G.R. No. 126890 ; April 2, 2009
UNITED PLANTERS SUGAR MILLING CO., INC., (UPSUMCO), Petitioners, vs. THE HONORABLE COURT OF APPEALS, PHILIPPINE NATIONAL BANK (PNB) and ASSET PRIVATIZATION TRUST (APT), AS TRUSTEE OF THE REPUBLIC OF THE PHILIPPINES, Respondents.

FACTS

Petitioner United Planters Sugar Milling Co. (UPSUMCO) obtained “takeoff loans” from respondent Philippine National Bank (PNB) in 1974, secured by real estate and chattel mortgages, and later contracted “operational loans” from 1984 to 1987, secured by pledge contracts over its sugar produce. On February 27, 1987, PNB assigned its rights over UPSUMCO to the Government under Presidential Proclamation No. 50, which were subsequently transferred to respondent Asset Privatization Trust (APT). APT and UPSUMCO agreed to a “friendly foreclosure” of the mortgaged assets securing the takeoff loans. A foreclosure sale was conducted on August 27, 1987, where APT purchased the properties for ₱450 Million. On September 3, 1987, UPSUMCO executed a Deed of Assignment assigning its right of redemption to APT, in exchange for 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 [UPSUMCO] and PNB…”. UPSUMCO later filed a complaint against PNB and APT, alleging illegal appropriation of its funds from bank accounts and sugar sale proceeds after the foreclosure. APT filed a counterclaim seeking recovery of over ₱1.6 Billion, representing the total indebtedness less the foreclosure sale price. The Regional Trial Court ruled in favor of UPSUMCO, ordering PNB and APT to pay various sums representing the appropriated funds. The Court of Appeals reversed this decision. The Supreme Court, in a Resolution dated November 28, 2006, reinstated the RTC decision with modification, holding APT solely liable. APT filed a Motion for Reconsideration.

ISSUE

The primary issue is the correct interpretation of the Deed of Assignment dated September 3, 1987, specifically whether the condonation of “any deficiency amount” covered only the takeoff loans secured by the foreclosed mortgages or also included the separate operational loans.

RULING

The Supreme Court granted the Motion for Reconsideration. It set aside its November 28, 2006 Decision and July 11, 2007 Resolution, and affirmed the February 29, 1996 Decision of the Court of Appeals. The Court ruled that the condonation clause in the Deed of Assignment applied only to the deficiency claim arising from the takeoff loans, which were the subject of the foreclosure, and not to the separate operational loans. The Deed of Assignment explicitly referred only to the Credit Agreement and Restructuring Agreements governing the takeoff loans. The operational loans were governed by distinct security arrangements (pledge contracts) and were not mentioned in the Deed. The Court emphasized interpreting contracts according to their literal terms to avoid absurd and unjust results, noting that extending the condonation to the operational loans would grant UPSUMCO an unwarranted windfall at significant loss to the government. Furthermore, the Court held that PNB should not be held jointly and severally liable with APT, as PNB had assigned all its rights and interests over UPSUMCO to the government/APT, which assumed the corresponding liabilities.