DOJ Opinion No. 115, s. 1989

DOJ OPINION NO. 115 , s. 1989 May 23, 1989 Mr. Feliciano Belmonte, Jr. President and General Manager Government Service and Insurance System Arroceros St., Manila Sir : This refers to your letter of February 18, 1988 bringing to the attention of this office the matter of the obligation of the Philippine National Construction Corporation (PNCC), formerly known as the Construction Development Corporation of the Philippines (CDCP) arising from the 16% CDCP Revenue Bonds issued in favor of the GSIS in the total amount of P433,386,455.00, and requesting that the same be adjudicated to the GSIS pursuant to the provisions of P.D. No. 242. Specifically, you pray that: "(1) a ruling be made, excluding the GSIS from the legal effects of LOI 1295 on the ground that its implementation insofar as the GSIS is concerned in unconstitutional for being violative of the Constitutional prohibition against the non-impairment of the obligation of contract of due process and fundamental guarantee of due process and equal protection of the law enshrined in the Constitution; and (2) the PNB be directed to implement the Deed of Assignment dated July 29, 1980, and to render an accounting for the toll collections that should have been deposited in the account of the GSIS." Likewise, you pray that "the PNB be directed immediately to deposit the current toll collections in the account of the GSIS pursuant to the Deed of Assignment on the ground that the same already belongs to the GSIS by virtue of said deed". prcd It appears from the records that in 1980, the GSIS, by authority of the GSIS Board of Trustees (Resolution Nos. 526 and 931) purchased 16% Revenue Bonds issued by CDCP, no PNCC. On April 18, 1980, the GSIS and CDCP executed an agreement setting down the terms and conditions of the purchase. Pursuant to the agreement, the bond provided for 16% interest per annum compounded quarterly. Interest on the bond was to be payable quarterly on the last day of each quarter reckoned from the date of issue until maturity and the full payment of the principal amount out of the North and South Luzon Expressway Collection proceeds. The bond was to be redeemed by CDCP at 100% of the principal amount within a period of ten years from date of the initial purchase in quarterly serial retirement beginning on the last quarter of the fourth year up to the last quarter of the tenth year. The quarterly redemption payment was to be made on the last day of every quarter until the full amount would have been redeemed (Stipulations Nos. 5 & 6, Agreement). Subsequently, on July 29, 1980, a tripartite Deed of Assignment was executed among the GSIS, CDCP and PNB whereby the CDCP assigned to GSIS at the end of every month certain portion of the Manila North and South Luzon Expressway toll proceeds. The amount assigned was to be deposited by CDCP in its account with the PNB. Such account was not subject to withdrawal or remittance except as agreed upon in the Deed. To implement the assignment and to assure payment to GSIS of the interest on and redemption of the bonds on due date, the CDCP expressly authorizes and empowers PNB at the end of each quarter to withdraw the amount due from the account of CDCP and deposit the same in the account of GSIS in said bank. The PNB had the duty to inform the GSIS of said deposit within seven days (See Stipulations Nos. 1-3, Deed of Assignment). The GSIS received payments in the amount of P107.4 million in accordance with schedule provided by the Deed of Assignment. On February 23, 1983, payments to the GSIS stopped due to the issuance by then President Marcos of LOI No. 1295 which directed and authorized financial institutions, including the GSIS "to concert all of the direct obligations of CDCP and those of its wholly owned subsidiaries to such government financial institutions (GFIs) including, but not limited to loans, credits, accrued interests, fees and advances in any currency outstanding as of December 31, 1982 into shares of common stock of CDCP at par value." As of December 31, 1982, the CDCP account with GSIS stood at P475,216,472.49. You now claim that as of January 31, 1988, the CDCP obligation with GSIS, together with the accrued interest, amounted to P1,029,666,650.74. On December 7, 1983, the Articles of Incorporation and By-laws of CDCP were amended changing its name from CDCP to PNCC. Its capital stock structure was likewise amended, raising its authorized capital stock to two billion, and seven hundred million pesos. As of February 1983, PNB was able to credit to the account of GSIS the sum of P1.3M and P1.2M or a total of P2.5 Million. These were the last interest payments. Thereafter, no collection effort was exerted by the GSIS. As of March 17, 1983, CDCP requested the GSIS Board of Trustees to instruct the PNB to release to CDCP the toll collections blocked off by the latter since January 1, 1983 because the obligation to GSIS by virtue of LOI No. 1295, had now been converted to CDCP equity and therefore considered paid. The said letter was referred to the GSIS Legal Group for study recommendation (Board Meeting No. 9, March 17, 1983). On November 9, 1983, the GSIS Board in a special meeting issued Resolution No. 1036-83 and resolved to authorize management to negotiate with the entities concerned on the alternatives submitted by the Vice-President (Government and Business Investments) and Sr. Vice-President (Loans and Investments), as well as on any other alternatives or options which may redound to the benefit of GSIS. The alternatives referred to were: "1. GSIS will not convert to equity but will reduce debt-servicing requirement by lowering revenue bond interest rate to the extent allowed by actuarial solvency requirements, and further long-dating bond maturity. 2. GSIS will convert to equity in the same proportion and security form as PNB and will also share in the dacion proceeds of CDCP assets and resources. The balance to be restructured in the form of CDCP 'refunding' revenue bonds at based forms mentioned in No. 1 above. If these are not workable, GSIS as mandated will convert its exposure to CDCP stocks, and appeal with the [Ministry] of Finance to favorably consider the transfer of the CDCP stocks resulting from the conversion to the National Government or any agency thereof in exchange for appropriate government securities." On March 9, 1984, the GSIS Board resolved to suspend Board Resolution No. 1036-83 as a reaction to the news item which reads: "Government sources said yesterday that the Philippine Export and Foreign Loan Guarantee Corp. (Philguarantee) and the Development Bank of the Phils. (DBP) that have substantial exposure in the CDCP have refused to convert their loans into equity in the company. "Officials of the two agencies said they would go after certain assets of Rodolfo Cuenca, CDCP's former principal stockholder, citing the joint and several signatures (JSS) he signed to back up the borrowings. "The other major creditors of CDCP are the Government Service Insurance System (GSIS) Land Bank, National Development Co. (NDC) and the Philippine National Bank (PNB), which has the biggest exposure amounting to about P1.7 billion." The Board observed that the decision to convert was premised on the compliance by the other creditors (PNB, DBP, Phil. Guarantee) to convert all direct obligations of CDCP into common shares of CDCP at par value. If the creditors do not convert their respective credits into CDCP equity, the GSIS will be placed in an inferior position vis-a-vis the other creditors. The PNCC was turned over to the Assets Privatization Trust (APT) and a study was made on how to rehabilitate and privatize the same. The study basically followed the conversion of PNCC obligation into common and preferred shares. The GSIS objected to these conversion because "It would lose the features of the securities that justified the investment, i.e. the redemption of the revenue bonds was secured by the expressway tolls and relatively insulated from investment risk". Even with the proposed "donation" from the other government financing institutions (who are also creditors of PNCC) at the rate of 5% of whatever revenues they may realize under the plan, in favor of the GSIS, while it would reduce its losses, the GSIS would still have to absorb a loss of about P232.53M. On the other hand, the other GFIs were able to transfer their losses to the National Government. It was stressed that the GSIS can ill-afford to write-off approximately half a billion pesos, especially considering the fact that these are fiduciary funds belonging to the System's employee-members. prcd On October 30, 1987, the GSIS President and General Manager requested the Secretary of Finance as Chairman of the Committee on Privatization (COP) to defer the privatization of PNCC, but at the same time reiterated the willingness of GSIS to exchange its exposure in PNCC for other suitable assets under APT. The said request is still pending action before the COP. Considering the fact that PNCC has been transferred to APT, the Secretary of Justice, who is also a member of the COP, is now precluded by the provisions of Proclamation No. 50 as modified by Proclamation No. 50-A from adjudicating the subject claim of GSIS against PNCC, and from ordering or requiring the PNB to comply with the terms of the tripartite Deed of Assignment. Said proclamation reads: "Sec. 31. No injunction . No Court or Administrative Agency shall issue any restraining order or injunction against the trust in connection with the acquisition, sale or disposition of assets transferred to it pursuant to this Proclamation. Nor shall such order or injunction be issued against any purchaser or assets sold by the trust to prevent such purchaser from taking possession of any asset purchased by him." Any award that the Secretary of Justice would make pursuant to P.D. No. 242 would, in effect constitute a restraining order against the APT insofar as affecting that portion of the assets of PNCC now held in trust by the APT. Moreover, to resolve the subject claim would inevitably involve the consideration of the constitutionality of LOI No. 1295. The question of the constitutionality of a letter of instruction is a justiciable issue the resolution of which lies within the domain of the courts (Sec. 4(2), Art. VIII, 1987 Constitution). Well-settled precedents enjoin us from passing upon the constitutionality of a presidential issuance which is presumed valid and legal and therefore is binding upon all offices and bureaus under the executive branch (Opns., Secretary of Justice, No. 227, s. 1960 and No. 47, s. 1987). It is pertinent to note, in this connection, this under Section 3, Article XVIII of the fundamental law, "[a]ll existing laws, decrees, executive orders, proclamations, letters of instructions , and other executive issuances not inconsistent [therewith] shall remain operative until amended, repealed, or revoked." It appearing that the GSIS has a pending request with COP for a deferment of the privatization of PNCC, it is suggested that said request be pursued with the end in view of protecting the interest of the millions of employee-members of the GSIS who are the real owners of the subject funds invested in the PNCC. Please be guided accordingly. Very truly yours, (SGD.) SEDFREY A. ORDOEZ Secretary of Justice