10/26/21, 12:53 AM [ G.R. No.

244128, September 08, 2020 ]

[ G.R. No. 244128, September 08, 2020 ]

MARIO M. MADERA, BEVERLY C. MANANGUITE, CARISSA D. GALING,

AND JOSEFINA O. PELO, PETITIONERS, VS. COMMISSION ON AUDIT
(COA) AND COA REGIONAL OFFICE NO. VIII, RESPONDENTS.

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:

WHEREAS,the effect of continuing increase of cost on prime commodities 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:

WHEREAS,the effect of inflation has weakened the purchasing power of the local employees of
Mondragon and has become a major burden in their daily subsistence;

WHEREAS,it has been observed that the local officials and employees alike succumbed [to] high-
interest rates loans in order to augment their low income and minimal xxx take-home
pay; and
 
WHEREAS,it is the policy of the local government unit of Mondragon to 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;

WHEREAS,it is deemed proper that the local government unit of Mondragon provides agricultural
assistance to its officials and employees to lighten their burden in terms of agricultural
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shortage of products caused by typhoon "Yolanda" and help them buy agricultural
seeds and other farm facilities from other provinces; and

WHEREAS,premises above cited[,] this council hereby approves the grant 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: 

WHEREAS,there is the global effort against climate change that continuously provides principles
and assistance to reduce the human suffering during disaster and calamity;

WHEREAS,the Municipality of Mondragon is vulnerable to damaging effects of a possible

calamity and disaster because of its location, hence, making its people also susceptible
to risk;

WHEREAS,the LGU of Mondragon deemed it right to provide mitigation capability by providing

financial assistance to its employees that would [equip] them to lessen the adverse
impact of hazards and disaster; and

WHEREAS,the mitigation assistance will provide them means to pre-empt 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

ECA P3,865,203.10 Regular officials and
employees, casual and job
order/contractual
employees,  Barangay Tanods,
BarangayNutrition Scholars
(BNS), Day Care Workers
(DCW),  Barangay  Health
Workers (BHW), public
elementary and high school
teachers and national employees
stationed in the municipality
MAMA P1,245,000.00 Regular officials and employees
and casual employees
ACA P1,771,550.00 Regular officials and
employees, casual employees
and job order/contractual
employees
MAME P824,500.00 Regular official and employees,
casual employees, job
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 Check

ND No. Date Nature Amount
No.
14-004-101 (2013) 02/20/2014 ECA P406,000.00 1164301
14-005-101 (2013) 02/20/2014 ECA 358,000.00 1164302
14-006-101 (2013) 02/20/2014 ECA 830,000.00 1164303
14-007-101 (2013) 02/20/2014 MAME 409,500.00 1164304
14-008-101 (2013) 02/20/2014 ACA 246,300.00 1164305
14-010-101 (2013) 02/20/2014 MAMA 1,245,000.00 1164296
14-011-101 (2013) 02/20/2014 ACA 1,525,250.00 1164297
14-012-101 (2013) 02/20/2014 MAME 415,000.00 1164298
14-013-101 (2013) 02/20/2014 ECA 219,000.00 1164300
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14-014-101 (2013) 02/20/2014 ECA 44,500.00 1164306

14-015-101 (2013) 02/20/2014 ECA 2,007,703.10 1164307
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:

a) Section 12 of Republic Act No. (R.A.) 6758 or the Salary Standardization Law (SSL)  as regards the
consolidation of allowances and compensation;

b) Item II of COA Circular No. 2013-003  dated January 30, 2013 which 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. 02-0790dated 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

Mario M. Madera (Madera) - Municipal Mayor For certifying in the Obligation Request that the
appropriations/allotments are necessary, lawful
and under his direct supervision, and for
approving the payment;
Beverly C. Mananguite (Mananguite) - For certifying in the voucher as to the
Municipal Accountant completeness of the supporting documents;
Carissa D. Galing (Galing) - Municipal Treasurer For certifying the availability of funds;
Josefina O. Pelo (Pelo) - Municipal Budget For certifying the existence of available
Officer appropriation;
All other payees as stated in the ND Nos. 14- For being claimants/recipients of the allowances.
004-101 (2013) to 14-008-101 (2013); and 14- [17]
010-101 (2013) 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
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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 BayanOrdinance

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
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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
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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 effective
(1)
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)

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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. 
 

Liability of the petitioners for
III.
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
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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.
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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] 

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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. 
 

xxxx

(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.

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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): 

C. Liability of Head of Agency, Accountable Officer and Other Officials and 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:

xxxx

5. The Head of Agency, who is immediately and primarily responsible for all government funds
and property pertaining to his agency, shall see 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
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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
4.17
be  satisfied through payment or restitution  as determined by competent authority  or by
other modes of extinguishment of obligation as provided by law.

xxxx

4.24 Settlement - refers to the payment/restitution or other act of extinguishing an obligation as

provided by law in satisfaction of the 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
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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

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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 Blaqueraand 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.

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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 receivedfor
having been received in good faith. Both these cases also rely upon  Blaquera  as jurisprudential
support to excuse the return.

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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 ofapproving 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.
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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
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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 

 

16.1 The liability of public officers and other persons for audit 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

16.1.5The  payee  of an expenditure shall be personally liable for a disallowance where the
ground thereof is his failure to submit the required documents, and the Auditor is
convinced that the disallowed transaction did not occur or has no basis in fact.

16.3 The liability of persons determined to be liable under an ND/NC shall be solidary  and
the Commission may go against any 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.
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Returning to the earlier cases of Blaquera, Lumayna, and Querubin, the good faith of  all partieswas
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 civilliability 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.
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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

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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.

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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
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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
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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. 

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