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 respondents from executing additional
debt-relief contracts in line with the Financing Program and to institute
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-conversion 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 implemented 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/securities
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 executed 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 Filipino’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 matters 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 government 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 execute 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 Treasury 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 redemption 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
conditions under which such obligations were originally issued. There are
hereby appropriated as a continuing 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
Secretary 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 preceding.

• 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 country 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 government.
• 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 repudiated 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