Constantino Jr. V. Cuisia | No. 106064 | Oct. 13, 2005 | Ponente : Tinga, J.

Nature of Case: Special Civil Action

Petitioner(s): Spouses Renato Constantino Jr. and Lourdes Constantino and their minor children.
Respondent(s): Hon. Jose B. Cuisia in his capacity as Governor of the Central Bank

SUMMARY: Petition for certiorari, prohibition, and mandamus assailing the contracts pursuant to
the Philippine Comprehensive Financing Program of 1992. This case seeks to enjoin the respond-
ents from executing additional debt-relief contracts in line with the Financing Program and to insti-
tute criminal and administrative cases against the respondents for acts that circumvent or negate
the provisions of Art. XII of the Constitution.

FACTS:

• Financing Program was the culmination of efforts that began during the administration of Pres.
Corazon Aquino to manage the country’s external debt problem through buy-back or bond-con-
version debt strategy with foreign debtors.

o Buyback: pre-terminated portions of public debts

o Bond conversion: extinguished public debts through obtention of a new loan

by virtue of a sovereign bond issuance

• Pursuant to the program, the Aquino government entered into 3 restructuring agreements with
representatives of foreign creditor governments from 1986 to 1991.

• Feb. 28, 1992 - Philippine Debt Negotiating Team negotiated an agreement with the country’s
Bank Advisory Committee (representing all foreign commercial bank creditors ) on the Financing
Program which was characterized as a “multi-option financing package”.
• said program was to be executed starting July 24, 1992 by the respondents in behalf of
the Republic.

• Petitioners allege that even prior to the execution of the Program, respondents had already im-
plemented its “buyback components: when it bought back Php 1.26 Billion of external debts

• Petitioners also characterize the Financing Program as a package offered to the country’s foreign
creditors consisting of 2 debt-relief options:
1. cash buyback of PH foreign debt at a discount
2. creditors may convert existing PH debt instruments into any of the 3 kinds of bonds/se-
curities
1. new money bonds with 5 year grace period and 17 years final maturity.
2. interest-reduction bonds with 25 years maturity
3. principal-collateralized interest-reduction bonds with 25 years maturity

• Petitioner’s issues:
• debt-relief contracts entered into are the powers granted to the Pres. under Sec. 20, Art.
VII of the Constitution
• Even assuming that the contracts were permissible, it is only the Pres. who may exercise
the power to enter into contracts, such power may not be delegated
• The Financing program violates several constitutional policies and the contracts were ex-
ecuted with grave abuse of discretion.
• The debt-relief agreements cover debts that are either fraudulently contracted or void and
thus also void for being waivers of the Republic’s right to repudiate void or fraudulently
contracted loans.
1. WON petitioners have standing - YES

• YES, as taxpayers.
• prevailing doctrine in Tatad v. Garcia Jr. is that taxpayers have standing when question contracts
entered into by the government or GOCCs allegedly in contravention of the law.
• There is also transcendental importance because the case involves an issue that will have a
bearing on the country’s economy, its international finance ratings, and perhaps even the Fili-
pino’s way of life.

2. WON the case is ripe for adjudication - YES-ish

• the allegation that respondents waived the Philippines’ right to repudiate void and fraudulently
contracted loans by executing the debt-relief agreements is not justiciable.

• Fraudulently contracted loans are voidable and are valid and enforceable until annulled by
the courts.
• Void contracts that have already been fulfilled must be declared void because no one is
allowed to take the law into his own hands
• Hence, petitioners’ theory depends on a prior annulment or declaration of nullity of the pre-
existing loans, which haven’t been submitted to the Court.
• Petitioner’s have no reason to fret over the waiver of right to repudiate since according to the
respondents, a “no-waiver” clause was incorporated into the agreements.

3. WON the buy-back and bond-conversion schemed are prohibited - NO

• Petitioners posit that the loan “contract” or “guarantee” isn’t contemplated in Sec. 20, Art. VII of
the Constitution

Section 20. The President may contract or guarantee foreign loans on behalf of the Republic of the
Philippines with the prior concurrence of the Monetary Board, and subject to such limitations as
may be provided by law. The Monetary Board shall, within thirty days from the end of every quarter
of the calendar year, submit to the Congress a complete report of its decision on applications for
loans to be contracted or guaranteed by the Government or government-owned and controlled
corporations which would have the effect of increasing the foreign debt, and containing other mat-
ters as may be provided by law.

• The language of the constitution is clear, it allows the President to contract and guarantee foreign
loans.

• It makes no prohibition on the issuance of certain kinds of loans or distinctions as to which kinds
of debt instruments are more onerous than others

• The Court cannot ascribe to the Constitution meanings and restrictions that would unduly burden
the power of the President

• Only the prior concurrence of the Monetary Board is limitation that is provided by law.

• ON BOND CONVERSION

• RA 245 as amended by PD 142 (An Act Authorizing the Secretary of Finance to Borrow
to Meet Public Expenditures Authorized by Law and for Other Purposes) allows foreign
loans to be contracted in the form of bonds.
 • By virtue of RA 245, sovereign bonds may be issued not only to supplement gov-
ernment expenditures but also to provide for the purchase, redemption, or refunding
of any obligation, either direct or guaranteed, of the PH government.

• Petitioners argue that in issuing bonds, the Philippines surrenders the novatable character
of a loan contract for the irrevocable and unpostponable demandability of a bearer bond.

• This thinking is flawed since the negotiable character of the subject bonds is not
mutually exclusive with the Republic’s freedom to negotiate with the bondholders.

• ON THE BUYBACK SCHEME

• Petitioners assert that the power to pay debts lies with the Congress and was deliberately
held by the Constitution from the President.

• The Congress, however, promulgated a law ordering an automatic appropriations

provision for debt servicing by virtue of which the President is empowered to exe-
cute debt payments without need for further appropriations.

• Sec. 2, RA 245 provides the legal authority for the buyback of loans.

Sec. 2. The Secretary of Finance shall cause to be paid out of any moneys in the National Treas-
ury not otherwise appropriated, or from any sinking funds provided for the purpose by law, any
interest falling due, or accruing, on any portion of the public debt authorized by law. He shall also
cause to be paid out of any such money, or from any such sinking funds the principal amount of
any obligations which have matured, or which have been called for redemption or for which re-
demption has been demanded in accordance with terms prescribed by him prior to date of issue:
Provided, however, That he may, if he so chooses and if the holder is willing, exchange any such
obligation with any other direct or guaranteed obligation or obligations of the Philippine Government
of equivalent value. In the case of interest-bearing obligations, he shall pay not less than their face
value; in the case of obligations issued at a discount he shall pay the face value at maturity; or, if
redeemed prior to maturity, such portion of the face value as is prescribed by the terms and condi-
tions under which such obligations were originally issued. There are hereby appropriated as a con-
tinuing appropriation out of any moneys in the National Treasury not otherwise appropriated, such
sums as may be necessary from time to time to carry out the provisions of this section. The Secre-
tary of Finance shall transmit to Congress during the first month of each regular session a detailed
statement of all expenditures made under this section during the calendar year immediately pre-
ceding.

• Petitioners question the validity of the buyback scheme

• When taken in context of sovereign debts, a buyback is simply the purchase by the
sovereign issuer of its own debts at a discount.

• Clearly, the objection to its validity is without basis.

4. WON there was undue delegation of power - NO

• Petitioners contend that the power to incur foreign debts is expressly reserved by the Constitution
in the person of the present so the President alone must exercise this power.

• Petitioners position is negated by explicit constitutional and legal imprimaturs and the doctrine of
qualified political agency.
 • The process of establishing and executing a strategy for managing the government’s debt
is deep within the realm of the expertise of the Dept. of Finance.

• If, as petitioners would have it, the Pres. were to personally exercise every aspect
of the foreign borrowing power, he/she would have to pause from running the coun-
try long enough to focus on the time-consuming and detailed activities that it entails.

• This sort of constitutional interpretation would negate the very existence of cabinet
positions and would unduly hamper the President’s effectivity in running the gov-
ernment.

• Doctrine of qualified political agency - each department is and must be the President’s alter
ego in the matters of that department where the President is required by law to exercise
authority.

• Hence, it fell upon the Sec. of Finance, as the alter ego of the Pres. regarding the
“sound and efficient management of the financial resources of the Government” to
formulate a scheme for the implementation of the policy publicly expressed by the
Pres. herself.

• Supported by the Constitution and by RA 245 which expressly allows the Sec. of
Finance to enter into foreign borrowing contracts, subject to certain limitations.

• Though there may be powers vested in the Pres. by the Constitution which may not
be delegated to an alter ego (power to suspend the writ of habeas corpus and the
power to proclaim martial law etc), the power to contract or guarantee foreign debts
does not fall within the exception.

• The decision to contract or guarantee foreign debts is of vital public interest but it is
akin to any contractual obligation undertaken by the sovereign which arises from
the established functions of governance.

• The Sec. of Finance or any designated alter ego of the Pres. is bound to secure the
latter’s prior consent to or subsequent ratification of his acts.

• Had petitioners succeeded in demonstrating that the Pres. withheld approval or re-
pudiated the Financing Program, they may have had a cause of action. Absent this,
the acts in this case are deemed to have carried Presidential approval.

5. WON there was grave abuse of discretion and violation of constitutional policies by the
respondents. - NO

• Respondents efforts were geared towards debt-relief with marked positive results and towards
achieving the constitutional policies

• Petitioners’ arguments that debt-relief agreements entered into by respondents do not deliver the
kind of debt-relief that petitioners would want is not enough to condemn the subject agreements
as violative of constitutional principles