Cruz vs. Tantuico

A paying teller who encashes genuine treasury warrants in good faith and without negligence is not liable as a last indorser for their value, and the amount cannot be deducted from her retirement benefits under Section 624 of the Revised Administrative Code.

Romana M. Cruz was Cashier IV in the Cash Division of the Bureau of Treasury, whose duties included paying treasury warrants and government checks presented to her for payment. The Bureau of Treasury and the Commission on Audit are the government offices involved in the payment and audit of public funds. The case concerns the fiscal liability of a paying teller for treasury warrants later discovered to have been issued to fictitious payees.

The controversy concerned twenty-eight of sixty-eight treasury warrants that an investigation traced to a “syndicate” composed of employees of the Budget Commission and the Department of Education and Culture (DEC). Using falsified computations and service records, the syndicate caused the issuance of treasury warrants payable to fictitious or “ghost” teachers in Region IX (Zamboanga del Sur); the warrants appeared genuine and were duly signed by the authorized signatories of the DEC. The twenty-eight warrants at issue totaled P21,545.08 and were paid by petitioner Romana M. Cruz, Cashier IV in the Cash Division of the Bureau of Treasury, in the course of her duties as paying teller.

Acting on the request of the Treasurer of the Philippines that the encashment of the treasury warrants be dishonored and that the appropriate charge back be undertaken, the National Cashier recommended that action to effect restitution be taken against the parties to the falsification, particularly Editha Gonzales and Ceferino M. Cruz, instead of proceeding against Romana Cruz, who was considered to have done her routine task as paying teller and to have acted in good faith in encashing the treasury warrants. Subsequently, the Auditor assigned to the Treasury Vault and Banking Audit Division of the Bureau of Treasury requested the National Cashier to cause the dishonor of the subject warrants and the encashment thereof charged back to the account of the banks concerned or to Miss Cruz, as the case may be. The first charge back against Miss Cruz was made on August 17, 1976 in the amount of P15,308.91 and was subsequently increased by P6,236.17 on August 23, 1976, making her total cash accountabilities P21,545.08. The Auditor also formally demanded that petitioner produce the missing funds, while the Acting National Cashier required her to increase her cash accountability.

In her written explanations to these demands, petitioner stressed that she paid the warrants in good faith because there was nothing on their faces or in the endorsements to raise any doubt as to their genuineness. She requested that, in lieu of charging her for the shortage, the same be dropped from the cash book and simultaneously recorded as a receivable from the guilty party or parties on the books of the Bureau of Treasury. The matter was formally referred to the COA Acting Chairman, who issued a 2nd Indorsement dated October 25, 1976. He ruled that it appeared from the papers that Miss Romana Cruz, Cashier IV, Cash Division, of the Bureau, paid the treasury warrants in question totaling P21,545.08 to wrong or fictitious payees and was therefore the last indorser liable for their value; he directed that she be required to restore and restitute the amount to the Bureau, without prejudice to her right of recourse against the guarantors of the warrants, if any. He further directed that, in case of her failure to effect restitution, her salary should be withheld pursuant to Section 624 of the Revised Administrative Code and applied in settlement of her liability.

The Treasurer, under the 5th indorsement, manifested disagreement and opined that the loss of government funds arising from the encashment of the subject treasury warrants, as a result of the negligent act of the DEC in issuing them to fictitious persons, should be borne by the DEC and not by Miss Romana Cruz, who paid them in good faith and pursuant to her duty as Cashier IV of the Treasury to pay treasury warrants and government checks presented to her for payment. Petitioner filed a request for reconsideration of the COA Acting Chairman’s order on February 20, 1978. Sometime in August 1978, she requested the COA Acting Chairman for the early issuance of a clearance in connection with her retirement from the Bureau of Treasury on March 30, 1978. On November 27, 1978, petitioner received a letter from the respondent Treasurer dated November 13, 1978 informing her that, under the 8th indorsement, the COA Acting Chairman denied her appeal and letter of reconsideration while reiterating his previous directive under the 2nd indorsement. The Treasurer’s letter stated that the Treasury had supported her representation under its 5th indorsement but that the COA had a different view, and that the value of the subject 28 treasury warrants in the total amount of P21,545.08 was being deducted from her retirement benefits from the Treasury, to be applied in refund of her shortage of P21,545.08 in her accountability arising from the encashment of the said subject 28 treasury warrants.

On March 30, 1978, petitioner applied with and was cleared by the Bureau of Treasury from all money and property responsibilities, except for the sum of P21,545.08 representing the value of the twenty-eight treasury warrants. The Bureau of Treasury released to petitioner the sum of P23,980.77 under TW No. B-04,623,521, dated January 2, 1979, as “retirement gratuity”; presumably, since there was an order to deduct P21,545.08 from her retirement benefits, the amount released was only a portion of the total amount she was entitled to. Petitioner then filed a petition for review on certiorari seeking to set aside the orders of the COA Acting Chairman contained in the 2nd and 8th indorsements and for the release of P21,545.08 in her favor. The records show that the warrants were signed by the authorized signatories of the DEC; Editha Gonzales, the party who presented the treasury warrants for encashment, was a bona fide employee of the DEC who regularly cashed warrants with petitioner and was therefore known to her personally; and petitioner was not included in the Estafa Thru Falsification charges filed against the perpetrators before the then Court of First Instance of Manila on eighty-three counts.

• Last Indorser Liability: Petitioner argued that the COA Acting Chairman erred in basing her liability on the theory that she was the last indorser of the treasury warrants, because she was not an indorser; her only participation was as cashier or paying teller, and her act of paying the amounts reflected on the warrants was a discharge by payment, not an indorsement.
• Good Faith and Absence of Negligence: Petitioner maintained that the treasury warrants were genuine in all respects and that she had no way of determining whether they were payable to fictitious or non-existing payees; there was no irregularity on their face, they were signed by authorized DEC signatories, and Editha Gonzales, who presented them, was a bona fide DEC employee who regularly cashed warrants with her and was known to her personally, so encashment did not amount to negligence.
• Bureau Clearance and Non-Inclusion in Criminal Charges: Petitioner argued that the Bureau itself had cleared her of responsibility for the defalcation, she was never implicated in the investigations, and she was not included in the Estafa Thru Falsification charges filed against the perpetrators.
• Deduction from Retirement Benefits: Petitioner argued that Section 624 of the Revised Administrative Code cannot be construed to authorize a deduction of the value of the treasury warrants from her retirement benefits.

• Holder in Due Course / Manual Section 3250.1: The Solicitor General countered that petitioner’s failure as a paying teller to ascertain that the person who presented the warrants was not a holder in due course renders her liable for the value thereof, notwithstanding that the third endorser who encashed the warrants was known to her and therefore adequately identified; he cited Section 3250.1 of the Manual of the Bureau of Treasury, requiring an indorsee to be referred to the National Cashier before payment and the National Cashier to be satisfied that the party is a holder in due course or has legal or rightful title.
• Retirement Pay Withholding: The Solicitor General, in his comment, agreed with petitioner that her retirement pay may not be withheld by administrative fiat to answer for the shortage incurred while in office.

• Liability for Treasury Warrants: Whether petitioner, as paying teller, is liable for the value of the treasury warrants paid to fictitious payees on the theory that she was the last indorser or for failure to ascertain that the presenter was a holder in due course.
• Deduction from Retirement Benefits: Whether Section 624 of the Revised Administrative Code authorizes the deduction of P21,545.08 from petitioner’s retirement benefits to answer for the alleged shortage.

• Liability for Treasury Warrants: No. Petitioner was not an indorser; her payment of the warrants was a discharge by payment, and the records do not establish negligence. The COA’s last-indorser theory fails, and Section 3250.1 cannot be invoked for the first time on appeal absent investigation.
• Deduction from Retirement Benefits: No. Section 624 of the Revised Administrative Code does not authorize the deduction of the value of the treasury warrants from retirement benefits. Retirement pay may not be withheld by administrative fiat to answer for a shortage incurred while in office.

• Liability for Treasury Warrants: The SC held that the facts supported the conclusion that petitioner was not an indorser. Her only participation in the encashment was in her capacity as cashier or paying teller of the Bureau of Treasury; her act of paying the amounts reflected on the treasury warrants did not constitute an indorsement but a discharge by payment of the instruments. It was not disputed that on the face of the treasury warrants there appeared no irregularity; the warrants were signed by the authorized signatories of the DEC. Editha Gonzales, the party who presented the warrants for encashment, was a bona fide employee of the DEC who regularly cashed warrants with petitioner and was therefore known to her personally. Considering these circumstances, the encashment did not amount to negligence for which petitioner should be made liable. The Bureau itself cleared her of any responsibility for the defalcation; she was never implicated in the investigations, and she was not included in the Estafa Thru Falsification charges filed against the perpetrators before the then Court of First Instance of Manila on eighty-three counts. The Solicitor General’s reliance on Section 3250.1 of the Manual of the Bureau of Treasury could not sustain liability: the record contained no mention of any investigation concerning her possible liability under that section, so facts that would prove or disprove liability under it were never established; Section 3250.1 was never mentioned in the series of indorsements as the basis for petitioner’s liability; the COA Acting Chairman had ruled that she was liable as the last indorser; and raising Section 3250.1 only before the SC would sanction a change of theory on appeal, which would be unfair to the adverse party, as held in Philippine Rabbit Bus Lines, Inc. vs. Phil-American Forwarders, Inc. Having established that petitioner was not negligent, the SC concluded that she should not be personally liable for the consequent losses.
• Deduction from Retirement Benefits: The SC noted that the issue actually posed was the propriety of the Treasurer’s order to deduct P21,545.08 from retirement benefits, considering that nowhere in the COA Acting Chairman’s 2nd and 8th indorsements was it stated that the amount should be deducted from retirement benefits. The 2nd indorsement provided that petitioner’s salary should be withheld and applied in settlement of her liability, while the 8th indorsement merely reiterated the 2nd. Despite those orders, petitioner’s salaries prior to her retirement on March 30, 1978 were never withheld; instead, the Treasurer ordered the deduction from her retirement benefits. Even assuming petitioner could be held liable for non-compliance with or violation of some rule or regulation, Section 624 of the Revised Administrative Code cannot be construed to authorize a deduction of the value of the treasury warrants from her retirement benefits. Section 624 provides that when any person is indebted to the Government, the Insular Auditor may direct the proper officer to withhold the payment of any money due him or his estate, the same to be applied in satisfaction of such indebtedness. The Solicitor General agreed that retirement pay may not be withheld by administrative fiat to answer for the shortage incurred while in office, and the COA Acting Secretary had applied the same interpretation in similar cases. The SC held that it is settled that retirement pay accruing to a public officer may not be withheld and applied to his indebtedness to the government. In Hunt vs. Hernandez, the SC through Justice Laurel explained that pension/gratuity is a bounty intended to reward past services and provide the pensioner with means to support himself and his family; the exemption should be liberally construed in favor of the pensioner; if the gratuity could not be attached or levied upon execution under Section 3 of Act No. 4051, its appropriation by administrative action under Section 624 would lead to the same prohibited result and enable the respondents to do indirectly what they cannot do directly; Act No. 4051 is a later statute and an exception to Section 624. The deduction was therefore set aside.

• Paying teller’s payment is not indorsement — A cashier or paying teller who pays a treasury warrant in the course of duty does not indorse it; the act is a discharge by payment. The SC applied this to reject the COA Acting Chairman’s last-indorser theory.
• Good faith and absence of negligence in encashment — A paying teller who encashes treasury warrants that are genuine on their face, signed by authorized signatories, and presented by a known bona fide employee who regularly transacted with her is not negligent. The SC applied this to absolve petitioner.
• No change of theory on appeal — A party cannot raise a new legal basis for liability for the first time on appeal because it would be unfair to the adverse party. The SC applied this to reject the Solicitor General’s reliance on Section 3250.1, which was not the basis of the COA indorsements and was not investigated.
• Retirement pay/gratuity cannot be withheld by administrative fiat — Retirement pay or gratuity is a bounty intended to reward past services and support the pensioner; the exemption should be liberally construed in favor of the pensioner. Section 624 of the Revised Administrative Code cannot be used to do indirectly what the prohibition on attachment or levy does directly; a later statute like Act No. 4051 is an exception to Section 624. The SC applied this to set aside the deduction from petitioner’s retirement benefits.

• “Her act of paying the amounts reflected on the treasury warrants did not constitute an indorsement but a discharge by payment of the instruments.” — The SC rejects the COA Acting Chairman’s theory that petitioner was the last indorser liable for the warrants.
• “Considering these circumstances, the encashment by the petitioner of the subject treasury warrants did not amount to an act of negligence for which she should be made liable.” — The SC finds no negligence because the warrants appeared genuine and were presented by a known bona fide DEC employee.
• “This cannot be allowed, for otherwise it would be tantamount to sanctioning a change of theory on appeal, which would be unfair to the adverse party” — The SC rejects the Solicitor General’s first-time reliance on Section 3250.1 of the Manual of the Bureau of Treasury.
• “That the retirement pay accruing to a public officer may not be withheld and applied to his indebtedness to the government is settled.” — The SC states the controlling rule against withholding retirement pay by administrative action.

• Hunt vs. Hernandez, G.R. No. 45665, 36 O.G. 263 (1937) — Controlling precedent cited by the SC for the rule that retirement gratuity/pension may not be withheld and applied to indebtedness to the government; the exemption is liberally construed in favor of the pensioner, and administrative withholding under Section 624 cannot achieve what attachment or levy prohibition forbids.
• Philippine Rabbit Bus Lines, Inc. vs. Phil-American Forwarders, Inc., G.R. No. L-25142, March 25, 1975, 63 SCRA 231 — Precedent cited for the rule against change of theory on appeal; the SC used it to reject the Solicitor General’s new reliance on Section 3250.1.

• Section 624, Revised Administrative Code — Provides that when any person is indebted to the Government, the Insular Auditor may direct the proper officer to withhold payment of any money due him or his estate, to be applied in satisfaction of the indebtedness. The SC held it cannot be construed to authorize deduction of the value of the treasury warrants from retirement benefits.
• Section 3250.1, Manual of the Bureau of Treasury — Requires that when the party encashing a warrant or check is an indorsee, he shall be referred first to the National Cashier before payment; the National Cashier shall interview the party and be satisfied that the party is a holder in due course or has legal or rightful title, and the encashing party should present identification papers. The SC held it could not be the basis for petitioner’s liability because no investigation established facts under it, it was not the basis of the COA indorsements, and it was first raised on appeal.
• Section 3, Act No. 4051 — Cited in Hunt vs. Hernandez as providing that the gratuity shall not be attached or levied upon execution. The SC, through Hunt, treated the exemption as liberally construed in favor of the pensioner and as an exception to Section 624 of the Revised Administrative Code.