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PITC v. THRESHOLD PACIFIC CORP.

FACTS:

The case involves a complaint for Sum of Money filed by petitioner Philippine International Trading Corporation (PITC) against respondents Threshold Pacific Corporation (TPC) and Edgar Rey A. Cuales (Cuales) before the Regional Trial Court (RTC), Branch 139, Makati City. PITC is a government-owned and controlled corporation created to engage in or handle foreign procurement, marketing, and distribution. TPC is a domestic corporation, and Cuales is its Managing Director.

The dispute arose from three key instruments executed between PITC and TPC, namely, the Import Financing Agreement (IFA) dated July 5, 1993, the 1st Addendum to the IFA (1st Addendum) dated July 6, 1993, and the 2nd Addendum to the IFA (2nd Addendum) dated November 4, 1993. These agreements pertained to PITC providing financial assistance to TPC for the importation of urea fertilizers.

The facts of the case involve a loan agreement between the Philippine International Trading Corporation (PITC) and the Tarlac Planters Association, Inc. (TPAI), represented by its President Antonio Laperal, Jr. (Borrower). The loan agreement was entered into for the purpose of financing the purchase of fertilizer by TPAI. The loan agreement authorized ASPAI (Association of Sugar Planter Associations, Inc.) to enter into a sales contract with TPAI for the purchase of fertilizer on credit terms. The loan agreement also included provisions on interest, repayment schedule, loan security, events of default, and attorney's fees. Additionally, a 1st Addendum was executed between PITC and TPAI, which allowed for the partial disbursement of the loan to enable TPAI to purchase fertilizer locally.

The case involves a dispute between the Philippine International Trading Corporation (PITC) and Trade and Processing Corporation (TPC) over a loan agreement. On July 9, 1993, PITC opened a letter of credit in favor of La Filipina Uy Gongco Corp. for the purchase of fertilizers. TPC, as the assignor, executed a Deed of Assignment in favor of PITC, assigning all its rights, interests, claims, and benefits over quedans (sugar and molasses certificates) as collateral for the urea fertilizer import financing provided by PITC. On November 4, 1993, the parties executed a 2nd Addendum, amending the import financing agreement to allow TPC to source additional fertilizers from domestic suppliers using the loan granted by PITC. Rather than opening another letter of credit, PITC issued a check directly to TPC as payment for the fertilizers. However, on July 7, 1994, PITC filed a complaint against TPC for failure to pay the outstanding loan obligation.

ISSUES:

  1. Whether TPC is liable to PITC for the outstanding loan obligation.

  2. Whether TPC is merely an agent of PITC for the sale of urea fertilizers to ASPAI.

  3. A. Whether or not the transaction was indeed between PITC and TPC.

  4. B. Whether or not the Import Financing Agreement (IFA) and its addenda are simulated.

  5. What is the true nature of TPC's liability under the loan agreement?

  6. Is there an agency relationship between PITC and TPC as stipulated in the loan agreement?

  7. Whether respondents TPC and Cuales acted as mere agents of ASPAI in the loan transaction.

RULING:

  1. Yes, TPC is liable to PITC for the outstanding loan obligation. TPC failed to pay the loan obligation despite demand letters from PITC. TPC's failure to pay rendered it in default under the terms of the Financing Agreement, making it liable for the sum of P13,194,515.43.

  2. No, TPC is not merely an agent of PITC. Based on the acts of the parties, it is clear that TPC was not acting as a mere agent but as an independent borrower. TPC entered into loan agreements with PITC and issued post-dated checks to secure the loan. TPC also failed to submit the conforme of NOAH's ARK to enable PITC to acquire/obtain the sugar and molasses quedans. These acts show that TPC had direct obligations and liabilities to PITC, and it cannot be considered a mere agent.

  3. A. The Court of Appeals ruled that the transaction was not between PITC and TPC. It found that TPC and Cuales were mere agents of ASPAI and should not be held liable for their principal's default in the loan payments.

  4. B. The Court of Appeals also ruled that the IFA and its addenda were simulated and did not reflect the true intention of the parties. It considered the acts of PITC and ASPAI contemporaneous and subsequent to the loan documents, which showed that TPC was not a party to the transaction.

  5. The true nature of TPC's liability under the loan agreement is that TPC is the borrower who applied for financial accommodation from PITC to fund its importation of urea fertilizers. TPC is responsible for selling the fertilizers to ASPAI and is liable for the principal amount, interests, and penalties. TPC agreed to provide security for the loan through post-dated checks and sugar quedans.

  6. There is no express stipulation constituting TPC as ASPAI's agent in the loan agreement. The respondents failed to present evidence to prove that TPC is merely ASPAI's agent. Therefore, there is no agency relationship between PITC and TPC as stipulated in the loan agreement.

  7. The Court held that respondents TPC and Cuales did not act as mere agents of ASPAI in the loan transaction. The Court found that the evidence presented by respondents TPC and Cuales, particularly respondent Cuales' testimony, was not sufficient to establish that TPC was acting as ASPAI's agent. The Court emphasized that for an agency to exist, there must be a clear mandate from the principal specifically authorizing the act, and such authority must be duly established by competent and convincing evidence. The Court also gave more weight to the written loan instruments, which represented the parties' actual intent and agreement, over respondent Cuales' oral testimony. Consequently, the Court ruled that respondent TPC was liable to pay petitioner PITC the principal loan plus interests and other charges when these become due.

PRINCIPLES:

  • Failure to pay loan obligation despite demand renders the borrower liable for the outstanding amount.

  • Acts of the parties may determine the nature of their relationship, whether as principal-agent or independent borrower-lender.

  • An accommodation party assumes the obligation in favor of a third party and binds himself to pay the obligation when it becomes due.

  • The parties' true intention should prevail over the language used in a contract.

  • Acts contemporaneous and subsequent to a contract may be considered to determine the true intention of the parties.

  • The autonomy of contracting parties to establish terms and conditions of a contract, provided they are not contrary to law, morals, good customs, public order, or public policy.

  • The court's duty to interpret a contract and uphold the parties' intention.

  • The parole evidence rule, which generally excludes extraneous evidence to prove the terms and conditions of a written agreement, unless there is a specific averment that the written instrument does not express the true intent and agreement of the parties.

  • Presumptions of fairness, regularity, and observance of the ordinary course of business in loan transactions.

  • The burden of proof is on the party alleging the disparity between the written agreement and the parties' actual intention.

  • Loans embodied in notarized documents enjoy the presumptions of authenticity, genuineness, and regular execution, which may be overcome only by clear and convincing evidence.

  • An agent must possess a special power of attorney if he intends to bind his principal as a guarantor or surety, or to create or convey real rights over immovable property, including real estate mortgages. The authority given must be express, and there must be a clear mandate from the principal specifically authorizing the act. (Agency Law)

  • The agent's authority must be duly established by competent and convincing evidence other than the self-serving assertion of the party claiming that such authority was verbally given. (Agency Law)

  • Documentary evidence, particularly written or notarized documents, are more reliable than oral testimony. (Rules of Evidence)

  • In loan transactions, there are legal presumptions of fairness, regularity, and observance of the ordinary course of business accorded to loan documents. The burden is on the party disputing the loan to sufficiently overcome these presumptions. (Loan Transactions)

  • Parties are free to stipulate in their agreement the recovery and payment of attorney's fees. However, courts have the discretion to temper the amount of attorney's fees if found unreasonable. (Contractual Attorney's Fees)