Bayron vs. COA

A local government unit may not, by mere ordinance, create a supplementary or parallel retirement plan for its officials and employees, as such is expressly prohibited by Section 28(b) of Commonwealth Act No. 186, as amended by Republic Act No. 4968, which reserves the creation of retirement plans for government employees exclusively to the GSIS, absent an express statutory exception authorizing the LGU to do so.

Petitioners are officials and employees of the City Government of Puerto Princesa (PPCG), led by City Mayor Lucilo R. Bayron, who enacted and implemented Ordinance No. 438 establishing the Early & Voluntary Separation Incentive Program (EVSIP). The respondent Commission on Audit (COA) is the constitutional body tasked with examining, auditing, and settling all accounts pertaining to the revenue and receipts of government agencies, including local government units. The dispute arises from the intersection of the Local Government Code of 1991, which grants LGUs broad powers to determine salaries and benefits, and Commonwealth Act No. 186, as amended by Republic Act No. 4968, which prohibits supplementary retirement plans for government employees other than the GSIS.

On June 15, 2010, the Sangguniang Panlungsod of Puerto Princesa City, presided over by then-Vice Mayor Lucilo R. Bayron, enacted Ordinance No. 438, which established the Early & Voluntary Separation Incentive Program (EVSIP) of the Puerto Princesa City Government (PPCG). The ordinance stated three objectives: to adopt an effective and efficient organizational structure through realignment and streamlining; to grant incentives for the loyalty and satisfactory service of employees with at least ten years of city government service; and to encourage retireable employees to avail of early separation and pursue private endeavors. The measure was approved by then-Mayor Edward S. Hagedorn on August 11, 2010. On June 21, 2010, the Sangguniang Panlungsod likewise enacted Resolution No. 850-2010, providing the Implementing Rules and Regulations for Ordinance No. 438, which was also approved by Mayor Hagedorn on November 2, 2010.

Under Section 6 of Ordinance No. 438, qualified PPCG employees were entitled to incentives computed by multiplying their basic monthly salary by a multiplier—1.5 for those with 10 to 20 years of service, 1.8 for those with 21 to 30 years, and 2.0 for those with 31 years or more—and then multiplying the product by the number of years of service. In addition, beneficiaries were entitled to commutation of unused leave credits, benefits under the existing Salamat Paalam Program, and any other benefits due under local or national programs, including GSIS, PAG-IBIG, and PhilHealth. Section 10 of the ordinance appropriated no less than ₱50 million from the PPCG's annual budget starting 2011.

The COA's Audit Team Leader and Supervising Auditor subsequently issued Notices of Disallowance (ND Nos. 13-057-100(2011) to 13-150-100(2012)) disallowing the payment of EVSIP benefits totaling ₱89,672,400.74. Petitioners, together with then-Mayor Hagedorn and other PPCG officials, filed two consolidated appeals before the COA Regional Office No. IV-B. That office denied the appeals in Decision No. 2016-09 dated March 28, 2016, finding that the first batch of NDs had become final and executory for having been appealed 197 days from receipt—well beyond the six-month reglementary period—and affirming the disallowance on the second batch on substantive grounds. The Regional Office held that the EVSIP was not enacted pursuant to any reorganization law, that Section 76 of the Local Government Code did not empower the PPCG to create an early retirement program, that the EVSIP was a prohibited supplementary retirement plan under Section 28(b) of C.A. No. 186 as amended by R.A. No. 4968, and that the recipients had an obligation to return the disallowed amounts under the principle of solutio indebiti.

Petitioners elevated the matter to the COA proper via a Petition for Review. The COA promulgated Decision No. 2020-100 dated January 16, 2020, denying the petition and affirming Decision No. 2016-09. The COA cited City of General Santos vs. COA in reiterating the proscription against separate insurance or retirement plans for government employees other than the GSIS, and rejected petitioners' plea of good faith, citing Conte vs. COA. The COA also directed its Prosecution and Litigation Office to forward the case to the Office of the Ombudsman for investigation. Without filing a motion for reconsideration, petitioners filed the present Petition for Certiorari before the Supreme Court.

• Classification of EVSIP: Petitioners argued that the COA erred and gravely abused its discretion in classifying PPCG's EVSIP as a supplementary retirement package, when it should be classified as an early retirement plan not violative of Section 28(6) of C.A. No. 186, as amended.
• Analogy to Separation Pay: Petitioners maintained that the benefits under PPCG's EVSIP were analogous to a government employee's separation pay, which should not be considered excessive or tantamount to prohibited double compensation under Section 95 of the Local Government Code of 1991.
• Authority Under the Local Government Code: Petitioners contended that they should not be held liable for enacting and implementing Ordinance No. 438 because they were acting within the authority and powers conferred by the Local Government Code, specifically invoking Section 76 (organizational structure), Section 16 (general welfare clause), Section 458(a)(1)(viii) (power to determine salaries and benefits), and Sections 5(a) and (c) (favorable interpretation in favor of LGUs). They also asserted that Ordinance No. 438 should be presumed valid until struck down, and that they were obligated to follow it in good faith.
• Dispensability of Motion for Reconsideration: Petitioners asserted that a motion for reconsideration of the COA's Decision No. 2020-100 could be dispensed with because the issues raised were purely questions of law, citing Philippine International Trading Corp. vs. COA.

• Procedural Defect: Respondent, through the Office of the Solicitor General, noted petitioners' failure to file a motion for reconsideration before filing the present Petition, which is generally an indispensable requirement before filing special civil actions for certiorari.
• Classification as Prohibited Retirement Plan: Respondent cited City of General Santos vs. COA as legal basis for classifying PPCG's EVSIP as a prohibited separate and supplementary early retirement plan, and asserted that its findings as a specialized administrative body should be accorded great respect and finality due to the absence of any unfairness or arbitrariness in its Decision No. 2020-100.
• Good Faith and Modification: Respondent acceded to petitioners' plea of good faith and prayed that its assailed Decision No. 2020-100 be modified such that no refund on the part of petitioners or other recipients would be ordered.

• Motion for Reconsideration: Whether petitioners should have filed a motion for reconsideration of respondent's Decision No. 2020-100 dated January 16, 2020 before filing the present Petition for Certiorari.
• Validity of Ordinance No. 438: Whether Ordinance No. 438 (and consequently Resolution No. 850-2010) of the Sangguniang Panlungsod of Puerto Princesa City constitutes a valid basis for PPCG's EVSIP.

• Motion for Reconsideration: No, dispensation was warranted as to the pure question of law, but the Court deferred ruling on the factual question of good faith. The petition contained a pure question of law—the validity of Ordinance No. 438—which could be resolved by reference to statutory construction and jurisprudence, making the petition ripe for adjudication notwithstanding the absence of a motion for reconsideration.
• Validity of Ordinance No. 438: No. Ordinance No. 438 and Resolution No. 850-2010 were declared null and void for being ultra vires and contrary to Section 28(b) of C.A. No. 186, as amended by R.A. No. 4968, which prohibits supplementary retirement plans for government employees other than the GSIS.

• Motion for Reconsideration: While the twin cases of Philippine International Trading Corp. vs. COA establish that motions for reconsideration may be dispensed with when the issues are pure questions of law, the petition also carried a question of fact—petitioners' plea of good faith vis-à-vis the enactment and implementation of the appropriations in Ordinance No. 438. That question of fact requires evaluation of petitioners' actions and state of mind. However, because the records of Decision No. 2020-100 had already been forwarded to the Office of the Ombudsman for investigation, the Court deemed it prudent to defer ruling on the alleged good faith, which is also determinative of the COA's right to pursue petitioners for collection of the disallowed amount. With no more question of fact to deal with, the petition was ripe for cognizance on the remaining pure question of law.

• Validity of Ordinance No. 438: Section 458(a)(2)(i) of the Local Government Code empowers a Sangguniang Panlungsod to appropriate funds for programs and activities "not contrary to law." While LGUs may invoke the general welfare clause under Section 16, their powers are circumscribed by national legislation. An ordinance is invalid if it contravenes the fundamental law, an Act of the national legislature, or public policy, as held in United States vs. Abendan and reiterated in Magtajas vs. Pryce Properties Corp., Inc. and Batangas CATV, Inc. vs. Court of Appeals. C.A. No. 186, as amended by R.A. No. 4968, expressly prohibits any supplementary retirement or pension plan for government employees other than the GSIS. The EVSIP was in substance a supplementary retirement plan because: (1) its benefits were pegged on a beneficiary's years of service; (2) it rewarded loyalty and faithful service; and (3) it was designed to augment or supplement existing retirement benefits, including GSIS benefits. The multipliers (1.5, 1.8, and 2.0) tied to years of service characterized the EVSIP as a reward for longevity, not a separation pay arising from reorganization. Unlike the GSIS early retirement incentive plan under R.A. No. 8291, which was authorized by express statutory provision and tied to reorganization or streamlining, or the DBP's ERIP, which was expressly authorized by Section 34 of Executive Order No. 81 as an exception to Section 28(b) of C.A. No. 186, no express exception exists in the Local Government Code or the Puerto Princesa City Charter for LGU employees. The minimum ten-year service requirement further distinguished the EVSIP from separation pay under R.A. No. 6656, which mandates one month's salary per year of service with no minimum years required. The operative fact doctrine was applied to protect PPCG employees and officials who acted in good faith, consistent with Araullo vs. Aquino, but the determination of good faith was deferred to the Office of the Ombudsman.

• Supremacy of National Laws over Local Ordinances — Municipal ordinances are inferior in status and subordinate to national laws; an ordinance in conflict with a statute of general character and nationwide application is invalid. Municipal governments are only agents of the national government, and local councils exercise only delegated legislative powers. The delegate cannot be superior to the principal. Applied here to hold that C.A. No. 186, as amended by R.A. No. 4968, cannot be circumvented by a mere ordinance creating a supplementary retirement plan for LGU employees.

• Prohibition on Supplementary Retirement Plans for Government Employees — Section 28(b) of C.A. No. 186, as amended by R.A. No. 4968, prohibits the creation of any insurance or retirement plan for government officers and employees other than the GSIS. A supplementary retirement plan is one that augments or supplements existing retirement benefits, rewards loyalty and years of service, and is pegged on a beneficiary's length of service. The EVSIP was held to fall squarely within this prohibition because its benefits were computed using multipliers tied to years of service, its stated objective included rewarding loyalty, and it was payable on top of GSIS and other benefits.

• Operative Fact Doctrine — Prior to its being nullified, a legislative or executive act must be reckoned with as a fact; parties may have acted under it and changed their positions. The doctrine applies to the effects of a void law or ordinance before the judiciary declares its invalidity, recognizing what transpired while the act was presumed valid. Applied here to protect PPCG employees who received EVSIP benefits in good faith and PPCG officials who enacted or implemented the same in good faith, but cannot apply to authors, proponents, and implementors absent concrete findings of good faith by the proper tribunals.

• Test for Distinguishing Separation Pay from Supplementary Retirement Benefits — A valid separation pay arising from reorganization is characterized by: (1) a statutory basis authorizing the reorganization; (2) computation without multipliers tied to rewarding loyalty; and (3) no minimum years-of-service requirement. Under R.A. No. 6656, separation pay for government employees on account of reorganization shall only be one month's salary for every year of service, with no minimum years required. The presence of multipliers (1.5, 1.8, 2.0) and a ten-year minimum service requirement indicated that the EVSIP was a reward for longevity, not separation pay.

• "C.A. No. 186, as amended by R.A. No. 4968, cannot be circumvented by a mere ordinance creating a separate, parallel, and supplementary early retirement plan for an LGU's officials and employees. Section 28(b) of C.A. No. 186 is loud and clear: no supplementary retirement or pension plans other than the GSIS shall exist in any government office or instrumentality." — This passage states the ratio decidendi: a local ordinance cannot override the statutory prohibition on supplementary retirement plans for government employees.

• "The creation of a retirement incentive package plan for an LGU would necessitate both a law authorizing the same for reasons such as reorganization, streamlining, etc., and express provisions negating its disbursement for the specific purpose of rewarding loyal and faithful service. Otherwise, said plan would run contrary to Section 28(b) of C.A. No. 186, as amended by R.A. No. 4968." — This articulates the two-part test for valid LGU retirement incentive plans, distinguishing lawful early retirement programs from prohibited supplementary retirement plans.

• "The rationale of the requirement that the ordinances should not contravene a statute is obvious. Municipal governments are only agents of the national government. Local councils exercise only delegated legislative powers conferred on them by Congress as the national lawmaking body. The delegate cannot be superior to the principal or exercise powers higher than those of the latter." — This passage, quoted from Magtajas vs. Pryce Properties Corp., Inc., defines the doctrinal basis for the supremacy of national laws over local ordinances.

• United States vs. Abendan, 24 Phil. 165 (1913) — Cited for the principle that an ordinance is valid unless it contravenes the fundamental law, an Act of the legislature, public policy, or is unreasonable, oppressive, or discriminating. Followed as foundational doctrine on the validity of local ordinances.

• Magtajas vs. Pryce Properties Corp., Inc., 304 Phil. 428 (1994) — Cited for the rationale that municipal governments are agents of the national government and cannot undo the acts of Congress by mere ordinance. Followed as controlling authority on the supremacy of national laws over local legislation.

• Batangas CATV, Inc. vs. Court of Appeals, 482 Phil. 544 (2004) — Cited for the principle that where the state legislature has made provision for the regulation of conduct, a municipality cannot regulate the same conduct under its general powers. Followed to reinforce the subordinate status of ordinances to statutes.

• GSIS vs. COA, 674 Phil. 578 (2011) — Cited and extensively discussed to distinguish a lawful early retirement incentive plan authorized by express statutory provision (R.A. No. 8291, Section 41(n)) from a prohibited supplementary retirement plan. The Court applied its reasoning to show that a retirement plan rewarding loyalty and augmenting existing benefits is prohibited, even if denominated an "early retirement" plan.

• Abanto vs. Board of Directors of the Development Bank of the Philippines, G.R. No. 207281, March 5, 2019 — Distinguished. Petitioners relied on this case to argue that EVSIP benefits were analogous to separation pay, but the Court found the reliance misplaced because DBP's ERIP was expressly authorized by Section 34 of Executive Order No. 81 as an exception to Section 28(b) of C.A. No. 186, and its objective was cost-savings, not rewarding loyal service.

• Conte vs. COA, 332 Phil. 20 (1996) — Cited by the COA and affirmed by the Court as basis for the proscription of separate insurance or retirement plans for government employees.

• City of General Santos vs. COA, 733 Phil. 687 (2014) — Cited by the COA and affirmed by the Court as basis for disallowing unauthorized disbursements of LGUs without necessarily declaring the relevant ordinances invalid, and for the proscription of retirement plans other than the GSIS.

• De Agbayani vs. Philippine National Bank, 148 Phil. 443 (1971) — Cited for the operative fact doctrine, which recognizes the effects of a void law or ordinance prior to its judicial declaration of nullity. Applied to protect good-faith recipients and implementors of the EVSIP.

• Araullo vs. Aquino, 737 Phil. 457 (2014) — Cited for the principle that the operative fact doctrine cannot apply to authors, proponents, and implementors of a nullified measure absent concrete findings of good faith by the proper tribunals. Applied to limit the doctrine's protection to good-faith actors only.

• Section 28(b), Commonwealth Act No. 186, as amended by Section 10, Republic Act No. 4968 — Prohibits the creation of any insurance or retirement plan for government officers and employees by any employer, and declares all supplementary retirement or pension plans in any government office inoperative. Applied as the controlling statutory prohibition against PPCG's EVSIP.

• Section 458(a)(2)(i), Republic Act No. 7160 (Local Government Code of 1991) — Empowers the Sangguniang Panlungsod to approve annual and supplemental budgets and appropriate funds for programs and activities "not contrary to law." Applied to show that LGU appropriations must be consistent with national legislation.

• Section 76, Republic Act No. 7160 (Local Government Code of 1991) — Authorizes every LGU to design and implement its own organizational structure and staffing pattern, subject to minimum standards prescribed by the Civil Service Commission. Petitioners invoked this provision, but the Court found it did not empower the PPCG to create an early retirement program.

• Section 16, Republic Act No. 7160 (Local Government Code of 1991) — The general welfare clause. Petitioners invoked it, but the Court held that LGU powers under this clause are circumscribed by national legislation and policy.

• Section 95, Republic Act No. 7160 (Local Government Code of 1991) — Prohibits additional, double, or indirect compensation for local officials and employees unless specifically authorized by law. Petitioners invoked it to argue the EVSIP was not double compensation; the Court found the EVSIP was a prohibited supplementary retirement plan regardless.

• Section 5(a) and (c), Republic Act No. 7160 (Local Government Code of 1991) — Provides for liberal interpretation of LGU powers in favor of devolution and the lower local government unit. Petitioners invoked these provisions; the Court found them insufficient to override the express prohibition in C.A. No. 186 as amended.

• Section 9, Republic Act No. 6656 — Mandates that separation pay of a government employee on account of reorganization shall only be one month's salary for every year of service, with no minimum years of service required. Applied to distinguish lawful separation pay from the EVSIP, which required a minimum of ten years of service and used multipliers tied to longevity.

• Section 34, Executive Order No. 81 (s. 1986), DBP 1986 Revised Charter — Expressly authorizes supplementary retirement plans for DBP officials and employees as an exception to Section 28(b) of C.A. No. 186. Distinguished from the present case because no equivalent express exception exists in the Local Government Code or the Puerto Princesa City Charter.

• Section 41(n), Republic Act No. 8291 (GSIS Act of 1997) — Grants GSIS the power to adopt an early retirement incentive plan for its employees, qualified by the words "early," "incentive," and "for the purpose of retirement." Discussed in GSIS vs. COA to distinguish lawful early retirement incentive plans from prohibited supplementary retirement plans.

• Article 2154, Republic Act No. 386 (Civil Code of the Philippines) — Provides that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. Cited by the COA as basis for requiring return of disallowed EVSIP benefits under the principle of solutio indebiti.

Gesmundo, C.J., Leonen, SAJ., Caguioa, Hernando, Lazaro-Javier, Inting, Zalameda, M. Lopez, Rosario, J. Lopez, Kho, Jr., and Singh, JJ., concurred. Dimaampao, J., was on official leave. Marquez, J., was on official business.