Philippine economy

SC: Lucio Tan’s PNB should not deposit $4.6M until Marcos case resolved

Lian Buan
SC: Lucio Tan’s PNB should not deposit $4.6M until Marcos case resolved
The First Division makes it clear, however, that the government has not lost the money yet, as it is an issue still pending in a Marcos civil forfeiture case

MANILA, Philippines – The Supreme Court has made permanent its earlier Temporary Restraining Order (TRO) which now bars the anti-graft court Sandiganbayan from demanding that the Lucio Tan-owned Philippine National Bank (PNB) deposit to the government $4.6 million.

It’s a win for Tan and the PNB, considering that the Supreme Court itself decided in 2006 that PNB should deposit the money with the government-owned Landbank of the Philippines, which shall hold it in escrow, until the Sandiganbayan resolves a Marcos ill-gotten wealth case, which includes the PNB deposit.

In a 15-page resolution issued on September 25 and released recently, the SC’s First Division defended changing its decision, saying that its rulings in 2006 were merely procedural in nature.

The First Division insisted that “it is within the inherent power and discretion of the Court to amend, modify or reconsider a final judgment when it is necessary to accomplish the administration of justice.”

The First Division makes it clear, however, that the government has not lost the money yet, as it is an issue still pending in a Marcos civil forfeiture case.

“In other words, a resolution of this case will only determine whether or not PNB should comply with the directive to deposit the proceeds of the letter of credit in an interest-bearing account. Civil Case No. 07-1704-CFM, on the other hand, which will be a judgment on the merits, will determine the liability of PNB under the letter of credit,” said the First Division.

According to an August 1 update of the Supreme Court, retired chief justice Lucas Bersamin chaired the First Division, with Associate Justice Estela Perlas-Bernabe as the working chairperson and Associate Justices Francis Jardeleza, Alexander Gesmundo, and Rosmari Carandang as regular members.

Jardeleza retired September 26, and the notice released by the Supreme Court showed that Bersamin was on official business for the promulgation, Gesmundo took no part, and that Associate Justice Rodil Zalameda was designated additional member of the division.

What happened

The “proceeds” that are the subject of this case refer to the $4.6 million that the then-government-owned PNB was supposed to pay businessman Vicente Chuidian, identified by court records as an alleged dummy of Ferdinand and Imelda Marcos.

Chuidian was accused of dubiously securing loans and later defaulting on them. In 1985, the Philippine Export and Foreign Loan Guarantee Corporation (PhilGuarantee) struck a compromise agreement for Chuidian to surrender all titles of his companies to the Philippine government and in exchange, be absolved of all criminal and civil liabilities.

For the purchase of Chuidian’s shares of stocks in several companies, the government agreed to pay $5.3 million, of which Chuidian already received an initial payment of $700,000.

The balance, or $4.6 million – equivalent to P234.3 million in current currency rates – was to be paid by the then-state-owned PNB to Chuidian through a letter of credit agreement.

When the Presidential Commission on Good Government (PCGG) was created, it ran after Chuidian as part of its task to recover the Marcos loot and sequestered the crony’s assets, including the PNB letter of credit agreement. The Chuidian money is part of the forfeiture case, Civil Case No. 0027, against the Marcoses still pending before the Sandiganbayan.

Meanwhile, the PNB was eventually privatized in the 1990s. The process included the transfer of some PNB assets to the government, and the government assuming some of PNB’s liabilities, including the letter of credit.


That is where it got tricky.

In 1993, the Sandiganbayan issued a writ of attachment against the letter of credit, meaning it wanted to seize the proceeds from that letter of credit. Chuidian appealed for the lifting of the writ of attachment and for the proceeds from that letter of credit to be deposited in an interest-bearing account.

The Sandiganbayan did not lift the writ, but agreed that the proceeds be deposited to an interest-bearing account. The Supreme Court, in 2001, upheld that ruling of the Sandiganbayan.

The Supreme Court also said in 2001 that: “There is no reason to release PNB from any liability. The deed of transfer between PNB and the government cannot affect (the letter of credit) since there was no valid substitution of debtor.”

Chuidian again appealed to the Supreme Court, wanting to lift the writ of attachment. PNB also appealed to the Supreme Court wanting to be relieved of the obligation to pay.

In 2006, the Supreme Court denied both Chuidian’s and PNB’s motions and said: “The Decision of the Court that the proceeds of Letter of Credit No. SFD-005-85 be deposited with the LBP to be held in escrow is, as the Sandiganbayan declared, a directive addressed to PNB, not an award for or against any party.”

The Supreme Court clarified that it was not ruling on who the money belongs to, because that will be decided by the Sandiganbayan in the pending civil forfeiture case.

The turnaround

In April 2007, the Sandiganbayan ordered the PNB, under pain of contempt, to deposit the proceeds to the LBP.

PNB, which was at this time already owned by Lucio Tan, filed different cases, including one before the Pasay Regional Trial Court attacking the legality, validity and enforceability of the letter of credit agreement.

PNB appealed to the Sandiganbayan to hear newly-discovered evidence as it sought to prove that the letter of agreement was illegal from the very start. The Sandiganbayan did not budge. 

In November 2007, the Supreme Court issued the first TRO.

In this latest ruling, the SC said “ordering PNB to deposit the proceeds of the letter of credit to an interest bearing account is patently wrong in light of the very nature of a letter of credit.”

The SC explained that a letter of credit merely signifies that the beneficiary may be able to draw funds, but “it does not convey the notion that a particular sum of money has been specifically reserved.”

“In view of the foregoing nature of a letter of credit, it becomes virtually impossible for PNB to comply with the directive to deposit the proceeds of the Letter of Credit No. SFD-005-85 in an interest bearing account,” said the First Division. –

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Lian Buan

Lian Buan covers justice and corruption for Rappler. She is interested in decisions, pleadings, audits, contracts, and other documents that establish a trail. If you have leads, email or tweet @lianbuan.