G.R. No. 250013. June 15, 2022
ARNALDO M. ESPINAS, PETITIONER, VS. OFFICE OF THE OMBUDSMAN, RESPONDENT.

FACTS

This case involves the acquisition of Express Savings Bank, Inc. (ESBI) by the Local Water Utilities Administration (LWUA). The LWUA Board, including Arnaldo M. Espinas as Corporate Legal Counsel and Board Secretary, passed Resolution No. 145 on September 23, 2008, approving the establishment of a water development bank as a wholly-owned subsidiary. The Office of the Government Corporate Counsel (OGCC) opined that creating a subsidiary for banking functions was within LWUA’s corporate powers but required coordination with the Bangko Sentral ng Pilipinas (BSP), review by the Department of Finance (DOF), and approval by the Office of the President (OP). The BSP advised against establishing a new bank due to a moratorium and suggested acquiring an existing financing company. The LWUA Board then passed resolutions approving the acquisition of a thrift bank, authorizing due diligence on ESBI, and ultimately approving the acquisition of 60% of ESBI’s shares for ₱80,000,000.00. An audit revealed ESBI was insolvent. A Deed of Sale was executed on June 3, 2009, with LWUA also assuming certain unpaid subscriptions and loan obligations. The DOF reiterated that its approval was needed for the acquisition. Despite lacking approval from the DOF and the BSP’s Monetary Board, LWUA took over ESBI’s management on June 25, 2009, and its officers, including Espinas as Assistant Corporate Secretary, constituted ESBI’s new board. The LWUA Board designated ESBI as its depository bank, depositing ₱300,000,000.00. ESBI’s Articles of Incorporation were amended to increase its capital stock, and it approved and released various loans. The OP later interposed no objection to the acquisition, but the DOF formally objected. The Ombudsman found Espinas guilty of Grave Misconduct and Conduct Prejudicial to the Best Interest of the Service. The Court of Appeals affirmed the Ombudsman’s ruling.

ISSUE

Whether the Court of Appeals erred in affirming the Ombudsman’s finding that Espinas is guilty of Grave Misconduct and Conduct Prejudicial to the Best Interest of the Service.

RULING

The Supreme Court DENIED the petition. The Court held that Espinas, as LWUA’s Corporate Legal Counsel and Board Secretary, failed in his duty to ensure the board’s compliance with legal requirements. His active participation in the acquisition and management of ESBI, despite knowledge of the required approvals from the DOF and BSP that were not secured, constituted gross negligence amounting to bad faith. This disregard of specific legal directives and the resulting grossly disadvantageous transaction for the government constituted Grave Misconduct. His actions, which contributed to a transaction that wasted public funds on an insolvent bank, also constituted Conduct Prejudicial to the Best Interest of the Service. The Court found no reason to deviate from the factual findings of the Ombudsman, affirmed by the CA, as they were supported by substantial evidence. The penalty of dismissal, with its accessory penalties, was upheld. However, following the Court’s ruling in Araos v. Office of the Ombudsman, the execution of the penalty of dismissal is held in abeyance pending the final outcome of the related criminal case for violation of the Anti-Graft and Corrupt Practices Act.