24 Stratdev V Radstock

Stratdev v Radstock  To satisfy its reduced obligation, PNCC undertakes to (1) "assign
FACTS to a third party assignee to be designated by Radstock all its rights

 Construction Development Corporation of the Philippines (CDCP) and interests" to the listed real properties of PNCC; (2) issue to
was incorporated in 1966. Radstock or its assignee common shares of the capital stock of
 It was granted a franchise to construct, operate and maintain toll PNCC issued at par value which shall comprise 20% of the
facilities in the North and South Luzon Tollways and Metro outstanding capital stock of PNCC; and (3) assign to Radstock or
Manila Expressway. its assignee 50% of PNCC’s 6% share, for the next 27 years, in the
 CDCP Mining Corporation (CDCP Mining), an affiliate of CDCP, gross toll revenues of the Manila North Tollways Corporation.
obtained loans from Marubeni Corporation of Japan (Marubeni).  Strategic Alliance Development Corporation (STRADEC) moved
 A CDCP official issued letters of guarantee for the loans although for reconsideration. STRADEC alleged that it has a claim against
there was no CDCP Board Resolution authorizing the issuance of PNCC as a bidder of the National Government’s shares,
such letters of guarantee. receivables, securities and interests in PNCC.
 CDCP Mining secured the Marubeni loans when CDCP and CDCP
Mining were still privately owned and managed. ISSUE and RULING
 In 1983, CDCP’s name was changed to Philippine National
Construction Corporation (PNCC) in order to reflect that the WON Compromise agreement is void
Government already owned 90.3% of PNCC and only 9.70% is YES.
under private ownership. The act of the PNCC Board in issuing Board Resolution No. BD-092-
 Meanwhile, the Marubeni loans to CDCP Mining remained 2000 expressly admitting liability for the Marubeni loans
unpaid. demonstrates the PNCC Boards gross and willful disregard of the
 On 20 October 2000 and 22 November 2000, the PNCC Board of requisite care and diligence in managing the affairs of PNCC,
Directors (PNCC Board) passed Board Resolutions admitting amounting to bad faith and resulting in grave and irreparable injury
PNCC’s liability to Marubeni. to PNCC and its stockholders. This reckless and treacherous move on
 Previously, for two decades the PNCC Board consistently refused the part of the PNCC Board clearly constitutes a serious breach of its
to admit any liability for the Marubeni loans. fiduciary duty to PNCC and its stockholders, rendering the members
 In January 2001, Marubeni assigned its entire credit to Radstock of the PNCC Board liable under Section 31 of the Corporation Code,
Securities Limited (Radstock), a foreign corporation. which provides:
 Radstock immediately sent a notice and demand letter to PNCC. SEC. 31. Liability of directors, trustees or officers. -- Directors or
trustees who willfully and knowingly vote for or assent to patently
 PNCC and Radstock entered into a Compromise Agreement.
unlawful acts of the corporation or who are guilty of gross negligence
 Under this agreement, PNCC shall payRadstock the reduced
or bad faith in directing the affairs of the corporation or acquire any
amount of P6,185,000,000.00 in full settlement of PNCC’s
personal or pecuniary interest in conflict with their duty as such
guarantee of CDCP Mining’s debt allegedly totaling
directors or trustees shall be liable jointly and severally for all
P17,040,843,968.00 (judgment debt asof 31 July 2006).
damages resulting therefrom suffered by the corporation, its Does the PNCC Board have the power to compromise the P6.185
stockholders or members and other persons. billion reduced amount? The answer is in the negative.
When a director, trustee or officer attempts to acquire or acquires, Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the
in violation of his duty, any interest adverse to the corporation in Administrative Code of 1987 applies to PNCC, which indisputably is a
respect of any matter which has been reposed in him in confidence, government owned or controlled corporation.
as to which equity imposes a disability upon him to deal in his own
behalf, he shall be liable as a trustee for the corporation and must In the same vein, the COAs stamp of approval on the Compromise
account for the profits which otherwise would have accrued to the Agreement is void for violating Section 20(1), Chapter IV, Subtitle B,
corporation. Title I, Book V of the Administrative Code of 1987.
Soon after the short-lived Estrada Administration, the PNCC Board
revoked its previous admission of liability for the Marubeni loans. PNCCs express admission of liability for the Marubeni loans is
During the oral arguments, Atty. Sison narrated to the Court: essentially the premise of the execution of the Compromise
x x x After President Estrada was ousted, I was appointed as President Agreement. In short, Radstocks claim against PNCC is settled by
and Chairman of PNCC in April of 2001, this particular board virtue of PNCCs express admission of liability for the Marubeni
resolution was brought to my attentionand I immediately put the loans. The Compromise Agreement merely reduced this settled
matter before the board. I had no problem in convincing them to liability from P17 billion to P6.185 billion.
reverse the recognition as it was illegal and had no basis in fact. The
vote to overturn that resolution was unanimous. Strange to say that The provision of the Revised Administrative Code on the power to
some who voted to overturn the recognition were part of the old settle claims or liabilities was precisely enacted to prevent
board that approved it. Stranger still, Renato Valdecantos who was government agencies from admitting liabilities against the
still a member of the Board voted in favor of reversing the resolution government, then compromising such settled liabilities. The present
he himself instigated and pushed. Some of the board members who case is exactly what the law seeks to prevent, a compromise
voted to recognize the obligation of Marubeni even came to me agreement on a creditors claim settled through admission by a
privately and said pinilit lang kami. x x x.[53] (Emphasis supplied) government agency without the approval of Congress for amounts
In approving PNCC Board Resolution Nos. BD-092-2000 and BD-099- exceeding P100,000.00. What makes the application of the law even
2000, the PNCC Board caused undue injury to the Government and more necessary is that the PNCC Boards twin moves are manifestly
gave unwarranted benefits to Radstock, through manifest partiality, and grossly disadvantageous to the Government. First, the PNCC
evident bad faith or gross inexcusable negligence of the PNCC Board. admitted solidary liability for a staggering P10.743 billion private
Such acts are declared under Section 3(e) of RA 3019 or the Anti-Graft debt incurred by a private corporation which PNCC does not even
and Corrupt Practices Act, as corrupt practices xxx and xxx unlawful. control. Second, the PNCC Board agreed to pay Radstock P6.185
Being unlawful and criminal acts, these PNCC Board Resolutions are billion as a compromise settlement ahead of all other creditors,
void ab initio and cannot be implemented or in any way given effect including the Government which is the biggest creditor.
by the Executive or Judicial branch of the Government.
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.
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.
COAs audit jurisdiction extends to government owned or controlled

corporations incorporated under the Corporation Code. Thus, the
COA must apply the Government Auditing Code in the audit and
examination of the accounts of such government owned or
controlled corporations even though incorporated under the
Corporation Code. This means that Section 20(1), Chapter IV, Subtitle
B, Title I, Book V of the Administrative Code of 1987 on the power to
compromise, which superseded Section 36 of the Government
Auditing Code, applies to the present case in determining PNCCs
power to compromise. In fact, the COA has been regularly auditing
PNCC on a post-audit basis in accordance with Section 2, Article IX-D
of the Constitution, the Government Auditing Code, and COA rules
and regulations.

24 Stratdev V Radstock

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24 Stratdev V Radstock

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Stratdev v Radstock  To satisfy its reduced obligation, PNCC undertakes to (1) "assign

FACTS to a third party assignee to be designated by Radstock all its rights

The government nominees in the PNCC Board, who practically

COAs audit jurisdiction extends to government owned or controlled

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