Albert vs. Gangan

A public officer who signs as the final approving authority of a disbursement that is later disallowed is not personally liable under Section 103 of Presidential Decree No. 1445 unless he is shown to be directly responsible for the violation — that is, there must be proof of bad faith, malice, or gross negligence, and his mere signature or reliance on subordinates’ certifications does not, without more, establish such direct responsibility.

The Housing and Urban Development Coordination Council, together with the Presidential Commission for Urban Poor, NHMFC, and Home Insurance Guarantee Corporation, formed an inter-agency committee that designed the Community Mortgage Program, a sub-program of the Unified Home Lending Program. The CMP allowed multiple beneficiaries to acquire an undivided tract of land through community ownership, aimed at assisting residents of blighted areas. Beneficiaries were required to form an accredited association or cooperative; loan applications were coursed through originators such as the National Housing Authority or non-government organizations. NHMFC Board Resolution No. 419 (1988) approved the CMP. In 1989, the Sapang Palay Community Development Foundation, Inc. applied for accreditation as an originator and, among several project sites, submitted the AMAKO Project — a 73-hectare property in Sta. Catalina, Angeles City, offered by Severino H. Gonzales, Jr. Construction Co., Inc. (SHGCCI) to the members of Alyansang Maka-Maralitang Asosasyon at Kapatirang Organisasyon (AMAKO).

• The Community Mortgage Program: The CMP was created by an inter-agency committee to enable residents of depressed areas to acquire land through community ownership and eventually build homes. Beneficiaries formed accredited associations; loan applications were processed through originators. NHMFC Board Resolution No. 419 (1988) approved the CMP, and subsequent resolutions expanded its guidelines. Appraisal of properties under the CMP was to be undertaken solely by the Home Insurance and Guarantee Corporation.

• The AMAKO Loan Transaction: On April 4, 1989, the Sapang Palay Community Development Foundation, Inc., headed by Nelson Concepcion (who was also head of the PCUP Housing and Settlement Division), applied for accreditation as an originator for the AMAKO Project. The project covered 73 hectares in Angeles City, offered by SHGCCI through its shareholder Engr. Ceres Pajaron to AMAKO members. After pre-evaluation and submission of documents, the Officer-in-Charge of the NHMFC Credit and Collection Group recommended a P36,800,000.00 purchase commitment line, approved by the NHMFC Credit Committee subject to board approval. The CMP Task Force, headed by Rogelio Olaguer, processed the application, and Olaguer personally inspected the site and assured petitioner that the project complied with CMP guidelines. On December 14, 1989, NHMFC issued a Letter of Guaranty to SHGCCI. Based on the Task Force’s recommendation and certifications, petitioner approved payment. On January 4, 1990, P36,796,711.55 was released to SHGCCI.

• The COA Disallowance: On September 3, 1990, the COA Resident Auditor disallowed the loan for: (a) non-submission of documentary requirements/non-complying or defective documents under NHMFC Corporate Circular No. CMP-001; and (b) irregular or excessive expenditure under COA Circular No. 85-55A. The auditor listed petitioner, as President, and several subordinate officers as personally liable.

• Petitioner’s Response: In June 1990, petitioner ordered a routine inspection and discovered the AMAKO Project was three months in arrears. He then tasked a committee to investigate originators. In September 1990, petitioner filed a letter-complaint with the Ombudsman against subordinate employees who appeared responsible for the fraud. The complaint was later withdrawn by his successor and re-filed with the Civil Service Commission. Petitioner also caused the filing of a civil case for sum of money, annulment, and damages against SHGCCI, AMAKO, the Foundation, and other responsible persons, later amended to include NHMFC and HIGC personnel. Petitioner requested lifting of the disallowance, which was denied, and pursued reconsideration with the COA.

• The COA Decisions: COA Decision No. 2700 (1993) held petitioner primarily liable under Section 103 of P.D. 1445, reasoning that the payment was irregular and excessive. On reconsideration, COA Decision No. 96-484 (1996) emphasized that petitioner was the final approving authority, that the CMP Task Force was under his direct supervision, and that his claim of good faith was overcome by the loss of government funds, additionally citing Section 3(9) of the Anti-Graft Law.

• Subsequent Developments: During the pendency of the petition, NHMFC foreclosed the mortgage on the AMAKO property, acquired it as highest bidder at public auction, and later sold the property to Vive Eagle Land, Inc. for P40,000,000.00, confirmed in November 1999.

• Absence of Bad Faith and Direct Participation: Petitioner maintained that he could not be held personally liable because the COA decisions contained no finding that he knowingly participated in any fraudulent scheme. He asserted that no evidence showed he acted with bad faith, malice, or gross negligence; his approval was based solely on the certifications and recommendations of the CMP Task Force.

• Reliance on Subordinates: Petitioner argued that as head of the agency, it was impractical to personally inspect and verify every detail of the AMAKO application given the volume of paperwork, and he was entitled to rely on the processing, review, and evaluation conducted by the responsible officers of the CMP Task Force.

• Misapplication of Section 103, P.D. 1445: Petitioner contended that the provision imposes personal liability only on the official “found to be directly responsible” for the irregularity, and his mere signature as final approving authority, without proof of direct participation, does not satisfy the statutory requisites.

• Vindication by His Own Actions: Petitioner pointed to his immediate filing of a complaint before the Ombudsman against the subordinates who appeared responsible for the fraud, as well as the civil case against the originator and other persons behind the misrepresentation, as proof that he had no knowledge of the fraudulent acts and did not consent to them.

• Final Approving Authority Liability: The COA, through its decisions, took the position that petitioner, as the final approving authority of the transaction, was primarily liable for the disallowed expenditure. It reasoned that the CMP Task Force was created in his own office and operated under his direct supervision; thus, misrepresentations by his subordinates made him responsible because they acted on his behalf and with his approval.

• Presumption of Good Faith Overcome: The COA ruled that petitioner’s claim of good faith and due diligence was a disputable presumption, overcome by the fact that loss of government funds resulted from an official action he authorized. It further invoked Section 3(9) of Republic Act No. 3019, declaring it unlawful to enter into a contract manifestly and grossly disadvantageous to the government, regardless of whether the officer profited.

• Discretionary Nature of Approval: The COA maintained that any transaction presented to petitioner for approval was subject to his discretion, and his reliance on the review conducted by subordinates was itself a discretionary choice for which he bore ultimate responsibility.

• Personal Liability: Whether the Commission on Audit committed grave abuse of discretion in holding petitioner personally liable for the disallowed loan under Section 103 of Presidential Decree No. 1445 solely on the basis of his being the final approving authority, absent any finding that he acted with bad faith, malice, or gross negligence, and without evidence of his direct participation in the irregularity.

• Personal Liability: The COA’s decisions were reversed and set aside. Mere status as head of an agency does not make the officer the party ultimately liable for disallowed expenses of questionable transactions. Petitioner, as the head of NHMFC, could not be held personally liable simply because he was the final approving authority and the processing officers were under his supervision. It would be improbable for him to check all details and conduct physical inspections given the volume of paperwork; he had to rely on certifications, recommendations, and memoranda of his subordinates. The processing, review, and evaluation of the loan application passed through the responsible officers of the CMP Task Force, who admittedly erred in discharging their duties. Moreover, the property valuation was undertaken by HIGC, an entity separate from NHMFC over which petitioner had no control or supervision. Under Arias v. Sandiganbayan, every person who signs or initials documents in the course of standard operating procedures does not automatically become a conspirator in a crime; knowledge of and active, knowing participation in the conspiracy must be proved by positive evidence. The COA’s reasoning that petitioner’s supervisory position and final approval sufficed to establish liability was non-sequitur. Section 103 of P.D. 1445 imposes personal liability only on the official “found to be directly responsible” for the unauthorized expenditure. No evidence showed petitioner had knowledge of the fraudulent scheme; to the contrary, he immediately filed a complaint with the Ombudsman and initiated a civil suit against the perpetrators — acts indicative of good faith. The COA decision lacked factual findings to support its conclusions, merely stating conclusions of law without specifying the hows and whys of the irregularity. Absent clear showing of bad faith, malice, or gross negligence, petitioner is presumed to have acted in the regular performance of official duty and cannot be held civilly liable. Consequently, respondent COA acted with grave abuse of discretion.

• Arias Doctrine (from Arias v. Sandiganbayan, 180 SCRA 309 [1989]) — 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. The mere signature or approval appearing on a voucher does not sustain a conspiracy charge or conviction; there must be other grounds showing knowing and personal participation. Setting a precedent that a head of office is automatically liable for every irregularity he signed off on would demand the impossible in large government offices.

• Pareño v. Sandiganbayan Doctrine (256 SCRA 242 [1996]) — Guilt for a crime arising from a transaction cannot be premised on the sole fact that an official was the last to sign along a long line of approving officers; there must be convincing proof of knowing, personal, and deliberate participation. Conspiracy must be established by positive evidence, not by inference from the routine affixing of a signature.

• Section 103, P.D. 1445 — Personal Liability for Unauthorized Expenditures — The provision makes an official personally liable for an expenditure of government funds in violation of law or regulations only if: (a) there was an expenditure of government funds; (b) the expenditure violated law or regulations; and (c) the official is found directly responsible therefor. Direct responsibility requires more than mere supervisory authority or final approval; it demands proof that the officer personally committed or knowingly participated in the wrong.

• Presumption of Regular Performance of Official Duty and Civil Liability (Paragraph 1, Section 38, Chapter 9, Book I, Administrative Code of 1987) — A public officer is presumed to have acted in the regular performance of official duties and cannot be held civilly liable for such acts unless there is a clear showing of bad faith, malice, or gross negligence.

• “The mere fact that a public officer is the head of an agency does not necessarily mean that he is the party ultimately liable in case of disallowance of expenses for questionable transactions of his agency. Petitioner, as head of the agency, cannot be held personally liable for the disallowance simply because he was the final approving authority of the transaction in question and that the officers/employees who processed the same were directly under his supervision.” — This passage distills the ratio decidendi that supervisory authority and final approval are not, by themselves, sufficient to impose personal liability under the Auditing Code.

• “We would be setting a bad precedent if a head of office plagued by all too common problems — dishonest or negligent subordinates, overwork, multiple assignments or positions, or plain incompetence — is suddenly swept into a conspiracy conviction simply because he did not personally examine every single detail, painstakingly trace every step from inception and investigate the motives of every person involved in a transaction before affixing his signature as the final approving authority.” — Quoted from Arias v. Sandiganbayan, this language reinforces the practical limits on an agency head’s ability to personally verify every transaction.

• “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.” — Another passage from Arias that encapsulates the policy rationale for not imposing automatic liability on signing officers.

• Arias v. Sandiganbayan, 180 SCRA 309 (1989) — Applied as controlling doctrine. The Supreme Court reiterated that a department head who signs a voucher as final approving authority is not automatically a conspirator in an illegal scheme; there must be additional grounds to sustain a charge.

• Pareño v. Sandiganbayan, 256 SCRA 242 (1996) — Followed. Reaffirmed that guilt cannot rest on the bare fact that an official was the last signatory; knowing personal and deliberate participation, proved by positive evidence, is required.

• Gomez v. Intermediate Appellate Court, 135 SCRA 620 (1985); Macadangdang v. Sandiganbayan, 170 SCRA 308 (1989) — Cited for the proposition that conspiracy must be proven by positive evidence, and the mere signing or initialing of documents in the course of routine processing does not establish participation in a conspiracy.

• Section 103, Presidential Decree No. 1445 (Government Auditing Code of the Philippines) — Provides that expenditures of government funds in violation of law or regulations shall be the personal liability of the official or employee “found to be directly responsible therefor.” Applied to mean that liability attaches only upon proof of direct responsibility, not on the basis of supervisory authority or approval simpliciter.

• Paragraph (1), Section 38, Chapter 9, Book I, Administrative Code of 1987 — States that a public officer shall not be civilly liable for acts done in the performance of official duties unless there is a clear showing of bad faith, malice, or gross negligence. Invoked to support the presumption of good faith and the absence of liability where no such showing was made.

• Section 3(9), Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act) — Cited by the COA to impute liability for entering into a manifestly grossly disadvantageous contract. The Supreme Court did not apply this penal provision in the civil/audit liability context, noting that the COA decision failed to provide factual basis for the charge.

Davide, Jr. C.J., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Quisumbing, Pardo, Gonzaga-Reyes, Ynares-Santiago, De Leon, Jr., and Sandoval-Gutierrez, JJ., concur.