HORTENSIA L. STARKE, PETITIONER, VS. PHILIPPINE SUGAR COMMISSION AND NATIONAL SUGAR TRADING CORPORATION, RESPONDENTS.

When this case was initiated in the trial court, the Philippine
Sugar Commission (PHILSUCOM) was under PD 1192 the sole agent of the country in
buying and selling sugar. Its trading
arm was the National Sugar Trading Corporation, more commonly known as NASUTRA. The PHILSUCOM had the power to determine
from time to time the floor ceiling price of sugar. This amount was reached by ascertaining the total anticipated
cost of production per picul of sugar and adding thereto a corresponding
reasonable margin of profit as set by the government agency authorized to
regulate prices of commodities.

The decree required the sugar planters to deliver their crops to
a mill district, or central, for milling. At the end of every milling week, a production report was prepared
showing the sugar produced and the corresponding shares of the central and the
sugar planters. A sugar warehouse
receipt, known as a quedan, was then prepared covering production for that week
and this was issued to the planters. For purposes of liquidation, the association representing the planters
presented this quedan to the NASUTRA buying office for payment. NASUTRA in turn paid the planters the prices
fixed by PHILSUCOM at the start of the crop year of each particular class of
sugar. The association then issued
individual checks to the different planter-members in amounts corresponding to
their respective crops.

In the case of financed sugar planters, their sugar was covered
by a consolidated quedan and the check payment issued therefor was in the name
of their assignee bank. This in turn
credited to the account of the individual planters their corresponding shares
in the payment.

The annual sugar crop loan was paid on a weekly basis because the
NASUTRA Liquidation Office verified to the bank the liquidation price of
PHILSUCOM weekly. The weekly
remittances corresponded to the number of piculs milled by the sugar planter.

Petitioner Hortensia Starke was a financed sugar planter whose
sugarcane planting operations relied on crop loans extended by the Philippine
National Bank. In the documentation of
her crop loans for the years 1979-80 and 1980-81, she executed chattel morgages
in favor of PNB and deeds of assignment designating it as her agent.

PNB sold the petitioner’s sugar at P90.00 per picul for crop year
1979-80 and at P115.00 per picul for crop year 1980-81. These were the liquidation prices determined
by PHILSUCOM for these years. From the
sales proceeds, PNB deducted the petitioner’s outstanding debt and the rest was
given to her as surplus. Subsequently,
the petitioner received the additional amounts of P45.00 per picul for crop
year 1979-80 and P57.50 per picul for crop year 1980-81 as adjustments of the
above-stated liquidation prices. These
amounts were derived from the export profit of PHILSUCOM over and above the
break-even cost. From this profit, 50%
was paid to the producers and the 50% balance was applied to the payment of the
NASUTRA loan of P2.7 billion.

It was the 50% profit used to pay the said loan that the
petitioner sought to recover in a complaint she filed on October 28, 1981, with
the Court of First Instance of Rizal.^[1]

The petitioner alleged in her complaint that the deduction was
without her consent and that neither PHILSUCOM nor NASUTRA was authorized to
borrow and charge the loans to the planters. She claimed that such deduction was unreasonable, arbitrary and
capricious and offensive to the due process clause.

After trial, Judge Rodolfo Ortiz rendered judgment^[2]
declaring that it was within the authority of PNB to sell the plaintiff’s sugar
for a price it deemed reasonable because Paragraph 8 of the chattel mortgages
stipulated:

Paragraph 8 – Effective immediately, upon the execution of this
Mortgage, the MORTGAGEE is hereby constituted and appointed attorney-in-fact of
the MORTGAGOR with full power and authority x x x to store the mortgaged
crops or the products into which same may have been converted in any warehouse
it may choose and to cause the corresponding quedans to be used in its name; to
sell or dispose of the same at the time and place for the price which the
MORTGAGEE may deem convenient and reasonable and to apply the proceeds thereof
to the reimbursement of its advances
for the storage, insurance, transportation, and other expenses incurred by it in the exercise of this power
or to the payment of the obligation of the MORTGAGOR to the MORTGAGEE. (Emphasis supplied.)

The trial court also noted that to further secure the subject
crop loans, the petitioner executed a deed of assignment wherein she declared:

Par. 1 – This is to inform you that by virtue of certain document
executed by the above party/ies, it/he/she/they/has/have by way of first
mortgage conveyed to this bank, for valuable consideration ALL
its/his/her/their sugar including those in excess of planter/s quota coming
from its/his/her/their plantation/s adhered to and/or milling with that Central
x x x beginning with the crop year 1979/80 and the subsequent crop years
thereafter until all its/his/her/their obligation with this Bank shall have been
fully liquidated.

Par. 5 – We should like to request, therefore that the
corresponding quedans of the first piculs milled covering the said party/ies,
net share, free from all liens and encumbrances except minor charges, such as
the planter’s handling and transportation expenses, etc., duly issued in the
name of the Bank, be sent to us as soon as they are issued. (Emphasis supplied).

The above-stated stipulations clearly authorized the sales made
by PNB to NASUTRA. When NASUTRA sold
the plaintiff’s sugar to the foreign market for profit, she was no longer
entitled to such profit because the sugar was already owned by PHILSUCOM. The 50% profit paid to the plaintiff was not
hers as a matter of right but was granted to her only in pursuance of the liberal
government policy of adjusting the liquidation prices whenever the government
realized profit. The purpose was to
encourage production and help the planters meet escalation costs.

The petitioner appealed to the respondent court insisting
that: (1) PNB was not authorized to
sell her sugar to NASUTRA, which therefore never became its owner and so should
deliver to her the proceeds of its sale; and (2) she was entitled to the
remaining 50% of the profit used to pay the P2.7 billion loan incurred by PHILSUCOM/NASUTRA
because her sugar was actually confiscated by PHILSUCOM.

On November 23, 1988, the Court of Appeals^[3]
affirmed the decision of the trial court in toto. The petitioner then elevated the matter to
this Court in a petition for review on certiorari

The petitioner maintains that her sugar was not sold by PNB to
PHILSUCOM but instead simply confiscated by the latter. The absence of a sale was testified to by
Romulo Cordova, head of the buying office of NASUTRA, who declared:

Q –  Was
there any contract of sale executed by the bank in favor of Nasutra when
the bank sold the sugar to the plaintiff to Nasutra?

A –   None
that I can recall. (Emphasis
supplied.)^[4]

She points out that after the planters’ sugar was milled, quedans
were issued in the name of PHILSUCOM, which thereby acquired ownership of the
sugar. Indeed, even the quedans stated:

Philippine Sugar Commission warrants that it has full and
absolute title to the sugar covered by this Official Warehouse Receipt x x
x. (Emphasis supplied.)

No less importantly, she says that in the case of Corazon Zayco
v. Philsucom, G.R. No. 55798, the private respondents made the following
admission:

x x x

Viewed from another angle, the planter is in effect disposing of his
product when he causes the conversion of his cane to sugar because it is at
this point that the obligation to issue a quedan covering it arises.^[5]

This was binding against them under Rule 129, Sec. 2 of the Rules
of Court reading as follows:

Sec. 2. Judicial
Admissions. – Admissions made by
the parties in the pleadings, or in the course of the trial or other procedings
do not require proof and cannot be contradicted unless previously shown to have
been made through palpable mistake.

Her position is that as ownership of her sugar was transferred
not during liquidation but when the sugar quedans were placed in the name of
PHILSUCOM, the latter actually confiscated her property without just
compensation and in violation of due process.

The petitioner further contends that even if there was in fact a
sale, the authority of PNB to sell in her behalf was in the concept of a pactum
commisorium, which is prohibited by law. As for NASUTRA, it was merely acting as her agent when it sold the sugar
to the export market and so had no right to apply part of her profit to the
payment of its own loan.

Summarizing, she says that since her export sugar was 11,529.85
piculs for the 1979-1980 crop year, at the cost of P45.00 per picul, or a total
of P518,843.25, and her export sugar for 1980-1981 crop year was 13,785.90
piculs, at the cost of P57.50 per picul, or a total of P792,689.25, the private
respondents have to refund to her the sum of P1,311,532.50, representing the
balance of the cost of her sugar for the two crop years.

We observe at the outset that the petitioner is not questioning
the constitutionality of PD 388 as amended by PD 1192,* which created the PHILSUCOM and
designated it as the single buying and selling agency of sugar on the quedan
level and authorized it to fix its price. The validity of the decree must therefore be presumed.

Sec. 2 (d and e) of the decree empowered the PHILSUCOM:

(d)     To act as the single
buying and selling agency of sugar on the quedan-permit level, in order to
promote the effective merchandising and distribution of sugar;

(e)     To determine from time
to time the floor-ceiling price of sugar which will give the planters, millers,
traders, wholesalers, and retailers a fair return on their investments;
Provided, That in determining the floor-ceiling price, the Commission shall
take into account the total anticipated cost of production per picul of sugar
plus a corresponding reasonable margin of profit set by the Price Control
Council or any other government agency authorized to regulate prices of
commodities and service after taking into consideration the effects of
devaluation and other economic factors affecting production, processing,
marketing, transportation and other related expenses including the minimum wage
for agricultural and industrial workers; Provided, that the floor-ceiling price
established by the Commission shall be adjusted in direct relation to
significant changes in the cost of production as determined by the Commission
and the Consumers Price Index prepared by the Central Bank of the Philippines;
Provided, however, that the determination of the ceiling price shall be subject
to prevailing world market prices with respect to export sugar and prevailing
domestic prices with respect to domestic sugar;

In light of these provisions, the petitioner’s contention that
her sugar was illegally confiscated cannot prosper.

It is not denied that the official warehouse receipts were indeed
in the name of PHILSUCOM and contained a warranty that it had absolute title to
the amount of sugar indicated therein. Even so, it is also undeniable that the payments were actually made to
the planters by NASUTRA in behalf of PHILSUCOM in exchange for their sugar, as
evidenced by the payment voucher issued by NASUTRA, which was admitted as an
exhibit in the trial court.^[6]
How could there have been confiscation when there was payment? The petition contains no allegation that the
sugar stored in the mills was ever taken by PHILSUCOM without prior payment,**
or that PHILSUCOM ever refused such payment on the ground that the quedans were
already in its name.

As PHILSUCOM was then the sole buyer and seller of sugar in the
country, it is understandable why the quedans were directly issued in its
name. This was a measure intended
merely to facilitate the sale of the sugar by avoiding the intermediate step of
issuing the quedans in the name of the planters before transferring them in the
name of PHILSUCOM.

The next question is whether there was indeed a sale between PNB
and NASUTRA.

When Cordova testified that there was no sale that he could
recall, he was obviously referring to a written contract of sale. In fact, the question put to him was whether
a contract of sale had been “executed” between PNB and NASUTRA. This matter was clarified in his later
testimony when he declared on additional re-direct examination:

Q – Now, you said that you are not aware of a contract between the PNB and
NASUTRA with respect to the sale of sugar. When you said you are not aware of the contract, what contract did you
have in mind?

A – The written contract.^[7]

The voucher issued by NASUTRA to PNB, which has not been
challenged by the petitioner, sufficiently proves the sale of the sugar by PNB
to NASUTRA as agent of PHILSUCOM. PHILSUCOM acquired ownership of the commodity when NASUTRA paid PNB for
it, and it was at this point that the petitioner irrevocably ceased to have
control of the sugar she had already sold. Whatever PHILSUCOM or NASUTRA decided thereafter to do with the sugar
was no longer her concern. PHILSUCOM or
its agent NASUTRA had the discretion to sell the commodity and to dispose of
the proceeds of the sale in the manner it saw fit regardless of the
petitioner’s will or objection. The
fact that they shared with the planters 50% of the profit realized from the sale
is no indication, nor was it an admission, that the petitioner was a party to
the sale. As previously stated, the
additional amount was given as a bonus or gratuity, in implementation of the
announced policy of PHILSUCOM to provide incentives to the sugar planters.

The non-participation of PNB in the pricing of the sugar did not
affect the validity of the sale because the price of the commodity had already
been determined by PHILSUCOM, pursuant to the authority conferred upon it by PD
1192.

The contention that the above-quoted stipulation contained in the
chattel mortgage constitutes a pactum commisorium is also
unacceptable. It has not been shown
that it violates Art. 2088 of the New Civil Code, which states:

Art. 2088. 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.

The provision prohibits two things: first, the appropriation by the creditor of the things given by
way of pledge or mortgage; and second, the disposition thereof by the
creditor. In the chattel mortgage,
there was no automatic appropriation by PNB of the properties mortgaged,
which is what is not allowed by the quoted provision.^[8]
On the contrary, PNB was expressly authorized to act as the agent of the
petitioner in the disposition of the mortgaged property for the benefit of the
petitioner. As the respondent court
correctly observed:

x x x As can be seen from the provision of the chattel mortgage,
the mortgagee bank did not automatically vest in itself the ownership of the
sugar belonging to the appellant. What
the PNB did was merely to sell the sugar of the appellant which it could
legally do considering that it was constituted under the mortgage itself (Exh.
10) to be agent or attorney­-in-fact of the appellant and, to apply the
proceeds thereof to the account of the latter with the bank, x x x

x x x

x x x the bank which was duly constituted as an agent or
attorney-in-fact of the appellant-mortgagor merely acted as such in the
disposition of appellant’s sugar. The
existence of the contract of agency between the PNB and the appellant can also
be best illustrated when We have to consider the fact that upon receipt by the
mortgagee bank of the proceeds of the sugar sold, the latter applied the same
to the account of the appellant-mortgagor and any amount in excess of
appellant’s obligations/loans to the bank was given back to her.

Incidentally, this declaration was not questioned in the original
petition but only belatedly in the petitioner’s memorandum.

It is worth stressing that the P2.7 billion loan incurred by
NASUTRA was intended to be used for subsidizing the sugar industry which, as
this Court recognized in Lutz v. Araneta,^[9]
is one of the pillars of the national economy.

The final issue is the materiality of the Zayco case, which is
cited by the petitioner. The
petitioners in that case, who were also sugar planters, asked the Court to
prohibit the PHILSUCOM from selling their sugar without their previous
consent. We initially sustained the
PHILSUCOM on the basis of the police power. On the motion for reconsideration later filed by the petitioners, the
Court declared that the case had become moot and academic with the issuance of
PD 1971. This converted the PHILSUCOM
to the Philippine Sugar Marketing Corporation (PHILSUMA) as the sole marketing
agency of the sugar industry to be owned completely by the sugar producers.

The Zayco case is applicable to the case at bar only insofar as
it pronounced that the sugar industry was affected with public interest and
therefore subject to the proper exercise of the police power in the marketing
and pricing of sugar. This is not the
issue raised in this case. The present
petition will fail on the issues herein raised, for the reasons above
discussed, and not because it has become moot and academic.

WHEREFORE, the petition is DENIED and the assailed
decision AFFIRMED in toto, with costs against the petitioner. It is so ordered.

Griño-Aquino, Medialdea, and
Bellosillo, JJ., concur.

^[1]
Original record, pp. 1-3.

^[2]
Ibid., pp. 315-326.

^[3]
Cacdac, Jr., J., ponente, with Castro-Bartolome and Pronove, JJ.,
concurring.

^[4]
TSN, pp. 19-20, February 25, 1983.

^[5]
Memorandum for PHILSUCOM/NASUTRA in G.R. No. 55798, p.11.

*
PHILSUCOM, the government-organized sugar cartel, was abolished on May 18,
1986, through E.O. 18, which in turn created the Sugar Regulatory
Administration.

^[6]
Exhibit 6 PHILSUCOM, Original record, p. 139.

**
The “sugarless quedan” scandal happened much later.

^[7]
TSN, p. 25, February 25, 1983.

^[8]
Dalay vs. Aquiatin and Maximo, 47 Phil. 951.

^[9]
98 Phil. 148.