3&.

epublic of toe ~bilippines

~upreme Qtourt
;$-lllanila

EN BANC

NINIA P. LUMAUAN, G.R. NO. 218304

Petitioner,
Present:

PERALTA, Chief Justice,

PERLAS-BERNABE,
LEONEN,
CAGUIOA,
GESMUNDO,
HERNANDO,
- versus- CARANDANG,
LAZARO-JAVIER,
INTING,
ZALAMEDA,
LOPEZ,
DELOS SANTOS,
GAERLAN, and
ROSARIO, JJ.

Promulgated:
COMMISSION ON AUDIT,

_---------------if--
December 9, 2020 ;:::-

x--------- ~~~-O~~~~t: X

DECISION

HERNANDO, J.:

Before the Court is a Petition for Certiorari 1 filed under Rule 64, in
relation to Rule 65, of the Rules of Court assailing the June 4, 2014 Decision2
and the February 27, 2015 Resolution3 of respondent Commission on Audit
(COA).
1
Rollo, pp. 3-7.
2
Id. at 8-14; penned by Chairperson Ma. Gracia M. Pulido Tan and Commissioner Heidi L. Mendoza.
3
ld.atl5.
 .,.

Decision 2 G.R. No. 218304

Factual Antecedents

Petitioner Ninia P. Lumauan (Lumauan) was the Acting General

Manager of Metropolitan Tuguegarao Water District (MTWD), 4 a government-
owned and controlled corporation (GOCC) created pursuant to Presidential
Decree (PD) No. 198 or the Provincial Water Utilities Act of 1973, as amended
by Republic Act (RA) No. 9286.

In 2009, the Board ofDirectors ofMTWD issued Board Resolution Nos.

2009-0053 5 and 2009-0122, 6 approving the payment of accrued Cost of Living
Allowance (COLA) to qualified MTWD employees for calendar years (CYs)
1992 to 1997 in the aggregate amount of Pl,689,750.00. 7

However, after post-audit, Supervising Auditor Floricen T. Unida and

Audit Team Leader Basilisa T. Garcia issued Notice of Disallowance No. 10-
003-101-(09), 8 disallowing the payment oLPl,689,750.00 for lack oflegal basis
specifically since the COLA was already deemed integrated into the basic salary
of the employees pursuant to Section 129 of RA No. 6758, otherwise known as
the Compensation and Position Classification Act of 1989, and the Department
of Budget and Management (DBM) Corporate Compensation Circular (CCC)
No. 10. 10 Held liable under the Notice of Disallowance were petitioner; Ms.
Visitacion M. Rimando (Rimando), Division Manager-Administrative; Ms.
Marcela Siddayao (Siddayao ), Cashier; and the employees of ·MTWD, as
payees. 11

Petitioner appealed the disallowance to the COA Regional Director, 12

citing the ruling of the Court in Philippine Ports Authority (PPA) Employees
Hired After July I, 1989 v. Commission on Audit, 13 where the rights of the PPA
employees to claim COLA and amelioration allowance until March 16, 1999
were upheld.
4
Id. at 8.
5
Id. at 17-18.
6
Id. at 19-20.
7
Id. at 8.
8
Id.at21-22.
9
SECTION 12. Consolidation of Allowances and Compensation. - All allowances, except for
representation and transportation allowances; clothing and laundry allowances; subsistence allowance of
marine officers and crew on board government vessels and hospital personnel; hazard pay; allowances of
foreign service personnel stationed abroad; and such other additional compensation not otherwise
specified herein as may be determined by the DBM, shall be deemed included in the standardized salary
rates herein prescribed. Such other additional compensation, whether in cash or in kind, being received
by incumbents _only as of July I, 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.
10
Rollo, p. 21.
II Id.
12
Id. at 9.
13
506 Phil. 382 (2005).
 Decision 3 G.R. No. 218304

Ruling of the Regional Director

In a November 23, 2011 Decision, 14 Regional Director III Atty. Elwin

Gregorio A. Torre denied the appeal for lack of merit. He affirmed the
disallowance on the ground that the payment of COLA was prohibited since it
was already integrated into the basic salary of the employees. 15

He opined that after the promulgation of Philippine Ports Authority

(PPA) Employees Hired After July 1, 1989 v. Commission on Audit, the DBM
issued National Budget Circular (NBC) No. 2005-502 dated October 26, 2005,
which clarified that "payment of allowances and other benefits, such as COLA,
which are already integrated in the basic salary, remains prohibited unless
otherwise provided by law or ruled by the Supreme Court." 16 Regarding
petitioner's defense of good faith, he found the same bereft of any merit
considering that the payment of the said benefit was already prohibited since
October 26, 2005. 17

Unfazed, petitioner elevated the matter to respondent COA-Commission

Proper (CP).

In response, the Regional Director filed his Answer alleging that the
appeal was filed beyond the prescribed period. 18 He claimed that since
petitioner already exhausted the six-month appeal period, she should have filed
the Appeal Memorandum with respondent COA-CP on the same day she
received his Decision. 19

Ruling of the COA-CP

On June 4, 2014, respondent COA-CP rendered a Decision denying the

appeal for late filing and lack of merit. Respondent COA-CP agreed with the
observation of the Regional Director that the appeal was belatedly filed. 20 It
ruled that the disallowance has already become final and executory because
petitioner belatedly filed the Appeal Memorandum or 12 days from receipt of
the Decision of the Regional Director. 21 Besides, even if the appeal was timely
filed, respondent COA-CP ratiocinated that the appeal should still be denied
because petitioner's arguments were bereft of any merit. 22

14
Rollo, pp. 23-27.
15
Id. at 26.
16 Id.
17
Id. at 27.
18
Id.atIO.
19 Id.
20 Id.
21
Id. at I 0-11.
22
Id. at 11.
 ' J

Decision 4 G.R. No. 218304

It reiterated the ruling of the Regional Director that the payment of COLA
was prohibited because it was already incorporated in the standardized salary
rates of government employees under the general rule of integration. 23 As
regards petitioner's defense of good faith, respondent COA-CP found the same
unmeritorious considering that under the principle of solutio indebiti, all
employees of MTWD who received the disallowed COLA were obliged to
return the same. 24

The dispositive portion of the assailed COA-CP Decision reads:

WHEREFORE, the instant appeal is DENIED and COA RO No. II

Decision (COA-RO2 Case No. 2011-017 dated November 23, 2011) is hereby
AFFIRMED. Accordingly, ND No. 10-003-101-(09) dated November 22, 2010
on the payment of Cost of Living Allowance to Metropolitan Tuguegarao Water
District Employees amounting to Pl ,689,750.00 for calendar years 1992 to 1997
is hereby SUSTAINED. 25

Unfazed, petition filed a Motion for Reconsideration which the COA-CP

denied in its February 27, 2015 Resolution. 26

Hence, petitioner filed the instant Petition for Certiorari interposing the
core issue of whether respondent COA-CP committed grave abuse of discretion
in disallowing the payment of COLA for CYs 1992-1997 to the employees of
MTWD. 27

Petitioner's Arguments

Petitioner contends that contrary to the findings ofrespondent COA.:.CP,

the appeal was timely filed as the Appeal Memorandum was filed on November
25, 2011, the same day the Decision of the Regional Director was received. 28
Also, citing the case of Metropolitan Waterworks and Sewerage System
(MWSS) v. Bautista, 29 petitioner insists that the payment of COLA should not
have been disallowed because the employees of GOCCs, whether incumbent or
not, are entitled to COLA from 1989 to 1999 as a matter of right. 30 And even if
the payment of COLA was correctly disallowed, petitioner argues that since the
disbursement was made in good faith, she cannot be made liable to refund the
sarne. 31 ·· · · ·· · · · · ·

23
Id. at 11-12.
24
Id. at 12-13.
25
Id. at 13.
26
Id. at 15.
27
Id. at 4.
28
Id. at 4-5.
29
572 Phil. 383 (2008).
30
Rollo, p. 5.
31
Id. at 5-6.
 Decision 5 G.R. No. 218304

Respondent's Arguments

In its Comment, 32 respondent did not discuss the timeliness of the appeal.
Instead, it focused on the validity of the disallowance. Respondent maintains
that the disallowance was proper because it was made pursuant to law and
prevailing jurisprudence. 33 Respondent asserts that the Supreme Court has
upheld the inclusion of COLA in the standardized salary rates and has resolved
that the non-publication of DBM Circular No. 10 did not render ineffective the
validity of Section 12 of RA No. 6758. 34

Respondent further claims that petitioner cannot avail of the defense of

good faith because at the time the COLA was given to the employees and the
officers of MTWD, DBM Circular No. 10 had already been reissued and
published. 35 As a result, respondent posits that petitioner may no longer rely on
the ruling in Metropolitan Waterworks and Sewerage System v. Bautista as the
defect of the DBM Circular had been cured. 36

The Court's Ruling

The Petition lacks merit.

The Appeal Memorandum was filed on

time.

A careful perusal of the annexes attached to the Petition confirms that the
Appeal Memorandum was filed on the same day a copy of the Decision of the
Regional Director was received. The Registry Receipt37 attached to petitioner's
Appeal Memorandum indicated that petitioner filed the Appeal Memorandum
by registered mail on November 25, 2011. In the Appeal Memorandum, 38
petitioner stated that a copy of the Decision of the Regional Director was
received on November 25, 2011. Likewise, the stamp of receipt39 on the first
page of the Decision of the Regional Director showed that it was received by
the Administrative Division ofMTWD on November 25, 2011.

Based on the foregoing, the Court finds that the Appeal Memorandum
was filed on time because it was filed on November 25, 2011, the same day a
32
Id. at 54-63.
33
Id. at 58-60.
34 Id.
35
Id. at 60-62.
36
Id. at 6 I.
37
Id. at 34.
38
Id. at 28-34.
39
Id. at 23.
 Decision 6 G.R. No. 218304

copy of the Decision of the Regional Director was received. Thus, there was no
reason for respondent COA-CP to deny the appeal for late filing.

The payment of the accrued COLA for

CYs 1992 to 1997 was correctly
disallowed.

As regards the validity of the disallowance, the Court finds that the grant
of accrued COLA for CYs 1992 to 1997 was correctly disallowed.

In Torcuator v. Commission on Audit,40 a case involving the same issue,

the Court upheld the disallowance of the payment of COLA because said
allowance was deemed already integrated in the compensation of government
employees under Section 12 of RA 6758. The Court further declared that said
provision was self-executing, and thus the absence of any DBM issuance was
immaterial. Quoted below is the discussion of the Court on the matter:

R.A. No. 6758 standardized the salaries received by government

officials and employees. Sec. 12 thereof states:

SECTION 12. Consolidation of Allowances and

Compensation. - All allowances, except for representation and
transportation allowances; clothing and laundry allowances;
subsistence allowance of marine officers and crew on board
government vessels and hospital personnel; hazard pay;
allowances of foreign service personnel stationed abroad; and
such other additional compensation not otherwise specified
herein as may be determined by the DBM, shall be deemed
included in the standardized salary rates herein prescribed. Such
other additional compensation, whether in cash or in kind, being
received by incumbents only as of July 1, 1989 not integrated
into the standardized salary rates shall continue to be authorized.

Existing additional compensation of any national

government official or employee paid from local funds of a local
government unit shall be absorbed into the basic salary of said
official or employee and shall be paid by the National
Government.

In Maritime Industry Authority v. [COAJ (MIA) the Court explained

the provision of Sec. 12, to wit:

The clear policy of Section 12 is "to standardize salary

rates among government personnel and do away with multiple
allowances. and other incentive packages ·and the resulting -
differences in compensation among them." Thus, the general
rule is that all allowances are deemed included in the
40
G.R. No. 210631 (Resolution), March 12, 2019.
Decision 7 G.R. No. 218304

standardized salary. However, there are allowances that may be

given in addition to the standardized salary. These non-
integrated allowances are specifically identified in Section 12, to
wit:

1. representation and transportation allowances;

2. clothing and laundry allowances;

3. subsistence allowance of marine officers and crew on

board government vessels;

4. subsistence allowance of hospital personnel;

5. hazard pay; and

6. allowances of foreign service personnel stationed

abroad.

In addition to the non-integrated allowances specified in

Sec. 12, the Department of Budget and Management is delegated
the authority to identify other allowances that may be given to
government employees in addition to the standardized salary.

Pursuant to R.A. No. 6758, DBM-CCC No. 10 was issued, which

provided, among others, the discontinuance without qualification of all
allowances and fringe benefits, including COLA, of government employees
over and above their basic salaries. In 1998, the Court declared in the case of
De Jesus that DBM-CCC No. 10 is without force and effect on account of its
non-publication in the Official Gazette or in a newspaper of general
circulation, as required by law. In 1999, DBM re-issued its DBM-CCC No.
10 in its entirety and submitted it for publication in the Official Gazette.

Thus, petitioners chiefly argue that since DBM-CCC No. 10 was

invalidated and was re-published only in 1999, then the officers and
employees of PWD may receive COLA and other fringe benefits for the period
of 1992 to 1999.

The Court is not convinced.

As early as Philippine International Trading Corporation v.

[COA], the Court held that the nullification of DBM-CCC No. 10 in De
Jesus does not affect the validity of R.A. No. 6758, to wit:

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. [COAJ, for lack of
publication. The basis of COA in disallowing the grant of SFI
was Section 12 ofR.A. No. 6758 and not DBM-CCC No.
10. Moreover, the nullity of DBM-CCC No. 10, will not affect
 ...• ·- ....•... _!.

Decision 8 G.R. No. 218304

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 ofR.A. No. 6758 should not
be made to depend on the validity of its implementing rules. x x
X

In NAPOCOR Employees Consolidated Union v. National Power

Corporation, the Court reiterated that while DBM-CCC No. 10 was nullified
in De Jesus, there is nothing in that decision suggesting or intimating the
suspension of the effectivity ofR.A. No. 6758 pending the publication
of DBM-CCC No. 10 in the Official Gazette.

In Gutierrez, the Court definitively ruled that COLA is integrated in

the standard salary of government officials and employees under Sec. 12
ofR.A. No. 6758, to wit:

The drawing up of the above list is consistent with Section

12 above. R.A. [No.] 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.

xxxx

Clearly, COLA is not in the nature of an allowance

intended to reimburse expenses incurred by officials and
employees of the government in the performance of their official
functions. It is not payment in consideration of the fulfillment of
official duty. As defined, cost of living refers to "the level of
prices relating to a range of everyday items" or ''the cost of
purchasing those goods and services which are included in an
accepted standard level of consumption." Based on this premise,
COLA is a benefit intended to cover increases in the cost of
living. Thus, it is and should be integrated into the standardized
salary rates. x x x

In MIA, the Court emphasized that R.A. No. 6758 deems all
allowances and benefits received by government officials and employees as
incorporated in the standardized salary, unless excluded by law or an issuance
by the DBM. The integration of the benefits and allowances is by legal fiction.
 Decision 9 G.R. No. 218304

It was also discussed therein that "[o]ther than those specifically

enumerated in [Sec.] 12, non-integrated allowances, incentives, or benefits,
may still be identified and granted to government employees. This is
categorically allowed in [R.A.] No. 6758. This is also in line with the
President's power of control over executive departments, bureaus, and offices.
These allowances, however, cannot be granted indiscriminately. Otherwise,
the purpose and mandate of [R.A.] No. 6758 will be defeated."

More recently, in Zamboanga City Water District v. [COAJ (ZCWD),

it was declared by the Court that, in accordance with the MIA ruling, the
COLA and Amelioration Allowance (AA) are already deemed integrated in
the standardized salary, particularly, in local water districts.

Verily, the Court has consistently held that Sec. 12 of R.A. No. 6758 is
valid and self-executory even without the implementing rules of DBM-CCC
No. 10. The said provision clearly states that all allowances and benefits
received by government officials and employees are deemed integrated in
their salaries. As applied in this case, the COLA, medical, food gift, and rice
allowances are deemed integrated in the salaries of the PWD officers and
employees. Petitioners could not cite any specific implementing rule, stating
that these are non-integrated allowances. Thus, the general rule of integration
shall apply. 41 (Citations omitted.)

Petitioner's reliance on the pronouncement of the Court in Philippine

Ports Authority (PPA) Employees Hired After July 1, 1989 v. Commission on
Audit, reiterated in Metropolitan Waterworks and Sewerage System v. Bautista,
that employees of GOCC, whether incumbent or not, are entitled to COLA from
1989 to 1999, is misplaced.

The Court in Maritime Industry Authority (MIA) v. Commission on

42
Audit already clarified that the ruling in Philippine Ports Authority (PPA)
Employees Hired After July 1, 1989 v. Commission on Audit only distinguished
the benefits that may be received by government employees hired before and
after the effectivity ofRA 6758. In fact, in Republic v. Judge Cortez, 43 the Court
made it clear that Philippine Ports Authority (PPA) Employees Hired After July
1, 1989 v. Commission on Audit "only applies if the compensation package of
those hired before the effectivity of Republic Act No. 6758 actually decreased;
or in case of those hired after, if they received a lesser compensation package
as a result of the deduction of COLA." 44 Such is not the situation in the instant
case.

41 Id
42
750 Phil. 288, 319 (2015), citing Napocor Employees Consolidated Union v. National Power Corporation,
519 Phil. 372 (2006).
43
805 Phil. 294 (2017).
44
Id. at 339.
 .. ·--------- ·----·-------- ------ - · - - - · - · - - - -- L

Decision 10 G.R. No. 218304

In view of the foregoing, the Court finds no grave abuse of discretion on

the part of respondent COA-CP in disallowing the payment of accrued COLA
for CYs 1992 to 1997 in the aggregate amount of Pl,689,750.00.

Petitioner can be held personally liable

for the disallowed benefit to the extent of
the amount she actually and individually
received pursuant to our ruling m
Madera v. Commission on Audit. 45

In Madera, We promulgated the following rules on return of disallowed

amounts, viz. :

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

be required from any of the persons held liable therein;

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

follows:

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

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

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

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

c. Recipients - whether approving or certifying officers or mere

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

de_ The- Court may likewise excuse the return of recipients -based on -·
undue prejudicie, social justice considerations, and other bona
fide exceptions as it may determine on a case to case basis.
(Emphasis supplied).

45
G.R. No. 244128, September 8, 2020.
 Decision 11 G.R. No. 218304

It must be stressed at the outset that petitioner Lumauan, as Acting

General Manager of MTWD, was not the one who approved the grant of the
accrued COLA or certified for its funding availability. It was the Board of
Directors of MTWD through Board Resolution Nos. 2009-0053 46 and 2009-
012247 that approved the payment of the accrued COLA.

Petitioner is only a recipient or a passive payee of the allowance. She

thus falls under category 2( c) of the above-cited rules on return.

Under the rules on return of disallowed amounts as espoused in Madera,

and applying the civil law principles on solutio indebiti and unjust enrichment,
"[r]ecipients - whether approving or certifying officers or mere passive
recipients", like petitioner Madera in this case, are all "liable to return the
disallowed amounts respectively received by them, unless they are able to
show that the amounts they received were genuinely given in consideration
of services rendered." 48 To emphasize, "payees who receive undue payment,
regardless of good faith, are liable for the return of the amounts they
received. " 49

The Court explained the rationale for the rules on return as foHows:

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

Moreover, solutio indebiti is an equitable principle applicable to cases

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

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

consistently applied in determining the liability of payees to return, the Court, as
earlier intimated, is not foreclosing the possibility of situations which may
constitute bona fide exceptions to the application of solutio indebiti. As Justice
Bernabe proposes, and which the Court herein accepts, the jurisprudential
standard for the exception to apply is that the amounts received by the payees
constitute disallowed benefits that were genuinely given in consideration of
services rendered (or to be rendered) negating the application of unjust
enrichment and the solutio indebiti principle. As examples, Justice Bernabe
explains that these disallowed benefits may be in the nature of performance
incentives, productivity pay, or merit increases that have not been authorized by
the Department of Budget and Management as an exception to the rule on
46
Rollo, pp. 17-18.
47
Id. at 19-20.
48
Madera v. Commission on Audit, supra, note 45.
49 Id.
 Decision 12 G.R. No. 218304

standardized salaries. In addition to this proposed exception standard, Justice

Bernabe states that the Court may also determinie in the proper case bona fide
exceptions, depending on the purpose and nature of the amount disallowed.
These proposals are well-taken.

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

circumstances that warrant excusing the return despite the application of solutio
indebiti, such as when undue prejudice will result from requiring payees to return
50
or where social justice or humanitarian considerations are attendant.x x x

As stated, as an exception to this rule, a payee or recipient may be

excused from returning the disallowed amount when he/she has shown that
he/she was "actually entitled to what he/[she] received" or "when undue
prejudice will result from requiring payees to return or where social justice or
humanitarian considerations are attendant."

We have reviewed the records and found none of the extenuating

circumstances to be present.

To recall, the benefit subject in this case is accrued COLA. As pointed

out by the COA, petitioner is not entitled to said allowance because it was
already incorporated in the standardized salary rates of government employees.
Neither was it established that ordering its return would unduly prejudice
petitioner. It was also not shown that social justice or humanitarian
considerations were extant to the instant case. Thus, there is no justifiable
circumstance present that would excuse petitioner from returning the
disallowed benefit to the extent of the amount she actually and individually
received.

Finally, pursuant to our pronouncement in Madera, petitioner should

. only be held liable to return the disallowed amount corresponding to the amount
actually and individually received by her.

WHEREFORE, the Petition for Certiorari is DISMISSED. The June 4,

2014 Decision and the February 27, 2015 Resolution of the Commission on
Audit are AFFIRMED with MODIFICATION that petitioner Ninia P.
Lumauan is DIRECTED to RETURN the disallowed amount corresponding
to the amount she actually and individually received within fifteen (15) days
from finality of this Decision.

so Id.
 Decision 13 G.R. No. 218304

SO ORDERED.

WE CONCUR:

ESTELA ~~-BERNABE
Associate Justice Associate Justice

S. CAGUIOA
 Decision 14 G.R. No. 218304

Associate Justice
AMY /iJh~-JA
A'ssociate Justice
VIER

HEN
Associate Justice

· Associate Justice
 Decision 15 G.R. No. 218304

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court.

••·••A•,•'\, •
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