This resolves the Motions for Reconsideration of respondents Philippine National Bank (PNB) and Asset Privatization Trust (APT)^[1] of the Decision dated 28 November 2006 (Decision). The Decision ordered PNB and APT to pay sums of money to petitioner United Planters Sugar Milling Company, Inc. (UPSUMCO), reversing the Court of Appeals' ruling to remand the case for the presentation of APT's evidence.

For a better understanding of this case, we summarize the essential facts and relevant issues, as follows:

On 27 February 1987, PNB assigned to APT its "take-off loans" to UPSUMCO as of June 30, 1986, including the mortgages on these take-off loans. PNB did not assign to APT any "operating loans" of UPSUMCO. The total indebtedness of UPSUMCO on the take-off loans was P2,137,076,433.15 as of 30 June 1987. On 27 August 1987, APT foreclosed the mortgages on the take-off loans. The foreclosure price was P450,000,000, leaving a deficiency of P1,687,076,433. On 3 September 1987, in consideration of UPSUMCO"s assignment to APT of UPSUMCO's right to redeem the foreclosed assets, APT condoned "any deficiency amount" of UPSUMCO after the foreclosure.

1. After the assignment of the take-off loans on 27 February 1987, can PNB, as collecting agent of APT, set-off by way of legal compensation deposits of UPSUMCO with PNB against the take-off loans? No, because PNB, as of 27 February 1987, ceased to be a principal creditor of UPSUMCO on the take-off loans. Legal compensation can apply only between parties who are principal creditors and debtors of each other. This is the case of Sycip v. Court of Appeals.^[2]
   
   
2. Should PNB and APT return to UPSUMCO any UPSUMCO deposits set-off by PNB after the assignment of the take-off loans on 27 February 1987, and remitted by PNB to APT? It depends. If the set-off was made after the effectivity of the condonation, PNB and APT solidarily must return because they had no legal right or justification to set-off and keep such amounts. However, if the set-off was made before the effectivity of the condonation, PNB, in setting-off, acted as a third person using its own funds to pay the debt of UPSUMCO to its creditor APT. PNB can recover from UPSUMCO to the extent that the payment benefited UPSUMCO. Before the condonation, UPSUMCO still owed APT the deficiency of P1,687,076,433, thus any payment by PNB before the condonation would benefit UPSUMCO.
   
   
3. When did the condonation take effect, right after the foreclosure on 27 August 1987 or seven days later upon the signing of the Deed of Assignment on 3 September 1987? The condonation took effect right after the foreclosure on 27 August 1987. This is the date when UPSUMCO, PNB and APT agreed to implement the "friendly" foreclosure because at this point, the parties agreed on the three incentives offered by APT to UPSUMCO, namely: the 5% fee of UPSUMCO based on the winning bid, the waiver of the solidarily obligations of UPSUMCO directors, and the condonation of any deficiency amount after the foreclosure. More importantly, the Deed of Assignment of 3 September 1987 itself states that "any deficiency amount" shall be condoned, which could only mean any deficiency immediately after the foreclosure on 27 August 1987. In a foreclosure, the deficiency is determined right after the foreclosure. Clearly, the condonation took effect immediately after the foreclosure on 27 August 1987.
   
   From 27 February 1987 to 26 August 1987, PNB did not set-off any UPSUMCO funds. However, from 27 August 1987 to 3 September 1987, and even thereafter, PNB set-off a total of P97,973,991.65 and remitted this amount to APT to pay what PNB now alleges was APT's "deficiency claim." PNB and APT never informed UPSUMCO of these set-offs, and UPSUMCO learned of these set-offs only during the trial of the case. UPSUMCO did not benefit from this payment as APT had already condoned "any deficiency amount" after the foreclosure on 27 August 1987.
   
   PNB and APT solidarily must return to UPSUMCO the P97,973,991.65 that PNB set-off from 27 August 1987 onwards. In addition, PNB must return to UPSUMCO what PNB set-off - P11,843,498.45 on 2 September 1987 and the P29,572,946.50 on 20 October 1987 - against UPSUMCO's deposits and remitted to PHILSUCOR. Lastly, PNB must also return to UPSUMCO P386,897.57 which is the total credit balance in UPSUMCO's bank accounts with PNB which PNB refused to release to UPSUMCO.
   
   
4. Can APT collect any deficiency from UPSUMCO on the take-off loans after the foreclosure? No, because under the Deed of Assignment, APT condoned "any deficiency amount" of UPSUMCO after the foreclosure on 27 August 1987.
   
   
5. Can PNB collect the operating loans from UPSUMCO? Yes, but not in this case since PNB did not claim here that these operating loans are unpaid while UPSUMCO alleged that they are fully paid. Neither did PNB present here any evidence that these operating loans are unpaid.
   
   
6. Can PNB withhold the UPSUMCO deposits PNB set-off against the take-off loans and apply these deposits in legal compensation of the operating loans? No, because in this case PNB has not claimed or shown that the operating loans are due and outstanding. One requirement of legal compensation is that both debts are due and demandable.

In their Motions, PNB and APT (respondents) reiterate their claims that UPSUMCO still owes APT because the Deed of Assignment dated 3 September 1987 only condoned UPSUMCO's obligation partially, thus entitling PNB to set-off UPSUMCO funds against its liability to APT. For its part, PNB claims that what the Deed of Assignment covered was only the deficiency from UPSUMCO's "take-off loans" but not its obligation under the "operational loans" which remained outstanding. PNB also claims that: (1) it set-off UPSUMCO funds in favor of APT from 27 August 1987 onwards in good faith, following pertinent rules and agreement; (2) the Deed of Assignment under which APT condoned UPSUMCO's deficiency obligation became effective on 3 September 1987 and not on the date of the foreclosure of UPSUMCO's assets on 27 August 1987; and (3) PNB did not use UPSUMCO funds for the payments it made to Philippine Sugar Corporation (PHILSUCOR), a former creditor of UPSUMCO, and that PHILSUCOR should have been impleaded as party-defendant.

For the reasons stated below, we resolved to deny with finality the motions for reconsideration.

First. We clarify that under the Deed of Assignment, APT condoned UPSUMCO's deficiency obligation under the "take-off" loans only. However, we affirm our ruling that neither PNB nor APT proved that after the foreclosure on 27 August 1987, UPSUMCO still owed APT on the "take-off" loans to justify PNB's transfer of UPSUMCO funds to APT in the guise of set-offs.

APT's interest in UPSUMCO is based on the Deed of Transfer dated 27 February 1987 under which PNB assigned to the Government/APT its "rights, titles and interest" in UPSUMCO and its "rights, titles and interests under the collateral documents x x x executed as security x x x," thus:

SECTION 1. TRANSFER OF BANK'S ASSETS

1.01 For and in consideration of the GOVERNMENT's assumption of certain liabilities of the BANK, the BANK hereby assigns, transfers and conveys unto and in favor of the GOVERNMENT all its rights, titles and interests in and to certain assets of the BANK ("BANK's Assets"), as listed and more particularly described in Annex "A" hereto, consisting of eight (8) pages.

1.02 With respect to the BANK's assets consisting of receivables ("Receivables") from the BANK's borrowers under the terms of the credit documents ("Credit Documents") executed by the BANK's borrowers in favor of the BANK; the Receivables are hereby assigned to the GOVERNMENT. It is hereby likewise agreed that the assignment of the Receivables hereunder carries with it the assignment of the BANK's rights, titles and interests under the collateral documents ("Security Documents") executed as security for the payment of the Receivables.

x x x x

VALUATION AND INVENTORY OF ASSETS AND

LIABILITIES

3.01 For accounting purposes, the assets and liabilities transferred hereunder and those liabilities remaining in the books of the BANK but to be funded by the GOVERNMENT pursuant to Section 2.02 hereof shall be value dated as of June 30, 1986, notwithstanding any provision to the contrary.^[3] (Emphasis supplied)

As stated, this assignment covered only UPSUMCO's take-off loans to PNB as shown by PNB's accounting of UPSUMCO's liability to APT as of 30 June 1987 which included none of the operational loans.^[4] Significantly, the Deed of Transfer between PNB and APT provides that "the assets x x x transferred x x x shall be valued as of 30 June 1986."^[5] Thus, PNB could not have transferred to APT the two operational loans on record, namely the Credit Agreements dated 19 February 1987 and 29 April 1987.

After APT foreclosed the mortgages securing the take-off loans and signed, with UPSUMCO, the Deed of Assignment, APT condoned "any deficiency amount" of UPSUMCO from the take-off loans. As we held in the Decision, this condonation of "any deficiency amount" is absolute, taking into account a document in pari materia (UPSUMCO's Board Resolution dated 3 September 1987),^[6] the incentives offered by APT as inducement for the "friendly" foreclosure of UPSUMCO's assets, the conduct of the parties before and after the "friendly" foreclosure and signing of the Deed of Assignment,^[7] and the ruling in United Planters and Sugar Milling Corporation, Inc. v. Philippine Sugar Corporation (PHILSUCOR Case) which the Court affirmed with finality in G.R. No. 132731.^[8]

The foregoing, however, does not change our disposition of this case.

In the first place, the Court of Appeals never distinguished UPSUMCO's obligation to APT or PNB in terms of UPSUMCO's operational or take-off loans. Instead, the Court of Appeals relied on a rule of statutory construction^[9] in examining the Deed of Assignment. Thus, the appellate court held that since that document only mentioned the Credit Agreement dated 5 November 1974 and the Restructuring Agreements dated 24 June 1982, 10 December 1982, and 9 May 1984, it could not have covered the loans and other security instruments not mentioned in the contract. Accordingly, the Court of Appeals did not determine what loans PNB assigned to APT on 27 February 1987 which is determinative of the extent of APT's interest in the foreclosure proceedings of UPSUMCO's assets and consequently of what APT condoned under the Deed of Assignment of 3 September 1987. The Court of Appeals' limited analysis is evident in the discussion of its ruling which we quoted in the Decision.^[10]

Does UPSUMCO then remain indebted to PNB under the operational loans? We reiterate our ruling in the negative.

Until it filed its motion for reconsideration, PNB made no mention of any outstanding obligation of UPSUMCO under the operational loans. In the Answer it filed with the trial court, PNB counterclaimed not for UPSUMCO's alleged unpaid obligation under the operational loans but for moral damages and attorney's fees.^[11] Indeed, at no time during the pendency of this case in the trial court, the Court of Appeals, or this Court did PNB hint of any proof of such alleged debt. As we noted in the Decision, claims of unpaid obligations must be supported by "concrete and uncontested proof" indicating the amount due, in pesos and cents and not left to inference, thus:

[F]or 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.^[12]

What PNB contended in its Answer was that it set-off UPSUMCO funds "under the covering instruments executed by UPSUMCO in favor of PNB' to pay for a "deficiency claim"^[13] of APT. This is an admission by PNB that it effected the set-off right after the foreclosure on 27 August 1987 to satisfy the deficiency. From 27 August 1987 to 3 September 1987, a period of seven days, PNB set-off P80,200,806.41. After 3 September 1987, PNB set-off P17,773,185.24. PNB and APT never informed UPSUMCO of these set-offs, and UPSUMCO learned of these set-offs only during the trial of the case.^[14] Obviously, APT and PNB hid these set-offs from UPSUMCO at the time of the signing of the Deed of Assignment and even thereafter.

Such set-offs were not proper for the following reasons: (1) APT had condoned UPSUMCO's deficiency claim, thus UPSUMCO had no more obligation to APT for which PNB could set-off UPSUMCO funds; (2) PNB set-off UPSUMCO funds not for itself but as APT's collecting agent. However, it is settled that legal compensation under Article 1279 of the Civil Code cannot take place between an agent of the principal creditor on one hand, and the principal debtor on the other, where the agent holds funds of the principal debtor.^[15] Compensation can take place only if both parties are principal creditors and principal debtors of each other;^[16] and (3) even if PNB did set-off the funds for itself, such would also violate Article 1279 of the Civil Code since PNB failed to prove that UPSUMCO's alleged debt arising from the operational loans is due, liquidated and demandable, as required under Article 1279.^[17]

If indeed, there remained an unpaid portion of the operational loans which UPSUMCO owed to PNB, PNB, to protect its interest, could have set-off UPSUMCO funds against such obligation, before or immediately after the foreclosure of UPSUMCO's mortgaged assets on 27 August 1987. The operational loans on record (the Credit Agreements dated 19 February 1987 and 29 April 1987) uniformly provide, thus:

9. Upon the occurrence of any of the following events:

x x x x

(e) Any circumstances x x x which in the opinion of the BANK have adversely affected or will adversely affect to a material extent the ability of the CLIENTS to perform their obligations hereunder or under the Notes,

then and in any such event, the BANK may declare any and/or all the obligations of the CLIENTS to the BANK to be forthwith due and payable, and the BANK may immediately take the necessary legal action without further notice.^[18] (Emphasis supplied)

Undoubtedly, the foreclosure of UPSUMCO's mortgaged assets, resulting in the sale of UPSUMCO's sugar plant, constitutes a circumstance which "adversely affected x x x to a material extent the ability of [UPSUMCO] to perform [its] obligations" under the credit agreements. This entitled PNB to treat UPSUMCO's obligation as due and demandable, giving PNB all the justification to set-off UPSUMCO funds against such obligation. Tellingly, PNB did not avail of this opportunity. This bolsters our finding that even during the foreclosure proceedings, PNB already treated UPSUMCO's loans under the operation loans fully paid.

PNB also cannot recover from UPSUMCO the amounts PNB transferred to APT on the ground that the funds PNB transferred were payments which benefited UPSUMCO. PNB transferred UPSUMCO funds to APT from 27 August 1987 onwards, after APT and PNB had foreclosed UPSUMCO's mortgages. However, APT condoned "any deficiency" obligation of UPSUMCO arising from the foreclosure on 27 August 1987. This rendered any payment PNB made to APT non-beneficial to UPSUMCO, negating PNB's right to recover such payments from UPSUMCO.

Second. We find no merit in PNB's plea to be spared from liability, on equity grounds, for the UPSUMCO funds PNB set-off for APT and for the payments PNB made to PHILSUCOR. Contrary to PNB's claim that it made these transfers and payment ministerially, following pertinent issuances^[19] and agreement,^[20] in good faith, without notice or participation of the Deed of Assignment APT and UPSUMCO signed on 3 September 1987, the records show that PNB was a foreclosing creditor representing PHILSUCOR's interest. Considering that the foreclosure had been negotiated to be "friendly" or uncontested, PNB's present claim that it knew nothing of the terms of such "friendly foreclosure" taxes credulity.^[21] Because of PNB's representation of PHILSUCOR's interest in the foreclosure, PHILSUCOR received its proportional share from the proceeds of the sale of UPSUMCO's foreclosed assets to Universal Robina Sugar Milling Corporation (URSUMCO).^[22]

On the Presidential issuances PNB invokes, Proclamation No. 50, creating APT and the Committee on Privatization, provides, among others, the powers and functions of these two entities, their funding, and organizational structure. Provisions of the same tenor are found in Presidential Decree No. 1890 creating PHILSUCOR. Nowhere in these two issuances was PNB mentioned much less authorized to transfer UPSUMCO funds to APT after APT and PNB foreclosed UPSUMCO's assets on 27 August 1987.

Third. We affirm our ruling that under the Deed of Assignment dated 3 September 1987, the reckoning date of the deficiency amount is 27 August 2007, right after the foreclosure. True, the Deed of Assignment of UPSUMCO's right to redeem was signed on 3 September 1987 and it is on this date that the right to redeem was transferred to APT. However, the condonation of the deficiency amount necessarily must take effect immediately after the foreclosure because the Deed of Assignment itself speaks of condonation of "any deficiency amount," an amount that is determined right after the foreclosure. None of the respondents have presented good cause to undermine the reasons for our ruling, namely: (1) the condonation of UPSUMCO's deficiency obligation was, as found by the trial court in the PHILSUCOR case,^[23] part of the bundle of incentives APT offered UPSUMCO for the latter to agree to the "friendly foreclosure" of its mortgaged assets and (2) the Deed of Assignment itself stated that APT condoned "any deficiency amount" of UPSUMCO from the take-off loans after the foreclosure on 27 August 1987.

In a foreclosure, the deficiency is determined by simple arithmetical computation immediately after the foreclosure. The deficiency is the amount not covered by the winning bid price in this case the deficiency amount is P1,687,076,433.00 which is entirely condoned under the Deed of Assignment. To hold otherwise negates the meaning of "any deficiency amount" expressly stated in the Deed of Assignment.

Fourth. PNB also assails our ruling ordering the return to UPSUMCO of the amounts PNB paid to PHILSUCOR for lack of proof that it used UPSUMCO funds for the payments and for UPSUMCO's failure to implead PHILSUCOR as defendant.

The contention has no merit. Apart from simply denying that it did not use UPSUMCO funds to pay PHILSUCOR, PNB proffers no other reason why we should reject the trial court's finding that PNB used UPSUMCO's funds. If indeed PNB used its own funds for the payments, it had in its possession ample proof to establish such fact. Its failure to do so belies its claim. Significantly, PNB did not raise this issue below.

On the necessity of impleading PHILSUCOR as co-defendant, PNB's remedy, although technically correct, is injudicious. Considering the uncontested merit of UPSUMCO's claim, the tardiness of the objection (PNB is raising this matter for the first time in its motion for reconsideration), and the availability of an alternative remedy to PNB to protect its interest, the more judicious remedy under the circumstances is for PNB to seek reimbursement from PHILSUCOR upon the finality of the Decision, in a separate proceeding. This protects PNB's interest and at the same time spares UPSUMCO the need to initiate another round of collection proceedings to seek reimbursement from PHILSUCOR for the two items of payment in question, which, in all probability would be resisted on the ground of prescription. After all, UPSUMCO failed to implead PHILSUCOR only because it discovered the receipts for the questioned payments, then in PNB's possession, well into the trial.

Fifth. Although not raised by respondents, we find it necessary to modify our ruling on the award to UPSUMCO of nominal damages. We made such award on the supposition that the trial court failed to order payment of actual, moral, or temperate damages to support the award of exemplary damages. We find that the amounts ordered returned to UPSUMCO because of the absence of the right to set-off, constitute payment of actual damages as UPSUMCO was rightfully entitled to the funds taken from it.

WHEREFORE, we DENY WITH FINALITY the Motions for Reconsideration of respondents Philippine National Bank (PNB) and Asset Privatization Trust (APT) for lack of merit. We AFFIRM the Decision dated 28 November 2006 with the MODIFICATION that the award of nominal damages of P100,000 to petitioner United Planters Sugar Milling Company, Inc. is DELETED.

SO ORDERED.

Quisumbing, (Chairperson), and Carpio-Morales, JJ., concur.
Tinga, J., see dissenting opinion.
Velasco, Jr., J., joins dissenting opinion of J. Tinga.

---

^[1] Now the Privatization Management Office.

^[2] See note 15.

^[3] Exhibit "MM."

^[4] Rollo, p. 221. The accounting lists the receivables PNB assigned to APT which served as basis for APT and PNB's foreclosure of UPSUMCO's mortgaged assets.

^[5] Exhibit "MM-1."

^[6] While the Deed of Assignment provides that UPSUMCO "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"), x x x 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," UPSUMCO's Board Resolution, also dated 3 September 1987, authorizing its President Joaquin Montenegro to sign the Deed of Assignment, provides: "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, x x x 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." (Emphasis supplied)

^[7] Namely, APT offering to UPSUMCO the condonation of its deficiency liability after foreclosure as part of a package of incentives to persuade UPSUMCO to agree to an uncontested foreclosure, APT delivering on its promised incentives (i.e. releasing UPSUMCO's Directors from solidary liability, paying UPSUMCO an amount equivalent to 5% of the winning bid for UPSUMCO's foreclosed assets and condoning UPSUMCO's deficiency liability under the Deed of Assignment), and APT and/or PNB never demanding any payment from UPSUMCO for any deficiency claim.

^[8] Decision, p. 20. In the PHILSUCOR Case, we affirmed the ruling of the Regional Trial Court of Bais City, Branch 45, that the Deed of Assignment of 3 September 1987, APT totally condoned UPSUMCO's deficiency obligation.

^[9] Expresio unius est exlcusio alterios.

^[10] The pertinent portion of the Court of Appeals' ruling provides: "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:


x x x x

The provisions [in these documents] are clear and leave no room for interpretation and [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." (Emphasis in the original; Decision, pp. 11-12)

^[11] Records, pp. 154-155.

^[12] Decision, p. 23.

^[13] Records, pp. 154-155.

^[14] Rollo, pp. 554-560.

^[15] Sycip v. Court of Appeals, G.R. No. L-38711, 31 January 1985, 134 SCRA 317.

^[16] Article 1279 of the Civil Code provides: "In order that compensation may be proper, it is necessary:


^[17] This requirement that the funds PNB can set-off must be "past-due" is commonly provided in the two operational loans on record (Records, pp. 311, 315).

^[18] Records, pp. 312, 316.

^[19] Proclamation No. 50 for the fund transfers to APT and PD No. 1890 for the payment to PHILSUCOR.

^[20] Deed of Transfer dated 2 February 1987.

^[21] As to PNB's emphasis that it was not a party to the Deed of Assignment, there was no reason for it to take part in the agreement because as early as 27 February 1987, PNB had already assigned its interest in UPSUMCO under the take-off loans to APT.

^[22] In the amount of P58 million.

^[23] Which finding we affirmed in G.R. No. 132731. The trial court held in that case (RTC Decision, p. 21): "For failure to pay indebtedness which at that time totaled to P2,137,076,433.15 excluding penalties, charges, attorneys fees and expenses of foreclosure, Asset Privatization Trust (APT for brevity) and the PNB advertised for public auction the real estates and chattels comprising the collaterals of the indebtedness. During the foreclosure and bidding, APT being the lone bidder was the winning bid. Before the expiration of the 12 months period within which the plaintiff may redeemed [sic] the foreclosed properties, plaintiff executed a deed of waiver on its right of redemption, in consideration on [sic] APT's releasing the joint and solidary obligations of plaintiff's board of directors, and condoning whatever deficiency balance resulting from the foreclosure. Among the terms of the "friendly or uncontested foreclosure" by APT and PNB was that plaintiff was entitled to a 5% preference on the amount of the highest bidder, and in case plaintiff losses in the bidding, it shall be entitled to the 5% preference in cash." (Emphasis supplied)

---

Tinga, J.:

I respectfully dissent from the denial of the instant Motion for Reconsideration of the Decision dated 28 November 2006.^[1] It should be reconsidered and the decision of the Court of Appeals dated 29 February 1996 reinstated, for the following reasons: (1) contrary to a ruling in the Decision, the condonation effected between APT and United Planters extended only insofar as the loan agreement dated November 5, 1974 and the Restructuring Agreements dated 24 June and 10 December 1982, and 9 May 1984; and (2) there is no basis in law or fact to hold respondents Assets and Privatization Trust (APT) and Philippine National Bank (PNB) liable for withdrawals or transfers from the PNB accounts of petitioner United Planters Sugar Milling Co. (United Planters) made before 3 September 1987.

The following brief summary of pertinent facts is drawn from the record. Petitioner United Planters Sugar Milling Co. (United Planters) obtained two sets of loans from respondent Philippine National Bank (PNB). The first set of loans, known as "take-off loans", were intended to finance the construction of United Planters' sugar milling plant. The take-off loans were secured by a real estate mortgage over two parcels of land where the milling plant stood and chattel mortgages over the machineries and equipment. Under the "take-off loan" agreements, United Planters was also obligated to open bank accounts with PNB, the funds of which PNB could apply to pay any due obligations under these loans. These take-off loans consisted in particular of the loan agreement dated November 5, 1974 and the Restructuring Agreements dated 24 June and 10 December 1982, and 9 May 1984.^[2]

The second set of loans, known as "operational loans," were contracted between 1984 and 1987, and were intended to finance the operations of United Planters. These operational loans also contained setoff clauses relative to the application of payments from United Planters' bank accounts, and were also secured by pledge contracts whereby United Planters assigned to PNB all its sugar produce for PNB to sell and apply the proceeds to satisfy the indebtedness arising from the operational loans. The operational loans consisted of a Deed of Assignment by Way of Payment notarized on 16 November 1984; a Credit Agreement dated 19 February 1987; and a Credit Agreement dated 29 April 1987.^[3]

In addition, on 14 February 1984 PNB assigned 30% of its credit with United Planters to the Philippine Sugar Corporation (PHILSUCOR), in exchange for sugar bonds.^[4] Notably, this assignment between PNB and PHILSUCOR took place before any of the "operational loans" were contracted, and thus could have only covered the "take-off loans."

Then in 1986, President Aquino created the respondent Asset and Privatization Trust (APT), which was formed so that non-relevant and non-performing assets of government corporations such as the PNB could be disposed off. On 27 February 1987, through a Deed of Transfer,^[5] PNB assigned to the Government its "rights, titles and interests" over United Planters, among several other assets.^[6] It was acknowledged in the Deed of Transfer that said assignment was being undertaken "in compliance with Proclamation No. 50."^[7] The Government subsequently transferred these "rights, titles and interests" over United Planters to the APT.^[8]

Even as PNB had already assigned its interests over United Planters to the Government as of 27 February 1987, it should be noted that two months later, PNB and United Planters entered into a loan agreement which is one of the agreements included in the "operational loans."

In the meantime, it appears that APT and United Planters undertook negotiations concerning the disposal of United Planters' mortgaged assets. The Decision stated that the parties then agreed to an "uncontested or "friendly foreclosure" of these mortgaged assets, in exchange for United Planters' waiver of its right of redemption."^[9] The Decision also stated that "APT and PNB",the latter as PHILSUCOR's representative, scheduled the foreclosure sale on 27 August 1987."^[10] However, the Petition for Extrajudicial Foreclosure Sale dated 28 July 1987 with the Ex-Officio Regional Sheriff of Dumaguete City does not identify PNB as "Philsucor's representative," but as "Mortgagee", while APT was identified therein as "Assignee and Transferee of PNB's rights, titles and interests."^[11] PNB and APT manifested in the petition their intent to foreclose on the real estate and chattel mortgages which notably were executed to secure the take-off loans. The foreclosure sale was conducted on 27 August 1987, whereby APT purchased the auctioned properties for P450 Million.

Then, 7 days after the foreclosure sale, United Planters executed a Deed of Assignment^[12] wherein it assigned to APT its right to redeem the foreclosed properties, in exchange for or in consideration of 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 Agreements[s] dated June 24 and December 10, 1982, and May 9, 1984, respectively, executed between [United Planters] and PNB . . ." This Deed of Assignment was executed on 3 September 1987. On even date, the Board of Directors of United Planters had agreed to a Board Resolution authorizing Joaquin Montenegro, its President, to enter into the said Deed of Assignment.^[13]

Notwithstanding this Deed of Assignment, United Planters later filed a complaint^[14] dated 10 March 1989 for sum of money and damages against PNB and APT before the Regional Trial Court of Bais City. It was generally alleged therein that PNB and APT had illegally appropriated funds belonging to United Planters, through the following means: (1) withdrawals made from the bank accounts opened by United Planters beginning 27 August 1987 until 12 February 1990; (2) the application of the proceeds from the sale of the sugar of United Planters beginning 27 August 1987 until 4 December 1987; (3) the payment from of the funds of United Planters with PNB for the operating expenses of the sugar mill after 3 September 1987, allegedly upon the instruction of APT with the consent of PNB.

This complaint would be amended one month after it was filed.^[15] In the original complaint, it was alleged that "after September 3, 1987, [United Planters] is entitle[d] to all the funds it deposited or being held by PNB in all its branches."^[16] The original complaint also pinpointed 3 September 1987 as the general reckoning date after which the assets of United Planters would be beyond reach of application by APT or PNB. However, in the amended complaint, all citations of "3 September 1987" as a reference point were deleted,^[17] and instead, it was claimed that United Planters was released from its rights and obligations due PNB and APT "after the foreclosure by PNB/APT."^[18] This point is significant, for it appears that several of the transactions in question had occurred after the foreclosure sale but before the Deed of Assignment, or within the dates 28 August to 3 September 1987.

Interestingly, it appears that the original defense posed by APT and PNB before the RTC tended to disclaim the effect of condonation pursuant to the Deed of Assignment. Both APT and PNB claimed in their respective comments that the extrajudicial foreclosure sale was unconditional and mandatory under Presidential Decree No. 385.^[19] They also specifically denied the allegation regarding the execution of the 3 September 1987 Deed of Assignment due to "lack of knowledge or information sufficient to form a belief as to the truth thereof."^[20] PNB further submitted that the transfer of the deposits in the name of APT was valid, "since PNB has all the prerogatives over the same after foreclosure on August 27, 1987 and a deficiency claim arose."^[21]

Still, during the course of trial, APT (though not PNB) would eventually admit the existence of the 3 September 1987 Deed of

Assignment.^[22] However, APT argued that such Deed could not retroact to 27 August 1987,^[23] contrary to the claim of United Planters, citing Section 7, Rule 130 of the Rules of Court.^[24]

The action was eventually decided by the RTC in favor of United Planters. The RTC decision^[25] was rooted on the following assumptions:

(1) The obligation of United Planters with PNB under the initial creditor-debtor relation was "novated by the subrogation of creditors, i.e., [APT]."^[26]

(2) The bank accounts maintained by United Planters with PNB created a creditor-debtor relation, in addition to the same relation (albeit in reversed identities) between the same parties by reason of the loan agreements. However, whatever right PNB had to set-off the outstanding indebtedness from United Planters' bank accounts ceased the moment PNB assigned its rights to APT on 27 February 1987. Thus, only APT could be considered as the foreclosing creditor.^[27]

(3) Assuming there remained any deficiency claim in favor of PNB or APT, the same was condoned by the Deed of Assignment dated 3 September 1987. The RTC considered APT's argument that the Deed of Assignment could not be deemed to retroact to 27 August 1987. It ruled, however, that "[a]s of the date of the foreclosure on August 27, 1987, [United Planters] was a creditor as to its deposits and proceeds of sugar sale with the defendant PNB. Neither [PNB] nor [APT] cannot [sic] simply appropriate the things of plaintiff. If at all, such deficiency claim did exist and subsist, foreclosing creditor should have initiated proper actions to recover the same."^[28]

In all, PNB and APT were made jointly and severally liable to United Planters for approximately Php88 Million, representing supposed unauthorized transfers from the bank accounts of United Planters, as well as the proceeds from the sale of sugar which PNB assigned to APT. PNB was made singly liable for approximately PhP40 Million for the amount it transferred to PHILSUCOR from the sale of sugar; and APT singly liable for around PhP5 Million for the operational expenses of the sugar mill after 3 September 1987.

The Court of Appeals set aside the trial court's ruling, finding in essence that only the "take-off" loans and not the operational loans were condoned by the Deed of Assignment. The appellate court explained that such fact was made plain by the Deed of Assignment itself, which expressly stipulated the particular loan agreements which were covered therein.^[29] As such, the Court of Appeals concluded that APT was "entitled to have the funds from UPSUMCO's savings accounts with [PNB] transferred to its own account, to the extent of UPSUMCO's remaining obligations [under the operational loans], less the amount condoned in the Deed of Assignment and the P450,000,000.00 proceeds of the foreclosure."^[30] At the same time, the Court of Appeals ordered a remand of the case to the RTC for computation of the parties' remaining outstanding balances.

The Court of Appeals was in turn reversed by the Court in its Decision, holding in main that (1) both "operational loans" and "take-off loans" were condoned by the Deed of Assignment; and (2) the Deed of Assignment dated 3 September 1987 retroacted to the date of the foreclosure sale on 28 August 1987.

With due respect, I submit that both main conclusions are erroneous. Admittedly, the majority acknowledges error in the first conclusion, but it refuses to accord any meaningful implication to the same.

The proper scope of the condonation accorded in the Deed of Assignment dated 3 September 1987 should prove determinative. The interpretation of the Deed would ultimately call to fore the rules on interpretation of contracts under the Civil Code,^[31] as well as the evidentiary rules on the interpretation of documents.^[32]

On Condonation of Take-Off Loans

The majority now agrees that the Deed of Assignment condoned only the take-off loans, but not the operational loans. I wish to expound on this point further.

It bears repeating that the "take-off loans" were established through four loan agreements: (1) the Credit Agreement dated 5 November 1974; (2) Restructuring Agreement dated 24 June 1982; (3) Restructuring Agreement dated 10 December 1982; and (4) Restructuring Agreement dated 9 May 1984. In contrast, the "operational loans" were established through three other agreements: (1) Deed of Assignment by Way of Payment, notarized on 16 November 1984; (2) Credit Agreement dated 19 February 1987; and (3) Credit Agreement dated 29 April 1987.

In holding that the Deed of Assignment covered even the "take-off loans", the Decision cited the provisions of the Deed itself, as well as the Board Resolution dated 3 September 1987 authorizing Joaquin Montenegro, President of United Planters, to sign the Deed. However, a perusal of the cited provisions reveals that the 'condonation" that took effect was not a wholesale absolution of United Planters' outstanding liabilities to APT, but consisted merely of the assignment to APT of United Planters' right to redeem the foreclosed properties, such properties constituting security only for the take-off loans, in exchange for the condonation of the deficiency amount which APT would have been entitled to recover after the foreclosure sale. Moreover, both documents particularly referred only to the agreements that comprised the "take-off loans," and not the "operational loans".

The Deed of Assignment in its operative part provides, 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. 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.^[33]

Whereas, United Planters' Board Resolution of 3 September 1987, authorizing its President Joaquin 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.^[34]

I note that the evidence is indubitable that at the time of the execution of the Deed of Assignment the parties did not contemplate to include the operational loans within its coverage at all. The Deed of Assignment itself clearly limits the consideration of such assignment to "any deficiency amount [APT] may be entitled to recover from [United Planters] 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 between the Corporation and the Philippine National Bank."^[35] The real properties foreclosed on 28 August 1987 had been mortgaged to secure the take-off loans, but not the operational loans. Since no agreement was ever reached to make said properties as security for the operational loans, their foreclosure could have only answered for the take-off loans. The parties were of course free to condone the operational loans as well, but the fact is no language to that effect appears in the Deed of Assignment or the Board Resolution. Certainly, there is no basis in fact or law to conclude that such condonation had taken effect.

Even assuming that the Deed of Assignment was intended to cover even the condonation of the operational loans, the President of United Planters who signed such Deed would not have had the authority to do so, as the Board Resolution authorizing him to sign such Deed specified those "mortgages [executed] in favor of PNB by [United Planters] 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."^[36]

The plain and unambiguous stipulations in the Deed of Assignment, as confirmed by the equally plain and unambiguous manifestations in the Board Resolution cannot be superseded by mere theorizing sans supporting evidence. Article 1370 of the Civil Code mandates that "[i]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control." Under Section 9, Rule 130 of the Rules of Court, once the terms of an agreement have been reduced to writing, it is deemed to contain all the terms agreed upon by the parties and no evidence of such terms other than the contents of the written agreement shall be admissible.^[37] The language of the Deed of Assignment is clear, explicit and unequivocal that only the take-off loans were condoned therein, and there is left no room for contrary interpretation.^[38]

Even United Planters, in its present Opposition to the Motion for Reconsideration, admits that its previous "admission under oath of the exclusion of its other obligations to PNB in the Deed of Assignment is not an issue in the instant case because those alleged other obligations were not past due accounts". This present observation of United Planters highlights as fact that such operational loans were not intended to be included in the Deed of Assignment.

However, both the RTC decision and the Decision failed to consider any distinction between the take-off loans and the operational loans. Both did not point to any evidence on record that established that the operational loans were included in the coverage of the Deed of Assignment. Neither was there any admission on the part of the parties to the Deed that the document contemplated the condonation of both the operational loans and the take-off loans, an admission which if present, could have formed the basis of the tacit conclusion in the RTC and the express assertion in the Decision.

The evidence on record to support the proposition that all of United Planters' outstanding obligations were condoned by the Deed of Assignment is quite weak. For example, there was a Resolution^[39] passed by the Board of Directors of United Planters allegedly in November 1988 (but certified only in December of 1989), whereby the Board resolved to express that "indebtedness and obligations of [United Planters] having been totally condoned including the JSS notes, [United Planters] exclusively retained full and complete ownership of all assets, including all sugar, molasses, chattels, real estate properties, and bank deposits maintained with PNB, Dumaguete City and all its branches nationwide. . . " Such declaration by the Board of United Planters, self-serving as it is, could not conceivably affirm the total condonation of the corporation's debts. Moreover, it should be noted that assuming that the Resolution was indeed adopted in November 1988, such came only three (3) months before the filing of the initial complaint by United Planters before the RTC, thus highlighting the self-serving nature of the declaration.

The Decision did advert to a Board Resolution purportedly passed by the Board of Directors of United Planters on 26 March 1988^[40], to support the statement that "[United Planters] 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 [United Planters] and [the latter] carried out its affairs as a debt-free corporation."^[41] However, the said resolution did express that APT "had executed a condonation agreement with [United Planters] on any deficiency that may arise out of the uncontested foreclosure. x x x" Again, it should be remembered that the properties which were foreclosed were constituted as security only for the take-off loans, and not the operational loans. Assuming that the self-serving nature of the Resolution can be disregarded, the averments therein do not contradict the fact that only the take-off loans were condoned.

The Decision referred to "disclosures" made during the trial that APT had offered incentives to United Planters for the latter to agree to the friendly foreclosure, such as a 5% markup on United Planters' bid price or a cash payment equivalent to 5% of the winning bid; the waiver of the solidary obligation of United Planter's directors; and the condonation of any deficiency from the foreclosure sale.^[42] It should be noted that the source of these "disclosures" were the testimonies of the Corporate Secretary^[43] and President of United Planters^[44], hardly unbiased witnesses. Still, such disclosures do not definitively establish that the condonation extended to the operational loans themselves. What follows is the passage of the testimony of the Corporate Secretary which was relied upon by the Decision:

Q: What do you mean by friendly foreclosure?
A: Well, at that time Your Honor, the friendly foreclosure as impressed to us especially to me and [United Planters President] Mr. [Joaquin] Montenegro because I went to the 10^th floor of IBAA Building, Makati, where the APT was there, was that we will not controvert or oppose the foreclosure. In return, for the foreclosure of the physical assets Your Honor, that will be advertised, [United Planters] will receive minus 5% of the highest bid by APT if we lose in the bidding. If we win the bid, we will not be awarded the 5% preference on the basis of the highest bidder. The JSS notes, or joint and solidary obligation of the planters-directors of [United Planters] will be totally extinguished and finally that whatever amount remaining as deficiency balance owing to PNB and [Philsucor] will be waived by APT who took over all the accountabilities from these two entities, that was the friendly foreclosure. In return Your Honor, we will waive our right to redeem the property foreclosed for one (1) year. That one (1) year period was waived.^[45]

This excerpt makes it clear that the condonation related to the deficiency balance arising after the foreclosure of the mortgaged properties. The qualification would have been relevant with respect to the operational loans had it been that the mortgaged properties were constituted as security for those loans, and not the take-off loans. Yet since the foreclosed properties secured only the take-off loans, the resulting condonation of the deficiency balance would affect only the take-off loans, and not the operational loans.

As it is evident that the operational loans were not condoned by the Deed of Assignment, it follows that United Planters remained obligated to repay such loans. It is on this point that I disagree with the majority, which continues to insist that there can be no conclusion that "UPSUMCO must still pay PNB under the operational loans".^[46] The majority reasons that PNB failed to prove that United Planters still owed PNB under the operational loans.

We should remember that though it was the position of United Planters from the beginning that by reason of the Deed of Assignment, it was wholly acquitted from any further obligations to PNB and United Planters.^[47] As such, the burden was on United Planters to establish such fact, and an ultimate finding that the operational loans were actually not condoned indicates that United Planters had failed to discharge such burden. Only the Deed of Assignment, which was limited in coverage to take-off loans, was presented by United Planters as basis for the extinguishment of its obligations to PNB and APT.

What the majority is now saying is that the evidentiary burden that is determinative of the case actually fell on the defendants, PNB and APT, in that they had the burden of establishing that the operational loans still subsisted. The point fails to redeem the fact that United Planters, as plaintiff, failed to discharge its own evidentiary burden, contrary to the allegations of its complaint, it was not established that all of its outstanding accounts with PNB and APT were condoned. The prayers of United Planters, as well as the reliefs granted by the RTC, were predicated on the conclusion which the majority finds erroneous that all the loans were condoned under the Deed of Assignment.

Had the RTC correctly appreciated the limited extent under which the Deed of Assignment condoned the obligations of United Planters, it would not have rendered the decision which the majority now reaffirms even as it recognized that the RTC's legal conclusion was indeed wrong. Courts simply do not award money claims without legal grounds, and the premises on which the RTC made the awards to United Planters were, as the majority admits, wrong. In the case at bar, while it appears that the Deed of Assignment had made the condonation operative, there is ultimate uncertainty as to the amount condoned owing to the subsistence of the operational loans.

There is thus much prudential wisdom in the remand order of the Court of Appeals for the determination of the amount of outstanding balances due from the operational loans, which were not condoned in the Deed of Assignment in the first place. With such result, there will be assurance that United Planters will be financially restituted to the extent that it was wrongfully deprived, to the exclusion of those amounts which were rightfully retained and applied by PNB and APT. A remand will not necessitate the introduction of new evidence, as the documentary proof, as contained in the voluminous record, was already submitted during trial. Unfortunately, the RTC then did not bother to evaluate the evidence following the correct legal premises, relying extensively instead on the representations of United Planters. A remand will give the RTC the opportunity to properly exercise its duties as trier of fact.

On Retroactivity of Deed of Assignment

Certainly, the fact that the operational loans were not condoned under the Deed of Assignment is sufficient basis to sustain the assailed decision of the Court of Appeals as its tenability is hinged on the same foundation. However, there is another assertion in the Decision that warrants explicit rectification; otherwise, it would ultimately serve as the premise for an erroneous legal result.

I refer to the assertion in the Decision that the Deed of Assignment, which was executed on 3 September 1987, should be deemed to retroact to 27 August 1987. The conclusion is material since a significant bulk of the transfers made to APT had occurred within the one-week period from 27 August to 3 September 1987.

The Decision held that the condonation through the Deed of Assignment executed on 3 September 1987 should be made to retroact to the date of the foreclosure, or on 27 August 1987, on the premise that such Deed of Assignment "was part of the APT-sponsored "friendly foreclosure" of [United Planters'] assets, entailing [United Planters'] waiver of its redemption right."^[48] Such holding is maintained in the draft Resolution. Both the Decision and the draft Resolution base their conclusion on this point on suppositions and presumptions which are not moored on legal or jurisprudential grounds. In contrast, my position is based on the application of the provisions of the Civil Code and the rules on evidence.

Any conclusion that the condonation was, along with the foreclosure sale, part and parcel of the so-called "friendly foreclosure agreement" would have been bolstered by certain incontrovertible factual circumstances, such as if the Deed of Assignment were executed simultaneously with the foreclosure sale. But that was not the case. Still assuming that there was in place an agreement for "friendly foreclosure," the mere existence thereof would not necessarily translate into a conclusive finding that the condonation had taken effect even before, that is as of the date of the foreclosure sale. Indeed, no terms of retroactivity appear in the Deed of Assignment.

The majority further contends that the amount condoned is "any deficiency amount" which is "determined by simple arithmetical computation immediately after the foreclosure." Yet the Deed of Assignment does not state any reference as to when such deficiency amount is to be ascertained. There is always the possibility that the debtor may opt to make further payments even after the foreclosure sale, with the remaining amount after such further payments characterized still as the "deficiency amount."

The ascertainability of the deficiency amount cannot be equated, as the majority would have it, with the alleged retroactivity of the condonation subject of the deed of assignment. The claim begs the question. What was condoned is whatever was the deficiency amount as of the date of the deed of assignment.

Indeed, there is utterly no basis to presume ipso facto that the term "any deficiency amount" had the effect of retroacting the Deed of Assignment to a week prior to its execution. A finding that the condonation effected in the Deed of Assignment retroacted to the date of the foreclosure sale would go against established rules of evidence. The parol evidence rule states that generally, when the terms of an agreement have been reduced into writing, it is considered as containing all the terms agreed upon and there can be no evidence of such terms other than the contents of the written agreement.^[49] Assuming that the Deed of Assignment failed to accurately reflect an intent of the parties to retroact the effect of condonation to the date of the foreclosure sale, none of the parties, particularly United Planters, availed of its right to seek the reformation of the instrument to the end that such true intention may be expressed.^[50]

In fact, the original complaint filed by United Planters had alleged that it was only "after September 3, 1987" and not after the date of foreclosure that "[United Planters] is entitle[d] to all the funds it deposited or being held by PNB in all its branches." Said complaint was amended one month after it had been filed, deleting the references to 3 September as the reckoning point, so such allegation cannot be deemed controlling. Still, it is indicative of the initial frame of mind of United Planters that the condonation had taken effect only after 3 September 1987. The fact that the amounts transferred before that date were significant may have influenced United Planters' subsequent change of position, yet there is no sufficient evidence on record attesting to a meeting of the minds when the Deed of Assignment was executed on any intent to retroact the effectivity of such transaction.

Notably, among the documentary evidence presented by United Planters, only one document was offered for the purpose of establishing that the "condonation retroacts to the date of auction [s]ale (sic) August 27, 1987."^[51] That is the Deed of Assignment itself which, as earlier pointed out, contains no such language vesting retrospectivity. The letter^[52] dated 19 August 1987 from APT to United Planters, which was avowedly presented to "[confirm] the agreement for the "uncontested" or "friendly foreclosure" earlier discussed by the parties involved"^[53] does not also contain any indication that the condonation would take effect upon the occurrence of the foreclosure sale.

There also appears on record certain seeming admissions on the part of a lawyer of APT that are injurious to respondents' cause. In its Motion for Partial Execution of Judgment Pending Appeal filed before the Court of Appeals,^[54] United Planters referred to a letter dated 7 December 1994 by the Solicitor General to APT. Therein, the Solicitor General noted that one of that institutions' lawyers, a Jose M. Suratos, Jr., had admitted that "PNB had no right to transfer [United Planters']s funds deposited with the bank after February 27, 1987."^[55] Such "admission" was cited to favor a proposed settlement of the case. However, such "admission" cannot be accorded evidentiary weight by this Court. For one, its admissibility as evidence is highly questionable considering that the letter is a privileged communication between attorney and client. How United Planters even acquired possession of a copy of the letter is in fact suspicious. Moreover, this letter was submitted not to the RTC, but to the Court of Appeals, and not during the trial of the case at that. The rule in appellate procedure is that a factual question may not be raised for the first time on appeal, and documents forming no part of the proofs before the appellate court will not be considered in disposing of the issues of an action.^[56]

Indeed, there is no preponderance of evidence to establish United Planters' bare allegation that the Deed of Assignment dated 3 September 1987 had retroacted to the date of the foreclosure sale on 27 August 1987. There is no basis in law or in fact to presume such, either. Even the RTC, in its decision, refused to arrive at an outright conclusion to that effect.

What the RTC instead concluded was that as of the date of the foreclosure sale, and prior to the Deed of Assignment, APT as creditor was not entitled to "simply appropriate the things of the plaintiff' following Article 2088^[57] of the Civil Code, and assuming that such deficiency claim did exist, "the foreclosing creditor should have initiated proper actions to recover the same."^[58]

The majority also dwells on this right of set-off, insisting in the end that PNB had no right to set-off from the accounts of United Planters. Such conclusion, even if correct, is ultimately misplaced in the appreciation of this case.

To evaluate the question of set-off, a closer analysis of the take-off loans and the securities constituted with them is in order. The RTC correctly observed that with the take-off loans and the corresponding creation of the bank accounts, there existed a mutual creditor-debtor relationship between PNB and United Planters. Such would allow the set-off or compensation of the latter's outstanding obligations to the former from the latter's bank accounts, congruently with Article 1278^[59] of the Civil Code, and as expressly stipulated in the take-off loan agreements.

PNB then assigned all its rights, titles and interests over United Planters to APT by way of the Deed of Assignment. As between United Planters and APT or PNB and APT, there no longer existed the mutual creditor-debtor relationship. The RTC appreciated this fact leading to the conclusion that since PNB was no longer a debtor of United Planters, the bank no longer had the right to set-off payments from the bank deposits, and that whatever disbursements made by PNB in favor of APT and Philsucor "should not be considered money or funds taken from or belonging to [United Planters]."^[60] This is the conclusion which the majority dwells upon.

At the same time, it cannot be denied that APT had a right to go after the bank deposits of United Planters, in its capacity as the creditor of the latter. The RTC had claimed that by virtue of PNB's Deed of Assignment, there took place conventional subrogation under the Civil Code,^[61] whereby APT as the subrogee was vested with all the rights of the PNB covered by the deed thereto, either against the debtor or against third persons.^[62] I am not as certain whether conventional subrogation could be deemed as having taken place, since such requires "the consent of the original parties and of the third person."^[63] There is no evidence on record that the consent of the debtor United Planters was secured, and the fact is that the assignment by PNB to APT arose by mandate of law and not the volition of the parties.

However, even if conventional subrogation did not take place, there was still a perfected assignment of credit as between PNB and APT, under Article 1624^[64] of the Civil Code. The assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge or preference.^[65] By virtue of the assignment of credit, APT was entitled to pursue the rights and remedies granted to the previous creditor, PNB. Could such rights extend to PNB the right to set-off payments?

It might seem that APT has no right to set-off payments with United Planters for under Article 1279 (1), it is necessary for compensation that the obligors "be bound principally, and that he be at the same time a principal creditor of the other."^[66] There is, concededly, no mutual creditor-debtor relation between APT and United Planters. However, our jurisdiction recognizes the concept of conventional compensation, defined as occurring "when the parties agree to compensate their mutual obligations even if some requisite is lacking, such as that provided in Article 1282."^[67] It is intended to eliminate or overcome obstacles which prevent ipso jure extinguishment of their obligations.^[68] Legal compensation takes place by operation of law when all the requisites are present, as opposed to conventional compensation which takes place when the parties agree to compensate their mutual obligations even in the absence of some requisites.^[69] The only requisites of conventional compensation are (1) that each of the parties can dispose of the credit he seeks to compensate, and (2) that they agree to the mutual extinguishment of their credits.^[70]

I submit that the right of PNB to set-off payments from United Planters arose out of conventional compensation rather than legal compensation, even though all of the requisites for legal compensation were present as between those two parties. The determinative factor is the mutual agreement between PNB and United Planters to set-off payments. Even without an express agreement stipulating compensation, PNB and United Planters would have been entitled to set-off of payments, as the legal requisites for compensation under Article 1279 were present.

Once PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB and United Planters ceased to exist. However, PNB and United Planters had agreed to a conventional compensation, a relationship which does not require the presence of all the requisites under Article 1279. And PNB too had assigned all its rights as creditor to APT, including its rights under conventional compensation. Thus, the absence of the mutual creditor-debtor relation between the new creditor APT and United Planters cannot negate the conventional compensation.

Accordingly, APT, as the assignee of credit of PNB, had the right to set-off the outstanding obligations of United Planters on the basis of conventional compensation before the condonation took effect on 3 September 1987.

It cannot be denied that the Filipino people and the Republic of the Philippines ended up with a "bum deal" by reason of the Deed of Assignment between United Planters and APT. The obligation then due United Planters to the Government exceeded 2 Billion Pesos. With the Decision, United Planters ended up "repaying" the Government with only 2 parcels of land with a total area of around 210,000 square meters and the milling plant constructed thereon. Offhand, the startling disparity is shown by the fact that the land and improvements were purchased by APT at a price of P450 Million, and later resold for P500,000 Million, which is less than one-fourth the amount of the total indebtedness of United Planters.

Even if there is no issue before us concerning the validity of the condonation agreement between APT and United Planters, an agreement which the parties concede did happen, the palpable damage produced by the arrangement to the State should serve caution against the reflexive affirmation of the resulting favors received by United Planters. Our jurisprudence, reflecting Article 1378 of the Civil Code, has pronounced that "in case of doubt in the circumstances surrounding the execution of a contract, as in this case, the least transmission of rights and interests shall prevail if the contract is gratuitous and, if onerous, the doubt shall be settled in favor of the greatest reciprocity of interests."^[71] The Deed of Assignment is free from doubt that the condonation covered only the take-off loans, and that the condonation took effect only on 3 September 1987. Yet if the inclination is to cast doubt on these ineluctable facts, why then favor an interpretation designed to inflict maximum damage to the State at large for the benefit of a few?

I VOTE to GRANT the Motions for Reconsideration and to reinstate the decision of the Court of Appeals dated 29 February 1996.

---

^[1] See 508 SCRA 310.

^[2] See rollo, p. 820.

^[3] Id. at 821.

^[4] Id. at 821-822.

^[5] Records, pp. 328-337.

^[6] See id. at 337.

^[7] Id. at 328.

^[8] Rollo, p. 822.

^[9] Id. at 823.

^[10] Id.

^[11] See Folder of Exhibits Vol. II for the Plaintiff, the document marked as "L".

^[12] Records, pp. 743-744.

^[13] Id. at 744.

^[14] Records, pp. 18-25.

^[15] See "Amended Complaint", Records, pp. 43-50.

^[16] Id. at 21.

^[17] Id. at 45, 46, 47, 49.

^[18] Id. at 46.

^[19] See id. at 102-103, 153.

^[20] See id. at 103, 153.

^[21] Id. at 154.

^[22] Id. at 717.

^[23] Id. at 721-727.

^[24] Otherwise known as the parol evidence rule. The provision reads in part: "Evidence of written agreements when the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and, therefore, there can be, between the parties and their successors-in-interest, no evidence of the terms of the agreement other than the contents of the writing"

^[25] Penned by Judge Ismael O. Baldado.

^[26] Records, p. 749.

^[27] See id. at 749-751.

^[28] Id. at 751-752.

^[29] Rollo, pp. 169-170.

^[30] Id., p. 175

^[31] See CIVIL CODE, Arts. 1370 to 1379.

^[32] See REVISED RULES OF COURT, Rule 130, Secs. 9 to 19.

^[33] Supra note 11. Emphasis supplied.

^[34] Rollo, pp. 837-838. Emphasis supplied.

^[35] See note 33.

^[36] See note 34.

^[37] See REVISED RULES OF COURT, Rule 130, Sec. 9. See also Gaw v. IAC, G.R. No. 70451. March 24, 1993.

^[38] See PNB v. Court of Appeals, G.R. No. 33174, 4 July 1991, 198 SCRA 767, 784.

^[39] Exhibit "M."

^[40] See Decision, p. 21. See also Exhibit "DDDD."

^[41] Id.

^[42] Rollo, p. 838.

^[43] Romeo S. Geocadin. See rollo, p. 838. Geocadin is also counsel for United Planters in the present petition, see id. at 150, and the person who verified the petition, see id. at 151.

^[44] Joaquin Montenegro. See id. at 838. See also note 33.

^[45] TSN dated 15 May 1991, p. 13. Emphasis supplied.

^[46] Draft resolution, p. 6.

^[47] See p. 4, Amended Complaint (RTC records, p. 46.), where United Planters alleged that "among the conditions of the "friendly foreclosure" are: (A) That all the accounts of [United Planters] are condoned, including the JSS notes at the time of the public bidding."

^[48] Rollo, p. 842.

^[49] See REVISED RULES OF COURT, Rule 130, Sec. 9.

^[50] See CIVIL CODE, Art. 1359.

^[51] See Plaintiff's Offer of Exhibits dated 28 August 1991, p. 8.

^[52] Plaintiff's Exhibit "OO".

^[53] See Plaintiff's Offer of Exhibits dated 28 August 1991, p. 15.

^[54] CA rollo, pp. 324-420.

^[55] See id. at 396.

^[56] Matugas v. COMELEC, 465 Phil. 299, 312 (2004), citing Telephone Engineering & Service Co., Ind. v. WCC, G.R. No. L-28694, 13 May 1984, 104 SCRA 354; and De Castro v. Court of Appeals, 75 Phil. 824.

^[57] "The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void."

^[58] See note 27.

^[59] "Compensation shall take place when two persons, in their own right, are creditors and debtors of each other."

^[60] Records, p. 751.

^[61] See CIVIL CODE, Art. 1291.

^[62] See Records, 749. See also CIVIL CODE, Art. 1303.

^[63] See CIVIL CODE, Art. 1301.

^[64] "An assignment of credits and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475.

^[65] CIVIL CODE, Art. 1627.

^[66] See CIVIL CODE, Art. 1279.

^[67] See A. TOLENTINO, IV THE CIVIL CODE, p. 366; citing 2 Castan 562. Art. 1282 allows that "the parties may agree upon the compensation of debts which are not yet due," a deviation from the requisite of compensation that "the two debts be due".

^[68] Id. citing 2-I Ruggiero 229-231.

^[69] Madecor v. Uy, 415 Phil. 348, 359 (2001),

^[70] See CKH Industrial v. CA, 338 Phil. 837, 853 (1997); citing IV TOLENTINO, CIVIL CODE OF THE PHILIPPINES, 1985 ed., p. 368.

^[71] Cruz v. Court of Appeals, 459 Phil. 264, 279 (2003). "Thus, in the early case of Olino v. Medina, 1909, Olino filed a complaint against Medina to recover a parcel of riceland which he alleged to have mortgaged for P175.00 and which Medina refused to return on the ground that the latter allegedly bought the property. In deciding the conflict of allegations between the parties, this Court, through Justice Florentino Torres, considered the transaction over the property as a loan, reasoning that "such contract involves a smaller transmission of rights and interests, and the debtor does not surrender all rights to his property but simply confers upon the creditor the right to collect what is owing from the value of the thing given as security, there existing between the parties a greater reciprocity of rights and obligations.'" Labasan v. Lacuesta, No. L-25931, 30 October 1978, 86 SCRA 16, 24-25.