EN BANC

[ GR No. 244128, Sep 08, 2020 ]

MARIO M. MADERA v. COA +

DECISION

CAGUIOA, J:

In this case, the Court is presented the optimum opportunity to provide for a
clear set of rules regarding the refund of amounts disallowed by the
Commission on Audit (COA) in order to reach a just and equitable outcome
among persons liable for disallowances.

The Facts

Before the Court is a petition for certiorari[1] under Rule 64 in relation to

Rule 65 of the Rules of Court, assailing the COA Decision [2] dated
December 27, 2017 and Resolutions[3] dated August 16, 2018 which
affirmed the disallowance of various allowances given in 2013 to the
officials and employees of the Municipality of Mondragon, Northern Samar
(the Municipality).

In December 2013, the Municipality passed and approved Sangguniang

Bayan (SB) Ordinance No. 08[4] and SB Resolutions Nos. 41,[5] 42,[6] 43,[7]
and 48,[8] all series of 2013, granting various allowances to its officials and
employees. These allowances are: 1) Economic Crisis Assistance (ECA),
2) Monetary Augmentation of Municipal Agency (MAMA), 3) Agricultural
Crisis Assistance (ACA), and 4) Mitigation Allowance to Municipal
Employees (MAME).

For the ECA, the Whereas Clauses of SB Resolution No. 41, series of
2013, state:
the effect of continuing increase of cost on prime commodities
WHEREAS brought about by the worldwide inflation and its adverse effect
, in the locality xxx is felt most by our low-income salaried
employees;
WHEREAS it is the policy the local government unit to alleviate the plight of
, our lowly paid officials and employees; and
WHEREAS the local government unit of Mondragon has shown the
 willingness to provide its officials, employees and workers
, whether local or national, serving in the LGU, an assistance to
cushion the impact of increasing prices.[9]
As regards the MAMA, the grant of the same is authorized by SB
Resolution No. 42, series of 2013, which provides:
the effect of inflation has weakened the purchasing power of
WHEREAS
the local employees of Mondragon and has become a major
,
burden in their daily subsistence;
it has been observed that the local officials and employees
WHEREAS
alike succumbed [to] high-interest rates loans in order to
,
augment their low income and minimal xxx take-home pay; and
 
it is the policy of the local government unit of Mondragon to
WHEREAS
help lighten the financial burden of its local official[s] and
,
employees from the sustaining high interest loans[.] [10]
With respect, to the ACA, the Whereas Clauses of Resolution No. 43,
series of 2013, state:
WHEREAS the people of Mondragon are basically dependent on
, Agriculture;
it is deemed proper that the local government unit of
Mondragon provides agricultural assistance to its officials and
WHEREAS employees to lighten their burden in terms of agricultural
, shortage of products caused by typhoon "Yolanda" and help
them buy agricultural seeds and other farm facilities from other
provinces; and
premises above cited[,] this council hereby approves the grant
WHEREAS
of Agricultural Crisis Assistance (ACA) in order to help its
,
officials and employees for their agricultural production. [11]
Lastly, SB Resolution No. 44, series of 2013, authorizes the grant of the
MAME and its Whereas Clauses states:
there is the global effort against climate change that
WHEREAS
continuously provides principles and assistance to reduce the
,
human suffering during disaster and calamity;
the Municipality of Mondragon is vulnerable to damaging
WHEREAS
effects of a possible calamity and disaster because of its
,
location, hence, making its people also susceptible to risk;
the LGU of Mondragon deemed it right to provide mitigation
WHEREAS capability by providing financial assistance to its employees
, that would [equip] them to lessen the adverse impact of
hazards and disaster; and
 the mitigation assistance will provide them means to pre-empt
WHEREAS
risks and hazards such as providing their families a risk-free
,
place to dwell.[12]
In total, these allowances in question amounted to P7,706,253.10 [13] as
specified below:
Allowance Total Amount Recipients
Regular officials and
employees, casual and
job order/contractual
employees, Barangay
Tanods, Barangay
Nutrition Scholars
(BNS), Day Care
ECA P3,865,203.10 Workers (DCW),
Barangay Health
Workers (BHW), public
elementary and high
school teachers and
national employees
stationed in the
municipality
Regular officials and
MAMA P1,245,000.00 employees and casual
employees
Regular officials and
employees, casual
ACA P1,771,550.00 employees and job
order/contractual
employees
Regular official and
employees, casual
employees, job
MAME P824,500.00
order/contractual
employees, BNSs,
DCWs, and BHWs.[14]
Notices of Disallowance

On post audit, the Audit Team Leader (ATL) and the Supervising Auditor
(SA) of the Municipality issued a total of 11 Notices of Disallowance (NDs)
dated February 20, 2014 for the grant of the ECA, MAMA, ACA and MAME
(subject allowances) as specified below:
Paid under
ND No. Date Nature Amount
Check No.
14-004-101
02/20/2014 ECA P406,000.00 1164301
(2013)
14-005-101
02/20/2014 ECA 358,000.00 1164302
(2013)
14-006-101
02/20/2014 ECA 830,000.00 1164303
(2013)
14-007-101
02/20/2014 MAME 409,500.00 1164304
(2013)
14-008-101
02/20/2014 ACA 246,300.00 1164305
(2013)
14-010-101
02/20/2014 MAMA 1,245,000.00 1164296
(2013)
14-011-101
02/20/2014 ACA 1,525,250.00 1164297
(2013)
14-012-101
02/20/2014 MAME 415,000.00 1164298
(2013)
14-013-101
02/20/2014 ECA 219,000.00 1164300
(2013)
14-014-101
02/20/2014 ECA 44,500.00 1164306
(2013)
14-015-101
02/20/2014 ECA 2,007,703.10 1164307
(2013)
TOTAL P7,706,253.10[15]
The ATL and SA disallowed the subject allowances on the ground that the
grants were in violation of the following:

Section 12 of Republic Act No. (R.A.) 6758 or the Salary

a) Standardization Law (SSL) as regards the consolidation of allowances
and compensation;
Item II of COA Circular No. 2013-003 dated January 30, 2013 which
b) excluded the subject allowances among the list of authorized
allowances, incentives, and benefits;
c) Items 4 and 5 of Section 1.a of Civil Service Commission (CSC)
Resolution No. 02-0790 dated June 5, 2002, which provides that
employees under contract or job order do not enjoy the benefits
 enjoyed by the government employees (such as the Personnel
Economic Relief Allowance or PERA, Additional Compensation
Allowance or ACA, and Representation Allowance and Transportation
Allowance or RATA), and that the services rendered thereunder are not
considered as government service.[16]

The persons held liable under the NDs were as follows:

Name and Position Participation in the Transaction
For certifying in the Obligation
Request that the
Mario M. Madera (Madera) - appropriations/allotments are
Municipal Mayor necessary, lawful and under his
direct supervision, and for approving
the payment;
For certifying in the voucher as to the
Beverly C. Mananguite (Mananguite)
completeness of the supporting
- Municipal Accountant
documents;
Carissa D. Galing (Galing) -
For certifying the availability of funds;
Municipal Treasurer
Josefina O. Pelo (Pelo) - Municipal For certifying the existence of
Budget Officer available appropriation;
All other payees as stated in the ND
Nos. 14-004-101 (2013) to 14-008-
For being claimants/recipients of the
101 (2013); and 14-010-101 (2013)
allowances.[17]
to 14-015-101 (2013), all dated
February 20, 2014
Notably, the records show that Madera, Mananguite, Galing and Pelo
(petitioners) also received the benefits covered by ND Nos. 14-010-
101(2013), 14-011-101(2013), 14-012-101(2013), and 14-015-101(2013). [18]

COA Regional Office

On January 8, 2015, petitioners filed their appeal with the COA Regional
Director (RD). They argued that the grant of additional allowances to the
employees is allowed by R.A. 7160 or the Local Government Code (LGC);
hence, the LGC actually repealed Section 12 of R.A. 6758 [19] because the
former law allows the municipality to grant additional allowances/financial
assistance should its finances allow. Petitioners also claimed that the
pronouncement of the Audit Team that the disallowed allowances were not
among those listed under COA Circular No. 2013-003 is not correct
considering that said Circular also stated that "other allowances not listed
above, whether granted government-wide or specific to certain government
agencies are likewise recognized provided there is sufficient legal basis
thereof."[20]

Additionally, petitioners contended that the grant of additional

allowances/financial assistance in the Municipality was a customary
scheme over the years. They also claimed that the allowances were
considered as financial assistance to the employees who suffered the
effects of Typhoon Yolanda. Lastly, petitioners averred that the
Sangguniang Panlalawigan (SP), the Department of Budget and
Management (DBM) and the COA did not declare the appropriation
ordinance as invalid; hence, they remain legal and valid. [21]

In a Decision[22] dated July 14, 2015, the RD affirmed the NDs and ruled
that government units are not exempt from the SSL and the grant and
payment of the subject allowances were subject to Section 12 of R.A. 6758
which provides that all allowances such as the ECA, MAMA, ACA and
MAME are deemed integrated in the standardized salary rates and only six
enumerated allowances are considered excluded from the integration.
According to the RD, while it may be true that the subject allowances were
not among those included in the list of authorized allowances and they may
be granted if there is sufficient legal basis, the appropriation ordinance is
not sufficient to become the legal basis. Moreover, petitioners' assertion
that R.A.7160 repealed the provision of Section 12 of R.A. 6758 is not
convincing since Section 534 of R.A. 7160 mentions the specific laws or
parts thereof which are repealed, and R.A. 6758 is not one of them. [23]

Moreover, the RD ruled that petitioners cannot hide behind the claim that
the grant of such benefits was a customary scheme of the Municipality
because practice, no matter how long continued, cannot give rise to any
vested right if it is contrary to law.[24]

As for petitioners' contention that no appropriation ordinance of the

Municipality had been declared invalid, the RD gave scant consideration to
the same on the position that the subject ordinance and resolutions showed
no indication of their having been transmitted to the SP for review in
accordance with Section 327[25] of R.A. 7160. Moreover, the subject
ordinance and resolutions appropriated amounts for the disallowed benefits
from the savings, unexpended allotment, and unappropriated balances for
2013 of the Municipality, in violation of Section 322 [26] of R.A. 7160.[27]

Lastly, petitioners cannot claim that the subject allowances were given as
financial assistance to the employees because good intention, no matter
how noble, cannot be made an excuse for not adhering to the rules. [28]

Consequently, petitioners appealed to the COA.

COA Proper

In a Decision dated December 27, 2017, the COA affirmed the ruling of the
COA Regional Office, with modification in that the officials and employees
who unwittingly received the disallowed benefits or allowances are not held
liable for their reimbursement since they are recipient-payees in good faith.

The COA opined that, following applicable rules, the approving officer and
each employee who received the disallowed benefit or allowance are
obligated, jointly and severally, to refund the amount received. However, it
also recognized that the Court has ruled, by way of exception, that passive
recipients of disallowed amounts need not refund if they received the same
in good faith. Thus, while the COA itself observed that this results in an
inequitable burden on the approving officers and that the same is
inconsistent with the concept of solutio indebiti, it nevertheless applied the
exception as to passive recipients in deference to the Court. [29] Thus, the
COA ruled as follows:
WHEREFORE, premises considered, the Petition for Review of Mayor
Mario M. Madera, et al., Municipality of Mondragon, Northern Samar, of
Commission on Audit - Regional Office No. VIII Decision No. 2015-020
dated July 14, 2015 is DENIED. Accordingly, Notice of Disallowance Nos.
14-004-101(2013) to 14-008-101 (2013) and 14-010-101 (2013) to 14-015-
101(2013), all dated February 20, 2014, on the grant of Economic Crisis
Assistance, Agricultural Crisis Allowance, Monetary Augmentation of
Municipal Agency, and Mitigation Allowance to the officials and employees
of the municipality, including national government employees assigned
thereat, in the total amount of P7,706,253.10, are AFFIRMED with
MODIFICATION.

The municipal officials who passed and approved the Sangguniang

Bayan Ordinance and Resolutions authorizing the grant of subject
allowances, including those who approved/certified the payment
thereof, are made to refund the entire disallowed benefits or
allowances. However, the officials and employees who unwittingly
received the disallowed benefits or allowances are not liable for their
reimbursement, they, being recipient-payees in good faith. [30]
(Emphasis supplied and emphasis in the original omitted)
On February 28, 2018, petitioners filed a Motion for Reconsideration (MR),
which was denied in a Resolution dated August 16, 2018. Petitioners
received a copy of the Resolution denying the MR on November 12, 2018.
[31]
Aggrieved, petitioners filed the present petition.

Petition Before the Court

On January 11, 2019, petitioners filed a petition for certiorari under Rule 64
in relation to Rule 65 of the Rules of Court. While petitioners maintain that
the allowances were legal, they also raise the defense of good faith in order
to not be held liable for the disallowed amounts.

In its Comment,[32] the COA, through the Office of the Solicitor General
(OSG), contends that it did not commit grave abuse of discretion amounting
to lack or excess of jurisdiction in upholding the NDs. Likewise, it avers that
the liability imposed on petitioners was grounded on jurisprudence.

ISSUE

The issue to be resolved is whether the COA committed grave abuse of

discretion in issuing the assailed Decision and Resolution.

Specifically, the resolution of this case rests ultimately on whether the COA
was correct in holding petitioners liable for the refund of the disallowed
amounts.

RULING

The petition is partly meritorious.

I. Timeliness of the Petition

At the outset, the Court notes that the petition was filed out of time.
Petitioners confused Rules 64 and 65 of the Rules of Court when they
erroneously claimed that their petition was timely filed within 60 days from
notice of judgment.[33] Rule 64 provides:
SECTION 1. Scope. This Rule shall govern the review of judgments and
final orders or resolutions of the Commission on Elections and the
Commission on Audit.

SEC. 2. Mode of review. A judgment or final order or resolution of the

Commission on Elections and the Commission on Audit may be brought by
the aggrieved party to the Supreme Court on certiorari under Rule 65,
except as hereinafter provided.

SEC. 3. Time to file petition. The petition shall be filed within thirty (30)
days from notice of the judgment or final order or resolution sought to be
reviewed. The filing of a motion for new trial or reconsideration of said
judgment or final order or resolution, if allowed under the procedural rules
of the Commission concerned, shall interrupt the period herein fixed. If the
motion is denied, the aggrieved party may file the petition within the
remaining period, but which shall not be less than five (5) days in any
event, reckoned from notice of denial. (Underscoring supplied)
As gleaned from above, Rule 65 applies to petitions questioning the
judgments, final orders, or resolutions of the COA only insofar as Rule 64
does not specifically provide the rules. Consequently, since Rule 64
explicitly provides the 30-day period for the filing of the petition, the same
shall apply - not the 60-day period provided in Rule 65.

To recall, the COA Decision was promulgated on December 27, 2017 and
petitioners received a copy of the Decision on February 23, 2018. Thus, the
30 day-period began to run from February 23, 2018. However, following
Section 3, Rule 64 the period was interrupted when petitioners filed an MR
on February 28, 2018. Petitioners received a copy of the Resolution
denying their MR on November 12, 2018. Consequently, they had 25 days
from November 12, or until December 7, 2018 to file their petition before
the Court. However, petitioners only filed their petition on January 11, 2019
or 35 days after the last day of filing.

From the foregoing, there is no dispute that petitioners belatedly filed their
petition before the Court. Nevertheless, the petition appears to be partly
meritorious. Time and again, the Court has relaxed the observance of
procedural rules to advance substantial justice. [34] Moreover, the present
petition provides an appropriate avenue for the Court to settle the
conflicting jurisprudence on the liability for the refund of disallowed
allowances. Thus, the Court opts for a liberal application of the procedural
rules considering that the substantial merits of the case warrant its review
by the Court.

The Constitution vests the broadest latitude in the COA in discharging its
role as the guardian of public funds and properties. [35] In recognition of such
constitutional empowerment, the Court has generally sustained the COA's
decisions or resolutions in deference to its expertise in the implementation
of the laws it has been entrusted to enforce. [36] Thus, the Constitution and
the Rules of Court provide the remedy of a petition for certiorari in order to
restrict the scope of inquiry to errors of jurisdiction or to grave abuse of
discretion amounting to lack or excess of jurisdiction committed by the
COA.[37] For this purpose, grave abuse of discretion means that there is, on
the part of the COA, an evasion of a positive duty or a virtual refusal to
perform a duty enjoined by law or to act in contemplation of law, such as
when the assailed decision or resolution rendered is not based on law and
the evidence but on caprice, whim and despotism. [38]

In this case, petitioners failed to show that the COA gravely abused its
discretion in affirming the subject NDs. Nevertheless, there is merit to their
contention that they should not be held liable to refund the disallowed
amounts.

II. Propriety of the Disallowance

As regards the propriety of the issuance of the NDs, the Court notes that
while petitioners maintain that the subject allowances had sufficient legal
basis, the petition fails to substantiate their claim. The petition principally
tackles petitioners' liability for the disallowed amounts, insisting that they
approved the subject allowances in good faith. [39] The petition offered no
new argument as regards the legality of the subject allowances. Thus, as
regards the validity of the disallowance, the Court is constrained to rely on
petitioners' submissions before the COA.

After a careful review of the records of the case, the Court upholds the NDs
against the subject allowances, finding no grave abuse of discretion on the
part of the COA in affirming the disallowance. The Court quotes with
approval the following pronouncements by the COA:
Section 447(a)(l)(viii) of RA No. 7160 provides:
SEC. 447. Powers, Duties, Functions and Compensation. - (a) The
sangguniang bayan, as the legislative body of the municipality, shall enact
ordinances, approve resolutions and appropriate funds for the general
welfare of the municipality and its inhabitants pursuant to Section 16 of this
Code and in the proper exercise of the corporate powers of the municipality
as provided for under Section 22 of this Code, and shall:
 
Approve ordinances and pass resolutions necessary for an efficient and
(1)
effective municipal government, and in this connection shall: xxx
(viii) Determine the positions and salaries, wages, allowances and other
emoluments and benefits of officials and employees paid wholly or
mainly from municipal funds and provide for expenditures necessary for
the proper conduct of programs, projects, services, and activities of the
municipal government;
In addition, Section 12 of RA No. 6758, the SSL, states:
Consolidation of Allowances and Compensation. - All allowances, except
for representation and transportation allowances; clothing and laundry
allowances; subsistence allowance of marine officers and crew on board
government vessels and hospital personnel; hazard pay; allowances of
foreign service personnel stationed abroad; and such other additional
compensation not otherwise specified herein as may be determined by the
DBM, shall be deemed included in the standardized salary rates herein
prescribed xxx. (Underscoring supplied)
In this case, the municipality's compensation-setting power in Section 447
of RA No. 7160 to grant ECA, ACA, MAME, and MAMA cannot prevail over
Section 12 of RA No. 6758 or the SSL. No law or administrative issuance,
much less the [SSL], authorizes the grant of [the] subject benefits.

Moreover, in the case of Luciano Veloso, et al. vs. COA, the Supreme
Court ruled that:
[T]he disbursement of public funds, salaries and benefits of government
officers and employees should be granted to compensate them for valuable
public services rendered, and the salaries or benefits paid to such officers
or employees must be commensurate with services rendered. In the same
vein, additional allowances and benefits must be shown to be necessary or
relevant to the fulfillment of the official duties and functions of the
government officers and employees. Without this limitation, government
officers and employees may be paid enormous sums without limit or
without justification necessary other than that such sums are being paid to
someone employed by the government. Public funds are the property of the
people and must be used prudently at all times with a view to prevent
dissipation and waste.
Thus, the grant of ECA, ACA, MAME, and MAMA to the officials and
employees cannot be justified as a simple gesture of gratitude of the
municipality to its employees for their great contribution to the delivery of
public service. The grant of any benefit to them must be necessary or
relevant to the performance of their official duties and functions, which is
absent in this case.

The appellants' claim that the grant of additional allowances/financial

assistance to the municipal and national employees assigned thereat is a
customary scheme of the municipality anchored on a yearly appropriation
ordinance is misplaced, as the grant thereof is illegal. xxx [40]
In view of the foregoing, the Court upholds the NDs against the ECA, ACA,
MAME, and MAMA.
 
III. Liability of the
petitioners for the
 
return of the
disallowed allowances

On their liability for the refund of the disallowed allowances, petitioners aver
that they should not be held liable as they approved the disbursements in
good faith. In support of this claim, petitioners cited various cases [41] where
the Court did not order a refund despite upholding the disallowance. [42]
Petitioners insist that since the COA failed to show that they were in bad
faith in approving the allowances, the alleged refund should not be
personally imposed on them especially considering that they merely relied
on the yearly grant of additional allowances that were not previously
disallowed by the COA.[43]

To recall, the NDs, as issued, held the payees of the disallowed allowances
liable for being claimants or recipients of said amounts. The payees' liability
to return the amounts was likewise affirmed by the COA RD. It was only on
appeal to the COA Proper that the petitioning officers were held liable for
the refund of the entire disallowed amount while the recipient-payees in
good faith were excused.
In its assailed Decision, the COA Proper cited the 2015 case of Silang v.
Commission on Audit[44] (Silang) where the Court ruled that public officials
who are directly responsible for, or participated in making the illegal
expenditures, as well as those who actually received the amounts
therefrom, shall be solidarity liable for their reimbursement. Consequently,
the obligation to refund the payment received falls upon both those directly
responsible, i.e., the approving officers, and those who actually received
the disallowed benefit.[45] According to the COA, this is consistent with
Section 43, Chapter 5, Book VI of Executive Order No. (E.O.) 292 or the
Administrative Code of 1987, which states in part:
SECTION 43. Liability for Illegal Expenditures. - Every expenditure or
obligation authorized or incurred in violation of the provisions of this Code
or of the general and special provisions contained in the annual General or
other Appropriations Act shall be void. Every payment made in violation of
said provisions shall be illegal and every official or employee authorizing or
making such payment, or taking part therein, and every person receiving
such payment shall be jointly and severally liable to the Government for the
full amount so paid or received.
Consequently, the COA concluded that the approving officers and each
employee who received the disallowed benefit are obligated, jointly and
severally, to refund the amount so received. However, in the same breath,
the COA also acknowledged the ruling of the Court in several cases as
regards passive recipients or payees of disallowed amounts who received
the same in good faith, to wit:
Clearly, the approving officer and each employee who received the
disallowed benefit are obligated, jointly and severally, to refund the amount
so received. The Supreme Court has ruled that by way of exception,
however, passive recipients or payees of disallowed salaries, emoluments,
benefits and other allowances need not refund such disallowed amounts if
they received the same in good faith. Stated otherwise, government
officials and employees who unwittingly received disallowed benefits or
allowances are not liable for their reimbursement if there is no finding of
bad faith.

The result of exempting recipients who are in good faith from

refunding the amount received is that the approving officers are made
to shoulder the entire amount paid to the employees. This is perhaps
an inequitable burden on the approving officers, considering that they
are or remain exposed to administrative and even criminal liability for
their act in approving such benefits, and is not consistent with the
concept of solutio indebiti and the principle of unjust enrichment.

Nevertheless, in deference to the Supreme Court ruling in Silang v.

COA, the Commission rules that government officials and employees who
unwittingly received disallowed benefits or allowances are not liable for
their reimbursement if there is no finding of bad faith. Public officials who
are directly responsible for or participated in making illegal expenditures
shall be solidarily liable for their reimbursement. [46] (Emphasis and
underscoring supplied)
Indeed, the Court recognizes that the jurisprudence regarding the refund of
disallowed amounts by the COA is evolving, at times conflicting, and is
primarily dealt with on a case-to-case basis. The discussions made in this
petition, however, have made it apparent that there is now a need to
harmonize the various rulings of the Court. For this reason, the Court takes
this opportunity to lay down the rules that would be applied henceforth in
determining the liability to return disallowed amounts, guided by applicable
laws and rules as well as the current state of jurisprudence.

In arriving at these new set of rules, the Court shall first delve into: a) the
statutory bases for the liability of approving and certifying officers and
payees for illegal expenditures; b) the badges of good faith in determining
the liability of approving and certifying officers; c) the body of jurisprudence
which inequitably absolve responsible persons from liability to return based
on good faith; and d) the nature of the payees' participation and their
liability for return and the acceptable exceptions as regards the liability to
return disallowed amounts on the bases of unjust enrichment and solutio
indebiti. The discussion on these matters will serve as the foundation of the
rules of return that will be laid down in this decision.

A. Bases for Responsibility/Liability

The Budget Reform Decree of 1977[47] (PD 1177) provides:

SEC. 49. Liability for Illegal Expenditures. - Every expenditure or obligation
authorized or incurred in violation of the provisions of this Decree or of the
general and special provisions contained in the annual General or other
Appropriations Act shall be void. Every payment made in violation of said
provisions shall be illegal and every official or employee authorizing or
making such payment, or taking part therein, and every person receiving
such payment shall be jointly and severally liable to the Government for the
full amount so paid or received.

Any official or employee of the Government knowingly incurring any

obligation, or authorizing any expenditure in violation of the provisions
herein, or taking part therein, shall be dismissed from the service, after due
notice and hearing by the duly authorized appointing official. If the
appointing official is other than the President and should he fail to remove
such official or employee, the President may exercise the power of
removal. (Underscoring supplied)
Parenthetically, the Government Auditing Code of the Philippines [48] (PD
1445), promulgated a year after PD 1177, provides:
SECTION 102. Primary and secondary responsibility. - (1) The head of any
agency of the government is immediately and primarily responsible for all
government funds and property pertaining to his agency.

(2) Persons entrusted with the possession or custody of the funds or

property under the agency head shall be immediately responsible to him,
without prejudice to the liability of either party to the government.

SECTION 103. General liability for unlawful expenditures. - Expenditures of

government funds or uses of government property in violation of law or
regulations shall be a personal liability of the official or employee found to
be directly responsible therefor.

SECTION 104. Records and reports required by primarily responsible

officers. - The head of any agency or instrumentality of the national
government or any government-owned or controlled corporation and any
other self-governing board or commission of the government shall exercise
the diligence of a good father of a family in supervising accountable officers
under his control to prevent the incurrence of loss of government funds or
property, otherwise he shall be jointly and solidarity liable with the person
primarily accountable therefore. The treasurer of the local government unit
shall likewise exercise the same degree of supervision over accountable
officers under his supervision otherwise, he shall be jointly and solidarity
liable with them for the loss of government funds or property under their
control.
SECTION 105. Measure of liability of accountable officers. - (1) Every
officer accountable for government property shall be liable for its money
value in case of improper or unauthorized use or misapplication thereof, by
himself or any person for whose acts he may be responsible. He shall
likewise be liable for all losses, damages, or deterioration occasioned by
negligence in the keeping or use of the property whether or not it be at the
time in his actual custody.

(2) Every officer accountable for government funds shall be liable for all
losses resulting from the unlawful deposit, use, or application thereof and
for all losses attributable to negligence in the keeping of the funds.
These provisions of PD 1177 and PD 1445 are substantially reiterated in
the Administrative Code of 1987, thus:
SECTION 51. Primary and Secondary Responsibility. - (1) The head of any
agency of the Government is immediately and primarily responsible for all
government funds and property pertaining to his agency;

(2) Persons entrusted with the possession or custody of the funds or

property under the agency head shall be immediately responsible to him,
without prejudice to the liability of either party to the Government.

SECTION 52. General Liability for Unlawful Expenditures. - Expenditures of

government funds or uses of government property in violation of law or
regulations shall be a personal liability of the official or employee found to
be directly responsible therefor.[49]

xxxx

SECTION 40. Certification of Availability of Funds. - No funds shall be

disbursed, and no expenditures or obligations chargeable against any
authorized allotment shall be incurred or authorized in any department,
office or agency without first securing the certification of its Chief
Accountant or head of accounting unit as to the availability of funds and the
allotment to which the expenditure or obligation may be properly charged.

No obligation shall be certified to accounts payable unless the obligation is

founded on a valid claim that is properly supported by sufficient evidence
and unless there is proper authority for its incurrence. Any certification for a
non-existent or fictitious obligation and/or creditor shall be considered void.
The certifying official shall be dismissed from the service, without prejudice
to criminal prosecution under the provisions of the Revised Penal Code.
Any payment made under such certification shall be illegal and every
official authorizing or making such payment, or taking part therein or
receiving such payment, shall be jointly and severally liable to the
government for the full amount so paid or received.

xxxx

SECTION 43. Liability for Illegal Expenditures. - Every expenditure or

obligation authorized or incurred in violation of the provisions of this Code
or of the general and special provisions contained in the annual General or
other Appropriations Act shall be void. Every payment made in violation of
said provisions shall be illegal and every official or employee authorizing or
making such payment, or taking part therein, and every person receiving
such payment shall be jointly and severally liable to the Government for the
full amount so paid or received.

Any official or employee of the Government knowingly incurring any

obligation, or authorizing any expenditure in violation of the provisions
herein, or taking part therein, shall be dismissed from the service, after due
notice and hearing by the duly authorized appointing official. If the
appointing official is other than the President and should he fail to remove
such official or employee, the President may exercise the power of
removal.[50] (Underscoring supplied)
It is well-settled that administrative, civil, or even criminal liability, as the
case may be, may attach to persons responsible for unlawful expenditures,
as a wrongful act or omission of a public officer. [51] It is in recognition of
these possible results that the Court is keenly mindful of the importance of
approaching the question of personal liability of officers and payees to
return the disallowed amounts through the lens of these different types of
liability.

Correspondingly, personal liability to return the disallowed amounts must

be understood as civil liability[52] based on the loss incurred by the
government because of the transaction, while administrative or criminal
liability may arise from irregular or unlawful acts attending the transaction.
This should be the starting point of determining who must return. The
existence and amount of the loss and the nature of the transaction must
dictate upon whom the liability to return is imposed.

Sections 38 and 39, Chapter 9, Book I of the Administrative Code of 1987

cover the civil liability of officers for acts done in performance of official
duties:
SECTION 38. Liability of Superior Officers. - (1) A public officer shall not be
civilly liable for acts done in the performance of his official duties, unless
there is a clear showing of bad faith, malice or gross negligence.
 
xxx
x
(3) A head of a department or a superior officer shall not be civilly
liable for the wrongful acts, omissions of duty, negligence, or
misfeasance of his subordinates, unless he has actually authorized by
written order the specific act or misconduct complained of.

SECTION 39. Liability of Subordinate Officers. - No subordinate officer or

employee shall be civilly liable for acts done by him in good faith in the
performance of his duties. However, he shall be liable for willful or negligent
acts done by him which are contrary to law, morals, public policy and good
customs even if he acted under orders or instructions of his superiors. [53]
(Emphasis and underscoring supplied)
By the very language of these provisions, the liability for unlawful
expenditures is civil. Nonetheless, since these provisions are situated in
Chapter 9, Book I of the Administrative Code of 1987 entitled "General
Principles Governing Public Officers," the liability is inextricably linked with
the administrative law sphere. Thus, the civil liability provided under these
provisions is hinged on the fact that the public officers performed his official
duties with bad faith, malice, or gross negligence.

The participation of these public officers, such as those who approve or

certify unlawful expenditures, vis-a-vis the incurrence of civil liability is
recognized by the COA in its issuances, beginning from COA Circular No.
81-156[54] dated January 19, 1981 (Old CSB Manual):
Liability of Head of Agency, Accountable Officer and Other Officials and
C.
Employees
1. The liability of an official or employee for disallowances or
discrepancies in accounts audited shall depend upon his participation in
 the transaction involved. The accountability and responsibility of
officials and employees for government funds and property as
provided in Sections 101 and 102 of P.D.1445 do not necessarily give
rise to liability for loss or government funds or damage to
property.

xxxx

III. GENERAL INSTRUCTIONS:

xxx
x
The Head of Agency, who is immediately and primarily responsible for
all government funds and property pertaining to his agency, shall see
5.
that the audit suspensions/disallowances are immediately settled.
(Emphasis and underscoring supplied)
Subsequent to the Old CSB Manual, COA Circular No. 94-001 [55] dated
January 20, 1994 (MCSB) distinguished liability from responsibility and
accountability, and provided the parameters for enforcing the civil liability to
refund disallowed amounts:
SECTION 3, DEFINITION OF TERMS
The following terms shall be understood in the sense herein defined, unless
the context otherwise indicates:

xxxx

3.10 LIABILITY. - A personal obligation arising from an audit

disallowance/charge which may be satisfied through payment or
restitution as determined by competent authority and in accordance with
law.

xxxx

3.12 PECUNIARY LIABILITY. - the amount of consequential loss or

damage arising from an act or omission and for which restitution,
reparation, or indemnification is required.
xxxx

SECTION 18. SETTLEMENT OF DISALLOWANCES AND CHARGES

Disallowances and charges shall be settled through submission of the
required explanation/justification and/or documentations by the person or
persons determined by the auditor to be liable therefor, or by payment of
the amount disallowed in audit; or by such other applicable modes of
extinguishment of obligation as provided by law.
xxxx

SECTION 34. ENFORCEMENT OF CIVIL LIABILITY.

To enforce civil liability, the auditor shall submit a report on the
disallowances and charges to the COA Chairman (Thru: The Director
concerned), requesting that the matter be referred to the Office of the
Solicitor General (National Government agencies), or to the Office of the
Government Corporate Counsel (for government-owned or controlled
corporations) or to the appropriate Provincial or City Attorney (in the case
of local government units). The report shall be duly supported with certified
copies of the subsidiary records, the CSB, and the
payrolls/vouchers/collections disallowed and charged together with all
necessary documents, official receipts for the filing of the appropriate civil
suit. (Emphasis and underscoring supplied)
These provisions are also substantially reproduced in COA Circular No.
2009-006[56] dated September 15, 2009 (RRSA) and the 2009 Revised
Rules of Procedure of the Commission on Audit (RRPCOA). Under Section
4 of the RRSA:
4.17 Liability - a personal obligation arising from an audit disallowance or
charge which may be satisfied through payment or restitution as
determined by competent authority or by other modes of extinguishment of
obligation as provided by law.
xxxx
 
Liability - a personal obligation arising from an audit disallowance or
charge which may be satisfied through payment or restitution as
4.17
determined by competent authority or by other modes of
extinguishment of obligation as provided by law.
xxx
x
Settlement - refers to the payment/restitution or other act of
extinguishing an obligation as provided by law in satisfaction of the
4.24
liability under an ND/NC, or in compliance with the requirements of an
NS, as defined in these Rules. (Emphasis and underscoring supplied)
The procedure for the enforcement of civil liability through the withholding
of payment of money due to persons liable and through referral to the OSG
is found in Rule XIII of the RRPCOA, particularly, Section 3 and Section 6.

B. Badges of good faith in the determination of approving/certifying officers'

liability

As mentioned, the civil liability under Sections 38 and 39 of the

Administrative Code of 1987, including the treatment of their liability as
solidary under Section 43, arises only upon a showing that the approving or
certifying officers performed their official duties with bad faith, malice or
gross negligence. For errant approving and certifying officers, the law
justifies holding them solidarity liable for amounts they may or may not
have received considering that the payees would not have received the
disallowed amounts if it were not for the officers' irregular discharge of their
duties, as further emphasized by Senior Associate Justice Estela M.
Perlas-Bernabe (Justice Bernabe). This treatment contrasts with that of
individual payees who, as will be discussed below, can only be liable to
return the full amount they were paid, or they received pursuant to the
principles of solutio indebiti and unjust enrichment.

Notably, the COA's regulations relating to the settlement of accounts and

balances[57] illustrate when different actors in an audit disallowance can be
held liable either based on their having custody of the funds, and having
approved or certified the expenditure. The Court notes that officers referred
to under Sections 19.1.1 and 19.1.3 of the MCSB, and Sections 16.1.1 and
16.1.3 of the RRSA, may nevertheless be held liable based on the extent of
their certifications contained in the forms required by the COA under
Section 19.1.2 of MCSB, and Sections 16.1.2 of the RRSA. To ensure that
public officers who have in their favor the unrebutted presumption of good
faith and regularity in the performance of official duty, or those who can
show that the circumstances of their case prove that they acted in good
faith and with diligence, the Court adopts Associate Justice Marvic M.V.F.
Leonen's (Justice Leonen) proposed circumstances or badges [58] for the
determination of whether an authorizing officer exercised the diligence of a
good father of a family:
xxx For one to be absolved of liability the following requisites [may be
considered]: (1) Certificates of Availability of Funds pursuant to Section 40
of the Administrative Code, (2) In-house or Department of Justice legal
opinion, (3) that there is no precedent disallowing a similar case in
jurisprudence, (4) that it is traditionally practiced within the agency and no
prior disallowance has been issued, [or] (5) with regard the question of law,
that there is a reasonable textual interpretation on its legality. [59]
Thus, to the extent that these badges of good faith and diligence are
applicable to both approving and certifying officers, these should be
considered before holding these officers, whose participation in the
disallowed transaction was in the performance of their official duties, liable.
The presence of any of these factors in a case may tend to uphold the
presumption of good faith in the performance of official functions accorded
to the officers involved, which must always be examined relative to the
circumstances attending therein.

C. Cases absolving recipients' liability to return based on good faith

As for the civil liability of payees, certain jurisprudence provides that

passive recipients or payees in good faith are excused from returning the
amounts they received.

In the 1998 case of Blaquera v. Alcala,[60] (Blaquera), the Court relied on

good faith to excuse the return of the disallowed amounts. The petition was
brought by officials and employees of several government agencies
assailing the disallowance of the excess productivity incentive benefits
given in 1992, as rationalized by Administrative Orders Nos. 29 and 268. In
excusing both the officers and the payees from the liability to return the
benefits already received, the Court held:
Untenable is petitioners' [payees'] contention that the herein respondents
be held personally liable for the refund in question. Absent a showing of
bad faith or malice, public officers are not personally liable for damages
resulting from the performance of official duties.

Every public official is entitled to the presumption of good faith in the

discharge of official duties. Absent any showing of bad faith or malice, there
is likewise a presumption of regularity in the performance of official duties.

In upholding the constitutionality of AO 268 and AO 29, the Court reiterates

the well-entrenched doctrine that "in interpreting statutes, that which will
avoid a finding of unconstitutionality is to be preferred."

Considering, however, that all the parties here acted in good faith, we
cannot countenance the refund of subject incentive benefits for the year
1992, which amounts the petitioners have already received. Indeed, no
indicia of bad faith can be detected under the attendant facts and
circumstances. The officials and chiefs of offices concerned
disbursed such incentive benefits in the honest belief that the
amounts given were due to the recipients and the latter accepted the
same with gratitude, confident that they richly deserve such benefits.
(Emphasis, underscoring supplied and citations omitted) [61]
The decision refused to shift the economic burden of returning the amounts
the payees received to the officers who authorized or approved the grant of
the benefits. Instead, the decision opted to excuse the return altogether.
While the discussion on the presumption of good faith and regularity in the
performance of official duties can easily be inferred as anchored on Section
38 of the Administrative Code of 1987, no statutory basis was provided for
the excuse of payees from the obligation to return, leading to the
conclusion that it is merely a judge made rule.

The ruling in Blaquera was subsequently relied upon by the Court in the
cases of De Jesus v. Commission on Audit[62] (De Jesus), Kapisanan ng
mga Manggagawa sa Government Service Insurance System (KMG) v.
Commission on Audit[63] and Home Development Mutual Fund v. COA[64]
(HDMF), to excuse the return from all persons responsible. De Jesus,
specifically dealing with the payment of allowances and bonuses
authorized under a 1995 Local Water Utilities Administration Resolution to
members of an interim Board of Directors (BOD) of a water district, is still
cited as authority in benefits disallowances of water district employees. De
Jesus and HDFM were also cited by petitioners herein in support of their
argument.[65]

However, in the 2002 case of National Electrification Administration v.

Commission on Audit[66] (NEA) involving the accelerated implementation of
the salary increase in the Salary Standardization II in violation of law and
executive issuances, the Court held both the approving officers and the
payees as solidarity liable on the following explanation:
This case would not have arisen had N[E]A complied in good faith with the
directives and orders of the President in the implementation of the last
phase of the Salary Standardization Law II. The directives and orders are
clearly and manifestly in accordance with all relevant laws. The reasons
advanced by NEA in disregarding the President's directives and orders are
patently flimsy, even ill[-]conceived. This cannot be countenanced as it will
result in chaos and disorder in the executive branch to the detriment of
public service.[67]
Thus, the petition filed by the NEA was denied, and the Decision of the
COA[68] was affirmed by the Court. The affirmed decision directed "all NEA
officials and employees who received compensation and allowances in
violation of the provisions of Executive Order No. 389 and National Budget
Circular No. 458 xxx to refund."[69]

In the 2006 case of Casal v. Commission on Audit[70] (Casal), the Court's

decisions in Blaquera and NEA were both relied upon, but the Court
reached an outcome different from those reached in both cases. Finding
that the non-compliance by the officers with relevant Presidential issuances
amounted to gross negligence which could not be deemed a mere lapse
consistent with the presumption of good faith, the ruling in NEA was applied
as to the petitioners-approving officers, while the ruling in Blaquera was
applied to excuse the payees. Thus, it was Casal that originated the
peculiar outcome in disallowance cases where payees were excused from
liability, while the solidary co-debtors, National Museum officials, were
made solely liable for the entire amount of the disallowance.

This pronouncement in Casal further evolved in jurisprudence when the

Court nuanced the same in the 2012 case of Manila International Airport
Authority v. Commission on Audit[71] (MIAA) and the 2014 case of Technical
Education and Skills Development Authority v. Commission on Audit [72]
(TESDA). In these cases, the Court also considered the good faith of both
payees and officers in determining who must return AND the extent of what
must be returned. As ruled therein, a payee in good faith may retain what
has been paid. In this regard, the government effectively absorbs the
excess paid to good faith payees, and approving and/or certifying officers in
bad faith were required to return only to the extent of the amounts they
received.

In MIAA, the Court found that the amounts involved were properly
disallowed signing bonus. Good faith payees were excused but responsible
officers and members of the BOD were made to refund, but only the
amounts they received, thus:
Clearly, good faith is anchored on an honest belief that one is legally
entitled to the benefit. In this case, the MIAA employees who had no
participation in the approval and release of the disallowed benefit accepted
the same on the assumption that Resolution No. 2003-067 was issued in
the valid exercise of the power vested in the Board of Directors under the
MIAA charter. As they were not privy as to reason and motivation of the
Board of Directors, they can properly rely on the presumption that the
former acted regularly in the performance of their official duties in accepting
the subject benefit. Furthermore, their acceptance of the disallowed grant,
in the absence of any competent proof of bad faith on their part, will not
suffice to render liable for a refund.

The same is not true as far as the Board of Directors. Their authority under
Section 8 of the MIAA charter is not absolute as their exercise thereof is
"subject to existing laws, rules and regulations" and they cannot deny
knowledge of SSS v. COA and the various issuances of the Executive
Department prohibiting the grant of the signing bonus. In fact, they are
duty-bound to understand and know the law that they are tasked to
implement and their unexplained failure to do so barred them from claiming
that they were acting in good faith in the performance of their duty. The
presumptions of "good faith" or "regular performance of official duty" are
disputable and may be contradicted and overcome by other evidence.

Granting that the benefit in question is a CNA Incentive, MIAA's Board of

Directors has no authority to include its members, the members of the
Board Secretariat, ExeCom and other employees not occupying rank-and-
file positions in the grant. Indeed, this is an open and contumacious
violation of PSLMC Resolution No. 2 and A.O. No. 135, which were
unequivocal in stating that only rank-and-file employees are entitled to the
CNA Incentive. Given their repeated invocation of these rules to justify the
disallowed benefit, they cannot feign ignorance of these rules. That they
deliberately ignored provisions of PSLMC Resolution No. 2 and A.O. No.
135 that they failed to observe bolsters the finding of bad faith against
them.

The same is true as far as the concerned officers of MIAA are concerned.
They cannot approve the release of funds and certify as to the legality of
the subject disbursement knowing that it is a signing bonus. Alternatively, if
they acted on the belief that the benefit is a CNA Incentive, they were in no
position to approve its funding without assuring themselves that the
conditions imposed by PSLMC Resolution No. 2 are complied with. They
were also not in the position to release payment to the members of the
Board of Directors, ExeCom and employees who do not occupy rank-and-
file positions considering the express language of PSLMC Resolution No.
2.

Simply put, these individuals cannot honestly claim that they have no
knowledge of the illegality of their acts. Thus, this Court finds that a refund
of the amount of P30,000.00 received by each of the responsible officers
and members of MIAA's Board of Directors is in order.[73] (Underscoring
supplied and citations omitted)
In 2015, the Court promulgated the decision in Silang[74] which followed the
rule in Casal. Parenthetically, the COA rationalizes the inequitable outcome
it reached in this case as being in deference to Silang.[75] Silang involves
the disallowance of CNA incentives granted to the employees of the Local
Government Unit of Tayabas, Quezon. The case distinguished the liability
to return based on the good faith of the persons held liable in the ND. The
Court held that Mayor Silang, the Sanggunian, and the officers of the
employee's organization cannot be deemed to have acted in good faith.
Therefore, only passive recipients of the disallowed benefits were excused
from the responsibility to return on the basis of their good faith "anchored
on an honest belief that one is legally entitled to the benefit, as said
employees did so believe in this case."[76] The Court stated that the payees
"should not be held liable to refund what they had unwittingly received." [77]

As Silang held that "passive recipients or payees of disallowed salaries,

emoluments, benefits, and other allowances need not refund such
disallowed amounts if they received the same in good faith," it relies
upon the cases of Lumayna v. COA[78] (Lumayna) and Querubin v. The
Regional Cluster Director Legal and Adjudication Office, COA Regional
Office VI, Pavia, Iloilo City[79] (Querubin). Petitioners herein also cite
Lumayna to support their claim.[80]

Examining Lumayna, the Court excused all petitioners (including the

petitioning approving and certifying officers - Municipal Mayor, Municipal
Accountant, and Budget Officer) from liability to return the disallowed
amounts despite the affirmance of the disallowance.

The same outcome was reached in Querubin where the members of the
BOD of the Bacolod City Water District were excused from returning the
benefits they themselves approved and received for having been received
in good faith. Both these cases also rely upon Blaquera as jurisprudential
support to excuse the return.

In sum, the evolution of the "good faith rule" that excused the passive
recipients in good faith from return began in Blaquera (1998) and NEA
(2002), where the good faith of both officers and payees were
determinative of their liability to return the disallowed benefits - the good
faith of all parties resulted in excusing the return altogether in Blaquera,
and the bad faith of officers resulted in the return by all recipients in NEA.
The rule morphed in Casal (2006) to distinguish the liability of the payees
and the approving and/or certifying officers for the return of the disallowed
amounts. In MIAA (2012) and TESDA (2014), the rule was further nuanced
to determine the extent of what must be returned by the approving and/or
certifying officers as the government absorbs what has been paid to
payees in good faith. This was the state of jurisprudence then which led to
the ruling in Silang (2015) which followed the rule in Casal that payees, as
passive recipients, should not be held liable to refund what they had
unwittingly received in good faith, while relying on the cases of Lumayna
and Querubin.

The history of the rule as shown evinces that the original formulation of the
"good faith rule" excusing the return by payees based on good faith was
not intended to be at the expense of approving and/or certifying officers.
The application of this judge made rule of excusing the payees and then
placing upon the officers the responsibility to refund amounts they did not
personally receive, commits an inadvertent injustice.

D. Nature of payee participation

Verily, excusing payees from return on the basis of good faith has been
previously recognized as an exception to the laws on liability for unlawful
expenditures. However, being civil in nature, the liability of officers and
payees for unlawful expenditures provided in the Administrative Code of
1987 will have to be consistent with civil law principles such as solutio
indebiti and unjust enrichment. These civil law principles support the
propositions that (1) the good faith of payees is not determinative of their
liability to return; and (2) when the Court excuses payees on the basis of
good faith or lack of participation, it amounts to a remission of an obligation
at the expense of the government.
To be sure, the application of the principles of unjust enrichment and
solutio indebiti in disallowed benefits cases does not contravene the law on
the general liability for unlawful expenditures. In fact, these principles are
consistently applied in government infrastructure or procurement cases
which recognize that a payee contractor or approving and/or certifying
officers cannot be made to shoulder the cost of a correctly disallowed
transaction when it will unjustly enrich the government and the public who
accepted the benefits of the project.[81]

These principles are also applied by the Court with respect to disallowed
benefits given to government employees. In characterizing the obligation of
retirees-payees who received benefits properly disallowed by the COA, the
Resolution in the 2004 case of Government Service Insurance System v.
Commission on Audit[82] stated:
Anent the benefits which were improperly disallowed, the same rightfully
belong to respondents without qualification. As for benefits which were
justifiably disallowed by the COA, the same were erroneously granted to
and received by respondents who now have the obligation to return the
same to the System.

It cannot be denied that respondents were recipients of benefits that were

properly disallowed by the COA. These COA disallowances would
otherwise have been deducted from their salaries, were it not for the feet
that respondents retired before such deductions could be effected. The
GSIS can no longer recover these amounts by any administrative means
due to the specific exemption of retirement benefits from COA
disallowances. Respondents resultantly retained benefits to which they
were not legally entitled which, in turn, gave rise to an obligation on their
part to return the amounts under the principle of solutio indebiti.

Under Article 2154 of the Civil Code, if something is received and unduly
delivered through mistake when there is no right to demand it, the
obligation to return the thing arises. Payment by reason of mistake in the
construction or application of a doubtful or difficult question of law also
comes within the scope of solutio indebiti.

xxxx

While the GSIS cannot directly proceed against respondents' retirement

benefits, it can nonetheless seek restoration of the amounts by means of a
proper court action for its recovery. Respondents themselves submit that
this should be the case, although any judgment rendered therein cannot be
enforced against retirement benefits due to the exemption provided in
Section 39 of RA 8291. However, there is no prohibition against enforcing a
final monetary judgment against respondents' other assets and properties.
This is only fair and consistent with basic principles of due process. [83]
(Citations omitted)
The COA similarly applies the principle of solutio indebiti to require the
return from payees regardless of good faith. The COA Decisions in the
cases of Jalbuena v. COA,[84] DBP v. COA[85] and Montejo v. COA,[86] are
examples to that effect. In the instant case, the COA Decision expressly
articulated this predicament of exempting recipients who are in good faith
and expressed that the same is not consistent with the concept of solutio
indebiti and the principle of unjust enrichment:
Clearly, the approving officer and each employee who received the
disallowed benefit are obligated, jointly and severally, to refund the amount
so received. The Supreme Court has ruled that by way of exception,
however, passive recipients or payees of disallowed salaries, emoluments,
benefits and other allowances need not refund such disallowed amounts if
they received the same in good faith. Stated otherwise, government
officials and employees who unwittingly received disallowed benefits or
allowances are not liable for their reimbursement if there is no finding of
bad faith.

The result of exempting recipients who are in good faith from

refunding the amount received is that the approving officers are made
to shoulder the entire amount paid to the employees. This is perhaps
an inequitable burden on the approving officers, considering that they
are or remain exposed to administrative and even criminal liability for
their act in approving such benefits, and is not consistent with the
concept of solutio indebiti and the principle of unjust enrichment.

Nevertheless, in deference to the Supreme Court ruling in Silang v.

COA, the Commission rules that government officials and employees who
unwittingly received disallowed benefits or allowances are not liable for
their reimbursement if there is no finding of bad faith. Public officials who
are directly responsible for or participated in making illegal expenditures
shall be solidarily liable for their reimbursement. [87] (Emphasis and
underscoring supplied)
With the liability for unlawful expenditures properly understood, payees who
receive undue payment, regardless of good faith, are liable for the return of
the amounts they received. Notably, in situations where officers are
covered by Section 38 of the Administrative Code of 1987 either by
presumption or by proof of having acted in good faith, in the regular
performance of their official duties, and with the diligence of a good father
of a family, payees remain liable for the disallowed amount unless the
Court excuses the return. For the same reason, any amounts allowed to be
retained by payees shall reduce the solidary liability of officers found to
have acted in bad faith, malice, and gross negligence. In this regard,
Justice Bernabe coins the term "net disallowed amount" to refer to the total
disallowed amount minus the amounts excused to be returned by the
payees.[88] Likewise, Justice Leonen is of the same view that the officers
held liable have a solidary obligation only to the extent of what should be
refunded and this does not include the amounts received by those
absolved of liability.[89] In short, the net disallowed amount shall be solidarily
shared by the approving/authorizing officers who were clearly shown to
have acted in bad faith, with malice, or were grossly negligent.

Consistent with the foregoing, the Court shares the keen observation of
Associate Justice Henri Jean Paul B. Inting (Justice Inting) that payees
generally have no participation in the grant and disbursement of employee
benefits, but their liability to return is based on solutio indebiti as a result of
the mistake in payment. Save for collective negotiation agreement
incentives carved out in the sense that the employees are not considered
passive recipients on account of their participation in the negotiated
incentives as in Dubongco v. COA[90] (Dubongco), payees are generally
held in good faith for lack of participation, with their participation limited to
"accept[ing] the same with gratitude, confident that they richly deserve such
benefits."[91]

On the other hand, the RRSA provides:

SECTION 16. DETERMINATION OF PERSONS RESPONSIBLE/LIABLE
 
16. The liability of public officers and other persons for audit
1 disallowances/charges shall be determined on the basis of (a)
the nature of the disallowance/charge; (b) the duties and
responsibilities or obligations of officers/employees concerned;
(c) the extent of their participation in the disallowed/charged
 transaction; and (d) the amount of damage or loss to the
government, thus:
xxxx
The payee of an expenditure shall be personally liable for a
disallowance where the ground thereof is his failure to submit
16.1.5
the required documents, and the Auditor is convinced that the
disallowed transaction did not occur or has no basis in fact.
The liability of persons determined to be liable under an ND/NC
16. shall be solidary and the Commission may go against any
3 person liable without prejudice to the latter's claim against the
rest of the persons liable.
To recount, as noted from the cases earlier mentioned, retention by
passive payees of disallowed amounts received in good faith has been
justified on said payee's "lack of participation in the disbursement."
However, this justification is unwarranted because a payee's mere receipt
of funds not being part of the performance of his official functions still
equates to him unduly benefiting from the disallowed transaction; this gives
rise to his liability to return.

As may be gleaned from Section 16 of the RRSA, "the extent of their

participation [or involvement] in the disallowed/charged transaction" is one
of the determinants for liability. The Court has, in the past, taken this to
mean that payees should be absolved from liability for lack of participation
in the approval and disbursement process. However, under the MCSB and
the RRSA, a "transaction" is defined as "[a]n event or condition the
recognition of which gives rise to an entry in the accounting records." [92] To
a certain extent, therefore, payees always do have an indirect
"involvement" and "participation" in the transaction where the benefits they
received are disallowed because the accounting recognition of the release
of funds and their mere receipt thereof results in the debit against
government funds in the agency's account and a credit in the payees' favor.
Notably, when the COA includes payees as persons liable in an ND, the
nature of their participation is stated as "received payment."

Consistent with this, "the amount of damage or loss [suffered by] the
government [in the disallowed transaction]," [93] another determinant of
liability, is also indirectly attributable to payees by their mere receipt of the
disallowed funds. This is because the loss incurred by the government
stated in the ND as the disallowed amount corresponds to the amounts
received by the payees. Thus, cogent with the application of civil law
principles on unjust enrichment and solutio indebiti, the return by payees
primarily rests upon this conception of a payee's undue receipt of amounts
as recognized within the government auditing framework. In this regard,
it bears repeating that the extent of liability of a payee who is a passive
recipient is only with respect to the transaction where he participated or
was involved in, i.e., only to the extent of the amount that he unduly
received. This limitation on the scope of a payee's participation as only
corresponding to the amount he received therefore forecloses the
possibility that a passive recipient may be held solidarily liable with
approving/certifying officers beyond the amount that he individually
received.

The exception to payee liability is when he shows that he is, as a matter of

fact or law, actually entitled to what he received, thus removing his situation
from Section 16.1.5 of the RRSA above and the application of the principle
of solutio indebiti. This includes payees who can show that the amounts
received were granted in consideration for services actually rendered. In
such situations, it cannot be said that any undue payment was made. Thus,
the government incurs no loss in making the payment that would warrant
the issuance of a disallowance. Neither payees nor approving and
certifying officers can be held civilly liable for the amounts so paid, despite
any irregularity or procedural mistakes that may have attended the grant
and disbursement.

Returning to the earlier cases of Blaquera, Lumayna, and Querubin, the

good faith of all parties was basis to excuse the return of the entire
obligation from any of the debtors in the case. Thus, either the COA or the
Court through their respective decisions exercised an act of liberality by
renouncing the enforcement of the obligation as against payees - persons
who received the moneys corresponding to the disallowance, a determinate
"respective share" in the resulting solidary obligation. This redounds to the
benefit of officers. Clearly, therefore, cases which result in a clear transfer
of economic burden cannot have been the intention of the law in exacting
civil liability from payees in disallowance cases. Where the ultimate
beneficiaries are excused, what can only be assumed as the legislative
policy of achieving the highest possibility of recovery for the government
unwittingly sanctions unjust enrichment.

In Dubongco,[94] the Court affirmed the disallowance of CNA incentives

sourced out of CARP funds. Even as it recognized that the payees therein
committed no fraud, the Court ordered the return, thus:
Finally, the payees received the disallowed benefits with the mistaken
belief that they were entitled to the same. If property is acquired through
mistake or fraud, the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person from whom the
property comes. A constructive trust is substantially an appropriate remedy
against unjust enrichment. It is raised by equity in respect of property,
which has been acquired by fraud, or where, although acquired originally
without fraud, it is against equity that it should be retained by the person
holding it. In fine, payees are considered trustees of the disallowed
amounts, as although they committed no fraud in obtaining these benefits,
it is against equity and good conscience for them to continue holding on to
them.[95] (Italics in the original and citations omitted)
Similarly, in DPWH v. COA,[96] the disallowance of CNA incentives sourced
out of the Engineering Administrative Overhead (EAO) was upheld, and the
recipients of the disallowed benefits were held liable to return. In finding
that the payees are obliged to return the amounts they received, the Court
stated:
Jurisprudence holds that there is unjust enrichment when a person unjustly
retains a benefit to the loss of another, or when a person retains money or
property of another against the fundamental principles of justice, equity and
good conscience. The statutory basis for the principle of unjust enrichment
is Article 22 of the Civil Code which provides that "[e]very person who
through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without
just or legal ground, shall return the same to him."

The principle of unjust enrichment under Article 22 requires two conditions:

(1) that a person is benefited without a valid basis or justification, and (2)
that such benefit is derived at another's expense or damage. There is no
unjust enrichment when the person who will benefit has a valid claim to
such benefit.

The conditions set forth under Article 22 of the Civil Code are present in
this case.

It is settled that the subject CNA Incentive was invalidly released by the
DPWH IV-A to its employees as a consequence of the erroneous
application by its certifying and approving officers of the provisions of DBM
Budget Circular No. 2006-1. As such, it only follows that the DPWH IV-A
employees received the CNA Incentive without valid basis or justification;
and that the DPWH IV-A employees have no valid claim to the benefit.
Moreover, it is clear that the DPWH IV-A employees received the subject
benefit at the expense of another, specifically, the government. Thus,
applying the principle of unjust enrichment, the DPWH IV-A employees
must return the benefit they unduly received.[97] (Underscoring supplied and
citations omitted)
That the incentives were negotiated and approved by the employees was
only one of several reasons for the return in the said case. The excerpt
cited above sufficiently signals that the elements of unjust enrichment are
completed as soon as a payee receives public funds without valid basis or
justification - without necessarily requiring participation in the grant and
disbursement.

For other incentives not negotiated by the recipients, the Court

promulgated its decision in Chozas v. COA[98] which dealt with the
accomplishment incentive sourced out of Bulacan State University Special
Trust Fund. Notably, this case relied upon the Court's ratiocination in
Dubongco on the question of liability to return, without any showing of
participation on the part of the payees as to the grant and disbursement.
This is jurisprudential recognition that that the judge made rule of absolving
good faith payees is the exception, and not the rule.

In Rotoras v. COA,[99] the Court held that it will be unjust enrichment to

allow the members of the governing boards to retain additional honoraria
that they themselves approved and received. Here, the Court ruled that the
nature of the obligation of approving officials to return "depends on the
circumstances,"[100] with the officers' obligation to return expressly
determined to not be solidary.[101] This case illustrates how approving
officers may still be held liable to return in their capacity as payees,
notwithstanding their good faith or bad faith.

In the ultimate analysis, the Court, through these new precedents, has
returned to the basic premise that the responsibility to return is a civil
obligation to which fundamental civil law principles, such as unjust
enrichment and solutio indebiti apply regardless of the good faith of passive
recipients. This, as well, is the foundation of the rules of return that the
Court now promulgates.

Moreover, solutio indebiti is an equitable principle applicable to cases

involving disallowed benefits which prevents undue fiscal leakage that may
take place if the government is unable to recover from passive recipients
amounts corresponding to a properly disallowed transaction.

Nevertheless, while the principle of solutio indebiti is henceforth to be

consistently applied in determining the liability of payees to return, the
Court, as earlier intimated, is not foreclosing the possibility of situations
which may constitute bona fide exceptions to the application of solutio
indebiti. As Justice Bernabe proposes, and which the Court herein accepts,
the jurisprudential standard for the exception to apply is that the amounts
received by the payees constitute disallowed benefits that were genuinely
given in consideration of services rendered (or to be rendered) [102] negating
the application of unjust enrichment and the solutio indebiti principle.[103] As
examples, Justice Bernabe explains that these disallowed benefits may be
in the nature of performance incentives, productivity pay, or merit increases
that have not been authorized by the Department of Budget and
Management as an exception to the rule on standardized salaries. [104] In
addition to this proposed exception standard, Justice Bernabe states that
the Court may also determine in the proper case bona fide exceptions,
depending on the purpose and nature of the amount disallowed. [105] These
proposals are well-taken.

Moreover, the Court may also determine in a proper case other

circumstances that warrant excusing the return despite the application of
solutio indebiti, such as when undue prejudice will result from requiring
payees to return or where social justice or humanitarian considerations are
attendant. Verily, the Court has applied the principles of social justice in
COA disallowances. Specifically, in the 2000 case of Uy v. Commission on
Audit[106] (Uy), the Court made the following pronouncements in overturning
the COA's decision:
xxx Under the policy of social justice, the law bends over backward to
accommodate the interests of the working class on the humane justification
that those with less privilege in life should have more in law. Rightly, we
have stressed that social justice legislation, to be truly meaningful and
rewarding to our workers, must not be hampered in its application by long-
winded arbitration and litigation. Rights must be asserted and benefits
received with the least inconvenience. And the obligation to afford
protection to labor is incumbent not only on the legislative and executive
branches but also on the judiciary to translate this pledge into a living
reality. Social justice would be a meaningless term if an element of rigidity
would be affixed to the procedural precepts. Flexibility should not be ruled
out. Precisely, what is sought to be accomplished by such a fundamental
principle expressly so declared by the Constitution is the effectiveness of
the community's effort to assist the economically underprivileged. For
under existing conditions, without such succor and support, they might not,
unaided, be able to secure justice for themselves. To make them suffer,
even inadvertently, from the effect of a judicial ruling, which perhaps they
could not have anticipated when such deplorable result could be avoided,
would be to disregard what the social justice concept stands for. [107] (Italics
in the original)
The pronouncements in Uy[108] illustrate the Court's willingness to consider
social justice in disallowance cases. These considerations may be utilized
in assessing whether there may be an exception to the rule on solutio
indebiti so that the return may be excused altogether. As Justice Inting
correctly pointed out, "each disallowance case is unique, inasmuch as the
facts behind, nature of the amounts involved, and individuals so charged in
one notice of disallowance are hardly ever the same with any other." [109]

E. The Rules on Return

In view of the foregoing discussion, the Court pronounces:

1. If a Notice of Disallowance is set aside by the Court, no return shall

be required from any of the persons held liable therein.

2. If a Notice of Disallowance is upheld, the rules on return are as

follows:

a. Approving and certifying officers who acted in good faith, in

regular performance of official functions, and with the diligence
of a good father of the family are not civilly liable to return
consistent with Section 38 of the Administrative Code of 1987.

b. Approving and certifying officers who are clearly shown to have

acted in bad faith, malice, or gross negligence are, pursuant to
 Section 43 of the Administrative Code of 1987, solidarity liable
to return only the net disallowed amount which, as discussed
herein, excludes amounts excused under the following sections
2c and 2d.

c. Recipients - whether approving or certifying officers or mere

passive recipients - are liable to return the disallowed amounts
respectively received by them, unless they are able to show
that the amounts they received were genuinely given in
consideration of services rendered.

d. The Court may likewise excuse the return of recipients based

on undue prejudice, social justice considerations, and other
bona fide exceptions as it may determine on a case to case
basis.

Undoubtedly, consistent with the statements made by Justice Inting, the

ultimate analysis of each case would still depend on the facts presented,
and these rules are meant only to harmonize the previous conflicting
rulings by the Court as regards the return of disallowed amounts - after the
determination of the good faith of the parties based on the unique facts
obtaining in a specific case has been made.

To reiterate, the assessment of the presumptions of good faith and

regularity in the performance of official functions and proof thereof will be
done by the Court on a case-to-case basis. Moreover, the additional
guidelines eloquently presented by Justice Leonen will greatly aid the Court
in determining the good faith of officers and resultantly, whether or not they
should be held solidarily liable in disallowed transactions. [110]

F. As applied to the instant case

Examined under the rubric of the rules above, the Court holds that
petitioners approving and certifying officers need not refund the disallowed
amounts inasmuch as they had acted in good faith.

In support of their good faith, petitioners aver:

It has been a customary scheme of the municipality to grant additional
allowances during year-end period and which act is legally anchored on
yearly appropriation ordinance by the sanggunian. Similar scheme is also
practiced in all government agencies, local or national.

On such previous disbursement[s] of the municipality, there were no

disallowance[s] issued by the COA or DBM, hence, the municipal officials
[believed] in good faith that such grant of additional allowances were legal
and allowed.

It was only on June 26,2014 when [the NDs herein were] issued and [the
Municipality was informed]. That is why, since 2014, petitioners never
grant[ed] additional allowances anymore to its employees.

xxxx

On [a] final note, since the COA foiled to show bad faith on the approving
officers, the alleged refund should not be personally imposed on them, they
being in good faith that recipients richly deserved such benefits and the
officers relied merely on the yearly basis of granting additional allowances,
without them being informed by [the] COA or DBM that such disbursements
were illegal.[111]
All in all, petitioners' averments are well-taken. In evaluating the presence
of good faith in cases involving disallowances, the Court's pronouncement
in Lumayna is still instructive and remains true even under the foregoing
guidelines:
Furthermore, granting arguendo that the municipality's budget adopted the
incorrect salary rates, this error or mistake was not in any way indicative
of bad faith. Under prevailing jurisprudence, mistakes committed by a
public officer are not actionable, absent a clear showing that he was
motivated by malice or gross negligence amounting to bad faith. It
does not simply connote bad moral judgment or negligence. Rather,
there must be some dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of a sworn duty through some
motive or intent, or ill will. It partakes of the nature of fraud and
contemplates a state of mind affirmatively operating with furtive design or
some motive of self-interest or ill will for ulterior purposes. xxx[112]
(Emphasis supplied)
Applying the foregoing, the Court accepts the arguments raised by the
petitioners as badges of good faith.

First, a review of the SB Resolutions and Ordinance used as basis for the
grant of the subject allowances shows that these were primarily intended
as financial assistance to municipal employees in view of the increase of
cost on prime commodities,[113] shortage of agricultural products,[114] and the
vulnerability of their municipality to calamities and disasters. [115] Notably,
these subject allowances were granted after the onslaught of typhoon
Yolanda which greatly affected the Municipality. While noble intention is not
enough to declare the allowances as valid, it nevertheless supports
petitioners' claim of good faith. As held in Escarez v. COA:
The grant of the FGI to petitioners has a lofty purpose behind it: the
alleviation, to any extent possible, of the difficulty in keeping up with the
rising cost of living. Indeed, under the circumstances, We find that the FGI
was given and received in good faith. The NFA Council approved the grant
under the belief, albeit mistaken, that the presidential issuances and the
OGCC Opinion provided enough bases to support it; and the NFA officials
and employees received the grant with utmost gratefulness. [116]
Second, that these additional allowances had been customarily granted
over the years and there was no previous disallowance issued by the COA
against these allowances further bolster petitioners' claim of good faith.
Indeed, while it is true that this customary scheme does not ripen into valid
allowances, it is equally true that in all those years that the additional
allowances had been granted, the COA did not issue any ND against these
grants, thereby leading petitioners to believe that these allowances were
lawful.

Notably, since the issuance of the NDs in 2014, the Municipality has
stopped giving these allowances to their employees. [117] However, this is not
to say that the presumption of good faith would be ipso facto negated if the
Municipality had otherwise continued to grant the allowances despite the
issuance of NDs. After all, an ND is not immediately final as it may still be
reversed by the COA or even the Court. Unless and until an ND becomes
final, the continued grant of a benefit or allowance should not automatically
destroy the presumption of good faith on the part of the approving/certifying
officers, especially when there is sufficient or, at the very least, colorable
legal basis for such grant.

Third, petitioners relied on the Resolutions and Ordinance of the

Sangguniang Bayan which have not been invalidated; hence, it was within
their duty to execute these issuances in the absence of any contrary
holding by the Sangguniang Panlalawigan or the COA. They were of the
belief, albeit mistakenly, that these Resolutions and Ordinance were
sufficient legal bases for the grant of the allowances especially since the
LGC[118] empowers the Sangguniang Bayan to approve ordinances and
pass resolutions concerning allowances. Similar to the ruling in Veloso v.
Commission on Audit[119] where the Court accepted as a badge of good
faith the fact that the questioned disbursements were made pursuant to
ordinances, petitioners' reliance on the SB Resolutions and Ordinance
should likewise be considered in their favor.

As can be deduced above, petitioners disbursed the subject allowances in

the honest belief that the amounts given were due to the recipients and the
latter accepted the same with gratitude, confident that they richly deserve
such reward. Otherwise stated, and to borrow the language of Lumayna,
these mistakes committed are not actionable, absent a clear showing that
such actions were motivated by malice or gross negligence amounting to
bad faith. There was no showing of some dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of a sworn duty through
some motive or intent, or ill will in the grant of these benefits. There was no
fraud nor was there a state of mind affirmatively operating with furtive
design or some motive of self-interest or ill will for ulterior purposes.

Thus, petitioners-approving and certifying officers are shielded from civil

liability for the disallowance under Section 38 of the Administrative Code of
1987.

As for the payees, the Court notes that the COA Proper already excused
their return; hence, they no longer appealed. In any case, while they are
ordinarily liable to return for having unduly received the amounts validly
disallowed by COA, the return was properly excused not because of their
good faith but because it will cause undue prejudice to require them to
return amounts that were given as financial assistance and meant to tide
them over during a natural disaster.

In view of the foregoing, the return is excused in its entirety in favor of all
persons held liable in the ND.

A Final Note

In interpreting and applying the law, the Court is very sensitive to the need
to balance competing interests and considerations amongst various
stakeholders. Here, the Court is given the opportunity to set a workable rule
that exacts accountability for disallowances and ensures that unjust
enrichment and inadvertent unfairness do not result. This has been brought
about by an acknowledgment that previous attempts by this Court to
excuse payees who unwittingly received the disallowed amounts may have
resulted in undue prejudice to the government. Further, if such rule would
continue to be the norm in deciding these cases, then the Court may be
unsuspectingly playing a role in the chilling effect on current and aspiring
government officials, who were previously left to shoulder the entire
disallowed amounts to the benefit of recipients. A chilling effect that
ultimately hampers and suffocates urgent public need - which the
Government, through the Executive Branch, is mandated to serve at the
soonest time.

As the Court has previously held,[120] government employment should be

seen as an opportunity for individuals of good will to render honest-to-
goodness public service, and not a trap for the unwary. It should be an
attractive alternative to private employment, not an undesirable undertaking
grudgingly accepted, to therefore regret.[121] While the Court supports the
mandate of the COA in ensuring that the funds of the government are
properly utilized and the return to the government of funds unduly spent,
the same must not be at the expense of public officials and employees who
are directly tasked to discharge and render public service - especially when
the presumptions of good faith and regularity in the performance of their
duties have not been rebutted or overturned. Otherwise, the Court would
unintentionally sanction the discouragement of competent and well-
meaning individuals from joining the government. When service in the
government is seen as unattractive and unappealing, it is the public that
suffers.

Taking all this into consideration, the Court has laid down the rules that it
deems equitable to the government whose interest is safeguarded by the
COA, on the one hand, and to the government employees who approved,
certified, and received the disallowed benefits, on the other.

Finally, the Court exhorts the COA to take into consideration the
pronouncements made herein to prevent future decisions that "result [in]
exempting recipients who are in good faith from refunding the amount
received xxx [while] approving officers are made to shoulder the entire
amount paid to the employees"[122] and impose, in the very words of the
COA itself, "an inequitable burden on the approving officers, considering
that they are or remain exposed to administrative and even criminal liability
for their act in approving such benefits, and is not consistent with the
concept of solutio indebiti and the principle of unjust enrichment." [123]

WHEREFORE, the instant petition is PARTIALLY GRANTED. The

Commission on Audit Decision No. 2017-454 dated December 27, 2017
affirming the Notice of Disallowance Nos. 14-004-101(2013) to 14-008-
101(2013) and 14-010-101(2013) to 14-015-101(2013) in the total amount
of P7,706,253.10 is AFFIRMED with MODIFICATION that petitioners need
not refund the said disallowed amount.

SO ORDERED.

Peralta, C. J., Gesmundo, J. Reyes, Jr., Hernando, Carandang, Lazaro-

Javier, Zalameda, Lopez, Delos Santos, and Gaerlan, JJ., concur.
Perlas-Bernabe, J., Please see separate concurring opinion.
Leonen, J., See separate concurring opinion.
Inting, J., See concurring opinion.
Baltazar-Padilla, J., on leave.

NOTICE OF JUDGMENT

Sirs/Mesdames:

Please take notice that on September 8, 2020 a Decision, copy attached

herewith, was rendered by the Supreme Court in the above-entitled case,
the original of which was received by this Office on September 30, 2020 at
3:15 p.m.

Very truly yours,

(SGD) EDGAR O.
ARICHETA
  Clerk of Court

[1]
Rollo, pp. 3-17.
[2]
Id. at 18-19.
 
[3]
See id. at 30.
[4]
Id. at 41-43.
[5]
Id. at 31-32.
[6]
Id. at 33-34.
[7]
Id. at 35-36.
[8]
Id. at 38-39.
[9]
Id. at 31.
[10]
Id. at 33.
[11]
Id. at 35.
[12]
Id. at 37.
[13]
Id. at 19.
[14]
Id. at 19-20.
 
[15]
Id. at 20.
[16]
Id.
 
[17]
Id. at 21.
[18]
Id. at 84-88, 89-93, 94-98, 110-116.
[19]
Section 12. Consolidation of Allowances and Compensation. - All
allowances, except for representation and transportation allowances;
clothing and laundry allowances; subsistence allowance of marine officers
and crew on board government vessels and hospital personnel; hazard
pay; allowances of foreign service personnel stationed abroad; and such
other additional compensation not otherwise specified herein as may be
determined by the DBM, shall be deemed included in the standardized
salary rates herein prescribed. Such other additional compensation,
whether in cash or in kind, being received by incumbents only as of July 1,
1989 not integrated into the standardized salary rates shall continue to be
authorized.

Existing additional compensation of any national government official or

employee paid from local funds of a local government unit shall be
absorbed into the basic salary of said official or employee and shall be paid
by the National Government.
[20]
Rollo, p. 21.
[21]
Id. at 22.
[22]
Id. at 126-132.
[23]
Id. at 22-23.
[24]
Id. at 23.
[25]
SECTION 327. Review of Appropriation Ordinances of Component
Cities and Municipalities. - The sangguniang panlalawigan shall review the
ordinance authorizing annual or supplemental appropriations of component
cities and municipalities in the same manner and within the same period
prescribed for the review of other ordinances.

If within ninety (90) days from receipt of copies of such ordinance, the
sangguniang panlalawigan takes no action thereon, the same shall be
deemed to have been reviewed in accordance with law and shall continue
to be in full force and effect. If within the same period, the sangguniang
panlalawigan shall have ascertained that the ordinance authorizing annual
or supplemental appropriations has not complied with the requirements set
forth in this Title, the sangguniang panlalawigan shall, within the ninety-day
period hereinabove prescribed, declare such ordinance inoperative in its
entirety or in part. Items of appropriation contrary to limitations prescribed
in this Title or in excess of the amounts prescribed herein shall be
disallowed or reduced accordingly.

The sangguniang panlalawigan shall, within the same period, advise the
sangguniang panlungsod or sangguniang bayan concerned, through the
local chief executive, of any action on the ordinance under review. Upon
receipt of such advice, the city or municipal treasurer concerned shall not
make further disbursements of funds from any of the items of appropriation
declared inoperative, disallowed or reduced.
[26]
SECTION 322. Reversion of Unexpended Balances of Appropriations,
Continuing Appropriations. - Unexpended balances of appropriations
authorized in the annual appropriations ordinance shall revert to the
unappropriated surplus of the general fund at the end of the fiscal year and
shall not thereafter be available for the expenditure except by subsequent
enactment. However, appropriations for capital outlays shall continue and
remain valid until fully spent, reverted or the project is completed.
Reversions of continuing appropriations shall not be allowed unless
obligations therefor have been fully paid or otherwise settled.

The balances of continuing appropriations shall be reviewed as part of the

annual budget preparation and the sanggunian concerned may approve,
upon recommendation of the local chief executive, the reversion of funds
no longer needed in connection with the activities funded by said continuing
appropriations subject to the provisions of this section.
[27]
Rollo, p. 23.
[28]
Id.
[29]
Id. at 27.
[30]
Id. at 28.
[31]
Id. at 6.
[32]
Id. at 161-177.
[33]
Id. at 6.
[34]
See Barnes v. Padilla, G.R. No. 160753, September 30, 2004, 439
SCRA 675, 686.
[35]
Miralles v. Commission on Audit, G.R. No. 210571, September 19, 2017,
840 SCRA 108, 116.
[36]
Id. at 116-117.
[37]
Estalilla v. Commission on Audit, G.R. No. 217448, September 10, 2019,
accessed at
<https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/65721>.
[38]
Catu-Lopez v. Commission on Audit, G.R. No. 217997, November 12,
2019, accessed at
<https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/65979>.
[39]
Rollo, p. 8.
[40]
Id. at 25-26.
[41]
Blaquera v. Alcala, G.R. No. 109406, September 11,1998, 295 SCRA
366; De Jesus v. Commission on Audit, G.R. No. 149154, 403 SCRA 666;
Home Development Mutual Fund v. Commission on Audit, G.R. No.
157001, October 19, 2004, 440 SCRA 643; and Lumayna v. Commission
on Audit, G.R. No. 185001, September 25, 2009, 601 SCRA 163.
[42]
Rollo, pp. 10-13.
[43]
Id. at 13.
[44]
G.R. No. 213189, September 8, 2015, 770 SCRA 110, 126.
[45]
Rollo, pp. 26-27.
[46]
Id. at 26-28.
 
[47]
Presidential Decree No. 1177, July 30, 1977.
[48]
Presidential Decree No. 1445, June 11, 1978.
 
[49]
Chapter 9, Subtitle B, Title I, Book V.
[50]
Book VI, Chapter 5.
[51]
Domingo v. Rayala, G.R. Nos. 155831, 155840 & 158700, February 18,
2008, 546 SCRA 90, 112: "Basic in the law of public officers is the three-
fold liability rule, which states that the wrongful acts or omissions of a public
officer may give rise to civil, criminal and administrative liability, xxx".
[52]
See Suarez v. Commission on Audit, G.R. No. 131077, August 7, 1998,
294 SCRA 96, 108-109, which treats liability for disallowance as civil
liability, viz.,
In holding petitioner liable for having failed to show good faith and diligence
in properly performing her functions as a member of the PBAC,
Respondent COA misconstrued Sec. 29.2 of the Revised CSB Manual. The
aforesaid section requires a clear showing of bad faith, malice or gross
negligence before a public officer may be held civilly liable for acts done in
the performance of his or her official duties. The same principle is reiterated
in Book I, Chapter 9, Section 38 of the 1987 Administrative Code. A public
officer is presumed to have acted in the regular performance of his/her
duty; therefore, he/she cannot be held civilly liable, unless contrary
evidence is presented to overcome the presumption. There is no such
evidence in this case. From the foregoing, it is as clear as day that
Respondent COA committed grave abuse of discretion in including
petitioner among those liable for the subject disallowance. (Underscoring
supplied)
[53]
See Eslao v. Commission on Audit, G.R. No. 89745, April 8, 1991, 195
SCRA 730 (procurement of plans and designs for extension of school
building); Andres v. Commission on Audit, G.R. No. 94476, September 26,
1991, 201 SCRA 780 (overpricing in purchase of school desks); Arriola v.
Commission on Audit, G.R. No. 90364, September 30, 1991, 202 SCRA
147 (overpricing of Batangas Water Well Project); Orocio v. Commission
on Audit, G.R. No. 75959, August 31, 1992, 213 SCRA 109 (legal officer
sought to be held liable for hospitalization costs advanced by National
Power Corporation based on his legal opinion that the agency is liable
under quasi-delict for the accident in Malaya Thermal Plant); Suarez v.
Commission on Audit, id.
[54]
Restating the Requirements for the Use of the Certificate of Settlement
and Balances and Providing Guidelines on Its Issuance Including the
Accounting Treatment Thereof.
[55]
Prescribing the Use of the Manual on Certificate of Settlement and
Balances (Revised 1993).
[56]
Prescribing the Use of the Rules and Regulations on Settlement of
Accounts.
[57]
See Section 19 of the MCSB and Section 16 of the RRSA.
[58]
Separate Concurring Opinion of Justice Leonen, pp. 8, 13.
[59]
Id. at 8.
[60]
Supra note 41.
[61]
Rotaras v. Commission on Audit, G.R. No. 211999, August 20, 2019,
accessed at
<https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/65585>.
[62]
Supra note 41.
[63]
G.R. No. 150769, August 31, 2004, 437 SCRA 371.
[64]
Supra note 41.
[65]
Rollo, p. 12.
[66]
G.R. No. 143481, February 15, 2002, 377 SCRA 223.
[67]
Id. at 240.
[68]
The COA in its Decision stated: "Thus, when the NEA effected full
implementation of the new salary schedule on January 1, 1997, instead of
November 1, 1997, NEA was, then, clearly acting in violation of the
mandates of the law. Consequently, said wrongful implementation must be
struck down for being baseless and unlawful, and all its employees who
received the undue increases must necessarily return the amount
thus received," id. at 227-228; emphasis and underscoring supplied.
[69]
Id. at 224.
[70]
G.R. No. 149633, November 30, 2006, 509 SCRA 138.
[71]
G.R. No. 194710, February 14, 2012, 665 SCRA 653.
[72]
G.R. No. 204869, March 11, 2014, 718 SCRA 402.
[73]
Supra note 71, at 678-679.
[74]
Supra note 44.
[75]
Rollo, pp. 27-28.
[76]
Silang v. Commission on Audit, supra note 44, at 129.
[77]
Id.
[78]
Supra note 41, at 182-183. The relevant portion reads:
Furthermore, granting arguendo that the municipality's budget adopted the
incorrect salary rates, this error or mistake was not in any way indicative of
bad faith. Under prevailing jurisprudence, mistakes committed by a public
officer are not actionable, absent a clear showing that he was motivated by
malice or gross negligence amounting to bad faith. It does not simply
connote bad moral judgment or negligence. Rather, there must be some
dishonest purpose or some moral obliquity and conscious doing of a wrong,
a breach of a sworn duty through some motive or intent, or ill will. It
partakes of the nature of fraud and contemplates a state of mind
affirmatively operating with furtive design or some motive of self-interest or
ill will for ulterior purposes. As we see it, the disbursement of the 5% salary
increase was done in good faith. Accordingly, petitioners need not refund
the disallowed disbursement in the amount of P895,891.50. (Citations
omitted and underscoring supplied)
[79]
G.R. No. 159299, July 7, 2004, 433 SCRA 769.
[80]
Rollo, pp. 12-13.
[81]
See Melchor v. Commission on Audit, G.R. No. 95398, August 16, 1991,
200 SCRA 704, 714, citing Eslao v. Commission on Audit, supra note 53, at
739. This case applies the same principle of unjust enrichment in cases
where the contractor seeks payment to this case where reimbursement is
sought from the official concerned; see also Andres v. Commission on
Audit, supra note 53.
[82]
G.R. Nos. 138381 & 141625, November 10, 2004, 441 SCRA 532.
[83]
Id. at 548-550.
[84]
G.R. No. 218478, June 19, 2018, p. 2, (Unsigned Resolution), [En
Banc].
[85]
G.R. No. 210838, July 3, 2018, accessed at
<http://elibraryjudiciary.gov.ph/thebookshelf/showdocs/1/64358>.
[86]
G.R. No. 232272, July 24, 2018, accessed at
<http://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/64480>.
[87]
Rollo, pp. 27-28.
[88]
Separate Concurring Opinion of Justice Bernabe, p. 13.
[89]
Separate Concurring Opinion of Justice Leonen, p. 12.
[90]
G.R. No. 237813, March 5, 2019, accessed at
<http://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/65051>.
[91]
Blaquera v. Alcala, supra note 41, at 448.
[92]
Sections 3.19 and 4.28 of the MCSB and the RRSA, respectively.
[93]
The RRSA, Section 16.1.
[94]
Supra note 90.
[95]
Id.
[96]
G.R. No. 237987, March 19, 2019, accessed at
<http://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/65047>.
[97]
Id.
[98]
G.R. Nos. 226319 & 235031, October 8, 2019.
[99]
Supra note 61.
[100]
Separate Concurring Opinion of Justice Leonen, p. 12.
[101]
Supra note 61. The dispositive portion of Rotoras reads:

WHEREFORE, the Petition for Certiorari is DISMISSED. The November 3,

2011 Decision and February 14, 2014 Resolution of the Commission on
Audit in COA CP Case No. 2010-341 are AFFIRMED. The members of the
governing boards of the state universities and colleges shall return the
disallowed benefits. Their obligation to return shall not be solidary.

SO ORDERED.
[102]
Separate Concurring Opinion of Justice Bernabe, p. 12.
[103]
Id. at 11-12.
[104]
Id. at 11. Justice Bernabe further explains:
xxx To be sure, Republic Act No. 6758, otherwise known as the
"Compensation and Position Classification Act of 1989," "standardize[s]
salary rates among government personnel and do[es] away with multiple
allowances and other incentive packages and the resulting differences in
compensation among them." Section 12 lays down the general rule that all
allowances of state workers are to be included in their standardized salary
rates, with the exception of the following allowances: xxx

The said allowances are the "only allowances which government

employees can continue to receive in addition to their standardized salary
rates." Conversely, "all allowances not covered by the [above] exceptions
xxx are presumed to have been integrated into the basic standardized pay"
and hence, subject to disallowance. Id. at 11-12.
[105]
Id. at 12.
[106]
G.R. No. 130685, March 21, 2000, 328 SCRA 607.
[107]
Id. at 619.
[108]
Id.
[109]
Concurring Opinion, p. 1.
[110]
Separate Concurring Opinion of Justice Leonen, p. 8. To reiterate,
Justice Leonen proposes the following circumstances or badges for the
determination of whether an authorizing officer exercised the diligence of a
good father of a family: "(1) Certificate of Availability of Funds pursuant to
Section 40 of the Administrative Code, (2) In-house or Department of
Justice legal opinion, (3) that there is no precedent disallowing a similar
case in jurisprudence, (4) that it is traditionally practiced within the agency
and no prior disallowance has been issued, and (5) with regard the
question of law, that there is a reasonable textual interpretation on its
legality."
[111]
Rollo, pp. 9-13.
[112]
Supra note 41, at 182.
[113]
Rollo, p. 31.
[114]
Id. at 35.
[115]
Id. at 37.
[116]
G.R. Nos. 217818, 218334, 219979, 220201, & 222118, May 31, 2016,
p. 8 (Unsigned Resolution).
[117]
Rollo, p. 9.
[118]
R.A. 7160, Section 447(a)(1)(viii).
[119]
G.R. No. 193677, September 6, 2011, 656 SCRA 767.
[120]
Philippine Economic Zone Authority (PEZA) v. Commission on Audit,
G.R. 210903, October 11, 2016, 805 SCRA 618.
[121]
Id. at 621.
[122]
Rollo, p. 27.
[123]