Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 126890               July 11, 2007

UNITED PLANTERS SUGAR MILLING CO., INC. (UPSUMCO), Petitioner,
vs.
THE HONORABLE COURT OF APPEALS, PHILIPPINE NATIONAL BANK (PNB), and ASSET PRIVATIZATION TRUST (APT), as TRUSTEE OF THE REPUBLIC OF THE PHILIPPINES, Respondents.

R E S O L U T I O N

CARPIO, J.:

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 ₱2,137,076,433.15 as of 30 June 1987. On 27 August 1987, APT foreclosed the mortgages on the take-off loans. The foreclosure price was ₱450,000,000, leaving a deficiency of ₱1,687,076,433. 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 ₱1,687,076,433, 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 ₱97,973,991.65 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 ₱97,973,991.65 that PNB set-off from 27 August 1987 onwards. In addition, PNB must return to UPSUMCO what PNB set-off - ₱11,843,498.45 on 2 September 1987 and the ₱29,572,946.50 on 20 October 1987 - against UPSUMCO’s deposits and remitted to PHILSUCOR. Lastly, PNB must also return to UPSUMCO ₱386,897.57 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 construction9 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 ₱80,200,806.41. After 3 September 1987, PNB set-off ₱17,773,185.24. 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 issuances19 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.1awphil 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 ₱1,687,076,433.00 – 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 ₱100,000 to petitioner United Planters Sugar Milling Company, Inc. is DELETED.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CONCHITA CARPIO MORALES
Associate Justice
DANTE O. TINGA
Associate Justice

PRESBITERO J. VELASCO, JR.
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice


Footnotes

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:

(1) Trust Receipts dated August 26, 1987; February 5, 1987; and July 10, 1987;

(2) Deed of Assignment By Way of Payment dated November 16, 1984 x x x;

(3) Two (2) documents of Pledge both dated February 19, 1987;

(4) Sugar Quedans x x x;

(5) Credit Agreements dated February 19, 1987 x x x and April 29, 1987 x x x [;]

(6) Promissory Notes dated February 20, 1987 x x x; March 2, 1987 x x x; March 3, 1987 x x x; March 27, 1987 x x x; March 30,1987 x x x; April 7, 1987 x x x; May 22, 1987 x x x; and July 30, 1987 x x x.

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:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor." (Emphasis supplied)

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 ₱58 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 ₱2,137,076,433.15 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)


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