In its Comment, the COA argues that the fact that the audit disallowance was allegedly written-off is of no moment. Respondent
maintains that Section 66 of PD 1445 expressly granted unto it the right to compromise monetary liabilities of the government. The COA, thus, theorizes that without its approval, the alleged write-off is ineffectual. The same argument was reiterated by the COA in its Memorandum.
The COA’s argument deserves scant consideration.
A write-off is a financial accounting concept that allows for the reduction in value of an asset or earnings by the amount of an expense or loss. It is a means of removing bad debts from the financial records of the business.
In Land Bank of the Philippines v. Commission on Audit, this Court ruled that Land Bank has the power and authority to write-off loans, to wit:
LBP was created as a body corporate and government instrumentality to provide timely and adequate financial support in all phases involved in the execution of needed agrarian reform (Rep. Act No. 3844, as amended, Sec. 74). Section 75 of its Charter vests in LBP specific powers normally exercised by banking institutions, such as the authority to grant short, medium and long-term loans and advances against security of real estate and/or other acceptable assets; to guarantee acceptance(s), credits, loans, transactions or obligations; and to borrow from, or rediscount notes, bills of exchange and other commercial papers with the Central Bank. In addition to the enumeration of specific powers granted to LBP, Section 75 of its Charter also authorizes it:
12. To exercise the general powers mentioned in the Corporation Law and the General Banking Act, as amended, insofar as they are not inconsistent or incompatible with this Decree.
One of the general powers mentioned in the General Banking Act is that provided for in Section 84 thereof, reading:
x x x x
Writing-off loans and advances with an outstanding amount of one hundred thousand pesos or more shall require the prior approval of the Monetary Board (As amended by PD 71).
It will, thus, be seen that LBP is a unique and specialized banking institution, not an ordinary “government agency” within the scope of Section 36 of Pres. Decree No. 1445. As a bank, it is specifically placed under the supervision and regulation of the Central Bank of the Philippines pursuant to its Charter (Sec. 97, Rep. Act No. 3844, as amended by Pres. Decree No. 251). In so far as loans and advances are concerned, therefore, it should be deemed primarily governed by Central Bank Circular No. 958, Series of 1983, which vests the determination of the frequency of writing-off loans in the Board of Directors of a bank provided that the loans written-off do not exceed a certain aggregate amount. The pertinent portion of that Circular reads:
b. Frequency/ceiling of write-off. The frequency for writing-off loans and advances shall be left to the discretion of the Board of Directors of the bank concerned. Provided, that the aggregate amount of loans and advances which may be written-off during the year, shall in no case exceed 3% of total loans and investments; Provided, further, that charge-offs are made against allowance for possible losses, earnings during the year and/or retained earnings.
While the power to write-off is not expressly granted in the charter of the Land Bank, it can be logically implied, however, from the Land Bank’s authority to exercise the general powers vested in banking institutions as provided in the General Banking Act (Republic Act 337). The clear intendment of its charter is for the Land Bank to be clothed not only with the express powers granted to it, but also with those implied, incidental and necessary for the exercise of those express powers.
In the case at bar, it is thus clear that the writing-off of the loans involved was a valid act of the Land Bank. In writing-off the loans, the only requirement for the Land Bank was that the same be in accordance with the applicable Bangko Sentral circulars, it being under the supervision and regulation thereof. The Land Bank recommended for write-off all six loans granted to the cooperatives, and it is worthy to note that the Bangko Sentral granted the same. The write-offs being clearly in accordance with law, the COA should, therefore, adhere to the same, unless under its general audit jurisdiction under PD 1445, it finds that under Section 25(1) the fiscal responsibility that rests directly with the head of the government agency has not been properly and effectively discharged.
On this note, the reliance of respondent on Section 66 of PD 1445 is baseless as a reading thereof would show that the same does not pertain to the COA’s power to compromise claims. Probably, what respondent wanted to refer to was Section 36 which provides:
Section 36. Power to compromise claims. –
1. When the interest of the government so requires, the Commission may compromise or release in whole or in part, any claim or settled liability to any government agency not exceeding ten thousand pesos and with the written approval of the Prime Minister, it may likewise compromise or release any similar claim or liability not exceeding one hundred thousand pesos, the application for relief therefrom shall be submitted, through the Commission and the Prime Minister, with their recommendations, to the National Assembly.
2. The respective governing bodies of government-owned or controlled corporations, and self-governing boards, commissions or agencies of the government shall have the exclusive power to compromise or release any similar claim or liability when expressly authorized by their charters and if in their judgment, the interest of their respective corporations or agencies so requires. When the charters do not so provide, the power to compromise shall be exercised by the Commission in accordance with the preceding paragraph.
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Under Section 36, the use of the word “may” shows that the power of the COA to compromise claims is only permissive, and not mandatory. Further, the second paragraph of Section 36 clearly states that respective governing bodies of government-owned or controlled corporations, and self-governing boards, commissions or agencies of the government shall have the exclusive power to compromise or release any similar claim or liability when expressly authorized by their charters. Nowhere in Section 36 does it state that the COA must approve a compromise made by a government agency; the only requirement is that it be authorized by its charter. It, therefore, bears to stress that the COA does not have the exclusive prerogative to settle and compromise liabilities to the Government.
The foregoing pronouncements notwithstanding, this Court rules that writing-off a loan does not equate to a condonation or release of a debt by the creditor.
As an accounting strategy, the use of write-off is a task that can help a company maintain a more accurate inventory of the worth of its current assets. In general banking practice, the write-off method is used when an account is determined to be uncollectible and an uncollectible expense is recorded in the books of account. If in the future, the debt appears to be collectible, as when the debtor becomes solvent, then the books will be adjusted to reflect the amount to be collected as an asset. In turn, income will be credited by the same amount of increase in the accounts receivable.
Write-off is not one of the legal grounds for extinguishing an obligation under the Civil Code. It is not a compromise of liability. Neither is it a condonation, since in condonation gratuity on the part of the obligee and acceptance by the obligor are required. In making the write-off, only the creditor takes action by removing the uncollectible account from its books even without the approval or participation of the debtor.
Furthermore, write-off cannot be likened to a novation, since the obligations of both parties have not been modified. When a write-off occurs, the actual worth of the asset is reflected in the books of accounts of the creditor, but the legal relationship between the creditor and the debtor still remains the same – the debtor continues to be liable to the creditor for the full extent of the unpaid debt.
Based on the foregoing, as creditor, Land Bank may write-off in its books of account the advance payment released to REMAD in the interest of accounting accuracy given that the loans were already uncollectible. Such write-off, however, as previously discussed, does not equate to a release from liability of petitioners.
Accordingly, the Land Bank Ipil Branch must be required to record in its books of account the Php3,115,000.00 disallowance, and petitioners, together with their four co-employees, should be personally liable for the said amount. Such liability, is, however, without prejudice to petitioners’ right to run after REMAD, to whom they illegally disbursed the loan, for the full reimbursement of the advance payment for the cattle as correctly ruled by the COA in its July 17, 2003 Decision.
On a final note, it bears to point out that a cursory reading of the Ombudsman’s resolution will show that the complaint against petitioners was dismissed not because of a finding of good faith but because of a finding of lack of sufficient evidence. While the evidence presented before the Ombudsman may not have been sufficient to overcome the burden in criminal cases of proof beyond reasonable doubt, it does not, however, necessarily follow, that the administrative proceedings will suffer the same fate as only substantial evidence is required, or that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion.
An absolution from a criminal charge is not a bar to an administrative prosecution or vice versa. The criminal case filed before the Office of the Ombudsman is distinct and separate from the proceedings on the disallowance before the COA. So also, the dismissal by Margarito P. Gervacio, Jr., Deputy Ombudsman for Mindanao, of the criminal charges against petitioners does not necessarily foreclose the matter of their possible liability as warranted by the findings of the COA.
In addition, this Court notes that the Ombudsman’s Resolution relied on an alleged “April 6, 1992 Memorandum of the Field Loans Review Department” which supposedly authorized the Field Offices to undertake a prepayment scheme. On the other hand, the same Ombudsman’s Resolution also made reference to a “January 19, 1994 Memorandum of EVP Diaz” and a “May 31, 1994 Memorandum of VP FSD” which tackled the prohibition on advance payment to suppliers. All these documents, however, were again not attached to the records of the case at bar. Particularly, the supposed “April 6, 1992 Memorandum of the Field Loans Review Department” was not even mentioned nor raised by petitioners as a defense in herein petition.
The decisions and resolutions emanating from the COA did not tackle the supposed April 6, 1992 Memorandum of the Field Loans Review Department which allegedly authorized the Field Offices to undertake a pre-payment scheme. While it is possible that such document would have shown that petitioners were in good faith, the same should have been presented by them in the proceedings before the Commission proper – an act which they were not able to do because of their own negligence in allowing the period to file an appeal to lapse. The April 6, 1992 Memorandum of the Field Loans Review Department would have been the best evidence to free petitioners from their liability. It appears, however, that they did not present the same before the COA and it is already too late in the day for them to present such document before this Court.
Petitioners’ allegation of grave abuse of discretion by the COA implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction or, in other words, the exercise of the power in an arbitrary manner by reason of passion, prejudice, or personal hostility; and it must be so patent or gross as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. It is imperative for petitioners to show caprice and arbitrariness on the part of the COA whose exercise of discretion is being assailed. Proof of such grave abuse of discretion, however, is wanting in this case.