Presidential Commission on Good Government vs. Navarro-Gutierrez

In preliminary investigations for violations of the Anti-Graft and Corrupt Practices Act, the Ombudsman commits grave abuse of discretion by dismissing a complaint for lack of probable cause where the evidence, though hearsay, rests on substantial basis and satisfies the threshold of engendering a well-founded belief that the crimes under Sections 3(e) and (g) of R.A. No. 3019 were committed and that the respondents are probably guilty thereof, it being established that: (a) probable cause requires only a prima facie case, not evidence sufficient to secure conviction; and (b) technical rules of evidence do not apply in preliminary investigations, rendering hearsay evidence admissible provided there is substantial basis for crediting the same.

During the regime of President Ferdinand E. Marcos, the Development Bank of the Philippines (DBP) extended substantial loan accommodations to National Galleon Shipping Corporation (Galleon), a shipping company whose major stockholders were alleged cronies of the President. In 1992, President Fidel V. Ramos created the Presidential Ad Hoc Fact-Finding Committee on Behest Loans (Ad Hoc Committee) through Administrative Order No. 13 to identify anomalous government loans. Memorandum Order No. 61 subsequently established criteria for determining behest loans, including undercollateralization, undercapitalization, endorsement by high government officials, and extraordinary speed of loan release. The Ad Hoc Committee, assisted by a Technical Working Group (TWG), examined loan accounts extended by government financial institutions during the Marcos regime, including Galleon's loan account with DBP.

The Behest Loan Investigation: Pursuant to Administrative Order No. 13 and Memorandum Order No. 61, the Ad Hoc Committee and TWG examined Galleon's loan account with DBP. The TWG found that on September 19, 1979, DBP approved guarantees aggregating US$90,280,000.00 to secure Galleon's foreign currency borrowings for acquiring five new and two secondhand vessels. Board Resolution No. 3002 explicitly stated these accommodations were "undertaken at the behest of the Philippine Government." The resolution required Galleon to increase its paid-up capital to ₱98.963 Million by 1981; however, Galleon only raised its capital to ₱46,740,755.00. Despite this failure, DBP granted the guarantees.

Escalating Accommodations and Collateral Deficiency: As of June 30, 1981, Galleon's arrearages reached ₱40,684,059.37, with total obligations of ₱691,058,027.92. Notwithstanding these outstanding debts, DBP issued Board Resolution Nos. 4008 and 3001 approving further one-year foreign currency loans to refinance arrearages amounting to ₱58,101,718.89 as of September 30, 1982. Despite arrearages ballooning to ₱128,182,654.38 and obligations accumulating to ₱904,277,536.96, DBP approved the release of two secondhand vessels serving as collaterals, resulting in collateral deficiency. By March 31, 1984, Galleon's total obligations to DBP reached ₱2,039,284,390.85 against collateral valued at only ₱539,000,000.00.

The Accused: The charged individuals held the following positions during the relevant periods: Don M. Ferry (DBP Vice Chairman and Acting Chairman); Jose R. Tengco, Jr. (DBP Board Member, Supervising Governor, and Acting Chairman); Rolando M. Zosa (DBP Supervising Governor and Chairman of the Loan Committee); Cesar C. Zalamea (DBP Chairman); Ofelia I. Castell (DBP Executive Officer and Manager); Rafael A. Sison (DBP Board Member and Acting Chairman); and Rodolfo M. Cuenca, Manuel I. Tinio, and Antonio R. Roque (Galleon President, Executive Vice-President/Treasurer, and Corporate Secretary, respectively).

The Ombudsman's Findings: The Ombudsman dismissed the complaint, ruling that the PCGG failed to present direct evidence establishing the alleged illegal transactions, such as loan agreements, approved board resolutions, or voting records. The Ombudsman characterized the TWG's Executive Summary and technical reports as hearsay, self-serving, and of little probative value.

• Grave Abuse of Discretion: Petitioner maintained that the Ombudsman gravely abused its discretion in dismissing the complaint for lack of probable cause, arguing that the evidence on record sufficiently established that the respondents violated Sections 3(e) and (g) of R.A. No. 3019.
• Admissibility of Evidence: Petitioner argued that the technical rules of evidence should not be applied in preliminary investigations, and that the TWG's findings, based on official DBP documents, possessed substantial basis sufficient to establish probable cause.
• Nature of Probable Cause: Petitioner contended that probable cause requires only a prima facie showing, not absolute certainty or evidence sufficient to secure conviction, and that the defenses raised by respondents were matters properly ventilated during trial rather than at the preliminary investigation stage.

• Insufficiency of Evidence: Respondent Ombudsman countered that the evidence presented consisted merely of executive summaries and technical reports that were hearsay, self-serving, and lacked probative value, insufficient to establish probable cause.
• Lack of Direct Evidence: Individual respondents argued that the PCGG failed to present primary documents directly establishing the alleged illegal transactions, such as the loan agreements, approved board resolutions, or participation records from board meetings.
• Individual Defenses: Respondents Zalamea and Tengco claimed that the charges had prescribed; Zalamea alleged he joined DBP only in 1982, after the transactions in question; Tengco asserted his participation was limited to board-level approval in the exercise of sound business judgment; Castell pleaded lack of approving authority; and Roque denied being a Marcos crony and claimed he was merely a minor shareholder with no influence over DBP.

• Probable Cause Determination: Whether the Ombudsman gravely abused its discretion in finding no probable cause to indict respondents for violations of Sections 3(e) and (g) of R.A. No. 3019.

• Grave Abuse of Discretion: The Ombudsman committed grave abuse of discretion amounting to lack or excess of jurisdiction in dismissing the criminal complaint. The evidence on record established probable cause to believe that respondents committed the crimes charged. The elements of Section 3(e) of R.A. No. 3019—(a) the accused are public officers (or private individuals conspiring with them), (b) who acted with manifest partiality, evident bad faith, or inexcusable negligence, and (c) whose actions caused undue injury to the government or gave unwarranted benefits to a private party—were sufficiently indicated by the documentary evidence showing DBP's approval of guarantees despite Galleon's failure to meet capital requirements and the subsequent release of collaterals despite mounting arrearages. Similarly, probable cause existed for Section 3(g) violations regarding entering into contracts grossly and manifestly disadvantageous to the government.

• Admissibility of Hearsay Evidence: The Ombudsman erred in discrediting the TWG's findings solely on the ground that they were hearsay. Hearsay evidence is admissible in preliminary investigations because such proceedings are merely inquisitorial and do not finally adjudicate rights. Probable cause can be established with hearsay evidence provided there is substantial basis for crediting the hearsay, as when the statements are based on official documents prepared by the institution itself (DBP) in connection with the loans.

• Matters of Defense: The defenses raised by respondents—denial of participation, prescription, and exercise of business judgment—are evidentiary matters properly raised during trial, not at the preliminary investigation stage. The failure of several respondents to file counter-affidavits despite due notice further supported the finding of probable cause.

• Probable Cause Standard in Preliminary Investigations — Probable cause for filing a criminal information requires such facts as are sufficient to engender a well-founded belief that a crime has been committed and that the respondent is probably guilty thereof. It does not require actual or positive cause, absolute certainty, or evidence sufficient to secure a conviction. A finding of probable cause needs only to rest on evidence showing that, more likely than not, a crime has been committed by the suspects. The validity and merits of a party's defense or accusation, as well as the admissibility of testimonies and evidence, are better ventilated during trial proper than at the preliminary investigation level.

• Admissibility of Hearsay in Preliminary Investigations — Technical rules of evidence do not apply in preliminary investigations. Hearsay evidence is admissible in determining probable cause because such investigation is merely preliminary and does not finally adjudicate rights and obligations of parties. Probable cause can be established with hearsay evidence as long as there is substantial basis for crediting the hearsay, such as when the information is based on official documents or the informant is credible.

• Grave Abuse of Discretion Standard — The Court consistently refrains from interfering with the Ombudsman's discretion to determine probable cause; however, review is proper when there is a charge of grave abuse of discretion, defined as a capricious and whimsical exercise of judgment tantamount to lack of jurisdiction, or an arbitrary or despotic manner of exercising power so patent and gross as to amount to an evasion of positive duty or virtual refusal to perform a duty enjoined by law.

• Elements of Violations under R.A. No. 3019 —

• Section 3(e): (a) the accused must be a public officer discharging administrative, judicial, or official functions (or a private individual acting in conspiracy with such public officers); (b) that he acted with manifest partiality, evident bad faith, or inexcusable negligence; and (c) that his action caused any undue injury to any party, including the government, or gave any private party unwarranted benefits, advantage, or preference in the discharge of his functions.
• Section 3(g): (a) the accused is a public officer (or private individual conspiring with public officers); (b) that he entered into a contract or transaction on behalf of the government; and (c) that such contract or transaction is grossly and manifestly disadvantageous to the government.

• "Probable cause, for the purpose of filing a criminal information, has been defined as such facts as are sufficient to engender a well-founded belief that a crime has been committed and that respondent is probably guilty thereof. The term does not mean 'actual or positive cause' nor does it import absolute certainty. It is merely based on opinion and reasonable belief."

• "Probable cause does not require an inquiry whether there is sufficient evidence to procure a conviction. It is enough that it is believed that the act or omission complained of constitutes the offense charged."

• "Hearsay evidence is admissible in determining probable cause in a preliminary investigation because such investigation is merely preliminary, and does not finally adjudicate rights and obligations of parties."

• "Probable cause can be established with hearsay evidence, as long as there is substantial basis for crediting the hearsay."

• "Grave abuse of discretion implies a capricious and whimsical exercise of judgment tantamount to lack of jurisdiction. The Ombudsman's exercise of power must have been done in an arbitrary or despotic manner which must be so patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform the duty enjoined or to act at all in contemplation of law."

• Ciron v. Gutierrez, G.R. Nos. 194339-41, April 20, 2015 — Controlling precedent establishing that the Court maintains noninterference in the Ombudsman's determination of probable cause provided there is no grave abuse of discretion, based on respect for constitutional powers and practicality.

• Fenequito v. Vergara, Jr., G.R. No. 172829, July 18, 2012, 677 SCRA 113 — Cited for the definition of probable cause and the parameters for finding its existence; established that probable cause requires only a well-founded belief, not evidence establishing guilt beyond reasonable doubt.

• Estrada v. Ombudsman, G.R. Nos. 212140-41, January 21, 2015 — Followed for the doctrine that probable cause can be established with hearsay evidence as long as there is substantial basis for crediting the hearsay, and that technical rules of evidence do not apply in preliminary investigations.

• United States v. Ventresca, 380 U.S. 102 (1965) — Foreign precedent cited through Estrada v. Ombudsman establishing that probable cause may rest upon evidence not legally competent in a criminal trial, and that affidavits may be based on hearsay information provided the magistrate is informed of underlying circumstances supporting the affiant's conclusions.

• De Chavez v. Ombudsman, 543 Phil. 600 (2007) — Cited for the principle that technical rules of evidence should not be applied in preliminary investigations and that defenses are better ventilated during trial proper.

• Section 3(e), Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act) — Prohibits public officers from causing undue injury to any party, including the Government, or giving any private party any unwarranted benefit, advantage or preference in the discharge of his official administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence.

• Section 3(g), Republic Act No. 3019 — Prohibits public officers from 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 13, Article VIII, 1987 Constitution — Cited in the certification clause regarding consultation before case assignment.

Maria Lourdes P.A. Sereno (Chief Justice, Chairperson) Presbitero J. Velasco, Jr. Teresita J. Leonardo-De Castro Lucas P. Bersamin