Presidential Ad Hoc Fact-Finding Committee on Behest Loans v. Desierto

The prescriptive period for offenses involving behest loans under R.A. No. 3019 is computed from the discovery of the commission of the offense, not from the date of its commission, where the State could not have known of the violation at the time the transaction was made; and administrative issuances defining behest loan criteria are not penal laws and therefore cannot be characterized as ex post facto. Nonetheless, the Ombudsman's finding of absence of probable cause was sustained where the loan was adequately collateralized, the borrower was not undercapitalized, and no evidence of bad faith, manifest partiality, or gross disadvantage to the government was shown.

The Presidential Ad Hoc Fact-Finding Committee on Behest Loans was created by President Fidel V. Ramos through Administrative Order No. 13 on October 8, 1992, tasked with inventorying all behest loans, identifying lenders and borrowers, and recommending courses of action for recovery. Its functions were expanded by Memorandum Order No. 61 dated November 9, 1992, to include all non-performing loans and to provide eight criteria for determining whether a loan is "behest," including under-collateralization, undercapitalization, endorsement by high government officials, identification of stockholders as cronies, and extraordinary speed in loan release. A behest loan, unlike a non-behest loan, may entail criminal liability in addition to civil liability for non-payment. Several loan accounts were referred to the Committee, including the transactions between Integrated Circuits Philippines, Inc. (ICPI) and the Development Bank of the Philippines (DBP).

Integrated Circuits Philippines, Inc. (ICPI), formerly Comptronics Philippines, Inc. (CPI), applied for an industrial foreign currency loan of US$1,352,400.00, equivalent to ₱10,143,000.00, from the Development Bank of the Philippines (DBP). Prior to the approval of the industrial loan, ICPI was granted an interim loan of ₱1,786,000.00 to cover the project's initial financing requirements. The interim loan was approved on April 6, 1980, secured only by a promissory note and a comfort letter signed by DBP Chairman Rafael Sison. The industrial loan was subsequently approved on August 6, 1980 under DBP Board Resolution No. 2924, a processing period of more than four months from the date of the interim loan approval.

At the time of the loan approval, ICPI had an authorized capital stock of ₱10 million, of which ₱3 million had been paid up. In 1979, Atrium Capital Corporation and Philippine Underwriter's Corporation had agreed to convert ₱8,500,000.00 worth of creditor's equity into capital stocks, and by April 23, 1980, individual stockholders paid their respective subscriptions amounting to ₱3,000,000.00, increasing ICPI's paid-up capital to ₱11,500,000.00. The industrial loan was secured by machinery and equipment valued at ₱5,943,610.00, a guarantee from the Philippine Export and Foreign Loan Guarantee Corporation (PEFLGC) covering 70% of the loan or ₱7,100,000.00, and the joint and several signatures of ICPI, Philippine Underwriter Finance Corporation, Atrium Capital Corporation, Ambrosio Makalintal, and Querube Makalintal. ICPI was also required to assign to DBP not less than 67% of its total subscribed and outstanding voting shares, and DBP was given the right to designate its comptroller in ICPI. The aggregate value of securities totaled ₱16,043,610.00, exceeding the ₱10,143,000.00 loan amount.

The Committee, after examining the loan transactions, determined that they bore the characteristics of a behest loan under Memorandum Order No. 61. Atty. Orlando L. Salvador, representing the PCGG, filed a sworn complaint with the Office of the Ombudsman on February 17, 1995, charging the concerned DBP board members and ICPI officers with violation of Section 3(e)(g) of R.A. No. 3019. He alleged undue haste in approval, under-collateralization, and undercapitalization, and identified Querube Makalintal, then Speaker of the Interim Batasang Pambansa, as a crony. A supplementary complaint was filed on March 13, 1996, to include the interim loan and additional respondents.

The Ombudsman dismissed the complaint, finding that the cause of action had prescribed under Section 11 of R.A. No. 3019 (ten-year prescriptive period for offenses committed before March 16, 1982), that the loan was not under-collateralized or the corporation undercapitalized, and that retroactive application of AO 13 and MO 61 would violate the constitutional prohibition against ex post facto laws. The Ombudsman found the aggregate value of ICPI's securities at ₱16,043,610.00 against a loan of only ₱10,143,000.00, and noted that ICPI's paid-up capital of ₱3 million exceeded 25% of its authorized capital stock. A motion for reconsideration was denied on June 6, 2000, prompting the petition for certiorari before the Supreme Court.

• Prescription: Petitioner alleged that the Ombudsman committed grave abuse of discretion in ruling that the offenses had prescribed, arguing that the prescriptive period should be computed from the discovery of the offense, not from the date of commission, since the State could not have known of the violations at the time the transactions were made due to the connivance between public officials and loan beneficiaries.
• Ex Post Facto: Petitioner contended that the Ombudsman erred in declaring Administrative Order No. 13 and Memorandum Order No. 61 as ex post facto laws, asserting that these issuances are not penal in character and merely create a fact-finding committee and provide criteria for identifying behest loans.
• Probable Cause: Petitioner asserted that probable cause existed to indict the private respondents for violation of Section 3(e)(g) of R.A. No. 3019, claiming the loan was under-collateralized, ICPI was undercapitalized, and the loan was granted with undue haste, thereby constituting a behest loan.

• Prescription: Whether the Ombudsman committed grave abuse of discretion in ruling that the criminal offenses subject of the complaint had prescribed.
• Ex Post Facto Laws: Whether Administrative Order No. 13 and Memorandum Order No. 61 are ex post facto laws that cannot be retroactively applied to the questioned loan transactions.
• Probable Cause: Whether the Ombudsman committed grave abuse of discretion in finding no probable cause to indict the private respondents for violation of Section 3(e)(g) of R.A. No. 3019.

• Prescription: No. The offenses had not prescribed. The prescriptive period for behest loan violations is computed from the discovery of the offense, and the complaint was filed less than three years from the Committee's creation on October 8, 1992.
• Ex Post Facto Laws: No. Administrative Order No. 13 and Memorandum Order No. 61 are not penal laws and therefore cannot be characterized as ex post facto laws; the Ombudsman also lacked jurisdiction to rule on their constitutionality.
• Probable Cause: No. The Ombudsman did not commit grave abuse of discretion in finding no probable cause, the loan having been sufficiently collateralized, ICPI not undercapitalized, and no evidence of bad faith, manifest partiality, or gross disadvantage to the government having been shown.

• Prescription: The Court relied on its earlier rulings in Presidential Ad Hoc Fact-Finding Committee on Behest Loans vs. Desierto (375 Phil. 697 [1999]) and Presidential Ad Hoc Fact-Finding Committee on Behest Loans vs. Ombudsman Desierto (415 Phil. 723 [2001]), which established that in cases involving violations of R.A. No. 3019 committed prior to the 1986 EDSA Revolution, the government as the aggrieved party could not have known of the violations at the time the transactions were made, and no person would have dared question their legality. The prescriptive period therefore commenced from the date of discovery in 1992, after the Committee's exhaustive investigation. The sworn statement did not specify the exact date of discovery, but since the Committee itself discovered the violations, discovery could not have preceded October 8, 1992, the date of the Committee's creation. The complaint filed on February 17, 1995 was thus well within the ten-year prescriptive period under Section 11 of R.A. No. 3019 for offenses committed before March 16, 1982.

• Ex Post Facto Laws: An ex post facto law is one that criminalizes a prior innocent act, aggravates a crime, increases punishment, alters legal rules of evidence, imposes a penalty under the guise of regulating civil remedies, or deprives an accused of lawful protection. The constitutional proscription targets the retrospectivity of penal laws. Administrative Order No. 13 merely creates the Committee and defines its composition and functions; Memorandum Order No. 61 simply provides a frame of reference for determining the existence of behest loans. Neither metes out a penalty for granting behest loans. Not being penal laws, they cannot be ex post facto. Furthermore, the Ombudsman acted in excess of jurisdiction in delving into the constitutionality of the issuances, pursuant to Estarija vs. Ranada (G.R. No. 159314, June 26, 2006), which held that the Ombudsman has no jurisdiction to entertain questions on the constitutionality of a law.

• Probable Cause: The determination of probable cause is a function belonging to the Office of the Ombudsman, and courts should not interfere except when the finding is tainted with grave abuse of discretion. For violation of Section 3(e) of R.A. No. 3019, three elements must be established: (1) the accused is a public officer discharging administrative, judicial, or official functions; (2) the accused acted with manifest partiality, evident bad faith, or gross inexcusable negligence; and (3) the act caused undue injury to any party or gave unwarranted benefits to a private party. For Section 3(g), there must be a showing that the respondents entered into a grossly disadvantageous contract on behalf of the government. The records showed that DBP officers studied and evaluated ICPI's loan request and were convinced of the project's viability and economic desirability. Petitioner failed to demonstrate that DBP did not exercise sound business judgment or that loan conditions were designed to favor ICPI. Good faith is presumed in the performance of public duties, and bad faith requires dishonest purpose, moral obliquity, or conscious doing of a wrong — none of which was shown. On the factual merits, ICPI's paid-up capital reached ₱11,500,000.00 as of April 23, 1980, belying the claim of undercapitalization. The aggregate value of collaterals (₱16,043,610.00) exceeded the loan amount (₱10,143,000.00). The PEFLGC guarantee was approved at the time of the loan, even if it later lapsed in 1985. The processing period of more than four months between the interim loan and the industrial loan approval was inconsistent with undue haste. Finally, petitioner did not specify the precise role or participation of each private respondent, nor show a common criminal design or collusion between DBP and ICPI officers.

• Discovery Rule for Prescription of Behest Loan Offenses — In cases involving violations of R.A. No. 3019 committed prior to the 1986 EDSA Revolution, the prescriptive period is computed from the discovery of the offense, not from the date of commission, because the State as the aggrieved party could not have known of the violations at the time the transactions were made, given the connivance between public officials and loan beneficiaries, and no person would have dared question the legality of those transactions. The discovery is reckoned from the creation of the Presidential Ad Hoc Fact-Finding Committee on Behest Loans on October 8, 1992.

• Ex Post Facto Laws — Definition and Scope — An ex post facto law is one that: (a) makes criminal an action that was innocent when done; (b) aggravates a crime or makes it greater than when committed; (c) changes punishment and inflicts a greater punishment; (d) alters legal rules of evidence and receives less or different testimony; (e) assumes to regulate civil rights and remedies but in effect imposes a penalty or deprivation of a right; or (f) deprives a person accused of a crime of some lawful protection. The constitutional proscription applies only to penal laws. Administrative issuances that create fact-finding bodies or provide criteria for identifying certain transactions are not penal laws and cannot be ex post facto.

• Elements of Section 3(e), R.A. No. 3019 — The following must be established: (1) the accused is a public officer discharging administrative, judicial, or official functions; (2) the accused acted with manifest partiality, evident bad faith, or gross inexcusable negligence; and (3) the accused caused undue injury to any party, including the government, or gave any private party unwarranted benefits, advantage, or preference. Mere bad faith or partiality and negligence per se are insufficient; the act must be evident or manifest, the negligence gross and inexcusable, and the resulting undue injury or unwarranted benefit must be shown.

• Elements of Section 3(g), R.A. No. 3019 — There must be a showing that the public officer entered into a contract or transaction on behalf of the government that is manifestly and grossly disadvantageous to the government, whether or not the officer profited thereby.

• Presumption of Good Faith in Public Office — A public officer is presumed to have acted in good faith in the performance of duties. Mistakes committed by a public officer are not actionable absent a clear showing of malice or gross negligence amounting to bad faith. Bad faith partakes of the nature of fraud and contemplates a state of mind affirmatively operating with furtive design or some motive of self-interest or ill will for ulterior purposes.

• Ombudsman's Power to Determine Probable Cause — The determination of probable cause against those in public office during preliminary investigation belongs to the Office of the Ombudsman. Courts should not interfere with this power except when the finding is tainted with grave abuse of discretion amounting to lack or excess of jurisdiction. The Ombudsman also has no jurisdiction to entertain questions on the constitutionality of a law.

• "[I]t 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 articulates the rationale for the discovery rule in computing the prescriptive period for behest loan offenses, a doctrine frequently cited in subsequent behest loan cases.

• "Administrative Order No. 13 does not mete out a penalty for the act of granting behest loans. It merely creates the Presidential Ad Hoc Fact-Finding Committee on Behest Loans and provides for its composition and functions. Memorandum Order No. 61, on the other hand, simply provides the frame of reference in determining the existence of behest loans. Not being penal laws, Administrative Order No. 13 and Memorandum Order No. 61 cannot be characterized as ex-post facto laws." — This passage defines the ratio decidendi on the ex post facto issue, clarifying that administrative issuances defining behest loan criteria are not penal laws.

• "Evidently, mere bad faith or partiality and negligence per se are not enough for one to be held liable under the law. It is required that the act constitutive of bad faith or partiality must, in the first place, be evident or manifest, while the negligent deed should be both gross and inexcusable. Further, it is necessary to show that any or all of these modalities resulted in undue injury to a specified party." — This passage restates the standard for liability under Section 3(e) of R.A. No. 3019, emphasizing that the modalities must be proven and must result in injury or unwarranted benefit.

• Presidential Ad Hoc Fact-Finding Committee on Behest Loans vs. Desierto, 375 Phil. 697 (1999) — Controlling precedent establishing the discovery rule for computing the prescriptive period in behest loan cases; followed and applied to hold that the complaint was filed within the prescriptive period.

• Presidential Ad Hoc Fact-Finding Committee on Behest Loans vs. Ombudsman Desierto, 415 Phil. 723 (2001) — Reiterated the discovery rule, specifically for violations committed prior to the 1986 EDSA Revolution; followed to confirm that the prescriptive period commenced from the 1992 discovery.

• Chavez vs. Romulo, G.R. No. 157036, June 9, 2004 — Cited for the definition of ex post facto laws; relied upon in holding that AO 13 and MO 61 are not penal laws.

• Lacson vs. Executive Secretary, 361 Phil. 251 (1999) — Cited for the additional categories of ex post facto laws; relied upon in the same ex post facto analysis.

• Estarija vs. Ranada, G.R. No. 159314, June 26, 2006 — Cited for the proposition that the Ombudsman has no jurisdiction to entertain questions on the constitutionality of a law; applied to hold that the Ombudsman acted in excess of jurisdiction in ruling on the constitutionality of the administrative issuances.

• Collantes vs. Marcelo, G.R. Nos. 167006-07, August 14, 2007 — Cited for the elements of Section 3(e) of R.A. No. 3019 and the standard that mere bad faith or negligence is insufficient; followed in evaluating the absence of probable cause.

• Section 3(e), Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act) — Penalizes public officers who cause undue injury to any party or give unwarranted benefits through manifest partiality, evident bad faith, or gross inexcusable negligence. Applied to evaluate whether DBP officers and ICPI directors acted with the requisite mental states; the Court found no evidence satisfying the elements.

• Section 3(g), Republic Act No. 3019 — Penalizes public officers who enter into contracts or transactions manifestly and grossly disadvantageous to the government. Applied to evaluate whether the loan transaction was grossly disadvantageous; the Court found the loan adequately secured and not disadvantageous.

• Section 11, Republic Act No. 3019 — Provides that offenses committed before March 16, 1982 prescribe in ten years. Applied to determine the applicable prescriptive period; the Court held the period ran from discovery in 1992, not from the 1980 transaction date.

• Administrative Order No. 13 (October 8, 1992) — Created the Presidential Ad Hoc Fact-Finding Committee on Behest Loans and defined its composition and functions. Held not to be a penal law and therefore not an ex post facto law.

• Memorandum Order No. 61 (November 9, 1992) — Expanded the Committee's scope to include all non-performing loans and provided eight criteria for identifying behest loans. Held not to be a penal law and therefore not an ex post facto law.

• Article 19, Civil Code (Human Relations) — Directs every person to observe good faith, which springs from the fountain of good conscience. Cited in support of the presumption of good faith in the performance of public duties.

Reynato S. Puno (Chief Justice), Leonardo A. Quisumbing, Consuelo Ynares-Santiago, Antonio T. Carpio, Ma. Alicia Austria-Martinez, Renato C. Corona, Conchita Carpio Morales, Adolfo S. Azcuna, Dante O. Tinga, Minita V. Chico-Nazario, Presbitero J. Velasco, Jr., Ruben T. Reyes, and Teresita J. Leonardo-De Castro.