G.R. No. 178158 Strategic Alliance Development Corporation v.

Radstock Securities Limited, and Philippine

National Construction Corporation


G.R. No. 180428 Luis Sison v. Philippine National Construction

Corporation, and Radstock Securities Limited





December 4, 2009











I join the majority in granting the petition in G.R. No. 180428.


In G.R. No. 178159, petitioner Strategic Alliance Development Corporation (Stradec) assails the appellate courts Resolutions of January 25, 2007 and May 31, 2007 in CA-G.R. CV No. 87971 approving the Compromise Agreement of August 17, 2006 between Radstock Securities Limited (Radstock) and Philippine National Construction Corporation (PNCC), and denying Stradecs motion for reconsideration, respectively. In G.R. No. 180428, petitioner Luis Sison (Sison) assails the appellate courts Resolutions of June 12, 2007 and November 5, 2007 in CA-G.R. SP No. 97982 dismissing his petition for annulment of the appellate courts January 25, 2007 Resolution, and denying reconsideration thereof, respectively.


This opinion dwells only on the legal claims and defenses surrounding the execution of the Compromise Agreement, the validity of which is challenged in the present petitions.


The debt-to-equity transaction between the government and the PNCC (then CDCP) covered the assumption of ownership not only as to the assets but also as to the liabilities of CDCP to the extent of its equity.


The separate issue of defensibility of the subject liability could not be taken into account in rejecting the compromise agreement, since part of a compromise is the concession to surrender or waive the defenses against the claim. Whether such waiver subjected the PNCC officers to personal liability is likewise a different question altogether.


Going beyond the mathematical computations in arriving at the P6.185 Billion value of the properties subject of the Compromise Agreement vis--vis the P17.04 Billion liability adjudged by the trial court, the immediate effect of approving the Compromise Agreement is pulling Radstock from the queue of PNCC creditors and placing it in front of the line in order to collect on a debt ahead of the other PNCC creditors. Yet Radstock itself was complaining and crying foul about this same scenario in its application for a writ of preliminary attachment, the subject of this Courts decision in Philippine National Construction Corporation v. Dy.[1] Thus Radstock alleged:


. . . PNCC knowing that it is bankrupt and that it does not have enough assets to meet its existing obligations is now offering for sale its assets as shown in the reports published in newspapers of general circulation.[2] (emphasis and underscoring supplied)


The Court in that case did not find such allegation as constitutive of fraud to merit Radstocks prayer for the attachment of PNCC properties because


. . . the fact that PNCC has insufficient assets to cover its obligations is no indication of fraud even if PNCC attempts to sell them because it is quite possible that PNCC was entering into a bona fide . . . sale where at least fair market value for the assets will be received. In such a situation, Marubeni[-predecessor-in-interest of Radstock] would not be in a worse position than before as the assets will still be there but just liquidated.[3] (italics in the original; emphasis and underscoring supplied)


Finding itself in the same position it abhors, Radstock now finds no objection to PNCC selling[4] its assets to Radstock and placing itself in a worse position than before as the assets will be actually conveyed and not merely liquidated. Even worse, Radstock admits that PNCC is financially in distress and intimates that the creditors cannot in any manner collect the claims due them.


Furthermore, Executive Order No. 292 or the Administrative Code of 1987 requires congressional approval on the compromise of claims valued at more than P100,000, thus the pertinent section provides:


Section 20. Power to Compromise Claims. - (1) When the interest of the Government so requires, the Commission [on Audit] may compromise or release in whole or in part, any settled claim or liability to any government agency not exceeding ten thousand pesos arising out of any matter or case before it or within its jurisdiction, and with the written approval of the President, it may likewise compromise or release any similar claim or liability not exceeding one hundred thousand pesos. In case the claim or liability exceeds one hundred thousand pesos, the application for relief therefrom shall be submitted, through the Commission and the President, with their recommendations, to the Congress x x x.[5] (emphasis and underscoring supplied)


At the outset, it bears clarification that the phrase any settled claim or liability to any government agency includes not just liabilities to the government but also claims against the government. Although the two relevant cases (infra) so far decided by this Court involved only liabilities to the government, there is nothing in the law that prohibits the government from amicably settling its own liability to a person, subject to the same stringent qualifications and conditions. That the State has the whole government machinery to contest any alleged liability and protect the release of government funds to pay off such claim is not in consonance with the avowed State policy expressed by law[6] that encourages settlement of civil cases.


In Benedicto v. Board of Administrators of Television Stations RPN, BBC and IBC,[7] the Court ruled that the requirement of prior congressional approval for the compromise of an amount exceeding P100,000 applies only to a settled claim or liability.


In his dissent, Justice Lucas Bersamin states that the liability of PNCC to Radstock was not yet settled at the time of the execution of the Compromise Agreement since the case was still the subject of litigation, in which PNCC resisted liability by pleading various defenses. He expounds:


The exception of a compromise or release of a claim or liability yet to be settled from the requirement for presidential or congressional approval is realistic and practical. In a settlement by compromise agreement, the negotiating party must have the freedom to negotiate and bargain with the other party. Otherwise, tying the hands of the Government representative by requiring him to submit each step of the negotiation to the President and to Congress will unduly hinder him from effectively entering into any compromise agreement. (italics in the original omitted)


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 creditors 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 Boards twin moves are manifestly and grossly disadvantageous to the Government. x x x (emphasis in the original omitted)

I submit that a claim or liability is settled once it has been liquidated or determined and no issue remains as to the amount or identity of the liability.


In Benedicto, the Court explained that [t]he Governments claim against Benedicto is not yet settled, and the ownership of the alleged ill-gotten assets is still being litigated in the Sandiganbayan, hence, the PCGGs Compromise Agreement with Benedicto need not be submitted to the Congress for approval. In Benedicto, there was yet no determination as to the ownership of the sequestered properties.


The determination, if it be a judicial one, need not be final and executory. Since the aim of a compromise is to avoid a litigation or put an end to one already commenced, there is no rhyme or reason to end a litigation that is already terminated and to wait for a final and executory decision before discussing a possible compromise.


In The Alexandra Condominium Corporation v. Laguna Lake Development Corporation,[8] the subject of compromise was the P1,062,000 fine imposed by the Laguna Lake Development Authority against a condominium corporation as compensation for damages resulting from failure to meet established water and effluent quality standards. The Court therein ruled that the condominium corporation should have first pursued the administrative recourse to the Department of Environment and Natural Resources Secretary before filing the petition in court. On the issue of the alleged pending amicable settlement vis--vis the claim of non-exhaustion of administrative remedies, the Court ruled that congressional approval of a compromise agreement is not administrative but legislative [in nature], and need not be resorted to before filing a judicial action.


In the scheme of things, the congressional approval acts as a safeguard in reviewing the soundness of the business judgment. It is not for the Court to preempt the legislative branch and say that under the circumstances, the compromise agreement could not be considered as disadvantageous to PNCC and the National Government.






Associate Justice

[1] G.R. No. 156887, October 3, 2005, 472 SCRA 1.

[2] Id. at 10.

[3] Id. at 11, where the Court affirmed the denial of the motion to dismiss but reversed the denial of the motion to set aside and discharge the order and writ of preliminary attachment.

[4] Civil Code, Art. 1245 provides that the law of sales governs dation in payment whereby property is alienated to the creditor in satisfaction of a debt in money. Admittedly, the Compromise Agreement is essentially a dacion en pago.

[5] Executive Order No. 292, Book V, Title I, Subtitle B, Chapter IV, Sec. 20, par. 1.

[6] Civil Code, Arts. 2028-2029.

[7] G.R. No. 87110, March 31, 1992, 207 SCRA 659.

[8] G.R. No. 169228, September 11, 2009.