Professional Documents
Culture Documents
Strat Alliance V Radstock
Strat Alliance V Radstock
SUPREME COURT
Manila
EN BANC
G.R. No. 178158
December 4, 2009
drive thru past the GSIS, we will see on the right a vacant lot, that is PNCC property. As we turn right
on Diosdado Macapagal, we see on our right new buildings, these are all PNCC properties. That is
12.9 hectares of valuable asset right in this Financial Center that is worth P5,993,689.000.
What else, Mr. President? The 20% of the outstanding capital stock of PNCC with a par value of
P2,300,000,000-- I repeat, 20% of the outstanding capital stock of PNCC worth P2,300 billion-- was
assigned to Radstock.
In addition, Mr. President and my dear colleagues, please hold on to your seats because part of the
agreement is 50% of PNCCs 6% share in the gross toll revenue of the Manila North Tollways
Corporation for 27 years, from 2008 to 2035, is being assigned to Radstock. How much is this worth? It
is worth P9,382,374,922. I repeat, P9,382,374,922.
xxxx
Mr. President, P17,676,000,000, however, was made to appear in the agreement to be only worth
P6,196,156,488. How was this achieved? How was an aggregate amount of P17,676,000,000 made to
appear to be only P6,196,156,488? First, the 19 pieces of real estate worth P5,993,689,000 were only
assigned a value of P4,195,000,000 or only 70% of their appraised value.
Second, the PNCC shares of stock with a par value of P2.3 billion were marked to market and
therefore were valued only at P713 million.
Third, the share of the toll revenue assigned was given a net present value of only P1,287,000,000
because of a 15% discounted rate that was applied.
In other words, Mr. President, the toll collection of P9,382,374,922 for 27 years was given a net present
value of only P1,287,000,000 so that it is made to appear that the compromise agreement is only worth
P6,196,000,000.
Mr. President, my dear colleagues, this agreement will substantially wipe out all the assets of PNCC. It
will be left with nothing else except, probably, the collection for the next 25 years or so from the North
Luzon Expressway. This agreement brought PNCC to the cleaners and literally cleaned the PNCC of
all its assets. They brought PNCC to the cleaners and cleaned it to the tune of P17,676,000,000.
xxxx
Mr. President, are we not entitled, as members of the Committee, to know who is Radstock Securities
Limited?
Radstock Securities Limited was allegedly incorporated under the laws of the British Virgin Islands. It
has no known board of directors, except for its recently appointed attorney-in-fact, Mr. Carlos
Dominguez.
Mr. President, are the members of the Committee not entitled to know why 20 years after the account
to Marubeni Corporation, which gave rise to the compromise agreement 20 years after the obligation
was allegedly incurred, PNCC suddenly recognized this obligation in its books when in fact this
obligation was not found in its books for 20 years?
In other words, Mr. President, for 20 years, the financial statements of PNCC did not show any
obligation to Marubeni, much less, to Radstock. Why suddenly on October 20, 2000, P10 billion in
correct?
MR. DOMINGUEZ. As I said, Your Honor, I am not familiar with the decision making process of
Marubeni. But my understanding was, as I said, they didn't want to get into a
SEN. OSMEA. All right.
MR. DOMINGUEZ. ...litigious situation.6
xxxx
SEN. OSMEA. All of these financial things can be arranged. They can hire a local bank, Filipino, to be
trustee for the real estate. So ...
SEN. DRILON. Well, then, thats a dummy relationship.
SEN. OSMEA. In any case, to me the main point here is that a third party, Radstock, whoever owns
it, bought Marubenis right for $2 million or P100 million. Then, they are able to go through all these
legal machinations and get awarded with the consent of PNCC of 6 billion. Thats a 100 million to 6
billion. Now, Mr. Aguilar, you have been in the business for such a long time. I mean, this hedge funds
whether its Radstock or New Bridge or Texas Pacific Group or Carlyle or Avenue Capital, they look at
their returns. So if Avenue Capital buys something for $2 million and you give him $4 million in one
year, its a 100 percent return. Theyll walk away and dance to their stockholders. So here in this
particular case, if you know that Radstock only bought it for $2 million, I would have gotten board
approval and say, "Okay, lets settle this for $4 million." And Radstock would have jumped up and
down. So what looks to me is that this was already a scheme. Marubeni wrote it off already. Marubeni
wrote everything off. They just got a $2 million and they probably have no more residual rights or
maybe theres a clause there, a secret clause, that says, "I want 20 percent of whatever youre able to
eventually collect." So $2 million. But whatever it is, Marubeni practically wrote it off. Radstocks liability
now or exposure is only $2 million plus all the lawyer fees, under-the-table, etcetera. All right. Okay. So
its pretty obvious to me that if anybody were using his brain, I would have gone up to Radstock and
say, "Heres $4 million. Heres P200 million. Okay." They would have walked away. But evidently, the
"ninongs" of Radstock See, I dont care who owns Radstock. I want to know who is the ninong here
who stands to make a lot of money by being able to get to courts, the government agencies, OGCC, or
whoever else has been involved in this, to agree to 6 billion or whatever it was. Thats a lot of money.
And believe me, Radstock will probably get one or two billion and four billion will go into somebody
elses pocket. Or Radstock will turn around, sell that claim for P4 billion and let the new guy just collect
the payments over the years.
x x x x7
SEN. OSMEA. x x x I just wanted to know is CDCP Mining a 100 percent subsidiary of PNCC?
MR. AGUILAR. Hindi ho. Ah, no.
SEN. OSMEA. If theyre not a 100 percent, why would they sign jointly and severally? I just want to
plug the loopholes.
MR. AGUILAR. I think it was if I may just speculate. It was just common ownership at that time.
solidarily for the full amount of the 5,460,000,000 yen loan and to the extent of P20 million for the US$5
million loan. However, there was no CDCP Board Resolution authorizing the issuance of the letters of
guarantee. Later, Basay Mining changed its name to CDCP Mining Corporation (CDCP Mining). CDCP
Mining secured the Marubeni loans when CDCP and CDCP Mining were still privately owned and
managed.
Subsequently in 1983, CDCP changed its corporate name to PNCC to reflect the extent of the
Government's equity investment in the company, which arose when government financial institutions
converted their loans to PNCC into equity following PNCCs inability to pay the loans.12 Various
government financial institutions held a total of seventy-seven point forty-eight percent (77.48%) of
PNCCs voting equity, most of which were later transferred to the Asset Privatization Trust (APT) under
Administrative Orders No. 14 and 64, series of 1987 and 1988, respectively.13 Also, the Presidential
Commission on Good Government holds some 13.82% of PNCCs voting equity under a writ of
sequestration and through the voluntary surrender of certain PNCC shares. In fine, the Government
owns 90.3% of the equity of PNCC and only 9.70% of PNCCs voting equity is under private
ownership.14
Meanwhile, the Marubeni loans to CDCP Mining remained unpaid. On 20 October 2000, during the
short-lived Estrada Administration, the PNCC Board of Directors15 (PNCC Board) passed Board
Resolution No. BD-092-2000 admitting PNCCs liability to Marubeni for P10,743,103,388 as of 30
September 1999. PNCC Board Resolution No. BD-092-2000 reads as follows:
RESOLUTION NO. BD-092-2000
RESOLVED, That the Board recognizes, acknowledges and confirms PNCCs obligations as of
September 30, 1999 with the following entities, exclusive of the interests and other charges that may
subsequently accrue and still become due therein, to wit:
a). the Government of the Republic of the Philippines in the amount of
P36,023,784,751.00; and
b). Marubeni Corporation in the amount of P10,743,103,388.00. (Emphasis
supplied)
This was the first PNCC Board Resolution admitting PNCCs liability for the Marubeni loans. Previously,
for two decades the PNCC Board consistently refused to admit any liability for the Marubeni loans.
Less than two months later, or on 22 November 2000, the PNCC Board passed Board Resolution No.
BD-099-2000 amending Board Resolution No. BD-092-2000. PNCC Board Resolution No. BD-0992000 reads as follows:
RESOLUTION NO. BD-099-2000
RESOLVED, That the Board hereby amends its Resolution No. BD-092-2000 dated October 20, 2000
so as to read as follows:
RESOLVED, That the Board recognizes, acknowledges and confirms its obligations as of September
30, 1999 with the following entities, exclusive of the interests and other charges that may subsequently
accrue and still due thereon, subject to the final determination by the Commission on Audit (COA) of
the amount of obligation involved, and subject further to the declaration of the legality of said
and the Court of Appeals is directed to PROCEED forthwith with the appeal filed by PNCC.
No costs.
SO ORDERED.17
On 17 August 2006, PNCC and Radstock entered into the Compromise Agreement where they agreed
to reduce PNCCs liability to Radstock, supposedly from P17,040,843,968, to P6,185,000,000. PNCC
and Radstock submitted the Compromise Agreement to this Court for approval. In a Resolution dated 4
December 2006 in G.R. No. 156887, this Court referred the Compromise Agreement to the
Commission on Audit (COA) for comment. The COA recommended approval of the Compromise
Agreement. In a Resolution dated 22 November 2006, this Court noted the Compromise Agreement
and referred it to the Court of Appeals in CA-G.R. CV No. 87971. In its 25 January 2007 Decision, the
Court of Appeals approved the Compromise Agreement.
STRADEC moved for reconsideration of the 25 January 2007 Decision. STRADEC alleged that it has a
claim against PNCC as a bidder of the National Governments shares, receivables, securities and
interests in PNCC. The matter is subject of a complaint filed by STRADEC against PNCC and the
Privatization and Management Office (PMO) for the issuance of a Notice of Award of Sale to Dong-A
Consortium of which STRADEC is a partner. The case, docketed as Civil Case No. 05-882, is pending
before the Regional Trial Court of Makati, Branch 146 (RTC Branch 146).
The Court of Appeals treated STRADECs motion for reconsideration as a motion for intervention and
denied it in its 31 May 2007 Resolution. STRADEC filed a petition for review before this Court,
docketed as G.R. No. 178158.
Rodolfo Cuenca (Cuenca), a stockholder and former PNCC President and Board Chairman, filed an
intervention before the Court of Appeals. Cuenca alleged that PNCC had no obligation to pay
Radstock. The Court of Appeals also denied Cuencas motion for intervention in its Resolution of 31
May 2007. Cuenca did not appeal the denial of his motion.
On 2 July 2007, this Court issued an order directing PNCC and Radstock, their officers, agents,
representatives, and other persons under their control, to maintain the status quo ante.
Meanwhile, on 20 February 2007, Sison, also a stockholder and former PNCC President and Board
Chairman, filed a Petition for Annulment of Judgment Approving Compromise Agreement before the
Court of Appeals. The case was docketed as CA-G.R. SP No. 97982.
Asiavest, a judgment creditor of PNCC, filed an Urgent Motion for Leave to Intervene and to File the
Attached Opposition and Motion-in-Intervention before the Court of Appeals in CA-G.R. SP No. 97982.
In a Resolution dated 12 June 2007, the Court of Appeals dismissed Sisons petition on the ground that
it had no jurisdiction to annul a final and executory judgment also rendered by the Court of Appeals. In
the same resolution, the Court of Appeals also denied Asiavests urgent motion.
Asiavest filed its Urgent Motion for Leave to Intervene and to File the Attached Opposition and Motionin-Intervention in G.R. No. 178158.18
Sison filed a motion for reconsideration. In its 5 November 2007 Resolution, the Court of Appeals
denied Sisons motion.
On 26 November 2007, Sison filed a petition for review before this Court, docketed as G.R. No.
180428.
In a Resolution dated 18 February 2008, this Court consolidated G.R. Nos. 178158 and 180428.
On 13 January 2009, the Court held oral arguments on the following issues:
1. Does the Compromise Agreement violate public policy?
2. Does the subject matter involve an assumption by the government of a private
entitys obligation in violation of the law and/or the Constitution? Is the PNCC Board
Resolution of 20 October 2000 defective or illegal?
3. Is the Compromise Agreement viable in the light of the non-renewal of PNCCs
franchise by Congress and its inclusion of all or substantially all of PNCCs assets?
4. Is the Decision of the Court of Appeals annullable even if final and executory on
grounds of fraud and violation of public policy and the Constitution?
III.
Propriety of Actions
The Court of Appeals denied STRADECs motion for intervention on the ground that the motion was
filed only after the Court of Appeals and the trial court had promulgated their respective decisions.
Section 2, Rule 19 of the 1997 Rules of Civil Procedure provides:
SECTION 2. Time to intervene. The motion to intervene may be filed at any time before rendition of
judgment by the trial court. A copy of the pleading-in-intervention shall be attached to the motion and
served on the original parties.
The rule is not absolute. The rule on intervention, like all other rules of procedure, is intended to make
the powers of the Court completely available for justice.19 It is aimed to facilitate a comprehensive
adjudication of rival claims, overriding technicalities on the timeliness of the filing of the claims.20 This
Court has ruled:
[A]llowance or disallowance of a motion for intervention rests on the sound discretion of the court after
consideration of the appropriate circumstances. Rule 19 of the Rules of Court is a rule of procedure
whose object is to make the powers of the court fully and completely available for justice. Its purpose is
not to hinder or delay but to facilitate and promote the administration of justice. Thus, interventions
have been allowed even beyond the prescribed period in the Rule in the higher interest of justice.
Interventions have been granted to afford indispensable parties, who have not been impleaded, the
right to be heard even after a decision has been rendered by the trial court, when the petition for review
of the judgment was already submitted for decision before the Supreme Court, and even where the
assailed order has already become final and executory. In Lim v. Pacquing (310 Phil. 722 (1995)], the
motion for intervention filed by the Republic of the Philippines was allowed by this Court to avoid grave
injustice and injury and to settle once and for all the substantive issues raised by the parties.21
In Collado v. Court of Appeals,22 this Court reiterated that exceptions to Section 2, Rule 12 could be
made in the interest of substantial justice. Citing Mago v. Court of Appeals,23 the Court stated:
It is quite clear and patent that the motions for intervention filed by the movants at this stage of the
proceedings where trial had already been concluded x x x and on appeal x x x the same affirmed by
the Court of Appeals and the instant petition for certiorari to review said judgments is already submitted
for decision by the Supreme Court, are obviously and, manifestly late, beyond the period prescribed
under x x x Section 2, Rule 12 of the Rules of Court.
But Rule 12 of the Rules of Court, like all other Rules therein promulgated, is simply a rule of
procedure, the whole purpose and object of which is to make the powers of the Court fully and
completely available for justice. The purpose of procedure is not to thwart justice. Its proper aim is to
facilitate the application of justice to the rival claims of contending parties. It was created not to hinder
and delay but to facilitate and promote the administration of justice. It does not constitute the thing itself
which courts are always striving to secure to litigants. It is designed as the means best adopted to
obtain that thing. In other words, it is a means to an end.
Concededly, STRADEC has no legal interest in the subject matter of the Compromise Agreement.
Section 1, Rule 19 of the 1997 Rules of Civil Procedure states:
SECTION 1. Who may intervene. - A person who has a legal interest in the matter in litigation, or in the
success of either of the parties, or an interest against both, or is so situated as to be adversely affected
by a distribution or other disposition of property in the custody of the court or of an officer thereof may,
with leave of court, be allowed to intervene in the action. The Court shall consider whether or not the
intervention will unduly delay or prejudice the adjudication of the rights of the original parties, and
whether or not the intervenors rights may be fully protected in a separate proceeding.
STRADECs interest is dependent on the outcome of Civil Case No. 05-882. Unless STRADEC can
show that RTC Branch 146 had already decided in its favor, its legal interest is simply contingent and
expectant.
However, Asiavest has a direct and material interest in the approval or disapproval of the Compromise
Agreement. Asiavest is a judgment creditor of PNCC in G.R. No. 110263 and a court has already
issued a writ of execution in its favor. Asiavests interest is actual and material, direct and immediate
characterized by either gain or loss from the judgment that this Court may render.24 Considering that
the Compromise Agreement involves the disposition of all or substantially all of the assets of PNCC,
Asiavest, as PNCCs judgment creditor, will be greatly prejudiced if the Compromise Agreement is
eventually upheld.
Sison has legal standing to challenge the Compromise Agreement. Although there was no allegation
that Sison filed the case as a derivative suit in the name of PNCC, it could be fairly deduced that Sison
was assailing the Compromise Agreement as a stockholder of PNCC. In such a situation, a stockholder
of PNCC can sue on behalf of PNCC to annul the Compromise Agreement.
A derivative action is a suit by a stockholder to enforce a corporate cause of action.25 Under the
Corporation Code, where a corporation is an injured party, its power to sue is lodged with its board of
directors or trustees.26 However, an individual stockholder may file a derivative suit on behalf of the
corporation to protect or vindicate corporate rights whenever the officials of the corporation refuse to
sue, or are the ones to be sued, or hold control of the corporation.27 In such actions, the corporation is
the real party-in-interest while the suing stockholder, on behalf of the corporation, is only a nominal
party.28
In this case, the PNCC Board cannot conceivably be expected to attack the validity of the Compromise
Agreement since the PNCC Board itself approved the Compromise Agreement. In fact, the PNCC
Board steadfastly defends the Compromise Agreement for allegedly being advantageous to PNCC.
Besides, the circumstances in this case are peculiar. Sison, as former PNCC President and Chairman
of the PNCC Board, was responsible for the approval of the Board Resolution issued on 19 June 2001
revoking the previous Board Resolution admitting PNCCs liability for the Marubeni loans.29 Such
revocation, however, came after Radstock had filed an action for collection and damages against
PNCC on 15 January 2001. Then, when the trial court rendered its decision on 10 December 2002 in
favor of Radstock, Sison was no longer the PNCC President and Chairman, although he remains a
stockholder of PNCC.
When the case was on appeal before the Court of Appeals, there was no need for Sison to avail of any
remedy, until PNCC and Radstock entered into the Compromise Agreement, which disposed of all or
substantially all of PNCCs assets. Sison came to know of the Compromise Agreement only in
December 2006. PNCC and Radstock submitted the Compromise Agreement to the Court of Appeals
for approval on 10 January 2007. The Court of Appeals approved the Compromise Agreement on 25
January 2007. To require Sison at this stage to exhaust all the remedies within the corporation will
render such remedies useless as the Compromise Agreement had already been approved by the Court
of Appeals. PNCCs assets are in danger of being dissipated in favor of a private foreign corporation.
Thus, Sison had no recourse but to avail of an extraordinary remedy to protect PNCCs assets.
Besides, in the interest of substantial justice and for compelling reasons, such as the nature and
importance of the issues raised in this case,30 this Court must take cognizance of Sisons action. This
Court should exercise its prerogative to set aside technicalities in the Rules, because after all, the
power of this Court to suspend its own rules whenever the interest of justice requires is well
recognized.31 In Solicitor General v. The Metropolitan Manila Authority,32 this Court held:
Unquestionably, the Court has the power to suspend procedural rules in the exercise of its inherent
power, as expressly recognized in the Constitution, to promulgate rules concerning pleading, practice
and procedure in all courts. In proper cases, procedural rules may be relaxed or suspended in the
interest of substantial justice, which otherwise may be miscarried because of a rigid and formalistic
adherence to such rules. x x x
We have made similar rulings in other cases, thus:
Be it remembered that rules of procedure are but mere tools designed to facilitate the attainment of
justice. Their strict and rigid application, which would result in technicalities that tend to frustrate rather
than promote substantial justice, must always be avoided. x x x Time and again, this Court has
suspended its own rules and excepted a particular case from their operation whenever the higher
interests of justice so require.
IV.
The PNCC Board Acted in Bad Faith and with Gross Negligence
in Directing the Affairs of PNCC
In this jurisdiction, the members of the board of directors have a three-fold duty: duty of obedience,
duty of diligence, and duty of loyalty.33 Accordingly, the members of the board of directors (1) shall
direct the affairs of the corporation only in accordance with the purposes for which it was organized;34
(2) shall not willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or act in bad faith or with gross negligence in directing the affairs of the
corporation;35 and (3) shall not acquire any personal or pecuniary interest in conflict with their duty as
exceeding its assets. There is no dispute that the Marubeni loans, once recognized, would wipe out the
assets of PNCC, "virtually emptying the coffers of the PNCC."40 While PNCC insists that it remains
financially viable, the figures in the COA Audit Reports tell otherwise.41 For 2006 and 2005, "the
Corporation has incurred negative gross margin of P84.531 Million and P80.180 Million,
respectively, and net losses that had accumulated in a deficit of P14.823 Billion as of 31
December 2006."42 The COA even opined that "unless [PNCC] Management addresses the issue
on net losses in its financial rehabilitation plan, x x x the Corporation may not be able to
continue its operations as a going concern."
Notably, during the oral arguments before this Court, the Government Corporate Counsel admitted the
PNCCs huge negative net worth, thus:
JUSTICE CARPIO
x x x what is the net worth now of PNCC? Negative what? Negative 6 Billion at least[?]
ATTY. AGRA
Yes, your Honor.43 (Emphasis supplied)
Clearly, the PNCC Boards admission of liability for the Marubeni loans, given PNCCs huge negative
net worth of at least P6 billion as admitted by PNCCs counsel, or P14.823 billion based on the 2006
COA Audit Report, would leave PNCC an empty shell, without any assets to pay its biggest creditor,
the National Government with an admitted receivable of P36 billion from PNCC.
Third. In a debilitating self-inflicted injury, the PNCC Board revived what appeared to have been a dead
claim by abandoning one of PNCCs strong defenses, which is the prescription of the action to collect
the Marubeni loans.
Settled is the rule that actions prescribe by the mere lapse of time fixed by law.44 Under Article 1144 of
the Civil Code, an action upon a written contract, such as a loan contract, must be brought within ten
years from the time the right of action accrues. The prescription of such an action is interrupted when
the action is filed before the court, when there is a written extrajudicial demand by the creditor, or when
there is any written acknowledgment of the debt by the debtor.45
In this case, Basay Mining obtained the Marubeni loans sometime between 1978 and 1981. While
Radstock claims that numerous demand letters were sent to PNCC, based on the records, the
extrajudicial demands to pay the loans appear to have been made only in 1984 and 1986. Meanwhile,
the written acknowledgment of the debt, in the form of Board Resolution No. BD-092-2000, was issued
only on 20 October 2000.
Thus, more than ten years would have already lapsed between Marubenis extrajudicial demands in
1984 and 1986 and the acknowledgment by the PNCC Board of the Marubeni loans in 2000. However,
the PNCC Board suddenly passed Board Resolution No. BD-092-2000 expressly admitting liability for
the Marubeni loans. In short, the PNCC Board admitted liability for the Marubeni loans despite the fact
that the same might no longer be judicially collectible. Although the legal advantage was obviously on
its side, the PNCC Board threw in the towel even before the fight could begin. During the Senate
hearings, the matter of prescription was discussed, thus:
SEN. DRILON. ... the prescription period is 10 years and there were no payments the last demands
MR. AGUILAR. I looked into that, Mr. Chairman, Your Honor. It was as a result of and I go to the folder
letter "N." In our own demand research it was not period, Your Honor, that Punongbayan in the big
folder, sir, letter "N" it was the period where PMO was selling PNCC and Punongbayan and Araullo
Law Office came out with an investment brochure that indicated liabilities both to national government
and to Marubeni/Radstock. So, PMO said, "For good order, can you PNCC board confirm that by board
resolution?" That's the tone of the letter.
SEN. DRILON. Confirm what? Confirm the liabilities that are contained in the Punongbayan investment
prospectus both to the national government and to PNCC. That is the reason at least from the record,
Your Honor, how the PNCC board got to deliberate on the Marubeni.
THE CHAIRMAN. What paragraph? Second to the last paragraph?
MR. AGUILAR. Yes. Yes, Mr. Chairman. Ito po 'yong that"s to our recollection, in the records, that
was the reason.
SEN. DRILON. Is that the only reason why ...
MR. AGUILAR. From just the records, Mr. Chairman, and then interviews with people who are still
around.
SEN. DRILON. You mean, you acknowledged a prescribed obligation because of this paragraph?
MR. AGUILAR. I dont know what legal advice we were following at that time, Mr. Chairman.46
(Emphasis supplied)
Besides prescription, the Office of the Government Corporate Counsel (OGCC) originally believed that
PNCC had another formidable legal weapon against Radstock, that is, the lack of authority of Alfredo
Asuncion, then Executive Vice-President of PNCC, to sign the letter of guarantee on behalf of CDCP.
During the Senate hearings, the following exchange reveals the OGCCs original opinion:
THE CHAIRMAN. What was the opinion of the Office of the Government Corporate Counsel?
MS. OGAN. The opinion of the Office of the Government Corporate Counsel is that PNCC should
exhaust all means to resist the case using all defenses available to a guarantee and a surety that there
is a valid ground for PNCC's refusal to honor or make good the alleged guarantee obligation. It
appearing that from the documents submitted to the OGCC that there is no board authority in favor or
authorizing Mr. Asuncion, then EVP, to sign or execute the letter of guarantee in behalf of CDCP and
that said letter of guarantee is not legally binding upon or enforceable against CDCP as principals, your
Honors.47
xxxx
SEN. DRILON. Now that we have read this, what was the opinion of the Government Corporate
Counsel, Mr. Cimafranca?
MR. CIMAFRANCA. Yes, Senator, we did issue an opinion upon the request of PNCC and our opinion
was that there was no valid obligation, no valid guarantee. And we incorporated that in our pleadings in
court.48 (Emphasis supplied)
Clearly, PNCC had strong defenses against the collection suit filed by Radstock, as originally opined by
the OGCC. It is quite puzzling, therefore, that the PNCC Board, which had solid grounds to refute the
legitimacy of the Marubeni loans, admitted its liability and entered into a Compromise Agreement that is
manifestly and grossly prejudicial to PNCC.
Fourth. The basis for the admission of liability for the Marubeni loans, which was an opinion of the Feria
Law Office, was not even shown to the PNCC Board.
Atty. Raymundo Francisco, the APT trustee overseeing the proposed privatization of PNCC at the time,
was responsible for recommending to the PNCC Board the admission of PNCCs liability for the
Marubeni loans. Atty. Francisco based his recommendation solely on a mere alleged opinion of the
Feria Law Office. Atty. Francisco did not bother to show this "Feria opinion" to the members of the
PNCC Board, except to Atty. Renato Valdecantos, who as the then PNCC Chairman did not also show
the "Feria opinion" to the other PNCC Board members. During the Senate hearings, Atty. Francisco
could not produce a copy of the "Feria opinion." The Senators grilled Atty. Francisco on his
recommendation to recognize PNCCs liability for the Marubeni loans, thus:
THE CHAIRMAN. x x x You were the one who wrote this letter or rather this memorandum dated 17
October 2000 to Atty. Valdecantos. Can you tell us the background why you wrote the letter
acknowledging a debt which is non-existent?
MR. FRANCISCO. I was appointed as the trustee in charge of the privatization of the PNCC at that
time, sir. And I was tasked to do a study and engage the services of financial advisors as well as legal
advisors to do a legal audit and financial study on the position of PNCC. I bidded out these
engagements, the financial advisership went to Punongbayan and Araullo. The legal audit went to the
Feria Law Offices.
THE CHAIRMAN. Spell it. Boy Feria?
MR. FRANCISCO. Feria-- Feria.
THE CHAIRMAN. Lugto?
MR. FRANCISCO. Yes. Yes, Your Honor. And this was the findings of the Feria Law Office that the
Marubeni account was a legal obligation.
So, I presented this to our board. Based on the findings of the legal audit conducted by the Ferial Law
Offices, sir.
THE CHAIRMAN. Why did you not ask the government corporate counsel? Why did you have to ask
for the opinion of an outside counsel?
MR. FRANCISCO. That was the that was the mandate given to us, sir, that we have to engage the ...
THE CHAIRMAN. Mandate given by whom?
MR. FRANCISCO. That is what we usually do, sir, in the APT.
THE CHAIRMAN. Ah, you get outside counsel?
SEN. DRILON. May we ask the corporate secretary of PNCC to provide us with a copy?
Okay naman andiyan siya.
(Ms. Ogan handing the document to Mr. Francisco.)
You have familiarized yourselves with the minutes, Atty. Francisco?
MR. FRANCISCO. Yes, sir.
SEN. DRILON. Now, mention is made of a memorandum here on line 8, page 3 of this boards
minutes. It says, "Director Francisco has prepared a memorandum requesting confirmation,
acknowledgement, and ratification of this indebtedness of PNCC to the national government which was
determined by Bureau of Treasury as of September 30, 1999 is 36,023,784,751. And with respect to
PNCCs obligation to Marubeni, this has been determined to be in the total amount of 10,743,103,388,
also as of September 30, 1999; that there is need to ratify this because there has already been a
representation made with respect to the review of the financial records of PNCC by Punongbayan and
Araullo, which have been included as part of the package of APTs disposition to the national
governments interest in PNCC."
You recall having made this representation as found in the minutes, I assume, Atty. Francisco?
MR. FRANCISCO. Yes, sir. But Id like to be refreshed on the memorandum, sir, because I dont have
a copy.
SEN. DRILON. Yes, this memorandum was cited earlier by Senator Arroyo, and maybe the secretary
can give him a copy? Give him a copy?
MS. OGAN. (Handing the document to Mr. Francisco.)
MR. FRANCISCO. Your Honor, I have here a memorandum to the PNCC board through Atty.
Valdecantos, which says that in the last paragraph, if I may read? "May we request therefore, that a
board resolution be adopted, acknowledging and confirming the aforementioned PNCC obligations with
the national government and Marubeni as borne out by the due diligence audit."
SEN. DRILON. This is the memorandum referred to in these minutes. This memorandum dated 17
October 2000 is the memorandum referred to in the minutes.
MR. FRANCISCO. I would assume, Mr. Chairman.
SEN. DRILON. Right.
Now, the Punongbayan representative who was here yesterday, Mr...
THE CHAIRMAN. Navarro.
SEN. DRILON. ... Navarro denied that he made this recommendation.
THE CHAIRMAN. He asked for opinion, legal opinion.
SEN. DRILON. He said that they never made this representation and the transcript will bear us out.
They said that they never made this representation that the account of Marubeni should be recognized.
MR. FRANCISCO. Mr. Chairman, in the memorandum, I only mentioned here the acknowledgement
and confirmation of the PNCC obligations. I was not asking for a ratification. I never mentioned
ratification in the memorandum. I just based my memo based on the due diligence audit of the Feria
Law Offices.
SEN. DRILON. Can you say that again? You never asked for a ratification...
MR. FRANCISCO. No. I never mentioned in my memorandum that I was asking for a ratification. I was
just in my memo it says, "acknowledging and confirming the PNCC obligation." This was what ...
SEN. DRILON. Isnt it the same as ratification? I mean, whats the difference?
MR. FRANCISCO. I well, my memorandum was meant really just to confirm the findings of the legal
audit as ...
SEN. DRILON. In your mind as a lawyer, Atty. Francisco, theres a difference between ratification and
whats your term? -- acknowledgment and confirmation?
MR. FRANCISCO. Well, I guess theres no difference, Mr. Chairman.
SEN. DRILON. Right.
Anyway, just of record, the Punongbayan representatives here yesterday said that they never made
such representation.
In any case, now youre saying its the Feria Law Office who rendered that opinion? Can we you
know, yesterday we were asking for a copy of this opinion but we were never furnished one. The ... no
less than the Chairman of this Committee was asking for a copy.
THE CHAIRMAN. Well, copy of the opinion...
MS. OGAN. Yes, Mr. Chairman, we were never furnished a copy of this opinion because its opinion
rendered for the Asset Privatization Trust which is its client, not the PNCC, Mr. Chairman.
THE CHAIRMAN. All right. The question is whether but you see, this is a memorandum of Atty.
Francisco to the Chairman of the Asset Privatization Trust. You say now that you were never furnished
a copy because thats supposed to be with the Asset ...
MS. OGAN. Yes, Mr. Chairman.
THE CHAIRMAN. ... but yet the action of or rather the opinion of the Feria Law Offices was in effect
adopted by the board of directors of PNCC in its minutes of October 20, 2000 where you are the
corporate secretary, Ms. Ogan.
MS. OGAN. Yes, Mr. Chairman.
THE CHAIRMAN. So, what I am saying is that this opinion or rather the opinion of the Feria Law
his concern was for PNCC, contrary to his claim that "he only had the interest of PNCC at heart." In
fact, if what was involved was his own money, Atty. Francisco would have preferred not just two, but at
least three different opinions on how to deal with the matter, and he would have maintained his nonliability.
SEN. OSMEA. x x x
All right. And lastly, just to clear our minds, there has always been this finger-pointing, of course,
whenever this is typical Filipino. When they're caught in a bind, they always point a finger, they
pretend they don't know. And it just amazes me that you have been appointed trustees, meaning,
representatives of the Filipino people, that's what you were at APT, right? You were not Erap's
representatives, you were representative of the Filipino people and you were tasked to conserve the
assets that that had been confiscated from various cronies of the previous administration. And here,
you are asked to recognize the P10 billion debt and you point only to one law firm. If you have cancer,
don't you to a second opinion, a second doctor or a third doctor? This is just a question. I am just
asking you for your opinion if you would take the advice of the first doctor who tells you that he's got to
open you up.
MR. FRANCISCO. I would go to three or more doctors, sir.
SEN. OSMEA. Three or more. Yeah, that's right. And in this case the APT did not do so.
MR. FRANCISCO. We relied on the findings of the
SEN. OSMEA. If these were your money, would you have gone also to obtain a second, third opinion
from other law firms. Kung pera mo itong 10 billion na ito. Siguro you're not gonna give it up that easily
ano, 'di ba?
MR. FRANCISCO. Yes, sir.
SEN. OSMEA. You'll probably keep it in court for the next 20 years.
x x x x50 (Emphasis supplied)
This is a clear admission by Atty. Francisco of bad faith in directing the affairs of PNCC - that he would
not have recognized the Marubeni loans if his own funds were involved or if he were the owner of
PNCC.
The PNCC Board admitted liability for the P10.743 billion Marubeni loans without seeing, reading or
discussing the "Feria opinion" which was the sole basis for its admission of liability. Such act surely
goes against ordinary human nature, and amounts to gross negligence and utter bad faith, even
bordering on fraud, on the part of the PNCC Board in directing the affairs of the corporation. Owing
loyalty to PNCC and its stockholders, the PNCC Board should have exercised utmost care and
diligence in admitting a gargantuan debt of P10.743 billion that would certainly force PNCC into
insolvency, a debt that previous PNCC Boards in the last two decades consistently refused to admit.
Instead, the PNCC Board admitted PNCCs liability for the Marubeni loans relying solely on a mere
opinion of a private law office, which opinion the PNCC Board members never saw, except for Atty.
Valdecantos and Atty. Francisco. The PNCC Board knew that PNCC, as a government owned and
controlled corporation (GOCC), must rely "exclusively" on the opinion of the OGCC. Section 1 of
Memorandum Circular No. 9 dated 27 August 1998 issued by the President states:
SECTION 1. All legal matters pertaining to government-owned or controlled corporations, their
subsidiaries, other corporate off-springs and government acquired asset corporations (GOCCs) shall
be exclusively referred to and handled by the Office of the Government Corporate Counsel (OGCC).
(Emphasis supplied)
The PNCC Board acted in bad faith in relying on the opinion of a private lawyer knowing that PNCC is
required to rely "exclusively" on the OGCCs opinion. Worse, the PNCC Board, in admitting liability for
P10.743 billion, relied on the recommendation of a private lawyer whose opinion the PNCC Board
members have not even seen.
During the oral arguments, Atty. Sison explained to the Court that the intention of APT was for the
PNCC Board merely to disclose the claim of Marubeni as part of APT's full disclosure policy to
prospective buyers of PNCC. Atty. Sison stated that it was not the intention of APT for the PNCC Board
to admit liability for the Marubeni loans, thus:
x x x It was the Asset Privatization Trust A-P-T that was tasked to sell the company. The A-P-T, for
purposes of disclosure statements, tasked the Feria Law Office to handle the documentation and the
study of all legal issues that had to be resolved or clarified for the information of prospective bidders
and or buyers. In the performance of its assigned task the Feria Law Office came upon the Marubeni
claim and mentioned that the APTC and/or PNCC must disclose that there is a claim by Marubeni
against PNCC for purposes of satisfying the requirements of full disclosure. This seemingly innocent
statement or requirement made by the Feria Law Office was then taken by two officials of the Asset
Privatization Trust and with malice aforethought turned it into the basis for a multi-billion peso debt by
the now government owned and/or controlled PNCC. x x x.51 (Emphasis supplied)
While the PNCC Board passed Board Resolution No. BD-099-2000 amending Board Resolution No.
BD-092-2000, such amendment merely added conditions for the recognition of the Marubeni loans,
namely, subjecting the recognition to a final determination by COA of the amount involved and to the
declaration by OGCC of the legality of PNCCs liability. However, the PNCC Board reiterated and stood
firm that it "recognizes, acknowledges and confirms its obligations" for the Marubeni loans. Apparently,
Board Resolution No. BD-099-2000 was a futile attempt to "revoke" Board Resolution No. BD-0922000. Atty. Alfredo Laya, Jr., a former PNCC Director, spoke on his protests against Board Resolution
No. BD-092-2000 at the Senate hearings, thus:
MR. LAYA. Mr. Chairman, if I can
THE CHAIRMAN. Were you also at the board?
MR. LAYA. At that time, yes, sir.
THE CHAIRMAN. Okay, go ahead.
MR. LAYA. That's why if maybe this can help clarify the sequence. There was this meeting on
October 20. This matter of the Marubeni liability or account was also discussed. Mr. Macasaet, if I may
try to refresh. And there was some discussion, sir, and in fact, they were saying even at that stage that
there should be a COA or an OGCC audit. Now, that was during the discussion of October 20. Later
on, the minutes came out. The practice, then, sir, was for the minutes to come out at the start of the
meeting of the subsequent. So the minutes of October 20 came out on November 22 and then we were
going over it. And that is in the subsequent minutes of the meeting
THE CHAIRMAN. May I interrupt. You were taking up in your November 22 meeting the October 20
minutes?
MR. LAYA. Yes, sir.
THE CHAIRMAN. This minutes that we have?
MR. LAYA. Yes, sir.
THE CHAIRMAN. All right, go ahead.
MR. LAYA. Now, in the November 22 meeting, we noticed this resolution already for confirmation of the
board proceedings of October 20. So immediately we made actually, protest would be a better term
for that we protested the wording of the resolution and that's why we came up with this resolution
amending the October 20 resolution.
SEN. DRILON. So you are saying, Mr. Laya, that the minutes of October 20 did not accurately reflect
the decisions that you made on October 20 because you were saying that this recognition should be
subject to OGCC and COA? You seem to imply and we want to make it and I want to get that for the
record. You seem to imply that there was no decision to recognize the obligation during that meeting
because you wanted it to subject it to COA and OGCC, is that correct?
MR. LAYA. Yes, your Honor.
SEN. DRILON. So how did...
MR. LAYA. That's my understanding of the proceedings at that time, that's why in the subsequent
November 22 meeting, we raised this point about obtaining a COA and OGCC opinion.
SEN. DRILON. Yes. But you know, the November 22 meeting repeated the wording of the resolution
previously adopted only now you are saying subject to final determination which is completely of
different import from what you are saying was your understanding of the decision arrived at on October
20.
MR. LAYA. Yes, sir. Because our thinking then...
SEN. DRILON. What do you mean, yes, sir?
MR. LAYA. It's just a claim under discussion but then the way it is translated, as the minutes of October
20 were not really verbatim.
SEN. DRILON. So, you never intended to recognize the obligation.
MR. LAYA. I think so, sir. That was our personally, that was my position.
SEN. DRILON. How did it happen, Corporate Secretary Ogan, that the minutes did not reflect what the
board
undue injury to the Government and gave unwarranted benefits to Radstock, through manifest
partiality, evident bad faith or gross inexcusable negligence of the PNCC Board. Such acts are
declared under Section 3(e) of RA 3019 or the Anti-Graft and Corrupt Practices Act, as "corrupt
practices xxx and xxx unlawful." Being unlawful and criminal acts, these PNCC Board Resolutions are
void ab initio and cannot be implemented or in any way given effect by the Executive or Judicial branch
of the Government.
Not content with forcing PNCC to commit corporate suicide with the admission of liability for the
Marubeni loans under Board Resolution Nos. BD-092-2000 and BD-099-2000, the PNCC Board drove
the last nail on PNCCs coffin when the PNCC Board entered into the manifestly and grossly
disadvantageous Compromise Agreement with Radstock. This time, the OGCC, headed by Agnes DST
Devanadera, reversed itself and recommended approval of the Compromise Agreement to the PNCC
Board. As Atty. Sison explained to the Court during the oral arguments:
x x x While the case was pending in the Court of Appeals, Radstock in a rare display of extreme
generosity, conveniently convinced the Board of PNCC to enter into a compromise agreement for
the amount of the judgment rendered by the RTC or P6.5 Billion Pesos. This time the OGCC, under the
leadership of now Solicitor General Agnes Devanadera, approved the compromise agreement
abandoning the previous OGCC position that PNCC had a meritorious case and would be hard press
to lose the case. What is strange is that although the compromise agreement we seek to stop
ostensibly is for P6.5 Billion only, truth and in fact, the agreement agrees to convey to Radstock all or
substantially all of the assets of PNCC worth P18 Billion Pesos. There are three items that are
undervalued here, the real estate that was turned over as a result of the controversial agreement, the
toll revenues that were being assigned and the value of the new shares of PNCC the difference is
about P12 Billion Pesos. x x x (Emphasis supplied)
V.
The Compromise Agreement is Void
for Being Contrary to the Constitution,
Existing Laws, and Public Policy
For a better understanding of the present case, the pertinent terms and conditions of the Compromise
Agreement between PNCC and Radstock are quoted below:
COMPROMISE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement made and entered into this 17th day of August 2006, in Mandaluyong City, Metro
Manila, Philippines, by and between:
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, a government acquired asset
corporation, created and existing under the laws of the Republic of the Philippines, with principal office
address at EDSA corner Reliance Street, Mandaluyong City, Philippines, duly represented herein by its
Chairman ARTHUR N. AGUILAR, pursuant to a Board Resolution attached herewith as Annex "A" and
made an integral part hereof, hereinafter referred to as PNCC;
- and RADSTOCK SECURITIES LIMITED, a private corporation incorporated in the British Virgin Islands,
with office address at Suite 1402 1 Duddell Street, Central Hongkong duly-represented herein by its
Director, CARLOS G. DOMINGUEZ, pursuant to a Board Resolution attached herewith as Annex "B"
interests to the following real properties provided the assignee shall be duly qualified to own real
properties in the Philippines;
(1) PNCCs rights over that parcel of land located in Pasay City with a total area
of One Hundred Twenty-Nine Thousand Five Hundred Forty-Eight (129,548)
square meters, more or less, and which is covered by and more particularly
described in Transfer Certificate of Title No. T-34997 of the Registry of Deeds
for Pasay City. The transfer value is P3,817,779,000.00.
PNCCs rights and interests in Transfer Certificate of Title No. T-34997 of the
Registry of Deeds for Pasay City is defined and delineated by Administrative
Order No. 397, Series of 1998, and RADSTOCK is fully aware and recognizes
that PNCC has an undertaking to cede at least 2 hectares of this property to its
creditor, the Philippine National Bank; and that furthermore, the Government
Service Insurance System has also a current and existing claim in the nature of
boundary conflicts, which undertaking and claim will not result in the diminution
of area or value of the property. Radstock recognizes and acknowledges the
rights and interests of GSIS over the said property.
(2) T-452587 (T-23646) - Paraaque (5,123 sq. m.) subject to the clarification of
the Privatization and Management Office (PMO) claims thereon. The transfer
value is P45,000,900.00.
(3) T-49499 (529715 including T-68146-G (S-29716) (1,9747-A)-Paraaque
(107 sq. m.) (54 sq. m.) subject to the clarification of the Privatization and
Management Office (PMO) claims thereon. The transfer value is P1,409,100.00.
(4) 5-29716-Paraaque (27,762 sq. m.) subject to the clarification of the
Privatization and Management Office (PMO) claims thereon. The transfer value
is P242,917,500.00.
(5) P-169 - Tagaytay (49,107 sq. m.). The transfer value is P13,749,400.00.
(6) P-170 - Tagaytay (49,100 sq. m.). The transfer value is P13,749,400.00.
(7) N-3320 - Town and Country Estate, Antipolo (10,000 sq. m.). The transfer
value is P16,800,000.00.
(8) N-7424 - Antipolo (840 sq. m.). The transfer value is P940,800.00.
(9) N-7425 - Antipolo (850 sq. m.). The transfer value is P952,000.00.
(10) N-7426 - Antipolo (958 sq. m.). The transfer value is P1,073,100.00.
(11) T-485276 - Antipolo (741 sq. m.). The transfer value is P830,200.00.
(12) T-485277 - Antipolo (680 sq. m.). The transfer value is P761,600.00.
(13) T-485278 - Antipolo (701 sq. m.). The transfer value is P785,400.00.
(14) T-131500 - Bulacan (CDCP Farms Corp.) (4,945 sq, m.). The transfer
value is P6,475,000.00.
(15) T-131501 - Bulacan (678 sq. m.). The transfer value is P887,600.00.
(16) T-26,154 (M) - Bocaue, Bulacan (2,841 sq. m.). The transfer value is
P3,779,300.00.
(17) T-29,308 (M) - Bocaue, Bulacan (733 sq. m.). The transfer value is
P974,400.00.
(18) T-29,309 (M) Bocaue, Bulacan (1,141 sq. m.). The transfer value is
P1,517,600.00.
(19) T-260578 (R. Bengzon) Sta. Rita, Guiguinto, Bulacan (20,000 sq. m.). The
transfer value is P25,200,000.00.
The transfer values of the foregoing properties are based on 70% of the appraised value of the
respective properties.
b. PNCC shall issue to RADSTOCK or its assignee common shares of the capital stock of PNCC
issued at par value which shall comprise 20% of the outstanding capital stock of PNCC after the
conversion to equity of the debt exposure of the Privatization Management Office (PMO) and the
National Development Company (NDC) and other government agencies and creditors such that the
total government holdings shall not fall below 70% voting equity subject to the approval of the
Securities and Exchange Commission (SEC) and ratification of PNCCs stockholders, if necessary. The
assigned value of the shares issued to RADSTOCK is P713 Million based on the approximate last
trading price of PNCC shares in the Philippine Stock Exchange as the date of this agreement, based
further on current generally accepted accounting standards which stipulates the valuation of shares to
be based on the lower of cost or market value.
Subject to the procurement of any and all necessary approvals from the relevant governmental
authorities, PNCC shall deliver to RADSTOCK an instrument evidencing an undertaking of the
Privatization and Management Office (PMO) to give RADSTOCK or its assignee the right to match any
offer to buy the shares of the capital stock and debts of PNCC held by PMO, in the event the same
shares and debt are offered for privatization.
c. PNCC shall assign to RADSTOCK or its assignee 50% of the PNCC's 6% share in the gross toll
revenue of the Manila North Tollways Corporation (MNTC), with a Net Present Value of P1.287 Billion
computed in the manner outlined in Annex "C" herein attached as an integral part hereof, that shall be
due and owing to PNCC pursuant to the Joint Venture Agreement between PNCC and First Philippine
Infrastructure Development Corp. dated August 29, 1995 and other related existing agreements,
commencing in 2008. It shall be understood that as a result of this assignment, PNCC shall charge and
withhold the amounts, if any, pertaining to taxes due on the amounts assigned.
Under the Compromise Agreement, PNCC shall pay Radstock the reduced amount of
P6,185,000,000.00 in full settlement of PNCCs guarantee of CDCP Minings debt allegedly totaling
P17,040,843,968.00 as of 31 July 2006. To satisfy its reduced obligation, PNCC undertakes to (1)
"assign to a third party assignee to be designated by Radstock all its rights and interests" to the listed
real properties therein; (2) issue to Radstock or its assignee common shares of the capital stock of
PNCC issued at par value which shall comprise 20% of the outstanding capital stock of PNCC; and (3)
assign to Radstock or its assignee 50% of PNCCs 6% share, for the next 27 years (2008-2035), in the
The Dissenting Opinion asserts that PNCC has the power, citing Section 36(2) of Presidential Decree
No. 1445 (PD 1445), otherwise known as the Government Auditing Code of the Philippines, enacted in
1978. Section 36 states:
SECTION 36. Power to Compromise Claims. (1) When the interest of the government so requires,
the Commission may compromise or release in whole or in part, any claim or settled liability to any
government agency not exceeding ten thousand pesos and with the written approval of the Prime
Minister, it may likewise compromise or release any similar claim or liability not exceeding one hundred
thousand pesos, the application for relief therefrom shall be submitted, through the Commission and
the Prime Minister, with their recommendations, to the National Assembly.
(2) The respective governing bodies of government-owned or controlled corporations, and selfgoverning boards, commissions or agencies of the government shall have the exclusive power to
compromise or release any similar claim or liability when expressly authorized by their charters and if in
their judgment, the interest of their respective corporations or agencies so requires. When the charters
do not so provide, the power to compromise shall be exercised by the Commission in accordance with
the preceding paragraph. (Emphasis supplied)
The Dissenting Opinion asserts that since PNCC is incorporated under the Corporation Code, the
PNCC Board has all the powers granted to the governing boards of corporations incorporated under
the Corporation Code, which includes the power to compromise claims or liabilities.
Section 36 of PD 1445, enacted on 11 June 1978, has been superseded by a later law -- Section 20(1),
Chapter IV, Subtitle B, Title I, Book V of Executive Order No. 292 or the Administrative Code of 1987,
which provides:
Section 20. Power to Compromise Claims. - (1) When the interest of the Government so requires, the
Commission may compromise or release in whole or in part, any settled claim or liability to any
government agency not exceeding ten thousand pesos arising out of any matter or case before it or
within its jurisdiction, and with the written approval of the President, it may likewise compromise or
release any similar claim or liability not exceeding one hundred thousand pesos. In case the claim or
liability exceeds one hundred thousand pesos, the application for relief therefrom shall be submitted,
through the Commission and the President, with their recommendations, to the Congress[.] x x x
(Emphasis supplied)
Under this provision,54 the authority to compromise a settled claim or liability exceeding P100,000.00
involving a government agency, as in this case where the liability amounts to P6.185 billion, is vested
not in COA but exclusively in Congress. Congress alone has the power to compromise the P6.185
billion purported liability of PNCC. Without congressional approval, the Compromise Agreement
between PNCC and Radstock involving P6.185 billion is void for being contrary to Section 20(1),
Chapter IV, Subtitle B, Title I, Book V of the Administrative Code of 1987.
PNCC is a "government agency" because Section 2 on Introductory Provisions of the Revised
and its articles of incorporation. As an autonomous entity, it undoubtedly has the power to compromise,
and to enter into a settlement through its Board of Directors, just like any other private corporation
organized under the Corporation Code. To maintain otherwise is to ignore the character of PNCC as a
corporate entity organized under the Corporation Code, by which it was vested with a personality and
identity distinct and separate from those of its stockholders or members. (Boldfacing and underlining
supplied)
The Dissenting Opinion is woefully wide off the mark. The PNCC is not "just like any other private
corporation" precisely because it is not a private corporation but indisputably a government owned
corporation. Neither is PNCC "an autonomous entity" considering that PNCC is under the Department
of Trade and Industry, over which the President exercises control. To claim that PNCC is an
"autonomous entity" is to say that it is a lost command in the Executive branch, a concept that violates
the President's constitutional power of control over the entire Executive branch of government.56
The government nominees in the PNCC Board, who practically compose the entire PNCC Board, are
public officers subject to the Anti-Graft and Corrupt Practices Act, accountable to the Government and
the Filipino people. To hold that a corporation incorporated under the Corporation Code, despite its
being 90.3% owned by the Government, is "an autonomous entity" that could solely through its Board
of Directors compromise, and transfer ownership of, substantially all its assets to a private third party
without the approval required under the Administrative Code of 1987,57 is to invite the plunder of all
such government owned corporations.
The Dissenting Opinions claim that PNCC is an autonomous entity just like any other private
corporation is inconsistent with its assertion that Section 36(2) of the Government Auditing Code is the
governing law in determining PNCC's power to compromise. Section 36(2) of the Government Auditing
Code expressly states that it applies to the governing bodies of "government-owned or controlled
corporations." The phrase "government-owned or controlled corporations" refers to both those created
by special charter as well as those incorporated under the Corporation Code. Section 2, Article IX-D of
the Constitution provides:
SECTION 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit,
and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions,
agencies, or instrumentalities, including government-owned or controlled corporations with original
charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been
granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c)
other government-owned or controlled corporations and their subsidiaries; and (d) such nongovernmental entities receiving subsidy or equity, directly or indirectly, from or through the
Government, which are required by law or the granting institution to submit to such audit as a condition
of subsidy or equity. However, where the internal control system of the audited agencies is inadequate,
the Commission may adopt such measures, including temporary or special pre-audit, as are necessary
and appropriate to correct the deficiencies. It shall keep the general accounts of the Government and,
for such period as may be provided by law, preserve the vouchers and other supporting papers
pertaining thereto.
(2) The Commission shall have exclusive authority, subject to the limitations in this Article, to define the
scope of its audit and examination, establish the techniques and methods required therefor, and
promulgate accounting and auditing rules and regulations, including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or
uses of government funds and properties. (Emphasis supplied)
In explaining the extent of the jurisdiction of COA over government owned or controlled corporations,
Expressway and the South Luzon Expressway which is thirty (30) years from 1 May 1977 shall remain
the same; provided that, the franchise granted for the Metro Manila Expressway and all extensions
linkages, stretches and diversions that may be constructed after the date of approval of this decree
shall likewise have a term of thirty (30) years commencing from the date of completion of the project.
(Emphasis supplied)
Based on these provisions, the franchise of the PNCC expired on 1 May 2007 or thirty years from 1
May 1977.
PNCC, however, claims that under PD 1894, the North Luzon Expressway (NLEX) shall have a term of
30 years from the date of its completion in 2005. PNCC argues that the proviso in Section 2 of PD 1894
gave "toll road projects completed within the franchise period and after the approval of PD No. 1894 on
12 December 1983 their own thirty-year term commencing from the date of the completion of the said
project, notwithstanding the expiry of the said franchise."
This contention is untenable.
The proviso in Section 2 of PD 1894 refers to the franchise granted for the Metro Manila Expressway
and all extensions linkages, stretches and diversions constructed after the approval of PD 1894. It does
not pertain to the NLEX because the term of the NLEX franchise, "which is 30 years from 1 May 1977,
shall remain the same," as expressly provided in the first sentence of the same Section 2 of PD 1894.
To construe that the NLEX franchise had a new term of 30 years starting from 2005 glaringly conflicts
with the plain, clear and unequivocal language of the first sentence of Section 2 of PD 1894. That
would be clearly absurd.
There is no dispute that Congress did not renew PNCCs franchise after its expiry on 1 May 2007.
However, PNCC asserts that it "remains a viable corporate entity even after the expiration of its
franchise under Presidential Decree No. 1113." PNCC points out that the Toll Regulatory Board (TRB)
granted PNCC a "Tollway Operation Certificate" (TOC) which conferred on PNCC the authority to
operate and maintain toll facilities, which includes the power to collect toll fees. PNCC further posits
that the toll fees are private funds because they represent "the consideration given to tollway operators
in exchange for costs they incurred or will incur in constructing, operating and maintaining the tollways."
This contention is devoid of merit.
With the expiration of PNCCs franchise, the assets and facilities of PNCC were automatically turned
over, by operation of law, to the government at no cost. Sections 2(e) and 9 of PD 1113 and Section 5
of PD 1894 provide:
Section 2 [of PD 1113]. In consideration of this franchise, the GRANTEE shall:
(e) Turn over the toll facilities and all equipment directly related thereto to the government upon
expiration of the franchise period without cost.
Section 9 [of PD 1113]. For the purposes of this franchise, the Government, shall turn over to the
GRANTEE (PNCC) not later than April 30, 1977 all physical assets and facilities including all
equipment and appurtenances directly related to the operations of the North and South Toll
Expressways: Provided, That, the extensions of such Expressways shall also be turned over to
GRANTEE upon completion of their construction or of functional sections thereof: Provided, However,
That upon termination of the franchise period, said physical assets and facilities including
improvements thereon, together with equipment and appurtenances directly related to their operations,
shall be turned over to the Government without any cost or obligation on the part of the latter.
(Emphasis supplied)
Section 5 [of PD No. 1894]. In consideration of this franchise, the GRANTEE shall:
(a) Construct, operate and maintain at its own expense the Expressways; and
(b) Turn over, without cost, the toll facilities and all equipment, directly related thereto to
the Government upon expiration of the franchise period. (Emphasis supplied)
The TRB does not have the power to give back to PNCC the toll assets and facilities which were
automatically turned over to the Government, by operation of law, upon the expiration of the franchise
of the PNCC on 1 May 2007. Whatever power the TRB may have to grant authority to operate a toll
facility or to issue a "Tollway Operation Certificate," such power does not obviously include the
authority to transfer back to PNCC ownership of National Government assets, like the toll assets and
facilities, which have become National Government property upon the expiry of PNCCs franchise.
Such act by the TRB would repeal Section 5 of PD 1894 which automatically vested in the National
Government ownership of PNCCs toll assets and facilities upon the expiry of PNCCs franchise. The
TRB obviously has no power to repeal a law. Further, PD 1113, as amended by PD 1894, granting the
franchise to PNCC, is a later law that must necessarily prevail over PD 1112 creating the TRB. Hence,
the provisions of PD 1113, as amended by PD 1894, are controlling.
The governments ownership of PNCC's toll assets and facilities inevitably results in the governments
ownership of the toll fees and the net income derived from these toll assets and facilities. Thus, the toll
fees form part of the National Governments General Fund, which includes public moneys of every sort
and other resources pertaining to any agency of the government.61 Even Radstocks counsel admits
that the toll fees are public funds, to wit:
ASSOCIATE JUSTICE CARPIO:
Okay. Now, when the franchise of PNCC expired on May 7, 2007, under the terms of the franchise
under PD 1896, all the assets, toll way assets, equipment, etcetera of PNCC became owned by
government at no cost, correct, under the franchise?
DEAN AGABIN:
Yes, Your Honor.
ASSOCIATE JUSTICE CARPIO:
Okay. So this is now owned by the national government. [A]ny income from these assets of the national
government is national government income, correct?
DEAN AGABIN:
Yes, Your Honor.62
xxxx
ASSOCIATE JUSTICE CARPIO:
x x x My question is very simple x x x Is the income from these assets of the national government
(interrupted)
DEAN AGABIN:
Yes, Your Honor.63
xxxx
ASSOCIATE JUSTICE CARPIO:
So, its the government [that] decides whether it goes to the general fund or another fund. [W]hat is that
other fund? Is there another fund where revenues of the government go?
DEAN AGABIN:
Its the same fund, Your Honor, except that (interrupted)
ASSOCIATE JUSTICE CARPIO:
So it goes to the general fund?
DEAN AGABIN:
Except that it can be categorized as a private fund in a commercial sense, and it can be categorized as
a public fund in a Public Law sense.
ASSOCIATE JUSTICE CARPIO:
Okay. So we agree that, okay, it goes to the general fund. I agree with you, but you are saying it is
categorized still as a private funds?
DEAN AGABIN:
Yes, Your Honor.
ASSOCIATE JUSTICE CARPIO:
But its part of the general fund. Now, if it is part of the general fund, who has the authority to spend
that money?
DEAN AGABIN:
Well, the National Government itself.
ASSOCIATE JUSTICE CARPIO:
Who in the National Government, the Executive, Judiciary or Legislative?
DEAN AGABIN:
proposed contract is without force and effect from the very beginning or from its incipiency, as if it had
never been entered into, and hence, cannot be validated either by lapse of time or ratification.
(Emphasis supplied)
Significantly, Radstocks counsel admits that an appropriation law is needed before PNCC can use toll
fees to pay Radstock, thus:
ASSOCIATE JUSTICE CARPIO:
Okay, I agree with you. Now, you are saying that money can be paid out of the general fund only
through an appropriation by Congress, correct? Thats what you are saying.
DEAN AGABIN:
Yes, Your Honor.
ASSOCIATE JUSTICE CARPIO:
I agree with you also. Okay, now, can PNCC xxx use this money to pay Radstock without
Congressional approval?
DEAN AGABIN:
Well, I believe that that may not be necessary. Your Honor, because earlier, the government had
already decreed that PNCC should be properly paid for the reclamation works which it had done. And
so (interrupted)
ASSOCIATE JUSTICE CARPIO:
No. I am talking of the funds.
DEAN AGABIN:
And so it is like a foreign obligation.
ASSOCIATE JUSTICE CARPIO:
Counsel, I'm talking of the general funds, collection from the toll fees. Okay. You said, they go to the
general fund. You also said, money from the general fund can be spent only if there is an appropriation
law by Congress.
DEAN AGABIN:
Yes, Your Honor.
There is no law.
DEAN AGABIN:
Yes, except that, Your Honor, this fund has not yet gone to the general fund.
ASSOCIATE JUSTICE CARPIO:
No. Its being collected everyday. As of May 7, 2007, national government owned those assets already.
All those x x x collections that would have gone to PNCC are now national government owned. It goes
to the general fund. And any body who uses that without appropriation from Congress commits
malversation, I tell you.
DEAN AGABIN:
That is correct, Your Honor, as long as it has already gone into the general fund.
ASSOCIATE JUSTICE CARPIO:
Oh, you mean to say that its still being held now by the agent, PNCC. It has not been remitted to the
National Government?
DEAN AGABIN:
Well, if PNCC (interrupted)
ASSOCIATE JUSTICE CARPIO:
But if (interrupted)
DEAN AGABIN:
If this is the share that properly belongs to PNCC as a private entity (interrupted)
ASSOCIATE JUSTICE CARPIO:
No, no. I am saying that You just agreed that all those collections now will go to the National
Government forming part of the general fund. If, somehow, PNCC is holding this money in the
meantime, it holds xxx it in trust, correct? Because you said, it goes to the general fund, National
Government. So it must be holding this in trust for the National Government.
DEAN AGABIN:
Yes, Your Honor.
ASSOCIATE JUSTICE CARPIO:
Okay. Can the person holding in trust use it to pay his private debt?
DEAN AGABIN:
No, Your Honor.
That is correct, Your Honor, as long as it has already gone into the general fund.
ASSOCIATE JUSTICE CARPIO:
Oh, you mean to say that its still being held now by the agent, PNCC. It has not been remitted to the
National Government?
DEAN AGABIN:
Well, if PNCC (interrupted)
ASSOCIATE JUSTICE CARPIO:
But if (interrupted)
DEAN AGABIN:
If this is the share that properly belongs to PNCC as a private entity (interrupted)
ASSOCIATE JUSTICE CARPIO:
No, no. I am saying that You just agreed that all those collections now will go to the National
Government forming part of the general fund. If, somehow, PNCC is holding this money in the
meantime, it holds x x x it in trust, correct? Because you said, it goes to the general fund, National
Government. So it must be holding this in trust for the National Government.
DEAN AGABIN:
Yes, Your Honor.70 (Emphasis supplied)
Indisputably, funds held in trust by PNCC for the National Government cannot be used by PNCC
to pay a private debt of CDCP Mining to Radstock, otherwise the PNCC Board will be liable for
malversation of public funds.
In addition, to pay Radstock P6.185 billion violates the fundamental public policy, expressly articulated
in Section 4(2) of the Government Auditing Code,71 that government funds or property shall be spent or
used solely for pubic purposes, thus:
Section 4. Fundamental Principles. x x x (2) Government funds or property shall be spent or used
solely for public purposes. (Emphasis supplied)
There is no question that the subject of the Compromise Agreement is CDCP Minings private debt to
Marubeni, which Marubeni subsequently assigned to Radstock. Counsel for Radstock admits that
Radstock holds a private debt of CDCP Mining, thus:
ASSOCIATE JUSTICE CARPIO:
So your client is holding a private debt of CDCP Mining, correct?
DEAN AGABIN:
Correct, Your Honor.72 (Emphasis supplied)
CDCP Mining obtained the Marubeni loans when CDCP Mining and PNCC (then CDCP) were still
privately owned and managed corporations. The Government became the majority stockholder of
PNCC only because government financial institutions converted their loans to PNCC into equity when
PNCC failed to pay the loans. However, CDCP Mining have always remained a majority privately
owned corporation with PNCC owning only 13% of its equity as admitted by former PNCC Chairman
Arthur N. Aguilar and PNCC SVP Finance Miriam M. Pasetes during the Senate hearings, thus:
SEN. OSMEA. x x x I just wanted to know is CDCP Mining a 100 percent subsidiary of PNCC?
MR. AGUILAR. Hindi ho. Ah, no.
SEN. OSMEA. If theyre not a 100 percent, why would they sign jointly and severally? I just want to
plug the loopholes.
MR. AGUILAR. I think it was if I may just speculate. It was just common ownership at that time.
SEN. OSMEA. Al right. Now Also, the ...
MR. AGUILAR. Ah, 13 percent daw, your Honor.
SEN. OSMEA. Huh?
MR. AGUILAR. Thirteen percent ho.
SEN. OSMEA. Whats 13 percent?
MR. AGUILAR. We owned ...
MS. PASETES. Thirteen percent of ...
SEN. OSMEA. PNCC owned ...
MS. PASETES. (Mike off) CDCP ...
SEN. DRILON. Use the microphone, please.
MS. PASETES. Sorry. Your Honor, the ownership of CDCP of CDCP Basay Mining ...
SEN. OSMEA. No, no, the ownership of CDCP. CDCP Mining, how many percent of the equity of
CDCP Mining was owned by PNCC, formerly CDCP?
MS. PASETES. Thirteen percent.
SEN. OSMEA. Thirteen. And as a 13 percent owner, they agreed to sign jointly and severally?
ATTY. AGRA:
Again, Your Honor, know, believe this is a Compromise Agreement. This is a dacion en pago.
ASSOCIATE JUSTICE CARPIO:
So, dacion en pago is an exception to the constitutional prohibition.
ATTY. AGRA:
No, Your Honor. PNCC, will still hold on to the property, absent a valid assignment of properties.
ASSOCIATE JUSTICE CARPIO:
But what rights will PNCC have over that land when it has already signed the compromise? It is just
waiting for instruction xxx from Radstock what to do with it? So, its a trustee of somebody, because it
does not, it cannot, [it] has no dominion over it anymore? Its just holding it for Radstock. So, PNCC
becomes a dummy, at that point, of Radstock, correct?
ATTY. AGRA:
No, Your Honor, I believe it (interrupted)
ASSOCIATE JUSTICE CARPIO:
Yeah, but it does not own the land, but it still holding the land in favor of the other party to the
Compromise Agreement
ATTY. AGRA:
Pursuant to the compromise agreement, that will happen.
ASSOCIATE JUSTICE CARPIO:
Okay. May I (interrupted)
ATTY. AGRA:
Again, Your Honor, if the compromise agreement ended with a statement that Radstock will be the
owner of the property (interrupted)
ASSOCIATE JUSTICE CARPIO:
Yeah. Unfortunately, it says, to a qualified assignee.
ATTY. AGRA:
Yes, Your Honor.
1. Public Auction
Conformably to existing state policy, the divestment or disposal of government property as
contemplated herein shall be undertaken primarily thru public auction. Such mode of divestment or
disposal shall observe and adhere to established mechanics and procedures in public bidding, viz:
a. adequate publicity and notification so as to attract the greatest number of interested
parties; (vide, Sec. 79, P.D. 1445)
b. sufficient time frame between publication and date of auction;
c. opportunity afforded to interested parties to inspect the property or assets to be
disposed of;
d. confidentiality of sealed proposals;
e. bond and other prequalification requirements to guarantee performance; and
f. fair evaluation of tenders and proper notification of award.
It is understood that the Government reserves the right to reject any or all of the tenders. (Emphasis
supplied)
Under the Compromise Agreement, PNCC shall dispose of substantial parcels of land, by way of
dacion en pago, in favor of Radstock. Citing Uy v. Sandiganbayan,79 PNCC argues that a dacion en
pago is an exception to the requirement of a public bidding.
PNCCs reliance on Uy is misplaced. There is nothing in Uy declaring that public bidding is dispensed
with in a dacion en pago transaction. The Court explained the transaction in Uy as follows:
We do not see any infirmity in either the MOA or the SSA executed between PIEDRAS and respondent
banks. By virtue of its shareholdings in OPMC, PIEDRAS was entitled to subscribe to 3,749,906,250
class "A" and 2,499,937,500 class "B" OPMC shares. Admittedly, it was financially sound for PIEDRAS
to exercise its pre-emptive rights as an existing shareholder of OPMC lest its proportionate
shareholdings be diluted to its detriment. However, PIEDRAS lacked the necessary funds to pay for the
additional subscription. Thus, it resorted to contract loans from respondent banks to finance the
payment of its additional subscription. The mode of payment agreed upon by the parties was that the
payment would be made in the form of part of the shares subscribed to by PIEDRAS. The OPMC
shares therefore were agreed upon by the parties to be equivalent payment for the amount advanced
by respondent banks. We see the wisdom in the conditions of the loan transaction. In order to save
PIEDRAS and/or the government from the trouble of selling the shares in order to raise funds to pay off
the loans, an easier and more direct way was devised in the form of the dacion en pago agreements.
Moreover, we agree with the Sandiganbayan that neither PIEDRAS nor the government sustained any
loss in these transactions. In fact, after deducting the shares to be given to respondent banks as
payment for the shares, PIEDRAS stood to gain about 1,540,781,554 class "A" and 710,550,000 class
"B" OPMC shares virtually for free. Indeed, the question that must be asked is whether or not
PIEDRAS, in the exercise of its pre-emptive rights, would have been able to acquire any of these
shares at all if it did not enter into the financing agreements with the respondent banks.80
Suffice it to state that in Uy, neither PIEDRAS81 nor the government suffered any loss in the dacion en
pago transactions, unlike here where the government stands to lose at least P6.185 billion worth of
assets.
Besides, a dacion en pago is in essence a form of sale, which basically involves a disposition of a
property. In Filinvest Credit Corp. v. Philippine Acetylene, Co., Inc.,82 the Court defined dacion en pago
in this wise:
Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by the debtor to
the creditor as an accepted equivalent of the performance of obligation. In dacion en pago, as a special
mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale,
that is, the creditor is really buying the thing or property of the debtor, payment for which is to be
charged against the debtor's debt.As such, the essential elements of a contract of sale, namely,
consent, object certain, and cause or consideration must be present. In its modern concept, what
actually takes place in dacion en pago is an objective novation of the obligation where the thing offered
as an accepted equivalent of the performance of an obligation is considered as the object of the
contract of sale, while the debt is considered as the purchase price. In any case, common consent is
an essential prerequisite, be it sale or innovation to have the effect of totally extinguishing the debt or
obligation.83 (Emphasis supplied)
E. PNCC must follow rules on preference of credit.
Radstock is only one of the creditors of PNCC. Asiavest is PNCCs judgment creditor. In its Board
Resolution No. BD-092-2000, PNCC admitted not only its debt to Marubeni but also its debt to the
National Government84 in the amount of P36 billion.85 During the Senate hearings, PNCC admitted that
it owed the Government P36 billion, thus:
SEN. OSMEA. All right. Now, second question is, the management of PNCC also recognize the
obligation to the national government of 36 billion. It is part of the board resolution.
MS. OGAN. Yes, sir, it is part of the October 20 board resolution.
SEN. OSMEA. All right. So if you owe the national government 36 billion and you owe Marubeni 10
billion, you know, I would just declare bankruptcy and let an orderly disposition of assets be done. What
happened in this case to the claim, the 36 billion claim of the national government? How was that
disposed of by the PNCC? Mas malaki ang utang ninyo sa national government, 36 billion. Ang
gagawin ninyo, babayaran lahat ang utang ninyo sa Marubeni without any assets left to satisfy your
obligations to the national government. There should have been, at least, a pari passu payment of all
your obligations, 'di ba?
MS. PASETES. Mr. Chairman...
SEN. OSMEA. Yes.
MS. PASETES. PNCC still carries in its books an equity account called equity adjustments arising from
transfer of obligations to national government - - 5.4 billion - - in addition to shares held by government
amounting to 1.2 billion.
SEN. OSMEA. What is the 36 billion?
Also, the law, specifically Article 138791 of the Civil Code, presumes that there is fraud of creditors
when property is alienated by the debtor after judgment has been rendered against him, thus:
Alienations by onerous title are also presumed fraudulent when made by persons against whom some
judgment has been rendered in any instance or some writ of attachment has been issued. The decision
or attachment need not refer to the property alienated, and need not have been obtained by the party
seeking rescission. (Emphasis supplied)
As stated earlier, Asiavest is a judgment creditor of PNCC in G.R. No. 110263 and a court has already
issued a writ of execution in its favor. Thus, when PNCC entered into the Compromise Agreement
conveying several prime lots in favor of Radstock, by way of dacion en pago, there is a legal
presumption that such conveyance is fraudulent under Article 1387 of the Civil Code.92 This
presumption is strengthened by the fact that the conveyance has virtually left PNCCs other creditors,
including the biggest creditor the National Government - with no other asset to garnish or levy.
Notably, the presumption of fraud or intention to defraud creditors is not just limited to the two instances
set forth in the first and second paragraphs of Article 1387 of the Civil Code. Under the third paragraph
of the same article, "the design to defraud creditors may be proved in any other manner recognized by
the law of evidence." In Oria v. Mcmicking,93 this Court considered the following instances as badges
of fraud:
1. The fact that the consideration of the conveyance is fictitious or is inadequate.
2. A transfer made by a debtor after suit has begun and while it is pending against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor, especially when he is
insolvent or greatly embarrassed financially.
6. The fact that the transfer is made between father and son, when there are present
other of the above circumstances.
7. The failure of the vendee to take exclusive possession of all the property. (Emphasis
supplied)
Among the circumstances indicating fraud is a transfer of all or nearly all of the debtors assets,
especially when the debtor is greatly embarrassed financially. Accordingly, neither a declaration of
insolvency nor the institution of insolvency proceedings is a condition sine qua non for a transfer of all
or nearly all of a debtors assets to be regarded in fraud of creditors. It is sufficient that a debtor is
greatly embarrassed financially.
In this case, PNCCs huge negative net worth - at least P6 billion as expressly admitted by PNCCs
counsel during the oral arguments, or P14 billion based on the 2006 COA Audit Report - necessarily
translates to an extremely embarrassing financial situation. With its huge negative net worth arising
from unpaid billions of pesos in debt, PNCC cannot claim that it is financially stable. As a consequence,
the Compromise Agreement stipulating a transfer in favor of Radstock of substantially all of PNCCs
assets constitutes fraud. To legitimize the Compromise Agreement just because there is still no judicial
declaration of PNCCs insolvency will work fraud on PNCCs other creditors, the biggest creditor of
which is the National Government. To insist that PNCC is very much liquid, given its admitted huge
negative net worth, is nothing but denial of the truth. The toll fees that PNCC collects belong to the
National Government. Obviously, PNCC cannot claim it is liquid based on its collection of such toll fees,
because PNCC merely holds such toll fees in trust for the National Government. PNCC does not own
the toll fees, and such toll fees do not form part of PNCCs assets.
PNCC owes the National Government P36 billion, a substantial part of which constitutes taxes and
fees, thus:
SEN. ROXAS. Thank you, Mr. Chairman.
Mr. PNCC Chairman, could you describe for us the composition of your debt of about five billion there
are in thousands, so this looks like five and half billion. Current portion of long-term debt, about five
billion. What is this made of?
MS. PASETES. The five billion is composed of what is owed the Bureau of Treasury and the Toll
Regulatory Board for concession fees thats almost three billion and another 2.4 billion owed
Philippine National Bank.
SEN. ROXAS. So, how much is the Bureau of Treasury?
MS. PASETES. Three billion.
SEN. ROXAS. Three Why do you owe the Bureau of Treasury three billion?
MS. PASETES. That represents the concession fees due Toll Regulatory Board principal plus interest,
Your Honor.
x x x x94 (Emphasis supplied)
In addition, PNCCs 2006 Audit Report by COA states as follows:
TAX MATTERS
The Company was assessed by the Bureau of Internal Revenue (BIR) of its deficiencies in various
taxes. However, no provision for any liability has been made yet in the Companys financial statements.
1980 deficiency income tax, deficiency contractors tax and deficiency documentary stamp tax
assessments by the BIR totaling P212.523 Million.
xxxx
Deficiency business tax of P64 Million due the Belgian Consortium, PNCCs partner in its LRT Project.
1992 deficiency income tax, deficiency value-added tax and deficiency expanded withholding tax of
P1.04 Billion which was reduced to P709 Million after the Companys written protest.
xxxx
PNCC failed to explain satisfactorily why in its books the obligation to the National Government was
reduced when no payment to the National Government appeared to have been made. PNCC failed to
justify why it made it appear that the obligation to the National Government was less than the obligation
to Marubeni. It is another obvious ploy to justify the preferential treatment given to Radstock to the
great prejudice of the National Government.
VI.
Supreme Court is Not Legitimizer of Violations of Laws
During the oral arguments, counsels for Radstock and PNCC admitted that the Compromise
Agreement violates the Constitution and existing laws. However, they rely on this Court to approve the
Compromise Agreement to shield their clients from possible criminal acts arising from violation of the
Constitution and existing laws. In their view, once this Court approves the Compromise Agreement,
their clients are home free from prosecution, and can enjoy the P6.185 billion loot. The following
exchanges during the oral arguments reveal this view:
ASSOCIATE JUSTICE CARPIO:
If there is no agreement, they better remit all of that to the National Government. They cannot just hold
that. They are holding that [in] trust, as you said, x x x you agree, for the National Government.
DEAN AGABIN:
Yes, thats why, they are asking the Honorable Court to approve the compromise agreement.
ASSOCIATE JUSTICE CARPIO:
We cannot approve that if the power to authorize the expenditure [belongs] to Congress. How
can we usurp x x x the power of Congress to authorize that expenditure[?] Its only Congress
that can authorize the expenditure of funds from the general funds.
DEAN AGABIN:
But, Your Honor, if the Honorable Court would approve of this compromise agreement, I believe
that this would be binding on Congress.
ASSOCIATE JUSTICE CARPIO:
Ignore the Constitutional provision that money shall be paid out of the National Treasury only
pursuant to an appropriation by law. You want us to ignore that[?]
DEAN AGABIN:
Not really, Your Honor, but I suppose that Congress would have no choice, because this is a final
judgment of the Honorable Court. 101
xxxx
ASSOCIATE JUSTICE CARPIO:
So, if Radstock makes the assignment, it must own its rights, otherwise, it cannot assign it, correct?
ATTY. AGRA:
Pursuant to the compromise agreement, once approved, yes, Your Honors.
ASSOCIATE JUSTICE CARPIO:
So, you are saying that Radstock can own the rights to ownership of the land?
ATTY. AGRA:
Yes, Your Honors.
ASSOCIATE JUSTICE CARPIO:
Yes?
ATTY. AGRA:
The premise, Your Honor, you mentioned a while ago was, if this Court approves said compromise
(interrupted).102 (Emphasis supplied)
This Court is not, and should never be, a rubber stamp for litigants hankering to pocket public funds for
their selfish private gain. This Court is the ultimate guardian of the public interest, the last bulwark
against those who seek to plunder the public coffers. This Court cannot, and must never, bring itself
down to the level of legitimizer of violations of the Constitution, existing laws or public policy.
Conclusion
In sum, the acts of the PNCC Board in (1) issuing Board Resolution Nos. BD-092-2000 and BD-0992000 expressly admitting liability for the Marubeni loans, and (2) entering into the Compromise
Agreement, constitute evident bad faith and gross inexcusable negligence, amounting to fraud, in the
management of PNCCs affairs. Being public officers, the government nominees in the PNCC Board
must answer not only to PNCC and its stockholders, but also to the Filipino people for grossly
mishandling PNCCs finances.
Under Article 1409 of the Civil Code, the Compromise Agreement is "inexistent and void from the
beginning," and "cannot be ratified," thus:
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
xxx
(7) Those expressly prohibited or declared void by law.
MINITA V. CHICO-NAZARIO
Associate Justice
ARTURO D. BRION
Associate Justice
DIOSDADO M. PERALTA
Associate Justice
LUCAS P. BERSAMIN
Associate Justice
ROBERTO A. ABAD
Associate Justice