DOJ Opinion No. 141, s. 1983

DOJ OPINION NO. 141 , s. 1983 September 21, 1983 The Asian Development Bank Roxas Boulevard Manila Gentlemen : This has reference to the Loan Agreement (Loan No. 620 PHI [PDCP VI Project]), dated July 29, 1983, entered into between the Asian Development Bank (ADB) and the Land Bank of the Philippines (LBP), whereby the former agreed to lend to the latter an amount in various currencies equivalent to $45 Million (Sec. 2.01, Article II, Loan Agreement); and the Guarantee Agreement of the same date between the Republic of the Philippines (Guarantor) and the ADB by virtue of which the former has guaranteed the said loan. The proceeds of subject loan are intended to be relent by the LBP to the Private Development Corporation of the Philippines (PDCP) under the terms and conditions contained in the Subsidiary Loan Agreement between the LBP and the PDCP, which intends to use the said loan proceeds for financing specific development projects by making loans for productive purposes to private industrial and other productive enterprises in the Philippines (Sec. 3.01, and 3.02, Art III, Loan Agreement). Under the abovesaid Guarantee Agreement, the Republic of the Philippines, as Guarantor, has guaranteed unconditionally, "as primary obligor and nor as surety merely, the due and punctual payment of the principal of, and interest and other charges on the loan, the premiums, if any, on the prepayment of the loan, all set forth in the Loan Agreement." (Sec. 2.01, Art. II, Guarantee Agreement). In accordance with Sec. 9.02, Article IX of the ADB Ordinary Operations Loan Regulations, dated February 17, 1977, which is made applicable to the Guarantee Agreement (Sec. 1.01, Art. I, Guarantee Agreement), the opinion of the Minister of Justice is required showing on behalf of the Guarantor, "that the Guarantee Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Guarantor and is legally binding upon the Guarantor in accordance with its terms". LexLib The statutory authority for the Republic of the Philippines to enter into such a guarantee is found in Section 3(B) of Republic Act No. 4860, as amended, which reads: "Section 3. The President of the Philippines, upon recommendation of the Secretary of Finance, the Monetary Board of the Central Bank of the Philippines and the National Economic and Development Authority, is further authorized, in behalf of the Republic of the Philippines to guarantee such loans, credits or indebtedness as may be necessary and upon such terms and conditions, not inconsistent with this Act, as may be agreed upon with the governments of foreign countries with whom the Philippines has diplomatic or trade relations or which are members of the United Nations, their agencies, instrumentalities or financial institutions or with reputable international organizations or non-governmental national or international lending institutions, loans, credits or indebtedness extended directly to, or bonds, debentures, securities or other evidence of indebtedness for sale in international markets issued by: xxx xxx xxx (B) Government-owned or controlled financial institutions for relending to individuals, partnerships, cooperatives, associations or private corporations, whose capital stock, if not fully subscribed, is open to subscription by the general public for projects authorized by the charters of such financial institutions or by law". The authority to guarantee granted in this provision is unqualified and therefore comprehends the assumption of joint obligations. Moreover, the deliberations of the Congress of the Philippines on House Bill No. 4, which was enacted into Republic Act No. 4860, show that said Congress, in enacting said Act, was aware of the standard guarantee requirement imposed by foreign financial institutions or international lending organizations, such as the IBRD and the U.S. Export-Import Bank, that the Guarantor "unconditionally guarantees, as primary obligor and not as surety merely". (See Opinions, Secretary of Justice, dated Nov. 22, 1966, May 26, 1969, May 26, 1976 and March 22, 1978) The Republic of the Philippines has, in fact, guaranteed "as primary obligor and not as surety merely" several foreign loans to domestic borrowers. In this connection, we wish to point out that under Philippine law, a guarantor may bind himself solidarily (jointly and severally) with the debtor. (Arts. 2947 & 2059, Civil Code of the Philippines) As regards the execution and delivery of the Guarantee Agreement on behalf of the Republic of the Philippines, although it is the President of the Philippines who is authorized under Section 3 of R.A. No. 4860, as amended, to guarantee in behalf of the Republic of the Philippines foreign loans granted to government-owned or controlled financial institutions he may designate a representative and clothe him with authority to perform the ministerial act of signing the agreement after he has decided to enter into the agreement. (See Opinions, Secretary of Justice, dated November 22, 1966, May 26, 1969, Feb. 22, 1972, Aug. 2, 1974, June 22, 1976, and March 22, 1978). By Full powers, dated October 29, 1982, the President of the Philippines has "designated Prime Minister Cesar Virata" to "sign the Guarantee Agreement and other documents related thereto with the Asian Development Bank covering the aforesaid loan" and has further vested Prime Minister Virata "with full and all manner of power and authority for the purpose". (Annex "A") As adverted to previously, the proceeds of the herein loan guaranteed by the Republic of the Philippines are intended for the PDCP VI Project, which project is authorized by Sec. 75[5] of R.A. No. 3844, as amended, otherwise known as the Code of Agrarian Reform in the Philippines, vesting in the LBP the power "to grant short-, medium-, and long-term loans and advances against security of real estate and/or other acceptable assets for the establishment, development or expansion of agriculture, industrial, homebuilding or home financing projects and other productive enterprises". LexLib Compliance with the ceiling requirement for guaranteed foreign loans prescribed in Section 3 of R.A. 4860, as amended, is evidenced by a certification of the Acting Treasurer of the Philippines, dated August 2, 1983, that the aforementioned loan "is within the ceiling of Two and a half Million United States Dollars (or its equivalent in other foreign currencies) of foreign loans which the President of the Philippines is authorized to guarantee in accordance with Section 3 of Republic Act No. 4860, as amended" (Annex "B"). Wherefore, after having examined closely the terms and conditions set forth in the Guarantee Agreement between the Republic of the Philippines and the ADB in the light of pertinent provisions of law, this Office is of the opinion that the said Guarantee Agreement has been duly authorized and ratified by, and executed and delivered on behalf of, the Republic of the Philippines, and is legally binding upon the Republic of the Philippines in accordance with its terms. Very truly yours, (SGD.) RICARDO C. PUNO Minister of Justice