Development Bank of the Philippines vs. Commission on Audit

All official travels abroad of heads, senior assistant heads, and assistant heads of government-owned and/or controlled corporations and financial institutions are subject to the prior approval of the President of the Philippines under Section 8, Title II of EO No. 248, as amended by EO No. 298, regardless of the duration of the travel. The opinion of the Chief Presidential Legal Counsel cannot be deemed equivalent to presidential approval, and the good faith defense is unavailing where the law is clear and the officials' disregard thereof constitutes gross negligence.

The Development Bank of the Philippines (DBP) is a government-owned and controlled corporation and a government financial institution whose officials are covered by executive issuances prescribing rules on official travel. On August 31, 2004, Administrative Order No. 103 was issued directing the continued adoption of austerity measures in the government, requiring clearance from the Office of the President for certain official travels. The applicable rules on travel were found in Executive Order No. 248, dated May 29, 1995, as amended by Executive Order No. 298, dated March 23, 2004, which prescribed rules, regulations, and new rates of allowances for official local and foreign travels of government personnel, with Title I governing local travel and Title II governing travel abroad.

The Development Bank of the Philippines (DBP) is a government-owned and controlled corporation. On April 5, 2005, the DBP Corporate Auditor, Adela L. Dondonilla, issued Audit Observation Memorandum No. HO-BOD-AO-2004-002 noting that the foreign travels of former DBP Chairman Vitaliano N. Nañagas II and former Director Eligio V. Jimenez were not cleared by the Office of the President as required by Section 1 of Administrative Order No. 103, dated August 31, 2004. Chairman Nañagas traveled to Vietnam (October 5-9, 2004), Japan (October 18-23, 2004), and Japan and Hongkong (November 1-7, 2004), while Director Jimenez traveled to the USA (October 1-29, 2004).

On March 28, 2006, the DBP Assistant Corporate Secretary, Maria L. Ramos, submitted comments stating that while the travels lacked prior clearance from the Office of the President, they were made in good faith and in the discharge of the directors' duties. On April 4, 2007, the DBP Supervising Auditor, Hilconeda P. Abril, issued Notice of Disallowance No. BOD-2006-003 (2005) disallowing ₱1,574,121.62, consisting of ₱678,992.76 and ₱895,128.86 for the reimbursement of travel expenses of Chairman Nañagas and Director Jimenez, respectively, on the basis of the absence of clearance from the Office of the President.

On October 10, 2007, Director Jimenez requested reconsideration, arguing that the questioned travel took place before the effectivity of AO No. 103, at a time when presidential approval was not required. He submitted an Opinion dated September 23, 2007, issued by then Chief Presidential Legal Counsel Sergio A. F. Apostol, stating that the law in force at the time of travel was Executive Order No. 298, dated March 23, 2004, which amended the first paragraph of Section 5 of Executive Order No. 248, and that the second paragraph of Section 5 remained, providing that approval of travels of officials of government-owned and/or controlled corporations lasting not more than one calendar month shall be subject to policies adopted by their respective governing boards. The Opinion concluded that if the DBP's governing board rules allowed travel without presidential consent, the claims for reimbursements must be honored.

Chairman Nañagas also asserted in his Appeal Brief/Memorandum dated October 3, 2007 that the disallowed disbursement was a reimbursement of expenses chargeable against an expense allowance to which all DBP Board members are entitled, and invoked denial of due process. In a letter dated October 30, 2007, Supervising Auditor Abril denied Jimenez's Motion for Reconsideration on the ground that Section 5 of EO No. 248 is under Title I (Official Local Travel), which is inapplicable. On January 31, 2008, she submitted her Answer to Nañagas's appeal, arguing that his appeal did not address the substance of the disallowance.

On October 13, 2009, the COA Legal Services Sector rendered LSS Decision No. 2009-334 denying Nañagas's appeal, holding that DBP must comply with administrative directives such as AO No. 103, and that there was no denial of due process since the Audit Observation Memorandum gave the parties a chance to explain. Nañagas filed a Motion for Reconsideration on November 23, 2009, which was consolidated with the Petition for Review filed by DBP on February 23, 2010. In Decision No. 2011-055 dated August 17, 2011, the COA denied the appeals, ruling that while EO No. 248, as amended by EO No. 298, applies to the foreign travels, prior approval of the President is nonetheless required under Section 8 of the said orders, not Section 5 as opined by the Chief Presidential Legal Counsel. The COA refused to consider the invocation of good faith given the clarity of the applicable law, which clearly differentiated local travels in Title I from foreign travels in Title II. In Resolution No. 2012-099 dated July 12, 2012, the COA denied the Motion for Reconsideration, adding that the Opinion of the Chief Presidential Legal Counsel cannot be equated to the required presidential approval.

• Weight of the Chief Presidential Legal Counsel's Opinion: Petitioner argued that the COA gravely abused its discretion in denying DBP's petition because the Chief Presidential Legal Counsel, a cabinet secretary and alter-ego of the President, had issued an opinion that clearance of the President was not required for the foreign travels, and such opinion should be accorded considerable weight and respect.
• Opinion as Presidential Approval: Petitioner argued that assuming presidential approval was necessary, the opinion of the Chief Presidential Legal Counsel may be deemed to be the act of the President in excusing the officials from the requirements of the subject administrative issuances.
• Good Faith Due to Erroneous Interpretation: Petitioner argued that the mistaken interpretation committed by the Chief Presidential Legal Counsel, who is knowledgeable of various presidential issuances, shows that DBP officials, who are expected to know administrative issuances, are vulnerable to committing the same mistake in good faith.
• Benefit to the Bank and Country: Petitioner argued that the foreign travels redounded to the benefit of the Bank and the country, and compelling refund of the disallowed amount would be unfair, unjust, and absurd.

• Applicability of Section 8, Not Section 5: Respondent COA countered that Section 5 of EO No. 248 covers official domestic travels only, while official foreign travels are governed by Title II, Section 8, which expressly requires prior approval by the President of all official travels abroad of heads of GOCCs.
• Rejection of Good Faith Defense: Respondent COA argued that the good faith defense is unavailing given the sheer clarity of the applicable law, which clearly differentiated local travels in Title I from foreign travels in Title II, and that senior officials are expected to update their knowledge of laws affecting their functions.
• Opinion Not Equivalent to Presidential Approval: Respondent COA argued that the Opinion of the Chief Presidential Legal Counsel cannot be equated to the required presidential approval since it is not a definitive decision that sufficiently excluded DBP officials from the required clearance.

• Applicable Provision: Whether Section 5 or Section 8 of EO No. 248, as amended by EO No. 298, applies to the foreign travels of the DBP officials.
• Effect of the Chief Presidential Legal Counsel's Opinion: Whether the opinion of the Chief Presidential Legal Counsel may be deemed as the required prior presidential approval or as an act excusing the officials from the requirements of the law.
• Good Faith Defense: Whether the DBP officials may invoke good faith as a defense against the refund of the disallowed amounts.

• Applicable Provision: Section 8 of EO No. 248, as amended by EO No. 298, applies. The language of Section 8 is explicit that all official travels abroad of heads of financial institutions are subject to prior approval of the President, regardless of duration, and the law is clear and leaves no room for interpretation.
• Effect of the Chief Presidential Legal Counsel's Opinion: No. The opinion was based on an erroneous provision, nowhere stated that the travels were exempt from the requirements of the law, and was issued almost three years after the travels; the belated issuance of an erroneous opinion cannot cure the defect in the subject foreign travels.
• Good Faith Defense: No. The good faith defense fails because the laws subject of the case are of such clarity that the concerned officials could not have mistaken one for the other, and their conduct was so careless and irresponsible as to amount to gross negligence.

• Applicable Provision: Section 5 under Title I of EO No. 248, as amended, pertains to official local travel of government personnel, providing that approval of travel of officials of GOCCs lasting not more than one calendar month shall be subject to policies adopted by their respective governing boards. Section 8 under Title II, however, governs official travel abroad and provides that all official travels abroad of Department Secretaries, Undersecretaries, Assistant Secretaries, heads, senior assistant heads and assistant heads of government-owned and/or controlled corporations and financial institutions, and heads of local government units, shall be subject to the prior approval of the President of the Philippines. The Court held that the language of Section 8 is explicit that all official travels abroad of heads of financial institutions, such as the DBP officials, are subject to prior approval of the President regardless of duration. Where the words of a statute are clear, plain, and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation. The Court agreed with the COA that the subject orders clearly distinguished local from foreign travels by placing them in separate titles. While the opinion of the Chief Presidential Legal Counsel is accorded great weight and respect, the Court did not hesitate to set it aside as clearly erroneous, the law it attempts to interpret having no ambiguity.
• Effect of the Chief Presidential Legal Counsel's Opinion: The Court found that a reading of the opinion negates the petitioner's contention. First, the particular provision on which the opinion is based is erroneous, as it applied the wrong section. Second, nowhere in the opinion was it stated, either expressly or impliedly, that the travels of the DBP officials were exempt from the requirements of the law; it even conditioned its ruling on what may be required by the law's particular provision. Had the Presidential Counsel intended its opinion to be deemed as the required prior presidential approval, despite being rendered almost three years after the travels, it should have declared the same therein. The belated issuance of an erroneous opinion cannot be deemed to have effectively cured the defect in the subject foreign travels.
• Good Faith Defense: The Court rejected the good faith defense, agreeing with the COA that senior government officials are expected to update their knowledge on laws that may affect the performance of their functions, and the laws subject of the case are of such clarity that the concerned officials could not have mistaken one for the other. Unlike in the cases cited by the petitioner, there exists no question as to the applicability nor validity of the law. Understanding EO No. 248, as amended, does not require highly specialized knowledge of the law; the fact that it specifically separated local travels in Title I from foreign travels in Title II leads to the logical conclusion that there are pertinent differences distinguishing one from the other. The Court found it difficult to believe that officials holding positions of such rank and stature would fail to comply with a plain and uncomplicated order that had been in effect since 1995, almost a decade before their travels. The Court also found it impossible that petitioner approved the foreign travels honestly believing in the interpretation of the Presidential Counsel, since the opinion was issued three years after the travels. At the time the officials traveled, there was no opinion to speak of. While there may be no findings of bad faith or malice, the actuations were conducted in such a careless and irresponsible manner tantamount to gross negligence. The presumption of good faith in favor of public officials may be contradicted and overcome by evidence showing bad faith or gross negligence.

• Plain Meaning Rule — Where the words of a statute are clear, plain, and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation. The Court applied this rule to EO No. 248, as amended, holding that Section 8 under Title II clearly requires prior presidential approval for foreign travels of GOCC heads, and interpretation is resorted to only where a literal interpretation would be impossible, absurd, or lead to injustice.
• Good Faith Defense in Disallowance Cases — While the acts of public officials in the performance of their duties are presumed to be done in good faith, the presumption may be contradicted and overcome by evidence showing bad faith or gross negligence. The Court applied this doctrine to reject the good faith defense, finding that the DBP officials' blatant disregard of a clear and uncomplicated law constituted gross negligence, and that the defense is unavailable where there is no question as to the applicability or validity of the law.
• Opinion of the Chief Presidential Legal Counsel — While the opinion of the Chief Presidential Legal Counsel is accorded great weight and respect, it may be set aside when clearly erroneous, particularly where the law it attempts to interpret has no ambiguity and is easily understandable to any ordinary reader. The Court applied this doctrine in refusing to give effect to the erroneous opinion that cited the wrong provision of EO No. 248.

• "It is clear from the above that Section 5 of the subject Executive Order pertains to local travels of government employees and not to the foreign travels of the DBP officials herein. Accordingly, as correctly observed by respondent COA, the provision applicable to the case at hand is not Section 5, as asserted by petitioner, but Section 8 under Title II, EO No. 248, as amended by EO No. 298." — This passage establishes the ratio decidendi: the Court identified the correct governing provision for foreign travels of GOCC officials, distinguishing Title I (local travel) from Title II (foreign travel).
• "The language of the aforequoted section appears to be quite explicit that all official travels abroad of heads of financial institutions, such as the DBP officials herein, are subject to prior approval of the President, regardless of the duration of the subject travel." — This passage articulates the Court's core holding that presidential approval is required for foreign travels of GOCC heads without exception based on duration.
• "The belated issuance of an erroneous opinion cannot be deemed to have effectively cured the defect in the subject foreign travels." — This passage disposes of the petitioner's argument that the Chief Presidential Legal Counsel's opinion could serve as the required presidential approval, emphasizing both the timing and the erroneous nature of the opinion.
• "Thus, while there may be no findings of bad faith or malice in the actuations of petitioner, the same were conducted in such a careless and irresponsible manner tantamount to gross negligence. Consequently, We cannot deem this blatant disregard of the law as a mere lapse consistent with the presumption of good faith." — This passage defines the standard for overcoming the good faith presumption in disallowance cases, holding that gross negligence suffices to require refund.

• Vicencio vs. Hon. Villar, G.R. No. 182069, July 3, 2012, 675 SCRA 468 — Cited for the plain meaning rule that where the words of a statute are clear, plain, and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation.
• Nieves vs. Blanco, G.R. No. 190422, June 19, 2012, 673 SCRA 638 — Cited for the proposition that the Court will not hesitate to set aside an opinion that is clearly erroneous where the law it attempts to interpret has no ambiguity.
• Singson vs. Commission on Audit, G.R. No. 159355, August 9, 2010, 627 SCRA 36 — Cited by petitioner in support of the good faith defense, distinguished by the Court because in that case the validity of the payment was still questionable at the time of receipt.
• Molen, Jr. vs. Commission on Audit, 493 Phil. 874 (2005) — Cited by petitioner in support of the good faith defense, distinguished by the Court because the law in the present case was clear and unambiguous.
• Querubin vs. Regional Cluster Director, Legal and Adjudication Office, COA Regional Office VI, Pavia, Iloilo City, G.R. No. 159299, July 7, 2004, 433 SCRA 769 — Cited by petitioner in support of the good faith defense, distinguished by the Court.
• De Jesus vs. Commission on Audit, 466 Phil. 912 (2004) — Cited by petitioner in support of the good faith defense, distinguished by the Court.
• Philippine International Trading Corporation vs. Commission on Audit, 461 Phil. 737 (2003) — Cited by petitioner in support of the good faith defense, distinguished by the Court.
• Executive Director Casal vs. Commission on Audit, 538 Phil. 634 (2006) — Cited for the rule that when government officials are found to have clearly committed an outright violation and disregard of the law, the Court will order the refund of incentive awards and allowances.
• Manila International Airport Authority vs. Commission on Audit, G.R. No. 194710, February 14, 2012, 665 SCRA 653 — Cited for the same rule on ordering refunds upon clear violation of law.
• Philippine Economic Zone Authority (PEZA) vs. Commission on Audit, G.R. No. 189767, July 3, 2012, 675 SCRA 513 — Cited for the same rule on ordering refunds upon clear violation of law.
• Philippine Agila Satellite Inc. vs. Usec. Trinidad Lichauco, 522 Phil. 565, 585 (2006) — Cited for the rule that the presumption of good faith in favor of public officials may be contradicted and overcome by evidence showing bad faith or gross negligence.

• Section 1, Administrative Order No. 103 (August 31, 2004) — Directed the continued adoption of austerity measures in the government, requiring clearance from the Office of the President for certain official travels. The Court noted that the foreign travels of the DBP officials were not cleared as required by this provision.
• Section 5, Title I, Executive Order No. 248, as amended by Executive Order No. 298 — Governs official local travel of government personnel, providing that approval of travel of officials of GOCCs lasting not more than one calendar month shall be subject to policies adopted by their respective governing boards. The Court held this provision inapplicable to foreign travels.
• Section 8, Title II, Executive Order No. 248, as amended by Executive Order No. 298 — Governs official travel abroad of government personnel, requiring prior approval of the President for all official travels abroad of heads, senior assistant heads, and assistant heads of government-owned and/or controlled corporations and financial institutions. The Court applied this provision to require presidential approval for the DBP officials' foreign travels.

Sereno, C.J. (on official leave), Carpio, J. (Acting Chief Justice), Velasco, Jr., J., Leonardo-De Castro, J., Brion, J., Bersamin, J., Del Castillo, J., Villarama, Jr., J., Perez, J. (on official leave), Mendoza, J., Reyes, J., Perlas-Bernabe, J. (on official leave), and Leonen, J. concurred. Jardeleza, J. took no part.