PNB liable for $4.4 million -- SC

Philippine National Bank (PNB) will have to transfer $4.4 million worth of sequestered funds to a Land Bank of the Philippines escrow account pending the ownership dispute at the Sandigan-bayan, the Supreme Court ruled last week. In a decision, the high court said a 1987 deed of transfer did not discharge PNB of its liability as the original debtor under a letter of credit "since there was no valid substitution of debtor." The $4.4-million PNB letter of credit is being claimed by both the government and alleged Marcos dummy Vicente B. Chuidian. In 1985, the Marcos government promised to pay the businessman, through a PNB irrevocable letter of credit, the $4.4 million under a compromise deal with the Philippine Export and Foreign Loan Guarantee Corp. (Philguarantee), now known as the Trade and Investment Development Corp. Under the deal, Mr. Chuidian surrendered all his companies to the Marcos government, in exchange for his being absolved from criminal and civil liabilities arising from his misuse of $25 million worth of loans. But the deal did not go ahead after the late Ferdinand E. Marcos was toppled by a popular uprising in 1986. The Aquino administration later confiscated the multimillion letter of credit, which is a letter from PNB guaranteeing payment of the $4.4 million to Mr. Chuidian. The high court issued the transfer order as early as Jan. 19, 2001, but PNB later sought to be relieved from having to provide the $4.4 million, saying the amount had been assumed by the Aquino government through a deed of transfer dated Feb. 27, 1987 under the bank’s rehabilitation plan. PNB claimed it had transferred some of its assets to the government, which then assumed some of the bank’s liabilities, supposedly including the $4.4-million letter of credit. In its latest ruling, however, the tribunal said the letter of credit is nontransferable, and is still in the custody of the Sandiganbayan. "For as long as the Sandigan-bayan has not, with finality, ruled on the ownership of the [letter of credit], the same is presumptively owned by [Mr.] Chuidian," the high court said. It further said the 1987 deed of transfer did not discharge PNB of its liability as the original debtor under the letter of credit "since there was no valid substitution of debtor." Under the Civil Code, any substitution of debtor must have the consent of the creditor. The civil proceedings against Mr. Marcos and his associates, including Mr. Chuidian, started on July 30, 1987. Mr. Chuidian had asked the government to deposit the letter of credit to the Sandiganbayan trust account so it could earn interest pending judgment. The anti-graft court granted the request since this would not result in the dissipation of the funds. The ruling was upheld by Supreme Court in its 2001 decision. - Paul C.H. How/BusinessWorld