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Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 126890               April 2, 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 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 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;

(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

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

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 ₱450 Million.

Seven (7) days after the foreclosure sale, or on 3 September 1987, UPSUMCO executed a Deed of Assignment¹¹ 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 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 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 complaint¹⁵ 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 Decision²⁴ 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:

1. 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 (₱46,987,459.49) 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 (₱14,316,593.29) 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 (₱18,896,753.63) 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 (₱3,323,647.48) 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 (₱4,009,403.37) 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 (₱346,559.83) 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 (₱1,000,000.00) 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").

2). 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 (₱11,834,498.45) 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 (₱29,572,946.50) 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 (₱352,869.28) 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 (₱34,028.29) 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.

3. 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 (₱397,976.11) 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 (₱15,987.77) 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 (₱5,305,756.22) 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.

4. 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;

5. 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;

6. 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;

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 (₱500,000.00) PESOS;

8. Both defendants are hereby ordered jointly and severally to pay costs."

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 ₱450,000,000.00 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:

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.

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

(b)

(c) The Restructuring Agreements dated: (i) June 24, 1982. (ii) December 10, 1982, and (iii) May 9, 1984; and

(3) the ₱450,000,000.00 proceeds of the foreclosure.

Should there be any deficiency due APT after deducting the foregoing amounts from UPSUMCO’s total obligation in the amount of ₱2,137,076.433.15, 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

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.

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.

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

Whereas, UPSUMCO’S Board Resolution of 3 September 1987, authorizing its President Joaquin Montenegro to sign the Deed of Assignment, reads in full:

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;

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

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 ₱450,000,000.00 proceeds of the foreclosure."³³

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 ₱2.1 Billion to ₱1.6 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:

(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:

"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.

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:

"(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 (₱39,569,000.00);

"(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.1avvphi1 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.

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.

(e) Contract of Pledge dated February 19, 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 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 (₱9,000,000.00) 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 - ₱400 per picul

"B" Quedans - ₱240 per picul

"C" Quedans - ₱120 per picul

"D" Quedans - ₱120 per picul

of 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.

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

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 2088³⁹ 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.

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 1278⁴¹ 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 1624⁴⁶ 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.⁵²1avvphi1

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 ₱2,137,076,433.15, 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 ₱80,200,806.41 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 ₱17,773,185.24 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.

DANTE O. TINGA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice

LEONARDO A. QUISUMBING Associate Justice	CONSUELO YNARES-SANTIAGO Associate Justice
ANTONIO T. CARPIO Associate Justice	(On Official Leave) MA. ALICIA AUSTRIA-MARTINEZ Associate Justice
RENATO C. CORONA Associate Justice	CONCHITA CARPIO MORALES Associate Justice
MINITA V. CHICO-NAZARIO Associate Justice	PRESBITERO J. VELASCO, JR. Associate Justice
ANTONIO EDUARDO B. NACHURA Associate Justice	TERESITA J. LEONARDO-DE CASTRO Associate Justice
ARTURO D. BRION Associate Justice	DIOSDADO M. PERALTA Associate Justice

C E R T I F I C A T I O N

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Resolution were reached in consultation before the case was assigned to the writer of the opinion of the Court.

REYNATO S. PUNO
Chief Justice

Footnotes

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 Lawphil Project - Arellano Law Foundation

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DISSENTING OPINION

CARPIO, J.:

I vote to deny the second motions for reconsideration of respondents Privatization and Management Office (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 United Planters Sugar Milling Company, Inc. (UPSUMCO) and (2) the Resolution dated 11 July 2007 (Resolution) denying with finality PMO’s and PNB’s first motions for reconsideration.

In their second motions for reconsideration, PMO and PNB pray that that the Court set aside the Decision and Resolution. As bases for their prayer, PMO and PNB contend, singly and jointly, that (1) the Deed of Assignment dated 3 September 1987 (Deed of Assignment), which waived UPSUMCO’s deficiency liability after the foreclosure, should be invalidated for being grossly disadvantageous to the government and violative of public trust; (2) the Court’s resort to evidence aliunde in ruling that the Deed of Assignment waived UPSUMCO’s deficiency liability violated the Parol Evidence Rule; and (3) it is UPSUMCO, not PMO or APT, which bears the burden of proving that UPSUMCO’s obligations under the "operational loans" have been fully paid. PMO and PNB also reiterate the claims raised in their first motions for reconsideration on the retroactive application of the Deed of Assignment and PNB’s solidary liability to UPSUMCO.

At the outset, it must be noted that except for the issues on the effectivity of the Deed of Assignment, PNB’s solidary liability to UPSUMCO, and UPSUMCO's remaining liability to PNB, all the matters respondents raise in their motions 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 contend with new theories at each turn, and trifles with the entire appellate proceedings.

Let us now consider the issues raised by the respondents.

(1) Did APT act ultra vires in entering into the Deed of Assignment? The Deed of Assignment is a valid contract of compromise freely entered into between APT and UPSUMCO. Although the Court, following the wording of the Deed of Assignment,¹ had referred to that contract as having "condoned" UPSUMCO’s deficiency obligation after the foreclosure, the Deed of Assignment is, strictly speaking, not a contract of condonation. Under Article 1270² of the Civil Code, a contract of condonation is essentially gratuitous where no equivalent is received for the benefit given.³ This is not true of the Deed of Assignment. Under that contract, APT agreed to free UPSUMCO from paying "any deficiency amount" after the foreclosure in exchange for UPSUMCO’s waiver of its right to redeem the foreclosed properties.⁴ These mutual concessions gave rise to mutual benefits by allowing APT, on the one hand, 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, on the other hand, from its obligation to pay the deficiency amount after the foreclosure. The Deed of Assignment is thus a contract of compromise under which UPSUMCO and APT made reciprocal concessions to effect an uncontested extrajudicial foreclosure and avoid the long-drawn litigation which judicial foreclosure entails.⁵

Section 12(6) of Proclamation No. 50, creating APT and the Committee on Privatization, cannot be more clear in providing that APT "shall, in the discharge of its responsibilities," have the power to "compromise and release claims or settle liabilities," thus:

SECTION 12. Powers. — The Trust shall, in the discharge of its responsibilities, have the following powers:

x x x x

(6) To lease or own real and personal property to the extent required or entailed by its functions; to borrow money and incur such liabilities may be reasonably necessary to permit it to carry out the responsibilities imposed upon it under this Proclamation; to receive and collect interest, rent and other income from the corporations and assets held 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 majority vote of the members of the Committee[.]⁶ (Emphasis supplied)

This Court already approved a compromise agreement involving APT and other parties to dispose of their shares of stocks in a sequestered corporation.⁷

Although PNB concedes that UPSUMCO’s waiver of its redemption right under the Deed of Assignment constitutes a consideration to render that contract not gratuitous, PNB nevertheless considers such consideration "indubitably inadequate," amounting to lack of consideration. PNB calls attention to Section 10, Article III of Proclamation No. 50 which speaks of APT’s task to generate "maximum cash recovery for the National Government." Alternatively, PNB contends that "the amount that exceeds the value of the assigned redemption right" should be treated as a donation, subject to the provisions in the Civil Code governing its formalities and execution.

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 purpose is "contrary to law, morals, good customs, public order or public policy."⁹ Under both categories, nothing in this case justifies annulling the Deed of Assignment or declaring it void.

The records show that APT and UPSUMCO freely negotiated and signed the Deed of Assignment. Contrary to PNB’s claim (to which PMO did not join), it was APT which actively sought UPSUMCO’s approval of the terms of the uncontested foreclosure.¹⁰ It was APT, not UPSUMCO, which offered the incentives to UPSUMCO to allow APT to sell UPSUMCO’s assets to URSUMCO even before the lapse of the one-year redemption period. At no instance did PNB or APT allege "mistake, fraud, violence, intimidation, undue influence, or falsity of documents." Indeed, until this stage of the proceedings, 20 years after the signing of the Deed of Assignment, neither PNB nor PMO saw any reason to challenge the validity of that contract for being "grossly disadvantageous to the government and violative of public trust."

Nor is the purpose of the Deed of Assignment "contrary to law, morals, good customs, public order or public policy." Under Proclamation No. 50, APT’s principal purpose is to "effect or cause to be effected, x x x, the disposition within the shortest possible period of assets transferred to the Trust for the purpose" (Section 10, Article III). To fulfill this task, Proclamation No. 50 vested in APT "the widest latitude of flexibility and autonomy in its operations, particularly in the areas of x x x asset management and disposition" (Section 13, Article III). It was in the exercise of this wide latitude of flexibility, having in mind the prompt disposition of UPSUMCO’s foreclosed assets, that APT negotiated with UPSUMCO for the waiver of its right of redemption in exchange for incentives APT freely offered. PNB’s reliance on APT’s task of generating "maximum cash recovery for the National Government" is misplaced. Section 10, Article III of Proclamation No. 50 itself provides that such goal is to be achieved "within the context" of APT’s major purpose of disposing of assigned assets "within the shortest possible period."¹¹ It must be borne in mind that APT held in trust for disposition non-performing assets, like UPSUMCO’s foreclosed assets, in government financial and other institutions.

It cannot also be said that the Deed of Assignment would have been rendered invalid under Section 1 of Republic Act No. 7181 (RA 7181), superseding Proclamation No. 50, which restricted APT's disposition of assets "exclusively and strictly for cash." Firstly, RA 7181 cannot be retroactively applied to impair vested rights beyond the period it expressly covered. Section 8 of RA 7181 provides for its retroactive effectivity "back to December 8, 1991."¹² It is too elementary to state that this Court cannot amend this provision to extend RA 7181’s effectivity further "back to 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 covered by RA 7181, it was APT's sale of UPSUMCO assets to URSUMCO, which, incidentally, was for cash.

Considering that the Deed of Assignment is a valid compromise agreement and not a contract of condonation, there is no reason to pass upon PNB’s claim on the application of the rules on donation to that contract.

It cannot be overemphasized that what APT and UPSUMCO entered into was an ordinary commercial contract signed after vigorous efforts on PMO's part to obtain UPSUMCO's assent to the deal. In fact, APT merely stepped into the shoes of PNB which extended the commercial loans to UPSUMCO. As such, the terms of the contract are the law between the parties. That a party, after freely entering into a contract, finds on hindsight that the terms are overly generous or one-sided is no reason for the courts to excuse that party, and those bound by it under special circumstances, from fulfilling their obligations. On the contrary, the courts are obliged to give effect to the agreement. To grant PNB’s and PMO’s belated prayer to invalidate the Deed of Assignment would be nothing less 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 UPSUMCO’s assets. Annulling the Deed of Assignment would have repercussions on the validity of a host of other contracts and incidents such as the foreclosure sale, the payment of the 5% "mark-up" to UPSUMCO, the release from solidary liability of UPSUMCO’s directors, and the sale of the UPSUMCO properties to URSUMCO. These are far-reaching and serious implications PNB and PMO seem to have lost sight of in their single-minded pursuit to annul the Deed of Assignment.

(2) The Court did not ignore the Parol Evidence Rule in appreciating evidence aliunde to interpret the Deed of Assignment. As an evidentiary rule on proving the terms of agreements, the Parol Evidence Rule under Section 9, 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 temptation and possibility of perjury.¹⁴ However, like other rules of procedure, the parol evidence rule is not ironclad but admits of several exceptions. Thus, Section 9, Rule 130 itself provides:

However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleading:

(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

(c) The validity of the written agreement; or

(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement. (Emphasis supplied)

In its Amended Complaint before the trial court, UPSUMCO already contended that the Deed of Assignment freed it from paying any deficiency obligation after the foreclosure of its mortgaged assets, as part of the "conditions" of the "friendly foreclosure."¹⁵ Thus, to the extent that the Deed of Assignment may give a contrary conclusion, UPSUMCO can present, as it did present, evidence to modify the terms of the agreement and the Court can take cognizance of such evidence. This falls under the exception provided in paragraph (b) of Section 9, Rule 130.

But even if UPSUMCO did not allege in its pleadings that the Deed of Assignment freed it from any liability after the foreclosure, the trial court and this Court are not barred from appreciating UPSUMCO's parol evidence for the simple reason that at no time in the trial of this case did APT or PNB object to the presentation of the same. Parol evidence on an issue not raised in the pleadings must be objected to at the time of their presentation, otherwise the objection is deemed waived.¹⁶ Indeed, just like the issue on the validity of the Deed of Assignment, it is only now, in their second motions for reconsideration, when judgment should have been entered, that APT and PNB saw fit to question the Court's alleged disregard of the evidentiary rule in question.

Besides, the Deed of Assignment itself expressly condoned "any deficiency amount" from the foreclosure sale and the phrase "any deficiency amount" means exactly that – any remaining obligation after the foreclosure. There is even no need to resort to evidence aliunde.

(3) On the retroactive application of the Deed of Assignment, neither APT nor PNB has presented new arguments to merit the modification of the Court's Decision and Resolution. To reiterate, the Court held in its Resolution of 11 July 2007, thus:

We affirm our ruling that under the Deed of Assignment dated 3 September 1987, the reckoning date of the deficiency amount is 27 August 2007, right after the foreclosure. True, the Deed of Assignment of UPSUMCO’s right to redeem was signed on 3 September 1987 and it is on this date that the right to redeem was transferred to APT. However, the condonation of the deficiency amount necessarily must take effect immediately after the foreclosure 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 reasons for our ruling, namely: (1) the condonation of UPSUMCO’s deficiency obligation was, as found by the trial court in the PHILSUCOR case, part of the bundle of incentives APT offered UPSUMCO for the latter to agree to the "friendly foreclosure" of its mortgaged assets and (2) the Deed of Assignment itself stated that APT condoned "any deficiency amount" of UPSUMCO from the take-off loans after the foreclosure on 27 August 1987.

In a foreclosure, the deficiency is determined by simple arithmetical computation immediately after the foreclosure. The deficiency is the amount not covered by the winning bid price – in this case the deficiency amount is ₱1,687,076,433.00 – which is entirely condoned under the Deed of Assignment. To hold otherwise negates the meaning of "any deficiency amount" expressly stated in the Deed of Assignment. (Emphasis in the original)

It must be emphasized that PNB transferred funds to APT in two stages: (1) after the foreclosure on 27 August 1987 but before the signing of the Deed of Assignment on 3 September 1987 in the amount of ₱80,200,806.41 and (2) after the signing of the Deed of Assignment in the amount of ₱17,773,185.24. PNB and APT hid from UPSUMCO these fund transfers. In fact, UPSUMCO learned of the fund transfers only during the trial when UPSUMCO demanded the production of the balances of its bank accounts with PNB.

(4) It is PNB and APT which bear the burden of proving UPSUMCO’s liability under the "operational loans." As stated, UPSUMCO’s common cause of action in the trial court was that it was entitled to recover UPSUMCO funds PNB held or transferred to APT after the foreclosure since APT freed it from any deficiency liability. UPSUMCO did not raise the issue of the operational loans because these had nothing to do with the foreclosure. In their Answers to UPSUMCO’s complaint, PNB and APT merely raised the defenses of set-off and extinguishment of UPSUMCO’s claims, respectively. Thus, in its Answer to UPSUMCO’s complaint, PNB (1) claimed that it set-off UPSUMCO funds to pay for APT’s deficiency claim arising from the foreclosure and (2) counterclaimed for moral damages and attorney’s fees. PNB did not include in its counterclaim any unpaid obligation of UPSUMCO under the operational loans. For its part, APT generally averred that UPSUMCO’s claims have been "paid, waived, abandoned or otherwise extinguished." Thus, when the trial court, in its Order dated 4 January 1990, allowed UPSUMCO to withdraw its deposits from five of its accounts with PNB amounting to ₱1,950,000,¹⁷ neither PNB nor APT appealed the Order, allowing UPSUMCO to collect this amount.¹⁸

It was only in their appeal with the Court of Appeals that PNB and APT claimed that the Deed of Assignment did not fully extinguish UPSUMCO’s obligations to APT and it was only after this Court rendered its judgment that PNB claimed in its first motion for reconsideration that UPSUMCO remained liable under the "operational loans." As the party asserting these belated claims, it is PNB which bears the burden of proving the same. But as noted by this Court in its Resolution, it was too late for PNB to do so as it had neither raised these matters as part of its counterclaim in the trial court nor adverted to any proof in its appeal with the Court of Appeals or with this Court. Thus, I believe that remanding this case to the trial court, as what the Court of Appeals ordered in its Decision of 28 November 2006, for PMO and PNB to present evidence on UPSUMCO’s alleged liability (1) is an exercise in futility; (2) sanctions amendment to pleadings to allow a claim raised only on appeal; and (3) results in the denial of justice 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 collection case against UPSUMCO in the proper court and there seek payment.

(5) As to PNB’s solidary liability, suffice it to say, that after PNB assigned its interest in UPSUMCO to APT on 27 February 1987, PNB ceased to be UPSUMCO’s creditor with respect to the take-off loans. However, PNB remained UPSUMCO’s depository bank, obliged to hold UPSUMCO funds on UPSUMCO’s order. Thus, when, without UPSUMCO’s knowledge, PNB transferred to APT UPSUMCO funds on deposit in several accounts with PNB, ostensibly as payment for obligations due to APT under the take-off loans, PNB became liable to return these funds to UPSUMCO as undue payments, because APT waived UPSUMCO’s 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 stipulations in the credit agreements.²¹

Accordingly, I vote to DENY the Second Motions for Reconsideration.

ANTONIO T. CARPIO
Associate Justice

Footnotes

¹ The Deed of Assignment reads:

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 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 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.

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. (Emphasis supplied)

² The provision reads: "Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly.

One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the forms of donations."

³ IV Tolentino, Civil Code of the Philippines 353 (1987 ed.).

⁴ As noted in the Decision and Resolution, APT’s waiver of its right to collect UPSUMCO’s deficiency obligation was part of the bundle of incentives APT offered to UPSUMCO for the latter’s waiver of its right of redemption.

⁵ Article 2028 of the Civil Code provides: "A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. "

⁶ Secretary of Justice Serafin R. Cuevas, in an Opinion, interpreted this provision as "clearly confer[ing] upon the APT the authority to enter into an amicable settlement and/or compromise agreement on the legal cases instituted by or filed against it, including the condonation of interest, penalties and other charges. x x x."

⁷ See First Philippine Holdings Corporation v. Sandiganbayan, G.R. No. 95197, 30 September 1991, 202 SCRA 212.

⁸ Article 2038, Civil Code.

⁹ Article 1409(1), Civil Code.

¹⁰ PNB’s claim that UPSUMCO "seduced" APT to enter into the negotiated foreclosure deal is belied by the following letter, dated 19 August 1987, of APT's Associate Executive Trustee Johnny M. Araneta (who also signed the Deed of Assignment for APT) to UPSUMCO's Vice-President Jose del Prado, Jr. (Exhibit "S"; emphasis supplied):

Dear Mr. Del Prado:

As we have previously pointed out to you and other stockholders of UPSUMCO, we wish to reiterate the benefits of an "uncontested foreclosure".

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 uncontested foreclosure, the APT is giving you a preference of 5% which would not be present in case of a contested foreclosure. We have also given you the choice, in lieu of the 5% preference, to be given a cash payment equivalent to 5% of the winning bid should you lose out in the bidding. That your JSS will be extinguished will, of course, be of great interest to you and the rest who helped put up the mill. This particular consideration will not be allowed you in case of a judicial foreclosure.

You do realize that had you not agreed to an uncontested foreclosure, the National Government, through APT, would have gone the route of judicial foreclosure to the great inconvenience of all, not to mention the high costs of a contested foreclosure.

Very truly yours,

(Sgd.) Johnny M. Araneta
Associate Executive Trustee

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" settlement scheme (See Asset Privatization Trust v. Sandiganbayan, 412 Phil. 879 [2001]).

¹² Sec. 8. This Act shall take effect immediately upon its publication in at least one (1) national newspaper of general circulation. The effectivity of this Act shall retroact and relate back to December 8, 1991.

¹³ Section 9, Rule 130 provides: "Evidence of written agreements. — When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement. x x x."

¹⁴ Tan Tua Sia v. Yu Biao Sontua, 56 Phil. 711 (1932).

¹⁵ UPSUMCO alleged in its Amended Complaint (Record, pp. 43-46):

COMMON ALLEGATIONS

1. That Proclamation No. 50 creating the Asset Privatization Trust, APT for short, and the Committee on Privatization, COP for short, was issued by Her Excellency President Corazon C. Aquino on December 8, 1986;

2. That the said Proclamation issued under the Freedom Constitution and in the exercise of the Police Power of the State mandated the APT and COP to take-over and dispose of all non-performing assets held by the government banks, among its functions;

3. That among those declared as non-performing assets was the plaintiff corporation;

4. That to facilitate the take-over of plaintiff’s physical assets that were mortgaged to defendant PNB a "friendly foreclosure" was arranged by APT and defendant PNB on all the mortgaged properties of the plaintiff, including the share of Philippine Sugar Corporation, PHILSUCOR for short, on the mortgages where defendant PNB under memorandum of agreement dated February 15, 1984 was constituted trustee to foreclose the said mortgages;

5. That the "friendly foreclosure" was affected only thru the active participation of the defendant APT, COP, PHILSUCOR and the plaintiff who ha[d] little choice;

6. That the notice of extrajudicial foreclosure initiated by the defendant PNB and APT was scheduled by the Office of the Provincial Sheriff of Negros Oriental for sale at public auction on August 27, 1987 after the publication at the Dumaguete Star Informer. A machine copy of the publication is made Annex "A" forming integral part hereof;

7. That plaintiff’s assets for public auction were all listed in the above publication;

8. That APT was the highest bidder in that August 27, 1987 public auction sale;

9. That on September 3, 1987, APT issued the Deed of Assignment which reads:

DEED OF ASSIGNMENT

KNOW ALL MEN BY THESE PRESENTS:

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 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 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 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.

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,

x x x x

10. That all other properties, real or personal including deposits in banks and receivables not covered by the mortgages, remain properties of the plaintiff;

FIRST CAUSE OF ACTION

1. All the foregoing allegations are made integral part of the First Cause of Action;

2. That notwithstanding the Deed of Assignment which released and discharged plaintiff from any and all obligations due the defendant PNB and defendant APT the salaries of mill employees after the foreclosure by PNB/APT in June, 1987 up to the take-over by Universal Robina Sugar Milling Company up to December 1987 or thereabout, were taken from the funds of the plaintiff deposited with defendant PNB by itself and/or the instruction of APT with PNB Comptroller still assigned;

SECOND CAUSE OF ACTION

1. All the common allegations are made integral part of the Second Cause of Action;

2. 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, the amount of which is undetermined, but PNB’s records may reveal the correct amount;

3. That among the conditions of the "friendly foreclosure" are:

(a) That all the accounts of the plaintiff are condoned, including the JSS notes at the time of the public bidding;

(b) The plaintiff waives and/or assigns as it did waive and assign its rights to redeem said properties in favor of APT, by reason of the aforesaid condonation;

(c) That plaintiff shall be entitle[d] to a 5% preference in case it wins the public bidding by APT, or if it losses in the public bidding it shall be entitle to the above preference in terms of money computed from the amount of the highest bid. In this case ₱500 million, which was the highest bid of Universal Robina Sugar Milling Co., Inc. (URSUMCO) or a ₱25 million preference which APT already paid[.] (Emphasis supplied)

¹⁶ II Regalado, Remedial Law Compendium 566 (7th ed.)

¹⁷ In granting the withdrawal, the trial court held (Records, pp. 298-299):

Defendant PNB has not presented any evidence other than the claim of legal compensation to disprove the plaintiff’s claim of ownership of the foregoing savings account deposits.

Operations of banks rely on the trust and confidence of depositors more than any ordinary fiduciary relationship. Public interests and public policies are involved.

x x x x

Hence, a bank is under obligation to allow [withdrawals] only by the depositor or his duly authorized representative. It becomes liable for wrongful payment to a person who fraudulently obtains possession of the deposit book and forges the signature of the real depositor on the withdrawal slip (or by checks) even if the bank acted in good faith and in the exercise of ordinary care and diligence. x x x x

Since the extrajudicial foreclosure did not include the bank deposits of the plaintiff, the presumption that the said deposits is exclusively owned by UPSUMCO stands. (Emphasis supplied)

¹⁸ Per Sheriff's Return, dated 15 February 1990 (Records, p. 364).

¹⁹ This is in addition to the Court's finding in the Resolution that PNB violated Article 1279 of the Civil Code when it acted as APT’s agent in setting-off UPSUMCO funds.

²⁰ APT’s co-foreclosing creditor representing the interest of Philippine Sugar Corporation.

²¹ Contrary to PNB’s claim, the credit agreements and promissory notes UPSUMCO executed did not authorize PNB to "negotiate, sell, and transfer any monies and apply the proceeds thereof to the payment of UPSUMCO debts" but merely "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 CLIENT [ ] by the BANK, x x x."

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CONCURRING OPINION

VELASCO, JR., J.:

I concur with the ponencia of Justice Dante O. Tinga and submit additional observations.

The controversy centers on the import of the stipulations in the September 3, 1987 Deed of Assignment which reads:

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 maybe [sic] 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. T16700 and T-16701.

The November 28, 2006 Decision found that the total mortgage indebtedness of UPSUMCO was PhP 2,137,076,433.15 as of 30 June 1987 based on the admission of the APT in its counterclaim. Deducting the amount of PhP 450 million as winning bid of the APT during the foreclosure sale, then the deficiency obligation of UPSUMCO is P1,687,076,433.15. Pursuant to the September 3, 1987 Deed of Assignment, such deficiency amount is condoned. The Decision considered the deficiency obligation of PhP 1,687,076,433.15 as encompassing both the take-off loans and the operational loans and thus, UPSUMCO is not liable anymore to the APT for any of said loans.

This reasoning has no legal or factual footing nor support for the following reasons:

1. The terms of the Deed of Assignment are plain and unambiguous and hence, there is no room for interpretation.

The agreement unequivocally speaks of "condoning any deficiency amount it maybe [sic] 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")."

Thus, the condonation strictly applies only to the loan and mortgage documents pertaining to the take-off loans. An important point to remember is that the take-off loans were secured by a real estate mortgage over two parcels of land where UPSUMCO’s milling plant stands and by chattel mortgages over machineries and equipment on the parcels of land. Thus, when the APT foreclosed the mortgages on the collaterals, it dealt only with the take-off loans and not the operational loans.

In addition, the Decision admitted that as of June 30, 1987, the PNB placed UPSUMCO’s "total mortgage indebtedness" at PhP 2,137,076,433.15 as was indicated in the published notices of foreclosures. This refers to the mortgage indebtedness under the take-off loans and said loans are the only ones condoned by reason of the Deed of Assignment. The liability for the operational loans however remains valid and subsisting.

2. In the case at bench, the November 28, 2006 Decision and July 11, 2007 Resolution varied the meaning attached to the condonation of the deficiency amount subject of the Deed of Assignment which is otherwise clear and definite. A new contract was made for the parties or have been rewritten under the guise of construction. Settled is the principle that an agreement must be construed and enforced according to the terms employed and a court has no right to interpret the agreement as meaning something different from what the parties intended as expressed by the language they saw fit to employ.

A court is not at liberty to revise, modify, or distort an agreement while professing to construe it, and has no right to make a different contract from that actually entered into by the parties.

One may argue that it is unfair for the APT to still collect the deposits of UPSUMCO with the PNB after the 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. We don’t believe so. Courts cannot make for the parties better or more equitable agreements that they themselves have been satisfied to make, or rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter them for the benefit of one party and to the detriment of the other, or, by construction, relieve one of the parties from terms which s/he voluntarily consented to, or impose on him/her those which s/he did not. If the parties to a contract adopt a provision which contravenes no principle of public policy and contains no element of ambiguity, the courts have no right, by a process of interpretation, to relieve one of them from disadvantageous terms which s/he has actually made. Parties may make their own bargains and they should be held to the terms of their agreement. The courts will not interfere with the party’s contractual obligations, as every person is presumed to be capable of managing his own affairs, and whether his bargains are wise or unwise is not ordinarily a legitimate subject of inquiry.

The agreement between the parties is clearly to condone only the deficiency judgment pertaining to the take-off loans.

We lay stress on the phrase "mortgage indebtedness" of PhP 2,137,076,433.15. The assailed November 28, 2006 Decision construed this to mean the total indebtedness of UPSUMCO covering both take-off and operational loans. This conclusion is incorrect.

The phrase "mortgage indebtedness" can only pertain to the take-off loans as UPSUMCO’s properties were mortgaged to specifically cover and guarantee only the take-off loans.

On the other hand, there was no mortgage on any other property of UPSUMCO to cover the operational loans. The credit agreements on the said loans were secured by pledge contracts dated February 19, 1987 and March 30, 1987. The securities for the payment of the operational loans are the milled produce and molasses which the PNB can sell and apply the proceeds thereof to satisfy UPSUMCO’s obligation under the 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 take-off 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. UPSUMCO is supposed to know that after the foreclosure, it still has some funds with the PNB. It is expected to know its sugar produce and its sale by the PNB. It should not have agreed to the Deed of Assignment if it 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 payments to the APT.

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 stockholders of UPSUMCO. The directors were released from liability––they were even paid PhP 25 million and any deficiency was condoned with respect to the mortgaged loans. The huge amount of PhP 1.6 billion was condoned in 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 redeemed the mortgaged properties for it did not have the capacity at that time to pay the deficiency amount. The circumstances of the case undeniably show that UPSUMCO has agreed to waive and forfeit any right or claim over its assets or any collectibles. As a matter of fact, UPSUMCO is fully aware of its deposits with the PNB after the foreclosure. Their failure to assert their right during the negotiation for the Deed of Assignment and their failure to incorporate said claim in the documents can only mean waiver on their part.

To construe the Deed of Assignment as basis for the payment by the APT of the amount of around PhP 135 million to UPSUMCO after it has been accorded the most generous accommodation relating to the payment of the take-off loans would result in unfairness and injustice to the government. Let us consider the terms prejudicial to the government: (1) the condonation of PhP 1.6 billion as a deficiency amount from the take-off loans, which APT can legally claim against UPSUMCO; (2) the payment of PhP 25 million to the UPSUMCO when APT is not legally obliged to make the payment; and (3) the release from liability of said officials who are admittedly liable for the loan obligations under the contracts they signed. In spite of all these concessions, the assailed November 28, 2006 Decision still granted another gift to UPSUMCO by making APT pay an additional PhP 135 million when there is no legal basis for the alleged obligation. Courts should not allow a construction that will lead to ­absurd consequences. The Deed of Assignment must be interpreted to avoid injustice and wrongful and even mischievous results.

4. Article 1378 of the Civil Code provides that when it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.

If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void.

Since condonation is essentially an act of generosity on the part of the APT, then the least transmission of rights and interests should be applied. Thus, the condonation of the deficiency amount can only refer to the take-off loans and not to the operational loans which were not even covered by the mortgage.

5. The PNB should not be jointly and solidarily liable with the APT considering it will only lead to a multiplicity of suits. The PNB assigned to the APT all its rights, interests, and claims against UPSUMCO pursuant to Proclamation No. 50 by way of a Deed of Transfer, while the government agreed to assume the liabilities of the PNB, thus:

2.02. With respect to the Bank’s liabilities which are contingent and those liabilities where the Bank’s creditors consent to the transfer thereof is not obtained, said liabilities shall remain in the books of the BANK with the GOVERNMENT funding the payment thereof.

Since the APT was subrogated to the place of the PNB, then it should be solely responsible and liable for UPSUMCO’s claim. Otherwise, UPSUMCO may collect first from the PNB which in turn will collect from the APT. This will undoubtedly result in multiplicity of suits.

I vote to reconsider and set aside the November 28, 2006 Decision and the July 11, 2007 Resolution in the instant case and affirm the February 29, 1996 Decision of the Court of Appeals.

PRESBITERO J. VELASCO, JR.
Associate Justice

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