G.R. No. 244437 - Heirs of Pajares vs. North Sea Marine Services Corp.

In February 1974, President Ferdinand E. Marcos issued PD No. 388, creating the Philippine Sugar Commission (PHILSUCOM) as the sole buying and selling agent of sugar at the quedan permit level.
In November 1974, PD No. 579 authorized the Philippine Exchange Company, Inc. (PHILEXCHANGE), a wholly owned subsidiary of Philippine National Bank (PNB), as PHILSUCOM’s marketing agent. Under PD 579, PHILEXCHANGE’s sugar purchases were financed by PNB, with proceeds used to pay PHILEXCHANGE's loan obligations to PNB.
In February 1975, PD No. 659 designated PHILEXCHANGE and/or PNB as the government's exclusive sugar trading agencies for buying sugar from planters or millers and selling or exporting them.

PHILEXCHANGE initially paid obligations to PNB but eventually defaulted on loans amounting to ₱206,070,172.57 due to a global decline in sugar prices.
In July 1977, the National Sugar Trading Corporation (NASUTRA) replaced PHILEXCHANGE as PHILSUCOM’s marketing agent, with PHILEXCHANGE turning over sugar quedans (warehouse receipts) to NASUTRA without physical inventory being made.
NASUTRA and PHILSUCOM failed to pay PHILEXCHANGE for the sugar stocks valued at ₱498,828,845.03 as of June 30, 1984, leading to PHILEXCHANGE’s inability to pay its obligations to PNB.

In 1981, NASUTRA obtained a ₱408 million revolving credit line from PNB to finance sugar trading operations, with promissory notes executed upon each drawdown.
PHILSUCOM issued Circular Letter No. EC-4-85 in 1985, regarding stabilization of sugar prices and proposing that sugar produced during crop year 1984-1985 be treated as domestic sugar.
A liquidation scheme was proposed whereby upon notice from NASUTRA, PNB would credit sugar proceeds to producers/millers' loan accounts and treat these as NASUTRA’s loans, with NASUTRA absorbing interest accruing five days after receipt of quedans.
PNB approved this liquidation scheme via Resolution No. 353 dated May 20, 1985.

Despite the liquidation scheme, NASUTRA and PHILSUCOM failed to remit interest payments of ₱65,412,245.84 in 1986.
President Marcos dissolved NASUTRA in January 1986 under PD 2005; NASUTRA’s sugar trading records were destroyed during the February 1986 Edsa Revolution.
In May 1986, President Corazon Aquino issued EO No. 18 abolishing PHILSUCOM and creating the Sugar Regulatory Administration (SRA), transferring assets and interests from PHILSUCOM and NASUTRA to SRA.
NASUTRA established a trusteeship in January 1989 to liquidate and settle accounts but still defaulted on loans of ₱389,246,324.60 to PNB.

PNB received total foreign remittances of US$36,564,558.90 (₱696,281,405.09) representing proceeds from NASUTRA’s sugar exports, which it applied to settle NASUTRA/PHILSUCOM’s debts with PNB and PHILEXCHANGE, including loans and interest claims.
The distribution of remittances included payments of ₱389,246,324.60 on NASUTRA account, ₱15,863,898.79 for CAB planters’ claims, ₱65,412,245.84 covering unpaid interest, and ₱206,070,172.57 for PHILSUCOM’s account with PHILEXCHANGE.
A balance of ₱19,688,763.29 remained unapplied but was then applied by PNB to PHILSUCOM’s account with PHILEXCHANGE and was likewise applied to PHILEXCHANGE’s account with PNB.

NASUTRA requested documents and explanations from PNB about disposition and accounting of remittances but claimed PNB failed to provide satisfactory information.
NASUTRA and SRA filed for arbitration with the Department of Justice (DOJ) in 1991, challenging the legality of PNB’s application of remittances.
The DOJ ruled that PNB’s application of remittances to certain accounts was valid but ordered PNB to pay NASUTRA ₱206,070,172.57 and ₱15,863,898.79 plus interest for remittances applied to PHILSUCOM and plant claims.
Both parties appealed to the Office of the President, which affirmed DOJ’s ruling with modification, declaring PNB's application of ₱225,758,935.86 and ₱15,863,898.79 as legal and valid.
Petitioners’ motion for reconsideration was denied; they then filed a petition for review with the Court of Appeals, which dismissed the petition in 2001.
Petitioners filed a motion for reconsideration with the CA, which was denied on December 12, 2001, leading to the present petition for review before the Supreme Court.

Whether the Court of Appeals erred in upholding the legality and validity of PNB’s offsetting or compensation of foreign remittances against NASUTRA’s and PHILEXCHANGE’s accounts despite the alleged lack of creditor-debtor relationship.

Whether the relationship between PNB and NASUTRA was that of trustee and beneficiary, thereby precluding legal compensation by operation of law.

Whether PNB could apply remittances to PHILEXCHANGE’s account despite PHILEXCHANGE’s separate corporate personality from PNB.

Whether the payments applied toward the Central Azucarera de Bais (CAB) Planters account and other claims were proper given the unliquidated status of the accounts and the provisions of Republic Act No. 7202 (Sugar Reconstitution Law).