G.R. No. 89679-81 - Land Bank of the Philippines vs. Commission on Audit

On 22 July 1980, the Board of Directors of the Land Bank of the Philippines (LBP) adopted Resolution No. 80-222.

The Resolution fixed new rates for penalty charges on past due loans/amortizations and other credit accommodations.
It provided that in cases of defaults due to "unforeseen, highly justifiable reasons/circumstances" (such as natural calamities, sickness, adverse government rulings or court judgments), penalty charges may be condoned or reduced upon recommendation by the appropriate lending units and approval by the Loan Executive Committee.

Pursuant to this Resolution, LBP, through its Loan Executive Committee, waived penalty charges amounting to P9,636.36 on a loan granted to the Home Savings Bank and Trust Company (HSBTC), which is a thrift banking institution organized under Philippine laws.

On 23 September 1986, LBP requested its Corporate Auditor to audit the waiver of the penalty charges.
The Corporate Auditor questioned the waiver on the ground that the power to condone interests or penalties was vested exclusively in the Commission on Audit (COA) pursuant to Section 36 of Presidential Decree No. 1445 (Government Auditing Code).
Lacking a categorical ruling directly applicable to a government banking institution, the Corporate Auditor referred the matter to COA in a letter dated 20 January 1987.

In COA Decision No. 551 dated 29 June 1988, the COA held that the waiver was unauthorized and disallowed it in audit, citing the exclusive power granted to the COA under Presidential Decree No. 1445, Section 36.
LBP sought reconsideration through COA Decision No. 701 (dated 13 December 1988) and COA Decision No. 977 (dated 6 June 1989), both of which reaffirmed COA’s exclusive authority to settle and compromise claims.
Subsequently, LBP elevated the issue under petition (and an amended petition) before the Court, albeit under Rules 44 and 43 of the Rules of Court, even though the proper remedy might have been Certiorari under Rule 65.

The dispute centered on whether LBP has the power to waive penalty charges on a past due loan based on its charter and inherent general banking powers.
LBP argued that its Charter (Rep. Act No. 3844, as amended by Presidential Decree No. 251) confers upon it broad, implied powers (including condonation of penalties as part of writing-off loans and advances) which are necessary to fulfill its mandate of providing financial support for agrarian reform and other agricultural needs.
COA, however, maintained that the power to compromise or release government liabilities is exclusively within its prerogative as provided by Section 36 of PD No. 1445.

Whether the waiver of penalty charges on a past due loan, as executed by LBP, falls within the corporate powers granted to it under its Charter.
Whether the authority to condone or compromise such liabilities is exclusively vested in the Commission on Audit (COA) under Section 36 of Presidential Decree No. 1445, or can be exercised by LBP as a banking institution.