De Guzman vs. Commission on Audit

The President's power of control under Section 17, Article VII of the Constitution includes the authority to alter, modify, or set aside rulings and issuances of government-owned and controlled corporations (GOCCs) such as the Local Water Utilities Administration; therefore, Administrative Order No. 103 validly superseded LWUA Memorandum Circular No. 004-02 in limiting the monthly per diems of water district board members to P20,000, and officials who received excess per diems after the order's effectivity cannot invoke good faith to avoid refunding the disallowed amounts.

Petitioners were members of the Board of Directors of the Baguio Water District (BWD), a local water district created under Presidential Decree No. 198. For years, BWD directors received per diems authorized by the Local Water Utilities Administration (LWUA) under Memorandum Circular No. 004-02, which prescribed P8,400 per meeting for up to four meetings monthly, totaling P33,600 per month. On August 31, 2004, President Gloria Macapagal-Arroyo issued Administrative Order No. 103 imposing austerity measures that limited the combined monthly per diems, honoraria, and fringe benefits of GOCC governing board members to P20,000.

• Petitioners Tabangin, Espiritu, Cating, Daoas, and Lagman were members of the BWD Board of Directors who each received P33,600 in per diems for September 2004, computed as P8,400 per meeting for four meetings.
• Petitioners De Guzman (former General Manager) and Velasquez (Finance Manager) were the approving officers for these per diem payments.
• AO 103 was issued on August 31, 2004, and published in Malaya Newspaper on September 3, 2004, making it effective immediately upon publication under Section 7 thereof.
• Petitioners received copies of AO 103 on September 16, 2004.
• The third and fourth checks for the board meetings, each in the amount of P8,400, were issued to petitioners on September 15 and 16, 2004, after AO 103 had taken effect.
• LWUA Memorandum Circular No. 004-02, issued on May 21, 2002, had authorized the per diem rate of P8,400 per meeting (maximum four meetings monthly) pursuant to PD 198.
• COA disallowed the excess amount of P13,600 per director (total aggregate of P68,000), representing the amount received above the P20,000 monthly cap imposed by AO 103.

• AO 103 and PD 198 are irreconcilable, and PD 198 as a law should prevail over AO 103 which is merely an executive issuance; the LWUA was authorized under PD 198 to determine per diems of BWD directors, and MC 004-02 was issued pursuant to this authority.
• Petitioners received the per diems in good faith, relying on MC 004-02 which was existing and valid at the time of payment.
• Citing Blaquera v. Alcala and De Jesus v. Commission on Audit, petitioners argued they should not be required to refund the disallowed amounts because they acted without knowledge of any prohibition, given the prior validity of MC 004-02.

• AO 103 and PD 198 are not conflicting; PD 198 governs per meeting rates subject to LWUA approval while AO 103 imposes an aggregate monthly cap of P20,000, and courts must first attempt to harmonize seemingly inconsistent laws.
• As a GOCC, LWUA is subject to the President's power of control under Article VII, Section 17 of the Constitution, allowing the President to modify or set aside LWUA rulings; thus AO 103 effectively abrogated MC 004-02.
• AO 103 became effective on September 3, 2004, upon publication in two newspapers of general circulation, regardless of when petitioners actually received copies.
• Petitioners' claim of good faith is negated because the third and fourth checks were issued on September 15 and 16, 2004, after AO 103 took effect, and the order was categorical and clear, leaving no room for interpretation.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether the COA committed error in applying AO 103 instead of PD 198 to limit the per diems of BWD directors.
  • Whether petitioners are liable to refund the excess per diems they received in the total amount of P68,000.

• Procedural: N/A
• Substantive:
  • The petition is unmeritorious and dismissed. AO 103 and PD 198 are not irreconcilable; PD 198 allows BWD to prescribe per diems subject to LWUA approval, while AO 103 sets an aggregate monthly ceiling of P20,000 for all per diems, honoraria, and fringe benefits.
  • The President's power of control under Section 17, Article VII of the Constitution includes the authority to alter, modify, or set aside rulings of subordinate officers and GOCCs like the LWUA; therefore, AO 103 validly superseded MC 004-02.
  • AO 103 took effect immediately upon its publication on September 3, 2004, not upon receipt by affected offices; since the excess per diems were received on September 15 and 16, 2004, petitioners cannot claim good faith.
  • The good faith defense is inapplicable because AO 103 was categorical and clear, unlike the situations in Blaquera and De Jesus which involved ambiguous regulations or payments made before the prohibitory order; petitioners must refund P13,600 each (total P68,000).

• Harmonization of Statutes — When faced with apparently irreconcilable inconsistencies between two laws, courts must first exhaust all efforts to harmonize the seemingly inconsistent laws and only resort to choosing which law to apply when harmonization is impossible.
• President's Power of Control — Under Section 17, Article VII of the Constitution, the President has the power to alter, modify, or set aside what a subordinate officer had done in the performance of his duties and to substitute the judgment of the President over that of the subordinate officer; this power extends to government-owned and controlled corporations.
• Good Faith Defense in COA Disallowance Cases — Public officials may invoke good faith to avoid refunding disallowed payments only when the prohibition was unclear or ambiguous at the time of payment, or when the payment was made prior to a categorical pronouncement; good faith is not a defense when the officials received payments after the effective date of a clear and categorical prohibitory order.

• "It is a basic principle in statutory construction that when faced with apparently irreconcilable inconsistencies between two laws, the first step is to attempt to harmonize the seemingly inconsistent laws."
• "The President's power of control was explained as 'the power to alter or modify or set aside what a subordinate officer had done in the performance of his duties and to substitute the judgment of the President over that of the subordinate officer.'"
• "AO 103 is unequivocal that it 'shall take effect IMMEDIATELY upon its publication in two (2) newspapers of general circulation.'"
• "There is no room for interpretation and so petitioners' failure to adhere to AO 103 is unwarranted and cannot be countenanced."

• Office of the Solicitor General v. Court of Appeals — Cited for the principle that courts must first attempt to harmonize seemingly inconsistent laws before choosing between them.
• Dreamwork Construction, Inc. v. Janiola — Cited for the principle of statutory harmonization.
• Province of Negros Occidental v. Commission on Audit — Cited for the definition of the President's power of control as the power to alter, modify, or set aside what a subordinate officer had done.
• Espinas v. Commission on Audit — Cited to establish that the Local Water Utilities Administration is a government-owned and controlled corporation subject to the President's control.
• National Marketing Corporation v. Area — Cited to support that GOCCs partake of the nature of government bureaus subject to presidential control.
• Blaquera v. Alcala — Distinguished; cited by petitioners but held inapplicable because the disallowed amounts therein were released prior to the issuance of the regulating order, unlike the instant case where payments were made after AO 103's effectivity.
• De Jesus v. Commission on Audit — Distinguished; cited by petitioners but held inapplicable because it involved an unclarified ambiguity in the law at the time of payment, whereas AO 103 was categorical and clear.
• Casal v. Commission on Audit — Applied to distinguish Blaquera and emphasize that the good faith defense fails when payments are made after a categorical pronouncement by the President.

• 1987 Constitution, Article VII, Section 17 — Grants the President control over all executive departments, bureaus, and offices to ensure laws be faithfully executed.
• Presidential Decree No. 198 (Provincial Water Utilities Act of 1973), Section 13 as amended by Republic Act No. 9286 — Allows BWD directors to receive per diems determined by the Board for each meeting attended, subject to LWUA approval if exceeding P150, with a monthly limit of four meetings.
• Administrative Order No. 103 (2004), Section 3(c)(ii) — Limits per diems of non-full-time officials and governing board members of government entities to P20,000 monthly.
• Administrative Order No. 103 (2004), Section 7 — States that the order takes effect immediately upon publication in two newspapers of general circulation.
• Rule 64 of the Rules of Court — Governs petitions for certiorari filed with the Supreme Court against decisions of the Commission on Audit.