EN BANC
[ G.R. No. 126890, April 02, 2009 ]
UNITED PLANTERS SUGAR MILLING CO., INC., (UPSUMCO), PETITIONERS, VS. THE HONORABLE COURT OF OF APPEALS, PHILIPPINE NATIONAL BANK (PNB) AND ASSET PRIVATIZATION TRUST (APT), AS TRUSTEE OF THE REPUBLIC OF THE PHILIPPINES, RESPONDENTS.
R E S O L U T I O N
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 so-called "friendly foreclosure agreement" that ultimately was friendly only to
petitioner. The efficacy of such waiver is now beyond dispute, but the Court has the opportunity to regretfully mitigate the losses sustained by the government through means no more exotic than insisting upon the interpretation of contracts according to the plain terms expressed
therein.
I.
The following statement of facts are drawn from the Decision of the Court of Appeals Tenth Division dated 29 February 1996, as well as from the Separate Opinion to the Resolution of this Court dated 11 July 2007.
Petitioner United Planters Sugar Milling Co. (UPSUMCO) was engaged in the business of milling sugar. In 1974, 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 land[2] 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 financing the operations of the Company. The second set of loans, referred hereinafter as "operational loans," also contained setoff clauses relative to the application of payments from UPSUMCO's bank accounts. They were likewise secured by pledge contracts whereby UPSUMCO assigned to PNB all its sugar produce for PNB to sell and apply the proceeds to satisfy the indebtedness arising from the operational loans.
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 consisting of the operational loans, to wit:
Thereafter, it is alleged that APT and UPSUMCO entered into talks concerning the disposal of UPSUMCO's mortgaged assets. The Decision stated that the parties then agreed to an "uncontested or `friendly foreclosure' of these mortgaged assets, in exchange for UPSUMCO's waiver of its right of redemption."[9] Soon, a Petition for Extrajudicial Foreclosure Sale dated 28 July 1987 was filed with the Ex-Officio Regional Sheriff of Dumaguete City, with PNB identified therein as "Mortgagee" and APT as "Assignee and Transferee of PNB's 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 take-off loans. The foreclosure sale was conducted on 27 August 1987, whereby APT purchased the auctioned properties for P450 Million.
Seven (7) days after the foreclosure sale, or on 3 September 1987, UPSUMCO executed a Deed of Assignment[11] wherein it assigned to APT its right to redeem the foreclosed properties, in exchange for or in consideration of APT "condoning any deficiency amount it may be entitled to recover from the Corporation under the Credit Agreement dated November 5, 1974, and the Restructuring Agreements[s] dated June 24 and December 10, 1982, and May 9, 1984, respectively, executed between [UPSUMCO] and PNB..." On even date, the Board of Directors of UPSUMCO 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 complaint[13] 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 therein that PNB and APT had illegally appropriated funds belonging to UPSUMCO, through the following means: (1) withdrawals made from the bank accounts opened by UPSUMCO beginning 27 August 1987 until 12 February 1990; (2) the application of the proceeds from the sale of the sugar of UPSUMCO beginning 27 August 1987 until 4 December 1987; (3) the payment from of the funds of UPSUMCO with PNB for the operating expenses of the sugar mill after 3 September 1987, allegedly upon the instruction of APT with the consent of PNB.
This complaint would be amended one month after it was filed. In the original complaint, it was alleged that "after September 3, 1987, [UPSUMCO] is entitle[d] to all the funds it deposited or being held by PNB in all its branches."[14] The original complaint also pinpointed 3 September 1987 as the general reckoning date after which the assets of UPSUMCO would be beyond reach of application by APT or PNB. However, petitioners then filed an amended complaint[15] where all citations of "3 September 1987" as a reference point were deleted,[16] It was claimed, this time, in the amended complaint that UPSUMCO was released from its rights and obligations due PNB and APT "after the foreclosure by PNB/APT."[17] Notably, several of the transactions in question had occurred after the foreclosure sale but before the Deed of Assignment, or within the dates 28 August to 3 September 1987.
Both APT and PNB claimed in their respective comments that the extrajudicial foreclosure sale was unconditional and mandatory under Presidential Decree No. 385.[18] They also specifically denied the allegation regarding the execution of the 3 September 1987 Deed of Assignment due to "lack of knowledge or information sufficient to form a 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 claim arose."[20]
APT likewise filed a counterclaim, seeking the recovery of over 1.6 Billion Pesos from UPSUMCO. The amount was apparently determined with the calculation that there was no condonation at all in favor of UPSUMCO, and said sum represented the total amount of indebtedness less the 450 Million Pesos for which the foreclosed properties were sold.
During the course of trial, APT (though not PNB) would eventually admit the existence of the 3 September 1987 Deed of
Assignment.[21] However, APT argued that such Deed could not
retroact to 27 August 1987,[22] contrary to the claim of UPSUMCO, citing Section 7, Rule 130 of the Rules of Court.[23]
The action was eventually decided by the RTC in favor of UPSUMCO. The RTC Decision[24] is rooted on the following assumptions:
(1) The obligation of UPSUMCO with PNB under the initial creditor-debtor relation was "novated by the subrogation of creditors, i.e., [APT]."[25]
(2) The bank accounts maintained by UPSUMCO with PNB created a creditor-debtor relation, in addition to the same relation (albeit in reversed identities) between the same parties by reason of the loan agreements. However, whatever right PNB had to set-off the outstanding indebtedness from UPSUMCO'S bank accounts ceased the moment PNB assigned its rights to APT on 27 February 1987. Thus, only APT could be considered as the foreclosing creditor.[26]
(3) Assuming there remained any deficiency claim in favor of PNB or APT, the same was condoned by the Deed of Assignment dated 3 September 1987. The RTC considered APT's argument that the Deed of Assignment could not be deemed to retroact to 27 August 1987. It ruled, however, that "[a]s of the date of the foreclosure on August 27, 1987, [UPSUMCO] was a creditor as to its deposits and proceeds of sugar sale with the defendant PNB. Neither [PNB] nor [APT] cannot [sic] simply appropriate the things of plaintiff. If at all, such deficiency claim did exist and subsist, foreclosing creditor should have initiated proper actions to recover the same."[27]
The RTC ordered thus, as follows:
Respondents filed a Second Motion for Reconsideration. After due deliberation, the Court en banc accepted the referral to it of the Second Motion for Reconsideration.
This much is clear. The Deed of Assignment condoned only the take-off loans, and not the operational loans. The Deed of Assignment in its operative part provides, thus:
The challenged acts of respondents all occurred on or after 27 August 1987, the day of the execution sale. UPSUMCO argues that after that date, respondents no longer had the right to collect monies from the PNB bank accounts which UPSUMCO had opened and maintained as collateral for its operational and take-off loans. UPSUMCO is wrong. After 27 August 1987, there were at least two causes for the application of payments from UPSUMCO's PNB accounts. The first was for the repayment of the operational loans, which were never condoned. The second was for the repayment of the take-off loans which APT could obtain until 3 September 1987, the day the condonation took effect.
The error of the Court's earlier rulings, particularly the Resolution dated 11 July 2007, was in assuming that the non-condonation of the operational loans was immaterial to the application of payments made in favor of APT from UPSUMCO's PNB accounts that occurred after 27 August 1987. For as long as there remained outstanding obligations due to APT (as PNB's successor-in-interest), 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 take-off loans or the operational loans.
Petitioner filed with the RTC the complaint which alleged that "among the conditions of the 'friendly foreclosure' are: (A) That all the accounts of [United Planters] are condoned, including the JSS notes at the time of the public bidding."[34] It was incumbent on petitioner, not respondents, to prove that particular allegation in its complaint. Was petitioner able to establish that among the conditions of the "friendly foreclosure" was that "all its accounts are condoned"? It did not, as it is now agreed by all that only the take-off loans were condoned.
This point is material, since the 2007 Resolution negated the finding that only the take-off loans were condoned by faulting respondents for failing to establish that there remained outstanding operational loans on which APT could apply payments from UPSUMCO's bank accounts. By the very language of the Deed of Assignment, it was evident that UPSUMCO's allegation in its complaint that all of its accounts were condoned was not proven. Even if neither PNB nor APT had filed an answer, there would have been no basis in fact for the trial court to conclude that all of UPSUMCO's loans were condoned (as the RTC in this case did), or issue reliefs as if all the loans were condoned (as the 2007 Resolution did).
As noted earlier, APT had the right to apply payments from UPSUMCO's bank accounts, by virtue of the terms of the operational loan agreements. Considering that UPSUMCO was spectacularly unable to repay the take-off loans it had earlier transacted, it simply beggars belief to assume that it had fully paid its operational loans. Moreover, APT had the right to obtain payment of the operational loans by simply applying payments from UPSUMCO's 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 UPSUMCO's outstanding loans without hassle.
There is no question that the Deed of Assignment condoned the outstanding take-off loans of UPSUMCO due then to APT. The Deed of Assignment was executed on 3 September 1987, as was the UPSUMCO Board Resolution authorizing its President to sign the Deed of Assignment. However, despite the absence of any terms to that effect in the Deed of Assignment, it is UPSUMCO's position that the condonation actually had retroacted to 27 August 1987. The previous rulings of the Court unfortunately upheld that position.
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 UPSUMCO's 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 successor-in-interest of PNB, had the right to seize any amounts deposited in UPSUMCO's bank accounts as long as UPSUMCO remained indebted under the loan agreements. Since UPSUMCO was released from its take-off loans only on 3 September 1987, as indicated in the Deed of Assignment, then APT's application of payments is perfectly legal.
Hence, UPSUMCO has strained to argue that notwithstanding the absence of any stipulation in any agreement to the effect, the take-off loans were actually condoned as of 27 August 1987. In fact, in its original complaint, UPSUMCO had effectively admitted that any application of payments made between 27 August and 3 September 1987 were valid, when it originally alleged infirmity only as to the post-September 3 payments. The subsequent amendment of the complaint should count in UPSUMCO's favor, yet it does evince that 27 August 1987 as the date of condonation is hardly the instinctive position.
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 UPSUMCO's outstanding obligations in exchange for UPSUMCO's waiver of its right to redeem the foreclosed property. However, no such agreement to that effect was ever committed to writing or presented in evidence. The written agreement actually set forth was not as contended by UPSUMCO. For one, not all of the outstanding loans were condoned by APT since the take-off loans were left extant. For another, the agreement itself did not indicate any date of effectivity other than the date of the execution of the agreement, namely 3 September 1987.
It is argued that the use of the word "any" in "any deficiency amount" sufficiently establishes the retroactive nature of the condonation. The argument hardly convinces. The phrase "any deficiency amount" could refer not only to the remaining deficiency amount after the 27 August foreclosure sale, but also to the remaining deficiency amount as of 3 September 1987, when the Deed of Assignment was executed and after APT had exercised its right as creditor to apply payments from petitioner's PNB accounts. The Deed of Assignment was not cast in intractably precise terms, and both interpretations can certainly be accommodated.
It is in that context that the question of parol evidence comes into play. The parol evidence rule states that generally, when the terms of an agreement have been reduced into writing, it is considered as containing all the terms agreed upon and there can be no evidence of such terms other than the contents of the written agreement.[35] Assuming that the Deed of Assignment failed to accurately reflect an intent of the parties to retroact the effect of condonation to the date of the foreclosure sale, none of the parties, particularly UPSUMCO, availed of its right to seek the reformation of the instrument to the end that such true intention may be expressed.[36] As there is nothing in the text of Deed of Assignment that clearly gives retroactive effect to the condonation, the parol evidence rule generally bars any other evidence of such terms other than the contents of the written agreement, such as evidence that the said Deed had retroactive effect.
It is argued that under Section 9, Rule 130, a party may present evidence to modify, explain or add to the terms of the written agreement if it is put in issue in the pleading, "[t]he failure of the written agreement to express the true intent and the agreement of the parties thereto."
Petitioner did not exactly state in its Amended Complaint that the condonation effected in the Deed of Assignment had retroacted to the date of the foreclosure sale. What petitioner contended in its amended complaint was that the Deed of Assignment "released and discharged plaintiff from any and all obligations due the defendant PNB and defendant APT;" that "after the foreclosure by PNB/APT plaintiff is entitled to all the funds it deposited or being held by PNB in all its branches;" and that "among the conditions of the `friendly foreclosure' are that all the accounts of the plaintiff are condoned." It remains unclear whether petitioner had indeed alleged in its Amended Complaint that the Deed of Assignment executed on 3 September 1987 had retroactive effect as of the date of the foreclosure sale, or on 27 August 1987. If petitioner were truly mindful to invoke the exception to the parol evidence rule and intent on claiming that the condonation had such retroactive effect, it should have employed more precise language to that effect in their original and amended complaints.
But even assuming that petitioner in the Amended Complaint did put in issue in its pleading that the condonation effected in the Deed of Assignment had retroacted to 27 August 1987, it still was incumbent upon it to establish such claim through evidence. There is simply no evidence that unequivocally establishes such a retroactive effect. Blame is pinned on respondents for supposed failure to object to the presentation of parol evidence during the trial, but it is 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. Allegations are evidence. So there was no evidence to be objected to.
It would be unsurprising if in truth, these transfers were undertaken by PNB and APT on 27 and 28 August 1987 in order to alleviate the financial injury they knew would be sustained with the impending execution of the Deed of Assignment, a document designed to make the Government bear the loss sustained by a private corporation. As a 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, but it was benefit nonetheless.
Let us discuss briefly by what right APT could have applied payments from the bank accounts maintained by UPSUMCO with the PNB, under the operational loans and the take-off loans. As earlier stated, the credit agreement that established the take-off loans required UPSUMCO to open a deposit account with PNB, from which the bank was entitled to apply to the payment of any unpaid obligations of any monies, securities which may have been deposited under the account.[37] As found by the Court of Appeals, that right to apply payments from UPSUMCO's bank accounts was established by the operational loans as well. The appellate court discussed as follows:
The RTC was correct in observing that with the take-off loans and the corresponding creation of the bank accounts, there existed a mutual creditor-debtor relationship between PNB and UPSUMCO. Such would allow the set-off or compensation of the latter's outstanding obligations to the former from the latter's bank accounts, congruently with Article 1278[41] of the Civil Code, and as expressly stipulated in the take-off loan agreements. PNB then assigned all its rights, titles and interests over UPSUMCO to APT. As between UPSUMCO and APT or PNB and APT, there no longer existed the mutual creditor-debtor relationship. The RTC thus concluded that since PNB was no longer a debtor of UPSUMCO, the bank no longer had the right to set-off 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]
It is clear though APT had a right to go after the bank deposits of UPSUMCO, in its capacity as the creditor of the latter. The RTC had claimed that by virtue of PNB's Deed of Assignment, there took place conventional subrogation 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 have taken place herein since such requires "the consent of the original parties and of the third person"[45], and there is no evidence that the consent of debtor UPSUMCO was secured when PNB assigned its rights to APT. Moreover, the assignment by PNB to APT arose by mandate of law and not the volition of the parties.
Even if conventional subrogation did not take place, there was still a perfected assignment of credit as between PNB and APT, under Article 1624[46] of the Civil Code. The assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge or preference.[47] By virtue of the assignment of credit, APT was entitled to pursue the rights and remedies granted to the previous creditor, PNB.
It might seem that APT has no right to set-off payments with UPSUMCO for under Article 1279 (1), it is necessary for compensation that the obligors "be bound principally, and that he be at the same time a principal creditor of the other."[48] There is, concededly, no mutual creditor-debtor relation between APT and UPSUMCO. However, we recognize the concept of conventional compensation, defined as occurring "when the parties agree to compensate their mutual obligations even if some requisite is lacking, such as that provided in Article 1282."[49] It is intended to eliminate or overcome obstacles which prevent ipso jure extinguishment of their obligations.[50] Legal compensation takes place by operation of law when all the requisites are present, as opposed to conventional compensation which takes place when the parties agree to compensate their mutual obligations even in the absence of some requisites.[51] The only requisites of conventional compensation are (1) that each of the parties can dispose of the credit he seeks to compensate, and (2) that they agree to the mutual extinguishment of their credits.[52]
The right of PNB to set-off payments from UPSUMCO arose out of conventional compensation rather than legal compensation, even though all of the requisites for legal compensation were present as between those two parties. The determinative factor is the mutual agreement between PNB and UPSUMCO to set-off payments. Even without an express agreement stipulating compensation, PNB and UPSUMCO would have been entitled to set-off of payments, as the legal requisites for compensation under Article 1279 were present.
As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB and UPSUMCO ceased to exist. However, PNB and UPSUMCO had agreed to a conventional compensation, a relationship which does not require the presence of all the requisites under Article 1279. And PNB too had assigned all its rights as creditor to APT, including its rights under conventional compensation. The absence of the mutual creditor-debtor relation between the new creditor APT and UPSUMCO cannot negate the conventional compensation. Accordingly, APT, as the assignee of credit of PNB, had the right to set-off the outstanding obligations of UPSUMCO on the basis of conventional compensation before the condonation took effect on 3 September 1987.
The conclusions are clear. First. Between 27 August to 3 September 1987, APT had the right to apply payments from UPSUMCO's bank accounts maintained with PNB as repayment for the take-off loans and/or the operational loans. Considering that as of 30 June 1987, the total indebtedness of UPSUMCO as to the take-off loans amounted 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 UPSUMCO's bank accounts from 27 August to 3 September 1987 was very well less than the then outstanding
indebtedness for the take-off loans. It was only on 3 September 1987 that the take-off loans were condoned by APT, which lost only on that date too the right to apply payments from UPSUMCO's bank accounts to pay the take-off loans.
Second. After 3 September 1987, APT retained the right to apply payments from the bank accounts of UPSUMCO with PNB to answer for the outstanding indebtedness under the operational loan agreements. It appears that the amount of P17,773,185.24 was debited from UPSUMCO's bank accounts after 3 September. At the same time, it remains unclear what were the amounts of outstanding indebtedness under the operational loans at the various points after 3 September 1987 when the bank accounts of UPSUMCO were debited.
The Court of Appeals ordered the remand of the case to the trial court, on the premise that it was unclear how much APT was entitled to recover by way of counterclaim. It is clear that the amount claimed by APT by way of counterclaim--over 1.6 Billion
Pesos--is over and beyond what it can possibly be entitled to, since it is clear that the take-off loans were actually condoned as of 3 September 1987. At the same time, APT was still entitled to repayment of UPSUMCO's operational loans. It is not clear to what extent, if at all, the amounts debited from UPSUMCO's bank accounts after 3 September 1987 covered UPSUMCO's outstanding
indebtedness under the operational loans. Said amounts could be insufficient, just enough, or over and beyond what UPSUMCO actually owed, in which case the petitioner should be entitled to that excess amount debited after 3 September 1987. Because it is not evident from the voluminous records what was the outstanding balance of the operational loans at the various times post-September 3 UPSUMCO's bank accounts were debited, the remand ordered by the Court of Appeals is ultimately the wisest and fairest recourse.
WHEREFORE, the Second Motion for Reconsiderations are hereby GRANTED. The Decision of the Court of Appeals dated 29 February 1996 is hereby REINSTATED. No pronouncement as to costs.
SO ORDERED.
Puno, C.J., Quisumbing, and Brion, JJ., join the dissent of J. Carpio.
Ynares-Santiago, Corona, Chico-Nazario, Nachura, Leonardo-De Castro, and Peralta, JJ., concur.
Carpio, J., see dissenting opinion.
Austria-Martinez, J., join the dissent of J. Tinga in his opinion.
Carpio Morales, maintain his vote, join the dissent of J. Carpio
Velasco, Jr., with separate concurring opinion.
[1] See rollo, p. 820. In addition, on 14 February 1984, PNB assigned 30% of its credit with UPSUMCO to the Philippine Sugar Corporation (PHILSUCOR), in exchange for sugar bonds. Id., at 821-822.
[2] Covered by Transfer Certificates of Title Nos. T-16701 and T-16700.
[3] Rollo, p. 161.
[4] Rollo, p. 170.
[5] Records, pp. 328-337.
[6] See id. at 337.
[7] Id. at 328.
[8] Rollo, p. 822.
[9] Id. at 823.
[10] See Folder of Exhibits Vol. II for the Plaintiff, the document marked as "L".
[11] Records, pp. 743-744.
[12] Id. at 744.
[13] Records, pp. 18-25.
[14] Id. at 21.
[15] See "Amended Complaint", Records, pp. 43-50.
[16] Id. at 45, 46, 47, 49.
[17] Id. at 46.
[18] See id. at 102-103, 153.
[19] See id. at 103, 153.
[20] Id. at 154.
[21] Id. at 717.
[22] Id. at 721-727.
[23] Otherwise known as the parol evidence rule. The provision reads in part: "Evidence of written agreements--when the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and, therefore, there can be, between the parties and their successors-in-interest, no evidence of the terms of the agreement other than the contents of the writing"
[24] Penned by Judge Ismael O. Baldado.
[25] Records, p. 749.
[26] See id. at 749-751.
[27] Id. at 751-752.
[28] Rollo, pp. 169-170.
[29] Id. at 175.
[30] Rollo, p. 177.
[31] Supra note 11. Emphasis supplied.
[32] Rollo, pp. 837-838. Emphasis supplied.
[33] Id. at 175.
[34] See p. 4, Amended Complaint (RTC records, p. 46).
[35] See REVISED RULES OF COURT, Rule 130, Sec. 9.
[36] See CIVIL CODE, Art. 1359.
[37] Supra note 3.
[38] Rollo, p. 170-175.
[39] "The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void."
[40] See note 27.
[41]"Compensation shall take place when two persons, in their own right, are creditors and debtors of each other."
[42] Records, p. 751.
[43] See CIVIL CODE, Art. 1291.
[44] See Records, 749. See also Civil Code, Art. 1303.
[45] See CIVIL CODE, Art. 1301.
[46] "An assignment of credits and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475.
[47] CIVIL CODE, Art. 1627.
[48] See CIVIL CODE, Art. 1279.
[49] See A. TOLENTINO, IV THE CIVIL CODE, p. 366; citing 2 Castan 562. Art. 1282 allows that "the parties may agree upon the compensation of debts which are not yet due," a deviation from the requisite of compensation that "the two debts be due".
[50] Id. citing 2-I Ruggiero 229-231.
[51] Madecor v. Uy, 415 Phil. 348, 359 (2001),
[52] See CKH Industrial v. CA, 338 Phil. 837, 853 (1997); citing IV TOLENTINO, CIVIL CODE OF THE PHILIPPINES, 1985 ed., p. 368.
The following statement of facts are drawn from the Decision of the Court of Appeals Tenth Division dated 29 February 1996, as well as from the Separate Opinion to the Resolution of this Court dated 11 July 2007.
Petitioner United Planters Sugar Milling Co. (UPSUMCO) was engaged in the business of milling sugar. In 1974, 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 land[2] 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 financing the operations of the Company. The second set of loans, referred hereinafter as "operational loans," also contained setoff clauses relative to the application of payments from UPSUMCO's bank accounts. They were likewise secured by pledge contracts whereby UPSUMCO assigned to PNB all its sugar produce for PNB to sell and apply the proceeds to satisfy the indebtedness arising from the operational loans.
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 consisting of the operational loans, to wit:
(1) Trust Receipts dated August 26, 1987; February 5, 1987; and July 10, 1987;On 27 February 1987, through a Deed of Transfer,[5] PNB assigned to the Government its "rights, titles and interests" 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]
(2) Deed of Assignment By Way of Payment dated November 16, 1984 (Exh. 3 [PNB]; Exh. 12 [APT]; Record, p. 545);
(3) Two (2) documents of Pledge both dated February 19, 1987;
(4) Sugar Quedans (Exh. 13 to 16; Record, pp. 548 to 551);
(5) Credit Agreements dated February 19, 1987 (Exhs. "2" [PNB] & "4" [APT]; Record, pp. 541-544) and April 29, 1987 (Exh. "11" [APT]; Record, pp. 314-317).
(6) Promissory Notes dated February 20, 1987 (Exh. "17"; Record, p. 573); March 2, 1987 (Exh. "18"; Record, p. 574); March 3, 1987 (Exh. "19"; Record, p. 575); March 27, 1987; (Exh. "20"; Record, p. 576); March 30, 1987 (Exh. "21"; Record, p. 577); April 7, 1987 (Exh. "22"; Record, p. 578); May 22, 1987 (Exh. "23"; Record, p. 579); and July 30, 1987 (Exh. "24"; record p. 580).[4]
Thereafter, it is alleged that APT and UPSUMCO entered into talks concerning the disposal of UPSUMCO's mortgaged assets. The Decision stated that the parties then agreed to an "uncontested or `friendly foreclosure' of these mortgaged assets, in exchange for UPSUMCO's waiver of its right of redemption."[9] Soon, a Petition for Extrajudicial Foreclosure Sale dated 28 July 1987 was filed with the Ex-Officio Regional Sheriff of Dumaguete City, with PNB identified therein as "Mortgagee" and APT as "Assignee and Transferee of PNB's 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 take-off loans. The foreclosure sale was conducted on 27 August 1987, whereby APT purchased the auctioned properties for P450 Million.
Seven (7) days after the foreclosure sale, or on 3 September 1987, UPSUMCO executed a Deed of Assignment[11] wherein it assigned to APT its right to redeem the foreclosed properties, in exchange for or in consideration of APT "condoning any deficiency amount it may be entitled to recover from the Corporation under the Credit Agreement dated November 5, 1974, and the Restructuring Agreements[s] dated June 24 and December 10, 1982, and May 9, 1984, respectively, executed between [UPSUMCO] and PNB..." On even date, the Board of Directors of UPSUMCO 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 complaint[13] 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 therein that PNB and APT had illegally appropriated funds belonging to UPSUMCO, through the following means: (1) withdrawals made from the bank accounts opened by UPSUMCO beginning 27 August 1987 until 12 February 1990; (2) the application of the proceeds from the sale of the sugar of UPSUMCO beginning 27 August 1987 until 4 December 1987; (3) the payment from of the funds of UPSUMCO with PNB for the operating expenses of the sugar mill after 3 September 1987, allegedly upon the instruction of APT with the consent of PNB.
This complaint would be amended one month after it was filed. In the original complaint, it was alleged that "after September 3, 1987, [UPSUMCO] is entitle[d] to all the funds it deposited or being held by PNB in all its branches."[14] The original complaint also pinpointed 3 September 1987 as the general reckoning date after which the assets of UPSUMCO would be beyond reach of application by APT or PNB. However, petitioners then filed an amended complaint[15] where all citations of "3 September 1987" as a reference point were deleted,[16] It was claimed, this time, in the amended complaint that UPSUMCO was released from its rights and obligations due PNB and APT "after the foreclosure by PNB/APT."[17] Notably, several of the transactions in question had occurred after the foreclosure sale but before the Deed of Assignment, or within the dates 28 August to 3 September 1987.
Both APT and PNB claimed in their respective comments that the extrajudicial foreclosure sale was unconditional and mandatory under Presidential Decree No. 385.[18] They also specifically denied the allegation regarding the execution of the 3 September 1987 Deed of Assignment due to "lack of knowledge or information sufficient to form a 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 claim arose."[20]
APT likewise filed a counterclaim, seeking the recovery of over 1.6 Billion Pesos from UPSUMCO. The amount was apparently determined with the calculation that there was no condonation at all in favor of UPSUMCO, and said sum represented the total amount of indebtedness less the 450 Million Pesos for which the foreclosed properties were sold.
During the course of trial, APT (though not PNB) would eventually admit the existence of the 3 September 1987 Deed of
Assignment.[21] However, APT argued that such Deed could not
retroact to 27 August 1987,[22] contrary to the claim of UPSUMCO, citing Section 7, Rule 130 of the Rules of Court.[23]
The action was eventually decided by the RTC in favor of UPSUMCO. The RTC Decision[24] is rooted on the following assumptions:
(1) The obligation of UPSUMCO with PNB under the initial creditor-debtor relation was "novated by the subrogation of creditors, i.e., [APT]."[25]
(2) The bank accounts maintained by UPSUMCO with PNB created a creditor-debtor relation, in addition to the same relation (albeit in reversed identities) between the same parties by reason of the loan agreements. However, whatever right PNB had to set-off the outstanding indebtedness from UPSUMCO'S bank accounts ceased the moment PNB assigned its rights to APT on 27 February 1987. Thus, only APT could be considered as the foreclosing creditor.[26]
(3) Assuming there remained any deficiency claim in favor of PNB or APT, the same was condoned by the Deed of Assignment dated 3 September 1987. The RTC considered APT's argument that the Deed of Assignment could not be deemed to retroact to 27 August 1987. It ruled, however, that "[a]s of the date of the foreclosure on August 27, 1987, [UPSUMCO] was a creditor as to its deposits and proceeds of sugar sale with the defendant PNB. Neither [PNB] nor [APT] cannot [sic] simply appropriate the things of plaintiff. If at all, such deficiency claim did exist and subsist, foreclosing creditor should have initiated proper actions to recover the same."[27]
The RTC ordered thus, as follows:
Respondents appealed the RTC decision to the Court of Appeals, arguing in main that the trial court erred in failing to hold UPSUMCO liable for the credit agreements not covered by the Deed of Assignment; and for not finding the application of the proceeds in UPSUMCO's bank accounts as in accordance with the loan documents executed by UPSUMCO. In its Decision, the Court of Appeals found that only the "take-off" loans and not the operational loans were condoned by the Deed of Assignment. The appellate court explained that such fact was made plain by the Deed of Assignment itself, which expressly stipulated the particular loan agreements which were covered therein.[28] As such, the Court of Appeals concluded that APT was "entitled to have the funds from UPSUMCO'Ss savings accounts with [PNB] transferred to its own account, to the extent of UPSUMCO'Ss remaining obligations [under the operational loans], less the amount condoned in the Deed of Assignment and the P450,000,000.00 proceeds of the foreclosure."[29] At the same time, the Court of Appeals ordered a remand of the case to the RTC for computation of the parties' remaining outstanding balances. Accordingly, the Court of Appeals disposed of the petition in this manner:
- Both defendant Philippine National Bank and Asset Privatization Trust are ordered jointly and severally to pay to plaintiff the following:
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 defendant PNB to APT in credit memo dated August 27, 1987 (Exh. "QQQ"), plus twelve percent (12%) interest per annum computed from date of filing of the complaint;
b) The sum of FOURTEEN MILLION THREE HUNDRED SIXTEEN THOUSAND FIVE HUNDRED NINETY THREE & 29/100 (P14,316,593.29) PESOS, representing the total swum of money withdrawn from Savings Account Nos. 5176994, 5188305, 5192639, 5197762, and 5208575 of plaintiff and transferred by defendant PNB to defendant APT as shown in debit memo dated August 27, 1987 (Exh. "WWW-1"), plus twelve percent (12%) interest per annum computed from date of filing of the complaint;
c) The sum of EIGHTEEN MILLION EIGHT HUNDRED NINETY SIX THOUSAND SEVEN HUNDRED FIFTY THREE & 63/100 (P18,896,753.63) PESOS, representing the proceeds of the sale of plaintiff's sugar credited by defendant PNB in favor of defendant APT as shown in credit memo dated August 28, 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 plaintiff's 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 date of filing of the complaint;
e) the sum of FOUR MILLION NINE THOUSAND FOUR HUNDRED THREE & 37/100 (P4,009,403.37) PESOS, representing the proceeds of sale of plaintiff's sugar credited by defendant PNB in favor of defendant APT as shown by a credit memo dated September 15, 1987 (Exh. "ZZ"), plus twelve percent (12%) interest per annum computed from date of filing of the complaint;
f) the sum of THREE HUNDRED FORTY SIX THOUSAND FIVE HUNDRED FIRTY NINE & 83/100 (P346,559.83) PESOS, representing final differential of the sale of plaintiff's sugar for the year 1985-86 which was credited by defendant PNB in favor or defendant APT as shown in a credit memo dated December 4, 1987 (Exh. "AAA"), plus twelve percent (12%) interest per annum computed from date of filing of the complaint;
g) the sum of ONE MILLION (P1,000,000.00) PESOS, representing partial payments to the 6,399.89 piculs of export "A" sugar credited by defendant PNB in favor of defendant APT as shown by a credit memo dated December 8, 1987, plus interest at twelve (12%) percentum per annum computed from date of filing of the complaint (Exh. "BBB").
- Defendant Philippine National Bank is ordered to pay singly to plaintiff the following:
a) the sum of ELEVEN MILLION EIGHT HUNDRED THIRTY FOUR THOUSAND FOUR HUNDRED NINETY EIGHT & 45/100 (P11,834,498.45) PESOS, corresponding to the payment made by defendant PNB to the Philippine Sugar Corporation as shown in Official Receipt No. 0160 dated September 2, 1987 (Exh. "LLL"), plus interest at twelve percent (12%) per annum computed from date of filing of the 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 defendant PNB to Philippine Sugar Corporation as shown in Official Receipt No. 0109 dated October 20, 1987 (Exh. "LLL-1"), plus interest at twelve percent (12%) computed from date of filing of the complaint;
c) the sum of THREE HUDRED FIRTY TWO THOUSAND EIGHT HUNDRED SIXTY NINE & 28/100 (P352,869.28) PESOS, corresponding to the credit balance as of November 26, 1986 of plaintiff's Account No. 0120-011088-702 with defendant PNB (Escolta Branch ), plus twelve percent (12%) interest per annum computed from date of the filing of the complaint;
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, 5208578 of plaintiff with defendant PNB as of February 13, 1990 plus twelve percent (12%) interest per annum computed from date of filing of the complaint.
- Defendant Asset Privatization Trust is hereby ordered to pay singly to plaintiff the following:
e) the sum of THREE HUNDRED NINETY SEVEN THOUSAND NINE HUNDRED SEVENTY SIX & 11/100 (P397,976.11) PESOS, representing the total balance of plaintiff's Savings Account No. 1196 with the Rural Bank of Bais, Inc., and transferred to account of defendant APT plus twelve (12%) percent per annum computed from date of filing of the complaint;
f) the sum of FIFTEEN THOUSAND NINE HUNDRED EIGHTY SEVEN & 77/100 (P15,987.77) PESOS, representing the total balance of plaintiff's Savings Account No. 3642 with the Rural Bank of Manjuyod, Inc., which was transferred to defendant APT, plus interest at twelve percent (12%) per annum computed from date of filing of the complaint;
g) the sum of FIVE MILLION THREE HUDNRED FIVE THOUSAND SEVEN HUNDRED FIFTY SIX & 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 annum computed from date of filing of the complaint.
- Defendant Philippine National Bank and Asset Privatization Trust are hereby ordered to pay jointly and severally to pay attorney's fees the sum equivalent of twenty (20%) percent of the total sum they are ordered to pay jointly and severally;
- Defendant Philippine National Bank is hereby ordered to pay singly [sic] attorney's fees equivalent to twenty (20%) percent of the total sum it is ordered to pay singly;
- Defendant Asset Privatization Trust is hereby ordered to pay singly [sic] attorney's fees equivalent to twenty (20%) percent [of] the total sum it is ordered to pay singly;
- 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;
- Both defendants are hereby ordered jointly and severally to pay costs."
WHEREFORE, the appealed decision is hereby SET ASIDE and judgment is herein rendered declaring that the subject Deed of assignment has NOT condoned all of UPSUMCO's obligations to APT as assignee of PNB.The Court of Appeals was in turn reversed by this Court in a Decision dated 28 November 2006. The Court then held that (1) both "operational loans" and "take-off loans" had been condoned by the Deed of Assignment; and (2) the Deed of Assignment dated 3 September 1987 had retroacted to the date of the foreclosure sale on 28 August 1987. Respondents filed a Motion for Reconsideration, but the Court, by a 3-2 vote, reaffirmed its earlier decision through a Resolution dated 11 July 2007. However, in the 2007 Resolution, the Court acknowledged that only the "take-off loans" had been condoned by the Deed of Assignment. Nonetheless, it was held that respondents had failed to establish that there still remained outstanding obligations due from UPSUMCO with respect to the take-off loans.
To determine how much APT is entitled to recover on its counterclaim, it is hereby required to render an accounting before the Regional Trial Court of the total payments made by UPSUMCO on its obligations including the following amounts:
(1) the sum seized from it by APT whether in cash or in kind (from UPSUMCO's bank deposits as well as sugar and molasses proceeds):
(2) the total obligations covered by the following documents:
(a) Credit Agreement dated November 5, 1974 (Exh. "1": Record, p. 528); and(3) the P450,000,000.00 proceeds of the foreclosure.
(b)
(c) The Restructuring Agreements dated: (i) June 24, 1982. (ii) December 10, 1982, and (iii) May 9, 1984; and
Should there be any deficiency due APT after deducting the foregoing amounts from UPSUMCO's total obligation in the amount of P2,137,076.433.15, the latter is hereby ordered to pay the same. However, if after such deduction there should be any excess payment, the same should be turned over to UPSUMCO.
The Regional Trial Court is hereby directed to receive APT's accounting and thereafter, to render the necessary order for the proper disposal of this case in accordance with the foregoing findings and disposition.
Costs against appellees.
SO ORDERED.[30]
Respondents filed a Second Motion for Reconsideration. After due deliberation, the Court en banc accepted the referral to it of the Second Motion for Reconsideration.
II.
This much is clear. The Deed of Assignment condoned only the take-off loans, and not the operational loans. The Deed of Assignment in its operative part provides, thus:
That United Planter[s] Sugar Milling Co., Inc. (the "Corporation") - (pursuant to a resolution passed by its board of Directors on September 3, 1987, and confirmed by the Corporation's stockholders in a stockholders' Meeting held on the same (date), for and in consideration of the Asset Privatization Trust ("APT") condoning any deficiency amount it may be entitled to recover from the Corporation under the Credit Agreement dated November 5, 1974 and the Restructuring Agreement[s] 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 National Government, by PNB, hereby irrevocably sells, assigns and transfer to APT its right to redeem the foreclosed real properties covered by Transfer Certificates of Title Nos. T-16700 and T-16701.Whereas, UPSUMCO'S Board Resolution of 3 September 1987, authorizing its President Joaquin Montenegro to sign the Deed of Assignment, reads in full:
IN WITNESS WHEREOF, the Corporation has caused this instrument to be executed on its behalf by Mr. Joaquin S. Montenegro, thereunto duly authorized, this 3rd day of September, 1987.[31]
RESOLVED, That in consideration of the Asset Privatization Trust ("APT") condoning any deficiency amount 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, and May 9, 1984, respectively, executed by the Corporation and PNB, the Corporation is hereby authorized to irrevocably sell, assign, and transfer to APT the Corporation's right to redeem the foreclosed real properties covered by Transfer Certificates of Title Nos. T-16700 and T-16701;This notwithstanding, the RTC Decision was based on the premise that all of UPSUMCO's loans were condoned in the Deed of Assignment. In contrast, the Court of Appeals acknowledged that only the take-off loans were condoned, and thus ruled that APT was entitled to have the funds from UPSUMCO's accounts transferred to its own account "to the extent of UPSUMCO's remaining obligation, less the amount condoned in the Deed of Assignment and the P450,000,000.00 proceeds of the foreclosure."[33]
RESOLVED, Further that Mr. Joaquin S. Montenegro, the President-Director of the Corporation, be and is hereby authorized for and in behalf of the Corporation to make, sign, execute and/or deliver any and all such agreements, undertakings, or other documents, as well as to perform any and all such acts as may be necessary to implement the foregoing resolution;
RESOLVED, FINALLY That all actions taken by Mr. Joaquin S. Montenegro pursuant to the foregoing resolution be, and the same are hereby confirmed and ratified to be binding on this Corporation.[32]
The challenged acts of respondents all occurred on or after 27 August 1987, the day of the execution sale. UPSUMCO argues that after that date, respondents no longer had the right to collect monies from the PNB bank accounts which UPSUMCO had opened and maintained as collateral for its operational and take-off loans. UPSUMCO is wrong. After 27 August 1987, there were at least two causes for the application of payments from UPSUMCO's PNB accounts. The first was for the repayment of the operational loans, which were never condoned. The second was for the repayment of the take-off loans which APT could obtain until 3 September 1987, the day the condonation took effect.
A.
The error of the Court's earlier rulings, particularly the Resolution dated 11 July 2007, was in assuming that the non-condonation of the operational loans was immaterial to the application of payments made in favor of APT from UPSUMCO's PNB accounts that occurred after 27 August 1987. For as long as there remained outstanding obligations due to APT (as PNB's successor-in-interest), 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 take-off loans or the operational loans.
Petitioner filed with the RTC the complaint which alleged that "among the conditions of the 'friendly foreclosure' are: (A) That all the accounts of [United Planters] are condoned, including the JSS notes at the time of the public bidding."[34] It was incumbent on petitioner, not respondents, to prove that particular allegation in its complaint. Was petitioner able to establish that among the conditions of the "friendly foreclosure" was that "all its accounts are condoned"? It did not, as it is now agreed by all that only the take-off loans were condoned.
This point is material, since the 2007 Resolution negated the finding that only the take-off loans were condoned by faulting respondents for failing to establish that there remained outstanding operational loans on which APT could apply payments from UPSUMCO's bank accounts. By the very language of the Deed of Assignment, it was evident that UPSUMCO's allegation in its complaint that all of its accounts were condoned was not proven. Even if neither PNB nor APT had filed an answer, there would have been no basis in fact for the trial court to conclude that all of UPSUMCO's loans were condoned (as the RTC in this case did), or issue reliefs as if all the loans were condoned (as the 2007 Resolution did).
As noted earlier, APT had the right to apply payments from UPSUMCO's bank accounts, by virtue of the terms of the operational loan agreements. Considering that UPSUMCO was spectacularly unable to repay the take-off loans it had earlier transacted, it simply beggars belief to assume that it had fully paid its operational loans. Moreover, APT had the right to obtain payment of the operational loans by simply applying payments from UPSUMCO's 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 UPSUMCO's outstanding loans without hassle.
B.
There is no question that the Deed of Assignment condoned the outstanding take-off loans of UPSUMCO due then to APT. The Deed of Assignment was executed on 3 September 1987, as was the UPSUMCO Board Resolution authorizing its President to sign the Deed of Assignment. However, despite the absence of any terms to that effect in the Deed of Assignment, it is UPSUMCO's position that the condonation actually had retroacted to 27 August 1987. The previous rulings of the Court unfortunately upheld that position.
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 UPSUMCO's 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 successor-in-interest of PNB, had the right to seize any amounts deposited in UPSUMCO's bank accounts as long as UPSUMCO remained indebted under the loan agreements. Since UPSUMCO was released from its take-off loans only on 3 September 1987, as indicated in the Deed of Assignment, then APT's application of payments is perfectly legal.
Hence, UPSUMCO has strained to argue that notwithstanding the absence of any stipulation in any agreement to the effect, the take-off loans were actually condoned as of 27 August 1987. In fact, in its original complaint, UPSUMCO had effectively admitted that any application of payments made between 27 August and 3 September 1987 were valid, when it originally alleged infirmity only as to the post-September 3 payments. The subsequent amendment of the complaint should count in UPSUMCO's favor, yet it does evince that 27 August 1987 as the date of condonation is hardly the instinctive position.
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 UPSUMCO's outstanding obligations in exchange for UPSUMCO's waiver of its right to redeem the foreclosed property. However, no such agreement to that effect was ever committed to writing or presented in evidence. The written agreement actually set forth was not as contended by UPSUMCO. For one, not all of the outstanding loans were condoned by APT since the take-off loans were left extant. For another, the agreement itself did not indicate any date of effectivity other than the date of the execution of the agreement, namely 3 September 1987.
It is argued that the use of the word "any" in "any deficiency amount" sufficiently establishes the retroactive nature of the condonation. The argument hardly convinces. The phrase "any deficiency amount" could refer not only to the remaining deficiency amount after the 27 August foreclosure sale, but also to the remaining deficiency amount as of 3 September 1987, when the Deed of Assignment was executed and after APT had exercised its right as creditor to apply payments from petitioner's PNB accounts. The Deed of Assignment was not cast in intractably precise terms, and both interpretations can certainly be accommodated.
It is in that context that the question of parol evidence comes into play. The parol evidence rule states that generally, when the terms of an agreement have been reduced into writing, it is considered as containing all the terms agreed upon and there can be no evidence of such terms other than the contents of the written agreement.[35] Assuming that the Deed of Assignment failed to accurately reflect an intent of the parties to retroact the effect of condonation to the date of the foreclosure sale, none of the parties, particularly UPSUMCO, availed of its right to seek the reformation of the instrument to the end that such true intention may be expressed.[36] As there is nothing in the text of Deed of Assignment that clearly gives retroactive effect to the condonation, the parol evidence rule generally bars any other evidence of such terms other than the contents of the written agreement, such as evidence that the said Deed had retroactive effect.
It is argued that under Section 9, Rule 130, a party may present evidence to modify, explain or add to the terms of the written agreement if it is put in issue in the pleading, "[t]he failure of the written agreement to express the true intent and the agreement of the parties thereto."
Petitioner did not exactly state in its Amended Complaint that the condonation effected in the Deed of Assignment had retroacted to the date of the foreclosure sale. What petitioner contended in its amended complaint was that the Deed of Assignment "released and discharged plaintiff from any and all obligations due the defendant PNB and defendant APT;" that "after the foreclosure by PNB/APT plaintiff is entitled to all the funds it deposited or being held by PNB in all its branches;" and that "among the conditions of the `friendly foreclosure' are that all the accounts of the plaintiff are condoned." It remains unclear whether petitioner had indeed alleged in its Amended Complaint that the Deed of Assignment executed on 3 September 1987 had retroactive effect as of the date of the foreclosure sale, or on 27 August 1987. If petitioner were truly mindful to invoke the exception to the parol evidence rule and intent on claiming that the condonation had such retroactive effect, it should have employed more precise language to that effect in their original and amended complaints.
But even assuming that petitioner in the Amended Complaint did put in issue in its pleading that the condonation effected in the Deed of Assignment had retroacted to 27 August 1987, it still was incumbent upon it to establish such claim through evidence. There is simply no evidence that unequivocally establishes such a retroactive effect. Blame is pinned on respondents for supposed failure to object to the presentation of parol evidence during the trial, but it is 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. Allegations are evidence. So there was no evidence to be objected to.
It would be unsurprising if in truth, these transfers were undertaken by PNB and APT on 27 and 28 August 1987 in order to alleviate the financial injury they knew would be sustained with the impending execution of the Deed of Assignment, a document designed to make the Government bear the loss sustained by a private corporation. As a 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, but it was benefit nonetheless.
IV.
Let us discuss briefly by what right APT could have applied payments from the bank accounts maintained by UPSUMCO with the PNB, under the operational loans and the take-off loans. As earlier stated, the credit agreement that established the take-off loans required UPSUMCO to open a deposit account with PNB, from which the bank was entitled to apply to the payment of any unpaid obligations of any monies, securities which may have been deposited under the account.[37] As found by the Court of Appeals, that right to apply payments from UPSUMCO's bank accounts was established by the operational loans as well. The appellate court discussed as follows:
It bears emphasis that plaintiff does not dispute that it incurred the obligations secured by the latter mentioned documents which embody the following stipulations:PNB subsequently assigned its rights as creditor of UPSUMCO to APT. At the time of the challenged transactions, APT was the creditor in main of UPSUMCO. The RTC recognized this, yet concluded that APT as creditor was not entitled to "simply appropriate the things of the plaintiff" following Article 2088[39] of the Civil Code, and assuming that such deficiency claim did exist, "the foreclosing creditor should have initiated proper actions to recover the same."[40] Let us analyze this claim.
(a) Credit Agreement dated February 19, 1987 (Exhs. "2" [PNB] & "4" [APT]: supra):
"7. The CLIENTS shall open and/or maintain a deposit account with the BANK, and the BANK shall have the right to apply any amount on deposit with it or with any of its subsidiaries or affiliates to the payment of any amount past due hereunder or under any other credit accommodation granted to the CLIENTS by the BANK, including amounts due for advances made by the BANK for insurance premiums, taxes, fees and other charges."(b) Deed of Assignment by Way of Payment dated November 16, 1984:
"For and in consideration of the 1984/85 operational loan of THIRTY NINE MILLION FIVE HUNDRED SIXTY 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:This Assignment is executed as a mode of payment for application of the following obligations of the Assignor with and in favor of the Assignee, viz:
"Assignor's expected receivables arising from the sale/disposition of (i) its net share (estimated at 344,640.89 pps) of milled sugar: and (ii) its molasses thereto, both beginning with the 1984/85 Crop year, and every year thereafter, until the assignor's obligations to the Assignee hereunder are paid in full.
"(a) The payment of all amounts due to the Assignee arising from or in connection with the 1984/85 Milling 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 obligations have been contracted before, during or after the execution of this instrument;
"(c) Interest, fees, penalties, charges and other obligations now due and owing as well as those that may from time to time become due and owing to the Assignee in accordance with the terms and conditions of the covering documents executed by the Assignor in favor of the Assignee."
(c) Promissory Notes dated February 20, 1987 (Exh. "17"; supra); March 2, 1987 (Exh. "18"; supra); March 3, 1987 (Exh. "19"; supra); March 27, 1987 (Exh. "20"; supra); March 30, 1987 (Exh. "21"; supra); April 7, 1987 (Exh. "22";) supra); May 22, 1987 (Exh. "23"; supra); and July 30, 1987 (Exh. "24"; supra):
In the event that this note is not paid at maturity or when the same becomes due under any of the provisions hereof, I/we hereby authorize the Bank at its option and without notice, to apply to the payment of this note, any and all monies, securities and things of value which may be in its hands on deposit; or otherwise belongings to me/us and for this purpose. I/we hereby, jointly and severally, irrevocably constitute and appoint the BANK to be my/our true Attorney-in-Fact with full power and authority for me/us and in my/our name and behalf and without prior notice, to negotiate, sell and transfer any moneys. Securities and things of value which it may hold, by public or private sale and apply the proceeds thereof to the payment of this note.(d) Credit agreement dated April 29, 1987 (Exh. 11 CAPT] supra):
(7) The Client (UPSUMCO) shall open and/or maintain a deposit account with the Bank and the Bank shall have the right to apply any amount on deposit with it or with any of its subsidiaries or affiliates to the payment of any amount past due hereunder or under any other credit accommodations granted to the Clients by the Bank, including amounts due for advances made by the Bank for insurance premiums, taxes, fees and other charges.(e) Contract of Pledge dated February 19, 1987:
8. Whenever the Clients are carried with or indebted to the Bank for more than one account, the Bank shall have the right to apply to any account it chooses, regardless of whether one account is more onerous than the others, any and all payments that shall be made by or shall be received from the Clients or from other sources for and in behalf 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 which may thereafter be executed by the Clients unless expressly waived by the Bank in writing.
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 guaranteed and secured by a pledge of the Pledgor's property/ies hereunder mentioned:
NOW, THEREFORE, for and in consideration of the foregoing premises and mutual conditions hereunder stipulated, the Pledgor hereby binds itself, as follows:
1. To secure the payment by the Pledgor to the Pledgee of the former's obligations to the latter in the initial amount of PHILIPPINE PESOS: NINE MILLION ONLY (P9,000,000.00) plus interest and charges thereon as well as any extension/renewal/regrant of any and all accommodations extended by the Pledgee to the Pledgor whether direct or indirect, principal or secondary, of whatever kind and nature whether such obligations have been contracted before, during or after the execution of this pledge, the Pledgor hereby conveys by way of pledge to the Pledgee, its successors and assigns, the following personal property/ies:"Sugar quedans sufficient to secure payment of above, computed at 80% of their market value but not exceeding the following limits:"A" Quedans - P400 per piculof which the Pledgor is the absolute owner free from all liens, provided that availments against the line shall be limited to the actual operational requirements of the mill as certified by the PNB Comptroller. Further, that the Bank is authorized to dispose of the Quedans one month after maturity of the loan.
"B" Quedans - P240 per picul
"C" Quedans - P120 per picul
"D" Quedans - P120 per picul
x x x
"6. It is also a condition of this pledge that if the Pledgor shall pay when due the obligations secured hereby and any all other loans or accommodations which the pledgor may owe the pledgee, this Pledge shall automatically become null and void. Otherwise, this Pledge shall remain in full force and effect and the Pledgee shall dispose of the property/ies herein pledged in the manner provided for in Article 2112 of the Civil Code of the Republic of the Philippines.
The provisions quoted above are clear and leave no room for interpretation - the Bank has all the right to apply the proceeds of UPSUMCO's deposits with it and its affiliated banks, as well as the proceeds of the sale of UPSUMCO's sugar and molasses, in satisfaction of UPSUMCO's obligations. This right was never waived by PNB and was subsequently transferred to APR by virtue of the Deed of Transfer executed between them (Exh. MM). Neither did APT ever waive such right. Thus, the same should be considered as valid and binding between it and UPSUMCO.[38]
The RTC was correct in observing that with the take-off loans and the corresponding creation of the bank accounts, there existed a mutual creditor-debtor relationship between PNB and UPSUMCO. Such would allow the set-off or compensation of the latter's outstanding obligations to the former from the latter's bank accounts, congruently with Article 1278[41] of the Civil Code, and as expressly stipulated in the take-off loan agreements. PNB then assigned all its rights, titles and interests over UPSUMCO to APT. As between UPSUMCO and APT or PNB and APT, there no longer existed the mutual creditor-debtor relationship. The RTC thus concluded that since PNB was no longer a debtor of UPSUMCO, the bank no longer had the right to set-off 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]
It is clear though APT had a right to go after the bank deposits of UPSUMCO, in its capacity as the creditor of the latter. The RTC had claimed that by virtue of PNB's Deed of Assignment, there took place conventional subrogation 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 have taken place herein since such requires "the consent of the original parties and of the third person"[45], and there is no evidence that the consent of debtor UPSUMCO was secured when PNB assigned its rights to APT. Moreover, the assignment by PNB to APT arose by mandate of law and not the volition of the parties.
Even if conventional subrogation did not take place, there was still a perfected assignment of credit as between PNB and APT, under Article 1624[46] of the Civil Code. The assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge or preference.[47] By virtue of the assignment of credit, APT was entitled to pursue the rights and remedies granted to the previous creditor, PNB.
It might seem that APT has no right to set-off payments with UPSUMCO for under Article 1279 (1), it is necessary for compensation that the obligors "be bound principally, and that he be at the same time a principal creditor of the other."[48] There is, concededly, no mutual creditor-debtor relation between APT and UPSUMCO. However, we recognize the concept of conventional compensation, defined as occurring "when the parties agree to compensate their mutual obligations even if some requisite is lacking, such as that provided in Article 1282."[49] It is intended to eliminate or overcome obstacles which prevent ipso jure extinguishment of their obligations.[50] Legal compensation takes place by operation of law when all the requisites are present, as opposed to conventional compensation which takes place when the parties agree to compensate their mutual obligations even in the absence of some requisites.[51] The only requisites of conventional compensation are (1) that each of the parties can dispose of the credit he seeks to compensate, and (2) that they agree to the mutual extinguishment of their credits.[52]
The right of PNB to set-off payments from UPSUMCO arose out of conventional compensation rather than legal compensation, even though all of the requisites for legal compensation were present as between those two parties. The determinative factor is the mutual agreement between PNB and UPSUMCO to set-off payments. Even without an express agreement stipulating compensation, PNB and UPSUMCO would have been entitled to set-off of payments, as the legal requisites for compensation under Article 1279 were present.
As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB and UPSUMCO ceased to exist. However, PNB and UPSUMCO had agreed to a conventional compensation, a relationship which does not require the presence of all the requisites under Article 1279. And PNB too had assigned all its rights as creditor to APT, including its rights under conventional compensation. The absence of the mutual creditor-debtor relation between the new creditor APT and UPSUMCO cannot negate the conventional compensation. Accordingly, APT, as the assignee of credit of PNB, had the right to set-off the outstanding obligations of UPSUMCO on the basis of conventional compensation before the condonation took effect on 3 September 1987.
V.
The conclusions are clear. First. Between 27 August to 3 September 1987, APT had the right to apply payments from UPSUMCO's bank accounts maintained with PNB as repayment for the take-off loans and/or the operational loans. Considering that as of 30 June 1987, the total indebtedness of UPSUMCO as to the take-off loans amounted 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 UPSUMCO's bank accounts from 27 August to 3 September 1987 was very well less than the then outstanding
indebtedness for the take-off loans. It was only on 3 September 1987 that the take-off loans were condoned by APT, which lost only on that date too the right to apply payments from UPSUMCO's bank accounts to pay the take-off loans.
Second. After 3 September 1987, APT retained the right to apply payments from the bank accounts of UPSUMCO with PNB to answer for the outstanding indebtedness under the operational loan agreements. It appears that the amount of P17,773,185.24 was debited from UPSUMCO's bank accounts after 3 September. At the same time, it remains unclear what were the amounts of outstanding indebtedness under the operational loans at the various points after 3 September 1987 when the bank accounts of UPSUMCO were debited.
The Court of Appeals ordered the remand of the case to the trial court, on the premise that it was unclear how much APT was entitled to recover by way of counterclaim. It is clear that the amount claimed by APT by way of counterclaim--over 1.6 Billion
Pesos--is over and beyond what it can possibly be entitled to, since it is clear that the take-off loans were actually condoned as of 3 September 1987. At the same time, APT was still entitled to repayment of UPSUMCO's operational loans. It is not clear to what extent, if at all, the amounts debited from UPSUMCO's bank accounts after 3 September 1987 covered UPSUMCO's outstanding
indebtedness under the operational loans. Said amounts could be insufficient, just enough, or over and beyond what UPSUMCO actually owed, in which case the petitioner should be entitled to that excess amount debited after 3 September 1987. Because it is not evident from the voluminous records what was the outstanding balance of the operational loans at the various times post-September 3 UPSUMCO's bank accounts were debited, the remand ordered by the Court of Appeals is ultimately the wisest and fairest recourse.
WHEREFORE, the Second Motion for Reconsiderations are hereby GRANTED. The Decision of the Court of Appeals dated 29 February 1996 is hereby REINSTATED. No pronouncement as to costs.
SO ORDERED.
Puno, C.J., Quisumbing, and Brion, JJ., join the dissent of J. Carpio.
Ynares-Santiago, Corona, Chico-Nazario, Nachura, Leonardo-De Castro, and Peralta, JJ., concur.
Carpio, J., see dissenting opinion.
Austria-Martinez, J., join the dissent of J. Tinga in his opinion.
Carpio Morales, maintain his vote, join the dissent of J. Carpio
Velasco, Jr., with separate concurring opinion.
[1] See rollo, p. 820. In addition, on 14 February 1984, PNB assigned 30% of its credit with UPSUMCO to the Philippine Sugar Corporation (PHILSUCOR), in exchange for sugar bonds. Id., at 821-822.
[2] Covered by Transfer Certificates of Title Nos. T-16701 and T-16700.
[3] Rollo, p. 161.
[4] Rollo, p. 170.
[5] Records, pp. 328-337.
[6] See id. at 337.
[7] Id. at 328.
[8] Rollo, p. 822.
[9] Id. at 823.
[10] See Folder of Exhibits Vol. II for the Plaintiff, the document marked as "L".
[11] Records, pp. 743-744.
[12] Id. at 744.
[13] Records, pp. 18-25.
[14] Id. at 21.
[15] See "Amended Complaint", Records, pp. 43-50.
[16] Id. at 45, 46, 47, 49.
[17] Id. at 46.
[18] See id. at 102-103, 153.
[19] See id. at 103, 153.
[20] Id. at 154.
[21] Id. at 717.
[22] Id. at 721-727.
[23] Otherwise known as the parol evidence rule. The provision reads in part: "Evidence of written agreements--when the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and, therefore, there can be, between the parties and their successors-in-interest, no evidence of the terms of the agreement other than the contents of the writing"
[24] Penned by Judge Ismael O. Baldado.
[25] Records, p. 749.
[26] See id. at 749-751.
[27] Id. at 751-752.
[28] Rollo, pp. 169-170.
[29] Id. at 175.
[30] Rollo, p. 177.
[31] Supra note 11. Emphasis supplied.
[32] Rollo, pp. 837-838. Emphasis supplied.
[33] Id. at 175.
[34] See p. 4, Amended Complaint (RTC records, p. 46).
[35] See REVISED RULES OF COURT, Rule 130, Sec. 9.
[36] See CIVIL CODE, Art. 1359.
[37] Supra note 3.
[38] Rollo, p. 170-175.
[39] "The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void."
[40] See note 27.
[41]"Compensation shall take place when two persons, in their own right, are creditors and debtors of each other."
[42] Records, p. 751.
[43] See CIVIL CODE, Art. 1291.
[44] See Records, 749. See also Civil Code, Art. 1303.
[45] See CIVIL CODE, Art. 1301.
[46] "An assignment of credits and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475.
[47] CIVIL CODE, Art. 1627.
[48] See CIVIL CODE, Art. 1279.
[49] See A. TOLENTINO, IV THE CIVIL CODE, p. 366; citing 2 Castan 562. Art. 1282 allows that "the parties may agree upon the compensation of debts which are not yet due," a deviation from the requisite of compensation that "the two debts be due".
[50] Id. citing 2-I Ruggiero 229-231.
[51] Madecor v. Uy, 415 Phil. 348, 359 (2001),
[52] See CKH Industrial v. CA, 338 Phil. 837, 853 (1997); citing IV TOLENTINO, CIVIL CODE OF THE PHILIPPINES, 1985 ed., p. 368.