Villa vs. Commission on Audit

A mere signature on a collective negotiation agreement (CNA) cannot be assumed to operate as an express or implied authority from the signatory to release funds arising from the agreement; there must be proof that the official not only conspired with the persons who actually caused the disbursement but also acted with bad faith, malice, or gross negligence to be held solidarily liable for the return of disallowed amounts.

Petitioner Atty. Rene C. Villa was the Secretary of the Department of Agrarian Reform (DAR) and a signatory to a collective negotiation agreement (CNA) between DAR and the DAR Employees Foundation, Inc. The CNA was the basis for the payment of Medical/Health Care Allowance (MHCA) to DAR officials and employees, funded by the Agrarian Reform Fund (ARF) or Comprehensive Agrarian Reform Program (CARP) Fund. The ARF was instituted as a special fund under Proclamation No. 131, and its use is restricted by Executive Order No. 229 and Republic Act No. 6657 to specific purposes: payment of land purchase prices and expenses for support services implementation.

Petitioner Atty. Rene C. Villa was the Secretary of the Department of Agrarian Reform (DAR) and a signatory to a collective negotiation agreement (CNA) entered into between DAR and the DAR Employees Foundation, Inc. The CNA served as the basis for the payment of Medical/Health Care Allowance (MHCA) to DAR officials and employees for the period of December 2001 to May 2005, totaling PHP 70,301,385.00. The funding for the MHCA was charged to the Agrarian Reform Fund (ARF) or Comprehensive Agrarian Reform Program (CARP) Fund.

On post-audit, the COA audit team issued Notice of Disallowance (ND) Nos. 10-001-158(01) to 10-012-158(15), all dated May 12, 2010, disallowing the MHCA payments for violations of Section 9 of Presidential Decree No. 477, which requires that trust funds shall only be available for the specific purpose for which they were created, and Section 4(3) of Presidential Decree No. 1445. The NDs stated that the ARF was instituted as a special fund under Proclamation No. 131 and, as prescribed by Executive Order No. 229 and Republic Act No. 6657, shall only be used for the payment of the purchase price of lands to owners in the CARP and for expenses involved in the implementation of support services. Since the MHCA was outside these purposes, the payment was considered illegal or irregular. Villa, as then DAR Secretary and signatory to the CNA, was among those held liable.

Other approving and certifying officers, Teresita L. Panlilio and Violeta M. Bonilla, appealed to the COA Cluster Director, which was denied under NGS-Cluster 8 Decision No. 2013-01 dated May 23, 2013. They then appealed to the COA Proper. In a Decision dated September 6, 2017, the COA Proper denied the appeal, holding that the ARF, as a special fund, should only be obligated for its created purpose. The COA Proper also found violations of Article XI-B of the 1987 Constitution prohibiting additional or double compensation, COA Resolution No. 2005-001 prohibiting health insurance benefits other than those provided by the Philippine Health Insurance Corporation, and Republic Act No. 6758 (Salary Standardization Law). The COA Proper absolved passive payee recipients citing Silang vs. Commission on Audit.

Villa received a copy of the COA Proper Decision on October 24, 2017, and moved for reconsideration, averring: (a) his right to procedural due process was violated because he was not furnished copies of the NDs; (b) his participation was limited to signing the CNA, not the release of the MHCA; (c) he did not approve the payments; and (d) the opinion of the DBM Secretary and the president's authorization were sufficient bases of good faith. In a Resolution dated December 23, 2021, the COA Proper denied Villa's MR for lack of merit, holding that his right to due process was not violated since he was allowed to file the MR and raise defenses on the merits. The COA Proper modified Villa's liability by limiting it to payments based on the CNA he signed during his tenure and, pursuant to Madera vs. Commission on Audit, required the payees to refund the amounts they received.

• Timeliness of Petition: Petitioner prayed for the relaxation of the 30-day reglementary period under Rule 64 of the Rules of Court, acknowledging the petition was filed 13 days beyond the allowable period.
• Due Process Violation: Petitioner argued that his right to due process was denied because he was not furnished copies of the NDs, citing Barosso vs. Commission on Audit for the proposition that the mere filing of a motion for reconsideration does not cure due process defects.
• Double Recovery: Petitioner argued that holding him solidarily liable while requiring the payees to return the disallowed amount would be tantamount to double recovery.
• Good Faith: Petitioner argued that he acted in good faith in signing the CNA and did not have a hand in the approval of the grant of MHCA, and that the opinion of the DBM Secretary and the president's authorization were sufficient bases of good faith.
• Propriety of the Grant: Petitioner argued that the grant of MHCA is essential and incidental to the implementation of the agrarian reform program.

• Timeliness: The COA, through the Office of the Solicitor General, argued that the Petition should be dismissed outright for having been filed out of time.
• Due Process: The COA argued that Villa was not denied due process because he was afforded the opportunity to explain his side on the merits.
• Solidary Liability: The COA argued that Villa was correctly held solidarily liable for the payment of the MHCA because affixing his signature to the CNA is a manifestation of his approval of the terms of the grant of the MHCA despite not having direct participation thereto.
• Double Recovery: The COA argued that there is no double recovery of the disallowed amount.

• Timeliness of Petition: Whether the 30-day reglementary period to file a Petition for Certiorari under Rule 64 should be relaxed.
• Due Process: Whether petitioner's right to due process was violated when he was not furnished copies of the NDs.
• Propriety of Disallowance: Whether the COA Proper gravely abused its discretion in disallowing the grant of MHCA sourced from the ARF.
• Solidary Liability: Whether the COA Proper gravely abused its discretion in holding petitioner solidarily liable for the payments of the MHCA.

• Timeliness of Petition: Yes, the reglementary period was relaxed. The Court, citing Madera, held that the observance of procedural rules may be relaxed when the substantial merits of a case warrant the review of the COA Proper's Decision and Resolution.
• Due Process: No. Petitioner's right to due process was not violated because, in contrast to Barosso, petitioner was able to argue on the merits of the Decision aside from his allegation of due process violation, and the COA Proper Resolution considered his defenses.
• Propriety of Disallowance: No. The COA Proper did not gravely abuse its discretion in affirming the propriety of the disallowance. The grant of MHCA sourced from the ARF was illegal pursuant to Executive Order No. 229 and Republic Act No. 6657, consistent with Dubongco and DAREA.
• Solidary Liability: Yes, the COA Proper gravely abused its discretion in holding petitioner solidarily liable. A mere signature in the CNA cannot be assumed to operate as an express or implied authority to release the MHCA; there must be proof that petitioner conspired with the persons who caused the disbursement and acted with bad faith, malice, or gross negligence, which the COA Proper failed to adduce.

• Timeliness of Petition: The Court reviewed the records and found that the COA Proper's Decision was received by petitioner on October 24, 2017, and the Resolution on June 21, 2022. Since the MR was filed on November 21, 2017, petitioner had 5 days from June 21, 2022, or until June 26, 2022, to file the Petition. The Petition was belatedly filed on July 8, 2022, or 13 days beyond the reglementary period. Nonetheless, citing Madera, the Court held that procedural rules may be relaxed when the substantial merits of a case warrant review, as in this case.

• Due Process: The Court distinguished Barosso from the present case. In Barosso, the petitioner never had the opportunity to thoroughly argue the merits of his case because he was not properly informed of what he was supposed to argue against. In contrast, citing Mendoza vs. Commission on Audit, the Court found that petitioner's right to due process was not violated because a perusal of his MR showed that he was able to argue on the merits of the Decision aside from his due process allegation, and the COA Proper Resolution considered his defenses. The Court held that the "essence of administrative due process" is the opportunity to explain one's side and seek reconsideration.

• Propriety of Disallowance: The Court cited Dubongco vs. Commission on Audit, which held that CNA incentives released from the CARP Fund or ARF were improper because they may only be sourced from savings of an agency's operating expenses pursuant to Public Sector Labor Management Council Resolution No. 4, Series of 2002. The Court further explained that using the ARF as a source of CNA incentives is illegal pursuant to Sections 20 and 21 of EO No. 229 and Section 63 of Republic Act No. 6657. Citing Confederation of Coconut Farmers Organizations of the Philippines, Inc. vs. Aquino III, the Court explained that the revenue collected for the ARF shall only be used exclusively for the implementation of the CARP. The CNA Incentive and ARF serve two different purposes: the CNA Incentive is conditional, depending on the availability of savings from operating expenses, while the CARP Fund is derived from multiple sources to ensure continued implementation of the agrarian reform program. The Court applied Dubongco and DAREA to find that the COA did not commit grave abuse of discretion in disallowing the MHCA for being illegally sourced from the ARF.

• Solidary Liability: The Court applied the prevailing guidelines on liability established in Madera. Under Madera, approving and certifying officers who acted in good faith, in regular performance of official functions, and with the diligence of a good father of the family are not civilly liable to return, consistent with Section 38 of the Administrative Code of 1987. Officers who are clearly shown to have acted in bad faith, malice, or gross negligence are, pursuant to Section 43 of the Administrative Code of 1987, solidarily liable to return only the net disallowed amount. Citing Abellanosa vs. Commission on Audit, the Court explained that Section 38(1), Chapter 9, Book I of the Administrative Code of 1987 requires a clear showing of bad faith, malice, or gross negligence to hold an approving or authorizing officer civilly liable. The Court also cited Section 103 of Presidential Decree No. 1445 and Section 16 of the Manual of Certificate of Settlement and Balances, which provide factors for determining liability: (a) the nature of the disallowance; (b) the duties, responsibilities, or obligations of the officers concerned; (c) the extent of their participation or involvement in the disallowed transaction; and (d) the amount of losses or damages suffered by the government.

Applying Ampatuan vs. Commission on Audit, the Court held that the "sole proposition that an official is the head of the audited agency does not suffice to hold them personally liable for disallowances on account of their subordinate's actions." The Court found that a mere signature in the CNA cannot be assumed to operate as an express or implied authority from the signatory to release the MHCA. There must be proof that petitioner not only conspired with the persons who actually caused the disbursement but also acted with bad faith, malice, or gross negligence—all of which the COA Proper failed to adduce. The COA Proper itself admitted the lack of proof when it stated that "although [petitioner] has no direct participation in the approval of, and the actual disbursement of the medical allowance, the CNA, which he signed, was the basis for the payment of the medical allowance." Absent any proof of petitioner's participation in the disbursement, the Court held that petitioner should be absolved from solidary liability.

• Madera Rules on Return — The prevailing guidelines on the determination of liability of persons made to return disallowed amounts: (1) If a Notice of Disallowance is set aside by the Court, no return shall be required from any of the persons held liable therein; (2) If a Notice of Disallowance is upheld: (a) approving and certifying officers who acted in good faith, in regular performance of official functions, and with the diligence of a good father of the family are not civilly liable to return consistent with Section 38 of the Administrative Code of 1987; (b) approving and certifying officers who are clearly shown to have acted in bad faith, malice, or gross negligence are, pursuant to Section 43 of the Administrative Code of 1987, solidarily liable to return only the net disallowed amount; (c) recipients—whether approving or certifying officers or mere passive recipients—are liable to return the disallowed amounts respectively received by them, unless they are able to show that the amounts they received were genuinely given in consideration of services rendered; and (d) the Court may likewise excuse the return of recipients based on undue prejudice, social justice considerations, and other bona fide exceptions. The Court applied these rules to find that the COA failed to prove the petitioner's bad faith, malice, or gross negligence.

• State Agency Doctrine — Public officers are considered as agents of the State; acts done in the performance of their official functions are considered as acts of the State. When a public officer acts negligently, or worse, in bad faith, the protective mantle of State immunity is lost as the officer is deemed to have acted outside the scope of his official functions. The Court relied on this doctrine in Abellanosa to explain why bad faith, malice, or gross negligence must first be proven before holding a public officer civilly liable.

• Mere Signature on CNA Doctrine — A mere signature in a collective negotiation agreement cannot be assumed to operate as an express or implied authority from the signatory to release funds arising from the agreement. There must be proof that the official not only conspired with the persons who actually caused the disbursement but also acted with bad faith, malice, or gross negligence. The Court applied this principle, derived from Ampatuan, to absolve the petitioner from solidary liability.

• "A mere signature in the CNA cannot be assumed to operate as an express or implied authority from the signatory thereof to release the MHCA arising from the agreement. There must be proof that petitioner not only conspired with the persons who actually caused the disbursement of the MHCA but also acted with bad faith, malice, or gross negligence—all of which the COA Proper failed to adduce." — This passage states the ratio decidendi for absolving the petitioner from solidary liability, establishing that mere signature on a CNA is insufficient to impute liability without proof of conspiracy and bad faith.

• "While the Court recognizes the employees' indispensable part in the implementation of agrarian reforms, it cannot legally uphold the grant of incentives financed by the wrong source for to do so would lead to an abhorrent situation wherein the sources of funds for bonuses or incentives depend upon the whims and caprice of superior officials in blatant disregard of the laws which they are supposed to implement." — This passage from Dubongco, quoted by the Court, articulates the rationale for disallowing CNA incentives sourced from the ARF, distinguishing the purposes of the CNA Incentive and the CARP Fund.

• "The need to first prove bad faith, malice, or gross negligence before holding a public officer civilly liable traces its roots to the State agency doctrine—a core concept in the law on public officers." — This passage from Abellanosa, quoted by the Court, explains the doctrinal foundation for requiring proof of bad faith, malice, or gross negligence before imposing civil liability on public officers.

• Madera vs. Commission on Audit, 882 Phil. 744 (2020) — Controlling precedent establishing the rules on return for disallowed amounts. The Court applied these rules to determine the petitioner's liability and also relied on it to relax the reglementary period.
• Dubongco vs. Commission on Audit, 848 Phil. 367 (2019) — Controlling precedent holding that CNA incentives released from the CARP Fund or ARF were improper. The Court applied this case to affirm the disallowance of the MHCA.
• Department of Agrarian Reform Employees Association (DAREA) vs. Commission on Audit, 889 Phil. 999 (2020) — Followed; reiterated Dubongco and upheld the disallowance of CNA incentives granted to DAR's officials and employees.
• Ampatuan vs. Commission on Audit, 918-A Phil. 842 (2021) — Controlling precedent holding that the sole proposition that an official is the head of the audited agency does not suffice to hold them personally liable for disallowances on account of their subordinate's actions. The Court applied this to absolve the petitioner.
• Abellanosa vs. Commission on Audit, 890 Phil. 413 (2020) — Followed; elaborated on Madera's discussion on the nature of liability of approving and certifying officers, explaining the State agency doctrine and the requirements of Section 38 of the Administrative Code.
• Barosso vs. Commission on Audit, 900 Phil. 604 (2021) — Distinguished; the Court found the petitioner's reliance on this case misplaced because, unlike in Barosso, the petitioner was able to argue on the merits of the Decision.
• Mendoza vs. Commission on Audit, 717 Phil. 491 (2013) — Followed; held that the right to due process is not violated despite not having personally received the notice of disallowance if the party was able to file a motion for reconsideration and the COA ruled on the merits.
• Confederation of Coconut Farmers Organizations of the Philippines, Inc. vs. Aquino III, 815 Phil. 1036 (2017) — Cited in Dubongco to explain that revenue collected for the ARF shall only be used exclusively for the implementation of the CARP.
• Silang vs. Commission on Audit — Cited by the COA Proper to absolve passive payee recipients of the disallowed amounts.

• Section 9, Presidential Decree No. 477 — The Decree on Local Fiscal Administration (1974); requires that trust funds shall only be available for the specific purpose for which they were created. Cited in the NDs as a basis for disallowing the MHCA payments.
• Section 4(3), Presidential Decree No. 1445 — The Government Auditing Code of the Philippines (1978); cited in the NDs as a basis for disallowing the MHCA payments.
• Sections 20 and 21, Executive Order No. 229 (1987) — Provide for the creation of the Agrarian Reform Fund and its authorized purposes. The Court cited these provisions to explain that the ARF shall only be used for the purposes authorized in the Order.
• Section 63, Republic Act No. 6657 — The Comprehensive Agrarian Reform Law; cited in Dubongco to explain that the ARF shall only be used exclusively for the implementation of the CARP.
• Article IX(D), Section 2, 1987 Constitution — Grants the COA the power, authority, and duty to examine, audit, and settle all accounts pertaining to government revenues and expenditures. The Court cited this provision to affirm the COA's constitutional power to disallow illegal expenditures.
• Article XI-B, 1987 Constitution — Prohibits the grant of additional or double compensation. Cited by the COA Proper as an additional basis for the disallowance.
• Section 38, Chapter 9, Book I, Administrative Code of 1987 — Provides that a public officer shall not be civilly liable for acts done in the performance of his official duties unless there is a clear showing of bad faith, malice, or gross negligence. The Court applied this provision to determine the petitioner's liability.
• Section 43, Chapter 5, Book VI, Administrative Code of 1987 — Provides for liability for illegal expenditures, holding every official or employee authorizing or making such payment, or taking part therein, jointly and severally liable to the Government. The Court cited this provision in the context of the Madera rules on return.
• Section 103, Presidential Decree No. 1445 — Provides that expenditures of government funds in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor. The Court cited this provision as guidance in determining liability.
• Section 16, Manual of Certificate of Settlement and Balances — Provides factors for determining persons liable for audit disallowances: (a) the nature of the disallowance; (b) the duties, responsibilities, or obligations of the officers concerned; (c) the extent of their participation or involvement in the disallowed transaction; and (d) the amount of losses or damages suffered by the government. The Court cited this provision in its analysis of the petitioner's liability.
• Rule 64, Section 3, Rules of Court — Provides the 30-day reglementary period for filing a petition for certiorari from notice of the judgment or final order or resolution sought to be reviewed. The Court addressed the timeliness of the petition under this provision.
• Republic Act No. 6758 — The Salary Standardization Law; cited by the COA Proper to hold that the MHCA is already deemed included in the standardized salary rates of DAR employees.
• COA Resolution No. 2005-001 — Prohibits the securing of health insurance benefits other than those provided by the Philippine Health Insurance Corporation. Cited by the COA Proper as an additional basis for the disallowance.

Gesmundo, C.J., Leonen, SAJ., Caguioa, Lazaro-Javier, Zalameda, M. Lopez, and Dimaampao, JJ., concurred. Hernando and J. Lopez, JJ., were on official business. Inting, J., concurred and was on official business. Gaerlan, Rosario, and Marquez, JJ., were on official leave. Singh, J., was on leave.