EN BANC

[ G.R. No. 167219, February 08, 2011 ]

RUBEN REYNA AND LLOYD SORIA, PETITIONERS,

VS.

COMMISSION ON AUDIT, RESPONDENT.

DECISION

PERALTA, J.:

Before this Court is a Petition for certiorari, under Rule 64 of the Rules of Court, seeking to
set aside Resolution No. 2004-046, dated December 7, 2004, of the Commission on Audit
(COA).

The facts of the case are as follows:

The Land Bank of the Philippines (Land Bank) was engaged in a cattle-financing program
wherein loans were granted to various cooperatives. Pursuant thereto, Land Bank's Ipil,
Zamboanga del Sur Branch (Ipil Branch) went into a massive information campaign offering
the program to cooperatives.

Cooperatives who wish to avail of a loan under the program must fill up a Credit Facility
Proposal (CFP) which will be reviewed by the Ipil Branch. As alleged by Emmanuel B.
Bartocillo, Department Manager of the Ipil Branch, the CFP is a standard and prepared form
provided by the Land Bank main office to be used in the loan application as mandated by
the Field Operations Manual. One of the conditions stipulated in the CFP is that prior to the
release of the loan, a Memorandum of Agreement (MOA) between the supplier of the
cattle, Remad Livestock Corporation (REMAD), and the cooperative, shall have been signed
providing the level of inventory of stocks to be delivered, specifications as to breed,
condition of health, age, color, and weight. The MOA shall further provide for a buy-back
agreement, technology, transfer, provisions for biologics requirement and technical visits
and replacement of sterile, unproductive stocks. Allegedly contained in the contracts was a
stipulation that the release of the loan shall be made sixty (60) days prior to the delivery of
the stocks.

The Ipil Branch approved the applications of four cooperatives. R.T. Lim Rubber Marketing
Cooperative (RT Lim RMC) and Buluan Agrarian Reform Beneficiaries MPC (BARBEMCO)
were each granted two loans. Tungawan Paglaum Multi-Purpose Cooperative (Tungawan
PFMPC) and Siay Farmers' Multi-Purpose Cooperative (SIFAMCO) were each granted one
loan. Pursuant to the terms of the CFP, the cooperatives individually entered into a contract
with REMAD, denominated as a "Cattle-Breeding and Buy-Back Marketing Agreement."

In December 1993, the Ipil Branch granted six loans to the four cooperative borrowers in the
following amounts:
Date of Release
Name of
Borrower
Amount of
Loan
Amount of
Livestock
Insurance
Amount Paid to Cattle
Supplier (REMAD)
12-10-93
RTLim RMC P 795,305 P 62,305 P 733,000
12-10-93
BARBEMCO 482,825 37,825 445,000
12-16-93
Tungawan PFMPC 482,825 37,825 445,000
12-22-93
SIFAMCO 983,010 77,010 906,000
12-22-93
RTLim RMC 187,705 14,705 173,000
12-22-93
BARBEMCO 448,105 35,105 413,000
TOTAL

P3,375,775 264,775 3,115,000

As alleged by petitioners, the terms of the CFP allowed for pre-payments or advancement of
the payments prior to the delivery of the cattle by the supplier REMAD. This Court notes,
however, that copies of the CFPs were not attached to the records of the case at bar. More
importantly, the very contract entered into by the cooperatives and REMAD, or the "Cattle-
Breeding and Buy-Back Marketing Agreement" did not contain a provision authorizing
prepayment.

Three checks were issued by the Ipil Branch to REMAD to serve as advanced payment for
the cattle. REMAD, however, failed to supply the cattle on the dates agreed upon.

In post audit, the Land Bank Auditor disallowed the amount of P3,115,000.00 under CSB No.
95-005 dated December 27, 1996 and Notices of Disallowance Nos. 96-014 to 96-019 in
view of the non-delivery of the cattle. Also made as the basis of the disallowance was the
fact that advanced payment was made in violation of bank policies and COA rules and
regulations. Specifically, the auditor found deficiencies in the CFPs, to wit:

The Auditor commented that the failure of such loan projects deprived the farmer-
beneficiaries the opportunity to improve their economic condition.

From the Credit Facilities Proposals (CFP), the Auditor noted the following deficiencies.
xxxx

4. No. 1 of the loan terms and conditions allowed prepayments without taking into
consideration the interest of the Bank. Nowhere in the documents reviewed disclosed about
prepayment scheme with REMAD, the supplier/dealer.

There was no justification for the prepayment scheme. Such is a clear deviation from
existing procedures on asset financing under which the Bank will first issue a "letter
guarantee" for the account of the borrower. Payment thereof will only be effected upon
delivery of asset, inspection and acceptance of the same by the borrower.

The prepayment arrangement also violates Section 88 of Presidential Decree (PD) No. 1445,
to quote:

Prohibition against advance payment on government - Except with the prior approval of the
President (Prime Minister), the government shall not be obliged to make an advance
payment for services not yet rendered or for supplies and materials not yet delivered under
any contract therefor. No payment, partial or final shall be made on any such contract
except upon a certification by the head of the agency concerned to have effect that the
services or supplies and materials have been delivered in accordance with the terms of the
contract and have been duly inspected and accepted.

Moreover, the Manual on FOG Lending Operations (page 35) provides the systems and
procedures for releasing loans, to quote:

Loan Proceeds Released Directly to the Supplier/Dealer - Proceeds of loans granted for the
acquisition of farm machinery equipment; and sub-loan components for the purchase of
construction materials, farm inputs, etc. shall be released directly to the accredited
dealers/suppliers. Payment to the dealer shall be made after presentation of
reimbursement documents (delivery/ official receipts/ purchase orders) acknowledged by
the authorized LBP representative that same has been delivered.

In cases where supplier requires Cash on Delivery (COD), the checks may be issued and the
cooperative and a LBP representative shall release the check to the supplier and then take
delivery of the object of financing."

The persons found liable by the Auditor for the amount of P3,115,000.00 which was
advanced to REMAD were the following employees of the Ipil Branch:

Emmanuel B. Bartocillo - Department Manager II

George G. Hebrona - Chief, Loans and Discounts Division

Petitioner Ruben A. Reyna - Senior Field Operations Specialist

Petitioner Lloyd V. Soria - Loans and Credit Analyst II

Mary Jane T. Cunting - Cash Clerk IV

Leona O. Cabanatan - Bookkeeper III/Acting Accountant.

The same employees, including petitioners, were also made respondents in a Complaint
filed by the COA Regional Office No. IX, Zamboanga City, before the Office of the
Ombudsman 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 Republic Act (R.A.) No. 3019, otherwise
known as the Anti-Graft and Corrupt Practices Act.

On January 28, 1997, petitioners filed a Joint Motion for Reconsideration claiming that the
issuance of the Notice of Disallowance was premature in view of the pending case in the
Office of the Ombudsman. The Motion was denied by the Auditor. Unfazed, petitioners filed
an appeal with the Director of COA Regional Office No. IX, Zamboanga City. On August 29,
1997, the COA Regional Office issued Decision No. 97-001 affirming the findings of the
Auditor. On February 4, 1998, petitioners filed a Motion for Reconsideration, which was
denied by the Regional Office in Decision No. 98-005 issued on February 18, 1998.

Petitioners did not file a Petition for Review or a Notice of Appeal from the COA Regional
Office Decision as required under Section 3, Rule VI of the 1997 Revised Rules of Procedure
of the COA. Thus, the Decision of the Director of COA Regional Office No. IX became final
and executory pursuant to Section 51 of the Government Auditing Code of the Philippines.
Consequently, on April 12, 1999, the Director of the COA Regional Office No. IX issued a
Memorandum to the Auditor directing him to require the accountant of the Ipil Branch to
record in their books of account the said disallowance.

On July 12, 1999, the Auditor sent a letter to the Land Bank Branch Manager requiring him
to record the disallowance in their books of account. On August 10, 1999, petitioners sent a
letter to COA Regional Office No. IX, seeking to have the booking of the disallowance set
aside, on the grounds that they were absolved by the Ombudsman in a February 23, 1999
Resolution, and that the Bangko Sentral ng Pilipinas had approved the writing off of the
subject loans.

The February 23, 1999 Resolution of the Ombudsman was approved by Margarito P.
Gervacio, Jr. the Deputy Ombudsman for Mindanao, the dispositive portion of which reads:

WHERFORE, premises considered, the instant complaint is hereby dismissed for lack of
sufficient evidence.

SO ORDERED.

COA Regional Office No. IX endorsed to the Commission proper the matter raised by the
petitioners in their August 10, 1999 letter. This is contained in its February 28, 2000
letter/endorsement, wherein the Director of COA Regional Office No. IX maintained his
stand that the time for filing of a petition for review had already lapsed. The Regional
Director affirmed the disallowance of the transactions since the same were irregular and
disadvantageous to the government, notwithstanding the Ombudsman resolution absolving
petitioners from fault.

In a Notice dated June 29, 2000, the COA requested petitioners to submit a reply in
response to the letter/endorsement of the Regional Office Director. On August 10, 2000,
petitioners submitted their Compliance/ Reply, wherein they argued that the Ombudsman
Resolution is a supervening event and is a sufficient ground for exemption from the
requirement to submit a Petition for Review or a Notice of Appeal to the Commission
proper. Petitioners also argued that by invoking the jurisdiction of the Commission proper,
the Regional Director had waived the fact that the case had already been resolved for failure
to submit the required Petition for Review.

On July 17, 2003, the COA rendered Decision No. 2003-107 affirming the rulings of the
Auditor and the Regional Office, to wit:

WHEREFORE, foregoing premises considered, this Commission hereby affirms both the
subject disallowance amounting to P3,115,000 and the Order of the Director, COA Regional
Office No. IX, Zamboanga City, directing the recording of subject disallowance in the LBP
books of accounts. This is, however, without prejudice to the right of herein appellants to
run after the supplier for reimbursement of the advance payment for the cattle.

In denying petitioners request for the lifting of the booking of the disallowance, the COA
ruled that after a circumspect evaluation of the facts and circumstances, the dismissal by
the Office of the Ombudsman of the complaint did not affect the validity and propriety of
the disallowance which had become final and executory.

On August 22, 2003, petitioners filed a Motion for Reconsideration, which was, however,
denied by the COA in a Resolution dated December 7, 2004.

Hence, herein petition, with petitioners raising the following grounds in support of the
petition, to wit:

RESPONDENT COA COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF

JURISDICTION IN DECLARING THE PREPAYMENT STIPULATION IN THE CONTRACT BETWEEN
THE BANK AND REMAD PROSCRIBED BY SECTION 103 OF P.D. NO. 1445, OTHERWISE
KNOWN AS THE STATE AUDIT CODE OF THE PHILIPPINES.

RESPONDENT COA COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF

JURISDICTION FOR HOLDING THE PETITIONERS ADMINISTRATIVELY LIABLE FOR HAVING
PROCESSED THE LOANS OF THE BORROWING COOPERATIVES IN ACCORDANCE WITH THE
BANK'S MANUAL (FOG) LENDING OPERATIONS.

RESPONDENT COA COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF

JURISDICTION WHEN IT HELD THE PETITIONERS LIABLE AND, THEREFORE, IN EFFECT
LIKEWISE OBLIGATED TO REFUND THE DISALLOWED AMOUNT EVEN AS AMONG OTHER
THINGS THEY ACTED IN EVIDENT GOOD FAITH. MORE SO, AS THE COLLECTIBLES HAVE BEEN
ALREADY EFFECTIVELY WRITTEN-OFF.
The petition is not meritorious.

I.

Anent the first issue raised by petitioners, the same is without merit. Petitioners argue said
issue on three points: first, the COA is estopped from declaring the prepayment stipulation
as invalid; second, the prepayment clause in the Land Bank-REMAD contract is valid; and
third, it is a matter of judicial knowledge that is not unusual for winning bidders involving
public works to enter into contracts with the government providing for partial prepayment
of the contract price in the form of mobilization funds.

As to their contention that the COA is estopped from declaring the prepayment stipulation
as invalid, petitioners argue in the wise:

xxxx

The CATTLE BREEDING AND BUY BACK MARKETING AGREEMENT sample of which is
attached as Annex "I" was a Contract prepared by the bank and REMAD, it was agreed to by
the cooperatives. It was a standard Contract used in twenty two (22) Land Bank branches
throughout the country. It provided in part:

6.1 That the release of the loan shall be made directly to the supplier 60 days prior to the
delivery of stocks per prepayment term of REMAD LIVESTOCK COPORATION (supplier).
Inspection shall be done before the 60th day/delivery of the stocks.

Again, these Contracts were standard bank forms from Land Bank head office. None of the
Petitioners participated in the drafting of the same.

In the absence of grave abuse of discretion, questions of fact cannot be raised in a petition
for certiorari, under Rule 64 of the Rules of Court. The office of the petition for certiorari is
not to correct simple errors of judgment; any resort to the said petition under Rule 64, in
relation to Rule 65, of the 1997 Rules of Civil Procedure is limited to the resolution of
jurisdictional issues. Accordingly, since the validity of the prepayment scheme is inherently a
question of fact, the same should no longer be looked into by this Court.

In any case, even assuming that factual questions may be entertained, the facts do not help
petitioners' cause for the following reasons: first, the supposed Annex "I" does not contain a
stipulation authorizing a pre-payment scheme; and second, petitioners clearly violated the
procedure of releasing loans contained in the Bank's Manual on Field Office Guidelines on
Lending Operations (Manual on Lending Operations).

A perusal of the aforementioned Annex "I," the Cattle-Breeding and Buy-Back Marketing
Agreement, would show that stipulation "6.1" which allegedly authorizes prepayment does
not exist. To make matters problematic is that nowhere in the records of the petition can
one find a document which embodies such a stipulation. It bears stressing that the Auditor
noted in his report that, "nowhere in the documents reviewed disclosed about prepayment
scheme with REMAD, the supplier/dealer."

Moreover, it is surprising that one of petitioners' defense is that they processed the
cooperatives' applications in accordance with their individual job descriptions as provided in
the Bank's Manual on Field Office Guidelines on Lending Operations when, on the contrary,
petitioners seem to be oblivious of the fact that they clearly violated the procedure in
releasing loans which is embodied in the very same Manual on Lending Operations, to wit:

Loan Proceeds Released Directly to the Supplier/Dealer - Proceeds of loans granted for the
acquisition of farm machinery equipment; and sub-loan components for the purchase of
construction materials, farm inputs, etc. shall be released directly to the accredited
dealers/suppliers. Payment to the dealer shall be made after presentation of
reimbursement documents (delivery/ official receipts/ purchase orders) acknowledged by
the authorized LBP representative that same has been delivered.

However, this Court is not unmindful of the fact that petitioners contend that the Legal
Department of Land Bank supposedly passed upon the issue of application of Section 88 of
PD 1445. Petitioners argue that in an alleged August 22, 1996 Memorandum issued by the
Land Bank, it opined that Section 88 of PD 1445 is not applicable. Be that as it may, this
Court is again constrained by the fact that petitioners did not offer in evidence the alleged
August 22, 1996 Land Bank Memorandum. Therefore, the supposed tenor of the said
document deserves scant consideration. In any case, even assuming arguendo that
petitioners are correct in their claim, they still cannot hide from the fact that they violated
the procedure in releasing loans embodied in the Manual on Lending Operations as
previously discussed.

To emphasize, the Auditor noted that "nowhere in the documents reviewed disclosed about
prepayment scheme with REMAD." It is well settled that findings of fact of quasi-judicial
agencies, such as the COA, are generally accorded respect and even finality by this Court, if
supported by substantial evidence, in recognition of their expertise on the specific matters
under their jurisdiction. If the prepayment scheme was in fact authorized, petitioners should
have produced the document to prove such fact as alleged by them in the present petition.
However, as stated before, even this Court is at a loss as to whether the prepayment
scheme was authorized as a review of "Annex I," the document to which petitioners base
their authority to make advance payments, does not contain such a stipulation or provision.
Highlighted also is the fact that petitioners clearly violated the procedure in releasing loans
found in the Manual on Lending Operations which provides that payments to the dealer
shall only be made after presentation of reimbursement documents acknowledged by the
authorized LBP representative that the same has been delivered.

In addition, this Court notes that much reliance is made by petitioners on their allegation
that the terms of the CFP allowed for prepayments or advancement of the payments prior
to the delivery of the cattle by the supplier REMAD. It appears, however, that a CFP, even if
admittedly a pro forma contract and emanating from the Land Bank main office, is merely a
facility proposal and not the contract of loan between Land Bank and the cooperatives. It is
in the loan contract that the parties embody the terms and conditions of a transaction. If
there is any agreement to release the loan in advance to REMAD as a form of prepayment
scheme, such a stipulation should exist in the loan contract. There is, nevertheless, no proof
of such stipulation as petitioners had failed to attach the CFPs or the loan contracts relating
to the present petition.

Based on the foregoing, the COA should, therefore, not be faulted for finding that
petitioners facilitated the commission of the irregular transaction. The evidence they
presented before the COA was insufficient to prove their case. So also, even this Court is at
a loss as to the truthfulness and veracity of petitioners' allegations as they did not even
present before this Court the documents that would serve as the basis for their claims.

II.

Anent the second ground raised by petitioners, the same is again without merit. Petitioners
impute on the COA grave abuse of discretion when it held petitioners administratively liable
for having processed the loans of the borrowing cooperatives. This Court stresses, however,
that petitioners cannot rely on their supposed observance of the procedure outlined in the
Manual on Lending Operations when clearly the same provides that "payment to the dealer
shall be made after presentation of reimbursement documents (delivery/official
receipts/purchase orders) acknowledged by the authorized LBP representative that the
same has been delivered." Petitioners have not made a case to dispute the COA's finding
that they violated the foregoing provision. Any presumption, therefore, that public officials
are in the regular performance of their public functions must necessarily fail in the presence
of an explicit rule that was violated.

There is no grave abuse of discretion on the part of the COA as petitioners were given all the
opportunity to argue their case and present any supporting evidence with the COA Regional
Director. Moreover, it bears to point out that even if petitioners' period to appeal had
already lapsed, the COA Commission Proper even resolved their August 10, 1999 letter
where they raised in issue the favorable ruling of the Ombudsman.

III.

Anent, the last issue raised by petitioners, the same is without merit. Petitioners contend
that respondent's Order, requiring them to refund the disallowed transaction, is functus
officio, the amount having been legally written-off.

A perusal of the records would show that Land Bank Vice-President Conrado B. Roxas sent a
Memorandum dated August 5, 1998 to the Head of the Ipil Branch, advising them that the
accounts subject of the present petition have been written-off, to wit:

We are pleased to inform you that Bangko Sentral ng Pilipinas (BSP) in its letter dated July
20, 1998 has approved the write-off of your recommended Agrarian Reform Loan Accounts
and Commercial Loan Accounts as covered by LBP Board Resolution Nos. 98-291 and 98-
292, respectively, both dated June 18, 1998 x x x.
The Schedule of Accounts for Write-Off attached to the August 5, 1998 Memorandum
shows that the same covered the two loans given to BARBEMCO, the two loans given to
RTLim RMC, and the only loan given to Tungawan PFPMC. The total amount approved for
write-off was P2,209,000.00. Moreover, petitioners contend that the last loan given to
SIFAMCO was also the subject of a write-off in a similar advice given to the Buug Branch.
The total approved write-off in the second Memorandum was for P906,000.00.

In its Comment, the COA argues that the fact that the audit disallowance was allegedly
written-off is of no moment. Respondent maintains that Section 66 of PD 1445 expressly
granted unto it the right to compromise monetary liabilities of the government. The COA,
thus, theorizes that without its approval, the alleged write-off is ineffectual. The same
argument was reiterated by the COA in its Memorandum.

The COA's argument deserves scant consideration.

A write-off is a financial accounting concept that allows for the reduction in value of an asset
or earnings by the amount of an expense or loss. It is a means of removing bad debts from
the financial records of the business.

In Land Bank of the Philippines v. Commission on Audit, this Court ruled that Land Bank has
the power and authority to write-off loans, to wit:

LBP was created as a body corporate and government instrumentality to provide timely and
adequate financial support in all phases involved in the execution of needed agrarian reform
(Rep. Act No. 3844, as amended, Sec. 74). Section 75 of its Charter vests in LBP specific
powers normally exercised by banking institutions, such as the authority to grant short,
medium and long-term loans and advances against security of real estate and/or other
acceptable assets; to guarantee acceptance(s), credits, loans, transactions or obligations;
and to borrow from, or rediscount notes, bills of exchange and other commercial papers
with the Central Bank. In addition to the enumeration of specific powers granted to LBP,
Section 75 of its Charter also authorizes it:

12. To exercise the general powers mentioned in the Corporation Law and the General
Banking Act, as amended, insofar as they are not inconsistent or incompatible with this
Decree.

One of the general powers mentioned in the General Banking Act is that provided for in
Section 84 thereof, reading:

xxxx

Writing-off loans and advances with an outstanding amount of one hundred thousand pesos
or more shall require the prior approval of the Monetary Board (As amended by PD 71).

It will, thus, be seen that LBP is a unique and specialized banking institution, not an ordinary
"government agency" within the scope of Section 36 of Pres. Decree No. 1445. As a bank, it
is specifically placed under the supervision and regulation of the Central Bank of the
Philippines pursuant to its Charter (Sec. 97, Rep. Act No. 3844, as amended by Pres. Decree
No. 251). In so far as loans and advances are concerned, therefore, it should be deemed
primarily governed by Central Bank Circular No. 958, Series of 1983, which vests the
determination of the frequency of writing-off loans in the Board of Directors of a bank
provided that the loans written-off do not exceed a certain aggregate amount. The
pertinent portion of that Circular reads:

b. Frequency/ceiling of write-off. The frequency for writing-off loans and advances shall be
left to the discretion of the Board of Directors of the bank concerned. Provided, that the
aggregate amount of loans and advances which may be written-off during the year, shall in
no case exceed 3% of total loans and investments; Provided, further, that charge-offs are
made against allowance for possible losses, earnings during the year and/or retained
earnings.

While the power to write-off is not expressly granted in the charter of the Land Bank, it can
be logically implied, however, from the Land Bank's authority to exercise the general powers
vested in banking institutions as provided in the General Banking Act (Republic Act 337). The
clear intendment of its charter is for the Land Bank to be clothed not only with the express
powers granted to it, but also with those implied, incidental and necessary for the exercise
of those express powers.

In the case at bar, it is thus clear that the writing-off of the loans involved was a valid act of
the Land Bank. In writing-off the loans, the only requirement for the Land Bank was that the
same be in accordance with the applicable Bangko Sentral circulars, it being under the
supervision and regulation thereof. The Land Bank recommended for write-off all six loans
granted to the cooperatives, and it is worthy to note that the Bangko Sentral granted the
same. The write-offs being clearly in accordance with law, the COA should, therefore,
adhere to the same, unless under its general audit jurisdiction under PD 1445, it finds that
under Section 25(1) the fiscal responsibility that rests directly with the head of the
government agency has not been properly and effectively discharged.

On this note, the reliance of respondent on Section 66 of PD 1445 is baseless as a reading

thereof would show that the same does not pertain to the COA's power to compromise
claims. Probably, what respondent wanted to refer to was Section 36 which provides:

Section 36. Power to compromise claims. -

1. When the interest of the government so requires, the Commission may compromise or
release in whole or in part, any claim or settled liability to any government agency not
exceeding ten thousand pesos and with the written approval of the Prime Minister, it may
likewise compromise or release any similar claim or liability not exceeding one hundred
thousand pesos, the application for relief therefrom shall be submitted, through the
Commission and the Prime Minister, with their recommendations, to the National Assembly.

2. The respective governing bodies of government-owned or controlled corporations, and

self-governing boards, commissions or agencies of the government shall have the exclusive
power to compromise or release any similar claim or liability when expressly authorized by
their charters and if in their judgment, the interest of their respective corporations or
agencies so requires. When the charters do not so provide, the power to compromise shall
be exercised by the Commission in accordance with the preceding paragraph.

xxxx

Under Section 36, the use of the word "may" shows that the power of the COA to
compromise claims is only permissive, and not mandatory. Further, the second paragraph of
Section 36 clearly states that respective governing bodies of government-owned or
controlled corporations, and self-governing boards, commissions or agencies of the
government shall have the exclusive power to compromise or release any similar claim or
liability when expressly authorized by their charters. Nowhere in Section 36 does it state
that the COA must approve a compromise made by a government agency; the only
requirement is that it be authorized by its charter. It, therefore, bears to stress that the COA
does not have the exclusive prerogative to settle and compromise liabilities to the
Government.

The foregoing pronouncements notwithstanding, this Court rules that writing-off a loan
does not equate to a condonation or release of a debt by the creditor.

As an accounting strategy, the use of write-off is a task that can help a company maintain a
more accurate inventory of the worth of its current assets. In general banking practice, the
write-off method is used when an account is determined to be uncollectible and an
uncollectible expense is recorded in the books of account. If in the future, the debt appears
to be collectible, as when the debtor becomes solvent, then the books will be adjusted to
reflect the amount to be collected as an asset. In turn, income will be credited by the same
amount of increase in the accounts receivable.

Write-off is not one of the legal grounds for extinguishing an obligation under the Civil Code.
It is not a compromise of liability. Neither is it a condonation, since in condonation gratuity
on the part of the obligee and acceptance by the obligor are required. In making the write-
off, only the creditor takes action by removing the uncollectible account from its books even
without the approval or participation of the debtor.

Furthermore, write-off cannot be likened to a novation, since the obligations of both parties
have not been modified. When a write-off occurs, the actual worth of the asset is reflected
in the books of accounts of the creditor, but the legal relationship between the creditor and
the debtor still remains the same - the debtor continues to be liable to the creditor for the
full extent of the unpaid debt.

Based on the foregoing, as creditor, Land Bank may write-off in its books of account the
advance payment released to REMAD in the interest of accounting accuracy given that the
loans were already uncollectible. Such write-off, however, as previously discussed, does not
equate to a release from liability of petitioners.

Accordingly, the Land Bank Ipil Branch must be required to record in its books of account
the Php3,115,000.00 disallowance, and petitioners, together with their four co-employees,
should be personally liable for the said amount. Such liability, is, however, without prejudice
to petitioners' right to run after REMAD, to whom they illegally disbursed the loan, for the
full reimbursement of the advance payment for the cattle as correctly ruled by the COA in
its July 17, 2003 Decision.

On a final note, it bears to point out that a cursory reading of the Ombudsman's resolution
will show that the complaint against petitioners was dismissed not because of a finding of
good faith but because of a finding of lack of sufficient evidence. While the evidence
presented before the Ombudsman may not have been sufficient to overcome the burden in
criminal cases of proof beyond reasonable doubt, it does not, however, necessarily follow,
that the administrative proceedings will suffer the same fate as only substantial evidence is
required, or that amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.

An absolution from a criminal charge is not a bar to an administrative prosecution or vice

versa. The criminal case filed before the Office of the Ombudsman is distinct and separate
from the proceedings on the disallowance before the COA. So also, the dismissal by
Margarito P. Gervacio, Jr., Deputy Ombudsman for Mindanao, of the criminal charges
against petitioners does not necessarily foreclose the matter of their possible liability as
warranted by the findings of the COA.

In addition, this Court notes that the Ombudsman's Resolution relied on an alleged "April 6,
1992 Memorandum of the Field Loans Review Department" which supposedly authorized
the Field Offices to undertake a prepayment scheme. On the other hand, the same
Ombudsman's Resolution also made reference to a "January 19, 1994 Memorandum of EVP
Diaz" and a "May 31, 1994 Memorandum of VP FSD" which tackled the prohibition on
advance payment to suppliers. All these documents, however, were again not attached to
the records of the case at bar. Particularly, the supposed "April 6, 1992 Memorandum of the
Field Loans Review Department" was not even mentioned nor raised by petitioners as a
defense in herein petition.

The decisions and resolutions emanating from the COA did not tackle the supposed April 6,
1992 Memorandum of the Field Loans Review Department which allegedly authorized the
Field Offices to undertake a pre-payment scheme. While it is possible that such document
would have shown that petitioners were in good faith, the same should have been
presented by them in the proceedings before the Commission proper - an act which they
were not able to do because of their own negligence in allowing the period to file an appeal
to lapse. The April 6, 1992 Memorandum of the Field Loans Review Department would have
been the best evidence to free petitioners from their liability. It appears, however, that they
did not present the same before the COA and it is already too late in the day for them to
present such document before this Court.

Petitioners' allegation of grave abuse of discretion by the COA implies such capricious and
whimsical exercise of judgment as is equivalent to lack of jurisdiction or, in other words, the
exercise of the power in an arbitrary manner by reason of passion, prejudice, or personal
hostility; and it must be so patent or gross as to amount to an evasion of a positive duty or
to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. It is
imperative for petitioners to show caprice and arbitrariness on the part of the COA whose
exercise of discretion is being assailed. Proof of such grave abuse of discretion, however, is
wanting in this case.

WHEREFORE, premises considered, the petition is DENIED. Decision No. 2003-107 dated July
17, 2003 and Resolution No. 2004-046 dated December 7, 2004, of the Commission on
Audit, are hereby AFFIRMED.

SO ORDERED.

Corona, C.J., Carpio, Carpio Morales, Brion, Bersamin, Villarama, Jr., Perez, and Mendoza, JJ.,
concur.

Velasco, Jr., Leonardo-De Castro, Del Castillo, and Sereno, JJ., joins the dissenting opinion of
J. Abad.

Nachura, J., no part. filed pleading as Sol gen.

Abad, J., see my dissenting opinion.

Rollo, pp. 5-33.

Signed by Commissioner Guillermo N. Carague, Chairman, with Commissioners Emmanuel

M. Dalman and Reynaldo A. Villar, concurring; id. at 35-38.

Records, p. 67.

Id. at 66.

Rollo, p. 17.

See sample contract, rollo, pp. 93-97.

Rollo, p. 41. (Emphasis supplied.)

Id. at 93-97.

Id.

Lifted from the February 28, 2000 letter/endorsement of the COA Regional Director, rollo,
pp. 81-87. It appears that the Auditor's Report does not form part of the records of the case.
(Emphasis and underscoring supplied)

Filed a separate petition before this Court docketed as G.R. No. 167437. On April 12, 2005,
this Court en banc dismissed the petition for:
(a) failure to fully pay the legal fees in violation of Rule 64, Section 5 (par. 4) and Rule 46,
Section 3, in relation to Rule 56, Section 2, the paid legal fees being short of P730.00; and

(b) failure to accompany the petition with a clearly legible duplicate original or certified true
copy of the decision dated 17 July 2003 and resolution dated 7 December 2004 in violation
of Rule 64, Section 5. (Records, p. 123.)

Rollo, p. 42.

Id. at 41.

Id. at 75.

RULE VI. APPEAL FROM DIRECTOR TO COMMISSION PROPER

Section 1. Who May Appeal and Where to Appeal. - The party aggrieved by a final order or
decision of the Director may appeal to the Commission Proper.

Section 2. How Appeal Taken. - Appeal shall be taken by filing a petition for review in seven
(7) legible copies, with the Commission Secretariat, a copy of which shall be served on the
Director. Proof of service of the petition on the Director shall be attached to the petition.

Section 3. Period of Appeal. - The appeal shall be taken within the time remaining of the six
(6) months period under Section 2, Rule V, taking into account the suspension of the
running thereof under Section 9 of the same Rule.

Section 51. Finality of decisions of the Commission or any auditor. A decision of the
Commission or of any auditor upon any matter within its or his jurisdiction, if not appealed
as herein provided, shall be final and executory.

Rollo, p. 43.

Id. at 76-77.

Id. at 47-74.

Id. at 73.

Id. at 81-87.

Id. at 88.

Id. at 89-90.
-+-+-+-

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.