THIRD DIVISION

[G.R. NO. 126890 : November 28, 2006]

UNITED PLANTERS SUGAR MILLING COMPANY, INC.
(UPSUMCO), Petitioner, v. THE HONORABLE COURT OF APPEALS,
PHILIPPINE NATIONAL BANK (PNB), and ASSET PRIVATIZATION TRUST
(APT), as TRUSTEE OF THE REPUBLIC OF THE
PHILIPPINES,Respondents.
DECISION
CARPIO, J.:
The Case
This is a Petition for Review 1 of the Decision2 dated 29 February 1996 and
the Resolution dated 29 October 1996 of the Court of Appeals remanding to
the Regional Trial Court of Bais City, Negros Oriental a suit for collection of
sum of money and damages for further proceedings.
The Facts
Petitioner United Planters Sugar Milling Company, Inc. ("UPSUMCO") is a
domestic sugar miller based in Manjuyod, Negros Oriental. To finance the
construction of its milling plant, UPSUMCO obtained loans from respondent
Philippine National Bank ("PNB"), evidenced by, among others, a Credit
Agreement dated 5 November 1974, subsequently restructured on 24 June
1982, 10 December 1982, and 9 May 1984 ("take-off loans"). These loans
were secured by a real estate mortgage over two parcels of land 3 where
UPSUMCO's milling plant stands and by chattel mortgages over machineries
and equipment on the parcels of land. The loan agreements also required
UPSUMCO to open bank accounts with PNB the funds of which PNB could
apply to pay any due obligations of UPSUMCO. As of 1987, UPSUMCO
maintained five savings accounts4 and one current account5 with PNB's
Dumaguete City Branch ("PNB Dumaguete") and an account 6 at PNB's

Escolta, Manila Branch ("PNB Escolta"). UPSUMCO also maintained bank

accounts with the Bank of the Philippine Islands, Republic Planters Bank,and
the Rural Banks of Bais City and Manjuyod, Negros Oriental, the latter two
being PNB affiliates at that time.
To monitor UPSUMCO's finances, PNB subsequently assigned a comptroller to
UPSUMCO, Dante Santos ("Santos"), who was made signatory to all checks
UPSUMCO drew against its current account with PNB Dumaguete. PNB also
placed five representatives in UPSUMCO's Board of Directors. Lastly, PNB
required UPSUMCO's Directors to bind themselves solidarily liable with
UPSUMCO on the loans.
To finance its operations, UPSUMCO also obtained loans from PNB evidenced
by, among others, the Deed of Assignment by Way of Payment, notarized on
16 November 1984 and the Credit Agreements dated 19 February 1987 and
29 April 1987 ("operational loans"). The Credit Agreements, which also
carried set-off clauses,7 were secured by Pledge contracts dated 19 February
1987 and 30 March 1987. By these contracts, UPSUMCO undertook to assign
to PNB all its sugar produce for PNB to sell and apply the proceeds to satisfy
UPSUMCO's unpaid obligation under the operational loans. The promissory
notes8 for the funds released under the operational loans also carried set-off
clauses. In the Deed of Assignment by Way of Payment, UPSUMCO undertook
to assign to PNB its milled sugar and molasses beginning the crop year 19841985. To keep track of UPSUMCO's sugar assignments and the payments
to UPSUMCO's loans, PNB maintained "sugar accounts payable" under
UPSUMCO's name.9
In the early 1980s, UPSUMCO and other sugar millers, hard hit by a slump in
the international sugar market, started to default on their loan payments. To
bail out these corporations, then President Ferdinand E. Marcos created 10 the
Philippine Sugar Corporation (PHILSUCOR), which was authorized to issue
and sell "sugar bonds" to various commercial banks holding non-performing
loans of ailing sugar millers. Accordingly, PHILSUCOR issued and sold to
PNB P3 billion worth of "sugar bonds" on 14 February 1984. PNB partly paid
the bonds by assigning to PHILSUCOR
30% of its credit with UPSUMCO, computed as of 14 February 1984. 11 This
made PHILSUCOR UPSUMCO's creditor to that extent. To secure PHILSUCOR's
interest in UPSUMCO, PHILSUCOR agreed that PNB will continue to hold

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

On 29 September 1987, APT, in a public auction, sold the foreclosed

properties to Universal Robina Sugar Milling Corporation ("URSUMCO")
for P500 million. APT and URSUMCO signed the Deed of Sale on 29 December
1987.
On 13 March 1989, UPSUMCO sued respondents in the Regional Trial Court of
Bais City, Branch 45 ("trial court"), for sum of money and damages.
UPSUMCO alleged that respondents illegally appropriated funds belonging to
it, namely: (1) funds on deposit in UPSUMCO's bank accounts with PNB, a
portion of which APT allegedly used to pay for the salaries of the mill
workers; (2) the proceeds of the sale of UPSUMCO sugar PNB sold in
September 1987; and (3) a sum of money respondent APT withdrew from
UPSUMCO's account in the Rural Bank of Bais City and placed in an escrow
account at PNB Dumaguete. UPSUMCO claimed that it is entitled to recover
these amounts as APT had condoned its deficiency obligation. UPSUMCO
subsequently amended its complaint to pray for the remittance of the
proceeds of all UPSUMCO sugar PNB sold after 27 August 1987 and that
respondents' liability be made solidary.
Respondents denied UPSUMCO's claims. PNB contended that as foreclosing
creditor, it had the prerogative to place UPSUMCO's accounts in PNB
Dumaguete in the name of APT. PNB added that this procedure is based on
the set-off clauses provided in the "covering instruments" of UPSUMCO's
loans. PNB counterclaimed for damages.
For its part, APT contended that UPSUMCO's claims have been "paid, waived,
abandoned or otherwise extinguished." As counterclaim, APT sought
payment of the deficiency from the foreclosure sale.
Pending trial, the trial court allowed UPSUMCO to examine the records of PNB
relating to UPSUMCO's accounts in PNB Dumaguete and PNB Escolta. In the
course of such examination, UPSUMCO found out that, as of latest updating,
the credit balance in its five savings accounts in PNB Dumaguete
wasP1,489,656.80.17 For its bank account in PNB Escolta, UPSUMCO learned
that as of 26 November 1986, it had a credit balance of P352,869.28 which,
however, PNB refused to release. UPSUMCO also discovered the following: (1)
on 27 August 1987, PNB transferred to APT's bank account UPSUMCO's
deposits from its five savings accounts in PNB Dumaguete amounting
to P14,316,593.29; (2) Santos, as APT's comptroller, withdrew the funds in
UPSUMCO's bank accounts in the Rural Banks of Bais City and Manjuyod and

deposited them to APT's bank account in PNB Dumaguete; (3) from 27

August 1987 to 8 December 1987, PNB credited to APT's bank account,
through credit memoranda, the proceeds from the sale of UPSUMCO's sugar
amounting to P74,563,823.80; and (4) on 2 September 1987 and 2 October
1987, PNB paid PHILSUCOR P41,407,444.95. UPSUMCO adopted as part of its
evidence the documents showing these transfers and payments.
The Ruling of the Trial Court
In its Decision 18 of 27 April 1992, the trial court rendered judgment for
UPSUMCO and ordered respondents, singly and solidarily, to pay UPSUMCO,
with interest, the following: (1) the credit balance, as of 13 February 1990, in
UPSUMCO's five savings accounts in PNB Dumaguete and the deposits from
these accounts PNB credited to APT on 27 February 1987; (2) the deposits in
UPSUMCO's bank accounts in the Rural Banks of Bais City and Manjuyod
Santos transferred to APT; (3) the proceeds of the sale of UPSUMCO sugar
PNB transferred to APT from 27 August 1987 to 8 December 1987; (4) the
payments PNB made to PHILSUCOR; (5) the credit balance, as of 26
November 1986, in UPSUMCO's bank account in PNB Escolta; (6) the milling
plant's maintenance and operating expenses from 3 September 1987 to
January 1988 which UPSUMCO paid; and (7) attorney's fees. The trial court
also ordered respondents to solidarily pay exemplary damages. 19 The trial
court held:
Crystal[l]izing in simpler terms the facts, it appears that the [UPSUMCO] was
both a debtor and depositor[], and that defendant PNB was both a creditor
and a depository bank. When Proclamation No. 50 was issued by President
Aquino on [December 8, 1986] and defendant PNB executed in favor of
defendant APT a deed of assignment of its rights and interest on certain
corporations, UPSUMCO's debt was included which indebtedness total[]ed as
of June 30, 1987 in the amount ofP2,137,076,433.15. Defendants PNB and
APT jointly executed foreclosure proceedings against the properties of
[UPSUMCO] covered by mortgages and pledges. Prior, on and after the
foreclosure proceedings, defendant PNB paid Philippine Sugar Corporation
out of [UPSUMCO's] funds and deposits. At the foreclosure sale, on August
27, 1987, defendant APT was the winning bid [sic] in the amount
of P450,000,000.00. Thus, deducting the amount of the winning bid, there
remained a deficiency balance of P1,687,076,433.15. On September 3, 1987,
[UPSUMCO] and defendant APT entered into a Deed of Assignment (Exh. "K")
and [the] term[s] substantially stated that in consideration of [UPSUMCO's]

[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

obligation, less the amount condoned in the Deed of Assignment and

theP450,000,000.00 proceeds of the foreclosure. As transferee of these
deposits, APT has the right to use and enjoy these funds as it deems fit, in
furtherance of its role under Proclamation No. 50. We find nothing irregular
either in the transfer of the proceeds of the sugar sold to APT x x x. As
previously mentioned, the obligations secured by these objects were not
included in the Deed of Assignment and have not been condoned.
xxx
On APT's counterclaim that it is still entitled to recover deficiency balance
from UPSUMCO, it is not clear from the record how much deficiency balance
there is, if any. It is not disputed that as of June 30, 1987, the total obligation
of UPSUMCO amounted to P2,137,076,433.15. x x x Thereafter, it applied
UPSUMCO's deposits as well as the sugar and molasses sales to UPSUMCO's
remaining obligation. However, APT failed to present an accounting of
UPSUMCO's entire obligation and the total amount of payments already
made. We could not make an award based on conjectures. APT has the duty
to prove its claims against UPSUMCO, and the latter is entitled to know how
much it already paid and to which obligations these payments were applied.
Finally, although the foreclosure yielded only P450,000,000.00, APT is still
duty-bound to render an accounting for all the money which had been
transferred to its account as well as the proceeds of the sugar and molasses
sale. Only after such accounting has been completed could this Court decide
how much it is still entitled to recover from UPSUMCO.
Correlatively, before we could decide on whether any balance remains in
favor of UPSUMCO and whether it is entitled to recover the funds expended
for the operation of the mill and the wages of the mill workers, the
aforementioned accounting should first be completed. 21 (Emphasis in the
original)
UPSUMCO sought reconsideration but the Court of Appeals denied its motion
in the Resolution of 29 October 1996.
Hence, this petition. UPSUMCO contends that:
(A) THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDINGS AND
CONCLUSION THAT EXCEPT FOR THE P2,137,076,433.15 PAST DUE OR
DELINQUENT ACCOUNTS OF UPSUMCO, COMPUTED AND DETERMINED AS OF

JUNE 30, 1987 WITH THE CONFORMITY OF UPSUMCO, WHOSE COLLATERALS

WERE EXTRAJUDICIALLY FORECLOSED BY PNB AND APT, UPSUMCO HAS
OTHER UNPAID OBLIGATIONS TO PNB WHICH IT SUBSEQUENTLY
TRANSFERRED TO APT.
(A-1) AS A SIGNATORY IN THE STATEMENT OF ACCOUNT-SUMMARY COVERING
THE PAST DUE ACCOUNTS OF UPSUMCO AS OF JUNE 30, 1987 TO PNB AND
PHILSUCOR FOR PURPOSES OF EXTRAJUDICIAL FORECLOSURE [PNB] KNEW IT
WAS FULLY PAID OF ITS OPERATIONAL LOANS GRANTED ON PER CROP YEAR
BASIS TO UPSUMCO.
(A-2) PNB IS ONLY A NOMINAL PARTY IN THE EXTRAJUDICIAL FORECLOSURE,
AS ATTORNEY-IN-FACT OF THE PHILIPPINE SUGAR CORPORATION
(PHILSUCOR).
(A-3) KNOWLEDGE OF FOREGOING FACTS PRECLUDED PNB AND APT FROM
ALLEGING IN THEIR RESPECTIVE PLEADINGS CLAIMS OR COUNTERCLAIMS
CONSTITUTING OTHER UNPAID OBLIGATIONS OF UPSUMCO TO PNB OR APT - - THERE BEING NONE.
(A-4) THE PRE-TRIAL BRIEFS OF PNB AND APT DO NOT RAISE ANY ISSUE
CONCERNING OTHER UNPAID OBLIGATIONS OF UPSUMCO TO PNB/APT.
(A-5) NO EVIDENCE OF DEMAND WAS MADE BY PNB AND APT TO ENFORCE
COLLECTION OF OTHER UNPAID OBLIGATIONS ON UPSUMCO, IF TRUE.
(A-6) PNB AND APT ALLOWED UPSUMCO UNIMPEDED ENJOYMENT OF ITS
DEPOSITS AS AN EXERCISE AND ATTRIBUTE OF OWNERSHIP IN OTHER BANK
BRANCHES OF PNB AFTER THE EXTRAJUDICIAL FORECLOSURE, AND IN OTHER
BANKS WHERE UPSUMCO HAS BANK DEPOSITS. ACTS WHICH AMOUNTED TO
RELEASE AND DISCHARGE OF UPSUMCO'S OBLIGATIONS TO PNB, THENCE TO
APT.
(A-7) UPSUMCO PAID ITS CREDITORS FROM BANK DEPOSITS AND SUGAR
PROCEEDS MAINTAINED IN PNB, DUMAGUETE CITY BRANCH WITHOUT PNB
AND/OR APT OBJECTING. ANOTHER EVIDENCE OF RELEASE OF UPSUMCO
FROM ITS REMAINING OBLIGATIONS TO PNB/APT, IF ANY.
(A-8) OF THE ELIMINATION OF PNB'S REPRESENTATION, THENCE APT, IN THE
BOARD OF UPSUMCO DURING THE REGULAR ELECTION AT A
STOCKHOLDERS' MEETING ON NOVEMBER 11, 1987 WAS ANOTHER

INDELIBLE EVIDENCE THAT THE FINDINGS AND CONCLUSION OF THE COURT

OF APPEALS WERE PREMISED ON THE ABSENCE OF EVIDENCE AND IS
CONTRADICTED BY THE EVIDENCE ON RECORD CONCERNING ITS
ERRONEOUS FINDINGS ON "OTHER UNPAID OBLIGATIONS OF UPSUMCO.["]
(A-9) PNB COULD NOT HAVE ASSIGNED OR TRANSFERRED TO APT OTHER
LOAN ACCOUNTS OF UPSUMCO OBTAINED THRU QUEDAN FINANCING, BEING
CURRENT IN STATUS.
(A-10) CREDIT AGREEMENTS DATED FEBRUARY 19, 1987 AND APRIL 29, 1987
AND ALL OTHER INSTRUMENTS OF INDEBTEDNESS OF UPSUMCO IN 1984
AND 1987 WERE NOT INCLUDED IN THE FORECLOSED AMOUNT
OFP2,137,076,433.15 AND WERE NEITHER VALIDLY TRANSFERRED OR
ASSIGNED BY PNB TO APT ANYTIME THEREAFTER - BECAUSE OF THE STATUTE
OF FRAUD[.]
(A-11) CREDIT AGREEMENTS, PROMISSORY NOTES, AND TRUST RECEIPTS
WERE FORMALLY OFFERED IN EVIDENCE NOT TO ESTABLISH THE LIABILITY
OF UPSUMCO UNDER SAID INSTRUMENTS, BUT FOR DIFFERENT PURPOSES.
(B) THE DECISION OF THE COURT OF APPEALS IS CONTRARY TO THE LAWS
ON NOVATION AND COMPENSATION AND THE SETTLED AND APPLICABLE
DOCTRINES THEREON WHERE THE TRIAL COURT HAS APTLY AND CORRECTLY
APPLIED IN ITS DECISION DATED APRIL 27, 199[2.]
(B-1) THERE IS NO DEFICIENCY BALANCE REMAINING THAT UPSUMCO COULD
BE HELD LIABLE TO PAY AS A RESULT OF THE EXECUTION OF THE DEED OF
ASSIGNMENT ON SEPTEMBER 3, 1987. AND SHOULD THERE BE ANY, PNB'S
RIGHTS UNDER SAID CREDIT AGREEMENTS AND OTHER INSTRUMENTS OF
INDEBTEDNESS HAS BECOME FUNCTUS OFFICIO, THAT COMPENSATION WAS
NO LONGER PROPER.
(B-2) APT IS NOT ENTITLED TO COMPENSATION OTHERWISE THERE WOULD
BE DOUBLE PAYMENT.
(B-3) PNB, AFTER FEBRUARY 27, 1987 COULD NO LONGER INVOKE
COMPENSATION[.]
(C) IN FAILING TO AFFIRM THE LIABILITY OF PNB TO UPSUMCO WHEN PNB
PAID PHILIPPINE SUGAR CORPORATION (PHILSUCOR) THE TOTAL AMOUNT

OFP41,407,444.75 WITHOUT THE KNOWLEDGE AND AUTHORITY FROM THE

BOARD OF DIRECTORS OF UPSUMCO.
(D) IN ORDERING THE REMAND OF THE CASE TO THE LOWER COURT WHEN
IT COUL[D] HAVE DECIDED THE CASE BASED ON THE EVIDENCE ON
RECORD.22
In their respective Comments, respondents claim that the Court should deny
the petition outright for raising questions of fact instead of questions of law.
Alternatively, respondents maintain that the Court of Appeals did not commit
any reversible error.
The Issues
The petition raises the following issues:
(1) Procedurally, whether the petition should be denied outright for raising
factual questions; and
(2) On the merits
(a) Whether UPSUMCO has any outstanding obligations to respondents, and,
in the negative,
(b) Whether UPSUMCO is entitled to all the monetary awards the trial court
ordered respondents to pay.
The Ruling of the Court
The petition has merit. With some modifications, we reinstate the trial court's
ruling.
On Whether the Petition Deserves Outright Denial
Respondents correctly observe that the petition raises questions of fact
instead of questions of law because the issues call for a determination of the
truth or falsity of alleged facts and not of what the law is on a certain state of
facts.23 However, respondents err in concluding that, for this reason, the
petition deserves outright denial. Although under Section 1, Rule 45 of the
1997 Rules of Civil Procedure, this Court will resolve only questions of law in
a Petition for Review, 24 this rule is subject to several exceptions and one of

these is when, as here, the lower courts arrived at conflicting findings of

fact.25 For this reason, we opt to review this case.
UPSUMCO
Has
Unpaid Obligations to Respondents

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,

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. 30(Emphasis
supplied)cralawlibrary
Taken together, these two documents support UPSUMCO's claim that, as
stated in its Resolution of 3 September 1987, APT condoned "any deficiency
amount it may be entitled to recover x x x after [foreclosing the mortgages
securing] the obligations under the Credit Agreement dated November 5,
1974 and the Restructuring Agreements dated June 24 and December 10,
1982, and May 9, 1984." Indeed, the Deed of Assignment should not be
treated in isolation but considered in the larger context of the APT initiated
"friendly foreclosure" of UPSUMCO's mortgaged assets.
During the trial, it was disclosed that APT offered UPSUMCO the following
incentives for the latter to agree to the expedited foreclosure (to enable APT
to quickly dispose of the mortgaged properties, as it did sell them to
URSUMCO less than a month after the Deed of Assignment's signing): (1) a
5% "preference" or mark-up on UPSUMCO's bid price in the auction sale of
the foreclosed properties, or, should UPSUMCO lose in the bidding, a cash
payment equivalent to 5% of the winning bid; (2) the waiver of the solidary
obligation of UPSUMCO's Directors; and (3) the condonation of any deficiency
from the foreclosure sale.31 APT made good on its word by releasing
UPSUMCO's Directors from their solidary liability, executing the Deed of
Assignment, and paying UPSUMCO P25 million in April 1988 (representing 5%
of URSUMCO's P500 million winning bid).32 Thus, we find unconvincing APT's
claim here that the Deed of Assignment condoned only a portion of
UPSUMCO's deficiency obligation. Significantly, UPSUMCO and APT's

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

On Civil Case No. 63-B

1. [UPSUMCO] is hereby ordered released and discharged from any and all
claims that the defendant [PHILSUCOR] may have against the former;
x x x x34
(Underlining in the original; boldfacing supplied)
PHILSUCOR appealed to the Court of Appeals but that court affirmed the trial
court's ruling in its Decision 35 dated 15 October 1997 in CA G.R. CV No.
46957, the dispositive portion of which provides:
WHEREFORE, the decision appealed from is AFFIRMED with the
MODIFICATION that the defendant-appellant, the PHILIPPINE SUGAR
CORPORATION[,] is held liable to plaintiff-appellant, the UNITED PLANTERS
SUGAR MILLING [COMPANY], INC., for attorney's fees in the amount
equivalent to ten percent (10%) of the award for compensatory damages
allowed by the court below.36
PHILSUCOR further appealed to this Court but we dismissed its petition
outright in the Resolution of 30 March 1998 in G.R. No.
132731.rbl r l l lbrr
This ruling became final on 6 August 1998. The doctrine of stare
decisis provides that a conclusion reached in one case should, for the sake of
certainty, be applied to those which follow, if the facts are substantially the
same, even though the parties may be different. 37 Accordingly, we apply the
conclusion in the PHILSUCOR Case here.

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

Aside from wiping-out all of UPSUMCO's deficiency obligation, the Deed of

Assignment also ended any right PNB and/or APT had to set-off UPSUMCO
funds.38 Although UPSUMCO and APT signed the Deed of Assignment on 3
September 1987, we hold that its effectivity should properly retroact to the
date of the foreclosure on 27 August 1987 considering that the Deed of
Assignment was part of the APT-sponsored "friendly foreclosure" of
UPSUMCO's assets, entailing UPSUMCO's waiver of its redemption right.
Hence, the cut-off date for PNB and/or APT to set-off UPSUMCO funds was 26
August 1987. From 27 August 1987 onwards, all UPSUMCO funds under the
control or possession of respondents belonged wholly to UPSUMCO. What
PNB did here was (1) pay PHILSUCOR's deficiency claim against UPSUMCO;
(2) transfer to APT's account, upon the latter's request, UPSUMCO's bank
deposits in PNB Dumaguete; (3) transfer to APT, through credit memos, the
proceeds of the sale of UPSUMCO sugar; and (4) appropriate the bank
deposit in UPSUMCO's account in PNB Escolta on or after 27 August 1987.
Similarly, Santos, as APT comptroller, withdrew funds from UPSUMCO's bank
accounts in the Rural Banks of Bais City and Manjuyod and deposited them
to APT's bank account in PNB Dumaguete on and after 27 August 1987,
respectively.
On the Monetary Awards UPSUMCO is Entitled
Accordingly, we affirm the trial court's ruling ordering PNB and/or APT to pay
UPSUMCO (1) the credit balance in UPSUMCO's savings accounts in PNB
Dumaguete, PNB Escolta, and the Rural Banks of Bais City and Manjuyod,
Negros Oriental; (2) the deposits from UPSUMCO's savings accounts in PNB
Dumaguete PNB transferred to APT; (3) the proceeds from the sale of
UPSUMCO sugar from 27 August 1987 onwards which PNB credited to APT;
and (4) the amounts paid to PHILSUCOR. UPSUMCO did not include in its
Complaint the last item because it could not have done so, having
discovered the documentary evidence on this matter only during the course

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