UPSUMCO vs. Court of Appeals

A deed of assignment that condones "any deficiency amount" under specifically enumerated loan agreements (take-off loans) does not extend to other distinct loan obligations (operational loans) not mentioned therein; furthermore, the condonation takes effect on the date of execution of the deed, not retroactively to the date of foreclosure, thereby validating the creditor's application of payments from the debtor's bank accounts for outstanding obligations during the interim period based on conventional compensation.

The case arises from the financial distress of a sugar milling company that defaulted on loans obtained from a government bank. Pursuant to a privatization program under Presidential Proclamation No. 50, the government acquired these non-performing loans and transferred them to the Asset Privatization Trust (APT). To expedite the disposition of assets, APT and the debtor entered into a "friendly foreclosure" arrangement where the debtor waived its statutory redemption rights over foreclosed assets in exchange for the condonation of deficiency obligations. A dispute arose regarding the scope of the condonation—whether it covered all loans or only specific take-off loans—and the validity of the creditor's withdrawal of funds from the debtor's bank accounts during the period between the foreclosure sale and the execution of the condonation deed.

• In 1974, UPSUMCO obtained "take-off loans" from PNB to finance the construction of a sugar milling plant, covered by a Credit Agreement dated November 5, 1974, and thrice restructured through Restructuring Agreements dated June 24, 1982, December 10, 1982, and May 9, 1984.
• From 1984 to 1987, UPSUMCO contracted additional "operational loans" from PNB to finance its operations, evidenced by trust receipts, credit agreements, promissory notes, and pledge contracts.
• Both sets of loans contained set-off clauses authorizing PNB to apply any monies or securities on deposit to the payment of unpaid obligations; the operational loans were additionally secured by pledges of sugar produce.
• On February 27, 1987, PNB assigned its rights, titles, and interests over UPSUMCO to the Government pursuant to Presidential Proclamation No. 50, which were subsequently transferred to APT.
• On August 27, 1987, APT and PNB conducted an extrajudicial foreclosure sale of the mortgaged assets (securing the take-off loans), with APT purchasing the properties for P450,000,000.00.
• On September 3, 1987, UPSUMCO executed a Deed of Assignment transferring its right to redeem the foreclosed properties to APT in consideration of APT condoning "any deficiency amount" under the Credit Agreement dated November 5, 1974 and the Restructuring Agreements dated June 24, 1982, December 10, 1982, and May 9, 1984.
• Between August 27, 1987 and September 3, 1987, APT applied payments from UPSUMCO's PNB bank accounts amounting to approximately P80,200,806.41.
• After September 3, 1987, an additional P17,773,185.24 was debited from UPSUMCO's accounts.
• UPSUMCO filed a complaint alleging that respondents illegally appropriated funds through withdrawals from its bank accounts, application of sugar sale proceeds, and payment of operating expenses after September 3, 1987.

• UPSUMCO argued that it was the aggrieved party because its deposits were taken without prior knowledge and it was forced to forego redemption of assets due to uncontested foreclosure.
• It contended that the Deed of Assignment condoned all its accounts, including operational loans, as part of the "friendly foreclosure" agreement, not just the take-off loans specifically mentioned.
• It argued that the condonation took effect retroactively on August 27, 1987 (date of foreclosure), not September 3, 1987 (date of execution), rendering the withdrawal of P80,200,806.41 during the interim period illegal.
• It maintained that there was no legal basis for the withdrawals under conventional compensation because the amounts could not be subject to such compensation.
• It argued that the Court En Banc should not have taken cognizance of the second motions for reconsideration as it was not in accordance with the Rules of Procedure and the issues raised were belated.

• APT and PNB argued that the Deed of Assignment, by its terms, condoned only the take-off loans (Credit Agreement and Restructuring Agreements specifically listed), excluding the operational loans under the principle of expressio unius est exclusio alterius.
• They maintained that the condonation took effect only on September 3, 1987, the date of execution, not retroactively to August 27, 1987, as the deed contained no express provision for retroactivity.
• They asserted that between August 27 and September 3, 1987, APT had the right to apply payments from UPSUMCO's accounts for the outstanding take-off loans (which remained due until the condonation) and/or the operational loans (which were never condoned).
• They argued that after September 3, 1987, APT retained the right to apply payments from UPSUMCO's accounts to satisfy the outstanding operational loans.
• They claimed the right of set-off arose from conventional compensation based on the mutual agreement in the loan contracts, which was assigned to APT along with the credit.

• Procedural:
  • Whether the Supreme Court En Banc properly took cognizance of the respondents' second motions for reconsideration despite the prohibition under Section 2, Rule 52 of the Rules of Court.
• Substantive Issues:
  • Whether the Deed of Assignment dated September 3, 1987 condoned only the take-off loans or also included the operational loans.
  • Whether the condonation took effect retroactively on August 27, 1987 (date of foreclosure) or only on September 3, 1987 (date of execution of the Deed).
  • Whether APT had the right to apply payments from UPSUMCO's bank accounts between August 27, 1987 and September 3, 1987, and after September 3, 1987.
  • Whether the application of payments by PNB/APT constituted valid conventional compensation.

• Procedural:
  • The Court En Banc properly exercised its discretion to take cognizance of the second motions for reconsideration and refer the case to the En Banc because the issues involved were of transcendental importance, necessitating the rectification of the disposition and reversal of the Third Division's decision.
• Substantive:
  • The Deed of Assignment condoned only the take-off loans (Credit Agreement dated November 5, 1974 and Restructuring Agreements dated June 24, 1982, December 10, 1982, and May 9, 1984) and not the operational loans, applying the principle of expressio unius est exclusio alterius.
  • The condonation took effect on September 3, 1987, the date of execution of the Deed, not retroactively on August 27, 1987, as the deed contained no express provision for retroactivity and the parol evidence rule bars extrinsic evidence to vary the terms of the written agreement.
  • Between August 27 and September 3, 1987, APT had the right to apply payments from UPSUMCO's bank accounts as repayment for the take-off loans (which remained outstanding until September 3) and/or the operational loans (which were never condoned), based on conventional compensation.
  • After September 3, 1987, APT retained the right to apply payments from UPSUMCO's accounts to satisfy the outstanding operational loans.
  • The remand to the Regional Trial Court for accounting was proper to determine the exact amounts owed for operational loans and whether any excess payments were made after September 3, 1987.

• Expressio Unius Est Exclusio Alterius — The mention of specific items (take-off loans) in the Deed of Assignment necessarily excludes all others (operational loans) not mentioned.
• Conventional Compensation — A mode of extinguishing obligations where parties agree to compensate their mutual debts; unlike legal compensation, it does not require all requisites under Article 1279 of the Civil Code, particularly the mutual creditor-debtor relationship between the assignee and debtor, as the assignee steps into the shoes of the original creditor and inherits the rights under the compensation agreement.
• Parol Evidence Rule (Section 9, Rule 130, Rules of Court) — When the terms of an agreement are reduced to writing, it is considered as containing all the terms agreed upon, and no evidence of such terms other than the contents of the written agreement is admissible, except where the failure to express the true intent is put in issue in the pleading.
• Assignment of Credit — The assignee of a credit acquires the rights of the assignor, including rights under clauses providing for conventional compensation, and may exercise set-off rights against the debtor's deposits.

• "The Deed of Assignment condoned only the take-off loans, and not the operational loans."
• "The phrase 'any deficiency amount' could refer not only to the remaining deficiency amount after the 27 August foreclosure sale, but also the remaining deficiency amount as of 3 September 1987, when the Deed of Assignment was executed and after APT had exercised its right as creditor to apply payments from petitioner's PNB accounts."
• "As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB and UPSUMCO ceased to exist. However, PNB and UPSUMCO had agreed to a conventional compensation, a relationship which does not require the presence of all the requisites under Article 1279."
• "The doctrine of stare decisis et non quieta movere or principle of adherence to precedents does not apply to the present case so as to bar the Court en banc from taking cognizance over the case which rectified the disposition of the case and reversed and set aside the Decision rendered by a Division thereof."

• United Planters Sugar Milling Co., Inc. (UPSUMCO) v. Philippine Sugar Corporation — Cited by the dissent as controlling precedent establishing that APT condoned all deficiency claims in exchange for waiver of redemption rights; the majority distinguished or effectively overturned its application to the extent it suggested all loans were condoned.
• Ortigas and Company Limited Partnership v. Velasco — Cited regarding the rule that the Court En Banc is not an appellate court to which decisions of a Division may be appealed, but exceptions exist for matters of transcendental importance.
• Tala Realty Services Corp. v. Banco Filipino Savings and Mortgage Bank — Cited regarding the doctrine of stare decisis.
• Moran v. Court of Appeals — Cited by the dissent to establish the relationship between depositor and bank as creditor-debtor.

• Article 1278, Civil Code — Defines compensation as taking place when two persons are creditors and debtors of each other.
• Article 1279, Civil Code — Enumerates requisites for legal compensation.
• Article 1236, Civil Code — Provides rules on payment by a third person.
• Section 9, Rule 130, Rules of Court — Parol evidence rule exception when the failure of the written agreement to express true intent is put in issue.
• Section 2, Rule 52, in relation to Section 4, Rule 56, Rules of Court — Prohibition on second motions for reconsideration except for extraordinarily persuasive reasons.
• Circular No. 2-89, Section 3 — Rules on referral of cases to the Court En Banc.

• Carpio, J. — Argued that the operational loans were never assigned to APT and remained with PNB; thus, APT could not claim payment for operational loans. He maintained that the Deed of Assignment condoned all deficiency obligations (not just take-off loans) as part of the "friendly foreclosure" agreement, and that PNB's diversion of funds to APT constituted payment by a third party under Article 1236, not conventional compensation, since PNB was no longer a creditor of UPSUMCO for the take-off loans after the assignment to APT. He also criticized the majority for allowing respondents to raise the operational loans theory only in their second motion for reconsideration.