DOJ OPINION NO. 110, s. 1988
May 19, 1988

The Chairman, Technical Committee
Committee on Privatization
Department of Finance
M a n i l a

S i r :

        This has reference to your request for opinion on the use of Land Bank of the Philippines ("LBP") bonds in payment of non performing assets and government corporations intended for disposition under the privatization program. In particular, you raised the following queries:

"1.        Although existing laws (R.A. 3844, E.O. 228 and E.O. 229) and PARC Resolution of December 4, 1987. . . . already authorize the use of LBP bonds as payment for government-owned assets, is it still possible for COP to disallow the use of these bonds as payment of government assets and corporations for disposition?

"2.        In the event the use of LBP bonds as payment for government assets is allowed, should this privilege be granted only to original LBP bondholders or should it also be extended to others holders of LBP bonds? Under the Resolution issued by the Presidential Agrarian Reform Council (PARC), one of the reasons for using LBP bonds in connection with the privatization program is to enhance the value of the LBP bonds and create a secondary market for these bonds.

"3.        If LBP bonds are used as payment for government assets, should the bonds be accepted at 100% face value or can they be subject to a discount in relation to other offers? E.O. 229 and PARC Resolution of December 4, 1987 already authorized the use of LBP bonds at 10% face value."

        The first query is answered in the negative.

        By explicit provisions of law, LBP bonds are eligible for the purchase of government assets to be privatized (2nd par, Sec 3(a), E.O 228 and 2nd party Sec. 6[a], E.O. 229) This is to a clear legal mandate which no agency or functionary of the government is at liberty to disregard or modify. Besides, the Presidential Agrarian Reform Council has resolved that LBP bonds be "accepted as payment for government owned assets." (Resolution No. 87-3-1) No agency of the executive department, as a matter of law and sound administrative practice, should be allowed to countermand a ruling of another agency which is headed by the Chief Executive herself.

        With respect to the second query, it is believed that the privilege of using LBP bonds as payment for the acquisition of public assets should be granted to any kind of holder thereof. For one thing, the rationale behind the official policy to qualify LBP bounds as compensation for public assets is to "enhance their value and create a strong secondary market" therefor, and to "broaden the local market for the sale of government assets" (4th & 5th "whereas" clauses, PARC Res. No. 87-3-1) These objectives would undoubtedly be undermined by a regulation limiting the eligibility of such bonds as payment only to original holders. For another, the enabling provisions of law on the use of LBP bonds for the purchase of government Assets, i.e., Sec. 76, R.A. 3844; Sec. 3(a), E.O. 235 and Sec. 6(a), E.O. 229, as well as the implementing regulation, namely, PARC Resolution No. 87-3-1, do not make a distinction as to the kind of bonds eligible for payment of government assets for the privatization program and the well-recognized rule is that there should be no distinction as to the kind of bonds eligible for payment of government assets for the privatization program and the well-recognized rule is that there should be no distinction in the application of the law where none is indicated (Lo Cham vs. Ocampo, 77 Phil. 676).

        What is more, by express statutory provision, LBP bonds are "fully negotiable" (Sec. 76, R.A. 3841) and it has been said that the purpose of negotiability is to allow bills and notes to go and in the commercial markets and take the part of money in commercial transactions (Towsend vs. Adam, 282, N. W. 878). Limiting the privilege of using LBP bonds as payment for government properties only to their original holders is inconsistent with the negotiable character of such instruments.

        As regards the third query, we take it that you wish to know whether or not LBP bonds only be accepted at (can't read) in relation to offers for a particular government property.

        The answer, it is believed, should be in the negative. The law states that LBP bonds "shall be eligible at face value for the purchase of government assets" (Sec 6, E.O. 229) and by Resolutions No. 87 , the PARC has decided that such bonds be accepted as payment for such assets at 100% face value. In fact, even prior to these issuances, the Supreme Court has already ruled that LBP bonds should be accepted by government lending institutions in their face value as payment of obligations in their favor (Gonzales vs. Government Services Insurance System, 107 SCRA 492) While we appreciate that sound business sense dictates that cash offers for the purchase of government property are better than payments with LBP bonds at 100 per cent face value, we are nonetheless constrained to say that the aforesaid legal provision and PARC ruling has effectively foreclosed any available option on the part of an asset disposition agency in the evaluation of LBP bonds as mode of compensation for government property to be disposed of under the privatization program. The reason behind the law, we daresay, is that these bond were imposed upon landowners as mode of payment for their expropriated landholdings and to now subject these bonds to a discount when used as payment for the acquisition of public property would be unfair and inequitable to them.

        The queries are answered accordingly.

Very truly yours,

SEDFREY A. ORDOÑEZ

Secretary of Justice