Borja vs. Commission on Audit (COA)

A car plan scheme that provides monthly amortization payments for private vehicles of government officials and employees constitutes an additional allowance that is deemed integrated into standardized salary rates under Section 12 of R.A. No. 6758, and is therefore devoid of legal basis unless it falls within the enumerated exceptions or is determined by the DBM. However, recipients of disallowed amounts may be excused from civil liability to return under Rule 2d of the Madera Rules on Return where exceptional circumstances, such as good faith reliance on approved plans and prevention of unjust enrichment, strongly impel the Court to do so.

The petitioners were officials and employees of the Philippine Rice Research Institute (PhilRice), a government-owned or controlled corporation tasked with research and development for rice self-sufficiency. On November 5, 2008, the PhilRice Board of Trustees (BOT) crafted a car plan scheme to attract and retain outstanding officials and employees who often opted for "greener pastures" outside the institute. The scheme was guided by Opinion No. 121, Series of 1988, issued by the Office of the Government Corporate Counsel (OGCC), which opined that the PhilRice BOT was authorized to approve additional incentives for its scientists, researchers, officials, and employees. The car plan operated as a rental plan under which qualified officials procured vehicles through Philippine National Bank (PNB) financing, mortgaged the vehicles to PNB, and rented them out to PhilRice for official use.

The Philippine Rice Research Institute (PhilRice), through its Board of Trustees (BOT), crafted a car plan scheme on November 5, 2008, to attract and retain outstanding and deserving officials and employees who often opted for greener pastures outside the institute. The scheme was meant to benefit PhilRice's priority officials and senior staff, including program/project leaders, division heads, and branch managers involved in the development and extension of the Rice Self-Sufficiency Project. The car plan operated as a rental plan under which qualified officials and employees procured vehicles of their choice through the financing scheme of the Philippine National Bank (PNB) for a period of three years, payable on a monthly installment basis. These private green-plated vehicles were mortgaged to PNB until full settlement of the obligation, and the automobiles were rented out to PhilRice for use in operations at its central station in the Science City of Muñoz and other branches nationwide. The rental payments were used to pay for the private vehicles.

The car rental plan was guided by Opinion No. 121, Series of 1988, issued by the Office of the Government Corporate Counsel (OGCC), which opined that the PhilRice BOT was authorized to approve additional incentives for its scientists, researchers, officials, and employees. During its 54th Meeting, the BOT noted Administrative Order (A.O.) 2009-05 and A.O. 2009-05(A), and confirmed A.O. 2009-15 or the Guidelines on Private Vehicle Rentals, which implemented the car plan program. The purpose of the car plan scheme was two-fold: first, to keep brilliant and exceptional officials and employees from seeking greener pastures outside the institution; and second, considering that PhilRice's operations entailed countless land travels necessitating costs for vehicle purchase, fuel, oil, maintenance, and insurance, the BOT implemented a car rental plan rather than procure its own fleet. Based on a cost benefit analysis, PhilRice could save around PHP 6.00 to PHP 7.00 per kilometer in rented vehicles rather than owning and maintaining vehicles.

In 2013, Audit Team Leader Merlita M. Carlos and Supervising Auditor Daililo M. Lagason of the COA stationed at PhilRice issued 26 Notices of Disallowance (NDs) in the aggregate amount of PHP 10,449,557.45 for "expenses incurred during the trips made using rented private vehicles under Car Plan of PhilRice-Central Experimental Stations' officials and employees." The COA disallowed the expenses on the following grounds: (1) the car plan scheme was not approved by the President as required under Section 2 of P.D. No. 985; (2) it contravened the austerity measures mandated by Administrative Order No. 103, series of 2004; (3) it was not included in the exemption of standardized salary as enumerated under Section 12 of R.A. No. 6758; (4) the approval of the plan by the PhilRice BOT was not governed by Section 6 of P.D. No. 1597; and (5) the rental of the vehicles did not conform with Section 7 of R.A. No. 6713, which prohibits public officers from having any interest in transactions requiring the approval of their office, and Section 8, Article IX-B of the Constitution, which prohibits additional or double compensation. Among the addressees of the NDs were the petitioners, who were signatories to the vouchers approving the release of the disallowed amounts, with petitioner Borja as one of the car owners involved in the rental plan.

Petitioners observed strict guidelines mandated by PhilRice in the car rental plan: (1) the use of the vehicles, either by the petitioner-owner or any employee, was approved by a direct superior, or in some instances, by the Executive Director, through a travel order stating that the trip was necessary; (2) a detailed trip ticket was issued to the person having the travel order; and (3) as proof that the official travel was carried out, the employee who used the rented vehicle had to present the requisite certificate of appearance furnished by the agency where the employee went as part of the official itinerary. The car rental plan was abandoned as early as March 31, 2011, prior to the issuance of the NDs, upon the recommendation of the state auditors stationed in PhilRice.

• Nature of the Car Plan: Petitioners argued that the car plan scheme was not a financial benefit but rather an enticement to prevent the "brain drain" in PhilRice, and that Section 2 of P.D. 985 was not applicable as the scheme was not a financial incentive given to public employees occupying technical positions.
• Austerity Measures: Petitioners argued that the car plan scheme adhered to austerity measures and was in fact a means of saving government funds, and that the invocation of Section 6 of P.D. 1597 was irrelevant.
• Salary Standardization: Petitioners argued that since the plan scheme was not a financial incentive, the COA's averment that it was not included in the exemption of standardized salary under Section 12 of R.A. No. 6758 was irrelevant and immaterial.
• Conflict of Interest: Petitioners argued that the rental of the vehicles did not violate Section 7 of R.A. No. 6713 or Section 8 of Article IX-B of the Constitution, considering their strict adherence to the guidelines requiring travel orders, trip tickets, and certificates of appearance.
• Good Faith: Petitioners asseverated that they merely relied upon and followed in good faith the administrative orders approved by the PhilRice BOT, and that the COA's Decision was unfair, unjust, and violative of Section 6 of Rule X of the 2009 COA Rules of Procedure and Section 14 of Article VIII of the Constitution for failing to state and discuss the facts and law.
• Unjust Enrichment: Petitioners argued that the affirmance of the NDs would result in unjust enrichment in favor of the government at their expense, considering that they shouldered the cost of the vehicle, fuel, oil, maintenance expenses, and comprehensive insurance premiums for all official travels of PhilRice during the implementation of the car rental plan.
• Discriminatory Treatment: Petitioners argued that the Decision was discriminatory given that the COA Proper, in its Decision No. 2017-375, unequivocally lifted NDs issued on June 6, 2011, June 15, 2011, and August 18, 2011, amounting to PHP 637,979.26, and the logic and reasoning in that case should equally apply.

• Irregularity of the Car Plan: The COA, through its Prosecution and Litigation Office (PLO) and Legal Services Sector (LSS), argued that the car rental plan was tainted with irregularity, as the payment of the amortization of the private cars was not among the benefits allowed to be continued under Section 12 of R.A. No. 6758.
• Good Faith of Petitioners: The Office of the Solicitor General (OSG), while concurring with the COA that the car rental plan was tainted with irregularity, nevertheless avowed that petitioners cannot be held solidarily liable on account of their good faith, noting that the car beneficiaries may enjoy presumption of good faith as they assumed the risks of loss and depreciation as owners of the vehicles and incurred various expenses for maintenance and related costs.
• Legal Basis for Benefits: The OSG argued that deterring brain drain within the institute is not without legal basis, as Congress, via R.A. No. 8439, as amended by R.A. No. 11312, enacted the Magna Carta for Scientists, Engineers, Researchers and Other S&T Personnel in the Government which allows scientists and researchers employed in government to receive additional honoraria and/or benefits.
• Prudent Action by BOT: The OSG argued that the PhilRice BOT acted prudently in defining and making clear the nature and purpose of the PhilRice Car Plan, and that it would be prejudicial and unfair to fault or penalize the officials who authorized the payments simply because they relied on the presumed legality and financial soundness of the approved car plan.

• Validity of the Disallowance: Whether the COA correctly disallowed the monthly amortization payments of petitioners' private vehicles which partook the nature of an additional allowance, pursuant to the PhilRice car benefit plan.
• Liability of Approving Officers: Whether petitioners, as approving/certifying officers, may be held solidarily liable for the disallowed amounts despite their claim of good faith.
• Liability of Recipients: Whether petitioner Borja and the other car owners, as recipients of the disallowed rental payments, may be required to return the amounts they received.
• Unjust Enrichment: Whether the affirmance of the NDs would result in unjust enrichment in favor of the government at the expense of the petitioners.

• Validity of the Disallowance: Yes. The COA correctly disallowed the car rental payments. The additional allowance pursuant to the car benefit plan of PhilRice, in the guise of monthly amortization payments of petitioners' private vehicles, was utterly devoid of legal basis under Section 12 of R.A. No. 6758, which deems all allowances not falling within the enumerated exceptions as integrated into the standardized salary rates.
• Liability of Approving Officers: No. Petitioners, in their capacity as approving/certifying officers, were excused from liability under Rule 2a of the Madera Rules on Return, as the exceptional circumstances showed they acted in good faith and were solely propelled by a valid and genuine cause — the prevention of "brain drain" within the institute through a more cost-effective approach.
• Liability of Recipients: No. Petitioner Borja and the other car owners were completely excused from their civil liability to return what they had received, as the highly exceptional scenario justified the application of Rule 2d of Madera, and it would be clearly iniquitous to direct the vehicle owners to return the amounts they had received for the lease of their properties.
• Unjust Enrichment: Yes. Requiring the petitioners to return the disallowed amounts would result in unjust enrichment in favor of the government, as PhilRice had conveniently shifted the burden of acquiring, using, and maintaining vehicles to the plan's beneficiaries, and the only sensible way to compensate them was through rental payments.

• Validity of the Disallowance: The Court applied Section 12 of R.A. No. 6758, which provides that 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 as may be determined by the DBM, shall be deemed included in the standardized salary rates. Citing Laguna Lake Development Authority vs. Commission on Audit, the Court enumerated the rules on consolidation of allowances: (1) all allowances already received by civil service employees not part of the exceptions shall be deemed integrated into the standardized salary rates; (2) the enumerated exceptions are excluded; (3) other compensation not specified in Section 12 may be excluded as determined by the DBM; and (4) additional allowances may continuously be received by GOCC officers and employees provided they were incumbents when R.A. No. 6758 became effective on July 1, 1989, and were already receiving the benefits at such time. The Court found that the car benefit plan, in the guise of monthly amortization payments, was an additional allowance on top of the basic salary that was not among the exceptions and was therefore devoid of legal basis. The Court also noted that petitioners impliedly conceded the irregularity of the subject benefits, as the car rental plan was abandoned as early as March 31, 2011, prior to the issuance of the NDs.

• Liability of Approving Officers: The Court applied the Madera Rules on Return, which classify public officers held liable in cases of disallowance involving personnel incentives and benefits as either approving/authorizing officers or payee-recipients. Citing Abellanosa vs. Commission on Audit, the Court explained that under Section 38, Chapter 9, Book I of the Administrative Code of 1987, a public officer shall not be civilly liable for acts done in the performance of official duties unless there is a clear showing of bad faith, malice, or gross negligence. The Court defined malice or bad faith as implying "a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity," and gross negligence as "negligence characterized by the want of even slight care, or by acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally, with a conscious indifference to the consequences." The Court found that while petitioners approved and authorized the payment of government funds in violation of Section 12 of R.A. No. 6758, the exceptional circumstances showed they acted in good faith and were solely propelled by a valid and genuine cause — the prevention of "brain drain" within the institute through a more cost-effective approach. Thus, petitioners were excused from liability under Rule 2a of the Madera rules.

• Liability of Recipients: The Court applied Rule 2d of the Madera Rules on Return, which allows the Court to excuse the return of recipients based on undue prejudice, social justice considerations, and other bona fide exceptions as determined on a case-to-case basis. The Court found that the purpose of the car plan scheme was two-fold: to prevent brain drain and to implement a cost-effective approach to vehicle acquisition and maintenance. The Court noted that PhilRice could save around PHP 6.00 to PHP 7.00 per kilometer in rented vehicles rather than owning and maintaining vehicles. The Court observed that the officials and employees of PhilRice benefitted from the use of the vehicles under the car plan, and petitioner Borja, together with the other car owners, shouldered a considerable sum of money that would have been PhilRice's obligation had it opted to procure its own vehicles. The Court ruled that PhilRice had conveniently shifted the burden of acquiring, using, and maintaining vehicles to the plan's beneficiaries, and the only sensible way to compensate them was through rental payments. While the arrangement resembled an additional allowance that had no proper basis in law, to deny the beneficiaries compensation for the lease of their vehicles would be tantamount to injustice. The Court also noted that the vehicle rental plan was framed by the PhilRice BOT pursuant to its powers and functions under Executive Order No. 1061, and that petitioner Borja and the other officials were simply doing their respective jobs when they were encouraged by the BOT to participate in the car rental plan. Accordingly, the highly exceptional scenario justified the application of Rule 2d of Madera, completely excusing petitioner Borja and the other car owners from their civil liability to return what they had received.

• Madera Rules on Return — The Court applied the rules on return established in Madera vs. Commission on Audit: (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: (a) approving and certifying officers who acted in good faith, in 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; (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; and (d) the Court may likewise excuse the return of recipients based on undue prejudice, social justice considerations, and other bona fide exceptions as it may determine on a case-to-case basis. In this case, the Court applied Rule 2a to excuse the approving/certifying officers and Rule 2d to excuse the car owners as recipients.

• Solutio Indebiti and Unjust Enrichment — Citing Abellanosa vs. Commission on Audit, the Court explained that when a public officer is held liable as a payee-recipient innocently receiving a portion of the disallowed amount, the liability is viewed from the lens of unjust enrichment and the principle of solutio indebiti under a purely civil law framework. The general rule is that recipients, notwithstanding their good faith, are civilly liable to return the disallowed amounts they had individually received on the basis of solutio indebiti. However, solutio indebiti finds no application where recipients were not unjustly enriched at the expense of the government, particularly for disallowed personnel incentives and benefits which are either genuinely given in consideration of services rendered or excused by the Court on the basis of undue prejudice, social justice considerations, and other bona fide exceptions.

• Consolidation of Allowances and Compensation — Under Section 12 of R.A. No. 6758, all allowances and fringe benefits granted on top of the basic salary, with the exception of representation and transportation allowances, clothing and laundry allowances, subsistence allowance of marine officers and crew on board government vessels and hospital personnel, hazard pay, and allowances of foreign service personnel stationed abroad, are deemed integrated into the standardized salary rates. The Court applied this doctrine to find that the car benefit plan, in the guise of monthly amortization payments, was an additional allowance devoid of legal basis.

• Good Faith of Public Officers — The Court defined good faith as "ordinarily used to describe a state of mind denoting honesty 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 through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction unconscientious." The Court applied this definition to find that petitioners acted in good faith, as they relied on the administrative orders approved by the PhilRice BOT and were propelled by a valid and genuine cause.

• "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." — This is the statutory text of Section 12 of R.A. No. 6758, which the Court applied to find that the car benefit plan was an additional allowance devoid of legal basis.

• "If a Notice of Disallowance is upheld, the rules on return are as follows: Approving and certifying officers who acted in good faith, in 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." — This is Rule 2a of the Madera Rules on Return, which the Court applied to excuse the petitioners as approving/certifying officers from civil liability.

• "The Court may likewise excuse the return of recipients based on undue prejudice, social justice considerations, and other bona fide exceptions as it may determine on a case-to-case basis." — This is Rule 2d of the Madera Rules on Return, which the Court applied to completely excuse petitioner Borja and the other car owners from their civil liability to return what they had received.

• "While, the arrangement resembled an additional allowance in favor of the beneficiaries or owners of the vehicles which, as aptly found by the COA, had no proper basis in law, still, to deny them of compensation for the lease of their vehicles would be tantamount to injustice, which cannot be countenanced by this Court." — This passage articulates the Court's rationale for applying Rule 2d of Madera, finding that requiring return would be iniquitous given that the vehicle owners had shouldered costs that would otherwise have been PhilRice's obligation.

• Madera vs. Commission on Audit, 882 Phil. 744 (2020) — Controlling precedent establishing the Rules on Return for disallowed amounts, which the Court applied to determine petitioners' liability. The Court applied Rules 2a and 2d to excuse petitioners from civil liability.
• Abellanosa vs. Commission on Audit, 890 Phil. 413 (2020) — Followed for its in-depth pronouncement on the civil liability of approving/authorizing officers versus payee-recipients, distinguishing between the public accountability framework of the Administrative Code and the civil law framework of solutio indebiti.
• Laguna Lake Development Authority vs. Commission on Audit, 843 Phil. 1032 (2018) — Followed for its enumeration of the rules on consolidation of allowances under Section 12 of R.A. No. 6758, which the Court applied to find the car benefit plan devoid of legal basis.
• Bilibli vs. Commission on Audit, G.R. No. 231871, July 6, 2021 — Cited for the definitions of malice, bad faith, gross negligence, and good faith, which the Court applied to determine whether petitioners acted in good faith.
• RG Cabrera Corp., Inc. vs. Department of Public Works and Highways, 797 Phil. 563 (2016) — Cited in support of the principle that denying compensation for the lease of vehicles would be tantamount to injustice.

• Section 12, R.A. No. 6758 (Compensation and Position Classification Act of 1989) — The Court applied this provision to find that the car benefit plan, as an additional allowance in the guise of monthly amortization payments, was deemed included in the standardized salary rates and was therefore devoid of legal basis.
• Section 2, P.D. No. 985 — Cited by the COA as a ground for disallowance, requiring presidential approval for additional financial incentives for technical positions in critical government agencies.
• Section 6, P.D. No. 1597 — Cited by the COA as a ground for disallowance, governing exemptions from OCPC rules and regulations.
• Section 7, R.A. No. 6713 — Cited by the COA as a ground for disallowance, prohibiting public officers and employees from having any financial or material interest in any transaction requiring the approval of their office.
• Section 8, Article IX-B, Constitution — Cited by the COA as a ground for disallowance, prohibiting additional, double, or indirect compensation unless specifically authorized by law.
• Section 38, Chapter 9, Book I, Administrative Code of 1987 — Applied by the Court to determine that approving/authorizing officers shall not be civilly liable for acts done in the performance of official duties unless there is a clear showing of bad faith, malice, or gross negligence.
• Section 43, Chapter 5, Book VI, Administrative Code of 1987 — Applied by the Court to determine the solidary liability of approving/authorizing officers who act in bad faith, malice, or gross negligence.
• Section 5, Executive Order No. 1061 — Cited by the Court to show that the vehicle rental plan was framed by the PhilRice BOT pursuant to its powers and functions, including the power to approve salary ranges, benefits, privileges, bonuses, and other terms and conditions of service for all officers and employees of the Institute.
• Rule I, Section 4(n) and Rule II, Section 1, Revised Rules of Procedure of the Commission on Audit (2009) — Cited for the definition of disallowance as the disapproval in audit of a transaction found to be an irregular, unnecessary, excessive, extravagant, or unconscionable expenditure.

Gesmundo, C.J., Leonen, SAJ., Caguioa, Hernando, Lazaro Javier, Inting, Zalameda, M. Lopez, Gaerlan, Rosario, J. Lopez, Marquez, Kho, Jr., and Singh, JJ., concurred.