FIRST DIVISION

G.R. No. 194159, October 21, 2015

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, Petitioner, v. MA. MERCEDITAS NAVARRO-

DECISION

PERLAS-BERNABE, J.:

Before the Court is a petition for certiorari1 assailing the Resolution2 dated May 30, 2007 and the
Order3dated April 13, 2009 of the Office of the Ombudsman (Ombudsman) in OMB-C-C-03-0500-I, which
dismissed the affidavit-complaint4 of petitioner Presidential Commission on Good Government (PCGG)
charging individual respondents Don M. Ferry (Ferry), Jose R. Tengco, Jr. (Tengco), Rolando M. Zosa (Zosa),
Cesar C. Zalamea (Zalamea), Ofelia I. Castell (Castell), Rafael A. Sison (Sison), Rodolfo M. Cuenca
(Cuenca), Manuel I. Tinio (Tinio), and Antonio R. Roque (Roque) for allegedly violating Sections 3 (e) and
(g) of Republic Act No. (RA) 3019,5 for lack of probable cause.

The Facts

The instant case arose from an Affidavit-Complaint6 dated July 15, 2003 filed by the PCGG - through Rene B.
Gorospe, the Legal Consultant in-charge of reviewing behest loan cases - against former officers/directors of
the Development Bank of the Philippines (DBP), namely, Ferry, Tengco, Zosa, Zalamea, Castell, and Sison,
as well as former officers/stockholders of National Galleon Shipping Corporation (Galleon),7 namely, Cuenca,
Tinio, and Roque charging them of violating Sections 3 (e) and (g) of RA 3019. In the Affidavit-Complaint,
the PCGG alleged that on October 8, 1992, then President Fidel V. Ramos (President Ramos) issued
Administrative Order No. 13,8 creating the Presidential Ad HocFact-Finding Committee on Behest Loans (Ad
Hoc Committee) in order to identify various anomalous behest loans entered into by the Philippine
Government in the past. Later on, President Ramos issued Memorandum Order No. 619 on November 9,
1992, laying down the criteria which the Ad Hoc Committee may use as a frame of reference in determining
whether or not a loan is behest in nature. Thereafter, the Ad Hoc Committee, with the assistance of a
Technical Working Group (TWG) consisting of officers and employees of different government financial
institutions (GFIs), examined and studied documents relative to loan accounts extended by GFIs to various
corporations during the regime of the late President Ferdinand E. Marcos (President Marcos) -one of which is
the loan account granted by the DBP to Galleon.10

After examining the aforesaid loan account, the TWG found, inter alia, that: (a) on September 19, 1979,
DBP, pursuant to its Board Resolution No. 3002,11 approved guarantees in favor of Galleon in the aggregate
amount of US$90,280,000.00 for the purpose of securing foreign currency borrowings from financial
institutions related to Galleon's acquisition of five (5) brand new and two (2) secondhand vessels;12 (b)
Board Resolution No. 3002 specifically stated that such accommodation "shall be undertaken at the behest
of the Philippine Government;"13 (c) as a condition for the grant of the guarantees, Board Resolution No.
3002 required Galleon to raise its paid up capital to P98.963 Million by 1981,14 but Galleon was only able to
raise its capital to P46,740.755.00;15 (d) despite Galleon's failure to comply with such condition, DBP still
granted the guarantees; (e) as of June 30, 1981, Galleon's arrearages had already amounted to
P40,684,059.37, while the aggregate DBP obligations of Galleon already totaled P691,058,027.92;16 (f)
despite the outstanding debts, DBP still issued Board Resolution Nos. 400817 and 3001,18 approving further
accommodations in Galleon's favor in the form of one-year foreign currency loans to refinance the latter's
arrearages, which amounted to P58,101,718.89 as of September 30, 1982;19(g) despite Galleon's
arrearages amounting to P128,182,654.38 and obligations accumulating to P904,277,536.96, DBP still
approved the release of Galleon's two (2) secondhand vessels as collaterals resulting in collateral
deficiency;20 and (h) as of March 31, 1984, Galleon's total obligations to DBP amounted to
P2,039,284,390.85, while the value of its collaterals was only P539,000,000.00.21 These findings were then
collated in an Executive Summary22 which was submitted to the Ad Hoc Committee.

Based on the foregoing, the Ad Hoc Committee concluded that the loans/accommodations obtained by
Galleon from DBP possessed positive characteristics of behest loans, considering that: (a) Galleon was
undercapitalized; (b) the loan itself was undercoUateralized; (c) the major stockholders of Galleon were
known to be cronies of President Marcos; and id) certain documents pertaining to the loan account were
found to bear "marginal notes" of President Marcos himself.23 Resultantly, the PCGG filed the instant criminal
complaint against individual respondents, docketed as OMB-C-C-03-0500-I.
Except for Roque, Zalamea, Tengco, and Castell, the other individual respondents impleaded in the affidavit-
complaint did not file their respective counter-affidavits despite due notice.24

In his defense,25 Roque denied being a Marcos crony, and averred that he was only a minor shareholder of
Galleon and that he was in no position to influence the DBP in extending the subject loan to Galleon.26For his
part,27 Zalamea maintained that he had no participation or hand in the subject loan transactions as he joined
the DBP as Chairman only in 1982, while the execution of the transactions pertaining to such loan was done
in 1979-1981, and that the criminal charges against them are barred by prescription since it had been more
than 20 years before the complaint against them was filed on July 15, 2003.28Similarly, Tengco also
argued29 that the criminal charges against them had already prescribed. He also contended that his
participation in the approval of the subject loan was at the board level only and was done in the exercise of
his sound business judgment through the collective act of the DBP Board of Directors.30 Finally, Castell
pleaded31 that her role in the handling of the projects and transactions of Galleon involved only the
supervision of employees, but with no approving authority for matters like those involving the transactions
pertaining to the subject loan obtained by Galleon from DBP.32

The Ombudsman Ruling

In a Resolution33 dated May 30, 2007, the Ombudsman found no probable cause against private respondents
and, accordingly, dismissed the criminal complaint against them.34 It found that the pieces of evidence
attached to the case records were not sufficient to establish probable cause against the individual
respondents, considering that the documents presented by the PCGG consisted mostly of executive
summaries and technical reports, which are hearsay, self-serving, and of little probative value.35 In this
relation, the Ombudsman noted that the PCGG failed to present "the documents which would directly
establish the alleged illegal transactions like, the Loan Agreement between DBP and [Galleon], the approved
Board Resolutions by the DBP officers/board of directors, the participation/voting that transpired at the
board meetings wherein the alleged behest loans were granted."36

Aggrieved, the PCGG moved for reconsideration,37 which was, however, denied in an Order38 dated April 13,
2009; hence, this petition.39

The Issue Before the Court

The issue raised for the Court's resolution is whether or not the OMB gravely abused its discretion in finding
no probable cause to indict respondents of violating Sections 3 (e) and (g) of RA 3019. chanrobleslaw

The Court's Ruling

The petition is meritorious.

At the outset, it must be stressed that the Court has consistently refrained from interfering with the
discretion of the Ombudsman to determine the existence of probable cause and to decide whether or not an
Information should be filed. Nonetheless, the Court is not precluded from reviewing the Ombudsman's action
when there is a charge of grave abuse of discretion. Grave abuse of discretion implies a capricious and
whimsical exercise of judgment tantamount to lack of jurisdiction.40 The Ombudsman's exercise of power
must have been done in an arbitrary or despotic manner which must be so patent and gross as to amount to
an evasion of a positive duty or a virtual refusal to perform the duty enjoined or to act at all in
contemplation of law.41 The Court's pronouncement in Ciron v. Gutierrez42 is instructive on this matter, to
wit:

xxx this Court's consistent policy has been to maintain noninterference in the determination of
the Ombudsman of the existence of probable cause, provided there is no grave abuse in the
exercise of such discretion. This observed policy is based not only on respect for the
investigatory and prosecutory powers granted by the Constitution to the Office of the
Ombudsman but upon practicality as well.Otherwise, the functions of the Court will be seriously
hampered by innumerable petitions assailing the dismissal of investigatory proceedings conducted by the
Office of the Ombudsman with regard to complaints filed before it, in much the same way that the courts
would be extremely swamped with cases if they could be compelled to review the exercise of discretion on
the part of the fiscals or prosecuting attorneys each time they decide to file an information in court or
dismiss a complaint by a private complainant.43] (Emphasis and underscoring in the original)

In this regard, it is worthy to note that the conduct of preliminary investigation proceedings - whether by
the Ombudsman or by a public prosecutor - is geared only to determine whether or not probable cause
exists to hold an accused-respondent for trial for the supposed crime that he committed. In Fenequito v.
Vergara, Jr.,44 the Court defined probable cause and the parameters in finding the existence thereof in the
following manner, to wit:

Probable cause, for the purpose of filing a criminal information, has been defined as such facts as are
sufficient to engender a well-founded belief that a crime has been committed and that
respondent is probably guilty thereof. The term does not mean "actual or positive cause" nor does it
import absolute certainty. It is merely based on opinion and reasonable belief. Probable cause does not
require an inquiry whether there is sufficient evidence to procure a conviction. It is enough that
it is believed that the act or omission complained of constitutes the offense charged.

A finding of probable cause needs only to rest on evidence showing that, more likely than not, a crime has
been committed by the suspects. It need not be based on clear and convincing evidence of guilt, not
on evidence establishing guilt beyond reasonable doubt, and definitely not on evidence
establishing absolute certainty of guilt. In determining probable cause, the average man weighs facts
and circumstances without resorting to the calibrations of the rules of evidence of which he has no technical
knowledge. He relies on common sense. What is determined is whether there is sufficient ground to
engender a well-founded belief that a crime has been committed, and that the accused is
probably guilty thereof and should be held for trial. It does not require an inquiry as to whether
there is sufficient evidence to secure a conviction.45 (Emphases and underscoring supplied)

Verily, preliminary investigation is merely an inquisitorial mode of discovering whether or not there is
reasonable basis to believe that a crime has been committed and that the person charged should be held
responsible for it. Being merely based on opinion and belief, a finding of probable cause does not require an
inquiry as to whether there is sufficient evidence to secure a conviction.46 "[A preliminary investigation] is
not the occasion for the full and exhaustive display of [the prosecution's] evidence. The presence and
absence of the elements of the crime is evidentiary in nature and is a matter of defense that may be passed
upon after a full-blown trial on the merits."47 Hence, "the validity and merits of a party's defense or
accusation, as well as the admissibility of testimonies and evidence, are better ventilated during trial proper
than at the preliminary investigation level."48

Guided by the foregoing considerations, the Court finds that the Ombudsman gravely abused its discretion in
dismissing the criminal complaint against individual respondents for lack of probable cause, as will be
explained hereunder.

As already stated, individual respondents were accused of violating Section 3 (e) of RA 3019, the elements
of which are as follows: (a) that the accused must be a public officer discharging administrative, judicial, or
official functions (or a private individual acting in conspiracy with such public officers); (b) that he acted with
manifest partiality, evident bad faith, or inexcusable negligence; and (c) that his action caused any undue
injury to any party, including the government, or giving any private party unwarranted benefits, advantage,
or preference in the discharge of his functions.49 In the same vein, they were likewise charged with violation
of Section 3 (g) of the same law, which has the following elements: (a) that the accused is a public officer;
(b) that he entered into a contract or transaction on behalf of the government; and (c) that such contract or
transaction is grossly and manifestly disadvantageous to the government.50 Notably, private individuals may
also be charged with violation of Section 3 (g) of RA 3019 if they conspired with public officers.51

A review of the records of the case reveals that Galleon made a request for guarantees from DBP to cover
its foreign borrowings for the purpose of acquiring new and secondhand vessels. In an evaluation
memorandum52 dated August 27, 1979, the DBP itself already raised various red flags regarding Galleon's
request, such as the following: (a) its guarantee accommodation request covers 100% of its project cost,
which is in excess of DBP's normal practice of financing only 80% of such cost; (b) its net profit margin was
experiencing a steady decrease due to high operating costs; (c) its paid-up capital is only P9.95 Million; and
(d) aside from its proposal to source the increase in equity from the expected profits from the operations of
the vessels to be acquired, Galleon has not shown any concrete proof on how it will be funding its equity
build-up.53 Despite the foregoing, DBP still agreed to grant Galleon's request under certain conditions (e.g.,
increase in paid-up capital, placement of adequate collaterals), which were eventually not complied with.
Further, when Galleon's arrearages and obligations skyrocketed due to its failure to service its debts, DBP,
instead of securing its interest by demanding immediate payment or the foreclosure of the collaterals,
granted Galleon further accommodations in the form of foreign currency loans and release of certain
collaterals. As a result of the foregoing, among other things, Galleon's total obligations to DBP ballooned all
the way to P2,039,284,390.85, while the collaterals securing such obligations were only valued at
P539,000,000.00 as of March 31, 1984.54 Further, Galleon's paid-up capital remained only at
P46,740,755.00 as of June 30, 1981.55

In light of the foregoing considerations, the  Ad Hoc  Committee concluded that the accommodations
extended by DBP to Galleon were in the nature of behest loans, which then led to the filing of criminal cases
against individual respondents, who were high-ranking officers and/or directors of either Galleon or DBP, as
evidenced by the various documents on record. Specifically, Cuenca, Tinio, and Roque were Galleon
stockholders and were its President, Executive Vice-President and Treasurer, and Corporate Secretary,
respectively.56 On the other hand, the following individual respondents exercised official functions for the
DBP during the time it extended Galleon the aforesaid accommodations: (a) Ferry as DBP Vice Chairman and
Acting Chairman;57 (b) Tengco as DBP Board Member, Supervising Governor, and Acting Chairman;58 (c)
Zosa as DBP Supervising Governor and Chairman of the Loan Committee;59(d) Zalamea as DBP
Chairman;60 (e) Castell as DBP Executive Officer and Manager of the Industrial Projects Development
III;61 and if) Sison as DBP Board Member and Acting Chairman.62 As may be gleaned from the documents on
record, it appears that each of these high-ranking officers and/or directors of DBP had a hand in
recommending the approval and/or the actual approval of the series of accommodations that DBP granted in
favor of Galleon, which constituted the behest loans received by the latter during the regime of the late
President Marcos.

In view of the accusations that they were involved in the grant of behest loans, Roque, Zalamea, Tengco,
and Castell merely denied liability by maintaining that they had no participation in such grant. Suffice it to
say that these are matters of defense that are better ventilated during the trial proper. On the other hand,
Ferry, Zosa, Cuenca, Tinio, and Sison miserably failed to debunk the charges against them by not filing their
respective counter-affidavits despite due notice. Indubitably, the foregoing establishes probable cause to
believe that individual respondents may have indeed committed acts constituting the crimes charged against
them, and as such they must defend themselves in a full-blown trial on the merits.

Finally, it was error for the Ombudsman to simply discredit the TWG's findings contained in the Executive
Summary which were adopted by the Ad Hoc  Committee for being hearsay, self-serving, and of little
probative value. It is noteworthy to point out that owing to the initiatory nature of preliminary
investigations, the technical rules of evidence should not be applied in the course of its proceedings.63 In the
recent case of Estrada v. Ombudsman,64 the Court declared that hearsay evidence is admissible in
determining probable cause in preliminary investigations because such investigation is merely preliminary,
and does not finally adjudicate rights and obligations of parties. Citing a case decided by the Supreme Court
of the United States, it was held that probable cause can be established with hearsay evidence, as long as
there is substantial basis for crediting the hearsay, viz.:

Justice Brion's pronouncement in Unilever that "the determination of probable cause does not depend on the
validity or merits of a party's accusation or defense or on the admissibility or veracity of testimonies
presented" correctly recognizes the doctrine in the United States that the determination of probable
cause can rest partially, or even entirely, on hearsay evidence, as long as the person making the
hearsay statement is credible. In United States v. Ventresca, the United States Supreme Court held: chanRoblesvirtualLawlibrary

While a warrant may issue only upon a finding of "probable cause," this Court has long held that "the term
'probable cause' . . . means less than evidence which would justify condemnation," x x x and that a finding
of "probable cause" may rest upon evidence which is not legally competent in a criminal trial, x x x As the
Court stated in Brinegar v. United States x x x, "There is a large difference between two things to be proved
(guilt and probable cause), as well as between the tribunals which determine them, and therefore a like
difference in the quanta and modes of proof required to establish them." Thus, hearsay may be the bases
for issuance of the warrant "so long as there ... [is] a substantial basis for crediting the hearsay."
x x x And, in Aguilar, we recognized that "an affidavit may be based on hearsay information and need
not reflect the direct personal observations of the affiant," so long as the magistrate is "informed
of some of the underlying circumstances" supporting the affiant's conclusions and his belief that
any informant involved "whose identity need not be disclosed..." was "credible" or his
information "reliable." x x x.
Thus, probable cause can be established with hearsay evidence, as long as there is substantial
basis for crediting the hearsay. Hearsay evidence is admissible in determining probable cause in
a preliminary investigation because such investigation is merely preliminary, and does not finally
adjudicate rights and obligations of parties, x x x.65 (Emphases and underscoring supplied)

In this case, assuming arguendo  that the factual findings contained in the Executive Summary prepared by
the TWG from which the Ad Hoc Committee based its conclusions are indeed hearsay, self-serving, and of
little probative value, there is nevertheless substantial basis to credit the same, as such factual findings
appear to be based on official documents prepared by DBP itself in connection with the behest loans it
allegedly extended in favor of Galleon. In this regard, it must be emphasized that in determining the
elements of the crime charged for purposes of arriving at a finding of probable cause, only facts sufficient to
support a prima facie case against the respondents are required, not absolute certainty. Probable cause
implies mere probability of guilt, i.e., a finding based on more than bare suspicion, but less than evidence
that would justify a conviction.66 To reiterate, the validity of the merits of a party's defense or accusations
and the admissibility of testimonies and evidences are better ventilated during the trial stage than in the
preliminary stage.67

In sum, the Court is convinced that there is probable cause to indict individual respondents of violating
Sections 3 (e) and (g) of RA 3019. Hence, the Ombudsman committed grave abuse of discretion amounting
to lack or excess of jurisdiction in dismissing the criminal complaint against them.

WHEREFORE, the petition is GRANTED. The Resolution dated May 30, 2007 and the Order dated April 13,
2009 of the Office of the Ombudsman in OMB-C-C-03-0500-I are hereby REVERSED and SET ASIDE.
Accordingly, the Office of the Ombudsman is DIRECTED to issue the proper resolution indicting individual
respondents Don M. Ferry, Jose R. Tengco, Jr., Rolando ML Zosa, Cesar C. Zalamea, Ofelia I. Castell, Rafael
A. Sison, Rodolfo M. Cuenca, Manuel I. Tinio, and Antonio R. Roque of violating Sections 3 (e) and (g) of
Republic Act No. 3019, in accordance with this Decision.

SO ORDERED. chanroblesvirtuallawlibrary

Sereno, C.J., (Chairperson), Velasco, Jr.,* Leonardo-De Castro, and Bersamin, JJ., concur.