Philippine Economic Zone Authority (PEZA) vs. Commission on Audit

Ex officio members of the PEZA Board are not entitled to per diems because R.A. No. 8748 deleted the per diem authorization in Section 11 of R.A. No. 7916 as repugnant to Section 13, Article VII of the 1987 Constitution, and prior COA disallowances preclude good faith to excuse refund.

PEZA is a body corporate attached to the Department of Trade and Industry, governed by a 13-member Board chaired by the Secretary of Trade and Industry and including the undersecretaries of eight executive departments sitting ex officio. Section 11 of R.A. No. 7916, the Special Economic Zone Act of 1995, originally contained a last paragraph authorizing per diems for Board members, while R.A. No. 8748 later amended Section 11 to specify undersecretary membership and omit that paragraph. Section 13, Article VII of the 1987 Constitution prohibits designated officials from receiving additional compensation for ex officio service.

PEZA is headed by a Director General and governed by a 13-member Board that includes the undersecretaries of Finance, Labor and Employment, Interior and Local Government, Environment and Natural Resources, Agriculture, Public Works and Highways, Science and Technology, and Energy, all sitting ex officio. For every board meeting attended from 2001 to 2006, PEZA granted these ex officio members per diems totaling ₱5,451,500.00 distributed among 21 payees, ranging from ₱16,000.00 to ₱904,000.00 per payee.

The PEZA Auditor disallowed the payments through Notice of Disallowance Nos. 2006-001-101 (02-06) to 2006-021-101 (01-03) issued in July 2007. The disallowance rested on the April 4, 2006 En Banc Resolution dismissing the certiorari petition in Cyril del Callar, et al. vs. COA, which had sustained COA Decision No. 2006-009 affirming an earlier disallowance of PEZA per diems, itself anchored on COA Memorandum No. 97-038 implementing Senate Committee Report No. 509 and the ruling in Civil Liberties Union vs. Executive Secretary.

Thereafter, PEZA sought reconsideration and successive appeals, maintaining throughout that the per diems were disbursed when the Del Callar ruling was not yet final, that PEZA honestly believed a valid statutory basis remained, and that the ex officio recipients received the amounts in good faith, citing Home Development Mutual Fund vs. Commission on Audit and De Jesus vs. Commission on Audit. The Auditor and the COA Cluster Director denied relief, pointing to earlier notices from 1995 to 1998 and for 1999 to 2000, and to Supreme Court pronouncements already declaring such payments illegal. In its September 15, 2009 decision, COA affirmed the disallowance in full, found the last paragraph of Section 11 of R.A. No. 7916 deleted by R.A. No. 8748 effective in 1999, characterized the 2001-2006 payments as contrary to Section 13, Article VII of the Constitution, rejected good faith, and ordered refund with direction to the PEZA Auditor to report settlement.

• Statutory Authority: Petitioner argued that the last paragraph of Section 11, R.A. No. 7916 authorizing per diems still exists because it was never deleted in R.A. No. 8748, its representation by "x x x" in Section 1 of the amendatory law not amounting to repeal, and absent any declaration of unconstitutionality the provision enjoys the presumption of validity upon which PEZA was entitled to rely.
• Good Faith and Non-Refund: Petitioner maintained that both PEZA in granting and the ex officio members in receiving the per diems acted in good faith, honestly believing the grant legal during a period when the Del Callar case was not yet final, so the recipients should be allowed to retain the amounts already received.

• Deletion by Amendatory Law: Respondent countered that the last paragraph of Section 11, R.A. No. 7916 was purposely deleted by R.A. No. 8748, as already settled in Bitonio, Jr. vs. Commission on Audit, leaving no legal basis for the per diems from the effectivity of the amendment in 1999.
• Constitutional Prohibition: Respondent argued that the deletion merely conformed the statute to the Constitution, since undersecretaries serving ex officio are already paid in their principal offices and additional PEZA compensation would constitute prohibited double compensation repeatedly struck down in jurisprudence on ex officio officials.

• Legal Basis for Per Diems: Whether PEZA had legal basis in granting per diems to the ex officio members of its Board.
• Good Faith: Whether there was good faith in PEZA's grant and the ex officio members' receipt of the per diems so as to excuse refund.

• Legal Basis for Per Diems: No. No legal basis existed because R.A. No. 8748 deleted the per diem authorization in Section 11 of R.A. No. 7916 as conflicting with the constitutional ban on additional compensation for ex officio service.
• Good Faith: No. Good faith was absent, PEZA and the recipients having been placed on notice by Civil Liberties Union vs. Executive Secretary, prior COA disallowances, and Bitonio, Jr. vs. Commission on Audit before and during the 2001-2006 payments.

• Legal Basis for Per Diems: The lack of authority had already been settled En Banc in Bitonio, Jr. vs. Commission on Audit, which construed the amended Section 11 as increasing Board membership from 8 to 13, specifying undersecretary membership, deleting the option to designate representatives, and deleting the per diem paragraph as in conflict with the Constitution. Because the amendatory law purposely cured the flaw in R.A. No. 7916, members from the effectivity of R.A. No. 8748 in 1999 were no longer entitled to per diems. The constitutional prohibition clarified in Civil Liberties Union vs. Executive Secretary was expressly retained, with no reason to revisit a construction deemed consonant with the Constitution.
• Good Faith: Good faith denotes honesty of intention and freedom from knowledge of circumstances which ought to put the holder upon inquiry, with absence of information or notice rendering the transaction unconscientious. Such freedom was not shown because Civil Liberties Union vs. Executive Secretary, promulgated in 1991, had already declared that an ex officio position is part of the principal office and gives no right to additional compensation, whether called per diem, honorarium, or allowance. Even before Bitonio, Jr. was decided in 2004, PEZA had received disallowances from 1995 to 1998 and for 1999 to 2000, upheld in COA Decision No. 2006-009; continuation of identical payments through 2006 despite notices and controlling pronouncements, instead of withholding payment while Bitonio, Jr. was pending, was incompatible with good faith.

• Prohibition on additional compensation for ex officio service — A public official whose additional duties are required by the primary functions of his office and performed ex officio as provided by law must perform them without additional compensation, because the ex officio position is in legal contemplation part of the principal office already paid for. Applied to hold that undersecretaries sitting on the PEZA Board could not collect per diems, honoraria, allowances, or any euphemism therefor under Section 13, Article VII of the 1987 Constitution.
• Deletion of per diem provision by R.A. No. 8748 — The amendatory law cured the constitutional flaw in Section 11 of R.A. No. 7916 by deleting the last paragraph authorizing per diems to PEZA Board members upon expanding the Board and specifying undersecretary membership. Applied to conclude that from the 1999 effectivity of R.A. No. 8748, PEZA Board members had no statutory entitlement to per diems for 2001-2006.
• Good faith as freedom from notice of illegality — Good faith requires honesty of intention and freedom from knowledge of circumstances which ought to put the holder upon inquiry, together with absence of information, notice, or belief of facts rendering the transaction unconscientious. Applied to reject PEZA's claim because the 1991 Civil Liberties Union doctrine and repeated COA disallowances from 1998 onward supplied notice of illegality and imposed a duty to discontinue payments.

• "The ex-officio position being actually and in legal contemplation part of the principal office, it follows that the official concerned has no right to receive additional compensation for his services in the said position. The reason is that these services are already paid for and covered by the compensation attached to his principal office." — States the core constitutional rationale barring per diems for ex officio PEZA Board attendance.
• "Likewise, the last paragraph as to the payment of per diems to the members of the Board of Directors was also deleted, considering that such stipulation was clearly in conflict with the proscription set by the Constitution." — Provides the canonical construction of R.A. No. 8748 as deleting the Section 11 per diem authorization.
• "in order that such additional duties or functions may not transgress the prohibition embodied in Section 13, Article VII of the 1987 Constitution, such additional duties or functions must be required by the primary functions of the official concerned, who is to perform the same in an ex-officio capacity as provided by law, without receiving any additional compensation therefor" — Defines the qualifying conditions for permissible ex officio duties under the constitutional ban.
• "honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry" — Supplies the operative definition of good faith used to deny exoneration from refund.

• Bitonio, Jr. vs. Commission on Audit, G.R. No. 147392, March 12, 2004, 425 SCRA 437 — Followed as controlling En Banc precedent holding R.A. No. 8748 deleted the per diem paragraph and that a PEZA Board representative was not entitled to per diems.
• Civil Liberties Union vs. Executive Secretary, G.R. Nos. 83896 & 83815, February 22, 1991, 194 SCRA 317 — Followed as the leading exposition of Section 13, Article VII, barring additional compensation for ex officio positions.
• Cyril del Callar, et al. vs. COA, G.R. No. 171802, April 4, 2006 (Unsigned Resolution) — Cited as the immediate basis for the Auditor's disallowance, having sustained COA Decision No. 2006-009 on 1999-2000 PEZA per diems.
• National Amnesty Commission vs. Commission on Audit, G.R. No. 156982, September 8, 2004, 437 SCRA 655 and Dela Cruz vs. Commission on Audit, G.R. No. 138489, November 29, 2001, 371 SCRA 157 — Cited as additional instances where ex officio members in government agencies were prohibited from receiving extra compensation, negating good faith.

• Section 13, Article VII, 1987 Constitution — Prohibits designated officials from receiving additional compensation for ex officio service; applied to invalidate per diems to undersecretaries serving ex officio on the PEZA Board as prohibited double compensation.
• Section 11, R.A. No. 7916, as amended by Section 1, R.A. No. 8748 — Governs composition of the PEZA Board; applied to show deletion of the former last paragraph authorizing per diems, leaving no statutory basis for payments from 1999 onward.

Antonio T. Carpio, Senior Associate Justice, Presbitero J. Velasco, Jr., J., Teresita J. Leonardo-De Castro, J., Mariano C. Del Castillo, J., Roberto A. Abad, J., Jose Portugal Perez, J., Jose Catral Mendoza, J., Maria Lourdes P. A. Sereno, J., Bienvenido L. Reyes, J., Estela M. Perlas-Bernabe, J., Diosdado M. Peralta, J. (on official leave), Lucas P. Bersamin, J. (on official leave), Arturo D. Brion, J. (no part).