G.R. No. 167219

EN BANC

G.R. No. 167219 --- RUBEN REYNA and LLOYD V. SORIA, Petitioners, versus COMMISSION ON AUDIT, Respondent.

Promulgated:

February 8, 2011

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DISSENTING OPINION

ABAD, J.:

I am unable to agree with the ponencia of Mr. Justice Diosdado M. Peralta that the Commission on Audit was right in holding personally liable some officers and staffs of the Land Bank of the Philippines (Land Bank) for certain agricultural loans they gave out that had gone bad.

The Facts and the Case

Petitioners Ruben Reyna (Reyna) and Lloyd Soria (Soria) are Senior Field Operations Specialist and Loans and Credit Analyst II, respectively, of the Land Bank’s branch in Ipil, Zamboanga del Sur. In December 1993 the Ipil Branch received loan applications from four farmers’ cooperatives[1] under the bank’s cattle financing program.

To process the applications, each cooperative accomplished a Credit Facility Proposal (CFP), which required that they execute a Memorandum of Agreement (MOA) with their proposed cattle supplier, Remad Livestock Corporation (Remad). The CFP provided that the bank may release the proceeds of the loans 60 days prior to the delivery of the stocks. Consequently, after approval of the loan applications, the Ipil Branch issued to Remad three checks totaling P3,115,000.00 as advance payment for the cattle. But, because of foot-and-mouth disease that broke out among its herds, Remad failed to make the deliveries when they fell due.

During a post audit, the Land Bank resident auditor, Belen Oranu-Lu, disallowed the advance payment under CSB 95-005 and Notices of Disallowance 96-014 to 96-019. She pointed out that the Ipil Branch paid for the cattle in advance in violation of the Land Bank Manual on Field Office Group (FOG) Lending Operations and Commission on Audit (COA) rules and regulations. Notably, the disallowance was not on account of evidence of dishonest connivance with the farmers’ cooperatives and their cattle supplier.

The bank branch’s resident auditor held Reyna and Soria, together with four other employees[2] of the Ipil Branch, personally liable for the disallowed advances. The auditor’s action also led to the filing of a criminal complaint against the bank officers and employees with the Office of the Ombudsman (the Ombudsman) in OMB-MIN-96-0444 for gross negligence, violation of reasonable office rules and regulations, conduct prejudicial to the interest of the bank, and giving unwarranted benefits to persons, causing undue injury in violation of Section 3 (e) of the Republic Act 3019.[3]

Reyna and Soria appealed the notices of disallowance to the Director of the Commission on Audit, Regional Office IX, Zamboanga City (COA Regional Office), which affirmed the findings of the auditor. Meantime, on February 23, 1999 the Ombudsman dismissed the charges against the Ipil Branch officers and employees for lack of sufficient evidence to support a finding of probable cause against them regarding the charges.

On August 10, 1999, prompted by the Ombudsman’s dismissal of the charges against them, Reyna and Soria wrote the COA Regional Office, seeking to have the auditor’s disallowance of the loan advances set aside. Further, they pointed out that the Bangko Sentral ng Pilipinas already approved the write-off of the loans given to the farmers’ cooperatives. Rather than act on Reyna and Soria’s letter, the regional office forwarded it to the COA Head Office.

On July 17, 2003 the COA rendered a decision, affirming the findings of its local auditor and the regional office. The COA held that the Ombudsman’s dismissal of the charges against the Land Bank officers and employees did not affect the validity of the disallowance which had already become final and executory. Also, it ruled that the criminal case before the Ombudsman was distinct and separate from the disallowance case which was civil in nature. Finally, the COA said that Reyna and Soria violated Section 88 of Presidential Decree (P.D.) 1445[4] and the Land Bank Rules and Regulations prohibiting advance payment on government contracts. Thus, it held petitioners and the other Land Bank employees personally liable for the disallowance, without prejudice to their right to reimbursement from Remad.

Reyna and Soria moved for reconsideration but the COA denied the same, hence, this petition.

The Issues Presented

Two issues are presented in this case:

1. Whether or not the petition is barred by res judicata; and

2. If it may be given due course, whether or not the COA was justified in requiring Reyna, Soria, and the other Land Bank employees with them to personally pay for the disallowed advances to the cattle supplier of the farmers’ cooperatives.

Discussion

One. The ponencia points out that the decision of the COA Regional Office which found Reyna, Soria, and the other Land Bank employees personally liable had become final and executory since they failed to appeal to the COA. Consequently, their subsequent appeal to the latter is already barred by res judicata.

True, the appeal may have been late and the COA may have been within its authority to ignore it altogether. But it did not. Exercising its review powers, the COA in fact proceeded to rule on the merits of petitioners’ appeal. This proves that petitioners raised important and substantial issues that, to the COA’s mind, warranted more than just a minute resolution dismissing their appeal for being late. The Court has itself done this at times, minimizing technical rules to do justice to the parties.[5]

Quite importantly, the resident auditor instituted a complaint with the Ombudsman, charging petitioners and the others with them with gross negligence, violation of reasonable office rules and regulations, conduct prejudicial to the interest of the bank, and giving unwarranted benefits to persons, causing undue injury in violation of Section 3 (e) of the Republic Act 3019. After hearing, the Ombudsman completely absolved petitioners and the others of any wrongdoing in connection with the release of the proceeds of the loans to Remad.

The COA which initiated the complaint and was, therefore, a party to it should be bound by the Ombudsman’s decision. If a judgment of acquittal by the Sandiganbayan warrants the reinstatement of and payment of back wages to the public officers accused in a case,[6] there is no justification for maintaining the punitive sanction that the resident auditor had imposed on petitioners after they have been cleared by the Ombudsman of any wrongdoing.

The revised ponencia of course points out that the assailed COA resolutions dealt only with the effect of the dismissal of the Ombudsman case on the propriety of the disallowance and nothing more. But this is inaccurate. The COA delved extensively into the merits of the case in both resolutions. In fact, apart from addressing the effect of the dismissal of the Ombudsman case, the COA also discussed the issues relative to the disallowance. It held that the bank’s employees appeared to have violated P.D. 1445 and the bank’s rules that prohibited advance payment on government contracts. Further, the COA even modified the order of disallowance. It held that the subject bank employees may seek reimbursement from Remad. If only because of this modification, the right of the bank employees to appeal from the COA resolution should be deemed reinstated.

Two. The COA ruled that petitioners Reyna and Soria violated Section 88 of P.D. 1445 which prohibits the government from making advance payments for services not yet rendered or for supplies and materials not yet delivered under any contract. For instance, a government agency has no business paying the supplier long in advance for an air condition unit that is yet to be delivered. That would be truly irregular.

Here, however, the Land Bank Ipil branch did not buy live cattle for the use or consumption of the bank. The bank was in the business of lending money, not just for profit but more so for inducing agricultural productivity among farmers. It would be quite unusual for a government bank not to give out a loan before it is paid what it lends.

Actually, it was not Remad who borrowed money from Land Bank but the four farmers’ cooperatives in Zamboanga del Sur. It is not disputed that Remad was a regular cattle supplier with some track record in its business. It failed to deliver in this case because of a disastrous foot-and-mouth disease epidemic that hit its herds. The advance payment to Remad was part of the CFP terms that the cooperatives signed and submitted to the bank. And the Land Bank main office approved of this lending scheme.

The P3.1 million in loans would have benefited a number of farmers in four agricultural cooperatives and made more meat available for the populace had it proceeded as anticipated. It would be the height of unfairness to make the bank employees pay for those loans after they had gone bad without their fault. There is no hint in this case that petitioners and the other bank employees profited from the grant of the advances against the approved farmers’ loans.

Land Bank is not just a government-owned corporation. It also does business like other privately owned commercial banks except that it may be given missions consistent with promoting economic growth in the countryside. For this reason it must lend money to farmers, perhaps assuming greater risks than ordinary banks would. The COA ruling in this case would have a chilling effect on bank officers who approve loans, placing in jeopardy the Land Bank’s mission.

The COA cites Section 103 of P.D. 1445:

Sec. 103. General liability for unauthorized expenditures. — expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor.

But this speaks of unauthorized expenditures of government money. The Bangko Sentral, which approved the write-off of the debts after examination of the records, had the right perspective, being an institution tasked with closely supervising banks. It did not regard the loan, like COA did, as a government expense that cannot be incurred until the goods or the services are delivered. It was a loan that, like any other loan, is given in consideration of a promise to pay. It can be written off when every reasonable effort at collection has failed.

It should be noted that the Ipil Branch used the same CFP that all other Land Bank branches used for the bank’s nationwide cattle financing program. Therefore, in the absence of proof of bad faith, malice or gross negligence, the presumption of regularity in the performance of official duties should stand.

The revised ponencia suggests that there is no proof that the standard CFP in use by the bank contains a provision that authorizes prepayment to the supplier since no copy of the CFP is found in the case records. The ponencia points out that the Cattle Breeding and Buy-Back Agreement between Remad and the cooperatives did not contain such a provision on prepayment.

It may be so, but only because none of the parties had questioned the fact that the CFP allowed such prepayment. Indeed, the COA has never denied it. Quite the contrary, the COA Regional Director himself said in his February 28, 2000 endorsement that the resident auditor found the CFP flawed precisely because “No. 1 of the loan terms and conditions allowed prepayments without taking into consideration the interest of the bank.”[7] Thus, although the agreement with Remad did not carry a prepayment provision, the auditor conceded that the Land Bank’s standard CFP terms and conditions, which governed the grant of the cattle loan, provided for such prepayments.

Besides, the Court cannot ignore the criminal action that the COA itself instituted before the Ombudsman’s office in OMB-MIN 96-0444. The bank employees brought it up in their appeal that the COA Regional Office elevated to the head office. The Ombudsman noted in its February 23, 1999 Resolution the fact that “per CFP terms, the release of the loan shall be made sixty (60) days prior to the delivery of stocks.”[8] It also added that the prepayment scheme is in the CFPs of all cooperative borrowers and that the CFPs are embodied in a standard and prepared form provided by the Land Bank’s Main Office.[9] Quite importantly, the Ombudsman found that the Land Bank management approved the prepayment scheme.[10] Actually, the COA’s main concern was not the non-existence of a provision on prepayment but that, in its view, the scheme in the CFPs deviated from existing law and bank procedures, and that the bank employees erred in implementing the same.[11]

True, the Ombudsman’s office said that the memoranda of Land Bank EVP Diaz dated January 19, 1994 and that of its VP FSD dated May 31, 1994 prohibited advance payments to a supplier. But, as found by the Ombudsman, it is evident that the bank’s head office released these memoranda as a response to the subsequent problems encountered with Remad and after the bank had earlier authorized the scheme under the April 6, 1992 Memorandum of the Field Loans Review Department.[12]

That the CFP and the above memoranda were not presented to form part of the record of this case is of no moment. The COA initiated the case before the Ombudsman and, therefore, it should be bound by the findings of that office. Notably, the COA did not appeal the Ombudsman’s dismissal of its complaint against the bank’s Ipil Branch employees.

The ponencia claims that the Ombudsman’s dismissal of the case against the bank employees was for lack of sufficient evidence and not for their good faith. But a reading of the Ombudsman’s resolution will show that its finding of insufficiency of evidence is essentially based on the absence of bad faith or malicious intent on the part of the employees to cause damage to the government.

First, the Ombudsman found that Remad was an active supplier from 1990 to 1993 and that its subsequent failure to deliver cattle was because of the outbreak of foot-and-mouth disease. Second, given that Remad was an active supplier since 1990, it cannot be said that the Land Bank employees gave it unwarranted benefits or that they could have foreseen the non-delivery of cattle. Third, the problem of non-delivery was not exclusive to the Ipil Branch as it also affected the Zamboanga, Catarman, and Tacloban branches. Consequently, it was unconscionable to hold the employees of the Ipil Branch liable for the failure of the Cattle Breeding Program. Fourth, the Land Bank is not without recourse in recovering the loan. And, fifth, the Land Bank management approved the prepayment scheme.[13]

From the foregoing, it is clear that the bank employees acted in good faith and, therefore, should not be made personally liable for the advance payments. Even the COA itself implicitly recognized that the employees were not at fault when it allowed them to seek reimbursement from Remad. In previous cases,[14] this Court has affirmed disallowances made by the COA without requiring the refund or payment of the disallowed amounts on the ground of good faith. The same principle can be applied here. In fact, it is perfectly reasonable to do so in this case because the Land Bank is not without recourse.

Justice Antonio T. Carpio correctly said that write-off is not a condonation of the debt and that the obligation remains, subject to future collection if possible. But it does not follow that Reyna, Soria, and the other employees with them should pay for the debt that they did not contract for themselves. The Cattle Breeding and Buy-Back Marketing Agreement between Remad and the cooperatives provides that “both parties shall be liable to Land Bank of the Philippines for whatever breach of contract entered into by the cooperative and REMAD LIVESTOCK CORPORATION in relation to the loan with the bank.”[15] Consequently, the Land Bank may still institute a civil suit for collection against the proper parties to recover the loss.

Finally, as a general rule, the reversal of a judgment on appeal is binding only on the parties in the appealed case and not on those who did not join the appeal. An exception may be granted, however, where the rights and liabilities of all of them are so interwoven and dependent on each other as to be inseparable. In such case, a reversal as to one operates as a reversal as to all.[16]

Here, the COA resident auditor ordered Reyna, Soria and other subordinate Land Bank employees collectively liable for facilitating the advance payment to Remad. In fairness, such other employees should be granted the same relief.

ACCORDINGLY, I vote to GRANT the petition.

ROBERTO A. ABAD

Associate Justice

[1] R.T. Lim Rubber Marketing Cooperative, Buluan Agrarian Reform Beneficiaries MPC, Tungawan Paglaum Multi-Purpose Cooperative, and Siay Farmers’ Multi-Purpose Cooperative.

[2] Emmanuel B. Bartocillo (Department Manager II), George G. Hebrona (Chief, Loans and Discounts Division), Mary Jane T. Cunting (Cash Clerk IV), and Leona O. Cabanatan (Bookkeeper III/Acting Accountant).

[5] Just to name a few of the most recent: Barnes v. Padilla, 482 Phil. 903, 915 (2004); Manotok IV v. Heirs of Homer L. Barque, G.R. Nos. 162335 & 162605, December 18, 2008, 574 SCRA 468; Tan Tiac Chiong v. Cosico, A.M. No. CA-02-33, July 31, 2002, 385 SCRA 509.

[14] Magno vs. Commission on Audit, G.R. No. 149941, August 28, 2007, 531 SCRA 339, 350; Querubin v. Regional Cluster Director, Legal and Adjudication Office, COA Regional Office VI, Pavia, Iloilo City, G.R. No. 159299, July 7, 2004, 433 SCRA 769, 771-773.

[16] Dadizon v. Bernadas, G.R. No. 172367, June 5, 2009, 588 SCRA 678, 684.