The Supreme Court has affirmed that public officials, particularly those in positions of authority like mayors, can be held liable for malversation of public funds and violations of Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act) if they exhibit gross inexcusable negligence in handling public funds. This ruling underscores the high standard of care expected of public servants in managing government resources, emphasizing that ignorance or reliance on subordinates does not excuse them from liability when clear warning signs of irregularity are present. This decision reinforces the principle that public office is a public trust, demanding utmost diligence and prudence from those entrusted with government funds.

When Oversight Fails: Can a Mayor Be Liable for Negligence Despite Subordinates’ Actions?

This case, Tito S. Sarion v. People of the Philippines, revolves around Tito S. Sarion, the former mayor of Daet, Camarines Norte, who was found guilty by the Sandiganbayan of malversation of public funds and violation of Section 3(e) of R.A. No. 3019. The charges stemmed from the allegedly irregular payment of price escalation to Markbilt Construction for the Phase II construction of the Daet Public Market. Sarion approved the disbursement despite concerns about the validity of the claim, particularly the absence of a specific appropriation for the price escalation at the time the contract was agreed upon. The Supreme Court, in its initial decision and subsequent resolution denying Sarion’s motion for reconsideration, affirmed the Sandiganbayan’s ruling, finding that Sarion exhibited gross inexcusable negligence, leading to undue injury to the municipality.

The central legal issue is whether Sarion, as mayor, could be held liable for these offenses despite his defense of relying on the certifications and recommendations of his subordinates. Sarion argued that he relied in good faith on the diligent exercise of functions by municipal officers tasked with accounting, budgeting, and legal matters. He cited a legal opinion stating no irregularity was found in the price escalation computation. However, the Court found that circumstances existed that should have alerted Sarion to inquire further before approving the payment. These included the significant amount involved, the fact that the project was largely completed before his term, and the extended period since the initial demand for payment.

The Supreme Court anchored its decision on the principle that public officials are accountable for the proper handling of public funds and cannot simply delegate their responsibility to subordinates, especially when red flags are apparent. The Court referred to Sections 85 and 86 of Presidential Decree No. 1445, also known as the Government Auditing Code of the Philippines, which mandates prior sufficient appropriation before entering into any contract involving the expenditure of public funds. Specifically, Section 86 requires a certificate from the proper accounting official confirming that funds have been duly appropriated for the purpose, which must be attached to the contract.

Section 85. Appropriation before entering into contract.

(1) No contract involving the expenditure of public funds shall be entered into unless there is an appropriation therefor, the unexpended balance of which, free of other obligations, is sufficient to cover the proposed expenditure.

Section 86. Certificate showing appropriation to meet contract. Except in the case of a contract for personal service, for supplies for current consumption or to be carried in stock not exceeding the estimated consumption for three months, or banking transactions of government­ owned or controlled banks, no contract involving the expenditure of public funds by any government agency shall be entered into or authorized unless the proper accounting official of the agency concerned shall have certified to the officer entering into the obligation that funds have been duly appropriated for the purpose and that the amount necessary to cover the proposed contract for the current fiscal year is available for expenditure on account thereof, subject to verification by the auditor concerned. The certificate, signed by the proper accounting official and the auditor who verified it, shall be attached to and become an integral part of the proposed contract, and the sum so certified shall not thereafter be available for expenditure for any other purpose until the obligation of the government agency concerned under the contract is fully extinguished.

The Court emphasized that the original contract price of Php 71,499,875.29 was the only appropriation in this case, and no payment could be made beyond that amount without a specific, prior appropriation for the price escalation. The absence of this specific appropriation at the time the parties agreed to its payment rendered the undertaking in the Contract Agreement void and of no effect. The Court rejected Sarion’s reliance on the doctrine in Arias v. Sandiganbayan, which generally allows heads of offices to rely on their subordinates, stating that the doctrine does not apply when circumstances should have alerted the official to exercise a higher degree of circumspection.

The court highlighted that Sarion, as mayor, held a position of significant responsibility and could not claim ignorance of the law or blindly rely on his subordinates. His approval of the disbursement voucher without verifying the propriety of the claim, especially given the time that had passed since the project’s completion and the initial demand for payment, constituted gross inexcusable negligence. This negligence caused undue injury to the Municipality of Daet, as public funds were illegally released to Markbilt Construction.

Furthermore, the Court addressed the argument that the Information (the formal charge) against Sarion was deficient because it alleged the absence of a Certificate of Availability of Funds (CAF), not an irregularity in the CAF. While Sarion claimed there was indeed a CAF, the Court clarified that the issue was the absence of a specific appropriation for the price escalation. Even if the Information was technically flawed, the Court reasoned that Sarion could still be convicted based on his approval of the disbursement voucher without complying with Section 61 of R.A. No. 9184, which requires referral to the National Economic and Development Authority (NEDA) and approval by the Government Procurement Policy Board (GPPB) for price escalations. The failure to comply with these requirements, though not directly penalized under R.A. No. 9184, contributed to the violation of R.A. No. 3019 and the crime of malversation.

In his dissenting opinion, Justice Caguioa argued that there was, in fact, a valid appropriation to pay for the contract price escalation, referring to Appropriation Ordinance No. 01. He also contended that the obligation to secure the documents required under Section 61 of R.A. No. 9184 did not pertain to Sarion but to the contractor. Furthermore, he cited Arias v. Sandiganbayan, arguing that Sarion should be able to rely on the good faith of his subordinates and the legal opinion he received. However, the majority of the Court remained unconvinced, upholding the conviction based on the clear evidence of Sarion’s negligence and the resulting injury to the municipality.

FAQs

What was the key issue in this case?	The key issue was whether a mayor could be held liable for malversation of public funds and violation of the Anti-Graft and Corrupt Practices Act due to gross inexcusable negligence in approving a disbursement. The central question was whether reliance on subordinates and a legal opinion absolved the mayor of responsibility.
What is malversation of public funds?	Malversation of public funds, under Article 217 of the Revised Penal Code, involves a public officer who, by reason of their office, is accountable for public funds or property, and misappropriates, takes, or allows any other person to take those funds or property. This can occur through intent or negligence.
What is Section 3(e) of R.A. No. 3019?	Section 3(e) of R.A. No. 3019 prohibits public officials from causing undue injury to any party, including the government, or giving any private party unwarranted benefits, advantage, or preference in the discharge of their official administrative or judicial functions through manifest partiality, evident bad faith, or gross inexcusable negligence.
What is gross inexcusable negligence?	Gross inexcusable negligence signifies a failure to exercise even slight care or diligence, or the omission of care that even inattentive and thoughtless persons never fail to take on their own property. In this context, it means a clear and palpable failure to perform a legal duty.
What is the significance of P.D. No. 1445 in this case?	Presidential Decree No. 1445, also known as the Government Auditing Code of the Philippines, outlines the requirements for appropriating and disbursing public funds. Sections 85 and 86 of P.D. No. 1445 require prior appropriation and certification by the proper accounting official before entering into contracts involving public funds.
When can a public official rely on the Arias doctrine?	The Arias doctrine allows a head of office to rely to a reasonable extent on their subordinates and the good faith of those who prepare bids, purchase supplies, or enter into negotiations. However, this doctrine does not apply when circumstances exist that should have alerted the official to exercise a higher degree of circumspection.
What is Section 61 of R.A. No. 9184?	Section 61 of R.A. No. 9184, the Government Procurement Reform Act, requires that for price escalations in government contracts, there must be a determination of extraordinary circumstances by the National Economic and Development Authority (NEDA) and approval by the Government Procurement Policy Board (GPPB).
What was the dissenting opinion’s main argument?	The dissenting opinion argued that there was a valid appropriation for the price escalation, that the mayor was not responsible for compliance with Section 61 of R.A. No. 9184, and that the mayor was entitled to rely on the legal opinion and the good faith of his subordinates under the Arias doctrine.

The Sarion case serves as a crucial reminder that public office demands a high degree of accountability and diligence. Public officials cannot shield themselves from liability by claiming ignorance or reliance on subordinates when faced with evident signs of irregularity. This ruling reinforces the importance of transparency and adherence to established procedures in the management of public funds, safeguarding against corruption and ensuring responsible governance.

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: TITO S. SARION, PETITIONER, V.S. PEOPLE OF THE PHILIPPINES, RESPONDENT., G.R. Nos. 243029-30, August 22, 2022