Strategic Alliance Development Corp. V.20210424-14-14bek9w

EN BANC
[G.R. No. 178158. December 4, 2009.]
STRATEGIC ALLIANCE DEVELOPMENT CORPORATION ,

petitioner, vs. RADSTOCK SECURITIES LIMITED and
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION ,
respondents.
ASIAVEST MERCHANT BANKERS BERHAD, intervenor.
[G.R. No. 180428. December 4, 2009.]
LUIS SISON, petitioner, vs. PHILIPPINE NATIONAL

CONSTRUCTION CORPORATION and RADSTOCK SECURITIES
LIMITED, respondents.
DECISION
CARPIO, J : p
Prologue
This case is an anatomy of a P6.185 billion 1 pillage of the public
coffers that ranks among one of the most brazen and hideous in the history
of this country. This case answers the questions why our Government
perennially runs out of funds to provide basic services to our people, why the
great masses of the Filipino people wallow in poverty, and why a very select
few amass unimaginable wealth at the expense of the Filipino people.
On 1 May 2007, the 30-year old franchise of Philippine National
Construction Corporation (PNCC) under Presidential Decree No. 1113 (PD
1113), as amended by Presidential Decree No. 1894 (PD 1894), expired.
During the 13th Congress, PNCC sought to extend its franchise. PNCC won
approval from the House of Representatives, which passed House Bill No.
5749 2 renewing PNCC's franchise for another 25 years. However, PNCC
failed to secure approval from the Senate, dooming the extension of PNCC's
franchise. Led by Senator Franklin M. Drilon, the Senate opposed PNCC's
plea for extension of its franchise. 3 Senator Drilon's privilege speech 4
explains why the Senate chose not to renew PNCC's franchise:
I repeat, Mr. President. PNCC has agreed in a compromise
agreement dated 17 August 2006 to transfer to Radstock Securities
Limited P17,676,063,922, no small money, Mr. President, my dear
colleagues, P17.6 billion.
What does it consist of? It consists of the following: 19 pieces of

real estate properties with an appraised value of P5,993,689,000. Do
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we know what is the bulk of this? An almost 13-hectare property right
here in the Financial Center. As we leave the Senate, as we go out 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
properties. That is 12.9 hectares of valuable asset right in this Financial
Center that is worth P5,993,689.000. THEDCA
What else, Mr. President? The 20% of the outstanding capital

stock of PNCC with a par value of P2,300,000,000 — I repeat, 20% of
the outstanding capital stock of PNCC worth P2,300 billion — was
assigned to Radstock.
In addition, Mr. President and my dear colleagues, please
hold on to your seats because part of the agreement is 50% of
PNCC's 6% share in the gross toll revenue of the Manila North
Tollways Corporation for 27 years, from 2008 to 2035, is being
assigned to Radstock. How much is this worth? It is worth
P9,382,374,922. I repeat, P9,382,374,922.
xxx xxx xxx
Mr. President, P17,676,000,000, however, was made to appear in

the agreement to be only worth P6,196,156,488. How was this
achieved? How was an aggregate amount of P17,676,000,000 made to
appear to be only P6,196,156,488? First, the 19 pieces of real estate
worth P5,993,689,000 were only assigned a value of P4,195,000,000 or
only 70% of their appraised value.
Second, the PNCC shares of stock with a par value of P2.3 billion
were marked to market and therefore were valued only at P713 million.
Third, the share of the toll revenue assigned was given a net
present value of only P1,287,000,000 because of a 15% discounted
rate that was applied.
In other words, Mr. President, the toll collection of

P9,382,374,922 for 27 years was given a net present value of only
P1,287,000,000 so that it is made to appear that the compromise
agreement is only worth P6,196,000,000.
Mr. President, my dear colleagues, this agreement will
substantially wipe out all the assets of PNCC. It will be left with nothing
else except, probably, the collection for the next 25 years or so from
the North Luzon Expressway. This agreement brought PNCC to the
cleaners and literally cleaned the PNCC of all its assets. They brought
PNCC to the cleaners and cleaned it to the tune of P17,676,000,000.
xxx xxx xxx
Mr. President, are we not entitled, as members of the Committee,

to know who is Radstock Securities Limited?
Radstock Securities Limited was allegedly incorporated under the
laws of the British Virgin Islands. It has no known board of directors,
except for its recently appointed attorney-in-fact, Mr. Carlos
Dominguez.
Mr. President, are the members of the Committee not entitled to
know why 20 years after the account to Marubeni Corporation, which
gave rise to the compromise agreement 20 years after the obligation
was allegedly incurred, PNCC suddenly recognized this obligation in its
books when in fact this obligation was not found in its books for 20
years? TEaADS
In other words, Mr. President, for 20 years, the financial

statements of PNCC did not show any obligation to Marubeni, much
less, to Radstock. Why suddenly on October 20, 2000, P10 billion in
obligation was recognized? Why was it recognized?
During the hearing on December 18, Mr. President, we
asked this question to the Asset Privatization Trust (APT)
trustee, Atty. Raymundo Francisco, and he was asked: "What is
the basis of your recommendation to recognize this?" He said:
"I based my recommendation on a legal opinion of Feria and
Feria". I asked him: "Who knew of this opinion?" He said: "Only
me and the chairman of PNCC, Atty. Renato Valdecantos". I
asked him: "Did you share this opinion with the members of
the board who recognized the obligation of P10 billion?" He
said: "No". "Can you produce this opinion now?" He said: "I
have no copy".
Mysteriously, Mr. President, an obligation of P10 billion

based on a legal opinion which, even Mr. Arthur Aguilar, the
chairman of PNCC, is not aware of, none of the members of the
PNCC board on October 20, 2000 who recognized this
obligation had seen this opinion. It is mysterious.
Mr. President, are the members of our Committee not entitled to

know why Radstock Securities Limited is given preference over all
other creditors notwithstanding the fact that this is an unsecured
obligation? There is no mortgage to secure this obligation. SaHIEA
More importantly, Mr. President, equally recognized is the

obligation of PNCC to the Philippine government to the tune of P36
billion. PNCC owes the Philippine government P36 billion recognized in
its books, apart from P3 billion in taxes. Why in the face of all of these
is Radstock given preference? Why is it that Radstock is given
preference to claim P17.676 billion of the assets of PNCC and give it
superior status over the claim of the Philippine government, of the
Filipino people to the extent of P36 billion and taxes in the amount of
P3 billion? Why, Mr. President? Why is Radstock given preference not
only over the Philippine government claims of P39 billion but also over
other creditors including a certain best merchant banker in Asia, which
has already a final and executory judgment against PNCC for about
P300 million? Why, Mr. President? Are we not entitled to know why the
compromise agreement assigned P17.676 billion to Radstock? Why
was it executed? 5 (Emphasis supplied)
Aside from Senator Drilon, Senator Sergio S. Osmeña III also saw
irregularities in the transactions involving the Marubeni loans, thus:
SEN. OSMEÑA.
Ah okay. Good.
Now, I'd like to point out to the Committee that – it seems that
this 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 Marubeni sell for $2 million three months after
there was a recognition that it was owed P10 billion. Can
you explain that, Mr. Dominguez?
MR. DOMINGUEZ.
Your Honor, I am not aware of the decision making

process of Marubeni. But my understanding was, the
Japanese culture is not a litigious one and they didn't
want to get into a, you know, a court situation here in the
Philippines having a lot of other interest, et cetera.
SEN. OSMEÑA.
Well, but that is beside the point, Mr. Dominguez. All I am

asking is does it stand to reason that after you get an
acceptance by a debtor that he owes you 10 billion, you
sell your note for 100 million.
Now, if that had happened a year before, maybe I would have
understood why he sold for such a low amount. But right after, it
seems that this was part of an orchestrated deal wherein with
certain powerful interest would be able to say, "Yes, we will push
through. We'll fix the courts. We'll fix the board. We'll fix the APT.
And we will be able to do it, just give us 55 percent of whatever is
recovered", am I correct?
MR. DOMINGUEZ.
As I said, Your Honor, I am not familiar with the decision making

process of Marubeni. But my understanding was, as I said, they
didn't want to get into a . . . cdrep
SEN. OSMEÑA.
All right.
MR. DOMINGUEZ.
. . . litigious situation. 6
xxx xxx xxx

SEN. OSMEÑA.
All of these financial things can be arranged. They can hire a

local bank, Filipino, to be trustee for the real estate. So . . .
SEN. DRILON.
Well, then, that's a dummy relationship.
SEN. OSMEÑA.
In any case, to me the main point here is that a third party,
Radstock, whoever owns it, bought Marubeni's right for $2 million
or P100 million. Then, they are able to go through all these legal
machinations and get awarded with the consent of PNCC of 6
billion. 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 whether it's Radstock or New Bridge or Texas Pacific
Group or Carlyle or Avenue Capital, they look at their returns. So
if Avenue Capital buys something for $2 million and you give him
$4 million in one year, it's a 100 percent return. They'll walk
away and dance to their stockholders. So here in this particular
case, if you know that Radstock only bought it for $2 million, I
would have gotten board approval and say, "Okay, let's settle
this for $4 million". And Radstock would have jumped up and
down. So what looks to me is that this was already a scheme.
Marubeni wrote it off already. Marubeni wrote everything off.
They just got a $2 million and they probably have no more
residual rights or maybe there's a clause there, a secret clause,
that says, "I want 20 percent of whatever you're able to
eventually collect". So $2 million. But whatever it is, Marubeni
practically wrote it off. Radstock's liability now or exposure is
only $2 million plus all the lawyer fees, under-the-table, et
cetera. All right. Okay. So it's pretty obvious to me that if
anybody were using his brain, I would have gone up to Radstock
and say, "Here's $4 million. Here's P200 million. Okay". They
would have walked away. But evidently, the "ninongs" of
Radstock — See, I don't care who owns Radstock. I want to know
who is the ninong here who stands to make a lot of money by
being able to get to courts, the government agencies, OGCC, or
whoever else has been involved in this, to agree to 6 billion or
whatever it was. That's a lot of money. And believe me, Radstock
will probably get one or two billion and four billion will go into
somebody else's pocket. Or Radstock will turn around, sell that
claim for P4 billion and let the new guy just collect the payments
over the years. EaDATc
xxx xxx xxx 7

SEN. OSMEÑA.
. . . I just wanted to know is CDCP Mining a 100 percent

subsidiary of PNCC?
MR. AGUILAR.
Hindi ho. Ah, no.
SEN. OSMEÑA.
If they're not a 100 percent, why would they sign jointly and
severally? I just want to plug the loopholes.
MR. AGUILAR.
I think it was — if I may just speculate. It was just common
ownership at that time.
SEN. OSMEÑA.
All right. Now — Also, the . . .

MR. AGUILAR.
Ah, 13 percent daw, Your Honor.
SEN. OSMEÑA.
Huh?
MR. AGUILAR.
Thirteen percent ho.
SEN. OSMEÑA.
What's 13 percent?
MR. AGUILAR.
We owned . . .
xxx xxx xxx
SEN. OSMEÑA.
. . . CDCP Mining, how many percent of the equity of

CDCP Mining was owned by PNCC, formerly CDCP?
MS. PASETES.
Thirteen percent. CcTIDH
SEN. OSMEÑA.
Thirteen. And as a 13 percent owner, they agreed to sign
jointly and severally?
MS. PASETES.
Yes.
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 percent.
xxx xxx xxx 8 (Emphasis supplied)
I.
The Case
Before this Court are the consolidated petitions for review 9 filed by
Strategic Alliance Development Corporation (STRADEC) and Luis Sison
(Sison), with a motion for intervention filed by Asiavest Merchant Bankers
Berhad (Asiavest), challenging the validity of the Compromise Agreement
between PNCC and Radstock. The Court of Appeals approved the
Compromise Agreement in its Decision of 25 January 2007 10 in CA-G.R. CV
No. 87971.
II.
The Antecedents
PNCC was incorporated in 1966 for a term of fifty years under the
Corporation Code with the name Construction Development Corporation of
the Philippines (CDCP). 11 PD 1113, issued on 31 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 CDCP's franchise the Metro Manila
Expressway, which would "serve as an additional artery in the transportation
of trade and commerce in the Metro Manila area".
Sometime between 1978 and 1981, Basay Mining Corporation (Basay
Mining), an affiliate of CDCP, obtained loans from Marubeni Corporation of
Japan (Marubeni) amounting to 5,460,000,000 yen and US$5 million. A CDCP
official issued letters of guarantee for the loans, committing CDCP to pay
solidarily for the full amount of the 5,460,000,000 yen loan and to the extent
of P20 million for the US$5 million loan. However, there was no CDCP Board
Resolution authorizing the issuance of the letters of guarantee. Later, Basay
Mining changed its name to CDCP Mining Corporation (CDCP Mining). CDCP
Mining secured the Marubeni loans when CDCP and CDCP Mining were still
privately owned and managed. DIEACH
Subsequently in 1983, CDCP changed its corporate name to PNCC to

reflect the extent of the Government's equity investment in the company,
which arose when government financial institutions converted their loans to
PNCC into equity following PNCC's inability to pay the loans. 12 Various
government financial institutions held a 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 Order
Nos. 14 and 64, series of 1987 and 1988, respectively. 13 Also, the
Presidential Commission on Good Government holds some 13.82% of PNCC's
voting equity under a writ of sequestration and through the voluntary
surrender of certain PNCC shares. In fine, the Government owns 90.3% of
the equity of PNCC and only 9.70% of PNCC's voting equity is under private
ownership. 14
Meanwhile, the Marubeni loans to CDCP Mining remained unpaid. On
20 October 2000, during the short-lived Estrada Administration, the PNCC
Board of Directors 15 (PNCC Board) passed Board Resolution No. BD-092-
2000 admitting PNCC's liability to Marubeni for P10,743,103,388 as of 30
September 1999. PNCC Board Resolution No. BD-092-2000 reads as follows:
RESOLUTION NO. BD-092-2000
RESOLVED, That the Board recognizes, acknowledges and

confirms PNCC's obligations as of September 30, 1999 with the
following entities, exclusive of the interests and other charges that
may subsequently accrue and still become due therein, to wit:
a). the Government of the Republic of the Philippines in the
amount of P36,023,784,751.00; and
b). Marubeni Corporation in the amount of
P10,743,103,388.00. (Emphasis supplied)
This was the first PNCC Board Resolution admitting PNCC's liability for the
Marubeni loans. Previously, for two decades the PNCC Board consistently
refused to admit any liability for the Marubeni loans.
Less than two months later, or on 22 November 2000, the PNCC Board
passed Board Resolution No. BD-099-2000 amending Board Resolution No.
BD-092-2000. PNCC Board Resolution No. BD-099-2000 reads as follows:
RESOLUTION NO. BD-099-2000
RESOLVED, That the Board hereby amends its Resolution No. BD-
092-2000 dated October 20, 2000 so as to read as follows:
confirms its obligations as of September 30, 1999 with the following
entities, exclusive of the interests and other charges that may
subsequently accrue and still due thereon, subject to the final
determination by the Commission on Audit (COA) of the amount of
obligation involved, and subject further to the declaration of the
legality of said obligations by the Office of the Government Corporate
Counsel (OGCC), to wit: ACETSa

amount of P36,023,784,751.00; and
P10,743,103,388.00. (Emphasis supplied)
In January 2001, barely three months after the PNCC Board first
admitted liability for the Marubeni loans, Marubeni assigned its entire credit
to Radstock for US$2 million or less than P100 million. In short, Radstock
paid Marubeni less than 10% of the P10.743 billion admitted amount.
Radstock immediately sent a notice and demand letter to PNCC.
On 15 January 2001, Radstock filed an action for collection and
damages against PNCC before the Regional Trial Court of Mandaluyong City,
Branch 213 (trial court). In its order of 23 January 2001, the trial court issued
a writ of preliminary attachment against PNCC. The trial court ordered
PNCC's bank accounts garnished and several of its real properties attached.
On 14 February 2001, PNCC moved to set aside the 23 January 2001 Order
and to discharge the writ of attachment. PNCC also filed a motion to dismiss
the case. The trial court denied both motions. PNCC filed motions for
reconsideration, which the trial court also denied. PNCC filed a petition for
certiorari before the Court of Appeals, docketed as CA-G.R. SP No. 66654,
assailing the denial of the motion to dismiss. On 30 August 2002, the Court
of Appeals denied PNCC's petition. PNCC filed a motion for reconsideration,
which the Court of Appeals also denied in its 22 January 2003 Resolution.
PNCC filed a petition for review before this Court, docketed as G.R. No.
156887.
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.
The trial court continued to hear the main case. On 10 December 2002,
the trial court ruled in favor of Radstock, as follows:
WHEREFORE, premises considered, judgment is hereby rendered
in favor of the plaintiff and the defendant is directed to pay the total
amount of Thirteen Billion One Hundred Fifty One Million Nine Hundred
Fifty Six thousand Five Hundred Twenty Eight Pesos
(P13,151,956,528.00) with interest from October 15, 2001 plus Ten
Million Pesos (P10,000,000.00) as attorney's fees.
SO ORDERED. 16
PNCC appealed the trial court's decision to the Court of Appeals, docketed as
CA-G.R. CV No. 87971.
On 19 March 2003, this Court issued a temporary restraining order in
G.R. No. 156887 forbidding the trial court from implementing the writ of
preliminary attachment and ordering the suspension of the proceedings
before the trial court and the Court of Appeals. In its 3 October 2005
Decision, this Court ruled as follows: aAEHCI
WHEREFORE, the petition is partly GRANTED and insofar as the

Motion to Set Aside the Order and/or Discharge the Writ of Attachment
is concerned, the Decision of the Court of Appeals on August 30, 2002
and its Resolution of January 22, 2003 in CA-G.R. SP No. 66654 are
REVERSED and SET ASIDE. The attachments over the properties by the
writ of preliminary attachment are hereby ordered LIFTED effective
upon the finality of this Decision. The Decision and Resolution of the
Court of Appeals are AFFIRMED in all other respects. The Temporary
Restraining Order is DISSOLVED immediately and the Court of Appeals
is directed to PROCEED forthwith with the appeal filed by PNCC.
No costs.
SO ORDERED. 17
On 17 August 2006, PNCC and Radstock entered into the Compromise

Agreement where they agreed to reduce PNCC's liability to Radstock,
supposedly from P17,040,843,968, to P6,185,000,000. PNCC and Radstock
submitted the Compromise Agreement to this Court for approval. In a
Resolution dated 4 December 2006 in G.R. No. 156887, this Court referred
the Compromise Agreement to the Commission on Audit (COA) for comment.
The COA recommended approval of the Compromise Agreement. In a
Resolution dated 22 November 2006, this Court noted the Compromise
Agreement and referred it to the Court of Appeals in CA-G.R. CV No. 87971.
In its 25 January 2007 Decision, the Court of Appeals approved the
Compromise Agreement.
STRADEC moved for reconsideration of the 25 January 2007 Decision.
STRADEC alleged that it has a claim against PNCC as a bidder of the National
Government's shares, receivables, securities and interests in PNCC. The
matter is subject of a complaint filed by STRADEC against PNCC and the
Privatization and Management Office (PMO) for the issuance of a Notice of
Award of Sale to Dong-A Consortium of which STRADEC is a partner. The
case, docketed as Civil Case No. 05-882, is pending before the Regional Trial
Court of Makati, Branch 146 (RTC Branch 146).
The Court of Appeals treated STRADEC's motion for reconsideration as
a motion for intervention and denied it in its 31 May 2007 Resolution.
STRADEC filed a petition for review before this Court, docketed as G.R. No.
178158.
Rodolfo Cuenca (Cuenca), a stockholder and former PNCC President
and Board Chairman, filed an intervention before the Court of Appeals.
Cuenca alleged that PNCC had no obligation to pay Radstock. The Court of
Appeals also denied Cuenca's motion for intervention in its Resolution of 31
May 2007. Cuenca did not appeal the denial of his motion.
On 2 July 2007, this Court issued an order directing PNCC and
Radstock, their officers, agents, representatives, and other persons under
their control, to maintain the status quo ante. CEcaTH
Meanwhile, on 20 February 2007, Sison, also a stockholder and former

PNCC President and Board Chairman, filed a Petition for Annulment of
Judgment Approving Compromise Agreement before the Court of Appeals.
The case was docketed as CA-G.R. SP No. 97982.
Asiavest, a judgment creditor of PNCC, filed an Urgent Motion for Leave
to Intervene and to File the Attached Opposition and Motion-in-Intervention
before the Court of Appeals in CA-G.R. SP No. 97982.
In a Resolution dated 12 June 2007, the Court of Appeals dismissed
Sison's petition on the ground that it had no jurisdiction to annul a final and
executory judgment also rendered by the Court of Appeals. In the same
resolution, the Court of Appeals also denied Asiavest's urgent motion.
Asiavest filed its Urgent Motion for Leave to Intervene and to File the
Attached Opposition and Motion-in-Intervention in G.R. No. 178158. 18
Sison filed a motion for reconsideration. In its 5 November 2007
Resolution, the Court of Appeals denied Sison's motion.
On 26 November 2007, Sison filed a petition for review before this
Court, docketed as G.R. No. 180428.
In a Resolution dated 18 February 2008, this Court consolidated G.R.
Nos. 178158 and 180428.
On 13 January 2009, the Court held oral arguments on the following
issues:
1. Does the Compromise Agreement violate public policy?

2. Does the subject matter involve an assumption by the
government of a private entity's obligation in violation of the
law and/or the Constitution? Is the PNCC Board Resolution of
20 October 2000 defective or illegal?
3. Is the Compromise Agreement viable in the light of the non-

renewal of PNCC's franchise by Congress and its inclusion of
all or substantially all of PNCC's assets?
4. Is the Decision of the Court of Appeals annullable even if

final and executory on grounds of fraud and violation of
public policy and the Constitution?
III.
Propriety of Actions
The Court of Appeals denied STRADEC's motion for intervention on the
ground that the motion was filed only after the Court of Appeals and the trial
court had promulgated their respective decisions. cdphil
Section 2, Rule 19 of the 1997 Rules of Civil Procedure provides:

SECTION 2. Time to intervene. — The motion to intervene
may be filed at any time before rendition of judgment by the trial
court. A copy of the pleading-in-intervention shall be attached to the
motion and served on the original parties.
The rule is not absolute. The rule on intervention, like all other rules of
procedure, is intended to make the powers of the Court completely available
for justice. 19 It is aimed to facilitate a comprehensive adjudication of rival
claims, overriding technicalities on the timeliness of the filing of the claims.
20 This Court has ruled:
[A]llowance or disallowance of a motion for intervention rests on

the sound discretion of the court after consideration of the appropriate
circumstances. Rule 19 of the Rules of Court is a rule of procedure
whose object is to make the powers of the court fully and completely
available for justice. Its purpose is not to hinder or delay but to
facilitate and promote the administration of justice. Thus, interventions
have been allowed even beyond the prescribed period in the Rule in
the higher interest of justice. Interventions have been granted to afford
indispensable parties, who have not been impleaded, the right to be
heard even after a decision has been rendered by the trial court, when
the petition for review of the judgment was already submitted for
decision before the Supreme Court, and even where the assailed order
has already become final and executory. In Lim v. Pacquing (310 Phil.
722 (1995)], the motion for intervention filed by the Republic of the
Philippines was allowed by this Court to avoid grave injustice and injury
and to settle once and for all the substantive issues raised by the
parties. 21
In Collado v. Court of Appeals, 22 this Court reiterated that exceptions

to Section 2, Rule 12 could be made in the interest of substantial justice.
Citing Mago v. Court of Appeals, 23 the Court stated:
It is quite clear and patent that the motions for intervention filed
by the movants at this stage of the proceedings where trial had already
been concluded . . . and on appeal . . . the same affirmed by the Court
of Appeals and the instant petition for certiorari to review said
judgments is already submitted for decision by the Supreme Court, are
obviously and, manifestly late, beyond the period prescribed under . . .
Section 2, Rule 12 of the Rules of Court.
But Rule 12 of the Rules of Court, like all other Rules therein
promulgated, is simply a rule of procedure, the whole purpose and
object of which is to make the powers of the Court fully and completely
available for justice. The purpose of procedure is not to thwart justice.
Its proper aim is to facilitate the application of justice to the rival claims
of contending parties. It was created not to hinder and delay but to
facilitate and promote the administration of justice. It does not
constitute the thing itself which courts are always striving to secure to
litigants. It is designed as the means best adopted to obtain that thing.
In other words, it is a means to an end.
Concededly, STRADEC has no legal interest in the subject matter of the

Compromise Agreement. Section 1, Rule 19 of the 1997 Rules of Civil
Procedure states: ACDIcS
SECTION 1. Who may intervene. — A person who has a legal

interest in the matter in litigation, or in the success of either of the
parties, or an interest against both, or is so situated as to be adversely
affected by a distribution or other disposition of property in the custody
of the court or of an officer thereof may, with leave of court, be allowed
to intervene in the action. The Court shall consider whether or not the
intervention will unduly delay or prejudice the adjudication of the rights
of the original parties, and whether or not the intervenor's rights may
be fully protected in a separate proceeding.
STRADEC's interest is dependent on the outcome of Civil Case No. 05-882.

Unless STRADEC can show that RTC Branch 146 had already decided in its
favor, its legal interest is simply contingent and expectant.
However, Asiavest has a direct and material interest in the approval or
disapproval of the Compromise Agreement. Asiavest is a judgment
creditor of PNCC in G.R. No. 110263 and a court has already issued
a writ of execution in its favor. Asiavest's interest is actual and
material, direct and immediate characterized by either gain or loss
from the judgment that this Court may render. 24 Considering that the
Compromise Agreement involves the disposition of all or substantially all of
the assets of PNCC, Asiavest, as PNCC's judgment creditor, will be greatly
prejudiced if the Compromise Agreement is eventually upheld.
Sison has legal standing to challenge the Compromise Agreement.
Although there was no allegation that Sison filed the case as a derivative suit
in the name of PNCC, it could be fairly deduced that Sison was assailing the
Compromise Agreement as a stockholder of PNCC. In such a situation, a
stockholder of PNCC can sue on behalf of PNCC to annul the Compromise
Agreement.
A derivative action is a suit by a stockholder to enforce a corporate
cause of action. 25 Under the Corporation Code, where a corporation is an
injured party, its power to sue is lodged with its board of directors or
trustees. 26 However, an individual stockholder may file a derivative suit on
behalf of the corporation to protect or vindicate corporate rights whenever
the officials of the corporation refuse to sue, or are the ones to be sued, or
hold control of the corporation. 27 In such actions, the corporation is the real
party-in-interest while the suing stockholder, on behalf of the corporation, is
only a nominal party. 28
In this case, the PNCC Board cannot conceivably be expected to attack
the validity of the Compromise Agreement since the PNCC Board itself
approved the Compromise Agreement. In fact, the PNCC Board steadfastly
defends the Compromise Agreement for allegedly being advantageous to
PNCC. ITSCED
Besides, the circumstances in this case are peculiar. Sison, as former

PNCC President and Chairman of the PNCC Board, was responsible for the
approval of the Board Resolution issued on 19 June 2001 revoking the
previous Board Resolution admitting PNCC's liability for the Marubeni loans.
29 Such revocation, however, came after Radstock had filed an action for
collection and damages against PNCC on 15 January 2001. Then, when the
trial court rendered its decision on 10 December 2002 in favor of Radstock,
Sison was no longer the PNCC President and Chairman, although he remains
a stockholder of PNCC.
When the case was on appeal before the Court of Appeals, there was
no need for Sison to avail of any remedy, until PNCC and Radstock entered
into the Compromise Agreement, which disposed of all or substantially all of
PNCC's assets. Sison came to know of the Compromise Agreement only in
December 2006. PNCC and Radstock submitted the Compromise Agreement
to the Court of Appeals for approval on 10 January 2007. The Court of
Appeals approved the Compromise Agreement on 25 January 2007. To
require Sison at this stage to exhaust all the remedies within the corporation
will render such remedies useless as the Compromise Agreement had
already been approved by the Court of Appeals. 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 extraordinary remedy to protect PNCC's
assets.
Besides, in the interest of substantial justice and for compelling
reasons, such as the nature and importance of the issues raised in this case,
30 this Court must take cognizance of Sison's action. This Court should
exercise its prerogative to set aside technicalities in the Rules, because after
all, the power of this Court to suspend its own rules whenever the interest of
justice requires is well recognized. 31 In Solicitor General v. The Metropolitan
Manila Authority, 32 this Court held: AEIHaS
Unquestionably, the Court has the power to suspend procedural

rules in the exercise of its inherent power, as expressly recognized in
the Constitution, to promulgate rules concerning 'pleading, practice
and procedure in all courts'. In proper cases, procedural rules may be
relaxed or suspended in the interest of substantial justice, which
otherwise may be miscarried because of a rigid and formalistic
adherence to such rules. . . .
We have made similar rulings in other cases, thus:
Be it remembered that rules of procedure are but mere tools

designed to facilitate the attainment of justice. Their strict and rigid
application, which would result in technicalities that tend to frustrate
rather than promote substantial justice, must always be avoided. . . .
Time and again, this Court has suspended its own rules and excepted a
particular case from their operation whenever the higher interests of
justice so require.
IV.
The PNCC Board Acted in Bad Faith and with Gross Negligence
in Directing the Affairs of PNCC
In this jurisdiction, the members of the board of directors have a three-
fold duty: duty of obedience, duty of diligence, and duty of loyalty. 33
Accordingly, the members of the board of directors (1) shall direct the affairs
of the corporation only in accordance with the purposes for which it was
organized; 34 (2) shall not willfully and knowingly vote for or assent to
patently unlawful acts of the corporation or act in bad faith or with
gross negligence in directing the affairs of the corporation; 35 and (3)
shall not acquire any personal or pecuniary interest in conflict with their duty
as such directors or trustees. 36
In the present case, the PNCC Board blatantly violated its duty of
diligence as it miserably failed to act in good faith in handling the affairs of
PNCC.
First. For almost two decades, the PNCC Board had consistently 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.
There is no dispute that between 1978 and 1980, Marubeni
Corporation extended two loans to Basay Mining (later renamed CDCP
Mining): (1) US$5 million to finance the purchase of copper concentrates by
Basay Mining; and (2) Y5.46 billion to finance the completion of the
expansion project of Basay Mining including working capital.
There is also no dispute that it was only on 20 October 2000 when the
PNCC Board approved a resolution expressly admitting PNCC's liability for
the Marubeni loans. This was the first Board Resolution admitting liability for
the Marubeni loans, for PNCC never admitted liability for these debts in the
past. Even Radstock admitted that PNCC's 1994 Financial Statements did not
reflect the Marubeni loans. 37 Also, former PNCC Chairman Arthur Aguilar
stated during the Senate hearings that "the Marubeni claim was never in the
balance sheet . . . nor was it in a contingent account". 38 Miriam M. Pasetes,
SVP Finance of PNCC, and Atty. Herman R. Cimafranca of the Office of the
Government Corporate Counsel, confirmed this fact, thus: IASEca
SEN. DRILON.

. . . And so, PNCC itself did not recognize this as an
obligation but the board suddenly recognized it as an
obligation. It was on that basis that the case was filed, is
that correct? In fact, the case hinges on — they knew that
this claim has prescribed but because of that board
resolution which recognized the obligation they filed their
complaint, is that correct?
MR. CIMAFRANCA.
Apparently, it's like that, Senator, because the filing of

the case came after the acknowledgement.
SEN. DRILON.
Yes. In fact, the filing of the case came three months

after the acknowledgement.
MR. CIMAFRANCA.
Yes. And that made it difficult to handle on our part.
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
theory, at least, of the plaintiff. Is that correct? Who can
answer that?
Ms. Pasetes, yes.
MS. PASETES.
It is not an obligation of PNCC that is why it is not
reflected in the financial statements. 39 (Emphasis supplied)
In short, after two decades of consistently refuting its liability for the
Marubeni loans, the PNCC Board suddenly and inexplicably reversed itself by
admitting in October 2000 liability for the Marubeni loans. Just three months
after the PNCC Board recognized the Marubeni loans, Radstock acquired
Marubeni's receivable and filed the present collection case.
Second. The PNCC Board admitted liability for the Marubeni loans
despite PNCC's total liabilities far exceeding its assets. There is no dispute
that the Marubeni loans, once recognized, would wipe out the assets of
PNCC, "virtually emptying the coffers of the PNCC". 40 While PNCC insists
that it remains financially viable, the figures in the COA Audit Reports tell
otherwise. 41 For 2006 and 2005, "the Corporation has incurred
negative gross margin of P84.531 Million and P80.180 Million,
respectively, and net losses that had accumulated in a deficit of
P14.823 Billion as of 31 December 2006." 42 The COA even opined that
"unless [PNCC] Management addresses the issue on net losses in its
financial rehabilitation plan, . . . the Corporation may not be able to
continue its operations as a going concern." cDIaAS

Notably, during the oral arguments before this Court, the Government
Corporate Counsel admitted the PNCC's huge negative net worth, thus:
JUSTICE CARPIO
. . . what is the net worth now of PNCC? Negative what?

Negative 6 Billion at least[?]
ATTY. AGRA
Yes, your Honor. 43 (Emphasis supplied)
Clearly, the PNCC Board's admission of liability for the Marubeni loans, given
PNCC's huge negative net worth of at least P6 billion as admitted by PNCC's
counsel, or P14.823 billion based on the 2006 COA Audit Report, would leave
PNCC an empty shell, without any assets to pay its biggest creditor, the
National Government with an admitted receivable of P36 billion from PNCC.
Third. In a debilitating self-inflicted injury, the PNCC Board revived
what appeared to have been a dead claim by abandoning one of PNCC's
strong defenses, which is the prescription of the action to collect the
Marubeni loans.
Settled is the rule that actions prescribe by the mere lapse of time
fixed by law. 44 Under Article 1144 of the Civil Code, an action upon a
written contract, such as a loan contract, must be brought within ten years
from the time the right of action accrues. The prescription of such an action
is interrupted when the action is filed before the court, when there is a
written extrajudicial demand by the creditor, or when there is any written
acknowledgment of the debt by the debtor. 45
In this case, Basay Mining obtained the Marubeni loans sometime
between 1978 and 1981. While Radstock claims that numerous demand
letters were sent to PNCC, based on the records, the extrajudicial demands
to pay the loans appear to have been made only in 1984 and 1986.
Meanwhile, the written acknowledgment of the debt, in the form of Board
Resolution No. BD-092-2000, was issued only on 20 October 2000.
Thus, more than ten years would have already lapsed between
Marubeni's extrajudicial demands in 1984 and 1986 and the
acknowledgment by the PNCC Board of the Marubeni loans in 2000.
However, the PNCC Board suddenly passed Board Resolution No. BD-092-
2000 expressly admitting liability for the Marubeni loans. In short, the PNCC
Board admitted liability for the Marubeni loans despite the fact that the
same might no longer be judicially collectible. Although the legal advantage
was obviously on its side, the PNCC Board threw in the towel even before the
fight could begin. During the Senate hearings, the matter of prescription was
discussed, thus:
SEN. DRILON.
. . . the prescription period is 10 years and there were no
payments — the last demands were made, when? The last
demands for payment?
MS. OGAN.
It was made January 2001 prior to the filing of the case. aIDHET
SEN. DRILON.
Yes, all right. Before that, when was the last demand made? By
the time they filed the complaint more than 10 years already
lapsed.
MS. OGAN.
On record, Mr. Chairman, we have demands starting from — a

series of demands which started from May 23, 1984, letter from
Marubeni to PNCC, demand payment. And we also have the letter
of September 3, 1986, letter of Marubeni to then PNCC Chair Mr.
Jaime. We have the June 24, 1986 letter from Marubeni to the
PNCC Chairman. Also the March 4, 1988 letter. . .
SEN. DRILON.
The March 4, 1988 letter is not a demand letter.
MS. OGAN.
It is exactly addressed to the Asset Privatization Trust.

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

MS. OGAN.
And we have also. . .
SEN. DRILON.
Anyway. . .
THE CHAIRMAN.
Please answer when you are asked, Ms. Ogan. We want to put it
on the record whether it is "yes" or "no".
MS. OGAN.
Yes, sir.
SEN. DRILON.
So, even assuming that all of those were demand letters, the 10
years prescription set in and it should have prescribed in 1998,
whatever is the date, or before the case was filed in 2001.
MR. CIMAFRANCA.
The 10-year period for — if the contract is written, it's 10 years

and it should have prescribed in 10 years and we did raise that in
our answer, in our motion to dismiss. ScAIaT
SEN. DRILON.
I know. You raised this in your motion to dismiss and 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 that indeed there is basis to argue
that these claims have prescribed.
Now, the reason why there was a colorable basis on the

complaint filed in 2001 was that somehow the board of
PNCC recognized the obligation in a special board
meeting on October 20, 2000. Hindi ba ganoon 'yon?
MS. OGAN.
Yes, that is correct.
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 lapsed
since the last demand letter?
MR. AGUILAR.
May I volunteer an answer?

SEN. DRILON.
Please.
MR. AGUILAR.
I looked into that, Mr. Chairman, Your Honor. It was as a

result of and I go to the folder letter "N". In our own
demand research it was not period, Your Honor, that
Punongbayan in the big folder, sir, letter "N" it was the
period where PMO was selling PNCC and Punongbayan
and Araullo Law Office came out with an investment
brochure that indicated liabilities both to national
government and to Marubeni/Radstock. So, PMO said,
"For good order, can you PNCC board confirm that by
board resolution?" That's the tone of the letter.
SEN. DRILON.
Confirm what? Confirm the liabilities that are contained in the

Punongbayan investment prospectus both to the national
government and to PNCC. That is the reason at least from the
record, Your Honor, how the PNCC board got to deliberate on the
Marubeni.
THE CHAIRMAN.
What paragraph? Second to the last paragraph? DaAISH
MR. AGUILAR.
Yes. Yes, Mr. Chairman. Ito po 'yong — that's to our recollection,

in the records, that was the reason.

SEN. DRILON.
Is that the only reason why . . .

MR. AGUILAR.
From just the records, Mr. Chairman, and then interviews with
people who are still around.
SEN. DRILON.
You mean, you acknowledged a prescribed obligation

because of this paragraph?
MR. AGUILAR.
I don't know what legal advice we were following at that

time, Mr. Chairman. 46 (Emphasis supplied)
Besides prescription, the Office of the Government Corporate Counsel

(OGCC) originally believed that PNCC had another formidable legal weapon
against Radstock, that is, the lack of authority of Alfredo Asuncion, then
Executive Vice-President of PNCC, to sign the letter of guarantee on behalf of
CDCP. During the Senate hearings, the following exchange reveals the
OGCC's original opinion:
THE CHAIRMAN.
What was the opinion of the Office of the Government Corporate
Counsel?
MS. OGAN.
The opinion of the Office of the Government Corporate Counsel is
that PNCC should exhaust all means to resist the case using all
defenses available to a guarantee and a surety that there is a
valid ground for PNCC's refusal to honor or make good the
alleged guarantee obligation. It appearing that from the
documents submitted to the OGCC that there is no board
authority in favor or authorizing Mr. Asuncion, then EVP,
to sign or execute the letter of guarantee in behalf of
CDCP and that said letter of guarantee is not legally
binding upon or enforceable against CDCP as principals,
your Honors. 47
xxx xxx xxx
SEN. DRILON.
Now that we have read this, what was the opinion of the
Government Corporate Counsel, Mr. Cimafranca?
MR. CIMAFRANCA.
Yes, Senator, we did issue an opinion upon the request of

PNCC and our opinion was that there was no valid
obligation, no valid guarantee. And we incorporated that
in our pleadings in court. 48 (Emphasis supplied) aIcDCA

Clearly, PNCC had strong defenses against the collection suit filed by
Radstock, as originally opined by the OGCC. It is quite puzzling, therefore,
that the PNCC Board, which had solid grounds to refute the legitimacy of the
Marubeni loans, admitted its liability and entered into a Compromise
Agreement that is manifestly and grossly prejudicial to PNCC.
Fourth. The basis for the admission of liability for the Marubeni loans,
which was an opinion of the Feria Law Office, was not even shown to the
PNCC Board.
Atty. Raymundo Francisco, the APT trustee overseeing the proposed
privatization of PNCC at the time, was responsible for recommending to the
PNCC Board the admission of PNCC's liability for the Marubeni loans. Atty.
Francisco based his recommendation solely on a mere alleged
opinion of the Feria Law Office. Atty. Francisco did not bother to
show this "Feria opinion" to the members of the PNCC Board,
except to Atty. Renato Valdecantos, who as the then PNCC
Chairman did not also show the "Feria opinion" to the other PNCC
Board members. During the Senate hearings, Atty. Francisco could not
produce a copy of the "Feria opinion". The Senators grilled Atty. Francisco on
his recommendation to recognize PNCC's liability for the Marubeni loans,
thus:
THE CHAIRMAN.
. . . You were the one who wrote this letter or rather this
memorandum dated 17 October 2000 to Atty. Valdecantos. Can
you tell us the background why you wrote the letter
acknowledging a debt which is non-existent?
MR. FRANCISCO.
I was appointed as the trustee in charge of the privatization of

the PNCC at that time, sir. And I was tasked to do a study and
engage the services of financial advisors as well as legal advisors
to do a legal audit and financial study on the position of PNCC. I
bidded out these engagements, the financial advisership went to
Punongbayan and Araullo. The legal audit went to the Feria Law
Offices.
THE CHAIRMAN.
Spell it. Boy Feria?
MR. FRANCISCO.
Feria — Feria.
THE CHAIRMAN.
Lugto?
MR. FRANCISCO.
Yes. Yes, Your Honor. And this was the findings of the Feria Law
Office — that the Marubeni account was a legal obligation. AHCaES

So, I presented this to our board. Based on the findings of the
legal audit conducted by the Ferial Law Offices, sir.
THE CHAIRMAN.
Why did you not ask the government corporate counsel?

Why did you have to ask for the opinion of an outside
counsel?
MR. FRANCISCO.
That was the — that was the mandate given to us, sir,
that we have to engage the . . .
THE CHAIRMAN.
Mandate given by whom?

MR. FRANCISCO.
That is what we usually do, sir, in the APT.
THE CHAIRMAN.
Ah, you get outside counsel?
MR. FRANCISCO.
Yes, we. . .
THE CHAIRMAN.
Not necessarily the government corporate counsel?

MR. FRANCISCO.
No, sir.
THE CHAIRMAN.
So, on the basis of the opinion of outside counsel, private, you
proceeded to, in effect, recognize an obligation which is not even
entered in the books of the PNCC? You probably resuscitated a
non-existing obligation anymore?
MR. FRANCISCO.
Sir, I just based my recommendation on the professional findings

of the law office that we engaged, sir.
aHcACI
THE CHAIRMAN.
Did you not ask for the opinion of the government

corporate counsel?
MR. FRANCISCO.
No, sir.
THE CHAIRMAN.
Why?
MR. FRANCISCO.
I felt that the engagements of the law office was sufficient,
anyway we were going to raise it to the Committee on
Privatization for their approval or disapproval, sir.
THE CHAIRMAN.
The COP?
MR. FRANCISCO.
Yes, sir.
THE CHAIRMAN.
That's a cabinet level?
MR. FRANCISCO.
Yes, sir. And we did that, sir.

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
with the board of directors on October 20, 2000, the board
resolved in its Board Resolution No. 092-2000, the board
resolved to recognize, acknowledge and confirm PNCC's
obligations as of September 30, 1999, etcetera, etcetera. (A), or
rather (B), Marubeni Corporation in the amount of P10,740,000.
Now, we asked to be here because the franchise of PNCC is
hanging in a balance because of the — on the questions on this
acknowledgement. So we want to be educated.
Now, the paper trail starts with your letter. So, that's it — that's
my kuwan, Frank. CSAaDE
Yes, Senator Drilon.

SEN. DRILON.
Thank you, Mr. Chairman.
Yes, Atty. Francisco, you have a copy of the minutes of October
20, 2000?
MR. FRANCISCO.
I'm sorry, sir, we don't have a copy.
SEN. DRILON.
May we ask the corporate secretary of PNCC to provide us with a

copy?
Okay naman andiyan siya.

(Ms. Ogan handing the document to Mr. Francisco.)
You have familiarized yourselves with the minutes, Atty.
Francisco?
MR. FRANCISCO.
Yes, sir.
SEN. DRILON.
Now, mention is made of a memorandum here on line 8, page 3
of this board's minutes. It says, "Director Francisco has prepared
a memorandum requesting confirmation, acknowledgement, and
ratification of this indebtedness of PNCC to the national
government which was determined by Bureau of Treasury as of
September 30, 1999 is 36,023,784,751. And with respect to
PNCC's obligation to Marubeni, this has been determined to be in
the total amount of 10,743,103,388, also as of September 30,
1999; that there is need to ratify this because there has already
been a representation made with respect to the review of the
financial records of PNCC by Punongbayan and Araullo, which
have been included as part of the package of APT's disposition to
the national government's interest in PNCC".
You recall having made this representation as found in the
minutes, I assume, Atty. Francisco?
MR. FRANCISCO.
Yes, sir. But I'd like to be refreshed on the memorandum, sir,
because I don't have a copy. TSaEcH
SEN. DRILON.
Yes, this memorandum was cited earlier by Senator Arroyo, and
maybe the secretary can give him a copy? Give him a copy?
MS. OGAN.
(Handing the document to Mr. Francisco.)

MR. FRANCISCO.
Your Honor, I have here a memorandum to the PNCC board
through Atty. Valdecantos, which says that — in the last
paragraph, if I may read? "May we request therefore, that a
board resolution be adopted, acknowledging and confirming the
aforementioned PNCC obligations with the national government
and Marubeni as borne out by the due diligence audit".
SEN. DRILON.
This is the memorandum referred to in these minutes. This
memorandum dated 17 October 2000 is the memorandum
referred to in the minutes.
MR. FRANCISCO.
I would assume, Mr. Chairman.

SEN. DRILON.
Right.
Now, the Punongbayan representative who was here yesterday,
Mr. . .
THE CHAIRMAN.
Navarro.
SEN. DRILON.
. . . Navarro denied that he made this recommendation.
THE CHAIRMAN.
He asked for opinion, legal opinion.
SEN. DRILON.
He said that they never made this representation and the
transcript will bear us out. They said that they never made this
representation that the account of Marubeni should be
recognized. HDAaIc
MR. FRANCISCO.
Mr. Chairman, in the memorandum, I only mentioned here the
acknowledgement and confirmation of the PNCC obligations. I
was not asking for a ratification. I never mentioned ratification in
the memorandum. I just based my memo based on the due
diligence audit of the Feria Law Offices.
SEN. DRILON.
Can you say that again? You never asked for a ratification. . .
MR. FRANCISCO.
No. I never mentioned in my memorandum that I was asking for

a ratification. I was just — in my memo it says, "acknowledging
and confirming the PNCC obligation". This was what . . .
SEN. DRILON.
Isn't it the same as ratification? I mean, what's the difference?
MR. FRANCISCO.
I — well, my memorandum was meant really just to confirm the
findings of the legal audit as . . .
SEN. DRILON.
In your mind as a lawyer, Atty. Francisco, there's a difference
between ratification and — what's your term? —
acknowledgment and confirmation?
MR. FRANCISCO.
Well, I guess there's no difference, Mr. Chairman.
SEN. DRILON.
Right.
Anyway, just of record, the Punongbayan representatives here

yesterday said that they never made such representation.
In any case, now you're saying it's the Feria Law Office who
rendered that opinion? Can we — you know, yesterday we were
asking for a copy of this opinion but we were never furnished
one. The . . . no less than the Chairman of this Committee was
asking for a copy.
THE CHAIRMAN.
Well, copy of the opinion. . . TcDIEH
MS. OGAN.
Yes, Mr. Chairman, we were never furnished a copy of

this opinion because it's opinion rendered for the Asset
Privatization Trust which is its client, not the PNCC, Mr.
Chairman.
THE CHAIRMAN.
All right. The question is whether — but you see, this is a
memorandum of Atty. Francisco to the Chairman of the Asset
Privatization Trust. You say now that you were never furnished a
copy because that's supposed to be with the Asset . . .
MS. OGAN.
Yes, Mr. Chairman.

THE CHAIRMAN.
. . . but yet the action of — or rather the opinion of the Feria Law
Offices was in effect adopted by the board of directors of PNCC in
its minutes of October 20, 2000 where you are the corporate
secretary, Ms. Ogan.
MS. OGAN.
Yes, Mr. Chairman.

THE CHAIRMAN.
So, what I am saying is that this opinion or rather the opinion of
the Feria Law Offices of which you don't have a copy?
MS. OGAN.
Yes, sir.
THE CHAIRMAN.
And the reason being that, it does not concern the PNCC because
that's an opinion rendered for APT and not for the PNCC.
MS. OGAN.
Yes, Mr. Chairman, that was what we were told although we
made several requests to the APT, sir. TIDaCE
THE CHAIRMAN.
All right. Now, since it was for the APT and not for 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 Asset
Privatization Trust. And that is what Atty. Francisco says and 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 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.
You read the minutes of the October 20, 2000 meeting of the
board of directors on Item V. The resolution speaks of . . so, go
ahead.
MS. OGAN.
I gave my copies. Yes, sir.
THE CHAIRMAN.
In effect the Feria Law Offices' opinion was for the
consumption of the APT.
MS. OGAN.
That was what we were told, Mr. Chairman.
THE CHAIRMAN.
And you were not even provided with a copy.
THE CHAIRMAN.
Yet you adopted it.

MS. OGAN.
Yes, sir.
SEN. DRILON.
Considering you were the corporate secretary.
THE CHAIRMAN.
She was the corporate secretary.
SEN. DRILON.
She was just recording the minutes.
THE CHAIRMAN.
Yes, she was recording. aSIETH
Now, we are asking you now why it was taken up?
MS. OGAN.
Yes, sir, Mr. Chairman, this was mentioned in the memorandum
of Atty. Francisco, memorandum to the board.
SEN. DRILON.
Mr. Chairman, Mr. Francisco represented APT in the board of

PNCC. And is that correct, Mr. Francisco?
THE CHAIRMAN.
You're an ex-officio member.
SEN. DRILON.
Yes.
MR. FRANCISCO.
Ex-officio member only, sir, as trustee in charge of the
privatization of PNCC.
SEN. DRILON.
With the permission of Mr. Chair, may I ask a question. . .
THE CHAIRMAN.
Oh, yes, Senator Drilon.
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. Did you discuss — first, did
you give a copy of this opinion to PNCC?
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.
SEN. DRILON.
And because he was. . . EIAHcC
MR. FRANCISCO.
Because he was my immediate boss in the APT.
SEN. DRILON.
Apparently, [it] just ended up in the personal possession
of Mr. Valdecantos because the corporate secretary,
Glenda Ogan, who is supposed to be the custodian of the
records of the board never saw a copy of this.
MR. FRANCISCO.
Well, sir, my — the copy that I gave was to Mr.
Valdecantos because he was the one sitting in the PNCC
board, sir.
SEN. DRILON.
No, you sit in the board.
MR. FRANCISCO.
I was just an ex-officio member. And all my reports were
coursed through our Chairman, Mr. Valdecantos, sir.
SEN. DRILON.
Now, did you ever tell the board that there is a legal
position taken or at least from the documents it is
possible that the claim has prescribed?
MR. FRANCISCO.
I took this up in the board meeting of the PNCC at that
time and I told them about this matter, sir.
SEN. DRILON.
No, you told them that the claim could have, under the
law, could have prescribed?
MR. FRANCISCO.
No, sir.
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 prescribed?
MR. FRANCISCO.
I did not dwell into the findings anymore, sir, because I
found the professional opinion of the Feria Law Office to
be sufficient. 49 (Emphasis supplied)
ESCDHA
Atty. Francisco's act of recommending to the PNCC Board the

acknowledgment of the Marubeni loans based only on an opinion of a private
law firm, without consulting the OGCC and without showing 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 heart". In fact, if what was involved was his own
money, Atty. Francisco would have preferred not just two, but at least three
different opinions on how to deal with the matter, and he would have
maintained his non-liability.
SEN. OSMEÑA.
...
All right. And lastly, just to clear our minds, there has always
been this finger-pointing, of course, whenever — this is typical
Filipino. When they're caught in a bind, they always point a
finger, they pretend they don't know. And it just amazes me that
you have been appointed trustees, meaning, representatives of
the Filipino people, that's what you were at APT, right? You were
not Erap's representatives, you were representative of the
Filipino people and you were tasked to conserve the assets that
that had been confiscated from various cronies of the previous
administration. And here, you are asked to recognize the P10
billion debt and you point only to one law firm. If you have
cancer, don't you to a second opinion, a second doctor or a third
doctor? This is just a question. I am just asking you for your
opinion if you would take the advice of the first doctor who tells
you that he's got to open you up.
MR. FRANCISCO.
I would go to three or more doctors, sir.

SEN. OSMEÑA.
Three or more. Yeah, that's right. And in this case the APT did not
do so.
MR. FRANCISCO.
We relied on the findings of the . . .

SEN. OSMEÑA.
If these were your money, would you have gone also to
obtain a second, third opinion from other law firms. Kung
pera mo itong 10 billion na ito. Siguro you're not gonna
give it up that easily ano, 'di ba?
MR. FRANCISCO.
Yes, sir.
SEN. OSMEÑA.
You'll probably keep it in court for the next 20 years. aESICD
This is a clear admission by Atty. Francisco of bad faith in directing the

affairs of PNCC — that he would not have recognized the Marubeni loans if
his own funds were involved or if he were the owner of PNCC.
The PNCC Board admitted liability for the P10.743 billion Marubeni
loans without seeing, reading or discussing the "Feria opinion" which
was the sole basis for its admission of liability. Such act surely goes against
ordinary human nature, and amounts to gross negligence and utter bad
faith, even bordering on fraud, on the part of the PNCC Board in directing the
affairs of the corporation. Owing loyalty to PNCC and its stockholders, the
PNCC Board should have exercised utmost care and diligence in admitting a
gargantuan debt of P10.743 billion that would certainly force PNCC into
insolvency, a debt that previous PNCC Boards in the last two decades
consistently refused to admit.
Instead, the PNCC Board admitted PNCC's liability for the Marubeni
loans relying solely on a mere opinion of a private law office, which opinion
the PNCC Board members never saw, except for Atty. Valdecantos and Atty.
Francisco. The PNCC Board knew that PNCC, as a government owned and
controlled corporation (GOCC), must rely "exclusively" on the opinion of the
OGCC. Section 1 of Memorandum Circular No. 9 dated 27 August 1998
issued by the President states:
SECTION 1. All legal matters pertaining to government-
owned or controlled corporations, their subsidiaries, other
corporate off-springs and government acquired asset corporations
(GOCCs) shall be exclusively referred to and handled by the
Office of the Government Corporate Counsel (OGCC). (Emphasis
supplied)
The PNCC Board acted in bad faith in relying on the opinion of a private
lawyer knowing that PNCC is required to rely "exclusively" on the OGCC's
opinion. Worse, the PNCC Board, in admitting liability for P10.743 billion,
relied on the recommendation of a private lawyer whose opinion the PNCC
Board members have not even seen.
During the oral arguments, Atty. Sison explained to the Court that the
intention of APT was for the PNCC Board merely to disclose the claim of
Marubeni as part of APT's full disclosure policy to prospective buyers of
PNCC. Atty. Sison stated that it was not the intention of APT for the
PNCC Board to admit liability for the Marubeni loans, thus:
. . . It was the Asset Privatization Trust A-P-T that was tasked to
sell the company. The A-P-T, for purposes of disclosure statements,
tasked the Feria Law Office to handle the documentation and the study
of all legal issues that had to be resolved or clarified for the information
of prospective bidders and or buyers. In the performance of its
assigned task the Feria Law Office came upon the Marubeni
claim and mentioned that the APTC and/or PNCC must disclose
that there is a claim by Marubeni against PNCC for purposes of
satisfying the requirements of full disclosure. This seemingly
innocent statement or requirement made by the Feria Law
Office was then taken by two officials of the Asset Privatization
Trust and with malice aforethought turned it into the basis for
a multi-billion peso debt by the now government owned and/or
controlled PNCC. . . . . 51 (Emphasis supplied) SCEDAI
While the PNCC Board passed Board Resolution No. BD-099-2000

amending Board Resolution No. BD-092-2000, such amendment merely
added conditions for the recognition of the Marubeni loans, namely,
subjecting the recognition to a final determination by COA of the amount
involved and to the declaration by OGCC of the legality of PNCC's liability.
However, the PNCC Board reiterated and stood firm that it "recognizes,
acknowledges and confirms its obligations" for the Marubeni loans.
Apparently, Board Resolution No. BD-099-2000 was a futile attempt to
"revoke" Board Resolution No. BD-092-2000. Atty. Alfredo Laya, Jr., a former
PNCC Director, spoke on his protests against Board Resolution No. BD-092-
2000 at the Senate hearings, thus:
MR. LAYA.
Mr. Chairman, if I can . . .
THE CHAIRMAN.
Were you also at the board?

MR. LAYA.
At that time, yes, sir.
THE CHAIRMAN.
Okay, go ahead.
MR. LAYA.
That's why if — maybe this can help clarify the sequence. There
was this meeting on October 20. This matter of the Marubeni
liability or account was also discussed. Mr. Macasaet, if I may try
to refresh. And there was some discussion, sir, and in fact, they
were saying even at that stage that there should be a COA or an
OGCC audit. Now, that was during the discussion of October 20.
Later on, the minutes came out. The practice, then, sir, was for
the minutes to come out at the start of the meeting of the
subsequent. So the minutes of October 20 came out on
November 22 and then we were going over it. And that is in the
subsequent minutes of the meeting . . .
THE CHAIRMAN.
May I interrupt. You were taking up in your November 22 meeting
the October 20 minutes?
MR. LAYA.
Yes, sir.
THE CHAIRMAN.
This minutes that we have? ADCEcI
MR. LAYA.
Yes, sir.
THE CHAIRMAN.
All right, go ahead.
MR. LAYA.
Now, in the November 22 meeting, we noticed this
resolution already for confirmation of the board —
proceedings of October 20. So immediately we made —
actually, protest would be a better term for that — we
protested the wording of the resolution and that's why we
came up with this resolution amending the October 20
resolution.
SEN. DRILON.
So you are saying, Mr. Laya, that the minutes of October

20 did not accurately reflect the decisions that you made
on October 20 because you were saying that this
recognition should be subject to OGCC and COA? You
seem to imply and we want to make it — and I want to get
that for the record. You seem to imply that there was no
decision to recognize the obligation during that meeting
because you wanted it to subject it to COA and OGCC, is
that correct?
MR. LAYA.
Yes, your Honor.

SEN. DRILON.
So how did. . .
MR. LAYA.
That's my understanding of the proceedings at that time, that's
why in the subsequent November 22 meeting, we raised this
point about obtaining a COA and OGCC opinion.
SEN. DRILON.
Yes. But you know, the November 22 meeting repeated the
wording of the resolution previously adopted only now you are
saying subject to final determination which is completely of
different import from what you are saying was your
understanding of the decision arrived at on October 20.
MR. LAYA.
Yes, sir. Because our thinking then. . .

SEN. DRILON.
What do you mean, yes, sir? aHSCcE
MR. LAYA.
It's just a claim under discussion but then the way it is translated,
as the minutes of October 20 were not really verbatim.
SEN. DRILON.

So, you never intended to recognize the obligation.
MR. LAYA.
I think so, sir. That was our — personally, that was my position.
SEN. DRILON.
How did it happen, Corporate Secretary Ogan, that the minutes
did not reflect what the board . . .
THE CHAIRMAN.
Ms. Pasetes . . .
MS. PASETES.
Yes, Mr. Chairman.

THE CHAIRMAN.
. . . you are the chief financial officer of PNCC.
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 obligations of
10 billion of Marubeni and 36 billion of the national government
on whether to recognize this as an obligation in our books or
recognize it as an obligation in the pro forma financial statement
to be used for the privatization of PNCC because recognizing both
obligations in the books of PNCC would defeat our going concern
status and that is where the position of the president then, Mr.
Macasaet, stemmed from and he went back to the board and
moved to reconsider the position of October 20, 2000, Mr. Chair.
52 (Emphasis supplied)
In other words, despite Atty. Laya's objections to PNCC's admitting liability

for the Marubeni loans, the PNCC Board still admitted the same and merely
imposed additional conditions to temper somehow the devastating effects of
Board Resolution No. BD-092-2000.
The act of the PNCC Board in issuing Board Resolution No. BD-092-
2000 expressly admitting liability for the Marubeni loans demonstrates the
PNCC Board's gross and willful disregard of the requisite care and diligence
in managing the affairs of PNCC, amounting to bad faith and resulting in
grave and irreparable injury to PNCC and its stockholders. This reckless and
treacherous move on the part of the PNCC Board clearly constitutes a
serious breach of its fiduciary duty to PNCC and its stockholders, rendering
the members of the PNCC Board liable under Section 31 of the Corporation
Code, which provides: aIAHcE
SEC. 31. Liability of directors, trustees or officers. — Directors

or trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or
bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such
directors or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or
members and other persons.
When a director, trustee or officer attempts to acquire or

acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in him in
confidence, as to which equity imposes a disability upon him to deal in
his own behalf, he shall be liable as a trustee for the corporation and
must account for the profits which otherwise would have accrued to the
corporation.
Soon after the short-lived Estrada Administration, the PNCC Board

revoked its previous admission of liability for the Marubeni loans. During the
oral arguments, Atty. Sison narrated to the Court:
. . . After President Estrada was ousted, I was appointed as
President and Chairman of PNCC in April of 2001, this particular board
resolution was brought to my attention and I immediately put the
matter before the board. I had no problem in convincing them to
reverse the recognition as it was illegal and had no basis in fact. The
vote to overturn that resolution was unanimous. Strange to say that
some who voted to overturn the recognition were part of the old board
that approved it. Stranger still, Renato Valdecantos who was still a
member of the Board voted in favor of reversing the resolution he
himself instigated and pushed. Some of the board members who
voted to recognize the obligation of Marubeni even came to me
privately and said "pinilit lang kami" . . . . . 53 (Emphasis supplied)
aITECA
In approving PNCC Board Resolution Nos. BD-092-2000 and BD-099-

2000, the PNCC Board caused undue injury to the Government and gave
unwarranted benefits to Radstock, through manifest partiality, evident bad
faith or gross inexcusable negligence of the PNCC Board. Such acts are
declared under Section 3 (e) of RA 3019 or the Anti-Graft and Corrupt
Practices Act, as "corrupt practices . . . and . . . unlawful". Being
unlawful and criminal acts, these PNCC Board Resolutions are void ab initio
and cannot be implemented or in any way given effect by the Executive or
Judicial branch of the Government.
Not content with forcing PNCC to commit corporate suicide with the
admission of liability for the Marubeni loans under Board Resolution Nos. BD-
092-2000 and BD-099-2000, the PNCC Board drove the last nail on PNCC's
coffin when the PNCC Board entered into the manifestly and grossly
disadvantageous Compromise Agreement with Radstock. This time, the
OGCC, headed by Agnes DST Devanadera, reversed itself and recommended
approval of the Compromise Agreement to the PNCC Board. As Atty. Sison
explained to the Court during the oral arguments:
. . . While the case was pending in the Court of Appeals, Radstock
in a rare display of extreme generosity, conveniently convinced the
Board of PNCC to enter into a compromise agreement for 1/2 the
amount of the judgment rendered by the RTC or P6.5 Billion Pesos.
This time the OGCC, under the leadership of now Solicitor
General Agnes Devanadera, approved the compromise
agreement abandoning the previous OGCC position that PNCC
had a meritorious case and would be hard press to lose the
case. What is strange is that although the compromise agreement we
seek to stop ostensibly is for P6.5 Billion only, truth and in fact, the
agreement agrees to convey to Radstock all or substantially all of the
assets of PNCC worth P18 Billion Pesos. There are three items that are
undervalued here, the real estate that was turned over as a result of
the controversial agreement, the toll revenues that were being
assigned and the value of the new shares of PNCC the difference is
about P12 Billion Pesos. . . . (Emphasis supplied)
V.
The Compromise Agreement is Void
for Being Contrary to the Constitution,
Existing Laws, and Public Policy
For a better understanding of the present case, the pertinent terms
and conditions of the Compromise Agreement between PNCC and Radstock
are quoted below:
COMPROMISE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:

This Agreement made and entered into this 17th day of August
2006, in Mandaluyong City, Metro Manila, Philippines, by and between:
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, a
government acquired asset corporation, created and existing
under the laws of the Republic of the Philippines, with principal office
address at EDSA corner Reliance Street, Mandaluyong City, Philippines,
duly represented herein by its Chairman ARTHUR N. AGUILAR,
pursuant to a Board Resolution attached herewith as Annex "A" and
made an integral part hereof, hereinafter referred to as PNCC; cCAIaD
- and -
RADSTOCK SECURITIES LIMITED, a private corporation
incorporated in the British Virgin Islands, with office address at
Suite 1402 1 Duddell Street, Central Hongkong duly-represented
herein by its Director, CARLOS G. DOMINGUEZ, pursuant to a Board
Resolution attached herewith as Annex "B" and made an integral part
hereof, hereinafter referred to as RADSTOCK.
WITNESSETH:
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
Regional Trial Court (RTC), Mandaluyong City, docketed as Civil Case
No. MC-01-1398, to collect on PNCC's guarantees on the unpaid loan
obligations of CDCP Mining Corporation as provided under an Advance
Payment Agreement and Loan Agreement;

WHEREAS, on December 10, 2002, the RTC of Mandaluyong
rendered a decision in favor of plaintiff RADSTOCK directing PNCC to
pay the total amount of Thirteen Billion One Hundred Fifty One Million
Nine Hundred Fifty-Six Thousand Five Hundred Twenty-Eight Pesos
(P13,151,956,528.00) with interest from October 15, 2001 plus Ten
Million Pesos (P10,000,000.00) as attorney's fees.
WHEREAS, PNCC had elevated the case to the Court of Appeals
(CA-G.R. SP No. 66654) on Certiorari and thereafter, to the Supreme
Court (G.R. No. 156887) which Courts have consistently ruled that the
RTC did not commit grave abuse of discretion when it denied PNCC's
Motion to Dismiss which sets forth similar or substantially the same
grounds or defenses as those raised in PNCC's Answer;
WHEREAS, the case has remained pending for almost six (6)
years even after the main action was appealed to the Court of Appeals;
WHEREAS, on the basis of the RTC Decision dated December 10,
2002, the current value of the judgment debt against PNCC stands at
P17,040,843,968.00 as of July 31, 2006 (the "Judgment Debt");
WHEREAS, RADSTOCK is willing to settle the case at the reduced
Compromise Amount of Six Billion One Hundred Ninety-Six Million
Pesos (P6,196,000,000.00) which may be paid by PNCC, either in cash
or in kind to avoid the trouble and inconvenience of further litigation as
a gesture of goodwill and cooperation;
WHEREAS, it is an established legal policy or principle that
litigants in civil cases should be encouraged to compromise or
amicably settle their claims not only to avoid litigation but also to put
an end to one already commenced (Articles 2028 and 2029, Civil
Code); cTADCH
WHEREAS, this Compromise Agreement has been approved by

the respective Board of Directors of both PNCC and RADSTOCK, subject
to the approval of the Honorable Court;
NOW, THEREFORE, for and in consideration of the foregoing
premises, and the mutual covenants, stipulations and agreements
herein contained, PNCC and RADSTOCK have agreed to amicably settle
the above captioned Radstock case under the following terms and
conditions:
1. RADSTOCK agrees to receive and accept from PNCC in full and
complete settlement of the Judgment Debt, the reduced amount
of Six Billion, One Hundred Ninety-Six Million Pesos
(P6,196,000,000.00) (the "Compromise Amount").
2. This Compromise Amount shall be paid by PNCC to RADSTOCK in

the following manner:
a. PNCC shall assign to a third party assignee to be

designated by RADSTOCK all its rights and interests to the
following real properties provided the assignee shall be
duly qualified to own real properties in the Philippines;
(1) PNCC's rights over that parcel of land located in
Pasay City with a total area of One Hundred Twenty-
Nine Thousand Five Hundred Forty-Eight (129,548)
square meters, more or less, and which is covered by
and more particularly described in Transfer
Certificate of Title No. T-34997 of the Registry of
Deeds for Pasay City. The transfer value is
P3,817,779,000.00.
PNCC's rights and interests in Transfer Certificate of
Title No. T-34997 of the Registry of Deeds for Pasay
City is defined and delineated by Administrative
Order No. 397, Series of 1998, and RADSTOCK is fully
aware and recognizes that PNCC has an undertaking
to cede at least 2 hectares of this property to its
creditor, the Philippine National Bank; and that
furthermore, the Government Service Insurance
System has also a current and existing claim in the
nature of boundary conflicts, which undertaking and
claim will not result in the diminution of area or value
of the property. Radstock recognizes and
acknowledges the rights and interests of GSIS over
the said property.
(2) T-452587 (T-23646) — Parañaque (5,123 sq. m.)
subject to the clarification of the Privatization and
Management Office (PMO) claims thereon. The
transfer value is P45,000,900.00.
(3) T-49499 (529715 including T-68146-G (S-29716)
(1,9747-A) — Parañaque (107 sq. m.) (54 sq. m.)
subject to the clarification of the Privatization and
Management Office (PMO) claims thereon. The
transfer value is P1,409,100.00. TIaCHA
(4) 5-29716 — Parañaque (27,762 sq. m.) subject to the

clarification of the Privatization and Management
Office (PMO) claims thereon. The transfer value is
P242,917,500.00.
(5) P-169 — Tagaytay (49,107 sq. m.). The transfer

value is P13,749,400.00.
(6) P-170 — Tagaytay (49,100 sq. m.). The transfer
value is P13,749,400.00.
(7) N-3320 — Town and Country Estate, Antipolo
(10,000 sq. m.). The transfer value is
P16,800,000.00.
(8) N-7424 — Antipolo (840 sq. m.). The transfer value
is P940,800.00.
is P952,000.00.

is P1,073,100.00.
(11) T-485276 — Antipolo (741 sq. m.). The transfer

value is P830,200.00.
value is P761,600.00.
value is P785,400.00.
(14) T-131500 — Bulacan (CDCP Farms Corp.) (4,945
sq. m.). The transfer value is P6,475,000.00.
(15) T-131501 — Bulacan (678 sq. m.). The transfer

value is P887,600.00.
(16) T-26,154 (M) — Bocaue, Bulacan (2,841 sq. m.).

The transfer value is P3,779,300.00.
(17) T-29,308 (M) — Bocaue, Bulacan (733 sq. m.). The
transfer value is P974,400.00.
(18) T-29,309 (M) Bocaue, Bulacan (1,141 sq. m.). The
transfer value is P1,517,600.00.
(19) T-260578 (R. Bengzon) Sta. Rita, Guiguinto,
Bulacan (20,000 sq. m.). The transfer value is
P25,200,000.00.
The transfer values of the foregoing properties are based on 70%

of the appraised value of the respective properties.
b. PNCC shall issue to RADSTOCK or its assignee common
shares of the capital stock of PNCC issued at par value
which shall comprise 20% of the outstanding capital stock
of PNCC after the conversion to equity of the debt exposure
of the Privatization Management Office (PMO) and the
National Development Company (NDC) and other
government agencies and creditors such that the total
government holdings shall not fall below 70% voting equity
subject to the approval of the Securities and Exchange
Commission (SEC) and ratification of PNCC's stockholders,
if necessary. The assigned value of the shares issued to
RADSTOCK is P713 Million based on the approximate last
trading price of PNCC shares in the Philippine Stock
Exchange as the date of this agreement, based further on
current generally accepted accounting standards which
stipulates the valuation of shares to be based on the lower
of cost or market value.
Subject to the procurement of any and all necessary
approvals from the relevant governmental authorities,
PNCC shall deliver to RADSTOCK an instrument evidencing
an undertaking of the Privatization and Management Office
(PMO) to give RADSTOCK or its assignee the right to match
any offer to buy the shares of the capital stock and debts of
PNCC held by PMO, in the event the same shares and debt
are offered for privatization.
IcHTED
c. PNCC shall assign to RADSTOCK or its assignee 50% of the

PNCC's 6% share in the gross toll revenue of the Manila
North Tollways Corporation (MNTC), with a Net Present
Value of P1.287 Billion computed in the manner outlined in
Annex "C" herein attached as an integral part hereof, that
shall be due and owing to PNCC pursuant to the Joint
Venture Agreement between PNCC and First Philippine
Infrastructure Development Corp. dated August 29, 1995
and other related existing agreements, commencing in
2008. It shall be understood that as a result of this
assignment, PNCC shall charge and withhold the amounts,
if any, pertaining to taxes due on the amounts assigned.
Under the Compromise Agreement, PNCC shall pay Radstock the

reduced amount of P6,185,000,000.00 in full settlement of PNCC's
guarantee of CDCP Mining's debt allegedly totaling P17,040,843,968.00 as of
31 July 2006. To satisfy its reduced obligation, PNCC undertakes to (1)
"assign to a third party assignee to be designated by Radstock all its rights
and interests" to the listed real properties therein; (2) issue to Radstock or
its assignee common shares of the capital stock of PNCC issued at par value
which shall comprise 20% of the outstanding capital stock of PNCC; and (3)
assign to Radstock or its assignee 50% of PNCC's 6% share, for the next 27
years (2008-2035), in the gross toll revenues of the Manila North Tollways
Corporation.
A.The PNCC Board has no power to compromise
the P6.185 billion amount.
Does the PNCC Board have the power to compromise the P6.185 billion
"reduced" amount? The answer is in the negative.
The Dissenting Opinion asserts that PNCC has the power, citing Section
36(2) of Presidential Decree No. 1445 (PD 1445), otherwise known as the
Government Auditing Code of the Philippines, enacted in 1978. Section 36
states:
SECTION 36. Power to Compromise Claims. — (1) When the
interest of the government so requires, the Commission may
compromise or release in whole or in part, any claim or settled liability
to any government agency not exceeding ten thousand pesos and with
the written approval of the Prime Minister, it may likewise compromise
or release any similar claim or liability not exceeding one hundred
thousand pesos, the application for relief therefrom shall be submitted,
through the Commission and the Prime Minister, with their
recommendations, to the National Assembly.
(2) The respective governing bodies of government-owned or
controlled corporations, and self-governing boards, commissions or
agencies of the government shall have the exclusive power to
compromise or release any similar claim or liability when expressly
authorized by their charters and if in their judgment, the interest of
their respective corporations or agencies so requires. When the
charters do not so provide, the power to compromise shall be
exercised by the Commission in accordance with the preceding
paragraph. (Emphasis supplied) ACEIac
The Dissenting Opinion asserts that since PNCC is incorporated under

the Corporation Code, the PNCC Board has all the powers granted to the
governing boards of corporations incorporated under the Corporation Code,
which includes the power to compromise claims or liabilities.
Section 36 of PD 1445, enacted on 11 June 1978, has been
superseded by a later law — Section 20 (1), Chapter IV, Subtitle B, Title I,
Book V of Executive Order No. 292 or the Administrative Code of 1987,
which provides:
Section 20. Power to Compromise Claims. — (1) When the
interest of the Government so requires, the Commission may
compromise or release in whole or in part, any settled claim or
liability to any government agency not exceeding ten thousand
pesos arising out of any matter or case before it or within its
jurisdiction, and with the written approval of the President, it may
likewise compromise or release any similar claim or liability not
exceeding one hundred thousand pesos. In case the claim or
liability exceeds one hundred thousand pesos, the application
for relief therefrom shall be submitted, through the
Commission and the President, with their recommendations, to
the Congress[.] . . . (Emphasis supplied)
Under this provision, 54 the authority to compromise a settled claim or

liability exceeding P100,000.00 involving a government agency, as in this
case where the liability amounts to P6.185 billion, is vested not in COA but
exclusively in Congress. Congress alone has the power to compromise the
P6.185 billion purported liability of PNCC. Without congressional approval,
the Compromise Agreement between PNCC and Radstock involving P6.185
billion is void for being contrary to Section 20(1), Chapter IV, Subtitle B, Title
I, Book V of the Administrative Code of 1987.
PNCC is a "government agency" because Section 2 on Introductory
Provisions of the Revised Administrative Code of 1987 provides that —
Agency of the Government refers to any of the various units of
the Government, including a department, bureau, office,
instrumentality, or government-owned or controlled corporation ,
or a local government or a distinct unit therein. (Boldfacing supplied)
Thus, Section 20 (1), Chapter IV, Subtitle B, Title I, Book V of the

Administrative Code of 1987 applies to PNCC, which indisputably is a
government owned or controlled corporation.
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, Title I,
Book V of the Administrative Code of 1987. Clearly, the Dissenting Opinion's
reliance on the COA's finding that the terms and conditions of the
Compromise Agreement are "fair and above board" is patently erroneous.
Citing Benedicto v. Board of Administrators of Television Stations RPN,
BBC and IBC, 55 the Dissenting Opinion views that congressional approval is
not required for the validity of the Compromise Agreement because the
liability of PNCC is not yet "settled".
In Benedicto, the PCGG filed in the Sandiganbayan a civil case to
recover from the defendants (including Roberto S. Benedicto) their ill-gotten
wealth consisting of funds and other properties. The PCGG executed a
compromise agreement with Roberto S. Benedicto ceding to the latter a
substantial part of his ill-gotten assets and the State granting him immunity
from further prosecution. The Court held that prior congressional approval is
not required for the PCGG to enter into a compromise agreement with
persons against whom it has filed actions for recovery of ill-gotten wealth. ESTDIA
In Benedicto, the Court found that the government's claim against

Benedicto was not yet settled unlike here where the PNCC Board expressly
admitted the liability of PNCC for the Marubeni loans. In Benedicto, the
ownership of the alleged ill-gotten assets was still 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 loans. PNCC's
express admission of liability for the Marubeni loans is essentially the
premise of the execution of the Compromise Agreement. In short,
Radstock's claim against PNCC is settled by virtue of PNCC's
express admission of liability for the Marubeni loans. The
Compromise Agreement merely reduced this settled liability from
P17 billion to P6.185 billion.
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 government, then
compromising such "settled" liabilities. The present case is exactly what
the law seeks to prevent, a compromise agreement on a creditor's
claim settled through admission by a government agency without
the approval of Congress for amounts exceeding P100,000.00. What
makes the application of the law even 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
P10.743 billion private debt incurred by a private corporation which PNCC
does not even control. Second, the PNCC Board agreed to pay Radstock
P6.185 billion as a compromise settlement ahead of all other creditors,
including the Government which is the biggest creditor.
The Dissenting Opinion further argues that since the PNCC is
incorporated under the Corporation Code, it has the power, through its Board
of Directors, to compromise just like any other private corporation
organized under the Corporation Code. Thus, the Dissenting Opinion states:
Not being a government corporation created by special law,
PNCC does not owe its creation to some charter or special law, but to
the Corporation Code. Its powers are enumerated in the Corporation
Code and its articles of incorporation. As an autonomous entity, it
undoubtedly has the power to compromise, and to enter into a
settlement through its Board of Directors, just like any other private
corporation organized under the Corporation Code. To maintain
otherwise is to ignore the character of PNCC as a corporate entity
organized under the Corporation Code, by which it was vested with a
personality and identity distinct and separate from those of its
stockholders or members. (Boldfacing and underlining supplied)
The Dissenting Opinion is woefully wide off the mark. The PNCC is not
"just like any other private corporation" precisely because it is not a
private corporation but indisputably a government owned
corporation. Neither is PNCC "an autonomous entity" considering that
PNCC is under the Department of Trade and Industry, over which the
President exercises control. To claim that PNCC is an "autonomous entity" is
to say that it is a lost command in the Executive branch, a concept that
violates the President's constitutional power of control over the entire
Executive branch of government. 56 TAIEcS
The government nominees in the PNCC Board, who practically compose

the entire PNCC Board, are public officers subject to the Anti-Graft and
Corrupt Practices Act, accountable to the Government and the Filipino
people. To hold that a corporation incorporated under the Corporation Code,
despite its being 90.3% owned by the Government, is "an autonomous
entity" that could solely through its Board of Directors compromise, and
transfer ownership of, substantially all its assets to a private third party
without the approval required under the Administrative Code of 1987, 57 is to
invite the plunder of all such government owned corporations.
The dissenting opinion's claim that PNCC is an autonomous entity just
like any other private corporation is inconsistent with its assertion that
Section 36 (2) of the Government Auditing Code is the governing law in
determining PNCC's power to compromise. Section 36 (2) of the Government
Auditing Code expressly states that it applies to the governing bodies of
"government-owned or controlled corporations". The phrase
"government-owned or controlled corporations" refers to both those created
by special charter as well as those incorporated under the Corporation Code.
Section 2, Article IX-D of the Constitution provides:
SECTION 2. (1) The Commission on Audit shall have the
power, authority, and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in
trust by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities, including
government-owned or controlled corporations with original charters,
and on a post-audit basis: (a) constitutional bodies, commissions and
offices that have been granted fiscal autonomy under this Constitution;
(b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their
subsidiaries; and (d) such non-governmental entities receiving
subsidy or equity, directly or indirectly, from or through the
Government, which are required by law or the granting institution to
submit to such audit as a condition of subsidy or equity. However,
where the internal control system of the audited agencies is
inadequate, the Commission may adopt such measures, including
temporary or special pre-audit, as are necessary and appropriate to
correct the deficiencies. It shall keep the general accounts of the
Government and, for such period as may be provided by law, preserve
the vouchers and other supporting papers pertaining thereto.
(2) The Commission shall have exclusive authority, subject to

the limitations in this Article, to define the scope of its audit and
examination, establish the techniques and methods required therefor,
and promulgate accounting and auditing rules and regulations,
including those for the prevention and disallowance of
irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or uses of government funds and
properties. (Emphasis supplied) CaHcET
In explaining the extent of the jurisdiction of COA over government

owned or controlled corporations, this Court declared in Feliciano v.
Commission on Audit: 58
The COA's audit jurisdiction extends not only to government
"agencies or instrumentalities", but also to "government-owned and
controlled corporations with original charters" as well as "other
government-owned or controlled corporations" without original
charters.
xxx xxx xxx
Petitioner forgets that the constitutional criterion on the exercise
of COA's audit jurisdiction depends on the government's ownership or
control of a corporation. The nature of the corporation, whether it is
private, quasi-public, or public is immaterial.
The Constitution vests in the COA audit jurisdiction over

"government-owned and controlled corporations with original
charters", as well as "government-owned or controlled corporations"
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 corporations
created under the Corporation Code but are owned or controlled by the
government. The nature or purpose of the corporation is not material in
determining COA's audit jurisdiction. Neither is the manner of creation
of a corporation, whether under a general or special law.
Clearly, the COA's audit jurisdiction extends to government owned or

controlled corporations incorporated under the Corporation Code. Thus, the
COA must apply the Government Auditing Code in the audit and examination
of the accounts of such government owned or controlled corporations even
though incorporated under the Corporation Code. This means that
Section 20 (1), Chapter IV, Subtitle B, Title I, Book V of the Administrative
Code of 1987 on the power to compromise, which superseded Section 36
of the Government Auditing Code, applies to the present case in
determining PNCC's power to compromise. In fact, the COA has been
regularly auditing PNCC on a post-audit basis in accordance with Section 2,
Article IX-D of the Constitution, the Government Auditing Code, and COA
rules and regulations.
B.PNCC's toll fees are public funds.
PD 1113 granted PNCC a 30-year franchise to construct, operate and
maintain toll facilities in the North and South Luzon Expressways. Section 1
of PD 1113 59 provides:
Section 1 .Any provision of law to the contrary
notwithstanding, there is hereby granted to the Construction and
Development Corporation of the Philippines (CDCP), a
corporation duly organized and registered under the laws of the
Philippines, hereinafter called the 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) to Carmen, Rosales,
Pangasinan and from Nichols, Pasay City (Station 10 + 540) to Lucena,
Quezon, hereinafter referred to collectively as North Luzon Expressway,
respectively. CDcHSa
The franchise herein granted shall include the right to

collect toll fees at such rates as may be fixed and/or authorized by
the Toll Regulatory Board hereinafter referred to as the Board created
under Presidential Decree No. 1112 for the use of the expressways
above-mentioned. (Emphasis supplied)
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 Decree No. 1113 for the North Luzon Expressway
and the South Luzon Expressway which is thirty (30) years
from 1 May 1977 shall remain the same; provided that, the
franchise granted for the Metro Manila Expressway and all extensions
linkages, stretches and diversions that may be constructed after the
date of approval of this decree shall likewise have a term of thirty (30)
years commencing from the date of completion of the project.
(Emphasis supplied)
Based on these provisions, the franchise of the PNCC expired on 1 May 2007
or thirty years from 1 May 1977.
PNCC, however, claims that under PD 1894, the North Luzon
Expressway (NLEX) shall have a term of 30 years from the date of its
completion in 2005. PNCC argues that the proviso in Section 2 of PD 1894
gave "toll road projects completed within the franchise period and after the
approval of PD No. 1894 on 12 December 1983 their own thirty-year term
commencing from the date of the completion of the said project,
notwithstanding the expiry of the said franchise".
This contention is untenable.
The proviso in Section 2 of PD 1894 refers to the franchise granted for
the Metro Manila Expressway and all extensions linkages, stretches and
diversions constructed after the approval of PD 1894. It does not pertain
to the NLEX because the term of the NLEX franchise, "which is 30
years from 1 May 1977, shall remain the same", as expressly
provided in the first sentence of the same Section 2 of PD 1894. To
construe that the NLEX franchise had a new term of 30 years starting from
2005 glaringly conflicts with the plain, clear and unequivocal language of the
first sentence of Section 2 of PD 1894. That would be clearly absurd.
There is no dispute that Congress did not renew PNCC's franchise after
its expiry on 1 May 2007. However, PNCC asserts that it "remains a viable
corporate entity even after the expiration of its franchise under Presidential
Decree No. 1113". PNCC points out that the Toll Regulatory Board (TRB)
granted PNCC a "Tollway Operation Certificate" (TOC) which conferred on
PNCC the authority to operate and maintain toll facilities, which includes the
power to collect toll fees. PNCC further posits that the toll fees are private
funds because they represent "the consideration given to tollway operators
in exchange for costs they incurred or will incur in constructing, operating
and maintaining the tollways".
This contention is devoid of merit. IaEHSD
With the expiration of PNCC's franchise, the assets and

facilities of PNCC were automatically turned over, by operation of
law, to the government at no cost. Sections 2 (e) and 9 of PD 1113 and
Section 5 of PD 1894 provide:
Section 2 [of PD 1113]. In consideration of this franchise, the
GRANTEE shall:
(e) Turn over the toll facilities and all equipment directly
related thereto to the government upon expiration of the franchise
period without cost.
Section 9 [of PD 1113]. For the purposes of this franchise, the

Government, shall turn over to the GRANTEE (PNCC) not later than
April 30, 1977 all physical assets and facilities including all equipment
and appurtenances directly related to the operations of the North and
South Toll Expressways: Provided, That, the extensions of such
Expressways shall also be turned over to GRANTEE upon completion of
their construction or of functional sections thereof: Provided, However,
That upon termination of the franchise period, said physical
assets and facilities including improvements thereon, together
with equipment and appurtenances directly related to their
operations, shall be turned over to the Government without
any cost or obligation on the part of the latter. (Emphasis
supplied)
Section 5 [of PD No. 1894]. In consideration of this franchise, the
GRANTEE shall:
(a) Construct, operate and maintain at its own expense the
Expressways; and
(b) Turn over, without cost, the toll facilities and all
equipment, directly related thereto to the Government upon
expiration of the franchise period. (Emphasis supplied)
The TRB does not have the power to give back to PNCC the toll
assets and facilities which were automatically turned over to the
Government, by operation of law, upon the expiration of the
franchise of the PNCC on 1 May 2007. Whatever power the TRB may
have to grant authority to operate a toll facility or to issue a "Tollway
Operation Certificate", such power does not obviously include the authority
to transfer back to PNCC ownership of National Government assets, like the
toll assets and facilities, which have become National Government property
upon the expiry of PNCC's franchise. Such act by the TRB would repeal
Section 5 of PD 1894 which automatically vested in the National Government
ownership of PNCC's toll assets and facilities upon the expiry of PNCC's
franchise. The TRB obviously has no power to repeal a law. Further, PD 1113,
as amended by PD 1894, granting the franchise to PNCC, is a later law that
must necessarily prevail over PD 1112 creating the TRB. Hence, the
provisions of PD 1113, as amended by PD 1894, are controlling.
The 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 toll fees form
part of the National Government's General Fund, which includes public
moneys of every sort and other resources pertaining to any agency of the
government. 61 Even Radstock's counsel admits that the toll fees are
public funds, to wit: IcTEAD
ASSOCIATE JUSTICE CARPIO:

Okay. Now, when the franchise of PNCC expired on May 7, 2007,
under the terms of the franchise under PD 1896, all the assets,
toll way assets, equipment, etcetera of PNCC became owned by
government at no cost, correct, under the franchise?
DEAN AGABIN:
Yes, Your Honor.
Okay. So this is now owned by the national government.
[A]ny income from these assets of the national
government is national government income, correct?
DEAN AGABIN:
Yes, Your Honor. 62
xxx xxx xxx

. . . My question is very simple . . . Is the income from
these assets of the national government (interrupted)
DEAN AGABIN:
Yes, Your Honor. 63
xxx xxx xxx

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 where revenues of the government go?
DEAN AGABIN:
It's the same fund, Your Honor, except that (interrupted)
So it goes to the general fund?

DEAN AGABIN:
Except that it can be categorized as a private fund in a
commercial sense, and it can be categorized as a public fund in a
Public Law sense.
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? EaScHT
DEAN AGABIN:
Yes, Your Honor.
But it's part of the general fund. Now, if it is part of the general
fund, who has the authority to spend that money?
DEAN AGABIN:
Well, the National Government itself.

Who in the National Government, the Executive, Judiciary or
Legislative?
DEAN AGABIN:
Well, the funds are usually appropriated by the Congress.

. . . you mean to say there are exceptions that money from the
general fund can be spent by the Executive without going
t[hrough] Congress, or . . . is [that] the absolute rule?
DEAN AGABIN:
Well, in so far as the general fund is concerned, that is the
absolute rule set aside by the National Government.
. . . you are saying this is general fund money — the
collection from the assets[?]
DEAN AGABIN:
Yes. 64 (Emphasis supplied)
Forming part of the General Fund, the toll fees can only be disposed of
in accordance with the fundamental principles governing financial
transactions and operations of any government agency, to wit: (1) no
money shall be paid out of the Treasury except in pursuance of an
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 mandated by Section 4 (2) of PD 1445 or the Government
Auditing Code. 65 DACIHc
Section 29 (1), Article VI of the Constitution provides:

Section 29(1). No money shall be paid out of the Treasury
except in pursuance of an appropriation made by law.
The power to appropriate money from the General Funds of the 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 1445
require that before a government agency can enter into a contract involving
the expenditure of government funds, there must be an appropriation law
for such expenditure, thus:
Section 84. Disbursement of government funds. —
1. Revenue funds shall not be paid out of any public treasury
or depository except in pursuance of an appropriation law or other
specific statutory authority.
xxx xxx xxx
Section 85. Appropriation before entering into contract. —
1. No contract involving the expenditure of public funds shall
be entered into unless there is an appropriation therefor, the
unexpended balance of which, free of other obligations, is sufficient to
cover the proposed expenditure. aDECHI
xxx xxx xxx
Section 86 of PD 1445, on the other hand, requires that the proper

accounting official must certify that funds have been appropriated for the
purpose. 66 Section 87 of PD 1445 provides that any contract entered
into contrary to the requirements of Sections 85 and 86 shall be
void, thus:
Section 87. Void contract and liability of officer. — Any
contract entered into contrary to the requirements of the two
immediately preceding sections shall be void, and the officer or
officers entering into the contract shall be liable to the government or
other contracting party for any consequent damage to the same extent
as if the transaction had been wholly between private parties.
(Emphasis supplied)
Applying Section 29 (1), Article VI of the Constitution, as implanted in

Sections 84 and 85 of the Government Auditing Code, a law must first be
enacted by Congress appropriating P6.185 billion as compromise money
before payment to Radstock can be made. 67 Otherwise, such payment
violates a prohibitory law and thus void under Article 5 of the Civil Code
which states that "[a]cts executed against the provisions of
mandatory or prohibitory laws shall be void, except when the law itself
authorizes their validity".
Indisputably, without an appropriation law, PNCC cannot lawfully pay
P6.185 billion to Radstock. Any contract allowing such payment, like 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:
Petitioners are justified in refusing to formalize the contract with
PHOTOKINA. Prudence dictated them not to enter into a contract not
backed up by sufficient appropriation and available funds. Definitely, to
act otherwise would be a futile exercise for the contract would
inevitably suffer the vice of nullity. In Osmeña vs. Commission on Audit,
this Court held:
The Auditing Code of the Philippines (P.D. 1445) further

provides that no contract involving the expenditure of public
funds shall be entered into unless there is an appropriation
therefor and the proper accounting official of the agency
concerned shall have certified to the officer entering into the
obligation that funds have been duly appropriated for the
purpose and the amount necessary to cover the proposed
contract for the current fiscal year is available for expenditure on
account thereof. Any contract entered into contrary to the
foregoing requirements shall be VOID.
Clearly then, the contract entered into by the former Mayor
Duterte was void from the very beginning since the agreed cost
for the project (P8,368,920.00) was way beyond the appropriated
amount (P5,419,180.00) as certified by the City Treasurer.
Hence, the contract was properly declared void and
unenforceable in COA's 2nd Indorsement, dated September 4,
1986. The COA declared and we agree, that: cHaICD
The prohibition contained in Sec. 85 of PD 1445

(Government Auditing Code) is explicit and mandatory.
Fund availability is, as it has always been, an indispensable
prerequisite to the execution of any government contract
involving the expenditure of public funds by all government
agencies at all levels. Such contracts are not to be
considered as final or binding unless such a certification as
to funds availability is issued (Letter of Instruction No. 767,
s. 1978). Antecedent of advance appropriation is thus
essential to government 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 of Sec. 87.
Verily, the contract, as expressly declared by law, is inexistent
and void ab initio. This is to say that the proposed contract is without
force and effect from the very beginning or from its incipiency, as if it
had never been entered into, and hence, cannot be validated either by
lapse of time or ratification. (Emphasis supplied)
Significantly, Radstock's counsel admits that an appropriation

law is needed before PNCC can use toll fees to pay Radstock, thus:
Okay, I agree with you. Now, you are saying that money can be
paid out of the general fund only through an appropriation by
Congress, correct? That's what you are saying.
DEAN AGABIN:
Yes, Your Honor.
I agree with you also. Okay, now, can PNCC . . . use this money to
pay Radstock without Congressional approval?
DEAN AGABIN:
Well, I believe that that may not be necessary. Your Honor,
because earlier, the government had already decreed that PNCC
should be properly paid for the reclamation works which it had
done. And so (interrupted)
No. I am talking of the funds.
DEAN AGABIN: acIASE
And so it is like a foreign obligation.

Counsel, I'm talking of the general funds, collection from
the toll fees. Okay. You said, they go to the general fund.
You also said, money from the general fund can be spent
only if there is an appropriation law by Congress.
DEAN AGABIN:
Yes, Your Honor.

So my question is, did Congress authorize PNCC to use
this money to pay Radstock?
DEAN AGABIN:
No, Your Honor.
There is no law.
DEAN AGABIN:
Yes, except that, Your Honor, this fund has not yet gone to the
general fund.
No. It's being collected everyday. As of May 7, 2007, national
government owned those assets already. All those . . . collections
that would have gone to PNCC are now national government
owned. It goes to the general fund. And any body who uses that
without appropriation from Congress commits malversation, I tell
you.
DEAN AGABIN:
That is correct, Your Honor, as long as it has already gone into
the general fund.
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?
DEAN AGABIN:
Well, if PNCC (interrupted)

But if (interrupted)
DEAN AGABIN:
If this is the share that properly belongs to PNCC as a private
entity (interrupted)

No, no. I am saying that — You just agreed that all those
collections now will go to the National Government forming part
of the general fund. If, somehow, PNCC is holding this money in
the meantime, it holds . . . it in trust, correct? Because you said,
it goes to the general fund, National Government. So it must be
holding this in trust for the National Government. TDaAHS
DEAN AGABIN:
Yes, Your Honor.
Okay. Can the person holding in trust use it to pay his
private debt?
DEAN AGABIN:
No, Your Honor.

Cannot be.
DEAN AGABIN:
But I assume that there must be some portion of the collections
which properly pertain to PNCC.
If there is some portion that . . . may be [for] operating expenses
of PNCC. But that is not
DEAN AGABIN:
Even profit, Your Honor.
Yeah, but that is not the six percent. Out of the six percent, that
goes now to PNCC, that's entirely national government. But the
National Government and the PNCC can agree on service fees for
collecting, to pay toll collectors.
DEAN AGABIN:
Yes, Your Honor.
But those are expenses. We are talking of the net income.
It goes to the general fund. And it's only Congress that
can authorize that expenditure. Not even the Court of
Appeals can give its stamp of approval that it goes to
Radstock, correct?
DEAN AGABIN:
Yes, Your Honor. 69 (Emphasis supplied) STIcEA
Without an appropriation law, the use of the toll fees to pay Radstock
would constitute malversation of public funds. Even counsel for Radstock
expressly admits that the use of the toll fees to pay Radstock
constitutes malversation of public funds, thus:
. . . As of May 7, 2007, [the] national government owned those
assets already. All those . . . collections that would have gone to
PNCC are now national government owned. It goes to the general
fund. And any body who uses that without appropriation from
Congress commits malversation, I tell you.
DEAN AGABIN:
That is correct, Your Honor, as long as it has already gone into
the general fund.
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?
DEAN AGABIN:
Well, if PNCC (interrupted)

But if (interrupted)
DEAN AGABIN:
If this is the share that properly belongs to PNCC as a private
entity (interrupted)

No, no. I am saying that — You just agreed that all those
collections now will go to the National Government
forming part of the general fund. If, somehow, PNCC is
holding this money in the meantime, it holds . . . it in
trust, correct? Because you said, it goes to the general
fund, National Government. So it must be holding this in
trust for the National Government.
DEAN AGABIN:
Yes, Your Honor. 70 (Emphasis supplied)
Indisputably, funds held in trust by PNCC for the National Government

cannot be used by PNCC to pay a private debt of CDCP Mining to Radstock,
otherwise the PNCC Board will be liable for malversation of public funds. TCacIE
In addition, to pay Radstock P6.185 billion violates the fundamental

public policy, expressly articulated in Section 4 (2) of the Government
Auditing Code, 71 that government funds or property shall be spent or
used solely for public purposes, thus:
Section 4. Fundamental Principles . — . . . (2) Government
funds or property shall be spent or used solely for public
purposes. (Emphasis supplied)
There is no question that the subject of the Compromise Agreement is

CDCP Mining's private debt to Marubeni, which Marubeni subsequently
assigned to Radstock. Counsel for Radstock admits that Radstock
holds a private debt of CDCP Mining, thus:
So your client is holding a private debt of CDCP Mining,
correct?
DEAN AGABIN:
Correct, Your Honor . 72 (Emphasis supplied)
CDCP Mining obtained the Marubeni loans when CDCP Mining and PNCC
(then CDCP) were still privately owned and managed corporations. The
Government became the majority stockholder of PNCC only because
government financial institutions converted their loans to PNCC into equity
when PNCC failed to pay the loans. However, CDCP Mining have always
remained a majority privately owned corporation with PNCC owning
only 13% of its equity as admitted by former PNCC Chairman Arthur
N. Aguilar and PNCC SVP Finance Miriam M. Pasetes during the
Senate hearings, thus:
SEN. OSMEÑA.
. . . — I just wanted to know is CDCP Mining a 100 percent

subsidiary of PNCC?
MR. AGUILAR.
Hindi ho. Ah, no.
SEN. OSMEÑA.
If they're not a 100 percent, why would they sign jointly and
severally? I just want to plug the loopholes.
MR. AGUILAR.
I think it was — if I may just speculate. It was just common
ownership at that time.
SEN. OSMEÑA.
All right. Now — Also, the . . .
MR. AGUILAR.
Ah, 13 percent daw, your Honor. CaHcET
SEN. OSMEÑA.
Huh?
MR. AGUILAR.
Thirteen percent ho.
SEN. OSMEÑA.
What's 13 percent?
MR. AGUILAR.
We owned . . .
MS. PASETES.
Thirteen percent of . . .
SEN. OSMEÑA.
PNCC owned . . .
MS. PASETES.
(Mike off) CDCP . . .
SEN. DRILON.
Use the microphone, please.
MS. PASETES.
Sorry. Your Honor, the ownership of CDCP of CDCP Basay Mining .
..
SEN. OSMEÑA.
No, no, the ownership of CDCP. CDCP Mining, how many
percent of the equity of CDCP Mining was owned by
PNCC, formerly CDCP?
MS. PASETES.
Thirteen percent.
SEN. OSMEÑA.
Thirteen. And as a 13 percent owner, they agreed to sign jointly
and severally?
MS. PASETES.
Yes. CIAHaT
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 percent.
PNCC cannot use public funds, like toll fees that indisputably form part
of the General Fund, to pay a private debt of CDCP Mining to Radstock. Such
payment cannot qualify as expenditure for a public purpose. The toll fees
are merely held in trust by PNCC for the National Government, which is the
owner of the toll fees.
Considering that there is no appropriation law passed by Congress for
the P6.185 billion compromise amount, the Compromise Agreement is void
for being contrary to law, specifically Section 29 (1), Article VI of the
Constitution and Section 87 of PD 1445. And since the payment of the
P6.185 billion pertains to CDCP Mining's private debt to Radstock, the
Compromise Agreement is also void for being contrary to the fundamental
public policy that government funds or property shall be spent or used solely
for public purposes, as provided in Section 4 (2) of the Government Auditing
Code.
C.Radstock is not qualified to own land in the Philippines.
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
nationalities are also unknown, Radstock is not qualified to own land in the
Philippines pursuant to Section 7, in relation to Section 3, Article XII of the
Constitution. These provisions state:
Section 3. Lands of the public domain are classified into
agricultural, forest or timber, mineral lands, and national parks.
Agricultural lands of the public domain may be further classified by law
according to the uses to which they may be devoted. Alienable lands of
the public domain shall be limited to agricultural lands. Private
corporations or associations may not hold such lands of the public
domain except by lease, for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and not to exceed one
hundred thousand hectares in area. Citizens of the Philippines may
lease not more than five hundred hectares, or acquire not more than
twelve hectares thereof by purchase, homestead, or grant.
Taking into account the requirements of conservation, ecology,

and development, and subject to the requirements of agrarian reform,
the Congress shall determine, by law, the size of lands of the public
domain which may be acquired, developed, held, or leased and the
conditions therefor. ECaTDc
xxx xxx xxx

Section 7. Save in cases of hereditary succession, no private
lands shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of the
public domain.
The OGCC admits that Radstock cannot own lands in the Philippines.
However, the OGCC claims that Radstock can own the rights to ownership
of lands in the Philippines, thus:
Under the law, a foreigner cannot own land, correct?
ATTY. AGRA:
Yes, Your Honor.

Can a foreigner who . . . cannot own land assign the right of
ownership to the land?
ATTY. AGRA:
Again, Your Honor, at that particular time, it will be PNCC, not
through Radstock, that chain of events should be, there's a
qualified nominee (interrupted)
Yes, . . . you said, Radstock will assign the right of ownership to

the qualified assignee[.] So my question is, can a foreigner own
the right to ownership of a land when it cannot own the land
itself?
ATTY. AGRA:
The foreigner cannot own the land, Your Honor.
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 Radstock.
ATTY. AGRA:
The rights over the properties, Your Honors, if there's a valid
assignment made to a qualified party, then the assignment will
be made.
Who makes the assignment?
ATTY. AGRA:
It will be Radstock, Your Honor. ICcDaA
So, if Radstock makes the assignment, it must own its rights,

otherwise, it cannot assign it, correct?
ATTY. AGRA:
Pursuant to the compromise agreement, once approved, yes,
Your Honors.
So, you are saying that Radstock can own the rights to
ownership of the land?
ATTY. AGRA:
Yes, Your Honors.
Yes?
ATTY. AGRA:
The premise, Your Honor, you mentioned a while ago was,
if this Court approves said compromise (interrupted)
No, no. Whether there is such a compromise agreement — It's an
academic question I am asking you, can a foreigner assign rights
to ownership of a land in the Philippines?
ATTY. AGRA:
Under the Compromise Agreement, Your Honors, these rights
should be respected.
So, it can?
ATTY. AGRA:
It can. Your Honor. But again, this right must, cannot be

perfected or cannot be, could not take effect.
But if it cannot — It's not perfected, how can it assign?
ATTY. AGRA:
Not directly, Your Honors. Again, there must be a qualified

nominee assigned by Radstock. aIcDCH

It's very clear, it's an indirect way of selling property that is
prohibited by law, is it not?
ATTY. AGRA:
Again, Your Honor, know, believe this is a Compromise
Agreement. This is a dacion en pago.
So, dacion en pago is an exception to the constitutional
prohibition.
ATTY. AGRA:
No, Your Honor. PNCC, will still hold on to the property, absent a
valid assignment of properties.
But what rights will PNCC have over that land when it has already
signed the compromise? It is just waiting for instruction . . . from
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 holding it for Radstock. So, PNCC becomes a
dummy, at that point, of Radstock, correct?
ATTY. AGRA:
No, Your Honor, I believe it (interrupted)
Yeah, but it does not own the land, but it still holding the land in
favor of the other party to the Compromise Agreement
ATTY. AGRA:
Pursuant to the compromise agreement, that will happen.
Okay. May I (interrupted)
ATTY. AGRA:
Again, Your Honor, if the compromise agreement ended with a
statement that Radstock will be the owner of the property
(interrupted)
Yeah. Unfortunately, it says, to a qualified assignee. HCEaDI
ATTY. AGRA:
Yes, Your Honor.
And at this point, when it is signed and execut[ed] and approved,
PNCC has no dominion over that land anymore. Who has
dominion over it?
ATTY. AGRA:
Pending the assignment to a qualified party, Your Honor, PNCC
will hold on to the property.
Hold on, but who . . . can exercise acts of dominion, to sell it, to
lease it?
ATTY. AGRA:
Again, Your Honor, without the valid assignment to a qualified
nominee, the compromise agreement in so far as the transfer of
these properties will not become effective. It is subject to such
condition. Your Honor. 74 (Emphasis supplied)
There is no dispute that Radstock is disqualified to own lands in the

Philippines. Consequently, Radstock is also disqualified to own the rights to
ownership of lands in the Philippines. Contrary to the OGCC's claim, Radstock
cannot own the rights to ownership of any land in the Philippines because
Radstock cannot lawfully own the land itself. Otherwise, there will be a
blatant circumvention of the Constitution, which prohibits a foreign private
corporation from owning land in the Philippines. In addition, Radstock cannot
transfer 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
something he does not own at the time the ownership, or the rights
to the ownership, are to be transferred to the assignee or buyer. 75
The third party assignee under the Compromise Agreement who will be
designated by Radstock can only acquire rights duplicating those which its
assignor (Radstock) is entitled by law to exercise. 76 Thus, the assignee can
acquire ownership of the land only if its assignor, Radstock, owns the land.
Clearly, the assignment by PNCC of the 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
circumvention renders the Compromise Agreement void.
D.Public bidding is required for
the disposal of government properties.
Under Section 79 of the Government Auditing Code, 77 the disposition
of government lands to private parties requires public bidding. 78 COA
Circular No. 89-926, issued on 27 January 1989, sets forth the guidelines on
the disposal of property and other assets of the government. Part V of the
COA Circular provides:
V.MODE OF DISPOSAL/DIVESTMENT: —
This Commission recognizes the following modes of
disposal/divestment of assets and property of national government
agencies, local government units and government-owned or controlled
corporations and their subsidiaries, aside from other such modes as
may be provided for by law.
1. Public Auction
Conformably to existing state policy, the divestment or
disposal of government property as contemplated herein shall
be undertaken primarily thru public auction. Such mode of
divestment or disposal shall observe and adhere to established
mechanics and procedures in public bidding, viz.:
a. adequate publicity and notification so as to attract the greatest
number of interested parties; (vide, Sec. 79, P.D. 1445)
b. sufficient time frame between publication and date of auction;
c. opportunity afforded to interested parties to inspect the property

or assets to be disposed of;
d. confidentiality of sealed proposals; ScHAIT
e. bond and other prequalification requirements to guarantee

performance; and
f. fair evaluation of tenders and proper notification of award.
It is understood that the Government reserves the right to reject
any or all of the tenders. (Emphasis supplied)
Under the Compromise Agreement, PNCC shall dispose of substantial

parcels of land, by way of dacion en pago, in favor of Radstock. Citing Uy v.
Sandiganbayan, 79 PNCC argues that a dacion en pago is an exception to the
requirement of a public bidding.
PNCC's reliance on U y is misplaced. There is nothing in Uy declaring
that public bidding is dispensed with in a dacion en pago transaction. The
Court explained the transaction in Uy as follows:
We do not see any infirmity in either the MOA or the SSA
executed between PIEDRAS and respondent banks. By virtue of its
shareholdings in OPMC, PIEDRAS was entitled to subscribe to
3,749,906,250 class "A" and 2,499,937,500 class "B" OPMC shares.
Admittedly, it was financially sound for PIEDRAS to exercise its pre-
emptive rights as an existing shareholder of OPMC lest its
proportionate shareholdings be diluted to its detriment. However,
PIEDRAS lacked the necessary funds to pay for the additional
subscription. Thus, it resorted to contract loans from respondent banks
to finance the payment of its additional subscription. The mode of
payment agreed upon by the parties was that the payment would be
made in the form of part of the shares subscribed to by PIEDRAS. The
OPMC shares therefore were agreed upon by the parties to be
equivalent payment for the amount advanced by respondent banks.
We see the wisdom in the conditions of the loan transaction. In order to
save PIEDRAS and/or the government from the trouble of selling the
shares in order to raise funds to pay off the loans, an easier and more
direct way was devised in the form of the dacion en pago agreements.
Moreover, we agree with the Sandiganbayan that neither
PIEDRAS nor the government sustained any loss in these transactions.
In fact, after deducting the shares to be given to respondent banks as
payment for the shares, PIEDRAS stood to gain about 1,540,781,554
class "A" and 710,550,000 class "B" OPMC shares virtually for free.
Indeed, the question that must be asked is whether or not PIEDRAS, in
the exercise of its pre-emptive rights, would have been able to acquire
any of these shares at all if it did not enter into the financing
agreements with the respondent banks. 80
Suffice it to state that in Uy, neither PIEDRAS 81 nor the government suffered
any loss in the dacion en pago transactions, unlike here where the
government stands to lose at least P6.185 billion worth of assets.
Besides, a dacion en pago is in essence a form of sale, which basically
involves a disposition of a property. In Filinvest Credit Corp. v. Philippine
Acetylene, Co., Inc., 82 the Court defined dacion en pago in this wise:
Dacion en pago, according to Manresa, is the transmission of the
ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of obligation. In dacion en pago, as a
special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding
debt. The undertaking really partakes in one sense of the
nature of sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be charged
against the debtor's debt. As such, the essential elements of a
contract of sale, namely, consent, object certain, and cause or
consideration must be present. In its modern concept, what actually
takes place in dacion en pago is an objective novation of the obligation
where the thing offered as an accepted equivalent of the performance
of an obligation is considered as the object of the contract of sale, while
the debt is considered as the purchase price. In any case, common
consent is an essential prerequisite, be it sale or innovation to have the
effect of totally extinguishing the debt or obligation. 83 (Emphasis
supplied) AaSHED
E.PNCC must follow rules on preference of credit.

Radstock is only one of the creditors of PNCC. Asiavest is PNCC's
judgment creditor. In its Board Resolution No. BD-092-2000, PNCC admitted
not only its debt to Marubeni but also its debt to the National Government 84
in the amount of P36 billion. 85 During the Senate hearings, PNCC admitted
that it owed the Government P36 billion, thus:
SEN. OSMEÑA.
All right. Now, second question is, the management of PNCC also
recognize the obligation to the national government of 36 billion.
It is part of the board resolution.
MS. OGAN.
Yes, sir, it is part of the October 20 board resolution.
SEN. OSMEÑA.
All right. So if you owe the national government 36 billion and
you owe Marubeni 10 billion, you know, I would just declare
bankruptcy and let an orderly disposition of assets be done. What
happened in this case to the claim, the 36 billion claim of the
national government? How was that disposed of by the PNCC?
Mas malaki ang utang ninyo sa national government, 36 billion.
Ang gagawin ninyo, babayaran lahat ang utang ninyo sa
Marubeni without any assets left to satisfy your obligations to the
national government. There should have been, at least, a pari
passu payment of all your obligations, 'di ba?
MS. PASETES.
Mr. Chairman. . .
SEN. OSMEÑA.
Yes.

MS. PASETES.
PNCC still carries in its books an equity account called equity
adjustments arising from transfer of obligations to national
government — 5.4 billion — in addition to shares held by
government amounting to 1.2 billion.
SEN. OSMEÑA.
What is the 36 billion?
THE CHAIRMAN.
Ms. Pasetes. . .
SEN. OSMEÑA.
Wait, wait, wait. EIcSTD
THE CHAIRMAN.
Baka ampaw yun eh.
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 resolution
that recognizes, acknowledges and confirms PNCC's obligations
to Marubeni. And subparagraph (a) says "Government of the
Philippines, in the amount of 36,023,784,000 and change. And
then (b) Marubeni Corporation in the amount of 10,743,000,000.
So, therefore, in the same resolution, you acknowledged that had
something like P46.7 billion in obligations. Why did PNCC settle
the 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 down to one.
MS. PASETES.
Sir, the amount of 36 billion is principal plus interest and

penalties.
SEN. OSMEÑA.
And what about Marubeni? Is that just principal only?
MS. PASETES.
Principal and interest.
SEN. OSMEÑA.
So, I mean, you know, it's equal treatment. Ten point seven
billion is principal plus penalties plus interest, hindi ba?
MS. PASETES.
Yes, sir. Yes, Your Honor.

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 the
interest of the national government at all. 86
In giving priority and preference to Radstock, the Compromise

Agreement is certainly in fraud of PNCC's other creditors, including the
National Government, and violates the provisions of the Civil Code on
concurrence and preference of credits. ECTIcS
This Court has held that while the Corporation Code allows the transfer
of all or substantially all of the assets of a corporation, the transfer should
not prejudice the creditors of the assignor corporation. 87 Assuming that
PNCC may transfer all or substantially all its assets, to allow PNCC to do so
without the consent of its creditors or without requiring Radstock
to assume PNCC's debts will defraud the other PNCC creditors 88 since the
assignment will place PNCC's assets beyond the reach of its other creditors.
89 As this Court held in Caltex (Phil.), Inc. v. PNOC Shipping and Transport
Corporation: 90
While the Corporation Code allows the transfer of all or
substantially all the properties and assets of a corporation, the transfer
should not prejudice the creditors of the assignor. The only way the
transfer can proceed without prejudice to the creditors is to
hold the assignee liable for the obligations of the assignor. The
acquisition by the assignee of all or substantially all of the
assets of the assignor necessarily includes the assumption of
the assignor's liabilities, 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 transfer all its business,
properties and assets without the consent of 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. (Emphasis supplied)
Also, the law, specifically Article 1387 91 of the Civil Code, presumes
that there is fraud of creditors when property is alienated by the debtor after
judgment has been rendered against him, thus:
Alienations by onerous title are also presumed fraudulent
when made by persons against whom some judgment has been
rendered in any instance or some writ of attachment has been
issued. The decision or attachment need not refer to the property
alienated, and need not have been obtained by the party seeking
rescission. (Emphasis supplied)
As stated earlier, Asiavest is a judgment creditor of PNCC in G.R. No.

110263 and a court has already issued a writ of execution in its favor. Thus,
when PNCC entered into the Compromise Agreement conveying
several prime lots in favor of Radstock, by way of dacion en pago,
there is a legal presumption that such conveyance is fraudulent
under Article 1387 of the Civil Code. 92 This presumption is
strengthened by the fact that the conveyance has virtually left PNCC's other
creditors, including the biggest creditor — the National Government — with
no other asset to garnish or levy.
Notably, the presumption of fraud or intention to defraud creditors is
not just limited to the two instances set forth in the first and second
paragraphs of Article 1387 of the Civil Code. Under the third paragraph of
the same article, "the design to defraud creditors may be proved in any
other manner recognized by the law of evidence". In Oria v. Mcmicking, 93
this Court considered the following instances as badges of fraud: acEHCD
1. The fact that the consideration of the conveyance is fictitious or

is inadequate.
2. A transfer made by a debtor after suit has begun and while it is
pending against him.
3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly embarrassed
financially.
6. The fact that the transfer is made between father and son, when
there are present other of the above circumstances.
7. The failure of the vendee to take exclusive possession of all the

property. (Emphasis supplied)
Among the circumstances indicating fraud is a transfer of all or nearly

all of the debtor's assets, especially when the debtor is greatly embarrassed
financially. Accordingly, neither a declaration of insolvency nor the institution
of insolvency proceedings is a condition sine qua non for a transfer of all or
nearly all of a debtor's assets to be regarded in fraud of creditors. It is
sufficient that a debtor is greatly embarrassed financially.
In this case, PNCC's huge negative net worth — at least P6 billion as
expressly admitted by PNCC's counsel during the oral arguments, or P14
billion based on the 2006 COA Audit Report — necessarily translates to an
extremely embarrassing financial situation. With its huge negative net
worth arising from unpaid billions of pesos in debt, PNCC cannot claim that
it is financially stable. As a consequence, the Compromise Agreement
stipulating a transfer in favor of Radstock of substantially all of PNCC's
assets constitutes fraud. To legitimize the Compromise Agreement just
because there is still no judicial declaration of PNCC's insolvency will work
fraud on PNCC's other creditors, the biggest creditor of which is the National
Government. To insist that PNCC is very much liquid, given its admitted huge
negative net worth, is nothing but denial of the truth. The toll fees that PNCC
collects belong to the National Government. Obviously, PNCC cannot claim it
is liquid based on its collection of such toll fees, because PNCC merely holds
such toll fees in trust for the National Government. PNCC does not own the
toll fees, and such toll fees do not form part of PNCC's assets.
PNCC owes the National Government P36 billion, a substantial part
of which constitutes taxes and fees, thus:
SEN. ROXAS.
Thank you, Mr. Chairman. HCISED
Mr. PNCC Chairman, could you describe for us the composition of

your debt of about five billion — there are in thousands, so this
looks like five and half billion. Current portion of long-term debt,
about five billion. What is this made of?
MS. PASETES.
The five billion is composed of what is owed the Bureau
of Treasury and the Toll Regulatory Board for concession
fees that's almost three billion and another 2.4 billion
owed Philippine National Bank.
SEN. ROXAS.
So, how much is the Bureau of Treasury?

MS. PASETES.
Three billion.
SEN. ROXAS.
Three — Why do you owe the Bureau of Treasury three
billion?
MS. PASETES.
That represents the concession fees due Toll Regulatory
Board principal plus interest, Your Honor.
In addition, PNCC's 2006 Audit Report by COA states as follows:

TAX MATTERS
The Company was assessed by the Bureau of Internal Revenue
(BIR) of its deficiencies in various taxes. However, no provision for any
liability has been made yet in the Company's financial statements.
• 1980 deficiency income tax, deficiency contractor's tax
and deficiency documentary stamp tax assessments by
the BIR totaling P212.523 Million.
xxx xxx xxx
• Deficiency business tax of P64 Million due the Belgian

Consortium, PNCC's partner in its LRT Project.
• 1992 deficiency income tax, deficiency value-added tax
and deficiency expanded withholding tax of P1.04 Billion
which was reduced to P709 Million after the Company's
written protest.
xxx xxx xxx
• 2002 deficiency internal revenue taxes totaling P72.916
Million. SHaATC
xxx xxx xxx. 95 (Emphasis supplied)
Clearly, PNCC owes the National Government substantial taxes and fees
amounting to billions of pesos.
The P36 billion debt to the National Government was acknowledged 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 in the satisfaction of PNCC's
liability arising from taxes and duties, pursuant to the provisions of the Civil
Code on concurrence and preference of credits. Articles 2241, 96 2242 97 and
2243 98 of the Civil Code expressly mandate that taxes and fees due the
National Government "shall be preferred" and "shall first be satisfied "
over claims like those arising from the Marubeni loans which "shall enjoy
no preference" under Article 2244. 99
However, in flagrant violation of the Civil Code, the PNCC Board favored
Radstock over the National Government in the order of credits. This would
strip PNCC of its assets leaving virtually nothing for the National
Government. This action of the PNCC Board is manifestly and grossly
disadvantageous to the National Government and amounts to fraud.
During the Senate hearings, Senator Osmeña pointed out that in the
Board Resolution of 20 October 2000, PNCC acknowledged its obligations to
the National Government amounting to P36,023,784,000 and to Marubeni
amounting to P10,743,000,000. Yet, Senator Osmeña noted that in the PNCC
books at the time of the hearing, the P36 billion obligation to the National
Government was reduced to P5 billion. PNCC's Miriam M. Pasetes could not
properly explain this discrepancy, except by stating that the P36 billion
includes the principal plus interest and penalties, thus: HIACac
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 resolution
that recognizes, acknowledges and confirms PNCC's obligations
to Marubeni. And subparagraph (a) says "Government of the
Philippines, in the amount of 36,023,784,000 and change. And
then (b) Marubeni Corporation in the amount of 10,743,000,000.
So, therefore, in the same resolution, you acknowledged that had
something like P46.7 billion in obligations. Why did PNCC settle
the 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 down to one.
MS. PASETES.
Sir, the amount of 36 billion is principal plus interest and
penalties.
SEN. OSMEÑA.
And what about Marubeni? Is that just principal only?
MS. PASETES.
Principal and interest.
SEN. OSMEÑA.
So, I mean, you know, it's equal treatment. Ten point seven
billion is principal plus penalties plus interest, hindi ba?
MS. PASETES.
Yes, sir. Yes, Your Honor.
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 the
interest of the national government at all. 100
PNCC failed to explain satisfactorily why in its books the obligation to

the National Government was reduced when no payment to the National
Government appeared to have been made. PNCC failed to justify why it
made it appear that the obligation to the National Government was
less than the obligation to Marubeni. It is another obvious ploy to
justify the preferential treatment given to Radstock to the great
prejudice of the National Government. SAEHaC
VI.
Supreme Court is Not Legitimizer of Violations of Laws
During the oral arguments, counsels for Radstock and PNCC admitted
that the Compromise Agreement violates the Constitution and existing laws.
However, they rely on this Court to approve the Compromise Agreement to
shield their clients from possible criminal acts arising from violation of the
Constitution and existing laws. In their view, once this Court approves the
Compromise Agreement, their clients are home free from prosecution, and
can enjoy the P6.185 billion loot. The following exchanges during the oral
arguments reveal this view:
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, . . . you agree, for the National
Government.
DEAN AGABIN:
Yes, that's why, they are asking the Honorable Court to approve
the compromise agreement.
We cannot approve that if the power to authorize the
expenditure [belongs] to Congress. How can we usurp . . .
the power of Congress to authorize that expenditure[?]
It's only Congress that can authorize the expenditure of
funds from the general funds.
DEAN AGABIN:
But, Your Honor, if the Honorable Court would approve of
this compromise agreement, I believe that this would be
binding on Congress.
Ignore the Constitutional provision that money shall be
paid out of the National Treasury only pursuant to an
appropriation by law. You want us to ignore that[?]
DEAN AGABIN:
Not really, Your Honor, but I suppose that Congress
would have no choice, because this is a final judgment of
the Honorable Court. 101 cDTACE
xxx xxx xxx

So, if Radstock makes the assignment, it must own its rights,
otherwise, it cannot assign it, correct?
ATTY. AGRA:
Pursuant to the compromise agreement, once approved, yes,
Your Honors.
So, you are saying that Radstock can own the rights to ownership
of the land?
ATTY. AGRA:
Yes, Your Honors.

Yes?
ATTY. AGRA:
The premise, Your Honor, you mentioned a while ago was,
if this Court approves said compromise (interrupted). 102
(Emphasis supplied)
This Court is not, and should never be, a rubber stamp for litigants
hankering to pocket public funds for their selfish private gain. This Court is
the ultimate guardian of the public interest, the last bulwark against those
who seek to plunder the public coffers. This Court cannot, and must never,
bring itself down to the level of legitimizer of violations of the Constitution,
existing laws or public policy.
Conclusion
In sum, the acts of the PNCC Board in (1) issuing Board Resolution Nos.
BD-092-2000 and BD-099-2000 expressly admitting liability for the Marubeni
loans, and (2) entering into the Compromise Agreement, constitute evident
bad faith and gross inexcusable negligence, amounting to fraud, in the
management of PNCC's affairs. Being public officers, the government
nominees in the PNCC Board must answer not only to PNCC and its
stockholders, but also to the Filipino people for grossly mishandling PNCC's
finances.
Under Article 1409 of the Civil Code, the Compromise Agreement is
"inexistent and void from the beginning", and "cannot be ratified ",
thus:
Art. 1409. The following contracts are inexistent and
void from the beginning: cDIaAS
(1) Those whose cause, object or purpose is contrary to

law, morals, good customs, public order or public policy;
xxx xxx xxx
(7) Those expressly prohibited or declared void by law .
These contracts cannot be ratified . . . . . (Emphasis supplied)
The Compromise Agreement is indisputably contrary to the

Constitution, existing laws and public policy. Under Article 1409, the
Compromise Agreement is expressly declared void and "cannot be
ratified" . No court, not even this Court, can ratify or approve the
Compromise Agreement. This Court must perform its duty to defend and
uphold the Constitution, existing laws, and fundamental public policy. This
Court must not shirk in declaring the Compromise Agreement inexistent
and void ab initio.
WHEREFORE, we GRANT the petition in G.R. No. 180428. We SET
ASIDE the Decision dated 25 January 2007 and the Resolutions dated 12
June 2007 and 5 November 2007 of the Court of Appeals. We DECLARE (1)
PNCC Board Resolution Nos. BD-092-2000 and BD-099-2000 admitting
liability for the Marubeni loans VOID AB INITIO for causing undue injury to
the Government and giving unwarranted benefits to a private party,
constituting a corrupt practice and unlawful act under Section 3 (e) of the
Anti-Graft and Corrupt Practices Act, and (2) the Compromise Agreement
between the Philippine National Construction Corporation and Radstock
Securities Limited INEXISTENT AND VOID AB INITIO for being contrary to
Section 29 (1), Article VI and Sections 3 and 7, Article XII 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 85 of the Government Auditing
Code; and Articles 2241, 2242, 2243 and 2244 of the Civil Code.
We GRANT the intervention of Asiavest Merchant Bankers Berhad in
G.R. No. 178158 but DECLARE that Strategic Alliance Development
Corporation has no legal standing to sue.
SO ORDERED.
Puno, C.J., Chico-Nazario, Abad and Villarama, Jr., JJ., concur.
Corona, J., joins the dissent of Mr. Justice Bersamin.
Carpio Morales, J., please see concurring opinion.
Velasco, Jr. and Nachura, JJ., join the dissent of J. Bersamin.
Leonardo-de Castro, J., please see separate concurring opinion.
Brion, J., joins the concurring opinion of Justice de Castro.
Peralta anddel Castillo, JJ., took no part.
Bersamin, J., please see dissent.
Separate Opinions
CARPIO MORALES, J., concurring:
I join the majority in granting the petition in G.R. No. 180428.

I n G.R. No. 178159, petitioner Strategic Alliance Development
Corporation (Stradec) assails the appellate court's Resolutions of January 25,
2007 and May 31, 2007 in CA-G.R. CV No. 87971 approving the Compromise
Agreement of August 17, 2006 between Radstock Securities Limited
(Radstock) and Philippine National Construction Corporation (PNCC), and
denying Stradec's motion for reconsideration, respectively. In G.R. No.
180428, petitioner Luis Sison (Sison) assails the appellate court's
Resolutions of June 12, 2007 and November 5, 2007 in CA-G.R. SP No. 97982
dismissing his petition for annulment of the appellate court's January 25,
2007 Resolution, and denying reconsideration thereof, respectively.
This opinion dwells only on the legal claims and defenses surrounding
the execution of the Compromise Agreement, the validity of which is
challenged in the present petitions.
The debt-to-equity transaction between the government and the PNCC
(then CDCP) covered the assumption of ownership not only as to the assets
but also as to the liabilities of CDCP to the extent of its equity. EacHSA
The separate issue of defensibility of the subject liability could not be

taken into account in rejecting the compromise agreement, since part of a
compromise is the concession to surrender or waive the defenses against the
claim. Whether such waiver subjected the PNCC officers to personal liability
is likewise a different question altogether.
Going beyond the mathematical computations in arriving at the P6.185
Billion value of the properties subject of the Compromise Agreement vis-à-
v i s the P17.04 Billion liability adjudged by the trial court, the immediate
effect of approving the Compromise Agreement is pulling Radstock from the
queue of PNCC creditors and placing it in front of the line in order to collect
on a debt ahead of the other PNCC creditors. Yet Radstock itself was
complaining and crying foul about this same scenario in its application for a
writ of preliminary attachment, the subject of this Court's decision in
Philippine National Construction Corporation v. Dy. 1 Thus Radstock alleged:
. . . PNCC knowing that it is bankrupt and that it does not have
enough assets to meet its existing obligations is now offering for sale
its assets as shown in the reports published in newspapers of general
circulation. 2 (emphasis and underscoring supplied)
The Court in that case did not find such allegation as constitutive of fraud to
merit Radstock's prayer for the attachment of PNCC properties because:
. . . the fact that PNCC has insufficient assets to cover its
obligations is no indication of fraud even if PNCC attempts to sell them
because it is quite possible that PNCC was entering into a bona
fide . . . sale where at least fair market value for the assets will
be received. In such a situation, Marubeni[-predecessor-in-interest
of Radstock] would not be in a worse position than before as
the assets will still be there but just liquidated. 3 (italics in the
original; emphasis and underscoring supplied)
Finding itself in the same position it abhors, Radstock now finds no

objection to PNCC "selling" 4 its assets to Radstock and placing itself in a
worse position than before as the assets will be actually conveyed and not
merely liquidated. Even worse, Radstock admits that PNCC is financially in
distress and intimates that the creditors cannot in any manner collect the
claims due them.
Furthermore, Executive Order No. 292 or the Administrative Code of
1987 requires congressional approval on the compromise of claims valued at
more than P100,000, thus the pertinent section provides: THcEaS
Section 20. Power to Compromise Claims. — (1) When the

interest of the Government so requires, the Commission [on Audit] may
exceeding one hundred thousand pesos. In case the claim or
liability exceeds one hundred thousand pesos , the application
for relief therefrom shall be submitted, through the
Commission and the President, with their recommendations, to
the Congress . . . . 5 (emphasis and underscoring supplied)
At the outset, it bears clarification that the phrase "any settled claim or
liability t o any government agency" includes not just liabilities t o the
government but also claims against the government. Although the two
relevant cases (infra) so far decided by this Court involved only liabilities to
the government, there is nothing in the law that prohibits the government
from amicably settling its own liability to a person, subject to the same
stringent qualifications and conditions. That the State has the whole
government machinery to contest any alleged liability and protect the
release of government funds to pay off such claim is not in consonance with
the avowed State policy expressed by law 6 that encourages settlement of
civil cases.
In Benedicto v. Board of Administrators of Television Stations RPN, BBC
and IBC, 7 the Court ruled that the requirement of prior congressional
approval for the compromise of an amount exceeding P100,000 applies only
to a settled claim or liability.
In his dissent, Justice Lucas Bersamin states that the liability of PNCC to
Radstock was not yet settled at the time of the execution of the Compromise
Agreement since the case was still the subject of litigation, in which PNCC
resisted liability by pleading various defenses. He expounds:
The exception of a compromise or release of a claim or liability
yet to be settled from the requirement for presidential or congressional
approval is realistic and practical. In a settlement by compromise
agreement, the negotiating party must have the freedom to negotiate
and bargain with the other party. Otherwise, tying the hands of the
Government representative by requiring him to submit each step of the
negotiation to the President and to Congress will unduly hinder him
from effectively entering into any compromise agreement. (italics in
the original omitted)SECcIH
The majority opinion, meanwhile, declares that the claim was already
settled upon recognition of the obligation in the books of PNCC via the Board
Resolution.
[It] was precisely enacted to prevent government agencies from
admitting liabilities against the government, then compromising such
"settled" liabilities. The present case is exactly what the law seeks to
prevent, a compromise agreement on a creditor's claim settled through
admission by a government agency without the approval of Congress
for amounts exceeding P100,000.00. What makes the application of the
law even more necessary is that the PNCC Board's twin moves are
manifestly and grossly disadvantageous to the Government. . . .
(emphasis in the original omitted)
I submit that a claim or liability is settled once it has been liquidated or

determined and no issue remains as to the amount or identity of the liability.
In Benedicto, the Court explained that "[t]he Government's claim
against Benedicto is not yet settled, and the ownership of the alleged ill-
gotten assets is still being litigated in the Sandiganbayan, hence, the PCGG's
Compromise Agreement with Benedicto need not be submitted to the
Congress for approval". In Benedicto, there was yet no determination as to
the ownership of the sequestered properties.
The determination, if it be a judicial one, need not be final and
executory. Since the aim of a compromise is to "avoid a litigation or put an
end to one already commenced", there is no rhyme or reason to end a
litigation that is already terminated and to wait for a final and executory
decision before discussing a possible compromise.
In The Alexandra Condominium Corporation v. Laguna Lake
Development Corporation, 8 the subject of compromise was the P1,062,000
fine imposed by the Laguna Lake Development Authority against a
condominium corporation as compensation for damages resulting from
failure to meet established water and effluent quality standards. The Court
therein ruled that the condominium corporation should have first pursued
the administrative recourse to the Department of Environment and Natural
Resources Secretary before filing the petition in court. On the issue of the
alleged pending amicable settlement vis-à-vis the claim of non-exhaustion of
administrative remedies, the Court ruled that congressional approval of a
compromise agreement is "not administrative but legislative [in nature], and
need not be resorted to before filing a judicial action". ITScHa
In the scheme of things, the congressional approval acts as a

safeguard in reviewing the soundness of the business judgment. It is not for
the Court to preempt the legislative branch and say that "under the
circumstances, the compromise agreement could not be considered as
disadvantageous to PNCC and the National Government".
LEONARDO-DE CASTRO, J., concurring:
I concur in the ponencia of the Honorable Justice Antonio T. Carpio,

subject to the following qualifications:
First, I do not believe that Section 36 of the Government Auditing Code
grants government agencies any power to compromise, and thereby admit,
any indebtedness of the government to another party. Section 36, as
amended by Section 20, Chapter 4, Title I-B, Book V, E.O. No. 292 (the
Administrative Code of 1987), provides:
Section 36. Power to compromise claims. — (1) When the
interest of the Government so requires, the Commission may
exceeding one hundred thousand pesos. In case the claim or liability
exceeds one hundred thousand pesos, the application for relief
therefrom shall be submitted, through the Commission and the
President, with their recommendations, to the Congress; and IaHCAD
(2) The Commission may, in the interest of the Government,

authorize the charging or crediting to an appropriate account in the
National Treasury, small discrepancies (overage or shortage) in the
remittances to, and disbursements of, the National Treasury, subject to
the rules and regulations as it may prescribe. (emphasis supplied)
Plainly, pursuant to the above-quoted provision, the power to
compromise or release involves a claim or liability to a government agency,
i.e., an indebtedness t o a government agency, which term by definition
under E.O. No. 292 includes "government owned or controlled corporations".
The language of Section 36 does not authorize the compromise of an
indebtedness o f the government or a liability of the government to any
party.
The aforesaid meaning or import of the term "claim or liability" used in
Section 36 is reinforced by the immediate preceding Section 35 which reads:
Section 35. Collection of Indebtedness Due to the
Government. — The Commission shall, through proper channels, assist
in the collection and enforcement of all debts and claims, and the
restitution of all funds or the replacement or payment as a reasonable
price of property, found to be due the Government, or any of its
subdivisions, agencies or instrumentalities, or any
government-owned or controlled corporation or self-governing
board, commission or agency of the Government, in the settlement and
adjustment of its accounts. If any legal proceeding is necessary to that
end, the Commission shall refer the case to the Solicitor General, the
Government Corporate Counsel, or the Legal Staff of the Creditor
Government Office or agency concerned to institute such legal
proceeding. The Commission shall extend full support in the litigation.
All such moneys due and payable shall bear interest at the legal rate
from the date of written demand by the Commission. (emphasis
supplied)
Previous jurisprudence applying Section 36 confirms that this provision

authorizes the compromise of a liability or indebtedness to the government.
1 This is true even in Benedicto v. Board of Administrators of Television
Stations, 2 which was cited in the dissent. The Benedicto case ruled upon the
power of the PCGG to compromise actions for recovery of ill-gotten
wealth. In such actions, it is the government who has a claim against third
persons and not the other way around.
Now, one might ask: Is there compelling reason to treat a compromise
of an indebtedness to the government differently from a compromise of an
indebtedness of the government?
The answer is undeniably in the affirmative. First, when there is a
compromise of an indebtedness t o the government, it generally
presupposes that the government's claim will be paid, albeit at a lower
amount than the actual liability. It involves funds going into the coffers of the
government. On the other hand, when there is a compromise of an
indebtedness o f the government, this means that public funds will be
disbursed from the treasury to answer for such debt. The former type of
compromise makes practical sense since in that situation, the State is
condoning a portion of an actual or settled or definite obligation in order to
collect some amount for a good or meritorious ground rather than risk the
non-payment of all of its claim. IcHAaS
However, the power to compromise an indebtedness to the

government does not necessarily include the power to compromise an
asserted claim against or liability of the government, more so if the said
claim against or liability of the government is unsettled. It needs no deep
logical reasoning to understand that before the government is made to part
with public funds or property, the claim against the government must be
fixed, definite or settled. Otherwise, the government may be holding itself
liable for unfounded or baseless claims. This is because the power to
compromise a liability of the government entails the disbursement of public
funds or property which is an act subject to stringent rules in order to
safeguard against loss or wastage of such funds or property that are so vital
to the delivery of basic public goods and services. Not the least of these
rules is Article VI, Section 29 (1) of the 1987 Constitution which states that "
[n]o money shall be paid out of the Treasury except in pursuance of an
appropriation made by law". In consonance with Section 29, Article VI, the
General Auditing Code also provides:
Section 4. Fundamental Principles. — Financial transactions
and operations of any government agency shall be governed by the
fundamental principles set forth hereunder, to wit:
1. No money shall be paid out of any public treasury or

depository except in pursuance of an appropriation law or other
specific statutory authority.
2. Government funds or property shall be spent or used
solely for public purposes. . . . (emphasis supplied)
To my mind, neither Section 36 of the Government Auditing Code nor

Benedicto can be used as legal basis for the vaunted validity of the
Compromise Agreement subject of this case.
Second, even assuming for the sake of argument that Section 36 may
be interpreted as also authorizing the compromise of government
indebtedness to another party, it is my considered view as stated above that
it must be a settled claim or liability.
Section 36 is very clear that the Commission on Audit (COA) may only
compromise or release "any settled claim or liability".
The dissenting opinion characterizes Radstock's claim against PNCC as
an unsettled claim since its validity and its amount had not yet been
determined with judicial finality and in fact, the Compromise Agreement was
entered into by the parties during the pendency of the case with the Court of
Appeals. ISTHED
However, I respectfully beg to disagree with the proposition that since

Radstock's claim is not yet settled, the requirement under Section 36 for
Presidential or Congressional approval does not apply. On the contrary, it is
precisely because the claim is still unsettled that Section 36 should not come
into play at all and the concerned government agency should be deemed to
have no authority to compromise such claim. Under Section 36, the authority
to compromise must involve a "settled claim or liability" regardless of
amount, the latter being significant only to determine the approving
authority. This is the clear import of Section 36.
This interpretation of Section 36, which requires a final and executory
judicial determination of the liability as a prerequisite to the exercise of the
power to compromise, would reinforce the mandate of the COA to guard
against illegal or negligent disbursement of public funds.
This is an opportune time for the Court to revisit and reexamine the
doctrine in Benedicto, insofar as it rules that Presidential and/or
Congressional approval may be dispensed with in the compromise of
unsettled claims. The authority to compromise granted in cases of settled
claims, under Section 36, as amended by E.O. 292, subject to the approval of
the offices concerned depending on the amount of the claim cannot, by any
rational reasoning, be construed as to confer absolute authority to
compromise, that is, sans any condition or approval at all, if the claim is
unsettled or not yet established. Rather, the inescapable deduction from the
language of Section 36 is that no compromise is allowed if the claim is
unsettled. Besides, it should be emphasized that the claim in Benedicto did
not involve a claim against the government but a claim due to the
government. Hence, it cannot be invoked as a precedent.
Section 36 requires, as indispensable conditions for a compromise, that
the claim is settled and the application for relief is submitted to Congress for
approval with the recommendation of the COA and the President if the
"settled claim" exceeds P100,000.00. The statutory conditions of (1) a
settled claim and (2) Presidential endorsement and Congressional approval
of the compromise depending on the amount of the claim are entrenched as
mechanisms for ensuring public accountability and fiscal responsibility.
If a settled claim (i.e., a claim that has been adjudged valid and has
been competently computed based on evidence) that exceeds P100,000.00
requires Presidential endorsement and Congressional approval, with more
reason, an unsettled claim (i.e., one that is still of questionable validity or
legality) of any amount should require Presidential endorsement and
Congressional approval before it can be compromised. This is especially true
in the case of a compromise of a supposed debt of the government to
another party. It seems absurd that a compromise that will require a
disbursement of public funds or property will not require Congressional
approval when the Constitution and the law demand legislative action and a
public purpose before such a disbursement can be made. AEIcTD
To be sure, in the case of a compromise of an indebtedness t o the

government, there must be a reasonable and dependable benchmark by
which to ascertain whether the amount of loss or waived receivables under
the compromise is acceptable or justified.
The existence of a reliable benchmark of the liability to be paid is even
more imperative in the case of a compromise of an indebtedness o f the
government because it entails a payment out of public funds or property. A
judicial determination of the liability would be one such standard by which
we can reasonably gauge if the compromise entered into by public officials is
disadvantageous to the government or inimical to interests of the Filipino
people.
The benchmark most certainly cannot be what the claimant asserts the
government's liability to be. I simply cannot accept the reasoning that
PNCC's entering into a compromise with Radstock for P6 Billion is
advantageous to the government, since the purported claim amounted to
approximately P17 Billion. For if Radstock is actually not entitled to a single
centavo of its claim, then our government would have lost P6 Billion for
nothing. It is my firm belief that a claim against the government must be
proven, or otherwise settled with finality, before the whole claim or any part
of it can be paid or compromised.
If this Court approves the compromise of an unsettled claim, then we
will open the floodgates to even more suits of this sort. Predictably, that kind
of permissive ruling will encourage parties to file flimsy or dubious claims
against the government and unscrupulous government officials can
compromise such claims even during the pendency of the case and without
need of any approval from higher authority. To say that this would be an
anomalous outcome would be an understatement. It is an abomination that
the Court should not countenance or perpetuate.
We simply cannot apply to this case the statutory provisions on
compromise of cases in ordinary civil or corporate litigation. We must
consider the far-reaching public interests involved herein and the special
laws or rules applicable to the expenditure or disposition of public funds or
property, especially proscriptions against government guarantee of debts or
obligations incurred for a private purpose. Public officers entering into a
compromise of an "unsettled" indebtedness o f the government, in the
absence of a definite and categorical legal authority to do so, are assuming a
heavy burden of justifying such compromise in order to avoid accusations of
entering into a manifestly disadvantageous agreement on behalf of the
government. AECDHS
Finally, it should not escape this Court's notice that PNCC became a
government owned or controlled corporation (GOCC) in the first place
because it was indebted to the government. Instead of paying the
government in cash, it settled its obligations in shares of stock. If we
approve the Compromise Agreement, the government, who itself was a
creditor of PNCC, will now in effect be paying PNCC's debts. Worse, one such
debt was not even an obligation of PNCC to begin with but of its affiliate, and
was incurred at a time when both PNCC and the affiliate were private
corporations. The strange circumstances surrounding PNCC's recognition of
the said debt and the startling facility by which that debt was recognized by
a PNCC official and then bought and sued upon by Radstock all arouse
suspicion. I believe the Court is right to disapprove the Compromise
Agreement and should allow all issues to be fully ventilated in the
proceedings on merits.
There are still a number of important legal issues to be settled here,
such as, the legal basis of a GOCC assuming the indebtedness incurred by a
private entity for a private purpose, the validity of the enforcement of a
guarantee by a GOCC of a private corporation's foreign debt which did not
pass through the usual controls, restrictions, and the conditions imposed by
law and the rules of the monetary authority for the validity of a government
guarantee of such foreign borrowing or indebtedness considering the change
in the situation of the parties, and so on.
I likewise cannot agree with the dissenting opinion that the Court, in
PNCC v. Dy, 3 had already substantially denied PNCC's affirmative defenses,
such as prescription, among others. Indeed, all the Court held in that earlier
case was that the alleged errors of the trial court in its resolution of PNCC's
Motion to Dismiss were not correctible by certiorari but this did not preclude
PNCC from proving its affirmative defenses during trial. To quote the
relevant portion of that decision:
If error had been committed by the trial court, it was not of the
character of grave abuse that relief through the extraordinary remedy
o f certiorari may be availed. Indeed, the grounds relied upon by
PNCC are matters that are better threshed out during the trial
since they can only be considered after evidence has been
adduced and weighed. 4 (emphasis supplied)
Subject to the foregoing discussions, I agree with the conclusions

reached in the ponencia of Justice Carpio and vote to (1) grant the petition in
G.R. No. 180428 and (2) to set aside (a) PNCC Board Resolution Nos. BD-092-
2000 and BD-099-2000 and (b) the Compromise Agreement for being null
and void. EIaDHS
BERSAMIN, J., dissenting:
I hereby register my dissent to the majority opinion of Justice Carpio

that grants the petition in G.R. No. 180428, and declares (1) PNCC Board
Resolution Nos. BD-092-2000 and BD-099-2000 (recognizing liability for the
Marubeni Corporation (Marubeni) loans) void ab initio for causing undue
injury to the Government and giving unwarranted benefits to a private party;
and (2) the compromise agreement between the Philippine National
Construction Corporation (PNCC) and Radstock Securities Limited (Radstock)
inexistent and void ab initio for being contrary to Section 29 (1), Article VI
and Sections 3 and 7, Article XII 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 and 85 of the Government Auditing Code; Section 3 (g) of the
Anti-Graft and Corrupt Practices Act; Article 217 of the Revised Penal Code ;
and Articles 2241, 2242, 2243 and 2244 of the Civil Code; and that grants
the intervention of Asiavest Merchant Bankers Berhad in G.R. No. 178158.
The majority opinion declares that Strategic Alliance Development
Corporation has no legal standing to sue.
I humbly submit that the PNCC Board resolutions and the compromise
agreement entered into by and between PNCC and Radstock were valid and
effective, and did not violate any provision of the Constitution or any other
law; and that the intervention of Asiavest Merchant Bankers Berhad in G.R.
No. 178158 has no legal and factual bases.
Let me justify this submission.
The Case, in a Nutshell
Respondent Radstock had sued for collection and damages respondent
PNCC in the Regional Trial Court (RTC) in Mandaluyong City (Civil Case No.
MC 01-1398). The RTC rendered judgment in favor of Radstock, mandating
PNCC to pay to Radstock the amount of P13,151,956,528.00, plus interests
and attorney's fees. PNCC appealed to the Court of Appeals (CA). 1 On
August 18, 2006, after negotiations held while the appeal (CA-GR CV No.
87971) was still pending in the CA, PNCC and Radstock entered into a
compromise agreement, agreeing to reduce PNCC's adjudged liability in the
amount of P17,040,843,968.00 as of July 31, 2006 to P6,185,000,000. 2
Considering that at the time of the execution of the compromise
agreement, G.R. No. 156887 (i.e., the appeal of PNCC from the CA's
affirmance of the RTC's denial of PNCC's motion to dismiss in Civil Case No.
MC 01-1398) was still also pending in this Court, PNCC and Radstock
submitted the compromise agreement for approval of the Court, which saw
fit to require said parties to refer the compromise agreement to the
Commission on Audit (COA) for study and recommendation. On its part, COA
recommended the approval of the compromise agreement. ISCDEA
Thereafter, on November 22, 2006, the Court instructed PNCC and

Radstock to submit the compromise agreement to the CA for approval
because CA-GR CV No. 87971 was still pending. 3 On January 25, 2007, the
CA approved it. 4
The approval of the compromise agreement quickly invited adverse
reaction from several quarters, none of whom had been parties up to that
point in the litigation. One of them was Strategic Alliance Development
Corporation (STRADEC), the petitioner in G.R. No. 178185. 5 Another was
Rodolfo Cuenca. STRADEC and Cuenca wanted to intervene in order to assail
the compromise agreement between PNCC and Radstock as null and void.
The CA rejected their proposed interventions. 6 On the other hand, Luis Sison
(Sison), the petitioner in G.R. No. 180428, 7 filed a petition for annulment of
judgment approving the compromise agreement, 8 which was raffled to
another division of the CA. The CA dismissed the petition. 9
Before the Court now are the appeals of STRADEC and Sison. Cuenca
did not pursue his cause after the rejection of his intervention.
Common Antecedents 10
In the period between 1978 and 1980, Marubeni, a corporation

organized under the laws of Japan, had extended two loan accommodations
to PNCC for the following purposes: (1) the sum of US$5 million to finance
the purchase of copper concentrates by Construction Development
Corporation of the Philippines (CDCP) Mining Corporation (a subsidiary of
PNCC), which PNCC had guaranteed to pay jointly and severally up to the
amount of P20 million; and (2) ¥5.46 billion, or its equivalent in Philippine
Pesos of P2,099,192,619.00, to finance the completion of the expansion
project of CDCP Mining Corporation in Basay, and as working capital, which
PNCC had also guaranteed to pay jointly and severally. By a deed of
assignment dated January 10, 2001, Marubeni assigned the credit to
Radstock, a corporation organized under the laws of the British Virgin
Islands, with office address at Suite 602, 76 Kennedy Road, Hong Kong. After
due date of the obligation, Marubeni and Radstock had demanded payment,
but PNCC failed and refused to pay the obligation.
Upon default of PNCC, Radstock sued PNCC in the RTC in Mandaluyong
City to recover the debt and consequential damages, praying for the
issuance of a writ of preliminary attachment. The suit was docketed as Civil
Case No. MC 01-1398.
On January 23, 2001, the RTC issued a writ of preliminary attachment,
the service of which led to the garnishment of PNCC's bank accounts and the
attachment of several of PNCC's real properties. On February 14, 2001,
PNCC moved to set aside the order of January 23, 2001, and to discharge the
writ of attachment. Two weeks later, PNCC filed a motion to dismiss. The RTC
denied both motions. After the RTC denied PNCC's corresponding motions for
reconsideration, PNCC instituted a special civil action for certiorari in the CA
(C.A.-G.R. SP No. 66654).
Notwithstanding the pendency of C.A.-G.R. SP No. 66654, Civil Case
No. MC 01-1398 proceeded in the RTC. In its answer in Civil Case No. MC 01-
1398, PNCC reiterated the grounds of its motion to dismiss as affirmative
defenses, namely: 1) that the plaintiff had no legal capacity to sue; 2) that
the loan obligation had already prescribed because no valid demand had
been made; and 3) that the letter of guarantee had been signed by a person
not authorized to do so by a valid board resolution.
In C.A.-G.R. SP No. 66654, PNCC argued similar grounds to assail the
denial of its motion to dismiss, to wit: 1) that the cause of action was barred
by prescription; 2) that the pleading asserting the claim stated no cause of
action; 3) that the condition precedent for filing of the instant suit had not
been complied with; and 4) that the plaintiff had no legal capacity to sue.
PNCC further argued that the RTC had committed grave abuse of discretion
in issuing the writ of attachment, for there had been no valid grounds to
grant the writ. cEAIHa
On August 30, 2002, the CA decided C.A.-G.R. SP No. 66654. It held

that the RTC did not act with grave abuse of discretion; and that the denial
of the motion to dismiss, being interlocutory, could not be questioned
through a special civil action for certiorari. The CA denied PNCC's motion for
reconsideration on January 22, 2003.
Soon after the CA had rendered its decision in C.A.-G.R. SP No. 66654,
the RTC promulgated its judgment in Civil Case No. MC 01-1398, declaring
PNCC liable to Radstock in the amount of P13,151,956,528, plus interest and
attorney's fees. The RTC also threw out all of PNCC's affirmative defenses for
being inconsistent with the evidence presented.
PNCC appealed the judgment to the CA (C.A.-G.R. CV No. 87971).
Even with the main case (Civil Case No. MC 01-1398) having been
meanwhile decided, PNCC still appealed by petition for review on certiorari
the CA decision in C.A.-G.R. SP No. 66654, alleging that the CA gravely erred
by holding that certiorari was not available against the denial of a motion to
dismiss; and insisting that the RTC had not gravely abused its discretion in
issuing its assailed orders. The appeal was docketed as G.R. No. 156887.
On October 3, 2005, the Court resolved G.R. No. 156887, viz.:
WHEREFORE, the petition is partly GRANTED and insofar as the
Motion to Set Aside the Order and/or Discharge the Writ of Attachment
is concerned, the Decision of the Court of Appeals on August 30, 2002
and its Resolution of January 22, 2003 in CA-G.R. SP No. 66654 are
REVERSED and SET ASIDE. The attachments over the properties by the
writ of preliminary attachment are hereby ordered LIFTED effective
upon the finality of this Decision. The Decision and Resolution of the
Court of Appeals are AFFIRMED in all other respects. The Temporary
Restraining Order is DISSOLVED immediately and the Court of Appeals
is directed to PROCEED forthwith with the appeal filed by PNCC.
No costs.
SO ORDERED.
After receiving the decision in G.R. No. 156887, the representatives

and counsel of PNCC and Radstock met for a number of times in order to
discuss a possible settlement between them. They reached a final
settlement on August 17, 2006. They submitted to the Court their
compromise agreement on August 18, 2006. 11 In the compromise
agreement, PNCC and Radstock agreed to reduce PNCC's adjudged liability
as of July 31, 2006 from P17,040,843,968.00 to P6,185,000,000.
On December 4, 2006, the Court in G.R. No. 156887 referred the
compromise agreement to the COA for comment. In due time, COA
submitted its compliance, whereby it recommended the approval of the
compromise agreement. 12
On November 22, 2006, the Court instructed PNCC and Radstock to
submit the compromise agreement to the CA because the appeal of the RTC
decision was still pending thereat. 13
On January 25, 2007, the CA rendered its decision approving the
compromise agreement. 14
Alleging a claim against PNCC arising from the rejection of its bid
during the bidding conducted in 2000 by the Privatization and Management
Office (PMO) for the privatization of the Government's PNCC shares, 15
STRADEC sought reconsideration of the decision of January 25, 2007. HSDaTC
Cuenca, a stockholder of PNCC and its former President and Chairman

of the Board of Directors, filed a motion for intervention, maintaining that
PNCC had no obligation to pay Radstock. 16
On May 31, 2007, however, the CA denied STRADEC's motion for
reconsideration and Cuenca's motion for intervention. 17
In the meanwhile, on February 20, 2007, Sison also joined the legal
fray in the CA by filing his petition for annulment of judgment approving the
compromise agreement (C.A.-G.R. SP No. 97982). 18
Asiavest Merchant Bankers Berhad (Asiavest), representing itself as a
judgment creditor of PNCC, manifested its intention to participate in C.A.-
G.R. SP No. 97982 through its urgent motion for leave to intervene and to file
the attached opposition and motion-in-intervention.
On June 12, 2007, the CA (Ninth Division) promulgated a resolution in
C.A.-G.R. SP No. 97982 dismissing Sison's petition for annulment of judgment
approving the compromise agreement and denying Asiavest's urgent motion
for leave to intervene. 19
Sison moved for reconsideration of the dismissal, but the CA denied his
motion for reconsideration. 20
On June 20, 2007, STRADEC came to the Court to seek a review on
certiorari (G.R. No. 178158), praying that the compromise agreement be
declared void for violating the law and public policy. It sought a temporary
restraining order or writ of preliminary injunction. 21
Cuenca did not appeal.
On July 2, 2007, the Court directed PNCC and Radstock, their officers,
agents, representatives and other persons acting under their orders to
maintain the status quo ante. 22
On September 21, 2007, Asiavest presented its urgent motion for leave
to intervene and to file the attached opposition and motion-in-intervention in
G.R. No. 178158. 23
On November 26, 2007, Sison also came to the Court v i a his own
petition for review on certiorari to appeal the CA decision (G.R. No. 180428).
24
On February 18, 2008, the Court consolidated G.R. No. 180428 and
G.R. No. 178158. 25
Additional Antecedents in G.R. No. 178158
In 2000, STRADEC and Dong-A Pharmaceutical Co., Ltd., a Korean
corporation, formed a consortium to participate in the bidding for the shares
and other interests of the Philippine Government in PNCC. The consortium
was named Dong-A Consortium. 26 Dong-A Consortium's bid of
P1,228,888,800.00 was the highest. 27 On October 30, 2000, during the
bidding process, the representative of the Assets Privatization Trust (APT)
conducting the bidding announced that the indicative price for the
Government's shares, receivables and other interests in PNCC was P7 billion.
28 All the bids, including that of Dong-A Consortium, were thus rejected.29 In
several communications thereafter, Dong-A Consortium demanded that APT
issue the notice of award to it. However, APT did not comply, denying any
irregularity in the bidding and informing Dong-A Consortium that its Board of
Directors had confirmed the decision to reject Dong-A Consortium's bid. 30 ECTHIA
On October 3, 2005, STRADEC commenced an action for the

declaration of its right to the notice of award and for damages in the RTC in
Makati (docketed as Civil Case No. 05-882) against the PMO (formerly APT)
and PNCC. 31
On October 6, 2006, STRADEC filed a motion for intervention in this
Court, seeking to intervene in order to seek the nullification of the
compromise agreement. 32 After the CA had approved the compromise
agreement through the decision in C.A.-G.R. CV No. 87971, STRADEC filed a
motion for reconsideration. The CA denied the motion for reconsideration on
May 31, 2007, resulting in STRADEC's present appeal in G.R. No. 178158.
Arguments of the Parties
In G.R. No. 178158, STRADEC contends that:
I.THE COURT OF APPEALS NOT ONLY COMMITTED SERIOUS REVERSIBLE
ERROR BUT MAY HAVE ALSO GRAVELY ABUSED ITS DISCRETION
IN REFUSING TO ALLOW PETITIONER STRADEC TO INTERVENE IN
THE CASE.
II.THE COMPROMISE AGREEMENT BETWEEN RESPONDENTS RADSTOCK
AND PNCC IS VOID FOR BEING CONTRARY TO LAW AND PUBLIC
POLICY.
III.IN THE EVENT THE COMPROMISE AGREEMENT BETWEEN
RESPONDENTS RADSTOCK AND PNCC IS UPHELD, SAID
COMPROMISE AGREEMENT SHOULD BE MADE SUBJECT TO THE
OUTCOME OF CIVIL CASE NO. 05-882.
In G.R. No. 180428, Sison submits the following arguments in support

of his petition: 33
I.AN ACTION TO ANNUL A FINAL AND EXECUTORY JUDGMENT OF THE
COURT OF APPEALS WHERE SUCH JUDGMENT WAS PROCURED
THROUGH FRAUD, AND WITHOUT FAULT, NEGLIGENCE OR
PARTICIPATION OF THE PARTY CONCERNED, CAN BE FILED AND
MAINTAINED BEFORE THE COURT OF APPEALS. HENCE, THE
COURT OF APPEALS GRAVELY ERRED IN DISMISSING THE
PETITION FOR ANNULMENT OF JUDGMENT FOR SUPPOSED LACK
OF JURISDICTION.
II.RESOLVING THE JURISDICTION ISSUES PRESENTED IN THIS CASE WILL
ENRICH JURISPRUDENCE.
III.PETITIONER HAS A MERITORIOUS CAUSE OF ACTION, AND THE
INSTANT PETITION WARRANTS JUDICIAL REVIEW DUE TO
COMPELLING REASONS.
On their part, Radstock and PNCC similarly argued in their respective

memoranda that: 34
1.THE COMPROMISE AGREEMENT DOES NOT VIOLATE PUBLIC POLICY.
2.THE SUBJECT MATTER DOES NOT INVOLVE AN ASSUMPTION BY THE
GOVERNMENT OF A PRIVATE ENTITY'S OBLIGATION IN VIOLATION
OF THE LAW AND/OR THE CONSTITUTION. IESDCH
3.THE PNCC BOARD RESOLUTION OF OCTOBER 20, 2000 IS NOT

DEFECTIVE OR ILLEGAL.
4.THE COMPROMISE AGREEMENT IS VIABLE AND DOES NOT INCLUDE
ALL OR SUBSTANTIALLY ALL OF PNCC'S ASSETS.
5.THE DECISION OF THE COURT OF APPEALS IS NOT ANNULLABLE AS

THERE WAS NO FRAUD PRACTICED HERE.
On January 13, 2009, the Court conducted oral arguments in both

appeals, and limited the matters to be covered to the following:
1.Does the Compromise Agreement violate public policy?
2.Does the subject matter involve an assumption by the
government of a private entity's obligation in violation of the
law and/or the Constitution? Is the PNCC Board Resolution of
October 20, 2000 defective or illegal?
3.Is the Compromise Agreement viable in light of the non-renewal
of PNCC's franchise by Congress and its inclusion of all or
substantially all of PNCC's assets?
4.Is the Decision of the Court of Appeals annullable even if final
and executory on the grounds of fraud, public policy and the
Constitution? 35
Submissions
I
G.R. No. 178158
STRADEC seeks the reversal of the CA's denial of its motion for
intervention to enable it to have the compromise agreement between
Radstock and PNCC declared void, or, alternatively, to have the compromise
agreement made subject to the outcome of Civil Case No. 05-882.
I believe and submit that STRADEC's position is untenable. Thus, I join
the majority opinion in its rejection of STRADEC's intervention.
A
CA Committed No Grave Abuse of Discretion
in denying STRADEC's Motion for Intervention
Section 2, Rule 19 of the 1997 Rules of Civil Procedure requires that
the motion for intervention "may be filed at any time before the rendition of
judgment by the trial court".
The CA found that STRADEC had filed its motion for intervention only
after the CA and the RTC had promulgated their respective decisions. Worthy
to note, indeed, is that as of the time when the joint motion for judgment
based on compromise agreement was submitted by PNCC and Radstock to
the CA for consideration and approval, no motion for intervention was as yet
attached to the CA rollo. 36 Consequently, the CA held that STRADEC's
motion for intervention had been filed out of time.
Yet, STRADEC insists that the requirement for its intervention to be
made prior to the rendition of judgment by the RTC should not apply
considering that it had no legal interest in the subject matter of the litigation
until upon the execution of the compromise agreement. It asserts that it
became imbued with a legal interest in the subject matter in litigation due to
its being the winning bidder during the public bidding on October 30, 2000,
by which it came to have the right to acquire the Government's shares,
receivables, securities and other interests in PNCC, only after the execution
of the compromise agreement, because its right would be defeated if the
compromise agreement were approved considering that the compromise
agreement provided for the transfer to Radstock of the Government's
properties, rights, securities and other interests in PNCC. CDaSAE
STRADEC's insistence is untenable. The CA's rejection of STRADEC's

intervention was proper and in accord with the Rules of Court and pertinent
jurisprudence.
Rule 19 of the 1997 Rules of Civil Procedure, which regulates the
procedure for permitting an intervention, relevantly provides:
Section 1.Who may intervene. — A person who has a legal
interest in the matter in litigation, or in the success of either of the
parties, or an interest against both, or is so situated as to be adversely
affected by a distribution or other disposition of property in the custody
of the court or of an officer thereof may, with leave of court, be allowed
to intervene in the action. The court shall consider whether or not the
intervention will unduly delay or prejudice the adjudication of the rights
of the original parties, and whether or not the intervenor's rights may
be fully protected in a separate proceeding. (2[a], [b]a, R12)
To be able to intervene in an action, therefore, the prospective

intervenor must show an interest in the litigation that is of such direct and
material character that he will either gain or lose by the direct legal
operation and effect of judgment. 37
STRADEC did not demonstrate sufficiently enough that it had the
requisite legal interest in the subject matter of the litigation between
Radstock and PNCC. On the contrary, STRADEC's interest, if any, was far
from direct and material, but was, at best, a mere expectancy, contingent
and purely inchoate, due to such interest being dependent on a favorable
outcome of Civil Case No. 05-882, which was then still pending in the RTC.
Therein lay the weakness of STRADEC's position.
Intervention is a proceeding in a suit or action by which a third person
is permitted by the court to make himself a party, either joining the plaintiff
in claiming what is sought by the complaint, or uniting with the defendant in
resisting the claims of the plaintiff, or demanding something adverse to both
of them. It is the act or proceeding by which a third person becomes a party
to a suit pending between two others. It is the admission, by leave of court,
of a person not an original party to pending legal proceedings, by which such
person becomes a party for the protection of some alleged right or interest
to be affected by such proceedings. 38
I contend that the right to intervene is not absolute, for intervention is
merely permissive; and that the conditions for the right of intervention to be
exercised must be shown by the party proposing to intervene. The procedure
to secure the right to intervene is fixed by a statute or rule, and intervention
can be secured only in accordance with the terms of the applicable statutory
or reglementary provision. Under the rules on intervention, the allowance or
disallowance of a motion to intervene is addressed to the sound discretion of
the court or judge. 39
B
Allowance of STRADEC's Intervention
Will Unduly Delay Adjudication
of the Rights of the Original Parties
The decision of the RTC pronouncing PNCC liable to Radstock for
P13,151,956,528.00, plus interests and attorney's fees, for an obligation
incurred between 1978 and 1980, was promulgated as early as on
December 10, 2002. Matters involved in the case have also already reached
this Court (G.R. No. 156887), with the Court upholding the denial of PNCC's
motion to dismiss. Allowing STRADEC to intervene would mean having to
remand the case to the CA or the RTC for the reception of evidence and the
introduction of new issues. Under such circumstances, the intervention
would give birth to the unwanted prospect of letting this case drag on for a
few more years. ACETSa
I submit that the petition fails because the Court cannot permit a
further delay.
The purpose of intervention — never an independent action, but
ancillary and supplemental to the existing litigation — is not to obstruct or to
unnecessarily delay the placid operation of the machinery of trial, but merely
to afford one not an original party, yet having a certain right or interest in
the pending case, the opportunity to appear and be joined so he can assert
or protect such right or interest. 40 Accordingly, as a general guide for
determining whether a party may be allowed to intervene or not, the trial
court, in the exercise of its sound discretion, shall consider whether or not
the intervention will unduly delay or prejudice the adjudication of the rights
of the original parties, and whether or not the intervenor's rights may be
fully protected in a separate proceeding. 41
C
STRADEC's Rights Are Fully
Protected in Civil Case No. 05-882
STRADEC apprehends that its right cannot be fully protected in Civil
Case No. 05-882 because it would have nothing to acquire except worthless
shares should the compromise agreement be upheld, considering that the
assets of PNCC were being conveyed to Radstock under the compromise
agreement.
STRADEC's apprehensions are unwarranted.
STRADEC's apprehensions would not be assuaged through its
intervention in the action between Radstock and PNCC or through the
nullification of the compromise agreement. STRADEC was a stranger in
relation to the transaction by which PNCC had incurred the obligations
subject of the compromise agreement. Indeed, it would be irregular to
subordinate to STRADEC's unsettled claim the right of Radstock to collect as
PNCC's creditor. The alleged possibility that STRADEC might be left with
worthless shares was no reason to allow its intervention in order only to
assail the compromise agreement, for such intervention would not enable
PNCC to avoid its liability to Radstock, or to save PNCC from being liable with
its own assets for its obligations to Radstock, should the courts ultimately
find that the obligations were justly due and demandable. On the other
hand, STRADEC could still hold PNCC's remaining assets liable should it
prevail in Civil Case No. 05-882. Based on COA's earlier cited compliance,
PNCC had remaining assets by which it could start anew and pursue its plans
to revitalize its operation. 42
II
G.R. No. 180428
I disagree with the majority opinion in respect of Sison's petition for
annulment of judgment approving the compromise agreement.
Let me give my reasons for my dissent.
A
CA's Denial of Sison's Petition for Annulment of Judgment
Approving the Compromise Agreement Was Correct
Sison assails the resolution dated November 5, 2007 in C.A.-G.R. SP
No. 97982, whereby the CA, Ninth Division, denied his motion for
reconsideration of the decision promulgated on June 12, 2007 dismissing his
petition for annulment of judgment approving the compromise agreement,
and also denied Asiavest's urgent motion for leave to intervene and to file
the attached opposition and motion-in-intervention. 43
Sison contends that the CA thereby gravely erred in holding that it had
no jurisdiction over his petition for annulment in C.A.-G.R. SP No. 97982
respecting the final disposition of the CA in C.A.-G.R. CV No. 87971. 44
The CA rationalized its dismissal of Sison's petition thuswise: 45
Stripped to its barest essential, the petition should be dismissed.
The Court of Appeals has no jurisdiction to annul its own final and
executory judgment. aSTAcH
The Court's jurisdiction over actions for annulment of judgment,

as in the instant case, pertains only to those rendered by the Regional
Trial Courts (Sec. 9[2], BP Blg. 129; Sec. 1 Rule 47, 1997 Rules of Civil
Procedure).
Sison's contention is untenable and erroneous. We should instead

sustain the CA, whose ruling was correct and in accord with the Rules of
Court and applicable jurisprudence.
The jurisdiction to annul a judgment rendered by the Regional Trial
Court is expressly granted to the CA by Section 9 (2) of Batas Pambansa Blg.
129, otherwise known as the Judiciary Reorganization Act. The procedure for
the purpose is governed by Rule 47, 1997 Rules of Civil Procedure, whose
Section 1 provides:
Section 1.Coverage. — This Rule shall govern the annulment by
the Court of Appeals of judgments or final orders and resolutions in civil
actions of Regional Trial Courts for which the ordinary remedies of new
trial, appeal, petition for relief or other appropriate remedies are no
longer available through no fault of the petitioner.
Explaining the coverage of the procedure under Rule 47 in Grande v.

University of the Philippines, 46 the Court definitely ruled out the application
of Rule 47 to the nullification of a decision of the CA, viz.:
The annulment of judgments, as a recourse, is equitable in
character, allowed only in exceptional cases, as where there is no
available or other adequate remedy. It is generally governed by Rule
47 of the 1997 Rules of Civil Procedure. Section 1 thereof expressly
states that the Rule "shall govern the annulment by the Court of
Appeals of judgments of final orders and resolutions in civil action of
Regional Trial Courts for which the ordinary remedies of new trial,
appeal, petition for relief or other appropriate remedies are no longer
available through no fault of the petitioner". Clearly, Rule 47 applies
only to petitions for the nullification of judgments rendered by regional
trial courts filed with the Court of Appeals. It does not pertain to the
nullification of decisions of the Court of Appeals.
IAETSC
Still, Sison supports his choice of remedy by citing the ruling inConde
v. Intermediate Appellate Court. 47
I find Sison's reliance on Conde to be misplaced.
The error attributed to the Intermediate Appellate Court in Conde was
not its refusal to exercise jurisdiction, but rather its declaration that the
complaint for annulment of judgment should be filed with the Supreme
Court. Such declaration was erroneous, considering that the Supreme Court
has no original jurisdiction to look into allegations of fraud upon which the
complaint for annulment is based. 48 The reasoning in Conde emphasized
the principle that the Supreme Court decides only questions of law, because
it is not its function to analyze or weigh evidence, 49 especially if newly
introduced. By virtue of the Supreme Court's remanding the case to the
Intermediate Appellate Court, however, it then behooved the Intermediate
Appellate Court in Conde to take cognizance of the remanded case. Its
hesitation to follow the order of remand merited for the Intermediate
Appellate Court an admonition.
In dismissing Sison's petition for annulment of the approval of the
compromise agreement, the CA was simply applying the pertinent law and
rules. Thereby, the CA did not err, because the CA could not, on its own
accord, take cognizance of his petition to annul its own judgment absent any
specific directive from the Supreme Court, as in Conde.
Sison then points out the lack of any remedy under the Rules of Court
in instances wherein a compromise agreement was entered into late in the
litigation process, such as during the appeal, by which persons aggrieved by
the compromise agreement were prevented from filing an action to annul
the judgment based on a compromise agreement or from resorting to other
remedies. He posits that the Rules of Court must now be given a liberal
interpretation, thereby warranting the allowance of his petition vis-à-vis the
compromise agreement. ATCEIc
Again, I cannot side with Sison. That he now finds himself bereft of any
available remedy is not due to the lack of any remedies under the law or the
Rules of Court, but rather due to his wrong choice of remedy. Also, his lack
of standing to assail the compromise agreement, which we shall shortly
delve on, militated against his position.
B
Sison Has No Standing to Assail
the Compromise Agreement
Sison alleges in his petition that he is a stockholder of record of PNCC
by virtue of his holding 52,000 common shares. 50 Even as a stockholder of
PNCC, however, he lacks the requisite standing to assail the compromise
agreement executed between PNCC and Radstock.
A corporation is vested by law with a personality separate and distinct
from that of each person composing or representing it. 51 This legal
personality of the corporation gives rise to the proposition that a stockholder
may not generally bring a suit to repudiate the actions of the corporation,
unless it is a stockholder's suit, more commonly known as a derivative suit.
Although Sison does not allege that he filed a derivative suit, it can be fairly
deduced that he was assailing the compromise agreement based on his
being a stockholder of PNCC.
Did Sison's action qualify as a stockholder's suit?
In this jurisdiction, the stockholder must comply with the essential
requisites for the filing of a derivative suit. The requisites are set forth in
Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-
Corporate Controversies, 52 namely:
1.That he was a stockholder or member at the time the acts or
transactions subject of the action occurred and at the time
the action was filed;
2.That he exerted all reasonable efforts to exhaust all remedies
available under the articles of incorporation, by-laws, laws or
rules governing the corporation or partnership to obtain the
relief he desires, and alleges the same with particularity in
the complaint;
3.No appraisal rights are available for the act or acts complained
of; and
4.The suit is not a nuisance or harassment suit.
Sison's petition did not qualify as a stockholder's suit. To begin with, he
did not allege that he had exhausted all remedies available under the
articles of incorporation, by-laws, or rules governing the corporation to
obtain the relief he desired. And, secondly, he did not allege that no
appraisal rights were available for the act or acts complained of.
A stockholder's suit is always one in equity, but it cannot prosper
without first complying with the legal requisites for its institution. 53
Consequently, Sison's petition was correctly disallowed.
III
The Compromise Agreement
Was Not Prejudicial to PNCC
The decision of PNCC to enter into the compromise agreement with
Radstock did not prejudice PNCC and its stockholders for several reasons.
Firstly, the compromise agreement reduced PNCC's probable liability
from the staggering starting sum of P13,151,956,528.00, as the RTC had
adjudged, to the much lesser sum of P6,196,000,000.00. Considering that it
was highly probable for the CA, as the appellate forum, to affirm the higher
liability given its frequency of upholding, rather than reversing or modifying,
the RTC on appeal, PNCC thereby effectively avoided the much greater
liability. The result was certainly favorable to PNCC and its stockholders.
Secondly, the chances of PNCC for success in its appeal against
Radstock were realistically very low. This was because by the time of the
execution of the compromise agreement, the CA, in C.A.-G.R. SP No. 66654,
and the Court, in G.R. No. 156887, had already passed upon the merits of
PNCC's motion to dismiss by denying substantially a l l the affirmative
defenses that PNCC had raised against Radstock. Specifically, the CA
affirmed the RTC's denial of PNCC's motion to dismiss. In G.R. No. 156887, 54
the Court affirmed the CA's ruling, holding as follows:
We have carefully reviewed the Motion to Dismiss and the action
taken by the court a quo and we find nothing that may constitute a
grave abuse. The Order of April 19, 2001 which first denied the Motion
to Dismiss meticulously explained the legal and factual basis for the
trial court's rejection of the four grounds raised by PNCC:
With respect to the first issue of whether or not the instant
action had already been barred by prescription, the Court, after
judicious examination of the environmental circumstances of this
case and upon examination of the pertinent jurisprudence, is
inclined to rule in the NEGATIVE. The averment on the pleadings
submitted by the parties had so far revealed that the above-
entitled case instituted by plaintiff Radstock Securities Limited
for a sum of money and damages against defendant Philippine
National Construction Corporation is not barred by prescription in
light of the several demand letters and correspondences
exchanged by the parties up to July 25, 1996. Further, it is
interesting to note that defendant had, in the Board meeting held
last October 20, 2000, clearly acknowledged the subject
indebtedness to Marubeni. . . . TcDIaA

xxx xxx xxx
Regarding the issue of whether or not the plaintiff has a
valid cause of action against the defendant, the Court notes that
the defendant heavily relies on the argument that the subject
letter of guarantee executed by Alfredo Asuncion is void for lack
of authority from the PNCC Board of Directors. This is misplaced
in light of the fact that when a corporation such as the defendant
in this case presents an officer to be the duly authorized
signatory to a document coupled with submission of a duly
notarized Secretary's Certificate said third party has every right
to rely on the regularity of actions done by said corporation. . . .
xxx xxx xxx

As regards the issue of whether or not the condition
precedent for filing the instant suit has not been complied with,
the [C]ourt finds the contention asserted by defendant to be
bereft of merit. In setting up this ground of prematurity,
defendant argues that plaintiff failed to comply with the
provisions on arbitration embodied in the advance agreement
executed on August 9, 1978 and loan Agreement executed on
May 19, 1980. Apparently however, this case is being filed
against defendant PNCC under the letters of guarantee [sic].
[P]laintiff is not filing this case against CDCP-M under the loan
agreement and the advance payment agreement entered
between Marubeni and CDPM wherein [sic] arbitration clauses
are provided.
xxx xxx xxx
Lastly, the defendant contended that the plaintiff has no

legal capacity to sue and in support thereof it claims that
RADSTOCK is engaged in business in the Philippines without any
proof that it has a required license. This argument is erroneous.
The plaintiff in this case is suing on an isolated transaction . . . .
As correctly stated by the Plaintiff, it does not intend to engage
in any other business in the Philippines except to sue and collect
what has been assigned to it by Marubeni Corporation.
If error had been committed by the trial court, it was not of the
character of grave abuse that relief through the extraordinary remedy
of certiorari may be availed. Indeed, the grounds relied upon by PNCC
are matters that are better threshed out during the trial since they can
only be considered after evidence has been adduced and weighed.
With its affirmative defenses thus disposed of, the settlement by

means of the compromise agreement would surely work to the benefit of
PNCC and its stockholders.
IV
Compromise Agreement Was Not Contrary to Law,
Morals, Good Customs, Public Order and Public Policy
Was the compromise agreement between PNCC and Radstock contrary
to law, morals, good customs, public order and public policy? DSCIEa

A
Compromise Agreement Did Not
Require Congressional Approval
During the oral arguments held on January 13, 2009, a concern about
the validity of the compromise agreement due to the lack of presidential or
congressional approval was raised. Allegedly, the lack of presidential or
congressional approval contravened the law, particularly Section 20, Chapter
4, Sub-Title B, Title 1, Book 5, of Executive Order No. 292, 55 which required
such approval in the disposition of properties valued at more than
P100,000.00. 56
I contend and hold that the cited law did not apply, considering that
the liability of PNCC to Radstock was not yet settled at the time of the
execution of the compromise agreement.
In Benedicto v. Board of Administrators of Television Stations and
Guingona, Jr. v. PCGG, 57 the Court clarified that Section 20, Chapter 4, Sub-
Title B, Title 1, Book 5, of Executive Order No. 292, was applicable only to a
settled claim or liability, to wit:
Prior congressional approval is not required for the PCGG to enter
into a compromise agreement with persons against whom it has filed
actions for recovery of ill-gotten wealth. Section 20, Chapter 4, Subtitle
B, Title I, Book V of the Revised Administrative Code of 1987 (E.O. No.
292) cited by Senator Guingona is inapplicable as it refers to a settled
claim or liability. The provision reads:
Section 20.Power to Compromise Claims. —
(1)When the interest of the Government so requires, the
Commission may compromise or release, in whole or in part, any
settled claim or liability to any government agency not exceeding
ten thousand pesos arising out of any matter or case before it or
within its jurisdiction, and with the written approval of the
President, it may likewise compromise or release any similar
claim or liability not exceeding one hundred thousand pesos. In
case the claim or liability exceeds one hundred thousand pesos,
the application for relief therefrom shall be submitted, through
the Commission and the President, with their recommendations,
to the Congress;
xxx xxx xxx
The Government's claim against Benedicto is not yet settled, and
the ownership of the alleged ill-gotten assets is still being litigated in
the Sandiganbayan. Hence, the PCGG's compromise agreement with
Benedicto need not be submitted to the Congress for approval.
(Underline supplied for emphasis)
The exception of a compromise or release of a claim or liability yet to

be settled from the requirement for presidential and congressional approval
is realistic and practical. In a settlement by compromise agreement, the
negotiating party must have the freedom to negotiate and bargain with the
other party. Otherwise, tying the hands of the Government representative by
requiring him to submit each step of the negotiation to the President and to
Congress will unduly hinder him from effectively entering into any
compromise agreement. ITDSAE
The majority opinion stresses that Benedicto v. Board of Administrators

of Television Stations is inapplicable, arguing that the claim in Benedicto was
not yet settled because no party therein ever admitted liability, while the
claim subject of this case was already settled upon the PNCC Board's
recognition of PNCC's obligation to Marubeni.
I cannot agree with the majority, considering that the recognition by
PNCC of its obligation to Marubeni did not signify that the claim was already
settled. On the contrary, the claim of Marubeni was far from settled,
inasmuch as it still became the subject of litigation in the courts in which
PNCC resisted liability by pleading various defenses. In fact, the PNCC
Board's resolution dated June 19, 2001 essentially revoked the previous
resolutions (i.e., Resolution No. BD-092-2000 and Resolution No. BD-099-
2000) recognizing PNCC's debts to Marubeni.
The majority hold that the PNCC Board had no autonomous power to
compromise. They cite Section 36 (2) of Presidential Decree (P.D.) 1445
(Government Auditing Code of the Philippines), which requires the express
grant by the charters of the government-owned or government-controlled
corporations (GOCCs) involved of the power to enter into compromise
agreements, and insist that nowhere in P.D. 1113, as amended, was the
PNCC's Board given the authority to enter into compromise agreements.
Thus, they conclude that the compromise agreement was illegal.
With all due respect, I believe that the majority err.
Firstly, it is incorrect to state that P.D. 1113 and its amendatory law,
P.D. 1894, constituted the charter of PNCC, because said laws merely
granted to PNCC a secondary franchise. The existence of PNCC was
independent of the operation of said laws. Hence, the silence of P.D. 1113
and P.D. 1894 on the grant to PNCC of the power to enter into compromise
agreements was irrelevant.
It becomes appropriate to stress, for purposes of clarity, that the
primary franchise of a corporation should not be confused with itssecondary
franchise, if any. According to J.R.S. Business Corp. v. Imperial Insurance,
Inc. : 58
For practical purposes, franchises, so far as relating to
corporations, are divisible into (1) corporate or general franchises;
and (2) special or secondary franchises. The former is the
franchise to exist as a corporation, while the latter are certain
rights and privileges conferred upon existing corporations,
such as the right to use the streets of a municipality to lay
pipes or tracks, erect poles or string wires.
The distinction between the two franchises of a corporation should

always be delineated. The primary franchise (or the right to exist as such) is
vested in the individuals composing the corporation, not in the corporation
itself, and cannot be conveyed in the absence of a legislative authority to do
so; but the special or secondary franchise of a corporation is vested in the
corporation itself, and may ordinarily be conveyed or mortgaged under a
general power granted to the corporation to dispose of its property, except
such special or secondary franchises as are charged with a public use. 59
The general law under which a private corporation is formed or
organized is the Corporation Code, whose requirements must be complied
with by individuals desiring to incorporate themselves. Only upon such
compliance will the corporation come into being and acquire a juridical
personality, as to give rise to its right to exist and to act as a legal entity.
This right is a corporation's primary franchise. In contrast, a government
corporation is normally created by special law, often referred to as its
charter. 60 TcICEA
And, secondly, PNCC, prior to its acquisition by the Government, was a

private corporation organized under the Corporation Code, and, as such, it
was governed by the Corporation Code and its own articles of incorporation.
This fact has been judicially recognized in PNCC v. Pabion, 61 to wit:
. . . GOCCs may either be (1) with original charter or created by
special law; or (2) incorporated under general law, via either the Old
Corporation Code or the New Corporation Code.
xxx xxx xxx
. . ., we have no doubt that over GOCCs established or
organized under the Corporation Code, SEC can exercise
jurisdiction. These GOCCs are regarded as private corporations
despite common misconceptions. That the government may
own the controlling shares in the corporation does not diminish
the fact that the latter owes its existence to the Corporation
Code. More pointedly, Section 143 of the Corporation Code gives SEC
the authority and power to implement its provisions, specifically for the
purpose of regulating the entities created pursuant to such provisions.
These entities include corporations in which the controlling shares are
owned by the government or its agencies.
Glaringly erroneous, therefore, is petitioner's reliance on Quimpo
v. Tanodbayan and its theory that it is immaterial "whether a
corporation is acquired by purchase or through the conversion of the
loans of the GFIs into equity in a corporation [because] such
corporation loses its status as a private corporation and attains a new
status as a GOCC". First, based on the discussion above, PNCC does
not "lose" its status as a private corporation, even if we were
to assume that it is a GOCC. Second, neither would such loss of
status prevent it from being further classified into an acquired
asset corporation, as will be discussed below.
xxx xxx xxx
Lest the focus of our disposition of this case be lost in the maze
of arguments strewn before us, we stress that PNCC is a
corporation created in accordance with the general corporation
statute. Hence, it is essentially a private corporation,
notwithstanding the government's interest therein through the
debt-to-equity conversion imposed by PD 1295. Being a private
corporation, PNCC is subject to SEC regulation and jurisdiction.
Not being a government corporation created by special law, PNCC does

not owe its creation to some charter or special law, but to the Corporation
Code. Its powers are enumerated in the Corporation Code 62 and its articles
of incorporation. As an autonomous entity, it undoubtedly has the power to
compromise and to enter into a settlement through its Board of Directors,
just like any other private corporation organized under the Corporation Code.
To maintain otherwise is to ignore the character of PNCC as a corporate
entity organized under the Corporation Code, by which it was vested with a
personality and an identity distinct and separate from those of its
stockholders or members. 63
B
Public Bidding Was not Required
Sison opposes the disposition of PNCC's assets through the
compromise agreement as against public policy for lack of a public bidding.
SIacTE
I cannot agree with Sison.

The rationale for requiring a public bidding is the need to prevent the
Government from being shortchanged by minimizing the occasions for
corruption and the temptations to commit abuse of discretion on the part of
government authorities. 64
As a rule, divestment or disposal of government property should be
undertaken primarily through public bidding. The mode of disposition of
Government properties and assets is not limited to public bidding, however,
because there are recognized exceptions, including when public bidding is
not the most advantageous means for the Government to divest or dispose
of its properties.
The compromise agreement was not entered into one-sidedly in favor
of Radstock, for, as in all compromises, it involved reciprocal concessions
from both parties. PNCC's decision to enter into the compromise agreement
was apparently an exercise of a business judgment to advance its interests.
The obvious direct consequence of the compromise agreement was to limit
PNCC's adjudged liability of P13,151,956,528 (which would be higher due to
increments from interest charges) to a lesser liability of P6,185,000,000.
Under the circumstances, the compromise agreement could not be
considered as disadvantageous to PNCC and the National Government.
The Court itself referred the compromise agreement to the COA, the
primary guardian of public accountability. In due time, the COA
recommended the approval of the compromise agreement, stating in its
compliance dated October 3, 2006 submitted to the Court, 65 thus:
The Government Accounting and Auditing Manual (GAAM)
Volume I, prescribed under COA Circular No. 91-368 dated January 1,
1992, specifically under Title 7, Chapter 3 thereof, primarily governs
the disposal/divestment of government assets. Section 501 of the said
Chapter states:
Sec. 501. Authority or responsibility for property

disposal/divestment. — The full and sole authority and
responsibility for the divestment and disposal of property and
other assets owned by the national government agencies or
instrumentalities, local government units and government-owned
and/or controlled corporations and their subsidiaries shall be
lodged in the heads of the departments, bureaus, and offices of
the national government, the local government units and the
governing bodies or managing heads of government-owned or
controlled corporations and their subsidiaries conformably to
their respective corporate charters or articles of incorporation,
who shall constitute the appropriate committee or body to
undertake the same.
The sale or disposal of the properties of the government is based
on their assessed value and not just on a percentage thereof.
Admittedly, and as discussed earlier, the audit guidelines under COA
Circular No. 89-296 as reiterated in the Government Accounting and
Auditing Manual are not applicable in the herein case. Nonetheless,
consistent with the objective of public bidding, COA favors the disposal
of government properties in the amount most advantageous to the
government. It is noted that the transfer value of 70% of assessed
value still falls within the standards set by government financial
institutions which invariably range from 70% to 100% of the appraised
value for properties situated in urban areas. The maximum percentage
prescribed in Section 37 of Republic Act No. 8791, the Banking Law of
2000, provides that loans and other credit accommodations against
real estate shall not exceed 75% of the appraised value of the
respective real estate security. Taking this into account and the
declared policy that the authority to dispose its assets is lodged with
the head of the entity, COA deems the herein transfer valuation
reasonable. DAEcIS
Under the regular procedure involving disposal of government

property, COA would have initially conducted an appraisal of the
property to determine its valuation. However, considering the
exceptional circumstances in the instant case, the appraisals
performed by the established independent appraisers are allowable.
The parties engaged the services of Royal Asia Appraisal Corporation,
Cuervo Appraisers, Inc., Asian Appraisal Co., Inc. and Valencia
Appraisal Corporation which are reputable appraisal firms. Even COA
has had occasions to engage the services of the last three independent
appraisers mentioned above to help ensure that the government will
not be disadvantaged in any manner. Hence, COA finds no reason to
doubt the reasonableness of their appraisal.
The other terms and conditions of the compromise agreement
appear to be fair and above board and COA finds no compelling
grounds to oppose the same. Accordingly, COA recommends the
approval of the parties' compromise agreement appended in their
"Joint Motion for Judgment Based on Compromise". 66
COA Circular No. 89-296 (dated January 27, 1989) relevantly provides:
III.DEFINITION AND SCOPE: — These audit guidelines shall be
observed and adhered to in the divestment or disposal of property and
other assets of all government entities/instrumentalities, whether
national, local or corporate, including the subsidiaries thereof but shall
not apply to the disposal of merchandise or inventory held for sale in
the regular course of business nor to the disposal by government
financial institutions of foreclosed assets or collaterals acquired in the
regular course of business and not transferred to the National
Government under Proclamation No. 50. They shall not also cover
dation in payment as contemplated under Article 1245 of the New Civil
Code. 67
In this regard, it is well to point out that the majority also invoke COA
Circular No. 89-296, citing Part V thereof entitled Modes of
Disposal/Divestment.
The cited rule does provide an exception. According to COA's
compliance, supra, the audit guidelines under COA Circular No. 89-296 did
not apply to the compromise agreement due to its being akin to a dacion en
pago. Under Article 1245 of the Civil Code, a dacion en pago or a dation in
payment involves the alienation of property to the creditor in satisfaction of
a debt in money. The modern concept of dation in payment considers it as a
novation by change of the object. 68 Thus, the compromise agreement was a
dacion en pago, in that a novation by a change of the object took place due
to the original obligation of PNCC to pay its liability (adjudged in the amount
of P13,151,956,528) being thereby converted into another obligation
whereby PNCC would transfer the real properties listed in the compromise
agreement to the qualified assignees nominated by Radstock. Regardless of
the pegging of the values of the listed properties at specified amounts, the
transfer to Radstock's assignees would already constitute a performance of
PNCC's obligations. In other words, the obligation of PNCC to Radstock would
be deemed fulfilled, although Radstock might realize a lesser value from the
assignees for the properties.
Verily, the dispositions made in the compromise agreement, being in
the nature of a dacion en pago, did not require public bidding. This
conclusion accords with the holding in Uy v. Sandiganbayan, 69 where the
Court sustained the argument of PCGG that the dacion en pago transactions
were beyond the ambit of COA Circular No. 89-296. HCTDIS
C
Expiration of PNCC's Legislative Franchise
Did Not Affect the Compromise Agreement
Sison argues that the legislative franchise granted to PNCC already
expired on May 1, 2007 and was not extended or renewed by Congress; that
upon the expiration of the legislative franchise of PNCC, all its assets,
including those derived from its operations, reverted to the National
Government; and that the disposition of PNCC funds under the compromise
agreement, being beyond the expiration of PNCC's franchise, would violate
the constitutional provision requiring an appropriation law for the
expenditure of National Government funds.
I consider Sison's submissions not well-taken.
Section 5 of Presidential Decree (P.D.) No. 1894, 70 amendatory of P.D.
No. 1113, PNCC's legislative franchise, provides:
Section 5.In consideration of this franchise, the GRANTEE shall:
(a)Construct, operate and maintain at its own expense the
Expressways; and
(b)Turn over, without cost, the toll facilities and all equipment,
directly related thereto to the Government upon expiration of the
franchise period. 71
The law is clear enough. The mandated reversion applied only to the
"toll facilities and all equipment directly related thereto", and did not extend
to all the assets of PNCC. Sison's interpretation was plainly at war with what
the law itself explicitly contemplated. Worse, his interpretation would nullify
PNCC's right to due process as to its other assets, and even tended to thwart
the national policy to encourage the private sector to invest and participate
in public works involving toll operations.
P.D. No. 1894 likewise contemplated the continuance of PNCC's
tollways operations beyond the expiration of its legislative franchise on May
1, 2007. That is clear from Section 2 of P.D. No. 1894, which states:
Section 2.The term of the franchise provided under Presidential
Decree No. 1113 for the North Luzon Expressway and the South Luzon
Expressway which is thirty (30) years from 1 May 1977 shall remain the
s a m e ; provided that, the franchise granted for the Metro Manila
Expressway and all extensions linkages, stretches and diversions that
may be constructed after the date of approval of this decree shall
likewise have a term of thirty (30) years commencing from the date of
completion of the project.
If the reversion covered all assets, PNCC would be unable to exist and
to continue to operate upon the expiration of its legislative franchise under
P.D. No. 1113.
Yet, the majority pointedly assert that Radstock's counsel already
admitted during the oral argument that all of PNCC's assets and properties
had reverted to the National Government. IcDHaT
The assertion of the majority is too sweeping. It ignores that the so-
called admission of Radstock's counsel was not, properly speaking, a judicial
admission that bound Radstock on the matter of reversion.
To begin with, the statements in question made by Radstock's counsel
did not relate to facts, but to conclusions of law. Indeed, a judicial admission
is an admission made in the course of the proceeding in the same case,
verbal or written, by a party accepting for the purposes of the suit the truth
of some alleged fact, which said party cannot thereafter disprove. 72 Clearly,
the rule on admissions does not apply to a w r o n g interpretation and
mistaken application of the laws, and the Court is not to be bound by a
mistaken interpretation of the law made by a counsel, even if said
interpretation is adverse to the client.
Even granting, arguendo, that PNCC's secondary franchise expired, all
the properties and funds of PNCC might not automatically revert to the
National Government, to the detriment and in violation of the right to due
process of PNCC's private creditors, particularly those that transacted with it
when it was still a purely private corporation. We have always sustained the
view that a GOCC has a personality of its own, distinct and separate from
that of the National Government; and has all the powers of the corporation
under the Corporation Law pursuant to which it has been established. 73 To
accord with our precedent rulings, we should not declare the PNCC's funds to
be beyond reach for being by nature public funds of the National
Government. 74
Secondly, the majority thereby sweep aside the principle of parity
between contracting parties. We ought to remember that when the National
Government enters into a commercial transaction, it abandons its sovereign
capacity and descends to the level of the other party, to be treated like the
latter. By engaging in a particular business through the instrumentality of a
corporation (that is, PNCC), therefore, the National Government should be
considered as divesting itself pro hac vice of its sovereign character, so as to
render the corporation subject to the rules of law governing private
corporations. 75 This is only fair.
Thirdly, to have all the properties and assets of PNCC deemed reverted
to the Government upon expiration of PNCC's franchise to operate the
tollways would definitely violate the right to due process of PNCC's private
creditors. Such a sudden change in the characterization of PNCC's properties
and assets from private to public would leave PNCC's private creditors with
very limited recourses, despite their valid claims.
Incidentally, the compromise agreement listed the properties to be
affected by the agreement between PNCC and Radstock, as follows:
1.PNCC's right over that parcel of land located in Pasay City with a
total area of 129,548 square meters, more or less,
particularly described in Transfer Certificate of Title No. T-
34997 of the Registry of Deeds for Pasay City. The transfer
value is P3,817,779,000.00;
2.T-452587 (T-23646) — Parañaque (5,123 square meters) subject
to the clarification of the PMO claims thereon. The transfer
value is P45,000,900.00;
3.T-49499 (529715 including T-68146-G (S-29716) (1,9747-A)-
Parañaque (107 square meters) (54 square meters) subject
to the clarification of the PMO claims thereon. The transfer
value is P1,409,100.00;

4.5(sic)-29716-Parañaque (27,762 square meters) subject to the
clarification of the PMO claims thereon. The transfer value is
P242,917,500.00; DHaECI
5.P-169 — Tagaytay (49,107 square meters). The transfer value is

P13,749,400.00;
6.P-170 — Tagaytay (49,100 square meters). The transfer value is
P13,749,400.00;
7.N-3320 — Town and Country Estate; Antipolo (10,000 square
meters). The transfer value is P16,800,000.00;
8.N-7424 — Antipolo (840 square meters). The transfer value is
P940,800.00;
P952,000.00;
P1,073,100.00;
11.T-485276 — Antipolo (741 square meters). The transfer value is
P830,200.00;
P761,600.00;

P785,400.00;
14.T-131500 — Bulacan (CDCP Farms Corp.) (4,945 square

meters). The transfer value is P6,475,000.00;
15.T-131501 — Bulacan (678 square meters). The transfer value is

P887,600.00;
16.T-26,154 (M) — Bocaue, Bulacan (2,841 square meters). The
transfer value is P3,779,300.00;
17.T-29,308 (M) — Bocaue, Bulacan (733 square meters). The
transfer value is P974,400.00;
18.T-29,309 (M) — Bocaue, Bulacan (1,141 square meters). The
transfer value is P1,517,600.00; and
19.T-260578 (R. Bengzon) Sta. Rita, Guiguinto, Bulacan (20,000
square meters). The transfer value is P25,2000,0000.00.
Rather than generalizing that all the aforecited properties reverted to
the National Government upon the expiration of PNCC's legislative franchise,
Sison should first establish in proceedings appropriate for the purpose a
premise for his jealously argued interpretation that such properties were
directly related to the operation and maintenance of the tollways covered by
its expired secondary franchise. Before that is done, it is not reasonable to
generalize on the matter. Consequently, Sison's insistence that PNCC
became a mere trustee of the National Government upon the expiration of
the legislative franchise is dismissed for being unfounded.
D
Toll Operation Certificate from TRB to PNCC
Was Legal Basis for PNCC to Collect and Appropriate
Revenues Generated from PNCC-operated Tollways
and Its Share in Gross Receipts of NLEX Tollway Development
Sison insists that upon the expiration of its legislative franchise, PNCC
could not validly dispose of the revenues collected from its operated tollways
and of its share in the gross receipts of the tollway development and
operation contractors, because such revenues and receipts already belonged
to the National Government.
However, the fact is that the Manila North Tollway Corporation (MNTC),
a joint-venture company between PNCC and Metro Pacific Group, was
granted a toll operation certificate (TOC) by the Toll Regulatory Board (TRB)
authorizing MNTC to operate and maintain the NLEX from 2005 to 2035
through its operations and maintenance company, the Tollway Management
Corporation (TMC). 76
Sison counters that the TOC was not the equivalent of and could not
replace the legislative franchise of PNCC under P.D. No. 1849.
Sison's arguments are not persuasive.
Under P.D. No. 1112, 77 TRB has the following powers, among others:
Section 3.Powers and Duties of the Board. — The Board shall
have in addition to its general powers of administration the following
powers and duties: TSIEAD
(a)Subject to the approval of the President of the Philippines, to

enter into contracts in behalf of the Republic of the Philippines with
persons, natural or juridical, for the construction, operation and
maintenance of toll facilities such as but not limited to national
highways, roads, bridges, and public thoroughfares. Said contract shall
be open to citizens of the Philippines and/or to corporations or
associations qualified under the Constitution and authorized by law to
engage in toll operations;
(b)Determine and decide the kind, type and nature of public
improvement that will be constructed and/or operated as toll facilities;
xxx xxx xxx
(e)To grant authority to operate a toll facility and to issue
therefore the necessary "Toll Operation Certificate" subject to such
conditions as shall be imposed by the Board including inter alia the
following: 78
xxx xxx xxx

Undoubtedly, TRB had the statutory authority to enter in behalf of the
National Government into a contract for the construction, operation and
maintenance of toll facilities; to determine and decide the kind, type, and
nature of public improvement to be constructed and operated as toll
facilities; and to issue a TOC to authorize a grantee to operate a toll facility.
In addition, P.D. No. 1894, amending P.D. No. 1113, invested TRB with
the jurisdiction and supervision over PNCC as the grantee with respect to the
Expressways, and the toll facilities necessarily appurtenant thereto. Its
Section 4 states, viz.:
Section 4.The Toll Regulatory Board is hereby given jurisdiction
and supervision over the GRANTEE with respect to the Expressways,
the toll facilities necessarily appurtenant thereto and, subject to the
provisions of Section 8 and 9 hereof, the toll that the GRANTEE will
charge the users thereof.
By its issuance of the TOC, therefore, TRB was simply exercising its
powers under P.D. No. 1112. It did not thereby extend PNCC's legislative
franchise, which it could not legally do. Its issuance of the TOC was proper,
not ultra vires, even if the effect was to permit PNCC, through MNTC, to
continue to operate the toll facilities.
In this jurisdiction, the power of administrative agencies to issue
operating permits or franchises to public utilities has long been recognized.
In Philippine Airlines v. Civil Aeronautics Board, 79 for instance, the Court
pronounced:
Given the foregoing postulates, we find that the Civil Aeronautics
Board has the authority to issue a Certificate of Public Convenience and
Necessity, or Temporary Operating Permit to a domestic air transport
operator, who, though not possessing a legislative franchise, meets all
the other requirements prescribed by law. Such requirements were
enumerated in Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which
indicates that a legislative franchise is an indispensable requirement
for an entity to operate as a domestic air transport operator. Although
Section 11 of Article XII recognizes Congress' control over any
franchise, certificate or authority to operate a public utility, it does not
mean Congress has exclusive authority to issue the same. Franchises
issued by Congress are not required before each and every public
utility may operate. In many instances, Congress has seen it fit to
delegate this function to government agencies, specialized particularly
in their respective areas of public service. IHaCDE
A reading of Section 10 of the same reveals the clear intent of

Congress to delegate the authority to regulate the issuance of a license
to operate domestic air transport services:
SECTION 10.Powers and Duties of the Board. — (A) Except

as otherwise provided herein, the Board shall have the power to
regulate the economic aspect of air transportation, and shall
have general supervision and regulation of, the carriers, general
sales agents, cargo sales agents, and air freight forwarders as
well as their property rights, equipment, facilities and franchise,
insofar as may be necessary for the purpose of carrying out the
provision of this Act. 80
Likewise, we said in Metropolitan Cebu Water District v. Adala: 81

Moreover, this Court, in Philippine Airlines, Inc. vs. Civil
Aeronautics Board, has construed the term "franchise" broadly so as to
include, not only authorizations issuing directly from Congress in the
form of statute, but also those granted by administrative agencies to
which the power to grant franchises has been delegated by Congress,
to wit:
Congress has granted certain administrative agencies the
power to grant licenses for, or to authorize the operation of
certain public utilities. With the growing complexity of modern
life, the multiplication of the subjects of governmental regulation,
and the increased difficulty of administering the laws, there is
constantly growing tendency towards the delegation of greater
powers by the legislature, and towards the n recognized that a
franchise may be derived indirectly from the state through a duly
designated agency, and to this extent, the power to grant
franchises has frequently been delegated, even to agencies other
than those of legislative in nature. In pursuance of this, it has
been held that privileges conferred by grant by local authorities
as agents for the state constitute as much a legislative franchise
as though the grant had been made by an act of the Legislature.
82
For its part, the Executive Department has also recognized the power
of TRB to issue the TOC to PNCC independently of the legislative franchise
that was due to expire on May 1, 2007. This recognition was reflected in the
opinion dated November 24, 1995 of then Justice Secretary Teofisto T.
Guingona, Jr., to wit: 83
Upon re-examination of P.D. No. 1113 (PNCC Charter), as
amended by P.D. No. 1894, we reiterate the view expressed in Opinion
No. 45, s. 1995 that TRB has no authority to extend the legislative
franchise of PNCC over the existing NSLE. However, TRB is not
precluded under Section 3(e) of P.D. No. 1112 (TRB Charter) to grant
PNCC and its joint venture partner the authority to operate the existing
toll facility of the NSLE and to issue therefore the necessary "Toll
Operation Certificate" for a period coinciding with the term of the
proposed Metro Manila Skyway.
xxx xxx xxx
It should be noted that the existing franchise of PNCC over the
NSLE, which will expire on May 1, 2007, gives it the "right, privilege and
authority to construct, maintain and operate" the NSLE. The Toll
Operation Certificate which TRB may issue to the PNCC and its joint
venture partner after the expiration of its franchise on May 1, 2007 is
an entirely new authorization, this time for the operation and
maintenance of the NSLE, which is already an existing toll facility. In
other words, the right of PNCC and its joint venture partner, after May
1, 2007, to operate and maintain the existing NSLE will no longer be
founded on its legislative franchise which is not thereby extended, but
on the new authorization to be granted by the TRB pursuant to Section
3(e), abovequoted, of P.D. 1112. 84aDACcH
It serves well to note, too, that the TOC was not for the same project
covered by PNCC's legislative franchise under P.D. No. 1894, but for a new
project, the rehabilitation of the NLEX, which was completed in 2005. In the
effort to rehabilitate the NLEX, the MNTC incurred substantial costs. The
authority to collect reasonable toll fees from users of that expressway was
the consideration given to the MNTC as the tollway operator to enable it to
recoup the investment.
In this connection, the claim of the majority that Radstock's counsel
admitted during the oral arguments that an appropriation law was needed to
authorize the payment by PNCC out of the toll fees is unwarranted. The
supposed admission was apparently counsel's response to the query of
whether the collection of toll fees went to the general fund of the National
Government. As such, the response was an expression of counsel's
interpretation of the law, which, albeit sounding like an admission, has no
legal significance for purposes of this resolution. It hardly requires
clarification that an opinion on a matter of law given in the course of the
proceedings is not binding on the party on whose behalf it is made, because
the question of law is best left to the determination of the court.
Besides, the interpretation that the TRB could not contract out the
rehabilitation and expansion of existing government-owned public works,
particularly our national roads and highways, is unacceptable, because it will
wreak havoc to the operations and maintenance not only of the NLEX, but
also of other and future public constructions and developments. Similarly
unacceptable is an interpretation that the expiration of the franchise of
PNCC vis-à-vis the NLEX operated to bar PNCC or any other participating
private entity from collecting toll fees from the operations of the NLEX,
because it would unfairly outlaw the current operation of the MNTC, a joint-
venture company between PNCC and the Metro Pacific Group, which had
spent substantially for the rehabilitation and expansion works of the NLEX.
At any rate, the majority's interpretation will hinder the efforts of the
National Government, through the TRB, of effecting improvements in
existing national highways through the private sector, which will surely
hesitate to involve itself in projects in which it will not be permitted to
recoup or recover the substantial costs entailed in construction and
development.
Lastly, Sison's plea for the nullification of the compromise agreement,
on the ground of the invalidity of the assignment to Radstock of the share of
PNCC in the toll operation for the NLEX, has no basis. The right of PNCC,
through MNTC, to the revenues from the operation of the tollways is to be
deemed settled for purposes of these cases. We cannot delve into whether
or not the TOC issued to PNCC for the years from 2007 until 2035 was valid
or not, because that is not a proper issue for the Court to consider and
decide herein. We should not forget that the issue was not presented to the
CA at the time it considered and approved the compromise agreement.
Besides, PNCC continued to have the right to the revenues from the toll
operation by authority of the TOC.
E
Compromise Agreement Is Not In Fraud
of the National Government
Another submission of Sison is that the disposition of PNCC's assets
through the compromise agreement would be in fraud of the National
Government, because Radstock would be thereby preferred to the National
Government in relation to the assets of PNCC, in violation of the credit
preference provided in the Civil Code. He avers that "the satisfaction of the
PNCC obligation to the State or the National Government clearly takes
preference and has priority over the satisfaction of the obligation to
RADSTOCK"; and that "the terms of the compromise agreement which call
for the transfer of PNCC assets . . . to Radstock is in contravention of the
order and preference of credits under the New Civil Code, hence void". 85 ScTaEA
However, Sison's submission does not really show how the compromise
agreement would contravene the credit preference in favor of the National
Government.
To begin with, the credit preference set by the Civil Code may not be
invoked herein to assail the compromise agreement,considering that these
cases were neither proceedings for bankruptcy or insolvency, nor general
judicial liquidation proceedings. Cogently, the Court explained when
preference of credit may be invoked in Development Bank of the Philippines
v. Secretary of Labor, 86 thus:
. . . A preference of credit bestows upon the preferred creditor an
advantage of having his credit satisfied first ahead of other claims
which may be established against the debtor. Logically, it becomes
material only when the properties and assets of the debtor are
insufficient to pay his debts in full; for if the debtor is amply able to pay
his various creditors in full, how can the necessity exist to determine
which of his creditors shall be paid first or whether they shall be paid
out of the proceeds of the sale of the debtor's specific property?
Indubitably, the preferential right of credit attains significance only
after the properties of the debtor have been inventoried and liquidated,
and the claims held by his various creditors have been established.
In this jurisdiction, bankruptcy, insolvency and general judicial
liquidation proceedings provide the only proper venue for the
enforcement of a creditor's preferential right . . . for these are in rem
proceedings binding against the whole world where all persons having
interest in the assets of the debtors are given the opportunity to
establish their respective credits. 87
Nor will it be automatic for the National Government to be preferred as

to the assets of any individual or corporation in financial straits. In In Re:
Petition for Assistance in the Liquidation of the Rural Bank of Bokod
(Benguet), Inc., Philippine Deposit Insurance Corporation v. Bureau of
Internal Revenue, 88 the Court clarifies:
. . . The Government, in this case, cannot generally claim
preference of credit, and receive payments ahead of the other
creditors of RBBI. Duties, taxes, and fees due the Government enjoy
priority only when they are with reference to a specific movable
property, under Article 2241 (1) of the Civil Code, or immovable
property, under Article 2242 (1) of the same Code. However, with
reference to the other real and personal property of the debtor,
sometimes referred to as "free property", the taxes and assessments
due the National Government, other than those in Articles 2241(1) and
2242 (1) of the Civil Code will come only in ninth place in the order of
the preference. 89
Verily, any creditor who may feel aggrieved by the compromise

agreement (such that his rights over PNCC's assets may be prejudiced by the
compromise agreement) should initiate the proper proceedings to protect his
rights. Yet, no bankruptcy, insolvency, or general judicial liquidation
proceedings have been initiated or filed by any of PNCC's creditors. With
none, including the Government, having done so as yet, it is improper and
premature for Sison to cry fraud against the Government.
Secondly, Sison insists that PNCC was "technically insolvent". 90
Sison's insistence cannot be given any significance in relation to the
compromise agreement. The meanings of the terms insolvent and insolvency
have not been fixed, their definitions being dependent upon the business or
factual situation to which the terms are applied. 91 Ordinarily, a person is
insolvent when all his properties are not sufficient to pay all of his debts.92
This definition is the general and popular meaning of the term insolvent. In
this jurisdiction, the state of insolvency is governed by special laws to the
extent that they are not inconsistent with the Civil Code. 93 In other words,
the state of insolvency is primarily governed by the Civil Code and
subsidiarily by the Insolvency Law (Act No. 1956, as amended). 94 SDTcAH
Under Act No. 1956, there are two distinct proceedings by which to
declare a person insolvent, namely: a) the voluntary or debtor-initiated
proceedings; 95 and b) the involuntary or creditor-initiated proceedings,
which require that the petition be filed by three or more creditors. 96 The
judicial declaration that a person (either natural or juridical) is insolvent
produces legal effects, particularly on the disposition of the debtor's assets.
97 Until and unless there is an insolvency proceeding or a judicial declaration
that a person is insolvent, however, any state of insolvency of a debtor
remains legally insignificant as far as his capacity to dispose of his
properties is concerned. This capacity to dispose is not in itself iniquitous or
questionable, for the creditor is not meanwhile left without recourse. There
are remedies for the creditor in case any disposition of the debtor's assets is
in fraud of creditors.
Should the creditors not feel that an insolvency or even rehabilitation
proceeding (in the case of corporations like PNCC) is appropriate or
beneficial for them, their decision to desist from commencing such
proceeding is a business judgment that fully lies within their discretion.
Without any proceeding being initiated by either the debtor or the creditors,
no court has the power to declare that a debtor is insolvent and to bring to
bear upon the debtor the legal consequences of the Insolvency Law. A court
that does so risks meddling in business affairs or policies that are best left to
those who know the appropriate actions to take and decide what action or
actions to take. A unilateral court intervention can result in a premature
cessation of business that can produce untoward and unexpected effects on
either or both the debtor and the creditors.
The Court may not even try to determine whether PNCC was insolvent
or not, considering that the original jurisdiction to take cognizance of such
issue does not pertain to the Court. Neither was such issue properly raised in
the lower courts. For sure, the term technically insolvent as applied to PNCC
cannot be competently ascertained in these cases. It is relevant to note,
however, that only the COA report has been made available to show the
financial condition of PNCC to the Court, but even said report favored the
approval of the compromise agreement. 98
Thirdly, Sison argues that with the compromise agreement, PNCC's
business would wind down to "merely the operation of the South Luzon
Expressway, the holding of shares in investee subsidiaries and affiliates, and
the minor participation in the gross receipt of the tollway development and
operation contractors". 99 He then concludes that the compromise
agreement would amount to transferring or disposing of substantially all of
the assets of PNCC, in violation of the requirement under Section 40 of the
Corporation Code for stockholders' approval thereof.
The argument is fallacious, because it is based on a mistaken premise.
Section 40 of the Corporation Code provides:
Sec. 40. Sale or other disposition of assets. — Subject to the
provisions of existing laws on illegal combinations and monopolies, a
corporation may, by a majority vote of its board of directors or
trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose
of all or substantially all of its property and assets, including its
goodwill, upon such terms and conditions and for such consideration,
which may be money, stocks, bonds or other instruments for the
payment of money or other property or consideration, as its board of
directors or trustees may deem expedient, when authorized by the
vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or in case of non-stock corporation, by the
vote of at least to two-thirds (2/3) of the members, in a stockholder's or
member's meeting duly called for the purpose. Written notice of the
proposed action and of the time and place of the meeting shall be
addressed to each stockholder or member at his place of residence as
shown on the books of the corporation and deposited to the addressee
in the post office with postage prepaid, or served personally: Provided,
That any dissenting stockholder may exercise his appraisal right under
the conditions provided in this Code. SIacTE
A sale or other disposition shall be deemed to cover substantially

all the corporate property and assets if thereby the corporation would
be rendered incapable of continuing the business or accomplishing the
purpose for which it was incorporated.
After such authorization or approval by the stockholders or
members, the board of directors or trustees may, nevertheless, in its
discretion, abandon such sale, lease, exchange, mortgage, pledge or
other disposition of property and assets, subject to the rights of third
parties under any contract relating thereto, without further action or
approval by the stockholders or members.
Nothing in this section is intended to restrict the power of any
corporation, without the authorization by the stockholders or members,
to sell, lease, exchange, mortgage, pledge or otherwise dispose of any
of its property and assets if the same is necessary in the usual and
regular course of business of said corporation or if the proceeds of the
sale or other disposition of such property and assets be appropriated
for the conduct of its remaining business.
In non-stock corporations where there are no members with
voting rights, the vote of at least a majority of the trustees in office will
be sufficient authorization for the corporation to enter into any
transaction authorized by this section. (28 1/2a) 100
The law defines a sale or disposition of substantially all assets and

property as one by which the corporation "would be rendered incapable of
continuing the business or accomplishing the purpose for which it was
incorporated". Any disposition short of this will not need stockholder action.
101 The text and tenor of Section 40, supra, are clear and do not require
interpretation, that the Court must not read any other meaning to the law.
Sison himself admitted that even after the compromise agreement was
approved, PNCC still had assets by which to continue its businesses. 102
Thus, because the assets to be covered by the compromise agreement were
not substantially all the assets of PNCC within the context of Section 40,
supra, the stockholders' approval was not required. The disposition through
the compromise agreement, although involving a substantial portion of the
total assets, would not amount to the sale or disposition of substantially all
assets and property as to render PNCC incapable of continuing the business
or accomplishing the purpose for which it was incorporated.
Fourthly, Sison contends that PNCC would be reduced to a holding
company, which would constitute an abandonment of the business for which
it was organized.
The contention is unfounded.
For one, the records before us show that PNCC is not abandoning the
business for which it was organized. PNCC sought a legislative franchise to
operate the NLEX, but it was not granted the franchise. PNCC was granted
the TOC by TRB, which authorized PNCC, through MNTC, to operate the
rehabilitated and extended NLEX. 103 PNCC currently operates tollways and
plans to enter into other tollways development projects. 104
It is noteworthy that the COA, in its compliance submitted to the Court,

105 recognized the efforts of PNCC to improve the latter's operations:
It is the assessment of the Government Corporate Counsel that
PNCC has only a 50-50 chance of winning the case, thus, entering into
a compromise agreement will spare the corporation from losing at least
P13 billion of its assets. COA shares the view that with this settlement,
the PNCC, armed with its remaining assets can start anew and pursue
its plans to revitalize its operations. 106 cCTaSH
Also, the investing corporation assumes risks in every business

venture. There may be many factors affecting the business that may force
the corporation to reduce or downsize its operations in the meanwhile.
Nonetheless, the downsizing of the operations does not mean the
abandonment of the business for which the corporation has been organized.
Accordingly, the wisdom of the execution of the compromise agreement
should not be questioned, absent any clear and convincing proof establishing
that the compromise agreement would truly render PNCC incapable of
continuing its business.
G
Compromise Agreement Does Not Violate
Constitutional Ban on Foreign Ownership of Land
The compromise agreement between PNCC and Radstock provides:
2. This Compromise amount shall be paid by PNCC to
RADSTOCK in the following manner:
a. PNCC shall assign to a third party assignee to be
designated by RADSTOCK all its rights and interests to the
following real properties provided the assignees shall be
duly qualified to own real properties in the Philippines:
xxx xxx xxx
Sison holds that this provision in the compromise agreement would

vest in Radstock, a foreign corporation, the rights of ownership over the 19
parcels of land listed in the compromise agreement and thereby violate the
constitutional provision prohibiting ownership by foreign entities of land in
the Philippines; that the right to assign rights and interests in real property is
an attribute of ownership; that Radstock would be, for all intents and
purposes, the beneficial owner of the real properties during the period from
the execution of the compromise agreement until the actual transfer of the
ownership of the properties to third parties designated by Radstock; and that
in the meantime PNCC would be holding the properties only in trust.
Section 7, Article XII of the 1987 Constitution reads:
Section 7.Save in cases of hereditary succession, no private
lands shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of the
public domain.
Sison's submissions are unacceptable.
In interpreting the aforecited provision of the Constitution, the
following instruction given in J.M. Tuason & Co. Inc. v. Land Tenure
Administration 107 is useful:
We look to the language of the document itself in search for its
meaning. We do not of course stop there, but that is where we begin. It
is to be assumed that the words in which constitutional provisions are
couched express the objective sought to be attained. They are to be
given their ordinary meaning except where technical terms are
employed in which case the significance thus attached to them
prevails. As the Constitution is not primarily a lawyer's document, it
being essential for the rule of law to obtain that it should ever be
present in the people's consciousness, its language, as much as
possible, should be understood in the sense they have in common use.
What it says according to the text of the provision construed compels
acceptance and negates the power of the courts to alter it, based on
the postulate that the framers and the people mean what they say.
Thus there are cases where the need for construction is reduced to a
minimum.
Well-settled principles of constitutional construction are also firm

guides for interpretation. These principles are reiterated in Francisco v. The
House of Representatives, 108 to wit: AEScHa
First, verba legis, that is, wherever possible, the words used in
the Constitution must be given their ordinary meaning except where
technical terms are employed. . . . .
xxx xxx xxx
Second, where there is ambiguity, ratio legis et anima. The
words of the Constitution should be interpreted in accordance with the
intent of the framers. . . . .
Finally, ut magis valeat quam pereat. The Constitution is to be
interpreted as a whole.
A plain reading of the aforecited provision of the Constitution and the

compromise agreement does not support the conclusion that the latter
violates the former. The compromise agreement nowhere stated that any
lands or real properties are to be transferred to Radstock, or any non-
qualified person. Indeed, the transfer of any lands or real properties
contemplated by the compromise agreement is in favor of a party duly
qualified to own and hold real properties under the Constitution. The
arrangement would not give to Radstock any right other than to designate
qualified assignees, who should only be a Filipino citizen, or a corporation
organized under the Philippine law, but with at least 60% Filipino equity.
During the time that Radstock would be looking for qualified assignees,
ownership over the real properties subject of the compromise agreement
would not be transferred to it, but would remain with PNCC.
Although it may be argued that the "right to designate the qualified
assignee to the property" is an attribute of ownership, it does not necessarily
follow that the presence of such right already means that the person holding
the right has become the owner of the property. There is more to ownership
than being able to designate an assignee for the property. The attributes of
ownership are: jus utendi (right to possess and enjoy), jus fruendi (right to
the fruits), jus abutendi (right to abuse or consume), jus disponendi (right to
dispose or alienate), and jus vindicandi (right to recover or vindicate). 109 An
owner of a thing or property may agree to transfer, assign, or limit the rights
attributed to his ownership, but this does not mean that he loses his
ownership over the thing. Accordingly, one may lease his property to others
without affecting his title over it; or he may enter into a contract limiting his
enjoyment or use of the property; or he may bind himself to first offer a thing
for sale to a particular person before selling it to another; or he may agree to
let another person designate an assignee to whom the property will be
transferred or sold in consideration of an obligation. In any of such
situations, there is no actual or legal transfer of ownership, for ownership
still pertains, legally and for all intents and purposes, to the owner, not to the
other person to whom an attribute of ownership has been transferred.
Nowhere in the compromise agreement is Radstock given any of the
attributes of ownership, like the right to control and use the properties, or
the right to benefit from the properties (e.g., rent), or the right to exclude
others from the properties, or, for that matter, any other right of an owner.
Neither is Radstock thereby put in any position to demand or to ask PNCC to
lease the properties to an assignee. What it has under the compromise
agreement is only the right to designate a qualified assignee for the
property.
It is also wrong for Sison to insist that the compromise agreement
would create a trust relationship between PNCC and Radstock. Trust is the
legal relationship between one person having an equitable ownership in
property and another person owning the legal title to such property, the
equitable ownership of the former entitling him to the performance of certain
duties and the exercise of certain powers by the latter. 110 By definition,
trust relations between parties are either express or implied. 111 Express
trusts are created by the direct and positive acts of the parties, by some
writing or deed, or will, or by words evincing an intention to create a trust.
112
The compromise agreement would not vest in Radstock any equitable

ownership over the property. The required performance of certain duties by
PNCC (mainly the transfer of the real properties to the qualified assignees
nominated by Radstock) under the compromise agreement would not
emanate from Radstock's equitable ownership, which Radstock would not
have. The performance of such duty would not arise either upon the
approval of the compromise agreement, but upon the fulfillment by Radstock
of its obligation to nominate the qualified assignees. PNCC and Radstock had
no intention to create a trust, because the circumstances of the transaction
negated the formation of a trust agreement between them resulting from the
compromise agreement. aTEScI

On the assumption, for the sake of argument, that the compromise
agreement gives Radstock a right that is an attribute of ownership, such
grant may still be justified nonetheless by the totality of the circumstances
as the end result of the whole operation of the compromise agreement; and,
as such, it would still be consistent with, not violative of, the constitutional
ban on foreign ownership of lands. In La Bugal-B'Laan Tribal Association, Inc.
v. Ramos, 113 the Court ratiocinated:
Petitioners sniff at the citation of Chavez v. Public Estates
Authority, and Halili v. C.A., claiming that the doctrines in these cases
are wholly inapplicable to the instant case.
C h a v e z clearly teaches: "Thus, the Court has ruled
consistently that where a Filipino citizen sells land to an alien
who later sells land to a Filipino, the invalidity of the first
transfer is corrected by the subsequent sale to a citizen.
Similarly, where the alien who buys the land subsequently acquires
Philippine citizenship, the sale is validated since the purpose of the
constitutional ban to limit land ownership to Filipinos has been
achieved. In short, the law disregards the constitutional
disqualification of the buyer to hold land if the land is
subsequently transferred to a qualified party, or the buyer
himself becomes a qualified party".
In their Comment, petitioners contend that in Chavez and Halili,
the object of the transfer (the land) was not what was assailed for
alleged unconstitutionality. Rather, it was the transaction that was
assailed; hence subsequent compliance with constitutional provisions
would cure its infirmity. In contrast, the instant case it is the FTAA
itself, the object of the transfer, that is being assailed as invalid and
unconstitutional. So, petitioners claim that the subsequent transfer of a
void FTAA to a Filipino corporation would not cure the defect.
Petitioners are confusing themselves. The present Petition has
been filed, precisely because the grantee of the FTAA was a wholly
owned subsidiary of a foreign corporation. It cannot be gainsaid that
anyone would have asserted that the same FTAA was void if it had at
the outset been issued to a Filipino corporation. The FTAA, therefore, is
not per se defective or unconstitutional. It was questioned only
because it has been issued to an allegedly non-qualified, foreign-owned
corporation.
We believe that this case is clearly analogous to Halili, in which
the land acquired by a non-Filipino was re-conveyed to a qualified
vendee and the original transaction was thereby cured. Paraphrasing
Halili, the same rationale applies to the instant case: assuming
arguendo the invalidity of its prior grant to a foreign
corporation, the disputed FTAA — being now held by a Filipino
corporation — can no longer be assailed; the objective of the
constitutional provision — to keep the exploration,
development and utilization of our natural resources in Filipino
hands — has been served.
More accurately speaking, the present situation is one
degree better than obtaining in Halili, in which the original sale
to a non-Filipino was clearly and indisputably violative of the
constitutional prohibition and thus void ab initio. In the
present case, the issuance/grant of the subject FTAA to the
foreign-owned WMCP was not illegal, void or unconstitutional
at the time. The matter had to be brought to court, precisely for
adjudication as to whether the FTAA and the Mining Law had indeed
violated the Constitution. Since up to this point, the decision of this
Court declaring the FTAA void has yet to become final, to all intents
and purposes, the FTAA must be deemed valid and constitutional. ECSHID
The situation herein is even more favorable than that in La Bugal.

Firstly, the compromise agreement does not attempt to transfer any of the
subject real properties to any non-qualified person. The title or ownership of
the lands is to be transferred only upon designation by Radstock of a
qualified assignee, and the transfer is to be effected by PNCC directly to the
assignee, without the title passing to Radstock in the interim. Secondly, the
compromise agreement does not attempt to create any kind of title over the
properties in favor of Radstock. It simply allows Radstock to designate a
qualified assignee to whom the properties may be assigned or transferred. It
does not give any other right to Radstock. Thirdly, the arrangement may
even be more beneficial to PNCC, considering that PNCC gets to settle its
much lessened obligation for a definite and sure amount of 75% of the
assessed values of the subject properties, regardless of the price that
Radstock gets from its designated assignee. Incidentally, this is a better
bargain for PNCC (and ultimately for the Government), compared to a
bidding out of the properties in which there are ever-present risks of
recovering a much lower value). Fourthly, the arrangement transfers from
PNCC to Radstock the obligation and task of looking for a qualified assignee
of the properties. And, lastly, the present case involves a series of
interrelated and dependent transactions that will always result in a situation
not inconsistent with the Constitution, considering that the assignee will
always be a qualified person or entity.
H
The Obligation of PNCC to
Marubeni Was Established
In the RTC, PNCC urged the following grounds as affirmative defenses,
namely: 1) that the plaintiff had no capacity to sue; 2) that the loan
obligation had already prescribed, because no valid demand had been made;
and 3) that the letter of guarantee had been signed by a person not
authorized by a valid board resolution.
On appeal (C.A.-G.R. SP No. 66654), PNCC raised the same grounds, to
wit: 1) that the cause of action was barred by prescription; 2) that the
pleading asserting the claim stated no cause of action; 3) that the condition
precedent for the filing of the instant suit had not been complied with; and 4)
that the plaintiff had no legal capacity to sue.
As the excerpts of the Court's decision in G.R. No. 156887 show, 114 the
defense of prescription of the claim and the other defenses of PNCC were
passed upon, and the Court upheld the CA's affirmance of the RTC's denial of
PNCC's motion to dismiss based on such defenses. The ruling in G.R. No.
156887 bars the re-litigation in these consolidated cases of the same issues,
particularly a bar by prescription, because of the application of the doctrine
of law of the case.
Law of the case is defined as the opinion delivered on a former appeal.
More specifically, it means that whatever is once irrevocably established as
the controlling legal rule between the same parties in the same case
continues to be the law of the case, whether correct on general principles or
not, so long as the facts on which such decision was predicated continue to
be facts of the case before the court, 115 notwithstanding that the rule laid
down may have been reversed in other cases. 116 Indeed, after the appellate
court has issued a pronouncement on a point presented to it with a full
opportunity to be heard having been accorded to the parties, that
pronouncement should be regarded as the law of the case and should not be
reopened on a remand of the case. 117
The concept of the law of the case is explained in Mangold v. Bacon,
118 thus: EDISaA
The general rule, nakedly and badly put, is that legal conclusions
announced on a first appeal, whether on the general law or the law as
applied to the concrete facts, not only prescribe the duty and limit the
power of the trial court to strict obedience and conformity thereto, but
they become and remain the law of the case in all after steps below or
above on subsequent appeal. The rule is grounded on convenience,
experience, and reason. Without the rule there would be no end to
criticism, re-agitation, re-examination, and reformulation. In short,
there would be endless litigation. It would be intolerable if parties
litigant were allowed to speculate on changes in the personnel of a
court, or on the change of our rewriting propositions once gravely ruled
on solemn argument and handed down as the law of a given case. An
itch to reopen questions foreclosed on a first appeal would result in the
foolishness of the inquisitive youth who pulled up his corn to see how it
grew. Courts are allowed, if they so choose, to act like ordinary
sensible persons. The administration of justice is a practical affair. The
rule is a practical and a good one of frequent and beneficial use.
Resultantly, the liability of PNCC to Radstock was established,

rendering the decision to enter into a compromise agreement a wise move
on the part of PNCC. The same result cannot be contemplated if the
nullification of the compromise agreement were decreed herein, because
PNCC would probably lose by an adjudgment against it of a larger liability.
I
The Resolution of PNCC's Board Recognizing
Its Obligation to Marubeni Bound PNCC
Board Resolution No. BD-092-2000 dated October 20, 2000 proves that
PNCC incurred an obligation in favor of Marubeni. PNCC's Board of Directors
would not have issued the resolution if the obligation was unfounded,
considering that the resolution admitted its liability, to wit:
RESOLUTION NO. BD-09202000
confirms PNCC's obligations as of September 30, 1999 with the
following entities, exclusive of interests and other charges that may
subsequently accrue and still become due therein, to wit:
amount of P36,023,784,751.00; and
P10,743,103,388.00.
Yet, the majority would have the Court strike down the resolution, and
not give it effect, because it was null and void. They opine that the PNCC
Board approved a transaction that was manifestly and grossly
disadvantageous to the National Government, and that such transaction was
even a corrupt and unlawful act. They conclude that the resolution, being
unlawful and a criminal act, was void ab initio and could not be implemented
or in any way given effect by the Executive or Judicial Branch of the
Government.
I am not persuaded.
That its issuance might have been unwise or disadvantageous to PNCC,
which I do not concede, did not invalidate Resolution No. BD-092-1000. The
resolution, being simply a recognition of a prior indebtedness in favor of
Marubeni and the Government, was clearly issued within the corporation's
powers; hence, it was neither illegal nor ultra vires. Indeed, had PNCC
remained a purely private corporation, no issue would be raised against the
propriety of its Board of Directors thereby recognizing an indebtedness. EDACSa
The majority rely heavily on the transcripts of the Senate Committee

hearings to buttress the imputation of bad faith behind the passage of the
board resolution that recognized PNCC's debts to Marubeni. They copiously
quote the privilege speech of Senator Franklin Drilon delivered during the
plenary session of December 21, 2006; and the transcripts of the Senate
Committee hearings held on December 14, 2006.
To me, the reliance on the privilege speech and the transcripts of the
Senate Committee hearings is unwarranted and misplaced.
The speeches of legislators delivered on the floor and the testimonies
of resource persons given in Congressional committee hearings, like those
quoted in the majority opinion, have no probative value in judicial
adjudication, for they are not recognized as evidence under the Rules of
Court. Even the rule on judicial notice embodied in Section 1,119 Rule 129,
of the Rules of Court does not accord probative value to such speeches and
testimonies, because the rule extends only to the official acts of the
Legislative Department. The term official acts, in its general sense, may
encompass all activities of the Congress, like the laws enacted and
resolutions adopted, but the statements of the legislators and testimonies
cannot be regarded, by any stretch of legal understanding, as the "official
act of the legislative department". At best, the courts can only take judicial
notice of the fact that such statements or speeches were made by such
persons, or that such hearings were conducted.
Although this Court can take cognizance of the proceedings of the
Senate, as acts of a department of the National Government, the testimonies
or statements of the persons during the hearings or sessions may not be
used to prove disputed facts in the courts of law. They cannot substitute
actual testimony as basis for making findings of fact necessary for the
determination of a controversy by the courts. In other words, they are
incompetent for purposes of judicial proceedings.
Moreover, in Bengzon, Jr. v. Senate Blue Ribbon Committee, 120 the
Court defined the limitation on the power of the Legislative Department to
investigate a controversy exclusively pertaining to the Judicial Department,
and regarded as an encroachment into the exclusive domain of judicial
jurisdiction any probe or inquiry by the Senate Blue Ribbon Committee into
the same justiciable controversy already before the Sandiganbayan,
declaring:
In fine, for the respondent [Senate Blue Ribbon]
Committee to probe and inquire into that same justiciable
controversy already before the Sandiganbayan, would be an
encroachment into the exclusive domain of judicial jurisdiction
that had much earlier set in. In Baremblatt v. United States, it was held
that:
Broad as it is, the power is not, however, without
limitations. Since Congress may only investigate into those areas
in which it may potentially legislate or appropriate, it cannot
inquire into matters which are within the exclusive province of
one of the other branches of the government. Lacking the
judicial power given to the Judiciary, it cannot inquire into
matters that are exclusively the concern of the Judiciary.
Neither can it supplant the Executive in what exclusively belongs
to the Executive. . . . .
Indeed, the distinctions between court proceedings, on one hand, and

legislative investigations in aid of legislation, on the other hand, derive from
their different purposes. Courts conduct hearings to settle, through the
application of law, actual controversies arising between adverse litigants and
involving demandable rights. 121 In court proceedings, the person's rights to
life, liberty and property may be directly and adversely affected. The Rules
of Court prescribes procedural safeguards consistent with the principles of
due process and equal protection guaranteed by the Constitution. The
manner in which disputed matters can be proven in judicial proceedings as
provided in the Rules of Court must be followed. In contrast, the legislative
bodies conduct their inquiries under less safeguards and restrictions,
because inquiries in aid of legislation are undertaken as tools to gather
information, in order to enable the legislators to act wisely and effectively,
and in order to determine whether there is a need to improve existing laws,
or to enact new or remedial legislation. 122 IDSEAH
In particular, the Senate is not bound by the Rules of Court. Its inquiries
permit witnesses to relate matters that are hearsay, or to give mere opinion,
or to transmit information considered incompetent under the Rules of Court.
The witnesses serve as resource persons, often unassisted by counsel, and
appear before the legislators, who are the inquisitors. The latter have no
obligation to act as impartial judges during the proceedings. The inquiries do
not include direct examinations and cross-examinations, and leading
questions are frequent.
Cogently, the proper treatment of the findings of congressional
committees by courts of law became the subject of the following
observations made in Agan, Jr. v. Philippine International Air Terminals Co.,
Inc.: 123
Finally, the respondent Congressmen assert that at least two (2)
committee reports by the House of Representatives found the PIATCO
contracts valid and contend that this Court, by taking cognizance of the
cases at bar, reviewed an action of a co-equal body. They insist that
the Court must respect the findings of the said committees of the
House of Representatives. With due respect, we cannot subscribe to
their submission. There is a fundamental difference between a
case in court and an investigation of a congressional
committee. The purpose of a judicial proceeding is to settle the
dispute in controversy by adjudicating the legal rights and
obligations of the parties to the case. On the other hand, a
congressional investigation is conducted in aid of legislation.
Its aim is to assist and recommend to the legislature a possible action
that the body may take with regard to a particular issue, specifically as
to whether or not to enact a new law or amend an existing one.
Consequently, this Court cannot treat the findings in a
congressional committee report as binding because the facts
elicited in congressional hearings are not subject to the rigors
of the Rules of Court on admissibility of evidence. The Court in
assuming jurisdiction over the petitions at bar simply performed its
constitutional duty as the arbiter of legal disputes properly brought
before it, especially in this instance when public interest requires
nothing less.
V
Asiavest's Intervention
Had No Leg to Stand On
Asiavest was a judgment creditor of PNCC by virtue of the Court's
judgment in G.R. No. 110263. After 5 years from the issuance of a writ of
execution in its favor, Asiavest's judgment award is yet to be satisfied. 124
In G.R. No. 178158, Asiavest filed its urgent motion for leave to
intervene and to file the attached opposition and motion-in-intervention,
claiming that it had a legal interest as an unpaid judgment creditor of PNCC,
nay a superior right, over the properties subject of the compromise
agreement. 125 It prayed, if allowed to intervene, that the compromise
agreement be nullified because, otherwise, PNCC might no longer have
properties sufficient to satisfy the judgment in favor of the former.

The Court granted the urgent motion of movant-intervenor Asiavest for
leave to intervene and to file opposition and motion in intervention [re:
judgment based on compromise]. 126 However, Asiavest was not required to
file a comment.
The position of Asiavest cannot be sustained.
To start with, Asiavest has no direct and material interest in the
approval (or disapproval) of the compromise agreement between PNCC and
Radstock. cSATEH
Secondly, Asiavest's request to intervene was made too late in the

proceedings. Under Section 2, Rule 19, 1997 Rules of Civil Procedure, an
intervention, to be permitted, must be sought prior to the rendition of the
judgment by the trial court.
Thirdly, the avowed interest of Asiavest in PNCC's assets emanated
from its being a creditor of PNCC by final judgment, and was not related to
the personal obligations of PNCC in favor of Marubeni (that is, the
guarantees for the loans) that were the subject of the compromise
agreement. Such interest did not entitle Asiavest to attack the compromise
agreement between PNCC and Radstock. The interest that entitles a person
to intervene in a suit already commenced between other persons must be in
the matter in litigation and of such character that the intervenor will either
gain or lose by direct legal operation and effect of the judgment. 127 The
conditions for a proper intervention in relation to Asiavest simply did not
exist. Moreover, sustaining Asiavest's posture may mean allowing other
creditors to intervene in an action involving their debtor brought by another
creditor against such debtor upon the broad pretext that they were thereby
prejudiced. The absurdity of Asiavest's posture, being plain, can never be
permitted under the rules on intervention. 128
Fourthly, that Asiavest is yet to recover from PNCC under the final
judgment rendered in G.R. No. 110263 gave the former n o standing to
intervene in the action Radstock brought against PNCC to enforce the latter's
guarantees. Asiavest was an absolute stranger to the juridical situation
arising between Radstock and PNCC. The proper recourse of Asiavest was,
instead, to pursue the execution of the judgment until satisfaction, a remedy
that is amply provided for in Rule 39 of the Rules of Court.
Lastly, Asiavest's argument that the compromise agreement might be
in fraud of it as a judgment creditor of PNCC, in support of which newspaper
reports are cited, 129 is unpersuasive. The allegation of fraud remains
unsupported by admissible and credible evidence presented by Asiavest,
considering that mere newspaper reports are incompetent and inadmissible
hearsay. 130
IN VIEW OF ALL THE FOREGOING CONSIDERATIONS , I vote to
dismiss the petitions in G.R. No. 178158 and G.R. No. 180428; to disallow the
intervention of Asiavest Merchant Bankers Berhad; to affirm the decision
dated January 25, 2007, the resolution dated May 31, 2007 promulgated in
C.A.-G.R. CV No. 87971, and the resolution dated June 12, 2007 promulgated
in C.A.-G.R. SP No. 97982.
Footnotes
1.This is a conservative amount since the real properties conveyed under the
Compromise Agreement are valued only at 70% of their appraised value. In
addition, payment from 50% of the toll fees for 27 years, amounting to
P9.382 billion, is given a net present value of only P1.287 billion. Senator
Franklin M. Drilon puts the actual value of the compromise at
P17.676 billion.
2.AN ACT RENEWING THE FRANCHISE OF THE PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION (PNCC), FORMERLY KNOWN AS THE
CONSTRUCTION AND DEVELOPMENT CORPORATION OF THE PHILIPPINES
(CDCP), GRANTED UNDER PRESIDENTIAL DECREE NO. 1113, AS AMENDED BY
PRESIDENTIAL DECREE NO. 1894, TO ANOTHER (25) YEARS FROM THE DATE
OF THE APPROVAL OF THIS ACT AND FOR OTHER PURPOSES.
3.On 7 February 2007, Senator Franklin Drilon introduced P.S. Res. No. 618 or the
RESOLUTION DIRECTING THE SENATE COMMITTEE ON FINANCE TO CONDUCT
AN INQUIRY, IN AID OF LEGISLATION, INTO THE COMPROMISE AGREEMENT
ENTERED INTO BY THE PHILIPPINE NATIONAL CONSTRUCTION CORPORATION
(PNCC) WITH RADSTOCK SECURITIES LIMITED, FOR THE PURPOSE OF
PROVIDING REMEDIAL LEGISLATION AND POLICY PARAMETERS ON
COMPROMISE AGREEMENTS TO PROTECT GOVERNMENT ASSETS AND
ENSURE THE JUDICIOUS USE OF GOVERNMENT FUNDS. This Resolution was
submitted to the Senate and referred to the Committee on Finance.
4.Delivered on 21 December 2006 during the Plenary Session.
5.Record of the Senate, Vol. III, Session No. 55, 21 December 2006.
6.Transcript of Committee Hearings, 19 December 2006, pp. 69-70.
7.Id., 14 December 2006, pp. 62-64.
8.Id. at 64-66.
9.Under Rule 45 of the Rules of Court.
10.Rollo, pp. 31-43. Penned by Associate Justice (now a member of this Court)
Mariano C. Del Castillo, concurred in by then Presiding Justice Ruben T.
Reyes and Associate Justice Arcangelita Romilla Lontok.
11.http://www.pncc.com.ph/.
12.http://www.pncc.com.ph/.
13.Id.
14.Id.
15.The members of the PNCC Board who were present during the meeting were
Renato B. Valdecantos, Chairman, Rolando L. Macasaet, President and Chief
Executive Officer, Braulio B. Balbas, Jr., Romulo F. Coronado, Basilio R. Cruz,
Jr., Alfredo F. Laya, Jr., Victor Pineda, Edwin Tanonliong, Jose Luis Vera,
Hermogenes Concepcion, Jr., and Raymundo Francisco, Directors.
16.Penned by Judge Amalia F. Dy.
17.Philippine National Construction Corporation v. Dy, G.R. No. 156887, 3 October
2005, 472 SCRA 1, 12.
18.Rollo, pp. 237-290.
19.Pinlac v. Court of Appeals, 457 Phil. 527 (2003).
20.Id.
21.Office of the Ombudsman v. Masing, G.R. No. 165416, 22 January 2008, 542
SCRA 253, 265.
22.439 Phil. 149 (2002), citing Mago v. Court of Appeals, 363 Phil. 225 (1999)
andDirector of Lands v. Court of Appeals, No. L-45168, 25 September 1979,
93 SCRA 239.
23.363 Phil. 225, 234 (1999), which in turn cited Director of Lands v. Court of
Appeals, No. L-45168, 25 September 1979, 93 SCRA 239, 245-246.
24.National Power Corporation v. Province of Quezon and Municipality of Pagbilao,
G.R. No. 171586, 15 July 2009.
25.Hi-Yield Realty Incorporated v. Court of Appeals, G.R. No. 168863, 23 June 2009.
26.Id.
27.Id.
28.Id.
29.TSN, Oral Arguments, pp. 19-20.
30.Del Mar v. PAGCOR, 400 Phil. 307 (2000).
31.Agote v. Lorenzo, G.R. No. 142675, 22 July 2005, 464 SCRA 60.
32.G.R. No. 102782, 11 December 1991, 204 SCRA 837, 842-843.
33.Villanueva, Philippine Corporate Law, 2001, p. 318. Section 31 of the
Corporation Code.
34.Villanueva, Philippine Corporate Law, 2001, pp. 321-322. Section 25 of the
Corporation Code pertinently provides:
xxx xxx xxx
The directors or trustees and officers to be elected shall perform the duties
enjoined on them by law and by the by-laws of the corporation. . . . .
35.Section 31 of the Corporation Code.
36.Id.
37.Philippine National Construction Corporation v. Dy, supra note 17 at 10.
38.No stopping PNCC-Radstock deal, Daxim Lucas, 26 April 2007
(http://business.inquirer.net/money/topstories/view/20070426-62559/No
stopping PNCC-Radstock_deal).

40.P.S. Res. No. 618, introduced by Senator Franklin M. Drilon.
41.The Annual Audit Report on the PNCC For the Year Ended December 31, 2006
pertinently provides: "There is a variance of P43.959 Billion between PNCC
recorded balance of obligations to various Government Financial Institutions
(GFIs) and the amount confirmed by the Bureau of Treasury (BTr). Said
obligations are still not fully converted to equity as prescribed under LOI
1295. If converted, the available capital stock of P44.568 Million would not be
sufficient to cover the recorded outstanding obligations of P5.552 Billion or
the BTr confirmed amount of P50.893 Billion".
The Annual Audit Report on the PNCC For the Year Ended December 31,
2007 pertinently provides: "The Corporation's liabilities are understated by
P42.50 billion due to non-recognition of advances made by the Bureau of
Treasury for the account of PNCC. . . . The Corporation has designed a
corporate strategic plan to include the servicing of accounts with the BTr via
conversion of the obligations into long-term debt or equity. However, said
obligations are still not converted to long term-debt and fully converted to
equity as prescribed under LOI 1295. If converted, the available capital stock
of P445.68 million would not be sufficient to cover the recorded outstanding
obligations of P5.55 billion or the BTr confirmed amount of P48.05 billion".
42.Annual Audit Report on the PNCC For the Year Ended December 31, 2006.
44.Article 1139 of the Civil Code.
45.Article 1155 of the Civil Code.
47.Id., 19 December 2006, p. 47.
48.Id., 14 December 2006, p. 108.
49.Id., 19 December 2006, pp. 13-25.
50.Id. at 82-83.

54.See The Alexandra Condominium Corporation v. Laguna Lake Development
Authority, G.R. No. 169228, 11 September 2009.
55.G.R. No. 87710, 31 March 1992, 207 SCRA 659.
56.Rufino v. Endriga, G.R. Nos. 139554 and 139565, 21 July 2006, 496 SCRA 13.
57.Section 20 (1), Chapter IV, Subtitle B, Title I, Book V of the Administrative Code
of 1987.
58.464 Phil. 441, 453, 461-462 (2004).
59.PRESIDENTIAL DECREE NO. 1113 — GRANTING THE CONSTRUCTION AND
DEVELOPMENT CORPORATION OF THE PHILIPPINES (CDCP) A FRANCHISE TO
OPERATE, CONSTRUCT AND MAINTAIN TOLL FACILITIES IN THE NORTH AND
SOUTH LUZON TOLL EXPRESSWAYS AND FOR OTHER PURPOSES.
60.PRESIDENTIAL DECREE NO. 1894 — AMENDING THE FRANCHISE OF THE
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION TO CONSTRUCT,
MAINTAIN AND OPERATE TOLL FACILITIES IN THE NORTH LUZON AND SOUTH
LUZON EXPRESSWAYS TO INCLUDE THE METRO MANILA EXPRESSWAY TO
SERVE AS AN ADDITIONAL ARTERY IN THE TRANSPORTATION OF TRADE AND
COMMERCE IN THE METRO MANILA AREA.
61.Section 3, Definition of Terms, Government Auditing Code.
63.Id. at 508.
64.Id. at 515-518.
65.Section 4 of the Government Auditing Code provides:
"Fundamental principles. Financial transactions and operations of any
government agency shall be governed by the fundamental principles set
forth hereunder, to wit:
1. No money shall be paid out of any public treasury of depository except in

pursuance of an appropriation law or other specific statutory authority;
2. Government funds or property shall be spent or used solely for
public purposes;
3. Trust funds shall be available and may be spent only for the specific
purpose for which the trust was created or the funds received;
4. Fiscal responsibility shall, to the greatest extent, be shared by all those
exercising authority over the financial affairs, transactions, and operations of
the government agency;
5. Disbursements or disposition of government funds or property shall

invariably bear the approval of the proper officials;
6. Claims against government funds shall be supported with complete
documentation;
7. All laws and regulations applicable to financial transactions shall be
faithfully adhered to;
8. Generally accepted principles and practices of accounting as well as of
sound management and fiscal administration shall be observed, provided
that they do not contravene existing laws and regulations. (Emphasis
supplied)
66.Section 86. Certificate showing appropriation to meet contract. — Except in the
case of a contract for personal service, for supplies for current consumption
or to be carried in stock not exceeding the estimated consumption for three
months, or banking transactions of government-owned or controlled banks
no contract involving the expenditure of public funds by any government
agency shall be entered into or authorized unless the proper accounting
official of the agency concerned shall have certified to the officer entering
into the obligation that funds have been duly appropriated for the purpose
and that the amount necessary to cover the proposed contract for the
current fiscal year is available for expenditure on account thereof, subject to
verification by the auditor concerned. The certificate signed by the proper
accounting official and the auditor who verified it, shall be attached to and
become an integral part of the proposed contract, and the sum so certified
shall not thereafter be available for expenditure for any other purpose until
the obligation of the government agency concerned under the contract is
fully extinguished.
See Melchor v. COA, G.R. No. 95398, 16 August 1991, 200 SCRA 704;
Osmeña v. COA, G.R. No. 98355, 2 March 1994, 230 SCRA 585; Comelec v.
Quijano-Padilla, 438 Phil. 72 (2002).
67.See Guingona, Jr. v. Carague, G.R. No. 94571, 22 April 1991, 196 SCRA 221.
68.438 Phil. 72, 96-98 (2002).
70.Id. at 521-523.
71.The Court applied this provision in Brgy. Sindalan, San Fernando, Pampanga v.
Court of Appeals, G.R. No. 150640, 22 March 2007, 518 SCRA 649.
72.TSN, Oral Arguments, p. 504.
75.Article 1459 of the Civil Code provides: "The thing must be licit and the vendor
must have a right to transfer the ownership thereof at the time it is
delivered". The vendor cannot transfer ownership of the thing if he does not
own the thing or own rights of ownership to the thing. The only possible
exception is in a short sale of securities or commodities, where the seller
borrows from the broker or third party the securities or commodities the
ownership of which is immediately transferred to the buyer. This is feasible
only when the subject matter of the transaction is a fungible object.
76.See Casabuena v. Court of Appeals, 350 Phil. 237 (1998).
77.Section 79 of the Government Auditing Codes provides as follows: "When
government property has become unserviceable for any cause, or is no
longer needed, it shall, upon application of the officer accountable therefor,
be inspected by the head of the agency or his duly authorized representative
in the presence of the auditor concerned and, if found to be valueless or
unsaleable, it may be destroyed in their presence. If found to be valuable,
it may be sold at public auction to the highest bidder under the
supervision of the proper committee on award or similar body in the
presence of the auditor concerned or other authorized representative of the
Commission, after advertising by printed notice in the Official Gazette, or for
not less than three consecutive days in any newspaper of general circulation,
or where the value of the property does not warrant the expense of
publication, by notices posted for a like period in at least three public places
in the locality where the property is to be sold. In the event that the
public auction fails, the property may be sold at a private sale at
such price as may be fixed by the same committee or body
concerned and approved by the Commission". (Emphasis supplied)
78.Chavez v. Public Estates Authority, 433 Phil. 506 (2002).
79.G.R. No. 111544, 6 July 2004, 433 SCRA 424.

80.Id. at 438-439.
81.Piedras Petroleum Company, Inc.
82.197 Phil. 394 (1982).
83.Id. at 402-403.
85.According to this article, the current amount of PNCC's debt is P50 billion. The
PNCC's Legacy of Debt by GEMMA B. BAGAYAUA, abs-
cbnNEWS.com/Newsbreak 01/13/2009 (http://www.abs-
cbnnews.com/nation/01/13/09/pncc%E2%80%99s-legacy-debt#comment-
form).
86.Transcript of the Committee Hearings, 18 December 2006, pp. 122-124.
87.Caltex (Philippines), Inc. v. PNOC Shipping and Transport Corporation, G.R. No.
150711, 10 August 2006, 498 SCRA 400.
88.Id.
89.Id.
90.Id.
91.Article 1387. All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of creditors,
when the donor did not reserve sufficient property to pay all debts
contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been rendered in any instance or
some writ of attachment has been issued. The decision or attachment need
not refer to the property alienated, and need not have been obtained by the
party seeking rescission.
In addition to these presumptions, the design to defraud creditors may be
proved in any other manner recognized by law and of evidence.
92.See China Banking Corporation v. Court of Appeals, 384 Phil. 116 (2000).
93.21 Phil. 243 (1912), cited in China Banking Corporation v. Court of Appeals, 384
Phil. 116 (2000) and Caltex v. PNOC Shipping and Transport Corporation,
G.R. No. 150711, 10 August 2006, 498 SCRA 400.
95.2006 Annual Audit Report, pp. 23-24; 2007 Annual Audit Report, pp. 23-24.
96.Article 2241. With reference to specific movable property of the debtor, the
following claims or liens shall be preferred:
( 1 ) Duties, taxes and fees due thereon to the State or any
subdivision thereof;
(2) Claims arising from misappropriation, breach of trust, or malfeasance by
public officials committed in the performance of their duties, on the
movables, money or securities obtained by them;
(3) Claims for the unpaid price of movable sold, on said movables, so long as
they are in the possession of the debtor, up to the amount of the same; and if
the movable has been resold by the debtor and the price is still unpaid, the
lien may be enforced on the price; this right is not lost by the immobilization
of the thing by destination, provided it has not lost its form, substance and
identity; neither is the right lost by the sale of the thing together with other
property for a lump sum, when the price thereof can be determined
proportionally;
(4) Credits guaranteed with a pledge so long as the things pledged are in the
hands of the creditor, or those guaranteed by a chattel mortgage, upon the
things pledged or mortgaged, up to the value thereof;
(5) Credits for the making, repair, safekeeping or preservation of personal
property, on the movable thus made, repaired, kept or possessed;
(6) Claims for laborers' wages, on the goods manufactured or the work done;
(7) For expenses of salvage, upon the goods salvaged;
(8) Credits between the landlord and the tenant, arising from the contract of
tenancy on shares, on the share of each in the fruits or harvest;
(9) Credits for transportation, upon the goods carried, for the price of the
contract and incidental expenses, until their delivery and for thirty days
thereafter;
(10) Credits for lodging and supplies usually furnished to travelers by hotel
keepers, on the movables belonging to the guest as long as such movables
are in the hotel, but not for money loaned to the guests;
(11) Credits for seeds and expenses for cultivation and harvest advanced to
the debtor, upon the fruits harvested.
(12) Credits for rent for one year, upon the personal property of the lessee
existing on the immovable leased and on the fruits of the same, but not on
money or instruments of credits;
(13) Claims in favor of the depositor if the depositary has wrongfully sold the
thing deposited, upon the price of the sale.
In the foregoing cases, if the movables to which the lien or preference
attaches have been wrongfully taken, the creditor may demand them from
any possessor, within thirty days from the unlawful seizure. (Emphasis
supplied)
97.Article 2242. With reference to specific immovable property and real rights of
the debtor, the following claims, mortgages and liens shall be preferred, and
shall constitute an encumbrance on the immovable or real right:
(1) Taxes due upon the land or building ;
(2) For the unpaid price of real property sold, upon the immovable sold;
(3) Claims of laborers, masons, mechanics and other workmen, as well as of
architects, engineers and contractors, engaged in the construction,
reconstruction or repair of buildings, canals or other works, upon said
buildings, canals or other works;
(4) Claims of furnishers of materials used in the construction, reconstruction,
or repair of buildings, canals or other works, upon said buildings, canals or
other works;
(5) Mortgage credits recorded in the Registry of Property, upon the real
estate mortgaged;
(6) Expenses for the preservation or improvement of real property when the
law authorizes reimbursement, upon the immovable preserved or improved;
(7) Credits annotated in the Registry of Property, in virtue of a judicial order,
by attachments or executions, upon the property affected, and only as to
later credits;
(8) Claims or co-heirs for warranty in the partition of an immovable among
them, upon the real property thus divided;
(9) Claims of donors of real property for pecuniary charges or other
conditions imposed upon the donee, upon the immovable donated;
(10) Credits of insurers, upon the property insured, for the insurance
premium for two years. (Emphasis supplied)
98.Article 2243. The claims or credits enumerated in the two preceding articles
shall be considered as mortgages or pledges of real or personal property, or
liens within the purview of legal provisions governing insolvency. Taxes
mentioned in No. 1, article 2241, and No. 1, article 2242, shall be
first satisfied. (Emphasis supplied)
99.Article 2245. Credits of any other kind or class, or by any other right or
title not comprised in the four preceding articles, shall enjoy no
preference. (Emphasis supplied)
100.Transcript of the Committee Hearings, 18 December 2006, p. 123.
102.Id. at 473-474.
CARPIO MORALES, J., concurring:

1.G.R. No. 156887, October 3, 2005, 472 SCRA 1.
2.Id. at 10.
3.Id. at 11, where the Court affirmed the denial of the motion to dismiss but
reversed the denial of the motion to set aside and discharge the order and
writ of preliminary attachment.
4.Civil Code, Art. 1245 provides that the law of sales governs dation in payment
whereby property is alienated to the creditor in satisfaction of a debt in
money. Admittedly, the Compromise Agreement is essentially a dacion en
pago.
5.EXECUTIVE ORDER NO. 292, Book V, Title I, Subtitle B, Chapter IV, Sec. 20, par.
1.
6.CIVIL CODE, Arts. 2028-2029.
7.G.R. No. 87110, March 31, 1992, 207 SCRA 659.

8.G.R. No. 169228, September 11, 2009.
LEONARDO-DE CASTRO, J., concurring:
1.Landbank of the Philippines v. Commission on Audit, G.R. Nos. 89679-81,
September 28, 1990, 190 SCRA 154; The Alexandra Condominium
Corporation v. Laguna Lake Development Authority, G.R. No. 169228,
September 11, 2009. See also, Development Bank of the Philippines v. Court
of Appeals, G.R. No. 49410, January 26, 1989, 169 SCRA 409 (where the
Court sustained the authority of DBP, as a government owned or controlled
corporation, to compromise claims due to the government ).
2.G.R. Nos. 87710 and 96087, March 31, 1992, 207 SCRA 659.
3.G.R. No. 156887, October 3, 2005, 472 SCRA 1.
4.Id. at 9.
BERSAMIN, J., dissenting:
1.Philippine National Construction Corporation v. Hon. Amalia F. Dy, et al., G.R. No.
156887, October 3, 2005, 472 SCRA 1, 5. Penned by Associate Justice Azcuna
and concurred in by Chief Justice Davide, Jr., Associate Justice Quisumbing, n
Associate Justice Ynares-Santiago, and Associate Justice Carpio.
2.Rollo, G.R. No. 178158, pp. 31- 43 (CA decision dated January 25, 2007; penned
by Associate Justice Del Castillo (now a Member of the Court) and concurred
in by Presiding Justice Reyes (now retired Member of the Court) and
Associate Justice Romilla-Lontok.
3.Rollo, G.R. No. 178158, pp. 259-271 (the resolution in G.R. No. 156887 dated
November 22, 2006).
4.Id., pp. 31-43.
5.Id., pp. 3-26.
6.Id.
7.Rollo, G.R. No. 180428, pp. 3-42.
8.Id., pp. 107-140.
9.Id., pp. 45-46 (CA decision in CA-G.R. SP No. 97982, penned by Justice Pizarro,
and concurred in by Justice Cruz and Justice Lampas-Peralta).
10.The narrative contained in the section Common Antecedents is partly derived
from the background facts rendered in Philippine National Construction
Corporation v. Hon. Amalia F. Dy, et al., G.R. No. 156887, October 3, 2005,
472 SCRA 1.

11.Rollo, G.R. No. 178158, p. 416.
12.Id., pp. 259-271.
13.Id., p. 270.
14.Id., pp. 31-43.
15.Id., pp. 113-117.
16.Id., p. 48.
17.Id., pp. 46-54.
18.Rollo, G.R. No. 180428, pp. 107-140.
19.Rollo, G.R. No. 180428, at pp. 45-46 (penned by Justice Pizarro, and concurred
in by Justice Cruz and Justice Lampas-Peralta).
20.Id., pp. 47-49.
21.Rollo, G.R. No. 178158, pp. 3-26.
22.Id., pp. 142-145.
23.Id., pp. 237-241.

24.Rollo, G.R. No. 180428, pp. 3-42.
25.Rollo, G.R. No. 178158, p. 358.
26.Id., p. 8.
27.Id., p. 11.
28.Id., pp. 9-10.
29.Id., p. 11.
30.Id., pp. 11-13.
31.Id., pp. 55-69.
32.Id., pp. 113-134.
33.Rollo, G.R. 180428, p. 17.
34.Rollo, G.R. 178158, pp. 402-443; pp. 444-540.
35.Id., between pp. 393 and 394.
36.Rollo, G.R. No. 178158, pp. 265-269 (CA decision dated January 25, 2007).
37.Garcia v. David, 67 Phil. 279.

38.Nieto, Jr. v. Court of Appeals, G.R. No. 166984, August 7, 2007, 529 SCRA 285;
citing Garcia v. David, 67 Phil. 279, 282-283.
39.Big Country Ranch Corporation v. Court of Appeals, G.R. No. 102927, October
12, 1993, 227 SCRA 161, 165.
40.Garcia v. David, supra, note 37, pp. 282-283.
41.Sec. 1, Rule 19, 1997 Rules of Civil Procedure.
42.Rollo, G.R. No. 178158, p. 266.
43.Rollo, G.R. No. 180428, pp. 45-46 (CA Resolution in CA-GR SP No. 97982).
44.Id., pp. 3-44.
45.Id., p 46.
46.G.R. No. 148456, September 15, 2006, 502 SCRA 67, 70.
47.G.R. No. 70443, September 15, 1986, 144 SCRA 144.
48.Id., pp 148-151.
49.Id., p. 149.
50.Rollo, G.R. 18042, p. 7.
51.Sec. 2, Corporation Code; Solidbank Corporation v. Mindanao Ferroalloy
Corporation, G.R. No. 153535, July 28, 2005, 464 SCRA 409, 420.
52.Section 1. Derivative action. — A stockholder or member may bring an action in
the name of a corporation or association, as the case may be, provided, that:
(1) He was a stockholder or member at the time the acts or transactions

subject of the action occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity
in the complaint, to exhaust all remedies available under the articles of
incorporation, by-laws, laws or rules governing the corporation or partnership
to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the
case.
53.Yu v. Yukayguan, G.R. No. 177549, June 18, 2009.
54.PNCC v. Dy, G.R. No. 156887, October 3, 2005, 472 SCRA 1, 8-9.
55.Revised Administrative Code of 1987.
56.TSN, January 13, 2009, pp. 269-278.
57.G.R. No. 87710 & G.R. No. 96087, March 31, 1992, 207 SCRA 659, 667-668.
58.G.R. No. L-19891, July 31, 1964, 11 SCRA 634.
59.Villanueva, C., Philippine Corporate Law, Rex Bookstore, Inc., p. 18 (2003).
60.I Campos and Lopez-Campos, The Corporation Code, Central Lawbook
Publishing, Co., Inc., p. 2 (1990).
61.G.R. No. 131715, December 8, 1999, 320 SCRA 188.
62.Section 36, Corporation Code, enumerates some of the powers of a private
corporation:
Sec. 36. Corporate powers and capacity. — Every corporation incorporated
under this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the
articles of incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of
this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to
amend or repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to
sell stocks to subscribers and to sell treasury stocks in accordance with the
provisions of this Code; and to admit members to the corporation if it be a
non-stock corporation;
7 . To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations, as
the transaction of the lawful business of the corporation may
reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as provided
in this Code;
9. To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided,
That no corporation, domestic or foreign, shall give donations in aid of any
political party or candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers and employees; and
11. To exercise such other powers as may be essential or necessary
to carry out its purpose or purposes as stated in the articles of
incorporation.
63.Section 2, Corporation Code, provides:
Sec. 2. Corporation defined. — A corporation is an artificial being created by
operation of law, having the right of succession and the powers, attributes
and properties expressly authorized by law or incident to its existence.
64.Manila International Airport Authority v. Olongapo Maintenance Services, Inc.,
G.R. No. 146184-85, January 31, 2008, 543 SCRA 269, 275.
65.Rollo, G.R. No. 178158, pp. 265-269.
66.Underline supplied for emphasis.
68.IV Tolentino, Civil Code of the Philippines, p. 293 (1997).
69.G.R. No. 1115444, July 6, 2004, 433 SCRA 424.
70.Entitled Amending the Franchise of the Philippine National Construction
Corporation to Construct, Maintain and Operate Toll Facilities in the North
Luzon and South Luzon Expressways to include the Metro Manila Expressway
to serve as an Additional Artery in the Transportation of Trade and
Commerce in Metro Manila.
72.Section 4, Rule 129, Rules of Court; 5 Herrera, Remedial Law, Rex Book Store, p.
107 (1999).
73.PNCC v. Pabion, supra, at footnote 61; also National Shipyard & Steel v. Court of
Industrial Relations, 118 Phil. 782, 789.
74.National Shipyard & Steel v. Court of Industrial Relations, supra.
75.Philippine National Bank v. Court of Industrial Relations, G.R. No. L-32667,
January 31, 1978, 81 SCRA 314, 319.
76.Rollo, G.R. No. 178185, p. 511.
77.Entitled Authorizing the Establishment Of Toll Facilities On Public Improvements,

Creating A Board For The Regulation Thereof And For Other Purposes.
78.Underlines supplied for emphasis.
79.G.R. No. 119528, March 26, 1997, 270 SCRA 538, 550-551.
81.G.R. No. 168914, July 4, 2007, 526 SCRA 465, 476.

83.DOJ Opinion No. 122, s. 1995.
85.Rollo, G.R. No. 178158, p. 247.
86.G.R. No. 79351, November 28, 1989, 179 SCRA 630, 634-635.
88.G.R. No. 158261, December 18, 2006, 511 SCRA 123, 147.
90.Rollo, G.R. No. 180428, p. 248.
91.21A Words and Phrases, p. 397; citing Howell v. Knox, Tex.Civ.App., 211 S.W.2d
324, 328.
92.Id., p. 396; citing Sturgill v. Lovell Lumber Co., 67 S.E. 2d 321, 323, 13 W. Va.
259.
93.Article 2237, Civil Code.
94.De Leon, The Law on Insurance (with Insolvency Law), p. 254 (2003).
95.Section 14, Act No. 1956.
96.Section 20, Act No. 1956.
97.Section 52, Act No. 1956, provides in part that:
SECTION 52. Corporations and sociedades anonimas; Banking. — The
provisions of this Act shall apply to corporations and sociedades anonimas . .
. . Whenever any corporation is declared insolvent, its property and assets
shall be distributed to the creditors; . . .
98.Rollo, G.R. No. 178158, pp. 265-269.

99.Rollo, G.R. 180428, p. 249.
101.II Campos and Lopez-Campos, The Corporation Code, p. 464 (1990).
102.Rollo, G.R. No. 180428, p. 249.
103.Rollo, G.R. No. 178185, p. 511.
104.Rollo, G.R. No. 180428, p. 423 (COA's Audit Report on PNCC For the Year
End[ing] 31 December 2005). The report summarizes PNCC's ongoing and
projected projects, thus:
TOLLWAYS DEVELOPMENT CONTRACTS

The company has entered into Joint Venture Partnerships with internationally
notable engineering companies and other reputable local corporations, under
the Build-Operate-Transfer scheme, for the construction, rehabilitation,
refurbishment, modernization, and expansion of the existing Expressways.
A product of this partnership is the Metro Manila Skyway Project, the first
elevated tollway in the country built in joint partnership with the Indonesian
firm P.T. Citra Gung Persada (CITRA). Another project of the joint undertaking
efforts is the Manila North Tollway Project with First Philippine Infrastructure
Development Corporation (FPIDC), which involves the rehabilitation of the
North Luzon Tollway and its expansion to the special economic zones in
Zambales, Clark Pampanga, Bataan, and Subic, Olongapo City. The
rehabilitation and extension of the South Luzon Tollway has been entered
into by the Company through a Joint Venture Agreement (JVA) and
subsequently an amended JVA with Hopewell Crown Infrastructure, Inc.
(HCII). The objective of which is to refurbish the Alabang to Calamba, Laguna
segment of the South Luzon Expressway and extend the same to Lucena City
in Quezon Province.
An Alternative to the JVA with HCII, if the same does not materialize, is an on-
going negotiation with the NDC to develop design, construct, finance,
operate, and maintain the SLEX Project. The proposed Project involves the
rehabilitation of the Alabang Viaduct and the extension of the SLEX from
Calamba, Laguna to Sto. Tomas, Batangas. This will be documented likewise
by a JVA.
105.Rollo, G.R. No. 178158, p. 256.

107.G.R. No. L-21064, February 18, 1970, 31 SCRA 413, 422-423.
108.G.R. Nos. 160261, 160262, 160263, 160277, 160292, 160295, 160310,
160318, 160342, 160343, 160360, 160365, 160370, 160376, 160392,
160397, 160403, and 160405, November 10, 2003; 415 SCRA 44.
109.Samartino v. Raon, 433 Phil. 173, 189 (July 3, 2002).
110.Morales v. Court of Appeals, G.R. No. 117228, June 19, 1997, 274 SCRA 282,
297-300; IV Tolentino, Civil Code of the Philippines, p. 669 (1997).
111.Article 1441, Civil Code.
112.Ramos v. Ramos, No. L-19872, December 3, 1974, 61 SCRA 284.
113.G.R. No. 127882, December 1, 2004, 445 SCRA 1, 91-93.
114.Supra, at pp. 22-23.
115.21 C.J.S. 330.
116.Zarate v. Director of Lands, 39 Phil. 747.
117.Bachrach Motor Co. v. Esteva, 67 Phil 16.
118.237 Mo. 496; cited in Zarate v. Director of Lands, supra.
119.Section 1. Judicial notice, when mandatory. — A court shall take judicial notice,
without the introduction of evidence, of the existence and territorial extent of
states, their political history, forms of government and symbols of nationality,
the law of nations, the admiralty and maritime courts of the world and their
seals, the political constitution and history of the Philippines, the official
acts of the legislative, executive and judicial departments of the
Philippines, the laws of nature, the measure of time, and the geographical
divisions. (1a)
120.G.R. No. 89914, November 20, 1991, 203 SCRA 767, 784.
121.Romero v. Senator Estrada, G.R. No. 174105, April 2, 2009.
122.Id.
123.G.R. No. 155001, January 21, 2004, 420 SCRA 575, 606.
124.Rollo, G.R. No. 178158, pp. 237-238.
125.Id., pp. 238-239.
126.Rollo, G.R. No. 178158, p. 291.
127.Nordic Asia Limited v. Court of Appeals, 451 Phil. 482, 492-493.
128.Batama Farmer's Cooperative Marketing Association, Inc. v. Hon. Rosal, 149
Phil. 514, 524.
129.Rollo, G.R. 178158, pp. 254-258.
130.People v. Fajardo, 373 Phil. 915, 925.
n Note from the Publisher: the phrase "..towards the generally.." should read as
"..towards the approval of the practice by the courts. It is generally.."
n Note from the Publisher: Copied verbatim from the official copy. "Quisimbing"
should read as "Quisumbing".

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EN BANC

[G.R. No. 178158. December 4, 2009.]

STRATEGIC ALLIANCE DEVELOPMENT CORPORATION ,

ASIAVEST MERCHANT BANKERS BERHAD, intervenor.

[G.R. No. 180428. December 4, 2009.]

LUIS SISON, petitioner, vs. PHILIPPINE NATIONAL

What does it consist of? It consists of the following: 19 pieces of

What else, Mr. President? The 20% of the outstanding capital

Mr. President, P17,676,000,000, however, was made to appear in

In other words, Mr. President, the toll collection of

xxx xxx xxx

Mr. President, are we not entitled, as members of the Committee,

In other words, Mr. President, for 20 years, the ﬁnancial

Mysteriously, Mr. President, an obligation of P10 billion

Mr. President, are the members of our Committee not entitled to

More importantly, Mr. President, equally recognized is the

Your Honor, I am not aware of the decision making

Well, but that is beside the point, Mr. Dominguez. All I am

As I said, Your Honor, I am not familiar with the decision making

xxx xxx xxx

All of these ﬁnancial things can be arranged. They can hire a

xxx xxx xxx 7

. . . I just wanted to know is CDCP Mining a 100 percent

All right. Now — Also, the . . .

. . . CDCP Mining, how many percent of the equity of

Subsequently in 1983, CDCP changed its corporate name to PNCC to

RESOLVED, That the Board recognizes, acknowledges and

a). the Government of the Republic of the Philippines in the

WHEREFORE, the petition is partly GRANTED and insofar as the

On 17 August 2006, PNCC and Radstock entered into the Compromise

Meanwhile, on 20 February 2007, Sison, also a stockholder and former

1. Does the Compromise Agreement violate public policy?

3. Is the Compromise Agreement viable in the light of the non-

4. Is the Decision of the Court of Appeals annullable even if

Section 2, Rule 19 of the 1997 Rules of Civil Procedure provides:

[A]llowance or disallowance of a motion for intervention rests on

In Collado v. Court of Appeals, 22 this Court reiterated that exceptions

Concededly, STRADEC has no legal interest in the subject matter of the

SECTION 1. Who may intervene. — A person who has a legal

STRADEC's interest is dependent on the outcome of Civil Case No. 05-882.

Besides, the circumstances in this case are peculiar. Sison, as former

Unquestionably, the Court has the power to suspend procedural

Be it remembered that rules of procedure are but mere tools

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Apparently, it's like that, Senator, because the ﬁling of

Yes. In fact, the ﬁling of the case came three months

Yes. And that made it difficult to handle on our part.

Ms. Pasetes, yes.

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. . . what is the net worth now of PNCC? Negative what?

Yes, your Honor. 43 (Emphasis supplied)

On record, Mr. Chairman, we have demands starting from — a

It is exactly addressed to the Asset Privatization Trust.

It is not a demand letter? Okay.

And we have also. . .

The 10-year period for — if the contract is written, it's 10 years

Now, the reason why there was a colorable basis on the

May I volunteer an answer?

I looked into that, Mr. Chairman, Your Honor. It was as a

Conﬁrm what? Conﬁrm the liabilities that are contained in the

What paragraph? Second to the last paragraph? DaAISH

Yes. Yes, Mr. Chairman. Ito po 'yong — that's to our recollection,

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