Menzon v. Commission on Audit

G.R. No. 241394 · 2020-12-09 · J. GAERLAN, J.: · Primary: Remedial; Secondary: Political

MODIFICATION

Facts

The Antecedents: The Home Development Mutual Fund (HDMF), more popularly known as the Pag-IBIG Fund, established a mechanism called "Window 1 Contract to Sell (CTS)/Real Estate Mortgage (REM) with Buyback Guaranty" to expedite housing programs, allowing accredited developers to receive, evaluate, pre-process, and approve housing loan applications. Pursuant to this, Ray F. Zialcita, an accredited developer of Villa Perla Subdivision, filed 21 housing loan applications with HDMF Region VIII between 2007 and 2009. Petitioners, as officials and employees of HDMF Region VIII, approved and released a total of P13,791,000.00 to Zialcita as payment for the lots. A post-audit by Audit Team Leader (ATL) Virginia C. Tabao and Supervising Auditor (SA) Alicia M. Malquisto uncovered various irregularities and deficiencies in the submitted documents, including uncertified pay slips, identical contracts of employment, missing signatures of approving officers, unnotarized agreements, and ongoing site development at the time of loan take-out. Procedural History: Notices of Suspension (NSs) were issued in May 2011, directing petitioners to explain and settle the identified irregularities within 90 days. When petitioners failed to comply, Notices of Disallowance (NDs) were subsequently issued on February 29, 2012, holding Zialcita and various HDMF officials liable for the P13,791,000.00. Petitioners, along with other named individuals, appealed the NDs to the Commission on Audit (COA) Region VIII, which upheld the disallowances in its Decision No. 2016-036 dated June 6, 2016, finding petitioners liable for neglect in the performance of their duties. Petitioners then filed consolidated petitions for review with the COA Proper, which affirmed the COA Region VIII's findings in Decision No. 2018-126 dated January 26, 2018, reiterating that petitioners' failure to detect obvious irregularities and conduct post-take-out inspections were primary reasons for their liability. The Petition: Petitioners filed a petition for certiorari under Rule 64 in relation to Rule 65 of the Rules of Court before the Supreme Court, seeking to set aside COA Decision No. 2018-126. They contended that the COA committed grave abuse of discretion by: (A) confirming the disallowance of loan amounts, arguing these were investments, not expenditures, and thus beyond COA's audit scope; (B) prematurely disallowing the amounts despite Pag-IBIG Fund having availed of remedies against the developer; (C) confirming their liability for risks associated with a policy decision of the Board of Trustees that allegedly shifted responsibility to the developer; (D) confirming disallowance based on documentation that was solely the developer's responsibility; (E) disallowing based on trivial or inconsequential deficiencies; (F) disallowing for lack of notarization when it was not yet required; (G) confirming disallowance despite their good faith reliance on the developer's performance of duty; and (H) confirming the disallowance instead of excusing them from paying the disallowed amounts for reason of good faith.

Issue(s)

A. Whether or not the Honorable Commission on Audit committed grave abuse of discretion amounting to lack or excess of jurisdiction in confirming the disallowance of various loan amounts for lot purchases, notwithstanding that said loan amounts are not expenses or expenditures. B. Whether or not the Honorable Commission on Audit committed grave abuse of discretion amounting to lack or excess of jurisdiction in confirming the premature disallowance of the various loan amounts for lot purchases, notwithstanding that the Pag-IBIG Fund has availed itself of remedies against the developer and had taken steps to convert the subject lots into acquired assets and thereafter sell the same. C. Whether or not the Honorable Commission on Audit committed grave abuse of discretion amounting to lack or excess of jurisdiction in confirming petitioners' liability for the risks attendant to the policy decision of the Board of Trustees of the Pag-IBIG Fund to transfer to the developer the sole responsibility of submitting correct and authentic documents and of approving the loan and lot purchase applications; AND Whether or not the Honorable Commission on Audit committed grave abuse of discretion amounting to lack or excess of jurisdiction in confirming the disallowance of the various loans for lot purchases, notwithstanding that the alleged incomplete or questionable documentation pertaining to the borrowers were the sole responsibility of the developer. D. Whether or not the Honorable Commission on Audit committed grave abuse of discretion amounting to lack or excess of jurisdiction in confirming the disallowance of the various loans for lot purchases on the basis of trivial or inconsequential deficiencies on the part of officials of the Pag-IBIG Fund; AND Whether or not the Honorable Commission on Audit committed grave abuse of discretion amounting to lack or excess of jurisdiction in confirming the disallowance of the various loans for lot purchases for lack of notarization of some documents, notwithstanding that the notarization of said documents was not yet required. E. Whether or not the Honorable Commission on Audit committed grave abuse of discretion amounting to lack or excess of jurisdiction in confirming the disallowance of the various loans for lot purchases, notwithstanding that petitioners merely relied in good faith on the performance of duty of the developer, who had the sole responsibility of submitting correct and authentic documents and of approving the loan and lot purchase applications; AND Whether or not the Honorable Commission on Audit committed grave abuse of discretion amounting to lack or excess of jurisdiction in confirming the disallowance instead of excusing petitioners from paying the disallowed amounts for reason of good faith. F. On Liability and Quantum Meruit: Whether the identified individuals are liable for the disallowed amounts, and the applicability of quantum meruit.

Ruling

WHEREFORE, premises considered, the petition is PARTLY GRANTED. The Commission on Audit Decision No. 2018-126 dated January 26, 2018 affirming the Notice of Disallowance Nos. 2012-01 to 03(08); 2012-05 to 08(08); 2012-10 to 13(08); 2012-15 to 21(08); 2012-04(07); 2012-09(07) and 2012-14(09), all dated February 29, 2012, on the release of loan take-outs to Mr. Ray F. Zialcita, developer of Villa Perla Subdivision at Maasin City, Southern Leyte, in the total amount of P13,791,000.00 is AFFIRMED with MODIFICATION. Petitioners Flordelis B. Menzon, Jose E. Clarin, Rengie O. Villablanca, Ronsard P. Granali and Raquel R. Pomida, as well as Leonora P. Gatchalian, Ma. Carmel Cayobit, Emelita Naynos and Nelson T. Custodio, are held SOLIDARILY LIABLE with Ray F. Zialcita to REFUND the amounts covered by the notices of disallowance, subject to the application of the principle of quantum meruit, but only with respect to transactions in which they had each participated. Meanwhile, petitioners Rizalito T. Loreche, Mark Anthony G. Faraon and Emily B. Pretencio are ABSOLVED from the liability to refund. Accordingly, the case is hereby REMANDED to the Commission on Audit for the computation of the amounts due from each person liable. SO ORDERED.

Ratio Decidendi

On Issue A: The Supreme Court held that the Commission on Audit (COA) did not commit grave abuse of discretion. While petitioners argued that loans are investments and not expenditures, the Court clarified that when loan applications are approved and proceeds released, these represent payments advanced by the Home Development Mutual Fund (HDMF) on behalf of member-borrowers, thus constituting expenditures subject to COA's audit review. Regardless of whether they are classified as expenditures or investments, they primarily involve the use of government funds, over which the COA has constitutional power, authority, and duty to examine, audit, and settle all accounts pertaining to their use. The COA's mandate extends to defining the scope of its audit and promulgating rules for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses of government funds. Therefore, the COA acted within its jurisdiction in auditing the loan take-outs. On Issue B: The Court found petitioners' claim of premature disallowance unconvincing. It affirmed the COA's view that the availment of remedies by the Pag-IBIG Fund against the developer does not preclude the COA from issuing Notices of Disallowance (NDs) upon finding irregularities in the release of loan take-outs. These remedies are distinct from the COA's post-audit function. The Court further opined that such remedies do not cure the irregularity of the transactions for which the NDs were issued, and the damage or loss suffered by the Government resulting from the disallowed transactions was beyond cavil. The issuance of Notices of Suspension (NSs) and subsequent NDs followed the established procedures under the 2009 Rules and Regulations on the Settlement of Accounts (RRSA), which allow for disallowance if suspensions are not settled within 90 days. On Issue C & D: The Court rejected petitioners' argument that Pag-IBIG Fund Circular Nos. 212 and 237 shifted the sole responsibility to the developer, thereby absolving them. The Court clarified that while the circulars state the developer shall "receive, evaluate, pre-process and approve" applications, the term "pre-process" implies that further processing and final approval remain with Pag-IBIG Fund officials. Petitioners, as officials, have the final say on loan approvals and cannot trivialize their roles, as government funds are involved. Their functions are not ministerial, and they are not mere "rubber stamps" of the developer. The Court emphasized that the scheme only expedites the process but does not remove the officials' duty to ensure proper documentation and protect government interests. On Issue E & F: The Court declined to entertain petitioners' claims that the deficiencies were trivial or inconsequential, or that notarization was not required, stating these are factual matters outside the ambit of a certiorari petition. The Court reiterated its policy of sustaining decisions of administrative authorities like the COA due to their presumed expertise, and their findings of fact are generally accorded great respect and finality if supported by substantial evidence. It is not the task of the appellate court to re-weigh evidence or substitute its judgment unless the agency acted without or in excess of jurisdiction, or with grave abuse of discretion, which was not found in this case. The COA's findings of clear and glaring irregularities were upheld. On Issue G & H: The Court did not subscribe to petitioners' argument of good faith reliance on the developer. While public officials are generally entitled to a presumption of good faith, this presumption is negated when irregularities are "clear and glaring" on the face of the documents. The Audit Team Leader (ATL) and Supervising Auditor (SA) found numerous obvious deficiencies that should have prompted scrutiny from petitioner Menzon, as the final approving authority, and other certifying officers. Their failure to detect these irregularities and their nonchalant stance of merely relying on the developer's compliance constituted gross negligence. Gross negligence runs counter to the presumption of good faith and regularity in the performance of official duties, making them personally and solidarily liable for the disallowed amounts under Section 43 of the Administrative Code of 1987. On Liability and Quantum Meruit: The Court applied the guidelines from Torreta v. Commission on Audit and Madera v. Commission on Audit. Ray F. Zialcita, as the payee-developer and recipient of the disallowed amounts, is liable to return the P13,791,000.00, regardless of good faith, subject to the application of the principle of quantum meruit. This means any monthly amortizations already paid by member-borrowers to HDMF Region VIII must be deducted from the total disallowed amount to prevent unjust enrichment of the Government. Petitioners Flordelis B. Menzon, Jose E. Clarin, Rengie O. Villablanca, Ronsard P. Granali, and Raquel R. Pomida, along with Leonora P. Gatchalian and Ma. Carmel Cayobit, were held solidarily liable with Zialcita due to their gross negligence in approving/certifying the transactions despite glaring irregularities. However, their liability is limited to the specific transactions in which they participated. Petitioners Rizalito T. Loreche, Mark Anthony G. Faraon, and Emily B. Pretencio were absolved from liability as their roles (appraisal and document preparation) did not entail review of the documents or approval of loan applications, and the COA failed to prove their direct hand in the approval process. Naynos and Custodio, though similarly situated, were not absolved as they did not challenge the COA Region VIII's decision, which had become final and executory as to them.

Main Doctrine

The Commission on Audit's (COA) constitutional mandate to audit all government funds extends to 'uses of funds,' including loans granted by government financial institutions like the Home Development Mutual Fund (HDMF), more popularly known as the Pag-IBIG Fund, as these represent expenditures subject to audit review. Public officers involved in the disbursement of such funds are held liable for irregular expenditures if they fail to exercise the required diligence, especially when glaring irregularities are apparent on the face of supporting documents, thereby negating claims of good faith. The principle of quantum meruit may apply to reduce the liability of payees, while approving and certifying officers found to have acted with gross negligence are solidarily liable with the recipients for the disallowed amounts.