Hagedorn vs. Commission on Audit

A local government unit may not enact an ordinance creating a supplementary or parallel retirement plan for its officials and employees, as such is proscribed by Section 28(b) of Commonwealth Act No. 186, as amended by Republic Act No. 4968, and any ordinance to that effect is ultra vires and null and void.

Petitioners are officials and employees of the Puerto Princesa City Government (PPCG): Maria Corazon A. Abayari (City Treasurer), Trisha Mae C. Asuncion (Executive Assistant IV), Maria Regina S. Cantillo (City Budget Officer), Aquilino B. Cariño, Jr. (Senior Bookkeeper), Patrick Alex M. Hagedorn (Sangguniang Panlungsod Member/City Councilor), and Rosalia B. Ortiz (Assistant City Accountant). They were among the persons identified as liable under Notices of Disallowance issued by the Commission on Audit (COA) for payments made under the PPCG's Early and Voluntary Separation Incentive Program (EVSIP). The statutory backdrop includes Commonwealth Act No. 186 (the Government Service Insurance Act), as amended by Republic Act No. 4968, which prohibits the creation of supplementary retirement or pension plans in any government office, and Republic Act No. 7160 (the Local Government Code of 1991), which governs the powers of local government units. A prior ruling of the Court En Banc in Bayron vs. Commission on Audit (G.R. No. 253127, November 29, 2022) had already nullified the EVSIP's enabling ordinance on substantially the same facts and issues.

On June 15, 2010, the Sangguniang Panlungsod of Puerto Princesa City enacted Ordinance No. 438, establishing the Early and Voluntary Separation Incentive Program (EVSIP) of the Puerto Princesa City Government (PPCG). The ordinance was approved by then City Mayor Edward S. Hagedorn on August 11, 2010. A week after the ordinance's enactment, the Sangguniang Panlungsod also passed Resolution No. 850-2010, providing the Implementing Rules and Regulations for Ordinance No. 438, which was approved by Mayor Hagedorn on November 2, 2010.

The EVSIP was adopted with three stated purposes: to adopt an effective and efficient organizational structure through realignment and streamlining of work processes; to grant incentives for the loyalty and satisfactory public service of employees who had rendered at least ten years of city government service; and to encourage retireable employees to avail of the early separation program and pursue other private endeavors. Under Section 6 of the ordinance, qualified employees were entitled to incentives computed using multipliers — 1.5 for those with 10 to 20 years of service, 1.8 for those with 21 to 30 years, and 2.0 for those with 31 or more years — applied to the employee's basic monthly salary and then multiplied by the number of years of service. Beneficiaries were also entitled to commutation of unused leave credits, benefits under the existing Salamat Paalam Program, and any other benefits due under local or national agencies such as GSIS, PAG-IBIG, and PhilHealth. To qualify, an applicant had to be a regular employee, regularly employed for at least ten years, and, if 64 years old at the time of application, whose mandatory retirement would not fall between January 1, 2011 and June 30, 2011. The program was to be implemented from July 1, 2011 to June 30, 2013, with an appropriation of at least PHP 50 million from the PPCG's 2011 budget.

On October 3, 2011, the Sangguniang Panlungsod passed Ordinance No. 500, amending Ordinance No. 438 by increasing the required minimum years of service from ten to fifteen years and adjusting the benefit computation accordingly. This was approved by then City Vice Mayor and Acting City Mayor Lucilo R. Bayron on October 25, 2011. Thereafter, the EVSIP was implemented and payments were disbursed to qualified PPCG employees.

After a post-audit in 2013, the COA's Audit Team Leader and Supervising Auditor of Regional Office No. IV-B jointly issued Notices of Disallowance disallowing the payments made under the EVSIP in the total amount of PHP 89,672,400.74. The officials who approved and released the benefits, as well as the employees who received them, were identified as persons liable. Among those named were petitioners Abayari, Asuncion, Cantillo, Cariño, Jr., Hagedorn, and Ortiz. Petitioners filed separate appeals before the COA Regional Director, which were consolidated and denied by Decision No. 2016-09 dated March 28, 2016, the Regional Director finding that the first batch of appeals was filed beyond the six-month reglementary period and that the EVSIP was an illegal supplementary retirement plan. Petitioners then filed separate petitions for review before the COA Commission Proper, which were consolidated and denied by Decision No. 2021-247 dated October 7, 2021, affirming the disallowance. Meanwhile, in a related case involving different PPCG officials but the same underlying NDs and Regional Director decision, the Court En Banc in Bayron vs. Commission on Audit (G.R. No. 253127, November 29, 2022) had already nullified Ordinance No. 438 and Resolution No. 850-2010 as ultra vires.

• COA Lack of Authority to Nullify Ordinance: Petitioner argued that the COA committed grave abuse of discretion in declaring Ordinance No. 438 null and void or in disallowing payments thereunder as bereft of legal basis, since only courts of law can strike down an ordinance as invalid.
• Validity of the EVSIP: Petitioner maintained that Ordinance No. 438 complies with the conditions for a valid early separation incentive program and that the EVSIP does not contravene Section 28(b) of Commonwealth Act No. 186, as amended, because it is not a supplementary retirement or pension plan but rather an early retirement plan or separation pay.
• Good Faith: Petitioner asserted that they should not be held liable because they acted in good faith in merely implementing an ordinance that is presumed valid, and that they had a reasonable textual interpretation of the legality of Ordinance No. 438.
• Procedural — Motion for Reconsideration Not Required: Petitioner argued that the filing of a motion for reconsideration may be dispensed with when the issues presented are pure questions of law that have been squarely and exhaustively passed upon by the COA.
• DBM Lack of Authority: Petitioner contended that the DBM has no authority to review Ordinance No. 438 as it is not an appropriation ordinance.
• Inconsistent OSG Position: Petitioner asserted that the OSG had previously taken the position in G.R. No. 253127 that similarly situated officials could not be held liable because they acted in good faith, and that the OSG's unexplained change in position in the present case is arbitrary.
• Entitlement to TRO/Injunction: Petitioner averred that they have a clear legal right to an injunction and that the COA's order for them to refund the amount will leave them with no income or means of support, depriving them of life, liberty, or property without due process of law.

• Failure to File Motion for Reconsideration: Respondent countered that the petition should be dismissed because petitioners failed to file a motion for reconsideration of the COA's assailed decision, which is an indispensable requirement.
• EVSIP Has No Legal Basis: Respondent argued that the COA correctly ruled that the EVSIP has no legal basis since it constitutes a supplemental retirement plan and is not for the implementation of any valid reorganization program of the local government, a view shared by the DBM.
• Liability of Approving/Certifying Officers and Payees: Respondent maintained that the approving and certifying officers who participated in the illegal expenditure are liable to return the disallowed amounts for their lack of good faith, as well as the payees who received the benefits pursuant to the principle of solutio indebiti.
• No Right to TRO/Injunction: Respondent argued that petitioners are not entitled to TRO or injunction since they failed to offer evidence to prove the injury they will sustain as a result of the non-issuance of the relief.

• Procedural — Motion for Reconsideration: Whether the non-filing of a motion for reconsideration from the COA's assailed Decision renders the petition dismissible.
• Validity of Ordinances and Payments: Whether Ordinance No. 438, Resolution No. 850-2010, and Ordinance No. 500, as well as the payments made under the EVSIP, are valid.
• Liability of Petitioners: If the ordinances and payments are invalid, whether petitioners are liable for the amounts paid to the payee-beneficiaries of the EVSIP.
• Injunctive Relief: Whether petitioners are entitled to a TRO or an injunction.

• Procedural — Motion for Reconsideration: No. The petition was not dismissed on this ground; the Court proceeded to resolve the merits, the issues being substantially covered by the prior ruling in Bayron vs. Commission on Audit.
• Validity of Ordinances and Payments: No. Ordinance No. 438, Resolution No. 850-2010, and Ordinance No. 500 are ultra vires and null and void for contravening Section 28(b) of Commonwealth Act No. 186, as amended by Republic Act No. 4968, which prohibits supplementary retirement or pension plans in any government office; all payments made under the EVSIP are illegal.
• Liability of Petitioners: Deferred. The determination of petitioners' good faith — and consequently their liability to return the disallowed amounts — was deferred to the Office of the Ombudsman for fact-finding investigation, with directions to report results to the COA.
• Injunctive Relief: No. Petitioners failed to demonstrate a clear and unmistakable right to be protected or grave and irreparable injury, the alleged financial damage being quantifiable and not irreparable.

• Procedural — Motion for Reconsideration: The Court did not dismiss the petition for failure to file a motion for reconsideration. While the OSG raised this ground, the Court observed that the same issue was present in Bayron, where petitioners therein also failed to file a motion for reconsideration. The Court proceeded to resolve the petition on the merits, noting that the validity of the ordinances and the question of good faith had already been substantially adjudicated in the prior ruling.

• Validity of Ordinances and Payments: The Court relied on its prior En Banc ruling in Bayron vs. Commission on Audit, which had already categorically nullified Ordinance No. 438 and Resolution No. 850-2010. The Court explained that an ordinance cannot prevail over national laws: local government units are agents of the national government and exercise only delegated legislative powers, so they cannot undo or negate by mere ordinance the mandate of a statute. Section 28(b) of Commonwealth Act No. 186, as amended by Republic Act No. 4968, explicitly provides that no supplementary retirement or pension plans other than the GSIS shall exist in any government office or instrumentality. The EVSIP was found to be a supplementary retirement plan because its second objective — to grant incentives for loyalty and satisfactory service — is co-equal in importance to the others and goes contrary to the statutory prohibition. The benefit computation using multipliers (1.5, 1.8, and 2.0) applied to years of service characterizes the EVSIP as a reward for loyalty, not a separation pay. The presence of a minimum years-of-service requirement further negates the nature of the incentive as separation pay, since Republic Act No. 6656 mandates separation pay of one month salary for every year of service with no minimum years required. The Court also rejected the contention that the EVSIP was implemented pursuant to a valid reorganization, as Ordinance No. 438 contained only a general averment about adopting a more effective organizational structure without any law as basis for streamlining or reorganization. Because the Court had already nullified Ordinance No. 438 and Resolution No. 850-2010 in Bayron, and petitioners were aware of that judgment when they filed their Reply on March 21, 2023, without proffering any argument or supervening event to vacate it, the Court applied the doctrine of law of the case. The Court further nullified Ordinance No. 500, which amended Ordinance No. 438 by increasing the minimum years from ten to fifteen, because the same infirmities — the multipliers rewarding loyalty, the minimum years-of-service requirement, and the supplementary nature of the benefits — persisted in the amended version.

• Liability of Petitioners: The Court applied the operative fact doctrine, which serves as an exception to the general rule that a void law or administrative act cannot be the source of legal rights or duties. Under this doctrine, a judicial declaration of invalidity may not necessarily obliterate all effects and consequences of a void act prior to such declaration. However, the Court emphasized, citing Araullo vs. Aquino, that the operative fact doctrine cannot apply to the authors, proponents, and implementors of the invalid measure unless there are concrete findings of good faith in their favor by the proper tribunals. The Court deferred the determination of petitioners' good faith to the Office of the Ombudsman, noting that this question of fact can only be resolved by evaluating petitioners' actions, state of mind, and the extent of their individual or concerted participation. The Court directed that the entire records be forwarded to the Office of the Ombudsman for investigation, with directions to forward the results to the COA so that the latter can determine whether petitioners should be held solidarily liable for the amounts disbursed under the EVSIP.

• Injunctive Relief: The Court denied the application for TRO and/or injunction because petitioners failed to satisfy the requisites for injunctive relief: (1) a clear and unmistakable right to be protected; (2) a direct threat to that right by the act sought to be enjoined; (3) a material and substantial invasion of the right; and (4) an urgent and paramount necessity for the writ to prevent serious and irreparable damage. Petitioners failed to produce evidence of a clear and unmistakable right, especially given the nullification of the ordinances and the illegality of the disbursements. The alleged damage from the COA's order was not yet material since the determination of good faith was still pending before the Office of the Ombudsman. Moreover, the financial damage alleged was quantifiable and could not be considered grave and irreparable injury, which requires damage that cannot be measured with reasonable accuracy.

• Supremacy of National Laws over Local Ordinances — Municipal governments are only agents of the national government; local councils exercise only delegated legislative powers conferred by Congress. The delegate cannot be superior to the principal or exercise powers higher than those of the latter. An ordinance in conflict with a state law of general character and statewide application is invalid. A local government unit cannot circumvent a national statute by enacting an ordinance that creates a separate, parallel, or supplementary program prohibited by that statute. Applied here: Section 28(b) of Commonwealth Act No. 186, as amended by Republic Act No. 4968, prohibits supplementary retirement or pension plans in any government office; the PPCG could not circumvent this prohibition through Ordinance No. 438.

• Operative Fact Doctrine — The general rule is that a void law or administrative act cannot be the source of legal rights or duties. The operative fact doctrine is an exception: a judicial declaration of invalidity may not necessarily obliterate all effects and consequences of a void act prior to such declaration. Prior to its being nullified, the existence of a legislative or executive measure as a fact must be reckoned with, and parties who acted under it in good faith may have their positions recognized. However, the doctrine cannot apply to the authors, proponents, and implementors of the void measure unless there are concrete findings of good faith in their favor by the proper tribunals. Applied here: The doctrine applies to the EVSIP since the ordinances have been nullified, but petitioners' liability is contingent on a finding of good faith, which was deferred to the Office of the Ombudsman.

• Requisites for Injunctive Relief — To be entitled to an injunctive writ, the petitioner must show: (1) a clear and unmistakable right to be protected; (2) this right is directly threatened by an act sought to be enjoined; (3) the invasion of the right is material and substantial; and (4) there is an urgent and paramount necessity for the writ to prevent serious and irreparable damage. Irreparable injury exists where there is no standard by which the amount of damages can be measured with reasonable accuracy. Applied here: Petitioners failed to demonstrate any of these requisites; the financial damage alleged was quantifiable and not irreparable.

• Solutio Indebiti — Under Article 2154 of the Civil Code, if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. Applied here: The COA found that PPCG employees who received incentives under the EVSIP have the obligation to return the same under this principle, as the payments were made without legal basis.

• "Section 28(b) of [Commonwealth Act] No. 186 is loud and clear: no supplementary retirement or pension plans other than the GSIS shall exist in any government office or instrumentality." — This passage, quoted from Bayron vs. Commission on Audit, articulates the controlling statutory prohibition that rendered the EVSIP ordinances ultra vires.

• "The doctrine of operative fact is an exception to the general rule, such that a judicial declaration of invalidity may not necessarily obliterate all the effects and consequences of a void act prior to such declaration." — This defines the operative fact doctrine as applied to nullified local ordinances, clarifying that prior effects may be recognized but only subject to findings of good faith.

• "Damages are irreparable within the meaning of the rule relative to the issuance of injunction where there is no standard by which their amount can be measured with reasonable accuracy." — This passage defines the standard for irreparable injury in the context of injunctive relief, explaining why petitioners' quantifiable financial damage did not qualify.

• "The delegate cannot be superior to the principal or exercise powers higher than those of the latter. It is a heresy to suggest that the local government units can undo the acts of Congress, from which they have derived their power in the first place, and negate by mere ordinance the mandate of the statute." — This passage, quoted from Magtajas vs. Pryce Properties Corp., Inc., states the rationale for the supremacy of national laws over local ordinances, a principle central to the nullification of the EVSIP ordinances.

• Bayron vs. Commission on Audit, G.R. No. 253127, November 29, 2022 — Controlling precedent. The Court En Banc had already nullified Ordinance No. 438 and Resolution No. 850-2010 as ultra vires and contrary to Section 28(b) of Commonwealth Act No. 186, as amended by Republic Act No. 4968, on substantially the same facts, issues, and underlying NDs. The present decision applied the law of the case and extended the nullification to Ordinance No. 500.
• Municipality of Tupi vs. Faustino, 860 Phil. 363 (2019) — Followed. Cited for the discussion of the metes and bounds of the operative fact doctrine, including the general rule that a void law cannot be the source of legal rights or duties and the exception recognizing effects prior to judicial declaration of nullity.
• Commissioner of Internal Revenue vs. San Roque Power Corporation, 719 Phil. 137 (2013) — Followed. Cited within Municipality of Tupi for the operative fact doctrine discussion.
• Araullo vs. Aquino, 752 Phil. 716 (2015) — Followed. Cited for the principle that the operative fact doctrine cannot apply to the authors, proponents, and implementors of a void measure unless there are concrete findings of good faith by the proper tribunals.
• Magtajas vs. Pryce Properties Corp., Inc. — Followed. Cited for the rationale that local government units, as delegates of Congress, cannot undo or negate by mere ordinance the mandate of a statute.
• United States vs. Abendan — Followed. Cited for the early formulation that an ordinance is valid unless it contravenes the fundamental law, an Act of the legislature, public policy, or is unreasonable, oppressive, partial, or discriminating.
• Batangas CATV, Inc. vs. Court of Appeals — Followed. Cited for the principle that where the state legislature has made provision for the regulation of conduct, a municipality cannot regulate the same conduct under its general powers.
• Serrano de Agbayani vs. Philippine National Bank — Followed. Cited within Municipality of Tupi for the discussion of the operative fact doctrine, emphasizing that prior to a declaration of nullity, a legislative or executive act must be complied with and its existence as a fact reckoned with.
• Tiong Bi, Inc. vs. Philippines Health Insurance Corporation, 847 Phil. 906 (2019) — Followed. Cited for the four requisites of injunctive relief and the definition of irreparable damage.

• Section 28(b), Commonwealth Act No. 186, as amended by Section 10, Republic Act No. 4968 — Provides that no supplementary retirement or pension plans other than the GSIS shall exist in any government office, agency, or instrumentality. This was the controlling statutory provision that rendered the EVSIP ordinances ultra vires, as the EVSIP was found to be a supplementary retirement plan.
• Section 458(a)(2)(i), Republic Act No. 7160 (Local Government Code of 1991) — Empowers the Sangguniang Panlungsod to approve budgets and appropriate funds for programs, projects, services, and activities, or for other purposes not contrary to law. The Court cited this to show that the appropriation power of local councils is circumscribed by national legislation.
• Section 76, Republic Act No. 7160 (Local Government Code of 1991) — Provides that every local government unit shall design and implement its own organizational structure and staffing pattern, subject to minimum standards and guidelines prescribed by the Civil Service Commission. The COA found that the EVSIP was not enacted pursuant to any reorganization law for the PPCG.
• Section 9, Republic Act No. 6656 — Mandates that separation pay of a government employee on account of reorganization shall be one month salary for every year of service, with no minimum years of service required. The Court contrasted this with the EVSIP's minimum years-of-service requirement to show that the EVSIP was not a genuine separation pay.
• Article 2154, Civil Code of the Philippines (Republic Act No. 386) — Provides that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. The COA applied this principle to require payee-beneficiaries to return the disallowed amounts.
• Article 7, Civil Code of the Philippines — Enunciates the general rule that laws are valid only when not contrary to the laws or the Constitution, and the exception embodied in the operative fact doctrine.
• Rule V, Section 4, COA's 2009 Revised Rules of Procedure — Provides that an appeal must be filed within six months after receipt of the decision appealed from. The Regional Director found that the first batch of appeals was filed beyond this reglementary period.

Gesmundo, C.J., Leonen, SAJ., Caguioa, Lazaro-Javier, Inting, Zalameda, Gaerlan, Rosario, J. Lopez, Dimaampao, Marquez, Kho, Jr., and Singh, JJ., concurred. (M. Lopez, J., was on official leave.)