EN BANC

PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA),

Petitioner,

G.R. No. 189767

Present:

- versus -

CARPIO,

VELASCO, JR.,

LEONARDO-de castro,

BRION,*

PERALTA,

BERSAMIN,**

DEL CASTILLO,

ABAD,

VILLARAMA, JR.,

PEREZ,

MENDOZA,

SERENO,

REYES, and

PERLAS-BERNABE, JJ.

COMMISSION ON AUDIT and REYNALDO A. VILLAR, Chairman, Commission on Audit,

Respondents.

Promulgated:

July 3, 2012

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

RESOLUTION

VILLARAMA, JR., J.:

Before us is a petition for certiorari under Rule 64 in relation to Rule 65 of the 1997 Rules of Civil Procedure, as amended, seeking to annul Commission on Audit (COA) Decision No. 2009-081[1] which affirmed the Decision[2] of the Director, Cluster IV - Industrial and Area Development and Regulatory, Corporate Government Sector, COA, affirming Notice of Disallowance Nos. 2006-001-101 (02-06) to 2006-021-101 (01-03)[3] for the payment of P5,451,500.00 worth of per diems to ex officio members of the Board of Directors of petitioner Philippine Economic Zone Authority (PEZA).

The Facts

The PEZA Board of Directors is composed of 13 members which include the Undersecretaries of the Department of Finance, the Department of Labor and Employment, the Department of the Interior and Local Government, the Department of Environment and Natural Resources, the Department of Agriculture, the Department of Public Works and Highways, the Department of Science and Technology and the Department of Energy. Said Undersecretaries serve in ex officio capacity and were granted per diems by PEZA for every attendance in a board meeting.

On September 13, 2007, the PEZA Auditor Corazon V. Espao issued Notice of Disallowance Nos. 2006-001-101 (02-06) to 2006-021-101 (01-03) on the following payments of per diems to ex officio members of the PEZA Board for the period 2001-2006:

N.D. No.	DATE	PAYEE	TOTAL AMOUNT
2006-001-101 (02-06)	7/26/07	Eduardo R. Soliman, Jr.	P 632,000.00
2006-002-101 (02-05)	7/16/07	Juanita D. Amatong	448,000.00
2006-003-101 (01-02)	7/16/07	Anselmo S. Avenido	162,000.00
2006-004-101 (01)	7/16/07	Rosalinda Dimapilis-Baldoz	45,000.00
2006-005-101(05)	7/16/07	Benedicto Ernesto R. Bitonio, Jr.	56,000.00
2006-006-101 (05-06)	7/19/07	Manuel M. Bonoan	112,000.00
2006-007-101(01-02)	7/19/07	Arturo D. Brion	177,000.00
2006-008-101(05/06)	7/19/07	Armando A. De Castro	144,000.00
2006-009-101(02-06)	7/19/07	Fortunato T. De La Pea	904,000.00
2006-010-101(01)	7/19/07	Roseller S. Dela Pea	36,000.00
2006-011-101(01-05)	7/23/07	Cyril Del Callar	762,000.00
2006-012-101(03)	7/23/07	Renato A. De Rueda	48,000.00
2006-013-101(01-06)	7/23/07	Cesar M. Drilon, Jr.	811,000.00
2006-014-101(03-05)	7/23/07	Josephus B. Jimenez	336,000.00
2006-015-101(01)	7/23/07	Rufino C. Lirag, Jr.	63,000.00
2006-016-101(06)	7/26/07	Gaudencio A. Mendoza, Jr.	16,000.00
2006-017-101(03-04)	7/26/07	Rolando L. Metin	256,000.00
2006-018-101(01-02)	7/26/07	Edmundo V. Mir	124,500.00
2006-019-101(05-06)	7/26/07	Melinda L. Ocampo	104,000.00
2006-020-101(05-06)	7/26/07	Luzviminda G. Padilla	56,000.00
2006-021-101(01-03)	7/26/07	Ramon J.P. Paje	159,000.00
		TOTAL	P5,451,500.00[4]

The disallowance was based on this Courts April 4, 2006 En Banc Resolution dismissing the petition for certiorari in Cyril del Callar, et al., Members of the Board of Directors, Philippine Economic Zone Authority v. COA and Guillermo N. Carague, Chairman, COA[5] which assailed COA Decision No. 2006-009 dated January 31, 2006 affirming the March 29, 2002 decision of the Director, then Corporate Audit Office II, disallowing the payment of per diems of ex officio members of the PEZA Board of Directors. Said disallowance was based on COA Memorandum No. 97-038 dated September 19, 1997 implementing Senate Committee Report No. 509 and this Courts ruling in Civil Liberties Union v. Executive Secretary.[6]

On October 31, 2007, the Deputy Director General for Finance and Administration of PEZA moved to reconsider[7] the subject Notices of Disallowance (NDs) and prayed that the concerned ex officio members be allowed to retain the per diems already received as they received them in good faith. It was contended that the payment of the per diems covered the period when the April 4, 2006 Supreme Court Resolution was not yet final and thus, PEZA honestly believed that the grant of the same was moral and legal. In the same vein, the ex officio members received them in good faith. The motion cited the cases of Home Development Mutual Fund v. Commission on Audit[8] and De Jesus v. Commission on Audit[9] as bases.

In a letter[10] dated November 16, 2007, PEZA Auditor Espao denied the motion for reconsideration. She stated that the PEZA Management continued paying the per diems even after they were duly notified through said NDs that such was in violation of the Constitution as explained in the Civil Liberties Union case. She opined that the receipt of the NDs in effect notified the recipients and PEZA officials that such payment was illegal and hence, the failure of PEZA to heed the notices cannot be deemed consistent with the presumption of good faith.

By letter[11] dated January 4, 2008, PEZA Director General Lilia B. De Lima appealed the denial of their motion for reconsideration to the Office of the Cluster Director, COA. De Lima reiterated their claim of good faith contending that the Del Callar case had yet to be decided with finality when the subject per diems were disbursed. She argued that since the issue on the propriety of giving per diems to ex officio members was still unresolved, and because PEZA firmly believed that it had legal basis, it continued to pay the per diems despite knowledge and receipt of NDs. Good faith, therefore, guided PEZA in releasing the payments.

In a 2^nd Indorsement[12] dated March 17, 2008, the COA Cluster Director, Ma. Cristina Dizon-Dimagiba, denied PEZAs appeal. She ruled that PEZAs claim of good faith cannot be given merit because in several other instances previous payments of per diems have been disallowed. She noted that by the time PEZA received the notices of disallowance, it can be said that there is already an iota of doubt as to whether the said transaction is valid or not. Hence, good faith can no longer apply.

On April 30, 2008, PEZA filed a petition for review[13] before the COA to assail the denial of its appeal by the Office of the Cluster Director. PEZA reiterated the same arguments it raised in its appeal.

On September 15, 2009, the COA rendered the assailed decision denying PEZAs petition for review. The dispositive portion reads:

WHEREFORE, foregoing premises considered, the instant petition is hereby DENIED for lack of merit. Accordingly, ND Nos. 2006-001-101 (02-06) to 2006-021-101 (01-03) in the total amount of P5,451,500.00 representing payment of per diems to ex-officio members of the Board of Directors of PEZA are hereby AFFIRMED. All the recipients and the persons liable thereon are required to refund the said disallowed per diems. The Auditor of PEZA is also directed to inform this Commission of the settlement made thereon.[14]

The COA ruled that the last paragraph of Section 11 of Republic Act (R.A.) No. 7916 authorizing the members of the Board to receive per diems was deleted in the amendatory law, R.A. No. 8748. Hence, from the time of the effectivity of R.A. No. 8748 in 1999, the members of the PEZA Board of Directors were no longer entitled to per diems. It further held that the payments to and receipt by ex officio members of the PEZA Board of per diems for CYs 2001-2006 run counter to the express prohibition in Section 13, Article VII of the 1987 Constitution.

The COA also dismissed PEZAs claim of good faith in making the disbursements of per diems to the ex officio members of its Board. It ruled:

As to the petitioners claim of good faith, it must be emphasized that under the Bitonio case, as early as 1998, PEZA was already notified of the illegality of the payment of per diems to ex-officio members of the PEZA Board thru the NDs issued by the COA Auditor from 1995 to 1998 on the payment of per diem to every board meeting attended by the petitioner Benedicto Ernesto R. Bitonio, Jr. as representative of the Secretary of Labor to the PEZA. This was anchored on the case of Civil Liberties Union v. Executive Secretary, supra, which affirmed COA Decision Nos. 2001-045 and 98-017-101(97) dated January 30, 2001 and October 9, 1998, respectively, which declared that:

x x x The framers of R.A. No. 7916 (Special Economic Zone Act of 1995) must have realized the flaw in the law which is the reason why the law was later amended by R.A. No. 8748 to cure such defect.

x x x

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 proscription set by the Constitution.

Prescinding from the above, the petitioner (Benedicto Ernesto R. Bitonio, Jr.) is indeed, not entitled to receive a per diem for his attendance at board meetings during his tenure as member of the Board of Directors of the PEZA. (italics ours)

After the Bitonio case, the Auditor again disallowed the payments of per diems granted for the period 1999 to 2000 by PEZA to the ex-officio members of the PEZA Board under ND Nos. 2001-001-101 to 2001-008-101, which were upheld under COA Decision No. 2006-009 dated January 31, 2006. Thus, PEZA was repeatedly notified of the illegality of the payment of the said per diems. However, similar disbursements were continued, ignoring the Auditors findings. At the time they first received the ND in 1998, it can be said that there should already have been a doubt to say the least, on the legality of the said transaction which should have made management discontinue such payments. But even after the promulgation of the SC decision in the Bitonio case, PEZA continued the payment of the same until year 2006. Indeed, such actuation is incompatible with good faith. Hence, even if the per diems were granted prior to the finality of the Cyril Del Callar v. COA case cited by herein petitioner, PEZA management was already aware that the payment thereof had been declared illegal by the SC in the earlier aforecited cases.[15]

PEZA now comes to this Court seeking to annul the assailed decision on the following grounds:

REPUBLIC ACT NO. 7916, AS AMENDED BY REPUBLIC ACT NO. 8748 ALLOWS THE PAYMENT OF PER DIEMS TO THE MEMBERS OF THE PEZA BOARD OF DIRECTORS.

THE EX-OFFICIO MEMBERS OF THE PEZA BOARD OF DIRECTORS SHOULD NO LONGER BE REQUIRED TO REFUND THE PER DIEMS ALREADY RECEIVED BECAUSE THEY WERE OF THE HONEST BELIEF THAT THEY WERE LEGALLY ENTITLED TO RECEIVE THE SAME.[16]

PEZA argues that contrary to the COAs position, the last paragraph of Section 11, R.A. No. 7916 authorizing the members of the PEZA Board to receive per diems still exists because it was never deleted in R.A. No. 8748. It contends that just because the last paragraph of Section 11, R.A. No. 7916 does not appear in Section 1 of R.A. No. 8748 but is merely represented by the characters x x x does not mean that it has already been deleted. PEZA submits that since there was no repeal by R.A. No. 8748 and neither was the last paragraph of Section 11 of R.A. No. 7916 declared void or unconstitutional by this Court, the provision enjoys the presumption of validity and therefore, PEZA cannot be faulted for relying on the authority granted by law.

PEZA also insists on its claim of good faith. It emphasizes that the per diems were granted by PEZA in good faith as it honestly believed that the grant of the same was legal and similarly, the ex officio members of the PEZA Board received the per diems in good faith.

COA, for its part, opposes PEZAs contention that the last paragraph of Section 11 of R.A. No. 7916 authorizing the grant of per diems to ex officio members of the PEZA Board was not deleted by its amendatory law, R.A. No. 8748, citing this Courts ruling in Bitonio, Jr. v. Commission on Audit.[17]

COA likewise contends that the deletion of the last paragraphs of the subject provision merely conformed with the Constitution. It argues that the position of the undersecretaries of the Cabinet as members of the Board is in an ex officio capacity or part of their principal office and thus, they were already being paid in their respective Departments. To allow them to receive additional compensation in PEZA would amount to double compensation. COA submits that this is precisely the reason why this Court, in several cases, declared unconstitutional the payment of additional compensation to ex officio officials.

The Issues

Does the PEZA have legal basis in granting per diems to the ex officio members of its Board? And if there is no legal basis, was there good faith in PEZAs grant and the ex officio members receipt of the per diems?

Our Ruling

The Court finds the petition devoid of merit.

The lack of legal basis to grant per diems to ex officio members of the PEZA Board, including their representatives, has already been settled by no less than the Court En Banc in the case of Bitonio, Jr. where we held that the amendatory law, R.A. No. 8748, purposely deleted the last paragraph of Section 11 of R.A. No. 7916 that authorized the grant of per diems to PEZA Board members as it was in conflict with the proscription laid down in the 1987 Constitution. We held in Bitonio, Jr.:

The framers of R.A. No. 7916 must have realized the flaw in the law which is the reason why the law was later amended by R.A. No. 8748 to cure such defect. In particular, Section 11 of R.A. No. 7916 was amended to read:

SECTION 11. The Philippine Economic Zone Authority (PEZA) Board. There is hereby created a body corporate to be known as the Philippine Economic Zone Authority (PEZA) attached to the Department of Trade and Industry. The Board shall have a director general with the rank of department undersecretary who shall be appointed by the President. The director general shall be at least forty (40) years of age, of proven probity and integrity, and a degree holder in any of the following fields: economics, business, public administration, law, management or their equivalent, and with at least ten (10) years relevant working experience preferably in the field of management or public administration.

The director general shall be assisted by three (3) deputy directors general each for policy and planning, administration and operations, who shall be appointed by the PEZA Board, upon the recommendation of the director general. The deputy directors general shall be at least thirty-five (35) years old, with proven probity and integrity and a degree holder in any of the following fields: economics, business, public administration, law, management or their equivalent.

The Board shall be composed of thirteen (13) members as follows: the Secretary of the Department of Trade and Industry as Chairman, the Director General of the Philippine Economic Zone Authority as Vice-chairman, the undersecretaries of the Department of Finance, the Department of Labor and Employment, the Department of [the] Interior and Local Government, the Department of Environment and Natural Resources, the Department of Agriculture, the Department of Public Works and Highways, the Department of Science and Technology, the Department of Energy, the Deputy Director General of the National Economic and Development Authority, one (1) representative from the labor sector, and one (1) representative from the investors/business sector in the ECOZONE. In case of the unavailability of the Secretary of the Department of Trade and Industry to attend a particular board meeting, the Director General of PEZA shall act as Chairman.

As can be gleaned from above, the members of the Board of Directors was increased from 8 to 13, specifying therein that it is the undersecretaries of the different Departments who should sit as board members of the PEZA. The option of designating his representative to the Board by the different Cabinet Secretaries was deleted. 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.

Prescinding from the above, the petitioner is, indeed, not entitled to receive a per diem for his attendance at board meetings during his tenure as member of the Board of Directors of the PEZA.[18] (Italics in the original.)

PEZAs insistence that there is legal basis in its grant of per diems to the ex officio members of its Board does not hold water. The constitutional prohibition explained in Civil Liberties Union case still stands and this Court finds no reason to revisit the doctrine laid down therein as said interpretation, to this Courts mind, is in consonance with what our Constitution provides.

Neither can this Court give credence to PEZAs claim of good faith.

In common usage, the term good faith is ordinarily used to describe that state of mind denoting honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction unconscientious.[19]

Definitely, PEZA cannot claim that it was not aware of circumstances pointing to the possible illegality of the disbursements of per diems to the ex officio members of the Board. In Civil Liberties Union, this Court clarified the prohibition under Section 13, Article VII of the Constitution and emphasized that a public official holding an ex officio position as provided by law has no right to receive additional compensation for the ex officio position. This Court ruled:

It bears repeating though that 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.

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. It should be obvious that if, say, the Secretary of Finance attends a meeting of the Monetary Board as an ex-officio member thereof, he is actually and in legal contemplation performing the primary function of his principal office in defining policy in monetary and banking matters, which come under the jurisdiction of his department. For such attendance, therefore, he is not entitled to collect any extra compensation, whether it be in the form of a per diem or an honorarium or an allowance, or some other such euphemism. By whatever name it is designated, such additional compensation is prohibited by the Constitution.[20] (Italics in the original; emphasis supplied.)

It bears stressing that the Civil Liberties Union case was promulgated in 1991, or a decade before the subject disallowed payments of per diems for the period starting 2001 were made by PEZA. Thus, even if the Bitonio case was only promulgated in 2004 when part of the disallowed payments have already been made, PEZA should have been guided by the Civil Liberties Union case and acted with caution. It would have been more prudent for PEZA, if it honestly believed that there is a clear legal basis for the per diems and there was a chance that this Court might rule in their favor while the Bitonio case was pending, to withhold payment of the per diem instead of paying them. PEZAs actual knowledge that the disbursements are being questioned by virtue of the notices of disallowance issued to them by the COA and knowledge of the pronouncements of the Court in the Civil Liberties Union case and in other cases[21] where ex officio members in several government agencies were prohibited from receiving additional compensation, militate against its claim of good faith.

WHEREFORE, in light of the foregoing, the present petition is DISMISSED. The assailed COA Decision No. 2009-081 dated September 15, 2009 is AFFIRMED and UPHELD.

No costs.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Senior Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

(No Part)

ARTURO D. BRION

Associate Justice

DIOSDADO M. PERALTA

Associate Justice

(On official leave)

LUCAS P. BERSAMIN

Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

BIENVENIDO L. REYES

Associate Justice

ESTELA M. PERLAS-BERNABE

Associate Justice

C E R T I F I C A T I O N

I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Court.

ANTONIO T. CARPIO

Senior Associate Justice

(Per Section 12, R.A. 296,

The Judiciary Act of 1948, as amended)

[1] Dated September 15, 2009. Rollo, pp. 23-30.

[3] All issued in July 2007. Rollo, pp. 31-85.

[5] G.R. No. 171802, April 4, 2006 (Unsigned Resolution).

[6] G.R. Nos. 83896 & 83815, February 22, 1991, 194 SCRA 317.

[8] G.R. No. 157001, October 19, 2004, 440 SCRA 643.

[9] G.R. No. 156641, February 5, 2004, 422 SCRA 287.

[17] G.R. No. 147392, March 12, 2004, 425 SCRA 437.

[19] Civil Service Commission v. Maala, G.R. No. 165253, August 18, 2005, 467 SCRA 390, 399, citing Blacks Law Dictionary, 6^th ed., 1993, p. 693. Emphasis supplied.

[20] Civil Liberties Union v. Executive Secretary, supra note 6, at 335.

[21] See National Amnesty Commission v. Commission on Audit, G.R. No.156982, September 8, 2004, 437 SCRA 655 and Dela Cruz v. Commission on Audit, G.R. No. 138489, November 29, 2001, 371 SCRA 157.