EN BANC

 

G.R. No. 178158 (Strategic Alliance Development Corporation v. Radstock Securities Limited and Philippine National Construction Corporation) and G.R. No. 180428 (Luis Sison v. Philippine National Construction Corporation and Radstock Securities Limited)

 

 

                                                                   Promulgated:

 

                                                                   December 4, 2009

 

 

CONCURRING OPINION

 

 

Leonardo-De Castro, J.:

 

          I concur in the ponencia of the Honorable Justice Antonio T. Carpio, subject to the following qualifications:

 

          First, I do not believe that Section 36 of the Government Auditing Code grants government agencies any power to compromise, and thereby admit, any indebtedness of the government to another party. Section 36, as amended by Section 20, Chapter 4, Title I-B, Book V, E.O. No. 292 (the Administrative Code of 1987), provides:

 

            Section 36. Power to compromise claims. – (1) When the interest of the Government so requires, the Commission may 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; and

 

            (2) The Commission may, in the interest of the Government, authorize the charging or crediting to an appropriate account in the National Treasury, small discrepancies (overage or shortage) in the remittances to, and disbursements of, the National Treasury, subject to the rules and regulations as it may prescribe. (emphasis supplied)

 

          Plainly, pursuant to the above-quoted provision, the power to compromise or release involves a claim or liability to a government agency, i.e. an indebtedness to a government agency, which term by definition under E.O. No. 292 includes “government owned or controlled corporations.”  The language of Section 36 does not authorize the compromise of an indebtedness of the government or a liability of the government to any party.

 

          The aforesaid meaning or import of the term “claim or liability” used in Section 36 is reinforced by the immediate preceding Section 35 which reads:

 

Section 35.  Collection of Indebtedness Due to the Government. – The Commission shall, through proper channels, assist in the collection and enforcement of all debts and claims, and the restitution of all funds or the replacement or payment as a reasonable price of property, found to be due the Government, or any of its subdivisions, agencies or instrumentalities, or any government-owned or controlled corporation or self-governing board, commission or agency of the Government, in the settlement and adjustment of its accounts.  If any legal proceeding is necessary to that end, the Commission shall refer the case to the Solicitor General, the Government Corporate Counsel, or the Legal Staff of the Creditor Government Office or agency concerned to institute such legal proceeding.  The Commission shall extend full support in the litigation.  All such moneys due and payable shall bear interest at the legal rate from the date of written demand by the Commission. (emphasis supplied)

 

          Previous jurisprudence applying Section 36 confirms that this provision authorizes the compromise of a liability or indebtedness to the government.[1]  This is true even in Benedicto v. Board of Administrators of Television Stations,[2] which was cited in the dissent.  The Benedicto case ruled upon the power of the PCGG to compromise actions for recovery of ill-gotten wealth.  In such actions, it is the government who has a claim against third persons and not the other way around.

 

          Now, one might ask: Is there compelling reason to treat a compromise of an indebtedness to the government differently from a compromise of an indebtedness of the government?

 

          The answer is undeniably in the affirmative.  First, when there is a compromise of an indebtedness to the government, it generally presupposes that the government’s claim will be paid, albeit at a lower amount than the actual liability.  It involves funds going into the coffers of the government.  On the other hand, when there is a compromise of an indebtedness of the government, this means that public funds will be disbursed from the treasury to answer for such debt.  The former type of compromise makes practical sense since in that situation, the State is condoning a portion of an actual or settled or definite obligation in order to collect some amount for a good or meritorious ground rather than risk the non-payment of all of its claim.

 

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

 

Section 4. Fundamental Principles. – Financial transactions and operations of any government agency shall be governed by the fundamental principles set forth hereunder, to wit:

 

1.                  No money shall be paid out of any public treasury or depository except in pursuance of an appropriation law or other specific statutory authority.

 

2.                  Government funds or property shall be spent or used solely for public purposes. xxx   xxx   xxx (emphasis supplied)

 

          To my mind, neither Section 36 of the Government Auditing Code nor Benedicto can be used as legal basis for the vaunted validity of the Compromise Agreement subject of this case.

 

          Second, even assuming for the sake of argument that Section 36 may be interpreted as also authorizing the compromise of government indebtedness to another party, it is my considered view as stated above that it must be a settled claim or liability.

 

          Section 36 is very clear that the Commission on Audit (COA) may only compromise or release “any settled claim or liability.”

 

          The dissenting opinion characterizes Radstock’s claim against PNCC as an unsettled claim since its validity and its amount had not yet been determined with judicial finality and in fact, the Compromise Agreement was entered into by the parties during the pendency of the case with the Court of Appeals.

 

          However, I respectfully beg to disagree with the proposition that since Radstock’s claim is not yet settled, the requirement under Section 36 for Presidential or Congressional approval does not apply.  On the contrary, it is precisely because the claim is still unsettled that Section 36 should not come into play at all and the concerned government agency should be deemed to have no authority to compromise such claim.  Under Section 36, the authority to compromise must involve a “settled claim or liability” regardless of amount, the latter being significant only to determine the approving authority.  This is the clear import of Section 36.

         

This interpretation of Section 36, which requires a final and executory judicial determination of the liability as a prerequisite to the exercise of the power to compromise, would reinforce the mandate of the COA to guard against illegal or negligent disbursement of public funds.

 

          This is an opportune time for the Court to revisit and reexamine the doctrine in Benedicto, insofar as it rules that Presidential and/or Congressional approval may be dispensed with in the compromise of unsettled claims.  The authority to compromise granted in cases of settled claims, under Section 36, as amended by E.O. 292, subject to the approval of the offices concerned depending on the amount of the claim cannot, by any rational reasoning, be construed as to confer absolute authority to compromise, that is, sans any condition or approval at all, if the claim is unsettled or not yet established.  Rather, the inescapable deduction from the language of Section 36 is that no compromise is allowed if the claim is unsettled.  Besides, it should be emphasized that the claim in Benedicto did not involve a claim against the government but a claim due to the government.  Hence, it cannot be invoked as a precedent.

 

          Section 36 requires, as indispensable conditions for a compromise, that the claim is settled and the application for relief is submitted to Congress for approval with the recommendation of the COA and the President if the “settled claim” exceeds P100,000.00.  The statutory conditions of (1) a settled claim and (2) Presidential endorsement and Congressional approval of the compromise depending on the amount of the claim are entrenched as mechanisms for ensuring public accountability and fiscal responsibility.

 

          If a settled claim (i.e. a claim that has been adjudged valid and has been competently computed based on evidence) that exceeds P100,000.00 requires Presidential endorsement and Congressional approval, with more reason,  an unsettled claim (i.e. one that is still of questionable validity or legality) of any amount should require Presidential endorsement and Congressional approval before it can be compromised.  This is especially true in the case of a compromise of a supposed debt of the government to another party.  It seems absurd that a compromise that will require a disbursement of public funds or property will not require Congressional approval when the Constitution and the law demand legislative action and a public purpose before such a disbursement can be made. 

 

          To be sure, in the case of a compromise of an indebtedness to the government, there must be a reasonable and dependable benchmark by which to ascertain whether the amount of loss or waived receivables under the compromise is acceptable or justified.

         

The existence of a reliable benchmark of the liability to be paid is even more imperative in the case of a compromise of an indebtedness of the government because it entails a payment out of public funds or property.  A judicial determination of the liability would be one such standard by which we can reasonably gauge if the compromise entered into by public officials is disadvantageous to the government or inimical to interests of the Filipino people.

 

          The benchmark most certainly cannot be what the claimant asserts the government’s liability to be.  I simply cannot accept the reasoning that PNCC’s entering into a compromise with Radstock for P6 Billion is advantageous to the government, since the purported claim amounted to approximately P17 Billion.  For if Radstock is actually not entitled to a single centavo of its claim, then our government would have lost P6 Billion for nothing.  It is my firm belief that a claim against the government must be proven, or otherwise settled with finality, before the whole claim or any part of it can be paid or compromised.

         

If this Court approves the compromise of an unsettled claim, then we will open the floodgates to even more suits of this sort.  Predictably, that kind of permissive ruling will encourage parties to file flimsy or dubious claims against the government and unscrupulous government officials can compromise such claims even during the pendency of the case and without need of any approval from higher authority.  To say that this would be an anomalous outcome would be an understatement. It is an abomination that the Court should not countenance or perpetuate.

 

We simply cannot apply to this case the statutory provisions on compromise of cases in ordinary civil or corporate litigation.  We must consider the far-reaching public interests involved herein and the special laws or rules applicable to the expenditure or disposition of public funds or property, especially proscriptions against government guarantee of debts or obligations incurred for a private purpose.  Public officers entering into a compromise of an “unsettled” indebtedness of the government, in the absence of a definite and categorical legal authority to do so, are assuming a heavy burden of justifying such compromise in order to avoid accusations of entering into a manifestly disadvantageous agreement on behalf of the government.

 

          Finally, it should not escape this Court’s notice that PNCC became a government owned or controlled corporation (GOCC) in the first place because it was indebted to the government.  Instead of paying the government in cash, it settled its obligations in shares of stock.  If we approve the Compromise Agreement, the government, who itself was a creditor of PNCC, will now in effect be paying PNCC’s debts.  Worse, one such debt was not even an obligation of PNCC to begin with but of its affiliate, and was incurred at a time when both PNCC and the affiliate were private corporations.  The strange circumstances surrounding PNCC’s recognition of the said debt and the startling facility by which that debt was recognized by a PNCC official and then bought and sued upon by Radstock all arouse suspicion.  I believe the Court is right to disapprove the Compromise Agreement and should allow all issues to be fully ventilated in the proceedings on merits. 

 

There are still a number of important legal issues to be settled here, such as, the legal basis of a GOCC assuming the indebtedness incurred by a private entity for a private purpose, the validity of the enforcement of a guarantee by a GOCC of a private corporation’s foreign debt which did not pass through the usual controls, restrictions, and the conditions imposed by law and the rules of the monetary authority for the validity of a government guarantee of such foreign borrowing or indebtedness considering the change in the situation of the parties, and so on. 

 

I likewise cannot agree with the dissenting opinion that the Court, in PNCC v. Dy,[3] had already substantially denied PNCC’s affirmative defenses, such as prescription, among others. Indeed, all the Court held in that earlier case was that the alleged errors of the trial court in its resolution of PNCC’s Motion to Dismiss were not correctible by certiorari but this did not preclude PNCC from proving its affirmative defenses during trial.  To quote the relevant portion of that decision:

 

If error had been committed by the trial court, it was not of the character of grave abuse that relief through the extraordinary remedy of certiorari may be availed.  Indeed, the grounds relied upon by PNCC are matters that are better threshed out during the trial since they can only be considered after evidence has been adduced and weighed.[4] (emphasis supplied)

 

          Subject to the foregoing discussions, I agree with the conclusions reached in the ponencia of Justice Carpio and vote to (1) grant the petition in G.R. No. 180428 and (2) to set aside (a) PNCC Board Resolution Nos. BD-092-2000 and BD-099-2000 and (b) the Compromise Agreement for being null and void. 

 

 

                                      TERESITA J. LEONARDO-DE CASTRO

                                                          Associate Justice


[1] Landbank of the Philippines v. Commission on Audit, G.R. Nos. 89679-81, September 28, 1990, 190 SCRA 154; The Alexandra Condominium Corporation v. Laguna Lake Development Authority, G.R. No. 169228, September 11, 2009.  See also, Development Bank of the Philippines v. Court of Appeals, G.R. No. 49410, January 26, 1989, 169 SCRA 409 (where the Court sustained the authority of DBP, as a government owned or controlled corporation, to compromise claims due to the government).

[2] G.R. Nos. 87710 and 96087, March 31, 1992, 207 SCRA 659.

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

[4] Id. at 9.