The Supreme Court acquitted Judith B. Cardenas, along with other local officials of Canlaon City, of violating Section 3(g) of the Anti-Graft and Corrupt Practices Act. The Court found that the prosecution failed to prove beyond reasonable doubt that the loan agreements entered into by the officials were manifestly and grossly disadvantageous to the local government. This decision clarifies the extent to which local government units (LGUs) can utilize their assets, such as savings deposits and Internal Revenue Allotments (IRAs), as collateral for loans, providing a crucial framework for future local governance and financial transactions. It emphasizes the necessity of proving actual detriment to the government to secure a conviction under Section 3(g) of RA 3019.

Can a Loan to Benefit Employees Be a Loss to the City?

This case revolves around a P60,000,000.00 loan obtained by the Local Government Unit (LGU) of Canlaon City from the Development Bank of the Philippines (DBP), authorized during Judith B. Cardenas’ term as City Mayor. The loan was intended for livelihood projects for city officials and employees, with the city’s savings deposits and IRA used as collateral. The loan agreement was further supported by a Memorandum of Agreement (MOA) between the LGU and the Canlaon City Employees Multi-Purpose Cooperative (CCGEMCO) to administer the funds. This led to charges against Cardenas and other local officials for violating Section 3(g) of the Anti-Graft and Corrupt Practices Act, which penalizes entering into contracts on behalf of the government that are manifestly and grossly disadvantageous. The central legal question was whether these loan agreements were indeed detrimental to the government, warranting a conviction under the said law.

The Sandiganbayan initially found the petitioners guilty, reasoning that the MOAs with DBP and CCGEMCO were manifestly and grossly disadvantageous to the LGU. They highlighted that public funds like special savings deposits and IRA were used without proper appropriation, essentially putting the city’s finances under DBP’s control without statutory authority. The Sandiganbayan also noted that all interests from the re-lending agreement with CCGEMCO accrued solely to the cooperative, leaving the city responsible for the principal plus interests. However, the Supreme Court disagreed, leading to the officials’ acquittal.

The Supreme Court emphasized that for a conviction under Section 3(g) of RA 3019, it must be proven beyond a reasonable doubt that the contract or transaction was grossly and manifestly disadvantageous to the government. The Court outlined the elements of the offense: (1) the accused is a public officer; (2) they entered into a contract or transaction on behalf of the government; and (3) the contract or transaction is grossly and manifestly disadvantageous. While the first two elements were present, the critical third element was lacking.

The Court referenced Section 297(b) of the Local Government Code (LGC), which allows LGUs to secure loans using real estate or other acceptable assets for various projects. Citing examples from the Land Bank of the Philippines (LBP) and DBP, the Court acknowledged that IRAs are commonly accepted as collateral. DBP itself allows LGUs to use special savings deposits and IRAs as loan security. The Court highlighted testimony from a DBP Branch Head confirming that such arrangements minimize risks and benefit both the bank and the LGU, as the deposits earn interest income.

Furthermore, the Court countered the notion that the loan primarily benefited a few private individuals. While initial complaints suggested this, it was later admitted that 273 employees were beneficiaries. The relending program managed by CCGEMCO aimed to implement the LGU’s Livelihood Incentive Support Program, designed to support local officials and employees. The Court noted the hierarchy of preference in granting loans, prioritizing those with viable livelihood projects or those seeking to consolidate debts with higher interest rates.

The MOA between the LGU and CCGEMCO expressly stated that CCGEMCO would pay the principal, interests, and charges to DBP. While CCGEMCO was not a direct party to the loan agreement with DBP, this provision indicated the LGU’s effort to ensure the loan was repaid without jeopardizing its savings or IRA. The court also took note of a DBP certification stating that the LGU paid the P60,000,000 loan, without default and on time.

SEC. 3. Corrupt practices of public officers. — In addition to acts or omissions of public officers already penalized by existing law, the following shall constitute corrupt practices of any public officer and are hereby declared to be unlawful:

x x x x

(g) Entering, on behalf of the Government, into any contract or transaction manifestly and grossly disadvantageous to the same, whether or not the public officer profited or will profit thereby.

Acknowledging that the LGU did not enter the P60,000,000.00 loan in its financial statements, which the local officials did not deny. The Supreme Court also addressed the lack of an appropriation ordinance before releasing the loan proceeds to CCGEMCO, as required by Section 305(a) of the LGC. However, the Court clarified that such irregularities do not automatically render the transactions grossly and manifestly disadvantageous, as required to establish guilt under Section 3(g) of RA 3019. While the lack of an appropriation ordinance was an irregularity, it did not necessarily equate to a disadvantageous transaction.

To illustrate, consider two LGUs taking similar loans. LGU A properly records the loan in its financial statements and enacts an appropriation ordinance, while LGU B does not. If both LGUs successfully repay their loans without defaulting, LGU B cannot be said to have been manifestly and grossly disadvantaged simply because of the procedural lapses.

Aspect	Sandiganbayan’s View	Supreme Court’s View
Disadvantage to Government	Loan agreements were manifestly and grossly disadvantageous due to improper use of public funds and lack of appropriation.	No manifest or gross disadvantage proven; LGUs can use assets like savings and IRA as loan security.
Benefit to Private Parties	The loan was designed to favor a few selected individuals.	The loan benefited a wider group of employees as part of a livelihood program.
Compliance with LGC	Failure to comply with proper appropriation procedures made the transaction disadvantageous.	Procedural lapses do not automatically equate to a disadvantageous transaction under RA 3019.

In conclusion, the Supreme Court’s ruling underscores the stringent standard required to prove a violation of Section 3(g) of RA 3019, mandating clear evidence of manifest and gross disadvantage to the government. The verdict stresses that mere procedural lapses or irregularities do not automatically trigger liability under this provision. This case provides significant guidance on how LGUs can manage their finances, secure loans, and implement livelihood programs without overstepping legal boundaries.

FAQs

What was the key issue in this case?	The central issue was whether the loan agreements entered into by Canlaon City officials were manifestly and grossly disadvantageous to the government, thereby violating Section 3(g) of the Anti-Graft and Corrupt Practices Act.
What is Section 3(g) of RA 3019?	Section 3(g) of RA 3019 prohibits public officers from entering into contracts on behalf of the government that are manifestly and grossly disadvantageous to the same, regardless of whether the officer profits from it.
Can LGUs use their IRA as collateral for loans?	Yes, the Supreme Court acknowledged that LGUs can use their Internal Revenue Allotment (IRA) and other assets as collateral for loans, provided it aligns with the Local Government Code.
What does ‘manifestly and grossly disadvantageous’ mean?	‘Manifestly’ means evident or obvious, while ‘grossly’ implies a flagrant and inexcusable level of misconduct, and ‘disadvantageous’ refers to something unfavorable or prejudicial. The contract must evidently be greatly unfavorable to the government
Was there an appropriation ordinance for the loan proceeds?	No, the Supreme Court noted the lack of an appropriation ordinance for the release of the loan proceeds to CCGEMCO, which is a procedural irregularity.
What was the outcome for the accused officials?	The Supreme Court acquitted the accused officials, including Judith B. Cardenas, of violating Section 3(g) of RA 3019, reversing the Sandiganbayan’s decision.
What was the purpose of the loan?	The loan was intended for livelihood projects for city officials and employees of Canlaon City, managed through a relending program administered by CCGEMCO.
How did the Supreme Court view the benefit to private individuals?	The Court clarified that the loan benefited a wider group of employees as part of a livelihood program, rather than just a few selected individuals.
What happens if an accused official dies during the case?	The Supreme Court dismissed the case for Ma. Luisa L. Luza and Edgar D. Estampador due to their deaths during the pendency of the case, as death extinguishes criminal liability.

This ruling reinforces the importance of proving actual detriment to the government when prosecuting officials under anti-graft laws. It also provides clarity on the permissible use of LGU assets for securing loans, balancing the need for local development with the imperative of safeguarding public funds. Moving forward, LGUs should ensure compliance with procedural requirements, such as enacting appropriation ordinances, to avoid potential legal challenges, even when transactions are not inherently disadvantageous.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: JUDITH B. CARDENAS vs. PEOPLE, G.R. Nos. 231538-39, December 01, 2021