[ G.R. No.

244128, September 08, 2020]

MARIO M. MADERA, BEVERLY C. MANANGUITE, CARISSA D. GALING, AND JOSEFINA
O. PELO, PETITIONERS, VS. COMMISSION ON AUDIT (COA) AND COA REGIONAL
OFFICE NO. VIII, RESPONDENTS.

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

The Facts

Before the Court is a petition for certiorari[1] under Rule 64 in relation to Rule 65 of the Rules of
Court, assailing the COA Decision[2] dated December 27, 2017 and Resolutions[3] dated August
16, 2018 which affirmed the disallowance of various allowances given in 2013 to the officials
and employees of the Municipality of Mondragon, Northern Samar (the Municipality).

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

For the ECA, the Whereas Clauses of SB Resolution No. 41, series of 2013, state:
WHEREAS,the effect of continuing increase of cost on prime commodities brought about by the
worldwide inflation and its adverse effect in the locality xxx is felt most by our low-
income salaried employees;

WHEREAS,it is the policy the local government unit to alleviate the plight of our lowly paid
officials and employees; and

WHEREAS,the local government unit of Mondragon has shown the willingness to provide its
officials, employees and workers whether local or national, serving in the LGU, an
assistance to cushion the impact of increasing prices.[9]
As regards the MAMA, the grant of the same is authorized by SB Resolution No. 42, series of
2013, which provides:
WHEREAS,the effect of inflation has weakened the purchasing power of the local employees of
Mondragon and has become a major burden in their daily subsistence;

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

WHEREAS,it is the policy of the local government unit of Mondragon to help lighten the financial
burden of its local official[s] and employees from the sustaining high interest loans[.]
[10]
With respect, to the ACA, the Whereas Clauses of Resolution No. 43, series of 2013, state:
WHEREAS,the people of Mondragon are basically dependent on Agriculture;

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

WHEREAS,premises above cited[,] this council hereby approves the grant of Agricultural Crisis
Assistance (ACA) in order to help its officials and employees for their agricultural
production.[11]
Lastly, SB Resolution No. 44, series of 2013, authorizes the grant of the MAME and its
Whereas Clauses states:
WHEREAS,there is the global effort against climate change that continuously provides
principles and assistance to reduce the human suffering during disaster and
calamity;

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

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

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

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

WHEREAS,the mitigation assistance will provide them means to pre-empt risks and hazards
such as providing their families a risk-free place to dwell.[12]
In total, these allowances in question amounted to P7,706,253.10[13] as specified below:
Allowance Total Amount Recipients

ECA P3,865,203.10 Regular officials and

employees, casual and job
order/contractual
employees, Barangay Tanods,
Barangay Nutrition Scholars
(BNS), Day Care Workers
(DCW), Barangay Health
Workers (BHW), public
elementary and high school
teachers and national
employees stationed in the
municipality
MAMA P1,245,000.00 Regular officials and
employees and casual
employees
ACA P1,771,550.00 Regular officials and
 employees, casual employees
and job order/contractual
employees
MAME P824,500.00 Regular official and
employees, casual employees,
job order/contractual
employees, BNSs, DCWs, and
BHWs.[14]
Notices of Disallowance

On post audit, the Audit Team Leader (ATL) and the Supervising Auditor (SA) of the
Municipality issued a total of 11 Notices of Disallowance (NDs) dated February 20, 2014 for the
grant of the ECA, MAMA, ACA and MAME (subject allowances) as specified below:
Paid under
ND No. Date Nature Amount
Check No.
14-004-101 (2013) 02/20/2014 ECA P406,000.00 1164301

14-005-101 (2013) 02/20/2014 ECA 358,000.00 1164302

14-006-101 (2013) 02/20/2014 ECA 830,000.00 1164303

14-007-101 (2013) 02/20/2014 MAME 409,500.00 1164304

14-008-101 (2013) 02/20/2014 ACA 246,300.00 1164305

14-010-101 (2013) 02/20/2014 MAMA 1,245,000.00 1164296

14-011-101 (2013) 02/20/2014 ACA 1,525,250.00 1164297

14-012-101 (2013) 02/20/2014 MAME 415,000.00 1164298

14-013-101 (2013) 02/20/2014 ECA 219,000.00 1164300

14-014-101 (2013) 02/20/2014 ECA 44,500.00 1164306

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

TOTAL P7,706,253.10[15]
The ATL and SA disallowed the subject allowances on the ground that the grants were in
violation of the following:

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

b) Item II of COA Circular No. 2013-003 dated January 30, 2013 which excluded the subject
allowances among the list of authorized allowances, incentives, and benefits;

c) Items 4 and 5 of Section 1.a of Civil Service Commission (CSC) Resolution No. 02-
0790 dated June 5, 2002, which provides that employees under contract or job order do not
enjoy the benefits enjoyed by the government employees (such as the Personnel
 Economic Relief Allowance or PERA, Additional Compensation Allowance or ACA, and
Representation Allowance and Transportation Allowance or RATA), and that the services
rendered thereunder are not considered as government service.[16]

The persons held liable under the NDs were as follows:

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

COA Regional Office

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

Additionally, petitioners contended that the grant of additional allowances/financial assistance in

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

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

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

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

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

Consequently, petitioners appealed to the COA.

COA Proper

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

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

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

Petition Before the Court

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

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

ISSUE

The issue to be resolved is whether the COA committed grave abuse of discretion in issuing the
assailed Decision and Resolution.

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

RULING

The petition is partly meritorious.

I. Timeliness of the Petition

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

SEC. 2. Mode of review. A judgment or final order or resolution of the Commission on Elections
and the Commission on Audit may be brought by the aggrieved party to the Supreme Court
on certiorari under Rule 65, except as hereinafter provided.

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

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

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

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

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

II. Propriety of the Disallowance

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

After a careful review of the records of the case, the Court upholds the NDs against the subject
allowances, finding no grave abuse of discretion on the part of the COA in affirming the
disallowance. The Court quotes with approval the following pronouncements by the COA:
Section 447(a)(l)(viii) of RA No. 7160 provides:
SEC. 447. Powers, Duties, Functions and Compensation. - (a) The sangguniang bayan, as the
legislative body of the municipality, shall enact ordinances, approve resolutions and appropriate
funds for the general welfare of the municipality and its inhabitants pursuant to Section 16 of this
Code and in the proper exercise of the corporate powers of the municipality as provided for
under Section 22 of this Code, and shall:

(1) Approve ordinances and pass resolutions necessary for an efficient and effective municipal
government, and in this connection shall: xxx

(viii) Determine the positions and salaries, wages, allowances and other emoluments and
benefits of officials and employees paid wholly or mainly from municipal funds and provide
for expenditures necessary for the proper conduct of programs, projects, services, and
activities of the municipal government;
In addition, Section 12 of RA No. 6758, the SSL, states:
Consolidation of Allowances and Compensation. - All allowances, except for representation and
transportation allowances; clothing and laundry allowances; subsistence allowance of marine
officers and crew on board government vessels and hospital personnel; hazard pay; allowances
of foreign service personnel stationed abroad; and such other additional compensation not
otherwise specified herein as may be determined by the DBM, shall be deemed included in the
standardized salary rates herein prescribed xxx. (Underscoring supplied)
In this case, the municipality's compensation-setting power in Section 447 of RA No. 7160 to
grant ECA, ACA, MAME, and MAMA cannot prevail over Section 12 of RA No. 6758 or the SSL.
No law or administrative issuance, much less the [SSL], authorizes the grant of [the] subject
benefits.

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

The appellants' claim that the grant of additional allowances/financial assistance to the
municipal and national employees assigned thereat is a customary scheme of the municipality
anchored on a yearly appropriation ordinance is misplaced, as the grant thereof is illegal. xxx[40]
In view of the foregoing, the Court upholds the NDs against the ECA, ACA, MAME, and MAMA.

III. Liability of the petitioners

for the return of the
disallowed allowances

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

To recall, the NDs, as issued, held the payees of the disallowed allowances liable for being
claimants or recipients of said amounts. The payees' liability to return the amounts was likewise
affirmed by the COA RD. It was only on appeal to the COA Proper that the petitioning officers
were held liable for the refund of the entire disallowed amount while the recipient-payees in
good faith were excused.

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

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

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

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

A. Bases for Responsibility/Liability

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

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

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

(2) Persons entrusted with the possession or custody of the funds or property under the agency
head shall be immediately responsible to him, without prejudice to the liability of either party to
the government.

SECTION 103. General liability for unlawful expenditures. - Expenditures of government funds
or uses of government property in violation of law or regulations shall be a personal liability of
the official or employee found to be directly responsible therefor.

SECTION 104. Records and reports required by primarily responsible officers. - The head of
any agency or instrumentality of the national government or any government-owned or
controlled corporation and any other self-governing board or commission of the government
shall exercise the diligence of a good father of a family in supervising accountable officers under
his control to prevent the incurrence of loss of government funds or property, otherwise he shall
be jointly and solidarity liable with the person primarily accountable therefore. The treasurer of
the local government unit shall likewise exercise the same degree of supervision over
accountable officers under his supervision otherwise, he shall be jointly and solidarity liable with
them for the loss of government funds or property under their control.

SECTION 105. Measure of liability of accountable officers. - (1) Every officer accountable for
government property shall be liable for its money value in case of improper or unauthorized use
or misapplication thereof, by himself or any person for whose acts he may be responsible. He
shall likewise be liable for all losses, damages, or deterioration occasioned by negligence in the
keeping or use of the property whether or not it be at the time in his actual custody.

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

(2) Persons entrusted with the possession or custody of the funds or property under the agency
head shall be immediately responsible to him, without prejudice to the liability of either party to
the Government.

SECTION 52. General Liability for Unlawful Expenditures. - Expenditures of government funds
or uses of government property in violation of law or regulations shall be a personal liability of
the official or employee found to be directly responsible therefor.[49]

xxxx

SECTION 40. Certification of Availability of Funds. - No funds shall be disbursed, and no

expenditures or obligations chargeable against any authorized allotment shall be incurred or
authorized in any department, office or agency without first securing the certification of its Chief
Accountant or head of accounting unit as to the availability of funds and the allotment to which
the expenditure or obligation may be properly charged.

No obligation shall be certified to accounts payable unless the obligation is founded on a valid
claim that is properly supported by sufficient evidence and unless there is proper authority for its
incurrence. Any certification for a non-existent or fictitious obligation and/or creditor shall be
considered void. The certifying official shall be dismissed from the service, without prejudice to
criminal prosecution under the provisions of the Revised Penal Code. Any payment made under
such certification shall be illegal and every official authorizing or making such payment, or taking
part therein or receiving such payment, shall be jointly and severally liable to the government for
the full amount so paid or received.

xxxx

SECTION 43. Liability for Illegal Expenditures. - Every expenditure or obligation authorized or
incurred in violation of the provisions of this Code or of the general and special provisions
contained in the annual General or other Appropriations Act shall be void. Every payment made
in violation of said provisions shall be illegal and every official or employee authorizing or
making such payment, or taking part therein, and every person receiving such payment shall be
jointly and severally liable to the Government for the full amount so paid or received.
Any official or employee of the Government knowingly incurring any obligation, or authorizing
any expenditure in violation of the provisions herein, or taking part therein, shall be dismissed
from the service, after due notice and hearing by the duly authorized appointing official. If the
appointing official is other than the President and should he fail to remove such official or
employee, the President may exercise the power of removal.[50] (Underscoring supplied)
It is well-settled that administrative, civil, or even criminal liability, as the case may be, may
attach to persons responsible for unlawful expenditures, as a wrongful act or omission of a
public officer.[51] It is in recognition of these possible results that the Court is keenly mindful of
the importance of approaching the question of personal liability of officers and payees to return
the disallowed amounts through the lens of these different types of liability.

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

Sections 38 and 39, Chapter 9, Book I of the Administrative Code of 1987 cover the civil liability
of officers for acts done in performance of official duties:
SECTION 38. Liability of Superior Officers. - (1) A public officer shall not be civilly liable for
acts done in the performance of his official duties, unless there is a clear showing of bad faith,
malice or gross negligence.

xxxx

(3) A head of a department or a superior officer shall not be civilly liable for the wrongful
acts, omissions of duty, negligence, or misfeasance of his subordinates, unless he has
actually authorized by written order the specific act or misconduct complained of.

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

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

The participation of these public officers, such as those who approve or certify unlawful
expenditures, vis-a-vis the incurrence of civil liability is recognized by the COA in its issuances,
beginning from COA Circular No. 81-156[54] dated January 19, 1981 (Old CSB Manual):
C. Liability of Head of Agency, Accountable Officer and Other Officials and Employees

1. The liability of an official or employee for disallowances or discrepancies in accounts

 audited shall depend upon his participation in the transaction involved. The accountability
and responsibility of officials and employees for government funds and property as
provided in Sections 101 and 102 of P.D.1445 do not necessarily give rise to liability for
loss or government funds or damage to property.

xxxx

III. GENERAL INSTRUCTIONS:

xxxx

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

xxxx

3.10 LIABILITY. - A personal obligation arising from an audit disallowance/charge which

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

xxxx

3.12 PECUNIARY LIABILITY. - the amount of consequential loss or damage arising from an
act or omission and for which restitution, reparation, or indemnification is required.
xxxx

SECTION 18. SETTLEMENT OF DISALLOWANCES AND CHARGES

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

SECTION 34. ENFORCEMENT OF CIVIL LIABILITY.

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

4.17 Liability - a personal obligation arising from an audit disallowance or charge which may
be satisfied through payment or restitution as determined by competent authority or by
other modes of extinguishment of obligation as provided by law.

xxxx

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

obligation as provided by law in satisfaction of the liability under an ND/NC, or in
compliance with the requirements of an NS, as defined in these Rules. (Emphasis and
underscoring supplied)
The procedure for the enforcement of civil liability through the withholding of payment of money
due to persons liable and through referral to the OSG is found in Rule XIII of the RRPCOA,
particularly, Section 3 and Section 6.

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

As mentioned, the civil liability under Sections 38 and 39 of the Administrative Code of 1987,
including the treatment of their liability as solidary under Section 43, arises only upon a showing
that the approving or certifying officers performed their official duties with bad faith, malice or
gross negligence. For errant approving and certifying officers, the law justifies holding them
solidarity liable for amounts they may or may not have received considering that the payees
would not have received the disallowed amounts if it were not for the officers' irregular
discharge of their duties, as further emphasized by Senior Associate Justice Estela M. Perlas-
Bernabe (Justice Bernabe). This treatment contrasts with that of individual payees who, as will
be discussed below, can only be liable to return the full amount they were paid, or they received
pursuant to the principles of solutio indebiti and unjust enrichment.

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

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

As for the civil liability of payees, certain jurisprudence provides that passive recipients or
payees in good faith are excused from returning the amounts they received.

In the 1998 case of Blaquera v. Alcala,[60] (Blaquera), the Court relied on good faith to excuse
the return of the disallowed amounts. The petition was brought by officials and employees of
several government agencies assailing the disallowance of the excess productivity incentive
benefits given in 1992, as rationalized by Administrative Orders Nos. 29 and 268. In excusing
both the officers and the payees from the liability to return the benefits already received, the
Court held:
Untenable is petitioners' [payees'] contention that the herein respondents be held personally
liable for the refund in question. Absent a showing of bad faith or malice, public officers are not
personally liable for damages resulting from the performance of official duties.

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

In upholding the constitutionality of AO 268 and AO 29, the Court reiterates the well-entrenched
doctrine that "in interpreting statutes, that which will avoid a finding of unconstitutionality is to be
preferred."

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

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

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

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

In the 2006 case of Casal v. Commission on Audit[70] (Casal), the Court's decisions
in Blaquera and NEA were both relied upon, but the Court reached an outcome different from
those reached in both cases. Finding that the non-compliance by the officers with relevant
Presidential issuances amounted to gross negligence which could not be deemed a mere lapse
consistent with the presumption of good faith, the ruling in NEA was applied as to the
petitioners-approving officers, while the ruling in Blaquera was applied to excuse the payees.
Thus, it was Casal that originated the peculiar outcome in disallowance cases where payees
were excused from liability, while the solidary co-debtors, National Museum officials, were made
solely liable for the entire amount of the disallowance.

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

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

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

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

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

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

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

Examining Lumayna, the Court excused all petitioners (including the petitioning approving and
certifying officers - Municipal Mayor, Municipal Accountant, and Budget Officer) from liability to
return the disallowed amounts despite the affirmance of the disallowance.

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

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

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

D. Nature of payee participation

Verily, excusing payees from return on the basis of good faith has been previously recognized
as an exception to the laws on liability for unlawful expenditures. However, being civil in nature,
the liability of officers and payees for unlawful expenditures provided in the Administrative Code
of 1987 will have to be consistent with civil law principles such as solutio indebiti and unjust
enrichment. These civil law principles support the propositions that (1) the good faith of payees
is not determinative of their liability to return; and (2) when the Court excuses payees on the
basis of good faith or lack of participation, it amounts to a remission of an obligation at the
expense of the government.

To be sure, the application of the principles of unjust enrichment and solutio indebiti in
disallowed benefits cases does not contravene the law on the general liability for unlawful
expenditures. In fact, these principles are consistently applied in government infrastructure or
procurement cases which recognize that a payee contractor or approving and/or certifying
officers cannot be made to shoulder the cost of a correctly disallowed transaction when it will
unjustly enrich the government and the public who accepted the benefits of the project. [81]

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

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

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

xxxx

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

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

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

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

On the other hand, the RRSA provides:

SECTION 16. DETERMINATION OF PERSONS RESPONSIBLE/LIABLE

16. The liability of public officers and other persons for audit disallowances/charges shall
1 be determined on the basis of (a) the nature of the disallowance/charge; (b) the
duties and responsibilities or obligations of officers/employees concerned; (c) the
extent of their participation in the disallowed/charged transaction; and (d) the amount
of damage or loss to the government, thus:

xxxx

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

16. The liability of persons determined to be liable under an ND/NC shall be solidary and
3 the Commission may go against any person liable without prejudice to the latter's
claim against the rest of the persons liable.
To recount, as noted from the cases earlier mentioned, retention by passive payees of
disallowed amounts received in good faith has been justified on said payee's "lack of
participation in the disbursement." However, this justification is unwarranted because a payee's
mere receipt of funds not being part of the performance of his official functions still equates to
him unduly benefiting from the disallowed transaction; this gives rise to his liability to return.

As may be gleaned from Section 16 of the RRSA, "the extent of their participation [or
involvement] in the disallowed/charged transaction" is one of the determinants for liability. The
Court has, in the past, taken this to mean that payees should be absolved from liability for lack
of participation in the approval and disbursement process. However, under the MCSB and the
RRSA, a "transaction" is defined as "[a]n event or condition the recognition of which gives rise to
an entry in the accounting records."[92] To a certain extent, therefore, payees always do have an
indirect "involvement" and "participation" in the transaction where the benefits they received are
disallowed because the accounting recognition of the release of funds and their mere receipt
thereof results in the debit against government funds in the agency's account and a credit in the
payees' favor. Notably, when the COA includes payees as persons liable in an ND, the nature of
their participation is stated as "received payment."

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

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

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

In Dubongco,[94] the Court affirmed the disallowance of CNA incentives sourced out of CARP
funds. Even as it recognized that the payees therein committed no fraud, the Court ordered the
return, thus:
Finally, the payees received the disallowed benefits with the mistaken belief that they were
entitled to the same. If property is acquired through mistake or fraud, the person obtaining it is,
by force of law, considered a trustee of an implied trust for the benefit of the person from whom
the property comes. A constructive trust is substantially an appropriate remedy against unjust
enrichment. It is raised by equity in respect of property, which has been acquired by fraud, or
where, although acquired originally without fraud, it is against equity that it should be retained by
the person holding it. In fine, payees are considered trustees of the disallowed amounts, as
although they committed no fraud in obtaining these benefits, it is against equity and good
conscience for them to continue holding on to them.[95] (Italics in the original and citations
omitted)
Similarly, in DPWH v. COA,[96] the disallowance of CNA incentives sourced out of the
Engineering Administrative Overhead (EAO) was upheld, and the recipients of the disallowed
benefits were held liable to return. In finding that the payees are obliged to return the amounts
they received, the Court stated:
Jurisprudence holds that there is unjust enrichment when a person unjustly retains a benefit to
the loss of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience. The statutory basis for the
principle of unjust enrichment is Article 22 of the Civil Code which provides that "[e]very person
who through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal ground, shall return the
same to him."

The principle of unjust enrichment under Article 22 requires two conditions: (1) that a person is
benefited without a valid basis or justification, and (2) that such benefit is derived at another's
expense or damage. There is no unjust enrichment when the person who will benefit has a valid
claim to such benefit.

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

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

For other incentives not negotiated by the recipients, the Court promulgated its decision
in Chozas v. COA[98] which dealt with the accomplishment incentive sourced out of Bulacan
State University Special Trust Fund. Notably, this case relied upon the Court's ratiocination
in Dubongco on the question of liability to return, without any showing of participation on the part
of the payees as to the grant and disbursement. This is jurisprudential recognition that the judge
made rule of absolving good faith payees is the exception, and not the rule.
In Rotoras v. COA,[99] the Court held that it will be unjust enrichment to allow the members of the
governing boards to retain additional honoraria that they themselves approved and received.
Here, the Court ruled that the nature of the obligation of approving officials to return "depends
on the circumstances,"[100] with the officers' obligation to return expressly determined to not be
solidary.[101] This case illustrates how approving officers may still be held liable to return in their
capacity as payees, notwithstanding their good faith or bad faith.

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

Moreover, solutio indebiti is an equitable principle applicable to cases involving disallowed

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

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

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

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

E. The Rules on Return

In view of the foregoing discussion, the Court pronounces:

1. If a Notice of Disallowance is set aside by the Court, no return shall be required from
any of the persons held liable therein.

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

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

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

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

c. Recipients - whether approving or certifying officers or mere passive

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

d. The Court may likewise excuse the return of recipients based on undue
prejudice, social justice considerations, and other bona fide exceptions as
it may determine on a case to case basis.
Undoubtedly, consistent with the statements made by Justice Inting, the ultimate analysis of
each case would still depend on the facts presented, and these rules are meant only to
harmonize the previous conflicting rulings by the Court as regards the return of disallowed
amounts - after the determination of the good faith of the parties based on the unique facts
obtaining in a specific case has been made.

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

F. As applied to the instant case

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

In support of their good faith, petitioners aver:

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

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

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

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

xxxx

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

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

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

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

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

Thus, petitioners-approving and certifying officers are shielded from civil liability for the
disallowance under Section 38 of the Administrative Code of 1987.

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

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

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

As the Court has previously held,[120] government employment should be seen as an opportunity
for individuals of good will to render honest-to-goodness public service, and not a trap for the
unwary. It should be an attractive alternative to private employment, not an undesirable
undertaking grudgingly accepted, to therefore regret.[121] While the Court supports the mandate
of the COA in ensuring that the funds of the government are properly utilized and the return to
the government of funds unduly spent, the same must not be at the expense of public officials
and employees who are directly tasked to discharge and render public service - especially when
the presumptions of good faith and regularity in the performance of their duties have not been
rebutted or overturned. Otherwise, the Court would unintentionally sanction the discouragement
of competent and well-meaning individuals from joining the government. When service in the
government is seen as unattractive and unappealing, it is the public that suffers.

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

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

WHEREFORE, the instant petition is PARTIALLY GRANTED. The Commission on Audit

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

SO ORDERED.

Case Digest (G.R. No. 244128)

Facts:
Petitioners: Mario M. Madera, Beverly C. Mananguite, Carissa D. Galing, and Josefina O. Pelo,
officials of the Municipality of Mondragon, Northern Samar.
Challenge: Disallowance of allowances granted to municipal employees in 2013.
Total Allowances: P7,706,253.10, including Economic Crisis Assistance (ECA), Monetary
Augmentation of Municipal Agency (MAMA), Agricultural Crisis Assistance (ACA), and
Mitigation Allowance to Municipal Employees (MAME).
Authorization: Sangguniang Bayan Ordinance No. 08 and several resolutions.
COA Action: Issued Notices of Disallowance on February 20, 2014, citing violations of the
Salary Standardization Law (R.A. 6758), COA Circular No. 2013-003, and CSC Resolution No.
02-0790.
COA Decision: Regional Office and COA Proper upheld the disallowances, holding petitioners
and other payees liable for the refund.
Petitioners' Argument: Allowances were legal under the Local Government Code (R.A. 7160)
and claimed good faith in their approval and receipt.
Supreme Court: Case brought under Rule 64 in relation to Rule 65 of the Rules of Court.
Issue:
Grave Abuse of Discretion: Did the COA commit grave abuse of discretion in issuing the
disallowances?
Liability for Refund: Should the petitioners be held liable for the refund of the disallowed
amounts?
Ruling:
Grave Abuse of Discretion: The Supreme Court found that the COA did not commit grave abuse
of discretion in issuing the disallowances.
Liability for Refund: The petitioners, who were approving and certifying officers, were not held
liable for the refund of the disallowed amounts due to their good faith.
Ratio:
COA's Disallowances: The Supreme Court upheld the COA's disallowances, finding no grave
abuse of discretion.
Legal Authorization: The allowances were not authorized by law and were properly disallowed.
Good Faith: The Court recognized the good faith of the petitioners, who relied on the
Sangguniang Bayan's resolutions and ordinances, which had not been invalidated.
Honest Belief: The petitioners acted in the honest belief that the allowances were lawful,
especially given the absence of previous disallowances and the context of providing financial
assistance after Typhoon Yolanda.
Balance of Accountability and Fairness: The Court emphasized the need to balance
accountability with fairness, noting that the petitioners stopped granting such allowances after
the disallowances were issued.
New Guidelines: New guidelines were laid down for determining liability in disallowance cases,
emphasizing the importance of good faith and the specific circumstances of each case.