Castillo-Co vs. Sandiganbayan

A local chief executive who deviates from the express terms of the authority granted by the local legislative board, to the detriment of the local government unit, commits an offense punishable under Section 3(g) of the Anti-Graft and Corrupt Practices Act. The elements of the offense are: (1) the accused is a public officer; (2) the accused entered into a contract or transaction on behalf of the government; and (3) such contract or transaction is grossly and manifestly disadvantageous to the government. The determination of whether a disadvantage is gross and manifest is made on a case-to-case basis, with "gross" connoting something "glaring, reprehensible, flagrant, or shocking" and "manifest" defined as "evident to the senses, open, obvious, notorious, and unmistakable."

The petitioner, Josie Castillo-Co, was the Governor of the Province of Quirino at the time of the acts complained of. The Sangguniang Panlalawigan of Quirino enacted Resolution No. 120 dated October 20, 1995, authorizing the governor to negotiate and obtain a loan from the Philippine National Bank in the amount of P43,500,000.00 for the purpose of purchasing brand new heavy equipment. The Anti-Graft and Corrupt Practices Act (R.A. No. 3019) was enacted to repress acts of public officers that constitute graft or corrupt practices or may lead thereto. Section 338 of the Local Government Code of 1991 prohibits local government units from making advance payments on contracts under which no services have been rendered or goods delivered.

Josie Castillo-Co was the Governor of the Province of Quirino. On October 20, 1995, the Sangguniang Panlalawigan of Quirino enacted Resolution No. 120, which expressly authorized Gov. Co to negotiate with and obtain a loan from the Philippine National Bank (PNB) in the amount of P43,500,000.00 for the purpose of purchasing brand new heavy equipment. On December 23, 1995, the PNB granted the loan to the province on the basis of that resolution. On January 11, 1996, Gov. Co entered into an agreement with Nakajima Trading Co., Ltd. as seller, with the Province of Quirino as buyer, for the purchase of reconditioned heavy equipment, spare parts, and tools at a total contract price of Y160,425,000.00. A day after the perfection of the agreement, on January 12, 1996, the Sangguniang Panlalawigan enacted Resolution No. 06-A, which was likewise an unequivocal grant of authority to purchase brand new heavy equipment.

Prior to the loan, on October 31, 1995, Provincial Engineer Virgilio Ringor had recommended in a letter that the province purchase reconditioned machinery due to insufficiency of funds, noting that the quotation for brand new equipment amounted to approximately P65.0 million while the proposed loan was only around P43.0 million. Gov. Co nevertheless proceeded with the sale with Nakajima Trading without first obtaining authority from the Sangguniang Panlalawigan to purchase reconditioned equipment.

The agreement provided for an advance payment of 40% of the total contract price. On January 24, 1996, the telegraphic transfer of 40% of the total contract price, amounting to P15,881,115.50, was effected. The heavy equipment was initially delivered on April 10, 1996. The remaining 60% was paid through a letter of credit on February 14, 1996. The agreement stipulated that complete delivery had to be effected within ninety (90) days from payment, meaning delivery was due by May 14, 1996. Nakajima Trading delivered the equipment in three separate shipments on April 10, 1996, June 10, 1996, and June 24, 1996. The set of tools and spare parts was never delivered, and the Ingersol-Rand SP 100 Vibratory Road Roller was delivered laden with dents and scratches, not in the condition agreed upon.

Gov. Co introduced Sangguniang Panlalawigan Resolution No. 205, which she claimed ratified the contract with Nakajima Trading and showed approval of the change from brand new to reconditioned machinery. The Sandiganbayan found, however, that Resolution No. 205 merely re-appropriated the unutilized portion of the loan proceeds for payment of loan amortizations, insurance and registration fees of the acquired equipment, and personnel services benefits for casual employees of the province, and nowhere appeared to be for the purchase of reconditioned equipment.

In her defense, Gov. Co argued that she relied on Engr. Ringor's recommendation to purchase reconditioned equipment due to insufficiency of funds, invoking the Arias doctrine. She also maintained that she made the advance payment only after consulting Atty. Primitivo Marcos, her private lawyer, who advised her that Section 338 of the Local Government Code did not apply to the transaction because the advance was necessary for the Japanese supplier to begin reconditioning the equipment. Atty. Marcos admitted in cross-examination that he was acting as private legal consultant and was not connected in any way with the province.

• Lack of Gross and Manifest Disadvantage: Gov. Co contended that the third element of Section 3(g) of R.A. No. 3019 cannot exist because, assuming the province suffered disadvantage, the same was not gross and manifest.
• Reliance on Subordinate's Recommendation (Arias Doctrine): Gov. Co argued that she bought reconditioned equipment because Engr. Ringor raised the insufficiency of the loaned funds and recommended that the province acquire reconditioned machinery, and that her reliance on his statement should serve as a basis for exoneration under Arias vs. Sandiganbayan.
• Ratification by Sangguniang Panlalawigan: Gov. Co introduced Sangguniang Panlalawigan Resolution No. 205, which she claimed ratified the contract with Nakajima Trading and showed that the Sangguniang Panlalawigan approved the change from brand new to reconditioned machinery.
• Reliance on Legal Opinion of Private Counsel: Gov. Co maintained that she made the advance payment only after consulting Atty. Primitivo Marcos, her private lawyer, who advised that Section 338 did not apply to the transaction with a foreign supplier, and that her good faith reliance on his opinion should exonerate her.
• Foreign Supplier Exception: Gov. Co argued that the prohibition against advance payments does not apply to cases where the government contracts with foreign suppliers, as these suppliers would naturally require earnest money as proof that the buyer was serious about pursuing the transaction.

• Deviation from Express Authority: The prosecution established that Gov. Co possessed authority to purchase only brand new equipment on behalf of the Province of Quirino, as shown by Resolution No. 120 dated October 20, 1995, and Resolution No. 06-A dated January 12, 1996, yet she contracted for reconditioned equipment.
• Violation of Section 338 of the Local Government Code: The prosecution argued that the advance payment of 40% of the total contract price, effected on January 24, 1996, before delivery of the heavy equipment on April 10, 1996, violated Section 338 of the Local Government Code and caused gross and manifest disadvantage.
• Non-Compliance with Delivery Period: The prosecution showed that Nakajima Trading failed to deliver the vibratory road roller, tools, and spare parts within the 90-day delivery period stated in the agreement, and that the remaining 60% was paid before complete delivery of all the subject equipment.

• Gross and Manifest Disadvantage: Whether the Sandiganbayan committed a reversible error in ruling that Gov. Co entered into a transaction grossly and manifestly disadvantageous to the Provincial Government of Quirino.
• Deviation from Authority: Whether gross and manifest disadvantage was caused to the Province of Quirino when Gov. Co purchased reconditioned heavy equipment contrary to Resolution No. 120 and Resolution No. 06-A.
• Effect of Subordinate's Recommendation: Whether Provincial Engineer Ringor's recommendation justified Gov. Co's deviation from the terms of the aforementioned resolutions.
• Advance Payment: Whether the advance of forty percent of the total contract price, in violation of Section 338 of the Local Government Code, caused manifest and gross disadvantage to the Province of Quirino.
• Reliance on Private Counsel's Opinion: Whether Gov. Co had the right to rely on the legal opinion of Atty. Marcos, her private counsel, regarding the advance payment.

• Gross and Manifest Disadvantage: Yes. The Sandiganbayan did not commit reversible error in ruling that Gov. Co entered into a transaction grossly and manifestly disadvantageous to the Provincial Government of Quirino, the three acts complained of having caused such disadvantage.
• Deviation from Authority: Yes. Gross and manifest disadvantage was caused to the Province of Quirino when Gov. Co purchased reconditioned heavy equipment contrary to Resolution No. 120 and Resolution No. 06-A, which expressly authorized the purchase of brand new equipment only.
• Effect of Subordinate's Recommendation: No. Engr. Ringor's recommendation did not justify Gov. Co's deviation from the terms of the resolutions, as the Arias doctrine is not an absolute rule and cannot be used as a cover by a public officer to escape liability.
• Advance Payment: Yes. The advance of forty percent of the total contract price, in violation of Section 338 of the Local Government Code, caused manifest and gross disadvantage to the Province of Quirino.
• Reliance on Private Counsel's Opinion: No. Gov. Co did not have the right to rely on the legal opinion of Atty. Marcos, her private counsel, because the Arias doctrine applies only to subordinates who are public officers working for the same government office or agency, and ignorance of the law excuses no one.

• Gross and Manifest Disadvantage: The elements of the offense under Section 3(g) of R.A. No. 3019, as enumerated in Henry T. Go vs. Sandiganbayan, are: (1) the accused is a public officer; (2) the accused entered into a contract or transaction on behalf of the government; and (3) such contract or transaction is grossly and manifestly disadvantageous to the government. The first two elements were undisputed. Section 3(g) is intended to be flexible to give judges latitude in determining whether the disadvantage is gross and manifest, with no hard and fast rule; the determination is done on a case-to-case basis. "Gross" connotes something "glaring, reprehensible, flagrant, or shocking," while "manifest" is defined as "evident to the senses, open, obvious, notorious, and unmistakable." The Court identified three acts that caused gross and manifest disadvantage: (1) entering into an agreement to purchase reconditioned heavy equipment contrary to Resolution No. 120; (2) advancing 40% of the total contract price in violation of Section 338 of the Local Government Code; and (3) paying the balance despite non-compliance by Nakajima Trading with the 90-day delivery provision.
• Deviation from Authority: Resolution No. 120 dated October 20, 1995, expressly authorized Gov. Co to obtain a loan for the purpose of purchasing brand new heavy equipment. Resolution No. 06-A dated January 12, 1996, enacted a day after the sale was perfected, was likewise an unequivocal grant of authority to purchase brand new heavy equipment. A resolution is a declaration of the will of a municipal corporation or local government unit on a given matter. The province's inclination was evidently to procure brand new heavy machinery, but Gov. Co caused the expenditure of public funds allotted for that purpose on reconditioned equipment instead, and she did so knowingly. She was well aware of the existence and tenor of Resolution No. 120 and knew that the subject equipment was merely reconditioned. The disadvantage was brought about because the province had set aside public funds for brand new heavy machinery only to receive used albeit reconditioned equipment.
• Effect of Subordinate's Recommendation: Under the Arias doctrine, all heads of offices have to rely to a reasonable extent on their subordinates and on the good faith of those who prepare bids, purchase supplies, or enter into negotiations. However, as held in Rivera vs. People, the Arias doctrine is not an absolute rule and is not a magic cloak that can be used as a cover by a public officer to conceal himself in the shadows of his subordinates and necessarily escape liability. Resolution No. 120 should have prompted Gov. Co to be more circumspect in transacting with Nakajima Trading. Between the Sangguniang Panlalawigan, which authorized her to purchase brand new equipment, and the Office of the Provincial Engineer, which recommended reconditioned equipment, she owed obedience to the former, the same being the legislative branch of the local government unit of which she was the chief executive. Resolution No. 205 was not a ratification of the sale; it merely re-appropriated the unutilized portion of the loan proceeds for other purposes.
• Advance Payment: Section 338 of the Local Government Code provides that no money shall be paid on account of any contract under which no services have been rendered or goods delivered. The purpose of the prohibition is to ensure the receipt of goods or the performance of services and to prevent situations where private suppliers can easily abscond with public funds. When a local government unit makes an advance payment, it risks pecuniary loss in the event of non-delivery or non-performance. The consequences are even more dire when the government contracts with a foreign supplier, as foreign suppliers may readily abscond with impunity and there would be no way to recover through domestic channels. The mere risk of losing P15,881,115.50 caused gross and manifest disadvantage to the Province of Quirino. Public office is a public trust, and public officers must observe relevant laws and rules as well as exercise ordinary care and prudence in the disbursement of public funds.
• Reliance on Private Counsel's Opinion: The subordinates contemplated by the Arias doctrine are those public officers and employees who are actually under the control or supervision of the head of office concerned, or those who answer directly or indirectly to their superiors, who are in the employ of the same government agency. Atty. Marcos admitted that he was merely consulted by Gov. Co in his capacity as a private lawyer and was not connected in any way with the province. Therefore, the Arias doctrine cannot be extended to protect Gov. Co. Moreover, ignorance of the law excuses no one from compliance therewith, and a mistake of law cannot be used to justify an illegal act because everyone is presumed to know the law and the consequences of its violation.

• Elements of Section 3(g) of R.A. No. 3019 — The offense of entering into a contract or transaction manifestly and grossly disadvantageous to the government requires: (1) that the accused is a public officer; (2) that he or she entered into a contract or transaction on behalf of the government; and (3) that such contract or transaction is grossly and manifestly disadvantageous to the government. The Court applied these elements to find that the first two were undisputed, and the third was established by the three acts of purchasing reconditioned equipment contrary to express authority, making an advance payment in violation of Section 338 of the Local Government Code, and paying the balance despite non-delivery.
• Arias Doctrine (Good Faith Reliance on Subordinates) — Heads of offices have to rely to a reasonable extent on their subordinates and on the good faith of those who prepare bids, purchase supplies, or enter into negotiations. However, the doctrine is not an absolute rule and cannot be used as a cover by a public officer to conceal himself in the shadows of his subordinates and necessarily escape liability. The Court held that the doctrine did not apply because Resolution No. 120 should have prompted Gov. Co to be more circumspect, and because the doctrine contemplates subordinates who are public officers working for the same government office or agency, not private lawyers.
• Case-to-Case Determination of Gross and Manifest Disadvantage — There is no hard and fast rule against which the disadvantageous acts complained of should be calibrated; the determination of whether the disadvantage caused was gross and manifest should be done on a case-to-case basis. "Gross" connotes something "glaring, reprehensible, flagrant, or shocking," while "manifest" is defined as "evident to the senses, open, obvious, notorious, and unmistakable."
• Prohibition Against Advance Payments (Section 338, Local Government Code) — No money shall be paid on account of any contract under which no services have been rendered or goods delivered. The purpose of the prohibition is to ensure the receipt of goods or the performance of services and to prevent situations where private suppliers can easily abscond with public funds. An advance payment directly places the government at a disadvantage by effectively putting the supplier in control of the transaction.

• "When a local legislative board gives the local chief executive authority to perform a certain act or enter into a specific transaction, the latter ought to strictly abide by the express terms of such authority. Any deviation therefrom, to the detriment of the local government unit, constitutes an offense punishable under the Anti-Graft and Corrupt Practices Act, for which the chief executive must be held accountable." — This opening statement articulates the core principle of the decision: a local chief executive's deviation from the express terms of legislative authority constitutes a violation of R.A. No. 3019.
• "To clarify, the Arias doctrine is not an absolute rule. It is not a magic cloak that can be used as a cover by a public officer to conceal himself in the shadows of his subordinates and necessarily escape liability. Thus, this ruling cannot be applied to exculpate the petitioners in view of the peculiar circumstances in this case which should have prompted them, as heads of offices, to exercise a higher degree of circumspection and, necessarily, go beyond what their subordinates had prepared." — This quotation from Rivera vs. People, adopted by the Court, limits the scope of the Arias doctrine and establishes that public officers must exercise a higher degree of circumspection when circumstances warrant.
• "The subordinates contemplated by the Arias doctrine are those public officers and employees who are actually under the control or supervision of the head of office concerned, or those who answer directly or indirectly to their superiors, who are in the employ of the same government agency. In other words, for the Arias doctrine to find application, both the superior and the subordinate must be public officers working for the same government office or agency." — This passage defines the scope of the Arias doctrine, holding that it does not extend to reliance on private lawyers or consultants not employed by the same government agency.
• "When a local government unit makes an advance payment, it risks pecuniary loss in the event of non-delivery or non-performance by the party with which it contracts. Such advances directly place the government at a disadvantage by effectively putting the supplier in control of the transaction, thus opening up the possibility that the latter will not make good its obligations ultimately leading to the pilferage of the public coffers." — This passage explains the rationale for finding that the advance payment violated Section 338 of the Local Government Code and constituted gross and manifest disadvantage.

• Henry T. Go vs. Sandiganbayan, 549 Phil. 783 (2007) — Controlling precedent enumerating the elements of the offense defined in Section 3(g) of R.A. No. 3019, which the Court applied to the facts of this case.
• Arias vs. Sandiganbayan, 259 Phil. 794 (1989) — Cited by the petitioner in defense; the Court distinguished it, holding that the doctrine is not absolute and does not apply where the public officer should have exercised a higher degree of circumspection or where the subordinate is not a public officer of the same agency.
• Rivera vs. People, 749 Phil. 124 (2014) — Followed; clarified that the Arias doctrine is not a magic cloak that can be used by a public officer to escape liability, and that peculiar circumstances should prompt heads of offices to exercise a higher degree of circumspection.
• Plameras vs. People, 717 Phil. 303 (2013) — Followed; held that an advance payment of public funds made in violation of an express provision of law is commensurate with a violation of R.A. No. 3019, and that established rules, regulations, and policies of the Commission on Audit and the Local Government Code were knowingly sidestepped.
• Dans, Jr. vs. People, 349 Phil. 434 (1998) — Cited for the proposition that Section 3(g) of R.A. No. 3019 is intended to be flexible to give judges latitude in determining whether the disadvantage to the government is gross and manifest.
• Crucillo vs. Ombudsman, 552 Phil. 699 (2007) — Cited for the definition of "gross" as connoting something "glaring, reprehensible, flagrant, or shocking."
• Sajul vs. Sandiganbayan, 398 Phil. 1082 (2000) — Cited for the definition of "manifest" as "evident to the senses, open, obvious, notorious, and unmistakable."
• Mascuñana vs. Provincial Board of Negros Occidental, 169 Phil. 385 (1977) — Cited for the definition of a resolution as a declaration of the will of a municipal corporation or local government unit on a given matter.

• Section 3(g), Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act) — The provision under which the petitioner was charged and convicted; it penalizes 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.
• Section 338, Republic Act No. 7160 (Local Government Code of 1991) — Prohibits advance payments, providing that no money shall be paid on account of any contract under which no services have been rendered or goods delivered; the Court held that the petitioner's advance payment of 40% of the contract price violated this provision.
• Article XI, Section 1, Constitution — Provides that public office is a public trust; cited to emphasize that public officers must exercise the diligence of a good father of a family in the performance of their duties.
• Article 3, Civil Code — Provides that ignorance of the law excuses no one from compliance therewith; cited to reject the petitioner's defense of reliance on her private lawyer's legal opinion.

• Carpio (Chairperson)
• Perlas-Bernabe
• Caguioa
• J. Reyes, Jr.