G.R. No.

168613 March 5, 2013 Corporation of the Philippines (TIDCORP) and upon recommendation of its President,
appoint and fix their remuneration, emoluments and fringe benefits: Provided, That
ATTY. MA. ROSARIO MANALANG-DEMIGILLO, Petitioner, the Board shall have exclusive and final authority to appoint, promote, transfer, assign
vs. and re-assign personnel of the TIDCORP, any provision of existing law to the contrary
TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE notwithstanding. x x x
PHILIPPINES (TIDCORP), and its BOARD OF DIRECTORS, Respondents.
Section 8. All incumbent personnel of the Philippine Export and Foreign Loan
x-----------------------x Guarantee Corporation shall continue to exercise their duties and functions as
personnel of the TIDCORP until reorganization is fully implemented but not to exceed
one (1) year from the approval of this Act. The Board of Directors is authorized to
G.R. No. 185571 provide for separation benefits for those who cannot be accommodated in the new
structure. All those who shall retire or are separated from the service on account of
TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE the reorganization under the preceding Section shall be entitled to such incentives, as
PHILIPPINES, Petitioner, are authorized by the Corporation, which shall be in addition to all gratuities and
vs. benefits to which they may be entitled under existing laws.
MA. ROSARIO S. MANALANG-DEMIGILLO, Respondent.
In Opinion No. 221 dated September 13, 2002,1 then Government Corporate Counsel
DECISION Amado D. Valdez opined as follows:

BERSAMIN, J.: There is no question on the power of the PhilEXIM (also known as TIDCORP) Board
of Directors to undertake a reorganization of the corporation’s present organizational
A reorganization undertaken pursuant to a specific statutory authority by the Board of set-up. In fact, the authority to provide for the corporation’s organizational structure is
Directors of a government-owned and government-controlled corporation is valid. among the express powers granted to PhilEXIM through its Board.

Antecedents As to the one-year period to implement a reorganization mentioned in Section 8 of RA

On February 12, 1998, the Philippine Export and Foreign Loan Guarantee was
renamed Trade and Investment Development Corporation of the Philippines
(TIDCORP) pursuant to Republic Act No. 8494 entitled An Act Further Amending
Presidential Decree No. 1080, As Amended, by Reorganizing And Renaming the
Philippine Export and Foreign Loan Guarantee Corporation, Expanding Its Primary
Purpose, and for Other Purposes.
Republic Act No. 8494 reorganized the structure of TIDCORP. The issuance of
appointments in accordance with the reorganization ensued. Petitioner Rosario
Manalang-Demigillo (Demigillo) was appointed as Senior Vice President (PG 15) with
permanent status, and was assigned to the Legal and Corporate Services
Department (LCSD) of TIDCORP.
In 2002, TIDCORP President Joel C. Valdes sought an opinion from the Office of the
Government Corporate Counsel (OGCC) relative to TIDCORP’s authority to
undertake a reorganization under the law, whose Section 7 and Section 8 provide as
follows:
Section 7. The Board of Directors shall provide for an organizational structure and
staffing pattern for officers and employees of the Trade and Investment Development
8494, it is our considered opinion that the same provision refers to the initial
reorganization to effect transition from the Philippine Export and Foreign Loan
Guarantee Corporation (Philguarantee) to what is now known as the Trade and
Investment Corporation of the Philippines (TIDCORP). The one-year period does not,
however, operate as a limitation that any subsequent changes in the organizational
set-up pursuant to the authority of the Board to determine the corporation’s
organizational structure under Section 7 of RA 8494, which is designed to make the
corporation more attuned to the needs of the people or, in this case, the sector of the
Philippine economy that it serves, can only be made during the same one-year
period.
On the basis of OGCC Opinion No. 221, the Board of Directors passed Resolution
No. 1365, Series of 2002, on October 22, 2002 to approve a so-called Organizational
Refinement/Restructuring Plan to implement a new organizational structure and
staffing pattern, a position classification system, and a new set of qualification
standards.
During the implementation of the Organizational Refinement/Restructuring Plan, the
LCSD was abolished. According to the List of Appointed Employees under the New
Organizational Structure of TIDCORP as of November 1, 2002, Demigillo, albeit
retaining her position as a Senior Vice President, was assigned to head the Remedial
and Credit Management Support Sector (RCMSS). On the same date, President
1
Valdes issued her appointment as head of RCMSS, such appointment being in nature
a reappointment under the reorganization plan.
On December 13, 2002, President Valdes issued a memorandum informing all
officers and employees of TIDCORP that the Board of Directors had approved on
December 11, 2002 the appointments issued pursuant to the newly approved
positions under the Organizational Refinement/Restructuring Plan.
In her letter dated December 23, 2002 that she sent to TIDCORP Chairman Jose
Isidro Camacho, however, Demigillo challenged before the Board of Directors the
validity of Resolution No. 1365 and of her assignment to the RCMSS. She averred
that she had been thereby illegally removed from her position of Senior Vice
President in the LCSD to which she had been previously assigned during the
reorganization of July 1998. She insisted that contrary to OGCC Opinion No. 221
dated September 13, 2002 the Board of Directors had not been authorized to
undertake the reorganization and corporate restructuring.
On January 31, 2003, pending determination of her challenge by the Board of
Directors, Demigillo appealed to the Civil Service Commission (CSC), raising the
same issues.
TIDCORP assailed the propriety of Demigillo’s appeal to the CSC, alleging that her
elevation of the case to the CSC without the Board of Directors having yet decided
her challenge had been improper and a clear case of forum-shopping.
Later on, however, TIDCORP furnished to the CSC a copy of Board Decision No. 03-
002 dismissing Demigillo’s appeal for its lack of merit, thereby rendering the question
about the propriety of Demigillo’s appeal moot and academic. Board Decision No. 03-
002 pertinently reads as follows:
Atty. Demigillo failed to show to the Board that she was prejudiced in the
implementation of the TIDCORP organizational refinements/restructuring. She was
reappointed to the same position she was holding before the reorganization. She was
not demoted in terms of salary, rank and status. There was a (sic) substantial
compliance with the requirements of RA 6656, particularly on transparency. More
importantly, the said organizational refinements done and adoption of a new
compensation structure were made in accordance with what is mandated under the
Charter of the Corporation.
WHEREFORE, foregoing premises considered, the Board decided as it hereby
decides to DISMISS the appeal of Atty. Ma Rosario Demigillo for lack of merit. 2
In the meanwhile, by letter dated April 14, 2003, President Valdes informed Demigillo
of her poor performance rating for the period from January 1, 2002 to December 31,
2002, to wit:
After a thorough evaluation/assessment of your job performance for the rating period
January 1 to December 21, 2002, it appears that your over-all performance is ‘Poor’.
Records show that you consistently behaved as an obstructionist in the
implementation of the Corporate Business Plan. You failed to demonstrate
cooperation, respect and concern towards authority and other members of the
company. You also failed to abide by Civil Service and company policies, rules and
regulation. You miserably failed to adapt and respond to changes. You were very
resentful to new approaches as shown by your vehement objection to new improved
policies and programs. Instead of helping raise the morale of subordinate at high
levels (sic) and promote career and professional growth of subordinates, you tried to
block such efforts towards this end.
In view of the foregoing and your failure to prove that you have effectively and
efficiently performed the duties, functions and responsibility (sic) of your position, I am
constrained to give you a rating of "Poor" for your 2002 performance. 3
On April 28, 2003, Demigillo formally communicated to Atty. Florencio P. Gabriel Jr.,
Executive Vice President of the Operations Group, appealing the "poor rating" given
her by President Valdes.
In a memorandum dated May 6, 2003, Atty. Gabriel informed Demigillo that he could
not act on her appeal because of her "failure to state facts and arguments constituting
the grounds for the appeal and submit any evidence to support the same."4
On May 6, 2003, President Valdes issued a memorandum to Demigillo stating that he
found no justification to change the poor rating given to her for the year 2002.
On August 12, 2003, Demigillo received a memorandum from President Valdes
stating that her performance rating for the period from January 1, 2003 to June 2003
"needs improvement," attaching the pertinent Performance Evaluation Report Form
that she was instructed to return "within 24 hours from receipt." 5
Not in conformity with the performance rating, Demigillo scribbled on the right corner
of the memorandum the following comments: "I do not agree and accept. I am
questioning the same. This is pure harassment."
She then appealed the poor performance rating on August 14, 2003, calling the rating
a part of Valdes’ "unremitting harassment and oppression on her." 6
On August 19, 2003, Demigillo reported for work upon the expiration of the 90-day
preventive suspension imposed by the Board of Directors in a separate administrative
case for grave misconduct, conduct prejudicial to the best interest of the service,
insubordination and gross discourtesy. In her memorandum of that date, she informed
Atty. Gabriel Jr. of her readiness to resume her duties and responsibilities, but
requested to be allowed to reproduce documents in connection with the appeal of her
2
performance rating. She further requested that the relevant grievance process should
commence.
It appears that the Board of Directors rendered Decision No. 03-003 dated August 15,
2003 unanimously dropping Demigillo from the rolls.7 Demigillo received the copy of
Decision No. 03-003 on August 25, 2003.
Decision of the CSC
On October 14, 2004, the CSC ruled through Resolution No. 041092 8 that the 2002
Organizational Refinements or Restructuring Plan of TIDCORP had been valid for
being authorized by Republic Act. No. 6656; that Section 7 of Republic Act No. 8498
granted a continuing power to TIDCORP’s Board of Directors to prescribe the
agency’s organizational structure, staffing pattern and compensation packages; and
that such grant continued until declared invalid by a court of competent jurisdiction or
revoked by Congress.
The CSC held, however, that TIDCORP’s implementation of its reorganization did not
comply with Section 6 of Republic Act No. 6656;9 that although there was no
diminution in Demigillo’s rank, salary and status, there was nonetheless a demotion in
her functions and authority, considering that the 2002 reorganization reduced her
authority and functions from being the highest ranking legal officer in charge of all the
legal and corporate affairs of TIDCORP to being the head of the RCMSS reporting to
the Executive Vice President and having only two departments under her supervision;
and that the functions of Demigillo’s office were in fact transferred to the Operations
Group.
The CSC further held that the dropping from the rolls of Demigillo did not comply with
the mandatory requirement under Section 2, particularly 2.2 Rule XII of the Revised
Omnibus Rules on Appointments and Other Personnel Actions Memorandum Circular
No. 40, Series of 1998.
Subsequently, TIDCORP reinstated Demigillo to the position of Senior Vice President
in RCMSS, a position she accepted without prejudice to her right to appeal the
decision of the CSC.
Ruling of the CA
Both Demigillo and TIDCORP appealed the decision of the CSC to the Court of
Appeals (CA). Demigillo’s appeal was docketed as CA-G.R. SP No. 87285. On the
other hand, TIDCORP’s appeal was docketed as CA-G.R. SP No. 87295.
In CA-G.R. SP No. 87285, Demigillo partially assailed the CSC’s decision, claiming
that the CSC erred: (1) in holding that Section 7 of Republic Act No. 8494 granted the
Board of Directors of TIDCORP a continuing power to reorganize; (2) in holding that
the 2002 TIDCORP reorganization had been authorized by law; and (3) in not holding
that the 2002 TIDCORP reorganization was void ab initio because it was not
authorized by law and because the reorganization did not comply with Republic Act
No. 6656.10
In CA-G.R. SP No. 87295, TIDCORP contended that the CSC erred: (1) in ruling that
Demigillo had been demoted as a result of the 2002 TIDCORP reorganization; and (2)
in ruling that TIDCORP had failed to observe the provisions of Section 2, particularly
2.2 Rule XII of the Revised Omnibus Rules on Appointments and Other Personnel
Actions (Memorandum Circular No. 40, Series of 1998) on dropping from the rolls, to
the prejudice of Demigillo’s right to due process.11
On June 27, 2005, the CA’s Fourth Division promulgated its decision in CA–G.R. SP
No. 87285,12 which, albeit affirming the ruling of the CSC, rendered a legal basis
different from that given by the CSC, to wit:
In numerous cases citing Section 20 and Section 31, Book III of Executive Order No.
292, otherwise known as the Administrative Code of 1987, the Supreme Court ruled
in the affirmative that the President of the Philippines has the continuing authority to
reorganize the administrative structure of the Office of the President.
Hence, being the alter ego of the President of the Philippines, the Board of Directors
of the private respondent-appellee is authorized by law to have a continuous power to
reorganize its agency.13
Anent Demigillo’s contention that the 2002 reorganization effected was invalid, the CA
ruled:
x x x. In this jurisdiction, reorganizations have been regarded as valid provided they
are pursued in good faith. Reorganization is carried out in good faith if it is for the
purpose of economy or to make bureaucracy more efficient.
In the case at bench, it is our considered opinion that except for her allegations, the
petitioner-appellant (Demigillo) failed to present sufficient evidence that the
reorganization effected in 2002 did not bear the earmarks of economy and efficiency.
Good faith is always presumed.14
The CA held that Demigillo could not be reinstated to her previous position of Senior
Vice President of the LCSD in view of the legality of the 2002 reorganization being
upheld.15
With respect to CA-G.R. SP No. 87295, the CA’s Special Former Thirteenth Division
promulgated a decision on November 28, 2008, 16 denying TIDCORP’s appeal, and
holding that Demigillo had been demoted and invalidly dropped from the rolls by
TIDCORP, explaining:
3
We do not need to stretch Our imagination that respondent Demigillo, one of the
highest ranking officers of the corporation, was indeed demoted when she was
designated to be the head of merely one sector. She may have retained her title as
SVP, but she was deprived of the authority she previously enjoyed and stripped of the
duties and responsibilities assigned to her under the Legal and Corporate Services. In
utter disregard of respondent Demigillo’s right to security of tenure, petitioner
TIDCORP demoted her in the guise of "reorganization."
xxxx
Next, petitioner TIDCORP asserts that respondent Demigillo was legally dropped from
the rolls. This is a delirious supposition which does not deserve merit at all.
xxxx
Petitioner TIDCORP did not bother to adduce proof that it complied with the rudiments
of due process before dropping Demigillo from the rolls. She was not given the
chance to present evidence refuting the contentious ratings as her employer refused
to discuss how it arrived at such assessment. Her unceremonious dismissal was
made even more apparent as she was never advised of the possibility that she may
be separated from service if her rating would not improve for the next evaluation
period.17
Issues
Demigillo filed before this Court a petition for review on certiorari assailing the CA
decision in CA-G.R. SP No. 87285 (G.R. No. 168613), asserting that the CA gravely
erred: (1) in holding that the Board of Directors of TIDCORP was an alter ego of the
President who had the continuing authority to reorganize TIDCORP; and (2) in
holding that the reorganization of TIDCORP effected in 2002 was valid considering
her alleged failure to present evidence sufficiently showing that the reorganization did
not bear the earmarks of economy and efficiency. 18 Corollarily, she sought her
reinstatement to a position comparable to her former position as Senior Vice
President in the LCSD.19
Likewise, TIDCORP appealed through a petition for review on certiorari, praying for
the reversal of the decision promulgated in CA-G.R. SP No. 87295 (G.R. No.
185571), contending that the CA erred: (1) in ruling that Demigillo had been demoted
as a result of the TIDCORP 2002 reorganization; and (2) in ruling that Demigillo had
not been legally dropped from the rolls.20
On March 8, 2011, the Court En Banc consolidated G.R. No. 168613 and G.R. No.
185571.21
Ruling of the Court
We deny the petition for review of Demigillo (G.R. No. 168613) for its lack of merit, but
grant the petition for review of TIDCORP (G.R. No. 185571).
G.R. No. 168613
In its comment in G.R. No. 168613,22 TIDCORP argues for the application of the
doctrine of qualified political agency, contending that the acts of the Board of
Directors of TIDCORP, an attached agency of the Department of Finance whose
head, the Secretary of Finance, was an alter ego of the President, were also the acts
of the President.
TIDCORP’s argument is unfounded.
The doctrine of qualified political agency, also known as the alter ego doctrine, was
introduced in the landmark case of Villena v. The Secretary of Interior. 23 In said case,
the Department of Justice, upon the request of the Secretary of Interior, investigated
Makati Mayor Jose D. Villena and found him guilty of bribery, extortion, and abuse of
authority. The Secretary of Interior then recommended to the President the
suspension from office of Mayor Villena. Upon approval by the President of the
recommendation, the Secretary of Interior suspended Mayor Villena. Unyielding,
Mayor Villena challenged his suspension, asserting that the Secretary of Interior had
no authority to suspend him from office because there was no specific law granting
such power to the Secretary of Interior; and that it was the President alone who was
empowered to suspend local government officials. The Court disagreed with Mayor
Villena and upheld his suspension, holding that the doctrine of qualified political
agency warranted the suspension by the Secretary of Interior. Justice Laurel, writing
for the Court, opined:
After serious reflection, we have decided to sustain the contention of the government
in this case on the broad proposition, albeit not suggested, that under the presidential
type of government which we have adopted and considering the departmental
organization established and continued in force by paragraph 1, section 12, Article
VII, of our Constitution, all executive and administrative organizations are adjuncts of
the Executive Department, the heads of the various executive departments are
assistants and agents of the Chief Executive, and, except in cases where the Chief
Executive is required by the Constitution or the law to act in person or the exigencies
of the situation demand that he act personally, the multifarious executive and
administrative functions of the Chief Executive are performed by and through the
executive departments, and the acts of the secretaries of such departments,
performed and promulgated in the regular course of business, are, unless
disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief
Executive. (Runkle vs. United States [1887], 122 U. S., 543; 30 Law. ed., 1167; 7
Sup. Ct. Rep., 1141; see also U. S. vs. Eliason [1839], 16 Pet., 291; 10 Law. ed., 968;
Jones vs. U. S. [1890], 137 U. S., 202; 34 Law. ed., 691; 11 Sup. Ct., Rep., 80;
Wolsey vs. Chapman [1880], 101 U. S., 755; 25 Law. ed., 915; Wilcox vs. Jackson
[1836], 13 Pet., 498; 10 Law. ed., 264.)
4
Fear is expressed by more than one member of this court that the acceptance of the
principle of qualified political agency in this and similar cases would result in the
assumption of responsibility by the President of the Philippines for acts of any
member of his cabinet, however illegal, irregular or improper may be these acts. The
implications, it is said, are serious. Fear, however, is no valid argument against the
system once adopted, established and operated. Familiarity with the essential
background of the type of Government established under our Constitution, in the light
of certain well-known principles and practices that go with the system, should offer the
necessary explanation. With reference to the Executive Department of the
government, there is one purpose which is crystal-clear and is readily visible without
the projection of judicial searchlight, and that is the establishment of a single, not
plural, Executive. The first section of Article VII of the Constitution, dealing with the
Executive Department, begins with the enunciation of the principle that "The
executive power shall be vested in a President of the Philippines." This means that
the President of the Philippines is the Executive of the Government of the Philippines,
and no other. The heads of the executive departments occupy political positions and
hold office in an advisory capacity, and, in the language of Thomas Jefferson, "should
be of the President’s bosom confidence" (7 Writings, Ford ed., 498), and in the
language of Attorney-General Cushing (7 Op., Attorney-General, 453), "are subject to
the direction of the President." Without minimizing the importance of the heads of the
various departments, their personality is in reality but the projection of that of the
President. Stated otherwise, and as forcibly characterized by Chief Justice Taft of the
Supreme Court of the United States, "each head of a department is, and must be, the
President's alter ego in the matters of that department where the President is required
by law to exercise authority." (Myers vs. United States, 47 Sup. Ct. Rep., 21 at 30;
272 U.S. 52 at 133; 71 Law. Ed., 160). x x x.
The doctrine of qualified political agency essentially postulates that the heads of the
various executive departments are the alter egos of the President, and, thus, the
actions taken by such heads in the performance of their official duties are deemed the
acts of the President unless the President himself should disapprove such acts. This
doctrine is in recognition of the fact that in our presidential form of government, all
executive organizations are adjuncts of a single Chief Executive; that the heads of the
Executive Departments are assistants and agents of the Chief Executive; and that the
multiple executive functions of the President as the Chief Executive are performed
through the Executive Departments. The doctrine has been adopted here out of
practical necessity, considering that the President cannot be expected to personally
perform the multifarious functions of the executive office.
But the doctrine of qualified political agency could not be extended to the acts of the
Board of Directors of TIDCORP despite some of its members being themselves the
appointees of the President to the Cabinet. Under Section 10 of Presidential Decree
No. 1080, as further amended by Section 6 of Republic Act No. 8494, 24 the five ex
officio members were the Secretary of Finance, the Secretary of Trade and Industry,
the Governor of the Bangko Sentral ng Pilipinas, the Director-General of the National
Economic and Development Authority, and the Chairman of the Philippine Overseas
Construction Board, while the four other members of the Board were the three from
the private sector (at least one of whom should come from the export community),
who were elected by the ex officio members of the Board for a term of not more than
two consecutive years, and the President of TIDCORP who was concurrently the
Vice-Chairman of the Board. Such Cabinet members sat on the Board of Directors of
TIDCORP ex officio, or by reason of their office or function, not because of their direct
appointment to the Board by the President. Evidently, it was the law, not the
President, that sat them in the Board.
Under the circumstances, when the members of the Board of Directors effected the
assailed 2002 reorganization, they were acting as the responsible members of the
Board of Directors of TIDCORP constituted pursuant to Presidential Decree No. 1080,
as amended by Republic Act No. 8494, not as the alter egos of the President. We
cannot stretch the application of a doctrine that already delegates an enormous
amount of power. Also, it is settled that the delegation of power is not to be lightly
inferred.25
Nonetheless, we uphold the 2002 reorganization and declare it valid for being done in
accordance with the exclusive and final authority expressly granted under Republic
Act No. 8494, further amending Presidential Decree No. 1080, the law creating
TIDCORP itself, to wit:
Section 7. The Board of Directors shall provide for an organizational structure and
staffing pattern for officers and employees of the Trade and Investment Development
Corporation of the Philippines (TIDCORP) and upon recommendation of its President,
appoint and fix their remuneration, emoluments and fringe benefits: Provided, That
the Board shall have exclusive and final authority to appoint, promote, transfer, assign
and re-assign personnel of the TIDCORP, any provision of existing law to the contrary
notwithstanding.
In this connection, too, we reiterate that we cannot disturb but must respect the ruling
of the CSC that deals with specific cases coming within its area of technical
knowledge and expertise,26 absent a clear showing of grave abuse of discretion on its
part. That clear showing was not made herein. Such deference proceeds from our
recognition of the important role of the CSC as the central personnel agency of the
Government having the familiarity with and expertise on the matters relating to the
career service.
Worthy to stress, lastly, is that the reorganization was not arbitrary and whimsical. It
had been formulated following lengthy consultations and close coordination with the
affected offices within TIDCORP in order for them to come up with various functional
statements relating to the new organizational setup. In fact, the Board of Directors
decided on the need to reorganize in 2002 to achieve several worthy objectives, as
follows:
(1) To make the organization more viable in terms of economy, efficiency,
effectiveness and make it more responsive to the needs of its clientèles by
eliminating or minimizing any overlaps and duplication of powers and
functions;
5
 (2) To come up with an organizational structure which is geared towards the
strengthening of the Corporation's overall financial and business operations
through resource allocation shift; and
(3) To rationalize corporate operations to maximize resources and achieve
optimum sustainable corporate performance vis-a-vis revised corporate
policies, objectives and directions by focusing the Corporation's efforts and
resources to its vital and core functions.27
The result of the lengthy consultations and close coordination was the comprehensive
reorganization plan that included a new organizational structure, position classification
and staffing pattern, qualification standards, rules and regulations to implement the
reorganization, separation incentive packages and timetable of implementation.
Undoubtedly, TIDCORP effected the reorganization within legal bounds and in
response to the perceived need to make the agency more attuned to the changing
times.
Having found the 2002 reorganization to be valid and made pursuant to Republic Act
No. 8494, we declare that there are no legal and practical bases for reinstating
Demigillo to her former position as Senior Vice President in the LCSD. To be sure, the
reorganization plan abolished the LCSD, and put in place a set-up completely
different from the previous one, including a new staffing pattern in which Demigillo
would be heading the RCMSS, still as a Senior Vice President of TIDCORP. With that
abolition, reinstating her as Senior Vice President in the LCSD became legally and
physically impossible.
Demigillo’s contention that she was specifically appointed to the position of Senior
Vice President in the LCSD was bereft of factual basis. The records indicate that her
permanent appointment pertained only to the position of Senior Vice President. 28 Her
appointment did not indicate at all that she was to hold that specific post in the LCSD.
Hence, her re-assignment to the RCMSS was by no means a diminution in rank and
status considering that she maintained the same rank of Senior Vice President with
an accompanying increase in pay grade.
The assignment to the RCMSS did not also violate Demigillo’s security of tenure as
protected by Republic Act No. 6656. We have already upheld reassignments In the
Civil Service resulting from valid reorganizations.29 Nor could she claim that her
reassignment was invalid because it caused the reduction in her rank, status or
salary. On the contrary, she was reappointed as Senior Vice President, a position that
was even upgraded like all the other similar positions to Pay Grade 16, Step 4, Level
II.30 In every sense, the position to which she was reappointed under the 2002
reorganization was comparable with, if not similar to her previous position.
That the RCMSS was a unit smaller than the LCSD did not necessarily result in or
cause a demotion for Demigillo. Her new position was but the consequence of the
valid reorganization, the authority to implement which was vested in the Board of
Directors by Republic Act No. 8494. Indeed, we do not consider to be a violation of
the civil servant’s right to security of tenure the exercise by the agency where she
works of the essential prerogative to change the work assignment or to transfer the
civil servant to an assignment where she would be most useful and effective. More
succinctly put, that prerogative inheres with the employer, 31 whether public or private.
G.R. No. 185571
As earlier stated, TIDCORP’s petition for review in G.R. No. 185571 is meritorious.
Anent the first issue in G.R. No. 185571, we have already explained that Demigillo
was not demoted because she did not suffer any diminution in her rank, status and
salary under the reorganization. Her reassignment to the RCMSS, a smaller unit
compared to the LCSD, maintained for her the same rank of Senior Vice-President
with a corresponding increase in pay grade. The reassignment resulted from the valid
reorganization.
With respect to the second issue, Demigillo was validly dropped from the rolls by
TIDCORP as the consequence of the application of the rules governing her
employment. Section 2 (2.2), Rule XII of the Revised Omnibus Rules on
Appointments and Other Personnel Actions (Memorandum Circular No. 40, Series of
1998) provides:
xxxx
2.2 Unsatisfactory or Poor Performance
a. An official or employee who is given two (2) consecutive unsatisfactory
ratings may be dropped from the rolls after due notice. Notice shall mean
that the officer or employee concerned is informed in writing of his
unsatisfactory performance for a semester and is sufficiently warned that a
succeeding unsatisfactory performance shall warrant his separation from the
service. Such notice shall be given not later than 30 days from the end of the
semester and shall contain sufficient information which shall enable the
employee to prepare an explanation.
b. An official or employee, who for one evaluation period is rated poor in
performance, may be dropped from the rolls after due notice. Notice shall
mean that the officer or employee is informed in writing of the status of his
performance not later than the 4th month of that rating period with sufficient
warning that failure to improve his performance within the remaining period
of the semester shall warrant his separation from the service. Such notice
shall also contain sufficient information which shall enable the employee to
prepare an explanation.
Under Section (b), supra, an official or employee may be dropped from the rolls
provided the following requisites are present, namely: (1) the official or employee was
6
rated poor in performance for one evaluation period; (2) the official or employee was
notified in writing of the status of her performance not later than the 4th month of the
rating period with sufficient warning that failure to improve her performance within the
remaining period of the semester shall warrant her separation from the service; and
(3) such notice contained adequate information that would enable her to prepare an
explanation.
All of the requisites were duly established herein.
As to the first requisite, there is no dispute that President Valdes gave Demigillo a
poor performance rating for the annual rating period from January 1, 2002 to
December 31, 2002.
The second requisite speaks of a sixth-month or per semester rating period. Although
Demigillo’s poor rating was made on an annual basis, that was allowed by the
implementing rules of Executive Order No. 292.32 Regarding the need to give her the
written notice of her performance status not later than the 4th month of the rating
period, or at the half of the semester, the requirement did not apply here because her
rating was made on an annual basis. By analogy, however, the written notice for an
annual rating period could be sent on the 6th month or in the middle of the year.
Nevertheless, this was not expressly provided for in the Civil Service rules.1âwphi1 In
any case, it is emphasized that the purpose of the written notice being sent to the
affected officer or employee not later than the 4th month of the rating period has been
to give her the sufficient time to improve her performance and thereby avert her
separation from the service. That purpose is the very essence of due process.
In Demigillo’s case, therefore, what was crucial was whether she had been allowed to
enhance her performance within a sufficient time from her receipt of the written notice
of the poor performance rating up to her receipt of the written notice of her dropping
from the rolls. The records show that she was, indeed, given enough time for her to
show improvement. She received on April 21, 2003 a letter from President Valdes that
indicated her poor performance rating for the period of January 1, 2002 to December
31, 2002.33 The Board of Directors issued on August 15, 2003 the decision dropping
her from rolls.34 She received a copy of the decision on August 25, 2003. 35Thereby,
she was given almost four months to improve her performance before she was finally
dropped from the rolls.
The second requisite further mentions that the written notice must contain sufficient
warning that failure to improve her performance within the remaining period of the
semester shall warrant separation from the service. Although the letter informing
Demigillo of her poor performance rating did not expressly state such a warning to
her, it stated her gross failures in the performance of her duties. 36 The Performance
Evaluation Report Form corresponding to her, which was attached to the
memorandum given to her, reflected her poor performance. 36 She was notified in
writing of the denial of her appeal of the poor rating.37 It cannot be denied that the
letter of poor rating, the Performance Evaluation Repmi Form, and the denial of her
appeal all signified to her that she could be removed from the service unless she
would improve her performance. Thereby, she was given ample warning to improve,
or else be separated from the service. In that regard, she was certainly not a witless
person who could have missed the significance of such events. She was not only a
lawyer. 38 She was also a mid-level ranking government official who had been in the
government corporate sector for almost 20 years.39 Her familiarity with the dire
consequences of a failure to improve a poor rating under Civil Service rules was
justifiably assumed.
Anent the third requisite, the letter of President Valdes plainly stated the reasons for
her poor rating. Her Performance Evaluation Repmi Form, which was attached to the
letter, enumerated several criteria used in measuring her management skills and the
corresponding rating per criterion. The letter even suggested that in order for her to
enhance her performance she should undergo extensive training on business
management, a comprehensive lecture program on Civil Service rules and
regulations, and a training on effective public relations. The letter indicated that the
contents of the Performance Evaluation Report had been discussed with her.
Moreover, Demigillo formally appealed the poor performance rating, except that
TIDCORP denied her appeal.40All these circumstances show that she was given
more than enough information about the bases for her poor performance rating,
enabling her to appeal properly.
WHEREFORE, we DENY the petition for review on certiorari in G.R. No. 168613;
AFFIRM the decision promulgated on June 27, 2005 by the Court of Appeals in its
CA-G.R. No. 87285; GRANT the petition for review on certiorari in G.R. No. 185571;
SET ASIDE the decision promulgated on November 28, 2008 by the Court of Appeals
in its CA-G.R. No. 87295; and ORDER Atty. MA. ROSARIO MANALANG-DEMIGILLO
to pay the costs of suit.
SO ORDERED.
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA), Petitioner, v. COMMISSION
ON AUDIT (COA) AND HON. MA. GRACIA M. PULIDO TAN, CHAIRPERSON,
COMMISION ON AUDIT, Respondent.
DECISION
PERALTA, J.:
In much of law, as in life, there is a constant need to balance competing values,
interests and other considerations. In a free society, there is a need to carefully
7
calibrate the proper balance between liberty and authority, between peace and order
and privacy, and, between responsible public service and unreasonable or arbitrary
rules retroactively applied to public officials and employees. To allow one value to
dominate the counterpart could lead to undesirable consequences. 1chanrobleslaw
In the present case, the Court is confronted with the need to provide for an equitable
and acceptable equilibrium between accountability of public officials and the degree of
responsibility and diligence by which they are to be adjudged. While it is a basic
postulate of the republican form of government that we have that public office is a
public trust2 - that individuals who join the government are expected to abide by the
guiding principles and policies by which public service is to be performed - it also
values the dignity of every human person.3 It should ever be kept in mind that the
people are not mere creatures of the State. They should not be considered as mere
automatons, unthinking individuals who are not to experiment, or innovate, lest they
may be made to shoulder the monetary cost of such endeavors if subsequently found
to be in violation of rules which were not clearly established or understood at the time
the action was performed.
Government employment should be seen as an opportunity for individuals of good will
to render honest-to-goodness public service, not a trap for the unwary. It should be an
attractive alternative to private employment, not an undesirable undertaking
grudgingly accepted, to therefore regret. It should present a fulfilling environment
where those who enter could realize their potentials, and the public could benefit from
their contributions.
For this Court's consideration is the Petition for Certiorari,4 under Rule 64, in relation
to Rule 65, of the Rules of Court, dated February 6, 2014 of petitioner Philippine
Economic Zone Authority (PEZA), seeking the annulment of Commission on Audit
(COA) Decision No. 2013-231 dated December 23, 2013 which affirmed Corporate
Government Sector-B Decision No. 2011-008 dated August 31, 2011 and Notice of
Disallowance No. 10-001-101-(05-08) dated May 27, 2010 disallowing the payment of
additional Christmas bonus/cash gifts to PEZA officers and employees for Calendar
Years (CY) 2005 to 2008.
The facts follow.
The PEZA Charter, Republic Act (R.A.) No. 7916, was amended by R.A. No. 8748 in
1999 exempting PEZA from existing laws, rules and regulations on compensation,
position classification and qualification standards. Section 16 of R.A. No. 7916, as
amended, reads as follows:ChanRoblesVirtualawlibrary
Sec. 16. Personnel. - The PEZA Board of Directors shall provide for an organization
and staff of officers and employees of the PEZA, and upon recommendation of the
director general with the approval of the secretary of the Department of Trade and
Industry, appoint and fix the remunerations and other emoluments: Provided, The the
Board shall have exclusive and final authority to promote, transfer, assign and
reassign officers of the PEZA, any provision of existing law to the contrary
notwithstanding: Provided, further, That the director general may carry out removal of
such officers and employees.
All positions in the PEZA shall be governed by a compensation, position classification
system and qualification standards approved by the director general with the
concurrence of the Board of Directors based on a comprehensive job analysis and
audit of actual duties and responsibilities. The compensation plan shall be
comparable with the prevailing compensation plans in the Subic Bay Metropolitan
Authority (SBMA), Clark Development Corporation (BCDA) and the private sector and
shall be subject to the periodic review by the Board no more than once every two (2)
years without prejudice to yearly merit reviews or increases based on productivity and
profitability. The PEZA shall therefore be exempt from existing laws, rules and
regulations on compensation, position classification and qualification
standards. It shall however endeavor to make its systems conform as closely
as possible with the principles under Republic Act No.
6758.5chanroblesvirtuallawlibrary
The PEZA Board in Resolution No. M-99-266 dated October 29, 1999, adjusted
PEZA's compensation plan and included in the said compensation plan is the grant of
Christmas bonus in such amount as may be fixed by the Board and such other
emoluments.
Petitioner PEZA had been granting Christmas bonus in the amount of Fifty Thousand
Pesos (P50,000.00) to each of its officers and employees for CY 2000 to 2004,
however, for the years 2005 to 2008, the Christmas bonus was gradually increased
per PEZA Board Resolution Nos. 05-450 and 06-462 dated November 28, 2005 and
September 26, 2006, respectively. For 2005, the Christmas bonus was increased to
P60,000.00 and was again increased to P70,000.00 in 2006 and 2007. In 2008, the
Christmas bonus was increased to P75,000.00 per PEZA officer/employee.
State Auditor V Aurora Liveta-Funa, on May 27, 2010, issued Notice of Disallowance
(ND) No. 10-001-101-(05-08)6 that was received by PEZA on May 31, 2010. The ND
stated that the payment of additional Christmas bonus to PEZA officers and
employees for calendar years 2005-2008 violated Section 3 of Memorandum Order
(M.O.) No. 20 dated June 25, 2001 which provides that any increase in salary or
compensation of government-owned and controlled corporations (GOCCs) and
government financial institutions (GFIs) that is not in accordance with the Salary
Standardization Law shall be subject to the approval of the President.
The matter was brought to the Corporate Government Sector-B which later on
rendered the Decision No. 2011-0087 dated August 31, 2011 not giving credence to
the arguments of petitioner and affirmed the Notice of Disallowance No. 10-001-101-
(05-08) dated May 27, 2010 in the aggregate amount of Php20,438,750.00.
Thereafter, pursuant to Rules V and VII of the 2009 Revised Rules of Procedure of
the COA, petitioner filed the Petition for Review with respondent COA.
The COA in its Decision No. 2013-2318 dated December 23, 2013 ruled that
notwithstanding Section 16 of the PEZA Charter, petitioner is still duty-bound to
observe the guidelines and policies as may be issued by the President citing Intia, Jr.
v. COA9 where this Court ruled that the power of the board to fix the compensation of
the employees is not absolute. The COA further cited Section 6 of Presidential
Decree (P.D.) No. 1597 which mandates presidential review and approval, through
8
the Department of Budget and Management (DBM), of the position classification and government entities that are now exempt from the salary standardization law, to
compensation plan of an agency exempt from the Office of Compensation and wit:ChanRoblesVirtualawlibrary
Position Classification (OCPC) coverage. 1. Philippine Postal Corporation

Furthermore, according to the COA, M.O. No. 20 requires presidential approval on Sections 22 and 25 of Republic Act No. 7354 or the "Postal Service Act of 1992"
salary increases, while Administrative Order (A.O.) No. 103 suspends the grant of state:ChanRoblesVirtualawlibrary
new or additional benefits in line with the austerity measures of the government. The Sec. 22. Merit System. — The Corporation shall establish a human resources
COA added that these presidential issuances are not abhorrent to the authority of the management system which shall govern the selection, hiring, appointment, transfer,
PEZA Board of Directors to fix the remuneration of PEZA officers and employees. It promotion, or dismissal of all personnel. Such system shall aim to establish
stated that the requirement of presidential approval does not remove from the board professionalism and excellence at all levels of the postal organization in accordance
the power to fix the compensation and allowances of PEZA officers and employees with sound principles of management.
but is meant to determine whether or not the standards set by law have been
complied with. A progressive compensation structure, which shall be based on job evaluation studies
and wage surveys and subject to the Board's approval, shall be instituted as an
Hence, petitioner filed the present petition assigning the following integral component of the Corporation's human resources development program. The
error:ChanRoblesVirtualawlibrary Corporation, however, may grant across-the-board salary increase or modify its
RESPONDENT ERRED WHEN IT RULED THAT THE GRANT OF ADDITIONAL compensation structure as to result in higher salaries, subject to either of the following
CHRISTMAS BONUS TO PEZA OFFICERS AND EMPLOYEES NEEDS THE conditions:
APPROVAL OF THE OFFICE OF THE PRESIDENT BECAUSE REPUBLIC ACT NO.
7916, AS AMENDED BY REPUBLIC ACT NO. 8748, AUTHORIZES THE PEZA chanRoblesvirtualLawlibrary(a) there are evidences of prior improvement in employee
BOARD OF DIRECTORS TO FIX THE REMUNERATIONS AND OTHER productivity, measured by such quantitative indicators as mail volume per employee
EMOLUMENTS OF PEZA OFFICERS AND EMPLOYEES. and delivery times.
Petitioner argues that it is not covered by P.D. No. 1597 because its provisions are
inconsistent with R.A. No. 7916, as amended, which authorizes the PEZA Board to (b) a law raising the minimum wage has been enacted with application to all
determine the compensation of its officers and employees and that even assuming government employees or has the effect of classifying some positions in the postal
without admitting that it is covered by P.D. No. 1597, the law mentions of reporting to service as below the floor wage.
the President through the Budget Commission and does not say that the approval of
the President, through the Budget Commission, should be secured. x x x x

The Office of the Solicitor General (OSG),10 on the other hand, claims that despite the
exception clause in Section 16 of R.A. No. 7916, as amended, said provision should
nonetheless be read in conjunction with the existing laws pertaining to compensation
among government agencies, as it is undoubtedly a GOCC over which the President
exercises his power of control, through the DBM, aside from the parameter set by the
provision itself, i.e., that PEZA "shall, however, endeavor to make its system conform
as closely as possible with the principles under Republic Act. No. 6758."
In its Reply11 dated October 22, 2014, petitioner reiterated its earlier arguments.
After a careful study of the arguments of both petitioner and respondent, this Court
finds no merit to the petition.
Sec. 25. Exemption from Rules and Regulations of the Compensation and Position
Classification Office. — All personnel and positions of the Corporation shall be
governed by Section 22 hereof, and as such shall be exempt from the coverage of the
rules and regulations of the Compensation and Position Classification Office. The
Corporation, however, shall see to it that its own system conforms as closely as
possible with that provided for under Republic Act No. 6758.
In Intia, Jr. v. Commission on Audit,13 this Court affirmed the Philippine Postal
Corporation's exemption from the Salary Standardization Law. However, the
corporation should report the details of its salary and compensation system to the
Department of Budget and Management.
x x x x

It is not disputed that after the enactment of the Salary Standardization Law (Republic 2. Trade and Investment Development Corporation of the Philippines
Act No. 6758 became effective on July 1, 1989), laws have been passed exempting
some government entities from its coverage. The said government entities were The Trade and Investment Development Corporation of the Philippines is also
allowed to create their own compensation and position classification systems that exempted from the Salary Standardization Law as provided in Section 7 of Republic
apply to their respective offices, usually through their Board of Directors. In Engr. Act No. 8494:14
Mendoza v. Commission on Audit,12 this Court mentioned several of those Sec. 7. The Board of Directors shall provide for an organizational structure and
staffing pattern for officers and employees of the Trade and Investment Development

9
Corporation of the Philippines (TIDCORP) and upon recommendation of its President,
appoint and fix their remuneration, emoluments and fringe benefits: Provided, That
the Board shall have exclusive and final authority to appoint, promote, transfer, assign
and re-assign personnel of the TIDCORP, any provision of existing law to the contrary
notwithstanding.
All positions in TIDCORP shall be governed by a compensation and position
classification system and qualification standards approved by TIDCORP's Board of
Directors based on a comprehensive job analysis and audit of actual duties and
responsibilities. The compensation plan shall be comparable with the prevailing
compensation plans in the private sector and shall be subject to periodic review by
the Board no more than once every four (4) years without prejudice to yearly merit
reviews or increases based on productivity and profitability. TIDCORP shall be
exempt from existing laws, rules and regulations on compensation, position
classification and qualification standards. It shall, however, endeavor to make the
system to conform as closely as possible to the principles and modes provided in
Republic Act No. 6758.
xxxx
3. Land Bank of the Philippines, Social Security System, Small Business Guarantee
and Finance Corporation, Government Service Insurance System, Development Bank
of the Philippines, Home Guaranty Corporation, and the Philippine Deposit Insurance
Corporation
From 1995 to 2004, laws were passed exempting several government financial
institutions from the Salary Standardization Law. Among these financial institutions
are the Land Bank of the Philippines, Social Security System, Small Business
Guarantee and Finance Corporation, Government Service Insurance System,
Development Bank of the Philippines, Home Guaranty Corporation, and the Philippine
Deposit Insurance Corporation.
This Court has taken judicial notice of this development in Central Bank (now Bangko
Sentral ng Pilipinas) Employees Association, Inc. v. Bangko Sentral ng Pilipinas:15
Indeed, we take judicial notice that after the new BSP charter was enacted in 1993,
Congress also undertook the amendment of the charters of the GSIS, LBP, DBP and
SSS, and three other GFIs, from 1995 to 2004, viz.:ChanRoblesVirtualawlibrary
1. R.A. No. 7907 (1995) for Land Bank of the Philippines (LBP);
2. R.A. No. 8282 (1997) for Social Security System (SSS);
3. R.A. No. 8289 (1997) for Small Business Guarantee and Finance Corporation,
(SBGFC);
4. R.A. No. 8291 (1997) for Government Service Insurance System (GSIS);
5. R.A. No. 8523 (1998) for Development Bank of the Philippines (DBP);
6. R.A. No. 8763 (2000) for Home Guaranty Corporation (HGC); and cralawlawlibrary
7. R.A. No. 9302 (2004) for Philippine Deposit Insurance Corporation (PDIC).
It is noteworthy, as petitioner points out, that the subsequent charters of the seven
other GFIs share this common proviso: a blanket exemption of all their employees
from' the coverage of the SSL, expressly or impliedly, as illustrated below:
chanRoblesvirtualLawlibrary1. Land Bank of the Philippines (Republic Act No. 7907)
Section 10. Section 90 of [Republic Act No. 3844] is hereby amended to read as
follows:
chanRoblesvirtualLawlibrarySection 90. Personnel. —
xxx xxx xxx
All positions in the Bank shall be governed by a compensation, position classification
system and qualification standards approved by the Bank's Board of Directors based
on a comprehensive job analysis and audit of actual duties and responsibilities. The
compensation plan shall be comparable with the prevailing compensation plans in the
private sector and shall be subject to periodic review by the Board no more than once
every two (2) years without prejudice to yearly merit reviews or increases based on
productivity and profitability. The Bank shall therefore be exempt from existing laws,
rules and regulations on compensation, position classification and qualification
standards. It shall however endeavor to make its system conform as closely as
possible with the principles under Republic Act No. 6758.
xxx xxx xxx
2. Social Security System (Republic Act No. 8282)
Section 1. [Amending Republic Act No. 1161, Section 3(c)]:
chanRoblesvirtualLawlibrary
xxx xxx xxx
(c) The Commission, upon the recommendation of the SSS President, shall appoint
an actuary and such other personnel as may [be] deemed necessary; fix their
reasonable compensation, allowances and other benefits; prescribe their duties and
establish such methods and procedures as may be necessary to insure the efficient,
honest and economical administration of the provisions and purposes of this Act:
Provided, however, That the personnel of the SSS below the rank of Vice President
shall be appointed by the SSS President: Provided, further, That the personnel
appointed by the SSS President, except those below the rank of assistant manager,
shall be subject to the confirmation by the Commission; Provided further, That the
personnel of the SSS shall be selected only from civil service eligibles and be subject
to civil service rules and regulations: Provided, finally, That the SSS shall be exempt
from the provisions of Republic Act No. 6758 and Republic Act No. 7430.
3. Small Business Guarantee and Finance Corporation (Republic Act No. 8289)
Section 8. [Amending Republic Act No. 6977, Section 11]:
chanRoblesvirtualLawlibrary(e) notwithstanding the provisions of Republic Act No.
10
6758, and Compensation Circular No. 10, series of 1989 issued by the Department of
Budget and Management, the Board of Directors of [the Small Business Guarantee
and Finance Corporation] shall have the authority to extend to the employees and
personnel thereof the allowance and fringe benefits similar to those extended to and
currently enjoyed by the employees and personnel of other government financial
institutions.
4. Government Service Insurance System (Republic Act No. 8291)
Section 1. [Amending Section 43(d) of Presidential Decree No. 1146].
xxx xxx xxx
Sec. 43. Powers and Functions of the Board of Trustees. — The Board of Trustees
shall have the following powers and functions:
chanRoblesvirtualLawlibrary
xxx xxx xxx
(d) upon the recommendation of the President and General Manager, to approve the
GSIS' organizational and administrative structures and staffing pattern, and to
establish, fix, review, revise and adjust the appropriate compensation package for the
officers and employees of the GSIS with reasonable allowances, incentives, bonuses,
privileges and other benefits as may be necessary or proper for the effective
management, operation and administration of the GSIS, which shall be exempt from
Republic Act No. 6758, otherwise known as the Salary Standardization Law and
Republic Act No. 7430, otherwise known as the Attrition Law.
xxx xxx xxx
5. Development Bank of the Philippines (Republic Act No. 8523)
Section 6. [Amending Executive Order No. 81, Section 13]:
chanRoblesvirtualLawlibrarySection 13. Other Officers and Employees. — The Board
of Directors shall provide for an organization and staff of officers and employees of
the Bank and upon recommendation of the President of the Bank, fix their
remunerations and other emoluments. All positions in the Bank shall be governed by
the compensation, position classification system and qualification standards approved
by the Board of Directors based on a comprehensive job analysis of actual duties and
responsibilities. The compensation plan shall be comparable with the prevailing
compensation plans in the private sector and shall be subject to periodic review by
the Board of Directors once every two (2) years, without prejudice to yearly merit or
increases based on the Bank's productivity and profitability. The Bank shall, therefore,
be exempt from existing laws, rules, and regulations on compensation, position
classification and qualification standards. The Bank shall however, endeavor to make
its system conform as closely as possible with the principles under Compensation and
Position Classification Act of 1989 (Republic Act No. 6758, as amended).
6. Home Guaranty Corporation (Republic Act No. 8763)
Section 9. Powers, Functions and Duties of the Board of Directors. — The Board shall
have the following powers, functions and duties:
chanRoblesvirtualLawlibrary
xxx xxx xxx
(e) To create offices or positions necessary for the efficient management, operation
and administration of the Corporation: Provided, That all positions in the Home
Guaranty Corporation (HGC) shall be governed by a compensation and position
classification system and qualifications standards approved by the Corporation's
Board of Directors based on a comprehensive job analysis and audit of actual duties
and responsibilities: Provided, further, That the compensation plan shall be
comparable with the prevailing compensation plans in the private sector and which
shall be exempt from Republic Act No. 6758, otherwise known as the Salary
Standardization Law, and from other laws, rules and regulations on salaries and
compensations; and to establish a Provident Fund and determine the Corporation's
and the employee's contributions to the Fund;
xxx xxx xxx
7. Philippine Deposit Insurance Corporation (Republic Act No. 9302)
Section 2. Section 2 of [Republic Act No. 3591, as amended] is hereby further
amended to read:
chanRoblesvirtualLawlibrary
xxx xxx xxx
3.
xxx xxx xxx
x x x Provided, That all positions in the Corporation shall be governed by a
compensation, position classification system and qualification standards approved by
the Board based on a comprehensive job analysis and audit of actual duties and
responsibilities. The compensation plan shall be comparable with the prevailing
compensation plans of other government financial institutions and shall be subject to
review by the Board no more than once every two (2) years without prejudice to
yearly merit reviews or increases based on productivity and profitability. The
Corporation shall therefore be exempt from existing laws, rules and regulations on
compensation, position classification and qualification standards. It shall however
endeavor to make its system conform as closely as possible with the principles under
Republic Act No. 6758, as amended.16chanroblesvirtuallawlibrary
Petitioner's Charter is no different from those mentioned above. Again, Section 16 of
R.A. No. 7916, as amended, provides:ChanRoblesVirtualawlibrary
Sec. 16. Personnel. - The PEZA Board of Directors shall provide for an organization
and staff of officers and employees of the PEZA, and upon recommendation of the
director general with the approval of the secretary of the Department of Trade and
Industry, appoint and fix the remunerations and other emoluments: Provided, The the
Board shall have exclusive and final authority to promote, transfer, assign and
reassign officers of the PEZA, any provision of existing law to the contrary
notwithstanding: Provided, further, That the director general may carry out removal of
such officers and employees.
All positions in the PEZA shall be governed by a compensation, position classification
11
system and qualification standards approved by the director general with the
concurrence of the Board of Directors based on a comprehensive job analysis and
audit of actual duties and responsibilities. The compensation plan shall be
comparable with the prevailing compensation plans in the Subic Bay Metropolitan
Authority (SBMA), Clark Development Corporation (BCDA) and the private sector and
shall be subject to the periodic review by the Board no more than once every two (2)
years without prejudice to yearly merit reviews or increases based on productivity and
profitability. The PEZA shall therefore be exempt from existing laws, rules and
regulations on compensation, position classification and qualification
standards. It shall however endeavor to make its systems conform as closely
as possible with the principles under Republic Act No.
6758.17chanroblesvirtuallawlibrary
The COA, in disallowing the increase in the Christmas bonus implemented by
petitioner, insists that despite the provisions of Section 16 of R.A. No. 7916, as
amended, petitioner is still bound to observe the guidelines and policies issued by the
Office of the President citing this Court's ruling in Intia, Jr. v. COA18where it was ruled
that the power of the board of directors to fix the compensation of the employees is
not absolute, thus:ChanRoblesVirtualawlibrary
x x x the Board's discretion on the matter of personnel compensation is not absolute
as the same must be exercised in accordance with the standard laid down by law,
that is, its compensation system, including the allowances granted by the Board to
PPC employees, must strictly conform with that provided for other government
agencies under R.A. No. 6758 (Salary Standardization Law) in relation to the General
Appropriations Act. To ensure such compliance, the resolutions of the Board affecting
such matters should first be reviewed and approved by the Department of Budget and
Management pursuant to Section 6 of P.D. 1597.19chanroblesvirtuallawlibrary
In addition, the COA cited Section 6 of P.D. No. 1597 which provides the requisite
Presidential review, through the DBM, of the position classification and compensation
plan of an agency exempt from the Office of Compensation and Position
Classification (OCPC) coverage, which reads as follows:ChanRoblesVirtualawlibrary
Section 6. Exemptions from OCPC Rules and Regulations. Agencies positions and
groups of officials and employees of the national government, including government
owned or controlled corporations, who are hereafter exempted by law from OCPC
coverage, shall observe such guidelines and policies as may be issued by the
President governing position classification, salary rates, levels of allowances, project
and other honoraria, overtime rates, and other forms of compensation and fringe
benefits. Exemptions notwithstanding, agencies shall report to the President,
through the Budget Commission, on their position classification and
compensation plans, policies, rates and other related details following such
specifications as may be prescribed by the
President.20chanroblesvirtuallawlibrary
It is true that in Intia, Jr. v. COA, this Court affirmed the Philippine Postal
Corporation's exemption from the Salary Standardization Law, this Court also ruled
that the corporation should report the details of its salary and compensation system to
the DBM, thus:ChanRoblesVirtualawlibrary
First, it is conceded that the PPC, by virtue of its charter, R. A. No. 7354, has the
power to fix the salaries and emoluments of its employees. This function, being
lodged in the Postmaster General, the same must be exercised with the approval of
the Board of Directors. This is clear from Sections 21 and 22 of said charter.
Petitioners correctly noted that since the PPC Board of Directors are authorized to
approve the Corporation's compensation structure, it is also within the Board's power
to grant or increase the allowances of PPC officials or employees. As can be gleaned
from Sections 10 and 17 of P.D. No. 985 (A Decree Revising the Position
Classification and Compensation System in the National Government, and Integrating
the Same), the term "compensation" includes salaries, wages, allowances, and other
benefits.
x x x x
While the PPC Board of Directors admittedly acted within its powers when it granted
the RATA increases in question, the same should have first been reviewed by the
DBM before they were implemented Sections 21, 22, and 25 of the PPC charter
should be read in conjunction with Section 6 of P.D. No.
1597:ChanRoblesVirtualawlibrary
Sec. 6. Exemption from OCPC Rules and Regulations. — Agencies, positions or
groups of officials and employees of the national government, including government-
owned and controlled corporations, who are hereafter exempted by law from OCPC
coverage, shall observe such guidelines and policies as may be issued by the
President governing position classification, salary rates, levels of allowances, project
and other honoraria, overtime rates, and other forms of compensation and fringe
benefits. Exemptions notwithstanding, agencies shall report to the President, through
the Budget Commission, on their position classification and compensation plans,
policies, rates and other related details, following such specifications as may be
prescribed by the President.
x x x x
As the Solicitor General correctly observed, there is no express repeal of Section 6,
P.D. No. 1597 by RA No. 7354. Neither is there an implied repeal thereof because
there is no irreconcilable conflict between the two laws. On the one hand, Section 25
of R.A. No. 7354 provides for the exemption of PPC from the rules and regulations of
the CPCO. On the other hand, Section 6 of P.D. 1597 requires PPC to report to the
President, through the DBM, the details of its salary and compensation system. Thus,
while the PPC is allowed to fix its own personnel compensation structure
through its Board of Directors, the latter is required to follow certain standards
in formulating said compensation system. One such standard is specifically stated
in Section 25 of R.A. No. 7354[.]21chanroblesvirtuallawlibrary
The ruling in Intia, Jr. v. COA and the provisions of Section 6 of P.D. No. 1597 can
thus be reconciled as both emphasized that these exempted government entities are
required to report to the President, through the DBM, the details of its salary and
compensation system. Reporting, however, is different from approval. Section 6 of
P.D. No. 1597 specifically requires the exempted government agencies to report to
the President, through the DBM, on their position classification and compensation
plans, policies, rates and other related details following such specifications as may be
prescribed by the President.
In fact, a close reading of the charters of those other government entities exempted
from the Salary Standardization Law shows a common provision stating that although
12
the board of directors of the said entities has the power to set a compensation,
position classification system and qualification standards, the same entities shall also
endeavor to make the system to conform as closely as possible to the principles and
modes provided in R.A. No. 6758. This Court, in Trade and Investment Development
Corporation of the Philippines v. Civil Service Commission,22 recognized the Trade
and Investment Development Corporation's exemption from the Salary
Standardization Law. However, this Court ruled that the said Corporation should,
however, "endeavor" to conform to the principles and modes of the Salary
Standardization Law in making its own system of compensation and position
classification. The phrase "to endeavor" means "to devote serious and sustained
effort" and "to make an effort to do." It is synonymous with the words to strive, to
struggle and to seek. The use of "to endeavor" in the context of Section 7 of R.A. No.
8494 means that despite TIDCORP's exemption from laws involving compensation,
position classification and qualification standards, it should still strive to conform as
closely as possible with the principles and modes provided in R.A. No. 6758. The
phrase "as closely as possible," which qualifies TIDCORP's duty "to endeavor to
conform," recognizes that the law allows TIDCORP to deviate from R.A. No. 6758, but
it should still try to hew closely with its principles and modes. Had the intent of
Congress been to require TIDCORP to fully, exactly and strictly comply with R.A. No.
6758, it would have so stated in unequivocal terms. Instead, the mandate it gave
TIDCORP was to endeavor to conform to the principles and modes of R.A. No. 6758,
and not to the entirety of this law.23chanrobleslaw
Thus, the charters of those government entities exempt from the Salary
Standardization Law is not without any form of restriction. They are still required to
report to the Office of the President, through the DBM the details of their salary and
compensation system and to endeavor to make the system to conform as closely as
possible to the principles and modes provided in Republic Act No. 6758. Such
restriction is the most apparent indication that the legislature did not divest the
President, as Chief Executive of his power of control over the said government
entities. In National Electrification Administration v. COA,24 this Court explained the
nature of presidential power of control, and held that the constitutional vesture of this
power in the President is self-executing and does not require statutory
implementation, nor may its exercise be limited, much less withdrawn, by the
legislature.
It must always be remembered that under our system of government all executive
departments, bureaus and offices are under the control of the President of the
Philippines. This precept is embodied in Section 17, Article VII of the Constitution
which provides as follows:ChanRoblesVirtualawlibrary
Sec. 17. The President shall have control of all the executive departments, bureaus
and offices. He shall ensure that the laws be faithfully executed.
Thus, respondent COA was correct in claiming that petitioner has to comply with
Section 325cralawred of M.O. No. 20 dated June 25, 2001 which provides that any
increase in salary or compensation of GOCCs/GFIs that is not in accordance with the
Salary Standardization Law shall be subject to the approval of the President. The said
M.O. No. 20 is merely a reiteration of the President's power of control over the
GOCCs/CFIs notwithstanding the power granted to the Board of Directors of the latter
to establish and fix a compensation and benefits scheme for its employees.
Aside from the M.O. No. 20, respondent COA also aptly cited in its Decision No.
2013-231, P.D. No. 1597 and A.O. No. 103, which directed austerity measures in
government, thus:ChanRoblesVirtualawlibrary
MO No. 20 likewise requires Presidential approval on salary increases while AO No.
103 suspends the grant of new or additional benefits in line with the austerity
measures of the government. These executive issuances may not be simply
dismissed as inutile as long as they are not inconsistent with the special law, the
PEZA Charter. Administrative issuances partake of the nature of a statute and have in
their favor a presumption of legality. As such, courts cannot ignore administrative
issuances x x x. Unless an administrative order is declared invalid, courts have no
option but to apply the same.
The abovementioned Presidential issuances are not abhorrent to the authority of the
BOD to fix the remuneration of the PEZA officers and employees. The requirement of
President's approval does not remove from the BOD the power to fix the
compensation and allowances of PEZA but merely requires the same to be submitted
to the President, through the DBM, in order to determine whether or not the standards
set by law have been complied with.
Moreover, the DBM Footnotes/Restrictions on the corporation's Corporate Operating
Budget (COB) for calendar years 2005-2008 explicitly mentioned laws which PEZA is
enjoined to strictly comply, namely, Section 6 of PD No. 1597, Section 3 of MO No.
20, and AO No. 103 dated August 31, 2004. Further, the DBM, in its confirmation
letter dated December 3, 2008 on PEZA's CY 2007 COB, states that "This
confirmation, however, should not be construed as approval of any unauthorized
expenditures, particularly for Personal Services. New/additional benefits or salary
increases granted should be supported by appropriate legal basis and approval from
the Office of the President.26chanroblesvirtuallawlibrary
The affirmation of the disallowance of the payment of additional Christmas
bonus/cash gifts to PEZA officers and employees for CY 2005 to 2008, however,
does not automatically cast liability on the responsible officers.
The question to be resolved is: To what extent may accountability and responsibility
be ascribed to public officials who may have acted in good faith, and in accordance
with their understanding of their authority which did not appear clearly to be in conflict
with other laws? Otherwise put, should public officials be held financially accountable
for the adoption of certain policies or programs which are found to be not in
accordance with the understanding by the Commission on Audit several years after
the fact, which understanding is only one of several ways of looking at the legal
provisions?
Good faith has always been a valid defense of public officials that has been
considered by this Court in several cases. Good faith is a state of mind denoting
"honesty of intention, and freedom from knowledge of circumstances which ought to
put the holder upon inquiry; an honest intention to abstain from taking any
unconcientious advantage of another, even though technicalities of law, together with
absence of all information, notice, or benefit or belief of facts which render transaction
unconscientious.27chanrobleslaw
13

In Arias v. Sandiganbayan,28 this Court placed significance on the good faith of heads
of offices having to rely to a reasonable extent on their subordinates and on the good
faith of those who prepare bids, purchase supplies or enter into negotiations,
thus:ChanRoblesVirtualawlibrary
There is no question about the need to ferret out and convict public officers whose
acts have made the bidding out and construction of public works and highways
synonymous with graft or criminal inefficiency in the public eye. However, the remedy
is not to indict and jail every person who may have ordered the project, who signed a
document incident to its construction, or who had a hand somewhere in its
implementation. The careless use of the conspiracy theory may sweep into jail even
innocent persons who may have been made unwitting tools by the criminal minds who
engineered the defraudation.
x x x x
We would be setting a bad precedent if a head of office plagued by all too common
problems - dishonest or negligent subordinates, overwork, multiple assignments or
positions, or plain incompetence - is suddenly swept into a conspiracy conviction
simply because he did not personally examine every single detail, painstakingly trace
every step from inception, and investigate the motives of every person involved in a
transaction before affixing his signature as the final approving authority.
x x x x
We can, in retrospect, argue that Arias should have probed records, inspected
documents, received procedures, and questioned persons. It is doubtful if any auditor
for a fairly sized office could personally do all these things in all vouchers presented
for his signature. The Court would be asking for the impossible. All heads of offices
have to rely to a reasonable extent on their subordinates and on the good faith of
those who prepare bids, purchase supplies or enter into negotiations. x x
x.29chanroblesvirtuallawlibrary
Similarly, good faith has also been appreciated in Sistoza v.
Desierto,30 thus:ChanRoblesVirtualawlibrary
There is no question on the need to ferret out and expel public officers whose acts
make bureaucracy synonymous with graft in the public eye, and to eliminate systems
of government acquisition procedures which covertly ease corrupt practices. But the
remedy is not to indict and jail every person who happens to have signed a piece of
document or had a hand in implementing routine government procurement, nor does
the solution fester in the indiscriminate use of the conspiracy theory which may sweep
into jail even the most innocent ones. To say the least, this response is excessive and
would simply engender catastrophic consequences since prosecution will likely not
end with just one civil servant but must, logically, include like an unsteady streak of
dominoes the department secretary, bureau chief, commission chairman, agency
head, and all chief auditors who, if the flawed reasoning were followed, are equally
culpable for every crime arising from disbursements they sanction.
Stretching the argument further, if a public officer were to personally examine every
single detail, painstakingly trace every step from inception, and investigate the
motives of every person involved in a transaction before affixing his signature as the
final approving authority, if only to avoid prosecution, our bureaucracy would end up
with public managers doing nothing else but superintending minute details in the acts
of their subordinates.
Stated otherwise, in situations of fallible discretion, good faith is nonetheless
appreciated when the document relied upon and signed shows no palpable nor
patent, no definite nor certain defects or when the public officer's trust and confidence
in his subordinates upon whom the duty primarily lies are within parameters of
tolerable judgment and permissible margins of error. As we have consistently held,
evidence of guilt must be premised upon a more knowing, personal and deliberate
participation of each individual who is charged with others as part of a
conspiracy.31chanroblesvirtuallawlibrary
And recently in Social Security System v. Commission on Audit,32 this Court ruled that
good faith absolves liable officers from refund, thus:ChanRoblesVirtualawlibrary
Notwithstanding the disallowance of the questioned disbursements, the Court rules
that the responsible officers under the ND need not refund the same on the basis of
good faith. In relation to the requirement of refund of disallowed benefits or
allowances, good faith is a state of mind denoting honesty of intention, and freedom
from knowledge of circumstances which ought to put the holder upon inquiry; an
honest intention to abstain from taking any unconcientious advantage of another,
even though technicalities of law, together with absence of all information, notice, or
benefit or belief of facts which render transaction unconscientious.33chanrobleslaw
In Mendoza v. COA,34 the Court held that the lack of a similar ruling is a basis of good
faith. Thus, good faith may be appreciated in the case at bench as there is no
jurisprudence yet ruling that the benefits which may be received by members of the
SSC are limited to those enumerated under Section 3 (a) of the SS Law.
It is the same good faith, therefore, that will absolve the responsible officers of PEZA
from liability from refund.
In conclusion, it is unfair to penalize public officials based on overly stretched and
strained interpretations of rules which were not that readily capable of being
understood at the time such functionaries acted in good faith. If there is any
ambiguity, which is actually clarified years later, then it should only be applied
prospectively. A contrary rule would be counterproductive. It could result in paralysis,
or lack of innovative ideas getting tried. In addition, it could dissuade others from
joining the government. When government service becomes unattractive, it could only
have adverse consequences for society.
WHEREFORE, the Petition dated February 6, 2014 of petitioner Philippine Economic
Zone Authority (PEZA) is DISMISSED. Consequently, Commission on Audit Decision
No. 2013-231 dated December 23, 2013, which affirmed Corporate Government
Sector-B Decision No. 2011-008 dated August 31, 2011 and Notice of Disallowance
No. 10-001-101-(05-08) dated May 27, 2010, disallowing the payment of additional
Christmas bonus/cash gifts to PEZA officers and employees for Calendar Years (CY)
2005 to 2008 is AFFIRMED. However, PEZA and its officers are absolved from
refunding the amount covered by the same notice of disallowance.
14

SO ORDERED.chanroblesvirtuallawlibrary
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA), Petitioner, v. COMMISSION
ON AUDIT (COA) AND HON. MA. GRACIA M. PULIDO TAN, CHAIRPERSON,
COMMISION ON AUDIT, Respondent.
DECISION
PERALTA, J.:
In much of law, as in life, there is a constant need to balance competing values,
interests and other considerations. In a free society, there is a need to carefully
calibrate the proper balance between liberty and authority, between peace and order
and privacy, and, between responsible public service and unreasonable or arbitrary
rules retroactively applied to public officials and employees. To allow one value to
dominate the counterpart could lead to undesirable consequences. 1chanrobleslaw
In the present case, the Court is confronted with the need to provide for an equitable
and acceptable equilibrium between accountability of public officials and the degree of
responsibility and diligence by which they are to be adjudged. While it is a basic
postulate of the republican form of government that we have that public office is a
public trust2 - that individuals who join the government are expected to abide by the
guiding principles and policies by which public service is to be performed - it also
values the dignity of every human person.3 It should ever be kept in mind that the
people are not mere creatures of the State. They should not be considered as mere
automatons, unthinking individuals who are not to experiment, or innovate, lest they
may be made to shoulder the monetary cost of such endeavors if subsequently found
to be in violation of rules which were not clearly established or understood at the time
the action was performed.
Government employment should be seen as an opportunity for individuals of good will
to render honest-to-goodness public service, not a trap for the unwary. It should be an
attractive alternative to private employment, not an undesirable undertaking
grudgingly accepted, to therefore regret. It should present a fulfilling environment
where those who enter could realize their potentials, and the public could benefit from
their contributions.
For this Court's consideration is the Petition for Certiorari,4 under Rule 64, in relation
to Rule 65, of the Rules of Court, dated February 6, 2014 of petitioner Philippine
Economic Zone Authority (PEZA), seeking the annulment of Commission on Audit
(COA) Decision No. 2013-231 dated December 23, 2013 which affirmed Corporate
Government Sector-B Decision No. 2011-008 dated August 31, 2011 and Notice of
Disallowance No. 10-001-101-(05-08) dated May 27, 2010 disallowing the payment of
additional Christmas bonus/cash gifts to PEZA officers and employees for Calendar
Years (CY) 2005 to 2008.
The facts follow.
The PEZA Charter, Republic Act (R.A.) No. 7916, was amended by R.A. No. 8748 in
1999 exempting PEZA from existing laws, rules and regulations on compensation,
position classification and qualification standards. Section 16 of R.A. No. 7916, as
amended, reads as follows:ChanRoblesVirtualawlibrary
Sec. 16. Personnel. - The PEZA Board of Directors shall provide for an organization
and staff of officers and employees of the PEZA, and upon recommendation of the
director general with the approval of the secretary of the Department of Trade and
Industry, appoint and fix the remunerations and other emoluments: Provided, The the
Board shall have exclusive and final authority to promote, transfer, assign and
reassign officers of the PEZA, any provision of existing law to the contrary
notwithstanding: Provided, further, That the director general may carry out removal of
such officers and employees.
All positions in the PEZA shall be governed by a compensation, position classification
system and qualification standards approved by the director general with the
concurrence of the Board of Directors based on a comprehensive job analysis and
audit of actual duties and responsibilities. The compensation plan shall be
comparable with the prevailing compensation plans in the Subic Bay Metropolitan
Authority (SBMA), Clark Development Corporation (BCDA) and the private sector and
shall be subject to the periodic review by the Board no more than once every two (2)
years without prejudice to yearly merit reviews or increases based on productivity and
profitability. The PEZA shall therefore be exempt from existing laws, rules and
regulations on compensation, position classification and qualification
standards. It shall however endeavor to make its systems conform as closely
as possible with the principles under Republic Act No.
6758.5chanroblesvirtuallawlibrary
The PEZA Board in Resolution No. M-99-266 dated October 29, 1999, adjusted
PEZA's compensation plan and included in the said compensation plan is the grant of
Christmas bonus in such amount as may be fixed by the Board and such other
emoluments.
Petitioner PEZA had been granting Christmas bonus in the amount of Fifty Thousand
Pesos (P50,000.00) to each of its officers and employees for CY 2000 to 2004,
however, for the years 2005 to 2008, the Christmas bonus was gradually increased
per PEZA Board Resolution Nos. 05-450 and 06-462 dated November 28, 2005 and
September 26, 2006, respectively. For 2005, the Christmas bonus was increased to
P60,000.00 and was again increased to P70,000.00 in 2006 and 2007. In 2008, the
Christmas bonus was increased to P75,000.00 per PEZA officer/employee.
State Auditor V Aurora Liveta-Funa, on May 27, 2010, issued Notice of Disallowance
(ND) No. 10-001-101-(05-08)6 that was received by PEZA on May 31, 2010. The ND
15
stated that the payment of additional Christmas bonus to PEZA officers and
employees for calendar years 2005-2008 violated Section 3 of Memorandum Order
(M.O.) No. 20 dated June 25, 2001 which provides that any increase in salary or
compensation of government-owned and controlled corporations (GOCCs) and
government financial institutions (GFIs) that is not in accordance with the Salary
Standardization Law shall be subject to the approval of the President.
The matter was brought to the Corporate Government Sector-B which later on
rendered the Decision No. 2011-0087 dated August 31, 2011 not giving credence to
the arguments of petitioner and affirmed the Notice of Disallowance No. 10-001-101-
(05-08) dated May 27, 2010 in the aggregate amount of Php20,438,750.00.
Thereafter, pursuant to Rules V and VII of the 2009 Revised Rules of Procedure of
the COA, petitioner filed the Petition for Review with respondent COA.
The COA in its Decision No. 2013-2318 dated December 23, 2013 ruled that
notwithstanding Section 16 of the PEZA Charter, petitioner is still duty-bound to
observe the guidelines and policies as may be issued by the President citing Intia, Jr.
v. COA9 where this Court ruled that the power of the board to fix the compensation of
the employees is not absolute. The COA further cited Section 6 of Presidential
Decree (P.D.) No. 1597 which mandates presidential review and approval, through
the Department of Budget and Management (DBM), of the position classification and
compensation plan of an agency exempt from the Office of Compensation and
Position Classification (OCPC) coverage.
Furthermore, according to the COA, M.O. No. 20 requires presidential approval on
salary increases, while Administrative Order (A.O.) No. 103 suspends the grant of
new or additional benefits in line with the austerity measures of the government. The
COA added that these presidential issuances are not abhorrent to the authority of the
PEZA Board of Directors to fix the remuneration of PEZA officers and employees. It
stated that the requirement of presidential approval does not remove from the board
the power to fix the compensation and allowances of PEZA officers and employees
but is meant to determine whether or not the standards set by law have been
complied with.
Hence, petitioner filed the present petition assigning the following
error:ChanRoblesVirtualawlibrary
RESPONDENT ERRED WHEN IT RULED THAT THE GRANT OF ADDITIONAL
CHRISTMAS BONUS TO PEZA OFFICERS AND EMPLOYEES NEEDS THE
APPROVAL OF THE OFFICE OF THE PRESIDENT BECAUSE REPUBLIC ACT NO.
7916, AS AMENDED BY REPUBLIC ACT NO. 8748, AUTHORIZES THE PEZA
BOARD OF DIRECTORS TO FIX THE REMUNERATIONS AND OTHER
EMOLUMENTS OF PEZA OFFICERS AND EMPLOYEES.
Petitioner argues that it is not covered by P.D. No. 1597 because its provisions are
inconsistent with R.A. No. 7916, as amended, which authorizes the PEZA Board to
determine the compensation of its officers and employees and that even assuming
without admitting that it is covered by P.D. No. 1597, the law mentions of reporting to
the President through the Budget Commission and does not say that the approval of
the President, through the Budget Commission, should be secured.
The Office of the Solicitor General (OSG),10 on the other hand, claims that despite the
exception clause in Section 16 of R.A. No. 7916, as amended, said provision should
nonetheless be read in conjunction with the existing laws pertaining to compensation
among government agencies, as it is undoubtedly a GOCC over which the President
exercises his power of control, through the DBM, aside from the parameter set by the
provision itself, i.e., that PEZA "shall, however, endeavor to make its system conform
as closely as possible with the principles under Republic Act. No. 6758."
In its Reply11 dated October 22, 2014, petitioner reiterated its earlier arguments.
After a careful study of the arguments of both petitioner and respondent, this Court
finds no merit to the petition.
It is not disputed that after the enactment of the Salary Standardization Law (Republic
Act No. 6758 became effective on July 1, 1989), laws have been passed exempting
some government entities from its coverage. The said government entities were
allowed to create their own compensation and position classification systems that
apply to their respective offices, usually through their Board of Directors. In Engr.
Mendoza v. Commission on Audit,12 this Court mentioned several of those
government entities that are now exempt from the salary standardization law, to
wit:ChanRoblesVirtualawlibrary
1. Philippine Postal Corporation
Sections 22 and 25 of Republic Act No. 7354 or the "Postal Service Act of 1992"
state:ChanRoblesVirtualawlibrary
Sec. 22. Merit System. — The Corporation shall establish a human resources
management system which shall govern the selection, hiring, appointment, transfer,
promotion, or dismissal of all personnel. Such system shall aim to establish
professionalism and excellence at all levels of the postal organization in accordance
with sound principles of management.
A progressive compensation structure, which shall be based on job evaluation studies
and wage surveys and subject to the Board's approval, shall be instituted as an
integral component of the Corporation's human resources development program. The
Corporation, however, may grant across-the-board salary increase or modify its
compensation structure as to result in higher salaries, subject to either of the following
conditions:
chanRoblesvirtualLawlibrary(a) there are evidences of prior improvement in employee
productivity, measured by such quantitative indicators as mail volume per employee
and delivery times.
(b) a law raising the minimum wage has been enacted with application to all
government employees or has the effect of classifying some positions in the postal
service as below the floor wage.
x x x x
Sec. 25. Exemption from Rules and Regulations of the Compensation and Position
16
Classification Office. — All personnel and positions of the Corporation shall be
governed by Section 22 hereof, and as such shall be exempt from the coverage of the
rules and regulations of the Compensation and Position Classification Office. The
Corporation, however, shall see to it that its own system conforms as closely as
possible with that provided for under Republic Act No. 6758.
In Intia, Jr. v. Commission on Audit,13 this Court affirmed the Philippine Postal
Corporation's exemption from the Salary Standardization Law. However, the
corporation should report the details of its salary and compensation system to the
Department of Budget and Management.
x x x x
2. Trade and Investment Development Corporation of the Philippines
The Trade and Investment Development Corporation of the Philippines is also
exempted from the Salary Standardization Law as provided in Section 7 of Republic
Act No. 8494:14
Sec. 7. The Board of Directors shall provide for an organizational structure and
staffing pattern for officers and employees of the Trade and Investment Development
Corporation of the Philippines (TIDCORP) and upon recommendation of its President,
appoint and fix their remuneration, emoluments and fringe benefits: Provided, That
the Board shall have exclusive and final authority to appoint, promote, transfer, assign
and re-assign personnel of the TIDCORP, any provision of existing law to the contrary
notwithstanding.
All positions in TIDCORP shall be governed by a compensation and position
classification system and qualification standards approved by TIDCORP's Board of
Directors based on a comprehensive job analysis and audit of actual duties and
responsibilities. The compensation plan shall be comparable with the prevailing
compensation plans in the private sector and shall be subject to periodic review by
the Board no more than once every four (4) years without prejudice to yearly merit
reviews or increases based on productivity and profitability. TIDCORP shall be
exempt from existing laws, rules and regulations on compensation, position
classification and qualification standards. It shall, however, endeavor to make the
system to conform as closely as possible to the principles and modes provided in
Republic Act No. 6758.
xxxx
3. Land Bank of the Philippines, Social Security System, Small Business Guarantee
and Finance Corporation, Government Service Insurance System, Development Bank
of the Philippines, Home Guaranty Corporation, and the Philippine Deposit Insurance
Corporation
From 1995 to 2004, laws were passed exempting several government financial
institutions from the Salary Standardization Law. Among these financial institutions
are the Land Bank of the Philippines, Social Security System, Small Business
Guarantee and Finance Corporation, Government Service Insurance System,
Development Bank of the Philippines, Home Guaranty Corporation, and the Philippine
Deposit Insurance Corporation.
This Court has taken judicial notice of this development in Central Bank (now Bangko
Sentral ng Pilipinas) Employees Association, Inc. v. Bangko Sentral ng Pilipinas:15
Indeed, we take judicial notice that after the new BSP charter was enacted in 1993,
Congress also undertook the amendment of the charters of the GSIS, LBP, DBP and
SSS, and three other GFIs, from 1995 to 2004, viz.:ChanRoblesVirtualawlibrary
1. R.A. No. 7907 (1995) for Land Bank of the Philippines (LBP);
2. R.A. No. 8282 (1997) for Social Security System (SSS);
3. R.A. No. 8289 (1997) for Small Business Guarantee and Finance Corporation,
(SBGFC);
4. R.A. No. 8291 (1997) for Government Service Insurance System (GSIS);
5. R.A. No. 8523 (1998) for Development Bank of the Philippines (DBP);
6. R.A. No. 8763 (2000) for Home Guaranty Corporation (HGC); and cralawlawlibrary
7. R.A. No. 9302 (2004) for Philippine Deposit Insurance Corporation (PDIC).
It is noteworthy, as petitioner points out, that the subsequent charters of the seven
other GFIs share this common proviso: a blanket exemption of all their employees
from' the coverage of the SSL, expressly or impliedly, as illustrated below:
chanRoblesvirtualLawlibrary1. Land Bank of the Philippines (Republic Act No. 7907)
Section 10. Section 90 of [Republic Act No. 3844] is hereby amended to read as
follows:
chanRoblesvirtualLawlibrarySection 90. Personnel. —
xxx xxx xxx
All positions in the Bank shall be governed by a compensation, position classification
system and qualification standards approved by the Bank's Board of Directors based
on a comprehensive job analysis and audit of actual duties and responsibilities. The
compensation plan shall be comparable with the prevailing compensation plans in the
private sector and shall be subject to periodic review by the Board no more than once
every two (2) years without prejudice to yearly merit reviews or increases based on
productivity and profitability. The Bank shall therefore be exempt from existing laws,
rules and regulations on compensation, position classification and qualification
standards. It shall however endeavor to make its system conform as closely as
possible with the principles under Republic Act No. 6758.
xxx xxx xxx
2. Social Security System (Republic Act No. 8282)
Section 1. [Amending Republic Act No. 1161, Section 3(c)]:
chanRoblesvirtualLawlibrary
17
xxx xxx xxx
(c) The Commission, upon the recommendation of the SSS President, shall appoint
an actuary and such other personnel as may [be] deemed necessary; fix their
reasonable compensation, allowances and other benefits; prescribe their duties and
establish such methods and procedures as may be necessary to insure the efficient,
honest and economical administration of the provisions and purposes of this Act:
Provided, however, That the personnel of the SSS below the rank of Vice President
shall be appointed by the SSS President: Provided, further, That the personnel
appointed by the SSS President, except those below the rank of assistant manager,
shall be subject to the confirmation by the Commission; Provided further, That the
personnel of the SSS shall be selected only from civil service eligibles and be subject
to civil service rules and regulations: Provided, finally, That the SSS shall be exempt
from the provisions of Republic Act No. 6758 and Republic Act No. 7430.
3. Small Business Guarantee and Finance Corporation (Republic Act No. 8289)
Section 8. [Amending Republic Act No. 6977, Section 11]:
chanRoblesvirtualLawlibrary(e) notwithstanding the provisions of Republic Act No.
6758, and Compensation Circular No. 10, series of 1989 issued by the Department of
Budget and Management, the Board of Directors of [the Small Business Guarantee
and Finance Corporation] shall have the authority to extend to the employees and
personnel thereof the allowance and fringe benefits similar to those extended to and
currently enjoyed by the employees and personnel of other government financial
institutions.
4. Government Service Insurance System (Republic Act No. 8291)
Section 1. [Amending Section 43(d) of Presidential Decree No. 1146].
xxx xxx xxx
Sec. 43. Powers and Functions of the Board of Trustees. — The Board of Trustees
shall have the following powers and functions:
chanRoblesvirtualLawlibrary
xxx xxx xxx
(d) upon the recommendation of the President and General Manager, to approve the
GSIS' organizational and administrative structures and staffing pattern, and to
establish, fix, review, revise and adjust the appropriate compensation package for the
officers and employees of the GSIS with reasonable allowances, incentives, bonuses,
privileges and other benefits as may be necessary or proper for the effective
management, operation and administration of the GSIS, which shall be exempt from
Republic Act No. 6758, otherwise known as the Salary Standardization Law and
Republic Act No. 7430, otherwise known as the Attrition Law.
xxx xxx xxx
5. Development Bank of the Philippines (Republic Act No. 8523)
Section 6. [Amending Executive Order No. 81, Section 13]:
chanRoblesvirtualLawlibrarySection 13. Other Officers and Employees. — The Board
of Directors shall provide for an organization and staff of officers and employees of
the Bank and upon recommendation of the President of the Bank, fix their
remunerations and other emoluments. All positions in the Bank shall be governed by
the compensation, position classification system and qualification standards approved
by the Board of Directors based on a comprehensive job analysis of actual duties and
responsibilities. The compensation plan shall be comparable with the prevailing
compensation plans in the private sector and shall be subject to periodic review by
the Board of Directors once every two (2) years, without prejudice to yearly merit or
increases based on the Bank's productivity and profitability. The Bank shall, therefore,
be exempt from existing laws, rules, and regulations on compensation, position
classification and qualification standards. The Bank shall however, endeavor to make
its system conform as closely as possible with the principles under Compensation and
Position Classification Act of 1989 (Republic Act No. 6758, as amended).
6. Home Guaranty Corporation (Republic Act No. 8763)
Section 9. Powers, Functions and Duties of the Board of Directors. — The Board shall
have the following powers, functions and duties:
chanRoblesvirtualLawlibrary
xxx xxx xxx
(e) To create offices or positions necessary for the efficient management, operation
and administration of the Corporation: Provided, That all positions in the Home
Guaranty Corporation (HGC) shall be governed by a compensation and position
classification system and qualifications standards approved by the Corporation's
Board of Directors based on a comprehensive job analysis and audit of actual duties
and responsibilities: Provided, further, That the compensation plan shall be
comparable with the prevailing compensation plans in the private sector and which
shall be exempt from Republic Act No. 6758, otherwise known as the Salary
Standardization Law, and from other laws, rules and regulations on salaries and
compensations; and to establish a Provident Fund and determine the Corporation's
and the employee's contributions to the Fund;
xxx xxx xxx
7. Philippine Deposit Insurance Corporation (Republic Act No. 9302)
Section 2. Section 2 of [Republic Act No. 3591, as amended] is hereby further
amended to read:
chanRoblesvirtualLawlibrary
xxx xxx xxx
3.
xxx xxx xxx
x x x Provided, That all positions in the Corporation shall be governed by a
compensation, position classification system and qualification standards approved by
the Board based on a comprehensive job analysis and audit of actual duties and
responsibilities. The compensation plan shall be comparable with the prevailing
compensation plans of other government financial institutions and shall be subject to
18
review by the Board no more than once every two (2) years without prejudice to
yearly merit reviews or increases based on productivity and profitability. The
Corporation shall therefore be exempt from existing laws, rules and regulations on
compensation, position classification and qualification standards. It shall however
endeavor to make its system conform as closely as possible with the principles under
Republic Act No. 6758, as amended.16chanroblesvirtuallawlibrary
Petitioner's Charter is no different from those mentioned above. Again, Section 16 of
R.A. No. 7916, as amended, provides:ChanRoblesVirtualawlibrary
Sec. 16. Personnel. - The PEZA Board of Directors shall provide for an organization
and staff of officers and employees of the PEZA, and upon recommendation of the
director general with the approval of the secretary of the Department of Trade and
Industry, appoint and fix the remunerations and other emoluments: Provided, The the
Board shall have exclusive and final authority to promote, transfer, assign and
reassign officers of the PEZA, any provision of existing law to the contrary
notwithstanding: Provided, further, That the director general may carry out removal of
such officers and employees.
All positions in the PEZA shall be governed by a compensation, position classification
system and qualification standards approved by the director general with the
concurrence of the Board of Directors based on a comprehensive job analysis and
audit of actual duties and responsibilities. The compensation plan shall be
comparable with the prevailing compensation plans in the Subic Bay Metropolitan
Authority (SBMA), Clark Development Corporation (BCDA) and the private sector and
shall be subject to the periodic review by the Board no more than once every two (2)
years without prejudice to yearly merit reviews or increases based on productivity and
profitability. The PEZA shall therefore be exempt from existing laws, rules and
regulations on compensation, position classification and qualification
standards. It shall however endeavor to make its systems conform as closely
as possible with the principles under Republic Act No.
6758.17chanroblesvirtuallawlibrary
The COA, in disallowing the increase in the Christmas bonus implemented by
petitioner, insists that despite the provisions of Section 16 of R.A. No. 7916, as
amended, petitioner is still bound to observe the guidelines and policies issued by the
Office of the President citing this Court's ruling in Intia, Jr. v. COA18where it was ruled
that the power of the board of directors to fix the compensation of the employees is
not absolute, thus:ChanRoblesVirtualawlibrary
x x x the Board's discretion on the matter of personnel compensation is not absolute
as the same must be exercised in accordance with the standard laid down by law,
that is, its compensation system, including the allowances granted by the Board to
PPC employees, must strictly conform with that provided for other government
agencies under R.A. No. 6758 (Salary Standardization Law) in relation to the General
Appropriations Act. To ensure such compliance, the resolutions of the Board affecting
such matters should first be reviewed and approved by the Department of Budget and
Management pursuant to Section 6 of P.D. 1597.19chanroblesvirtuallawlibrary
In addition, the COA cited Section 6 of P.D. No. 1597 which provides the requisite
Presidential review, through the DBM, of the position classification and compensation
plan of an agency exempt from the Office of Compensation and Position
Classification (OCPC) coverage, which reads as follows:ChanRoblesVirtualawlibrary
Section 6. Exemptions from OCPC Rules and Regulations. Agencies positions and
groups of officials and employees of the national government, including government
owned or controlled corporations, who are hereafter exempted by law from OCPC
coverage, shall observe such guidelines and policies as may be issued by the
President governing position classification, salary rates, levels of allowances, project
and other honoraria, overtime rates, and other forms of compensation and fringe
benefits. Exemptions notwithstanding, agencies shall report to the President,
through the Budget Commission, on their position classification and
compensation plans, policies, rates and other related details following such
specifications as may be prescribed by the
President.20chanroblesvirtuallawlibrary
It is true that in Intia, Jr. v. COA, this Court affirmed the Philippine Postal
Corporation's exemption from the Salary Standardization Law, this Court also ruled
that the corporation should report the details of its salary and compensation system to
the DBM, thus:ChanRoblesVirtualawlibrary
First, it is conceded that the PPC, by virtue of its charter, R. A. No. 7354, has the
power to fix the salaries and emoluments of its employees. This function, being
lodged in the Postmaster General, the same must be exercised with the approval of
the Board of Directors. This is clear from Sections 21 and 22 of said charter.
Petitioners correctly noted that since the PPC Board of Directors are authorized to
approve the Corporation's compensation structure, it is also within the Board's power
to grant or increase the allowances of PPC officials or employees. As can be gleaned
from Sections 10 and 17 of P.D. No. 985 (A Decree Revising the Position
Classification and Compensation System in the National Government, and Integrating
the Same), the term "compensation" includes salaries, wages, allowances, and other
benefits.
x x x x
While the PPC Board of Directors admittedly acted within its powers when it granted
the RATA increases in question, the same should have first been reviewed by the
DBM before they were implemented Sections 21, 22, and 25 of the PPC charter
should be read in conjunction with Section 6 of P.D. No.
1597:ChanRoblesVirtualawlibrary
Sec. 6. Exemption from OCPC Rules and Regulations. — Agencies, positions or
groups of officials and employees of the national government, including government-
owned and controlled corporations, who are hereafter exempted by law from OCPC
coverage, shall observe such guidelines and policies as may be issued by the
President governing position classification, salary rates, levels of allowances, project
and other honoraria, overtime rates, and other forms of compensation and fringe
benefits. Exemptions notwithstanding, agencies shall report to the President, through
the Budget Commission, on their position classification and compensation plans,
policies, rates and other related details, following such specifications as may be
prescribed by the President.
x x x x
As the Solicitor General correctly observed, there is no express repeal of Section 6,
P.D. No. 1597 by RA No. 7354. Neither is there an implied repeal thereof because
19
there is no irreconcilable conflict between the two laws. On the one hand, Section 25
of R.A. No. 7354 provides for the exemption of PPC from the rules and regulations of
the CPCO. On the other hand, Section 6 of P.D. 1597 requires PPC to report to the
President, through the DBM, the details of its salary and compensation system. Thus,
while the PPC is allowed to fix its own personnel compensation structure
through its Board of Directors, the latter is required to follow certain standards
in formulating said compensation system. One such standard is specifically stated
in Section 25 of R.A. No. 7354[.]21chanroblesvirtuallawlibrary
The ruling in Intia, Jr. v. COA and the provisions of Section 6 of P.D. No. 1597 can
thus be reconciled as both emphasized that these exempted government entities are
required to report to the President, through the DBM, the details of its salary and
compensation system. Reporting, however, is different from approval. Section 6 of
P.D. No. 1597 specifically requires the exempted government agencies to report to
the President, through the DBM, on their position classification and compensation
plans, policies, rates and other related details following such specifications as may be
prescribed by the President.
In fact, a close reading of the charters of those other government entities exempted
from the Salary Standardization Law shows a common provision stating that although
the board of directors of the said entities has the power to set a compensation,
position classification system and qualification standards, the same entities shall also
endeavor to make the system to conform as closely as possible to the principles and
modes provided in R.A. No. 6758. This Court, in Trade and Investment Development
Corporation of the Philippines v. Civil Service Commission,22 recognized the Trade
and Investment Development Corporation's exemption from the Salary
Standardization Law. However, this Court ruled that the said Corporation should,
however, "endeavor" to conform to the principles and modes of the Salary
Standardization Law in making its own system of compensation and position
classification. The phrase "to endeavor" means "to devote serious and sustained
effort" and "to make an effort to do." It is synonymous with the words to strive, to
struggle and to seek. The use of "to endeavor" in the context of Section 7 of R.A. No.
8494 means that despite TIDCORP's exemption from laws involving compensation,
position classification and qualification standards, it should still strive to conform as
closely as possible with the principles and modes provided in R.A. No. 6758. The
phrase "as closely as possible," which qualifies TIDCORP's duty "to endeavor to
conform," recognizes that the law allows TIDCORP to deviate from R.A. No. 6758, but
it should still try to hew closely with its principles and modes. Had the intent of
Congress been to require TIDCORP to fully, exactly and strictly comply with R.A. No.
6758, it would have so stated in unequivocal terms. Instead, the mandate it gave
TIDCORP was to endeavor to conform to the principles and modes of R.A. No. 6758,
and not to the entirety of this law.23chanrobleslaw
Thus, the charters of those government entities exempt from the Salary
Standardization Law is not without any form of restriction. They are still required to
report to the Office of the President, through the DBM the details of their salary and
compensation system and to endeavor to make the system to conform as closely as
possible to the principles and modes provided in Republic Act No. 6758. Such
restriction is the most apparent indication that the legislature did not divest the
President, as Chief Executive of his power of control over the said government
entities. In National Electrification Administration v. COA,24 this Court explained the
nature of presidential power of control, and held that the constitutional vesture of this
power in the President is self-executing and does not require statutory
implementation, nor may its exercise be limited, much less withdrawn, by the
legislature.
It must always be remembered that under our system of government all executive
departments, bureaus and offices are under the control of the President of the
Philippines. This precept is embodied in Section 17, Article VII of the Constitution
which provides as follows:ChanRoblesVirtualawlibrary
Sec. 17. The President shall have control of all the executive departments, bureaus
and offices. He shall ensure that the laws be faithfully executed.
Thus, respondent COA was correct in claiming that petitioner has to comply with
Section 325cralawred of M.O. No. 20 dated June 25, 2001 which provides that any
increase in salary or compensation of GOCCs/GFIs that is not in accordance with the
Salary Standardization Law shall be subject to the approval of the President. The said
M.O. No. 20 is merely a reiteration of the President's power of control over the
GOCCs/CFIs notwithstanding the power granted to the Board of Directors of the latter
to establish and fix a compensation and benefits scheme for its employees.
Aside from the M.O. No. 20, respondent COA also aptly cited in its Decision No.
2013-231, P.D. No. 1597 and A.O. No. 103, which directed austerity measures in
government, thus:ChanRoblesVirtualawlibrary
MO No. 20 likewise requires Presidential approval on salary increases while AO No.
103 suspends the grant of new or additional benefits in line with the austerity
measures of the government. These executive issuances may not be simply
dismissed as inutile as long as they are not inconsistent with the special law, the
PEZA Charter. Administrative issuances partake of the nature of a statute and have in
their favor a presumption of legality. As such, courts cannot ignore administrative
issuances x x x. Unless an administrative order is declared invalid, courts have no
option but to apply the same.
The abovementioned Presidential issuances are not abhorrent to the authority of the
BOD to fix the remuneration of the PEZA officers and employees. The requirement of
President's approval does not remove from the BOD the power to fix the
compensation and allowances of PEZA but merely requires the same to be submitted
to the President, through the DBM, in order to determine whether or not the standards
set by law have been complied with.
Moreover, the DBM Footnotes/Restrictions on the corporation's Corporate Operating
Budget (COB) for calendar years 2005-2008 explicitly mentioned laws which PEZA is
enjoined to strictly comply, namely, Section 6 of PD No. 1597, Section 3 of MO No.
20, and AO No. 103 dated August 31, 2004. Further, the DBM, in its confirmation
letter dated December 3, 2008 on PEZA's CY 2007 COB, states that "This
confirmation, however, should not be construed as approval of any unauthorized
expenditures, particularly for Personal Services. New/additional benefits or salary
increases granted should be supported by appropriate legal basis and approval from
the Office of the President.26chanroblesvirtuallawlibrary
20
The affirmation of the disallowance of the payment of additional Christmas
bonus/cash gifts to PEZA officers and employees for CY 2005 to 2008, however,
does not automatically cast liability on the responsible officers.
The question to be resolved is: To what extent may accountability and responsibility
be ascribed to public officials who may have acted in good faith, and in accordance
with their understanding of their authority which did not appear clearly to be in conflict
with other laws? Otherwise put, should public officials be held financially accountable
for the adoption of certain policies or programs which are found to be not in
accordance with the understanding by the Commission on Audit several years after
the fact, which understanding is only one of several ways of looking at the legal
provisions?
Good faith has always been a valid defense of public officials that has been
considered by this Court in several cases. Good faith is a state of mind denoting
"honesty of intention, and freedom from knowledge of circumstances which ought to
put the holder upon inquiry; an honest intention to abstain from taking any
unconcientious advantage of another, even though technicalities of law, together with
absence of all information, notice, or benefit or belief of facts which render transaction
unconscientious.27chanrobleslaw
In Arias v. Sandiganbayan,28 this Court placed significance on the good faith of heads
of offices having to rely to a reasonable extent on their subordinates and on the good
faith of those who prepare bids, purchase supplies or enter into negotiations,
thus:ChanRoblesVirtualawlibrary
There is no question about the need to ferret out and convict public officers whose
acts have made the bidding out and construction of public works and highways
synonymous with graft or criminal inefficiency in the public eye. However, the remedy
is not to indict and jail every person who may have ordered the project, who signed a
document incident to its construction, or who had a hand somewhere in its
implementation. The careless use of the conspiracy theory may sweep into jail even
innocent persons who may have been made unwitting tools by the criminal minds who
engineered the defraudation.
x x x x
We would be setting a bad precedent if a head of office plagued by all too common
problems - dishonest or negligent subordinates, overwork, multiple assignments or
positions, or plain incompetence - is suddenly swept into a conspiracy conviction
simply because he did not personally examine every single detail, painstakingly trace
every step from inception, and investigate the motives of every person involved in a
transaction before affixing his signature as the final approving authority.
x x x x
We can, in retrospect, argue that Arias should have probed records, inspected
documents, received procedures, and questioned persons. It is doubtful if any auditor
for a fairly sized office could personally do all these things in all vouchers presented
for his signature. The Court would be asking for the impossible. All heads of offices
have to rely to a reasonable extent on their subordinates and on the good faith of
those who prepare bids, purchase supplies or enter into negotiations. x x
x.29chanroblesvirtuallawlibrary
Similarly, good faith has also been appreciated in Sistoza v.
Desierto,30 thus:ChanRoblesVirtualawlibrary
There is no question on the need to ferret out and expel public officers whose acts
make bureaucracy synonymous with graft in the public eye, and to eliminate systems
of government acquisition procedures which covertly ease corrupt practices. But the
remedy is not to indict and jail every person who happens to have signed a piece of
document or had a hand in implementing routine government procurement, nor does
the solution fester in the indiscriminate use of the conspiracy theory which may sweep
into jail even the most innocent ones. To say the least, this response is excessive and
would simply engender catastrophic consequences since prosecution will likely not
end with just one civil servant but must, logically, include like an unsteady streak of
dominoes the department secretary, bureau chief, commission chairman, agency
head, and all chief auditors who, if the flawed reasoning were followed, are equally
culpable for every crime arising from disbursements they sanction.
Stretching the argument further, if a public officer were to personally examine every
single detail, painstakingly trace every step from inception, and investigate the
motives of every person involved in a transaction before affixing his signature as the
final approving authority, if only to avoid prosecution, our bureaucracy would end up
with public managers doing nothing else but superintending minute details in the acts
of their subordinates.
Stated otherwise, in situations of fallible discretion, good faith is nonetheless
appreciated when the document relied upon and signed shows no palpable nor
patent, no definite nor certain defects or when the public officer's trust and confidence
in his subordinates upon whom the duty primarily lies are within parameters of
tolerable judgment and permissible margins of error. As we have consistently held,
evidence of guilt must be premised upon a more knowing, personal and deliberate
participation of each individual who is charged with others as part of a
conspiracy.31chanroblesvirtuallawlibrary
And recently in Social Security System v. Commission on Audit,32 this Court ruled that
good faith absolves liable officers from refund, thus:ChanRoblesVirtualawlibrary
Notwithstanding the disallowance of the questioned disbursements, the Court rules
that the responsible officers under the ND need not refund the same on the basis of
good faith. In relation to the requirement of refund of disallowed benefits or
allowances, good faith is a state of mind denoting honesty of intention, and freedom
from knowledge of circumstances which ought to put the holder upon inquiry; an
honest intention to abstain from taking any unconcientious advantage of another,
even though technicalities of law, together with absence of all information, notice, or
benefit or belief of facts which render transaction unconscientious.33chanrobleslaw
In Mendoza v. COA,34 the Court held that the lack of a similar ruling is a basis of good
faith. Thus, good faith may be appreciated in the case at bench as there is no
jurisprudence yet ruling that the benefits which may be received by members of the
SSC are limited to those enumerated under Section 3 (a) of the SS Law.
21
It is the same good faith, therefore, that will absolve the responsible officers of PEZA
from liability from refund.
In conclusion, it is unfair to penalize public officials based on overly stretched and
strained interpretations of rules which were not that readily capable of being
understood at the time such functionaries acted in good faith. If there is any
ambiguity, which is actually clarified years later, then it should only be applied
prospectively. A contrary rule would be counterproductive. It could result in paralysis,
or lack of innovative ideas getting tried. In addition, it could dissuade others from
joining the government. When government service becomes unattractive, it could only
have adverse consequences for society.
WHEREFORE, the Petition dated February 6, 2014 of petitioner Philippine Economic
Zone Authority (PEZA) is DISMISSED. Consequently, Commission on Audit Decision
No. 2013-231 dated December 23, 2013, which affirmed Corporate Government
Sector-B Decision No. 2011-008 dated August 31, 2011 and Notice of Disallowance
No. 10-001-101-(05-08) dated May 27, 2010, disallowing the payment of additional
Christmas bonus/cash gifts to PEZA officers and employees for Calendar Years (CY)
2005 to 2008 is AFFIRMED. However, PEZA and its officers are absolved from
refunding the amount covered by the same notice of disallowance.
SO ORDERED.chanroblesvirtuallawlibrary
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
PHILIPPINE HEALTH INSURANCE CORPORATION, Petitioner, v. COMMISSION
ON AUDIT, MA. GRACIA PULIDO TAN, CHAIRPERSON; AND JANET D. NACION,
DIRECTOR IV, Respondents.
DECISION
granted the payment of the Collective Negotiation Agreement Signing Bonus
(CNASB) of P5,000.00 each to all qualified employees due to the extension of the
then existing CNA between the PHIC management and the PhilHealth Employees
Association (PHICEA) for the period of another three (3) years beginning April of
2001. For another, in its PHIC Board Resolution No. 385, s. 2001 4 effective January
1, 2001, petitioner approved. the payment of the Welfare Support Assistance (WESA)
of P4,000.00 each, in lieu of the subsistence and laundry allowances paid to public
health workers under Republic Act (R.A.) No. 7305, otherwise known as the Magna
Carta of Public Health Workers. Petitioner then resolved to approve the grant of the
Labor Management Relations Gratuity (LMRG) by virtue of its PHIC Board Resolution
No. 717, s. 20045 dated July 22, 2004, in recognition of harmonious labor-
management relations of its employees with the management. Finally, for the services
rendered during the period beginning July 1989 until January 1995, petitioner paid the
Cost of Living Allowance (COLA) to personnel it had absorbed from the Philippine
Medical Care Commission (PMCC) by virtue of Section 516 of R.A. No. 7875,
otherwise known as The National Health Insurance Act of 1995.7
On February 7, 2008, however, pursuant to the recommendations of the Supervising
Auditor of the PHIC in various Audit Observation Memoranda (AOM),8 respondent
Janet D. Nacion, Director IV of the Legal and Adjudication Office - Corporate of the
COA, issued ND PHIC 2008-003 (2004), disallowing the payment of the
aforementioned allowances granted to PHIC officers and employees in the total
amount of P87,699,144.00.9 According to respondent Nacion, the payment of the
CNASB was contrary to the doctrine enunciated in Social Security System (SSS) v.
COA10 wherein the Court expressly invalidated the payment of the same. With
respect to the WESA, Nacion maintained that its payment was made without legal
basis in the absence of approval from the Office of the President. 11 As for the
payment of the LMRG, Nacion found that it was merely a duplication of the
Performance Incentive Bonus (PIB) which was granted to employees based on their
good performance, increased efficiency and productivity. Lastly, Nacion disallowed
the payment of back COLA to PHIC personnel ratiocinating that it should be collected
not from petitioner PHIC but from the government agency where the services have
been rendered prior to its creation in January 1995. 12

Petitioner filed its motion for reconsideration which was, however, denied by the COA
PERALTA, J.: Legal Services Sector (LSS) in its Decision No. 2010-02013 issued on May 21, 2010.
On appeal, the COA Commission Proper (CP) sustained the disallowance in its
Before the Court is a special civil action for certiorari under Rule 64, in relation to Rule Decision No. 2013-208 dated November 20, 2013.14Thereafter, in a
65 of the 1997 Rules of Civil Procedure, as amended, seeking to reverse and set Resolution15 dated April 4, 2014, the COA CP en banc further denied petitioner's
aside the Decision No. 2013-2081 dated November 20, 2013 and Resolution dated motion for reconsideration.
April 4, 2014 of the Commission on Audit (COA), which affirmed the Notice of
Disallowance (ND) Philippine Health Insurance Corporation (PHIC) 2008-003 Aggrieved, petitioner filed the instant petition before the Court raising the following
(2004)2 dated February 7, 2008 of the COA Legal Service. issues:chanRoblesvirtualLawlibrary

The antecedent facts are as follows:cralawlawlibrary I.

The instant case stems from petitioner PHIC's grant of several allowances to its WHETHER THE COA GRAVELY ABUSED ITS DISCRETION, AMOUNTING TO
officers and employees that were subsequently disallowed by respondent COA. In its LACK OR EXCESS OF JURISDICTION, IN ISSUING THE ASSAILED DECISION
PHIC Board Resolution No. 406, s. 20013dated May 31, 2001, for one, petitioner AND RESOLUTION.chanroblesvirtuallawlibrary
22
II.
WHETHER THE COA DISREGARDED THE FISCAL AUTONOMY GRANTED TO
PHIC UNDER SECTION 16 (N), R.A. 7875, AS AMENDED, AS WELL AS EXISTING
AND RELEVANT JURISPRUDENCE, IN AFFIRMING THE ND PHIC 2008-003
(2004).chanroblesvirtuallawlibrary
III.
WHETHER PHIC'S PAYMENTS OF THE CNASB, LMRG, WESA, AND BACK COLA
IN FAVOR OF ITS OFFICERS AND EMPLOYEES AMOUNTING TO
PHP87,699,144.00 WAS PROPER.chanroblesvirtuallawlibrary
IV.
GRANTING THAT THE PAYMENTS WERE NOT PROPER, WHETHER THE PHIC
OFFICERS AND EMPLOYEES CAN BE REQUIRED TO REFUND THE AMOUNTS
RECEIVED.
Petitioner PHIC raises several infirmities attendant in respondent COA's
disallowance. First, contrary to respondent's findings, petitioner paid the CNASB to its
regular plantilla personnel in 2001 and not in 2004 as evinced by the Certification and
payrolls it duly presented.16 During said year, such grant was expressly sanctioned by
Budget Circular No. 2000-19 issued by the Department of Budget and Management
(DBM) on December 15, 2000 which authorizes the payment of the signing bonus to
each entitled rank-and-file personnel. During said year, moreover, the ruling in SSS v.
COA17 had not yet been laid down by the Court, which was actually promulgated on
July 11, 2002, or more than a year after the payment of the subject CNASB. Thus, on
the basis of the established principle of prospective application of laws, the
invalidation of the CNASB enunciated in the SSS case cannot be used as legal basis
in disallowing the issuance of said bonus. 18
Second, petitioner asserts that the WESA was duly granted in compliance with
applicable law, particularly R.A. No. 7305 or the Magna Carta of Public Health
Workers (PHW). According to petitioners, the WESA was issued in lieu of the
subsistence and laundry allowance due to PHWs under Section 22 of the Magna
Carta, which provides that said subsistence allowance shall be "computed in
accordance with prevailing circumstances as determined by the Health Secretary in
consultation with the Management Health Worker's Consultative Councils." Petitioner
explains that respondent COA's assertion that the WESA should be disallowed
because it was granted without the participation of the Health Secretary is not entirely
accurate. Under Section 18 (a) of R.A. No. 7875, the Board of Directors of the PHIC is
composed of eleven (11) members (which was increased to sixteen (16) members
under R.A. No. 10606 passed in June 2013) with the Health Secretary sitting as
the Ex-Officio19 As part of said PHIC board, its unanimous passage of PHIC Board
Resolution No. 385, s. 2001 granting the subject WESA was compliantly the positive
act of then Health Secretary Dr. Alberto G. Romualdez, Jr. required under the
law.20 Any official act of the PHIC Board, with the Health Secretary sitting as Ex-
Officio Chairperson, cannot be considered as an exclusive act of the board, but also
as an act of the Health Secretary in his primary capacity as such.
Third, petitioner contends that contrary to respondent's allegation, the LMRG is not
merely a duplicate of the PIB. The LMRG was passed in the exercise of the PHIC
Board of its "fiscal autonomy" to fix compensation and benefits of its personnel under
Section 16 (n) of R.A. No. 7875 in recognition of notable labor-management relations,
while the PIB was granted as a performance-based incentive under Executive Order
(E.O.) No. 486, entitled Establishing a Performance-Based Incentive System for
Government-Owned or Controlled Corporations and for Other Purposes.21 In addition,
the two (2) grants not only have different requirements for entitlement but also differ in
their amounts and manner of computation.
Fourth, with respect to the grant of the COLA back pay, petitioner posits that while it
agrees with the position taken by respondent COA Director Nacion that the Court,
in De Jesus v. COA,22 has given imprimatur on the propriety of the said COLA during
the time when the DBM Corporate Compensation Circular (CCC) 10 was in legal
limbo, it, nevertheless, disagrees with her view that the PHIC is not legally bound to
pay the same to its absorbed personnel for their services were not rendered to PHIC
but to another government agency prior to PHIC's creation. 23 Petitioner recounts that
the COLA back pay was for services rendered between July 1989 and January 1995
when the payment of the same had been discontinued by reason of DBM CCC 10
issued in July 1995, pursuant to R.A. No. 6758, or the Salary Standardization
Law (SSL). But the failure to publish the DBM CCC 10 integrating COLA into the
standardized salary rates meant that the COLA was not effectively integrated as of
July 1989 but only on March 16, 1999 when the circular was published as required by
law. Thus, in between those two dates, the employees were still entitled to receive the
COLA. But unlike respondent Nacion, who opined that petitioner PHIC has no
business to settle the obligations of other government entities having a separate and
distinct legal personality therefrom, petitioner PHIC invokes Section 51 of R.A. No.
7875 which transfers all the functions and assets of the defunct PMCC to PHIC.
According to petitioner, the term "functions" necessarily means to include then
PMCC's obligation to pay the benefits due to its employees who have been absorbed
by PHIC such as the COLA that was unduly withdrawn from their salaries after the
issuance of DBM CCC 10 in 1989.24 This is in keeping with the principle of equal
protection of laws guaranteed under the Constitution. In the end, petitioner posits that
since PHIC personnel received the CNASB, WESA, LMRG and back COLA in good
faith, they should not be required to refund them.25cralawred
For its part, respondent COA initially raised certain procedural defects in petitioner's
action. For one, it is alleged that petitioner PHIC is not the real party-in-interest and,
therefore, has no locus standi to file the instant petition.26 This is because the parties
who benefitted and who will be injured by the disallowance are the officers and
employees of PHIC, and not PHIC itself. For another, the special civil action
for certiorari under Rule 65 is improper as it was not shown that respondent COA
acted without jurisdiction or with grave abuse of discretion amounting to lack or
excess of jurisdiction.
Substantially, moreover, respondent COA asseverates that PHIC's socalled "fiscal
autonomy" does not preclude the COA's power to disallow the grant of
23
allowances.27 In the exercise of said power, respondent COA claims that petitioner, in
granting the subject allowances, cannot rely on Section 16 (n) 28 of R.A. No. 7875.
This is because as held in Government Service Insurance System (GSIS) v. Civil
Service Commission,29 the term "compensation" "excludes all bonuses, per diems,
allowances and overtime pay, or salary pay or compensation given in addition to the
base pay of the position or rank as fixed by law or regulations."
Respondent COA further insists that with respect to the CNASB, the payment of the
same was made not in 2001, as petitioner claims, but on June 11, 2004, based on an
Automatic Debit Advice "dated 6-11-2004."30 Consequently, SSS v. COA31 is
applicable. In fact, in a letter dated October 18, 2004, the DBM reminded the PHIC of
the said ruling. Thus, respondent COA posits that while it is true that the payment of
the CNASB was allowed under DBM Budget Circular No. 2000-19, dated December
15, 2000, which was the basis of PHIC Board Resolution No. 406, s. 2001 approving
said grant, actual payment thereof by petitioner PHIC, however, was made only on
June 11, 2004, or after the pronouncement in SSS v. COA. Moreover, said Board
Resolution has already been made ineffective by Resolution No. 04, s. 2002 and
Resolution No. 02, s. 2003 of the Public Sector LaborManagement Council (PSLMC),
which allows the grant of the CNA Incentive but declares the CNASB illegal as a form
of additional compensation.32Respondent adds that the pieces of evidence submitted
by petitioner consisting of the Certification and payrolls are self-serving for they were
made out of court, the COA having no opportunity to impugn the same in open
court.33
Respondent COA also rejects petitioner's assertions on the validity of the grant of the
WESA claiming that the act of the PHIC Board is not the act of the individual
composing the Board in view of the settled rule that a corporation is invested by law
with a personality separate and distinct from those of the persons composing
it.34 Thus, the act of the PHIC Board of which the Health Secretary is the ex-officio
chair is separate and distinct from the Health Secretary. Consequently, the benefit
given as WESA is invalid because the rate thereof was not determined by the Health
Secretary as mandated by the Magna Carta of PHWs.
As regards the LMRG, respondent maintains that it is exactly the same as the PIB
earlier granted to PHIC employees based on their good performance, increased
productivity and efficiency, for good performance is the result of a harmonious
relationship between the employees and the management.35 Even assuming that the
LMRG does not partake of the nature of the PIB, the former nonetheless remains an
additional benefit that requires prior approval of the Office of the President (OP) as
mandated by Memorandum Order (MO) No. 20 dated June 25, 2001. Said MO
requires presidential approval, for any increases in salary or compensation of
Government-Owned and Controlled Corporations (GOCCs) that are not in
accordance with the SSL.
As for the COLA back pay, respondent reiterates Nacion's view that petitioner PHIC is
unauthorized to settle the obligations PMCC had because it is not one of the powers
and functions enumerated in its charter, particularly Section 16 of R.A. 7875. Said
functions do not include the obligation to pay the benefits due to the employees of
PMCC or other employees of the government who have been absorbed by the PHIC.
Respondent adds that at the time covering the period of July 1989 to January 1995,
PHIC had no legal personality yet, for it was created only in 1995. 36
Thus, the obligation to pay the COLA commenced only from that time. Prior to 1995,
the COLA of PMCC employees should have been collected from the PMCC where
they rendered their services.
The petition is partly meritorious.
At the outset, the Court rejects the alleged procedural barriers that supposedly
prevent it from entertaining the instant petition. Respondent claims that petitioner
PHIC is not the proper "aggrieved party" to file the petition because the parties who
actually received and who will be injured by the disallowance are the officers and
employees of PHIC, and not PHIC itself. Time and again, the Court has defined locus
standi or legal standing as a personal and substantial interest in the case such that
the party has sustained or will sustain direct injury as a result of the governmental act
that is being challenged. The gist of the question of standing is whether a party
alleges such a personal stake in the outcome of the controversy as to assure that
concrete adverseness which sharpens the presentation of issues upon which the
court depends for illumination of difficult constitutional questions. 37
In this regard, the Court. finds that petitioner PHIC certainly possesses the legal
standing to file the instant action. Petitioner comes before the Court invoking its power
to fix the compensation of its employees and personnel enunciated under the National
Health Insurance Act. Accordingly, when respondent disallowed petitioner's grant of
certain allowances in its exercise of said power, it effectively and directly challenged
petitioner's authority to grant the same. Thus, petitioner must be granted the
opportunity to justify its issuances by presenting the basis on which they were made.
As petitioner pointed out, whatever benefit received by the personnel as a
consequence of PHIC's exercise of its alleged authority is merely incidental to the
main issue, which is the validity of PHIC's grant of allowances and benefits. 38 In fact,
in light of numerous disallowances being made by the COA, it is rather typical for a
government entity to come before the Court and challenge the COA's decision
invalidating such entity's disbursement of funds. 39 The nonparticipation of the
particular employees who actually received the disallowed benefits does not prevent
the Court from determining the issue of whether the COA gravely abused its
discretion in declaring the entity's issuance as illegal. In Maritime Industry Authority v.
COA,40We explained:chanRoblesvirtualLawlibrary
The burden of proving the validity or legality of the grant of allowance or
benefits is with the government agency or entity granting the allowance or
benefit, or the employee claiming the same. After the Resident Auditor issues a
notice of disallowance, the aggrieved party may appeal the disallowance to the
Director within six (6) months from receipt of the decision. At this point, the
government agency or employee has the chance to prove the validity of the
grant of allowance or benefit. If the appeal is denied, a petition for review may be
filed before the Commission on Audit Commission Proper. Finally, the aggrieved
party may file a petition for certiorari before this court to assail the decision of
the Commission on Audit Commission Proper.
24
Our laws and procedure have provided the aggrieved party several chances to
prove the validity of the grant of the allowance or benefit.41
As Article IX-A, Section 7 of the 1987 Constitution expressly provides, "unless
otherwise provided by this Constitution or by law, any decision, order, or ruling of
each Commission may be brought to the Supreme Court on certiorari by the
aggrieved party within thirty days from receipt of a copy thereof." In like manner, Rule
64, Section 2 of the Revised Rules of Civil Procedure also provides that "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." Thus, while findings of administrative
agencies, such as the COA herein, are generally respected, when it is shown to have
been tainted with unfairness amounting to grave abuse of discretion, the aggrieved
party can assail the COA decision in special civil action for certiorari under Rule 64 in
relation to Rule 65, an extraordinary remedy, the purpose of which is to keep the
public respondent within the bounds of its jurisdiction, relieving the petitioner from the
public respondent's arbitrary acts.42
The Court shall now proceed to determine the propriety of respondent COA's
disallowance. In support of its grant of the subject allowances and benefits, petitioner
PHIC persistently invokes its 'fiscal autonomy' enunciated under Section 16(n) of R.A.
7875 "to organize its office, fix the compensation of and appoint personnel as may be
deemed necessary and upon the recommendation of the president of the
Corporation." It argued that unlike in Intia, Jr. v. COA43 cited by respondent COA
where the charter of the Philippine Postal Corporation expressly stated that it shall
ensure that its compensation system conforms closely to the provisions of the SSL,
the PHIC charter does not contain a similar limitation thereby removing the PHIC from
the ambit thereof.44 Moreover, had the legislature intended to subject its power to fix
its personnel's compensation to the approval of the DBM or the Office of the
President (OP), its charter should have expressly provided as it did in Section 19(d)
thereof which states that "the President shall receive a salary to be fixed by the
Board, with the approval of the President of the Philippines, payable from the funds of
the Corporation." In further support thereof, petitioner cites certain opinions of the
Office of Government Corporate Counsel (OGCC) dated December 21, 1999 and
March 31, 2004 upholding PHIC's unrestricted 'fiscal autonomy' to fix the
compensation of its personnel.45
Petitioner adds that in any event, its power to fix its personnel compensation is still
subject to certain limitations such as Section 26(b) of R.A. 7875 providing that it may
charge various funds under its control for costs of administering the Program for as
long as they shall not exceed the twelve percent (12%) of the total contributions to the
Program and three percent (3%) of the investment earnings collected during the
immediately preceding year.46 Thus, petitioner posits that it is the intent of the
legislature to limit the determination and approval of allowances to the PHIC Board
alone, subject only to the 12%-13% limitation.47 In the end, petitioner emphasizes that
it enjoys an unmistakeable authority to exclusively approve its own, internal operating
budget for prior DBM approval is only required when national budgetary support is
needed.48
Petitioner's contentions are devoid of merit.
The extent of the power of GOCCs to fix compensation and determine the reasonable
allowances of its officers and employees had already been conclusively laid down
in Philippine Charity Sweepstakes Office (PCSO) v. COA,49 to
wit:chanRoblesvirtualLawlibrary
The PCSO stresses that it is a self-sustaining government instrumentality which
generates its own fund to support its operations and does not depend on the national
government for its budgetary support. Thus, it enjoys certain latitude to establish and
grant allowances and incentives to its officers and employees.
We do not agree. Sections 6 and 9 of R.A. No. 1169, as amended, cannot be relied
upon by the PCSO to grant the COLA. Section 6 merely states, among others, that
fifteen percent (15%) of the net receipts from the sale of sweepstakes tickets (whether
for sweepstakes races, lotteries, or other similar activities) shall be set aside as
contributions to the operating expenses and capital expenditures of the PCSO. Also,
Section 9 loosely provides that among the powers and functions of the PCSO Board
of Directors is "to fix the salaries and determine the reasonable allowances, bonuses
and other incentives of its officers and employees as may be recommended by the
General Manager x x x subject to pertinent civil service and compensation laws." The
PCSO charter evidently does not grant its Board the unbridled authority to set
salaries and allowances of officials and employees. On the contrary, as a
government owned and/or controlled corporation (GOCC), it was expressly
covered by P.D. No. 985 or "The Budgetary Reform Decree on Compensation
and Position Classification of 1976," and its 1978 amendment, P.D. No. 1597
(Further Rationalizing the System of Compensation and Position Classification
in the National Government), and mandated to comply with the rules of then
Office of Compensation and Position Classification (OCPC) under the DBM.
Even if it is assumed that there is an explicit provision exempting the PCSO
from the OCPC rules, the power of the Board to fix the salaries and determine
the reasonable allowances, bonuses and other incentives was still subject to
the DBM review. In Intia, Jr. v. COA, the Court stressed that the discretion of the
Board of Philippine Postal Corporation on the matter of personnel
compensation is not absolute as the same must be exercised in accordance
with the standard laid down by law, i.e., its compensation system, including the
allowances granted by the Board, must strictly conform with that provided for
other government agencies under R.A. No. 6758 in relation to the General
Appropriations Act. To ensure such compliance, the resolutions of the Board
affecting such matters should first be reviewed and approved by the DBM pursuant to
Section 6 of P.D. No. 1597.
The Court, in the same case, further elaborated on the rule that notwithstanding any
exemption granted under their charters, the power of GOCCs to fix salaries and
allowances must still conform to compensation and position classification standards
laid down by applicable law. Citing Philippine Retirement Authority (PRA) v.
Buñag,50 We said:chanRoblesvirtualLawlibrary
In accordance with the ruling of this Court in Intia, we agree with petitioner PRA that
these provisions should be read together with P.D. No. 985 and P.D. No. 1597,
particularly Section 6 of P.D. No. 1597. Thus, notwithstanding exemptions from
the authority of the Office of Compensation and Position Classification granted
25
to PRA under its charter, PRA is still required to 1) observe the policies and
guidelines issued by the President with respect to position classification, salary
rates, levels of allowances, project and other honoraria, overtime rates, and
other forms of compensation and fringe benefits and 2) report to the President,
through the Budget Commission, on their position classification and
compensation plans, policies, rates and other related details following such
specifications as may be prescribed by the President.
Despite the power granted to the Board of Directors of PRA to establish and fix a
compensation and benefits scheme for its employees, the same is subject to the
review of the Department of Budget and Management. x x x x
The rationale for the review authority of the Department of Budget and
Management is obvious. Even prior to R.A. No. 6758, the declared policy of the.
national government is to provide "equal pay for substantially equal work and
to base differences in pay upon substantive differences in duties and
responsibilities, and qualification requirements of the positions." To implement
this policy, P.D. No. 985 provided for the standardized compensation of government
employees and officials, including those in government-owned and controlled
corporations. Subsequently, P.D. No. 1597 was enacted prescribing the duties to be
followed by agencies and offices exempt from coverage of the rules and regulations
of the Office of Compensation and Position Classification. The intention, therefore,
was to provide a compensation standardization scheme such that
notwithstanding any exemptions from the coverage of the Office of
Compensation and Position Classification, the exempt government entity or
office is still required to observe the policies and guidelines issued by the
President and to submit a report to the Budget Commission on matters
concerning position classification and compensation plans, policies, rates and
other related details. This ought to be the interpretation if the avowed policy of
compensation standardization in government is to be given full effect. The policy of
"equal pay for substantially equal work" will be an empty directive if
government entities exempt from the coverage of the Office of Compensation
and Position Classification may freely impose any type of salary scheme,
benefit or monetary incentive to its employees in any amount, without regard to
the compensation plan implemented in the other government agencies or
entities.Thus, even prior to the passage of R.A No. 6758, consistent with the salary
standardization laws in effect, the compensation and benefits scheme of PRA is
subject to the review of the Department of Budget and Management.51
Accordingly, that Section 16(n) of R.A. 7875 granting PHIC's power to fix the
compensation of its personnel does not explicitly provide that the same shall be
subject to the approval of the OBM or the OP as in Section 19(d) thereof does not
necessarily mean that the PHIC has unbridled discretion to issue any and all kinds of
allowances, limited only by the provisions of its charter. As clearly expressed in PCSO
v. COA, even if it is assumed that there is an explicit provision exempting a GOCC
from the rules of the then Office of Compensation and Position Classification (OCPC)
under the OBM, the power of its Board to fix the salaries and determine the
reasonable allowances, bonuses and other incentives was still subject to the
standards laid down by applicable laws: P.O. No. 985, 52 its 1978 amendment, P.O.
No. 1597,53 the SSL, and at present, R.A. 10149.54 To sustain petitioners' claim that it
is the PHIC, and PHIC alone, that will ensure that its compensation system conforms
with applicable law will result in an invalid delegation of legislative power, granting the
PHIC unlimited authority to unilaterally fix its compensation structure. 55Certainly, such
effect could not have been the intent of the legislature.
It must be noted, though, that the power of review granted to the OMB is simply to
ensure that the proposed compensation and benefit schemes of the GOCCs comply
with the requirements of applicable laws, rules and regulations. PRA v.
Buñag56 clarifies:chanRoblesvirtualLawlibrary
However, in view of the express powers granted to PRA under its charter, the extent
of the review authority of the Department of Budget and Management is limited. As
stated in Intia, the task of the Department of Budget and Management is simply to
review the compensation and benefits plan of the government agency or entity
concerned and determine if the same complies with the prescribed policies and
guidelines issued in this regard. The role of the Department of Budget and
Management is supervisorial in nature, its main duty being to ascertain that the
proposed compensation, benefits and other incentives to be given to PRA
officials and employees adhere to the policies and guidelines issued in
accordance with applicable laws.
The rule, therefore, is that for as long as the allowances and benefits granted by
petitioner PHIC are in accordance with and authorized by prevailing law, the same
shall be upheld by the DBM.57 As Section 29(1), Article VI of the 1987 Constitution
provides, "[n]o money shall be paid out of the Treasury except in pursuance of an
appropriation made by law." Accordingly, in order to determine the validity of PHIC's
issuances, the Court must give due regard to the following Section 12 of the SSL in
force at the time of the subject grants:chanRoblesvirtualLawlibrary
Section 12. Consolidation of Allowances and Compensation. - All allowances,
except forrepresentation and transportation allowances; clothing
and laundry allowances; subsistence allowance of marine officers and crew on
board government vessels and hospital personnel; hazard pay; allowances of foreign
service personnel stationed abroad; and such other additional compensation not
otherwise specified herein as may be determined by the DBM, shall be deemed
included in the standardized salary rates herein prescribed. Such other additional
compensation, whether in cash or in kind, being received by incumbents only as of
July 1, 1989 not integrated into the standardized salary rates shall continue to be
authorized.
Existing additional compensation of any national government official or employee paid
from local funds of a local government unit shall be absorbed into the basic salary of
said official or employee and shall be paid by the National Government. (Emphasis
supplied)
Thus, the general rule is that all allowances are deemed included in the standardized
salary except for the following: (1) representation and transportation allowances; (2)
clothing and laundry allowances; (3) subsistence allowance of marine officers and
crew on board government vessels and hospital personnel; (4) hazard pay; (5)
allowances of foreign service personnel stationed abroad; and (6) such other
additional compensation not otherwise specified herein as may be determined by the
DBM.
26
Time and again, the Court has ruled that Section 12 of the SSL is self-executing. This
means that even without DBM action, the standardized salaries of government
employees are already inclusive of all allowances, save for those expressly identified
in said section.58 It is only when additional non-integrated allowances will be identified
that an issuance of the DBM is required. Thus, until and unless the DBM issues rules
and regulations identifying those excluded benefits, the enumerated nonintegrated
allowances in Section 12 remain exclusive.59 When a grant of an allowance,
therefore, is not among those excluded in the Section 12 enumeration or expressly
excluded by law or DBM issuance, such allowance is deemed already given to its
recipient in their basic salary. As a result, the unauthorized issuance and receipt of
said allowance is tantamount to double compensation justifying COA disallowance. 60
Prescinding from the foregoing, the Court had consistently ruled that not being an
enumerated exclusion, the COLA is deemed already incorporated in the standardized
salary rates of government employees under the general rule of integration of the
SSL.61 Petitioner's argument that the failure to publish the DBM-CCC No. 10
integrating COLA into the standardized salary rates meant that the COLA was not
effectively integrated as of July 1989 but only on March 16, 1999 when the circular
was published as required by law has already been definitively addressed in Maritime
Industry Authority v. COA,62viz.:chanRoblesvirtualLawlibrary
We cannot subscribe to petitioner Maritime Industry Authority's contention that due to
the non-publication of the Department of Budget and Management's National
Compensation Circular No. 59, it is considered invalid that results in the non-
integration of allowances in the standardized salary.
x x x x
As held in Philippine International Trading Corporation v. Commission on Audit, the
non-publication of the Department of Budget and Management's issuance
enumerating allowances that are deemed integrated in the standardized salary
will not affect the execution of Section 12 of Republic Act No. 6758.
Thus:chanRoblesvirtualLawlibrary
There is no merit in the claim of PITC that R.A. No. 6758, particularly Section 12
thereof is void because DBM-Corporate Compensation Circular No. 10, its
implementing rules, was nullified in the case of De Jesus v. Commission on
Audit, for lack of publication. The basis of COA in disallowing the grant of SFI
was Section 12 of R.A. No. 6758 and not DBM-CCC No. 10. Moreover, the nullity
of DBM-CCC No. 10 will not affect the validity of R.A. No. 6758. It is a cardinal
rule in statutory construction that statutory provisions control the rules and
regulations which may be issued pursuant thereto. Such rules and regulations
must be consistent with and must not defeat the purpose of the statute. The
validity of R.A. No. 6758 should not be made to depend on the validity of its
implementing rules.
In Gutierrez v. Department of Budget and Management, this court held
that:chanRoblesvirtualLawlibrary
x x x x
In this case, the DBM promulgated NCC 59 [and CCC 10]. But, instead of identifying
some of the additional exclusions that Section 12 of R.A. 6758 permits it to make, the
DBM made a list of what allowances and benefits are deemed integrated into the
standardized salary rates. More specifically, NCC 59 identified the following
allowances/additional compensation that are deemed integrated:cralawlawlibrary
x x x x
The drawing up of the above list is consistent with Section 12 above. R.A. 6758
did not prohibit the DBM from identifying for the purpose of implementation
what fell into the class of "all allowances." With respect to what employees'
benefits fell outside the term apart from those that the law specified, the DBM,
said this Court in a case, needed to promulgate rules and regulations
identifying those excluded benefits. This leads to the inevitable conclusion that
until and unless the DBM issues such rules and regulations, the enumerated
exclusions in items (1) to (6) remain exclusive. Thus so, not being an
enumerated exclusion, COLA is deemed already incorporated in the
standardized salary rates of government employees under the general rule of
integration.63
In certain instances, however, the Court had opted to sustain the continued grant of
allowances, whether or not integrated into the standardized salaries, but only to those
incumbent government employees who were actually receiving said allowances
before and as of July 1, 1989.64 This is in consonance with the second sentence of
the first paragraph of Section 12 of the SSL which states that: "such other additional
compensation, whether in cash or in kind, being received by incumbents only as of
July 1, 1989 not integrated into the standardized salary rates shall continue to be
authorized." But unfortunately, petitioner failed to prove such exception. To recall,
petitioner merely asserted, as basis for its issuance of the COLA, the ineffectivity of
DBM CCC 10 as well as its obligation towards the employees it had absorbed from its
predecessor, Philippine Medical Care Commission. While petitioner loosely
mentioned that the COLA back pay was for services rendered between July 1989 and
January 1995 when the payment of the same had been "discontinued" and "unduly
withdrawn," it failed to present any sort of proof, documentary or otherwise, to
sufficiently establish that those COLA recipients were, indeed, incumbent government
employees who were actually receiving the same as of July 1, 1989. In fact, nowhere
in its pleadings filed before the Court was it even invoked that the PHIC officers and
employees actually suffered a diminution in pay as a result of the consolidation of the
COLA back pay into their standardized salary rates. Petitioner cannot, therefore, rely
on Our ruling in Philipgine Ports Authority (PPA) Employees Hired After July 1, 1989
v. COA.65 As the Court elucidated in NAPOCOR Employees Consolidated Union
(NEU) v. National Power Corporation (NPC):66chanroblesvirtuallawlibrary
The Court has, to be sure, taken stock of its recent ruling in Philippine Ports Authority
(PPA) Employees Hired After July 1, 1989 vs. Commission on Audit. Sadly, however,
our pronouncement therein is not on all fours applicable owing to the differing factual
milieu. There, the Commission on Audit allowed the payment of back cost of living
allowance (COLA) and amelioration allowance previously withheld from PPA
employees pursuant to the heretofore ineffective DBM CCC No. 10, but limited the
back payment only to incumbents as of July 1, 1989 who were already then receiving
both allowances. COA considered the COLA and amelioration allowance of PPA
employees as "not integrated" within the purview of the second sentence of Section
12 of Rep. Act No. 6758, which, according to COA confines the payment of "not
27
integrated" benefits only to July 1, 1989 incumbents already enjoying the allowances.
In setting aside COA's ruling, we held in PPA Employees that there was no basis
to use the elements of incumbency and prior receipt as standards to
discriminate against the petitioners therein. For, DBM-CCC No. 10, upon which
the incumbency and prior receipt requirements are contextually predicated, was in
legal limbo from July 1, 1989 (effective date of the unpublished DBM-CCC No. 10) to
March 16, 1999 (date of effectivity of the heretofore unpublished DBM circular). And
being in legal limbo, the benefits otherwise covered by the circular, if properly
published, were likewise in legal limbo as they cannot be classified either as
effectively integrated or not integrated benefits.
There lies the difference.
Here, the employee welfare allowance was, as above demonstrated, integrated by
NPC into the employees' standardized salary rates effective July 1, 1989 pursuant to
Rep. Act No. 6758. Unlike in PPA Employees, the element of discrimination
between incumbents as of July 1, 1989 and those joining the force thereafter is
not obtaining in this case. And while after July 1, 1989, PPA employees can
rightfully complain about the discontinuance of payment of COLA and amelioration
allowance effected due to the incumbency and prior receipt requirements set forth in
DBM-CCC No, 10, NPC cannot do likewise with respect to their welfare allowance
since NPC has, for all intents and purposes, never really discontinued the payment
thereof.
To stress, herein petitioners failed to establish that they suffered a diminution
in pay as a consequence of the consolidation of the employee welfare
allowance into their standardized salary. There is thus nothing in this case
which can be the subject of a back pay since the amount corresponding to the
employee welfare allowance was never in the first place withheld from the
petitioners.67
Here, petitioner's constant invocation of the equal protection clause is misleading. In
its petition, petitioner PHIC insists that all its employees should be treated equally,
regardless of whether they rendered their service to the PHIC or to its predecessor,
PMCC.68 Without delving into the matter of whether said employees were employed
before or after July 1, 1989, it then concluded that all employees must be paid their
back COLA that was unduly withdrawn from them after the issuance of the DBM CCC
10, and for the entire duration that the circular was in legal limbo. 69 It bears stressing,
however, that the Court, in PPA, accorded equal treatment to all PPA employees
whether they were incumbents as of July 1, 1989, the time of effectivity of the SSL, or
employed thereafter. Hence, to successfully invoke the guarantee of equal protection
clause under the PPA doctrine, petitioner needed to prove, to the Court's satisfaction,
not a discrimination between the current PHIC employees and those absorbed from
PMCC, but rather, a discrimination between incumbent PHIC employees as of July 1,
1989 and those employed thereafter, who, as addressed by the second sentence of
Section 12 of the SSL, suffered a diminution in pay. But as previously observed,
petitioner never even alleged the same. Resultantly, petitioner can neither invoke the
guarantee of equal protection of laws nor the principle of non-diminution ofbenefits to
sustain its grant of the COLA.
For parallel reasons, the Court finds that the PHIC's issuance of the LMRG must
suffer the same fate. In defending the validity thereof, petitioner PHIC merely
asserted, in its petition, its 'fiscal autonomy' to fix compensation and benefits of its
personnel under Section 16 (n) of R.A. No. 7875 and the argument that the LMRG is
not merely a duplicate of the PIB. Seemingly realizing the insufficiency thereof,
petitioner, in its Reply, attempted to provide the Court with additional legal basis by
citing certain OGCC opinions and jurisprudence reiterating its "fiscal autonomy" and
averring that Section 19, Chapter 3, Book VI of E.O. 292, otherwise known as the
1987 Administrative Code of the Philippines, clearly provides that internal operating
budgets of GOCCs are generally subject only of their respective governing boards,
and the only exception thereto requiring DBM approval is when national government
budgetary support is used. Thus, it waalleged that since the funds used in the
disbursement of the LMRG were sourced from PHIC's internal operating budget, DBM
approval is unnecessary.70
Petitioner fails to persuade.
PCSO v. COA has already established, in no uncertain terms, that the fact that a
GOCC is a self-sustaining government instrumentality which does not depend on the
national government for its budgetary support does not automatically mean that its
discretion on the matter of compensation is absolute. As elucidated above, regardless
of any exemption granted under their charters, the power of GOCCs to fix salaries
and allowances must still conform to compensation and position classification
standards laid down by applicable law, which, in this case, is the SSL. In view of
petitioner's failure to present any statutory authority or DBM issuance expressly
authorizing the grant of the LMRG, the same must be deemed incorporated in the
standardized salaries of the PHIC employees. Accordingly, the Court must
necessarily strike its unauthorized issuance as invalid for the receipt by the PifiC
employees thereof was tantamount to double compensation.
With respect to the CNASB, however, it is undisputed that the same momentarily had
DBM approvaL Let it be remembered that on December 15, 2000, the DBM issued
Budget Circular No. 2000-19 explicitly authorizing the payment of the signing bonus to
each entitled rank-and-file personnel. But on July 11, 2002, the Court, in SSS v. COA,
declared as invalid said signing bonus for being inconsistent with the rule of salary
integration under the SSL and for not being "a truly reasonable compensation" due to
the fact that peaceful collective negotiations "should not come with a price tag." Thus,
while respondent COA admits that the payment of the CNASB was allowed under the
DBM Circular, it contends that actual payment thereof was made only on June 11,
2004, or after the pronouncement in SSS v. COA, and as a consequence, petitioner
PHIC's payment thereof is invalid.
Nevertheless, based on the records of the case, the Court is inclined to give more
credence to petitioner PHIC's allegations on the allowance's validity than to the
apparently unsubstantiated contentions of respondent COA. In disallowing the grant
of the CNASB, respondent COA primarily anchored its decision on a certain
"Automatic Debit Advice dated 6-11-2004."71 Relying solely on the basis thereof,
respondent summarily concluded that the actual payment of the CNASB was made
28
only on June 11, 2004 or after the pronouncement in SSS v. COA.72 The Court,
however, is unconvinced. Nowhere in the records was the source of said "Automatic
Debit Advice" shown. The initial Audit Observation Memorandum, which was the
basis of respondent COA's disallowance, simply indicated "ADA No. 01-06-028 dtd.
6/11/2004"73 and "ADA No. 01-05-029 dtd. 6/11/2004"74 without even explaining what
such code represents. Moreover, as aptly pointed out by petitioner, respondent COA
automatically insisted that the CNASB was granted after the promulgation of SSS v.
COA, merely mentioning, for the first time in its Comment before the Court, its basis
as the "Automatic Debit Advice." Said advice, however, was never shown to petitioner
for validation. Worse, it was not even presented before the Court to support the COA
disallowance.
Thus, as between petitioner PHIC's allegations together with its corresponding
documentary evidence consisting of certifications and employee payrolls on the one
hand, and respondent COA's plain assertions, unsubstantiated by any sort of proof on
the other, the Court finds that the former deserves to be given more weight and
credence. Remember that the power granted to the DBM is simply to ensure that the
proposed compensation, benefits and other incentives given to GOCC officials and
employees adhere to the policies and guidelines issued in accordance with applicable
laws.75 It is only just that the extent of its reviewing authority be sufficiently supported
by reasonable proof. Considering, therefore, that the records of the case, taken in
conjunction with the circumstances surrounding their issuance, supports a reasonable
conclusion that the CNASB was, indeed, paid in 2001 and not in 2004, at the time
when the payment thereof was expressly sanctioned by DBM Budget Circular No.
2000-19, the Court holds that respondent COA carelessly and whimsically issued its
disallowance in absence of any sufficient basis in support of the same.
In a similar manner, the Court finds that the PHIC's grant of the WESA was aptly
sanctioned not only by Section 1276 of the SSL but also by statutory authority. PHIC
Board Resolution No. 385, s. 200177 states that the WESA of P4,000.00 each shall be
paid to public health workers under the Magna Carta of PHWs in lieu of the
subsistence and laundry allowances. Respondent COA contested the same not so
much on the propriety of the subsistence and laundry allowances in the form of the
WESA, but that the Secretary of Health prescribed the rates thereof not in accordance
with the Magna Carta of PHWs. According to respondent COA, the WESA is invalid
because the act of the PHIC Board, of which the Health Secretary is the Ex-
Officio Chairperson, in approving the allowance is not the same as the act of the
Secretary himself. In this regard, Section 22 and 24 of the Magna Carta pertinently
provides:chanRoblesvirtualLawlibrary
Section 22. Subsistence Allowance. - Public health workers who are required to
render service within the premises of hospitals, sanitaria, health infirmaries, main
health centers, rural health units and barangay health stations, or clinics, and other
health-related establishments in order to make their services available at any and all
times, shall be entitled to full subsistence allowance of three (3) meals which may
be computed in accordance with prevailing circumstances as determined by the
Secretary of Health in consultation with the Management-Health Worker's
Consultative Councils, as established under Section 33 of this Act: Provided, That
representation and travel allowance shall be given to rural health physicians as
enjoyed by municipal agriculturists, municipal planning and development officers and
budget officers.
x x x x
SEC. 24. Laundry Allowance. - All public health workers who are required to wear
uniforms regularly shall be entitled to laundry allowance equivalent to one hundred
twenty-five pesos (P125.00) per month: Provided, That this rate shall be reviewed
periodically and increased accordingly by the Secretary of Health in
consultation with the appropriate government agencies concerned taking into
account existing laws and prevailing practices. (Emphases ours)
Moreover, the Magna Carta's Revised Implementing Rules and Regulations (IRR)
issued by the Secretary of Health in November 1999 similarly
provide:chanRoblesvirtualLawlibrary
7.2. Subsistence Allowance
7.2.1. Eligibility for Subsistence Allowance
a. All public health workers covered under RA 7305 are eligible to receive full
subsistence allowance as long as they render actual duty.
b. Public Health Workers shall be entitled to full Subsistence Allowance of three (3)
meals which may be computed in accordance with prevailing circumstances as
determined by the Secretary of Health in consultation with the Management Health
Workers Consultative Council, as established under Section 33 of the Act.
c. Those public health workers who are out of station shall be entitled to per diems in
place of Subsistence Allowance. Subsistence Allowance may also be commuted.
7.2.2. Basis for Granting Subsistence Allowance
Public health workers shall be granted subsistence allowance based on the number of
meals/days included in the duration when they rendered actual work including their
regular duties, overtime work or on-call duty as defined in this revised IRR.
Public health workers who are on the following official situations are not entitled to
collect/receive this benefit:
a. Those on vacation/sick leave and special privilege leave with or without pay;
b. Those on terminal leave and commutation;
c. Those on official travel and are receiving per diem regardless of the amount; and
d. Those on maternity/paternity leave.
7.2.3. Rates of Subsistence Allowance
a. Subsistence allowance shall be implemented at not less than PhP50.00 per day or
PhP1,500.00 per month as certified by head of agency.
29

b. Non-health agency workers detailed in health and health related
institutions/establishments are entitled to subsistence allowance and shall be funded
by the agency where service is rendered.
c. Subsistence allowance of public health workers on full-time and part-time detail in
other agency shall be paid by the agency where service is rendered.
d. Part-time public health workers/consultants are entitled to one-half (1/2) of the
prescribed rates received by full-time public health workers.
7.3. Laundry Allowance
7.3.1. Eligibility for Laundry Allowance
All public health workers covered under RA 7305 are eligible to receive laundry
allowance if they are required to wear uniforms regularly.
7.3.2. Rate of Laundry Allowance
The laundry allowance shall be P150.00 per month. This shall be paid on a monthly
basis regardless of the actual work rendered by a public health worker.
It may be observed, however, that the foregoing excerpts do not prescribe a specific
form or process by which the Secretary of Health must compute the rates of the
subsistence and laundry allowances. The law simply states that the Health Secretary
shall compute said rates "in accordance with prevailing circumstances" and "in
consultation with the Management Health Workers Consultative Council." But
nowhere in the law was it required that the Secretary of Health, in determining the
allowances due to PHWs, must be acting alone. Neither has respondent COA
presented any provision of law, rule, or other similar authority to that effect.
Instead, respondent COA insists that since the Health Secretary actually approved
the issuance of the WESA by virtue of a resolution of the PHIC Board, such approval
is invalid for the act of the PHIC Board is not the act of the individual composing the
Board in view of the rule that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it. The Court, however,
cannot subscribe to such argument. It is true that a corporation is a juridical entity with
legal personality separate and distinct from those acting for and in its behalf and, in
general, from the people comprising it. Resultantly, obligations incurred by the
corporation, acting through its .directors, officers and employees, are its sole
liabilities.78 Moreover, when said corporation's corporate legal entity is used as a
cloak for fraud or illegality, the law will regard it as an association of persons or, in
case of two corporations, merge them into one.79 It must be clarified, however, that
these principles of separate juridical personalities as well as the piercing of its veil of
corporate fiction essentially apply only in determining established liabilities. 80 It is but
a legal fiction introduced for purposes of convenience and to subserve the ends of
justice.81 But the issue in the instant case is far from holding a director liable for the
obligations of the corporation insofar as claims of third persons are concerned. The
issue here, instead, is merely whether the Secretary of Health duly complied with
prevalent law in determining the rates of allowances to be granted to qualified PHWs.
In this regard, the Court rules in the affirmative.
To repeat, the law does not prescribe a particular fonn nor restrict to a specific mode
of action by which the Secretary of Health must determine the subject rates of
subsistence and laundry allowance. That the Health Secretary approved the grant of
the WESA together with ten (10) other members of the Board does not make the act
any short of the approval required under the law. As far as the Magna Carta and its
Revised IRR are concerned, the then Health Secretary Dr. Alberto G. Romualdez, Jr.
voted in favor of the WESA's issuance, and for as long as there exists no deception or
coercion that may vitiate his consent, the concurring votes of his fellow Board
members does not change the fact of his approval. To rule otherwise would create
additional constraints that were not expressly provided for by law.
Nevertheless, even assuming the invalidity of the WESA due to the inegular manner
by which the Health Secretary determined its rates, the Court does not find that the
PHIC Board of Directors, other responsible officers, and recipients thereof should be
ordered to refund the same. On this matter, PCSO v. COA82 summarized the rules as
follows:chanRoblesvirtualLawlibrary
Recipients or payees need not refund disallowed benefits or allowances when it was
received in good faith and there is no finding of bad faith or malice. On the other
hand, officers who participated in the approval of such disallowed amount are
required to refund only those received if they are found to be in bad faith or grossly
negligent amounting to bad faith. 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. The receipt or
non-receipt of illegally disbursed funds is immaterial to the solidary liability of
government officials directly responsible.
As previously discussed, PHIC's grant of the WESA was aptly sanctioned not only by
Section 12 of the SSL which explicitly identifies laundry and subsistence allowance as
excluded from the integrated salary, but also by statutory authority, particularly,
Section 22 and 24 of the Magna Carta. In view of such fact, the PHIC officers cannot
be found to have approved the issuance of the same in bad faith or in gross
negligence amounting to bad faith for it was well within the parameters set by law.
Thus, the WESA need not be refunded.
Neither must the concerned PHIC officers and employees be ordered to refund the
CNAB because, as previously mentioned, the same was expressly authorized by
DBM Budget Circular No. 2000-19. Contrary to respondent COA's unsubstantiated
assertion, the Court is convinced that the CNAB was paid in 2001, before the
payment ofthe same was invalidated by Our ruling in SSS v. COA. The PHIC
approving officers, therefore, had no knowledge of the fact that the payment of the
CNAB was contrary to the SSL for the same was actually authorized by the DBM
itself.
Similarly, there is no showing that the PHIC officers approved the issuance and
payment of the back COLA in bad faith. From the very beginning, petitioner had been
invoking, albeit enoneously, Our ruling in PPA Employees Hired After July 1, 1989 v.
COA, wherein We granted the payment of the COLA back pay to PPA employees for
30
the period beginning July 1, 1989 until March 16, 1999, during the time the DBM-CCC
No. 10 was in legal limbo, seemingly believing, in good faith, that on the basis thereof,
the PHIC employees could likewise be granted the same. In fact, even respondent
COA Director Janet Nacion was under the same impression when she conceded that
"no less than the SC has made an imprimatur regarding the employee's entitlement to
COLA" during the time the circular was in legal limbo. 83 It is therefore apparent that
during such time, there were differing opinions regarding the true interpretation of a
technicality of law. Thus, before the Court was able to clarify that the ruling in PPA
Employees was limited to distinguishing the benefits that may be received by
government employees who were hired before and after the effectivity of the
SSL,84 there was yet no absolute and clear-cut rule regarding the entitlement to the
COLA during the period when the DBM circular was in legal limbo. Hence, it might
seem rather severe to hold the concerned PHIC officers personally liable to refund the
COLA back pay in view of the fact that they may have honestly believed in the
propriety of the same. In fact, just recently, We held that since certain officers who
authorized the back payment of the COLA were oblivious that said payments were
improper, the same need not be refunded.85 This is because absent any showing of
bad faith or malice, public officers are not personally liable for damages resulting from
the performance of official duties.86 As the Court explained in Philippine Economic
Zone Authority (PEZA) v. COA:87chanroblesvirtuallawlibrary
x x x x It is unfair to penalize public officials based on overly stretched and strained
interpretations of rules which were not that readily capable of being understood at the
time such functionaries acted in good faith. If there is any ambiguity, which is actually
clarified years later, then it should only be applied prospectively. A contrary rule would
be counterproductive. It could result in paralysis, or lack of innovative ideas getting
tried. In addition, it could dissuade others from joining the government. When the
government service becomes unattractive, it could only have adverse consequences
for society.88
Thus, the fact that the PHIC officers had an unclear knowledge of a ruling by this
Court categorically prohibiting the particular disbursement herein is a badge of good
faith,89 especially in light of the COA's failure to overturn the presumption of regularity
in the performance of their official duties.
The same does not hold true, however, with respect to the LMRG. Unlike the
issuances of the WESA, CNAB, and COLA, which need not be refunded either for
being expressly sanctioned by law or for being issued in an honest belief that the
same was authorized by recent jurisprudence, petitioner's issuance of the LMRG
cannot be said to have been done in good faith. Time and again, the Court has
defined good faith as "a state of mind denoting honesty of intention, and freedom from
knowledge of circumstances which ought to put the holder upon inquiry; an honest
intention to abstain from taking any unconscientious advantage of another, even
though technicalities of law, together with absence of all information, notice, or benefit
or belief of facts which render transactions unconscientious." 90
As previously mentioned, the PHIC Board members and officers approved the
issuance of the LMRG in sheer and utter absence of the requisite law or DBM
authority, the basis thereof being merely PHIC's alleged "fiscal autonomy" under
Section 16(n) of RA 7875.91 But again, its authority thereunder to fix its personnel's
compensation is not, and has never been, absolute. As previously discussed, in order
to uphold the validity of a grant of an allowance, it must not merely rest on an
agency's "fiscal autonomy" alone, but must expressly be part of the enumeration
under Section 12 of the SSL, or expressly authorized by law or DBM issuance. This
directive was definitively established by the Court as early as 1999 in National
Tobacco Administration v. Commission on Audit,92 which was even subsequently
affirmed in Philippine International Trading Corporation v. Commission on Audit93 in
2003. Thus, at the time of the passage of PHIC Board Resolution No. 717, s. 2004 on
July 22, 2004 by virtue of which the PHIC Board resolved to approve the LMRG's
issuance, the PHIC Board members and officers had an entire five (5)-year period to
be acquainted with the proper rules insofar as the issuance of certain allowances is
concerned. They cannot, therefore, be allowed to feign ignorance to such rulings for
they are, in fact, duty-bound to know and understand the relevant rules they are
tasked to implement.94Thus, even if We assume the absence of bad faith, the fact that
said officials recklessly granted the LMRG not only without authority of law, but even
contrary thereto, is tantamount to gross negligence amounting to bad faith. Good faith
dictates that before they approved and released said allowance, they should have
initially determined the existence of the particular rule of law authorizing them to issue
the same.
In view of the foregoing, the Court holds that the PHIC Board members who approved
PHIC Board Resolution No. 717, series of2004 and the PHIC officials who authorized
its release are bound to refund the LMRG. It is unclear, however, from a review of the
records of the case, which of the PHIC Board members and officials named in the
COA's Notice of Disallowance were the ones responsible for the issuance of the
LMRG, considering that what was listed therein were the "Persons Liable" for the
grant and release of all four (4) allowances lumped together as subject of the instant
case, without any distinction as to the particular set of officers responsible for the
approval of a respective type of allowance as well as its corresponding
amount.95 Hence, for the proper implementation of this judgment, the COA is hereby
ordered to identify, in a clear and certain manner, the specific PHIC Board members
and officials who approved the grant of the LMRG and authorized its release as well
as to compute the exact amount they received.
With respect to the PHIC officials and employees, however, who merely received the
subject LMRG but had no participation in the approval and release thereof, the Court
deems them to have acted in good faith, honestly believing that the PHIC Board
Resolution was issued in the Board's valid exercise of its power. Thus, they are
absolved from refunding the LMRG they received.
WHEREFORE, premises considered, the instant petition is PARTLY GRANTED. The
November 20, 2013 Decision and April 4, 2014 Resolution of the COA Commission
Proper, which affirmed the Notice of Disallowance PHIC 2008-003 (2004) dated
February 7, 2008, are AFFIRMED WITH MODIFICATION. The recipients and officers
who authorized the following disbursements need not refund the amounts paid in
connection therewith: (1) the Collective Negotiation Agreement Signing Bonus; (2) the
Welfare Support Assistance; and (3) the back payment of Cost of Living Allowance.
As for the Labor Management Relations Gratuity, only the PHIC Board members who
approved PHIC Board Resolution No. 717, series of 2004 and the PHIC officials who
authorized its release are bound to refund the same. For this purpose, the COA is
31
hereby ordered to: (1) particularly identify the PHIC Board members and officials
responsible for the approval and release of the LMRG; and (2) compute the exact
amount of the LMRG that said officers and employees respectively received.

SO ORDERED.ChanRoblesVirtualawlibrary

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