Dubongco vs. Commission on Audit

The CNA Incentive may be granted to rank-and-file employees only if there are savings from the agency's operating expenses (MOOE allotments), and the CARP Fund, being a special trust fund, cannot be legally used to finance the grant of CNA Incentive. All recipients of CNA Incentives sourced from an illegal fund are liable to refund the disallowed amounts, as they are considered trustees of an implied trust over the disallowed amounts.

The Public Sector Labor Management Council (PSLMC) issued Resolution No. 4, Series of 2002, authorizing the grant of CNA Incentive to employees in recognition of joint efforts of labor and management in achieving planned targets at lesser cost. Administrative Order No. 135, Series of 2005, confirmed the grant of CNA Incentive to rank-and-file employees, and the Department of Budget and Management (DBM) released Budget Circular No. 2006-1 to implement A.O. No. 135, which explicitly states that the CNA Incentive shall be sourced solely from savings from released MOOE allotments. The CARP Fund, created under Sections 20 and 21 of Executive Order No. 229, Series of 1987, and Section 63 of R.A. No. 6657, is a special fund intended solely for the implementation of the Comprehensive Agrarian Reform Program.

On November 14, 2002, the Public Sector Labor Management Council (PSLMC) issued Resolution No. 4, Series of 2002, entitled "Grant of Collective Negotiation Agreement (CNA) Incentive for National Government Agencies, State Universities and Colleges and Local Government Units." The CNA Incentive is awarded to employees in recognition of the joint efforts of labor and management in the achievement of planned targets, programs and services approved in the budget of the agency at a lesser cost. Section 1 of the Resolution mandates that "only savings generated after the signing of the CNA may be used for the CNA Incentive." Savings refer to balances of the agency's released allotment for the year, free from any obligation or encumbrance, which may be derived from: (a) completion of the work/activity for which the appropriation is authorized; (b) unpaid compensation and related costs pertaining to vacant positions; or (c) realization from the implementation of the CNA provisions resulting in improved systems and efficiencies.

Administrative Order No. 135, Series of 2005, issued by former President Gloria Macapagal-Arroyo, confirmed the grant of CNA Incentive to rank-and-file employees. The DBM subsequently released Budget Circular No. 2006-1, dated February 1, 2006, to implement A.O. No. 135, with Section 7.1 stating that "the CNA Incentive shall be sourced solely from savings from released Maintenance and Other Operating Expenses (MOOE) allotments for the year under review."

In 2009 and 2010, the Department of Agrarian Reform-Provincial Office-Cavite (DARPO-Cavite) released CNA Incentive to its officials and employees in the aggregate amounts of P1,518,800.00 and P1,176,000.00, respectively, sourced from the Comprehensive Agrarian Reform Program (CARP) Fund, or Fund 158. The COA, through the Audit Team Leader and Supervising Auditor of Audit Group E-Cavite Province, issued two Notices of Disallowance (NDs) against DARPO-Cavite: ND No. 11-01-158-CNA(09), dated January 17, 2011, and ND No. 11-02-158-CNA(09), dated January 31, 2011, both pertaining to the CNA Incentive released in 2009 and 2010. The audit officers reasoned that the utilization of the CARP Fund for the grant of CNA Incentive was illegal because the appropriation and expenditure of the CARP Fund must be in accordance with the law creating the same.

Cynthia E. Lapid and Felixberto Q. Kagahastian, then Provincial Agrarian Reform Officers II of DARPO-Cavite, appealed the disallowances to the COA Regional Office No. IV, which denied the appeal. They then filed a petition for review before the COA En Banc, which also denied the petition and affirmed the NDs. The COA En Banc held that the grant of CNA Incentive sourced from the CARP Fund was illegal, as the source of funds was not taken from savings of the allotment for MOOE but was charged against the CARP Fund, a special fund which could only be utilized for the purpose for which it was created. The COA further declared that the opinion of then DBM Secretary Rolando G. Andaya, Jr. does not bind the COA, and that good faith could not be appreciated considering that several audit disallowances on the CNA Incentive had previously been issued by auditors on the ground of illegality.

Petitioner James Arthur T. Dubongco, the current Provincial Agrarian Reform Program Officer II of DARPO-Cavite, moved for reconsideration, but the same was denied by the COA on October 26, 2017. Hence, the petition for certiorari before the Supreme Court.

• Validity of CARP Fund as Source: Petitioner argued that although the CARP Fund is a special fund, DARPO-Cavite holds the same for its own use and not for the benefit of another government agency, and that although DBM Budget Circular No. 2006-01 uses the word "shall," the said circular did not specify the source of the savings which would be used in the grant of CNA Incentive.
• Reliance on DBM Secretary's Opinion: Petitioner argued that DARPO-Cavite relied on the opinion of former DBM Secretary Rolando G. Andaya, Jr. to the effect that the use of the CARP Fund for the grant of the CNA Incentive is allowable.
• Broadening the Purpose of CARP Fund: Petitioner argued that the purpose for which the CARP Fund was created must necessarily include the grant of incentives to employees who are the lifeblood of the agency, and that the purposes of the CARP Fund do not only pertain to those traditionally viewed as essentially for government functions but must necessarily include the promotion of the employees' welfare.
• Good Faith of Recipients: Petitioner argued that the officials and employees acted in good faith when they received the CNA Incentive, and that they could not be held personally liable for the disallowed incentives because they were of the honest belief that the grant of incentives had legal basis.

• Enforcement of DBM Budget Circular: Respondent COA countered that it merely enforced the provisions of DBM Budget Circular No. 2006-01, which provides that the CNA Incentive shall be sourced solely from savings from released MOOE allotments, and that the DBM intended that the release of the CNA Incentive should only come from one source, i.e., the agency's MOOE.
• Non-Binding Effect of DBM Secretary's Opinion: Respondent argued that the opinion of former DBM Secretary Andaya, Jr. does not bind COA because any interpretation of the law that administrative or quasi-judicial agencies make is only preliminary and never conclusive.
• Special Character of CARP Fund: Respondent argued that the CARP Fund is a special trust fund created and to be disbursed only for a specific purpose.
• Personal Liability for Refund: Respondent argued that petitioner should refund the disallowed amounts because Section 103 of Presidential Decree No. 1445 provides that expenditures of government funds, or uses of government property in violation of law or regulations, shall be a personal liability of the official or employee found to be directly responsible therefor.

• Validity of CARP Fund as Source: Whether the CARP Fund or Fund 158 can be a valid source for the grant of CNA Incentive to rank-and-file employees.
• Liability for Refund: Whether the recipients may be held liable for the refund of the disallowed CNA Incentive.

• Validity of CARP Fund as Source: No. The CARP Fund could not be legally used to finance the grant of the CNA Incentive. Both A.O. No. 135 and DBM Budget Circular No. 2006-01 use the word "shall" when pertaining to the funds to be used in the CNA Incentive, that is, savings from operating expenses, and the word "shall" is imperative, underscoring the mandatory character of the provisions.
• Liability for Refund: Yes. All recipients of the disallowed CNA Incentive are liable to return the same through salary deduction or any other mode which the COA may deem just and proper, as the payees have no valid claim to the benefits they received and are considered trustees of an implied trust over the disallowed amounts.

• Validity of CARP Fund as Source: The Court applied the plain meaning rule, as expressed in the maxim verba legis non est recedendum, holding that when the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation. The provisions of PSLMC Resolution No. 4, Series of 2002, A.O. No. 135, and DBM Budget Circular No. 2006-01 are clear, plain, and free from ambiguity, and they unequivocally state that the CNA Incentive shall be sourced solely from savings from released MOOE allotments. The Court further held that the CARP Fund is a special trust fund, as stated in Sections 20 and 21 of E.O. No. 229, Series of 1987, and Section 63 of R.A. No. 6657, and citing Confederation of Coconut Farmers Organizations of the Philippines, Inc. vs. Aquino III, the revenue collected for a special purpose shall be treated as a special fund to be used exclusively for the stated purpose. The Court rejected petitioner's argument that the purpose of the CARP Fund may be broadened to include the grant of incentives to employees, emphasizing that the primary purpose of the CNA Incentive is to recognize the joint efforts of labor and management in achieving planned targets at lesser cost, while the CARP Fund is intended to support the State's policy of social justice through agrarian reform. The Court also found DARPO-Cavite's reliance on the opinion of former DBM Secretary Andaya, Jr. not only wrong but also inexcusable, as DARPO-Cavite could not feign ignorance of the three issuances that govern the grant of CNA Incentive. The Court also noted that the NDs showed DARPO-Cavite awarded CNA Incentive to superior officers contrary to the explicit mandate of A.O. No. 135 that such incentive is to be given only to rank-and-file employees.
• Liability for Refund: The Court applied the principle of unjust enrichment, which requires two conditions: (1) that a person is benefited without a valid basis or justification; and (2) that such benefit is derived at the expense of another. The Court held that the grant of CNA Incentive was financed by the CARP Fund, contrary to the express mandate of the three issuances, and consequently, the payees have no valid claim to the benefits they received. The Court further held that the employees' participation in the negotiation and approval of the CNA, whether direct or indirect, allows them to acquire knowledge as to the prerequisites for the valid release of the CNA Incentive, and they could not feign ignorance of the requirement that CNA Incentive must be sourced from savings from released MOOE. The obligation of the recipients to return the CNA Incentive finds support in Section 103 of P.D. No. 1445, which provides that expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor. Finally, the Court held that the payees received the disallowed benefits with the mistaken belief that they were entitled to the same, and under Article 1456 of the Civil Code, if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. A constructive trust is substantially an appropriate remedy against unjust enrichment, and the payees are considered as trustees of the disallowed amounts, as although they committed no fraud in obtaining these benefits, it is against equity and good conscience for them to continue holding on to them.

• Plain Meaning Rule (Verba Legis Non Est Recedendum) — When the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation; there is only room for application. The Court applied this rule to the provisions of A.O. No. 135 and DBM Budget Circular No. 2006-01, which clearly and unambiguously state that the CNA Incentive shall be sourced solely from savings from released MOOE allotments, and thus, the CARP Fund could not be legally used to finance the grant of the CNA Incentive.
• Special Fund Doctrine — Revenue collected for a special purpose shall be treated as a special fund to be used exclusively for the stated purpose, serving as a deterrent for abuse in the disposition of special funds. The Court applied this doctrine, citing Confederation of Coconut Farmers Organizations of the Philippines, Inc. vs. Aquino III, to hold that the CARP Fund, being a special trust fund created under Sections 20 and 21 of E.O. No. 229 and Section 63 of R.A. No. 6657, could only be utilized for the purpose for which it was created, that is, solely for the implementation of CARP projects, and could never be used for purposes other than the benefit of the agrarian reform program.
• Unjust Enrichment — Unjust enrichment requires two conditions: (1) that a person is benefited without a valid basis or justification; and (2) that such benefit is derived at the expense of another. The Court applied this principle to hold that the payees of the disallowed CNA Incentive have no valid claim to the benefits they received, as the grant was financed by the CARP Fund contrary to the express mandate of the governing issuances, and thus, they are liable to refund the same.
• Constructive Trust — If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. The Court applied this doctrine to hold that the payees of the disallowed CNA Incentive are considered as trustees of the disallowed amounts, as although they committed no fraud in obtaining these benefits, it is against equity and good conscience for them to continue holding on to them.

• "From the foregoing provisions, it is unequivocal that the CARP Fund could not be legally used to finance the grant of the CNA Incentive. Both A.O. No. 135 and DBM Budget Circular No. 2006-01 use the word 'shall' when pertaining to the funds to be used in the CNA Incentive, that is, savings from operating expenses. The word 'shall' is imperative, underscoring the mandatory character of the provisions." — This passage states the ratio decidendi on the first issue, establishing that the mandatory language of the governing issuances prohibits the use of the CARP Fund for CNA Incentive.
• "The revenue collected for a special purpose shall be treated as a special fund to be used exclusively for the stated purpose. This serves as a deterrent for abuse in the disposition of special funds." — This passage, quoting Confederation of Coconut Farmers Organizations of the Philippines, Inc. v. Aquino III, defines the special fund doctrine applied by the Court to the CARP Fund.
• "The employees' participation in the negotiation and approval of the CNA, whether direct or indirect, allows them to acquire knowledge as to the prerequisites for the valid release of the CNA Incentive. They could not feign ignorance of the requirement that CNA Incentive must be sourced from savings from released MOOE." — This passage supports the Court's ruling on the second issue, establishing that the recipients of the disallowed incentives cannot claim good faith ignorance of the legal requirements for the grant of CNA Incentive.
• "In fine, the payees are considered as trustees of the disallowed amounts, as although they committed no fraud in obtaining these benefits, it is against equity and good conscience for them to continue holding on to them." — This passage articulates the Court's application of the constructive trust doctrine, forming the basis for the liability of all recipients to refund the disallowed amounts.

• Confederation of Coconut Farmers Organizations of the Philippines, Inc. vs. Aquino III, G.R. No. 217965, August 8, 2017, 835 SCRA 311 — Controlling precedent on the special fund doctrine, cited by the Court to hold that the CARP Fund, being a special trust fund, could only be used exclusively for the stated purpose of implementing the agrarian reform program.
• Information Technology Foundation of the Philippines vs. Commission on Elections, G.R. No. 159139, June 6, 2017, 826 SCRA 112 — Cited to define the standard of grave abuse of discretion in a petition for certiorari, requiring petitioner to prove not merely reversible error but grave abuse of discretion amounting to lack or excess of jurisdiction.
• Office of the Ombudsman vs. Andutan, Jr., 670 Phil. 169 (2011) — Cited to support the proposition that the word "shall" is imperative, underscoring the mandatory character of the provisions of A.O. No. 135 and DBM Budget Circular No. 2006-01.
• Amoves vs. House of Representatives Electoral Tribunal, 636 Phil. 600 (2010) — Cited to support the cardinal rule in statutory construction that when the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation.
• Padua vs. People, 581 Phil. 489 (2008) — Cited to support the plain meaning rule, as expressed in the maxim verba legis non est recedendum.
• Silang vs. Commission on Audit, 769 Phil. 327 (2015) — Distinguished by the Court, as the present case is not simply a case of a negotiating union lacking the authority to represent the employees in the CNA negotiations.
• Career Executive Service Board vs. Commission on Audit, G.R. No. 212348, June 19, 2018 — Distinguished by the Court, as the present case is not a case of lack of knowledge that the CNA benefits given were not negotiable.
• Montejo vs. Commission on Audit, G.R. No. 232272, July 24, 2018 — Distinguished by the Court, as the present case is not a case of failure to comply with the requirement that payment of the CNA Incentive should be a one-time benefit after the end of the year.
• Philippine Transmarine Carriers, Inc. vs. Legaspi, 710 Phil. 838 (2013) — Cited to define unjust enrichment as a prerequisite for the enforcement of the doctrine of restitution.
• De Roca vs. Dabuyan, G.R. No. 215281, March 5, 2018 — Cited to state the two conditions for unjust enrichment: (1) that a person is benefited without a valid basis or justification; and (2) that such benefit is derived at the expense of another.
• Republic vs. Court of Appeals, 612 Phil. 965 (2009) — Cited to support the proposition that there is no unjust enrichment when the person who will benefit has a valid claim to such benefit.
• Roa, Jr. vs. Court of Appeals, 208 Phil. 2 (1983) — Cited to define a constructive trust as substantially an appropriate remedy against unjust enrichment, raised by equity in respect of property acquired by fraud or where, although acquired originally without fraud, it is against equity that it should be retained by the person holding it.

• Section 1, PSLMC Resolution No. 4, Series of 2002 — Mandates that "only savings generated after the signing of the CNA may be used for the CNA Incentive," and defines savings as balances of the agency's released allotment for the year, free from any obligation or encumbrance.
• Section 7.1, DBM Budget Circular No. 2006-1 — Provides that "the CNA Incentive shall be sourced solely from savings from released Maintenance and Other Operating Expenses (MOOE) allotments for the year under review," which the Court held to be the controlling funding source for CNA Incentive.
• Sections 20 and 21, Executive Order No. 229, Series of 1987 — Creates the Agrarian Reform Fund as a special fund, with the amount collected and accruing to the fund considered automatically appropriated for the purpose authorized in the Order.
• Section 63, Republic Act No. 6657 — Provides the funding source for the implementation of the CARP, stating that the initial amount needed shall be funded from the Agrarian Reform Fund, and that all funds appropriated to implement the Act shall be considered continuing appropriations during the period of its implementation.
• Section 103, Presidential Decree No. 1445 (Government Auditing Code of the Philippines) — Provides that expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor, applied by the Court to support the obligation of the recipients to return the CNA Incentive.
• Article 22, Civil Code — Provides that every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.
• Article 1456, Civil Code — Provides that if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes, applied by the Court to hold the payees as trustees of the disallowed amounts.
• Article IX-D, Section 2(1), 1987 Constitution — Mandates the COA to examine and audit all accounts pertaining to the expenditures and uses of public funds and property, which the Court held the COA discharged in this case.
• Article XIII, Section 4, 1987 Constitution — States the State's policy of social justice which includes the adoption of an agrarian reform program founded on the right of farmers and regular farmworkers to own directly or collectively the lands they till, cited by the Court to contrast the purpose of the CARP Fund with that of the CNA Incentive.
• Rule XII, Amended Rules and Regulations Governing the Exercise of the Right of Government Employees to Organize — Provides that CNA incentive pursuant to PSLMC Resolution No. 4, s. 2002 and Resolution No. 2, s. 2003 may be the subject of negotiation, and that the CNA shall take effect upon its signing by the parties and ratification by the majority of the rank-and-file employees, cited by the Court to show the employees' participation in the negotiation and approval of the CNA.

Bersamin, C. J., Carpio, Peralta, Del Castillo, Leonen, Jardeleza, Caguioa, A. Reyes, Jr., Gesmundo, Hernando, and Carandang, JJ., concurred. Perlas-Bernabe, J., was on official leave.