Source: http://www.chanrobles.com/cralaw/2009aprildecisions.php?id=341
Timestamp: 2019-08-19 03:55:52
Document Index: 14659227

Matched Legal Cases: ['Art. 1359', 'Art. 1291', 'Art. 1303', 'Art. 1301', 'Art. 1627', 'Art. 1279', 'Art. 1282']

G.R. No. 126890 - United Planters Sugar Milling Co., Inc. (UPSUMCO) v. The Honorable Court of Appeals, et al. : APRIL 2009 - PHILIPPINE SUPREME COURT JURISPRUDENCE - CHANROBLES VIRTUAL LAW LIBRARY
Philippine Supreme Court Jurisprudence > Year 2009 > April 2009 Decisions > G.R. No. 126890 - United Planters Sugar Milling Co., Inc. (UPSUMCO) v. The Honorable Court of Appeals, et al.:
[G.R. NO. 126890 : April 2, 2009]
UNITED PLANTERS SUGAR MILLING CO., INC., (UPSUMCO), Petitioners, v. THE HONORABLE COURT OF OF APPEALS, PHILIPPINE NATIONAL BANK (PNB) and ASSET PRIVATIZATION TRUST (APT), AS TRUSTEE OF THE REPUBLIC OF THE PHILIPPINES, Respondents.
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
(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 P450 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
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
1. Both defendant Philippine National Bank and Asset Privatization Trust are ordered jointly and severally to pay to plaintiff the following:
2). Defendant Philippine National Bank is ordered to pay singly to plaintiff the following:
3. Defendant Asset Privatization Trust is hereby ordered to pay singly to plaintiff the following:
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 (P500,000.00) 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 P450,000,000.00 proceeds of the foreclosure."29 At the same time, the Court of Appeals ordered a remand of the case to the RTC for computation of the parties' remaining outstanding balances. Accordingly, the Court of Appeals disposed of the petition in this manner:
(a) Credit Agreement dated November 5, 1974 (Exh. "1": Record, p. 528); andcralawlibrary
IN WITNESS WHEREOF, the Corporation has caused this instrument to be executed on its behalf by Mr. Joaquin S. Montenegro, thereunto duly authorized, this 3rd day of September, 1987.31
RESOLVED, 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 P450,000,000.00 proceeds of the foreclosure."33
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.
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.
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.
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:
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.chanrobles virtual law library 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.
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.52 chanrobles virtual law library
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
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.
15 See "Amended Complaint", Records, pp. 43-50.
16 Id. at 45, 46, 47, 49.
18 See id. at 102-103, 153.
19 See id. at 103, 153.
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.
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.
(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. Powers. - The Trust shall, in the discharge of its responsibilities, have the following powers:
(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)cralawlibrary
This Court already approved a compromise agreement involving APT and other parties to dispose of their shares of stocks in a sequestered corporation.7
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.
(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:
(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)cralawlibrary
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.
(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 P1,950,000,17 neither PNB nor APT appealed the Order, allowing UPSUMCO to collect this amount.18
(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
1 The Deed of Assignment reads:
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)cralawlibrary
2 The provision reads: "Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly.
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):
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):
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:
10. That all other properties, real or personal including deposits in banks and receivables not covered by the mortgages, remain properties of the plaintiff;
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;
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:
(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 P500 million, which was the highest bid of Universal Robina Sugar Milling Co., Inc. (URSUMCO) or a P25 million preference which APT already paid[.] (Emphasis supplied)cralawlibrary
16 II Regalado, Remedial Law Compendium 566 (7th ed.)
17 In granting the withdrawal, the trial court held (Records, pp. 298-299):
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)cralawlibrary
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."
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.
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.