G.R. No. 126890 - United Planters Sugar Milling Co., Inc. vs. Court of Appeals

Case Summary (G.R. No. 126890)

Factual Background

UPSUMCO obtained take-off loans from PNB in 1974 to finance a sugar milling plant; those loans were secured by real estate mortgages over two parcels and by chattel mortgages over machinery and equipment, and required UPSUMCO to open deposit accounts with PNB from which the bank could apply deposited funds to unpaid obligations. Between 1984 and 1987 UPSUMCO also contracted operational loans from PNB, secured by pledges and assignments of sugar and molasses receivables and containing similar set-off clauses permitting the bank to apply deposits to unpaid obligations.

Transfer to the Government and Foreclosure

On 27 February 1987 PNB assigned its rights, titles and interests over UPSUMCO to the Government under Presidential Proclamation No. 50, and those rights were thereafter held or managed by APT. An extrajudicial foreclosure sale was conducted on 27 August 1987, and APT purchased the auctioned properties for P450,000,000. Seven days later, on 3 September 1987, UPSUMCO executed a Deed of Assignment assigning its right to redeem the foreclosed properties to APT in consideration of APT “condoning any deficiency amount it may be entitled to recover” under the Credit Agreement dated 5 November 1974 and certain Restructuring Agreements.

Trial Court Proceedings and Judgment

UPSUMCO sued PNB and APT on 10 March 1989 for sums allegedly illegally appropriated and for damages, alleging that the parties had withdrawn funds from its bank accounts and applied sale proceeds in violation of a purported agreement that all its accounts had been condoned. The Regional Trial Court found for UPSUMCO. The RTC concluded that the Deed of Assignment condoned all of UPSUMCO’s loans, held that APT or PNB had no right to appropriate the deposits, and ordered extensive awards of principal, interest, exemplary damages and attorney’s fees against the respondents.

Court of Appeals Ruling

On appeal the Court of Appeals reversed the RTC in part and held that the Deed of Assignment expressly condoned only the take-off loans identified in that instrument and did not condone the operational loans. The appellate court concluded that APT was entitled to apply funds from UPSUMCO’s PNB accounts to the extent of UPSUMCO’s remaining obligations under the operational loans, less the amounts condoned by the Deed of Assignment and the P450,000,000 foreclosure proceeds, and remanded the case to the RTC for accounting and computation of outstanding balances.

Supreme Court Initial Disposition and Motions for Reconsideration

This Court, in a Decision dated 28 November 2006, reversed the Court of Appeals by holding that both the take-off loans and the operational loans were condoned by the Deed of Assignment and that the Deed retroacted to the date of the foreclosure sale, 27 August 1987. Respondents moved for reconsideration. A subsequent 11 July 2007 Resolution reaffirmed the Court’s ruling but acknowledged that only the take-off loans had been condoned; the Court nonetheless found respondents had not proven remaining obligations under the take-off loans. Respondents filed a second motion for reconsideration, which the Court en banc accepted for consideration.

Supreme Court Majority Ruling on Second Motion

The en banc Court granted the second motion for reconsideration and reinstated the 29 February 1996 Decision of the Court of Appeals. The Court held that the operative language of the Deed of Assignment expressly referred only to the Credit Agreement dated 5 November 1974 and the specified Restructuring Agreements, and therefore the Deed condoned only the take-off loans and not the operational loans. The Court reaffirmed that where a written instrument contains the parties’ agreement, its plain terms must be enforced, and that the Deed contained no clear provision giving the condonation retroactive effect to the date of the foreclosure sale.

Application of Bank Set-off Rights and Assignment of Credit

The Court explained that UPSUMCO’s deposit accounts with PNB and the stipulations in the operational loan documents gave PNB, and later APT as assignee, the contractual right to apply deposited funds to unpaid obligations. The Court recognized that although assignment to APT terminated the original mutual creditor-debtor relation with PNB, PNB and UPSUMCO had agreed to conventional compensation and that the assignment included accessory rights; consequently APT, as assignee of the creditor’s rights, was entitled to exercise the right to apply deposits to unpaid obligations until such obligations were condoned.

Parol Evidence and Retroactivity of Condonation

The Court applied the parol evidence doctrine under Rule 130, Sec. 9, holding that where the terms of an agreement have been reduced to writing the written instrument is deemed to contain all the terms agreed upon and extrinsic evidence generally is inadmissible to alter or add to those terms. The Court found that UPSUMCO failed to plead and prove with clarity that the Deed of Assignment was intended to retroact to 27 August 1987, and that no admissible evidence proved such retroactivity. The Court therefore rejected UPSUMCO’s contention that the Deed operated retroactively to void the transfers and applications of funds occurring between 27 August and 3 September 1987.

Accounting, Remand and Computation of Entitlement

The Court observed that the challenged debits from UPSUMCO’s accounts from 27 August to 3 September 1987 totaled about P80,200,806.41 and that only on 3 September 1987 did the take-off loans become condoned by the Deed. The Court recognized that APT retained the right after 3 September 1987 to apply funds to outstanding operational loans and that amounts debited after 3 September, approximately P17,773,185.24, might have been applied properly or in excess of UPSUMCO’s operational liabilities. Because the record did not plainly establish the outstanding balance of operational loans at each point funds were debited, the Court found the Court of Appeals’ remand for accounting and computation to be the appropriate, fair remedy and therefore reinstated that disposition.

Disposition

The en banc Court granted the second

Case Syllabus (G.R. No. 126890)

Parties and Procedural Posture

Petitioner United Planters Sugar Milling Co., Inc. (UPSUMCO) filed a complaint for sum of money and damages against Philippine National Bank (PNB) and Asset Privatization Trust (APT) before the Regional Trial Court (RTC) of Bais City.
The RTC rendered judgment in favor of UPSUMCO, awarding monetary recovery and damages against PNB and APT and ordering various specific sums returned.
PNB and APT appealed to the Court of Appeals, which reversed in part and remanded for accounting in a Decision dated 29 February 1996.
The Supreme Court rendered a Decision dated 28 November 2006 reversing the Court of Appeals, and a Resolution dated 11 July 2007 reaffirmed that Decision by a three-to-two vote.
Respondents filed Second Motions for Reconsideration which the Court en banc accepted and granted, thereby reinstating the Court of Appeals Decision of 29 February 1996.
The final operative disposition reinstated the Court of Appeals judgment and directed remand to the trial court for accounting and computation of recoverable amounts.

Key Factual Allegations

UPSUMCO obtained "take-off" loans from PNB embodied in a Credit Agreement dated November 5, 1974, which were restructured in 1982 and 1984 and secured by real estate mortgages covering Transfer Certificates of Title Nos. T-16700 and T-16701 and by chattel mortgages on machinery.
Between 1984 and 1987 UPSUMCO obtained operational loans from PNB secured by pledge agreements assigning sugar and molasses receivables and containing express bank set-off clauses.
PNB assigned its rights in UPSUMCO to the Government by Deed of Transfer dated 27 February 1987 under Proclamation No. 50, and the Government transferred those rights to APT.
An extrajudicial foreclosure sale occurred on 27 August 1987, at which APT purchased the foreclosed properties for P450,000,000.00.
On 3 September 1987 UPSUMCO executed a Deed of Assignment assigning its right to redeem the foreclosed properties to APT in consideration of APT "condoning any deficiency amount" it might be entitled to recover under the November 5, 1974 Credit Agreement and specified Restructuring Agreements.
From 27 August to 3 September 1987 about P80,200,806.41 was debited from UPSUMCO accounts, and after 3 September 1987 about P17,773,185.24 was debited; the parties disputed the entitlement to these amounts.
UPSUMCO amended its complaint and alleged that all of its accounts were condoned and that PNB and APT illegally appropriated deposited funds and proceeds of sugar sales after the foreclosure.

Statutory Framework

The authority for PNB's assignment to the Government and the creation and powers of APT derived from Proclamation No. 50.
The parol evidence rule and its exception are embodied in Section 9, Rule 130 of the Revised Rules of Court.
Relevant Civil Code provisions cited include Art. 1278, Art. 1279, Art. 1282, Art. 1291, Art. 1301, Art. 1303, Art. 1359, Art. 1378, and provisions on assignment such as Art. 1624 and Art. 1627 as they appear in the records.
The lending instruments and promissory notes expressly granted the bank the right to apply deposits and proceeds to satisfy unpaid obligations under the credit accommodations.

Issues Presented

Whether the Deed of Assignment dated 3 September 1987 condoned both the take-off loans and the operational loans or only the take-off loans.
Whether the Deed of Assignment took effect retroactively to the date of the foreclosure sale on 27 August 1987.
Whether APT (as assignee of PNB) and PNB had the legal right to apply funds from UPSUMCO's bank accounts to satisfy outstanding indebtedness before and after 3 September 1987.
Whether parol evidence was admissible to prove an alleged agreement that all accounts were condoned or that condonation was retroactive.
Whether APT acted within its powers under Proclamation No. 50 and whether PNB is jointly and severally liable for the transfers to APT.

Contentions of the Parties

UPSUMCO contended that as a condition of the "friendly foreclosure" APT condoned all accounts and that condonation operated retroactively to the foreclosure sale, entitling UPSUMCO to return of all deposits and proceeds taken after 27 August 1987.
PNB and APT contended that the Deed of Assignment express