Reyes v. Sandiganbayan

Evident bad faith under Section 3(e) of R.A. 3019 requires a dishonest purpose or conscious wrongdoing, not mere laxity, and cannot be inferred from a head of office's routine signing and indorsement of checks absent proof of corrupt motive or material benefit. Separately, the five-day period to file a motion for leave to file a demurrer to evidence runs from the denial of a timely motion for reconsideration of the order resolving the prosecution's formal offer, although a court's miscomputation of that period is not correctible by certiorari before judgment.

Executive Order No. 806, issued on May 27, 1982, established the Instructional Materials Corporation (IMC), a government-owned and controlled corporation under the Department of Education, Culture, and Sports (DECS), tasked with developing, producing, and distributing public school textbooks for elementary and high schools. Section 10(b)(9) of that order empowered IMC, with the approval of its Board of Directors, to invest its unscheduled funds pending their intended use. The placements at issue were measured against LOI 1302 dated March 25, 1983, which requires government-owned or controlled corporations to transact their purchases or sales of government securities only with the Central Bank or government financial institutions, including banks wholly owned or controlled by them.

Between March 1989 and September 1990, the Instructional Materials Corporation (IMC) bought government securities and BF Homes Assets Privatization Certificates from Associated Bank, with Eurotrust Capital Corporation acting as broker. Elsa B. Reyes was Eurotrust's president, Caridad A. Miranda was IMC's General Manager, and Artemio C. Mendoza was IMC's Finance Division Chief. Senator Wigberto Tafiada denounced the placements as illegal, and then DECS Secretary Isidro Carifio directed a special audit of IMC covering December 6, 1990 to February 6, 1991.

On August 20, 1991 the Special Audit Team reported a questionable investment of ₱231.56 million in a private bank out of the advances IMC received from the government. Of the ₱732 million in advances, including adjustments, that IMC received from various government entities from January 1, 1989 to September 30, 1990, only ₱209 million, or 28.56%, had been liquidated and used for the purpose intended; ₱231.56 million was not deposited with an authorized government depository bank but was used instead for the unauthorized purchase of government securities from private brokers using Associated Bank as conduit, in violation of LOI 1302 dated March 25, 1983 and COA-MOF-MOB Joint Circular No. 9-81 dated October 19, 1981, with IMC incurring an additional investment cost of ₱571,028.19 as conduit fee paid to Associated Bank. Government securities worth ₱118.67 million could not be accounted for during the count conducted on December 6, 1990, and the private broker had been allowed to take custody of them in violation of Section 101 of P.D. 1445, with the Philippine National Bank denying custody of securities with a face value of ₱74.10 million. The placements with private brokers were neither approved by the General Manager nor covered by a board resolution sanctioning them.

Pending recovery of the unaccounted government securities worth ₱116 million, criminal charges for violation of Section 3(e) of R.A. 3019 were filed before the Sandiganbayan against Miranda and Mendoza, who were accused of investing IMC funds by buying government securities from Associated Bank brokered by Eurotrust without prior authority from the IMC Board, and against Reyes, Eurotrust's president. The information alleged that Mendoza, without authority, obtained from the IMC Cashier checks payable to and received by IMC from DECS and the Educational Development Projects Implementing Task Force (EDPITAF) intended for the production and distribution of elementary textbooks and other instructional materials; that he caused Miranda to sign and indorse the checks in blank although the indorsements were unnecessary since the checks were all for deposit; that, without any disbursement vouchers and instead of depositing the checks to IMC's account, he delivered them to Reyes, who without authority from IMC caused the funds to be invested in Treasury Bills, Treasury Notes, Land Bank Bonds, or BF Homes Assets Privatization Certificates purchased from Associated Bank in violation of P.D. No. 1115, with Reyes selling the necessary volume to Associated Bank whenever that bank could not provide it, thereby causing IMC to pay an additional investment cost of ₱571,028.19; and that upon the maturity of the investments Mendoza and Miranda failed to demand the return of the funds from Reyes, who reinvested them or lent them to B.E. Ritz Mansion Investment Corporation (BERMIC), which failed to pay its obligation in full and left an uncollected balance of ₱116,000,000.00.

At the trial, the prosecution presented the findings of the Special Audit Team and of the Committee on Investment headed by Melchor Tipace; Mary Adelino, a member of the audit team, testified that ₱118,666,655.48 in government securities were unaccounted for as of December 1990 and that IMC incurred an additional investment cost of ₱571,028.19 in conduit fees paid to Associated Bank. By way of defense, Miranda denied any involvement in the transactions with Eurotrust, saying she met Reyes for the first time only when the audit report was released to her and that she learned from Reyes that it was Mendoza whom she dealt with for the investments; she denied conspiring with Mendoza when she signed and indorsed the IMC checks, explaining that she did so as part of IMC's standard procedure without knowing that Mendoza would use them to make the illegal investment. Mendoza denied Miranda's claim and testified that, as finance officer, he could only determine what unscheduled funds IMC could invest, and that it was Miranda who authorized the release of the funds for investment through Eurotrust when she signed the checks. Reyes, for her part, alleged that she did not know Mendoza had no authority to invest IMC funds through Eurotrust.

After the prosecution ended its presentation of evidence and filed a formal offer of its documentary exhibits, Reyes objected on the ground that Adelino's testimony covering the audit report was hearsay, Adelino having joined the audit team as a replacement member only in January 1991, and that the documentary evidence offered had not been marked or made known to the parties during pre-trial. In a Resolution dated February 21, 2001, the Sandiganbayan set aside the objection and admitted the prosecution's evidence, and it denied her motion for reconsideration on April 6, 2001. Reyes then sought leave to file a demurrer, but the Sandiganbayan denied the motion for having been filed out of time, counting the 5-day period from her receipt of the February 21, 2001 Resolution rather than from her receipt of the denial of her motion for reconsideration. The Sandiganbayan rejected her contrary submission, and Reyes filed a petition for certiorari before the SC in G.R. No. 148607 while the trial continued.

On September 22, 2004 the Sandiganbayan Fourth Division, voting 3-2, found Mendoza and Miranda guilty beyond reasonable doubt, ruling that they conspired with Reyes in the investment of IMC funds with Eurotrust absent authorization from the IMC Board and that, by using their positions as General Manager and Finance Officer, they caused undue injury to the government when the securities bought with IMC funds were not recovered. The majority held that Miranda and Mendoza were fully aware of their lack of authority yet proceeded with the investment, which constituted evident bad faith. The two dissenting justices were of the view that the prosecution failed to establish Miranda's active participation in the investment made through Eurotrust, and that her signing of blank checks without knowing where the funds would be deposited, while perhaps indicating incompetence or negligence, did not amount to bad faith.

• Hearsay and Admissibility (Reyes): Reyes objected to the admission of the prosecution's evidence on the ground that Adelino's testimony covering the audit report was hearsay, since Adelino joined the audit team as a replacement member only in January 1991, and that the documentary evidence offered had not been marked or made known to the parties during pre-trial; she maintained that the evidence against her was insufficient to overcome the presumption of innocence.
• Computation of the Five-Day Period (Reyes): Reyes claimed that the 5-day period within which to file a motion for leave to file a demurrer should be counted from her receipt of the denial of her motion for reconsideration of the order admitting the prosecution's evidence, not from her receipt of the February 21, 2001 Resolution.
• Lack of Involvement and Absence of Conspiracy (Miranda): Miranda denied any involvement in the transactions with Eurotrust, maintained that she met Reyes only when the audit report was released and learned from Reyes that it was Mendoza whom she dealt with, and insisted that she signed and indorsed the IMC checks as part of IMC's standard procedure, not knowing that Mendoza would use them to make the illegal investment.
• Scope of Authority (Mendoza): Mendoza maintained that, as finance officer, he could only determine what unscheduled funds IMC could invest, and that it was Miranda who authorized the release of the funds for investment through Eurotrust when she signed the checks.

• Grave Abuse of Discretion — Counting the Demurrer Period: Whether the Sandiganbayan committed grave abuse of discretion in not counting the 5-day period to file a motion for leave to file a demurrer from its denial of Reyes' opposition to the order admitting the prosecution's documentary evidence, but from its rejection of her motion for reconsideration of that denial order.
• Evident Bad Faith under Section 3(e) of R.A. 3019: Whether the Sandiganbayan erred in finding Miranda, Mendoza, and Reyes guilty of causing undue injury to the government by using IMC funds for the purchase of investment securities through third parties in violation of Section 3(e) of R.A. 3019.

• Grave Abuse of Discretion — Counting the Demurrer Period: No. Although the 5-day period under Section 23, Rule 119 should be counted from Reyes' receipt of the denial of her motion for reconsideration, the Sandiganbayan's miscomputation was not grave abuse of discretion; courts have wide latitude in denying demurrers, and the denial is not correctible by certiorari before judgment.
• Evident Bad Faith under Section 3(e) of R.A. 3019: No as to Miranda, who is acquitted; Yes as to Mendoza and Reyes, whose convictions stand. Evident bad faith requires a dishonest purpose or conscious wrongdoing, which the record does not show for Miranda but does show for Mendoza, who initiated the unauthorized dealings, and Reyes, who received the conduit fee.

• Grave Abuse of Discretion — Counting the Demurrer Period: Section 23, Rule 119 of the Rules of Criminal Procedure provides that a motion for leave of court to file a demurrer to evidence shall specifically state its grounds and shall be filed within a non-extendible period of five days after the prosecution rests its case. Under Cabador vs. People, that period runs only after the court shall have ruled on the prosecution's formal offer, for that is when the prosecution can be deemed to have rested its case. Reyes filed a timely motion for reconsideration of the Sandiganbayan's ruling on the formal offer — a motion allowed under PAL Employees Savings and Loan Association, Inc. vs. National Labor Relations Commission — which prevented the prosecution from resting its case. When the Sandiganbayan denied that motion, she filed her motion for leave to file a demurrer within the required five days of her receipt of the order of denial, so the motion was in fact timely and the Sandiganbayan erred in holding otherwise. That error, however, cannot be regarded as capricious and whimsical as to constitute grave abuse of discretion. Courts have wide latitude for denying the filing of demurrers to evidence, and an order denying a motion for leave of court to file a demurrer to evidence, or the demurrer itself, is not subject to appeal or certiorari action before judgment; the remedy is to assign the order of denial as an error on appeal after judgment. The error did not deny Reyes her right to be heard on her defense either, since she later had the chance to question the sufficiency of the prosecution's evidence, which the SC evaluated and found sufficient.
• Evident Bad Faith under Section 3(e) of R.A. 3019: The information alleged that Miranda and Mendoza acted with evident bad faith in connection with the subject investment transactions, and the Sandiganbayan majority found that they did so when they pursued the investment despite the want of authority from the IMC Board. Bad faith connotes not only bad judgment or negligence but also a dishonest purpose or conscious wrongdoing, and bad faith alone on the part of the accused is not sufficient — it must be evident.
• Miranda: Nothing in the record shows that corrupt motive spurred her actions or that she received some material benefit for signing the checks that moved the funds out of IMC; all that can be proved against her is that she indorsed the checks, which does not prove a dishonest purpose. She testified that it was a standard practice for the General Manager to sign the dorsal portion of checks for deposit and presented similar checks bearing her indorsement that were deposited into IMC's accounts with government depositaries, and the prosecution did not rebut this. Her indorsements were superfluous and did not alter the nature of the checks as payable to IMC, since she had no clear authority to indorse its checks for renegotiation — her signing authority was limited to ₱400,000.00 and, under IMC Office Order 11, s. 1987, two signatures to IMC checks were required. That the checks were not deposited but were instead renegotiated after her indorsement should be taken against the individuals who managed to do so and the banks that allowed the unauthorized withdrawal, not against her. There is likewise no proof that she acted with perceptible bias in favor of Reyes, whom she denied knowing before the questioned transactions; Reyes dealt exclusively with Mendoza, and Miranda was unaware that IMC funds were being diverted to unauthorized investments. Her approval and submission of IMC's 1989 annual report, which reflected the Eurotrust investments in its balance sheet, did not prove connivance: the Office of the General Manager had the duty to submit an annual report to the Board within 30 days after the close of the calendar year, which meant putting together in one report the annual summaries prepared by each operating division, including Mendoza's Finance Division, and Miranda could not be presumed to have personal knowledge of all the transactions that made up those summaries. As Finance Division Chief, Mendoza gave technical advice to management on financial matters, directed and supervised the recording and accounting of financial transactions, and took part in preparing the balance sheet that became part of the 1989 annual report. Under Arias vs. Sandiganbayan, it would not do to take a shotgun approach in evaluating evidence in corruption cases; liability must be pinpointed, and a head of office is not swept into a conspiracy conviction simply because he did not personally examine every detail before affixing his signature as final approving authority, since heads of offices must rely to a reasonable extent on their subordinates.
• Mendoza: His memorandum of October 15, 1990 to Miranda and COA Resident Auditor Narcisa D. Joaquin shows that the renegotiation of IMC checks was his initiative, purportedly to increase IMC's earnings from idle funds, and an effort can even be deduced from it to conceal Reyes' part in those investments. He knew that IMC could not make a deal with private investment companies such as that headed by Reyes, since such investments could be coursed only through government institutions, and he admitted telling Reyes that the investments had been authorized when in fact the IMC Board issued no resolution regarding them. That IMC had not recovered all of its investments is a fact supported by the records; some attempts were made to negotiate payment of Eurotrust's liabilities but there is no evidence that these took place, so it may be assumed that the government suffered injury by reason of the transactions. LOI 1302 categorically provides that government-owned or controlled corporations shall transact their purchases or sales of government securities only with the Central Bank or government financial institutions, including banks wholly owned or controlled by them; Mendoza admittedly dealt with Reyes instead, giving her unwarranted benefit and advantage and earning for her company a conduit fee of ₱571,028.19 paid through Associated Bank.
• Reyes: The Sandiganbayan did not err in convicting her. She was clearly at the receiving end of the benefits that resulted from Mendoza's unauthorized diversion of IMC funds to Associated Bank, and the fact that Eurotrust had not been accredited by the Central Bank as a seller or buyer of securities for investors is evidence that she conspired with Mendoza to divert IMC funds through her company to Associated Bank. Her evidentiary challenges fail. Section 56(3)(c) of P.D. 1445 requires adequate evidentiary support in the audit working papers of findings contained in audit reports, and since the general proposition is that this requirement of law has been obeyed, the burden shifted to Reyes to disprove the correctness of the audit report, which she did not. The COA special audit appears in order in any event: its scope was clearly defined, it specified the documents examined, an exit conference was held so that IMC and those involved could controvert the findings, and IMC management's comments were included together with the audit team's rejoinder. Adelino's testimony was admissible: although her designation in the team took effect only on January 3, 1991, she had one month after the audit team turned over the documents to examine and validate them, she was involved in the exit conference with IMC officials on June 4, 1991, and she took part in preparing the report submitted on August 20, 1991.

• Evident bad faith under Section 3(e) of R.A. 3019 — Bad faith connotes not only bad judgment or negligence but also a dishonest purpose or conscious wrongdoing, and it must be evident. Applied: Miranda's signing and indorsing of checks was at most laxity, with no proof of corrupt motive or material benefit, while Mendoza's concealment of Reyes' role and his admission that he told Reyes the investments were authorized despite the absence of a board resolution supplied the evident bad faith.
• Pinpointed liability in graft prosecutions (Arias doctrine) — The SC will not take a shotgun approach in evaluating evidence in corruption cases; liability must be pinpointed. A head of office is not swept into a conspiracy conviction simply because he did not personally examine every detail, trace every step from inception, and investigate the motives of every person involved before affixing his signature as final approving authority, since heads of offices must rely to a reasonable extent on their subordinates and on the good faith of those who prepare bids, purchase supplies, or enter into negotiations.
• Computation of the five-day period for a demurrer — The non-extendible five-day period to file a motion for leave to file a demurrer to evidence runs only after the court rules on the prosecution's formal offer of evidence, since that is when the prosecution is deemed to have rested its case; a timely motion for reconsideration of that ruling prevents the prosecution from resting and restarts the period from receipt of the order of denial.
• Denial of leave to file a demurrer — remedy — An order denying a motion for leave to file a demurrer to evidence, or the demurrer itself, is not subject to appeal or certiorari before judgment; the remedy is to assign the denial as an error on appeal after judgment. Courts have wide latitude in denying demurrers.
• Presumption of regularity of COA audit reports — Section 56(3)(c) of P.D. 1445 requires adequate evidentiary support in the audit working papers of findings contained in audit reports, and the general proposition that this requirement has been obeyed shifts to the accused the burden of disproving the correctness of the report.

• "Bad faith connotes, not only bad judgment or negligence, but also a dishonest purpose or conscious wrongdoing." — The definition of the mental element of Section 3(e) of R.A. 3019, used as the yardstick for measuring the conduct of all three accused.
• "In Arias v. Sandiganbayan, the Court held that it would not do to take a shotgun approach when evaluating evidence in corruption cases. Liability must be pinpointed." — States the standard for establishing conspiracy and liability in graft prosecutions, which the SC used to reject the Sandiganbayan majority's inference of conspiracy against Miranda.
• "Her indorsement of the checks in question may be regarded as laxity but it does not amount to a criminal design." — The line separating negligence from evident bad faith, which grounded Miranda's acquittal.
• "an order denying a motion for leave of court to file demurrer to evidence or the demurrer itself is not subject to appeal or certiorari action before judgment. The remedy is to assign the order of denial as an error on appeal after judgment." — The procedural rule that defeated Reyes' certiorari petition despite the Sandiganbayan's erroneous computation of the five-day period.

• Arias vs. Sandiganbayan, 259 Phil. 794 (1989) — Controlling precedent for Miranda's acquittal: liability in corruption cases must be pinpointed, and a head of office may rely to a reasonable extent on subordinates.
• Dugayon vs. People, 479 Phil. 930 (2004) — Cited for the rule that bad faith, to support liability under Section 3(e), must be evident.
• Cabador vs. People, G.R. No. 186001, October 2, 2009, 602 SCRA 760 — Held that the five-day period to file a motion for leave to file a demurrer runs only after the court rules on the prosecution's formal offer of evidence.
• PAL Employees Savings and Loan Association, Inc. vs. National Labor Relations Commission, 329 Phil. 581 (1996) — Cited to establish that a motion for reconsideration of the ruling on the formal offer is allowed and prevents the prosecution from resting its case.
• Tan vs. Antazo, G.R. No. 187208, February 23, 2011, 644 SCRA 337 — Cited for the wide latitude of courts in denying demurrers to evidence, supporting the finding that no grave abuse of discretion attended the Sandiganbayan's ruling.
• Alarilla vs. Sandiganbayan, 393 Phil. 143 (2000) — Cited for the same rule on the court's wide latitude in denying the filing of demurrers to evidence.
• Tadeo vs. People, 360 Phil. 914 (1998) — Cited for the remedy: the denial of a demurrer is assigned as an error on appeal after judgment, not raised by certiorari before judgment.
• Spiegel vs. Beacon Participations, 8 NE 2nd Series, 895 — Cited for the definition of bad faith as connoting a dishonest purpose or conscious wrongdoing, not mere bad judgment or negligence.

• Section 3(e), R.A. 3019 (Anti-Graft and Corrupt Practices Act) — Penalizes 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; the SC applied it by requiring proof of evident bad faith, finding it absent as to Miranda and present as to Mendoza and Reyes.
• Section 23, Rule 119, Rules of Criminal Procedure — Requires that a motion for leave of court to file a demurrer to evidence state its grounds and be filed within a non-extendible period of five days after the prosecution rests its case; the SC held the period runs only after the court rules on the formal offer of evidence.
• Section 56(3)(c), P.D. 1445 (Government Auditing Code of the Philippines) — Requires adequate evidentiary support in the audit working papers of findings contained in audit reports; applied to uphold the COA special audit report against Reyes' challenge.
• Rule 131, Section 3(ff), Rules of Court — Establishes the presumption that official duty has been regularly performed; applied to shift to Reyes the burden of disproving the correctness of the audit report.
• LOI 1302 (March 25, 1983) — Provides that government-owned or controlled corporations shall transact their purchases or sales of government securities only with the Central Bank or government financial institutions, including banks wholly owned or controlled by them; applied against Mendoza, who dealt with Reyes instead.
• Executive Order No. 806, Section 10(b)(9) — Empowered IMC, with the approval of its Board of Directors, to invest its unscheduled funds pending their intended use; no board resolution authorized the Eurotrust placements.
• MECS Order No. 64, s. 1985, Section 13(c) — Required the Office of the General Manager to submit an annual report to the Board within 30 days after the close of the calendar year; used to reject the inference that Miranda had personal knowledge of the Eurotrust investments reflected in the 1989 annual report.