G.R. No. 162021 June 16, 2014 report on the sales and advertising targets for 1999.

report on the sales and advertising targets for 1999.9 On December 8, 1999, Yap responded with a
MEGA MAGAZINE PUBLICATIONS, INC., JERRY TIU, AND SARITA V. YAP, Petitioners, "formalization" of her approval of the 1999 special incentive scheme proposed by the respondent through
vs. her memorandum dated February 25, 1999,10 revising anew the schedule by starting commissions at.05% of
MARGARET A. DEFENSOR, Respondent. ₱35-₱38 million gross advertising revenue (including barter), and the proposed special incentives at ₱35-
₱38 million with ₱8,500.00 bonus.11
DECISION
The respondent replied to Yap, pointing out that her memorandum dated April 5, 1999 had been the result
BERSAMIN, J.: of Yap’s own comments on the special incentive scheme she had proposed, and that she had assumed
In labor cases, the rules on the degree of proof are enforced not as stringently as in other cases in order to that Yap had been amenable to the proposal when she did not receive any further reaction from the
better serve the higher ends of justice. This lenity is intended to afford to the employee every opportunity to latter.12
level the playing field. On May 2000, after the respondent had left the company, she filed a complaint for payment of bonus and
The Case incentive compensation with damages,13 specifically demanding the payment of₱271,264.68 as sales
Being now assailed is the amended decision promulgated on November 19, 2003,1 whereby the Court of commissions, ₱60,000.00 as 14th month pay, and ₱8,500.00 as her share in the incentive scheme for the
Appeals (CA) reconsidered its original disposition, and granted the petition for certiorari filed by advertising and sales staff.14
respondent Margaret A. Defensor (respondent) by annulling and setting aside the adverse resolutions Ruling of the Labor Arbiter
dated July 31, 2002 and March 31, 2003 issued by the National Labor Relations Commission (NLRC). In a decision dated February 5, 2001,15 the Labor Arbiter (LA) dismissed the respondent’s complaint, ruling
Antecedents that the respondent had not presented any evidence showing that MMPI had agreed or committed to the
Petitioner Mega Magazine Publications, Inc. (MMPI) first employed the respondent as an Associate terms proposed in her memorandum of April 5, 1999; that even assuming that the petitioners had agreed
Publisher in 1996, and later promoted her as a Group Publisher with a monthly salary of ₱60,000.00.2 to her terms, the table she had submitted justifying a gross revenue of ₱36,216,624.07 was not an official
account by MMPI;16 and that the petitioners had presented a 1999 statement of income and deficit
In a memorandum dated February 25, 1999, the respondent proposed to MMPI’s Executive Vice-President
prepared by the auditing firm of Punongbayan & Araullo showing MMPI’s gross revenue for 1999 being only
Sarita V. Yap (Yap) year-end commissions for herself and a special incentive plan for the Sales
₱31,947,677.00.17
Department.3
Decision of the NLRC
The proposed schedule of the respondent’s commissions would be as follows:
The respondent appealed, but the NLRC denied the appeal for its lack of merit,18 with the NLRC concurring
1. MMPI Total revenue at ₱28-₱29 M 0.05% outright commission
with the LA’s ruling that there had been no agreement between the petitioners and the respondent on the
2. MMPI Total revenue at ₱30-₱34 M 0.075% outright commission terms and conditions of the incentives reached.
3. MMPI Total revenue at ₱35-₱38 M 0.1% outright commission The respondent filed a motion for reconsideration and a supplement to the motion for
4. MMPI Total revenue at ₱39-₱41 M 0.1% outright commission reconsideration.1âwphi1 In the supplement, she included a motion to admit additional evidence (i.e., the
affidavit of Lie Tabingo who had worked as a traffic clerk in the Advertising Department of MMPI and had
5. MMPI Total revenue at ₱41M up 0.1% outright commission
been in charge of keeping track of the advertisements placed with MMPI) on the ground that such
while the proposed schedule of the special incentive plan would be the following: evidence had been "unavailable during the hearing as newly discovered evidence in a motion for new
1. MMPI Total revenue at ₱28-₱29 M ₱5,000 each by year-end trial".19
2. MMPI Total revenue at ₱30-₱34 M ₱7,000 each by year-end The NLRC denied the respondent’s motions for reconsideration.20
3. MMPI Total revenue at ₱35-₱38 M ₱8,500 each by year-end Judgment of the CA
4. MMPI Total revenue at ₱39-₱41 M ₱10,000 each by year-end The respondent brought a special civil action for certiorari in the CA.
5. MMPI Total revenue at ₱41M up ₱10,000 each by year-end Plus incentive trip abroad In its decision promulgated on August 28, 2003,21 the CA dismissed the respondent’s petition for certiorari
Yap made marginal notes of her counter-proposals on her copy of the respondent’s memorandum dated and upheld the resolutions of the NLRC.
February 25, 1999 itself,4 crossing out proposed items 1 and 2 from the schedule of the respondent’s On motion for reconsideration by the respondent, however, the CA promulgated on November 19, 2003 its
commissions, and proposing instead that outright commissions be at 0.1% of ₱35-₱38 million in accordance assailed amended decision granting the motion for reconsideration and giving due course to the
with proposed item 3; and crossing out proposed items 1 and 2 from the schedule of the special incentive respondent’s petition for certiorari; annulling the challenged resolutions of the NLRC; and remanding the
plan, and writing "start here" and "stet" in reference to item 3. Yap also wrote on the memorandum: case to the NLRC for the reception of additional evidence. The CA opined that the NLRC had committed
"Marge, if everything is ok w/ you, draft something for me to sign …"; "You can also announce that at 5 M a grave abuse of discretion in finding that there had been no special incentive scheme approved and
net for MMPI [acc to my computation, achievable if they only meet their month min. quota] we can implemented for 1999,22 and in disallowing the respondent from presenting additional evidence that was
declare 14th month pay for entire company."5 crucial in establishing her claim about MMPI’s gross revenue.23 The amended decision disposed as follows:
The respondent sent another memorandum on April 5, 1999 setting out the 1999 advertisement sales, WHEREFORE, premises considered, the motion for reconsideration is hereby GRANTED. Our Decision of
target and commissions, and proposing that the schedule of her outright commissions should start at .05% August 28, 2003 is hereby RECONSIDERED AND SET ASIDE. A new judgment is hereby entered GIVING DUE
of ₱34.5 million total revenue, or ₱175,000.00;6 and further proposing that the special incentives be given COURSE to the petition and GRANTING the writ prayed for. Accordingly, the challenged Resolutions of the
when total revenues reached ₱35-₱38 million. NLRC in NLRC NCR 00-03-61361-00 (CA No. 028358-01) dated July 31, 2002 and March 31, 2003 are hereby
On August 31, 1999, the respondent sent Yap a report on sales and sales targets.7 ANNULLED and SET ASIDE. The case is hereby remanded to the NLRC for reception of additional evidence
on appeal as prayed for by petitioner and for proper proceedings in accordance with Our disquisitions
On October 1999, the respondent tendered her letter of resignation effective at the end of December herein.
1999.1âwphi1 Yap accepted the resignation.8 Before leaving MMPI, the respondent sent Yap another
The denial of the claim for 14th month pay is sustained for lack of evidentiary basis. handwritten approval of 1999 Incentive scheme dated 25 February 1999. Such actuations and actions by
No pronouncement as to costs. Yap indicated that, firstly, the petitioners had already acceded to the grant of the special incentive bonus;
and, secondly, the only issue still to be threshed out was at which point and at what rate the respondent’s
SO ORDERED.24 outright commissions and the special incentive bonus for the sales staff should be given.
The petitioners and the respondent sought reconsideration of the CA’s amended decision, but the CA For sure, Yap’s memorandum dated December 8, 1999, aside from being the petitioners’ categorical
denied their motions through the resolution promulgated on February 4, 2004.25 admission of the grant of the commissions and the bonus or incentives, laid down the petitioners’ own
Issues schedule of the commissions and the bonus or incentives,32 to wit:
Hence, this appeal by petition for review on certiorari, with the petitioners urging that the CA erred in ruling Re: Formalization of my handwritten approval of 1999 incentive scheme dated 25 February 1999
that – 1999 Incentive Scheme for Group Publisher
I. RESPONDENT CAN INTRODUCE EVIDENCE THAT IS NOT NEWLY-DISCOVERED FOR THE FIRST TIME
ON APPEAL.  MMPI Gross Advertising Revenue ₱35-38 M .05%
II. A [REMAND] OF THE CASETO THE NLRC FOR FURTHER RECEPTION OF EVIDENCE IS JUSTIFIED BY (includes barter) ₱39-41 M .075%
REASON OF DEARTH OF EVIDENCE TO PROVE THAT TARGET GROSS SALES OR REVENUES ₱41 M up 1%
WEREACTUALLY MET AS TO ENTITLE RESPONDENT TO THE INCENTIVE BONUS FOR THE SUBJECT
Commissionable ad revenue is net of advertising agency commission and absorbed production
PERIOD/YEAR.26
costs.1avvphi1 Commission will be paid in bartered goods and cash in direct proportion to percentage of
The petitioners argue that the circumstances of the case did not warrant the relaxation of the rules of cash and bartered goods revenue for the year. This amount will be paid by January 30, 2000 if the
procedure in order to allow the submission of the memorandum and the affidavit of Tabingo to the LA and documents (contracts, P.O.s) to support the gross revenue claim are in order and submitted to Finance.
the NLRC. They contend that the respondent had sought to introduce in the proceedings before the LA
Group Incentive for Sale and Traffic Team
Tabingo’s memorandum dated December 10, 1999 addressed to the Accounting Department stating that
the "gross revenue from all publications was ₱36,022,624.07, while net revenue was ₱32,551,890.58";27 that  MMPI Gross Advertising Revenue ₱35-38 M ₱8,500.00 each
Tabingo’s affidavit was meant to validate her memorandum; that such pieces of evidence sought to ₱39-41 M ₱10,000.00 each
prove that MMPI’s target gross sales had been met, and would then entitle the respondent to her claims of ₱41 M up ₱10,000.00 each
commissions and special incentives; that the LA actually considered but did not give any weight or value
to Tabingo’s memorandum in resolving the respondent’s claims; that any affidavit from Tabingo that the
+ incentive trip abroad
respondent intended to introduce would be merely corroborative of the evidence already presented, like
the table purportedly showing MMPI’s gross revenue for 1999; and that such evidence was already Concerning the remand of the case to the NLRC for reception of additional evidence at the instance of
considered by the NLRC in resolving the appeal.28 the respondent, we hold that the CA committed a reversible error. Although, as a rule, the submission to
The important issue is whether or not the respondent was entitled to the commissions and the incentive the NLRC of additional evidence like documents and affidavits is not prohibited, so that the NLRC may
bonus being claimed. properly consider such evidence for the first time on appeal,33 the circumstances of the case did not justify
Ruling the application of the rule herein.
The appeal is partly meritorious. The additional evidence the respondent has sought to be admitted (i.e., Tabingo’s affidavit executed on
October 14, 2002) was already attached to the pleadings filed in the NLRC, and was part of the records
The grant of a bonus or special incentive, being a management prerogative, is not a demandable and
thereat. Its introduction was apparently aimed to rebut the petitioners’ claim that its gross revenue was
enforceable obligation, except when the bonus or special incentive is made part of the wage, salary or
only ₱31,947,677.00 and did not reach the minimum ₱35 million necessary for the grant of the respondent’s
compensation of the employee,29 or is promised by the employer and expressly agreed upon by the
outright commissions and the special incentive bonus for the sales staff (inclusive of the respondent).
parties.30 By its very definition, bonus is a gratuity or act of liberality of the giver,31 and cannot be
Tabingo’s affidavit corroborated her memorandum to the Accounting Department dated December 10,
considered part of an employee’s wages if it is paid only when profits are realized or a certain amount of
1999 stating that MMPI’s revenue for 1999 was ₱36,216,624.07.341âwphi1
productivity is achieved. If the desired goal of production or actual work is not accomplished, the bonus
does not accrue. Confronted with the conflicting claims on MMPI’s gross revenue realized in 1999, the question is which
evidence must be given more weight?
Due to the nature of the bonus or special incentive being a gratuity or act of liberality on the part of the
giver, the respondent could not validly insist on the schedule proposed in her memorandum of April 5, 1999 The resolution of the question requires the re-examination and calibration of evidence.35 Such re-
considering that the grant of the bonus or special incentive remained a management prerogative. examination and calibration, being of a factual nature, ordinarily lies beyond the purview of the Court’s
However, the Court agrees with the CA’s ruling that the petitioners had already exercised the authority in this appeal. Yet, because the documents are already before the Court, we hereby treat the
management prerogative to grant the bonus or special incentive. At no instance did Yap flatly refuse or situation as an exception in order to resolve the question promptly and finally instead of still remanding the
reject the respondent’s request for commissions and the bonus or incentive. This is plain from the fact that case to the CA for the reevaluation and calibration.
Yap even "bargained" with the respondent on the schedule of the rates and the revenues on which the We start by observing that the degree of proof required in labor cases is not as stringent as in other types of
bonus or incentive would be pegged. What remained contested was only the schedule of the rates and cases.36 This liberal approach affords to the employee every opportunity to level the playing field in which
the revenues. In her initial memorandum of February 25, 1999, the respondent had suggested the following her employer is pitted against her. Here, on the one hand, were Tabingo’s memorandum and affidavit
schedule, namely: (a) 0.05% outright commission on total revenue of ₱28-₱29 million; (b) 0.075% on ₱30-₱34 indicating that MMPI’s revenues in 1999 totaled ₱36,216,624.07, and, on the other, the audit report showing
million; (c) 0.1% on ₱35-₱38 million; (d) 0.1% on ₱39-₱41 million pesos; and (f) 0.1% on ₱41 million or higher, MMPI’s gross revenues amounting to only ₱31,947,677.00 in the same year. That the audit report was
but Yap had countered by revising the schedule to start at 0.1% as outright commissions on a total revenue rendered by the auditing firm of Punongbayan & Araullo did not make it weightier than Tabingo’s
of ₱35-₱38 million, and the special incentive bonus to start at revenues of ₱35-₱38 million. Moreover, on memorandum and affidavit, for only substantial evidence – that amount of relevant evidence which a
December 8, 1999, Yap sent to the respondent a memorandum entitled Re: Formalization of my reasonable mind might accept as adequate to justify a conclusion37 was required in labor adjudication.
Moreover, whenever the evidence presented by the employer and that by the employee are in equipoise,
the scales of justice must tilt in favor of the latter.38For purposes of determining whether or not the
petitioners’ gross revenue reached the minimum target of ₱35 million, therefore, Tabingo’s memorandum
and affidavit sufficed to positively establish that it did, particularly considering that Tabingo’s
memorandum was made in the course of the performance of her official tasks as a traffic clerk of MMPI. In
her affidavit, too, Tabingo asserted that her issuance of the memorandum was pursuant to MMPI’s year-
end procedures, an assertion that the petitioners did not refute. In any event, Tabingo’s categorical
declaration in her affidavit that "[because] of that achievement, as part of the Sales and Traffic Team of
MMPI, in addition to my other bonuses that year, I received ₱8,500.00 in gift certificates as my share in the
Group Incentive for the Sales and Traffic Team for gross advertising revenue of ₱35 to ₱38 million
xxx,"39 aside from the petitioners not refuting it, was corroborated by the 1999 Advertising Target sent by the
respondent to Yap on December 2, 1999, in which the respondent reported a gross revenue of
₱36,216,624.07 as of December 1, 1999.40
Accordingly, the Court concludes that the respondent was entitled to her 0.05% outright commissions and
to the special incentive bonus of ₱8,500.00 based on MMPI having reached the minimum target of ₱35
million in gross revenues paid in "bartered goods and cash in direct proportion to percentage of cash and
bartered goods revenue for the year," as provided in Yap’s memorandum of December 8, 1999.41
WHEREFORE, the Court REVERSES AND SETS ASIDE the amended decision promulgated on November 19,
2003; ENTERS a new decision granting respondent Margaret A. Defensor’s claim for outright commissions in
the amount of P 181,083 .12 and special incentive bonus of ₱8,500.00, or a total of 1!189,583.12; and
DIRECTS petitioner Mega Magazine Publications, Inc. to pay the costs of suit.
SO ORDERED.
G.R. No. 185665 February 8, 2012 Acting on the certified labor dispute, a hearing was called on July 16, 2004 wherein the parties have
EASTERN TELECOMMUNICATIONS PHILIPPINES, INC., Petitioner, submitted that the issues for resolution are (1) unfair labor practice and (2) the grant of 14th, 15th and 16th
vs. month bonuses for 2003, and 14th month bonus for 2004. Thereafter, they were directed to submit their
EASTERN TELECOMS EMPLOYEES UNION, Respondent. respective position papers and evidence in support thereof after which submission, they agreed to have
the case considered submitted for decision.4
DECISION
In its position paper,5 the Eastern Telecoms Employees Union (ETEU) claimed that Eastern
MENDOZA, J.: Telecommunications Philippines, Inc. (ETPI) had consistently and voluntarily been giving out 14th month
Before the Court is a petition for review on certiorari seeking modification of the June 25, 2008 Decision1 of bonus during the month of April, and 15th and 16th month bonuses every December of each year (subject
the Court of Appeals (CA) and its December 12, 2008 Resolution,2 in CA-G.R. SP No. 91974, annulling the bonuses) to its employees from 1975 to 2002, even when it did not realize any net profits. ETEU posited that
April 28, 2005 Resolution3 of the National Labor Relations Commission (NLRC) in NLRC-NCR-CC-000273-04 by reason of its long and regular concession, the payment of these monetary benefits had ripened into a
entitled "In the Matter of the Labor Dispute in Eastern Telecommunications, Philippines, Inc." company practice which could no longer be unilaterally withdrawn by ETPI. ETEU added that this long-
The Facts standing company practice had been expressly confirmed in the Side Agreements of the 1998-2001 and
2001-2004 Collective Bargaining Agreements (CBA) which provided for the continuous grant of these
As synthesized by the NLRC, the facts of the case are as follows, viz:
bonuses in no uncertain terms. ETEU theorized that the grant of the subject bonuses is not only a company
Eastern Telecommunications Phils., Inc. (ETPI) is a corporation engaged in the business of providing practice but also a contractual obligation of ETPI to the union members.
telecommunications facilities, particularly leasing international date lines or circuits, regular landlines,
ETEU contended that the unjustified and malicious refusal of the company to pay the subject bonuses was
internet and data services, employing approximately 400 employees.
a clear violation of the economic provision of the CBA and constitutes unfair labor
Eastern Telecoms Employees Union (ETEU) is the certified exclusive bargaining agent of the company’s rank practice (ULP). According to ETEU, such refusal was nothing but a ploy to spite the union for bringing the
and file employees with a strong following of 147 regular members. It has an existing collecti[ve] matter of delay in the payment of the subject bonuses to the National Conciliation and Mediation
bargaining agreement with the company to expire in the year 2004 with a Side Agreement signed on Board (NCMB). It prayed for the award of moral and exemplary damages as well as attorney’s fees for the
September 3, 2001. unfair labor practice allegedly committed by the company.
In essence, the labor dispute was a spin-off of the company’s plan to defer payment of the 2003 14th, 15th On the other hand, ETPI in its position paper,6 questioned the authority of the NLRC to take cognizance of
and 16th month bonuses sometime in April 2004. The company’s main ground in postponing the payment the case contending that it had no jurisdiction over the issue which merely involved the interpretation of
of bonuses is due to allege continuing deterioration of company’s financial position which started in the the economic provision of the 2001-2004 CBA Side Agreement. Nonetheless, it maintained that the
year 2000. However, ETPI while postponing payment of bonuses sometime in April 2004, such payment complaint for nonpayment of 14th, 15th and 16th month bonuses for 2003 and 14th month bonus for 2004
would also be subject to availability of funds. was bereft of any legal and factual basis. It averred that the subject bonuses were not part of the legally
Invoking the Side Agreement of the existing Collective Bargaining Agreement for the period 2001-2004 demandable wage and the grant thereof to its employees was an act of pure gratuity and generosity on
between ETPI and ETEU which stated as follows: its part, involving the exercise of management prerogative and always dependent on the financial
performance and realization of profits. It posited that it resorted to the discontinuance of payment of the
"4. Employment Related Bonuses. The Company confirms that the 14th, 15th and 16th month bonuses
bonuses due to the unabated huge losses that the company had continuously experienced. It claimed
(other than 13th month pay) are granted."
that it had been suffering serious business losses since 2000 and to require the company to pay the subject
The union strongly opposed the deferment in payment of the bonuses by filing a preventive mediation bonuses during its dire financial straits would in effect penalize it for its past generosity. It alleged that the
complaint with the NCMB on July 3, 2003, the purpose of which complaint is to determine the date when non-payment of the subject bonuses was neither flagrant nor malicious and, hence, would not amount to
the bonus should be paid. unfair labor practice.
In the conference held at the NCMB, ETPI reiterated its stand that payment of the bonuses would only be Further, ETPI argued that the bonus provision in the 2001-2004 CBA Side Agreement was a mere affirmation
made in April 2004 to which date of payment, the union agreed. Thus, considering the agreement forged that the distribution of bonuses was discretionary to the company, premised and conditioned on the
between the parties, the said agreement was reduced to a Memorandum of Agreement. The union success of the business and availability of cash. It submitted that said bonus provision partook of the nature
requested that the President of the company should be made a signatory to the agreement, however, the of a "one-time" grant which the employees may demand only during the year when the Side Agreement
latter refused to sign. In addition to such a refusal, the company made a sudden turnaround in its position was executed and was never intended to cover the entire term of the CBA. Finally, ETPI emphasized that
by declaring that they will no longer pay the bonuses until the issue is resolved through compulsory even if it had an unconditional obligation to grant bonuses to its employees, the drastic decline in its
arbitration. financial condition had already legally released it therefrom pursuant to Article 1267 of the Civil Code.
The company’s change in position was contained in a letter dated April 14, 2004 written to the union by On April 28, 2005, the NLRC issued its Resolution dismissing ETEU’s complaint and held that ETPI could not be
Mr. Sonny Javier, Vice-President for Human Resources and Administration, stating that "the deferred forced to pay the union members the 14th, 15th and 16th month bonuses for the year 2003 and the 14th
release of bonuses had been superseded and voided due to the union’s filing of the issue to the NCMB on month bonus for the year 2004 inasmuch as the payment of these additional benefits was basically a
July 18, 2003." He declared that "until the matter is resolved in a compulsory arbitration, the company management prerogative, being an act of generosity and munificence on the part of the company and
cannot and will not pay any ‘bonuses’ to any and all union members." contingent upon the realization of profits. The NLRC pronounced that ETPI may not be obliged to pay
Thus, on April 26, 2004, ETEU filed a Notice of Strike on the ground of unfair labor practice for failure of ETPI these extra compensations in view of the substantial decline in its financial condition. Likewise, the NLRC
to pay the bonuses in gross violation of the economic provision of the existing CBA. found that ETPI was not guilty of the ULP charge elaborating that no sufficient and substantial evidence
On May 19, 2004, the Secretary of Labor and Employment, finding that the company is engaged in an was adduced to attribute malice to the company for its refusal to pay the subject bonuses. The dispositive
industry considered vital to the economy and any work disruption thereat will adversely affect not only its portion of the resolution reads:
operation but also that of the other business relying on its services, certified the labor dispute for WHEREFORE, premises considered, the instant complaint is hereby DISMISSED for lack of merit.
compulsory arbitration pursuant to Article 263 (q) of the Labor Code as amended. SO ORDERED.7
Respondent ETEU moved for reconsideration but the motion was denied by the NLRC in its Resolution 1. Whether or not petitioner ETPI is liable to pay 14th, 15th and 16th month bonuses for the year
dated August 31, 2005. 2003 and 14th month bonus for the year 2004 to the members of respondent union; and
Aggrieved, ETEU filed a petition for certiorari8 before the CA ascribing grave abuse of discretion on the 2. Whether or not the CA erred in not dismissing outright ETEU’s petition for certiorari.
NLRC for disregarding its evidence which allegedly would prove that the subject bonuses were part of the ETPI insists that it is under no legal compulsion to pay 14th, 15th and 16th month bonuses for the year 2003
union members’ wages, salaries or compensations. In addition, ETEU asserted that the NLRC committed and 14th month bonus for the year 2004 contending that they are not part of the demandable wage or
grave abuse of discretion when it ruled that ETPI is not contractually bound to give said bonuses to the salary and that their grant is conditional based on successful business performance and the availability of
union members. company profits from which to source the same. To thwart ETEU’s monetary claims, it insists that the
In its assailed June 25, 2008 Decision, the CA declared that the Side Agreements of the 1998 and 2001 CBA distribution of the subject bonuses falls well within the company’s prerogative, being an act of pure
created a contractual obligation on ETPI to confer the subject bonuses to its employees without gratuity and generosity on its part. Thus, it can withhold the grant thereof especially since it is currently
qualification or condition. It also found that the grant of said bonuses has already ripened into a company plagued with economic difficulties and financial losses. It alleges that the company’s fiscal situation greatly
practice and their denial would amount to diminution of the employees’ benefits. It held that ETPI could declined due to tremendous and extraordinary losses it sustained beginning the year 2000. It claims that it
not seek refuge under Article 1267 of the Civil Code because this provision would apply only when the cannot be compelled to act liberally and confer upon its employees additional benefits over and above
difficulty in fulfilling the contractual obligation was manifestly beyond the contemplation of the parties, those mandated by law when it cannot afford to do so. It posits that so long as the giving of bonuses will
which was not the case therein. The CA, however, sustained the NLRC finding that the allegation of ULP result in the financial ruin of an already distressed company, the employer cannot be forced to grant the
was devoid of merit. The dispositive portion of the questioned decision reads: same.
WHEREFORE, premises considered, the instant petition is GRANTED and the resolution of the National Labor ETPI further avers that the act of giving the subject bonuses did not ripen into a company practice arguing
Relations Commission dated April 28, 2005 is hereby ANNULLED and SET ASIDE. Respondent Eastern that it has always been a contingent one dependent on the realization of profits and, hence, the workers
Telecommunications Philippines, Inc. is ordered to pay the members of petitioner their 14th, 15th and 16th are not entitled to bonuses if the company does not make profits for a given year. It asseverates that the
month bonuses for the year 2003 and 14th month for the year 2004. The complaint for unfair labor practice 1998 and 2001 CBA Side Agreements did not contractually afford ETEU a vested property right to a
against said respondent is DISMISSED. perennial payment of the bonuses. It opines that the bonus provision in the Side Agreement allows the
SO ORDERED.9 giving of benefits only at the time of its execution. For this reason, it cannot be said that the grant has
ripened into a company practice. In addition, it argues that even if such traditional company practice
ISSUES exists, the CA should have applied Article 1267 of the Civil Code which releases the obligor from the
Dissatisfied, ETPI now comes to this Court via Rule 45, raising the following errors allegedly committed by the performance of an obligation when it has become so difficult to fulfill the same.
CA, to wit: It is the petitioner’s stance that the CA should have dismissed outright the respondent union’s petition for
I. certiorari alleging that no question of jurisdiction whatsoever was raised therein but, instead, what was
THE COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW WHEN IT ANNULLED AND SET ASIDE THE being sought was a judicial re-evaluation of the adequacy or inadequacy of the evidence on record. It
R E S O L U T I O NS OF THE NLRC DISREGARDING THE WELL SETTLED RULE THAT A WRIT OF CERTIORARI claims that the CA erred in disregarding the findings of the NLRC which were based on substantial and
(UNDER RULE 65) ISSUES ONLY FOR CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF overwhelming evidence as well as on undisputed facts. ETPI added that the CA court should have
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION. refrained from tackling issues of fact and, instead, limited itself on issues of jurisdiction and grave abuse of
jurisdiction amounting to lack or excess of it.
II.
The Court’s Ruling
THE COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW WHEN IT DISREGARDED THE RULE THAT
FINDINGS OF FACTS OF QUASI-JUDICIAL BODIES ARE ACCORDED FINALITY IF THEY ARE SUPPORTED As a general rule, in petitions for review under Rule 45, the Court, not being a trier of facts, does not
BY SUBSTANTIAL EVIDENCE CONSIDERING THAT THE CONCLUSIONS OF THE NLRC WERE BASED ON normally embark on a re-examination of the evidence presented by the contending parties during the trial
SUBSTANTIAL AND OVERWHELMING EVIDENCE AND UNDISPUTED FACTS. of the case considering that the findings of facts of the CA are conclusive and binding on the Court. The
rule, however, admits of several exceptions, one of which is when the findings of the appellate court are
III.
contrary to those of the trial court or the lower administrative body, as the case may be.11 Considering the
IT WAS A GRAVE ERROR OF LAW FOR THE COURT OF APPEALS TO CONSIDER THAT THE BONUS GIVEN incongruent factual conclusions of the CA and the NLRC, this Court finds Itself obliged to resolve it.
BY EASTERN COMMUNICATIONS TO ITS EMPLOYEES IS NOT DEPENDENT ON THE REALIZATION OF
The pivotal question determinative of this controversy is whether the members of ETEU are entitled to the
PROFITS.
payment of 14th, 15th and 16th month bonuses for the year 2003 and 14th month bonus for year 2004.
IV.
After an assiduous assessment of the record, the Court finds no merit in the petition.
THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW WHEN IT DISREGARDED THE
From a legal point of view, a bonus is a gratuity or act of liberality of the giver which the recipient has no
UNDISPUTED FACT THAT EASTERN COMMUNICATIONS IS SUFFERING FROM TREMENDOUS FINANCIAL
right to demand as a matter of right.12 The grant of a bonus is basically a management prerogative which
LOSSES, AND ORDERED EASTERN COMMUNICATIONS TO GRANT THE BONUSES REGARDLESS OF THE
cannot be forced upon the employer who may not be obliged to assume the onerous burden of granting
FINANCIAL DISTRESS OF EASTERN COMMUNICATIONS.
bonuses or other benefits aside from the employee’s basic salaries or wages.13
V.
A bonus, however, becomes a demandable or enforceable obligation when it is made part of the wage
THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW WHEN IT ARRIVED AT THE or salary or compensation of the employee.14 Particularly instructive is the ruling of the Court in Metro Transit
CONCLUSION THAT THE GRANT OF BONUS GIVEN BY EASTERN COMMUNICATIONS TO ITS Organization, Inc. v. National Labor Relations Commission, 15 where it was written:
EMPLOYEES HAS RIPENED INTO A COMPANY PRACTICE.10
Whether or not a bonus forms part of wages depends upon the circumstances and conditions for its
A careful perusal of the voluminous pleadings filed by the parties leads the Court to conclude that this payment. If it is additional compensation which the employer promised and agreed to give without any
case revolves around the following core issues: conditions imposed for its payment, such as success of business or greater production or output, then it is
part of the wage. But if it is paid only if profits are realized or if a certain level of productivity is achieved, it ETPI argues that assuming the bonus provision in the Side Agreement of the 2001-2004 CBA entitles the
cannot be considered part of the wage. Where it is not payable to all but only to some employees and union members to the subject bonuses, it is merely in the nature of a "one-time" grant and not intended to
only when their labor becomes more efficient or more productive, it is only an inducement for efficiency, a cover the entire term of the CBA. The contention is untenable. The bonus provision in question is exactly the
prize therefore, not a part of the wage. same as that contained in the Side Agreement of the 1998-2001 CBA and there is no denying that from
The consequential question that needs to be settled, therefore, is whether the subject bonuses are 1998 to 2001, ETPI granted the subject bonuses for each of those years. Thus, ETPI may not now claim that
demandable or not. Stated differently, can these bonuses be considered part of the wage, salary or the bonus provision in the Side Agreement of the 2001-2004 CBA is only a "one-time" grant.18
compensation making them enforceable obligations? ETPI then argues that even if it is contractually bound to distribute the subject bonuses to ETEU members
The Court believes so. under the Side Agreements, its current financial difficulties should have released it from the obligatory
force of said contract invoking Article 1267 of the Civil Code. Said provision declares:
In the case at bench, it is indubitable that ETPI and ETEU agreed on the inclusion of a provision for the grant
of 14th, 15th and 16th month bonuses in the 1998-2001 CBA Side Agreement,16 as well as in the 2001-2004 Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation of
CBA Side Agreement,17 which was signed on September 3, 2001. The provision, which was similarly worded, the parties, the obligor may also be released therefrom, in whole or in part.
states: The Court is not persuaded.
Employment-Related Bonuses The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is, therefore, only
in absolutely exceptional changes of circumstances that equity demands assistance for the debtor. 19 In the case at
The Company confirms that the 14th, 15th and 16th month bonuses (other than the 13th month pay) are bench, the Court determines that ETPI’s claimed depressed financial state will not release it from the binding effect of the
granted. 2001-2004 CBA Side Agreement.
A reading of the above provision reveals that the same provides for the giving of 14th, 15th and 16th ETPI appears to be well aware of its deteriorating financial condition when it entered into the 2001-2004 CBA Side
month bonuses without qualification. The wording of the provision does not allow any other interpretation. Agreement with ETEU and obliged itself to pay bonuses to the members of ETEU. Considering that ETPI had been
There were no conditions specified in the CBA Side Agreements for the grant of the benefits contrary to the continuously suffering huge losses from 2000 to 2002, its business losses in the year 2003 were not exactly unforeseen or
unexpected. Consequently, it cannot be said that the difficulty in complying with its obligation under the Side Agreement
claim of ETPI that the same is justified only when there are profits earned by the company. Terse and clear,
was "manifestly beyond the contemplation of the parties." Besides, as held in Central Bank of the Philippines v. Court of
the said provision does not state that the subject bonuses shall be made to depend on the ETPI’s financial Appeals,20 mere pecuniary inability to fulfill an engagement does not discharge a contractual obligation. Contracts, once
standing or that their payment was contingent upon the realization of profits. Neither does it state that if perfected, are binding between the contracting parties. Obligations arising therefrom have the force of law and should
the company derives no profits, no bonuses are to be given to the employees. In fine, the payment of be complied with in good faith. ETPI cannot renege from the obligation it has freely assumed when it signed the 2001-2004
these bonuses was not related to the profitability of business operations. CBA Side Agreement.
The records are also bereft of any showing that the ETPI made it clear before or during the execution of the Granting arguendo that the CBA Side Agreement does not contractually bind petitioner ETPI to give the subject bonuses,
Side Agreements that the bonuses shall be subject to any condition. Indeed, if ETPI and ETEU intended that nevertheless, the Court finds that its act of granting the same has become an established company practice such that it
has virtually become part of the employees’ salary or wage. A bonus may be granted on equitable consideration when
the subject bonuses would be dependent on the company earnings, such intention should have been
the giving of such bonus has been the company’s long and regular practice. In Philippine Appliance Corporation v. Court
expressly declared in the Side Agreements or the bonus provision should have been deleted altogether. In of Appeals,21 it was pronounced:
the absence of any proof that ETPI’s consent was vitiated by fraud, mistake or duress, it is presumed that it
To be considered a "regular practice," however, the giving of the bonus should have been done over a long period of
entered into the Side Agreements voluntarily, that it had full knowledge of the contents thereof and that it time, and must be shown to have been consistent and deliberate. The test or rationale of this rule on long practice
was aware of its commitment under the contract. Verily, by virtue of its incorporation in the CBA Side requires an indubitable showing that the employer agreed to continue giving the benefits knowing fully well that said
Agreements, the grant of 14th, 15th and 16th month bonuses has become more than just an act of employees are not covered by the law requiring payment thereof.
generosity on the part of ETPI but a contractual obligation it has undertaken. Moreover, the continuous The records show that ETPI, aside from complying with the regular 13th month bonus, has been further giving its employees
conferment of bonuses by ETPI to the union members from 1998 to 2002 by virtue of the Side Agreements 14th month bonus every April as well as 15th and 16th month bonuses every December of the year, without fail, from 1975
evidently negates its argument that the giving of the subject bonuses is a management prerogative. to 2002 or for 27 years whether it earned profits or not. The considerable length of time ETPI has been giving the special
From the foregoing, ETPI cannot insist on business losses as a basis for disregarding its undertaking. It is grants to its employees indicates a unilateral and voluntary act on its part to continue giving said benefits knowing that
such act was not required by law. Accordingly, a company practice in favor of the employees has been established and
manifestly clear that although it incurred business losses of ₱ 149,068,063.00 in the year 2000, it continued to
the payments made by ETPI pursuant thereto ripened into benefits enjoyed by the employees.1âwphi1
distribute 14th, 15th and 16th month bonuses for said year. Notwithstanding such huge losses, ETPI entered
The giving of the subject bonuses cannot be peremptorily withdrawn by ETPI without violating Article 100 of the Labor
into the 2001-2004 CBA Side Agreement on September 3, 2001 whereby it contracted to grant the subject
Code:
bonuses to ETEU in no uncertain terms. ETPI continued to sustain losses for the succeeding years of 2001 and
Art. 100. Prohibition against elimination or diminution of benefits. – Nothing in this Book shall be construed to eliminate or in
2002 in the amounts of ₱ 348,783,013.00 and ₱ 315,474,444.00, respectively. Still and all, this did not deter it
any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code.
from honoring the bonus provision in the Side Agreement as it continued to give the subject bonuses to
each of the union members in 2001 and 2002 despite its alleged precarious financial condition. The rule is settled that any benefit and supplement being enjoyed by the employees cannot be reduced, diminished,
discontinued or eliminated by the employer. The principle of non-diminution of benefits is founded on the constitutional
Parenthetically, it must be emphasized that ETPI even agreed to the payment of the 14th, 15th and 16th
mandate to protect the rights of workers and to promote their welfare and to afford labor full protection. 22
month bonuses for 2003 although it opted to defer the actual grant in April 2004. All given, business losses
Interestingly, ETPI never presented countervailing evidence to refute ETEU’s claim that the company has been
could not be cited as grounds for ETPI to repudiate its obligation under the 2001-2004 CBA Side
continuously paying bonuses since 1975 up to 2002 regardless of its financial state. Its failure to controvert the allegation,
Agreement. when it had the opportunity and resources to do so, works in favor of ETEU. Time and again, it has been held that should
The Court finds no merit in ETPI’s contention that the bonus provision confirms the grant of the subject doubts exist between the evidence presented by the employer and the employee, the scales of justice must be tilted in
bonuses only on a single instance because if this is so, the parties should have included such limitation in favor of the latter.23
the agreement. Nowhere in the Side Agreement does it say that the subject bonuses shall be conferred WHEREFORE, the petition is DENIED. The June 25, 2008 Decision of the Court of Appeals and its December 12, 2008
once during the year the Side Agreement was signed. The Court quotes with approval the observation of Resolution are AFFIRMED.
the CA in this regard: SO ORDERE.
 G.R. No. 213472, January 26, 2016
8441. The Civil Service Commission (CSC) has no jurisdiction
ZAMBOANGA CITY WATER DISTRICT, REPRESENTED BY ITS GENERAL MANAGER, LEONARDO REY D. VASQUEZ, to determine the rates of government personnel, for the
ZAMBOANGA CITY WATER DISTRICT-EMPLOYEES UNION, REPRESENTED BY ITS PRESIDENT, NOEL A. FABIAN, same is vested with the DBM. Further, the said benefit is not
LOPE IRINGAN, ALEJO S. ROJAS, JR., EDWIN N. MAKASIAR, RODOLFO CARTAGENA, ROBERTO R. MENDOZA, among those contemplated in Sections 5 to 7 of the
GREGORIO R. MOLINA, ARNULFO A. ALFONSO, LUCENA R. BUSCAS, LUIS A. WEE, LEILA M. MONTEJO, FELECITA Implementing Rules and Regulations (IRR) of Rule X, Book V,
G. REBOLLOS, ERIC A. DELGADO, NORMA L. VILLAFRANCA, ABNER C. PADUA, SATURNINO M. ALVIAR, FELIPE Executive Order (E.O.) No. 292, which is the basis of the CSC
S. SALCEDO, JULIUS P. CARPITANOS, HANLEY ALBANA, JOHNY D. DEMAYO, ARCHILES A. BRAULIO, ELIZA MAY in adopting the Program on Awards and Incentives for
R. BRAULIO, TEDILITO R. SARMIENTO, SUSANA C. BONGHANOY, LUZ A. BIADO, ERIC V. SALARITAN, RYAN ED C. Service Excellence (PRAISE)
ESTRADA, NOEL MASA KAWAGUCHI, TEOTIMO REYES, JR., EUGENE DOMINGO, AND ALEX ACOSTA,
REPRESENTED BY LUIS A. WEE, Petitioners, v. COMMISSION ON AUDIT, Respondent.
2006-006 (2005) Payment of 14th month pay has no legal basis pursuant to P3,964,770.00
DECISION
R.A. No. 6886, as amended. The CSC has no jurisdiction to
MENDOZA, J.: determine the rates of government personnel, for the same
This is a petition for certiorari1 under Rule 64 of the Revised Rules of Court seeking to reverse and set aside is vested with the DBM. Further, the said benefit is not
the October 28, 2010 Decision2 and the June 6, 2014 Resolution3 of the Commission on Audit (COA) which among those contemplated in Sections 5 to 7 of the IRR of
affirmed the October 14, 2008 Decision4 of the Legal and Adjudication Sector, Legal and Adjudication Rule X, Book V, E.O. No. 292, which is the basis of the CSC in
Office-Corporate (LAO). adopting the PRAISE

Petitioner Zamboanga City Water District (ZCWD) is a government-owned and/and controlled 2006-007(2005) The grant of Collective Negotiation P1,680,000.00
corporation (GOCC) which was created pursuant to the provisions of Presidential Decree (P.D.) No. 198 or Agreement (CNA) incentive does not conform with the
the Provincial Water Utilities Act of 1973 (PWUA), as amended by Republic Act (R.A.) No. provisions of Public Sector Labor Management
9286.5chanroblesvirtuallawlibrary Council (PSLMC) Resolution No. 2, series of 2003. The grant
of CNA incentives does not show any proof of cost cutting
On January 9, 2007, Catalino S. Genel, Audit Team Leader for ZCWD, Zamboanga City, issued the following measures adopted by management and the union, and
Notices of Disallowance (ND) for ZCWD's various payments:6chanroblesvirtuallawlibrary the savings generated as the sole source of the incentives
as required under the said resolution. The amount of
ND No. Particulars Amount incentive should not be predetermined and should be
given only at year end
2006-001 (2005) Claim for salary increase of GM Juanita L. Bucoy lacks the P523.760.00
Department of Budget and Management (DBM) guideline 2006-008 (2005) to Payment of per diem of the members of the Board of P301,440.00
and is over and above the DBM approved rate per audited 2006-012 (2005) Directors (BOD) is in excess of what is allowed under Section (Total - 1,507,
plantilla. 3, (c-III), Administrative Order (A.O.) No. 103, dated August 200.00)
31, 2004
2006-002 (2005) Claim of Representation Allowance and Transportation P88,911.60
Allowance (RATA) is not in accordance with DBM- 2006-013 (2005) Excess payment of Representation Allowance (RA) in P22,014.60
approved rates pursuant to the General Appropriations violation of DBM Budget Circular Nos. 18 and 498, dated
Act (GAA), Republic Act (R.A.) Nos. 8760 and 9206 and November 18, 2000 and April 11, 2005, respectively. Claims
DBM Circulars of RATA based on 40% basic pay under Letter of
Implementation (LOImp) No. 97 shall no longer be valid and
2006-003 (2005) Computation of monetization of leave credits is without P21,910.28 payment thereof shall not be allowed pursuant to Section
legal basis being based on the new rate instead of the 40, R.A. No. 9206, dated August 12, 2003.
standardized rate under the DBM audited plantilla
2006-14 (2005) Availment of a separate life insurance program other than P134,865.00
2006-004 (2005) Payment of back Cost of Living Allowance (COLA) and P15,435,121.92 that of the Government Service Insurance System (GSIS) is
Amelioration Allowance (AA) is in violation of Section 12, contrary to the principle of prudent spending of
R.A. No. 6758, and DBM Budget Circular Nos. 2001-02 and government funds
2005-02, dated November 12, 2001 and October 24, 2005,
respectively

The NDs covered the disbursements made during the tenure of then General Manager Juanita L.
2006-005 (2005) Payment of one month Mid-year incentive has no legal P3,915,068.00 Bucoy (GM Bucoy).7 On April 12, 2007, ZCWD filed its omnibus appeal before the
basis pursuant to R.A. No. 6886, as amended by R.A. No. LAO.8chanroblesvirtuallawlibrary
The LAO Ruling GROUNDS

On October 14, 2008, the LAO rendered a decision upholding all the NDs in the aggregate amount of
P27,293,621.40. A. IN AFFIRMING NOTICE OF DISALLOWANCE (ND) NOS. 2006- 001(2005) TO 2006-03(2005),
ALL DATED 09 JANUARY 2007 CONCERNING THE SALARIES AND BENEFITS OF THE FORMER
First, the LAO disagreed with the contention of the ZCWD that its Board of Directors (BOD) had the right to GENERAL MANAGER OF PETITIONER ZCWD, BY HOLDING THAT ITS BOARD OF DIRECTORS
fix the compensation of its GM pursuant to R.A. No. 9286.9 It stated that the compensation of the GMs of DID NOT HAVE THE POWER TO FIX THE GENERAL MANAGER'S SALARY AND BENEFITS
Local Water Districts (LWDs) was still subject to the provisions of R.A. No. 6758 or the Salary Standardization DESPITE THE CLEAR MANDATE OF SECTION 23 OF P.D. NO. 198, AS AMENDED BY R.A. NO.
Law (SSL). Further, it emphasized that any salary increase of government employees must be authorized 9286;
through a legislative enactment or pronouncement from the President, through the DBM. B. IN AFFIRMING NOTICE OF DISALLOWANCE (ND) NO. 2006- 004(2005) DATED 09 JANUARY
2007 CONCERNING THE BACK PAYMENT OF COST OF LIVING ALLOWANCE (COLA) AND
AMELIORATION ALLOWANCE DIFFERENTIALS, BY HOLDING THAT THE EMPLOYEES OF
Second, the LAO opined that the payment of the Representation Allowance and Transportation PETITIONER ZCWD ARE NOT ENTITLED TO THE COLA AND AMELIORATION ALLOWANCE
Allowance (RATA) of the GM and the Representation Allowance (RA) of the Assistant GMs and the back SINCE THEY ARE NOT COVERED BY LOI NO. 97 DATED 01 MAY 1979, AND THAT FROM THE
payment of the Cost of Living Allowance (COLA) and the Amelioration Allowance (AA) were correctly PERIOD OF 01 JULY 1989 TO 16 MARCH 1999, PETITIONER'S EMPLOYEES WERE ALREADY
disallowed because LWDs were not covered by Letter of Implementation (LOI) No. 97. Further, even if LWDs PAID THEIR COLA AND AMELIORATION ALLOWANCE;
were covered by LOI No. 97, the payment of RATA and RA should still be disallowed because they were C. IN AFFIRMING NOTICE OF DISALLOWANCE (ND) NO. 2006- 006(2005) DATED 09 JANUARY
receiving the RATA at the rate of 20% of their basic salary, and not the rate provided for by LOI No. 97. 2007 CONCERNING THE PAYMENT OF 14TH-MONTH PAY BY HOLDING THAT PETITTIONERS
ZCWD EMPLOYEES HAVE NOT BEEN PAID THE 14th MONTH PAY PRIOR TO 01 JULY 1989
Third, the LAO also insisted that the payments corresponding to the midyear incentive and the Collective DESPITE EVIDENCE TO THE CONTRARY, AND ASSUMING THAT THE PAYMENT WAS FOR THE
Negotiation Agreement (CNA) incentives were improper because they were without basis. It opined that USUAL BONUS REGULARLY RECEIVED BY EMPLOYEES UNDER M.O. NO. 324 DATED 05
ZCWD could not rely on the CSC approval 10 of its Program on Awards and Incentives for Service OCTOBER 1990;
Excellence (PRAISE) because it had no authority to do so. Likewise, it noted that ZCWD failed to establish D. IN AFFIRMING NOTICE OF DISALLOWANCE (ND) NO. 2006- 007(2005) DATED 09 JANUARY
compliance with Public Sector Labor Management Council (PSLMC) Resolution No. 2 to warrant the 2007 COVERING PAYMENTS OF THE CAN INCENTIVE BENEFITS, BY HOLDING THAT
payment of CNA incentives. Moreover, the LAO pointed out that the payment of life insurance benefits PETITTIONER ZCWD DID NOT COMPLY WITH THE REQUIREMENTS OF PSLMC RESOLUTION
other than that provided by the GSIS was contrary to Section 28(b) of Commonwealth Act (C.A.) No. NO. 2, SERIES OF 2003 DESPITE CLEAR EVIDENCE OF COMPLIANCE WITH THE SAME;
186,11 as amended by R.A. No.4968.
E. IN AFFIRMING NOTICE OF DISALLOWANCE (ND) NOS. 2006- 008(2005) TO 2006-012(2005),
ALL DATED 09 JANUARY 2007 COVERING PAYMENTS OF THE PER DIEMS OF THE MEMBERS
OF THE BOARD OF DIRECTORS OF PETITIONER ZCWD, BY HOLDING THAT THE LWUA DOES
Lastly, the LAO found that the per diems paid to the BOD, as well as the 141 month pay given to ZCWD NOT HAVE THE AUTHORITY TO FIX THE PER DIEMS OF THE BOARD OF DIRECTORS DESPITE ITS
employees, were in excess of the amount allowed by law. The LOA stated that the per diems granted to CLEAR MANDATE UNDER P.D. NO. 198 AS AMENDED BY R.A. NO. 9268.
the members of the BOD were in excess of the amount allowed by Administrative Order (A.O.) No. 103 and
the 14th month pay was in excess of the amount authorized under R.A. No. 8441.
Essentially, the Court is tasked to resolve (1) Whether or not the disbursements under the NDs were
improper; and (2) in the event the disbursements were improper, whether or not petitioner is liable to
Undaunted, ZCWD appealed before the COA.
refund the same.
The COA Ruling
Petitioner ZCWD insists that its BOD has the power to determine and fix the salaries and compensation of its
GM, in accordance with Section 23 of P.D. No. 198, as amended. It contends that its employees were
On October 28, 2010, the COA rendered the assailed decision affirming the LAO ruling. The dispositive
entitled to COLA and AA pursuant to the ruling of the Court in PPA Employees hired after July 1, 1989 v.
portion of which reads:
COA (PPA Employees),13 which stated that the government employees were entitled to the said
WHEREFORE, in view of the foregoing, the herein appeal is hereby DENIED and ND Nos. 2006-001(2005) to allowances as the integration of benefits took place only on March 16, 1999 when Department of Budget
2006-014(2005), in the total amount of P27,293,621.40 are hereby AFFIRMED.12chanrobleslaw and Management (DBM) Corporate Compensation Circular (CCC) No. 10 took effect.

In the said decision, the COA highlighted that the CNA incentives should not be paid because ZCWD
failed to prove compliance with PSLMC Resolution No. 2, particularly: (a) identifying specific cost-cutting Moreover, ZCWD claims that the payment of the CNA incentives was in accordance with the requirements
measures; and (b) proof that the funds for the incentives were taken from savings as a result of the cost- of PSLMC Resolution No. 2. It pointed out that its employees had always been paid the 14th month pay
saving measures. since July 1, 1989 and that disallowing the payment of the 14th month pay to employees hired after July 1,
1989 would violate the equal protection clause.
Aggrieved, ZCWD moved for reconsideration but its motion was denied by the COA in its assailed
resolution, dated June 6, 2014. Furthermore, ZCWD argues that the payment of the per diems to its BOD was in order because, prior to the
passage of A.O. No. 103, its BOD had a fixed right to the new rate of per diems.

Hence, this present petition, raising the following In its Comment,14 dated November 21, 2014, the CO A reiterated its reasons for upholding the
disallowance of ZCWD's various payments. October 23, 1989. Said circular, however, provided for a retroactive grant of RATA from June 1, 1989. Under
Memorandum Circular
In its Reply,15 dated February 17, 2015, ZCWD insisted that its BOD was vested with the authority to fix the
compensation of its GM, pursuant to R.A. No. 9286. Further, it argued that ZCWD employees were entitled No. 46-90 dated November 14,1990, the RATA of this second set of officials was increased from 20% to 40%
to the back payment of COLA and AA as LWDs were covered by LOI No. 97. ZCWD also stated that it of standardized salary.
could not be faulted for relying on R.A. No. 9286 and Local Water Utilities Administration (LWUA) Board
Resolution No. 120 in paying the per diems of its BOD without any advice from the LWUA as the same were Applying the provisions of Section 12 to the petitioners' case, we rule that only the first category officials are
subservient to A.O. No. 103. ZCWD also prayed that, in the event that the disallowances were upheld, it entitled to the continued RATA benefit under LOI No. 97. The first category officials were incumbents as of
need not be made to reimburse the payment because they were done in good faith. July 1, 1989 and more importantly, they were receiving the RATA provided by LOI No. 97 as of July 1, 1989.
The Court's Ruling
While the second category officials were incumbents as of July 1,1989, they were not receiving RATA as of
July 1, 1989.
Limited power of the BOD to True, LOI No. 97 provides that these second category officials may likewise be given RATA not exceeding
fix the salary of the GM 40% basic salary, but this provision did not create a vested right in their favor, xxx The grant of RATA under
LOI No. 97 to these officials was still discretionary on the part of the PPA management. It was not absolute
ZCWD's contention that, pursuant to Section 23 of P.D. No. 198, as amended by R.A. No. 9286, the BOD has nor was it unconditional. Unfortunately, when the PPA management finally authorized the giving of RATA to
the discretion to fix the compensation of the GM is misplaced. As held in Mendoza v. COAX these second category officials, such was no longer allowed under RA 6758.20chanroblesvirtuallawlibrary
(Mendoza),16 unless specifically exempted by its charter, GOCCs are covered by the provisions of the SSL.
The Court in Mendoza recognized the power of the BOD to fix the compensation of the GM but limited the [Emphases Supplied]
same to the extent that the rates approved must be in accordance with the position classification system
under the SSL. Here in this case, the salary increase of GM Bucoy, including the corresponding increase in Similarly, the ZCWD officials were not entitled to the benefit of RATA based on the rates provided in LOI No.
her monetized leave credits, was properly disallowed for being in excess of the amounts allowed under the 97. They fail to meet the criteria set in Ambros because although they were incumbents as of July 1, 1989,
SSL. they were not receiving their RATA based on the rates under LOI No. 97 on the said date.

ZCWD employees not entitled to

Payment of RATA and RA back payment of COLA and AA
based on the rates under LOI
No. 97 is improper
Pursuant to Section 12 of the SSL, employee benefits, save for some exceptions, are deemed integrated
The Court agrees with ZCWD that LWDs are within the coverage of LOI No. 97. Nevertheless, the payment into the salary. In Maritime Industry Authority v. CO A (MIA), 21 the Court emphasized that the general rule
of RATA and RA in favor of the GM and Assistant GMs of ZCWD based on the rates under LOI No. 97 is was that all allowances were deemed included in the standardized salary and the issuance of the DBM
inappropriate. In Ambros v. COA (Ambros),17 the Court stated that non-integrated benefits, such as the was required only if additional non-integrated allowances would be identified. In accordance with
RATA, are allowed to be continued only for (1) for incumbents of positions as of July 1, 1989; and (2) those the MIA ruling, the COLA and AA were already deemed integrated in the standardized salary.
who were actually receiving the said allowances as of the said date, in consonance with Section 1218 of
the SSL. Further, ZCWD cannot rely on the case of PPA Employees. As clarified by MIA, the PPA Employees ruling
was only limited to distinguishing the benefits that may be received by government employees who were
In the case at bench, GM Bucoy and the assistant GMs of ZCWD, although incumbent as of July 1, 1989, hired before and after the effectivity of the SSL, to wit:
were not receiving RATA, a non-integrated benefit, based on the rates provided in LOI No. 97. Petitioner Maritime Industry Authority's reliance on Philippine Ports Authority Employees Hired After July 1,
Consequently, they are no longer entitled to enjoy the RATA benefit given by LOI No. 97. In Philippine Ports 1989 v. Commission on Audit is misplaced. As this court clarified in Napocor Employees Consolidated Union
Authority v. COA (PPA),19 the Court explained: v. National Power Corporation, the ruling in Philippine Ports Authority Employees Hired After July 1, 1989 was
Now, under the second sentence of Section 12, first paragraph, the RATA enjoyed by these PPA officials limited to distinguishing the benefits that may be received by government employees who were hired
shall continue to be authorized only if they are "being received by incumbents only as of July 1, 1989." RA before and after the effectivity of Republic Act No. 6758. Thus:ChanRoblesVirtualawlibrary
6758 has therefore, to this extent, amended LOI No. 97. By limiting the benefit of the RATA granted by LOI [t]he Court has, to be sure, taken stock of its recent ruling in Philippine Ports Authority (PPA) Employees
No. 97 to incumbents, Congress has manifested its intent to gradually phase out this RATA privilege under Hired After July 1, 1989 vs. Commission on Audit. Sadly, however, our pronouncement therein is not on all
LOI No. 97 without upsetting its policy of non-diminution of pay. fours applicable owing to the differing factual milieu. There, the Commission on Audit allowed the
payment of back cost of living allowance (COLA) and amelioration allowance previously withheld from
xxxx PPA employees pursuant to the heretofore ineffective DBM — CCC No. 10, but limited the back payment
only to incumbents as of July 1, 1989 who were already then receiving both allowances. COA considered
We have earlier classified the petitioners officials into two. The first category is composed of those who, the COLA and amelioration allowance of PPA employees as "not integrated" within the purview of the
pursuant to LOI No. 97 and Memorandum Circular No. 57-87 dated October 1, 1987, were granted and second sentence of Section 12 of Rep. Act No. 6758, which, according to COA confines the payment of
were receiving RATA equivalent to 40% salary prior to July 1,1989, the effectivity of RA 6758. The second "not integrated" benefits only to July 1,1989 incumbents already enjoying the allowances.
category consists of those who as of July 1,1989 were not receiving the RATA privilege under LOI No.
97. These officials were given RATA after July 1, 1989, pursuant to Memorandum Circular No. 36-89 dated In setting aside COA's ruling, we held in PPA Employees that there was no basis to use the elements of
incumbency and prior receipt as standards to discriminate against the petitioners therein. For, DBM-CCC
No. 10, upon which the incumbency and prior receipt requirements are contextually predicated, was in explained in Aquino v. Philippine Ports Authority,26 the distinction between employees hired before and
legal limbo from July 1, 1989 (effective date of the unpublished DBM-CCC No. 10) to March 16, 1999 (date after July 1, 1989 was based on reasonable differences which was germane to the objective of the SSL to
of effectivity of the heretofore unpublished DBM circular). And being in legal limbo, the benefits otherwise standardize the salaries of government employees, to wit:
covered by the circular, if properly published, were likewise in legal limbo as they cannot be classified
either as effectively integrated or not integrated benefits. As explained earlier, the different treatment accorded the second sentence (first paragraph) of Section 12
of RA 6758 to the incumbents as of 1 July 1989, on one hand, and those employees hired on or after the
Similar to what was stated in Napocor Employees Consolidated Union, the "element of discrimination said date, on the other, with respect to the grant of non-integrated benefits lies in the fact that the
between incumbents as of July 1,1989 and those joining the force thereafter is not obtaining in this case." legislature intended to gradually phase out the said benefits without, however, upsetting its policy of non-
The second sentence of the first paragraph of Section 12, Republic Act No. 6758 is not in issue. diminution of pay and benefits.

In the case at bench, the incumbency of the employees was not contested, rather, the back payment of The consequential outcome under Sections 12 and 17 is that if the incumbent resigns or is promoted to a
COLA and AA was not properly justified as payable obligations, which ZCWD paid after its financial higher position, his successor is no longer entitled to his predecessor's RATA privilege or to the transition
conditions improved in 2005. Clearly, the PPA Employees case is inapplicable. allowance. After 1 July 1989, the additional financial incentives such as RATA may no longer be given by
the GOCCs with the exemption of those which were authorized to be continued under Section 12 of RA
Disallowance of CNA 6758.
Incentives correct
Therefore, the aforesaid provision does not infringe the equal protection clause of the Constitution as it is
PSLMC Resolution No. 2 provides for the guidelines in connection with the payment of CNA incentives to based on reasonable classification intended to protect the rights of the incumbents against diminution of
rank-and-file employees of GOCCs. Section 2 thereof requires that the CNA must include cost-cutting their pay and benefits.
measures that shall be undertaken by both the management and the union.
Per diems granted to the Board
The COA was correct in finding that ZCWD failed to identify the specific cost-cutting measures undertaken, beyond the amount allowed by law
pursuant to the CNA. The Certification22 issued by ZCWD merely stated that there was a decrease in
expenses but it did not specify the cost-cutting measures resorted to. Moreover, the said certification, as ZCWD asserts that pursuant to R.A. No. 9286, it is the LWUA which is authorized to fix the per diem of its BOD
well as the Certification of Savings,23 did not cover the period in which the CNA incentives were and that A.O. No. 103 did not impliedly repeal R.A. No. 9286, hence, the latter remains to be in effect. It
supposedly given, which ran contrary to Section 824 of PSLMC Resolution No. 2. ZCWD failed to establish insists that it could rely on LWUA Board Resolution No. 120, which approved the per diem beyond the rates
that there were savings in 2005 to justify the payment of CNA incentives during the said year. allowed by A.O. No. 103.

ZCWD employees not Although ZCWD is correct in arguing that A.O. No. 103 did not repeal R.A. No. 9286, it is, however, mistaken,
entitled to 14th month pay that the LWUA resolution is a sufficient basis to justify the grant of per diem in the amount beyond what is
allowed under A.O. No. 103. Section 3 of A.O. No. 103 instructs all GOCCs to reduce the combined total
The COA disallowed the 14th month pay on the ground that ZCWD failed to prove that it had granted the of per diems, honoraria and benefits to a maximum of P20,000.00.
same to its employees since July 1, 1989 and even it were true, it could not be extended to employees
hired after the said date. ZCWD is adamant that it submitted documentary evidence to support the The said provision did not divest LWUA of its authority to fix the per diem of BODs of LWDs. It, nonetheless,
payment of 14th month pay even before July 1, 1989. It asserts that the documents it presented showed limits the same in order to implement austerity measures, as directed by A.O. No. 103, to meet the country's
that what was paid to the employees was the "Year-end Christmas Bonus" but it claims that the same was fiscal targets. Under R.A. No. 9275, the LWUA is an attached agency of the Department of Public Works
the 14th month pay. and Highway (DPWH). The President, exercising his power of control over the executive department,
including attached agencies, may limit the authority of the LWUA over the amounts of per diem it may
The Court agrees with the COA that the documents presented by ZCWD did not unequivocally show that it allow.
had paid its employees the 14th month pay because the "Year-end Christmas Bonus" could have referred
to the usual year-end benefit equivalent to one (1) month salary as provided by Memorandum Order No. Refund not necessary if
324. the disbursements were
made in good faith

Although the disbursements made by ZCWD may have been made without legal basis, the petitioner may
Even if ZCWD could prove that it had granted the 14th month pay to its employees, it could not insist that be absolved from refunding the disbursements if it is shown that they were made in good faith. Good faith,
the same should be given to the employees hired after July 1, 1989. The 14th month pay was in the nature in relation to the requirement of refund of disallowed benefits or allowances, is "that state of mind denoting
of an additional benefit, a non-integrated benefit, which had been given on top of an employee's usual 'honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon
salary. As discussed above, in order for a non-integrated benefit to be continuously enjoyed, it must have inquiry; an honest intention to abstain from taking any unconscientious advantage of another, even
been given since July 1, 1989 to incumbents as of the said date. It could not be extended to employees though technicalities of law, together with absence of all information, notice, or benefit or belief of facts
hired after July 1, 1989 or to those which had replaced the incumbents as of July 1, 1989. which render transactions unconscientious.'"27chanroblesvirtuallawlibrary
ZCWD is mistaken in arguing that such treatment violated the equal protection clause enshrined in the It is noteworthy that in Mendoza, the Court excused the GM therein from refunding the amounts he
Constitution. The equal protection clause allows classification provided that it is based on real and received, which were the subject of the ND, to wit:
substantial differences having a reasonable relation to the subject of the particular legislation.25 As
The salaries petitioner Mendoza received were fixed by the Talisay Water District's board of directors that LWDs are bound by the provisions of the SSL -had been made.
pursuant to Section 23 of the Presidential Decree No. 198. Petitioner Mendoza had no hand in fixing the
amount of compensation he received. Moreover, at the time petitioner Mendoza received the disputed Second, the back payment of the COLA and AA need not be refunded because at the time they were
amount in 2005 and 2006, there was no jurisprudence yet ruling that water utilities are not exempted from paid, there was no similar ruling like the MIA case, where it was held that integration was the general rule
the Salary Standardization Law. and, therefore, benefits were deemed integrated notwithstanding the absence of a DBM issuance. Prior
to MIA, there had been no categorical pronouncement that, by virtue of Section 12 of the SSL, benefits
Pursuant to De Jesus v. Commission on Audit, petitioner Mendoza received the disallowed salaries in good were deemed integrated, without a need of a subsequent issuance from the DBM. Consequently, the
faith. He need not refund the disallowed amount. officers who authorized the back payment of the COLA and AA and the employees who received them
believing to be entitled thereto need not refund the same. They were in good faith as they were oblivious
Similar to Mendoza, the increase in GM Bucoy's salary was disallowed by the COA for being in excess of that the said payments were improper.
the maximum amount allowed under the SSL. When the disbursements were made, no categorical
pronouncement similar to that in Mendoza had been made that the LWDs were subject to the provisions of Lastly, ZCWD cannot be faulted for paying the midyear incentives granted under its PRAISE Program
the SSL. As such, GM Bucoy is excused from refunding the amount she received corresponding to her because it merely relied on the authorization granted by the CSC, which found the same compliant with
salary and increased monetized leave credits on the basis of good faith. the CSC guidelines and approved its implementation. The same need not be refunded on the basis of
good faith. The BOD of ZCWD allowed the payment of mid-year incentives believing that the supposed
Further, a thorough reaching of Mendoza and the cases cited therein would lead to the conclusion that CSC authorization was sufficient basis, while the employees received them under the impression that they
ZCWD officers who approved the increase of GM Bucoy's are also not obliged either to refund the same. rightfully deserved them.
In de Jesus v. Commission on Audit,28 the Court absolved the petitioner therein from refunding the
disallowed amount on the basis of good faith, pursuant to de Jesus and the Interim Board of Good faith, however, cannot be appreciated in the other release of funds made by ZCWD. First, it is
Directors, Catbalogan Water District v. Commission on Audit.29 In the latter case, the Court absolved the noteworthy that as early as 1992, the Court has ruled in PPA that the. RAT A under the rates provided in LOI
Board of Directors from refunding the allowances they received because at the time they were disbursed, No. 97 must have been enjoyed since July 1, 1989 by incumbent employees as of the said date. ZCWD
no ruling from the Court prohibiting the same had been made. Applying the ruling in Blaquera v. Alcala admitted that its employees were receiving RATA not based on the rates provided by LOI No. 97.
(Blaquera),30 the Court reasoned that the Board of Directors need not make a refund on the basis of good
faith, because they had no knowledge that the payment was without a legal basis. Second, ZCWD authorized the release of CNA incentives, in spite of its failure to strictly comply with PSLMC
Resolution No. 2. ZCWD also failed to justify why it paid for a separate life insurance program other than the
In Blaquera, the Court did not require government officials who approved the disallowed disbursements to GSIS. Therefore, officers of ZCWD who were responsible for the release the aforementioned disbursements
refund the same on the basis of good faith, to wit: are bound to refund the same.
Untenable is petitioners' contention that the herein respondents be held personally liable for the refund in Lastly, good faith cannot absolve the ZCWD from refunding the per diems granted to the BOD. ZCWD
question. Absent a showing of bad faith or malice, public officers are not personally liable for damages insists that it merely relied on the LWUA Board Resolution which authorized the payment of the per
resulting from the performance of official duties. diems that exceed the amount authorized under A.O. No. 103. The justification falls short of the standard of
good faith required to be exempt from refunding disallowed benefits or allowances. ZCWD does not deny
Every public official is entitled to the presumption of good faith in the discharge of official duties. Absent its awareness of the limits provided under A.O. No. 103. It nonetheless opted to simply depend on the
any showing of bad faith or malice, there is likewise a presumption of regularity in the performance of LWUA issuance. In order for good faith to be appreciated, ZCWD must be without any knowledge of
official duties. circumstances that would have placed it on guard.
xxxx ZCWD, being aware of the existence of A.O. No. 103 which placed a cap on the maximum per
diems granted to the BOD of GOCCs, could have been more prudent to discontinue the grant of per
Considering, however, that all the parties here acted in good faith, we cannot countenance the refund of diems based on the rates provided by the LWUA resolution, and instead, complied with the limitations set
subject incentive benefits for the year 1992, which amounts the petitioners have already received. Indeed, by A.O. No. 103. Thus, its BOD is bound to refund the amount of the surplus per diems, which they had
no indicia of bad faith can be detected under the attendant facts and circumstances. The officials and authorized and received.
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 The ZCWD employees who merely received the disallowed amounts, are not obliged to refund the same
deserve such benefits. because they had no participation in approving the release of the per diem. In Silang v. Commission on
[Emphases Supplied] Audit,31 the Court cleared the employees who received the disallowed benefits on the basis of good faith,
to wit:
A careful reading of the above-cited jurisprudence shows that even approving officers may be excused In this case, the majority of the petitioners are the LGU of Tayabas, Quezon's rank-and-file employees and
from being personally liable to refund the amounts disallowed in a COA audit, provided that they had bonafide members of UNGKAT (named-below) who received the 2008 and 2009 CNA Incentives on the
acted in good faith. Moreover, lack of knowledge of a similar ruling by this Court prohibiting a particular honest belief that UNGKAT was fully clothed with the authority to represent them in the CNA negotiations.
disbursement is a badge of good faith. As the records bear out, there was no indication that these rank-and-file employees, except the UNGKAT
officers or members of its Board of Directors named below, had participated in any of the negotiations or
In the case at bench, there are several items that need not be refunded based on good faith. First, the were, in any manner, privy to the internal workings related to the approval of said incentives; hence, under
BOD of ZCWD are not obliged to refund the amounts corresponding to GM Bucoy's salary and monetized such limitation, the reasonable conclusion is that they were mere passive recipients who cannot be
leaved credits because at the time they were paid, no ruling similar to Mendoza -unequivocally declaring charged with knowledge of any irregularity attending the disallowed disbursement. Verily, good faith is
anchored on an honest belief that one is legally entitled to the benefit, as said employees did so believe in
this case. Therefore, said petitioners should not be held liable to refund what they had unwittingly
received.
[Emphasis supplied]

Unlike the officers of ZCWD who authorized the payment of the disallowed disbursements, these
employees were merely passive recipients who honestly believed they were entitled to the said benefits as
their payment was ratified by their officers. They were in good faith as they were unaware that the benefits
they received were either without basis or had failed to comply with the requirements of the law. Thus, the
employees who received the CNA incentives and the 14th month pay and the employees who were
covered by the life insurance program other than the GSIS need not refund the amounts paid out for these
benefits.

WHEREFORE, the October 28, 2010 Decision and the June 6, 2014 Resolution of the Commission on Audit
are AFFIRMED with MODIFICATION in that the recipients and the officers who had authorized the following
disbursements be absolved from refunding the amounts paid in connection with the following: (1) the
salary increase of GM Bucoy and the corresponding increase in her monetized leave credits; (2) the back
payment of the COLA and AA; and (3) the midyear incentives, pursuant to its PRAISE Program. As to the
other items, only the officers who authorized their release are bound to refund the same.

SO ORDERED.cralawlawlibrary
 G.R. No. 210991, July 12, 2016 corporate body attached to the DOT;19 and thus, (2) the Duty Free is not bound to pay the employee
DUTY FREE PHILIPPINES CORPORATION (FORMERLY DUTY FREE PHILIPPINES) DULY REPRESENTED BY ITS CHIEF benefits previously granted by DFPSI, a private entity.
OPERATING OFFICER, LORENZO C. FORMOSO, Petitioner, v. COMMISSION ON AUDIT, HON. MA. GRACIA M.
PULIDO TAN, CHAIRPERSON AND HON. HEIDI L. MENDOZA, COMMISSIONER, Respondent. The COA LAS explained that the finding of the Med-Arbiter that DFPSI is a labor-only contractor converted
the status of the employees from private to government. Thus, the non-payment of the 14th Month Bonus is
DECISION not a diminution of the workers' benefits since their salaries and benefits are governed by law, rules and
BRION, J.: regulations applicable to government employees.
Before this Court is a petition for certiorari1 filed by the Duty Free Philippines Corporation (Duty Free)2 to
challenge the August 17, 2011 decision3 and December 6, 2013 resolution4 of the Commission on Audit The Duty Free appealed to the COA Proper and claimed that: (1) this Court in Duty Free Philippines v. Duty
(COA) in Decision No. 2011-059. The COA disallowed the payment of 14th Month Bonus to Duty Free officers Free Philippines Employees Association (DFPEA)20 mandated the grant of the 14th Month Bonus; (2) the
and employees in the total amount of P14,864,500.13. COA erred in applying the Mojica case; and (3) the grant of the 14th Month Bonus had legal
basis.21chanrobleslaw
Antecedents
The COA Decision
Executive Order (EO) No. 465 authorized the Ministry (now Department) of Tourism (DOT), through the
Philippine Tourism Authority (PTA), to operate stores and shops that would sell tax and duty free The COA partly granted the Duty Free's petition for review and ruled as follows:
merchandise, goods and articles, in international airports and sea ports throughout the country.6 The Duty
Free was established pursuant to this authority. chanRoblesvirtualLawlibraryFirst, the DFPEA case did not rule that the Duty Free is bound to pay the
14th Month Bonus.22 In that case, the Court denied through a minute resolution, the Duty Free's petition
The Duty Free Philippines Services, Inc. (DFPSI), a private contracting agency, initially provided the questioning the Med-Arbiter decision allowing the certification election. The Duty Free's petition was
manpower needs of the Duty Free. The DFPSI employees organized the Duty Free Philippines Employees insufficient in form (lacks material dates) and substance (the Med-Arbiter did not gravely abuse his
Association (DFPEA) and filed a petition for certification election with the Department of Labor and discretion).23 This Court did not resolve the propriety of the 14th Month Bonus.
Employment.7chanrobleslaw
Second, the Duty Free employees are government employees. Their compensation structure is subject to
Republic Act No. 6758 or the Salary Standardization Law (SSL for brevity).24chanrobleslaw
On April 22, 1997, the Med-Arbiter granted the application for certification election.8 The Med-Arbiter
Applying our decision in Philippine Ports Authority v. COA,25cralawred the COA ruled that the additional
found that the Duty Free was the direct employer of the contractual employees and that DFPSI was a
(i.e., not integrated with the base salary) allowances and benefits granted to incumbent government
labor-only contractor.9 The Duty Free subsequently terminated its manpower services contract with DFPSI
employees before the effectivity of the SSL (July 1, 1989)26 shall not be diminished. The Duty Free employees
and assumed the obligations of the latter as the employer of the contractual personnel.
who have been receiving the 14th Month Bonus as of July 1, 1989 shall continue to receive it. The Duty Free
employees hired after July 1, 1989 shall not be entitled to the 14th Month Bonus although their employment
In 2002, the Duty Free granted the 14th Month Bonus to its officials and employees in the grand sum of Php
contracts with DFPSI gave such entitlement,27chanrobleslaw
14,864,500.13.10chanrobleslaw
Citing the Civil Code, the COA stressed that contracting parties may establish stipulations, clauses, terms
On July 13, 2006, the COA Director11 disallowed the payment of the 14th Month Bonus. The Notice of
and conditions as they may deem convenient, provided they are not contrary to law, morals, good
Disallowance reads in part:ChanRoblesVirtualawlibrary
customs, public order, or public policy.28 Since salaries and compensation benefits of government
xxx Please be informed that the 14th month bonus paid to the officers and employees of [Duty Free] in 2002 employees are governed by the SSL, they cannot be the subject of negotiation, and any benefit not
amounting to PI4,864,500.13 has been disallowed in audit as the same constitutes irregular expenditures allowed under the SSL although stipulated in the employment contracts is disallowed,29chanrobleslaw
and unnecessary use of public funds... the said grant being without the approval from the [PTA] Board of
Directors and Office of the President as required under Section 5 of P.D. No. 159712 and Memorandum The dispositive portion of the COA decision reads:ChanRoblesVirtualawlibrary
Order No. 2013 dated June 25, 2001.14
WHEREFORE, premises considered, the herein petition for review is PARTIALLY GRANTED. These [Duty Free]
The COA Director ordered the following officials and employees to settle the disallowed employees who have been receiving the 14th Month Bonus as of July 1, 1989, the effectivity date of the SSL,
amount:ChanRoblesVirtualawlibrary shall continue to receive the same while those hired after July 1, 1989 shall not be entitled thereto. LSS
1. Mr. Michael Christian U. Kho (General Manager) - for approving the 14th Month Bonus; Decision No. 2009-006 dated January 28, 2009 and ND No. PTA-2006-001 dated July 13, 2006 disallowing the
payment of 14th Month Bonus to [Duty Free] officials and employees in CY 2002
2. Ms. Ma. Teresa C. Panopio (Acting HRMD Manager) - for certifying that the expenses
are MODIFIED accordingly.30
are necessary, lawful and incurred under her direct supervision;
The CO A denied the Duty Free's motion for reconsideration.31 Aggrieved, the Duty Free came to this Court
3. Ms. Ma. Theresa R. Cruz (Accounting Manager) and Ms. Eleanor A. Macaraig (Treasury
for relief through the present petition for certiorari.
Department Manager) - for certifying that funds are available, the expenditures are
proper and with adequate documentation; and cralawlawlibrary The Petition
4. All officers and employees who received the 14th Month Bonus.15
The Duty Free maintains that it was authorized and had the duty to grant the 14th Month Bonus on the main
The Duty Free moved for reconsideration before the COA Legal and Adjudication Sector (LAS).16 The COA
ground that it would have diminished the employees' benefits if it had discontinued the
LAS denied the motion for reconsideration17 and ruled that: (1) pursuant to this Court's ruling in Duty Free
payment.32chanrobleslaw
Philippines v. Mojica,18 the Duty Free is a government entity under the exclusive authority of the PTA, a
The Duty Free argues that there is no substantial distinction between the employees hired before the The Issue
effectivity of the SSL and the employees hired after.33 All Duty Free employees whether hired before or
after July 1, 1989 had the vested right to the 14th Month Bonus granted under their employment contracts. The basic issue is whether the COA gravely abused its discretion when it disallowed the payment of the
14th Month Bonus. We also resolve whether the concerned Duty Free officers and employees may be held
The Duty Free submits that the distinction between employees hired before and after the effectivity of the personally liable for the disallowed amount.
SSL in Philippine Ports Authority case is inapplicable here. Unlike the Philippine Ports Authority employees
who are clearly government employees, the Duty Free employees were initially hired by DFPSI, a private Our Ruling
contracting agency.34chanrobleslaw
We partly grant the petition.
The Duty Free posits that the Med-Arbiter's ruling did not allow the diminution of employee benefits. In any
case, it was only in 1998 in the DFPEA case that this Court upheld that the Duty Free is the employer of the The COA did not gravely abuse its discretion when it disallowed the payment of the 14th Month Bonus.
DFPSI personnel. Even then, it was only in the 2005 Mojica case that this Court held that the Duty Free However, the Duty Free officers who approved and the employees who received the 14th Month Bonus are
officials and employees are subject to Civil Services rules. The Duty Free underscores that before Mojica, not required to refund the disallowed payment.
disputes in Duty Free involving terms of employment were resolved under the Labor Code.35chanrobleslaw
The Duty Free employees are
The Duty Free also insists that the COA erred when it invoked the 2005 Mojica case in disallowing the government employees subject to the
payment of the 14th Month Bonus made in 2002. Assuming the SSL is applicable to the Duty Free SSL.
employees, it should only be applied to cases after Mojica.
There is no dispute that PTA, a government-owned and controlled corporation attached to the DOT,
Finally, the Duty Free submits that the payment of the 14th Month Bonus was made in good faith, supported operates and manages the Duty Free.46 There is also no question that the employees supplied by DFPSI
by then existing jurisprudence, and based on the recognition of the Duty Free employees' vested rights to became government employees when the Duty Free terminated its manpower services contract with
the benefits granted under their employment contracts. DFPSI.

On March 24, 2014, the Office of the Government Corporate Counsel (OGCC) filed its entry of The only question now is whether the Duty Free had the duty to continue paying the 14th Month Bonus. The
appearance as counsel for Duty Free.36 The next day, the OGCC moved for the issuance of a temporary Duty Free argues in the affirmative and invokes the principle of non-diminution of benefits. The COA insists
restraining order (TRO) and preliminary injunction37 to bar the execution of the COA decision. the opposite and cites the SSL, the primary law on the compensation structure of government employees.

On April 22, 2014, the Court issued the TRO.38chanrobleslaw We agree with the COA's contention.

On June 17, 2014, the COA, through the Office of the Solicitor General (OSG), filed its The Duty Free was established under Executive Order (EO) No. 4647 to improve the service facilities for
comment.39chanrobleslaw tourists and to generate revenues for the government. In order for the government to exercise direct and
The COA's Comment effective control and regulation over the tax and duty free shops, their establishment and operation were
vested in the DOT through its implementing arm, the PTA. All the net profits from the merchandising
operations of the shops accrued to the DOT.48 Thus, the Duty Free is without a doubt a government entity.
The COA refutes the Duty Free's claims on the following grounds:
Executive Order No. 180, on the other hand, defines government employees as all employees of all
chanRoblesvirtualLawlibraryFirst, the Med-Arbiter did not rule that the Duty Free must continue paying all branches, subdivisions, instrumentalities, and agencies, of the Government, including government-owned
the benefits enjoyed by the contractual personnel supplied by DFPSI. The Med-Arbiter's determination of or controlled corporations with original charters.49chanrobleslaw
the employer-employee relationship between the Duty Free and the members of the DFPEA was necessary
in deciding whether to allow the certification election. That determination did not require the Duty Free to Plainly, as government employees working in a government entity, the Duty Free personnel's
pay the 14th Month Bonus.40chanrobleslaw compensation structure must comply with and not contradict the SSL.

The COA posits that when we dismissed the Duty Free's petition questioning the Med-Arbiter decision, what The SSL took effect on July 1, 1989. Relevant provisions of the law include:ChanRoblesVirtualawlibrary
we upheld was the propriety of the certification election and not the payment of the 14th Month
Bonus.41chanrobleslaw Section 4. Coverage. - The Compensation and Position Classification System herein provided shall apply
to all positions, appointive or elective, on full or part-time basis, now existing or hereafter created in the
Second, the July 1, 1989 cut-off date to determine the entitlement of the Duty Free employees to the government, including government-owned or controlled corporations and government financial
14th Month Bonus is consistent with the Court's past ruling42 construing Section 1243 of the SSL on the institutions. [Emphasis supplied]
consolidation of allowances and compensation. The Court has held that incumbent government
employees as of July 1, 1989, who were receiving allowances or fringe benefits, whether or not included in Section 12. Consolidation of Allowances and Compensation. - All allowances, except for representation
the standardized salaries under the SSL, should continue to enjoy such benefits.44chanrobleslaw 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
Third, the Duty Free employees are government employees subject to the SSL.45 The employees did not personnel stationed abroad; and such other additional compensation not otherwise specified herein as
retain their benefits under the employment contracts with DFPSI when, in view of the Med-Arbiter's may be determined by the DBM, shall be deemed included in the standardized salary rates herein
decision, Duty Free terminated its manpower services contract with DFPSI. prescribed. Such other additional compensation, whether in cash or in kind, being received
by incumbents only as of July 1, 1989 not integrated into the standardized salary rates shall continue to be Citing earlier jurisprudence, this Court in Mendoza v. COA55 and in the more recent case of Zamboanga
authorized. [Emphasis supplied] Water District v. COA56 recognized that the officers who approved and the employees who received the
For better focus, we identify when the SSL became applicable to the Duty Free employees originally disallowed amount may not be held personally liable for refund absent a showing of bad faith or malice.
supplied by DFPSI. This recognition stems from the rule that every public official is entitled to the presumption of good faith in
the discharge of official duties.
The record does not disclose the exact date but based on the COA's findings, the Duty Free terminated its
manpower services contract with DFPSI after this Court denied its petition questioning the Med-Arbiter's In particular, we held in Zamboanga Water District that lack of knowledge of a similar ruling by this Court
decision in 1998, but before it paid the 14th Month Bonus in 2002.50chanrobleslaw prohibiting a particular disbursement is a badge of good faith.

At the time the Duty Free paid the disallowed amount, the employees were already under its direct Applying these rulings to the present case, we find no credible basis to hold the concerned Duty Free
supervision and control. They were by then government employees, whose compensation and benefits officials and employees personally liable for the disallowed amount. On the contrary, we find that there
must, from that point onward, be consistent with the SSL.51chanrobleslaw are compelling grounds to believe that they acted in good faith.

We emphasize that Section 12 of the SSL mandates that only incumbents as of July 1, 1989 are entitled to First, similar to the above-cited cases, there was no controlling jurisprudence applicable at the time Duty
continue receiving additional compensation, whether in cash or in kind, not integrated with the Free granted the disallowed amount. There was no definitive guide that would have informed Duty Free
standardized salary rates.52 The 14th Month Bonus was an additional benefit granted under the employees' that it could legally stop paying a contractually-granted employee benefit.
contracts with DFPSI. The COA thus correctly ruled that the 14th Month Bonus had no legal basis as far as
the employees hired after July 1, 1989 are concerned. We recognize that the present case is complex. It involves private sector employees who later became
part of the government involuntarily. That their employment contracts with DFPSI granted the 14th Month
Viewed from another perspective, there is no diminution of benefits because the SSL is deemed to have Bonus added another layer of nuance to the case. To our mind, these factors, coupled with the lack of
superseded the contracts of the employees with DFPSI. The link between DFPSI and the employees was relevant ruling from this Court, created sufficient doubt on the legality of discontinuing the grant of the
severed when the Duty Free terminated its manpower services contract with DFPSI and assumed the 14th Month Bonus.
obligations of the latter. The Duty Free, however, could not legally assume an obligation (granting the
14th Month Bonus) that contradicts an express provision of law (Section 12 of the SSL). True, the Philippine Ports Authority case determined the entitlement of the employees to additional
benefits on whether they were hired before or after the effectivity of the SSL. That case is not squarely
We thus uphold the COA's ruling that only those incumbents as of July 1, 1989 are entitled to continue applicable here. The Philippine Ports Authority employees were, without question, government employees.
receiving the 14th Month Bonus. We are aware, however, that the Duty Free employees and management At no point did the terms and conditions .of their employment govern by private contracts as in the case
had been exempted from the coverage of the SSL upon the effectivity of Republic Act No. 9593 or of the Duty Free (formerly DFPSI) employees.
the Tourism Act of 2009.53 Our ruling here is thus relevant only to the period before the employees'
exemption from the SSL. Second, we accept the Duty Free management's explanation that they continued paying the 14th Month.
Bonus in recognition of what they thought to be the employees' vested right to their benefits. That they
Finally, we reject the Duty Free's claim that we upheld the payment of the 14th Month Bonus in were mistaken should not be taken against them absent a clear showing of malice or bad faith on their
the DFPEA case. part.

In that case, we denied, through a minute resolution, the Duty Free's petition for certiorari, which sought to We believe that the approving Duty Free officials merely erred on the side of caution when they continued
void the Med-Arbiter's order to conduct a certification election. We did not discuss the propriety of the paying the 14th Month Bonus. We share their concern that had they unilaterally stopped paying the
14th Month Bonus because the sole issue was whether the Med-Arbiter gravely abused his discretion. benefits granted under the employees' contracts with DFPSI, the Duty Free would have been exposed to
The DFPEA case had nothing to do with the legality of the 14th Month Bonus. complaints and litigations. This distinct possibility could have disrupted the operation of the shops.

The Duty Free officers who approved Consequently, the employees who received the 14th Month Bonus are also deemed to have acted in
and the employees who received the good faith. They merely accepted what they thought was contractually due them. Besides, we cannot
14th Month Bonus are not required fairly expect them to verify the legality of every item of their compensation package; especially so in this
to return the disallowed amount. case because the 14th Month Bonus was granted under their contracts with DFPSI.

Although the 14th Month Bonus may have been paid without legal basis, we find that the Duty Free officials WHEREFORE, in view of the foregoing findings and legal premises, we PARTLY GRANT the petition and
who approved and the employees who received the disallowed amount can take refuge under the good MODIFY the August 17, 2011 decision and December 6, 2013 resolution of the Commission on Audit in
faith doctrine. Decision No. 2011-059, such that the officers who approved and the employees who received the
14th Month Bonus are NOT personally liable to refund the disallowed amount.
Good faith, in relation to the requirement of refund of disallowed benefits or allowances, is "that state of
mind denoting 'honesty of intention, and freedom from knowledge of circumstances which ought to put The Temporary Restraining Order issued on April 22, 2014 is LIFTED,
the holder upon inquiry; an honest intention to abstain from taking any unconscientious advantage of
another, even through technicalities of law, together with absence of all information, notice, or benefit or SO ORDERED.
belief of facts which render transactions unconscientious."54chanrobleslaw
 [ G.R. No. 210903, October 11, 2016 ] periodic review by the Board no more than once every two (2) years without prejudice to yearly merit
PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA), PETITIONER, VS. COMMISSION ON AUDIT (COA) AND HON. reviews or increases based on productivity and profitability. The PEZA shall therefore be exempt from
MA. GRACIA M. PULIDO TAN, CHAIRPERSON, COMMISION ON AUDIT, RESPONDENTS. existing laws, rules and regulations on compensation, position classification and qualification standards. It
shall however endeavor to make its systems conform as closely as possible with the principles under
DECISION Republic Act No. 6758.[5]
PERALTA, J.: The PEZA Board in Resolution No. M-99-266 dated October 29, 1999, adjusted PEZA's compensation plan
and included in the said compensation plan is the grant of Christmas bonus in such amount as may be
In much of law, as in life, there is a constant need to balance competing values, interests and other fixed by the Board and such other emoluments.
considerations. In a free society, there is a need to carefully calibrate the proper balance between liberty
and authority, between peace and order and privacy, and, between responsible public service and Petitioner PEZA had been granting Christmas bonus in the amount of Fifty Thousand Pesos (P50,000.00) to
unreasonable or arbitrary rules retroactively applied to public officials and employees. To allow one value each of its officers and employees for CY 2000 to 2004, however, for the years 2005 to 2008, the Christmas
to dominate the counterpart could lead to undesirable consequences.[1] bonus was gradually increased per PEZA Board Resolution Nos. 05-450 and 06-462 dated November 28,
2005 and September 26, 2006, respectively. For 2005, the Christmas bonus was increased to P60,000.00 and
In the present case, the Court is confronted with the need to provide for an equitable and acceptable was again increased to P70,000.00 in 2006 and 2007. In 2008, the Christmas bonus was increased to
equilibrium between accountability of public officials and the degree of responsibility and diligence by P75,000.00 per PEZA officer/employee.
which they are to be adjudged. While it is a basic postulate of the republican form of government that we
have that public office is a public trust[2] - that individuals who join the government are expected to abide State Auditor V Aurora Liveta-Funa, on May 27, 2010, issued Notice of Disallowance (ND) No. 10-001-101-
by the guiding principles and policies by which public service is to be performed - it also values the dignity (05-08)[6] that was received by PEZA on May 31, 2010. The ND stated that the payment of additional
of every human person.[3] It should ever be kept in mind that the people are not mere creatures of the Christmas bonus to PEZA officers and employees for calendar years 2005-2008 violated Section 3 of
State. They should not be considered as mere automatons, unthinking individuals who are not to Memorandum Order (M.O.) No. 20 dated June 25, 2001 which provides that any increase in salary or
experiment, or innovate, lest they may be made to shoulder the monetary cost of such endeavors if compensation of government-owned and controlled corporations (GOCCs) and government financial
subsequently found to be in violation of rules which were not clearly established or understood at the time institutions (GFIs) that is not in accordance with the Salary Standardization Law shall be subject to the
the action was performed. approval of the President.
Government employment should be seen as an opportunity for individuals of good will to render honest-to- The matter was brought to the Corporate Government Sector-B which later on rendered the Decision No.
goodness public service, not a trap for the unwary. It should be an attractive alternative to private 2011-008[7] dated August 31, 2011 not giving credence to the arguments of petitioner and affirmed the
employment, not an undesirable undertaking grudgingly accepted, to therefore regret. It should present a Notice of Disallowance No. 10-001-101-(05-08) dated May 27, 2010 in the aggregate amount of
fulfilling environment where those who enter could realize their potentials, and the public could benefit Php20,438,750.00. Thereafter, pursuant to Rules V and VII of the 2009 Revised Rules of Procedure of the
from their contributions. COA, petitioner filed the Petition for Review with respondent COA.
For this Court's consideration is the Petition for Certiorari,[4] under Rule 64, in relation to Rule 65, of the Rules The COA in its Decision No. 2013-231[8] dated December 23, 2013 ruled that notwithstanding Section 16 of
of Court, dated February 6, 2014 of petitioner Philippine Economic Zone Authority (PEZA), seeking the the PEZA Charter, petitioner is still duty-bound to observe the guidelines and policies as may be issued by
annulment of Commission on Audit (COA) Decision No. 2013-231 dated December 23, 2013 which affirmed the President citing Intia, Jr. v. COA[9] where this Court ruled that the power of the board to fix the
Corporate Government Sector-B Decision No. 2011-008 dated August 31, 2011 and Notice of Disallowance compensation of the employees is not absolute. The COA further cited Section 6 of Presidential Decree
No. 10-001-101-(05-08) dated May 27, 2010 disallowing the payment of additional Christmas bonus/cash (P.D.) No. 1597 which mandates presidential review and approval, through the Department of Budget and
gifts to PEZA officers and employees for Calendar Years (CY) 2005 to 2008. Management (DBM), of the position classification and compensation plan of an agency exempt from the
Office of Compensation and Position Classification (OCPC) coverage.
The facts follow.
Furthermore, according to the COA, M.O. No. 20 requires presidential approval on salary increases, while
The PEZA Charter, Republic Act (R.A.) No. 7916, was amended by R.A. No. 8748 in 1999 exempting PEZA Administrative Order (A.O.) No. 103 suspends the grant of new or additional benefits in line with the
from existing laws, rules and regulations on compensation, position classification and qualification austerity measures of the government. The COA added that these presidential issuances are not abhorrent
standards. Section 16 of R.A. No. 7916, as amended, reads as follows: to the authority of the PEZA Board of Directors to fix the remuneration of PEZA officers and employees. It
Sec. 16. Personnel. - The PEZA Board of Directors shall provide for an organization and staff of officers and stated that the requirement of presidential approval does not remove from the board the power to fix the
employees of the PEZA, and upon recommendation of the director general with the approval of the compensation and allowances of PEZA officers and employees but is meant to determine whether or not
secretary of the Department of Trade and Industry, appoint and fix the remunerations and other the standards set by law have been complied with.
emoluments: Provided, The the Board shall have exclusive and final authority to promote, transfer, assign
and reassign officers of the PEZA, any provision of existing law to the contrary notwithstanding: Provided, Hence, petitioner filed the present petition assigning the following error:
further, That the director general may carry out removal of such officers and employees. RESPONDENT ERRED WHEN IT RULED THAT THE GRANT OF ADDITIONAL CHRISTMAS BONUS TO PEZA OFFICERS
AND EMPLOYEES NEEDS THE APPROVAL OF THE OFFICE OF THE PRESIDENT BECAUSE REPUBLIC ACT NO. 7916,
All positions in the PEZA shall be governed by a compensation, position classification system and AS AMENDED BY REPUBLIC ACT NO. 8748, AUTHORIZES THE PEZA BOARD OF DIRECTORS TO FIX THE
qualification standards approved by the director general with the concurrence of the Board of Directors REMUNERATIONS AND OTHER EMOLUMENTS OF PEZA OFFICERS AND EMPLOYEES.
based on a comprehensive job analysis and audit of actual duties and responsibilities. The compensation
plan shall be comparable with the prevailing compensation plans in the Subic Bay Metropolitan Authority Petitioner argues that it is not covered by P.D. No. 1597 because its provisions are inconsistent with R.A. No.
(SBMA), Clark Development Corporation (BCDA) and the private sector and shall be subject to the 7916, as amended, which authorizes the PEZA Board to determine the compensation of its officers and
employees and that even assuming without admitting that it is covered by P.D. No. 1597, the law mentions
of reporting to the President through the Budget Commission and does not say that the approval of the 2. Trade and Investment Development Corporation of the Philippines
President, through the Budget Commission, should be secured.
The Trade and Investment Development Corporation of the Philippines is also exempted from the Salary
The Office of the Solicitor General (OSG),[10] on the other hand, claims that despite the exception clause in Standardization Law as provided in Section 7 of Republic Act No. 8494:[14]
Section 16 of R.A. No. 7916, as amended, said provision should nonetheless be read in conjunction with the Sec. 7. The Board of Directors shall provide for an organizational structure and staffing pattern for officers
existing laws pertaining to compensation among government agencies, as it is undoubtedly a GOCC over and employees of the Trade and Investment Development Corporation of the Philippines (TIDCORP) and
which the President exercises his power of control, through the DBM, aside from the parameter set by the upon recommendation of its President, appoint and fix their remuneration, emoluments and fringe
provision itself, i.e., that PEZA "shall, however, endeavor to make its system conform as closely as possible benefits: Provided, That the Board shall have exclusive and final authority to appoint, promote, transfer,
with the principles under Republic Act. No. 6758." assign and re-assign personnel of the TIDCORP, any provision of existing law to the contrary
notwithstanding.
In its Reply[11] dated October 22, 2014, petitioner reiterated its earlier arguments.
All positions in TIDCORP shall be governed by a compensation and position classification system and
After a careful study of the arguments of both petitioner and respondent, this Court finds no merit to the qualification standards approved by TIDCORP's Board of Directors based on a comprehensive job analysis
petition. and audit of actual duties and responsibilities. The compensation plan shall be comparable with the
prevailing compensation plans in the private sector and shall be subject to periodic review by the Board
It is not disputed that after the enactment of the Salary Standardization Law (Republic Act No. 6758 no more than once every four (4) years without prejudice to yearly merit reviews or increases based on
became effective on July 1, 1989), laws have been passed exempting some government entities from its productivity and profitability. TIDCORP shall be exempt from existing laws, rules and regulations on
coverage. The said government entities were allowed to create their own compensation and position compensation, position classification and qualification standards. It shall, however, endeavor to make the
classification systems that apply to their respective offices, usually through their Board of Directors. In Engr. system to conform as closely as possible to the principles and modes provided in Republic Act No. 6758.
Mendoza v. Commission on Audit,[12] this Court mentioned several of those government entities that are
now exempt from the salary standardization law, to wit: xxxx
1. Philippine Postal Corporation 3. Land Bank of the Philippines, Social Security System, Small Business Guarantee and Finance Corporation,
Government Service Insurance System, Development Bank of the Philippines, Home Guaranty Corporation,
Sections 22 and 25 of Republic Act No. 7354 or the "Postal Service Act of 1992" state: and the Philippine Deposit Insurance Corporation
Sec. 22. Merit System. — The Corporation shall establish a human resources management system which
shall govern the selection, hiring, appointment, transfer, promotion, or dismissal of all personnel. Such From 1995 to 2004, laws were passed exempting several government financial institutions from the Salary
system shall aim to establish professionalism and excellence at all levels of the postal organization in Standardization Law. Among these financial institutions are the Land Bank of the Philippines, Social Security
accordance with sound principles of management. System, Small Business Guarantee and Finance Corporation, Government Service Insurance System,
Development Bank of the Philippines, Home Guaranty Corporation, and the Philippine Deposit Insurance
A progressive compensation structure, which shall be based on job evaluation studies and wage surveys Corporation.
and subject to the Board's approval, shall be instituted as an integral component of the Corporation's
human resources development program. The Corporation, however, may grant across-the-board salary This Court has taken judicial notice of this development in Central Bank (now Bangko Sentral ng Pilipinas)
increase or modify its compensation structure as to result in higher salaries, subject to either of the following Employees Association, Inc. v. Bangko Sentral ng Pilipinas:[15]
conditions: Indeed, we take judicial notice that after the new BSP charter was enacted in 1993, Congress also
undertook the amendment of the charters of the GSIS, LBP, DBP and SSS, and three other GFIs, from 1995 to
(a) there are evidences of prior improvement in employee productivity, measured by such quantitative 2004, viz.:
indicators as mail volume per employee and delivery times.
1. R.A. No. 7907 (1995) for Land Bank of the Philippines (LBP);
(b) a law raising the minimum wage has been enacted with application to all government employees or
has the effect of classifying some positions in the postal service as below the floor wage. 2. R.A. No. 8282 (1997) for Social Security System (SSS);

xxxx 3. R.A. No. 8289 (1997) for Small Business Guarantee and Finance Corporation, (SBGFC);

Sec. 25. Exemption from Rules and Regulations of the Compensation and Position Classification Office. — 4. R.A. No. 8291 (1997) for Government Service Insurance System (GSIS);
All personnel and positions of the Corporation shall be governed by Section 22 hereof, and as such shall be
exempt from the coverage of the rules and regulations of the Compensation and Position Classification 5. R.A. No. 8523 (1998) for Development Bank of the Philippines (DBP);
Office. The Corporation, however, shall see to it that its own system conforms as closely as possible with
that provided for under Republic Act No. 6758. 6. R.A. No. 8763 (2000) for Home Guaranty Corporation (HGC); and

In Intia, Jr. v. Commission on Audit,[13] this Court affirmed the Philippine Postal Corporation's exemption from 7. R.A. No. 9302 (2004) for Philippine Deposit Insurance Corporation (PDIC).
the Salary Standardization Law. However, the corporation should report the details of its salary and
compensation system to the Department of Budget and Management. It is noteworthy, as petitioner points out, that the subsequent charters of the seven other GFIs share this
common proviso: a blanket exemption of all their employees from' the coverage of the SSL, expressly or
xxxx impliedly, as illustrated below:
1. Land Bank of the Philippines (Republic Act No. 7907) effective management, operation and administration of the GSIS, which shall be exempt from Republic
Act No. 6758, otherwise known as the Salary Standardization Law and Republic Act No. 7430, otherwise
Section 10. Section 90 of [Republic Act No. 3844] is hereby amended to read as follows: known as the Attrition Law.
xxx xxx xxx
Section 90. Personnel. —
5. Development Bank of the Philippines (Republic Act No. 8523)
xxx xxx xxx
Section 6. [Amending Executive Order No. 81, Section 13]:

All positions in the Bank shall be governed by a compensation, position classification system and Section 13. Other Officers and Employees. — The Board of Directors shall provide for an organization and
qualification standards approved by the Bank's Board of Directors based on a comprehensive job analysis staff of officers and employees of the Bank and upon recommendation of the President of the Bank, fix
and audit of actual duties and responsibilities. The compensation plan shall be comparable with the their remunerations and other emoluments. All positions in the Bank shall be governed by the
prevailing compensation plans in the private sector and shall be subject to periodic review by the Board compensation, position classification system and qualification standards approved by the Board of
no more than once every two (2) years without prejudice to yearly merit reviews or increases based on Directors based on a comprehensive job analysis of actual duties and responsibilities. The compensation
productivity and profitability. The Bank shall therefore be exempt from existing laws, rules and regulations plan shall be comparable with the prevailing compensation plans in the private sector and shall be
on compensation, position classification and qualification standards. It shall however endeavor to make its subject to periodic review by the Board of Directors once every two (2) years, without prejudice to yearly
system conform as closely as possible with the principles under Republic Act No. 6758. merit or increases based on the Bank's productivity and profitability. The Bank shall, therefore, be exempt
xxx xxx xxx from existing laws, rules, and regulations on compensation, position classification and qualification
2. Social Security System (Republic Act No. 8282) standards. The Bank shall however, endeavor to make its system conform as closely as possible with the
principles under Compensation and Position Classification Act of 1989 (Republic Act No. 6758, as
Section 1. [Amending Republic Act No. 1161, Section 3(c)]: amended).
xxx xxx xxx 6. Home Guaranty Corporation (Republic Act No. 8763)
Section 9. Powers, Functions and Duties of the Board of Directors. — The Board shall have the following
(c) The Commission, upon the recommendation of the SSS President, shall appoint an actuary and such powers, functions and duties:
other personnel as may [be] deemed necessary; fix their reasonable compensation, allowances and other
benefits; prescribe their duties and establish such methods and procedures as may be necessary to insure xxx xxx xxx
the efficient, honest and economical administration of the provisions and purposes of this Act: Provided,
however, That the personnel of the SSS below the rank of Vice President shall be appointed by the SSS (e) To create offices or positions necessary for the efficient management, operation and administration of
President: Provided, further, That the personnel appointed by the SSS President, except those below the the Corporation: Provided, That all positions in the Home Guaranty Corporation (HGC) shall be governed
rank of assistant manager, shall be subject to the confirmation by the Commission; Provided further, That by a compensation and position classification system and qualifications standards approved by the
the personnel of the SSS shall be selected only from civil service eligibles and be subject to civil service rules Corporation's Board of Directors based on a comprehensive job analysis and audit of actual duties and
and regulations: Provided, finally, That the SSS shall be exempt from the provisions of Republic Act No. 6758 responsibilities: Provided, further, That the compensation plan shall be comparable with the prevailing
and Republic Act No. 7430. compensation plans in the private sector and which shall be exempt from Republic Act No. 6758,
3. Small Business Guarantee and Finance Corporation (Republic Act No. 8289) otherwise known as the Salary Standardization Law, and from other laws, rules and regulations on salaries
and compensations; and to establish a Provident Fund and determine the Corporation's and the
Section 8. [Amending Republic Act No. 6977, Section 11]: employee's contributions to the Fund;
(e) notwithstanding the provisions of Republic Act No. 6758, and Compensation Circular No. 10, series of xxx xxx xxx
1989 issued by the Department of Budget and Management, the Board of Directors of [the Small Business
Guarantee and Finance Corporation] shall have the authority to extend to the employees and personnel 7. Philippine Deposit Insurance Corporation (Republic Act No. 9302)
thereof the allowance and fringe benefits similar to those extended to and currently enjoyed by the Section 2. Section 2 of [Republic Act No. 3591, as amended] is hereby further amended to read:
employees and personnel of other government financial institutions.
xxx xxx xxx
4. Government Service Insurance System (Republic Act No. 8291)
Section 1. [Amending Section 43(d) of Presidential Decree No. 1146]. 3.
xxx xxx xxx xxx xxx xxx

Sec. 43. Powers and Functions of the Board of Trustees. — The Board of Trustees shall have the following x x x Provided, That all positions in the Corporation shall be governed by a compensation, position
powers and functions: classification system and qualification standards approved by the Board based on a comprehensive job
xxx xxx xxx analysis and audit of actual duties and responsibilities. The compensation plan shall be comparable with
the prevailing compensation plans of other government financial institutions and shall be subject to review
(d) upon the recommendation of the President and General Manager, to approve the GSIS' organizational by the Board no more than once every two (2) years without prejudice to yearly merit reviews or increases
and administrative structures and staffing pattern, and to establish, fix, review, revise and adjust the based on productivity and profitability. The Corporation shall therefore be exempt from existing laws, rules
appropriate compensation package for the officers and employees of the GSIS with reasonable and regulations on compensation, position classification and qualification standards. It shall however
allowances, incentives, bonuses, privileges and other benefits as may be necessary or proper for the
endeavor to make its system conform as closely as possible with the principles under Republic Act No. Corporation's compensation structure, it is also within the Board's power to grant or increase the
6758, as amended.[16] allowances of PPC officials or employees. As can be gleaned from Sections 10 and 17 of P.D. No. 985 (A
Petitioner's Charter is no different from those mentioned above. Again, Section 16 of R.A. No. 7916, as Decree Revising the Position Classification and Compensation System in the National Government, and
amended, provides: Integrating the Same), the term "compensation" includes salaries, wages, allowances, and other benefits.
Sec. 16. Personnel. - The PEZA Board of Directors shall provide for an organization and staff of officers and xxxx
employees of the PEZA, and upon recommendation of the director general with the approval of the
secretary of the Department of Trade and Industry, appoint and fix the remunerations and other While the PPC Board of Directors admittedly acted within its powers when it granted the RATA increases in
emoluments: Provided, The the Board shall have exclusive and final authority to promote, transfer, assign question, the same should have first been reviewed by the DBM before they were implemented Sections
and reassign officers of the PEZA, any provision of existing law to the contrary notwithstanding: Provided, 21, 22, and 25 of the PPC charter should be read in conjunction with Section 6 of P.D. No. 1597:
further, That the director general may carry out removal of such officers and employees.
Sec. 6. Exemption from OCPC Rules and Regulations. — Agencies, positions or groups of officials and
All positions in the PEZA shall be governed by a compensation, position classification system and employees of the national government, including government-owned and controlled corporations, who
qualification standards approved by the director general with the concurrence of the Board of Directors are hereafter exempted by law from OCPC coverage, shall observe such guidelines and policies as may
based on a comprehensive job analysis and audit of actual duties and responsibilities. The compensation be issued by the President governing position classification, salary rates, levels of allowances, project and
plan shall be comparable with the prevailing compensation plans in the Subic Bay Metropolitan Authority other honoraria, overtime rates, and other forms of compensation and fringe benefits. Exemptions
(SBMA), Clark Development Corporation (BCDA) and the private sector and shall be subject to the notwithstanding, agencies shall report to the President, through the Budget Commission, on their position
periodic review by the Board no more than once every two (2) years without prejudice to yearly merit classification and compensation plans, policies, rates and other related details, following such
reviews or increases based on productivity and profitability. The PEZA shall therefore be exempt from specifications as may be prescribed by the President.
existing laws, rules and regulations on compensation, position classification and qualification standards. It xxxx
shall however endeavor to make its systems conform as closely as possible with the principles under
Republic Act No. 6758.[17] As the Solicitor General correctly observed, there is no express repeal of Section 6, P.D. No. 1597 by RA No.
The COA, in disallowing the increase in the Christmas bonus implemented by petitioner, insists that despite 7354. Neither is there an implied repeal thereof because there is no irreconcilable conflict between the
the provisions of Section 16 of R.A. No. 7916, as amended, petitioner is still bound to observe the guidelines two laws. On the one hand, Section 25 of R.A. No. 7354 provides for the exemption of PPC from the rules
and policies issued by the Office of the President citing this Court's ruling in Intia, Jr. v. COA[18] where it was and regulations of the CPCO. On the other hand, Section 6 of P.D. 1597 requires PPC to report to the
ruled that the power of the board of directors to fix the compensation of the employees is not absolute, President, through the DBM, the details of its salary and compensation system. Thus, while the PPC is
thus: allowed to fix its own personnel compensation structure through its Board of Directors, the latter is required
to follow certain standards in formulating said compensation system. One such standard is specifically
x x x the Board's discretion on the matter of personnel compensation is not absolute as the same must be stated in Section 25 of R.A. No. 7354[.] [21]
exercised in accordance with the standard laid down by law, that is, its compensation system, including
the allowances granted by the Board to PPC employees, must strictly conform with that provided for other The ruling in Intia, Jr. v. COA and the provisions of Section 6 of P.D. No. 1597 can thus be reconciled as both
government agencies under R.A. No. 6758 (Salary Standardization Law) in relation to the General emphasized that these exempted government entities are required to report to the President, through the
Appropriations Act. To ensure such compliance, the resolutions of the Board affecting such matters should DBM, the details of its salary and compensation system. Reporting, however, is different from approval.
first be reviewed and approved by the Department of Budget and Management pursuant to Section 6 of Section 6 of P.D. No. 1597 specifically requires the exempted government agencies to report to the
P.D. 1597.[19] President, through the DBM, on their position classification and compensation plans, policies, rates and
other related details following such specifications as may be prescribed by the President.
In addition, the COA cited Section 6 of P.D. No. 1597 which provides the requisite Presidential review,
through the DBM, of the position classification and compensation plan of an agency exempt from the In fact, a close reading of the charters of those other government entities exempted from the Salary
Office of Compensation and Position Classification (OCPC) coverage, which reads as follows: Standardization Law shows a common provision stating that although the board of directors of the said
Section 6. Exemptions from OCPC Rules and Regulations. Agencies positions and groups of officials and entities has the power to set a compensation, position classification system and qualification standards,
employees of the national government, including government owned or controlled corporations, who are the same entities shall also endeavor to make the system to conform as closely as possible to the principles
hereafter exempted by law from OCPC coverage, shall observe such guidelines and policies as may be and modes provided in R.A. No. 6758. This Court, in Trade and Investment Development Corporation of the
issued by the President governing position classification, salary rates, levels of allowances, project and Philippines v. Civil Service Commission,[22] recognized the Trade and Investment Development
other honoraria, overtime rates, and other forms of compensation and fringe benefits. Exemptions Corporation's exemption from the Salary Standardization Law. However, this Court ruled that the said
notwithstanding, agencies shall report to the President, through the Budget Commission, on their position Corporation should, however, "endeavor" to conform to the principles and modes of the Salary
classification and compensation plans, policies, rates and other related details following such Standardization Law in making its own system of compensation and position classification. The phrase "to
specifications as may be prescribed by the President.[20] endeavor" means "to devote serious and sustained effort" and "to make an effort to do." It is synonymous
It is true that in Intia, Jr. v. COA, this Court affirmed the Philippine Postal Corporation's exemption from the with the words to strive, to struggle and to seek. The use of "to endeavor" in the context of Section 7 of R.A.
Salary Standardization Law, this Court also ruled that the corporation should report the details of its salary No. 8494 means that despite TIDCORP's exemption from laws involving compensation, position
and compensation system to the DBM, thus: classification and qualification standards, it should still strive to conform as closely as possible with the
principles and modes provided in R.A. No. 6758. The phrase "as closely as possible," which qualifies
First, it is conceded that the PPC, by virtue of its charter, R. A. No. 7354, has the power to fix the salaries and
TIDCORP's duty "to endeavor to conform," recognizes that the law allows TIDCORP to deviate from R.A. No.
emoluments of its employees. This function, being lodged in the Postmaster General, the same must be
6758, but it should still try to hew closely with its principles and modes. Had the intent of Congress been to
exercised with the approval of the Board of Directors. This is clear from Sections 21 and 22 of said charter.
require TIDCORP to fully, exactly and strictly comply with R.A. No. 6758, it would have so stated in
unequivocal terms. Instead, the mandate it gave TIDCORP was to endeavor to conform to the principles
Petitioners correctly noted that since the PPC Board of Directors are authorized to approve the
and modes of R.A. No. 6758, and not to the entirety of this law.[23]
 accordance with the understanding by the Commission on Audit several years after the fact, which
Thus, the charters of those government entities exempt from the Salary Standardization Law is not without understanding is only one of several ways of looking at the legal provisions?
any form of restriction. They are still required to report to the Office of the President, through the DBM the
details of their salary and compensation system and to endeavor to make the system to conform as Good faith has always been a valid defense of public officials that has been considered by this Court in
closely as possible to the principles and modes provided in Republic Act No. 6758. Such restriction is the several cases. Good faith is a state of mind denoting "honesty of intention, and freedom from knowledge
most apparent indication that the legislature did not divest the President, as Chief Executive of his power of circumstances which ought to put the holder upon inquiry; an honest intention to abstain from taking
of control over the said government entities. In National Electrification Administration v. COA,[24] this Court any unconcientious advantage of another, even though technicalities of law, together with absence of all
explained the nature of presidential power of control, and held that the constitutional vesture of this power information, notice, or benefit or belief of facts which render transaction unconscientious.[27]
in the President is self-executing and does not require statutory implementation, nor may its exercise be
limited, much less withdrawn, by the legislature. In Arias v. Sandiganbayan,[28] this Court placed significance on the good faith of heads of offices having to
rely to a reasonable extent on their subordinates and on the good faith of those who prepare bids,
It must always be remembered that under our system of government all executive departments, bureaus purchase supplies or enter into negotiations, thus:
and offices are under the control of the President of the Philippines. This precept is embodied in Section 17, There is no question about the need to ferret out and convict public officers whose acts have made the
Article VII of the Constitution which provides as follows: bidding out and construction of public works and highways synonymous with graft or criminal inefficiency
Sec. 17. The President shall have control of all the executive departments, bureaus and offices. He shall in the public eye. However, the remedy is not to indict and jail every person who may have ordered the
ensure that the laws be faithfully executed. project, who signed a document incident to its construction, or who had a hand somewhere in its
Thus, respondent COA was correct in claiming that petitioner has to comply with Section 3[25] of M.O. No. implementation. The careless use of the conspiracy theory may sweep into jail even innocent persons who
20 dated June 25, 2001 which provides that any increase in salary or compensation of GOCCs/GFIs that is may have been made unwitting tools by the criminal minds who engineered the defraudation.
not in accordance with the Salary Standardization Law shall be subject to the approval of the President.
The said M.O. No. 20 is merely a reiteration of the President's power of control over the GOCCs/CFIs xxxx
notwithstanding the power granted to the Board of Directors of the latter to establish and fix a
compensation and benefits scheme for its employees. We would be setting a bad precedent if a head of office plagued by all too common problems -
dishonest or negligent subordinates, overwork, multiple assignments or positions, or plain incompetence - is
Aside from the M.O. No. 20, respondent COA also aptly cited in its Decision No. 2013-231, P.D. No. 1597 and suddenly swept into a conspiracy conviction simply because he did not personally examine every single
A.O. No. 103, which directed austerity measures in government, thus: detail, painstakingly trace every step from inception, and investigate the motives of every person involved
in a transaction before affixing his signature as the final approving authority.
MO No. 20 likewise requires Presidential approval on salary increases while AO No. 103 suspends the grant
of new or additional benefits in line with the austerity measures of the government. These executive xxxx
issuances may not be simply dismissed as inutile as long as they are not inconsistent with the special law,
the PEZA Charter. Administrative issuances partake of the nature of a statute and have in their favor a We can, in retrospect, argue that Arias should have probed records, inspected documents, received
presumption of legality. As such, courts cannot ignore administrative issuances x x x. Unless an procedures, and questioned persons. It is doubtful if any auditor for a fairly sized office could personally do
administrative order is declared invalid, courts have no option but to apply the same. all these things in all vouchers presented for his signature. The Court would be asking for the impossible. All
heads of offices have to rely to a reasonable extent on their subordinates and on the good faith of those
The abovementioned Presidential issuances are not abhorrent to the authority of the BOD to fix the who prepare bids, purchase supplies or enter into negotiations. x x x.[29]
remuneration of the PEZA officers and employees. The requirement of President's approval does not
remove from the BOD the power to fix the compensation and allowances of PEZA but merely requires the Similarly, good faith has also been appreciated in Sistoza v. Desierto,[30] thus:
same to be submitted to the President, through the DBM, in order to determine whether or not the There is no question on the need to ferret out and expel public officers whose acts make bureaucracy
standards set by law have been complied with. synonymous with graft in the public eye, and to eliminate systems of government acquisition procedures
which covertly ease corrupt practices. But the remedy is not to indict and jail every person who happens
Moreover, the DBM Footnotes/Restrictions on the corporation's Corporate Operating Budget (COB) for to have signed a piece of document or had a hand in implementing routine government procurement,
calendar years 2005-2008 explicitly mentioned laws which PEZA is enjoined to strictly comply, namely, nor does the solution fester in the indiscriminate use of the conspiracy theory which may sweep into jail
Section 6 of PD No. 1597, Section 3 of MO No. 20, and AO No. 103 dated August 31, 2004. Further, the DBM, even the most innocent ones. To say the least, this response is excessive and would simply engender
in its confirmation letter dated December 3, 2008 on PEZA's CY 2007 COB, states that "This confirmation, catastrophic consequences since prosecution will likely not end with just one civil servant but must,
however, should not be construed as approval of any unauthorized expenditures, particularly for Personal logically, include like an unsteady streak of dominoes the department secretary, bureau chief, commission
Services. New/additional benefits or salary increases granted should be supported by appropriate legal chairman, agency head, and all chief auditors who, if the flawed reasoning were followed, are equally
basis and approval from the Office of the President.[26] culpable for every crime arising from disbursements they sanction.
The affirmation of the disallowance of the payment of additional Christmas bonus/cash gifts to PEZA
officers and employees for CY 2005 to 2008, however, does not automatically cast liability on the Stretching the argument further, if a public officer were to personally examine every single detail,
responsible officers. painstakingly trace every step from inception, and investigate the motives of every person involved in a
transaction before affixing his signature as the final approving authority, if only to avoid prosecution, our
The question to be resolved is: To what extent may accountability and responsibility be ascribed to public bureaucracy would end up with public managers doing nothing else but superintending minute details in
officials who may have acted in good faith, and in accordance with their understanding of their authority the acts of their subordinates.
which did not appear clearly to be in conflict with other laws? Otherwise put, should public officials be
held financially accountable for the adoption of certain policies or programs which are found to be not in Stated otherwise, in situations of fallible discretion, good faith is nonetheless appreciated when the
document relied upon and signed shows no palpable nor patent, no definite nor certain defects or when
the public officer's trust and confidence in his subordinates upon whom the duty primarily lies are within
parameters of tolerable judgment and permissible margins of error. As we have consistently held, evidence
of guilt must be premised upon a more knowing, personal and deliberate participation of each individual
who is charged with others as part of a conspiracy.[31]
And recently in Social Security System v. Commission on Audit,[32] this Court ruled that good faith absolves
liable officers from refund, thus:
Notwithstanding the disallowance of the questioned disbursements, the Court rules that the responsible
officers under the ND need not refund the same on the basis of good faith. In relation to the requirement
of refund of disallowed benefits or allowances, good faith is a state of mind denoting honesty of intention,
and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an honest
intention to abstain from taking any unconcientious advantage of another, even though technicalities of
law, together with absence of all information, notice, or benefit or belief of facts which render transaction
unconscientious.[33]

In Mendoza v. COA,[34] the Court held that the lack of a similar ruling is a basis of good faith. Thus, good
faith may be appreciated in the case at bench as there is no jurisprudence yet ruling that the benefits
which may be received by members of the SSC are limited to those enumerated under Section 3 (a) of the
SS Law.
It is the same good faith, therefore, that will absolve the responsible officers of PEZA from liability from
refund.

In conclusion, it is unfair to penalize public officials based on overly stretched and strained interpretations
of rules which were not that readily capable of being understood at the time such functionaries acted in
good faith. If there is any ambiguity, which is actually clarified years later, then it should only be applied
prospectively. A contrary rule would be counterproductive. It could result in paralysis, or lack of innovative
ideas getting tried. In addition, it could dissuade others from joining the government. When government
service becomes unattractive, it could only have adverse consequences for society.

WHEREFORE, the Petition dated February 6, 2014 of petitioner Philippine Economic Zone Authority (PEZA)
is DISMISSED. Consequently, Commission on Audit Decision No. 2013-231 dated December 23, 2013, which
affirmed Corporate Government Sector-B Decision No. 2011-008 dated August 31, 2011 and Notice of
Disallowance No. 10-001-101-(05-08) dated May 27, 2010, disallowing the payment of additional Christmas
bonus/cash gifts to PEZA officers and employees for Calendar Years (CY) 2005 to 2008 is AFFIRMED.
However, PEZA and its officers are absolved from refunding the amount covered by the same notice of
disallowance.

SO ORDERED.
 [ G.R. No. 213453, November 29, 2016 ]
PHILIPPINE HEALTH INSURANCE CORPORATION, PETITIONER, VS. COMMISSION ON AUDIT, MA. GRACIA WHETHER THE COA GRAVELY ABUSED ITS DISCRETION, AMOUNTING TO LACK OR EXCESS OF JURISDICTION,
PULIDO TAN, CHAIRPERSON; AND JANET D. NACION, DIRECTOR IV, RESPONDENTS. IN ISSUING THE ASSAILED DECISION AND RESOLUTION.
II.
DECISION
PERALTA, J.: WHETHER THE COA DISREGARDED THE FISCAL AUTONOMY GRANTED TO PHIC UNDER SECTION 16 (N), R.A.
Before the Court is a special civil action for certiorari under Rule 64, in relation to Rule 65 of the 1997 Rules 7875, AS AMENDED, AS WELL AS EXISTING AND RELEVANT JURISPRUDENCE, IN AFFIRMING THE ND PHIC 2008-
of Civil Procedure, as amended, seeking to reverse and set aside the Decision No. 2013-208[1] dated 003 (2004).
November 20, 2013 and Resolution dated April 4, 2014 of the Commission on Audit (COA), which affirmed III.
the Notice of Disallowance (ND) Philippine Health Insurance Corporation (PHIC) 2008-003 (2004)[2] dated
February 7, 2008 of the COA Legal Service. WHETHER PHIC'S PAYMENTS OF THE CNASB, LMRG, WESA, AND BACK COLA IN FAVOR OF ITS OFFICERS AND
EMPLOYEES AMOUNTING TO PHP87,699,144.00 WAS PROPER.
The antecedent facts are as follows:
IV.
The instant case stems from petitioner PHIC's grant of several allowances to its officers and employees that
were subsequently disallowed by respondent COA. In its PHIC Board Resolution No. 406, s. 2001[3] dated GRANTING THAT THE PAYMENTS WERE NOT PROPER, WHETHER THE PHIC OFFICERS AND EMPLOYEES CAN BE
May 31, 2001, for one, petitioner granted the payment of the Collective Negotiation Agreement Signing REQUIRED TO REFUND THE AMOUNTS RECEIVED.
Bonus (CNASB) of P5,000.00 each to all qualified employees due to the extension of the then existing CNA Petitioner PHIC raises several infirmities attendant in respondent COA's disallowance. First, contrary to
between the PHIC management and the PhilHealth Employees Association (PHICEA) for the period of respondent's findings, petitioner paid the CNASB to its regular plantilla personnel in 2001 and not in 2004 as
another three (3) years beginning April of 2001. For another, in its PHIC Board Resolution No. 385, s. evinced by the Certification and payrolls it duly presented.[16] During said year, such grant was expressly
2001[4] effective January 1, 2001, petitioner approved. the payment of the Welfare Support Assistance sanctioned by Budget Circular No. 2000-19 issued by the Department of Budget and Management (DBM)
(WESA) of P4,000.00 each, in lieu of the subsistence and laundry allowances paid to public health workers on December 15, 2000 which authorizes the payment of the signing bonus to each entitled rank-and-file
under Republic Act (R.A.) No. 7305, otherwise known as the Magna Carta of Public Health Workers. personnel. During said year, moreover, the ruling in SSS v. COA[17] had not yet been laid down by the Court,
Petitioner then resolved to approve the grant of the Labor Management Relations Gratuity (LMRG) by which was actually promulgated on July 11, 2002, or more than a year after the payment of the subject
virtue of its PHIC Board Resolution No. 717, s. 2004[5] dated July 22, 2004, in recognition of harmonious labor- CNASB. Thus, on the basis of the established principle of prospective application of laws, the invalidation of
management relations of its employees with the management. Finally, for the services rendered during the the CNASB enunciated in the SSS case cannot be used as legal basis in disallowing the issuance of said
period beginning July 1989 until January 1995, petitioner paid the Cost of Living Allowance (COLA) to bonus.[18]
personnel it had absorbed from the Philippine Medical Care Commission (PMCC) by virtue of Section
51[6] of R.A. No. 7875, otherwise known as The National Health Insurance Act of 1995.[7] Second, petitioner asserts that the WESA was duly granted in compliance with applicable law, particularly
R.A. No. 7305 or the Magna Carta of Public Health Workers (PHW). According to petitioners, the WESA was
On February 7, 2008, however, pursuant to the recommendations of the Supervising Auditor of the PHIC in issued in lieu of the subsistence and laundry allowance due to PHWs under Section 22 of the Magna Carta,
various Audit Observation Memoranda (AOM),[8] respondent Janet D. Nacion, Director IV of the Legal and which provides that said subsistence allowance shall be "computed in accordance with prevailing
Adjudication Office - Corporate of the COA, issued ND PHIC 2008-003 (2004), disallowing the payment of circumstances as determined by the Health Secretary in consultation with the Management Health
the aforementioned allowances granted to PHIC officers and employees in the total amount of Worker's Consultative Councils." Petitioner explains that respondent COA's assertion that the WESA should
P87,699,144.00.[9] According to respondent Nacion, the payment of the CNASB was contrary to the be disallowed because it was granted without the participation of the Health Secretary is not entirely
doctrine enunciated in Social Security System (SSS) v. COA[10] wherein the Court expressly invalidated the accurate. Under Section 18 (a) of R.A. No. 7875, the Board of Directors of the PHIC is composed of eleven
payment of the same. With respect to the WESA, Nacion maintained that its payment was made without (11) members (which was increased to sixteen (16) members under R.A. No. 10606 passed in June 2013)
legal basis in the absence of approval from the Office of the President.[11] As for the payment of the LMRG, with the Health Secretary sitting as the Ex-Officio[19] As part of said PHIC board, its unanimous passage of
Nacion found that it was merely a duplication of the Performance Incentive Bonus (PIB) which was PHIC Board Resolution No. 385, s. 2001 granting the subject WESA was compliantly the positive act of then
granted to employees based on their good performance, increased efficiency and productivity. Lastly, Health Secretary Dr. Alberto G. Romualdez, Jr. required under the law.[20] Any official act of the PHIC Board,
Nacion disallowed the payment of back COLA to PHIC personnel ratiocinating that it should be collected with the Health Secretary sitting as Ex-Officio Chairperson, cannot be considered as an exclusive act of the
not from petitioner PHIC but from the government agency where the services have been rendered prior to board, but also as an act of the Health Secretary in his primary capacity as such.
its creation in January 1995.[12]
Third, petitioner contends that contrary to respondent's allegation, the LMRG is not merely a duplicate of
Petitioner filed its motion for reconsideration which was, however, denied by the COA Legal Services the PIB. The LMRG was passed in the exercise of the PHIC Board of its "fiscal autonomy" to fix compensation
Sector (LSS) in its Decision No. 2010-020[13] issued on May 21, 2010. On appeal, the COA Commission Proper and benefits of its personnel under Section 16 (n) of R.A. No. 7875 in recognition of notable labor-
(CP) sustained the disallowance in its Decision No. 2013-208 dated November 20, 2013.[14] Thereafter, in a management relations, while the PIB was granted as a performance-based incentive under Executive
Resolution[15] dated April 4, 2014, the COA CP en banc further denied petitioner's motion for Order (E.O.) No. 486, entitled Establishing a Performance-Based Incentive System for Government-Owned
reconsideration. or Controlled Corporations and for Other Purposes.[21] In addition, the two (2) grants not only have different
requirements for entitlement but also differ in their amounts and manner of computation.
Aggrieved, petitioner filed the instant petition before the Court raising the following issues:
I. Fourth, with respect to the grant of the COLA back pay, petitioner posits that while it agrees with the
position taken by respondent COA Director Nacion that the Court, in De Jesus v. COA,[22] has
given imprimatur on the propriety of the said COLA during the time when the DBM Corporate As regards the LMRG, respondent maintains that it is exactly the same as the PIB earlier granted to PHIC
Compensation Circular (CCC) 10 was in legal limbo, it, nevertheless, disagrees with her view that the PHIC employees based on their good performance, increased productivity and efficiency, for good
is not legally bound to pay the same to its absorbed personnel for their services were not rendered to PHIC performance is the result of a harmonious relationship between the employees and the
but to another government agency prior to PHIC's creation.[23] Petitioner recounts that the COLA back pay management.[35] Even assuming that the LMRG does not partake of the nature of the PIB, the former
was for services rendered between July 1989 and January 1995 when the payment of the same had been nonetheless remains an additional benefit that requires prior approval of the Office of the President (OP) as
discontinued by reason of DBM CCC 10 issued in July 1995, pursuant to R.A. No. 6758, or the Salary mandated by Memorandum Order (MO) No. 20 dated June 25, 2001. Said MO requires presidential
Standardization Law (SSL). But the failure to publish the DBM CCC 10 integrating COLA into the approval, for any increases in salary or compensation of Government-Owned and Controlled Corporations
standardized salary rates meant that the COLA was not effectively integrated as of July 1989 but only on (GOCCs) that are not in accordance with the SSL.
March 16, 1999 when the circular was published as required by law. Thus, in between those two dates, the
employees were still entitled to receive the COLA. But unlike respondent Nacion, who opined that As for the COLA back pay, respondent reiterates Nacion's view that petitioner PHIC is unauthorized to
petitioner PHIC has no business to settle the obligations of other government entities having a separate settle the obligations PMCC had because it is not one of the powers and functions enumerated in its
and distinct legal personality therefrom, petitioner PHIC invokes Section 51 of R.A. No. 7875 which transfers charter, particularly Section 16 of R.A. 7875. Said functions do not include the obligation to pay the benefits
all the functions and assets of the defunct PMCC to PHIC. According to petitioner, the term "functions" due to the employees of PMCC or other employees of the government who have been absorbed by the
necessarily means to include then PMCC's obligation to pay the benefits due to its employees who have PHIC. Respondent adds that at the time covering the period of July 1989 to January 1995, PHIC had no
been absorbed by PHIC such as the COLA that was unduly withdrawn from their salaries after the issuance legal personality yet, for it was created only in 1995.[36]
of DBM CCC 10 in 1989.[24] This is in keeping with the principle of equal protection of laws guaranteed
under the Constitution. In the end, petitioner posits that since PHIC personnel received the CNASB, WESA, Thus, the obligation to pay the COLA commenced only from that time. Prior to 1995, the COLA of PMCC
LMRG and back COLA in good faith, they should not be required to refund them.[25] employees should have been collected from the PMCC where they rendered their services.

For its part, respondent COA initially raised certain procedural defects in petitioner's action. For one, it is The petition is partly meritorious.
alleged that petitioner PHIC is not the real party-in-interest and, therefore, has no locus standi to file the
instant petition.[26] This is because the parties who benefitted and who will be injured by the disallowance At the outset, the Court rejects the alleged procedural barriers that supposedly prevent it from entertaining
are the officers and employees of PHIC, and not PHIC itself. For another, the special civil action the instant petition. Respondent claims that petitioner PHIC is not the proper "aggrieved party" to file the
for certiorari under Rule 65 is improper as it was not shown that respondent COA acted without jurisdiction petition because the parties who actually received and who will be injured by the disallowance are the
or with grave abuse of discretion amounting to lack or excess of jurisdiction. officers and employees of PHIC, and not PHIC itself. Time and again, the Court has defined locus standi or
legal standing as a personal and substantial interest in the case such that the party has sustained or will
Substantially, moreover, respondent COA asseverates that PHIC's socalled "fiscal autonomy" does not sustain direct injury as a result of the governmental act that is being challenged. The gist of the question of
preclude the COA's power to disallow the grant of allowances.[27] In the exercise of said power, standing is whether a party alleges such a personal stake in the outcome of the controversy as to assure
respondent COA claims that petitioner, in granting the subject allowances, cannot rely on Section 16 that concrete adverseness which sharpens the presentation of issues upon which the court depends for
(n)[28] of R.A. No. 7875. This is because as held in Government Service Insurance System (GSIS) v. Civil illumination of difficult constitutional questions.[37]
Service Commission,[29] the term "compensation" "excludes all bonuses, per diems, allowances and
overtime pay, or salary pay or compensation given in addition to the base pay of the position or rank as In this regard, the Court. finds that petitioner PHIC certainly possesses the legal standing to file the instant
fixed by law or regulations." action. Petitioner comes before the Court invoking its power to fix the compensation of its employees and
personnel enunciated under the National Health Insurance Act. Accordingly, when respondent disallowed
Respondent COA further insists that with respect to the CNASB, the payment of the same was made not in petitioner's grant of certain allowances in its exercise of said power, it effectively and directly challenged
2001, as petitioner claims, but on June 11, 2004, based on an Automatic Debit Advice "dated 6-11- petitioner's authority to grant the same. Thus, petitioner must be granted the opportunity to justify its
2004."[30] Consequently, SSS v. COA[31] is applicable. In fact, in a letter dated October 18, 2004, the DBM issuances by presenting the basis on which they were made. As petitioner pointed out, whatever benefit
reminded the PHIC of the said ruling. Thus, respondent COA posits that while it is true that the payment of received by the personnel as a consequence of PHIC's exercise of its alleged authority is merely incidental
the CNASB was allowed under DBM Budget Circular No. 2000-19, dated December 15, 2000, which was the to the main issue, which is the validity of PHIC's grant of allowances and benefits.[38] In fact, in light of
basis of PHIC Board Resolution No. 406, s. 2001 approving said grant, actual payment thereof by petitioner numerous disallowances being made by the COA, it is rather typical for a government entity to come
PHIC, however, was made only on June 11, 2004, or after the pronouncement in SSS v. COA. Moreover, before the Court and challenge the COA's decision invalidating such entity's disbursement of funds.[39] The
said Board Resolution has already been made ineffective by Resolution No. 04, s. 2002 and Resolution No. nonparticipation of the particular employees who actually received the disallowed benefits does not
02, s. 2003 of the Public Sector LaborManagement Council (PSLMC), which allows the grant of the CNA prevent the Court from determining the issue of whether the COA gravely abused its discretion in declaring
Incentive but declares the CNASB illegal as a form of additional compensation.[32] Respondent adds that the entity's issuance as illegal. In Maritime Industry Authority v. COA,[40] We explained:
the pieces of evidence submitted by petitioner consisting of the Certification and payrolls are self-serving The burden of proving the validity or legality of the grant of allowance or benefits is with the government
for they were made out of court, the COA having no opportunity to impugn the same in open court.[33] agency or entity granting the allowance or benefit, or the employee claiming the same. After the Resident
Auditor issues a notice of disallowance, the aggrieved party may appeal the disallowance to the Director
Respondent COA also rejects petitioner's assertions on the validity of the grant of the WESA claiming that within six (6) months from receipt of the decision. At this point, the government agency or employee has
the act of the PHIC Board is not the act of the individual composing the Board in view of the settled rule the chance to prove the validity of the grant of allowance or benefit. If the appeal is denied, a petition for
that a corporation is invested by law with a personality separate and distinct from those of the persons review may be filed before the Commission on Audit Commission Proper. Finally, the aggrieved party may
composing it.[34] Thus, the act of the PHIC Board of which the Health Secretary is the ex-officio chair is file a petition for certiorari before this court to assail the decision of the Commission on Audit Commission
separate and distinct from the Health Secretary. Consequently, the benefit given as WESA is invalid Proper.
because the rate thereof was not determined by the Health Secretary as mandated by the Magna Carta
of PHWs.
Our laws and procedure have provided the aggrieved party several chances to prove the validity of the may be recommended by the General Manager x x x subject to pertinent civil service and compensation
grant of the allowance or benefit.[41] laws." The PCSO charter evidently does not grant its Board the unbridled authority to set salaries and
As Article IX-A, Section 7 of the 1987 Constitution expressly provides, "unless otherwise provided by this allowances of officials and employees. On the contrary, as a government owned and/or controlled
Constitution or by law, any decision, order, or ruling of each Commission may be brought to the Supreme corporation (GOCC), it was expressly covered by P.D. No. 985 or "The Budgetary Reform Decree on
Court on certiorari by the aggrieved party within thirty days from receipt of a copy thereof." In like manner, Compensation and Position Classification of 1976," and its 1978 amendment, P.D. No. 1597 (Further
Rule 64, Section 2 of the Revised Rules of Civil Procedure also provides that "a judgment or final order or Rationalizing the System of Compensation and Position Classification in the National Government), and
resolution of the Commission on Elections and the Commission on Audit may be brought by the aggrieved mandated to comply with the rules of then Office of Compensation and Position Classification (OCPC)
party to the Supreme Court on certiorari under Rule 65, except as hereinafter provided." Thus, while findings under the DBM.
of administrative agencies, such as the COA herein, are generally respected, when it is shown to have
been tainted with unfairness amounting to grave abuse of discretion, the aggrieved party can assail the Even if it is assumed that there is an explicit provision exempting the PCSO from the OCPC rules, the power
COA decision in special civil action for certiorari under Rule 64 in relation to Rule 65, an extraordinary of the Board to fix the salaries and determine the reasonable allowances, bonuses and other incentives
remedy, the purpose of which is to keep the public respondent within the bounds of its jurisdiction, relieving was still subject to the DBM review. In Intia, Jr. v. COA, the Court stressed that the discretion of the Board of
the petitioner from the public respondent's arbitrary acts.[42] Philippine Postal Corporation on the matter of personnel compensation is not absolute as the same must be
exercised in accordance with the standard laid down by law, i.e., its compensation system, including the
The Court shall now proceed to determine the propriety of respondent COA's disallowance. In support of allowances granted by the Board, must strictly conform with that provided for other government agencies
its grant of the subject allowances and benefits, petitioner PHIC persistently invokes its 'fiscal autonomy' under R.A. No. 6758 in relation to the General Appropriations Act. To ensure such compliance, the
enunciated under Section 16(n) of R.A. 7875 "to organize its office, fix the compensation of and resolutions of the Board affecting such matters should first be reviewed and approved by the DBM
appoint personnel as may be deemed necessary and upon the recommendation of the president of the pursuant to Section 6 of P.D. No. 1597.
Corporation." It argued that unlike in Intia, Jr. v. COA[43] cited by respondent COA where the charter of the The Court, in the same case, further elaborated on the rule that notwithstanding any exemption granted
Philippine Postal Corporation expressly stated that it shall ensure that its compensation system conforms under their charters, the power of GOCCs to fix salaries and allowances must still conform to
closely to the provisions of the SSL, the PHIC charter does not contain a similar limitation thereby removing compensation and position classification standards laid down by applicable law. Citing Philippine
the PHIC from the ambit thereof.[44] Moreover, had the legislature intended to subject its power to fix its Retirement Authority (PRA) v. Buñag,[50] We said:
personnel's compensation to the approval of the DBM or the Office of the President (OP), its charter should In accordance with the ruling of this Court in Intia, we agree with petitioner PRA that these provisions
have expressly provided as it did in Section 19(d) thereof which states that "the President shall receive a should be read together with P.D. No. 985 and P.D. No. 1597, particularly Section 6 of P.D. No. 1597.
salary to be fixed by the Board, with the approval of the President of the Philippines, payable from the Thus, notwithstanding exemptions from the authority of the Office of Compensation and Position
funds of the Corporation." In further support thereof, petitioner cites certain opinions of the Office of Classification granted to PRA under its charter, PRA is still required to 1) observe the policies and guidelines
Government Corporate Counsel (OGCC) dated December 21, 1999 and March 31, 2004 upholding PHIC's issued by the President with respect to position classification, salary rates, levels of allowances, project and
unrestricted 'fiscal autonomy' to fix the compensation of its personnel.[45] other honoraria, overtime rates, and other forms of compensation and fringe benefits and 2) report to the
President, through the Budget Commission, on their position classification and compensation plans,
Petitioner adds that in any event, its power to fix its personnel compensation is still subject to certain policies, rates and other related details following such specifications as may be prescribed by the
limitations such as Section 26(b) of R.A. 7875 providing that it may charge various funds under its control for President.
costs of administering the Program for as long as they shall not exceed the twelve percent (12%) of the
total contributions to the Program and three percent (3%) of the investment earnings collected during the Despite the power granted to the Board of Directors of PRA to establish and fix a compensation and
immediately preceding year.[46] Thus, petitioner posits that it is the intent of the legislature to limit the benefits scheme for its employees, the same is subject to the review of the Department of Budget and
determination and approval of allowances to the PHIC Board alone, subject only to the 12%-13% Management. x x x x
limitation.[47] In the end, petitioner emphasizes that it enjoys an unmistakeable authority to exclusively
approve its own, internal operating budget for prior DBM approval is only required when national The rationale for the review authority of the Department of Budget and Management is obvious. Even prior
budgetary support is needed.[48] to R.A. No. 6758, the declared policy of the. national government is to provide "equal pay for substantially
equal work and to base differences in pay upon substantive differences in duties and responsibilities, and
Petitioner's contentions are devoid of merit. qualification requirements of the positions." To implement this policy, P.D. No. 985 provided for the
standardized compensation of government employees and officials, including those in government-
The extent of the power of GOCCs to fix compensation and determine the reasonable allowances of its owned and controlled corporations. Subsequently, P.D. No. 1597 was enacted prescribing the duties to be
officers and employees had already been conclusively laid down in Philippine Charity Sweepstakes Office followed by agencies and offices exempt from coverage of the rules and regulations of the Office of
(PCSO) v. COA,[49] to wit: Compensation and Position Classification. The intention, therefore, was to provide a compensation
The PCSO stresses that it is a self-sustaining government instrumentality which generates its own fund to standardization scheme such that notwithstanding any exemptions from the coverage of the Office of
support its operations and does not depend on the national government for its budgetary support. Thus, it Compensation and Position Classification, the exempt government entity or office is still required to
enjoys certain latitude to establish and grant allowances and incentives to its officers and employees. observe the policies and guidelines issued by the President and to submit a report to the Budget
Commission on matters concerning position classification and compensation plans, policies, rates and
We do not agree. Sections 6 and 9 of R.A. No. 1169, as amended, cannot be relied upon by the PCSO to other related details. This ought to be the interpretation if the avowed policy of compensation
grant the COLA. Section 6 merely states, among others, that fifteen percent (15%) of the net receipts from standardization in government is to be given full effect. The policy of "equal pay for substantially equal
the sale of sweepstakes tickets (whether for sweepstakes races, lotteries, or other similar activities) shall be work" will be an empty directive if government entities exempt from the coverage of the Office of
set aside as contributions to the operating expenses and capital expenditures of the PCSO. Also, Section 9 Compensation and Position Classification may freely impose any type of salary scheme, benefit or
loosely provides that among the powers and functions of the PCSO Board of Directors is "to fix the salaries monetary incentive to its employees in any amount, without regard to the compensation plan
and determine the reasonable allowances, bonuses and other incentives of its officers and employees as implemented in the other government agencies or entities. Thus, even prior to the passage of R.A No. 6758,
consistent with the salary standardization laws in effect, the compensation and benefits scheme of PRA is rules and regulations identifying those excluded benefits, the enumerated nonintegrated allowances in
subject to the review of the Department of Budget and Management.[51] Section 12 remain exclusive.[59] When a grant of an allowance, therefore, is not among those excluded in
Accordingly, that Section 16(n) of R.A. 7875 granting PHIC's power to fix the compensation of its personnel the Section 12 enumeration or expressly excluded by law or DBM issuance, such allowance is deemed
does not explicitly provide that the same shall be subject to the approval of the OBM or the OP as in already given to its recipient in their basic salary. As a result, the unauthorized issuance and receipt of said
Section 19(d) thereof does not necessarily mean that the PHIC has unbridled discretion to issue any and all allowance is tantamount to double compensation justifying COA disallowance.[60]
kinds of allowances, limited only by the provisions of its charter. As clearly expressed in PCSO v. COA, even
if it is assumed that there is an explicit provision exempting a GOCC from the rules of the then Office of Prescinding from the foregoing, the Court had consistently ruled that not being an enumerated exclusion,
Compensation and Position Classification (OCPC) under the OBM, the power of its Board to fix the salaries the COLA is deemed already incorporated in the standardized salary rates of government employees
and determine the reasonable allowances, bonuses and other incentives was still subject to the standards under the general rule of integration of the SSL.[61] Petitioner's argument that the failure to publish the DBM-
laid down by applicable laws: P.O. No. 985,[52] its 1978 amendment, P.O. No. 1597,[53] the SSL, and at CCC No. 10 integrating COLA into the standardized salary rates meant that the COLA was not effectively
present, R.A. 10149.[54] To sustain petitioners' claim that it is the PHIC, and PHIC alone, that will ensure that its integrated as of July 1989 but only on March 16, 1999 when the circular was published as required by law
compensation system conforms with applicable law will result in an invalid delegation of legislative power, has already been definitively addressed in Maritime Industry Authority v. COA,[62] viz.:
granting the PHIC unlimited authority to unilaterally fix its compensation structure.[55] Certainly, such effect We cannot subscribe to petitioner Maritime Industry Authority's contention that due to the non-publication
could not have been the intent of the legislature. of the Department of Budget and Management's National Compensation Circular No. 59, it is considered
invalid that results in the non-integration of allowances in the standardized salary.
It must be noted, though, that the power of review granted to the OMB is simply to ensure that the
proposed compensation and benefit schemes of the GOCCs comply with the requirements of applicable xxxx
laws, rules and regulations. PRA v. Buñag[56] clarifies:
However, in view of the express powers granted to PRA under its charter, the extent of the review authority As held in Philippine International Trading Corporation v. Commission on Audit, the non-publication of the
of the Department of Budget and Management is limited. As stated in Intia, the task of the Department of Department of Budget and Management's issuance enumerating allowances that are deemed integrated
Budget and Management is simply to review the compensation and benefits plan of the government in the standardized salary will not affect the execution of Section 12 of Republic Act No. 6758. Thus:
agency or entity concerned and determine if the same complies with the prescribed policies and There is no merit in the claim of PITC that R.A. No. 6758, particularly Section 12 thereof is void because
guidelines issued in this regard. The role of the Department of Budget and Management is supervisorial in DBM-Corporate Compensation Circular No. 10, its implementing rules, was nullified in the case of De Jesus
nature, its main duty being to ascertain that the proposed compensation, benefits and other incentives to v. Commission on Audit, for lack of publication. The basis of COA in disallowing the grant of SFI was Section
be given to PRA officials and employees adhere to the policies and guidelines issued in accordance with 12 of R.A. No. 6758 and not DBM-CCC No. 10. Moreover, the nullity of DBM-CCC No. 10 will not affect the
applicable laws. validity of R.A. No. 6758. It is a cardinal rule in statutory construction that statutory provisions control the
The rule, therefore, is that for as long as the allowances and benefits granted by petitioner PHIC are in rules and regulations which may be issued pursuant thereto. Such rules and regulations must be consistent
accordance with and authorized by prevailing law, the same shall be upheld by the DBM.[57] As Section with and must not defeat the purpose of the statute. The validity of R.A. No. 6758 should not be made to
29(1), Article VI of the 1987 Constitution provides, "[n]o money shall be paid out of the Treasury except in depend on the validity of its implementing rules.
pursuance of an appropriation made by law." Accordingly, in order to determine the validity of PHIC's In Gutierrez v. Department of Budget and Management, this court held that:
issuances, the Court must give due regard to the following Section 12 of the SSL in force at the time of the xxxx
subject grants:
Section 12. Consolidation of Allowances and Compensation. - All allowances, except for representation In this case, the DBM promulgated NCC 59 [and CCC 10]. But, instead of identifying some of the additional
and transportation allowances; clothing and laundry allowances; subsistence allowance of marine officers exclusions that Section 12 of R.A. 6758 permits it to make, the DBM made a list of what allowances and
and crew on board government vessels and hospital personnel; hazard pay; allowances of foreign service benefits are deemed integrated into the standardized salary rates. More specifically, NCC 59 identified the
personnel stationed abroad; and such other additional compensation not otherwise specified herein as following allowances/additional compensation that are deemed integrated:
may be determined by the DBM, shall be deemed included in the standardized salary rates herein
prescribed. Such other additional compensation, whether in cash or in kind, being received by incumbents xxxx
only as of July 1, 1989 not integrated into the standardized salary rates shall continue to be authorized.
The drawing up of the above list is consistent with Section 12 above. R.A. 6758 did not prohibit the DBM from
Existing additional compensation of any national government official or employee paid from local funds of identifying for the purpose of implementation what fell into the class of "all allowances." With respect to
a local government unit shall be absorbed into the basic salary of said official or employee and shall be what employees' benefits fell outside the term apart from those that the law specified, the DBM, said this
paid by the National Government. (Emphasis supplied) Court in a case, needed to promulgate rules and regulations identifying those excluded benefits. This leads
Thus, the general rule is that all allowances are deemed included in the standardized salary except for the to the inevitable conclusion that until and unless the DBM issues such rules and regulations, the
following: (1) representation and transportation allowances; (2) clothing and laundry allowances; (3) enumerated exclusions in items (1) to (6) remain exclusive. Thus so, not being an enumerated exclusion,
subsistence allowance of marine officers and crew on board government vessels and hospital personnel; COLA is deemed already incorporated in the standardized salary rates of government employees under
(4) hazard pay; (5) allowances of foreign service personnel stationed abroad; and (6) such other the general rule of integration.[63]
additional compensation not otherwise specified herein as may be determined by the DBM. In certain instances, however, the Court had opted to sustain the continued grant of allowances, whether
or not integrated into the standardized salaries, but only to those incumbent government employees who
Time and again, the Court has ruled that Section 12 of the SSL is self-executing. This means that even were actually receiving said allowances before and as of July 1, 1989.[64] This is in consonance with the
without DBM action, the standardized salaries of government employees are already inclusive of all second sentence of the first paragraph of Section 12 of the SSL which states that: "such other additional
allowances, save for those expressly identified in said section.[58] It is only when additional non-integrated compensation, whether in cash or in kind, being received by incumbents only as of July 1, 1989 not
allowances will be identified that an issuance of the DBM is required. Thus, until and unless the DBM issues integrated into the standardized salary rates shall continue to be authorized." But unfortunately, petitioner
failed to prove such exception. To recall, petitioner merely asserted, as basis for its issuance of the COLA, discrimination between the current PHIC employees and those absorbed from PMCC, but rather, a
the ineffectivity of DBM CCC 10 as well as its obligation towards the employees it had absorbed from its discrimination between incumbent PHIC employees as of July 1, 1989 and those employed thereafter,
predecessor, Philippine Medical Care Commission. While petitioner loosely mentioned that the COLA back who, as addressed by the second sentence of Section 12 of the SSL, suffered a diminution in pay. But as
pay was for services rendered between July 1989 and January 1995 when the payment of the same had previously observed, petitioner never even alleged the same. Resultantly, petitioner can neither invoke the
been "discontinued" and "unduly withdrawn," it failed to present any sort of proof, documentary or guarantee of equal protection of laws nor the principle of non-diminution ofbenefits to sustain its grant of
otherwise, to sufficiently establish that those COLA recipients were, indeed, incumbent government the COLA.
employees who were actually receiving the same as of July 1, 1989. In fact, nowhere in its pleadings filed
before the Court was it even invoked that the PHIC officers and employees actually suffered a diminution For parallel reasons, the Court finds that the PHIC's issuance of the LMRG must suffer the same fate. In
in pay as a result of the consolidation of the COLA back pay into their standardized salary rates. Petitioner defending the validity thereof, petitioner PHIC merely asserted, in its petition, its 'fiscal autonomy' to fix
cannot, therefore, rely on Our ruling in Philipgine Ports Authority (PPA) Employees Hired After July 1, 1989 v. compensation and benefits of its personnel under Section 16 (n) of R.A. No. 7875 and the argument that
COA.[65] As the Court elucidated in NAPOCOR Employees Consolidated Union (NEU) v. National Power the LMRG is not merely a duplicate of the PIB. Seemingly realizing the insufficiency thereof, petitioner, in its
Corporation (NPC):[66] Reply, attempted to provide the Court with additional legal basis by citing certain OGCC opinions and
The Court has, to be sure, taken stock of its recent ruling in Philippine Ports Authority (PPA) Employees Hired jurisprudence reiterating its "fiscal autonomy" and averring that Section 19, Chapter 3, Book VI of E.O. 292,
After July 1, 1989 vs. Commission on Audit. Sadly, however, our pronouncement therein is not on all fours otherwise known as the 1987 Administrative Code of the Philippines, clearly provides that internal operating
applicable owing to the differing factual milieu. There, the Commission on Audit allowed the payment of budgets of GOCCs are generally subject only of their respective governing boards, and the only exception
back cost of living allowance (COLA) and amelioration allowance previously withheld from PPA thereto requiring DBM approval is when national government budgetary support is used. Thus, it waalleged
employees pursuant to the heretofore ineffective DBM CCC No. 10, but limited the back payment only to that since the funds used in the disbursement of the LMRG were sourced from PHIC's internal operating
incumbents as of July 1, 1989 who were already then receiving both allowances. COA considered the budget, DBM approval is unnecessary.[70]
COLA and amelioration allowance of PPA employees as "not integrated" within the purview of the second
sentence of Section 12 of Rep. Act No. 6758, which, according to COA confines the payment of "not Petitioner fails to persuade.
integrated" benefits only to July 1, 1989 incumbents already enjoying the allowances.
PCSO v. COA has already established, in no uncertain terms, that the fact that a GOCC is a self-sustaining
In setting aside COA's ruling, we held in PPA Employees that there was no basis to use the elements of government instrumentality which does not depend on the national government for its budgetary support
incumbency and prior receipt as standards to discriminate against the petitioners therein. For, DBM-CCC does not automatically mean that its discretion on the matter of compensation is absolute. As elucidated
No. 10, upon which the incumbency and prior receipt requirements are contextually predicated, was in above, regardless of any exemption granted under their charters, the power of GOCCs to fix salaries and
legal limbo from July 1, 1989 (effective date of the unpublished DBM-CCC No. 10) to March 16, 1999 (date allowances must still conform to compensation and position classification standards laid down by
of effectivity of the heretofore unpublished DBM circular). And being in legal limbo, the benefits otherwise applicable law, which, in this case, is the SSL. In view of petitioner's failure to present any statutory authority
covered by the circular, if properly published, were likewise in legal limbo as they cannot be classified or DBM issuance expressly authorizing the grant of the LMRG, the same must be deemed incorporated in
either as effectively integrated or not integrated benefits. the standardized salaries of the PHIC employees. Accordingly, the Court must necessarily strike its
unauthorized issuance as invalid for the receipt by the PifiC employees thereof was tantamount to double
There lies the difference. compensation.

Here, the employee welfare allowance was, as above demonstrated, integrated by NPC into the With respect to the CNASB, however, it is undisputed that the same momentarily had DBM approvaL Let it
employees' standardized salary rates effective July 1, 1989 pursuant to Rep. Act No. 6758. Unlike in PPA be remembered that on December 15, 2000, the DBM issued Budget Circular No. 2000-19 explicitly
Employees, the element of discrimination between incumbents as of July 1, 1989 and those joining the authorizing the payment of the signing bonus to each entitled rank-and-file personnel. But on July 11, 2002,
force thereafter is not obtaining in this case. And while after July 1, 1989, PPA employees can rightfully the Court, in SSS v. COA, declared as invalid said signing bonus for being inconsistent with the rule of salary
complain about the discontinuance of payment of COLA and amelioration allowance effected due to integration under the SSL and for not being "a truly reasonable compensation" due to the fact that
the incumbency and prior receipt requirements set forth in DBM-CCC No, 10, NPC cannot do likewise with peaceful collective negotiations "should not come with a price tag." Thus, while respondent COA admits
respect to their welfare allowance since NPC has, for all intents and purposes, never really discontinued that the payment of the CNASB was allowed under the DBM Circular, it contends that actual payment
the payment thereof. thereof was made only on June 11, 2004, or after the pronouncement in SSS v. COA, and as a
consequence, petitioner PHIC's payment thereof is invalid.
To stress, herein petitioners failed to establish that they suffered a diminution in pay as a consequence of
the consolidation of the employee welfare allowance into their standardized salary. There is thus nothing in Nevertheless, based on the records of the case, the Court is inclined to give more credence to petitioner
this case which can be the subject of a back pay since the amount corresponding to the employee PHIC's allegations on the allowance's validity than to the apparently unsubstantiated contentions of
welfare allowance was never in the first place withheld from the petitioners.[67] respondent COA. In disallowing the grant of the CNASB, respondent COA primarily anchored its decision
on a certain "Automatic Debit Advice dated 6-11-2004."[71] Relying solely on the basis thereof, respondent
Here, petitioner's constant invocation of the equal protection clause is misleading. In its petition, petitioner summarily concluded that the actual payment of the CNASB was made only on June 11, 2004 or after the
PHIC insists that all its employees should be treated equally, regardless of whether they rendered their pronouncement in SSS v. COA.[72] The Court, however, is unconvinced. Nowhere in the records was the
service to the PHIC or to its predecessor, PMCC.[68] Without delving into the matter of whether said source of said "Automatic Debit Advice" shown. The initial Audit Observation Memorandum, which was the
employees were employed before or after July 1, 1989, it then concluded that all employees must be paid basis of respondent COA's disallowance, simply indicated "ADA No. 01-06-028 dtd. 6/11/2004"[73] and "ADA
their back COLA that was unduly withdrawn from them after the issuance of the DBM CCC 10, and for the No. 01-05-029 dtd. 6/11/2004"[74] without even explaining what such code represents. Moreover, as aptly
entire duration that the circular was in legal limbo.[69] It bears stressing, however, that the Court, in PPA, pointed out by petitioner, respondent COA automatically insisted that the CNASB was granted after the
accorded equal treatment to all PPA employees whether they were incumbents as of July 1, 1989, the promulgation of SSS v. COA, merely mentioning, for the first time in its Comment before the Court, its basis
time of effectivity of the SSL, or employed thereafter. Hence, to successfully invoke the guarantee of equal as the "Automatic Debit Advice." Said advice, however, was never shown to petitioner for validation.
protection clause under the PPA doctrine, petitioner needed to prove, to the Court's satisfaction, not a Worse, it was not even presented before the Court to support the COA disallowance.
 c. Those public health workers who are out of station shall be entitled to per diems in place of Subsistence
Thus, as between petitioner PHIC's allegations together with its corresponding documentary evidence Allowance. Subsistence Allowance may also be commuted.
consisting of certifications and employee payrolls on the one hand, and respondent COA's plain assertions,
unsubstantiated by any sort of proof on the other, the Court finds that the former deserves to be given 7.2.2. Basis for Granting Subsistence Allowance
more weight and credence. Remember that the power granted to the DBM is simply to ensure that the
proposed compensation, benefits and other incentives given to GOCC officials and employees adhere to Public health workers shall be granted subsistence allowance based on the number of meals/days
the policies and guidelines issued in accordance with applicable laws.[75] It is only just that the extent of its included in the duration when they rendered actual work including their regular duties, overtime work or
reviewing authority be sufficiently supported by reasonable proof. Considering, therefore, that the records on-call duty as defined in this revised IRR.
of the case, taken in conjunction with the circumstances surrounding their issuance, supports a reasonable
conclusion that the CNASB was, indeed, paid in 2001 and not in 2004, at the time when the payment Public health workers who are on the following official situations are not entitled to collect/receive this
thereof was expressly sanctioned by DBM Budget Circular No. 2000-19, the Court holds that respondent benefit:
COA carelessly and whimsically issued its disallowance in absence of any sufficient basis in support of the
same.
a. Those on vacation/sick leave and special privilege leave with or without pay;
In a similar manner, the Court finds that the PHIC's grant of the WESA was aptly sanctioned not only by
Section 12[76] of the SSL but also by statutory authority. PHIC Board Resolution No. 385, s. 2001[77] states that
b. Those on terminal leave and commutation;
the WESA of P4,000.00 each shall be paid to public health workers under the Magna Carta of PHWs in lieu
of the subsistence and laundry allowances. Respondent COA contested the same not so much on the
propriety of the subsistence and laundry allowances in the form of the WESA, but that the Secretary of c. Those on official travel and are receiving per diem regardless of the amount; and
Health prescribed the rates thereof not in accordance with the Magna Carta of PHWs. According to
respondent COA, the WESA is invalid because the act of the PHIC Board, of which the Health Secretary is
the Ex-Officio Chairperson, in approving the allowance is not the same as the act of the Secretary himself. d. Those on maternity/paternity leave.
In this regard, Section 22 and 24 of the Magna Carta pertinently provides:
Section 22. Subsistence Allowance. - Public health workers who are required to render service within the 7.2.3. Rates of Subsistence Allowance
premises of hospitals, sanitaria, health infirmaries, main health centers, rural health units and barangay a. Subsistence allowance shall be implemented at not less than PhP50.00 per day or PhP1,500.00 per
health stations, or clinics, and other health-related establishments in order to make their services available month as certified by head of agency.
at any and all times, shall be entitled to full subsistence allowance of three (3) meals which may
be computed in accordance with prevailing circumstances as determined by the Secretary of Health in
b. Non-health agency workers detailed in health and health related institutions/establishments are entitled
consultation with the Management-Health Worker's Consultative Councils, as established under Section 33
of this Act: Provided, That representation and travel allowance shall be given to rural health physicians as to subsistence allowance and shall be funded by the agency where service is rendered.
enjoyed by municipal agriculturists, municipal planning and development officers and budget officers.
c. Subsistence allowance of public health workers on full-time and part-time detail in other agency shall be
xxxx paid by the agency where service is rendered.

SEC. 24. Laundry Allowance. - All public health workers who are required to wear uniforms regularly shall be
entitled to laundry allowance equivalent to one hundred twenty-five pesos (P125.00) per month: Provided, d. Part-time public health workers/consultants are entitled to one-half (1/2) of the prescribed rates
That this rate shall be reviewed periodically and increased accordingly by the Secretary of Health in received by full-time public health workers.
consultation with the appropriate government agencies concerned taking into account existing laws and
prevailing practices. (Emphases ours) 7.3. Laundry Allowance
Moreover, the Magna Carta's Revised Implementing Rules and Regulations (IRR) issued by the Secretary of
Health in November 1999 similarly provide: 7.3.1. Eligibility for Laundry Allowance
7.2. Subsistence Allowance All public health workers covered under RA 7305 are eligible to receive laundry allowance if they are
required to wear uniforms regularly.
7.2.1. Eligibility for Subsistence Allowance
a. All public health workers covered under RA 7305 are eligible to receive full subsistence allowance as 7.3.2. Rate of Laundry Allowance
long as they render actual duty. The laundry allowance shall be P150.00 per month. This shall be paid on a monthly basis regardless of the
actual work rendered by a public health worker.
b. Public Health Workers shall be entitled to full Subsistence Allowance of three (3) meals which may
It may be observed, however, that the foregoing excerpts do not prescribe a specific form or process by
be computed in accordance with prevailing circumstances as determined by the Secretary of Health in
which the Secretary of Health must compute the rates of the subsistence and laundry allowances. The law
consultation with the Management Health Workers Consultative Council, as established under Section 33
simply states that the Health Secretary shall compute said rates "in accordance with prevailing
of the Act.
circumstances" and "in consultation with the Management Health Workers Consultative Council." But
nowhere in the law was it required that the Secretary of Health, in determining the allowances due to
PHWs, must be acting alone. Neither has respondent COA presented any provision of law, rule, or other
similar authority to that effect. in bad faith. From the very beginning, petitioner had been invoking, albeit enoneously, Our ruling in PPA
Employees Hired After July 1, 1989 v. COA, wherein We granted the payment of the COLA back pay to
Instead, respondent COA insists that since the Health Secretary actually approved the issuance of the PPA employees for the period beginning July 1, 1989 until March 16, 1999, during the time the DBM-CCC
WESA by virtue of a resolution of the PHIC Board, such approval is invalid for the act of the PHIC Board is No. 10 was in legal limbo, seemingly believing, in good faith, that on the basis thereof, the PHIC employees
not the act of the individual composing the Board in view of the rule that a corporation is invested by law could likewise be granted the same. In fact, even respondent COA Director Janet Nacion was under the
with a personality separate and distinct from those of the persons composing it. The Court, however, same impression when she conceded that "no less than the SC has made an imprimatur regarding the
cannot subscribe to such argument. It is true that a corporation is a juridical entity with legal personality employee's entitlement to COLA" during the time the circular was in legal limbo.[83] It is therefore apparent
separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. that during such time, there were differing opinions regarding the true interpretation of a technicality of
Resultantly, obligations incurred by the corporation, acting through its .directors, officers and employees, law. Thus, before the Court was able to clarify that the ruling in PPA Employees was limited to distinguishing
are its sole liabilities.[78] Moreover, when said corporation's corporate legal entity is used as a cloak for fraud the benefits that may be received by government employees who were hired before and after the
or illegality, the law will regard it as an association of persons or, in case of two corporations, merge them effectivity of the SSL,[84] there was yet no absolute and clear-cut rule regarding the entitlement to the
into one.[79] It must be clarified, however, that these principles of separate juridical personalities as well as COLA during the period when the DBM circular was in legal limbo. Hence, it might seem rather severe to
the piercing of its veil of corporate fiction essentially apply only in determining established liabilities.[80] It is hold the concerned PHIC officers personally liable to refund the COLA back pay in view of the fact that
but a legal fiction introduced for purposes of convenience and to subserve the ends of justice.[81] But the they may have honestly believed in the propriety of the same. In fact, just recently, We held that since
issue in the instant case is far from holding a director liable for the obligations of the corporation insofar as certain officers who authorized the back payment of the COLA were oblivious that said payments were
claims of third persons are concerned. The issue here, instead, is merely whether the Secretary of Health improper, the same need not be refunded.[85] This is because absent any showing of bad faith or malice,
duly complied with prevalent law in determining the rates of allowances to be granted to qualified PHWs. public officers are not personally liable for damages resulting from the performance of official duties.[86] As
In this regard, the Court rules in the affirmative. the Court explained in Philippine Economic Zone Authority (PEZA) v. COA:[87]
x x x x It is unfair to penalize public officials based on overly stretched and strained interpretations of rules
To repeat, the law does not prescribe a particular fonn nor restrict to a specific mode of action by which which were not that readily capable of being understood at the time such functionaries acted in good
the Secretary of Health must determine the subject rates of subsistence and laundry allowance. That the faith. If there is any ambiguity, which is actually clarified years later, then it should only be applied
Health Secretary approved the grant of the WESA together with ten (10) other members of the Board does prospectively. A contrary rule would be counterproductive. It could result in paralysis, or lack of innovative
not make the act any short of the approval required under the law. As far as the Magna Carta and its ideas getting tried. In addition, it could dissuade others from joining the government. When the
Revised IRR are concerned, the then Health Secretary Dr. Alberto G. Romualdez, Jr. voted in favor of the government service becomes unattractive, it could only have adverse consequences for society.[88]
WESA's issuance, and for as long as there exists no deception or coercion that may vitiate his consent, the
concurring votes of his fellow Board members does not change the fact of his approval. To rule otherwise Thus, the fact that the PHIC officers had an unclear knowledge of a ruling by this Court categorically
would create additional constraints that were not expressly provided for by law. prohibiting the particular disbursement herein is a badge of good faith,[89] especially in light of the COA's
failure to overturn the presumption of regularity in the performance of their official duties.
Nevertheless, even assuming the invalidity of the WESA due to the inegular manner by which the Health
Secretary determined its rates, the Court does not find that the PHIC Board of Directors, other responsible The same does not hold true, however, with respect to the LMRG. Unlike the issuances of the WESA, CNAB,
officers, and recipients thereof should be ordered to refund the same. On this matter, PCSO v. and COLA, which need not be refunded either for being expressly sanctioned by law or for being issued in
COA[82] summarized the rules as follows: an honest belief that the same was authorized by recent jurisprudence, petitioner's issuance of the LMRG
cannot be said to have been done in good faith. Time and again, the Court has defined good faith as "a
Recipients or payees need not refund disallowed benefits or allowances when it was received in good state of mind denoting honesty of intention, and freedom from knowledge of circumstances which ought
faith and there is no finding of bad faith or malice. On the other hand, officers who participated in the to put the holder upon inquiry; an honest intention to abstain from taking any unconscientious advantage
approval of such disallowed amount are required to refund only those received if they are found to be in of another, even though technicalities of law, together with absence of all information, notice, or benefit
bad faith or grossly negligent amounting to bad faith. Public officials who are directly responsible for, or or belief of facts which render transactions unconscientious."[90]
participated in making the illegal expenditures, as well as those who actually received the amounts
therefrom shall be solidarity liable for their reimbursement. The receipt or non-receipt of illegally disbursed As previously mentioned, the PHIC Board members and officers approved the issuance of the LMRG in
funds is immaterial to the solidary liability of government officials directly responsible. sheer and utter absence of the requisite law or DBM authority, the basis thereof being merely PHIC's
As previously discussed, PHIC's grant of the WESA was aptly sanctioned not only by Section 12 of the SSL alleged "fiscal autonomy" under Section 16(n) of RA 7875.[91] But again, its authority thereunder to fix its
which explicitly identifies laundry and subsistence allowance as excluded from the integrated salary, but personnel's compensation is not, and has never been, absolute. As previously discussed, in order to uphold
also by statutory authority, particularly, Section 22 and 24 of the Magna Carta. In view of such fact, the the validity of a grant of an allowance, it must not merely rest on an agency's "fiscal autonomy" alone, but
PHIC officers cannot be found to have approved the issuance of the same in bad faith or in gross must expressly be part of the enumeration under Section 12 of the SSL, or expressly authorized by law or
negligence amounting to bad faith for it was well within the parameters set by law. Thus, the WESA need DBM issuance. This directive was definitively established by the Court as early as 1999 in National Tobacco
not be refunded. Administration v. Commission on Audit,[92] which was even subsequently affirmed in Philippine International
Trading Corporation v. Commission on Audit[93] in 2003. Thus, at the time of the passage of PHIC Board
Neither must the concerned PHIC officers and employees be ordered to refund the CNAB because, as Resolution No. 717, s. 2004 on July 22, 2004 by virtue of which the PHIC Board resolved to approve the
previously mentioned, the same was expressly authorized by DBM Budget Circular No. 2000-19. Contrary to LMRG's issuance, the PHIC Board members and officers had an entire five (5)-year period to be
respondent COA's unsubstantiated assertion, the Court is convinced that the CNAB was paid in 2001, acquainted with the proper rules insofar as the issuance of certain allowances is concerned. They cannot,
before the payment ofthe same was invalidated by Our ruling in SSS v. COA. The PHIC approving officers, therefore, be allowed to feign ignorance to such rulings for they are, in fact, duty-bound to know and
therefore, had no knowledge of the fact that the payment of the CNAB was contrary to the SSL for the understand the relevant rules they are tasked to implement.[94] Thus, even if We assume the absence of
same was actually authorized by the DBM itself. bad faith, the fact that said officials recklessly granted the LMRG not only without authority of law, but
even contrary thereto, is tantamount to gross negligence amounting to bad faith. Good faith dictates that
Similarly, there is no showing that the PHIC officers approved the issuance and payment of the back COLA before they approved and released said allowance, they should have initially determined the existence of
the particular rule of law authorizing them to issue the same.

In view of the foregoing, the Court holds that the PHIC Board members who approved PHIC Board
Resolution No. 717, series of2004 and the PHIC officials who authorized its release are bound to refund the
LMRG. It is unclear, however, from a review of the records of the case, which of the PHIC Board members
and officials named in the COA's Notice of Disallowance were the ones responsible for the issuance of the
LMRG, considering that what was listed therein were the "Persons Liable" for the grant and release of all
four (4) allowances lumped together as subject of the instant case, without any distinction as to the
particular set of officers responsible for the approval of a respective type of allowance as well as its
corresponding amount.[95] Hence, for the proper implementation of this judgment, the COA is hereby
ordered to identify, in a clear and certain manner, the specific PHIC Board members and officials who
approved the grant of the LMRG and authorized its release as well as to compute the exact amount they
received.

With respect to the PHIC officials and employees, however, who merely received the subject LMRG but
had no participation in the approval and release thereof, the Court deems them to have acted in good
faith, honestly believing that the PHIC Board Resolution was issued in the Board's valid exercise of its power.
Thus, they are absolved from refunding the LMRG they received.

WHEREFORE, premises considered, the instant petition is PARTLY GRANTED. The November 20, 2013 Decision
and April 4, 2014 Resolution of the COA Commission Proper, which affirmed the Notice of Disallowance
PHIC 2008-003 (2004) dated February 7, 2008, are AFFIRMED WITH MODIFICATION. The recipients and
officers who authorized the following disbursements need not refund the amounts paid in connection
therewith: (1) the Collective Negotiation Agreement Signing Bonus; (2) the Welfare Support Assistance; and
(3) the back payment of Cost of Living Allowance. As for the Labor Management Relations Gratuity, only
the PHIC Board members who approved PHIC Board Resolution No. 717, series of 2004 and the PHIC
officials who authorized its release are bound to refund the same. For this purpose, the COA is
hereby ordered to: (1) particularly identify the PHIC Board members and officials responsible for the
approval and release of the LMRG; and (2) compute the exact amount of the LMRG that said officers and
employees respectively received.

SO ORDERED.