Mendoza vs. Commission on Audit

A water district’s general manager is covered by the Salary Standardization Law (Republic Act No. 6758) because Section 23 of Presidential Decree No. 198, which empowers the board to fix the general manager’s compensation, does not contain an express exemption from the law, and any compensation must be set within the position classification system and the maximum salary grade prescribed by Republic Act No. 6758.

Talisay Water District, a local water district formed under Presidential Decree No. 198 (Provincial Water Utilities Act of 1973), appointed Engineer Manolito P. Mendoza as its general manager. The water district’s board of directors determined his salary pursuant to Section 23 of PD 198, which states that the board shall appoint the general manager and fix his compensation. The Commission on Audit subsequently audited the district’s expenditures and disallowed a portion of Mendoza’s salary for the years 2005 and 2006 on the ground that it exceeded the rates allowed under Republic Act No. 6758, otherwise known as the Salary Standardization Law or the Compensation and Position Classification Act of 1989.

• The Employment and Compensation: Petitioner Manolito P. Mendoza was the general manager of the Talisay Water District, a local water district formed under Presidential Decree No. 198. The District’s board of directors fixed his compensation under Section 23 of PD 198, which authorizes the board to appoint a general manager and fix his compensation. From 2005 to 2006, he received salaries totaling P380,208.00 above the amounts later determined to be proper under Republic Act No. 6758.
• The Audit Disallowance: On May 28, 2007, the Commission on Audit issued a Notice of Disallowance/s finding that Mendoza’s salary “was not in consonance with the rate prescribed under [Republic Act No.] 6758 … and the approved Plantilla of Position of the district,” and that his claim of salary was “not supported with an Appointment duly attested by the Civil Service Commission.” The COA deemed the payment illegal.
• Service of the Notice: Copies of the Notice of Disallowance/s were received on May 29, 2007 by the “Agency Head,” “Accountant,” and “Persons Liable,” as evidenced by their signatures on the document. Mendoza never personally received a copy.
• Finality and Motion for Reconsideration: The COA issued a “Notice of Finality of COA Decision” on July 6, 2009, instructing the district cashier to withhold Mendoza’s salaries to settle the disallowance. Mendoza moved for reconsideration, arguing he was deprived of due process because he had not personally received the Notice, that Section 23 of PD 198 exempted him from the Salary Standardization Law, and that he acted in good faith.
• COA Decision on Reconsideration: The COA denied the motion. It found that the Notice had been received by Mendoza’s employee, amounting to constructive service, and that strict rules of service are not applied in administrative proceedings. On the merits, the COA held that Section 23 of PD 198 could be reconciled with the Salary Standardization Law and was not an absolute authority; the general manager’s compensation must fall within the appropriate salary steps and salary grade. The case of Baybay Water District v. Commission on Audit was distinguished as applying only to board members’ per diems.

• Lack of Personal Service: Petitioner argued that the Notice of Disallowance/s never became final and executory because he was not personally served a copy, in violation of due process.
• Exemption under Section 23 of PD 198: Petitioner maintained that Section 23 of the Provincial Water Utilities Act of 1973 grants the Talisay Water District board of directors the exclusive power to fix the general manager’s salary, thereby excepting his compensation from the coverage of the Salary Standardization Law.
• Good Faith Reliance: Petitioner contended that he received the disallowed amounts in good faith, relying on the board’s authority under Section 23, and that pursuant to De Jesus v. Commission on Audit, he could not be compelled to refund the sums.

• Substantial Compliance with Service: Respondent countered that technical rules on personal service of summons are not strictly observed in administrative proceedings; receipt by the Agency Head constituted sufficient constructive notice, and at any rate, petitioner was afforded an opportunity to be heard when his motion for reconsideration was given due course.
• Coverage of the Salary Standardization Law: Respondent argued that Section 23 of PD 198 is not an exception to the Salary Standardization Law; the authority to fix compensation is not absolute and must be exercised consistently with Republic Act No. 6758, which covers all government-owned or controlled corporations. The salary grade of a general manager cannot exceed Salary Grade 30 under Section 9 of RA 6758.
• No Good Faith Defense: Respondent maintained that good faith reliance on Section 23 does not excuse an official from reimbursing the government for amounts unduly disbursed.

• Finality of Notice of Disallowance: Whether the Notice of Disallowance/s became final and executory despite the absence of personal service on petitioner Mendoza.
• Coverage of the Salary Standardization Law: Whether the salary of a water district’s general manager is covered by Republic Act No. 6758 (Salary Standardization Law).
• Good Faith and Refund: Whether petitioner Mendoza’s alleged good faith reliance on Section 23 of Presidential Decree No. 198 excuses him from reimbursing the disallowed amount to the government.

• Finality of Notice of Disallowance: The Notice of Disallowance/s became final and executory. Under Sections 5 and 6 of Rule IV of the 1997 Revised Rules of Procedure of the COA, the Notice was properly served on the agency head and persons liable; the signed copies received on May 29, 2007 constituted valid service. Due process in administrative proceedings is satisfied by the opportunity to be heard. The filing of a motion for reconsideration that was resolved on the merits afforded Mendoza the essence of administrative due process, regardless of the lack of personal service of the initial notice.
• Coverage of the Salary Standardization Law: The salary of a water district’s general manager is covered by Republic Act No. 6758. Local water districts are government-owned or controlled corporations created by a special law (PD 198). The Salary Standardization Law applies to all positions in government, including government-owned or controlled corporations, without qualification. The only exception arises when a charter expressly exempts the corporation. Section 23 of PD 198, as amended, contains no such exemption clause, unlike the charters of other government financial institutions that Congress explicitly exempted through amendatory laws. While the board may fix the general manager’s duties and compensation, that power must be exercised within the position classification system of RA 6758; the salary grade assigned cannot exceed Salary Grade 30. The COA thus did not commit grave abuse of discretion in disallowing the excess salary.
• Good Faith and Refund: Petitioner Mendoza is excused from refunding the disallowed amount because he received it in good faith. He had no participation in fixing the amount of his compensation, which was determined by the water district’s board under Section 23 of PD 198. At the time he received the salary in 2005 and 2006, no judicial ruling had yet clarified that water utilities are not exempted from the Salary Standardization Law. Following the principle in De Jesus v. Commission on Audit, where board members were similarly not required to refund benefits received before the Baybay ruling, petitioner need not return the disallowed sum.

• Express Exemption from Salary Standardization Law — Republic Act No. 6758 applies to all government positions, including those in government-owned or controlled corporations. A government-owned or controlled corporation is exempt from the Salary Standardization Law only when its charter contains a specific and unequivocal exemption provision. Section 23 of Presidential Decree No. 198 does not contain such an exemption, and therefore water district general managers remain subject to the position classification and salary grade limitations of the law.
• Administrative Due Process as Opportunity to Be Heard — The essence of due process in administrative proceedings is the chance to explain one’s side or to seek reconsideration of the adverse action. Strict compliance with rules on personal service of notices is not required where the party subsequently files a motion for reconsideration and is heard on the merits.
• Good Faith in Receipt of Disallowed Amounts — An official who receives compensation fixed by the board of directors under a statutory provision, without any personal involvement in setting the amount, and before any jurisprudence declares the compensation to be contrary to law, is deemed to have acted in good faith and may be excused from refunding the disallowed sums. This is consistent with the doctrine in De Jesus v. Commission on Audit.

• “Time and again, we have held that the essence of due process is simply an opportunity to be heard or, as applied to administrative proceedings, an opportunity to explain one's side or an opportunity to seek a reconsideration of the action or ruling complained of.”
• “The Salary Standardization Law applies to all government positions, including those in government-owned or controlled corporations, without qualification. The exception to this rule is when the government-owned or controlled corporation's charter specifically exempts the corporation from the coverage of the Salary Standardization Law.”
• “The salaries petitioner Mendoza received were fixed by the Talisay Water District's board of directors pursuant to Section 23 of the Presidential Decree No. 198. Petitioner Mendoza had no hand in fixing the amount of compensation he received. Moreover, at the time petitioner Mendoza received the disputed amount in 2005 and 2006, there was no jurisprudence yet ruling that water utilities are not exempted from the Salary Standardization Law.”

• Baybay Water District v. Commission on Audit, 425 Phil. 326 (2002) — Distinguished; ruled that board members of water districts are entitled only to per diems under Section 13 of PD 198 and are not covered by the Salary Standardization Law, but did not extend the exemption to general managers.
• De Jesus v. Commission on Audit, 466 Phil. 912 (2004) — Applied; held that water district board members who received disallowed allowances in good faith before the Baybay ruling were not obliged to refund them, a principle extended to the general manager in this case.
• Davao City Water District v. Civil Service Commission, 278 Phil. 605 (1991) — Cited for the proposition that water districts are government-owned or controlled corporations with original charters.
• Feliciano v. Commission on Audit, 464 Phil. 439 (2004) — Reinforced that local water districts derive their corporate existence from PD 198 and are government-owned or controlled corporations with a special charter.
• Gannapao v. Civil Service Commission, G.R. No. 180141, May 31, 2011, 649 SCRA 595 — Relied upon for the principle that the essence of administrative due process is the opportunity to be heard.
• Intia, Jr. v. Commission on Audit, 366 Phil. 273 (1999) — Cited to illustrate the Philippine Postal Corporation’s express statutory exemption from the Salary Standardization Law and the requirement to report its compensation system to the Department of Budget and Management.
• Trade and Investment Development Corporation of the Philippines v. Civil Service Commission, G.R. No. 182249, March 5, 2013 — Discussed to show that a government corporation exempted from RA 6758 by its charter must still endeavor to conform to its principles.
• Central Bank (now Bangko Sentral ng Pilipinas) Employees Association, Inc. v. Bangko Sentral ng Pilipinas, 487 Phil. 531 (2004) — Enumerated the charters of several government financial institutions that expressly exempt them from the Salary Standardization Law, underscoring the absence of a similar provision in PD 198.

• Section 23, Presidential Decree No. 198 (Provincial Water Utilities Act of 1973), as amended by Republic Act No. 9286 — Empowers the board of a water district to appoint a general manager and fix his compensation. The provision lacks an express exemption from the Salary Standardization Law; thus, the compensation fixed must conform to RA 6758.
• Sections 4, 5, and 9, Republic Act No. 6758 (Compensation and Position Classification Act of 1989) — Section 4 broadly covers all government positions, including those in government-owned or controlled corporations. Section 5 establishes the position classification categories and corresponding salary grades. Section 9 expressly limits the salary of a general manager of a government-owned or controlled corporation to Salary Grade 30.
• Sections 5 and 6, Rule IV of the 1997 Revised Rules of Procedure of the Commission on Audit — Govern the distribution and service of notices of disallowance and provide that the notice becomes final six months after notice to the parties concerned unless a reconsideration or appeal is filed.
• Section 13, Presidential Decree No. 198 — Provides that water district board members shall receive only per diems for meetings and no other compensation; the basis of the Baybay ruling but not directly applied to the general manager.
• Various charters of government financial institutions (Republic Act Nos. 7354, 7907, 8282, 8289, 8291, 8523, 8763, 9302) — Examined to illustrate statutory language expressly exempting the respective corporations and their personnel from the Salary Standardization Law, contrasting with the silence of PD 198.

Sereno, C.J., Carpio, Velasco, Jr., Leonardo-De Castro, Brion, Peralta, Bersamin, Del Castillo, Abad, Villarama, Jr., Perez, Mendoza, Reyes, and Perlas-Bernabe, JJ., concur.