J.A.B. Bulao & Associates

CASE 2011-0209: ZACARIA A. CANDAO, ABAS A. CANDAO AND ISRAEL B. HARON VS. PEOPLE OF THE PHILIPPINES AND SANDIGANBAYAN (G.R. NOS. 186659-710, 19 OCTOBER 2011, VILLARAMA, JR., J.) SUBJECT: MALVERSATION OF PUBLIC FUNDS. (BRIEF TITLE: CANDAO VS. PEOPLE).

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DISPOSITIVE:

WHEREFORE, the petition for review on certiorari is DENIED for lack of merit.  The Decision dated October 29, 2008 in Criminal Case Nos. 24569 to 24574, 24575, 24576 to 24584, 24585 to 24592, 24593, 24594, 24595 to 24620 finding petitioners guilty beyond reasonable doubt of the crime of Malversation of Public Funds under Article 217, paragraph 4 of the Revised Penal Code, as amended, and the Resolution dated February 20, 2009 of the Sandiganbayan (First Division), denying petitioners’ motion for reconsideration are AFFIRMED with MODIFICATIONS in that petitioners are instead accordingly sentenced to suffer an indeterminate prison term of ten (10) years and one (1) day of prision mayor maximum, as minimum, to seventeen (17) years and four (4) months of reclusion temporal medium, as maximum, in each of the above-numbered criminal cases. 

In addition to the payment of the fine ordered by the Sandiganbayan, and by way of restitution, the petitioners are likewise ordered to pay, jointly and severally, the Republic of the Philippines through the ARMM-Regional Treasurer, the total amount of P21,045,570.64 malversed funds as finally determined by the COA.

In the service of their respective sentences, the petitioners shall be entitled to the benefit of the three-fold rule as provided in Article 70 of the Revised Penal Code, as amended.

With costs against the petitioners.

SO ORDERED.

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FIRST DIVISION

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DECISION

VILLARAMA, JR., J.:

          Assailed in this petition for review on certiorari under Rule 45 is the Decision^[1][1] dated October 29, 2008 and Resolution^[2][2] dated February 20, 2009 of the Sandiganbayan (First Division) finding the petitioners guilty  beyond reasonable doubt of malversation of public funds under Article 217 of the Revised Penal Code, as amended. 

The Facts

          On August 5, 1993, Chairman Pascasio S. Banaria of the Commission on Audit (COA) constituted a team of auditors from the central office to conduct an Expanded Special Audit of the Office of the Regional Governor, Autonomous Region for Muslim Mindanao (ORG-ARMM).  State Auditors Heidi L. Mendoza (Team Leader) and Jaime Roxas (Member) were directed to conduct the said audit under the supervision of Jaime P. Naranjo (State Auditor V).  From August 24 to September 1, 1993, the expanded audit was thus conducted on the financial transactions and operations of ORG-ARMM for the period July 1992 to March 1993.

As stated in Special Audit Office (SAO) Report No. 93-25 submitted by the audit team, it was found that illegal withdrawals were made from the depository accounts of the agency through the issuance of checks payable to the order of petitioner Israel B. Haron (Disbursing Officer II) without the required disbursement vouchers.  The following are the details of the government accounts and the fifty-two (52) checks^[3][3] issued and encashed without proper supporting documents:

PNB Account No. 370-3208

Account No. 844061 (Treasurer of the Philippines)

                                                     GRAND TOTAL  =                 P21,045,570.64

          In a letter dated September 10, 1993, Chairman Banaria demanded from petitioner Haron to produce and restitute to the ARMM-Regional Treasurer immediately the full amount of P21,045,570.64 and submit his explanation within seventy-two (72) hours together with the official receipt issued by the ARMM Regional Treasurer in acknowledgment of such restitution.

         On April 17, 1998, the Office of the Special Prosecutor, Office of the Ombudsman-Mindanao, filed in the Sandiganbayan criminal cases for malversation of public funds against the following ORG-ARMM officials/employees: Zacaria A. Candao (Regional Governor), Israel B. Haron (Disbursing Officer II), Abas A. Candao (Executive Secretary) and Pandical M. Santiago (Cashier). They were charged with violation of Article 217 of the Revised Penal Code, as amended, under the following informations with identical allegations except for the varying date, number and amount of the check involved in each case:

Criminal Case Nos. 24569-24574, 24576-24584, 24593, 24595-24620^[4][4]

(42 counts involving checks in the total amount of P17,190,585.00)

That on or about 29 December 1992, in Cotabato City, Philippines, and within the jurisdiction of this Honorable Court, accused Israel B. Haron, a low-ranking public officer being the Disbursing Officer of the Office of the Regional Governor, and as such is responsible and accountable for the funds of the said office in the Autonomous Region in Muslim Mindanao, in connivance and in conspiracy with [Abas] Candao, Executive Secretary of the same office, who is a high ranking officer, while in the performance of their respective official functions, taking advantage of their official positions, and committing the offense in relation to their respective functions, with gross abuse of confidence, did then and there wilfully, unlawfully and feloniously withdraw the amount of  P500,000.00 from the depository account of the Office of the Regional Governor thru the issuance of Check No. 414431 dated 29 December 1992, payable to the order of accused Israel B. Haron, without the required disbursement voucher and once in possession of the said amount withdrawn, wilfully, unlawfully and feloniously take, misappropriate, embezzle and convert to their own personal use and benefit the amount of P500,000.00, to the damage and prejudice of the government in the aforesaid sum as abovestated.

CONTRARY TO LAW.

Criminal Case Nos. 24585- 24592 and 24594^[5][5]

(9 counts involving checks in the total amount of P3,854,985.64)

That on or about 18 February 1993, in Cotabato City, Philippines, and within the jurisdiction of this Honorable Court, accused Israel B. Haron, a low-ranking public officer being the Disbursing Officer of the Office of the Regional Governor, and as such is responsible and accountable for the funds of the said office in the Autonomous Region in Muslim Mindanao, in connivance and in conspiracy with Zacaria Candao, Regional Governor of the same office, who is a high ranking officer, while in the performance of their respective official functions, taking advantage of their official positions, and committing the offense in relation to their respective functions, with gross abuse of confidence, did then and there wilfully, unlawfully and feloniously withdraw the amount of P500,000.00 from the depository account of the Office of the Regional Governor thru the issuance of Check No. 461803 dated 18 February 1993, payable to the order of accused Israel B. Haron, without the required disbursement voucher and once in possession of the said amount withdrawn, wilfully, unlawfully and feloniously take, misappropriate, embezzle and convert to their own personal use and benefit the amount of P500,000.00, to the damage and prejudice of the government in the aforesaid sum as abovestated.

CONTRARY TO LAW.

Criminal Case No. 24575^[6][6]

That on or about 13 January 1993, in Cotabato City, Philippines, and within the jurisdiction of this Honorable Court, accused Israel B. Haron, a low-ranking public officer being the Disbursing Officer of the Office of the Regional Governor, and as such is responsible and accountable for the funds of the said office in the Autonomous Region in Muslim Mindanao, in connivance and in conspiracy with Pandical Santiago and [Abas] Candao, Cashier and Executive Secretary, respectively, of the same office, while in the performance of their respective official functions, taking advantage of their official positions, and committing the offense in relation to their respective functions, with gross abuse of confidence, did then and there wilfully, unlawfully and feloniously withdraw the amount of P120,000.00 from the depository account of the Office of the Regional Governor thru the issuance of Check No. 968751 dated 13 January 1993, payable to the order of accused Israel B. Haron, without the required disbursement voucher and once in possession of the said amount withdrawn, wilfully, unlawfully and feloniously take, misappropriate, embezzle and convert to their own personal use and benefit the amount of P120,000.00, to the damage and prejudice of the government in the aforesaid sum as abovestated.

CONTRARY TO LAW.

          At their arraignment, all accused pleaded not guilty to the charge of malversation.  In the meantime, accusedSantiagodied and consequently the case against him in Criminal Case No. 24575 was dismissed.

           The prosecution’s lone witness was Heidi L. Mendoza,^[7][7] COA State Auditor IV.  She testified that their expanded audit, conducted from August 24 to September 1, 1993, disclosed the illegal withdrawals of funds from the PNB and Treasury accounts of ORG-ARMM involving 52 checks issued without the required disbursement vouchers.  Specifically, their attention was caught by the fact that the Report of Checks Issued by the Deputized Disbursing Officer (RCIDDO) showed that the subject 52 checks have no assigned voucher numbers. The audit team demanded for the original of said RCIDDO for the months of December 1992, February and March 1993, which were supposed to be prepared and submitted by the disbursing officer, but the ORG-ARMM did not submit the same.  In a letter dated August 24, 1993, the COA likewise made a demand from the Regional Governor through the resident auditor for the production of the original disbursement vouchers and complete supporting documents of the subject checks.^[8][8]

          In response, the Finance and Budget Management Services of ORG-ARMM informed the audit team that the vouchers were already submitted to COA Resident Auditor, Supervising State Auditor IV Rosalinda Gagwis, purportedly under transmittal letters dated March 4 and March 30, 1993.  Mendozathen personally verified from Gagwis who denied having received the subject vouchers and issued a certification to that effect.  In a letter dated September 10, 1993, Chairman Banaria finally demanded for the restitution of the funds illegally withdrawn through the issued 52 checks and to comply with such demand within 72 hours from receipt of said letter.   As to the absence of her signature in the audit report, she explained that she was already on maternity leave when the interim report (SAO Report No. 93-25) was submitted.  However, she, together with audit team member Jaime B. Roxas executed a Joint Affidavit dated May 17, 1996 regarding their conduct of the expanded audit and their findings and recommendation.  Although Haron submitted copies of disbursement vouchers to the COA receiving clerk, this was made beyond the 72-hour deadline given to them.^[9][9]

          On cross-examination, witness Mendoza was asked if the audit team had informed the office or parties concerned that they are going to be audited (entry conference).  She replied that this was a sensitive assignment, recalling that they were threatened after their identities were established during the earlier audit of the same office such that she had to be brought back to Manila. At that time, the Regional Governor was accused Candao.  Hence, during the expanded audit, the team was unable to proceed as in ordinary situations.  While they did an entry conference during the previous main audit, they were unable to do so at the time of the expanded audit. Again for security reasons, the team also did not conduct an exit conference after field work; they would be risking their lives if they discuss there and then their findings.  Due to threat to her life, it was her team supervisor (Naranjo) and member (Roxas) who personally retrieved the documents in CotabatoCity.  She admitted the belated submission of original vouchers (October 29, 1993) to the COA central office but these are without supporting documents.^[10][10]

          For the accused, the first witness was Nick Luz Aduana who was the Director of Finance of ORG-ARMM from July 1991 until his resignation in March 1993.  He testified that his functions then include the supervision and overseeing of the three divisions: Budget, Accounting and Management.  When report of the audit team came out, he was surprised because they were not informed of the audit. He was familiar with the 52 checks because the disbursement vouchers passed through his office. He explained the procedure with respect to the processing of cash advances as follows:  generally, there were cash advances made in ARMM which cover travels, salaries, etc. but particularly for “peace and order campaign,” it emanates from the ORG when the Regional Governor issues an authority for cash advance, and then they process the voucher (Finance and Budget Management Services); once their division have performed their accounting functions relative to the vouchers, the same are forwarded to the Regional Governor for approval or in his absence to his Executive Secretary; after the approval of the voucher, it will be forwarded to the Cash Division for the issuance of check; the person who will liquidate the cash advance is usually the employee mentioned in the voucher; and after they have prepared all the liquidation papers, these are submitted to the Budget and Management Division before forwarding them to the COA Auditor.  He maintained that the original disbursement vouchers have already been submitted to the COA Special Audit Office.  Since 1991, they have never received any notice of disallowance of their disbursements, including those intended for “peace and order campaign.”  Being the first ARMM set of officials, they had sought the advice of their Auditor as to proper accounting procedures;  they followed the advice of Auditor Gagwis who said that there should be authority to cash advance coming from the Regional Governor which should be given to the Disbursing Officer.  He identified the vouchers presented by the defense as the ones processed by their division with the corresponding amounts reflected therein.  Insofar as the expanded audit is concerned, they were not given the opportunity to defend the case as they were not given the so-called exit conference.^[11][11]

          On cross-examination, witness Aduana hinted on political reasons why an expanded audit was conducted when Regional Governor Pagdanganan assumed office despite the fact that an earlier audit was already made during the administration of Governor Candao.  He claimed that he did not receive any copy of the demand letter dated August 24, 1993; he was no longer connected with ARMM at the time.  He also maintained that the disbursement vouchers were processed by their office and entered into their books of account. However, when asked what happened to these books of account, Aduana said these are with the Office of the Regional Governor.  He admitted that the only supporting document for the checks and vouchers were the authority to cash advance; the “peace and order campaign” disbursement is peculiar to ARMM and hence they did not know what supporting documents to attach.  When queried about the particular activities covered by this “peace and order campaign” disbursement, Aduana admitted that he really does not know the breakdown of expenses or for what items in particular were the disbursed amounts spent. Their division merely processed the disbursement vouchers that were prepared by the ORG, and while his signature appears in said vouchers his role was limited to certifying the availability of funds.^[12][12]

          The next witness, Rosalinda G. Gagwis, former COA Resident Auditor of ORG-ARMM, testified that in 1991 she was the Chief of the Operation and Review Division (ORD), COA Region XII which at the time has jurisdiction over ORG-ARMM; she was Auditor-in-Charge of ORG-ARMM only up to March 8, 1993 when the separation of COA Region XII personnel and COA-ARMM was implemented.  Among her duties as such Auditor-in-Charge was to conduct a post-audit of the financial transactions of ORG-ARMM.  In the course of the expanded audit of ORG-ARMM, she was requested to issue  the Certification dated August 27, 1993 stating that she has not received the January to March 1993 vouchers as stated in the letter of Haron.  Subsequently, on July 22, 1998 she executed a two-page Affidavit because she has been hearing that her previous Certification was misinterpreted to mean that the subject vouchers were “not existing.”  She then clarified that actually, ORG-ARMM tried to submit bundles of vouchers to her office but she refused to accept them because she was no longer Auditor-in-Charge of that office as there was already an order separating COA-Regional Office XII from the COA-ARMM.   She confirmed that when ARMM was a newly created agency, its officers (Aduana, Brigida Fontanilla and Bartolome Corpus) sought her advice regarding accounting procedures.  Prior to submission to her office for post-audit, the accountable officers like the Cashier and Disbursement Officer prepares and submits a Monthly Report of Disbursements to the Accounting Division which, within ten days from receipt and recording in the Books of Accounts, shall submit the same to the auditor for post-audit custody.  Based on her experience, however, this deadline was not strictly observed as 25% to 50% of the national agencies are delayed in the submission of such reports.  The usual reasons given were the geographical locations of the offices in Region XII and ARMM, lack of manpower due to budgetary constraints and lack of know-how of personnel regarding accounting and auditing procedures, especially if there is a change in administration.  As far as she can recall, their office had not issued a notice of disallowance to ORG-ARMM although notices of suspension have been issued for minor deficiencies noted during post-audit; these notices of suspension were usually complied with by the agency.^[13][13]

          On cross-examination, witness Gagwis said that upon seeing the bundles of vouchers being submitted to her office, she immediately refused to accept, and sort of “washed her hands” by telling her staff that they were no longer incharge of ORG-ARMM.  She did not actually scan those documents and examine their contents. She also did not receive the Monthly Report of Disbursements from said office. As to the execution of the July 22, 1998 Affidavit, she insisted that she did it voluntarily five years later in order to clarify herself after hearing about the case filed in the Sandiganbayan and her name was being dragged because of the Certification she made in August 1993.  As to the earlier Certification, she maintained that she did not receive the subject vouchers and she does not know where these documents are at present.^[14][14]

           Another witness, Brigida C. Fontanilla, Chief Accountant, ORG-ARMM, testified that her duties and responsibilities include the processing, updating and recording of transactions of ORG-ARMM in the books of accounts while vouchers are recorded in the Journal of Analysis and Obligations (JAO).  They also prepared financial reports.  As to cash advances, she explained that the procedure starts with the preparation of the voucher at ORG which also issues the authority to withdraw cash advance which is attached to the disbursement voucher and supporting documents, afterwhich it is forwarded to the Finance and Budget Management Services for processing: there, it is first submitted to the Budget Division for the request for allotment of obligation, and next forwarded to the Accounting Division for the journal entry of obligation and recording in the books of account, and then the documents are forwarded to the Office of the Finance Director for his approval, and thereafter returned back to the ORG for final approval for the issuance of the check.  Presently, their office is more systematic and organized than it was during the administration of Governor Candao.  Sometime in 1994 during the investigation by the Office of the Ombudsman relative to the subject illegal withdrawals, she was summoned to produce the Cash Receipts Book and Cash Disbursement Book of the 1991 ARMM seed money for regional, provincial and district Impact Infrastructure Projects.   However, she was not able to comply with the said directive because such books are not among those required by the COA for their office; what the COA directed them to maintain was the JAO, a book of original entry for allotments received and disbursements for the transactions of ORG-ARMM. She wrote a letter-reply to the Ombudsman Investigator and transmitted the original 1992 JAO which was never returned to their office.^[15][15] 

          Explaining the contents of the JAO, witness Fontanilla said that the entries in the voucher are recorded therein: an obligation number is placed in the request of allotment (ROA) which also appears in the voucher.  Before such recording in the JAO, the disbursement vouchers are presented to their office.  Actually, she does not know whether the 1992 JAO still exists or with the Ombudsman Investigator because at the time, they were holding office temporarily at the office of ORG Auditor which unfortunately got burned sometime in 1996.^[16][16]

          As for witness Bartolome M. Corpus, his deposition upon oral examination was taken on August 27, 2004 before Atty. Edipolo Sarabia, Clerk of Court, RegionalTrialCourtofDavaoCity.  He testified that in 1991 he was appointed Chief of the Management Division of the Finance and Budget Management Services (FBMS), ORG-ARMM.  He was placed on floating status for three years by the new Chief of Staff of ORG-ARMM (Nasser Pangandaman) upon the election of a new Regional Governor, Lininding Pangandaman who defeated Governor Candao. As Finance Director, it was his responsibility to review all transactions of the ORG-ARMM and see to it that COA regulations are in place and supporting documents are complete.  After reviewing documents, which include disbursement vouchers, his office submits the same to the COA Regional Officer or to the COA Resident Auditor.  Being the internal control unit of ORG-ARMM, all transactions and supporting documents must pass through his office.  As to the transactions covered by the subject 52 checks, he confirmed that these passed through his office, including the disbursement vouchers, afterwhich these were forwarded to the Accounting Office and then to the Cash Division for issuance of checks. He claimed that his subordinates tried to submit the disbursement vouchers to the Resident Auditor, as shown by the transmittal letters dated March 4 and March 30, 1993.  However, Ms. Gagwis refused to accept the vouchers because she was no longer the Resident Auditor at the time. During the time of Governor Candao, he does not recall having received any notice of disallowance from the COA although there were times they received a notice of suspension which had been settled.  During the time he was on floating status, he discovered that some vouchers including those original vouchers covered by the subject 52 checks were still in his filing cabinet.  He then handed them over to Haron.  In 1996, he was reinstated by Governor Nur Misuari.^[17][17]

          On cross-examination, witness Corpus said that they tried to submit the vouchers to Gagwis sometime in late March or early April 1993.  He was not aware of the August 27, 1993 Certification issued by Gagwis.  When asked about the stated purpose “peace and order campaign” in the cash advance vouchers, he confirmed that this was the practice at that time and it was only during liquidation that ORG will have the list of expenses; the supporting documents will come only after the issuance of the check.^[18][18]   On re-direct examination, he maintained that there were previous similar vouchers for “peace and order campaign” which have not been disallowed but only suspended by the COA.^[19][19]

Sandiganbayan Ruling

          By Decision dated October 29, 2008, the Sandiganbayan found petitioner Haron guilty beyond reasonable doubt of malversation of public funds under Article 217 of the Revised Penal Code, as amended, committed in conspiracy with petitioners Zacaria A. Candao and Abas A. Candao who were likewise sentenced to imprisonment and ordered to pay a fine equivalent to the amount of the check in each case, as follows:

Criminal Case Nos. 24569-24584,

24593, 24595-24620

         Israel B. Haron and Abas A. Candao –  convicted of 43 counts of Malversation of Public Funds and each was sentenced to indeterminate prison term in each case of ten (10) years and one (1) day of prision mayor, as minimum, to eighteen (18) years, eight (8) months and one (1) day of reclusion temporal, as maximum, and ordered to pay a fine in each case equivalent to the particular check involved, without subsidiary imprisonment in case of insolvency and the penalty of perpetual special disqualification to hold public office and other accessory penalties provided by law.  In the service of their respective sentences, they shall be entitled to the benefit of the three-fold rule as provided in Art. 70 of the Revised Penal Code, as amended.

Criminal Case Nos. 24585-24592 & 24594

         Israel B. Haron and Zacaria A. Candao – convicted of 9 counts of Malversation of Public Funds and each was sentenced to indeterminate prison term in each case of ten (10) years and one (1) day of  prision mayor as minimum, to eighteen (18) years, eight (8) months and one (1) day of reclusion temporal, as maximum, and ordered to pay a fine in each case equivalent to the particular check involved, without subsidiary imprisonment in case of insolvency and the penalty of perpetual special disqualification to hold public office and other accessory penalties provided by law. In the service of their respective sentences, they shall be entitled to the benefit of the three-fold rule as provided in Art. 70 of the Revised Penal Code, as amended.^[20][20]

          The Sandiganbayan found no merit in petitioners’ claim that the subject checks were covered by existing disbursement vouchers which were belatedly submitted and received by the COA Central Office on October 29, 1993. It said that had those vouchers really existed at the time of the 52 withdrawals petitioners made from December 29, 1992 to March 30, 1993, petitioner Haron could have readily produced them when required to do so by the special audit team on August 24, 1993.  Said court likewise did not give credence to the testimony of Corpus in view of the August 27, 1993 Certification issued by then COA Auditor Gagwis that she has not received the vouchers mentioned in the transmittal letters.  Gagwis’ explanation, on the other hand, contradicted the testimony of Corpus that when he returned to his office sometime in May 1993, he found the original vouchers together with the transmittal letters still there in his filing cabinet and have not been submitted to the COA Resident Auditor.

          The Sandiganbayan noted that petitioners presented no proof that the cash advances intended for “peace and order campaign” were spent for public purposes, as in fact the alleged disbursement vouchers did not indicate any detail as to the nature of the expense/s such as purchase of equipment, services, meals, travel, etc. and there were no supporting documents such as the Request for Issuance of Voucher, Purchase Request and Inspection Report of the items supposedly purchased.  More importantly, the vouchers were not accomplished in accordance with existing COA circulars because they are unnumbered and undated.  Hence, the belatedly submitted vouchers are of doubtful veracity or origin, nay, a fabricated evidence or, as pointed out by the prosecution, “self-serving or an afterthought, belatedly prepared to give the illegal disbursements amounting to the aggregate amount of more than P21M, a semblance of regularity.”^[21][21]  As to the JAO and Certification dated August 18, 1998 issued by Chief Accountant Fontanilla, the Sandiganbayan found there is nothing therein to indicate the particular disbursement voucher that corresponds to each of the subject 52 checks which were neither reflected in the JAO. 

          With respect to petitioners’ assertion that the audit conducted by the COA special audit team was incomplete and tainted as it did not follow procedures because the person audited were not notified thereof, the Sandiganbayan found these allegations unsubstantiated as in fact at the start of the audit on August 24, 1993, the audit team thru their team leader State Auditor Naranjo, informed the management of ORG-ARMM thru the COA Resident Auditor of the expanded special audit to be conducted as they even requested for the original copies of the disbursement vouchers together with their complete supporting documents covering the 52 checks.  But despite said letter, the ORG-ARMM failed to heed the audit team’s request.  For the failure of petitioner Haron to account for the funds involved in the illegal withdrawals when asked to do so, the presumption arose that he misappropriated the same, which presumption was not overcome by defense evidence.

          On the respective liabilities of petitioners Zacaria A. Candao and Abas A. Candao, the Sandiganbayan held that by their act of co-signing the subject checks, petitioner Haron was able to consummate the illegal withdrawals without the required disbursement vouchers of the amounts covered by the 43 checks (for Abas) and 9 checks (for Zacaria).  Thus, by their collective acts, said court concluded that petitioners conspired to effect the illegal withdrawals of public funds which, when required by the COA to be properly accounted for, petitioners failed to do so.

In its Resolution dated February 20, 2009, the Sandiganbayan denied the prosecution’s motion to cancel bail bonds and petitioners’ motion for reconsideration.

The Petition

          Petitioners raised the following grounds for their acquittal:

1.   …THE SANDIGANBAYAN…COMMITTED A REVERSIBLE ERROR IN CONVICTING THE ACCUSED PETITIONERS FOR THE CRIME OF MALVERSATION OF PUBLIC FUNDS DESPITE PROOF POSITIVE THAT, CONTRARY TO WHAT THE INFORMATIONS CHARGED, THERE WERE DISBURSEMENT VOUCHERS EXCEPT THAT THE COA REFUSED TO ACCEPT MUCH LESS EXAMINE THE SAME.  PETITIONERS WERE THUS DENIED DUE PROCESS OF LAW WHEN THEY WERE CONVICTED FOR OFFENSES NOT COVERED BY THE INFORMATIONS AGAINST THEM.

2.   ….THE SANDIGANBAYAN COMMITTED A REVERSIBLE ERROR IN NOT APPLYING THE “EQUIPOISE RULE” WHICH IF APPLIED WOULD HAVE RESULTED IN THE ACQUITTAL OF THE ACCUSED-PETITIONERS.

3.   … THE SANDIGANBAYAN COMMITTED A REVERSIBLE ERROR IN CONVICTING ACCUSED PETITIONERS ZACARIA A. CANDAO AND ABAS A. CANDAO DESPITE THE FACT THAT THE CHARGE OF CONSPIRACY WHICH IS THEIR ONLY LINK TO THE OFFENSES HEREIN HAS NOT BEEN PROVEN BEYOND REASONABLE DOUBT.^[22][22]

Our Ruling

          The petition has no merit.

Article 217 of the Revised Penal Code, as amended, provides:

Art. 217.  Malversation of public funds or property –Presumption of malversation.  – Any public officer who, by reason of the duties of his office, is accountable for public funds or property, shall appropriate the same, or shall take or misappropriate or shall consent, or through abandonment or negligence, shall permit any other person to take such public funds or property, wholly or partially, or shall otherwise be guilty of the misappropriation or malversation of such funds or property, shall suffer:

1.         The penalty of prision correccional in its medium and maximum periods, if the amount involved in the misappropriation or malversation does not exceed two hundred pesos.

2.         The penalty of prision mayor in its minimum and medium periods, if the amount involved is more than two hundred pesos but does not exceed six thousand pesos.

3.         The penalty of prision mayor in its maximum period to reclusion temporal in its minimum period, if the amount involved is more than six thousand pesos but is less than twelve thousand pesos.

4.         The penalty of reclusion temporal in its medium and maximum periods, if the amount involved is more than twelve thousand pesos but is less than twenty-two thousand pesos.  If the amount exceeds the latter, the penalty shall be reclusion temporal in its maximum period to reclusion perpetua.

In all cases, persons guilty of malversation shall also suffer the penalty of perpetual special disqualification and a fine equal to the amount of the funds malversed or equal to the total value of the property embezzled.

The failure of a public officer to have duly forthcoming any public fund or property with which he is chargeable, upon demand by any duly authorized officer, shall be prima facie evidence that he has put such missing funds or property to personal uses. (Emphasis supplied.)

          The following elements are essential for conviction in malversation cases:

1.      That the offender is a public officer;

2.      That he had custody or control of funds or property by reason of the duties of his office;

3.      That those funds or property were public funds or property for which he was accountable; and

4.      That he appropriated, took, misappropriated or consented or, through abandonment or negligence, permitted another person to take them.^[23][23]

All the foregoing elements were satisfactorily established by the prosecution in this case.  Petitioners have not rebutted the legal presumption that with the Disbursing Officer’s (Haron) failure to account for the illegally withdrawn amounts covered by the subject checks when demanded by the COA, they misappropriated and used the said funds for their personal benefit.

Petitioners however assert that their convictions were based solely on the Sandiganbayan’s conclusion that the vouchers submitted by the defense were illegal or irregular, whereas the informations simply alleged their absence or non-existence.  They contend that said court could not have validly assessed the disbursement vouchers as to their legality because that duty pertains to the COA which refused and failed to examine the same.  Had the court allowed the COA to evaluate and make a ruling on the validity of the vouchers, the result would have been different and most probably they would have been acquitted of the crime charged.

We are not persuaded by petitioners’ asseveration.

The Sandiganbayan categorically ruled that the disbursement vouchers were inexistent at the time of the issuance of the subject checks and expanded special audit based on its findings that: (1) petitioner Haron could not produce the vouchers upon demand by the COA in August 1993; (2) Resident Auditor Gagwis certified at about the same time that to date she has not received the vouchers mentioned in the supposed transmittal letters of March 4 and March 30, 1993; (3) the entries in the duly certified Report of Checks Issued by Deputized Disbursing Officer (RCIDDO) of the late Pandical M. Santiago, Cashier of ORG-ARMM, showed that for the months of January, February and March 1993, there were indeed entries of checks issued with Haron as payee but no disbursement voucher numbers  as these were either lacking, detached or missing,  and which were verified by the audit team as corresponding to the subject 52 checks issued and signed by petitioners and encashed by petitioner Haron who received the money withdrawn from the government depositary accounts; (4) FBMS Chief Corpus testified that he discovered the supposed vouchers still there at his office filing cabinet in May 1993 when these supposedly have already been submitted to the COA Resident Auditor as reflected in the March 4 and March 30, 1993 transmittal letters; and (5) the supposed original disbursement vouchers belatedly submitted to the COA central office last week of October 1993, were undated and unnumbered with no supporting documents as required by COA Circular No. 78-79 (April 5, 1978).  

Contrary to petitioners’ claim, the special audit team could not have examined the vouchers presented by the defense (Exhibits “1” to “1-A-43”) because the only indication of its actual receipt by the COA as admitted by the prosecution, was on October 23, 1993 long after the expanded audit was completed and beyond the 72-hour deadline specified in the September 10, 1993 demand letter addressed to Haron for the restitution of the total amount of illegal withdrawals.  In addition, such disbursement vouchers have no supporting documents as required by COA Circular No. 92-389 dated November 3, 1992.  On the other hand, the Certification dated August 18, 1998 issued by ARMM Chief Accountant Fontanilla stating that the vouchers were regular because these were properly recorded in the JAO, was not given credence by the Sandiganbayan.  Upon scrutiny of the JAO covering the period January to March 1993, said court found that it failed to indicate the particular disbursement voucher that corresponds to each of the 52 checks, aside from the fact that it was prepared by the ARMM Chief Accountant who is under the control and supervision of the ORG.  Notably, the JAO is used to summarize obligations incurred and to monitor the balance of unobligated allotments, which is prepared by function, and project for each fund and allotment class.^[24][24]   The JAO is thus separate and distinct from the Report of Checks Issued (RCI) which is prepared by the Disbursing Officer to report checks issued for payment of expenditures and/or prior accounts payable.  What is clear is that the disbursement of funds covered by the 52 checks issued by the petitioners are subject to the rule that disbursement voucher “shall be used by all government entities for all money claims” and that the “voucher number shall be indicated on the voucher and on every supporting document.”^[25][25]  Inasmuch as the JAO for the months of January, February and March 1993 do not at all reflect or indicate the number of each of the disbursement vouchers supposedly attached to the 52 checks, it cannot serve as evidence of the recording of the original vouchers, much less the existence of those disbursement vouchers at the time of the issuance of the 52 checks and the conduct of the expanded audit.

Petitioners further raise issue on the regularity, completeness and objectivity of the expanded audit conducted by the COA.  However, records showed that the ORG-ARMM were duly notified of the expanded audit at its commencement and was even requested thru the COA Resident Auditor to submit the needed disbursement vouchers.  It must be noted that at an earlier date, a main audit had already been conducted for the financial transactions of ORG-ARMM during which State Auditor Mendoza experienced threats against her own security that she had to be immediately recalled from her assignment.  Thus, by the time the expanded audit was conducted in August 1993 upon the directive of the COA Chairman, petitioners, especially Haron, should have seen to it that the records of disbursements and financial transactions including the period January to March 1993, were in order and available for further audit examination.  In any case, even if there was no so-called entry conference held, there is absolutely no showing that petitioners were denied due process in the conduct of the expanded audit as they simply refused or failed to heed COA’s request for the production of disbursement vouchers and likewise ignored the formal demand made by COA Chairman Banaria for the restitution of the illegally withdrawn public funds,  submitting their compliance only after the special audit team had submitted their report.

In fine, the Sandiganbayan committed no reversible error in holding that the testimonial and documentary evidence presented by the petitioners failed to overcome the prima facie evidence of misappropriation arising from Haron’s failure to give a satisfactory explanation for the illegal withdrawals from the ARMM funds under his custody and control.  Petitioners likewise did not accomplish the proper liquidation of the entire amount withdrawn, during the expanded audit or any time thereafter.  There is therefore no merit in petitioners’ argument that the Sandiganbayan erred in not applying the equipoise rule.

Under the equipoise rule, where the evidence on an issue of fact is in equipoise or there is doubt on which side the evidence preponderates, the party having the burden of proof loses. The equipoise rule finds application if the inculpatory facts and circumstances are capable of two or more explanations, one of which is consistent with the innocence of the accused and the other consistent with his guilt, for then the evidence does not fulfill the test of moral certainty, and does not suffice to produce a conviction.^[26][26] Such is not the situation in this case because the prosecution was able to prove by adequate evidence that Disbursing Officer Haron failed to account for funds under his custody and control upon demand, specifically for the P21,045,570.64  illegally withdrawn from the said funds.   In the crime of malversation, all that is necessary for conviction is sufficient proof that the accountable officer had received public funds, that he did not have them in his possession when demand therefor was made, and that he could not satisfactorily explain his failure to do so.  Direct evidence of personal misappropriation by the accused is hardly necessary in malversation cases.^[27][27]

As to the liability of petitioners Zacaria A. Candao and Abas A. Candao, the Sandiganbayan correctly ruled that they acted in conspiracy with petitioner Haron to effect the illegal withdrawals and misappropriation of ORG-ARMM funds.

Conspiracy exists when two or more persons come to an agreement concerning the commission of a felony and decide to commit it.  Conspiracy need not be proved by direct evidence and may be inferred from the conduct of the accused before, during and after the commission of the crime, which are indicative of a joint purpose, concerted action and concurrence of sentiments.  In conspiracy, the act of one is the act of all.  Conspiracy is present when one concurs with the criminal design of another, indicated by the performance of an overt act leading to the crime committed.  It may be deduced from the mode and manner in which the offense was perpetrated.^[28][28]

In this case, petitioners Zacaria A. Candao and Abas A. Candao were co-signatories in the subject checks issued without the required disbursement vouchers.  Their signatures in the checks, as authorized officials for the purpose, made possible the illegal withdrawals and embezzlement of public funds in the staggering aggregate amount of P21,045,570.64.

Petitioners Zacaria A. Candao and Abas A. Candao assail their conviction as co-conspirators in the crime of malversation contending that their only participation was in the ministerial act of signing the checks.  The checks having passed through processing by finance and accounting personnel of ORG-ARMM, petitioners said they had to rely on the presumption of regularity in the performance of their subordinates’ acts.  Furthermore, they assert that since conspiracy requires knowledge of the purpose for which the crime was committed, they could not have been conspirators in the design to defraud the government.

We disagree with such postulation.

As the Regional Governor of ARMM, petitioner Zacaria A. Candao cannot exonerate himself from liability for the illegally withdrawn funds of ORG-ARMM.  Under Section 102 (1) of the Government Auditing Code of the Philippines, he is responsible for all government funds pertaining to the agency he heads:

Section 102. Primary and secondary responsibility. – (1) The head of any agency of the government is immediately and primarily responsible for all government funds and property pertaining to his agency.

x x x x (Emphasis supplied.)

          Petitioners Zacaria A. Candao and his Executive Secretary Abas A. Candao are both accountable public officers within the meaning of Article 217 of the Revised Penal Code, as amended.  No checks can be prepared and no payment can be effected without their signatures on a disbursement voucher and the corresponding check. In other words, any disbursement and release of public funds require their approval,^[29][29] as in fact checks issued and signed by petitioner Haron had to be countersigned by them. Their indispensable participation in the issuance of the subject checks to effect illegal withdrawals of ARMM funds was therefore duly established by the prosecution and the Sandiganbayan did not err in ruling that they acted in conspiracy with petitioner Haron in embezzling and misappropriating such funds.

Moreover, as such accountable officers, petitioners Zacaria A. Candao and Abas A. Candao were charged with the duty of diligently supervising their subordinates to prevent loss of government funds or property, and are thus liable for any unlawful application of government funds resulting from negligence, as provided in Sections 104 and 105 of the Government Auditing Code of the Philippines, which read:

Sec. 104.  Records and reports required by primarily responsible officers. – The head of any agency or instrumentality of the national government or any government-owned or controlled corporation and any other self-governing board or commission of the government shall exercise the diligence of a good father of a family in supervising accountable officers under his control to prevent the incurrence of loss of government funds or property, otherwise he shall be jointly and solidarily liable with the person primarily accountable therefor.  x x x x

Sec. 105.  Measure of liability of accountable officers. x x x

(2) Every officer accountable for government funds shall be liable for all losses resulting from the unlawful deposit, use, or application thereof and for all losses attributable to negligence in the keeping of the funds.

The fact that ARMM was still a recently established autonomous government unit at the time does not mitigate or exempt petitioners from criminal liability for any misuse or embezzlement of public funds allocated for their operations and projects. The Organic Act for ARMM (R.A. No. 6734) mandates that the financial accounts of the expenditures and revenues of the ARMM are subject to audit by the COA.^[30][30] Presently, under the Amended Organic Act (R.A. No. 9054), the ARMM remained subject to national laws and policies relating to, among others, fiscal matters and general auditing.^[31][31]   Here, the prosecution successfully demonstrated that the illegal withdrawals were deliberately effected through the issuance of checks without the required disbursement vouchers and supporting documents.  And even if petitioners Zacaria A. Candao and Abas A. Candao invoke lack of knowledge in the criminal design of their subordinate, Disbursing Officer Haron, they are still liable as co-principals in the crime of malversation assuming such misappropriation of public funds was not intentional, as alleged in the informations, but due to their negligence in the performance of their duties. As this Court ratiocinated in Cabello v. Sandiganbayan^[32][32]:

Besides, even on the putative assumption that the evidence against petitioner yielded a case of malversation by negligence but the information was for intentional malversation, under the circumstances of this case his conviction under the first mode of misappropriation would still be in order. Malversation is committed either intentionally or by negligence. The dolo or the culpa present in the offense is only a modality in the perpetration of the felony. Even if the mode charged differs from the mode proved, the same offense of malversation is involved and conviction thereof is proper. A possible exception would be when the mode of commission alleged in the particulars of the indictment is so far removed from the ultimate categorization of the crime that it may be said due process was denied by deluding the accused into an erroneous comprehension of the charge against him. That no such prejudice was occasioned on petitioner nor was he beleaguered in his defense is apparent from the records of this case.^[33][33]   (Emphasis supplied.)

Under Article 217, paragraph 4 of the Revised Penal Code, as amended, the penalty of reclusion temporal in its maximum period to reclusion perpetua shall be imposed if the amount involved exceeds P22,000.00, in addition to fine equal to the funds malversed.  Considering that neither aggravating nor mitigating circumstance attended the crime charged, the maximum imposable penalty shall be within the range of the medium period of reclusion temporal maximum to reclusion perpetua, or eighteen (18) years, eight (8) months and one (1) day to twenty (20) years.  Applying the Indeterminate Sentence Law, the minimum penalty, which is one degree lower from the maximum imposable penalty, shall be within the range of prision mayor maximum to reclusion temporal medium, or ten (10) years and one (1) day to seventeen (17) years and four (4) months.^[34][34]   The penalty imposed by the Sandiganbayan on petitioners needs therefore to be modified insofar as the maximum penalty is concerned and is hereby reduced to seventeen (17) years and four (4) months of reclusion temporal medium, for each count.

WHEREFORE, the petition for review on certiorari is DENIED for lack of merit.  The Decision dated October 29, 2008 in Criminal Case Nos. 24569 to 24574, 24575, 24576 to 24584, 24585 to 24592, 24593, 24594, 24595 to 24620 finding petitioners guilty beyond reasonable doubt of the crime of Malversation of Public Funds under Article 217, paragraph 4 of the Revised Penal Code, as amended, and the Resolution dated February 20, 2009 of the Sandiganbayan (First Division), denying petitioners’ motion for reconsideration are AFFIRMED with MODIFICATIONS in that petitioners are instead accordingly sentenced to suffer an indeterminate prison term of ten (10) years and one (1) day of prision mayor maximum, as minimum, to seventeen (17) years and four (4) months of reclusion temporal medium, as maximum, in each of the above-numbered criminal cases. 

In addition to the payment of the fine ordered by the Sandiganbayan, and by way of restitution, the petitioners are likewise ordered to pay, jointly and severally, the Republic of the Philippines through the ARMM-Regional Treasurer, the total amount of P21,045,570.64 malversed funds as finally determined by the COA.

In the service of their respective sentences, the petitioners shall be entitled to the benefit of the three-fold rule as provided in Article 70 of the Revised Penal Code, as amended.

With costs against the petitioners.

SO ORDERED.

C E R T I F I C A T I O N

          Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

CASE 2011-0208: OFFICE OF THE COURT ADMINISTRATOR VS. JUDGE UYAG P. USMAN, PRESIDING JUDGE, SHARI’A CIRCUIT COURT, PAGADIAN CITY (A.M. NO. SCC-08-12, 19 OCTOBER 2011, MENDOZA J.) SUBJECT: FAILURE TO FILE SALN. (BRIEF TITLE: OCA VS. JUDGE USMAN).

========================

DISPOSITIVE:

WHEREFORE, the Court finds respondent Uyag P. Usman, Presiding Judge, Shari’a Circuit Court, Pagadian City, GUILTY of violation of Section 7, R.A. No. 3019 and Section 8, R.A. No. 6713 and orders him to pay a FINE of Five Thousand Pesos (P5,000.00) with a STERN WARNING that a repetition of the same or similar act will be dealt with more severely.

SO ORDERED.

========================

Republic of the Philippines

Supreme Court

Manila

THIRD DIVISION

x ————————————————————————————-x

DECISION

MENDOZA, J.:

This administrative proceeding stemmed from a letter-complaint dated April 23, 2008 filed before the Office of the Ombudsman, Mindanao, requesting for a lifestyle check on respondent Judge Uyag P. Usman (respondent), Presiding Judge, Shari’a Circuit Court, Pagadian City, in connection with his acquisition of a Sports Utility Vehicle (SUV) amounting to ₱1,526,000.00.

In his letter,^[1][1] complainant alleged that respondent acquired a brand new SUV, specifically a Kia Sorento EX, Automatic Transmission and 2.57 CRDI Diesel for ₱1,526,000.00; that he paid in cash the total down payment of ₱344,200.00; and that the remaining balance was payable in 48 months with a monthly amortization of ₱34,844.00 to the Philippine Savings Bank (PS Bank), Ozamis City Branch.    

Complainant further averred that respondent had just been recently appointed as a judge and since he assumed his post, he seldom reported for work and could not be located within the court’s premises during office hours. Moreover, he was only receiving a very small take home pay because of his salary and policy loans with the Supreme Court Savings and Loan Association (SCSLA) and the Government Service Insurance System (GSIS), many of which he incurred when he was still a Clerk of Court of the Shari’a Circuit Court in Isabela City, Basilan. Complainant attached photocopies of his pay slips to prove his allegation.

Respondent’s financial capability to acquire said vehicle has been questioned because he is the sole bread winner in his family and he has seven (7) children, two (2) of whom were college students at the Medina College School of Nursing, a private school.

On May 26, 2008, the Office of the Ombudsman forwarded the complaint to the Office of the Court Administrator (OCA).  In turn, the OCA, in its Letter dated April 22, 2009, directed respondent to comment on the letter ^[2][2] within 10 days from receipt thereof.

In his Comment,^[3][3] respondent explained that he acquired the Kia Sorento vehicle in 2008 but it was a second-hand, and not a brand new, vehicle; that he had no intention of buying the said vehicle but his friend, who was a manager of KIA Motors, Pagadian City, convinced him to avail of their lowest down payment promo of ₱90,000.00 to own a second-hand demo  unit vehicle; that he was hesitant to avail of the promo but his mother, a U.S. Veteran Pensioner receiving a monthly pension of US$1,056.00, persuaded him to avail of it; that it was his mother who paid the down payment of ₱90,000.00 and the monthly installment of more than ₱30,000.00; that when his mother got sick, her pensions and savings were used to buy medicines, thus, he defaulted in the payment of the said vehicle for four (4) months; and that PS Bank foreclosed the mortgage on the said vehicle.

Respondent denied the allegation that all his seven (7) children depended on him for support. He claimed that only three of his children, all in the elementary level and studying in public schools, were under his care; that his mother financially helped him in the education of his two daughters who were in college; and that his other two children were already married and gainfully employed.

Respondent also refuted the charges that he seldom reported for work and could not be located within the court’s premises. He, instead, asserted that there was never a single day that he failed to report for work; that he often arrived ahead of his staff considering that he lived near the court; and that  his conduct as a judge was beyond reproach and this could be attested to by his staff and employees at the Sangguniang Panlunsod ofPagadianCity. To support his claim, respondent submitted the Joint Affidavit of his staff and the affidavit of Mohammad Basher Cader, a member of a religious group inPagadianCity, attesting to his diligence and dedication in the performance of his function as a judge.

Respondent bared that, at present, he is receiving a monthly take home pay of more than ₱40,000.00 including his salary and allowances plus honorarium from the local government.

In its Report^[4][4] datedMarch 16, 2011, the OCA found the explanation of respondent meritorious.

The OCA, however, held respondent liable for violation of Section 8 of Republic Act (R.A.) No. 6713 otherwise known as the Code of Conduct and Ethical Standards for Public Officials and Employees and of Section 7 of R.A. No. 3019, known as the Anti-Graft and Corrupt Practices Act, for failing to file his Statement of Assets, Liabilities and Net Worth (SALN) for the years 2004-2008. Thus, the OCA recommended that respondent be fined in the amount of ₱10,000.00

The Court agrees with the finding of the OCA that the charges against respondent were not fully substantiated. The evidence adduced in the case, consisting of documents submitted by respondent are sufficient to prove that it was, indeed, his mother who paid the down payment and the monthly amortizations for the subject vehicle.

The Court also agrees with the OCA that respondent is guilty of violating Section 7 of R.A. No. 3019 and Section 8 of R.A. No. 6713.

Section 7 of R.A. No. 3019 provides:

Sec. 7. Statement of Assets and Liabilities. – Every public officer, within thirty days after assuming office and, thereafter, on or before the fifteenth day of April following the close of every calendar year, as well as upon the expiration of his term of office, or upon his resignation or separation from office, shall prepare and file with the office of the corresponding Department Head, or in the case of a Head of Department or Chief of an independent office, with the Office of the President, a true, detailed and sworn statement of assets and liabilities, including a statement of the amounts and sources of his income, the amounts of his personal and family expenses and the amount of income taxes paid for the next preceding calendar year: Provided, That public officers assuming office less than two months before the end of the calendar year, may file their first statement on or before the fifteenth day of April following the close of the said calendar year.

          In the same manner, Section 8, R.A. No. 6713 states:

SEC. 8. Statements and Disclosure. – Public officials and employees have an obligation to accomplish and submit declarations under oath of, and the public has the right to know, their assets, liabilities, net worth and financial and business interests including those of their spouses and of unmarried children under eighteen (18) years of age living in their households.

(A)                          Statements of Assets and Liabilities and Financial Disclosure. – All public officials and employees, except those who serve in an honorary capacity, laborers and casual or temporary workers, shall file under oath their Statements of Assets, Liabilities and Net Worth and a Disclosure of Business Interests and Financial connections and those of their spouses and unmarried children under eighteen (18) years of age living in their households.

The two documents shall contain information on the following:

(a)    real property, its improvements, acquisition costs, assessed value and current fair market value;

(b)    personal property and acquisition cost;

(c)    all other assets such as investments, cash on hand or in banks, stocks, bonds, and the like;

(d)    liabilities, and;

(e)    all business interests and financial connections.

The documents must be filed:

(a)    within thirty (30) days after assumption of office;

(b)    on or before April 30, of every year thereafter; and

(c)    within thirty (30) days after separation from the service.

All public officials and employees required under this section to file the aforestated documents shall also execute, within thirty (30) days from the date of their assumption of office, the necessary authority in favor of the Ombudsman to obtain from all appropriate government agencies, including the Bureau of Internal Revenue, such documents as may show their assets, liabilities, net worth, and also their business interests and financial connections in previous years, including, if possible, the year when they first assumed any office in the Government.

Husband and wife who are both public officials or employees may file the required statements jointly or separately.

x x x                          x x x                             x x x

From the foregoing, it is imperative that every public official or government employee must make and submit a complete disclosure of his assets, liabilities and net worth in order to suppress any questionable accumulation of wealth.^[5][5]  This serves as the basis of the government and the people in monitoring the income and lifestyle of public officials and employees in compliance with the constitutional policy to eradicate corruption, to promote transparency in government, and to ensure that all government employees and officials lead  just and modest lives,^[6][6]  with the end in view of curtailing and minimizing the opportunities for official corruption and maintaining a standard of honesty in the public service.^[7][7]

In the present case, respondent clearly violated the above-quoted laws when he failed to file his  SALN for the years 2004-2008. He gave no explanation either why he failed to file his SALN for five (5) consecutive years. While every office in the government service is a public trust, no position exacts a greater demand on moral righteousness and uprightness of an individual than a seat in the Judiciary. Hence, judges are strictly mandated to abide with the law, the Code of Judicial Conduct and with existing administrative policies in order to maintain the faith of our people in the administration of justice.^[8][8]

Considering that this is the first offense of the respondent, albeit for five years, the Court shall impose a fine of only Five Thousand Pesos (₱5,000.00) with warning.

WHEREFORE, the Court finds respondent Uyag P. Usman, Presiding Judge, Shari’a Circuit Court, Pagadian City, GUILTY of violation of Section 7, R.A. No. 3019 and Section 8, R.A. No. 6713 and orders him to pay a FINE of Five Thousand Pesos (P5,000.00) with a STERN WARNING that a repetition of the same or similar act will be dealt with more severely.

SO ORDERED.

JOSE CATRAL MENDOZA

                                                                   Associate Justice    

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice

Chairperson

DIOSDADO M. PERALTA                      ROBERTO A. ABAD

            Associate Justice                                     Associate Justice

ESTELA M. PERLAS-BERNABE

Associate Justice     

CASE 2011-0207: PHILIPPINE ECONOMIC ZONE AUTHORITY VS. GREEN ASIA CONSTRUCTION & DEVELOPMENT CORPORATION REPRESENTED BY MR. RENATO P. LEGASPI, PRESIDENT/CEO (G.R. NO. 188866, 19 OCTOBER 2011, SERENO J.) SUBJECTS: PD 1594; PD 454; PRICE ESCALATION. (BRIEF TITLE: PEZA VS. GREEN ASIA)

======================

DISPOSITIVE:

IN VIEW OF THE FOREGOING, the assailed 15 July 2009 Decision of the Court of Appeals is hereby AFFIRMED in toto.  Let a copy of this Decision be served on the Office of the President, the Senate President and the Speaker of the House of Representatives.

          SO ORDERED.   

======================

Republic of thePhilippines

Supreme Court

Manila

SECOND DIVISION

x——————————————————————————————x

DECISION

SERENO, J.:

          The Court, in this Petition for Review on Certiorari, is called upon to rule on a contractor’s entitlement to a price escalation in a government infrastructure contract.  Further, the Court is asked to rule on whether  there is a need to prove first that direct acts of the government influenced the increase of construction materials.    

The Factual Backdrop

          The parties to this case — petitioner Philippine Economic Zone Authority (PEZA), formerly the Export Processing Zone Authority (EPZA),  and respondent Green Asia Construction & Development Corporation (hereinafter Green Asia) – were parties to a contract for a road network/storm drainage project.  The project was awarded to Green Asia on 14 September 1992 with a contract price of P130,595,337.40.^[1][1]  Tagumpay R. Jardiniano, administrator of the then EPZA and Renato P. Legaspi, the president of Green Asia, signed the contract on 23 September 1992.^[2][2]  The stipulations in the  contract include the contract price,^[3][3] the mode of payment, advance payment, and the progress payment.^[4][4] These stipulations found in Articles III to VI of the contract comprised all the liabilities pertaining to EPZA.  EPZA was later on effectively succeeded by PEZA.    

          On 26 March 1996, Green Asia sent a letter to the PEZA Director General through Atty. Eugenio V. Vigo, Project Director for Construction of the PEZA Development Project.  The letter, invoking Presidential Decree (PD) No. 1594,  notified PEZA of Green Asia’s claim for price escalation in the amount of P 9,860,169.58.^[5][5]  This claim was denied by PEZA through a letter signed by the Acting Corporate Secretary Atty. Nestor Hun Nadal.  The denial of the claim was anchored on Section 8, PD 1594, requiring proof of the increase or decrease in construction cost due to the direct acts of the government.  Alleging that  Green Asia failed to present proof, PEZA stated in its letter as follows:^[6][6]

As per the records, it has not been established or proven that the increase/s in the cost of labor, equipment, materials and supplies required for the construction was/were due to the direct acts of the government.

Moreover, the claim that the grant of claims for price escalation is “a normal process in the construction industry” was not enough to persuade the Board.

Having failed to comply with the condition provided for by law, the Board decided to deny your claim for price escalation.

          Despite the denial, Green Asia insisted on its claim and followed it up with three letters sent to PEZA from 1997 to 2000.  Through Director General Lilia B. de Lima, PEZA reiterated the denial of the claim.^[7][7]  Because of these repeated denials, Green Asia made a “final demand,” which was received by PEZA on 29 November 2006 and signed by one Atty. Larry Ignacio.  Atty. Ignacio included in the demand the amount of P 2,500,357.11 for the price escalation of another project, legal interest, and a collection fee of 1% of the total amount due.^[8][8]  The exchanges of correspondence pertaining to Green Asia’s claim continued until 2006.^[9][9]  PEZA was, however, consistent in its position that Green Asia was not entitled to its claim, as the latter failed to prove the legal necessity of applying the price escalation provided for in PD 1594.  In its letter dated 30 November 2006, PEZA pointed out that the contract price was fixed, as stipulated in Article IV of the contract, and that this provision was in effect a waiver of the provisions of PD 1594.^[10][10] 

          On 2 August 2007, Green Asia sent to PEZA another notice, labelled “final demand notice,” a copy of which was furnished to the Office of the President.  This notice was for unpaid claims for the price escalation of the road network and drainage system in the amount of P 9,860,169.58, as well as for the sewage treatment plant  in the amount of P 2,500,357.11.  Green Asia disagreed with PEZA and posited that the fact that the contract stipulated a fixed   price did not mean that it was the final receivable amount for  the contractor.  The fixed price, according to Green Asia, would apply only when the work orders in the construction did not vary during the construction period.  Green Asia explained that it was “impossible and unrealistic” to stay within the original budgeted amount.  Thus, there was a need for price escalation under Cl 12.1 of the Implementing Rules and Regulations (IRR) of PD 1594.  Green Asia stressed that the basis of its claim was the price escalation under the IRR, and not merely the price adjustment provided in Section 8 of PD 1594.^[11][11] 

          Subsequent to the final demand notice to PEZA, Green Asia sent then President Gloria Macapagal Arroyo, on 14 November 2007, a letter with the heading “Appeal for the Settlement of Unpaid Claims for Price Escalation Under Project of the Philippines Economic Zone Authority.”  In this letter, Green Asia asked her to intervene for the affirmative resolution of its claim against PEZA in the amount of P 12,360,525.69.^[12][12]  The Office of the President (OP) took cognizance of the letter as an appeal, docketed it as O.P. Case No. 07-K-451, and ordered Green Asia to pay the appeal fee and PEZA to forward the complete records of the case.^[13][13]    

          After summary proceedings in the OP, the case was decided in favor of Green Asia.  The dispositive portion of the OP Decision reads as follows:

WHEREFORE, herein claim for Price Escalation Payment sought by Green Asia Construction & Development Corp. through its President/CEO Renato P. Legaspi is hereby GRANTED.

Respondent Philippine Economic Zone Authority (PEZA) is hereby ordered to pay claimant the total amount of P12,360,526.70, subject to its verification by PEZA using the parametric formula provided in Cl 12, IRR, PD 1594.

In addition, PEZA is liable to pay interest upon the total unpaid claims at the legal interest of 6% per annum reckoned from the date Green Asia made the final demand notice on August 6, 2007 up to finality of this Decision, and 12% interest from its finality up to full payment.

SO ORDERED.^[14][14]    

          The OP’s reason for granting Green Asia’s claim was that proof of increase in relevant construction prices due to the direct acts of the government was not required by law, before a price escalation may be invoked.  The OP cited Item 6, Cl 12.1 of the IRR of PD 1594, quoting the following portions:

          Escalation of prices for work accomplishment on infrastructure construction x x x shall be made x x x using the parametric formula as described below, to compensate for fluctuation of prices of construction supplies and materials, equipment and labor which would bring about during the period under consideration an increase or decrease of more than five percent (5%) of the original OR ADJUSTED contract unit price of items of work.  

          The OP also interpreted the phrase “due to direct acts of the Government.”  It held that PD 454,^[15][15] a prior enactment on government infrastructure projects, authorized price escalation; and that “direct acts of the government” included increases in the prices of gasoline, fuel oil and cement.  It was, therefore, not necessary to actually show that the prices  of those commodities increased because of the direct acts of the government.  In effect, the OP Decision held that price escalation is automatically awarded to contractors of all government infrastructure projects.  

          The Court of Appeals (CA), in CA-G.R. SP No. 105430,^[16][16] sustained the OP Decision.  It found the OP’s construction of PD 1594, in connection with PD 454, proper.  Since PD 454 was not expressly repealed by PD 1594, and since there was no apparent conflict between the two laws, the appellate court deemed it best to harmonize them. The result was again a favorable Decision to Green Asia.

          The OP Decision was, however, modified by the CA as to the amount of the price escalation awarded to Green Asia. Citing paragraphs 6 and 7, Cl 12.1 of the IRR of PD 1594, the appellate court ordered the parties to compute the price escalation using the parametric formula provided therein.  The Court of Appeals held:

…[W]e find that petitioner correctly faults the Office of the President for ordering the payment of respondent’s claim for price escalation in the sum of P12,360,526.70 – with legal interest from respondent’s August 6, 2007 demand – despite the absence of showing of how said amount was computed.  Granted that the assailed decision prov[i]des that payment is “subject to verification,” it cannot be gainsaid that paragraphs 6 and 7, CI 12.1 of the Amended Rules and Regulations implementing Presidential Decree No. 1594 provide as follows:

   “6.  Escalation of prices for work accomplishment on infrastructure construction, rehabilitation and/or improvement projects shall be made periodically, using the parametric formula as described below, to compensate for fluctuation of prices of construction supplies and materials, equipment and labor which would bring about during the period under consideration an increase or decrease of more than five percent (5%) of the original or adjusted contract unit price of items of work.

     7.         Price escalation shall be reckoned from the month of bidding of the project, and shall be allowed for every progress billing.  When the contract has not been the subject of competitive bidding, price escalation shall be reckoned from the month agreed upon in the contract and shall be granted for every progress billing.  For construction and related materials under government-controlled prices, the computation of price escalation shall be reckoned from the actual date of bidding the projects, or the actual date agreed upon in the contract has not been the subject of competitive project.”            

            To  our mind, the present quandary regarding the amount due is attributable to petitioner’s outright and unjustified denial of the price escalation claimed by respondent as well as the concomitant failure on the part of the latter to submit the computation thereof.  Given the practical and legal import of the foregoing provisions and respondent’s right to the price escalation provided under Section 8 of Presidential Decree No. 1594, it consequently behooves the parties to compute the same in accordance with the parametric formula provided under CI12 of the Implementing Rules and Regulations of said law.  Considering respondent’s long-standing demand therefor, however, we find it equitable that payment of interest on the amount of price escalation due shall accrue upon determination of the amount due in accordance with the aforesaid parametric formula.      

          Hence, this petition for review.

The Issue

 Whether Presidential Decree 1594 requires the contractor to prove that the price increase of construction materials was due to the direct acts of the government before a price escalation is granted in this payment dispute in a construction contract

          PEZA argues that there was no need for any statutory construction of PD 1594, since the provisions thereof are not ambiguous.  It insists that Section 8 thereof requires certain conditions before an adjustment of the contract price may be made.^[17][17]  These conditions obtain when there is a concurrence of the following: there was an increase or a decrease in the cost of labor, equipment, materials and  supplies for construction; and the said increase or decrease is due to the direct acts of the government.  PEZA stresses that respondent Green Asia has failed to show the existence of these conditions.^[18][18]

          Green Asia, in its Comment,^[19][19] claims that it has proved the increase or decrease in the cost of labor and construction materials.  It has allegedly relied on the official indices of prices regularly issued by the National Statistics Office (NSO) for Calendar Years 1992-1999.  It was on these indices that it based the amount of its claim.^[20][20] 

The Court’s Ruling

          We sustain the assailed Decision.

          After a painstaking study of the records before us and the relevant laws, we are of the opinion that the Court of Appeals was correct in its disposition of the case.

          We agree with the ruling of the appellate court that the OP correctly construed PD 1594 as being in pari materia to PD 454.  Since the two presidential decrees are in pari materia, there is a need to construe them together.  Thus explained the Court in Honasan v. The Panel of the Investigating Prosecutors of the Department of Justice:^[21][21]

Statutes are in pari materia when they relate to the same person or thing or to the same class of persons or things, or object, or cover the same specific or particular subject matter.

It is axiomatic in statutory construction that a statute must be interpreted, not only to be consistent with itself, but also to harmonize with other laws on the same subject matter, as to form a complete, coherent and intelligible system.  The rule is expressed in the maxim, “interpretare et concordare legibus est optimus interpretandi,” or every statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence.^[22][22]

         PD 454 which was enacted prior to PD 1594, was where the phrase “direct acts of the government” was explained to cover the increase of prices during the effectivity of a government infrastructure contract.  The phrase was first used in Republic Act (RA) No. 1595, which was amended by PD 454.  The latter amended R.A. No. 1595 by supplying the meaning of the phrase “direct acts of the government” and expressly including the increase of prices of gasoline within the coverage of that phrase.  Consequently, when PD 1594 reproduced the phrase without supplying a contrary or different definition, the definition provided by the earlier enacted PD 454 was deemed adopted by the later decree.  Thus, proof of an increase in fuel and cement price and a subsequent increase in the cost of labor and relevant construction materials during the contract period are considered a compliance with the IRR requirements for a claim for price escalation.                      

          The parties separately invoke PD 1594^[23][23] and its IRR.  A reading of their provisions, however, leads to the conclusion that “price adjustment” under PD 1594 is actually the same as “price escalation” under the IRR.  Just as the term “price escalation” is not found in PD 1594, so is “price adjustment” in the IRR.  These concepts are, evidently, one and the same.  They have different names, but pertain to the same thing — the adjustment of the contract price due to certain circumstances.  The computation of the adjustment has been explained in detail as price escalation in the IRR, found in CI 12.  At first glance, price escalation may be considered as an expansion of the concept of price adjustment.  In truth, however, the IRR did not expand anything, but merely laid out a guideline for the computation of the adjustment or escalation of price.  The two provisions are therefore not separate and must be read together.  Otherwise, if we accept the arguments of both parties that one is invoking either PD 1594 or the IRR, two different rights would arise therefrom, which is obviously not intended by the law.

          Price escalation, as explained in paragraph 6 of Cl 2.1 of the IRR, is meant to compensate for changes in the prices of relevant construction necessities during the effectivity of the contract, resulting in more than 5% increase or decrease in the unit price of those items.  It is thus the prices of the items that have actually increased that become the basis of the computation.  It is also stated in the IRR that in case of advance payment, the materials to which the advance payment has been applied will not be adjusted for a price escalation.^[24][24]  The government will charge an interest on the amount it has paid in advance to the contractor.  This interest will be deducted from the succeeding price escalation that may be due the contractor.^[25][25]

          It should also be mentioned that in National Steel Corporation v. The Regional Trial Court of Lanao del Norte,^[26][26] the Supreme Court held:

[P]rice escalation is expressly allowed under Presidential Decree 1594, which law allows price escalation in all contracts involving government projects including contracts entered into by government entities and instrumentalities and Government Owned or Controlled Corporations (GOCCs). It is a basic rule in contracts that the law is deemed written into the contract between the parties. And when there is no prohibitory clause on price escalation, the Court will allow payment therefor.

The contract between PEZA and Green Asia did not incorporate provisions prohibiting price escalation or any clause that may be interpreted as a waiver of the price escalation.  Consequently, payment of price escalation is deemed to have included the provision for the payment of price escalation.

          It was therefore wrong for PEZA to disregard PD 454 by automatically denying the claim of Green Asia for price escalation or to require the latter to prove that the increase in the construction cost was due to the direct acts of the government.  PD 454 actually bridges the gap between PD 1594 and its IRR.  PD 1594 no longer explains the provision on price adjustment, because it is already found in PD 454 and in older laws.  In its Whereas Clause, PD 454 states:

          WHEREAS, the Government feels that amendment of the existing escalatory clause is a fair and equitable way of dealing with the situation.

            The “amendment of the existing escalatory clause” referred to is found in Section 1 of PD 454, which provides:

            “The provisions of Section 10(b) of Republic Act No. 5979 and other existing laws, or presidential decrees to the contrary notwithstanding, adjustment of contract prices for public works project is hereby authorized, should any or both of the following conditions occur:

            (a) If during the effectivity of the contract, the cost of labor, materials, equipment rentals and supplies for construction should increase or decrease due to the direct acts of the government; and for purposes of this Decree the increase of prices of gasoline and other fuel oils, and of cement shall be considered direct acts of the Government;

            (b) If during the effectivity of the contract, the costs of labor, equipment rentals, construction materials and supplies used in the project should cause the sum total of the prices of bid items to increase or decrease by more than five (5%) percent compared with the total contract price.

            The increase or decrease in the contract price shall be determined by application of the appropriate official indices.” (emphasis and underscoring supplied)  

          We find that the assigned error allegedly committed by the Court of Appeals is absent.  The appellate court was, thus, correct in granting respondent’s claim for payment of price escalation, and the assailed Decision must be upheld.

It will appear strange, to today’s consumer, that the government would automatically accept — nay, decree under the express terms of PD 454 — that “the increase of prices of gasoline and other fuel oils, and of cement shall be considered direct acts of the Government,” such that the effects of these
price increases in the form of escalation of the prices of contracts with the government would be absorbed by it and, indirectly, by the taxpayer.  It would appear that the context in which this policy decision to absorb costs from price increases was made in an era in which the government was strictly monitoring oil, cement and gasoline prices, and was itself controlling the price of oil before the Downstream Oil Deregulation Law^[27][27] was passed. 

          Considering the deregulation of the oil industry and the removal of price control on gasoline and other fuel oils, we believe that the wisdom behind Section 1 of PD 454 may no longer hold true. Government is significantly less responsible today for the price of gasoline and other fuel oils, as well as cement, than it used to be. The dynamics of pricing of these commodities has changed dramatically. This law merits a thorough reevaluation.  Congress and the Executive Department, it is suggested, must look at whether this policy should be maintained.

          IN VIEW OF THE FOREGOING, the assailed 15 July 2009 Decision of the Court of Appeals is hereby AFFIRMED in toto.  Let a copy of this Decision be served on the Office of the President, the Senate President and the Speaker of the House of Representatives.

          SO ORDERED.   

MARIA LOURDES P. A. SERENO

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

Chairperson

ARTURO D. BRION                                  BIENVENIDO L. REYES

             Associate Justice                                                Associate Justice

ESTELA M. PERLAS-BERNABE

Associate Justice

A T T E S T A T I O N

          I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                            ANTONIO T. CARPIO

                                                                  Associate Justice

                                                                      Chairperson, Second Division

C E R T I F I C A T I O N

                Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

                                                                             Chief Justice