CASE NO.

6 UNITED PLANTERS VS CA

G.R. NO. 126890 APRIL 2, 2009

FACTS: In 1987, the Republic of the Philippines lost around 1.5 Billion Pesos after it had waived its right
to collect on an outstanding indebtedness from petitioner, by virtue of a so-called “friendly foreclosure
agreement” that ultimately was friendly only to petitioner.

Petitioner United Planters Sugar Milling Co. (UPSUMCO) was engaged in the business of milling sugar. In
1974, as UPSUMCO commenced operations, it obtained a set of loans from respondent Philippine
National Bank (PNB). The loans were secured over two parcels of land where the milling plant stood and
chattel mortgages over the machineries and equipment.

On 27 February 1987, through a Deed of Transfer, PNB assigned to the Government its “rights, titles and
interests” over UPSUMCO, among several other assets. [6] The Deed of Transfer acknowledged that said
assignment was being undertaken “in compliance with Presidential Proclamation No. 50.” The
Government subsequently transferred these “rights, titles and interests” over UPSUMCO to the
respondent Asset and Privatization Trust (APT).

ISSUE: Whether or not there was compensation in the present case.

RULING: The right of PNB to set-off payments from UPSUMCO 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
UPSUMCO to set-off payments. Even without an express agreement stipulating compensation, PNB and
UPSUMCO would have been entitled to set-off of payments, as the legal requisites for compensation
under Article 1279 were present.

As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB and
UPSUMCO ceased to exist. However, PNB and UPSUMCO had agreed to a conventional compensation, a
relationship which does not require the presence of all the requisites under Article 1279. And PNB too
had assigned all its rights as creditor to APT, including its rights under conventional compensation. The
absence of the mutual creditor-debtor relation between the new creditor APT and UPSUMCO cannot
negate the conventional compensation. Accordingly, APT, as the assignee of credit of PNB, had the right
to set-off the outstanding obligations of UPSUMCO on the basis of conventional compensation before
the condonation took effect on 3 September 1987.