthemembersoftheCommittee[.]6(Emphasissupplied)
ThisCourtalreadyapprovedacompromiseagreementinvolvingAPTandotherpartiestodisposeoftheirsharesof
stocksinasequesteredcorporation.7
AlthoughPNBconcedesthatUPSUMCOswaiverofitsredemptionrightundertheDeedofAssignmentconstitutes
aconsiderationtorenderthatcontractnotgratuitous,PNBneverthelessconsiderssuchconsideration"indubitably
inadequate,"amountingtolackofconsideration.PNBcallsattentiontoSection10,ArticleIIIofProclamationNo.50
whichspeaksofAPTstasktogenerate"maximumcashrecoveryfortheNationalGovernment."Alternatively,PNB
contendsthat"theamountthatexceedsthevalueoftheassignedredemptionright"shouldbetreatedasadonation,
subjecttotheprovisionsintheCivilCodegoverningitsformalitiesandexecution.
As a compromise agreement, the Deed of Assignment can be annulled when "there is mistake, fraud, violence,
intimidation, undue influence, or falsity of documents."8 As a contract in general, it is void if its cause, object or
purposeis"contrarytolaw,morals,goodcustoms,publicorderorpublicpolicy."9Underbothcategories,nothingin
thiscasejustifiesannullingtheDeedofAssignmentordeclaringitvoid.
The records show that APT and UPSUMCO freely negotiated and signed the Deed of Assignment. Contrary to
PNBsclaim(towhichPMOdidnotjoin),itwasAPTwhichactivelysoughtUPSUMCOsapprovalofthetermsofthe
uncontestedforeclosure.10ItwasAPT,notUPSUMCO,whichofferedtheincentivestoUPSUMCOtoallowAPTto
sellUPSUMCOsassetstoURSUMCOevenbeforethelapseoftheoneyearredemptionperiod.Atnoinstancedid
PNB or APT allege "mistake, fraud, violence, intimidation, undue influence, or falsity of documents." Indeed, until
thisstageoftheproceedings,20yearsafterthesigningoftheDeedofAssignment,neitherPNBnorPMOsaw
any reason to challenge the validity of that contract for being "grossly disadvantageous to the government and
violativeofpublictrust."
NoristhepurposeoftheDeedofAssignment"contrarytolaw,morals,goodcustoms,publicorderorpublicpolicy."
UnderProclamationNo.50,APTsprincipalpurposeisto"effectorcausetobeeffected,xxx,thedispositionwithin
theshortestpossibleperiodofassetstransferredtotheTrustforthepurpose"(Section10,ArticleIII).Tofulfillthis
task,ProclamationNo.50vestedinAPT"thewidestlatitudeofflexibilityandautonomyinitsoperations,particularly
intheareasofxxxassetmanagementanddisposition"(Section13,ArticleIII).Itwasintheexerciseofthiswide
latitudeofflexibility,havinginmindthepromptdispositionofUPSUMCOsforeclosedassets,thatAPTnegotiated
with UPSUMCO for the waiver of its right of redemption in exchange for incentives APT freely offered. PNBs
relianceonAPTstaskofgenerating"maximumcashrecoveryfortheNationalGovernment"ismisplaced.Section
10,ArticleIIIofProclamationNo.50itselfprovidesthatsuchgoalistobeachieved"withinthecontext"ofAPTs
majorpurposeofdisposingofassignedassets"withintheshortestpossibleperiod."11Itmustbeborneinmindthat
APTheldintrustfordispositionnonperformingassets,likeUPSUMCOsforeclosedassets,ingovernmentfinancial
andotherinstitutions.
ItcannotalsobesaidthattheDeedofAssignmentwouldhavebeenrenderedinvalidunderSection1ofRepublic
ActNo.7181(RA7181),supersedingProclamationNo.50,whichrestrictedAPT'sdispositionofassets"exclusively
andstrictlyforcash."Firstly,RA7181cannotberetroactivelyappliedtoimpairvestedrightsbeyondtheperiodit
expresslycovered.Section8ofRA7181providesforitsretroactiveeffectivity"backtoDecember8,1991."12Itis
tooelementarytostatethatthisCourtcannotamendthisprovisiontoextendRA7181seffectivityfurther"backto
27 August 1987," when the Deed of Assignment became effective. Secondly, the Deed of Assignment did not
involve any disposition of assets it was a compromise agreement between a foreclosing creditor (APT) and a
mortgagee (UPSUMCO) on matters incidental to the foreclosure. If there is any contract that would have been
coveredbyRA7181,itwasAPT'ssaleofUPSUMCOassetstoURSUMCO,which,incidentally,wasforcash.
ConsideringthattheDeedofAssignmentisavalidcompromiseagreementandnotacontractofcondonation,there
isnoreasontopassuponPNBsclaimontheapplicationoftherulesondonationtothatcontract.
It cannot be overemphasized that what APT and UPSUMCO entered into was an ordinary commercial contract
signedaftervigorouseffortsonPMO'sparttoobtainUPSUMCO'sassenttothedeal.Infact,APTmerelystepped
intotheshoesofPNBwhichextendedthecommercialloanstoUPSUMCO.Assuch,thetermsofthecontractare
thelawbetweentheparties.Thataparty,afterfreelyenteringintoacontract,findsonhindsightthatthetermsare
overlygenerousoronesidedisnoreasonforthecourtstoexcusethatparty,andthoseboundbyitunderspecial
circumstances, from fulfilling their obligations. On the contrary, the courts are obliged to give effect to the
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agreement.TograntPNBsandPMOsbelatedprayertoinvalidatetheDeedofAssignmentwouldbenothingless
than to sanction misrepresentation and bad faith. Further, the Deed of Assignment is but a part of the larger
agreement between APT and UPSUMCO on the uncontested foreclosure of UPSUMCOs assets. Annulling the
DeedofAssignmentwouldhaverepercussionsonthevalidityofahostofothercontractsandincidentssuchasthe
foreclosuresale,thepaymentofthe5%"markup"toUPSUMCO,thereleasefromsolidaryliabilityofUPSUMCOs
directors,andthesaleoftheUPSUMCOpropertiestoURSUMCO.Thesearefarreachingandseriousimplications
PNBandPMOseemtohavelostsightofintheirsinglemindedpursuittoannultheDeedofAssignment.
(2) The Court did not ignore the Parol Evidence Rule in appreciating evidence aliunde to interpret the Deed of
Assignment.Asanevidentiaryruleonprovingthetermsofagreements,theParolEvidenceRuleunderSection9,
Rule 130 of the Revised Rules on Evidence forbids the introduction of evidence on the terms of the agreement
outside of the written contract.13 This rule was devised to give stability to written agreements and to remove the
temptationandpossibilityofperjury.14However,likeotherrulesofprocedure,theparolevidenceruleisnotironclad
butadmitsofseveralexceptions.Thus,Section9,Rule130itselfprovides:
However,apartymaypresentevidencetomodify,explainoraddtothetermsofthewrittenagreementifheputsin
issueinhispleading:
(a)Anintrinsicambiguity,mistakeorimperfectioninthewrittenagreement
(b)Thefailureofthewrittenagreementtoexpressthetrueintentandagreementofthepartiesthereto
(c)Thevalidityofthewrittenagreementor
(d)Theexistenceofothertermsagreedtobythepartiesortheirsuccessorsininterestaftertheexecutionof
thewrittenagreement.(Emphasissupplied)
InitsAmendedComplaintbeforethetrialcourt,UPSUMCOalreadycontendedthattheDeedofAssignmentfreedit
frompayinganydeficiencyobligationaftertheforeclosureofitsmortgagedassets,aspartofthe"conditions"ofthe
"friendly foreclosure."15 Thus, to the extent that the Deed of Assignment may give a contrary conclusion,
UPSUMCOcanpresent,asitdidpresent,evidencetomodifythetermsoftheagreementandtheCourtcantake
cognizanceofsuchevidence.Thisfallsundertheexceptionprovidedinparagraph(b)ofSection9,Rule130.
ButevenifUPSUMCOdidnotallegeinitspleadingsthattheDeedofAssignmentfreeditfromanyliabilityafterthe
foreclosure, the trial court and this Court are not barred from appreciating UPSUMCO's parol evidence for the
simplereasonthatatnotimeinthetrialofthiscasedidAPTorPNBobjecttothepresentationofthesame.Parol
evidenceonanissuenotraisedinthepleadingsmustbeobjectedtoatthetimeoftheirpresentation,otherwisethe
objectionisdeemedwaived.16Indeed,justliketheissueonthevalidityoftheDeedofAssignment,itisonlynow,in
theirsecondmotionsforreconsideration,whenjudgmentshouldhavebeenentered,thatAPTandPNBsawfitto
questiontheCourt'sallegeddisregardoftheevidentiaryruleinquestion.
Besides,theDeedofAssignmentitselfexpresslycondoned"anydeficiencyamount"fromtheforeclosuresaleand
thephrase"anydeficiencyamount"meansexactlythatanyremainingobligationaftertheforeclosure.Thereis
evennoneedtoresorttoevidencealiunde.
(3)OntheretroactiveapplicationoftheDeedofAssignment,neitherAPTnorPNBhaspresentednewargumentsto
meritthemodificationoftheCourt'sDecisionandResolution.Toreiterate,theCourtheldinitsResolutionof11July
2007,thus:
We affirm our ruling that under the Deed of Assignment dated 3 September 1987, the reckoning date of the
deficiencyamountis27August2007,rightaftertheforeclosure.True,theDeedofAssignmentofUPSUMCOsright
toredeemwassignedon3September1987anditisonthisdatethattherighttoredeemwastransferredtoAPT.
However,thecondonationofthedeficiencyamountnecessarilymusttakeeffectimmediatelyaftertheforeclosure
because the Deed of Assignment itself speaks of condonation of "any deficiency amount," an amount that is
determined right after the foreclosure. None of the respondents have presented good cause to undermine the
reasonsforourruling,namely:(1)thecondonationofUPSUMCOsdeficiencyobligationwas,asfoundbythetrial
courtinthePHILSUCORcase,partofthebundleofincentivesAPTofferedUPSUMCOforthelattertoagreetothe
"friendlyforeclosure"ofitsmortgagedassetsand(2)theDeedofAssignmentitselfstatedthatAPTcondoned"any
deficiencyamount"ofUPSUMCOfromthetakeoffloansaftertheforeclosureon27August1987.
Inaforeclosure,thedeficiencyisdeterminedbysimplearithmeticalcomputationimmediatelyaftertheforeclosure.
The deficiency is the amount not covered by the winning bid price in this case the deficiency amount is
P1,687,076,433.00 which is entirely condoned under the Deed of Assignment. To hold otherwise negates the
meaningof"anydeficiencyamount"expresslystatedintheDeedofAssignment.(Emphasisintheoriginal)
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ItmustbeemphasizedthatPNBtransferredfundstoAPTintwostages:(1)aftertheforeclosureon27August1987
butbeforethesigningoftheDeedofAssignmenton3September1987intheamountofP80,200,806.41and(2)
afterthesigningoftheDeedofAssignmentintheamountofP17,773,185.24.PNBandAPThidfromUPSUMCO
these fund transfers. In fact, UPSUMCO learned of the fund transfers only during the trial when UPSUMCO
demandedtheproductionofthebalancesofitsbankaccountswithPNB.
(4) It is PNB and APT which bear the burden of proving UPSUMCOs liability under the "operational loans." As
stated,UPSUMCOscommoncauseofactioninthetrialcourtwasthatitwasentitledtorecoverUPSUMCOfunds
PNBheldortransferredtoAPTaftertheforeclosuresinceAPTfreeditfromanydeficiencyliability.UPSUMCOdid
notraisetheissueoftheoperationalloansbecausethesehadnothingtodowiththeforeclosure.IntheirAnswersto
UPSUMCOs complaint, PNB and APT merely raised the defenses of setoff and extinguishment of UPSUMCOs
claims,respectively.Thus,initsAnswertoUPSUMCOscomplaint,PNB(1)claimedthatitsetoffUPSUMCOfunds
to pay for APTs deficiency claim arising from the foreclosure and (2) counterclaimed for moral damages and
attorneysfees.PNBdidnotincludeinitscounterclaimanyunpaidobligationofUPSUMCOundertheoperational
loans. For its part, APT generally averred that UPSUMCOs claims have been "paid, waived, abandoned or
otherwise extinguished." Thus, when the trial court, in its Order dated 4 January 1990, allowed UPSUMCO to
withdrawitsdepositsfromfiveofitsaccountswithPNBamountingtoP1,950,000,17neitherPNBnorAPTappealed
theOrder,allowingUPSUMCOtocollectthisamount.18
ItwasonlyintheirappealwiththeCourtofAppealsthatPNBandAPTclaimedthattheDeedofAssignmentdidnot
fully extinguish UPSUMCOs obligations to APT and it was only after this Court rendered its judgment that PNB
claimedinitsfirstmotionforreconsiderationthatUPSUMCOremainedliableunderthe"operationalloans."Asthe
partyassertingthesebelatedclaims,itisPNBwhichbearstheburdenofprovingthesame.Butasnotedbythis
Court in its Resolution, it was too late for PNB to do so as it had neither raised these matters as part of its
counterclaiminthetrialcourtnoradvertedtoanyproofinitsappealwiththeCourtofAppealsorwiththisCourt.
Thus,Ibelievethatremandingthiscasetothetrialcourt,aswhattheCourtofAppealsorderedinitsDecisionof28
November2006,forPMOandPNBtopresentevidenceonUPSUMCOsallegedliability(1)isanexerciseinfutility
(2)sanctionsamendmenttopleadingstoallowaclaimraisedonlyonappealand(3)resultsinthedenialofjustice
in further prolonging this litigation far beyond the nearly 18 years it has been pending with the courts. If, as PNB
claims, UPSUMCO remains liable under the "operational loans," PNB is not without remedy it can file a
collectioncaseagainstUPSUMCOinthepropercourtandthereseekpayment.
(5)AstoPNBssolidaryliability,sufficeittosay,thatafterPNBassigneditsinterestinUPSUMCOtoAPTon27
February1987,PNBceasedtobeUPSUMCOscreditorwithrespecttothetakeoffloans.However,PNBremained
UPSUMCOs depository bank, obliged to hold UPSUMCO funds on UPSUMCOs order. Thus, when, without
UPSUMCOsknowledge,PNBtransferredtoAPTUPSUMCOfundsondepositinseveralaccountswithPNB,
ostensibly as payment for obligations due to APT under the takeoff loans, PNB became liable to return
these funds to UPSUMCO as undue payments, because APT waived UPSUMCOs deficiency liability and
UPSUMCO gave no order for PNB to make the payments.19 Thus, it is futile for PNB20 to seek cover behind
Proclamation No. 50 and claim that such law "compelled" it to make the payments to APT, following relevant
stipulationsinthecreditagreements.21
Accordingly,IvotetoDENYtheSecondMotionsforReconsideration.
ANTONIOT.CARPIO
AssociateJustice
Footnotes
1TheDeedofAssignmentreads:
ThatUnitedPlanter[s]SugarMillingCo.,Inc.(the"Corporation")(pursuanttoaresolutionpassedby
its Board of Directors on September 3, 1987, and confirmed by the Corporations stockholders in a
StockholdersMeetingheldonthesamedate),forandinconsiderationoftheAssetPrivatizationTrust
("APT")condoninganydeficiencyamountitmaybeentitledtorecoverfromtheCorporationunderthe
Credit Agreement dated November 5, 1974 and the Restructuring Agreements dated June 24 and
December 10, 1982, and May 9, 1984, respectively, executed between the Corporation and the
Philippine National Bank ("PNB"), which financial claims have been assigned to APT, through the
NationalGovernment,byPNB,herebyirrevocablysells,assignsandtransfertoAPTitsrighttoredeem
theforeclosedrealpropertiescoveredbyTransferCertificatesofTitleNos.T16700andT16701.
INWITNESSWHEREOF,theCorporationhascausedthisinstrumenttobeexecutedonitsbehalfby
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Mr. Joaquin S. Montenegro, thereunto duly authorized, this 3rd day of September, 1987. (Emphasis
supplied)
2 The provision reads: "Condonation or remission is essentially gratuitous, and requires the acceptance by
theobligor.Itmaybemadeexpresslyorimpliedly.
One and the other kind shall be subject to the rules which govern inofficious donations. Express
condonationshall,furthermore,complywiththeformsofdonations."
3IVTolentino,CivilCodeofthePhilippines353(1987ed.).
4 As noted in the Decision and Resolution, APTs waiver of its right to collect UPSUMCOs deficiency
obligationwaspartofthebundleofincentivesAPTofferedtoUPSUMCOforthelatterswaiverofitsrightof
redemption.
5 Article 2028 of the Civil Code provides: "A compromise is a contract whereby the parties, by making
reciprocalconcessions,avoidalitigationorputanendtoonealreadycommenced."
6SecretaryofJusticeSerafinR.Cuevas,inanOpinion,interpretedthisprovisionas"clearlyconfer[ing]upon
theAPTtheauthoritytoenterintoanamicablesettlementand/orcompromiseagreementonthelegalcases
institutedbyorfiledagainstit,includingthecondonationofinterest,penaltiesandothercharges.xxx."
7 See First Philippine Holdings Corporation v. Sandiganbayan, G.R. No. 95197, 30 September 1991, 202
SCRA212.
8Article2038,CivilCode.
9Article1409(1),CivilCode.
10PNBsclaimthatUPSUMCO"seduced"APTtoenterintothenegotiatedforeclosuredealisbeliedbythe
followingletter,dated19August1987,ofAPT'sAssociateExecutiveTrusteeJohnnyM.Araneta(whoalso
signed the Deed of Assignment for APT) to UPSUMCO's VicePresident Jose del Prado, Jr. (Exhibit "S"
emphasissupplied):
DearMr.DelPrado:
As we have previously pointed out to you and other stockholders of UPSUMCO, we wish to
reiteratethebenefitsofan"uncontestedforeclosure".
An "uncontested foreclosure" is sometimes known as a "friendly" foreclosure whereby the
creditor and debtors do away with expensive litigation costs. By your agreement to the
uncontestedforeclosure,theAPTisgivingyouapreferenceof5%whichwouldnotbepresentin
case of a contested foreclosure. We have also given you the choice, in lieu of the 5%
preference,tobegivenacashpaymentequivalentto5%ofthewinningbidshouldyouloseout
inthebidding.ThatyourJSSwillbeextinguishedwill,ofcourse,beofgreatinteresttoyouand
therestwhohelpedputupthemill.Thisparticularconsiderationwillnotbeallowedyouincase
ofajudicialforeclosure.
You do realize that had you not agreed to an uncontested foreclosure, the National
Government,throughAPT,wouldhavegonetherouteofjudicialforeclosuretothegreat
inconvenienceofall,nottomentionthehighcostsofacontestedforeclosure.
Verytrulyyours,
(Sgd.)JohnnyM.Araneta
AssociateExecutiveTrustee
11 This is not the first time that APT employed innovative ways to dispose of assets transferred to it for
prompt disposal. APT had offered to sell shares of stocks under a negotiated price through a "Direct Debt
Buyout"settlementscheme(SeeAssetPrivatizationTrustv.Sandiganbayan,412Phil.879[2001]).
12Sec.8.ThisActshalltakeeffectimmediatelyuponitspublicationinatleastone(1)nationalnewspaperof
generalcirculation.TheeffectivityofthisActshallretroactandrelatebacktoDecember8,1991.
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13Section9,Rule130provides:"Evidenceofwrittenagreements.Whenthetermsofanagreementhave
beenreducedtowriting,itisconsideredascontainingallthetermsagreeduponandtherecanbe,between
thepartiesandtheirsuccessorsininterest,noevidenceofsuchtermsotherthanthecontentsofthewritten
agreement.xxx."
14TanTuaSiav.YuBiaoSontua,56Phil.711(1932).
15UPSUMCOallegedinitsAmendedComplaint(Record,pp.4346):
COMMONALLEGATIONS
1.ThatProclamationNo.50creatingtheAssetPrivatizationTrust,APTforshort,andtheCommittee
on Privatization, COP for short, was issued by Her Excellency President Corazon C. Aquino on
December8,1986
2.ThatthesaidProclamationissuedundertheFreedomConstitutionandintheexerciseofthePolice
PoweroftheStatemandatedtheAPTandCOPtotakeoveranddisposeofallnonperformingassets
heldbythegovernmentbanks,amongitsfunctions
3.Thatamongthosedeclaredasnonperformingassetswastheplaintiffcorporation
4.ThattofacilitatethetakeoverofplaintiffsphysicalassetsthatweremortgagedtodefendantPNBa
"friendlyforeclosure"wasarrangedbyAPTanddefendantPNBonallthemortgagedpropertiesofthe
plaintiff,includingtheshareofPhilippineSugarCorporation,PHILSUCORforshort,onthemortgages
where defendant PNB under memorandum of agreement dated February 15, 1984 was constituted
trusteetoforeclosethesaidmortgages
5.Thatthe"friendlyforeclosure"wasaffectedonlythrutheactiveparticipationofthedefendantAPT,
COP,PHILSUCORandtheplaintiffwhoha[d]littlechoice
6.ThatthenoticeofextrajudicialforeclosureinitiatedbythedefendantPNBandAPTwasscheduled
bytheOfficeoftheProvincialSheriffofNegrosOrientalforsaleatpublicauctiononAugust27,1987
afterthepublicationattheDumagueteStarInformer.AmachinecopyofthepublicationismadeAnnex
"A"formingintegralparthereof
7.Thatplaintiffsassetsforpublicauctionwerealllistedintheabovepublication
8.ThatAPTwasthehighestbidderinthatAugust27,1987publicauctionsale
9.ThatonSeptember3,1987,APTissuedtheDeedofAssignmentwhichreads:
DEEDOFASSIGNMENT
KNOWALLMENBYTHESEPRESENTS:
That United Planters Sugar Milling Co., Inc., (the "Corporation" pursuant to a resolution
passed by its Board of Directors on September 3, 1987, and confirmed by the
CorporationsstockholdersinaStockholdersMeetingheldonthesamedate),forandin
considerationoftheAssetPrivatizationTrust("APT")condoninganydeficiencyamountit
may be entitled to recover from the Corporation under the Credit Agreement dated
November5,1974andtheRestructuringAgreementsdatedJune24,andDecember10,
1982, and May 9, 1984, respectively, executed between the Corporation and the
Philippine National Bank ("PNB"), which financial claims have been assigned to APT,
throughtheNationalGovernment,byPNB,herebyirrevocablysells,assignsandtransfer
toAPTitsrighttoredeemtheforeclosedrealpropertiescoveredbyTransferCertificates
ofTitleNos.T16700andT16701.
INWITNESSWHEREOF,theCorporationhascausedthisinstrumenttobeexecutedon
its behalf by Mr. Joaquin S. Montenegro, thereunto duly authorized, this 3rd day of
September,1987,
xxxx
10.Thatallotherproperties,realorpersonalincludingdepositsinbanksandreceivablesnotcovered
bythemortgages,remainpropertiesoftheplaintiff
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FIRSTCAUSEOFACTION
1.AlltheforegoingallegationsaremadeintegralpartoftheFirstCauseofAction
2.ThatnotwithstandingtheDeedofAssignmentwhichreleasedanddischargedplaintiff
fromanyandallobligationsduethedefendantPNBanddefendantAPTthesalariesofmill
employees after the foreclosure by PNB/APT in June, 1987 up to the takeover by Universal
RobinaSugarMillingCompanyuptoDecember1987orthereabout,weretakenfromthefunds
of the plaintiff deposited with defendant PNB by itself and/or the instruction of APT with PNB
Comptrollerstillassigned
SECONDCAUSEOFACTION
1.AllthecommonallegationsaremadeintegralpartoftheSecondCauseofAction
2.ThataftertheforeclosurebyPNB/APTplaintiffisentitledtoallthefundsitdepositedor
being held by PNB in all its branches, the amount of which is undetermined, but PNBs
recordsmayrevealthecorrectamount
3.Thatamongtheconditionsofthe"friendlyforeclosure"are:
(a)Thatalltheaccountsoftheplaintiffarecondoned,includingtheJSSnotesatthe
timeofthepublicbidding
(b)Theplaintiffwaivesand/orassignsasitdidwaiveandassignitsrightstoredeemsaid
propertiesinfavorofAPT,byreasonoftheaforesaidcondonation
(c)Thatplaintiffshallbeentitle[d]toa5%preferenceincaseitwinsthepublicbiddingby
APT,orifitlossesinthepublicbiddingitshallbeentitletotheabovepreferenceinterms
ofmoneycomputedfromtheamountofthehighestbid.InthiscaseP500 million, which
was the highest bid of Universal Robina Sugar Milling Co., Inc. (URSUMCO) or a P25
millionpreferencewhichAPTalreadypaid[.](Emphasissupplied)
16IIRegalado,RemedialLawCompendium566(7thed.)
17Ingrantingthewithdrawal,thetrialcourtheld(Records,pp.298299):
DefendantPNBhasnotpresentedanyevidenceotherthantheclaimoflegalcompensationto
disprovetheplaintiffsclaimofownershipoftheforegoingsavingsaccountdeposits.
Operations of banks rely on the trust and confidence of depositors more than any ordinary fiduciary
relationship.Publicinterestsandpublicpoliciesareinvolved.
xxxx
Hence, a bank is under obligation to allow [withdrawals] only by the depositor or his duly authorized
representative.Itbecomesliableforwrongfulpaymenttoapersonwhofraudulentlyobtainspossession
ofthedepositbookandforgesthesignatureoftherealdepositoronthewithdrawalslip(orbychecks)
evenifthebankactedingoodfaithandintheexerciseofordinarycareanddiligence.xxxx
Sincetheextrajudicialforeclosuredidnotincludethebankdepositsoftheplaintiff,thepresumptionthat
thesaiddepositsisexclusivelyownedbyUPSUMCOstands.(Emphasissupplied)
18PerSheriff'sReturn,dated15February1990(Records,p.364).
19ThisisinadditiontotheCourt'sfindingintheResolutionthatPNBviolatedArticle1279oftheCivilCode
whenitactedasAPTsagentinsettingoffUPSUMCOfunds.
20APTscoforeclosingcreditorrepresentingtheinterestofPhilippineSugarCorporation.
21 Contrary to PNBs claim, the credit agreements and promissory notes UPSUMCO executed did not
authorizePNBto"negotiate,sell,andtransferanymoniesandapplytheproceedsthereoftothepaymentof
UPSUMCO debts" but merely "to apply any amount on deposit with it or with any of its subsidiaries or
affiliatestothepaymentofanyamountpastduehereunderorunderanyothercreditaccommodationgranted
totheCLIENT[]bytheBANK,xxx."
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CONCURRINGOPINION
VELASCO,JR.,J.:
IconcurwiththeponenciaofJusticeDanteO.Tingaandsubmitadditionalobservations.
ThecontroversycentersontheimportofthestipulationsintheSeptember3,1987DeedofAssignmentwhich
reads:
ThatUnitedPlanter[s]SugarMillingCo.,Inc.(the"Corporation")(pursuanttoaresolutionpassedbyitsboardof
directorsonSeptember3,1987,andconfirmedbytheCorporationsstockholdersinastockholdersMeetingheldon
thesame(date),forandinconsiderationoftheAssetPrivatizationTrust("APT")condoninganydeficiencyamountit
maybe[sic]entitledtorecoverfromtheCorporationundertheCreditAgreementdatedNovember5,1974andthe
Restructuring Agreement[s] dated June 24 and December 10, 1982, and May 9, 1984, respectively, executed
betweentheCorporationandthePhilippineNationalBank("PNB"),whichfinancialclaimshavebeenassignedto
APT,throughtheNationalGovernment,byPNB,herebyirrevocablysells,assignsandtransfertoAPTitsrightto
redeemtheforeclosedrealpropertiescoveredbyTransferCertificatesofTitleNos.T16700andT16701.
The November 28, 2006 Decision found that the total mortgage indebtedness of UPSUMCO was PhP
2,137,076,433.15asof30June1987basedontheadmissionoftheAPTinitscounterclaim.Deductingtheamount
of PhP 450 million as winning bid of the APT during the foreclosure sale, then the deficiency obligation of
UPSUMCOisP1,687,076,433.15.PursuanttotheSeptember3,1987DeedofAssignment,suchdeficiencyamount
iscondoned.TheDecisionconsideredthedeficiencyobligationofPhP1,687,076,433.15asencompassingboththe
takeoffloansandtheoperationalloansandthus,UPSUMCOisnotliableanymoretotheAPTforanyofsaidloans.
Thisreasoninghasnolegalorfactualfootingnorsupportforthefollowingreasons:
1.ThetermsoftheDeedofAssignmentareplainandunambiguousandhence,thereisnoroomforinterpretation.
Theagreementunequivocallyspeaksof"condoninganydeficiencyamountitmaybe[sic]entitledtorecover
from the Corporation under the Credit Agreement dated November 5, 1974 and the Restructuring
Agreement[s]datedJune24andDecember10,1982,andMay9,1984,respectively,executedbetweenthe
CorporationandthePhilippineNationalBank("PNB")."
Thus, the condonation strictly applies only to the loan and mortgage documents pertaining to the takeoff
loans.Animportantpointtorememberisthatthetakeoffloansweresecuredbyarealestatemortgageover
twoparcelsoflandwhereUPSUMCOsmillingplantstandsandbychattelmortgagesovermachineriesand
equipmentontheparcelsofland.Thus,whentheAPTforeclosedthemortgagesonthecollaterals,itdealt
onlywiththetakeoffloansandnottheoperationalloans.
In addition, the Decision admitted that as of June 30, 1987, the PNB placed UPSUMCOs "total mortgage
indebtedness"atPhP2,137,076,433.15aswasindicatedinthepublishednoticesofforeclosures.Thisrefers
tothemortgageindebtednessunderthetakeoffloansandsaidloansaretheonlyonescondonedbyreason
oftheDeedofAssignment.Theliabilityfortheoperationalloanshoweverremainsvalidandsubsisting.
2.Inthecaseatbench,theNovember28,2006DecisionandJuly11,2007Resolutionvariedthemeaningattached
tothecondonationofthedeficiencyamountsubjectoftheDeedofAssignmentwhichisotherwiseclearanddefinite.
A new contract was made for the parties or have been rewritten under the guise of construction. Settled is the
principlethatanagreementmustbeconstruedandenforcedaccordingtothetermsemployedandacourthasno
righttointerprettheagreementasmeaningsomethingdifferentfromwhatthepartiesintendedasexpressedbythe
languagetheysawfittoemploy.
Acourtisnotatlibertytorevise,modify,ordistortanagreementwhileprofessingtoconstrueit,andhasno
righttomakeadifferentcontractfromthatactuallyenteredintobytheparties.
OnemayarguethatitisunfairfortheAPTtostillcollectthedepositsofUPSUMCOwiththePNBafterthe
Deed of Assignment has already condoned the deficiency amount arising from the foreclosure. The most
equitable implementation, UPSUMCO contends, is to return said amounts to them as the condonation
retroacts to the date of foreclosure and not as of the date of Deed of Assignment. This postulation is
erroneous.Wedontbelieveso.Courtscannotmakeforthepartiesbetterormoreequitableagreementsthat
they themselves have been satisfied to make, or rewrite contracts because they operate harshly or
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inequitablyastooneoftheparties,oralterthemforthebenefitofonepartyandtothedetrimentoftheother,
or, by construction, relieve one of the parties from terms which s/he voluntarily consented to, or impose on
him/herthosewhichs/hedidnot.Ifthepartiestoacontractadoptaprovisionwhichcontravenesnoprinciple
ofpublicpolicyandcontainsnoelementofambiguity,thecourtshavenoright,byaprocessofinterpretation,
to relieve one of them from disadvantageous terms which s/he has actually made. Parties may make their
ownbargainsandtheyshouldbeheldtothetermsoftheiragreement.Thecourtswillnotinterferewiththe
partyscontractualobligations,aseverypersonispresumedtobecapableofmanaginghisownaffairs,and
whetherhisbargainsarewiseorunwiseisnotordinarilyalegitimatesubjectofinquiry.
Theagreementbetweenthepartiesisclearlytocondoneonlythedeficiencyjudgmentpertainingtothetake
offloans.
Welaystressonthephrase"mortgageindebtedness"ofPhP2,137,076,433.15.TheassailedNovember28,
2006 Decision construed this to mean the total indebtedness of UPSUMCO covering both takeoff and
operationalloans.Thisconclusionisincorrect.
Thephrase"mortgageindebtedness"canonlypertaintothetakeoffloansasUPSUMCOspropertieswere
mortgagedtospecificallycoverandguaranteeonlythetakeoffloans.
On the other hand, there was no mortgage on any other property of UPSUMCO to cover the operational
loans.ThecreditagreementsonthesaidloansweresecuredbypledgecontractsdatedFebruary19,1987
and March 30, 1987. The securities for the payment of the operational loans are the milled produce and
molasseswhichthePNBcansellandapplytheproceedsthereoftosatisfyUPSUMCOsobligationunderthe
operational loans. The facts are clear that no mortgage was ever constituted on the other UPSUMCO
properties to secure the loan obligations covered by the Deed of Assignment by Way of Payment and the
Credit Agreements. Ergo, the foreclosure of the mortgage can only refer to the mortgaged properties of
UPSUMCO to secure the takeoff loans and cannot in any way refer to the operational loans. Thus, the
deficiency amount of PhP 1,687,076,433.15 cannot be construed to embrace even the operational loans.
UPSUMCOissupposedtoknowthataftertheforeclosure,itstillhassomefundswiththePNB.Itisexpected
toknowitssugarproduceanditssalebythePNB.ItshouldnothaveagreedtotheDeedofAssignmentifit
believes it has a legal right to said deposits. It should have explicitly stated in the agreement that said
deposits have to be returned to them. Its failure to do so can only mean said deposits were considered
paymentstotheAPT.
3. Justice and equity dictate that neither the APT nor PNB should be made liable to UPSUMCO for alleged
collectibles. A look at the factual milieu shows that the Deed of Assignment was entered into to bail out the
stockholdersofUPSUMCO.ThedirectorswerereleasedfromliabilitytheywereevenpaidPhP25millionandany
deficiencywascondonedwithrespecttothemortgagedloans.ThehugeamountofPhP1.6billionwascondonedin
exchange for the assignment of the right of redemption. Clearly, this arrangement was intended to benefit the
owners of UPSUMCO who, even if they did not assign their right of redemption, could not have in any way
redeemedthemortgagedpropertiesforitdidnothavethecapacityatthattimetopaythedeficiencyamount.The
circumstancesofthecaseundeniablyshowthatUPSUMCOhasagreedtowaiveandforfeitanyrightorclaimover
its assets or any collectibles. As a matter of fact, UPSUMCO is fully aware of its deposits with the PNB after the
foreclosure.TheirfailuretoasserttheirrightduringthenegotiationfortheDeedofAssignmentandtheirfailureto
incorporatesaidclaiminthedocumentscanonlymeanwaiverontheirpart.
ToconstruetheDeedofAssignmentasbasisforthepaymentbytheAPToftheamountofaroundPhP135
milliontoUPSUMCOafterithasbeenaccordedthemostgenerousaccommodationrelatingtothepayment
of the takeoff loans would result in unfairness and injustice to the government. Let us consider the terms
prejudicialtothegovernment:(1)thecondonationofPhP1.6billionasadeficiencyamountfromthetakeoff
loans,whichAPTcanlegallyclaimagainstUPSUMCO(2)thepaymentofPhP25milliontotheUPSUMCO
whenAPTisnotlegallyobligedtomakethepaymentand(3)thereleasefromliabilityofsaidofficialswho
areadmittedlyliablefortheloanobligationsunderthecontractstheysigned.Inspiteofalltheseconcessions,
the assailed November 28, 2006 Decision still granted another gift to UPSUMCO by making APT pay an
additionalPhP135millionwhenthereisnolegalbasisfortheallegedobligation.Courtsshouldnotallowa
construction that will lead to absurd consequences. The Deed of Assignment must be interpreted to avoid
injusticeandwrongfulandevenmischievousresults.
4. Article 1378 of the Civil Code provides that when it is absolutely impossible to settle doubts by the rules
establishedintheprecedingarticles,andthedoubtsrefertoincidentalcircumstancesofagratuitouscontract,the
leasttransmissionofrightsandinterestsshallprevail.Ifthecontractisonerous,thedoubtshallbesettledinfavorof
thegreatestreciprocityofinterests.
Ifthedoubtsarecastupontheprincipalobjectofthecontractinsuchawaythatitcannotbeknownwhatmay
havebeentheintentionorwilloftheparties,thecontractshallbenullandvoid.
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SincecondonationisessentiallyanactofgenerosityonthepartoftheAPT,thentheleasttransmissionof
rightsandinterestsshouldbeapplied.Thus,thecondonationofthedeficiencyamountcanonlyrefertothe
takeoffloansandnottotheoperationalloanswhichwerenotevencoveredbythemortgage.
5. The PNB should not be jointly and solidarily liable with the APT considering it will only lead to a multiplicity of
suits.ThePNBassignedtotheAPTallitsrights,interests,andclaimsagainstUPSUMCOpursuanttoProclamation
No.50bywayofaDeedofTransfer,whilethegovernmentagreedtoassumetheliabilitiesofthePNB,thus:
2.02.WithrespecttotheBanksliabilitieswhicharecontingentandthoseliabilitieswheretheBankscreditors
consenttothetransferthereofisnotobtained,saidliabilitiesshallremaininthebooksoftheBANKwiththe
GOVERNMENTfundingthepaymentthereof.
Since the APT was subrogated to the place of the PNB, then it should be solely responsible and liable for
UPSUMCOsclaim.Otherwise,UPSUMCOmaycollectfirstfromthePNBwhichinturnwillcollectfromthe
APT.Thiswillundoubtedlyresultinmultiplicityofsuits.
IvotetoreconsiderandsetasidetheNovember28,2006DecisionandtheJuly11,2007Resolutionintheinstant
caseandaffirmtheFebruary29,1996DecisionoftheCourtofAppeals.
PRESBITEROJ.VELASCO,JR.
AssociateJustice
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