Feliciano vs. People of the Philippines

A public officer who approves a salary increase pursuant to a board resolution passed under the honest belief that the enabling statute grants such authority, at a time when no judicial pronouncement has yet clarified the interplay between that statutory grant and the Salary Standardization Law, does not act with manifest partiality, evident bad faith, or gross inexcusable negligence under Section 3(e) of R.A. No. 3019. Absent bad faith, the subsequent receipt of funds pursuant to such a resolution likewise does not constitute malversation under Article 217 of the Revised Penal Code.

The Local Water Utilities Administration (LWUA), created under P.D. No. 198 (the Provincial Water Utilities Act of 1973), oversees water supply systems outside Metro Manila, including the Leyte Metropolitan Water District (LMWD). Under Section 23 of P.D. No. 198, the board of directors of a water district is empowered to appoint a general manager and "fix their compensation." At the time pertinent to this controversy, the question of whether the salaries of water district general managers were covered by the Salary Standardization Law (R.A. No. 6758) had not been categorically resolved by the courts; that issue was addressed only in 2013 in Mendoza vs. Commission on Audit. Petitioner Feliciano served as General Manager of LMWD, having been originally appointed in 1975, while petitioner Aquitania served as Vice-Chairperson of the LMWD Board of Directors from his appointment as a Member in August 1998. From 1990 to 1998, LWUA had taken over LMWD's affairs due to the latter's failure to pay its debt, during which period an interim general manager and interim board directed LMWD operations; the takeover was lifted on July 20, 1998, and a new board was appointed.

The Local Water Utilities Administration (LWUA), created under P.D. No. 198, oversees water supply systems outside Metro Manila, including the Leyte Metropolitan Water District (LMWD). Petitioner Ranulfo C. Feliciano had served as General Manager of LMWD since his appointment in 1975, while petitioner Dr. Cesar A. Aquitania became a Member of the LMWD Board of Directors in August 1998 and thereafter served as Vice-Chairperson. On March 5, 1990, LWUA took over LMWD on account of the latter's failure to pay its debt amounting to ₱24,467,000.00 as of February 1990; the validity of this takeover was eventually affirmed by the Court in G.R. No. 96900 through a Resolution dated April 22, 1991. During the takeover, from 1990 to 1996, LMWD was placed under the leadership of an Interim General Manager, Engineer Cayo Emnas, and an interim Board of Directors. Sometime during the takeover, an administrative case was filed against Feliciano before the Office of the Government Corporate Counsel (OGCC) for his unlawful approval of the disbursement of his backwages for the period of March 6, 1990 to October 23, 1990, during which he had not rendered service to LMWD; after investigation, the OGCC recommended his dismissal, which LWUA approved on November 11, 1991.

On July 20, 1998, LWUA lifted the takeover of LMWD's affairs by virtue of its Resolution No. 138, Series of 1998, and a new set of Board of Directors was appointed, including petitioner Aquitania. On September 25, 1998, the new Board approved Resolution No. 98-002, maintaining that it had sole authority to appoint or dismiss the regular General Manager of LMWD, and on motion of its members, appointed Feliciano as General Manager; the Resolution was received by Feliciano on September 27, 1998. On November 6, 1998, the Board passed Resolution No. 98-33, which adjusted Feliciano's monthly salary from ₱18,749.00 to ₱57,146.00, effective January 1998. The Resolution cited the need to avoid salary distortions and preclude demoralization, noting that the salaries of two other LMWD officers, Mrs. Erlina Calo and Mrs. Lilia Riel, were both ₱21,430.00 per month — higher than that of the General Manager — and applied a median ratio divisor of 0.375 to arrive at the adjusted figure.

On January 7, 1999, Feliciano claimed and received from LMWD the amount of ₱506,246.26, representing the increase in his salary as approved by the Board, evidenced by Disbursement Voucher No. 01-019-99, which stated the particulars of payment as salary, PERA, ACA, and rice allowance, and the salary differential of Feliciano for the period January 1998 to September 26, 1998. On post-audit, the Commission on Audit disallowed, among others, the payment of the increased salary in favor of Feliciano. On this basis, the Office of the Ombudsman filed two Informations dated October 25, 2004 before the Sandiganbayan: the first, docketed as Criminal Case No. 28179, charged the petitioners and four others with violation of Section 3(e) of R.A. No. 3019 for allegedly giving Feliciano unwarranted benefits through manifest partiality by enacting and approving Resolution No. 98-33; the second, docketed as Criminal Case No. 28180, charged Feliciano and two others with malversation of public funds for appropriating the amount of ₱506,246.26. While the cases were pending, several co-accused died and one was dropped from the charge, leaving the petitioners as the only remaining accused.

The Sandiganbayan found all elements of the crimes charged present. It determined that LMWD, as a government-owned and controlled corporation under the jurisdiction of the Civil Service Commission, was subject to the salary schedule under R.A. No. 6758 (the Compensation and Position Classification Act of 1989), and that per the approved Plantilla of Personnel of the Department of Budget and Management, the authorized salary of the General Manager effective November 1, 1997 was only ₱18,318.00, rendering the salary increase unlawful. The Sandiganbayan likewise found the existence of conspiracy among the petitioners and their deceased co-accused in the perpetration of the graft offense, and held that Feliciano, by virtue of his position, claimed, approved, and received the amount of ₱506,246.26 which he knew he was not entitled to receive, thus establishing malversation.

• Lack of Conspiracy: Petitioners argued that the allegation of conspiracy in the commission of the offense under Section 3(e) of R.A. No. 3019 had not been proven. Feliciano specifically maintained that he could not be held liable as he had no participation in the passage of Resolution No. 98-33.
• Good Faith: Petitioners put forth the defense of good faith, asserting that the subject resolution was passed in the honest belief that the LMWD Board of Directors had the authority to increase Feliciano's salary pursuant to P.D. No. 198, particularly as the act was prior to the Court's pronouncement that water districts are government-owned and controlled corporations covered by the Salary Standardization Law.

• Elements of Section 3(e), R.A. No. 3019: Whether the prosecution proved beyond reasonable doubt all the elements of violation of Section 3(e) of R.A. No. 3019, particularly the second element of manifest partiality, evident bad faith, or gross inexcusable negligence.
• Good Faith: Whether the defense of good faith should be appreciated in favor of the petitioners, given that the Board of Directors acted under the belief that P.D. No. 198 authorized it to fix the General Manager's salary at a time when no categorical pronouncement existed on the applicability of the Salary Standardization Law to water districts.
• Malversation: Whether petitioner Feliciano is guilty of malversation of public funds under Article 217 of the Revised Penal Code for receiving the amount of ₱506,246.26 as salary differential pursuant to Resolution No. 98-33.

• Elements of Section 3(e), R.A. No. 3019: No. The second element — manifest partiality, evident bad faith, or gross inexcusable negligence — was not established, the Board having acted on the honest belief that P.D. No. 198 authorized it to fix the General Manager's compensation.
• Good Faith: Yes. Good faith was properly appreciated, as at the time Resolution No. 98-33 was passed in 1998, there was no categorical pronouncement on whether water district salaries were covered by the Salary Standardization Law; that issue was resolved only in 2013 in Mendoza vs. Commission on Audit.
• Malversation: No. There was no improper appropriation or use of public funds, the disbursement having been made pursuant to a validly passed board resolution, with all necessary supporting documents attached, and there being basis in good faith for Feliciano to believe he was entitled to the salary.

• Elements of Section 3(e), R.A. No. 3019: Section 3(e) of R.A. No. 3019 requires three elements: (a) the accused is a public officer discharging administrative, judicial, or official functions; (b) the accused acted with manifest partiality, evident bad faith, or gross inexcusable negligence; and (c) the action caused undue injury to any party or gave any private party unwarranted benefits. The Court found the second element wanting. Manifest partiality requires a clear, notorious, or plain inclination to favor one side rather than another; evident bad faith connotes a palpable and patently dishonest purpose or some moral obliquity and conscious doing of a wrong; gross inexcusable negligence is characterized by the want of the slightest care, attended by conscious indifference to consequences. The Board of Directors passed Resolution No. 98-33 on November 6, 1998, under the honest belief that Section 23 of P.D. No. 198 granted it authority to fix the General Manager's compensation. At that time, no categorical pronouncement existed as to whether the salary of a water district General Manager was covered by the Salary Standardization Law; it was only in 2013, in Mendoza vs. Commission on Audit, that the Court reconciled the grant of authority under P.D. No. 198 with the coverage of the SSL, holding that while boards of water districts have the power to fix the salary of their General Manager, the same must be in accordance with the position classification under the SSL. Because there was a real question as to the limitation on the Board's power, and only an express grant of authority under P.D. No. 198 with no other prohibition then existing, it could not be said that evident bad faith, manifest partiality, or gross negligence attended the issuance of the Resolution. Feliciano, for his part, took no part in the passage of the Resolution; in approving the release of funds, he merely acted on the basis of the authority given by Resolution No. 98-33.

• Good Faith: The defense of good faith was sustained because the legal landscape at the time of the Resolution's passage supported the Board's belief in its authority. Section 23 of P.D. No. 198 expressly provides that the board shall appoint a general manager and "fix their compensation." The Court's elaborate disquisition in Mendoza — which came fifteen years after Resolution No. 98-33 was passed — established that P.D. No. 198 contains no exemption clause from the SSL for water districts, and that while boards may fix salaries, they must conform to the SSL's position classification. The absence of any such clarification in 1998 meant the Board acted with only the express grant of authority before it and no prohibition to the contrary. Accordingly, the honest belief in the existence of authority negated the mental states required by Section 3(e).

• Malversation: Article 217 of the RPC requires that the offender is a public officer; that he had custody or control of funds by reason of his office; that the funds were public funds for which he was accountable; and that he appropriated, took, misappropriated, or consented or, through abandonment or negligence, permitted another to take them. Malversation requires improper appropriation or use, whether directly or indirectly, of public funds — an element the Court found lacking. The disbursement voucher had been completely accomplished with all necessary supporting documents attached, all in accordance with Resolution No. 98-33. While the period covered by the payment (January 1, 1998 to September 26, 1998) included the period of the LWUA takeover, there was basis in good faith to believe Feliciano was entitled to such salary, as the terms of the takeover related only to the satisfaction of LMWD's financial obligation to LWUA and did not empower LWUA to exercise managerial prerogatives relating to personnel management. Even assuming LWUA had such powers, the takeover was understood to be temporary, and the General Manager appointed by LMWD retained his position and was entitled to remuneration — a practice recognized by LWUA itself. The processing of the release of payment pursuant to Resolution No. 98-33 was, to a certain extent, ministerial on Feliciano's part, as the powers of the General Manager emanate from and are secondary to those of the Board.

• Elements of Section 3(e), R.A. No. 3019 — The offense requires: (a) the accused is a public officer discharging administrative, judicial, or official functions; (b) the accused acted with manifest partiality, evident bad faith, or gross inexcusable negligence; and (c) the action caused undue injury to any party, including the government, or gave any private party unwarranted benefits, advantage, or preference. The offense may be committed by means of dolo (bad faith or manifest partiality) or culpa (gross inexcusable negligence). In this case, the second element was not proven, as the Board's honest belief in its statutory authority negated all three mental states.

• Good Faith as Defense to Graft and Malversation — Good faith in the honest belief that a board of directors possesses statutory authority to fix compensation — at a time when no judicial pronouncement has clarified the interplay between the enabling statute and the Salary Standardization Law — negates manifest partiality, evident bad faith, and gross inexcusable negligence under Section 3(e) of R.A. No. 3019. Likewise, good faith in the entitlement to receive funds disbursed pursuant to a validly passed board resolution negates the element of improper appropriation required for malversation under Article 217 of the RPC.

• Manifest Partiality, Evident Bad Faith, and Gross Inexcusable Negligence Defined — Manifest partiality is "a clear, notorious or plain inclination or predilection to favor one side rather than another." Evident bad faith connotes a palpable and patently dishonest purpose or some moral obliquity and conscious doing of a wrong; a breach of sworn duty through some motive or intent or ill will; it partakes of the nature of fraud and is more than bad judgment or negligence. Gross inexcusable negligence is characterized by the want of the slightest care; by the willful and intentional act or omitting to act in a situation where there is a duty to act, attended by conscious indifference to consequences as to affected persons.

• "Notably, at the time of passage of Resolution No. 98-33 on November 6, 1998, there was no categorical pronouncement as to whether the salary of the General Manager of a water district is covered by the Salary Standardization Law (SSL)." — This passage identifies the temporal gap in jurisprudence that forms the factual basis for the good faith defense, establishing that the Board could not have acted in bad faith when the legal question was unsettled.

• "Accordingly, it cannot be said evident bad faith, manifest partiality, or gross negligence attended the issuance of Resolution No. 98-33 in 1998, as at that time, there was only the express grant of authority by P.D. No. 198 and no other prohibition for the BOD of LMWD to authorize such increase in the salary of its General Manager." — This is the ratio decidendi for the acquittal under Section 3(e) of R.A. No. 3019, tying the absence of a prohibitive ruling to the negation of the second element.

• "In fine, in malversation there must be improper appropriation or use, whether directly or indirectly, of public funds; the same is lacking in the case at bar." — This statement articulates the controlling rationale for the acquittal on the malversation charge, pinpointing the missing element.

• Mendoza vs. Commission on Audit, 717 Phil. 491 (2013) — Controlling precedent on the applicability of the Salary Standardization Law to water districts. The Court held that while boards of water districts have the power to fix the salary of their General Manager under P.D. No. 198, the same must conform to the position classification under the SSL, because P.D. No. 198 contains no exemption clause. This 2013 ruling was pivotal because it established that no such clarification existed in 1998, supporting the petitioners' good faith defense.

• Consigna vs. People, 731 Phil. 108 (2014) — Cited for the enumeration of the elements of Section 3(e) of R.A. No. 3019.

• People vs. Atienza, 688 Phil. 122 (2012) — Cited for the definition of manifest partiality and gross inexcusable negligence.

• Coloma, Jr. vs. Sandiganbayan, 744 Phil. 214 (2014) — Cited for the definition of evident bad faith, itself citing Fonacier vs. Sandiganbayan and People vs. Atienza.

• Major Cantos vs. People, 713 Phil. 344 (2013) — Cited for the enumeration of the elements of malversation under Article 217 of the RPC.

• SPO1 Lihaylihay vs. People, 715 Phil. 722 (2013) — Cited for the rule that appeals from the Sandiganbayan are limited to questions of law, and for the exceptions allowing review of questions of fact, as enumerated through Balderama vs. People.

• Section 3(e), Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act) — Penalizes public officers who cause undue injury to any party, including the government, or give any private party unwarranted benefits, advantage, or preference through manifest partiality, evident bad faith, or gross inexcusable negligence. The Court found the second element wanting, as the Board's honest belief in its statutory authority negated all three modes of committing the offense.

• Article 217, Revised Penal Code (Malversation of Public Funds) — Penalizes public officers who, having custody or control of public funds by reason of their office, appropriate, take, misappropriate, or consent to or permit another to take them. The Court found the element of improper appropriation absent, as the disbursement was made pursuant to a validly passed board resolution with all supporting documents.

• Section 23, Presidential Decree No. 198 (Provincial Water Utilities Act of 1973) — Provides that the board of a water district shall appoint a general manager and "fix their compensation." The Court relied on this provision as the textual basis for the Board's honest belief that it had authority to adjust Feliciano's salary, noting that at the time of the Resolution's passage, no judicial ruling had clarified the interplay between this grant of authority and the Salary Standardization Law.

• Section 24, Presidential Decree No. 198 — Defines the duties of the general manager, who shall, subject to the approval of the board, have full supervision and control of the maintenance, operation, and construction of water supply facilities. The Court cited this provision to support the conclusion that the powers of the General Manager emanate from and are secondary to those of the Board, making the processing of payment pursuant to a board resolution, to a certain extent, ministerial.

• Republic Act No. 6758 (Compensation and Position Classification Act of 1989) — The Salary Standardization Law, which the Sandiganbayan held should govern the compensation of LMWD officers as a GOCC. The Court acknowledged this law's applicability but noted that the question of its coverage of water districts was not categorically resolved until 2013.

• Carandang, J. — Concurred.
• Zalameda, J. — Concurred.
• Caguioa, J. — Filed a concurring opinion (text of which is not included in the provided source).
• Peralta, C.J. — Joined in the concurring opinion of J. Caguioa.