Professional Documents
Culture Documents
UPSUMCO's collateral for the take-off loans, for itself and PHILSUCOR, to the
extent of their pro-rata interest in the event of a foreclosure.
On 8 December 1986, then President Corazon C. Aquino issued Proclamation
No. 5012 creating respondent Asset Privatization Trust ("APT"), 13 to among
others, "[circumscribe] the areas of economic activities within which
government corporations may operate x x x [by disposing and liquidating
the] non-relevant and non-performing assets of retained corporations" like
PNB. On 27 February 1987, PNB assigned to the Government its "rights,
titles, and interests in" several corporations and entities, including
UPSUMCO.14 The Government then transferred these financial assets to APT
under a Trust Agreement.
To quickly dispose of UPSUMCO's mortgaged assets, APT negotiated with
UPSUMCO for the mortgages' uncontested or "friendly" foreclosure and for
UPSUMCO's waiver of its right of redemption. UPSUMCO accommodated APT.
Hence, APT and PNB ("respondents"), the latter as PHILSUCOR's
representative, scheduled the foreclosure sale on 27 August 1987. In the
notices of foreclosure, PNB placed UPSUMCO's total "mortgage
indebtedness" at P2,137,076,433.15, as of 30 June 1987. At the foreclosure
sale, APT purchased the auctioned properties for P450 million.
On 3 September 1987, UPSUMCO "transferred" to APT its right to redeem the
foreclosed properties under a Deed of Assignment15 which reads in full:
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, 1987.16
[sic] waiving its right of redemption, defendant APT condoned any deficiency
amount it may be entitled from the [UPSUMCO].
In finest terms, before the assignment by defendant PNB of its rights,
interests, [and] collectibles in favor of defendant APT on February 27, 1987 x
x x the role of PNB, was both a creditor and a depository bank. [UPSUMCO]
was a debtor and a depositor. After the execution of said Deed of Assignment
of February 27, 1987, defendant PNB became an assignor and maintained its
status as a depository bank. [UPSUMCO] maintained itself as a debtor and a
depositor. However, a third party came in, APT, who was subrogated to the
rights of defendant PNB as a creditor.
As its legal effect, the obligation of [UPSUMCO] with defendant PNB was
novated by the subrogation of creditors, i.e. defendant APT stepping into the
shoes on the creditor's right of defendant PNB. x x x x
[D]efendant PNB's participation in the foreclosure proceedings did not cause
retention of the former as a creditor, the same being unnecessary. Legally, as
the assignee, and subrogated to the rights of defendant PNB, defendant APT
is considered the only foreclosing creditor. Thus, defendant PNB being not a
foreclosing creditor, cannot claim to any deficiency claim.
Furthermore, if at all any deficiency claim do exists [sic], regardless as to
whether it is in favor of defendant PNB, or defendant APT, the same has been
absolutely abandoned or condoned upon the execution of [the] Deed of
Assignment between [UPSUMCO] and APT in its initial pleadings may have
attempted to becloued [sic] the existence and validity of said Deed of
Assignment, [however] in its Memorandum dated February 18, 1992 (p. 716,
Records), [APT] clearly admitted its validity and existence with the
qualification that the same should not be given retroactive effects [sic] prior
to August 27, 1987. But, even admitting in arguendo that either defendant
PNB or defendant APT is entitled to deficiency claim, was the procedure in
perfecting [sic] such claim followed[?] As 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 defendant PNB nor defendant
APT can[] simply appropriate the things of [UPSUMCO]. (Article 2088, Civil
Code of the Philippines). If at all, such deficiency claim did exist and subsist
[sic], [the] foreclosing creditor should have initiated proper actions to recover
the same, particularly the creditor's interest of [UPSUMCO] in the form of
deposits and proceeds of sale with defendant PNB. x x x Defendant PNB did
not have any right, as a debtor, to debit the interest of its creditor,
[UPSUMCO], by the simple expediency of furnishing [UPSUMCO] of credit
memos that the latter's bank deposits have been debited, and credited in
favor of defendant APT.20 (Capitalization in the original)
Respondents separately appealed to, but raised similar claims in, the Court
of Appeals. Respondents took issue with the trial court's finding that
UPSUMCO no longer has any unpaid obligations. Respondents claimed that
the Deed of Assignment only covered the loans dated 5 November 1974, 24
June 1982, 10 December 1982, and 9 May 1984. Thus, UPSUMCO remains
liable for the other loans not mentioned in the Deed of Assignment.
The Ruling of the Court of Appeals
In its Decision of 29 February 1996, the Court of Appeals set aside the trial
court's ruling and remanded the case for further proceedings. The Court of
Appeals found merit in respondents' claim that the Deed of Assignment
condoned only some and not all of UPSUMCO's unpaid obligations. At the
same time, the Court of Appeals found that APT failed to show how much
UPSUMCO owes it and to account "for all the money which had been
transferred to its account," thus the order to remand the case. The Court of
Appeals held:
A perusal of the Deed of Assignment plainly shows that what it expressly
condoned was any deficiency which APT, as assignee of PNB's rights, may be
entitled to recover under the following documents: (1) Credit Agreement
dated November 5, 1974 x x x; and (2) the Restructuring Agreements dated:
(a) June 24, 1982, (b) December 10, 1982, and (c) May 9, 1984,
There is no ambiguity in the terms of the Deed of Assignment. What APT
condoned
were
the
obligations
covered
by
the
documents expressly mentioned therein[.] Therefore, UPSUMCO's assertion
that said Deed covered all its other obligations with PNB and APT is
unfounded. The Deed of Assignment did not in any way include nor mention
UPSUMCO's other obligations with PNB - subsequently transferred to APT covered by the following instruments or agreements, 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 x x x;
(3) Two (2) documents of Pledge both dated February 19, 1987;
(4) Sugar Quedans x x x;
(5) Credit Agreements dated February 19, 1987 x x x and April 29, 1987 x x x
[;]
(6) Promissory Notes dated February 20, 1987 x x x; March 2, 1987 x x x;
March 3, 1987 x x x; March 27, 1987 x x x; March 30,1987 x x x; April 7,
1987 x x x; May 22, 1987 x x x; and July 30, 1987 x x x.
xxx
The provisions [in these instruments] 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 APT 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.
The lower court, in granting [UPSUMCO's] motion for release of the
aforementioned deposits, treated the savings deposits of UPSUMCO with PNB
and the Rural Banks of Bais and Manjuyod as "ordinary or regular savings
accounts." These accounts however are not ordinary. They were opened
because UPSUMCO was required to do so in compliance with the mandate of
the Credit Agreements x x x. The deposits form part of the additional
securities required of UPSUMCO under the Credit Agreements for the release
of its additional loan. Consequently, since APT - as assignee of PNB - enjoyed
the privilege to apply the proceeds therefrom in satisfaction of UPSUMCO's
obligations and had accordingly applied the same thereto, UPSUMCO cannot
validly claim that it still owns the funds deposited in these accounts.
Significantly, if UPSUMCO truly owned these funds, why did it need APT's
approval to use or disburse the same while it was acting as caretaker of the
mill after the foreclosure? x x x
In view of the foregoing, APT is therefore entitled to have the funds from
UPSUMCO's savings accounts with PNB Dumaguete and its affiliated banks
transferred to its own account, to the extent of UPSUMCO's remaining
No
UPSUMCO's obligations to PNB, and later, to APT, sprang from two sources
(1) the take-off loans to finance the construction of UPSUMCO's milling
plant (e.g. the Credit Agreement dated 5 November 1974 as re-structured on
24 June 1982, 10 December 1982, and 9 May 1984) and (2) the operational
loans (e.g. Credit Agreements dated 19 February 1987 and 29 April 1987 and
the loan under the Deed of Payment by Way of Assignment). As will be
shown shortly, we find that UPSUMCO no longer owes respondents under
either types of loan.
As of 30 June 1987, PNB placed UPSUMCO's total "mortgage indebtedness"
at P2,137,076,433.15.26By APT's own admission27 in its counterclaim, this
amount in fact represents UPSUMCO's total indebtedness to PNB and APT as
of 30 June 1987, thus:
COUNTERCLAIM
19. The total indebtedness of [UPSUMCO] to PNB and APT as of June 30,
1987 was TWO BILLION ONE HUNDRED THIRTY SEVEN MILLION SEVENTY SIX
THOUSAND FOUR HUNDRED THIRTY THREE AND 15/100 (P2,137,076,433.15)
PESOS, while the assets of [UPSUMCO] were foreclosed and sold for FOUR
HUNDRED FIFTY MILLION (P450,000.000.00) PESOS[] only thereby leaving a
deficiency balance of ONE BILLION SIX HUNDRED EIGHTY SEVEN MILLION
SEVENTY SIX THOUSAND FOUR HUNDRED THIRTY THREE AND 15/100
(P1,687,076,433.15) payable by the plaintiff [UPSUMCO] to the NATIONAL
GOVERNMENT[.] (Capitalization in the original; boldfacing supplied) 28
The parties agree that this total obligation was partially paid by the proceeds
of the foreclosure sale of P450 million, leaving a deficiency balance
of P1,687,076,433.15. It is respondents' claim, which the Court of Appeals
sustained, that a portion of this amount remains unpaid because the Deed of
Assignment only condoned "any deficiency amount [APT] may be entitled to
recover from [UPSUMCO] under the Credit Agreement dated November 5,
1974 and the Restructuring Agreements dated June 24 and December 10,
1988, and May 9, 1984." Thus, the appellate court concluded that the Deed
of Assignment could not have condoned UPSUMCO's other obligations under
the Credit Agreements dated 19 February 1987 and 29 April 1987 and their
ancillary documents (i.e. the Pledges, assignment contracts and promissory
notes).
This is error.
Contrary to the Court of Appeals' ruling, we find that the Deed of Assignment
fully condoned UPSUMCO's deficiency obligation of P1,687,076,433.15. For
clarity in discussion, we reproduce below the Deed of Assignment, 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. T16700 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,
1987.29 (Emphasis
supplied)cralawlibrary
UPSUMCO's Board Resolution of 3 September 1987, authorizing its President
Joaquin Montenegro ("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,
actuations after the signing of the Deed of Assignment are consistent with a
full condonation of the former's deficiency liability - APT never demanded
payment from UPSUMCO and UPSUMCO carried out its affairs as a debt-free
corporation.33
Further, the question of whether APT fully condoned UPSUMCO's deficiency
obligation had been judicially settled. In United Planters and Sugar
Milling Corporation, Inc. v. Philippine Sugar Corporation ("PHILSUCOR
Case"), UPSUMCO sued PHILSUCOR also in the Regional Trial Court of Bais
City, Branch 45, for "Release and Discharge of Obligation with Damages" to
recover, as in this case, a sum of money PNB paid to PHILSUCOR after the
foreclosure on 27 August 1987. In its Decision dated 7 March 1994 in Civil
Case No. 63-B, the trial court ruled for UPSUMCO, holding that since
PHILSUCOR appointed PNB as its foreclosing agent for its proportionate lien
in UPSUMCO's mortgaged assets, PHILSUCOR is bound by PNB's assignment
of credit to the Government/APT and by APT's subsequent condonation of
UPSUMCO's deficiency liability. The trial court held:
Defendant [PHILSUCOR] ha[d] notice of the friendly foreclosure conducted by
APT and PNB. x x x x [UPSUMCO] was made to believe that the proceedings
were with the participation of APT, PNB and the defendant
[PHILSUCOR]. [UPSUMCO], due to the conduct of the defendant
[PHILSUCOR], and the other parties, PNB and APT[,] was made to
believe that when it assigned its right of redemption, it was in
consideration of the condonation of deficiency claims against it
including that which pertains to the defendant [PHILSUCOR].
xxx
The doctrine of estoppel x x x, precludes [a party] from repudiating an
obligation voluntarily assumed after its having accepted benefits therefrom.
xxxx
Under the aforesaid principle of estoppel, defendant [PHILSUCOR] in the
case at bar, after having made [UPSUMCO] believed [sic] in good
faith that the foreclosure proceedings, including[] a part of it, i.e.
condonation of deficiency claims against plaintiff, and after having
benefited from such conduct, [cannot] undertake an inconsistent
claim subsequently and proceed with its concealed intention to
collect deficiency claim against [UPSUMCO].
In fact, according to Atty. Buag, defendant [PHILSUCOR] did not make any
reservation to claim for deficiency after having received its share of the
auction sale in the amount of P58 million from APT. x x x However, defendant
[PHILSUCOR] left the matter of deficiency balance to APT. x x x But, what
happened was that APT condoned said deficiency claim against [UPSUMCO].
xxxx
WHEREFORE,
judgment:
premises
considered,
this
Court
renders
the
following
Indeed, for us to rule that UPSUMCO still owes respondents, nothing less than
concrete and uncontested proof of UPSUMCO's unpaid obligations suffices.
Absent such proof, and respondents presented none, we see no reason to
remand this case to the trial court to compute UPSUMCO's supposed unpaid
obligations, the existence of which is left to inference.
PNB
and/or
APT's
Right
UPSUMCO Funds Ended on 26 August 1987
to
Set-Of
of the trial after the trial court allowed the examination of PNB's books.
However, we agree with the trial court that such falls under UPSUMCO's
prayer in its Amended Complaint for the payment of the proceeds of "sugar
[PNB] sold and/or liquidated" after the foreclosure on 27 August 1987 as PNB
paid PHILSUCOR using funds taken from such sale.39
For the other items awarded to UPSUMCO, the following modifications are in
order:
(1) On the trial court's order for APT to pay the cost for the milling plant's
maintenance and operating expenses, ordinarily, the mortgagor retains
ownership of the foreclosed property during the redemption period, 40 and
thus remains liable for the maintenance expenses. However, in the present
case, UPSUMCO waived its redemption right. This had the effect of
consolidating ownership over the foreclosed properties to APT effective 27
August 1987, the date of foreclosure. APT's ownership continued until it sold
the milling plant to URSUMCO on 29 December 1987. Thus, APT is liable for
the milling plant's maintenance and operating expenses only from 27 August
1987 to 29 December 1987.rbl r l l lbrr
During the trial, UPSUMCO showed that it paid for the maintenance and
operating expenses from 3 September 1987 to "January 1988." UPSUMCO
thus waived presenting evidence on the expenses from 27 August 1987 to 3
September 1987. On the other hand, the expenses incurred after 29
December 1987 cannot be charged to APT. Hence, in the execution of this
judgment, the trial court is ordered to recompute the amount chargeable to
APT covering the period 3 September 1987 to 29 December 1987 only. This
does not entail reception of new evidence but only a mathematical
computation to proportionately reduce the amount payable taking into
account the shortened period;41
(2) On the award of exemplary damages, we also find this appropriate to set
an example to creditor banks and their assignees not to trifle with the funds
of their depositors or debtors, as the case may be. 42 However, since
exemplary damages cannot be awarded by itself but must be given in
addition to moral, temperate, or actual damages, none of which the trial
court awarded,43 we further order respondents to jointly and severally pay
UPSUMCO nominal damages in the amount of P100,000. This is but proper as
respondents clearly violated UPSUMCO's right to enjoy and have control over
its deposited funds and the proceeds of the sale of its sugar produce;44
(3) The award of attorney's fees is also in order because UPSUMCO had to
incur expenses to protect its interest and of the award of exemplary
damages.45 However, we reduce the award to P500,000 for which
respondents are solidarily liable. If the trial court's order requiring
respondents to pay 20% attorney's fees on each of the obligations
respondents are held liable singly and solidarily (apparently the rate agreed
between
UPSUMCO
and
its
counsel),
UPSUMCO
stands
to
receive P26,217,744.698, excluding interest and the adjusted amount for the
maintenance expenses. This, by any measure, is exorbitant. Under the
circumstances, we find the amount of P500,000 as attorney's fees to be
more appropriate;46
(4) On the payment of interest, the 12% rate the trial court imposed applies
only when the obligation breached consists in the payment of a sum of
money i.e. forbearance of money, in the absence of a stipulation. Otherwise
the applicable rate is 6% per annum.47 Thus, except for UPSUMCO's bank
deposits in (1) PNB Dumaguete and Escolta and (2) the Rural Banks of Bais
City and Manjuyod, which being forbearance in money, are subject to
interest rates of 10%48 and 12%49 per annum, respectively, the interest rate
on all the other monetary awards to UPSUMCO should be reduced to 6%per
annum. Upon the finality of this ruling, the rate of interest shall be 12% per
annumfor the entire judgment, until its satisfaction.50
WHEREFORE, we GRANT the petition. We SET ASIDE the Decisiondated 29
February 1996 and the Resolution dated 29 October 1996 of the Court of
Appeals. We REINSTATE the Decision dated 27 April 1992 of the Regional
Trial Court of Bais City, Branch 45, with the following MODIFICATIONS:
(1) APT, now the Privatization Management Office ("PMO"), is ORDERED to
pay UPSUMCO the maintenance and operating expenses of the milling plant
incurred from 3 September 1987 to 29 December 1987 only;
(2) PNB and APT, now the PMO, are ORDERED to jointly and severally pay
UPSUMCO nominal damages in the amount of P100,000;
(3) PNB and APT, now the PMO, are ORDERED to jointly and severally pay
UPSUMCO attorney's fees in the amount of P500,000; andcralawlibrary
(4) The interest rates for the monetary awards relating to UPSUMCO's bank
accounts in (a) PNB Dumaguete and Escolta Branches and (b) the Rural
Banks of Bais City and Manjuyod are 10% and 12% per annum, respectively,
computed from 13 March 1987. All the other monetary awards due to
UPSUMCO shall earn interest at 6% per annumalso computed from 13 March
1987. Upon the finality of this ruling, the rate of interest for the entire
judgment shall be 12% per annum until its payment.
SO ORDERED