Legality of Extending the Tripartite MOA among Quedancor, Ramirez Rice Milling Corp. and the Saint Vincent Subdivision Homeowners' Association

DOJ OPINION NO. 01, s. 2020 January 27, 2020 Atty. Samuel G. Dagpin, Jr. Chairman Governance Commission for Government Owned or Controlled Corporations 3/F, Citibank Center, 8741 Paseo de Roxas Makati City 1226 Dear Chairman Dagpin : This refers to your request for guidance and legal opinion, on behalf of the Governance Commission for Government Owned or Controlled Corporations (GCG) and the Technical Working Group (TWG) created pursuant to Memorandum Order (M.O.) No. 13, 1 on certain matters relative to the abolition of the Quedan and Rural Credit Guarantee Corporation (Quedancor). TCAScE Specifically, you wanted to seek this Department's legal opinion on the following issues: I. On the extension of the Tripartite Memorandum of Agreement (MOA) among Quedancor, the Ramirez Rice Milling Corporation (RRMC), and the Saint Vincent Subdivision Homeowners' Association, Inc. (SVS-HOA): A. The propriety and legality of extending the Tripartite MOA; B. The propriety and legality of condoning the penalties and surcharges through the Amnesty Program, considering the abolished status of Quedancor; and C. The apparent need to reconcile provisions relating to land valuation in the disposal of the properties covered by Social Housing Finance Corporation (SHFC) Community Mortgage Programs, particularly the provisions under Republic Act (R.A.) No. 7279 2 and Department of Finance (DOF) Local Finance Circular Nos. 3-92 dated 11 September 1992, and 1-97 dated 10 April 1997, for properties considered "blighted lands" vis--vis the need to generate maximum cash recovery for the National Government in the abolition and liquidation of GOCCs. II. On the release of a mortgaged property owned by Apsons, Incorporated (Apsons) upon full payment of the specific tranche of loan obtained by Cabanglasan Agro-Service Technology (CASTECH) through the just compensation to be paid by the Department of Public Works and Highways (DPWH): A. The propriety and legality of applying the just compensation to be paid by DPWH for the affected portion of the mortgaged property to the specific tranche or the entire value of the rescheduled loan owed by CASTECH; and B. The propriety and legality of releasing the remaining portion of the mortgaged property to Apsons after payment of just compensation to Quedancor. By way of background, you provided the following information in connection with your request: I. Extension of the Tripartite MOA among Quedancor, RRMC, and SVS- HOA "RRMC obtained a loan, secured by a real estate mortgage, from Quedancor. However, RRMC failed to pay the same due to business losses. "In order to settle its financial obligation, RRMC offered to sell a portion of the mortgaged property to SVS-HOA through Community Mortgage Program (CMP) of the Social Housing Finance Corporation (SHFC). The proceeds of the sale will be paid by SHFC directly to Quedancor in settlement of RRMC's outstanding debt. This arrangement was formalized through the execution of a Memorandum of Agreement dated 11 October 2016. "As further stated in the MOA, RRMC would avail of the Amnesty Program of Quedancor for the condonation of penalties and surcharges, as well as the adjustment of interests. The MOA, however, failed to materialize due to non-compliance with the conditions thereof. "On 28 June 2017, Memorandum Order No. 13 was signed directing the abolition of Quedancor. Pursuant to GCG Memorandum Circular No. 2015-03, an abolished GOCC ceases to exist as a going concern and its juridical capacity remains only for purposes of winding-down its affairs and the liquidation of its assets. "Meanwhile, SHFC, as the provider of CMP to SVS-HOA, requested for the possible extension/renewal of the MOA and/or purchase of the mortgaged property. Quedancor, however, is now without authority to act on the request in view of its abolition." cTDaEH II. Release of a mortgaged property owned by Apsons, Incorporated upon full payment of the specific tranche of loan obtained by CASTECH through the just compensation to be paid by the DPWH "CASTECH obtained a loan from Quedancor under its Rice and Corn-Based Farming System Program (RCBFS) to finance its Corn Processing Plant in Cabanglasan, Bukidnon. The loan was to be released in tranches, each of which with corresponding security or collateral. "The subject property covered by TCT No. T-39840 and registered under the name of Apsons is the security for the loan released on 8 February 2000. Mr. Arnold Sanvictores, then President of CASTECH, was granted the Special Power of Attorney by Apsons to mortgage the said property. "CASTECH defaulted in its payment of the loan amortization. The debt was then rescheduled with the condonation of surcharges resulting in the total amount of P32,712,394.60 as contained in a Debt Restructuring Agreement. An additional loan was also extended in the amount of P1,900,000.00. "A Deed of Real Estate Mortgage, dated October 1999, was initially annotated on TCT No. T-39840 to guarantee the principal amount of P13,954,500.00. Subsequently, an Amendment of Mortgage, dated 24 May 2002, was executed to include the additional loan of P1,900,000.00. The document was also annotated on the title to the effect of securing the total amount of P15,854,500.00. "CASTECH, however, still failed to pay the rescheduled loan. Consequently, its total loan obligation ballooned to P250,961,251.01 as of 29 November 2018 due to accrued interests, charges and penalties. "In 2013, DPWH informed Quedancor and Apsons of its intention to acquire a portion of the subject mortgaged property equivalent to 872 sq.m. for the implementation of the Cagayan de Oro Coastal By-Pass Road Project. DPWH offered to pay the amount of P17,970,191.48 as just compensation for the affected property. Quedancor, on its end, advised DPWH that the net compensation may be applied and deducted from the total obligation of CASTECH, while the remaining portion of the property shall remain as security. "On the other hand, while not contesting the application of the sale proceeds to CASTECH's loan obligation, Apsons requested for the release of the remaining unaffected area of the mortgaged property. Apsons contends that the subject property secures only the specific tranche of the rescheduled loan as reflected on the title and the just compensation is sufficient to cover the same, warranting the release of the remainder of the mortgaged property. "QUEDANCOR, however, is of the position that the remaining area should not be released as the property is held as a security not only for the tranche identified by Apsons but for the entire loan obligation of CASTECH as rescheduled. It anchors its position on the stipulation found on the original Real Estate Mortgage which states that, 'The mortgage shall also stand as security for said obligations and any other obligations of the mortgagor to the mortgage of whatever kind and nature, whether such obligations have been constituted before, during or after the execution of the mortgage.' CHTAIc "By the supervening abolition of QUEDANCOR, pursuant to MO No. 13, the corporation is divested of the authority to act on the request of Apsons, prompting it to raise the matter instead to the Technical Working Group constituted to implement the abolition." Hence, this request for guidance and legal opinion. Subject to a further discussion below, this Department regrets that it has to decline the rendition of the legal opinion requested. At the outset, we note that the TWG created pursuant to Section 4 of M.O. No. 13, which is mandated to implement the provisions of the said M.O., including the liquidation of assets and settlement of liabilities of Quedancor, and to assist the GCG, has not yet come up with its position on the above-mentioned issues relevant to Quedancor's abolition. While the TWG opted to refer the matter to this Department for legal opinion, we believe that the resolution of the issues presented, including: (a) the propriety and legality of extending the Tripartite MOA among Quedancor, RRMC and SVS-HOA and (b) whether a portion of the mortgaged property owned by Apsons may be released upon payment of just compensation to be made by DPWH, primarily falls within the mandate of the TWG. Also, the issues involve the substantive rights of private parties, i.e. , Mr. Arnold Sanvictores, RRMC, SVS-HOA, Apsons, and CASTECH, and since the opinion of the Secretary of Justice is merely advisory in nature, such opinion would not be binding upon said private parties who, if adversely affected by such opinion, may take issue therewith and contest it before the courts. Relative thereto, as a matter of policy, the Secretary of Justice has consistently refrained from rendering opinion on questions which are justiciable in nature or those which may be the subject of litigation before the courts. 3 Moreover, you requested our legal opinion relating to the apparent need to reconcile the provisions on land valuation in the disposal of the properties covered by SHFC Community Mortgage Programs, particularly the provisions under R.A. No. 7279 and DOF Local Finance Circular Nos. 3-92 dated 11 September 1992, and 1-97 dated 10 April 1997. However, the interpretation of the DOF's Local Finance Circulars should properly be made by the issuing authority ( i.e. , DOF) in deference to its primary jurisdiction. Finally, by established precedents, this Office has declined to resolve questions of fact or even mixed questions of fact and law, for the Secretary of Justice, as Attorney-General, is empowered by statute to rule only upon questions of law. 4 Nonetheless, for your information and guidance only, we would like to make some relevant observations, to wit: Tripartite MOA cannot be extended On your queries pertaining to the propriety and legality of extending the Tripartite MOA among Quedancor, RRMC, and SVS-HOA, and condoning the penalties and surcharges of RRMC through the Amnesty Program of Quedancor, we are of the view that the proposed extension of the Tripartite MOA and condonation through the Amnesty Program of Quedancor are no longer feasible, considering the abolished status of Quedancor. EATCcI As an abolished corporation, Quedancor shall remain as a body corporate for three (3) years after the effective date of dissolution for the sole purpose of corporate liquidation but not for the purpose of continuing the business for which it was established, as provided under Sections 4, 139 and 184 of Republic Act (R.A.) No. 11232, 5 otherwise known as the "Revised Corporation Code of the Philippines,'' which supplement the provisions of R.A. No. 7393, 6 to wit: "SEC. 4. Corporations Created by Special Laws or Charters. Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code , insofar as they are applicable." (Emphasis supplied) xxx xxx xxx "SEC. 139. Corporate Liquidation . Except for banks, which shall be covered by the applicable provisions of Republic Act No. 7653, otherwise known as the "New Central Bank Act," as amended, and Republic Act No. 3591, otherwise known as the Philippine Deposit Insurance Corporation Charter, as amended, every corporation whose charter expires pursuant to its articles of incorporation, is annulled by forfeiture, or whose corporate existence is terminated in any other manner, shall nevertheless remain as a body corporate for three (3) years after the effective date of dissolution , for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, dispose of and convey its property, and distribute its assets, but not for the purpose of continuing the business for which it was established . xxx xxx xxx "SEC. 184. Effect of Amendment or Repeal of This Code, or the Dissolution of a Corporation . No right or remedy in favor of or against any corporation , its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation , stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof." (Emphasis supplied) Mortgaged property may only be released upon full payment of the loan and not by payment of a specific tranche through the just compensation to be paid by DPWH Your queries pertain to the propriety and legality of releasing a mortgaged property owned by Apsons, Incorporated upon payment of the specific tranche of loan obtained by CASTECH through the just compensation to be paid by the DPWH for a government project. From the Position Paper dated 15 April 2019 submitted by Apsons, Incorporated to GCG, we noted that the queries specifically relate to a certain lot owned by Aprons, Incorporated and covered by TCT No. T-39840, with an area of 2,215 square meters, which was mortgaged to Quedancor to secure the loan of CASTECH amounting to P15,854,500. We also noted that Apsons, Incorporated, being the owner of the mortgaged property, is willing to sell its property voluntarily to DPWH and has no objection if the just compensation to be paid by DPWH will be accordingly applied to the outstanding obligation of CASTECH with Quedancor. Otherwise stated, the issue here pertains to whether the specific property mortgaged, which is covered by TCT No. T-39840, may be released after DPWH pays the just compensation for a government project, which is enough to cover the tranche amounting to P15,854,500 that the said property secured, even if the just compensation will not cover the entire outstanding obligation of CASTECH to Quedancor. In a letter dated 14 May 2019, Quedancor submitted its Position Paper to GCG, in reply to the abovementioned Position Paper submitted by Apsons, Incorporated, the pertinent portion of which reads: " Account Details "1. CASTECH obtained loans under the Quedancor Rice and Corn-Based Farming System (RCBFS) Program to finance a Corn Development Project in Cabanglasan, Bukidnon. The project included the construction of warehouse facilities and acquisition of machineries and equipment. Likewise, portion of the loan was intended for operating and initial working capital. DHITCc "2. The loans are secured by the following: TCT No. T-65154 consisting of 52,344 sq. meters, TCT No. T-39840 consisting of 2,215 sq. meters, TCT No. T-74205 consisting of 10,000 sq. meters, improvements consisting of 24,750 sq. meters, and a Tractor. "xxx xxx xxx " Discussion "CASTECH's Loan Proposal Memo shows that the loan package for the construction of a corn grains center and working capital was approved for P27.0M for a loan term of 10 years with 2-year grace period on the principal, to be released in tranches as follows: 1st tranche P8.55M; 2nd tranche P8.10M; and 3rd tranche P10.33M. x x x . . . the loan availments are secured by real properties covered under TCT Nos. T-39840, T-65154 and T-74205, including improvements and equipment." We answer in the negative. While TCT No. T-39840 was mortgaged to Quedancor to secure the loan of CASTECH amounting to P15,854,500, the annotation on the title also provides that it is subject to all the terms and conditions stipulated in said mortgage. In this regard, one of the terms and conditions on the Deed of Real Estate Mortgage on TCT No. T-39840 states: "In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is given any other kind of accommodation, this mortgage shall also stand as security for the payment of the said note without the necessity of executing a new contract and this mortgage shall have the same force and effect as if the said note/s and/or accommodations were existing on the date hereof. This mortgage shall also stand as security for said obligations and any other obligations constituted before, during or after the execution of this mortgage." Consequently, the Debt Rescheduling Agreement and the new Promissory Note PN No. 023224 were executed on 11 June 2002 for the rescheduled loan amount of P32.712M, which clearly provide that there is only one loan package even though it is secured by several mortgages. With the Debt Rescheduling Agreement and the new Promissory Note, it is our view that TCT No. T-39840 does not secure a specific tranche of loan only but is a part of the security for the entire loan package. Article 2089 of the New Civil Code provides as follows: "Article 2089. A pledge or mortgage is indivisible , even though the debt may be divided among the successors in interest of the debtor of the creditor. "Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied ." (Emphasis supplied) Relative to Article 2089, in the case of Spouses Yap v. Spouses Dy , 7 the Supreme Court ruled that: "From the foregoing, it is apparent that what the law proscribes is the foreclosure of only a portion of the property or a number of the several properties mortgaged corresponding to the unpaid portion of the debt where before foreclosure proceedings partial payment was made by the debtor on his total outstanding loan or obligation. This also means that the debtor cannot ask for the release of any portion of the mortgaged property or of one or some of the several lots mortgaged unless and until the loan thus secured has been fully paid, notwithstanding the fact that there has been a partial fulfillment of the obligation . Hence, it is provided that the debtor who has paid a part of the debt cannot ask for the proportionate extinguishment of the mortgage as long as the debt is not completely satisfied." (Emphasis supplied) In sum, it is our view that the mortgaged property owned by Apsons, Incorporated and covered by TCT No. T-39840, which was mortgaged to Quedancor to secure the loan of CASTECH, may not be released even upon payment of a specific tranche of loan through the just compensation to be paid by the DPWH for a certain government project. cEaSHC Please be guided accordingly. Very truly yours, (SGD.) MENARDO I. GUEVARRA Secretary Footnotes 1. Directing the Abolition of Quedan and Rural Credit Guarantee Corporation and for Other Purposes. 2. An Act to Provide for a Comprehensive and Continuing Urban Development and Housing Program, Establish the Mechanism foritsimplementation, and for Other Purposes. 3. Ibid. , Opn. No. 10, s. 2004, citing Opn. No. 92, s. 1971; Opn. No. 46, s. 1981; Opn. No. 91, s. 1987; Opn. No. 99, s. 1999; Opn. Nos. 12 and 31, s. 2000; and Opn. No. 32, s. 2001. 4. Id. , Opn. No. 037, s. 2005. 5. An Act Providing for the Revised Corporation Code of the Philippines [February 2019]. 6. An Act Reorganizing the Quedan Guarantee Fund Board, Renaming it as Quedan and Rural Credit Guarantee Corporation, Enlarging Its Powers and Resources to Support Farmers and Rural Enterprises, and for Other Purposes. 7. G.R. Nos. 171868 and 171991, July 27, 2011, citing the case of Philippine National Bank v. De los Reyes , G.R. Nos. 46898-99, November 28, 1989, 179 SCRA 619.