Monday, March 19, 2012

NDC v Agrix G.R. Nos. 84132-33 December 10, 1990

J. Cruz

Pres. Decree No. 1717, which ordered the rehabilitation of the Agrix Group of Companies to be administered mainly by the National Development Company, outlined the procedure for filing claims against the Agrix companies and created a Claims Committee to process these claims.
Especially relevant to this case is Sec. 4(1) thereof providing that "all mortgages and other liens presently attaching to any of the assets of the dissolved corporations are hereby extinguished."
Before this, the Agrix Marketing had executed in favor of petitioner Philippine Veterans Bank a real estate mortgage dated July 7, 1978, over three (3) parcels of land situated in Los BaƱos, Laguna. During the existence of the mortgage, AGRIX went bankrupt. It was for the expressed purpose of salvaging this and the other Agrix companies that the aforementioned decree was issued by President Marcos.
Petitioner filed a claim with the AGRIX Claims Committee for the payment of its loan credit. In the meantime, the New Agrix, Inc. and the National Development Company,  invoking Sec. 4 (1) of the decree, filed a petition with the Regional Trial Court of Calamba, Laguna, for the cancellation of the mortgage lien in favor of Philippine Veterans.
For its part, the Philippine Veterans took steps to extrajudicially foreclose the mortgage, prompting Agrix to file a second case with the same court to stop the foreclosure.
In the trial court, the judge annulled not only the challenged provision of Sec. 4 (1), but the entire Pres. Decree No. 1717 on the grounds that: (1) the presidential exercise of legislative power was a violation of the principle of separation of powers; (2) the law impaired the obligation of contracts; and (3) the decree violated the equal protection clause.
The motion for reconsideration of this decision having been denied, the present petition was filed in the Supreme Court.
The petitioners contend that the private respondent is now estopped from contesting the validity of the decree. They cited Mendoza v. Agrix Marketing, Inc.,1 where the constitutionality of Pres. Decree No. 1717 was also raised but not resolved.
Moreover the claims committee dismissed the filing of the petition by Philippine Veterans on the ground of the aforementioned estoppel.
The petitioners stress that in that the private respondent also invoked the provisions of Pres. Decree No. 1717 by filing a claim with the AGRIX Claims Committee. Failing to get results, it sought to foreclose the real estate mortgage executed by AGRIX in its favor, which had been extinguished by the decree. It was only when the petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the decree, that the private respondent attacked the validity of the provision. At that stage, however, consistent with Mendoza, the petitioners alleged that private respondent was already estopped from questioning the constitutionality of the decree.

 1. Is estoppel applicable?
2. Is PD 1717 constitutional?

Held: No. Yes. petition dismissed

1. To rule now that the private respondent is estopped for having abided with the decree instead of boldly assailing it is to close our eyes to a cynical fact of life during the Marcos time.
This case must be distinguished from Mendoza, where the petitioners, after filing their claims with the AGRIX Claims Committee, received in settlement shares of stock valued at P40,000.00 without protest or reservation.
The private respondent has not been paid a single centavo on its claim, which was kept pending for more than seven years for alleged lack of supporting papers. Significantly, the validity of that claim was not questioned by the petitioner when it sought to restrain the extrajudicial foreclosure of the mortgage by the private respondent. The petitioner limited itself to the argument that the private respondent was estopped from questioning the decree because of its earlier compliance with its provisions.
2. The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all mortgages and other liens attaching to the assets of AGRIX. It also notes, the restriction in Subsection (ii) thereof that all "unsecured obligations shall not bear interest" and in Subsection (iii) that "all accrued interests, penalties or charges as of date hereof pertaining to the obligations, whether secured or unsecured, shall not be recognized."
These provisions must be read with the Bill of Rights, where it is clearly provided in Section 1 that "no person shall be deprived of life, liberty or property without due course of law nor shall any person be denied the equal protection of the law" and in Section 10 that "no law impairing the obligation of contracts shall be passed.
Petitioners argue that property rights, like all rights, are subject to regulation under the police power for the promotion of the common welfare. Hence justification of the provision.
Court- The police power is not a panacea for all constitutional maladies. Neither does its mere invocation conjure an instant and automatic justification for every act of the government depriving a person of his life, liberty or property.
A legislative act based on the police power requires the concurrence of a lawful subject and a lawful method. In more familiar words, a) the interests of the public generally, as distinguished from those of a particular class, should justify the interference of the state; and b) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals
The case is not applicable to these requirements because the interests of the public are not sufficiently involved to warrant the interference of the government with the private contracts of AGRIX. The decree speaks vaguely of the "public, particularly the small investors," who would be prejudiced if the corporation were not to be assisted. There was no record of these investors. Also, there was no public interest to be protected. The decree was to the benefit of an exclusive set of investors.
The oppressiveness is patent on the face of the decree to rehabilitate Agrix. No consideration is paid for the extinction of the mortgage rights. The accrued interests and other charges are simply rejected by the decree.
A mortgage lien is a property right derived from contract and so comes under the protection of the Bill of Rights. Private property cannot simply be taken by law from one person and given to another without compensation and any known public purpose. This is plain arbitrariness and is not permitted under the Constitution.
And not only is there arbitrary taking, there is discrimination as well. In extinguishing the mortgage and other liens, the decree lumps the secured creditors with the unsecured creditors and places them on the same level in the prosecution of their respective claims.
Under the equal protection clause, all persons or things similarly situated must be treated alike, both in the privileges conferred and the obligations imposed. Conversely, all persons or things differently situated should be treated differently. In the case at bar, persons differently situated are similarly treated, in disregard of the principle that there should be equality only among equals.
One may also well wonder why AGRIX was singled out for government help, among other corporations where the stockholders or investors were also swindled. It is not clear why other companies entitled to similar concern were not similarly treated.
On top of all this, New Agrix, Inc. was created by special decree notwithstanding the provision of Article XIV, Section 4 of the 1973 Constitution, then in force, that:
SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof.
The new corporation is neither owned nor controlled by the government.
The Court also feels that the decree impairs the obligation of the contract between AGRIX and the private respondent without justification. While it is true that the police power is superior to the impairment clause, the principle will apply only where the contract is so related to the public welfare that it will be considered congenitally susceptible to change by the legislature in the interest of the greater number.
It can be seen that the contracts of loan and mortgage executed by AGRIX are purely private transactions and have not been shown to be affected with public interest.

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