PCGG vs. Desierto

In behest-loan prosecutions under R.A. No. 3019 for acts committed before the 1986 EDSA Revolution, the prescriptive period under Section 2 of Act No. 3326 runs from discovery of the offense, not from its commission; and the Ombudsman's finding of no probable cause will be sustained absent grave abuse of discretion.

The Presidential Commission on Good Government, represented by Orlando L. Salvador, is the petitioner. The respondents include Ombudsman Aniano A. Desierto, members of the PNB Board of Directors, and officers of Northern Cotabato Sugar Industries, Inc. (NOCOSII). Administrative Order No. 13 created the Presidential Ad Hoc Fact-Finding Committee on Behest Loans to inventory behest loans, determine the parties involved, and recommend appropriate actions, while Memorandum Order No. 61 expanded its functions to include non-performing loans and set criteria for identifying behest loans. NOCOSII's loan transactions with PNB were among the accounts referred to the Committee.

On October 8, 1992, then President Fidel V. Ramos issued Administrative Order No. 13 creating the Presidential Ad Hoc Fact-Finding Committee on Behest Loans, tasked to inventory all behest loans, determine the parties involved, and recommend whatever appropriate actions to be pursued. On November 9, 1992, President Ramos issued Memorandum Order No. 61 expanding the Committee's functions to include the inventory and review of all non-performing loans, whether behest or non-behest. The Memorandum set criteria showing the earmarks of a behest loan: (a) it is undercollateralized; (b) the borrower corporation is undercapitalized; (c) a direct or indirect endorsement by high government officials like presence of marginal notes; (d) the stockholders, officers or agents of the borrower corporation are identified as cronies; (e) a deviation of use of loan proceeds from the purpose intended; (f) the use of corporate layering; (g) the non-feasibility of the project for which financing is being sought; and (h) the extraordinary speed in which the loan release was made. Among the accounts referred to the Committee's Technical Working Group were the loan transactions between NOCOSII and PNB.

After examining and studying all the documents relative to the loan transactions, the Committee classified the loans obtained by NOCOSII from PNB as behest because of NOCOSII's insufficient capital and inadequate collaterals. Specifically, the Committee's investigation revealed that in 1975, NOCOSII obtained loans by way of Stand-By Letters of Credit from PNB; that NOCOSII was able to get 155% loan value from the offered collateral, or an excess of 85% from the required percentage limit; that the plant site offered as one of the collaterals was public land contrary to the General Banking Act; that by virtue of the marginal note of then President Marcos in the letter of Cajelo, NOCOSII was allowed to use the public land as plant site and to dispense with the mortgage requirement of PNB; and that NOCOSII's paid-up capital at the time of the approval of the guaranty was only P2,500,000.00, or only about 6% of its obligation.

Based on the Sworn Statement of PCGG consultant Orlando Salvador, petitioner filed with the Office of the Ombudsman a criminal complaint against respondents for violation of Section 3(e) and (g) of R.A. No. 3019. Petitioner alleged that respondents caused undue injury to the Government or gave any private party unwarranted benefits, advantage or preference through manifest partiality, evident bad faith or gross inexcusable negligence, and entered, on behalf of the Government, into contracts or transactions manifestly and grossly disadvantageous to the same. Respondents failed to submit any responsive pleading before the Ombudsman, prompting GIO I Melinda S. Diaz-Salcedo to resolve the case based on the available evidence. In a Resolution dated January 12, 1998 in OMB-0-95-0890, GIO Diaz-Salcedo recommended dismissal for insufficiency of evidence or lack of probable cause and for prescription, which Ombudsman Desierto approved on May 21, 1999. Petitioner's Motion for Reconsideration was denied in an Order dated July 9, 1999, approved by Ombudsman Desierto on July 23, 1999.

The Ombudsman, through GIO Diaz-Salcedo, found that the subject transactions could not be classified as behest under Administrative Order No. 13 and Memorandum Order No. 61. The loans acquired by NOCOSII were actually foreign loans from Midland Bank Ltd. of London; there were no direct loans released by PNB but merely credit accommodations to guaranty the loans from Midland Bank. Under PNB Board Resolution No. 689 dated July 30, 1975, one condition imposed on NOCOSII was the execution of a contract assigning all of NOCOSII's share of sugar and molasses to PNB. NOCOSII was also required to increase its paid-up capital at P5,000,000.00 a year starting April 30, 1976 up to April 30, 1980, or a total of P25,000,000.00. The stockholders of NOCOSII were required to pledge or assign all their present and future shares to PNB while the accommodation remained standing. The proposed plant site offered as collateral was estimated to cost P307,903,000.00. These collaterals were more than sufficient to cover the loans of P333,465,260.00. Since the loan was approved by PNB, it presupposed that all required clearances were submitted by NOCOSII, including the clearance from the Office of the President; having complied with all documentary requirements, NOCOSII became entitled to the release of the loan. Complainant further alleged that NOCOSII was undercapitalized because its paid-up capital was only P50,000,000.00, but complainant failed to consider the other assets of NOCOSII which also formed part of its capital.

The Supreme Court found the Ombudsman's finding of insufficiency of evidence or lack of probable cause borne out by the evidence presented by petitioner. First, there were no direct loans released by PNB but merely credit accommodations to guaranty NOCOSII's foreign loans from Midland Bank Ltd. of London. Second, NOCOSII effectively came under government control since 1975 when PNB acquired a majority of the voting rights in NOCOSII and was given the power to appoint a comptroller therein. Third, PNB's credit accommodations to NOCOSII between 1975 and 1981 in the aggregate sum of P333,465,260.00 were sufficiently secured by: (1) the Assignment of Subscription Rights and/or Pledge of Shares dated September 5, 1975, whereby NOCOSII officers pledged their shares of stock, representing 90% of NOCOSII's subscribed capital stock, and assigned their subscription rights to future stocks in favor of PNB; (2) the Deed of Assignment dated September 5, 1975, whereby NOCOSII assigned its share of sugar and molasses from the operation of its sugar central located at Barrio Mateo, Matalam, North Cotabato in favor of PNB; (3) the Joint and Solidary Agreement dated September 5, 1975, whereby the NOCOSII officers bound themselves jointly and severally liable with the corporation for the payment of NOCOSII's obligations to PNB; (4) the Real Estate Mortgage dated October 2, 1981, whereby NOCOSII mortgaged various buildings, machineries and equipment, otherwise known as the NOCOSII Sugar Mill Plant, with an estimated value of P307,593,000.00 in favor of PNB; and (5) the Chattel Mortgage with Power of Attorney dated October 2, 1981, whereby NOCOSII mortgaged various transportation, agricultural and heavy equipment in favor of PNB. Fourth, PNB imposed other conditions, such as: (1) the submission by NOCOSII of the Central Bank's approval of its foreign loans; (2) the submission by NOCOSII of the required clearances from the National Economic Development Authority (NEDA) and/or Presidential Committee on Sugar Industry (PHILSUGIN); (3) submission by NOCOSII of its milling contracts covering a total area of not less than 14,000 hectares; (4) submission by NOCOSII of the government permit that the planters can cultivate the required hectarage; (5) further increase in NOCOSII's total paid-in capital to P25,000,000.00 at P5,000,000.00 a year starting April 30, 1976 up to April 30, 1980; (6) deposit in NOCOSII's account with PNB of all cash proceeds of NOCOSII's foreign loans, the disposition of which shall be subject to the bank's control; and (7) designation by PNB of its own representatives in NOCOSII's Board of Directors and its own comptroller who shall have the authority to control all disbursements and receipts of funds of NOCOSII.

The act complained of was discovered in 1992, and the complaint was filed with the Office of the Ombudsman on April 5, 1995. The assailed Orders were supported by substantial evidence.

• Imprescriptibility and Trust: Petitioner argued that the State's right to recover behest loans as ill-gotten wealth is imprescriptible under Article XI, Section 15 of the 1987 Constitution, and that prescription does not run in favor of a trustee to the prejudice of the beneficiary.
• Continuing Crime: Petitioner maintained that the offenses charged are in the nature of continuing crimes because the State continues to suffer injury on each day of default in payment, so prescription does not apply.
• Waiver and Motu Proprio Dismissal: Petitioner argued that prescription as a matter of defense must be pleaded, otherwise it is deemed waived; since prescription was not invoked, the Ombudsman could not motu proprio dismiss the complaint on that ground.
• Discovery Rule: Petitioner contended that Article 91 of the Revised Penal Code, which adopts the "discovery rule," should apply, and that the loan contracts, like other behest loans, were kept secret.
• Probable Cause: Petitioner argued that the Ombudsman gravely abused his discretion in not finding probable cause for violation of Section 3(e) and (g) of R.A. No. 3019 despite clear, overwhelming, and unrebutted evidence.

• Weight of Probable-Cause Finding: Respondent Ombudsman contended, without delving on the issue of prescription in view of Presidential Ad Hoc Fact-Finding Committee on Behest Loans vs. Desierto (1999), that its finding of insufficiency of evidence or lack of probable cause deserves great weight and respect and must be accorded full weight and credit. No comment was filed by the rest of the respondents.

• Prescription: Whether the Ombudsman committed grave abuse of discretion in ruling that the offense leveled against respondents had prescribed.
• Probable Cause: Whether the Ombudsman committed grave abuse of discretion in ruling that no probable cause exists against respondents.

• Prescription: Yes. The Ombudsman committed grave abuse of discretion in dismissing the complaint on prescription. Under Section 2 of Act No. 3326, as amended, the prescriptive period for violations of R.A. No. 3019 committed before the 1986 EDSA Revolution runs from discovery; the offense was discovered in 1992 and the complaint was filed on April 5, 1995, within the 15-year period under B.P. Blg. 195.
• Probable Cause: No. No grave abuse of discretion was committed in finding no probable cause. The Ombudsman's finding is supported by substantial evidence, and the Court will not ordinarily interfere with the Ombudsman's investigatory and prosecutory powers absent good and compelling reasons.

• Prescription: R.A. No. 3019 is a special law, and Section 4 of B.P. Blg. 195 increased the prescriptive period from ten to fifteen years. Section 2 of Act No. 3326 provides that prescription begins from the day of the commission of the violation of the law, and if the same is not known at the time, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment; prescription is interrupted when proceedings are instituted against the guilty person and begins to run again if the proceedings are dismissed for reasons not constituting jeopardy. The issue of prescription had long been laid to rest in Presidential Ad Hoc Fact-Finding Committee on Behest Loans vs. Desierto (1999), where it was held that it was well-nigh impossible for the State, as the aggrieved party, to have known the violations of R.A. No. 3019 at the time the questioned transactions were made because the public officials concerned connived or conspired with the beneficiaries of the loans; thus, the prescriptive period should be computed from the discovery of the commission thereof and not from the day of such commission. The Ombudsman's assertion that the phrase "if the same not be known" in Section 2 of Act No. 3326 does not mean "lack of knowledge" but that the crime "is not reasonably knowable" was unacceptable, as it provided an interpretation that defeats or negates the intent of the law, which is written in clear and unambiguous language and thus provides no room for interpretation but only application. The Court reiterated the ruling in Presidential Ad Hoc Fact-Finding Committee on Behest Loans vs. Desierto (2001): in cases involving violations of R.A. No. 3019 committed prior to the February 1986 EDSA Revolution, the government as the aggrieved party could not have known of the violations at the time the questioned transactions were made, and no person would have dared to question the legality of those transactions; thus, the counting of the prescriptive period commenced from the date of discovery of the offense in 1992 after an exhaustive investigation by the Presidential Ad Hoc Committee on Behest Loans. As to when the period of prescription was interrupted, the second paragraph of Section 2 of Act No. 3326 provides that prescription is interrupted when proceedings are instituted against the guilty person. Records showed that the act complained of was discovered in 1992, and the complaint was filed with the Office of the Ombudsman on April 5, 1995, or within three years from the time of discovery. The filing of the complaint was therefore well within the prescriptive period of 15 years. The Ombudsman thus committed grave abuse of discretion in dismissing the subject complaint on the ground of prescription.
• Probable Cause: The Ombudsman is empowered to determine whether there exists reasonable ground to believe that a crime has been committed and that the accused is probably guilty thereof and, thereafter, to file the corresponding information with the appropriate courts. Settled is the rule that the Supreme Court will not ordinarily interfere with the Ombudsman's exercise of his investigatory and prosecutory powers without good and compelling reasons to indicate otherwise. Said exercise of powers is based upon the Ombudsman's constitutional mandate under Article XI, Section 13 of the 1987 Constitution, and the courts will not interfere in its exercise. The rule is based not only upon respect for the investigatory and prosecutory powers granted by the Constitution to the Office of the Ombudsman, but upon practicality as well; otherwise, innumerable petitions seeking dismissal of investigatory proceedings conducted by the Ombudsman would grievously hamper the functions of the office and the courts. While there are certain instances when the Court may intervene in the prosecution of cases, such as: (1) when necessary to afford adequate protection to the constitutional rights of the accused; (2) when necessary for the orderly administration of justice or to avoid oppression or multiplicity of actions; (3) when there is a prejudicial question which is sub judice; (4) when the acts of the officer are without or in excess of authority; (5) where the prosecution is under an invalid law, ordinance or regulation; (6) when double jeopardy is clearly apparent; (7) where the court has no jurisdiction over the offense; (8) where it is a case of persecution rather than prosecution; (9) where the charges are manifestly false and motivated by the lust for vengeance; and (10) when there is clearly no prima facie case against the accused and a motion to quash on that ground has been denied, none applied. After examination of the records and the evidence presented by petitioner, the Court found no cogent reason to disturb the findings of the Ombudsman. No grave abuse of discretion can be attributed to the Ombudsman. Grave abuse of discretion implies a capricious and whimsical exercise of judgment tantamount to lack of jurisdiction; the exercise of power must have been done in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. The disquisition of GIO Diaz-Salcedo, as approved by Ombudsman Desierto, found that the subject transactions could not be classified as behest under Administrative Order No. 13 and Memorandum Order No. 61; that the loans acquired by NOCOSII were actually foreign loans from Midland Bank Ltd. of London; that there were no direct loans released by PNB but merely credit accommodations to guaranty the loans from Midland Bank; that the collaterals offered by NOCOSII were more than sufficient to cover the loans of P333,465,260.00; that since the loan was approved by PNB, it presupposed that all required clearances were submitted by NOCOSII, including the clearance from the Office of the President; and that complainant failed to consider the other assets of NOCOSII which also formed part of its capital. The Court found this borne out by the evidence: there were no direct loans released by PNB but merely credit accommodations to guaranty NOCOSII's foreign loans; NOCOSII effectively came under government control since 1975 when PNB acquired a majority of the voting rights and was given the power to appoint a comptroller; PNB's credit accommodations to NOCOSII between 1975 and 1981 in the aggregate sum of P333,465,260.00 were sufficiently secured by the assignment of subscription rights and pledge of shares, deed of assignment of sugar and molasses, joint and solidary agreement, real estate mortgage, and chattel mortgage; and PNB imposed other conditions. The assailed Orders being supported by substantial evidence, there was no basis for the Court to exercise its supervisory powers over the ruling of the Ombudsman. As long as substantial evidence supports the Ombudsman's ruling, that decision will not be overturned.

• Discovery Rule for Prescription of Behest-Loan Offenses under R.A. No. 3019 — Under Section 2 of Act No. 3326, prescription begins from the day of commission of the violation, but if the violation is not known at that time, from its discovery and the institution of judicial proceedings. In violations of R.A. No. 3019 committed before the February 1986 EDSA Revolution involving behest loans, the State as the aggrieved party could not have known of the violations when the transactions were made because public officials allegedly connived or conspired with the loan beneficiaries, and no person would have dared question the transactions. The prescriptive period is therefore counted from discovery, such as the 1992 discovery after the Committee's exhaustive investigation. The Court applied this rule: discovery in 1992, complaint filed April 5, 1995, within the 15-year period under B.P. Blg. 195.
• Non-Interference with the Ombudsman's Investigatory and Prosecutory Powers — Courts will not ordinarily interfere with the Ombudsman's exercise of power to determine probable cause and to file or dismiss criminal complaints absent good and compelling reasons. The rule rests on the Ombudsman's constitutional mandate and practicality. The Court listed exceptions: (1) necessary to afford adequate protection to constitutional rights of the accused; (2) necessary for orderly administration of justice or to avoid oppression or multiplicity of actions; (3) prejudicial question sub judice; (4) acts of officer without or in excess of authority; (5) prosecution under invalid law, ordinance or regulation; (6) double jeopardy clearly apparent; (7) court has no jurisdiction over offense; (8) persecution rather than prosecution; (9) charges manifestly false and motivated by lust for vengeance; and (10) clearly no prima facie case and motion to quash on that ground denied. None applied, so the Court sustained the Ombudsman's no-probable-cause finding.
• Grave Abuse of Discretion — Grave abuse of discretion implies a capricious and whimsical exercise of judgment tantamount to lack of jurisdiction; the exercise of power must be arbitrary or despotic by reason of passion or personal hostility and so patent and gross as to amount to evasion of positive duty or virtual refusal to perform the duty enjoined or to act at all in contemplation of law. The Court found this standard met as to the Ombudsman's prescription ruling but not as to the probable-cause ruling.
• Substantial Evidence Standard for Ombudsman's Rulings — As long as substantial evidence supports the Ombudsman's ruling, that decision will not be overturned. The Court found the assailed Orders supported by substantial evidence, including evidence that the NOCOSII loans were foreign loans guaranteed by PNB and sufficiently secured.
• Behest Loan Criteria — Administrative Order No. 13 and Memorandum Order No. 61 set criteria for identifying behest loans: undercollateralized; undercapitalized borrower; direct or indirect endorsement by high government officials; cronies as stockholders, officers or agents; deviation of loan proceeds; corporate layering; non-feasibility of the project; and extraordinary speed in loan release. The Ombudsman and the Court considered these criteria in evaluating whether the NOCOSII loans could be classified as behest.

• "it was well-nigh impossible for the State, the aggrieved party, to have known the violations of R.A. No. 3019 at the time the questioned transactions were made because, as alleged, the public officials concerned connived or conspired with the 'beneficiaries of the loans.'" — This passage states the ratio for the discovery rule in behest-loan cases, explaining why the prescriptive period runs from discovery rather than from the commission of the offense.
• "The assertion by the Ombudsman that the phrase 'if the same not be known' in Section 2 of Act No. 3326 does not mean 'lack of knowledge' but that the crime 'is not reasonably knowable' is unacceptable, as it provides an interpretation that defeats or negates the intent of the law, which is written in a clear and unambiguous language and thus provides no room for interpretation but only application." — This passage rejects the Ombudsman's restrictive interpretation of the discovery rule and confirms that the law is clear and unambiguous.
• "Grave abuse of discretion implies a capricious and whimsical exercise of judgment tantamount to lack of jurisdiction. The exercise of power must have been done in an arbitrary or despotic manner by reason of passion or personal hostility. It must be so patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform the duty enjoined or to act at all in contemplation of law." — This passage defines the standard of grave abuse of discretion applied to the Ombudsman's rulings.
• "As long as substantial evidence supports the Ombudsman's ruling, that decision will not be overturned." — This passage states the standard for judicial review of the Ombudsman's factual findings and supports the Court's affirmance of the no-probable-cause determination.

• Presidential Ad Hoc Fact-Finding Committee on Behest Loans vs. Desierto, 375 Phil. 697 (1999) — Controlling precedent on prescription; the Court relied on it to hold that the prescriptive period for behest-loan violations of R.A. No. 3019 committed before the 1986 EDSA Revolution runs from discovery.
• Presidential Ad Hoc Fact-Finding Committee on Behest Loans vs. Desierto, 415 Phil. 723 (2001) — Reiterated the discovery rule for violations committed prior to the February 1986 EDSA Revolution and fixed the counting from discovery in 1992 after exhaustive investigation.
• Presidential Commission on Good Government (PCGG) vs. Desierto, G.R. No. 139675, July 21, 2006, 496 SCRA 112 — Cited for the Ombudsman's power to determine probable cause and for the rule that a ruling supported by substantial evidence will not be overturned.
• Pontejos vs. Office of the Ombudsman, G.R. Nos. 158613-14, February 22, 2006, 483 SCRA 83 — Cited for the definition of grave abuse of discretion and the exceptions to non-interference with the Ombudsman's prosecutory powers.
• Dumangcas, Jr. vs. Marcelo, G.R. No. 159949, February 27, 2006, 483 SCRA 301 — Cited for the rule that courts will not ordinarily interfere with the Ombudsman's investigatory and prosecutory powers.
• Salvador vs. Desierto, 464 Phil. 988 (2004) — Cited in support of the substantial-evidence standard for the Ombudsman's ruling.

• Section 3(e) and (g), Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act) — The criminal complaint charged respondents with causing undue injury to any party, including the Government, or giving any private party unwarranted benefits, advantage or preference through manifest partiality, evident bad faith or gross inexcusable negligence, and with entering, on behalf of the Government, into any contract or transaction manifestly and grossly disadvantageous to the same. The Court assessed probable cause under these provisions.
• Section 4, Batas Pambansa Blg. 195 — Amended R.A. No. 3019 by increasing the prescriptive period from ten to fifteen years. The Court applied this 15-year period to the offense.
• Section 2, Act No. 3326, as amended — Provides that prescription begins from the day of commission of the violation, and if not known at the time, from discovery and the institution of judicial proceedings; prescription is interrupted when proceedings are instituted against the guilty person and begins to run again if the proceedings are dismissed for reasons not constituting jeopardy. The Court used this provision to compute prescription from the 1992 discovery and to hold the April 5, 1995 complaint timely.
• Article XI, Section 13, 1987 Constitution — Vests the Office of the Ombudsman with investigatory and prosecutory powers. The Court cited it as the constitutional basis for the Ombudsman's mandate and for judicial non-interference absent grave abuse of discretion.
• Rule 65, Rules of Court — The PCGG filed the petition for certiorari under Rule 65 assailing the Ombudsman's Resolution and Order. The Court resolved the petition under this procedural rule.
• Article XI, Section 15, 1987 Constitution — Petitioner invoked the State's imprescriptible right to recover ill-gotten wealth. The Court did not base its prescription ruling on this provision, resolving the issue instead under Act No. 3326 and B.P. Blg. 195.

Ynares-Santiago (Chairperson), Chico-Nazario, and Nachura, JJ., concur.