PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, PETITIONER, VS. OFFICE OF THE OMBUDSMAN, PLACIDO L. MAPA, JR.,o RECIO M. GARCIA, LEON O. TY, JOSE R. TENGCO, JR., ALEJANDRO MELCHOR, …

Presidential Commission on Good Government versus Office of the Ombudsman

The Case

This is a petition for certiorari under Rule 65 of the Rules of Court, filed by the Presidential Commission on Good Government against the Office of the Ombudsman and the members of the Board of Governors of the Development Bank of the Philippines, together with the officers of the Philippine Pigment and Resin Corporation. The Commission asks the Supreme Court to annul the Ombudsman's dismissal of its criminal complaint for violation of Section 3, paragraphs (e) and (g), of the Anti-Graft and Corrupt Practices Act. The case matters because it fixes the standard of probable cause in graft cases arising from behest loans, and because it holds that a presidential memorandum order issued in 1992 cannot be applied to loans approved in 1978.

Procedural History

The complaint was filed before the Office of the Ombudsman, which conducted a preliminary investigation and directed the respondents to submit their counter-affidavits. Only Jose R. Tengco, Junior and Placido L. Mapa submitted counter-affidavits. On April 29, 2008, the Ombudsman issued a Resolution dismissing the complaint for lack of probable cause, and also held that the respondents could not be held liable for acts committed before the issuance of Memorandum Order Number 61 on November 9, 1992. The Commission's motion for reconsideration was denied in an undated Order. The Commission then went directly to the Supreme Court by petition for certiorari under Rule 65, imputing grave abuse of discretion amounting to lack or excess of jurisdiction. The Court noted the comments of several private respondents, dispensed with the comments of the others, and resolved the petition.

Facts

In October 1992, then President Fidel V. Ramos created the Presidential Ad Hoc Fact-Finding Committee on Behest Loans to inventory behest loans, identify the persons responsible, and recommend actions to recover them. In November 1992, Memorandum Order Number 61 expanded the Committee's functions to cover all non-performing loans and laid down criteria for identifying behest loans, among them under-collateralization, undercapitalization, endorsement by high government officials, and extraordinary speed in releasing the loan.

Among the accounts investigated was that of the Philippine Pigment and Resin Corporation, which had obtained two foreign currency loans from the Development Bank of the Philippines in January 1978 totaling One Million Five Hundred Ninety Six Thousand Eight Hundred Twenty Two Dollars, or about Eleven Million Nine Hundred Seventy Six Thousand One Hundred Sixty Five Pesos. The Committee reported that the loans bore the characteristics of behest loans. Its findings became the basis of a complaint before the Ombudsman charging the bank's Board of Governors and the corporation's officers with violation of Section 3, paragraphs (e) and (g), of the Anti-Graft and Corrupt Practices Act. The complaint alleged that the loans were severely under-collateralized, that the borrower was under-capitalized, and that the debt had ballooned to One Hundred Sixteen Million Six Hundred Twenty Five Thousand Four Hundred Two Pesos and Fifty Eight Centavos as of June 1987.

The Ombudsman found no probable cause. It noted that the project was a preferred pioneer project registered with the Board of Investments, that the principals were reputable, that the corporation had an excellent track record with the bank, and that the approval was a collective act of business judgment. It observed that the default came almost ten years after approval, amid a peso devaluation that raised the exchange rate from seven pesos and fifty centavos to the dollar to twenty pesos and forty five centavos. It also held that Memorandum Order Number 61 could not be applied retroactively to the 1978 loans.

Issues

• Whether or not the Ombudsman committed grave abuse of discretion amounting to lack or excess of jurisdiction in dismissing the complaint for lack of probable cause.
• Whether or not Memorandum Order Number 61 may be applied to foreign currency loans approved in January 1978, long before its issuance in November 1992.
• Whether or not the complaint sufficiently alleged the specific acts of each respondent constituting manifest partiality, evident bad faith, or gross inexcusable negligence, and unwarranted benefits or gross disadvantage to the government.

Applicable Provisions

Section 3 of Republic Act Number 3019, the Anti-Graft and Corrupt Practices Act, provides:

SEC. 3. Corrupt practices of public officers. - In addition to acts or omissions of public officers already penalized by existing law, the following shall constitute corrupt practices of any public officer and are hereby declared to be unlawful: x x x x (e) Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official, administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence. This provision shall apply to officers and employees of offices or government corporations charged with the grant of licenses or permits or other concessions. x x x x (g) Entering, on behalf of the Government, into any contract or transaction manifestly and grossly disadvantageous to the same, whether or not the public officer profited or will profit thereby.

These are the very offenses charged, and their elements define what the complaint had to establish to survive a finding of probable cause.

Article 366 of the Revised Penal Code provides:

Article 366. Application of laws enacted prior to this Code. - Without prejudice to the provisions contained in Article 22 of this Code, crimes and offenses punished or made punishable by laws enacted prior to the effectivity of this Code are not punishable under this Code, except when such laws have been repealed or modified by this Code.

The Court invokes this provision, as the Ombudsman did, for the rule that crimes are punished under the laws in force at the time of their commission, which bars the retroactive application of Memorandum Order Number 61.

Ruling

On the first issue, the Court held that the petition is without merit and that the Ombudsman did not commit grave abuse of discretion. The Court adopted with approval the Ombudsman's findings that the Commission failed to point out with certainty and definiteness the specific acts constituting manifest partiality, evident bad faith, or gross inexcusable negligence, and failed to provide the basis for concluding that unwarranted benefits were accorded to the corporation. The approval of the loans was a collective act in the exercise of sound business judgment, in compliance with the bank's charter and existing policies, and the legal presumption that directors acted in good faith and within the scope of their authority was not contested. The Court also stressed that the unpaid account cited was almost ten years after approval, and that no one could have reasonably foreseen the default caused by the worsening economic situation and the peso devaluation.

On the second issue, the Court held that the retroactive application of Memorandum Order Number 61 to loans granted in January 1978 would violate Article 366 of the Revised Penal Code, so the memorandum order cannot be made applicable insofar as the criminal liability of the private respondents is concerned.

On the third issue, the Court held that the elements of the offenses were not shown. For violation of Section 3, paragraph (e), the accused must be a public officer discharging official, administrative, or judicial functions, or a private person in conspiracy with them; the prohibited act must be committed in the performance of official duty or in relation to public position; the officer must have acted with manifest partiality, evident bad faith, or gross inexcusable negligence; and the action must have caused injury to the Government or any private party, or given unwarranted benefit, advantage, or preference. For Section 3, paragraph (g), the respondents must be public officers, must have entered into a contract or transaction on behalf of the government, and the transaction must be grossly and manifestly disadvantageous to the government. The Court found these lacking. On the claim of under-collateralization, it held that a stipulation extending a mortgage to after-acquired property is valid and binding, provided the mortgage expressly so provides, and that the inclusion of after-acquired properties in a mortgage is lawful. On under-capitalization, it noted that the corporation was required to contribute additional equity in cash, in stock dividends, and by converting advances into preferred shares, and that the loans were also secured by the joint and several signatures of three individuals. Absent proof to the contrary, the presumption of regularity in the exercise of sound business judgment obtains.

Doctrine

Probable cause in a graft prosecution must rest on specific, certain, and definite acts attributed to each respondent. A sweeping conclusion that a loan is a behest loan, drawn from the findings of a fact-finding committee, does not supply the manifest partiality, evident bad faith, or gross inexcusable negligence required by Section 3, paragraph (e), nor the gross and manifest disadvantage required by Section 3, paragraph (g).

Directors and board members who act within the lawful scope of their authority and in good faith do not become personally liable for the consequences of corporate acts, and their business judgment is presumed regular. A later default, brought about by supervening economic events such as a peso devaluation, cannot be charged against them.

A mortgage extending its scope to after-acquired property is valid and binding where the mortgage expressly so provides, so the mere presence of yet-to-be-acquired assets among the collaterals does not by itself prove under-collateralization.

Finally, a presidential memorandum order issued in 1992 cannot be applied to loans approved in 1978, because Article 366 of the Revised Penal Code requires that crimes be punished under the laws in force at the time of their commission.

Disposition

The Supreme Court affirmed the Ombudsman's Resolution and dismissed the petition, finding no probable cause to indict the private respondents for violation of Section 3, paragraphs (e) and (g), of Republic Act Number 3019.

Remember This

Memorize this line: a behest-loan finding by a fact-finding committee is not probable cause, and the presumption of good faith business judgment shields bank directors absent proof of specific acts of manifest partiality, evident bad faith, or gross inexcusable negligence. Examiners use this case to test the elements of Section 3, paragraphs (e) and (g), of the Anti-Graft and Corrupt Practices Act, the non-retroactive application of Memorandum Order Number 61 under Article 366 of the Revised Penal Code, and the validity of mortgages covering after-acquired property.