G.R. No. 196156 - Visayas Community Medical Center vs. Yballe

On October 24, 1997, ECOBEL Land, Inc., represented by its Chairman Josephine Edralin Boright, applied for a medium-term financial facility loan with the GSIS Finance Group for the construction of a 26-storey condominium tower (ECOBEL Tower). The application was denied due to insufficient collateral, lack of a proven track record in property development, and the adverse economic conditions of the Asian financial crisis.
Subsequently, ECOBEL applied for a two-year surety bond with GSIS to guarantee a US$10,000,000 loan with Philippine Veterans Bank (PVB) as the designated obligee.

On December 10, 1997, the bond application was approved in principle, subject to further evaluation of the project and offered collaterals.
The GSIS Bond Reinsurance Treaty Underwriting Committee, headed by Leticia G. Bernardo, determined that the offered collateral (a second mortgage) did not satisfy the necessary requirements and requested additional collateral.
On January 27, 1998, Alex M. Valencerina, Vice-President for Marketing and Support Services of the General Insurance Group (GIG), submitted the ECOBEL bond application via memorandum. In his submission, he asserted that the project was viable, that the payment guarantee bond was fully secured with reinsurance and real estate collaterals, and warned that a failure to secure the bond would lead to cancellation of fund booking.
Mallari, then Senior Vice-President at GSIS, GIG, personally endorsed the application by scribbling “Strongly reco. based on info and collaterals herein stated” on the memorandum, which was directed to the President and General Manager of GSIS.

During a February 17, 1998 meeting, Mallari proposed the issuance of the guaranty payment bond to the GSIS Investment Committee (INCOM), which subsequently requested further evaluation of ECOBEL’s project viability.
On March 10, 1998, the INCOM approved the application via Resolution No. 07-4(8), and on March 11, 1998, the GSIS Surety Bond (Bond No. 029132) was issued in the amount of US$10,000,000. The bond was executed by Mallari on behalf of GSIS GIG to guarantee repayment of the principal and interest on the loan.
Prior to issuance, the corresponding Indemnity Agreement was signed by Boright (February 11, 1998) and a billing statement for a one-year premium of US$165,000 was prepared by Mallari on March 11, 1998.

Shortly after, Mallari was reassigned to the Housing and Real Property Development Group (HRPDG) under Office Order No. 73-98 (July 27, 1998).
On November 19, 1998, a directive was issued by Federico Pascual, President and General Manager of GSIS, suspending the processing and issuance of guaranty payment bonds.
Despite the directive, subsequent certifications and communications in January 1999 provided by Valencerina and Fernando U. Campana confirmed the authenticity and validity of the ECOBEL bond, which enabled ECOBEL to draw US$9,307,000 from Bear and Stearns International Ltd.

A crucial collateral for the bond, TCT No. 66289 covering land in Lipa City, Batangas, turned out to be spurious, as the title registered under Vicente Yupangco did not reflect any genuine interest by ECOBEL.
As a result, on February 12, 1999, GSIS, through its Underwriting Department, cancelled the ECOBEL bond.
Nevertheless, on February 19, 1999, ECOBEL was granted a loan by Bear and Stearns (BSIL) using the allegedly valid bond despite its cancellation, and BSIL later processed premium payments.

In March 2000, a Notice of Default on payment was issued against ECOBEL, putting GSIS at risk of legal action. A Certification from PVB later indicated that there was no valid contract between ECOBEL and PVB to justify its role as obligee.
The Office of the Ombudsman, acting on these irregularities, initiated criminal and administrative proceedings against Mallari and other GSIS officials (Bernardo, Campana, and Valencerina), alleging violations of the Anti-Graft and Corrupt Practices Act (R.A. No. 3019) and administrative rules under the Omnibus Rules of Executive Order No. 292.
In the administrative proceedings, Mallari filed a counter-affidavit as directed but was later found liable for simple neglect, inefficiency, and incompetence by the FFIB on January 27, 2005. The Ombudsman, however, modified the decision on June 8, 2005, finding Mallari guilty of grave misconduct and ordering his dismissal from service. Mallari’s subsequent motion for reconsideration was denied on September 1, 2005.

Mallari petitioned the Court of Appeals to annul the Ombudsman's decision, arguing that his actions during the issuance of the bond were proper, that he was duly authorized, and that his reassignment had absolved him of direct involvement in later irregularities.
On June 6, 2008, the CA reversed the Ombudsman's ruling by exonerating Mallari on the basis that there was no substantial evidence showing his active role in enabling the irregular drawdown of the loan.

The case was further complicated by references to GSIS’s internal guidelines, including the Policy and Procedural Guidelines (PPG) Nos. 16-76 and 64-80-A, which govern bond underwriting and issuance.
These guidelines emphasize strict adherence to proper counter-bond requirements, sufficient collateral, premium payment, appropriate board approval, and the use of standard bond forms, all of which were allegedly not observed in the ECOBEL bond transaction.

Whether the Court of Appeals erred in reversing the Ombudsman's decision by exonerating Mallari of any administrative liability for grave misconduct.
Whether there was more than substantial evidence to hold Mallari administratively liable for grave misconduct in connection with the issuance and subsequent utilization of the ECOBEL bond.
Whether the CA properly assessed and gave due weight to the extensive factual findings, audit reports, and memoranda that pointed to systemic irregularities and noncompliance with GSIS guidelines.
Whether Mallari’s arguments regarding his reassignment from GIG to HRPDG and his subsequent retirement diminish or negate his administrative liability.
Whether the administrative decisions, particularly the Ombudsman's orders, sufficiently and clearly stated the facts and legal bases required by constitutional mandates.