Case Summary (G.R. No. 144516)
Formation and Administration of the Gratuity Plan
By Resolution No. 794 (Feb. 20, 1980), DBP established an express trust—the Gratuity Plan Fund—for retiring officials and employees under CA 186 (as amended). A Trust Indenture (Feb. 26, 1980) transferred legal title and control of the Fund to a Board of Trustees, who appointed DBP-Trust Services Department (DBP-TSD) as investment manager.
Suspension and Revival of the Special Loan Program
In 1983, DBP funded a Special Loan Program using the Gratuity Plan Fund to allow prospective retirees to borrow against their accrued equity and invest in approved instruments. Suspended in 1986, the program was reinstated by DBP Board Resolution No. 066 (Jan. 5, 1991).
Audit Observation and COA Disallowance
AOM No. 93-2 (Mar. 1, 1993) disallowed the P11.6 million in net earnings paid to investor-members for 1991–1992, labeling the distribution an irregular use of public funds prohibited by PD 1445, § 4, and directed refund and reclassification as miscellaneous income of DBP.
COA Rulings and Denial of Reconsideration
COA en banc (Oct. 6, 1998) held the SLP to be a cirumvention of retirement laws, grossly disadvantageous to government, and a prohibited supplementary retirement plan under CA 186, § 28(b) (as amended by RA 4968). A second motion was denied (Aug. 1, 2000), citing Conte v. COA on financial assistance constituting supplementary benefits.
Issues Presented
- DBP’s standing to file certiorari
- Whether the Gratuity Plan Fund income constitutes DBP’s income
- Validity of dividend distributions under the SLP
Standing of the Development Bank of the Philippines
DBP has standing as the sole party before COA and as trustor with a material interest in fund administration. Section 7, Art. IX of the 1987 Constitution and Rule 64 permit government agencies to seek certiorari against COA rulings.
Nature and Ownership of the Gratuity Plan Fund
The Board Resolution and Trust Agreement created an express employees’ trust. DBP (trustor) transferred legal title and investment powers to trustees for the exclusive benefit of employees. Principal and income are distinct from DBP’s assets and cannot revert to the Bank except to satisfy Plan liabilities.
Grave Abuse in COA’s Income Reclassification
COA’s directive to record fund earnings as DBP income mischaracterizes the Fund’s separate identity. The trustees alone hold and administer Fund proceeds; DBP cannot co-opt those earnings for its own use without defeating the trust’s purpose.
Invalidity of Early Dividend Distribution under Retirement Law
RA 1616 and the Gratuity Plan require actual retirement before benefits may be claimed. The SLP’s partial release of inchoate gratuity rights through a “loan” mechanism violates statutory prerequisite
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Procedural History
- Petition for certiorari under Rule 65 of the Rules of Court filed by the Development Bank of the Philippines (DBP) seeking to set aside:
- COA Decision No. 98-403 dated October 6, 1998
- COA Resolution No. 2000-212 dated August 1, 2000
- COA had affirmed Audit Observation Memorandum No. 93-2 (AOM 93-2) dated March 1, 1993, disallowing P11,626,414.25 in dividends distributed under the Special Loan Program (SLP)
- Former DBP Chairman sought reconsideration; both motions denied by COA en banc
- Petition progressed to the Supreme Court, which issued its decision on February 11, 2004 (G.R. No. 144516)
Antecedent Facts
- DBP is a government financial institution created by Executive Order No. 81 (1986, as amended by R.A. 8523)
- COA is constitutionally mandated (Art. IX-D, Sec. 2; P.D. 1445) to audit government instrumentalities and public funds
- On February 20, 1980, DBP Board of Governors adopted Resolution No. 794 establishing the DBP Gratuity Plan:
- Effective June 17, 1967; covered employees as of May 31, 1977
- Retirement fund to meet gratuity benefits under Commonwealth Act No. 186, as amended
- February 26, 1980: Trust Indenture vests control and administration of the Fund in a Board of Trustees; DBP Trust Services Department (TSD) named investment manager
- 1983: DBP establishes the Special Loan Program (SLP), funded by placements from the Gratuity Plan Fund (GPF), suspended in 1986, revived January 5, 1991 by DBP Board Resolution No. 066
- Under SLP:
- Prospective retirees may borrow a portion of their “outstanding equity” in the GPF and invest in specified instruments
- Earnings from investments pay interest on the loan (initially 9% p.a.); excess distributed as dividends to investor-members
- 1991–1992: DBP-TSD paid P11,626,414.25 net earnings to investor-members; COA disallowed these payments in AOM 93-2, citing P.D. 1445, Sec. 4 (prohibition on use of public funds for private purposes)
COA’s Decisions
- COA Decision No. 98-403 (October 6, 1998):
- Affirmed AOM 93-2; held SLP undermined separate personality of the GPF
- Found program disadvantageous to government by entangling GPF resources
- Ruled partial enjoyment of gratuity benefits before retirement is prohibited
- COA Resolution No. 2000-212 (August 1, 2000):
- Denied second motion for reconsideration
- Cited Conte v. COA (264 SCRA 19 [1996]): financial assistance to retirees constitutes a proscribed supplementary retirement plan under Sec. 28(b), Commonwealth Act No. 186
Issues
- Whether DBP has the requisite standing to file the certiorari petition
- Whether the income of the G