Title
Aquino vs. Commission on Audit
Case
G.R. No. 227715
Decision Date
Nov 3, 2020
CSU employees challenged COA's disallowance of year-end incentives from a special trust fund; SC upheld COA, citing lack of authority, improper filing, and ordered refunds.
disallowance
savings
special trust fund
A

Case Summary (G.R. No. 227715)

Factual Background: The Grant and Source of the Year-End Incentives

On December 19, 2014, Dr. Quilang issued the Special Order authorizing the payment of incentives to “all officials, regular and casual employees” of CSU in an amount not exceeding P40,000.00, subject to existing guidelines on payment of incentives pursuant to CHED Memorandum Order No. 20, s. 2011. The Special Order stated that the incentives would be sourced from the “unused appropriated income for FY 2014,” as agreed by campus executive officers during an academic and administrative council meeting held on December 16, 2014. It also provided that receipt of the incentive was “without prejudice to the refund by the employees concerned” if disallowed in post-audit, and that employees would execute a waiver of willingness to refund the full amount in case of disallowance.

The incentives were deposited into the respective bank accounts of CSU officials and employees, including those whom COA later held liable. COA’s disallowance identified several persons as liable, including Dr. Quilang (issuance of the Special Order and related memoranda), Atty. Honorato M. Carag (approval of payment), and Ms. Monaliza V. Guzman (certification of fund availability and supporting documents), as well as the payees listed in the notice.

COA’s Disallowance and the Issuances of Notice of Finality

COA issued its Notice of Disallowance on May 18, 2015, disallowing P7,688,000.00, stating that the basis of the year-end incentive payments had a legal infirmity because it was not in accord with R.A. 8292. COA directed the persons liable to settle immediately the disallowance and advised that disallowance not appealed within six (6) months would become final and executory under Sections 48 and 51 of P.D. 1445.

COA later issued a Notice of Finality of Decision on August 1, 2016. Petitioners claimed they were not informed of the disallowance before it became final. They allegedly learned of COA’s final action only when Dr. Mariden V. Cauilan, as OIC President, issued a memorandum ordering employees to return the disallowed incentive by virtue of the notice of finality.

Petitioners’ Theory in the Petition

Petitioners sought certiorari, alleging that COA committed grave abuse of discretion amounting to lack or excess of jurisdiction when it disallowed the year-end incentives for violating R.A. 8292 and when it ordered return of the amounts received. They maintained that Section 4 of R.A. 8292 granted governing boards fiscal discretion to receive and appropriate funds in support of university purposes. They asserted that incentivizing efficiency in teaching and rewarding loyalty to the state or university formed part of a university’s purpose, and they invoked the authority of CHED Memorandum Order No. 20, series of 2011 as an executive construction deserving respect.

On liability, petitioners argued that they should not be required to return the incentives because they received the amounts in good faith based on the validity of the Special Order. They also claimed that they had previously received similar incentives that were not disallowed. They further stated that they did not participate in the issuance of the incentives and did not personally receive them since the incentives were deposited into their bank accounts.

Respondent’s Procedural and Substantive Contentions

COA argued first that the petition should be dismissed due to procedural and jurisdictional defects: (a) the “Permanent Employees of the Cagayan State University” had no juridical personality, and the certification authorizing petitioners came from the CSU Faculty Association rather than the employees themselves; (b) petitioners allegedly failed to attach certified true copies of the assailed COA dispositions as required under Rule 65, Section 1; and (c) certiorari was not proper because petitioners allegedly had an adequate remedy by appeal to COA but failed to pursue it within the prescribed period.

Substantively, COA argued that it did not commit grave abuse of discretion because under R.A. 8292, disbursement of funds belonged to the governing board (board of regents) rather than the CSU president acting alone. COA noted there was no showing that the president was authorized by the board of regents to disburse unappropriated funds as year-end incentives. COA nonetheless agreed that petitioners should not return if in good faith, reflecting petitioners’ asserted position—though the Court ultimately ruled otherwise as to the payees’ obligation to return under the governing jurisprudence.

Issues Raised for Resolution

The Court addressed four issues. First, whether petitioners had legal personality to file the petition in representation of the “Permanent Employees of the Cagayan State University.” Second, whether petitioners’ direct resort to the Supreme Court via certiorari was proper. Third, whether COA committed grave abuse of discretion amounting to lack or excess of jurisdiction in disallowing the incentives. Lastly, whether petitioners were required to return the disallowed amounts.

On Legal Personality: Absence of Juridical Existence and Authority to Sue

The Court held that petitioners failed to establish the capacity required for representative suit. While petitioners identified the permanent employees as beneficiaries, they did not allege the legal capacity of the employees as a party to sue or be sued, nor did they show that the “Permanent Employees of the Cagayan State University” possessed juridical personality. Citing Rule 3, Sections 1 and 2, and Rule 8, Section 4 of the Rules of Court on the need to allege facts showing capacity or authority, the Court concluded that the petition did not demonstrate that the beneficiary group existed as an organized entity endowed with legal personality.

Relying on Association of Flood Victims v. COMELEC, the Court reiterated that an unincorporated association cannot sue in its own name and that a representative lacks standing without proof of valid authority from the real party in interest. Similarly, it held that the permanent employees, as identified, did not constitute a juridical entity. Consequently, their legal standing could not cure the beneficiary group’s lack of juridical capacity.

Further, the Court found that petitioners failed the second requisite of representative suits: authority by law or the Rules. Although petitioners submitted a resolution purportedly authorizing them, the Court observed that the resolutions attached in the reply and those related to the petition referred to different associations within CSU. The Court thus found that petitioners had not clarified the actual identity and existence of the association they sought to represent, defeating the purpose of Rule 3’s designation requirement.

On the Effect of Petitioners’ Procedural Defects and Their Consequences

The Court emphasized that petitioners’ negligence prejudiced the intended beneficiaries. Because the proper parties were not impleaded, the beneficiaries other than petitioners lost their only remedy to challenge the notice of disallowance before it became final. The Court treated the notice of disallowance as final and binding as to those payees whose right to judicial review was foreclosed by the procedural defect, while still proceeding to rule on the case as filed by petitioners for their own individual relief.

COA Due Process and the Proper Mode of Judicial Review

Although the Court found procedural defects in the representative aspect, it ruled in favor of petitioners on the reason they did not appeal before finality. COA was required to serve the Notice of Disallowance to each person held liable. Under the 2009 COA Rules, and the Court’s jurisprudence in Development Bank of the Philippines v. Commission on Audit, the essence of due process in COA proceedings was not merely notice in the abstract but the opportunity to be heard through reconsideration and appeal.

The Court found that COA did not properly serve the notice of disallowance and the notice of finality on the required persons. Specifically, it noted that the university accountant, Ms. Monaliza Guzman, was not shown to have been served a copy, despite the rule on service to the accountant when there were several payees in a disallowed payroll. The Court further observed that the proofs of service did not bear the signatures of the persons required to be served, leaving no adequate proof of proper service. It therefore concluded that petitioners were not constructively notified in the manner required, and they were effectively informed only when they received a memorandum directing them to return the disallowed incentives after the notice of finality.

Accordingly, the Court agreed that petitioners were justified in not exhausting COA’s appeal process because the disallowance lapsed into finality without affording them the opportunity to appeal or seek reconsideration through proper notice. The Court therefore treated certiorari as consistent with Rule XII, Section 1 of the 2009 Revised Rules of Procedure of the COA (judicial review by petition for certiorari filed within a prescribed period), even while it later denied the petition on the merits.

No Grave Abuse of Discretion: Legal Limitations Under R.A. 8292 and CHED Rules

The Court rejected petitioners’ substantive claim of broad discretion. It held that although R.A. 8292 grants governing boards the power to receive and appropriate sums, the power is not plenary and absolute. It is expressly limited by the statute’s scheme on special trust funds and the permissible purposes for disbursement.

The Court reiterated that under R.A. 8292, income generated from tuition and other charges constitutes a special trust fund, deposited in an authorized depository, and that disbursement is limited to expenses necessary for instruction, research, extension, or other similar programs and projects. It cited Benguet State University v. COA, explaining that academic freedom do

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