Strategic Alliance Development Corp. V.20210424-14-14bek9w
Strategic Alliance Development Corp. V.20210424-14-14bek9w
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.
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.
Aside from Senator Drilon, Senator Sergio S. Osmeña III also saw
irregularities in the transactions involving the Marubeni loans, thus:
SEN. OSMEÑA.
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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.
SEN. OSMEÑA.
All right.
MR. DOMINGUEZ.
. . . litigious situation. 6
SEN. DRILON.
Well, then, that's a dummy relationship.
SEN. OSMEÑA.
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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
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.
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SEN. OSMEÑA.
SEN. OSMEÑA.
Huh?
MR. AGUILAR.
Thirteen percent ho.
SEN. OSMEÑA.
What's 13 percent?
MR. AGUILAR.
We owned . . .
xxx xxx xxx
SEN. OSMEÑA.
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
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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
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:
RESOLVED, That the Board recognizes, acknowledges and
confirms its obligations as of September 30, 1999 with the following
entities, exclusive of the interests and other charges that may
subsequently accrue and still due thereon, subject to the final
determination by the Commission on Audit (COA) of the amount of
obligation involved, and subject further to the declaration of the
legality of said obligations by the Office of the Government Corporate
Counsel (OGCC), to wit: ACETSa
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.
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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
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:
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.
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
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.
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.
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
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?
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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.
SEN. DRILON.
The March 4, 1988 letter is not a demand letter.
MS. OGAN.
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.
SEN. DRILON.
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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.
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.
Please.
MR. AGUILAR.
THE CHAIRMAN.
MR. AGUILAR.
From just the records, Mr. Chairman, and then interviews with
people who are still around.
SEN. DRILON.
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.
. . . 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.
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
That was the — that was the mandate given to us, sir,
that we have to engage the . . .
THE CHAIRMAN.
THE CHAIRMAN.
Ah, you get outside counsel?
MR. FRANCISCO.
Yes, we. . .
THE CHAIRMAN.
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.
THE CHAIRMAN.
No, sir.
THE CHAIRMAN.
Why?
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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.
MR. FRANCISCO.
I'm sorry, sir, we don't have a copy.
SEN. DRILON.
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.
MR. FRANCISCO.
I would assume, Mr. Chairman.
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.
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.
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Well, I guess there's no difference, Mr. Chairman.
SEN. DRILON.
Right.
MS. OGAN.
Yes, sir.
THE CHAIRMAN.
And the reason being that, it does not concern the PNCC because
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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.
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.
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Yes, she was recording. aSIETH
MS. OGAN.
Yes, sir, Mr. Chairman, this was mentioned in the memorandum
of Atty. Francisco, memorandum to the board.
SEN. DRILON.
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,
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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.
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
...
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.
Yes, sir.
SEN. OSMEÑA.
You'll probably keep it in court for the next 20 years. aESICD
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
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.
MR. LAYA.
Yes, sir.
THE CHAIRMAN.
All right, go ahead.
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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.
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.
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.
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.
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)
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
- 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, 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
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
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
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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
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
DEAN AGABIN:
Yes, Your Honor.
ASSOCIATE JUSTICE CARPIO:
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.
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
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
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)
ASSOCIATE JUSTICE CARPIO:
No. I am talking of the funds.
DEAN AGABIN: acIASE
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)
DEAN AGABIN:
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Yes, Your Honor.
ASSOCIATE JUSTICE CARPIO:
Okay. Can the person holding in trust use it to pay his
private debt?
DEAN AGABIN:
DEAN AGABIN:
Even profit, Your Honor.
ASSOCIATE JUSTICE CARPIO:
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.
ASSOCIATE JUSTICE CARPIO:
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:
ASSOCIATE JUSTICE CARPIO:
. . . As of May 7, 2007, [the] national government owned those
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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.
ASSOCIATE JUSTICE CARPIO:
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)
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.
SEN. OSMEÑA.
Huh?
MR. AGUILAR.
Thirteen percent ho.
SEN. OSMEÑA.
What's 13 percent?
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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.
xxx xxx xxx 73 (Emphasis supplied)
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
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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.
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:
ASSOCIATE JUSTICE CARPIO:
Under the law, a foreigner cannot own land, correct?
ATTY. AGRA:
Yes, Your Honor.
ASSOCIATE JUSTICE CARPIO:
But you are saying it can own the right of ownership to the land,
because you are saying, the right of ownership will be assigned
by 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.
ASSOCIATE JUSTICE CARPIO:
Who makes the assignment?
ATTY. AGRA:
It will be Radstock, Your Honor. ICcDaA
ATTY. AGRA:
No, Your Honor. PNCC, will still hold on to the property, absent a
valid assignment of properties.
ASSOCIATE JUSTICE CARPIO:
But what rights will PNCC have over that land when it has already
signed the compromise? It is just waiting for instruction . . . from
Radstock what to do with it? So, it's a trustee of somebody,
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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)
ASSOCIATE JUSTICE CARPIO:
Yeah, but it does not own the land, but it still holding the land in
favor of the other party to the Compromise Agreement
ATTY. AGRA:
Pursuant to the compromise agreement, that will happen.
ASSOCIATE JUSTICE CARPIO:
Okay. May I (interrupted)
ATTY. AGRA:
Again, Your Honor, if the compromise agreement ended with a
statement that Radstock will be the owner of the property
(interrupted)
ASSOCIATE JUSTICE CARPIO:
Yeah. Unfortunately, it says, to a qualified assignee. HCEaDI
ATTY. AGRA:
Yes, Your Honor.
ASSOCIATE JUSTICE CARPIO:
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.
ASSOCIATE JUSTICE CARPIO:
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)
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
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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
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.
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.
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.
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)
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.
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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
VI.
Supreme Court is Not Legitimizer of Violations of Laws
During the oral arguments, counsels for Radstock and PNCC admitted
that the Compromise Agreement violates the Constitution and existing laws.
However, they rely on this Court to approve the Compromise Agreement to
shield their clients from possible criminal acts arising from violation of the
Constitution and existing laws. In their view, once this Court approves the
Compromise Agreement, their clients are home free from prosecution, and
can enjoy the P6.185 billion loot. The following exchanges during the oral
arguments reveal this view:
ASSOCIATE JUSTICE CARPIO:
If there is no agreement, they better remit all of that to the
National Government. They cannot just hold that. They are
holding that [in] trust, as you said, . . . you agree, for the National
Government.
DEAN AGABIN:
Yes, that's why, they are asking the Honorable Court to approve
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the compromise agreement.
ASSOCIATE JUSTICE CARPIO:
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.
ASSOCIATE JUSTICE CARPIO:
Ignore the Constitutional provision that money shall be
paid out of the National Treasury only pursuant to an
appropriation by law. You want us to ignore that[?]
DEAN AGABIN:
Not really, Your Honor, but I suppose that Congress
would have no choice, because this is a final judgment of
the Honorable Court. 101 cDTACE
So, you are saying that Radstock can own the rights to ownership
of the land?
ATTY. AGRA:
Yes, Your Honors.
This Court is not, and should never be, a rubber stamp for litigants
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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
Separate Opinions
CARPIO MORALES, J., concurring:
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)
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
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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)
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
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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)
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
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
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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
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
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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.
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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
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
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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,
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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;
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
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
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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
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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
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.
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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
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the conditions provided in this Code. SIacTE
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
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plans to enter into other tollways development projects. 104
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.
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.
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
In particular, the Senate is not bound by the Rules of Court. Its inquiries
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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.
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).
39.Transcript of Committee Hearings, 14 December 2006, pp. 26-28.
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
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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.
62.TSN, Oral Arguments, pp. 504-506.
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:
(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 ;
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(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.
101.TSN, Oral Arguments, pp. 527-529.
102.Id. at 473-474.
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.
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: