SC upholds Ombudsman on DBP-Midland Cement case

The Supreme Court has affirmed the resolution issued by the Office of the Ombudsman in 2000 which dismissed the graft complaint filed against officials of the Development Bank of the Philippines (DBP) and Midland Cement Corp. (MCC) in connection with a P1.02-billion loan obtained by MCC from 1968 to 1981.

In a 23-page decision penned by Associate Justice Dante Tinga, the court’s Second Division dismissed the petition filed by the Presidential Commission on Good Government (PCGG) and the Presidential Ad Hoc Fact-Finding Committee on Behest Loans that sought the reversal of the ruling issued on Nov. 24, 2000 by then Ombudsman Aniano Desierto. The ruling upheld the resolution of the Ombudsman’s Evaluation and Preliminary Investigation Bureau (EPIB) that dismissed the graft complaint for insufficiency of evidence.

In his complaint, lawyer Orlando Salvador, a PCGG consultant detailed at the Presidential Ad Hoc Fact-Finding Committee on Behest Loans, claimed that at the time the initial loan of P110 million was procured from the DBP in 1968, MCC had no sufficient capital to be entitled to the loan since its total assets then was only P77 million and its paid-up capital was just around P9.15 million.

Despite this, Salvador said MCC was able to obtain additional loans from DBP which had reached P1,027,376,000 with a property appraised value of just P329.47 million. In 1972, Salvador said DBP became the majority stockholder of MCC, and by 1981, it was already the owner of 92.89 percent of shares in the corporation.

In 1986, the assets of MCC were sold by the Asset Privatization Trust (APT) for P171.82 million. As such, the government incurred a loss amounting to P855.55 million.

Salvador then filed a complaint before the Ombudsman against DBP board members Gregorio Licaros, J.V. de Ocampo, Leonides Virata and Alicia Reyes; and against MCC principal stockholders Lourdes Montenegro, Serafin Montenegro, Basilio Lirag and Felix Lirag for violation of Section 3 (e) and (g) of Republic Act 3019 or the Anti-Graft and Corrupt Practices Act.

Section 3 (e) prohibits government officers from “giving any private party unwarranted benefit or preference in the discharge of his official, administrative or judicial functions through manifest partiality.” It also enjoins public officials from entering on behalf of the government, into any contract grossly disadvantageous to the government.

On Aug. 25, 1998, the EPIB concluded that the loans extended to MCC could not be considered as behest loans as the proceeds thereof were used for a business purpose which was the construction of a cement plant and that there was no deviation from its intended purpose.

The EPIB also said that there was no unwarranted preference accorded to the respondents as the loan was collateralized and that the process for securing the loans had been followed.

In its petition before the court, the petitioners argued that in its 1998 resolution, the Ombudsman categorically stated that “it is beyond doubt” that the respondents violated the provisions RA 3019 even as the complaint was dismissed on the ground of prescription.

But in his 2000 resolution, the petitioners said Desierto disregarded the previous resolution when he ruled that the evidence was insufficient to prosecute the respondents.

In upholding the Ombudsman’s decision, the court noted that a very important  element of Section 3 (e) (giving unwarranted preference to any private party) no longer exists considering the takeover of MCC by the DBP in 1972.

 “But what cannot be denied is that DBP, as the new owner of Midland Cement, indirectly assumed responsibility for the outstanding obligations of the company. It could thus not allow Midland Cement to simply flounder without causing prejudice to its own interests,” the court said.

 “At this point, the infusion of fresh capital by DBP into Midland Cement cannot be deemed as a reckless hand-out designed to favor a private enterprise at the expense of the public coffers,” it added.

The grant of several loans to MCC, according to the court can be seen as an attempt by DBP to salvage its investment, “which could not stand a chance to earn a return unless it is sustained as it were by new capital.”

 “Distressing as may be the ultimate loss to the government resulting from DBP’s loan transactions with Midland Cement, bad business judgment on the part of DBP officers does not necessarily translate to criminal liability under RA 3019,” the Court said.

 “To warrant prosecution, there must be evident deliberation on the part of the bank officials to unlawfully dispense favors or relax regulations for the benefit of those private individuals or enterprises who transact with DBP.  Absent evidence to that effect, the Ombudsman cannot be faulted for not finding prima facie case against respondents,” the court added.