G.R. No. 178158 December 4, 2009 PNCC’s franchise for another 25 years.

However, PNCC failed to

secure approval from the Senate, dooming the extension of PNCC’s
STRATEGIC ALLIANCE DEVELOPMENT franchise. Led by Senator Franklin M. Drilon, the Senate opposed
CORPORATION, Petitioner, PNCC’s plea for extension of its franchise.3 Senator Drilon’s privilege
vs. speech4 explains why the Senate chose not to renew PNCC’s
RADSTOCK SECURITIES LIMITED and PHILIPPINE NATIONAL franchise:
CONSTRUCTION CORPORATION, Respondents.
ASIAVEST MERCHANT BANKERS BERHAD, Intervenor. I repeat, Mr. President. PNCC has agreed in a compromise
agreement dated 17 August 2006 to transfer to Radstock Securities
x - - - - - - - - - - - - - - - - - - - - - - -x Limited ₱17,676,063,922, no small money, Mr. President, my dear
colleagues, ₱17.6 billion.
G.R. No. 180428
What does it consist of? It consists of the following: 19 pieces of real
LUIS SISON, Petitioner, estate properties with an appraised value of ₱5,993,689,000. Do we
know what is the bulk of this? An almost 13-hectare property right
vs.
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION and here in the Financial Center. As we leave the Senate, as we go out
RADSTOCK SECURITIES LIMITED, Respondents. of this Hall, as we 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
DECISION properties. That is 12.9 hectares of valuable asset right in this
Financial Center that is worth ₱5,993,689.000.
CARPIO, J.:
What else, Mr. President? The 20% of the outstanding capital stock
Prologue of PNCC with a par value of ₱2,300,000,000-- I repeat, 20% of the
outstanding capital stock of PNCC worth ₱2,300 billion-- was
This case is an anatomy of a ₱6.185 billion1 pillage of the public assigned to Radstock.
coffers that ranks among one of the most brazen and hideous in the
history of this country. This case answers the questions why our In addition, Mr. President and my dear colleagues, please hold on to
Government perennially runs out of funds to provide basic services your seats because part of the agreement is 50% of PNCC’s 6%
to our people, why the great masses of the Filipino people wallow in share in the gross toll revenue of the Manila North Tollways
poverty, and why a very select few amass unimaginable wealth at Corporation for 27 years, from 2008 to 2035, is being assigned to
the expense of the Filipino people. Radstock. How much is this worth? It is worth ₱9,382,374,922. I
repeat, ₱9,382,374,922.
On 1 May 2007, the 30-year old franchise of Philippine National
Construction Corporation (PNCC) under Presidential Decree No. xxxx
1113 (PD 1113), as amended by Presidential Decree No. 1894 (PD
1894), expired. During the 13th Congress, PNCC sought to extend Mr. President, ₱17,676,000,000, however, was made to appear in
its franchise. PNCC won approval from the House of the agreement to be only worth ₱6,196,156,488. How was this
Representatives, which passed House Bill No. 57492 renewing achieved? How was an aggregate amount of ₱17,676,000,000 made
to appear to be only ₱6,196,156,488? First, the 19 pieces of real was allegedly incurred, PNCC suddenly recognized this obligation in
estate worth ₱5,993,689,000 were only assigned a value of its books when in fact this obligation was not found in its books for 20
₱4,195,000,000 or only 70% of their appraised value. years?

Second, the PNCC shares of stock with a par value of ₱2.3 billion In other words, Mr. President, for 20 years, the financial statements
were marked to market and therefore were valued only at ₱713 of PNCC did not show any obligation to Marubeni, much less, to
million. Radstock. Why suddenly on October 20, 2000, ₱10 billion in
obligation was recognized? Why was it recognized?
Third, the share of the toll revenue assigned was given a net present
value of only ₱1,287,000,000 because of a 15% discounted rate that During the hearing on December 18, Mr. President, we asked this
was applied. question to the Asset Privatization Trust (APT) trustee, Atty.
Raymundo Francisco, and he was asked: "What is the basis of your
In other words, Mr. President, the toll collection of ₱9,382,374,922 recommendation to recognize this?" He said: "I based my
for 27 years was given a net present value of only ₱1,287,000,000 recommendation on a legal opinion of Feria and Feria." I asked him:
so that it is made to appear that the compromise agreement is only "Who knew of this opinion?" He said: "Only me and the chairman of
worth ₱6,196,000,000. PNCC, Atty. Renato Valdecantos." I asked him: "Did you share this
opinion with the members of the board who recognized the obligation
Mr. President, my dear colleagues, this agreement will substantially of ₱10 billion?" He said: "No." "Can you produce this opinion now?"
wipe out all the assets of PNCC. It will be left with nothing else He said: "I have no copy."
except, probably, the collection for the next 25 years or so from the
North Luzon Expressway. This agreement brought PNCC to the Mysteriously, Mr. President, an obligation of ₱10 billion based on a
cleaners and literally cleaned the PNCC of all its assets. They legal opinion which, even Mr. Arthur Aguilar, the chairman of PNCC,
brought PNCC to the cleaners and cleaned it to the tune of is not aware of, none of the members of the PNCC board on October
₱17,676,000,000. 20, 2000 who recognized this obligation had seen this opinion. It is
mysterious.
xxxx
Mr. President, are the members of our Committee not entitled to
Mr. President, are we not entitled, as members of the Committee, to know why Radstock Securities Limited is given preference over all
other creditors notwithstanding the fact that this is an unsecured
know who is Radstock Securities Limited?
obligation? There is no mortgage to secure this obligation.
Radstock Securities Limited was allegedly incorporated under the
laws of the British Virgin Islands. It has no known board of directors, More importantly, Mr. President, equally recognized is the obligation
except for its recently appointed attorney-in-fact, Mr. Carlos of PNCC to the Philippine government to the tune of ₱36 billion.
PNCC owes the Philippine government ₱36 billion recognized in its
Dominguez.
books, apart from ₱3 billion in taxes. Why in the face of all of these is
Radstock given preference? Why is it that Radstock is given
Mr. President, are the members of the Committee not entitled to preference to claim ₱17.676 billion of the assets of PNCC and give it
know why 20 years after the account to Marubeni Corporation, which superior status over the claim of the Philippine government, of the
gave rise to the compromise agreement 20 years after the obligation Filipino people to the extent of ₱36 billion and taxes in the amount of
P3 billion? Why, Mr. President? Why is Radstock given preference MR. DOMINGUEZ. As I said, Your Honor, I am not familiar with the
not only over the Philippine government claims of ₱39 billion but also decision making process of Marubeni. But my understanding was, as
over other creditors including a certain best merchant banker in Asia, I said, they didn't want to get into a …
which has already a final and executory judgment against PNCC for
about ₱300 million? Why, Mr. President? Are we not entitled to know SEN. OSMEÑA. All right.
why the compromise agreement assigned ₱17.676 billion to
Radstock? Why was it executed?5 (Emphasis supplied)
MR. DOMINGUEZ. ...litigious situation.6

Aside from Senator Drilon, Senator Sergio S. Osmeña III also saw
xxxx
irregularities in the transactions involving the Marubeni loans, thus:
SEN. OSMEÑA. All of these financial things can be arranged. They
SEN. OSMEÑA. Ah okay. Good. can hire a local bank, Filipino, to be trustee for the real estate. So ...

Now, I'd like to point out to the Committee that – it seems that this
SEN. DRILON. Well, then, that’s a dummy relationship.
was a politically driven deal like IMPSA. Because the acceptance of
the 10 billion or 13 billion debt came in October 2000 and the
Radstock assignment was January 10, 2001. Now, why would SEN. OSMEÑA. In any case, to me the main point here is that a third
Marubeni sell for $2 million three months after there was a party, Radstock, whoever owns it, bought Marubeni’s right for $2
recognition that it was owed ₱10 billion. Can you explain that, Mr. million or ₱100 million. Then, they are able to go through all these
Dominguez? legal machinations and get awarded with the consent of PNCC of 6
billion. That’s 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
MR. DOMINGUEZ. Your Honor, I am not aware of the decision whether it’s Radstock or New Bridge or Texas Pacific Group or
making process of Marubeni. But my understanding was, the Carlyle or Avenue Capital, they look at their returns. So if Avenue
Japanese culture is not a litigious one and they didn't want to get into
Capital buys something for $2 million and you give him $4 million in
a, you know, a court situation here in the Philippines having a lot of
one year, it’s a 100 percent return. They’ll walk away and dance to
other interest, et cetera.
their stockholders. So here in this particular case, if you know that
Radstock only bought it for $2 million, I would have gotten board
SEN. OSMEÑA. Well, but that is beside the point, Mr. Dominguez. approval and say, "Okay, let’s settle this for $4 million." And
All I am asking is does it stand to reason that after you get an Radstock would have jumped up and down. So what looks to me is
acceptance by a debtor that he owes you 10 billion, you sell your that this was already a scheme. Marubeni wrote it off already.
note for 100 million. Marubeni wrote everything off. They just got a $2 million and they
probably have no more residual rights or maybe there’s a clause
Now, if that had happened a year before, maybe I would have there, a secret clause, that says, "I want 20 percent of whatever
understood why he sold for such a low amount. But right after, it you’re able to eventually collect." So $2 million. But whatever it is,
seems that this was part of an orchestrated deal wherein with certain Marubeni practically wrote it off. Radstock’s liability now or exposure
powerful interest would be able to say, "Yes, we will push through. is only $2 million plus all the lawyer fees, under-the-table, etcetera.
We'll fix the courts. We'll fix the board. We'll fix the APT. And we will All right. Okay. So it’s pretty obvious to me that if anybody were
be able to do it, just give us 55 percent of whatever is recovered," am using his brain, I would have gone up to Radstock and say, "Here’s
I correct? $4 million. Here’s P200 million. Okay." They would have walked
away. But evidently, the "ninongs" of Radstock – See, I don’t care SEN. OSMEÑA. x x x CDCP Mining, how many percent of the equity
who owns Radstock. I want to know who is the ninong here who of CDCP Mining was owned by PNCC, formerly CDCP?
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 MS. PASETES. Thirteen percent.
this, to agree to 6 billion or whatever it was. That’s a lot of money.
And believe me, Radstock will probably get one or two billion and
SEN. OSMEÑA. Thirteen. And as a 13 percent owner, they agreed
four billion will go into somebody else’s pocket. Or Radstock will turn
to sign jointly and severally?
around, sell that claim for ₱4 billion and let the new guy just collect
the payments over the years.
MS. PASETES. Yes.
xxx x7
SEN. OSMEÑA. One-three? So poor PNCC and CDCP got taken to
the cleaners here. They sign for a 100 percent and they only own 13
SEN. OSMEÑA. x x x I just wanted to know is CDCP Mining a 100 percent.
percent subsidiary of PNCC?
x x x x8 (Emphasis supplied)
MR. AGUILAR. Hindi ho. Ah, no.
I.
SEN. OSMEÑA. If they’re not a 100 percent, why would they sign
The Case
jointly and severally? I just want to plug the loopholes.
Before this Court are the consolidated petitions for review9 filed by
MR. AGUILAR. I think it was – if I may just speculate. It was just Strategic Alliance Development Corporation (STRADEC) and Luis
common ownership at that time. Sison (Sison), with a motion for intervention filed by Asiavest
Merchant Bankers Berhad (Asiavest), challenging the validity of the
SEN. OSMEÑA. Al right. Now – Also, the ... Compromise Agreement between PNCC and Radstock. The Court of
Appeals approved the Compromise Agreement in its Decision of 25
MR. AGUILAR. Ah, 13 percent daw, Your Honor. January 200710 in CA-G.R. CV No. 87971.

SEN. OSMEÑA. Huh? II.

The Antecedents
MR. AGUILAR. Thirteen percent ho.
PNCC was incorporated in 1966 for a term of fifty years under the
SEN. OSMEÑA. What’s 13 percent? Corporation Code with the name Construction Development
Corporation of the Philippines (CDCP).11 PD 1113, issued on 31
MR. AGUILAR. We owned ... March 1977, granted CDCP a 30-year franchise to construct, operate
and maintain toll facilities in the North and South Luzon Tollways. PD
1894, issued on 22 December 1983, amended PD 1113 to include in
xxxx CDCP’s franchise the Metro Manila Expressway, which would "serve
as an additional artery in the transportation of trade and commerce in RESOLVED, That the Board recognizes, acknowledges and
the Metro Manila area." confirms PNCC’s obligations as of September 30, 1999 with the
following entities, exclusive of the interests and other charges that
Sometime between 1978 and 1981, Basay Mining Corporation may subsequently accrue and still become due therein, to wit:
(Basay Mining), an affiliate of CDCP, obtained loans from Marubeni
Corporation of Japan (Marubeni) amounting to 5,460,000,000 yen a). the Government of the Republic of the
and US$5 million. A CDCP official issued letters of guarantee for the Philippines in the amount of ₱36,023,784,751.00;
loans, committing CDCP to pay solidarily for the full amount of the and
5,460,000,000 yen loan and to the extent of ₱20 million for the US$5
million loan. However, there was no CDCP Board Resolution b). Marubeni Corporation in the amount of
authorizing the issuance of the letters of guarantee. Later, Basay ₱10,743,103,388.00. (Emphasis supplied)
Mining changed its name to CDCP Mining Corporation (CDCP
Mining). CDCP Mining secured the Marubeni loans when CDCP and This was the first PNCC Board Resolution admitting PNCC’s liability
CDCP Mining were still privately owned and managed. for the Marubeni loans. Previously, for two decades the PNCC Board
consistently refused to admit any liability for the Marubeni loans.
Subsequently in 1983, CDCP changed its corporate name to PNCC
to reflect the extent of the Government's equity investment in the
Less than two months later, or on 22 November 2000, the PNCC
company, which arose when government financial institutions Board passed Board Resolution No. BD-099-2000 amending Board
converted their loans to PNCC into equity following PNCC’s inability Resolution No. BD-092-2000. PNCC Board Resolution No. BD-099-
to pay the loans.12 Various government financial institutions held a
2000 reads as follows:
total of seventy-seven point forty-eight percent (77.48%) of PNCC’s
voting equity, most of which were later transferred to the Asset
Privatization Trust (APT) under Administrative Orders No. 14 and 64, RESOLUTION NO. BD-099-2000
series of 1987 and 1988, respectively.13 Also, the Presidential
Commission on Good Government holds some 13.82% of PNCC’s RESOLVED, That the Board hereby amends its Resolution No. BD-
voting equity under a writ of sequestration and through the voluntary 092-2000 dated October 20, 2000 so as to read as follows:
surrender of certain PNCC shares. In fine, the Government owns
90.3% of the equity of PNCC and only 9.70% of PNCC’s voting RESOLVED, That the Board recognizes, acknowledges and
equity is under private ownership.14 confirms its obligations as of September 30, 1999 with the following
entities, exclusive of the interests and other charges that may
Meanwhile, the Marubeni loans to CDCP Mining remained unpaid. subsequently accrue and still due thereon, subject to the final
On 20 October 2000, during the short-lived Estrada Administration, determination by the Commission on Audit (COA) of the amount of
the PNCC Board of Directors15 (PNCC Board) passed Board obligation involved, and subject further to the declaration of the
Resolution No. BD-092-2000 admitting PNCC’s liability to Marubeni legality of said obligations by the Office of the Government Corporate
for ₱10,743,103,388 as of 30 September 1999. PNCC Board Counsel (OGCC), to wit:
Resolution No. BD-092-2000 reads as follows:
a). the Government of the Republic of the
RESOLUTION NO. BD-092-2000 Philippines in the amount of ₱36,023,784,751.00;
and
 b). Marubeni Corporation in the amount of (₱13,151,956,528.00) with interest from October 15, 2001 plus Ten
₱10,743,103,388.00. (Emphasis supplied) Million Pesos (₱10,000,000.00) as attorney’s fees.

In January 2001, barely three months after the PNCC Board first SO ORDERED.16
admitted liability for the Marubeni loans, Marubeni assigned its entire
credit to Radstock for US$2 million or less than ₱100 million. In PNCC appealed the trial court’s decision to the Court of Appeals,
short, Radstock paid Marubeni less than 10% of the ₱10.743 billion docketed as CA-G.R. CV No. 87971.
admitted amount. Radstock immediately sent a notice and demand
letter to PNCC.
On 19 March 2003, this Court issued a temporary restraining order in
G.R. No. 156887 forbidding the trial court from implementing the writ
On 15 January 2001, Radstock filed an action for collection and of preliminary attachment and ordering the suspension of the
damages against PNCC before the Regional Trial Court of proceedings before the trial court and the Court of Appeals. In its 3
Mandaluyong City, Branch 213 (trial court). In its order of 23 January October 2005 Decision, this Court ruled as follows:
2001, the trial court issued a writ of preliminary attachment against
PNCC. The trial court ordered PNCC’s bank accounts garnished and
WHEREFORE, the petition is partly GRANTED and insofar as the
several of its real properties attached. On 14 February 2001, PNCC
Motion to Set Aside the Order and/or Discharge the Writ of
moved to set aside the 23 January 2001 Order and to discharge the
Attachment is concerned, the Decision of the Court of Appeals on
writ of attachment. PNCC also filed a motion to dismiss the case. August 30, 2002 and its Resolution of January 22, 2003 in CA-G.R.
The trial court denied both motions. PNCC filed motions for SP No. 66654 are REVERSED and SET ASIDE. The attachments
reconsideration, which the trial court also denied. PNCC filed a
over the properties by the writ of preliminary attachment are hereby
petition for certiorari before the Court of Appeals, docketed as CA-
ordered LIFTED effective upon the finality of this Decision. The
G.R. SP No. 66654, assailing the denial of the motion to dismiss. On
Decision and Resolution of the Court of Appeals are AFFIRMED in
30 August 2002, the Court of Appeals denied PNCC’s petition.
all other respects. The Temporary Restraining Order is DISSOLVED
PNCC filed a motion for reconsideration, which the Court of Appeals immediately and the Court of Appeals is directed to PROCEED
also denied in its 22 January 2003 Resolution. PNCC filed a petition
forthwith with the appeal filed by PNCC.
for review before this Court, docketed as G.R. No. 156887.
No costs.
Meanwhile, on 19 June 2001, at the start of the Arroyo
Administration, the PNCC Board, under a new President and
Chairman, revoked Board Resolution No. BD-099-2000. SO ORDERED.17

The trial court continued to hear the main case. On 10 December On 17 August 2006, PNCC and Radstock entered into the
2002, the trial court ruled in favor of Radstock, as follows: Compromise Agreement where they agreed to reduce PNCC’s
liability to Radstock, supposedly from ₱17,040,843,968, to
₱6,185,000,000. PNCC and Radstock submitted the Compromise
WHEREFORE, premises considered, judgment is hereby rendered
Agreement to this Court for approval. In a Resolution dated 4
in favor of the plaintiff and the defendant is directed to pay the total
December 2006 in G.R. No. 156887, this Court referred the
amount of Thirteen Billion One Hundred Fifty One Million Nine
Compromise Agreement to the Commission on Audit (COA) for
Hundred Fifty Six thousand Five Hundred Twenty Eight Pesos 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 in-Intervention before the Court of Appeals in CA-G.R. SP No.
Appeals in CA-G.R. CV No. 87971. In its 25 January 2007 Decision, 97982.
the Court of Appeals approved the Compromise Agreement.
In a Resolution dated 12 June 2007, the Court of Appeals dismissed
STRADEC moved for reconsideration of the 25 January 2007 Sison’s petition on the ground that it had no jurisdiction to annul a
Decision. STRADEC alleged that it has a claim against PNCC as a final and executory judgment also rendered by the Court of Appeals.
bidder of the National Government’s shares, receivables, securities In the same resolution, the Court of Appeals also denied Asiavest’s
and interests in PNCC. The matter is subject of a complaint filed by urgent motion.
STRADEC against PNCC and the Privatization and Management
Office (PMO) for the issuance of a Notice of Award of Sale to Dong- Asiavest filed its Urgent Motion for Leave to Intervene and to File the
A Consortium of which STRADEC is a partner. The case, docketed Attached Opposition and Motion-in-Intervention in G.R. No.
as Civil Case No. 05-882, is pending before the Regional Trial Court 178158.18
of Makati, Branch 146 (RTC Branch 146).
Sison filed a motion for reconsideration. In its 5 November 2007
The Court of Appeals treated STRADEC’s motion for reconsideration Resolution, the Court of Appeals denied Sison’s motion.
as a motion for intervention and denied it in its 31 May 2007
Resolution. STRADEC filed a petition for review before this Court,
On 26 November 2007, Sison filed a petition for review before this
docketed as G.R. No. 178158. Court, docketed as G.R. No. 180428.

Rodolfo Cuenca (Cuenca), a stockholder and former PNCC

In a Resolution dated 18 February 2008, this Court consolidated
President and Board Chairman, filed an intervention before the Court
G.R. Nos. 178158 and 180428.
of Appeals. Cuenca alleged that PNCC had no obligation to pay
Radstock. The Court of Appeals also denied Cuenca’s motion for
intervention in its Resolution of 31 May 2007. Cuenca did not appeal On 13 January 2009, the Court held oral arguments on the following
the denial of his motion. issues:

On 2 July 2007, this Court issued an order directing PNCC and 1. Does the Compromise Agreement violate public policy?
Radstock, their officers, agents, representatives, and other persons
under their control, to maintain the status quo ante. 2. Does the subject matter involve an assumption by the
government of a private entity’s obligation in violation of the
Meanwhile, on 20 February 2007, Sison, also a stockholder and law and/or the Constitution? Is the PNCC Board Resolution
former PNCC President and Board Chairman, filed a Petition for of 20 October 2000 defective or illegal?
Annulment of Judgment Approving Compromise Agreement before
the Court of Appeals. The case was docketed as CA-G.R. SP No. 3. Is the Compromise Agreement viable in the light of the
97982. non-renewal of PNCC’s franchise by Congress and its
inclusion of all or substantially all of PNCC’s assets?
Asiavest, a judgment creditor of PNCC, filed an Urgent Motion for
Leave to Intervene and to File the Attached Opposition and Motion-
 4. Is the Decision of the Court of Appeals annullable even if by this Court to avoid grave injustice and injury and to settle once
final and executory on grounds of fraud and violation of and for all the substantive issues raised by the parties.21
public policy and the Constitution?
In Collado v. Court of Appeals,22 this Court reiterated that exceptions
III. to Section 2, Rule 12 could be made in the interest of substantial
Propriety of Actions justice. Citing Mago v. Court of Appeals,23 the Court stated:

The Court of Appeals denied STRADEC’s motion for intervention on It is quite clear and patent that the motions for intervention filed by
the ground that the motion was filed only after the Court of Appeals the movants at this stage of the proceedings where trial had already
and the trial court had promulgated their respective decisions. 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
Section 2, Rule 19 of the 1997 Rules of Civil Procedure provides: 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.
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 But Rule 12 of the Rules of Court, like all other Rules therein
and served on the original parties. 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
The rule is not absolute. The rule on intervention, like all other rules
thwart justice. Its proper aim is to facilitate the application of justice
of procedure, is intended to make the powers of the Court completely
to the rival claims of contending parties. It was created not to hinder
available for justice.19 It is aimed to facilitate a comprehensive
and delay but to facilitate and promote the administration of justice. It
adjudication of rival claims, overriding technicalities on the timeliness
of the filing of the claims.20 This Court has ruled: 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.
[A]llowance or disallowance of a motion for intervention rests on the
sound discretion of the court after consideration of the appropriate
Concededly, STRADEC has no legal interest in the subject matter of
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 the Compromise Agreement. Section 1, Rule 19 of the 1997 Rules of
Civil Procedure states:
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 SECTION 1. Who may intervene. - A person who has a legal interest
in the Rule in the higher interest of justice. Interventions have been in the matter in litigation, or in the success of either of the parties, or
granted to afford indispensable parties, who have not been an interest against both, or is so situated as to be adversely affected
impleaded, the right to be heard even after a decision has been by a distribution or other disposition of property in the custody of the
rendered by the trial court, when the petition for review of the court or of an officer thereof may, with leave of court, be allowed to
judgment was already submitted for decision before the Supreme intervene in the action. The Court shall consider whether or not the
Court, and even where the assailed order has already become final intervention will unduly delay or prejudice the adjudication of the
and executory. In Lim v. Pacquing (310 Phil. 722 (1995)], the motion rights of the original parties, and whether or not the intervenor’s
for intervention filed by the Republic of the Philippines was allowed rights may be fully protected in a separate proceeding.
STRADEC’s interest is dependent on the outcome of Civil Case No. Besides, the circumstances in this case are peculiar. Sison, as
05-882. Unless STRADEC can show that RTC Branch 146 had former PNCC President and Chairman of the PNCC Board, was
already decided in its favor, its legal interest is simply contingent and responsible for the approval of the Board Resolution issued on 19
expectant. June 2001 revoking the previous Board Resolution admitting PNCC’s
liability for the Marubeni loans.29 Such revocation, however, came
However, Asiavest has a direct and material interest in the approval after Radstock had filed an action for collection and damages against
or disapproval of the Compromise Agreement. Asiavest is a PNCC on 15 January 2001. Then, when the trial court rendered its
judgment creditor of PNCC in G.R. No. 110263 and a court has decision on 10 December 2002 in favor of Radstock, Sison was no
already issued a writ of execution in its favor. Asiavest’s interest is longer the PNCC President and Chairman, although he remains a
actual and material, direct and immediate characterized by either stockholder of PNCC.
gain or loss from the judgment that this Court may
render.24 Considering that the Compromise Agreement involves the When the case was on appeal before the Court of Appeals, there
disposition of all or substantially all of the assets of PNCC, Asiavest, was no need for Sison to avail of any remedy, until PNCC and
as PNCC’s judgment creditor, will be greatly prejudiced if the Radstock entered into the Compromise Agreement, which disposed
Compromise Agreement is eventually upheld. of all or substantially all of PNCC’s assets. Sison came to know of
the Compromise Agreement only in December 2006. PNCC and
Sison has legal standing to challenge the Compromise Agreement. Radstock submitted the Compromise Agreement to the Court of
Although there was no allegation that Sison filed the case as a Appeals for approval on 10 January 2007. The Court of Appeals
derivative suit in the name of PNCC, it could be fairly deduced that approved the Compromise Agreement on 25 January 2007. To
Sison was assailing the Compromise Agreement as a stockholder of require Sison at this stage to exhaust all the remedies within the
PNCC. In such a situation, a stockholder of PNCC can sue on behalf corporation will render such remedies useless as the Compromise
of PNCC to annul the Compromise Agreement. Agreement had already been approved by the Court of Appeals.
PNCC’s assets are in danger of being dissipated in favor of a private
foreign corporation. Thus, Sison had no recourse but to avail of an
A derivative action is a suit by a stockholder to enforce a corporate
cause of action.25 Under the Corporation Code, where a corporation extraordinary remedy to protect PNCC’s assets.
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 Besides, in the interest of substantial justice and for compelling
derivative suit on behalf of the corporation to protect or vindicate reasons, such as the nature and importance of the issues raised in
corporate rights whenever the officials of the corporation refuse to this case,30 this Court must take cognizance of Sison’s action. This
sue, or are the ones to be sued, or hold control of the Court should exercise its prerogative to set aside technicalities in the
corporation.27 In such actions, the corporation is the real party-in- Rules, because after all, the power of this Court to suspend its own
interest while the suing stockholder, on behalf of the corporation, is rules whenever the interest of justice requires is well recognized. 31 In
only a nominal party.28 Solicitor General v. The Metropolitan Manila Authority,32 this Court
held:
In this case, the PNCC Board cannot conceivably be expected to
attack the validity of the Compromise Agreement since the PNCC Unquestionably, the Court has the power to suspend procedural
Board itself approved the Compromise Agreement. In fact, the PNCC rules in the exercise of its inherent power, as expressly recognized in
Board steadfastly defends the Compromise Agreement for allegedly the Constitution, to promulgate rules concerning ‘pleading, practice
being advantageous to PNCC. 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 There is no dispute that between 1978 and 1980, Marubeni
adherence to such rules. x x x Corporation extended two loans to Basay Mining (later renamed
CDCP Mining): (1) US$5 million to finance the purchase of copper
We have made similar rulings in other cases, thus: concentrates by Basay Mining; and (2) Y5.46 billion to finance the
completion of the expansion project of Basay Mining including
working capital.
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 There is also no dispute that it was only on 20 October 2000 when
rather than promote substantial justice, must always be avoided. x x the PNCC Board approved a resolution expressly admitting PNCC’s
x Time and again, this Court has suspended its own rules and liability for the Marubeni loans. This was the first Board Resolution
excepted a particular case from their operation whenever the higher admitting liability for the Marubeni loans, for PNCC never admitted
interests of justice so require. liability for these debts in the past. Even Radstock admitted that
PNCC’s 1994 Financial Statements did not reflect the Marubeni
IV. loans.37 Also, former PNCC Chairman Arthur Aguilar stated during
the Senate hearings that "the Marubeni claim was never in the
The PNCC Board Acted in Bad Faith and with Gross Negligence
balance sheet x x x nor was it in a contingent account."38 Miriam M.
Pasetes, SVP Finance of PNCC, and Atty. Herman R. Cimafranca of
in Directing the Affairs of PNCC the Office of the Government Corporate Counsel, confirmed this fact,
thus:
In this jurisdiction, the members of the board of directors have a
three-fold duty: duty of obedience, duty of diligence, and duty of SEN. DRILON. x x x And so, PNCC itself did not recognize this as an
loyalty.33 Accordingly, the members of the board of directors (1) shall obligation but the board suddenly recognized it as an obligation. It
direct the affairs of the corporation only in accordance with the was on that basis that the case was filed, is that correct? In fact, the
purposes for which it was organized;34 (2) shall not willfully and case hinges on – they knew that this claim has prescribed but
knowingly vote for or assent to patently unlawful acts of the because of that board resolution which recognized the obligation
corporation or act in bad faith or with gross negligence in they filed their complaint, is that correct?
directing the affairs of the corporation;35 and (3) shall not acquire
any personal or pecuniary interest in conflict with their duty as such
directors or trustees.36 MR. CIMAFRANCA. Apparently, it's like that, Senator, because the
filing of the case came after the acknowledgement.
In the present case, the PNCC Board blatantly violated its duty of
SEN. DRILON. Yes. In fact, the filing of the case came three months
diligence as it miserably failed to act in good faith in handling the
after the acknowledgement.
affairs of PNCC.

MR. CIMAFRANCA. Yes. And that made it difficult to handle on our

First. For almost two decades, the PNCC Board had consistently
part.
refused to admit liability for the Marubeni loans because of the
absence of a PNCC Board resolution authorizing the issuance of the
letters of guarantee. SEN. DRILON. That is correct. So, that it was an obligation
which was not recognized in the financial statements of PNCC
but revived – in the financial statements because it has
prescribed but revived by the board effectively. That's the ATTY. AGRA
theory, at least, of the plaintiff. Is that correct? Who can answer
that? Yes, your Honor.43 (Emphasis supplied)

Ms. Pasetes, yes. Clearly, the PNCC Board’s admission of liability for the Marubeni
loans, given PNCC’s huge negative net worth of at least ₱6 billion as
MS. PASETES. It is not an obligation of PNCC that is why it is not admitted by PNCC’s counsel, or ₱14.823 billion based on the 2006
reflected in the financial statements.39 (Emphasis supplied) COA Audit Report, would leave PNCC an empty shell, without any
assets to pay its biggest creditor, the National Government with an
In short, after two decades of consistently refuting its liability for the admitted receivable of ₱36 billion from PNCC.
Marubeni loans, the PNCC Board suddenly and inexplicably
reversed itself by admitting in October 2000 liability for the Marubeni Third. In a debilitating self-inflicted injury, the PNCC Board revived
loans. Just three months after the PNCC Board recognized the what appeared to have been a dead claim by abandoning one of
Marubeni loans, Radstock acquired Marubeni's receivable and filed PNCC’s strong defenses, which is the prescription of the action to
the present collection case. collect the Marubeni loans.

Second. The PNCC Board admitted liability for the Marubeni loans Settled is the rule that actions prescribe by the mere lapse of time
despite PNCC’s total liabilities far exceeding its assets. There is no fixed by law.44 Under Article 1144 of the Civil Code, an action upon a
dispute that the Marubeni loans, once recognized, would wipe out written contract, such as a loan contract, must be brought within ten
the assets of PNCC, "virtually emptying the coffers of the years from the time the right of action accrues. The prescription of
PNCC."40 While PNCC insists that it remains financially viable, the such an action is interrupted when the action is filed before the court,
figures in the COA Audit Reports tell otherwise.41 For 2006 and when there is a written extrajudicial demand by the creditor, or when
2005, "the Corporation has incurred negative gross margin of there is any written acknowledgment of the debt by the debtor.45
₱84.531 Million and ₱80.180 Million, respectively, and net losses
that had accumulated in a deficit of ₱14.823 Billion as of 31 In this case, Basay Mining obtained the Marubeni loans sometime
December 2006."42 The COA even opined that "unless [PNCC] between 1978 and 1981. While Radstock claims that numerous
Management addresses the issue on net losses in its financial demand letters were sent to PNCC, based on the records, the
rehabilitation plan, x x x the Corporation may not be able to extrajudicial demands to pay the loans appear to have been made
continue its operations as a going concern." only in 1984 and 1986. Meanwhile, the written acknowledgment of
the debt, in the form of Board Resolution No. BD-092-2000, was
Notably, during the oral arguments before this Court, the issued only on 20 October 2000.
Government Corporate Counsel admitted the PNCC’s huge negative
net worth, thus: Thus, more than ten years would have already lapsed between
Marubeni’s extrajudicial demands in 1984 and 1986 and the
JUSTICE CARPIO acknowledgment by the PNCC Board of the Marubeni loans in 2000.
However, the PNCC Board suddenly passed Board Resolution No.
x x x what is the net worth now of PNCC? Negative what? Negative BD-092-2000 expressly admitting liability for the Marubeni loans. In
6 Billion at least[?] 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, SEN. DRILON. So, even assuming that all of those were demand
the PNCC Board threw in the towel even before the fight could begin. letters, the 10 years prescription set in and it should have prescribed
During the Senate hearings, the matter of prescription was in 1998, whatever is the date, or before the case was filed in 2001.
discussed, thus:
MR. CIMAFRANCA. The 10-year period for – if the contract is
SEN. DRILON. ... the prescription period is 10 years and there were written, it's 10 years and it should have prescribed in 10 years and
no payments – the last demands were made, when? The last we did raise that in our answer, in our motion to dismiss.
demands for payment?
SEN. DRILON. I know. You raised this in your motion to dismiss and
MS. OGAN. It was made January 2001 prior to the filing of the case. you raised this in your answer. Now, we are not saying that you were
negligent in not raising that. What we are just putting on the record
SEN. DRILON. Yes, all right. Before that, when was the last demand that indeed there is basis to argue that these claims have prescribed.
made? By the time they filed the complaint more than 10 years
already lapsed. Now, the reason why there was a colorable basis on the complaint
filed in 2001 was that somehow the board of PNCC recognized the
MS. OGAN. On record, Mr. Chairman, we have demands starting obligation in a special board meeting on October 20, 2000. Hindi ba
from - - a series of demands which started from May 23, 1984, letter ganoon 'yon?
from Marubeni to PNCC, demand payment. And we also have the
letter of September 3, 1986, letter of Marubeni to then PNCC Chair MS. OGAN. Yes, that is correct.
Mr. Jaime. We have the June 24, 1986 letter from Marubeni to the
PNCC Chairman. Also the March 4, 1988 letter... SEN. DRILON. Why did the PNCC recognize this obligation in 2000
when it was very clear that at that point more than 10 years have
SEN. DRILON. The March 4, 1988 letter is not a demand letter. lapsed since the last demand letter?

MS. OGAN. It is exactly addressed to the Asset Privatization Trust. MR. AGUILAR. May I volunteer an answer?

SEN. DRILON. It is not a demand letter? Okay. SEN. DRILON. Please.

MS. OGAN. And we have also... 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
SEN. DRILON. Anyway... 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
THE CHAIRMAN. Please answer when you are asked, Ms. Ogan.
investment brochure that indicated liabilities both to national
We want to put it on the record whether it is "yes" or "no".
government and to Marubeni/Radstock. So, PMO said, "For good
order, can you PNCC board confirm that by board resolution?" That's
MS. OGAN. Yes, sir. the tone of the letter.
SEN. DRILON. Confirm what? Confirm the liabilities that are to the OGCC that there is no board authority in favor or authorizing
contained in the Punongbayan investment prospectus both to the Mr. Asuncion, then EVP, to sign or execute the letter of guarantee in
national government and to PNCC. That is the reason at least from behalf of CDCP and that said letter of guarantee is not legally
the record, Your Honor, how the PNCC board got to deliberate on binding upon or enforceable against CDCP as principals, your
the Marubeni. Honors.47

THE CHAIRMAN. What paragraph? Second to the last paragraph? xxxx

MR. AGUILAR. Yes. Yes, Mr. Chairman. Ito po 'yong – that"s to our SEN. DRILON. Now that we have read this, what was the opinion of
recollection, in the records, that was the reason. the Government Corporate Counsel, Mr. Cimafranca?

SEN. DRILON. Is that the only reason why ... MR. CIMAFRANCA. Yes, Senator, we did issue an opinion upon the
request of PNCC and our opinion was that there was no valid
MR. AGUILAR. From just the records, Mr. Chairman, and then obligation, no valid guarantee. And we incorporated that in our
interviews with people who are still around. pleadings in court.48 (Emphasis supplied)

SEN. DRILON. You mean, you acknowledged a prescribed Clearly, PNCC had strong defenses against the collection suit filed
obligation because of this paragraph? 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
MR. AGUILAR. I don’t know what legal advice we were following at
that time, Mr. Chairman.46 (Emphasis supplied) into a Compromise Agreement that is manifestly and grossly
prejudicial to PNCC.
Besides prescription, the Office of the Government Corporate
Fourth. The basis for the admission of liability for the Marubeni loans,
Counsel (OGCC) originally believed that PNCC had another
which was an opinion of the Feria Law Office, was not even shown to
formidable legal weapon against Radstock, that is, the lack of
the PNCC Board.
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 OGCC’s Atty. Raymundo Francisco, the APT trustee overseeing the proposed
original opinion: privatization of PNCC at the time, was responsible for recommending
to the PNCC Board the admission of PNCC’s liability for the
THE CHAIRMAN. What was the opinion of the Office of the Marubeni loans. Atty. Francisco based his recommendation solely on
Government Corporate Counsel? 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
MS. OGAN. The opinion of the Office of the Government Corporate Chairman did not also show the "Feria opinion" to the other PNCC
Counsel is that PNCC should exhaust all means to resist the case Board members. During the Senate hearings, Atty. Francisco could
using all defenses available to a guarantee and a surety that there is not produce a copy of the "Feria opinion." The Senators grilled Atty.
a valid ground for PNCC's refusal to honor or make good the alleged Francisco on his recommendation to recognize PNCC’s liability for
guarantee obligation. It appearing that from the documents submitted the Marubeni loans, thus:
THE CHAIRMAN. x x x You were the one who wrote this letter or MR. FRANCISCO. Yes, we...
rather this memorandum dated 17 October 2000 to Atty.
Valdecantos. Can you tell us the background why you wrote the THE CHAIRMAN. Not necessarily the government corporate
letter acknowledging a debt which is non-existent? counsel?

MR. FRANCISCO. I was appointed as the trustee in charge of the MR. FRANCISCO. No, sir.
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 THE CHAIRMAN. So, on the basis of the opinion of outside counsel,
advisors to do a legal audit and financial study on the position of
private, you proceeded to, in effect, recognize an obligation which is
PNCC. I bidded out these engagements, the financial advisership
not even entered in the books of the PNCC? You probably
went to Punongbayan and Araullo. The legal audit went to the Feria
resuscitated a non-existing obligation anymore?
Law Offices.
MR. FRANCISCO. Sir, I just based my recommendation on the
THE CHAIRMAN. Spell it. Boy Feria?
professional findings of the law office that we engaged, sir.

MR. FRANCISCO. Feria-- Feria.

THE CHAIRMAN. Did you not ask for the opinion of the government
corporate counsel?
THE CHAIRMAN. Lugto?
MR. FRANCISCO. No, sir.
MR. FRANCISCO. Yes. Yes, Your Honor. And this was the findings
of the Feria Law Office – that the Marubeni account was a legal THE CHAIRMAN. Why?
obligation.
MR. FRANCISCO. I felt that the engagements of the law office was
So, I presented this to our board. Based on the findings of the legal
sufficient, anyway we were going to raise it to the Committee on
audit conducted by the Ferial Law Offices, sir.
Privatization for their approval or disapproval, sir.

THE CHAIRMAN. Why did you not ask the government corporate
THE CHAIRMAN. The COP?
counsel? Why did you have to ask for the opinion of an outside
counsel?
MR. FRANCISCO. Yes, sir.
MR. FRANCISCO. That was the – that was the mandate given to us,
sir, that we have to engage the ... THE CHAIRMAN. That’s a cabinet level?

THE CHAIRMAN. Mandate given by whom? MR. FRANCISCO. Yes, sir. And we did that, sir.

MR. FRANCISCO. That is what we usually do, sir, in the APT. THE CHAIRMAN. Now... So you sent your memo to Atty. Renato B.
Valdecantos, who unfortunately is not here but I think we have to get
his response to this. And as part of the minutes of special meeting
THE CHAIRMAN. Ah, you get outside counsel?
with the board of directors on October 20, 2000, the board resolved Treasury as of September 30, 1999 is 36,023,784,751. And with
in its Board Resolution No. 092-2000, the board resolved to respect to PNCC’s obligation to Marubeni, this has been determined
recognize, acknowledge and confirm PNCC’s obligations as of to be in the total amount of 10,743,103,388, also as of September
September 30, 1999, etcetera, etcetera. (A), or rather (B), Marubeni 30, 1999; that there is need to ratify this because there has already
Corporation in the amount of ₱10,740,000. been a representation made with respect to the review of the
financial records of PNCC by Punongbayan and Araullo, which have
Now, we asked to be here because the franchise of PNCC is been included as part of the package of APT’s disposition to the
hanging in a balance because of the – on the questions on this national government’s interest in PNCC."
acknowledgement. So we want to be educated.
You recall having made this representation as found in the minutes, I
Now, the paper trail starts with your letter. So, that’s it – that’s my assume, Atty. Francisco?
kuwan, Frank.
MR. FRANCISCO. Yes, sir. But I’d like to be refreshed on the
Yes, Senator Drilon. memorandum, sir, because I don’t have a copy.

SEN. DRILON. Thank you, Mr. Chairman. SEN. DRILON. Yes, this memorandum was cited earlier by Senator
Arroyo, and maybe the secretary can give him a copy? Give him a
Yes, Atty. Francisco, you have a copy of the minutes of October 20, copy?
2000?
MS. OGAN. (Handing the document to Mr. Francisco.)
MR. FRANCISCO. I’m sorry, sir, we don’t have a copy.
MR. FRANCISCO. Your Honor, I have here a memorandum to the
PNCC board through Atty. Valdecantos, which says that – in the last
SEN. DRILON. May we ask the corporate secretary of PNCC to
paragraph, if I may read? "May we request therefore, that a board
provide us with a copy?
resolution be adopted, acknowledging and confirming the
aforementioned PNCC obligations with the national government and
Okay naman andiyan siya. Marubeni as borne out by the due diligence audit."

(Ms. Ogan handing the document to Mr. Francisco.) SEN. DRILON. This is the memorandum referred to in these
minutes. This memorandum dated 17 October 2000 is the
You have familiarized yourselves with the minutes, Atty. Francisco? memorandum referred to in the minutes.

MR. FRANCISCO. Yes, sir. MR. FRANCISCO. I would assume, Mr. Chairman.

SEN. DRILON. Now, mention is made of a memorandum here on SEN. DRILON. Right.
line 8, page 3 of this board’s minutes. It says, "Director Francisco
has prepared a memorandum requesting confirmation, Now, the Punongbayan representative who was here yesterday,
acknowledgement, and ratification of this indebtedness of PNCC to Mr...
the national government which was determined by Bureau of
THE CHAIRMAN. Navarro. Anyway, just of record, the Punongbayan representatives here
yesterday said that they never made such representation.
SEN. DRILON. ... Navarro denied that he made this
recommendation. In any case, now you’re saying it’s the Feria Law Office who
rendered that opinion? Can we – you know, yesterday we were
THE CHAIRMAN. He asked for opinion, legal opinion. 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
SEN. DRILON. He said that they never made this representation and copy.
the transcript will bear us out. They said that they never made this
representation that the account of Marubeni should be recognized. THE CHAIRMAN. Well, copy of the opinion...

MR. FRANCISCO. Mr. Chairman, in the memorandum, I only MS. OGAN. Yes, Mr. Chairman, we were never furnished a copy of
mentioned here the acknowledgement and confirmation of the PNCC this opinion because it’s opinion rendered for the Asset Privatization
obligations. I was not asking for a ratification. I never mentioned Trust which is its client, not the PNCC, Mr. Chairman.
ratification in the memorandum. I just based my memo based on the
due diligence audit of the Feria Law Offices. THE CHAIRMAN. All right. The question is whether – but you see,
this is a memorandum of Atty. Francisco to the Chairman of the
SEN. DRILON. Can you say that again? You never asked for a Asset Privatization Trust. You say now that you were never furnished
ratification... a copy because that’s supposed to be with the Asset ...

MR. FRANCISCO. No. I never mentioned in my memorandum that I MS. OGAN. Yes, Mr. Chairman.
was asking for a ratification. I was just – in my memo it says,
"acknowledging and confirming the PNCC obligation." This was what 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
SEN. DRILON. Isn’t it the same as ratification? I mean, what’s the corporate secretary, Ms. Ogan.
difference?
MS. OGAN. Yes, Mr. Chairman.
MR. FRANCISCO. I – well, my memorandum was meant really just
to confirm the findings of the legal audit as ... THE CHAIRMAN. So, what I am saying is that this opinion or rather
the opinion of the Feria Law Offices of which you don’t have a copy?
SEN. DRILON. In your mind as a lawyer, Atty. Francisco, there’s a
difference between ratification and – what’s your term? -- MS. OGAN. Yes, sir.
acknowledgment and confirmation?
THE CHAIRMAN. And the reason being that, it does not concern the
MR. FRANCISCO. Well, I guess there’s no difference, Mr. Chairman. PNCC because that’s an opinion rendered for APT and not for the
PNCC.
SEN. DRILON. Right.
MS. OGAN. Yes, Mr. Chairman, that was what we were told although Now, we are asking you now why it was taken up?
we made several requests to the APT, sir.
MS. OGAN. Yes, sir, Mr. Chairman, this was mentioned in the
THE CHAIRMAN. All right. Now, since it was for the APT and not for memorandum of Atty. Francisco, memorandum to the board.
the PNCC, I ask the question why did PNCC adopt it? That was not
for the consumption of PNCC. It was for the consumption of the SEN. DRILON. Mr. Chairman, Mr. Francisco represented APT in the
Asset Privatization Trust. And that is what Atty. Francisco says and board of PNCC. And is that correct, Mr. Francisco?
it’s confirmed by you saying that this was a memo – you don’t have a
copy because this was sought for by APT and the Feria Law Offices
THE CHAIRMAN. You’re an ex-officio member.
just provided an opinion – provided the APT with an opinion. So, as
corporate secretary, the board of directors of PNCC adopted it,
recognized the Marubeni Corporation. SEN. DRILON. Yes.

You read the minutes of the October 20, 2000 meeting of the board MR. FRANCISCO. Ex-officio member only, sir, as trustee in charge
of directors on Item V. The resolution speaks of .. so, go ahead. of the privatization of PNCC.

MS. OGAN. I gave my copies. Yes, sir. SEN. DRILON. With the permission of Mr. Chair, may I ask a
question...
THE CHAIRMAN. In effect the Feria Law Offices’ opinion was for the
consumption of the APT. THE CHAIRMAN. Oh, yes, Senator Drilon.

MS. OGAN. That was what we were told, Mr. Chairman. SEN. DRILON. Atty. Francisco, you sat in the PNCC board as APT
representative, you are a lawyer, there was a legal opinion of Feria,
Feria, Lugto, Lao Law Offices which you cited in your memorandum.
THE CHAIRMAN. And you were not even provided with a copy.
Did you discuss – first, did you give a copy of this opinion to PNCC?

THE CHAIRMAN. Yet you adopted it. MR. FRANCISCO. I gave a copy of this opinion, sir, to our chairman
who was also a member of the board of PNCC, Mr. Valdecantos, sir.
MS. OGAN. Yes, sir.
SEN. DRILON. And because he was...
SEN DRILON. Considering you were the corporate secretary.
MR. FRANCISCO. Because he was my immediate boss in the APT.
THE CHAIRMAN. She was the corporate secretary.
SEN. DRILON. Apparently, [it] just ended up in the personal
SEN. DRILON. She was just recording the minutes. possession of Mr. Valdecantos because the corporate secretary,
Glenda Ogan, who is supposed to be the custodian of the records of
THE CHAIRMAN. Yes, she was recording. the board never saw a copy of this.
MR. FRANCISCO. Well, sir, my – the copy that I gave was to Mr. SEN. OSMEÑA. x x x
Valdecantos because he was the one sitting in the PNCC board, sir.
All right. And lastly, just to clear our minds, there has always been
SEN. DRILON. No, you sit in the board. this finger-pointing, of course, whenever – this is typical Filipino.
When they're caught in a bind, they always point a finger, they
MR. FRANCISCO. I was just an ex-officio member. And all my pretend they don't know. And it just amazes me that you have been
reports were coursed through our Chairman, Mr. Valdecantos, sir. 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
SEN. DRILON. Now, did you ever tell the board that there is a legal
you were tasked to conserve the assets that that had been
position taken or at least from the documents it is possible that the
confiscated from various cronies of the previous administration. And
claim has prescribed?
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
MR. FRANCISCO. I took this up in the board meeting of the PNCC opinion, a second doctor or a third doctor? This is just a question. I
at that time and I told them about this matter, sir. 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.
SEN. DRILON. No, you told them that the claim could have, under
the law, could have prescribed? MR. FRANCISCO. I would go to three or more doctors, sir.

MR. FRANCISCO. No, sir. SEN. OSMEÑA. Three or more. Yeah, that's right. And in this case
the APT did not do so.
SEN. DRILON. Why? You mean, you didn’t tell the board that it is
possible that this liability is no longer a valid liability because it has MR. FRANCISCO. We relied on the findings of the …
prescribed?
SEN. OSMEÑA. If these were your money, would you have gone
MR. FRANCISCO. I did not dwell into the findings anymore, sir, also to obtain a second, third opinion from other law firms. Kung pera
because I found the professional opinion of the Feria Law Office to mo itong 10 billion na ito. Siguro you're not gonna give it up that
be sufficient.49 (Emphasis supplied) easily ano, 'di ba?

Atty. Francisco’s act of recommending to the PNCC Board the MR. FRANCISCO. Yes, sir.
acknowledgment of the Marubeni loans based only on an opinion of
a private law firm, without consulting the OGCC and without showing
SEN. OSMEÑA. You'll probably keep it in court for the next 20 years.
this opinion to the members of the PNCC Board except to Atty.
Valdecantos, reflects how shockingly little his concern was for
PNCC, contrary to his claim that "he only had the interest of PNCC at x x x x50 (Emphasis supplied)
heart." In fact, if what was involved was his own money, Atty.
Francisco would have preferred not just two, but at least three This is a clear admission by Atty. Francisco of bad faith in directing
different opinions on how to deal with the matter, and he would have the affairs of PNCC - that he would not have recognized the
maintained his non-liability.
Marubeni loans if his own funds were involved or if he were the prospective buyers of PNCC. Atty. Sison stated that it was not the
owner of PNCC. intention of APT for the PNCC Board to admit liability for the
Marubeni loans, thus:
The PNCC Board admitted liability for the ₱10.743 billion Marubeni
loans without seeing, reading or discussing the "Feria opinion" which x x x It was the Asset Privatization Trust A-P-T that was tasked to
was the sole basis for its admission of liability. Such act surely goes sell the company. The A-P-T, for purposes of disclosure statements,
against ordinary human nature, and amounts to gross negligence tasked the Feria Law Office to handle the documentation and the
and utter bad faith, even bordering on fraud, on the part of the PNCC study of all legal issues that had to be resolved or clarified for the
Board in directing the affairs of the corporation. Owing loyalty to information of prospective bidders and or buyers. In the performance
PNCC and its stockholders, the PNCC Board should have exercised of its assigned task the Feria Law Office came upon the Marubeni
utmost care and diligence in admitting a gargantuan debt of ₱10.743 claim and mentioned that the APTC and/or PNCC must disclose that
billion that would certainly force PNCC into insolvency, a debt that there is a claim by Marubeni against PNCC for purposes of satisfying
previous PNCC Boards in the last two decades consistently refused the requirements of full disclosure. This seemingly innocent
to admit. statement or requirement made by the Feria Law Office was then
taken by two officials of the Asset Privatization Trust and with malice
Instead, the PNCC Board admitted PNCC’s liability for the Marubeni aforethought turned it into the basis for a multi-billion peso debt by
loans relying solely on a mere opinion of a private law office, which the now government owned and/or controlled PNCC. x x
opinion the PNCC Board members never saw, except for Atty. x.51 (Emphasis supplied)
Valdecantos and Atty. Francisco. The PNCC Board knew that
PNCC, as a government owned and controlled corporation (GOCC), While the PNCC Board passed Board Resolution No. BD-099-2000
must rely "exclusively" on the opinion of the OGCC. Section 1 of amending Board Resolution No. BD-092-2000, such amendment
Memorandum Circular No. 9 dated 27 August 1998 issued by the merely added conditions for the recognition of the Marubeni loans,
President states: namely, subjecting the recognition to a final determination by COA of
the amount involved and to the declaration by OGCC of the legality
SECTION 1. All legal matters pertaining to government-owned or of PNCC’s liability. However, the PNCC Board reiterated and stood
controlled corporations, their subsidiaries, other corporate off-springs firm that it "recognizes, acknowledges and confirms its obligations"
and government acquired asset corporations (GOCCs) shall be for the Marubeni loans. Apparently, Board Resolution No. BD-099-
exclusively referred to and handled by the Office of the Government 2000 was a futile attempt to "revoke" Board Resolution No. BD-092-
Corporate Counsel (OGCC). (Emphasis supplied) 2000. Atty. Alfredo Laya, Jr., a former PNCC Director, spoke on his
protests against Board Resolution No. BD-092-2000 at the Senate
hearings, thus:
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 OGCC’s opinion. Worse, the PNCC Board, in admitting liability MR. LAYA. Mr. Chairman, if I can …
for ₱10.743 billion, relied on the recommendation of a private lawyer
whose opinion the PNCC Board members have not even seen. THE CHAIRMAN. Were you also at the board?

During the oral arguments, Atty. Sison explained to the Court that the MR. LAYA. At that time, yes, sir.
intention of APT was for the PNCC Board merely to disclose the
claim of Marubeni as part of APT's full disclosure policy to THE CHAIRMAN. Okay, go ahead.
MR. LAYA. That's why if – maybe this can help clarify the sequence. MR. LAYA. Yes, your Honor.
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 SEN. DRILON. So how did...
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
MR. LAYA. That's my understanding of the proceedings at that time,
audit. Now, that was during the discussion of October 20. Later on,
that's why in the subsequent November 22 meeting, we raised this
the minutes came out. The practice, then, sir, was for the minutes to
point about obtaining a COA and OGCC opinion.
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 … 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
THE CHAIRMAN. May I interrupt. You were taking up in your
different import from what you are saying was your understanding of
November 22 meeting the October 20 minutes? the decision arrived at on October 20.

MR. LAYA. Yes, sir.

MR. LAYA. Yes, sir. Because our thinking then...

THE CHAIRMAN. This minutes that we have? SEN. DRILON. What do you mean, yes, sir?

MR. LAYA. 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.
THE CHAIRMAN. All right, go ahead.
SEN. DRILON. So, you never intended to recognize the obligation.
MR. LAYA. Now, in the November 22 meeting, we noticed this
resolution already for confirmation of the board – proceedings of
MR. LAYA. I think so, sir. That was our – personally, that was my
October 20. So immediately we made – actually, protest would be a
position.
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. How did it happen, Corporate Secretary Ogan, that
the minutes did not reflect what the board …
SEN. DRILON. So you are saying, Mr. Laya, that the minutes of
October 20 did not accurately reflect the decisions that you made on THE CHAIRMAN. Ms. Pasetes …
October 20 because you were saying that this recognition should be
subject to OGCC and COA? You seem to imply and we want to MS. PASETES. Yes, Mr. Chairman.
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 THE CHAIRMAN. … you are the chief financial officer of PNCC.
meeting because you wanted it to subject it to COA and OGCC, is
that correct? MS. PASETES. Your Honor, before that November 22 board
meeting, management headed by Mr. Rolando Macasaet, myself
and Atty. Ogan had a discussion about the recognition of the as to which equity imposes a disability upon him to deal in his own
obligations of 10 billion of Marubeni and 36 billion of the national behalf, he shall be liable as a trustee for the corporation and must
government on whether to recognize this as an obligation in our account for the profits which otherwise would have accrued to the
books or recognize it as an obligation in the pro forma financial corporation.
statement to be used for the privatization of PNCC because
recognizing both obligations in the books of PNCC would defeat our Soon after the short-lived Estrada Administration, the PNCC Board
going concern status and that is where the position of the president revoked its previous admission of liability for the Marubeni loans.
then, Mr. Macasaet, stemmed from and he went back to the board During the oral arguments, Atty. Sison narrated to the Court:
and moved to reconsider the position of October 20, 2000, Mr.
Chair.52 (Emphasis supplied)
x x x After President Estrada was ousted, I was appointed as
President and Chairman of PNCC in April of 2001, this particular
In other words, despite Atty. Laya’s objections to PNCC’s admitting board resolution was brought to my attention and I immediately put
liability for the Marubeni loans, the PNCC Board still admitted the the matter before the board. I had no problem in convincing them to
same and merely imposed additional conditions to temper somehow reverse the recognition as it was illegal and had no basis in fact. The
the devastating effects of Board Resolution No. BD-092-2000. vote to overturn that resolution was unanimous. Strange to say that
some who voted to overturn the recognition were part of the old
The act of the PNCC Board in issuing Board Resolution No. BD-092- board that approved it. Stranger still, Renato Valdecantos who was
2000 expressly admitting liability for the Marubeni loans still a member of the Board voted in favor of reversing the resolution
demonstrates the PNCC Board’s gross and willful disregard of the he himself instigated and pushed. Some of the board members who
requisite care and diligence in managing the affairs of PNCC, voted to recognize the obligation of Marubeni even came to me
amounting to bad faith and resulting in grave and irreparable injury to privately and said "pinilit lang kami." x x x.53 (Emphasis supplied)
PNCC and its stockholders. This reckless and treacherous move on
the part of the PNCC Board clearly constitutes a serious breach of its In approving PNCC Board Resolution Nos. BD-092-2000 and BD-
fiduciary duty to PNCC and its stockholders, rendering the members 099-2000, the PNCC Board caused undue injury to the Government
of the PNCC Board liable under Section 31 of the Corporation Code, and gave unwarranted benefits to Radstock, through manifest
which provides: partiality, evident bad faith or gross inexcusable negligence of the
PNCC Board. Such acts are declared under Section 3(e) of RA 3019
SEC. 31. Liability of directors, trustees or officers. -- Directors or or the Anti-Graft and Corrupt Practices Act, as "corrupt practices xxx
trustees who willfully and knowingly vote for or assent to patently and xxx unlawful." Being unlawful and criminal acts, these PNCC
unlawful acts of the corporation or who are guilty of gross negligence Board Resolutions are void ab initio and cannot be implemented or in
or bad faith in directing the affairs of the corporation or acquire any any way given effect by the Executive or Judicial branch of the
personal or pecuniary interest in conflict with their duty as such Government.
directors or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its Not content with forcing PNCC to commit corporate suicide with the
stockholders or members and other persons. admission of liability for the Marubeni loans under Board Resolution
Nos. BD-092-2000 and BD-099-2000, the PNCC Board drove the
When a director, trustee or officer attempts to acquire or acquires, in last nail on PNCC’s coffin when the PNCC Board entered into the
violation of his duty, any interest adverse to the corporation in manifestly and grossly disadvantageous Compromise Agreement
respect of any matter which has been reposed in him in confidence, with Radstock. This time, the OGCC, headed by Agnes DST
Devanadera, reversed itself and recommended approval of the the laws of the Republic of the Philippines, with principal office
Compromise Agreement to the PNCC Board. As Atty. Sison address at EDSA corner Reliance Street, Mandaluyong City,
explained to the Court during the oral arguments: Philippines, duly represented herein by its Chairman ARTHUR N.
AGUILAR, pursuant to a Board Resolution attached herewith as
x x x While the case was pending in the Court of Appeals, Radstock Annex "A" and made an integral part hereof, hereinafter referred to
in a rare display of extreme generosity, conveniently convinced the as PNCC;
Board of PNCC to enter into a compromise agreement for ½ the
amount of the judgment rendered by the RTC or ₱6.5 Billion Pesos. - and -
This time the OGCC, under the leadership of now Solicitor General
Agnes Devanadera, approved the compromise agreement RADSTOCK SECURITIES LIMITED, a private corporation
abandoning the previous OGCC position that PNCC had a incorporated in the British Virgin Islands, with office address at Suite
meritorious case and would be hard press to lose the case. What is 1402 1 Duddell Street, Central Hongkong duly-represented herein by
strange is that although the compromise agreement we seek to stop its Director, CARLOS G. DOMINGUEZ, pursuant to a Board
ostensibly is for ₱6.5 Billion only, truth and in fact, the agreement Resolution attached herewith as Annex "B" and made an integral
agrees to convey to Radstock all or substantially all of the assets of part hereof, hereinafter referred to as RADSTOCK.
PNCC worth ₱18 Billion Pesos. There are three items that are
undervalued here, the real estate that was turned over as a result of
WITNESSETH:
the controversial agreement, the toll revenues that were being
assigned and the value of the new shares of PNCC the difference is
about ₱12 Billion Pesos. x x x (Emphasis supplied) WHEREAS, on January 15, 2001, RADSTOCK, as assignee of
Marubeni Corporation, filed a complaint for sum of money and
damages with application for a writ of preliminary attachment with the
V.
Regional Trial Court (RTC), Mandaluyong City, docketed as Civil
The Compromise Agreement is Void
Case No. MC-01-1398, to collect on PNCC’s guarantees on the
for Being Contrary to the Constitution, unpaid loan obligations of CDCP Mining Corporation as provided
Existing Laws, and Public Policy
under an Advance Payment Agreement and Loan Agreement;

For a better understanding of the present case, the pertinent terms

WHEREAS, on December 10, 2002, the RTC of Mandaluyong
and conditions of the Compromise Agreement between PNCC and rendered a decision in favor of plaintiff RADSTOCK directing PNCC
Radstock are quoted below: to pay the total amount of Thirteen Billion One Hundred Fifty One
Million Nine Hundred Fifty-Six Thousand Five Hundred Twenty-Eight
COMPROMISE AGREEMENT Pesos (₱13,151,956,528.00) with interest from October 15, 2001
plus Ten Million Pesos (₱10,000,000.00) as attorney's fees.
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, PNCC had elevated the case to the Court of Appeals
This Agreement made and entered into this 17th day of August 2006, (CA-G.R. SP No. 66654) on Certiorari and thereafter, to the
in Mandaluyong City, Metro Manila, Philippines, by and between: Supreme Court (G.R. No. 156887) which Courts have consistently
ruled that the RTC did not commit grave abuse of discretion when it
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, a denied PNCC’s Motion to Dismiss which sets forth similar or
government acquired asset corporation, created and existing under
substantially the same grounds or defenses as those raised in 2. This Compromise Amount shall be paid by PNCC
PNCC's Answer; to RADSTOCK in the following manner:

WHEREAS, the case has remained pending for almost six (6) years a. PNCC shall assign to a third party assignee to be designated by
even after the main action was appealed to the Court of Appeals; RADSTOCK all its rights and interests to the following real properties
provided the assignee shall be duly qualified to own real properties in
WHEREAS, on the basis of the RTC Decision dated December 10, the Philippines;
2002, the current value of the judgment debt against PNCC stands at
₱17,040,843,968.00 as of July 31, 2006 (the "Judgment Debt"); (1) PNCC’s rights over that parcel of land located in
Pasay City with a total area of One Hundred Twenty-
WHEREAS, RADSTOCK is willing to settle the case at the reduced Nine Thousand Five Hundred Forty-Eight (129,548)
Compromise Amount of Six Billion One Hundred Ninety-Six Million square meters, more or less, and which is covered
Pesos (₱6,196,000,000.00) which may be paid by PNCC, either in by and more particularly described in Transfer
cash or in kind to avoid the trouble and inconvenience of further Certificate of Title No. T-34997 of the Registry of
litigation as a gesture of goodwill and cooperation; Deeds for Pasay City. The transfer value is
₱3,817,779,000.00.
WHEREAS, it is an established legal policy or principle that litigants
in civil cases should be encouraged to compromise or amicably PNCC’s rights and interests in Transfer Certificate of
settle their claims not only to avoid litigation but also to put an end to Title No. T-34997 of the Registry of Deeds for Pasay
one already commenced (Articles 2028 and 2029, Civil Code); City is defined and delineated by Administrative
Order No. 397, Series of 1998, and RADSTOCK is
fully aware and recognizes that PNCC has an
WHEREAS, this Compromise Agreement has been approved by the
respective Board of Directors of both PNCC and RADSTOCK, undertaking to cede at least 2 hectares of this
subject to the approval of the Honorable Court; property to its creditor, the Philippine National Bank;
and that furthermore, the Government Service
Insurance System has also a current and existing
NOW, THEREFORE, for and in consideration of the foregoing claim in the nature of boundary conflicts, which
premises, and the mutual covenants, stipulations and agreements undertaking and claim will not result in the
herein contained, PNCC and RADSTOCK have agreed to amicably diminution of area or value of the property. Radstock
settle the above captioned Radstock case under the following terms recognizes and acknowledges the rights and
and conditions: interests of GSIS over the said property.

1. RADSTOCK agrees to receive and accept from (2) T-452587 (T-23646) - Parañaque (5,123 sq. m.)
PNCC in full and complete settlement of the subject to the clarification of the Privatization and
Judgment Debt, the reduced amount of Six Billion, Management Office (PMO) claims thereon. The
One Hundred Ninety-Six Million Pesos transfer value is ₱45,000,900.00.
(₱6,196,000,000.00) (the "Compromise Amount").
(3) T-49499 (529715 including T-68146-G (S-29716)
(1,9747-A)-Parañaque (107 sq. m.) (54 sq. m.)
subject to the clarification of the Privatization and (14) T-131500 - Bulacan (CDCP Farms Corp.)
Management Office (PMO) claims thereon. The (4,945 sq, m.). The transfer value is ₱6,475,000.00.
transfer value is ₱1,409,100.00.
(15) T-131501 - Bulacan (678 sq. m.). The transfer
(4) 5-29716-Parañaque (27,762 sq. m.) subject to value is ₱887,600.00.
the clarification of the Privatization and Management
Office (PMO) claims thereon. The transfer value is (16) T-26,154 (M) - Bocaue, Bulacan (2,841 sq. m.).
₱242,917,500.00. The transfer value is ₱3,779,300.00.

(5) P-169 - Tagaytay (49,107 sq. m.). The transfer (17) T-29,308 (M) - Bocaue, Bulacan (733 sq. m.).
value is ₱13,749,400.00. The transfer value is ₱974,400.00.

(6) P-170 - Tagaytay (49,100 sq. m.). The transfer (18) T-29,309 (M) Bocaue, Bulacan (1,141 sq. m.).
value is ₱13,749,400.00. The transfer value is ₱1,517,600.00.

(7) N-3320 - Town and Country Estate, Antipolo (19) T-260578 (R. Bengzon) Sta. Rita, Guiguinto,
(10,000 sq. m.). The transfer value is Bulacan (20,000 sq. m.). The transfer value is
₱16,800,000.00. ₱25,200,000.00.

(8) N-7424 - Antipolo (840 sq. m.). The transfer The transfer values of the foregoing properties are based on 70% of
value is ₱940,800.00. the appraised value of the respective properties.

(9) N-7425 - Antipolo (850 sq. m.). The transfer b. PNCC shall issue to RADSTOCK or its assignee common shares
value is ₱952,000.00. of the capital stock of PNCC issued at par value which shall
comprise 20% of the outstanding capital stock of PNCC after the
(10) N-7426 - Antipolo (958 sq. m.). The transfer conversion to equity of the debt exposure of the Privatization
value is ₱1,073,100.00. Management Office (PMO) and the National Development Company
(NDC) and other government agencies and creditors such that the
(11) T-485276 - Antipolo (741 sq. m.). The transfer total government holdings shall not fall below 70% voting equity
value is ₱830,200.00. subject to the approval of the Securities and Exchange Commission
(SEC) and ratification of PNCC’s stockholders, if necessary. The
assigned value of the shares issued to RADSTOCK is ₱713 Million
(12) T-485277 - Antipolo (680 sq. m.). The transfer
based on the approximate last trading price of PNCC shares in the
value is ₱761,600.00.
Philippine Stock Exchange as the date of this agreement, based
further on current generally accepted accounting standards which
(13) T-485278 - Antipolo (701 sq. m.). The transfer stipulates the valuation of shares to be based on the lower of cost or
value is ₱785,400.00. market value.
Subject to the procurement of any and all necessary approvals from The Dissenting Opinion asserts that PNCC has the power, citing
the relevant governmental authorities, PNCC shall deliver to Section 36(2) of Presidential Decree No. 1445 (PD 1445), otherwise
RADSTOCK an instrument evidencing an undertaking of the known as the Government Auditing Code of the Philippines, enacted
Privatization and Management Office (PMO) to give RADSTOCK or in 1978. Section 36 states:
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 SECTION 36. Power to Compromise Claims. — (1) When the
shares and debt are offered for privatization. interest of the government so requires, the Commission may
compromise or release in whole or in part, any claim or settled
c. PNCC shall assign to RADSTOCK or its assignee 50% of the liability to any government agency not exceeding ten thousand pesos
PNCC's 6% share in the gross toll revenue of the Manila North and with the written approval of the Prime Minister, it may likewise
Tollways Corporation (MNTC), with a Net Present Value of ₱1.287 compromise or release any similar claim or liability not exceeding
Billion computed in the manner outlined in Annex "C" herein attached one hundred thousand pesos, the application for relief therefrom
as an integral part hereof, that shall be due and owing to PNCC shall be submitted, through the Commission and the Prime Minister,
pursuant to the Joint Venture Agreement between PNCC and First with their recommendations, to the National Assembly.
Philippine Infrastructure Development Corp. dated August 29, 1995
and other related existing agreements, commencing in 2008. It shall (2) The respective governing bodies of government-owned or
be understood that as a result of this assignment, PNCC shall controlled corporations, and self-governing boards, commissions or
charge and withhold the amounts, if any, pertaining to taxes due on agencies of the government shall have the exclusive power to
the amounts assigned. compromise or release any similar claim or liability when expressly
authorized by their charters and if in their judgment, the interest of
Under the Compromise Agreement, PNCC shall pay Radstock the their respective corporations or agencies so requires. When the
reduced amount of ₱6,185,000,000.00 in full settlement of PNCC’s charters do not so provide, the power to compromise shall be
guarantee of CDCP Mining’s debt allegedly totaling exercised by the Commission in accordance with the preceding
₱17,040,843,968.00 as of 31 July 2006. To satisfy its reduced paragraph. (Emphasis supplied)
obligation, PNCC undertakes to (1) "assign to a third party assignee
to be designated by Radstock all its rights and interests" to the listed The Dissenting Opinion asserts that since PNCC is incorporated
real properties therein; (2) issue to Radstock or its assignee common under the Corporation Code, the PNCC Board has all the powers
shares of the capital stock of PNCC issued at par value which shall granted to the governing boards of corporations incorporated under
comprise 20% of the outstanding capital stock of PNCC; and (3) the Corporation Code, which includes the power to compromise
assign to Radstock or its assignee 50% of PNCC’s 6% share, for the claims or liabilities.
next 27 years (2008-2035), in the gross toll revenues of the Manila
North Tollways Corporation.
Section 36 of PD 1445, enacted on 11 June 1978, has been
superseded by a later law -- Section 20(1), Chapter IV, Subtitle B,
A. The PNCC Board has no power to compromise Title I, Book V of Executive Order No. 292 or the Administrative
the ₱6.185 billion amount. Code of 1987, which provides:

Does the PNCC Board have the power to compromise the ₱6.185 Section 20. Power to Compromise Claims. - (1) When the interest of
billion "reduced" amount? The answer is in the negative.1avvphi1 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 Citing Benedicto v. Board of Administrators of Television Stations
any matter or case before it or within its jurisdiction, and with the RPN, BBC and IBC,55 the Dissenting Opinion views that
written approval of the President, it may likewise compromise or congressional approval is not required for the validity of the
release any similar claim or liability not exceeding one hundred Compromise Agreement because the liability of PNCC is not yet
thousand pesos. In case the claim or liability exceeds one hundred "settled."
thousand pesos, the application for relief therefrom shall be
submitted, through the Commission and the President, with their In Benedicto, the PCGG filed in the Sandiganbayan a civil case to
recommendations, to the Congress[.] x x x (Emphasis supplied) recover from the defendants (including Roberto S. Benedicto) their
ill-gotten wealth consisting of funds and other properties. The PCGG
Under this provision,54 the authority to compromise a settled claim or executed a compromise agreement with Roberto S. Benedicto
liability exceeding ₱100,000.00 involving a government agency, as in ceding to the latter a substantial part of his ill-gotten assets and the
this case where the liability amounts to ₱6.185 billion, is vested not State granting him immunity from further prosecution. The Court held
in COA but exclusively in Congress. Congress alone has the power that prior congressional approval is not required for the PCGG to
to compromise the ₱6.185 billion purported liability of PNCC. Without enter into a compromise agreement with persons against whom it
congressional approval, the Compromise Agreement between PNCC has filed actions for recovery of ill-gotten wealth.
and Radstock involving ₱6.185 billion is void for being contrary to
Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the In Benedicto, the Court found that the government’s claim against
Administrative Code of 1987. Benedicto was not yet settled unlike here where the PNCC Board
expressly admitted the liability of PNCC for the Marubeni loans. In
PNCC is a "government agency" because Section 2 on Introductory Benedicto, the ownership of the alleged ill-gotten assets was still
Provisions of the Revised Administrative Code of 1987 provides that being litigated in the Sandiganbayan and no party ever admitted any
– liability, unlike here where the PNCC Board had already admitted
through a formal Board Resolution PNCC’s liability for the Marubeni
Agency of the Government refers to any of the various units of the loans. PNCC’s express admission of liability for the Marubeni loans
Government, including a department, bureau, office, instrumentality, is essentially the premise of the execution of the Compromise
or government-owned or controlled corporation, or a local Agreement. In short, Radstock’s claim against PNCC is settled by
government or a distinct unit therein. (Boldfacing supplied) virtue of PNCC’s express admission of liability for the Marubeni
loans. The Compromise Agreement merely reduced this settled
Thus, Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the liability from ₱17 billion to ₱6.185 billion.
Administrative Code of 1987 applies to PNCC, which indisputably is
a government owned or controlled corporation. The provision of the Revised Administrative Code on the power to
settle claims or liabilities was precisely enacted to prevent
government agencies from admitting liabilities against the
In the same vein, the COA’s stamp of approval on the Compromise
Agreement is void for violating Section 20(1), Chapter IV, Subtitle B, government, then compromising such "settled" liabilities. The present
Title I, Book V of the Administrative Code of 1987. Clearly, the case is exactly what the law seeks to prevent, a compromise
agreement on a creditor’s claim settled through admission by a
Dissenting Opinion’s reliance on the COA’s finding that the terms
government agency without the approval of Congress for amounts
and conditions of the Compromise Agreement are "fair and above
exceeding ₱100,000.00. What makes the application of the law even
board" is patently erroneous.
more necessary is that the PNCC Board’s twin moves are manifestly
and grossly disadvantageous to the Government. First, the PNCC
admitted solidary liability for a staggering ₱10.743 billion private debt under the Corporation Code, despite its being 90.3% owned by the
incurred by a private corporation which PNCC does not even control. Government, is "an autonomous entity" that could solely through its
Second, the PNCC Board agreed to pay Radstock ₱6.185 billion as Board of Directors compromise, and transfer ownership of,
a compromise settlement ahead of all other creditors, including the substantially all its assets to a private third party without the approval
Government which is the biggest creditor. required under the Administrative Code of 1987,57 is to invite the
plunder of all such government owned corporations.
The Dissenting Opinion further argues that since the PNCC is
incorporated under the Corporation Code, it has the power, through The Dissenting Opinion’s claim that PNCC is an autonomous entity
its Board of Directors, to compromise just like any other private just like any other private corporation is inconsistent with its assertion
corporation organized under the Corporation Code. Thus, the that Section 36(2) of the Government Auditing Code is the governing
Dissenting Opinion states: law in determining PNCC's power to compromise. Section 36(2) of
the Government Auditing Code expressly states that it applies to the
Not being a government corporation created by special law, PNCC governing bodies of "government-owned or controlled
does not owe its creation to some charter or special law, but to the corporations." The phrase "government-owned or controlled
Corporation Code. Its powers are enumerated in the Corporation corporations" refers to both those created by special charter as well
Code and its articles of incorporation. As an autonomous entity, it as those incorporated under the Corporation Code. Section 2, Article
undoubtedly has the power to compromise, and to enter into a IX-D of the Constitution provides:
settlement through its Board of Directors, just like any other private
corporation organized under the Corporation Code. To maintain SECTION 2. (1) The Commission on Audit shall have the power,
otherwise is to ignore the character of PNCC as a corporate entity authority, and duty to examine, audit, and settle all accounts
organized under the Corporation Code, by which it was vested with a pertaining to the revenue and receipts of, and expenditures or uses
personality and identity distinct and separate from those of its of funds and property, owned or held in trust by, or pertaining to, the
stockholders or members. (Boldfacing and underlining supplied) Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned or controlled
The Dissenting Opinion is woefully wide off the mark. The PNCC is corporations with original charters, and on a post-audit basis: (a)
not "just like any other private corporation" precisely because it is not constitutional bodies, commissions and offices that have been
a private corporation but indisputably a government owned granted fiscal autonomy under this Constitution; (b) autonomous
corporation. Neither is PNCC "an autonomous entity" considering state colleges and universities; (c) other government-owned or
that PNCC is under the Department of Trade and Industry, over controlled corporations and their subsidiaries; and (d) such non-
which the President exercises control. To claim that PNCC is an governmental entities receiving subsidy or equity, directly or
"autonomous entity" is to say that it is a lost command in the indirectly, from or through the Government, which are required by
Executive branch, a concept that violates the President's law or the granting institution to submit to such audit as a condition of
constitutional power of control over the entire Executive branch of subsidy or equity. However, where the internal control system of the
government.56 audited agencies is inadequate, the Commission may adopt such
measures, including temporary or special pre-audit, as are
The government nominees in the PNCC Board, who practically necessary and appropriate to correct the deficiencies. It shall keep
the general accounts of the Government and, for such period as may
compose the entire PNCC Board, are public officers subject to the
be provided by law, preserve the vouchers and other supporting
Anti-Graft and Corrupt Practices Act, accountable to the Government
papers pertaining thereto.
and the Filipino people. To hold that a corporation incorporated
(2) The Commission shall have exclusive authority, subject to the Clearly, the COA’s audit jurisdiction extends to government owned or
limitations in this Article, to define the scope of its audit and controlled corporations incorporated under the Corporation Code.
examination, establish the techniques and methods required Thus, the COA must apply the Government Auditing Code in the
therefor, and promulgate accounting and auditing rules and audit and examination of the accounts of such government owned or
regulations, including those for the prevention and disallowance of controlled corporations even though incorporated under the
irregular, unnecessary, excessive, extravagant, or unconscionable Corporation Code. This means that Section 20(1), Chapter IV,
expenditures, or uses of government funds and properties. Subtitle B, Title I, Book V of the Administrative Code of 1987 on the
(Emphasis supplied) power to compromise, which superseded Section 36 of the
Government Auditing Code, applies to the present case in
In explaining the extent of the jurisdiction of COA over government determining PNCC’s power to compromise. In fact, the COA has
owned or controlled corporations, this Court declared in Feliciano v. been regularly auditing PNCC on a post-audit basis in accordance
Commission on Audit:58 with Section 2, Article IX-D of the Constitution, the Government
Auditing Code, and COA rules and regulations.
The COA's audit jurisdiction extends not only to government
"agencies or instrumentalities," but also to "government-owned and B. PNCC’s toll fees are public funds.
controlled corporations with original charters" as well as "other
government-owned or controlled corporations" without original PD 1113 granted PNCC a 30-year franchise to construct, operate
charters. and maintain toll facilities in the North and South Luzon
Expressways. Section 1 of PD 111359 provides:
xxxx
Section 1. Any provision of law to the contrary notwithstanding, there
Petitioner forgets that the constitutional criterion on the exercise of is hereby granted to the Construction and Development Corporation
COA's audit jurisdiction depends on the government's ownership or of the Philippines (CDCP), a corporation duly organized and
control of a corporation. The nature of the corporation, whether it is registered under the laws of the Philippines, hereinafter called the
private, quasi-public, or public is immaterial. GRANTEE, for a period of thirty (30) years from May 1, 1977 the
right, privilege and authority to construct, operate and maintain toll
facilities covering the expressways from Balintawak (Station 9 + 563)
The Constitution vests in the COA audit jurisdiction over
"government-owned and controlled corporations with original to Carmen, Rosales, Pangasinan and from Nichols, Pasay City
charters," as well as "government-owned or controlled corporations" (Station 10 + 540) to Lucena, Quezon, hereinafter referred to
collectively as North Luzon Expressway, respectively.
without original charters. GOCCs with original charters are subject to
COA pre-audit, while GOCCs without original charters are subject to
COA post-audit. GOCCs without original charters refer to The franchise herein granted shall include the right to collect toll fees
corporations created under the Corporation Code but are owned or at such rates as may be fixed and/or authorized by the Toll
controlled by the government. The nature or purpose of the Regulatory Board hereinafter referred to as the Board created under
corporation is not material in determining COA's audit jurisdiction. Presidential Decree No. 1112 for the use of the expressways above-
Neither is the manner of creation of a corporation, whether under a mentioned. (Emphasis supplied)
general or special law.
Section 2 of PD 1894,60 which amended PD 1113 to include in
PNCC’s franchise the Metro Manila expressway, also provides:
Section 2. The term of the franchise provided under Presidential Certificate" (TOC) which conferred on PNCC the authority to operate
Decree No. 1113 for the North Luzon Expressway and the South and maintain toll facilities, which includes the power to collect toll
Luzon Expressway which is thirty (30) years from 1 May 1977 shall fees. PNCC further posits that the toll fees are private funds because
remain the same; provided that, the franchise granted for the Metro they represent "the consideration given to tollway operators in
Manila Expressway and all extensions linkages, stretches and exchange for costs they incurred or will incur in constructing,
diversions that may be constructed after the date of approval of this operating and maintaining the tollways."
decree shall likewise have a term of thirty (30) years commencing
from the date of completion of the project. (Emphasis supplied) This contention is devoid of merit.

Based on these provisions, the franchise of the PNCC expired on 1 With the expiration of PNCC’s franchise, the assets and facilities of
May 2007 or thirty years from 1 May 1977. 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
PNCC, however, claims that under PD 1894, the North Luzon 5 of PD 1894 provide:
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 Section 2 [of PD 1113]. In consideration of this franchise, the
PD 1894 gave "toll road projects completed within the franchise GRANTEE shall:
period and after the approval of PD No. 1894 on 12 December 1983
their own thirty-year term commencing from the date of the (e) Turn over the toll facilities and all equipment directly related
completion of the said project, notwithstanding the expiry of the said thereto to the government upon expiration of the franchise period
franchise."
without cost.

This contention is untenable.

Section 9 [of PD 1113]. For the purposes of this franchise, the
Government, shall turn over to the GRANTEE (PNCC) not later than
The proviso in Section 2 of PD 1894 refers to the franchise granted April 30, 1977 all physical assets and facilities including all
for the Metro Manila Expressway and all extensions linkages, equipment and appurtenances directly related to the operations of
stretches and diversions constructed after the approval of PD 1894. the North and South Toll Expressways: Provided, That, the
It does not pertain to the NLEX because the term of the NLEX extensions of such Expressways shall also be turned over to
franchise, "which is 30 years from 1 May 1977, shall remain the GRANTEE upon completion of their construction or of functional
same," as expressly provided in the first sentence of the same sections thereof: Provided, However, That upon termination of the
Section 2 of PD 1894. To construe that the NLEX franchise had a franchise period, said physical assets and facilities including
new term of 30 years starting from 2005 glaringly conflicts with the improvements thereon, together with equipment and appurtenances
plain, clear and unequivocal language of the first sentence of Section directly related to their operations, shall be turned over to the
2 of PD 1894. That would be clearly absurd. Government without any cost or obligation on the part of the latter.
(Emphasis supplied)
There is no dispute that Congress did not renew PNCC’s franchise
after its expiry on 1 May 2007. However, PNCC asserts that it Section 5 [of PD No. 1894]. In consideration of this franchise, the
"remains a viable corporate entity even after the expiration of its GRANTEE shall:
franchise under Presidential Decree No. 1113." PNCC points out that
the Toll Regulatory Board (TRB) granted PNCC a "Tollway Operation
 (a) Construct, operate and maintain at its own expense the DEAN AGABIN:
Expressways; and
Yes, Your Honor.
(b) Turn over, without cost, the toll facilities and all
equipment, directly related thereto to the Government upon ASSOCIATE JUSTICE CARPIO:
expiration of the franchise period. (Emphasis supplied)
Okay. So this is now owned by the national government. [A]ny
The TRB does not have the power to give back to PNCC the toll income from these assets of the national government is national
assets and facilities which were automatically turned over to the government income, correct?
Government, by operation of law, upon the expiration of the
franchise of the PNCC on 1 May 2007. Whatever power the TRB
DEAN AGABIN:
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 Yes, Your Honor.62
Government assets, like the toll assets and facilities, which have
become National Government property upon the expiry of PNCC’s xxxx
franchise. Such act by the TRB would repeal Section 5 of PD 1894
which automatically vested in the National Government ownership of ASSOCIATE JUSTICE CARPIO:
PNCC’s toll assets and facilities upon the expiry of PNCC’s
franchise. The TRB obviously has no power to repeal a law. Further, x x x My question is very simple x x x Is the income from these
PD 1113, as amended by PD 1894, granting the franchise to PNCC, assets of the national government (interrupted)
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,
DEAN AGABIN:
are controlling.

Yes, Your Honor.63

The government’s ownership of PNCC's toll assets and facilities
inevitably results in the government’s ownership of the toll fees and
the net income derived from these toll assets and facilities. Thus, the xxxx
toll fees form part of the National Government’s General Fund, which
includes public moneys of every sort and other resources pertaining ASSOCIATE JUSTICE CARPIO:
to any agency of the government.61 Even Radstock’s counsel
admits that the toll fees are public funds, to wit: So, it’s the government [that] decides whether it goes to the general
fund or another fund. [W]hat is that other fund? Is there another fund
ASSOCIATE JUSTICE CARPIO: where revenues of the government go?

Okay. Now, when the franchise of PNCC expired on May 7, 2007, DEAN AGABIN:
under the terms of the franchise under PD 1896, all the assets, toll
way assets, equipment, etcetera of PNCC became owned by It’s the same fund, Your Honor, except that (interrupted)
government at no cost, correct, under the franchise?
ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO:

So it goes to the general fund? x x x you mean to say there are exceptions that money from the
general fund can be spent by the Executive without going t[hrough]
DEAN AGABIN: Congress, or xxx is [that] the absolute rule?

Except that it can be categorized as a private fund in a commercial DEAN AGABIN:

sense, and it can be categorized as a public fund in a Public Law
sense. Well, in so far as the general fund is concerned, that is the absolute
rule set aside by the National Government.
ASSOCIATE JUSTICE CARPIO:
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? x x x you are saying this is general fund money - the collection from
the assets[?]
DEAN AGABIN:
DEAN AGABIN:
Yes, Your Honor.
Yes.64 (Emphasis supplied)
ASSOCIATE JUSTICE CARPIO:
Forming part of the General Fund, the toll fees can only be disposed
But it’s part of the general fund. Now, if it is part of the general fund, of in accordance with the fundamental principles governing financial
who has the authority to spend that money? transactions and operations of any government agency, to wit: (1) no
money shall be paid out of the Treasury except in pursuance of an
DEAN AGABIN: appropriation made by law, as expressly mandated by Section 29(1),
Article VI of the Constitution; and (2) government funds or property
shall be spent or used solely for public purposes, as expressly
Well, the National Government itself. mandated by Section 4(2) of PD 1445 or the Government Auditing
Code.65
ASSOCIATE JUSTICE CARPIO:
Section 29(1), Article VI of the Constitution provides:
Who in the National Government, the Executive, Judiciary or
Legislative? Section 29(1). No money shall be paid out of the Treasury except in
pursuance of an appropriation made by law.
DEAN AGABIN:
The power to appropriate money from the General Funds of the
Well, the funds are usually appropriated by the Congress. Government belongs exclusively to the Legislature. Any act in
violation of this iron-clad rule is unconstitutional.
Reinforcing this Constitutional mandate, Sections 84 and 85 of PD compromise money before payment to Radstock can be
1445 require that before a government agency can enter into a made.67 Otherwise, such payment violates a prohibitory law and thus
contract involving the expenditure of government funds, there must void under Article 5 of the Civil Code which states that "[a]cts
be an appropriation law for such expenditure, thus: executed against the provisions of mandatory or prohibitory
laws shall be void, except when the law itself authorizes their
Section 84. Disbursement of government funds. validity."

1. Revenue funds shall not be paid out of any public treasury or Indisputably, without an appropriation law, PNCC cannot lawfully pay
depository except in pursuance of an appropriation law or other ₱6.185 billion to Radstock. Any contract allowing such payment, like
specific statutory authority. the Compromise Agreement, "shall be void" as provided in Section
87 of the Government Auditing Code. In Comelec v. Quijano-
Padilla,68 this Court ruled:
xxxx

Petitioners are justified in refusing to formalize the contract with

Section 85. Appropriation before entering into contract.
PHOTOKINA. Prudence dictated them not to enter into a contract not
backed up by sufficient appropriation and available funds. Definitely,
1. No contract involving the expenditure of public funds shall be to act otherwise would be a futile exercise for the contract would
entered into unless there is an appropriation therefor, the inevitably suffer the vice of nullity. In Osmeña vs. Commission on
unexpended balance of which, free of other obligations, is sufficient Audit, this Court held:
to cover the proposed expenditure.
The Auditing Code of the Philippines (P.D. 1445) further provides
xxxx that no contract involving the expenditure of public funds shall be
entered into unless there is an appropriation therefor and the proper
Section 86 of PD 1445, on the other hand, requires that the proper accounting official of the agency concerned shall have certified to the
accounting official must certify that funds have been appropriated for officer entering into the obligation that funds have been duly
the purpose.66 Section 87 of PD 1445 provides that any contract appropriated for the purpose and the amount necessary to cover the
entered into contrary to the requirements of Sections 85 and 86 proposed contract for the current fiscal year is available for
shall be void, thus: expenditure on account thereof. Any contract entered into contrary to
the foregoing requirements shall be VOID.
Section 87. Void contract and liability of officer. Any contract entered
into contrary to the requirements of the two immediately preceding Clearly then, the contract entered into by the former Mayor Duterte
sections shall be void, and the officer or officers entering into the was void from the very beginning since the agreed cost for the
contract shall be liable to the government or other contracting party project (₱,368,920.00) was way beyond the appropriated amount
for any consequent damage to the same extent as if the transaction (₱,419,180.00) as certified by the City Treasurer. Hence, the contract
had been wholly between private parties. (Emphasis supplied) was properly declared void and unenforceable in COA's 2nd
Indorsement, dated September 4, 1986. The COA declared and we
Applying Section 29(1), Article VI of the Constitution, as implanted in agree, that:
Sections 84 and 85 of the Government Auditing Code, a law must
first be enacted by Congress appropriating ₱6.185 billion as
The prohibition contained in Sec. 85 of PD 1445 (Government Well, I believe that that may not be necessary. Your Honor, because
Auditing Code) is explicit and mandatory. Fund availability is, as it earlier, the government had already decreed that PNCC should be
has always been, an indispensable prerequisite to the execution of properly paid for the reclamation works which it had done. And so
any government contract involving the expenditure of public funds by (interrupted)
all government agencies at all levels. Such contracts are not to be
considered as final or binding unless such a certification as to funds ASSOCIATE JUSTICE CARPIO:
availability is issued (Letter of Instruction No. 767, s. 1978).
Antecedent of advance appropriation is thus essential to government No. I am talking of the funds.
liability on contracts (Zobel vs. City of Manila, 47 Phil. 169). This
contract being violative of the legal requirements aforequoted, the
same contravenes Sec. 85 of PD 1445 and is null and void by virtue DEAN AGABIN:
of Sec. 87.
And so it is like a foreign obligation.
Verily, the contract, as expressly declared by law, is inexistent and
void ab initio. This is to say that the proposed contract is without ASSOCIATE JUSTICE CARPIO:
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 Counsel, I'm talking of the general funds, collection from the toll fees.
by lapse of time or ratification. (Emphasis supplied) 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
Significantly, Radstock’s counsel admits that an appropriation law is law by Congress.
needed before PNCC can use toll fees to pay Radstock, thus:
DEAN AGABIN:
ASSOCIATE JUSTICE CARPIO:
Yes, Your Honor.
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, There is no law.
correct? That’s what you are saying.
DEAN AGABIN:
DEAN AGABIN:
Yes, except that, Your Honor, this fund has not yet gone to the
Yes, Your Honor. general fund.

ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO:

I agree with you also. Okay, now, can PNCC xxx use this money to No. It’s being collected everyday. As of May 7, 2007, national
pay Radstock without Congressional approval? government owned those assets already. All those x x x collections
that would have gone to PNCC are now national government owned.
DEAN AGABIN:
It goes to the general fund. And any body who uses that without Yes, Your Honor.
appropriation from Congress commits malversation, I tell you.
ASSOCIATE JUSTICE CARPIO:
DEAN AGABIN:
Okay. Can the person holding in trust use it to pay his private debt?
That is correct, Your Honor, as long as it has already gone into the
general fund. DEAN AGABIN:

ASSOCIATE JUSTICE CARPIO: No, Your Honor.

Oh, you mean to say that it’s still being held now by the agent, ASSOCIATE JUSTICE CARPIO:
PNCC. It has not been remitted to the National Government?
Cannot be.
DEAN AGABIN:
DEAN AGABIN:
Well, if PNCC (interrupted)
But I assume that there must be some portion of the collections
ASSOCIATE JUSTICE CARPIO: which properly pertain to PNCC.

But if (interrupted) ASSOCIATE JUSTICE CARPIO:

DEAN AGABIN: If there is some portion that xxx may be [for] operating expenses of
PNCC. But that is not
If this is the share that properly belongs to PNCC as a private entity
(interrupted) DEAN AGABIN:

ASSOCIATE JUSTICE CARPIO: Even profit, Your Honor.

No, no. I am saying that – You just agreed that all those collections ASSOCIATE JUSTICE CARPIO:
now will go to the National Government forming part of the general
fund. If, somehow, PNCC is holding this money in the meantime, it
Yeah, but that is not the six percent. Out of the six percent, that goes
holds xxx it in trust, correct? Because you said, it goes to the general now to PNCC, that’s entirely national government. But the National
fund, National Government. So it must be holding this in trust for the Government and the PNCC can agree on service fees for collecting,
National Government.
to pay toll collectors.

DEAN AGABIN:
DEAN AGABIN:
Yes, Your Honor. Well, if PNCC (interrupted)

ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO:

But those are expenses. We are talking of the net income. It goes to But if (interrupted)
the general fund. And it’s only Congress that can authorize that
expenditure. Not even the Court of Appeals can give its stamp of DEAN AGABIN:
approval that it goes to Radstock, correct?
If this is the share that properly belongs to PNCC as a private entity
DEAN AGABIN: (interrupted)

Yes, Your Honor.69 (Emphasis supplied) ASSOCIATE JUSTICE CARPIO:

Without an appropriation law, the use of the toll fees to pay Radstock No, no. I am saying that – You just agreed that all those collections
would constitute malversation of public funds. Even counsel for now will go to the National Government forming part of the general
Radstock expressly admits that the use of the toll fees to pay fund. If, somehow, PNCC is holding this money in the meantime, it
Radstock constitutes malversation of public funds, thus: 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
ASSOCIATE JUSTICE CARPIO: for the National Government.

x x x As of May 7, 2007, [the] national government owned those DEAN AGABIN:

assets already. All those x x x collections that would have gone to
PNCC are now national government owned. It goes to the general Yes, Your Honor.70 (Emphasis supplied)
fund. And any body who uses that without appropriation from
Congress commits malversation, I tell you. Indisputably, funds held in trust by PNCC for the National
Government cannot be used by PNCC to pay a private debt of
DEAN AGABIN: CDCP Mining to Radstock, otherwise the PNCC Board will be
liable for malversation of public funds.
That is correct, Your Honor, as long as it has already gone into the
general fund. In addition, to pay Radstock ₱6.185 billion violates the fundamental
public policy, expressly articulated in Section 4(2) of the Government
ASSOCIATE JUSTICE CARPIO: Auditing Code,71 that government funds or property shall be spent or
used solely for pubic purposes, thus:
Oh, you mean to say that it’s still being held now by the agent,
PNCC. It has not been remitted to the National Government? Section 4. Fundamental Principles. x x x (2) Government funds or
property shall be spent or used solely for public purposes. (Emphasis
DEAN AGABIN: supplied)
There is no question that the subject of the Compromise Agreement SEN. OSMEÑA. Huh?
is CDCP Mining’s private debt to Marubeni, which Marubeni
subsequently assigned to Radstock. Counsel for Radstock admits MR. AGUILAR. Thirteen percent ho.
that Radstock holds a private debt of CDCP Mining, thus:
SEN. OSMEÑA. What’s 13 percent?
ASSOCIATE JUSTICE CARPIO:
MR. AGUILAR. We owned ...
So your client is holding a private debt of CDCP Mining,
correct?
MS. PASETES. Thirteen percent of ...

DEAN AGABIN:
SEN. OSMEÑA. PNCC owned ...

Correct, Your Honor.72 (Emphasis supplied)

MS. PASETES. (Mike off) CDCP ...

CDCP Mining obtained the Marubeni loans when CDCP Mining and SEN. DRILON. Use the microphone, please.
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 MS. PASETES. Sorry. Your Honor, the ownership of CDCP of CDCP
loans to PNCC into equity when PNCC failed to pay the loans. Basay Mining ...
However, CDCP Mining have always remained a majority privately
owned corporation with PNCC owning only 13% of its equity as SEN. OSMEÑA. No, no, the ownership of CDCP. CDCP Mining, how
admitted by former PNCC Chairman Arthur N. Aguilar and PNCC many percent of the equity of CDCP Mining was owned by PNCC,
SVP Finance Miriam M. Pasetes during the Senate hearings, thus: formerly CDCP?

SEN. OSMEÑA. x x x – I just wanted to know is CDCP Mining a 100 MS. PASETES. Thirteen percent.
percent subsidiary of PNCC?
SEN. OSMEÑA. Thirteen. And as a 13 percent owner, they agreed
MR. AGUILAR. Hindi ho. Ah, no. to sign jointly and severally?

SEN. OSMEÑA. If they’re not a 100 percent, why would they sign MS. PASETES. Yes.
jointly and severally? I just want to plug the loopholes.
SEN. OSMEÑA. One-three?
MR. AGUILAR. I think it was – if I may just speculate. It was just
common ownership at that time. So poor PNCC and CDCP got taken to the cleaners here. They sign
for a 100 percent and they only own 13 percent.
SEN. OSMEÑA. Al right. Now – Also, the ...
x x x x73 (Emphasis supplied)
MR. AGUILAR. Ah, 13 percent daw, your Honor.
PNCC cannot use public funds, like toll fees that indisputably form Congress shall determine, by law, the size of lands of the public
part of the General Fund, to pay a private debt of CDCP Mining to domain which may be acquired, developed, held, or leased and the
Radstock. Such payment cannot qualify as expenditure for a public conditions therefor.
purpose. The toll fees are merely held in trust by PNCC for the
National Government, which is the owner of the toll fees. xxxx

Considering that there is no appropriation law passed by Congress Section 7. Save in cases of hereditary succession, no private lands
for the ₱6.185 billion compromise amount, the Compromise shall be transferred or conveyed except to individuals, corporations,
Agreement is void for being contrary to law, specifically Section or associations qualified to acquire or hold lands of the public
29(1), Article VI of the Constitution and Section 87 of PD 1445. And domain.
since the payment of the ₱6.185 billion pertains to CDCP Mining’s
private debt to Radstock, the Compromise Agreement is also void for
The OGCC admits that Radstock cannot own lands in the
being contrary to the fundamental public policy that government Philippines. However, the OGCC claims that Radstock can own the
funds or property shall be spent or used solely for public purposes, rights to ownership of lands in the Philippines, thus:
as provided in Section 4(2) of the Government Auditing Code.
ASSOCIATE JUSTICE CARPIO:
C. Radstock is not qualified to own land in the Philippines.
Under the law, a foreigner cannot own land, correct?
Radstock is a private corporation incorporated in the British Virgin
Islands. Its office address is at Suite 14021 Duddell Street, Central
Hongkong. As a foreign corporation, with unknown owners whose ATTY. AGRA:
nationalities are also unknown, Radstock is not qualified to own land
in the Philippines pursuant to Section 7, in relation to Section 3, Yes, Your Honor.
Article XII of the Constitution. These provisions state:
ASSOCIATE JUSTICE CARPIO:
Section. 3. Lands of the public domain are classified into agricultural,
forest or timber, mineral lands, and national parks. Agricultural lands Can a foreigner who xxx cannot own land assign the right of
of the public domain may be further classified by law according to the ownership to the land?
uses to which they may be devoted. Alienable lands of the public
domain shall be limited to agricultural lands. Private corporations or ATTY. AGRA:
associations may not hold such lands of the public domain except by
lease, for a period not exceeding twenty-five years, renewable for not
Again, Your Honor, at that particular time, it will be PNCC, not
more than twenty-five years, and not to exceed one hundred
through Radstock, that chain of events should be, there’s a qualified
thousand hectares in area. Citizens of the Philippines may lease not
nominee (interrupted)
more than five hundred hectares, or acquire not more than twelve
hectares thereof by purchase, homestead, or grant.
ASSOCIATE JUSTICE CARPIO:
Taking into account the requirements of conservation, ecology, and
development, and subject to the requirements of agrarian reform, the
Yes, xxx you said, Radstock will assign the right of ownership to the ASSOCIATE JUSTICE CARPIO:
qualified assignee[.] So my question is, can a foreigner own the right
to ownership of a land when it cannot own the land itself? So, you are saying that Radstock can own the rights to ownership of
the land?
ATTY. AGRA:
ATTY. AGRA:
The foreigner cannot own the land, Your Honor.
Yes, Your Honors.
ASSOCIATE JUSTICE CARPIO:
ASSOCIATE JUSTICE CARPIO:
But you are saying it can own the right of ownership to the land,
because you are saying, the right of ownership will be assigned by Yes?
Radstock.
ATTY. AGRA:
ATTY. AGRA:
The premise, Your Honor, you mentioned a while ago was, if this
The rights over the properties, Your Honors, if there’s a valid Court approves said compromise (interrupted)
assignment made to a qualified party, then the assignment will be
made.
ASSOCIATE JUSTICE CARPIO:

ASSOCIATE JUSTICE CARPIO:

No, no. Whether there is such a compromise agreement - - It’s an
academic question I am asking you, can a foreigner assign rights to
Who makes the assignment? ownership of a land in the Philippines?

ATTY. AGRA: ATTY. AGRA:

It will be Radstock, Your Honor. Under the Compromise Agreement, Your Honors, these rights
should be respected.
ASSOCIATE JUSTICE CARPIO:
ASSOCIATE JUSTICE CARPIO:
So, if Radstock makes the assignment, it must own its rights,
otherwise, it cannot assign it, correct? So, it can?

ATTY. AGRA: ATTY. AGRA:

Pursuant to the compromise agreement, once approved, yes, Your It can. Your Honor. But again, this right must, cannot be perfected or
Honors. cannot be, could not take effect.
ASSOCIATE JUSTICE CARPIO: ATTY. AGRA:

But if it cannot - - It’s not perfected, how can it assign? No, Your Honor, I believe it (interrupted)

ATTY. AGRA: ASSOCIATE JUSTICE CARPIO:

Not directly, Your Honors. Again, there must be a qualified nominee Yeah, but it does not own the land, but it still holding the land in favor
assigned by Radstock. of the other party to the Compromise Agreement

ASSOCIATE JUSTICE CARPIO: ATTY. AGRA:

It’s very clear, it’s an indirect way of selling property that is prohibited Pursuant to the compromise agreement, that will happen.
by law, is it not?
ASSOCIATE JUSTICE CARPIO:
ATTY. AGRA:
Okay. May I (interrupted)
Again, Your Honor, know, believe this is a Compromise Agreement.
This is a dacion en pago. ATTY. AGRA:

ASSOCIATE JUSTICE CARPIO: Again, Your Honor, if the compromise agreement ended with a
statement that Radstock will be the owner of the property
So, dacion en pago is an exception to the constitutional prohibition. (interrupted)

ATTY. AGRA: ASSOCIATE JUSTICE CARPIO:

No, Your Honor. PNCC, will still hold on to the property, absent a Yeah. Unfortunately, it says, to a qualified assignee.
valid assignment of properties.
ATTY. AGRA:
ASSOCIATE JUSTICE CARPIO:
Yes, Your Honor.
But what rights will PNCC have over that land when it has already
signed the compromise? It is just waiting for instruction xxx from ASSOCIATE JUSTICE CARPIO:
Radstock what to do with it? So, it’s a trustee of somebody, because
it does not, it cannot, [it] has no dominion over it anymore? It’s just
And at this point, when it is signed and execut[ed] and approved,
holding it for Radstock. So, PNCC becomes a dummy, at that point,
PNCC has no dominion over that land anymore. Who has dominion
of Radstock, correct?
over it?
ATTY. AGRA: D. Public bidding is required for
the disposal of government properties.
Pending the assignment to a qualified party, Your Honor, PNCC will
hold on to the property. Under Section 79 of the Government Auditing Code,77 the disposition

ASSOCIATE JUSTICE CARPIO: of government lands to private parties requires public bidding.78 COA
Circular No. 89-926, issued on 27 January 1989, sets forth the
Hold on, but who x x x can exercise acts of dominion, to sell it, to guidelines on the disposal of property and other assets of the
lease it? government. Part V of the COA Circular provides:

ATTY. AGRA: V. MODE OF DISPOSAL/DIVESTMENT: -

Again, Your Honor, without the valid assignment to a qualified This Commission recognizes the following modes of
nominee, the compromise agreement in so far as the transfer of disposal/divestment of assets and property of national government
these properties will not become effective. It is subject to such agencies, local government units and government-owned or
condition. Your Honor.74 (Emphasis supplied) controlled corporations and their subsidiaries, aside from other such
modes as may be provided for by law.
There is no dispute that Radstock is disqualified to own lands in the
Philippines. Consequently, Radstock is also disqualified to own the 1. Public Auction
rights to ownership of lands in the Philippines. Contrary to the
OGCC’s claim, Radstock cannot own the rights to ownership of any Conformably to existing state policy, the divestment or disposal of
land in the Philippines because Radstock cannot lawfully own the government property as contemplated herein shall be undertaken
land itself. Otherwise, there will be a blatant circumvention of the primarily thru public auction. Such mode of divestment or disposal
Constitution, which prohibits a foreign private corporation from shall observe and adhere to established mechanics and procedures
owning land in the Philippines. In addition, Radstock cannot transfer in public bidding, viz:
the rights to ownership of land in the Philippines if it cannot own the
land itself. It is basic that an assignor or seller cannot assign or sell a. adequate publicity and notification so as to attract the
something he does not own at the time the ownership, or the rights greatest number of interested parties; (vide, Sec. 79, P.D.
to the ownership, are to be transferred to the assignee or buyer.75 1445)

The third party assignee under the Compromise Agreement who will b. sufficient time frame between publication and date of
be designated by Radstock can only acquire rights duplicating those auction;
which its assignor (Radstock) is entitled by law to exercise.76 Thus,
the assignee can acquire ownership of the land only if its assignor,
c. opportunity afforded to interested parties to inspect the
Radstock, owns the land. Clearly, the assignment by PNCC of the
property or assets to be disposed of;
real properties to a nominee to be designated by Radstock is a
circumvention of the Constitutional prohibition against a private
foreign corporation owning lands in the Philippines. Such d. confidentiality of sealed proposals;
circumvention renders the Compromise Agreement void.
 e. bond and other prequalification requirements to guarantee after deducting the shares to be given to respondent banks as
performance; and payment for the shares, PIEDRAS stood to gain about
1,540,781,554 class "A" and 710,550,000 class "B" OPMC shares
f. fair evaluation of tenders and proper notification of award. 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
It is understood that the Government reserves the right to reject any
the financing agreements with the respondent banks.80
or all of the tenders. (Emphasis supplied)

Suffice it to state that in Uy, neither PIEDRAS81 nor the government

Under the Compromise Agreement, PNCC shall dispose of
suffered any loss in the dacion en pago transactions, unlike here
substantial parcels of land, by way of dacion en pago, in favor of
Radstock. Citing Uy v. Sandiganbayan,79 PNCC argues that a dacion where the government stands to lose at least ₱6.185 billion worth of
en pago is an exception to the requirement of a public bidding. assets.

Besides, a dacion en pago is in essence a form of sale, which

PNCC’s reliance on Uy is misplaced. There is nothing in Uy
basically involves a disposition of a property. In Filinvest Credit Corp.
declaring that public bidding is dispensed with in a dacion en pago
v. Philippine Acetylene, Co., Inc.,82 the Court defined dacion en
transaction. The Court explained the transaction in Uy as follows:
pago in this wise:
We do not see any infirmity in either the MOA or the SSA executed
Dacion en pago, according to Manresa, is the transmission of the
between PIEDRAS and respondent banks. By virtue of its
ownership of a thing by the debtor to the creditor as an accepted
shareholdings in OPMC, PIEDRAS was entitled to subscribe to
equivalent of the performance of obligation. In dacion en pago, as a
3,749,906,250 class "A" and 2,499,937,500 class "B" OPMC shares.
special mode of payment, the debtor offers another thing to the
Admittedly, it was financially sound for PIEDRAS to exercise its pre-
emptive rights as an existing shareholder of OPMC lest its creditor who accepts it as equivalent of payment of an outstanding
proportionate shareholdings be diluted to its detriment. However, 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
PIEDRAS lacked the necessary funds to pay for the additional
debtor, payment for which is to be charged against the debtor's
subscription. Thus, it resorted to contract loans from respondent
debt.As such, the essential elements of a contract of sale, namely,
banks to finance the payment of its additional subscription. The
mode of payment agreed upon by the parties was that the payment consent, object certain, and cause or consideration must be present.
would be made in the form of part of the shares subscribed to by 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
PIEDRAS. The OPMC shares therefore were agreed upon by the
accepted equivalent of the performance of an obligation is
parties to be equivalent payment for the amount advanced by
considered as the object of the contract of sale, while the debt is
respondent banks. We see the wisdom in the conditions of the loan
considered as the purchase price. In any case, common consent is
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 an essential prerequisite, be it sale or innovation to have the effect of
loans, an easier and more direct way was devised in the form of the totally extinguishing the debt or obligation.83 (Emphasis supplied)
dacion en pago agreements.
E. PNCC must follow rules on preference of credit.
Moreover, we agree with the Sandiganbayan that neither PIEDRAS
nor the government sustained any loss in these transactions. In fact,
Radstock is only one of the creditors of PNCC. Asiavest is PNCC’s THE CHAIRMAN. Baka ampaw yun eh.
judgment creditor. In its Board Resolution No. BD-092-2000, PNCC
admitted not only its debt to Marubeni but also its debt to the SEN. OSMEÑA. Teka muna. What is the 36 billion that appear in the
National Government84 in the amount of ₱36 billion.85 During the resolution of the board in September 2000 (sic)? This is the same
Senate hearings, PNCC admitted that it owed the Government ₱36 resolution that recognizes, acknowledges and confirms PNCC's
billion, thus: obligations to Marubeni. And subparagraph (a) says "Government of
the Philippines, in the amount of 36,023,784,000 and change. And
SEN. OSMEÑA. All right. Now, second question is, the management then (b) Marubeni Corporation in the amount of 10,743,000,000. So,
of PNCC also recognize the obligation to the national government of therefore, in the same resolution, you acknowledged that had
36 billion. It is part of the board resolution. something like P46.7 billion in obligations. Why did PNCC settle the
10 billion and did not protect the national government's 36 billion?
MS. OGAN. Yes, sir, it is part of the October 20 board resolution. And then, number two, why is it now in your books, the 36 billion is
now down to five? If you use that ratio, then Marubeni should be
SEN. OSMEÑA. All right. So if you owe the national government 36 down to one.
billion and you owe Marubeni 10 billion, you know, I would just
declare bankruptcy and let an orderly disposition of assets be done. MS. PASETES. Sir, the amount of 36 billion is principal plus interest
What happened in this case to the claim, the 36 billion claim of the and penalties.
national government? How was that disposed of by the PNCC? Mas
malaki ang utang ninyo sa national government, 36 billion. Ang SEN. OSMEÑA. And what about Marubeni? Is that just principal
gagawin ninyo, babayaran lahat ang utang ninyo sa Marubeni only?
without any assets left to satisfy your obligations to the national
government. There should have been, at least, a pari passu payment MS. PASETES. Principal and interest.
of all your obligations, 'di ba?
SEN. OSMEÑA. So, I mean, you know, it's equal treatment. Ten
MS. PASETES. Mr. Chairman... point seven billion is principal plus penalties plus interest, hindi ba?

SEN. OSMEÑA. Yes. MS. PASETES. Yes, sir. Yes, Your Honor.

MS. PASETES. PNCC still carries in its books an equity account SEN. OSMEÑA. All right. So now, what you are saying is that you
called equity adjustments arising from transfer of obligations to gonna pay Marubeni 6 billion and change and the national
national government - - 5.4 billion - - in addition to shares held by government is only recognizing 5 billion. I don't think that's protecting
government amounting to 1.2 billion. the interest of the national government at all.86

SEN. OSMEÑA. What is the 36 billion? In giving priority and preference to Radstock, the Compromise
Agreement is certainly in fraud of PNCC’s other creditors, including
THE CHAIRMAN. Ms. Pasetes... the National Government, and violates the provisions of the Civil
Code on concurrence and preference of credits.
SEN. OSMEÑA. Wait, wait, wait.
This Court has held that while the Corporation Code allows the favor. Thus, when PNCC entered into the Compromise Agreement
transfer of all or substantially all of the assets of a corporation, the conveying several prime lots in favor of Radstock, by way of dacion
transfer should not prejudice the creditors of the assignor en pago, there is a legal presumption that such conveyance is
corporation.87 Assuming that PNCC may transfer all or substantially fraudulent under Article 1387 of the Civil Code. 92 This presumption is
all its assets, to allow PNCC to do so without the consent of its strengthened by the fact that the conveyance has virtually left
creditors or without requiring Radstock to assume PNCC’s debts will PNCC’s other creditors, including the biggest creditor – the National
defraud the other PNCC creditors88 since the assignment will place Government - with no other asset to garnish or levy.
PNCC’s assets beyond the reach of its other creditors.89 As this
Court held in Caltex (Phil.), Inc. v. PNOC Shipping and Transport Notably, the presumption of fraud or intention to defraud creditors is
Corporation:90 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
While the Corporation Code allows the transfer of all or substantially paragraph of the same article, "the design to defraud creditors may
all the properties and assets of a corporation, the transfer should not be proved in any other manner recognized by the law of evidence."
prejudice the creditors of the assignor. The only way the transfer can In Oria v. Mcmicking,93 this Court considered the following instances
proceed without prejudice to the creditors is to hold the assignee as badges of fraud:
liable for the obligations of the assignor. The acquisition by the
assignee of all or substantially all of the assets of the assignor 1. The fact that the consideration of the conveyance is
necessarily includes the assumption of the assignor's liabilities, fictitious or is inadequate.
unless the creditors who did not consent to the transfer choose to
rescind the transfer on the ground of fraud. To allow an assignor to 2. A transfer made by a debtor after suit has begun and
transfer all its business, properties and assets without the consent of
while it is pending against him.
its creditors and without requiring the assignee to assume the
assignor's obligations will defraud the creditors. The assignment will
place the assignor's assets beyond the reach of its creditors. 3. A sale upon credit by an insolvent debtor.
(Emphasis supplied)
4. Evidence of large indebtedness or complete insolvency.
138791
Also, the law, specifically Article of the Civil Code, presumes
that there is fraud of creditors when property is alienated by the 5. The transfer of all or nearly all of his property by a debtor,
debtor after judgment has been rendered against him, thus: especially when he is insolvent or greatly
embarrassed financially.
Alienations by onerous title are also presumed fraudulent when
made by persons against whom some judgment has been rendered 6. The fact that the transfer is made between father and son,
in any instance or some writ of attachment has been issued. The when there are present other of the above circumstances.
decision or attachment need not refer to the property alienated, and
need not have been obtained by the party seeking rescission. 7. The failure of the vendee to take exclusive possession of
(Emphasis supplied) all the property. (Emphasis supplied)

As stated earlier, Asiavest is a judgment creditor of PNCC in G.R. Among the circumstances indicating fraud is a transfer of all or
No. 110263 and a court has already issued a writ of execution in its nearly all of the debtor’s assets, especially when the debtor is greatly
embarrassed financially. Accordingly, neither a declaration of SEN. ROXAS. So, how much is the Bureau of Treasury?
insolvency nor the institution of insolvency proceedings is a condition
sine qua non for a transfer of all or nearly all of a debtor’s assets to MS. PASETES. Three billion.
be regarded in fraud of creditors. It is sufficient that a debtor is
greatly embarrassed financially.
SEN. ROXAS. Three – Why do you owe the Bureau of Treasury
three billion?
In this case, PNCC’s huge negative net worth - at least ₱6 billion as
expressly admitted by PNCC’s counsel during the oral arguments, or MS. PASETES. That represents the concession fees due Toll
₱14 billion based on the 2006 COA Audit Report - necessarily
Regulatory Board principal plus interest, Your Honor.
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, x x x x94 (Emphasis supplied)
the Compromise Agreement stipulating a transfer in favor of
Radstock of substantially all of PNCC’s assets constitutes fraud. To In addition, PNCC’s 2006 Audit Report by COA states as follows:
legitimize the Compromise Agreement just because there is still no
judicial declaration of PNCC’s insolvency will work fraud on PNCC’s TAX MATTERS
other creditors, the biggest creditor of which is the National
Government. To insist that PNCC is very much liquid, given its The Company was assessed by the Bureau of Internal Revenue
admitted huge negative net worth, is nothing but denial of the truth. (BIR) of its deficiencies in various taxes. However, no provision for
The toll fees that PNCC collects belong to the National Government. any liability has been made yet in the Company’s financial
Obviously, PNCC cannot claim it is liquid based on its collection of statements.
such toll fees, because PNCC merely holds such toll fees in trust for
the National Government. PNCC does not own the toll fees, and
• 1980 deficiency income tax, deficiency contractor’s tax and
such toll fees do not form part of PNCC’s assets.
deficiency documentary stamp tax assessments by the BIR totaling
₱212.523 Million.
PNCC owes the National Government ₱36 billion, a substantial part
of which constitutes taxes and fees, thus:
xxxx
SEN. ROXAS. Thank you, Mr. Chairman.
• Deficiency business tax of ₱64 Million due the Belgian Consortium,
PNCC’s partner in its LRT Project.
Mr. PNCC Chairman, could you describe for us the composition of
your debt of about five billion – there are in thousands, so this looks
• 1992 deficiency income tax, deficiency value-added tax and
like five and half billion. Current portion of long-term debt, about five
deficiency expanded withholding tax of ₱1.04 Billion which was
billion. What is this made of?
reduced to ₱709 Million after the Company’s written protest.
MS. PASETES. The five billion is composed of what is owed the
xxxx
Bureau of Treasury and the Toll Regulatory Board for
concession fees that’s almost three billion and another 2.4
billion owed Philippine National Bank. • 2002 deficiency internal revenue taxes totaling ₱72.916 Million.
x x x x.95 (Emphasis supplied) then (b) Marubeni Corporation in the amount of 10,743,000,000. So,
therefore, in the same resolution, you acknowledged that had
Clearly, PNCC owes the National Government substantial taxes and something like P46.7 billion in obligations. Why did PNCC settle the
fees amounting to billions of pesos. 10 billion and did not protect the national government's 36 billion?
And then, number two, why is it now in your books, the 36 billion is
now down to five? If you use that ratio, then Marubeni should be
The ₱36 billion debt to the National Government was acknowledged
down to one.
by the PNCC Board in the same board resolution that recognized the
Marubeni loans. Since PNCC is clearly insolvent with a huge
negative net worth, the government enjoys preference over Radstock MS. PASETES. Sir, the amount of 36 billion is principal plus interest
in the satisfaction of PNCC’s liability arising from taxes and duties, and penalties.
pursuant to the provisions of the Civil Code on concurrence and
preference of credits. Articles 2241,96 224297 and 224398 of the Civil SEN. OSMEÑA. And what about Marubeni? Is that just principal
Code expressly mandate that taxes and fees due the National only?
Government "shall be preferred" and "shall first be satisfied" over
claims like those arising from the Marubeni loans which "shall enjoy MS. PASETES. Principal and interest.
no preference" under Article 2244.99
SEN. OSMEÑA. So, I mean, you know, it's equal treatment. Ten
However, in flagrant violation of the Civil Code, the PNCC Board point seven billion is principal plus penalties plus interest, hindi ba?
favored Radstock over the National Government in the order of
credits. This would strip PNCC of its assets leaving virtually nothing
MS. PASETES. Yes, sir. Yes, Your Honor.
for the National Government. This action of the PNCC Board is
manifestly and grossly disadvantageous to the National Government
and amounts to fraud. SEN. OSMEÑA. All right. So now, what you are saying is that you
gonna pay Marubeni 6 billion and change and the national
government is only recognizing 5 billion. I don't think that's protecting
During the Senate hearings, Senator Osmeña pointed out that in the
the interest of the national government at all.100
Board Resolution of 20 October 2000, PNCC acknowledged its
obligations to the National Government amounting to
₱36,023,784,000 and to Marubeni amounting to ₱10,743,000,000. PNCC failed to explain satisfactorily why in its books the obligation to
Yet, Senator Osmeña noted that in the PNCC books at the time of the National Government was reduced when no payment to the
the hearing, the ₱36 billion obligation to the National Government National Government appeared to have been made. PNCC failed to
was reduced to ₱5 billion. PNCC’s Miriam M. Pasetes could not justify why it made it appear that the obligation to the National
properly explain this discrepancy, except by stating that the ₱36 Government was less than the obligation to Marubeni. It is another
billion includes the principal plus interest and penalties, thus: obvious ploy to justify the preferential treatment given to Radstock to
the great prejudice of the National Government.
SEN. OSMEÑA. Teka muna. What is the 36 billion that appear in the
resolution of the board in September 2000 (sic)? This is the same VI.
resolution that recognizes, acknowledges and confirms PNCC's Supreme Court is Not Legitimizer of Violations of Laws
obligations to Marubeni. And subparagraph (a) says "Government of
the Philippines, in the amount of 36,023,784,000 and change. And
During the oral arguments, counsels for Radstock and PNCC Ignore the Constitutional provision that money shall be paid out
admitted that the Compromise Agreement violates the Constitution of the National Treasury only pursuant to an appropriation by
and existing laws. However, they rely on this Court to approve the law. You want us to ignore that[?]
Compromise Agreement to shield their clients from possible criminal
acts arising from violation of the Constitution and existing laws. In DEAN AGABIN:
their view, once this Court approves the Compromise Agreement,
their clients are home free from prosecution, and can enjoy the
Not really, Your Honor, but I suppose that Congress would have no
₱6.185 billion loot. The following exchanges during the oral choice, because this is a final judgment of the Honorable Court. 101
arguments reveal this view:
xxxx
ASSOCIATE JUSTICE CARPIO:
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. So, if Radstock makes the assignment, it must own its rights,
otherwise, it cannot assign it, correct?
DEAN AGABIN:
ATTY. AGRA:
Yes, that’s why, they are asking the Honorable Court to approve the
compromise agreement. Pursuant to the compromise agreement, once approved, yes, Your
Honors.
ASSOCIATE JUSTICE CARPIO:
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 So, you are saying that Radstock can own the rights to ownership of
power of Congress to authorize that expenditure[?] It’s only the land?
Congress that can authorize the expenditure of funds from the
general funds. ATTY. AGRA:

DEAN AGABIN: Yes, Your Honors.

But, Your Honor, if the Honorable Court would approve of this ASSOCIATE JUSTICE CARPIO:
compromise agreement, I believe that this would be binding on
Congress. Yes?

ASSOCIATE JUSTICE CARPIO: ATTY. AGRA:

The premise, Your Honor, you mentioned a while ago was, if this The Compromise Agreement is indisputably contrary to the
Court approves said compromise (interrupted).102 (Emphasis Constitution, existing laws and public policy. Under Article 1409, the
supplied) Compromise Agreement is expressly declared void and "cannot be
ratified." No court, not even this Court, can ratify or approve the
This Court is not, and should never be, a rubber stamp for litigants Compromise Agreement. This Court must perform its duty to defend
hankering to pocket public funds for their selfish private gain. This and uphold the Constitution, existing laws, and fundamental public
Court is the ultimate guardian of the public interest, the last bulwark policy. This Court must not shirk in declaring the Compromise
against those who seek to plunder the public coffers. This Court Agreement inexistent and void ab initio.
cannot, and must never, bring itself down to the level of legitimizer of
violations of the Constitution, existing laws or public policy. WHEREFORE, we GRANT the petition in G.R. No. 180428. We SET
ASIDE the Decision dated 25 January 2007 and the Resolutions
Conclusion dated 12 June 2007 and 5 November 2007 of the Court of Appeals.
We DECLARE (1) PNCC Board Resolution Nos. BD-092-2000 and
In sum, the acts of the PNCC Board in (1) issuing Board Resolution BD-099-2000 admitting liability for the Marubeni loans VOID AB
INITIO for causing undue injury to the Government and giving
Nos. BD-092-2000 and BD-099-2000 expressly admitting liability for
unwarranted benefits to a private party, constituting a corrupt
the Marubeni loans, and (2) entering into the Compromise
practice and unlawful act under Section 3(e) of the Anti-Graft and
Agreement, constitute evident bad faith and gross inexcusable
Corrupt Practices Act, and (2) the Compromise Agreement between
negligence, amounting to fraud, in the management of PNCC’s
affairs. Being public officers, the government nominees in the PNCC the Philippine National Construction Corporation and Radstock
Board must answer not only to PNCC and its stockholders, but also Securities Limited INEXISTENT AND VOID AB INITIO for being
contrary to Section 29(1), Article VI and Sections 3 and 7, Article XII
to the Filipino people for grossly mishandling PNCC’s finances.
of the Constitution; Section 20(1), Chapter IV, Subtitle B, Title I, Book
V of the Administrative Code of 1987; Sections 4(2), 79, 84(1), and
Under Article 1409 of the Civil Code, the Compromise Agreement is 85 of the Government Auditing Code; and Articles 2241, 2242, 2243
"inexistent and void from the beginning," and "cannot be ratified," and 2244 of the Civil Code.
thus:
We GRANT the intervention of Asiavest Merchant Bankers Berhad in
Art. 1409. The following contracts are inexistent and void from the G.R. No. 178158 but DECLARE that Strategic Alliance Development
beginning: Corporation has no legal standing to sue.

(1) Those whose cause, object or purpose is contrary to law, SO ORDERED.

morals, good customs, public order or public policy;
ANTONIO T. CARPIO
xxx Associate Justice

(7) Those expressly prohibited or declared void by law. WE CONCUR:

These contracts cannot be ratified. x x x. (Emphasis supplied) REYNATO S. PUNO

Chief Justice
 CONCHITA CARPIO
RENATO C. CORONA
MORALES
Associate Justice
Associate Justice

MINITA V. CHICO- PRESBITERO J.

NAZARIO VELASCO, JR.
Associate Justice Associate Justice

ANTONIO EDUARDO B. TERESITA J.

NACHURA LEONARDO-DE CASTRO
Associate Justice Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA

Associate Justice Associate Justice

MARIANO C. DEL
LUCAS P. BERSAMIN
CASTILLO
Associate Justice
Associate Justice

MARTIN S. VILLARAMA,
ROBERTO A. ABAD
JR.
Associate Justice
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that

the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the
opinion of the Court.

REYNATO S. PUNO
Chief Justice