Case Digest (G.R. No. 178158)
Facts:
Strategic Alliance Development Corporation (STRADEC) and Luis Sison filed consolidated petitions challenging the validity of the August 17, 2006 Compromise Agreement by which Philippine National Construction Corporation (PNCC) purportedly settled Radstock Securities Limited’s claim for a reduced amount of P6.185 billion in exchange for real properties, shares and an assignment of toll revenues; the Court of Appeals approved the Compromise Agreement on January 25, 2007 and that approval was the subject of the present petitions.
The underlying litigation began with Radstock’s collection suit and the trial court judgment for Radstock; PNCC sought appellate and Supreme Court relief, the Compromise Agreement was referred to Commission on Audit (COA) (which recommended approval), and the Supreme Court consolidated G.R. Nos. 178158 and 180428 for resolution.
Issues:
- Does the Compromise Agreement violate public policy and existing law?
- Does the subject matter involve an unlawful assumption by the Government of a private entity’s obligation in violation of law or the Constitution?
- Was the PNCC Board Resolution of October 20, 2000 recognizing the Marubeni claim defective or illegal?
- Is the Compromise Agreement viable in view of PNCC’s expired franchise and its conveyance of all or substantially all assets?
- May a final and executory appellate judgment approving a compromise be annulled on grounds of fraud or violation of public policy and the Constitution?
Ruling:
The Court granted the petition in G.R. No. 180428, set aside the Court of Appeals Decision of January 25, 2007 and related resolutions, and declared PNCC Board Resolution Nos. BD-092-2000 and BD-099-2000 void ab initio and the Compromise Agreement between PNCC and Radstock inexistent and void ab initio.
The Court allowed the intervention of Asiavest Merchant Bankers Berhad (Asiavest) in G.R. No. 178158 and held that STRADEC has no legal standing to sue.
Ratio:
The Court found that the PNCC Board acted in bad faith and with gross negligence in admitting the Marubeni claim and in negotiating the Compromise Agreement, relying on an unseen private legal opinion and abandoning meritorious defenses, thereby causing undue injury to the Government and giving unwarranted benefits to a private party in violation of fiduciary duties and Section 3(e) of RA 3019.
Legally, the Compromise Agreement required statutory and constitutional safeguards: compromises or releases affecting government liabilities or disposition of government assets exceeding prescribed thresholds implicate Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the Administrative Code of 1987 and COA/Congress oversight; toll revenues and related assets are public funds and their use to pay private claims required appropriation under Section 29(1), Article VI of the Constitution and the disbursement rules of P.D. No. 1445; transfers of government property are subject to public-bidding rules (Section 79, Government Auditing Code); the Compromise favored a private creditor over government claims in breach of the preference rules of Articles 2241–2244 of the Civil Code; and the transaction attempted circumventions (including foreign ownership/assignment of land) contrary to Sections 3 and 7, Article XII of the Constitution—hence the Compromise was void as contrary to law and public policy under Article 1409 of the Civil Code.
Doctrine:
- The members of a corporate board owe duties of obedience, diligence and loyalty and are liable for willful or grossly negligent acts that injure the corporation under Section 31, Corporation Code.
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