STRADEC vs. Radstock; G.R. No. 178158 and 180428; December 4, 2009; Natural Resources; Land Ownership; Public funds; Appropriation

Facts

Construction Development Corporation of the Philippines (CDCP) was incorporated in 1966. It was granted a franchise to construct, operate and maintain toll facilities in the North and South Luzon Tollways and Metro Manila Expressway.

CDCP Mining Corporation (CDCP Mining), an affiliate of CDCP, obtained loans from Marubeni Corporation of Japan (Marubeni). A CDCP official issued letters of guarantee for the loans although there was no CDCP Board Resolution authorizing the issuance of such letters of guarantee. CDCP Mining secured the Marubeni loans when CDCP and CDCP Mining were still privately owned and managed.

In 1983, CDCP’s name was changed to Philippine National Construction Corporation (PNCC) in order to reflect that the Government already owned 90.3% of PNCC and only 9.70% is under private ownership. Meanwhile, the Marubeni loans to CDCP Mining remained unpaid.

On 20 October 2000 and 22 November 2000, the PNCC Board of Directors (PNCC Board) passed Board Resolutions admitting PNCC’s liability to Marubeni. Previously, for two decades the PNCC Board consistently refused to admit any liability for the Marubeni loans.

In January 2001, Marubeni assigned its entire credit to Radstock Securities Limited (Radstock), a foreign corporation. Radstock immediately sent a notice and demand letter to PNCC.

PNCC and Radstock entered into a Compromise Agreement. Under this agreement, PNCC shall pay Radstock the reduced amount of P6,185,000,000.00 in full settlement of PNCC’s guarantee of CDCP Mining’s debt allegedly totaling P17,040,843,968.00 (judgment debt as of 31 July 2006). To satisfy its reduced obligation, PNCC undertakes to (1) "assign to a third party assignee to be designated by Radstock all its rights and interests" to the listed real properties of PNCC; (2) issue to Radstock or its assignee common shares of the capital stock of PNCC issued at par value which shall comprise 20% of the outstanding capital stock of PNCC; and (3) assign to Radstock or its assignee 50% of PNCC’s 6% share, for the next 27 years, in the gross toll revenues of the Manila North Tollways Corporation.

Strategic Alliance Development Corporation (STRADEC) moved for reconsideration. STRADEC alleged that it has a claim against PNCC as a bidder of the National Government’s shares, receivables, securities and interests in PNCC.

Issue

Whether or not the Compromise Agreement between PNCC and Radstock is valid in relation to the Constitution, existing laws, and public policy

Held

The Compromise Agreement is contrary to the Constitution, existing laws and public policy.

PNCC’s toll fees are public funds. 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 compromise amount, the Compromise Agreement is void for being contrary to law, specifically Section 29(1), Article VI of the Constitution. And since the payment 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.

Radstock is not qualified to own land in the Philippines. Consequently, Radstock is also disqualified to own the rights to ownership of lands in the Philippines. Radstock cannot own the rights to ownership of any land in the Philippines because Radstock cannot lawfully own the land itself. Otherwise, there will be a blatant circumvention of the Constitution, which prohibits a foreign private corporation from owning land in the Philippines. In addition, Radstock cannot transfer the rights to ownership of land in the Philippines if it cannot own the land itself. It is basic that an assignor or seller cannot assign or sell something he does not own at the time the ownership, or the rights to the ownership, are to be transferred to the assignee or buyer. The third party assignee under the Compromise Agreement who will be designated by Radstock can only acquire rights duplicating those which its assignor is entitled by law to exercise. Thus, the assignee can acquire ownership of the land only if its assignor owns the land. Clearly, the assignment by PNCC of the real properties to a nominee to be designated by Radstock is a circumvention of the Constitutional prohibition against a private foreign corporation owning lands in the Philippines. The said circumvention renders the Compromise Agreement void.