G.R. No. 143784

THIRD DIVISION

G.R. No. 143784 February 5, 2003

PHILIPPINE RETIREMENT AUTHORITY (PRA), petitioner,
vs.
JESUSITO L. BUÑAG and ERLINA P. LOZADA, respondents.

D E C I S I O N

PUNO, J.:

Before the Court is a Petition for Review on Certiorari involving alleged overpayment by the petitioner Philippine Retirement Authority (PRA) of certain benefits and allowances to its employees, particularly respondents herein. Petitioner PRA asks the Court to resolve the legal question of whether disbursements made by PRA of compensation, allowances and other benefits to its employees prior to the effectivity of R.A. No. 6758 or the Compensation and Position Classification Act of 19891 is subject to the review of the Department of Budget and Management.

Petitioner PRA is a government-owned and controlled corporation created on July 4, 1985 under Executive Order No. 1037.2 PRA became operational on September 8, 1986.3 Private respondent Jesusito L. Buñag is the former deputy general manager of petitioner PRA while private respondent Erlina P. Lozada is the incumbent department manager of petitioner PRA.

As of July 1, 1989, in addition to their basic salaries, private respondents were each receiving from PRA the following allowances and benefits: a) Cost of Living Allowance (COLA), 40% of the basic salary; b) Amelioration Allowance, 10% of the basic salary; c) additional COLA, ₱300.00 a month; d) rice subsidy, ₱400.00 per month; e) meal subsidy, ₱525.00 a month; f) children allowance, ₱30.00 a month; and g) Representation and Transportation Allowance (RATA) in various amounts.4

In a letter dated December 29, 1992, the Office of the President, through then Executive Secretary Edelmiro A. Amante, Sr. approved the Corporate Operating Budget of petitioner PRA for calendar year 1992 in the amount of ₱25,288,091.00. In the same letter, the amount of ₱9,129,833.00 representing unjustified/unauthorized allowances, fringe benefits and other items was disallowed.5

In a letter dated February 1, 1993, PRA sought reconsideration from the Office of the President on the disallowances, in particular, the amount of ₱1,324,822.00 out of the ₱9,129,833.00 disallowed disbursements representing supposed over-provision and payment of benefits and allowances to PRA employees. The amount of ₱1,324,822.00 is itemized as follows:6

a) Over-provision of RATA …..…………………….. ₱193,200.00

b) Transition Allowance ………………..…………... 611,454.00

c) Provision for Hospitalization ….………………… 100,000.00

d) Provision for Provident Fund Contribution 420,168.00

TOTAL
₱1,324,822.00

The Office of the President denied the request for reconsideration in a letter dated September 23, 1993.7 On October 12, 1993, PRA filed a request for clarification of the order denying the request for reconsideration.8 In reply thereto, the Office of the President explained in a letter dated November 11, 1993 that the approved Corporate Operating Budget of PRA for calendar year 1992 is subject to the following restrictions:9

"1. The approval refers to expenditures/ceilings for each expenditure class and shall not be construed as approval of specific items of expenditure;

2. Salaries, wages, allowances and benefits shall be in accordance with the approved Position Allocation List, pursuant to the Compensation and Position Classification Act of 1989 (R.A. 6758);

3. Payment of other benefits, such as bonuses, clothing, representation, transportation allowances, and such other allowances shall be in accordance with Sections 5.4, 5.5, and 5.6 of Corporate Compensation Circular No. 10, National Compensation Circular (NCC) No. 66, dated September 12 1991, and NCC No. 67, dated January 1, 1992; and

4. All expenditures shall be made within the limits of available funds realized by PRA from corporate revenues."

Hence, petitioner PRA reduced the compensation of private respondents and stopped the payment of RATA and other allowances to private respondents.

Feeling aggrieved, private respondents sought the legal opinion of the Department of Budget and Management on the disallowance and reduction of amount of fringe benefits and other allowances previously received by them. On January 11, 1995, the Department of Budget and Management opined that "the total monthly compensation and allowances sought have no legal basis."10 The Department of Budget and Management explained:

"[I]t is worthy to note that the salaries actually received by the concerned personnel as of June 30, 1989 which were used as a basis in computing the allowances to be integrated and in determining the transition allowance to be granted were not the basic salaries as certified and authorized by the DBM. Hence, there appears to be over computation of allowances to the integrated and transition allowances granted." (emphasis supplied)

Private respondents then elevated the matter to the Office of the President. The case was docketed as O.P. Case No. 95-L-6336.

On December 18, 1995, the Office of the President reversed the ruling of the Department of Budget and Management and awarded to the private respondents the allowances and benefits claimed. It ruled that "the exemption of PRA from the jurisdiction of [the Department of Budget and Management], as provided under the PRA charter, remained effective and legally impervious to the assertions by [the Department of Budget and Management] of its authority."11 As no prior approval or authority is required from the Department of Budget and Management with respect to the compensation scheme of PRA and the grant of allowances by it to its employees, the Office of the President held that disbursements made by PRA representing compensation and allowances of PRA officials and employees prior to the effectivity of July 1, 1989 were valid. It applied the principle of "non-diminution of benefits" embodied in the transitory provisions of R.A No. 6758 and concluded that private respondents are entitled to continue receiving the compensation and benefits previously enjoyed by them. Thus, the Office of the President directed the Department of Budget and Management to provide enough funds to cover the salaries and allowances of the PRA officials and employees. The subsequent Motions for Reconsideration filed by the Department of Budget and Management and by petitioner PRA were denied by the Office of the President.

Consequently, petitioner PRA filed a Petition for Review with the Court of Appeals in accordance with Rule 43 of the Rules of Court, as amended. On December 14, 1999, the Court of Appeals rendered a decision affirming the ruling of the Office of the President. On June 19, 2000, it denied petitioner’s Motion for Reconsideration.

In the instant petition, PRA, through the Office of the Government Corporate Counsel, argues that the Court of Appeals erred in applying the transitory provisions of R.A. No. 6758 in upholding the continued grant of compensation and allowances received by private respondents prior to the effectivity of said law. PRA maintained that these allowances and benefits were not authorized or approved by the Department of Budget and Management, contrary to E.O. No. 1037 (PRA Charter) in relation to P.D No. 98512 and P.D. No. 159713 . PRA explains that prior to R.A. No. 6758, disbursements of compensation, allowances and other benefits to PRA employees are subject to the review of the Department of Budget and Management in accordance with P.D. No. 985 and P.D. No. 1597. PRA reasoned that the transitory provisions of R.A. No. 6758 which authorize the continued grant of allowances and benefits received by incumbents as of the effectivity of the said law is not applicable as the law could not have contemplated the continued disbursement of unauthorized allowances and benefits. Further, PRA manifests that while E.O. No. 1037 grants the PRA Board the power to provide a compensation scheme for its employees and fix reasonable allowances and benefits, PRA has not approved or acted on any matter in this respect.

Private respondents, on the other hand, argue that PRA has the requisite power and authority to impose and implement a compensation scheme for its employees without need of prior approval or authority from the Department of Budget and Management. They cite as basis Section 6 (f) of E.O. No. 1037 which grants the PRA Board the power to "establish and fix, review, revise and adjust the appropriate compensation scheme of the officers and employees of [PRA] with reasonable allowances, bonuses and other incentives." They allege that by virtue of this provision, prior to R.A. No. 6758, PRA was exempt from the regulatory authority of the Office of Compensation and Position Classification, notwithstanding the provisions of P.D. No. 985 and P.D. No. 1597. Moreover, private respondents argue that the disallowances in question were based on Department of Budget and Management Corporate Compensation Circular No. 10 (DBM-CCC No. 10), an issuance which was subsequently rendered ineffective by this Court due to its non-publication in the Official Gazette.14

The proper resolution of the case at bar involves a determination of the applicable law, rules and regulations governing the imposition of allowable compensation, allowances and monetary incentives to the employees of the PRA prior to the effectivity of R.A. No. 6758 and the legal effects of the subsequent passage of R.A. No. 6758.

This issue is not without precedent.

In the case of Intia, Jr. v. Commission on Audit,15 the Philippine Postal Corporation (PPC) argued that by virtue of the provisions of its charter, 16 PPC may unilaterally grant and/or increase the Representation and Transportation Allowance of its officials without the prior approval of the Department of Budget and Management. The PPC cited Section 21 (c) of its charter which grants the PPC the power and authority to "fix salaries and emoluments [of its employees] in accordance with the approved compensation structure of [PPC]." Further, the PPC argued that Section 25 of its charter exempts the PPC "from the coverage of the rules and regulations of the Compensation and Position Classification Office."

In ruling against PPC, this Court declared that the provisions of the PPC charter should be read in conjunction with Section 6 of P.D. No. 1597.17 The said section reads:

"Sec. 6. Exemption from OCPC Rules and Regulations.—Agencies, positions or groups of officials and employees of the national government, including government-owned and controlled corporations, who are hereafter exempted by law from OCPC coverage, shall observe such guidelines and policies as may be issued by the President governing position classification, salary rates, levels of allowances, project and other honoraria, overtime rates, and other forms of compensation and fringe benefits. Exemptions notwithstanding, agencies shall report to the President, through the Budget Commission, on their position classification and compensation plans, policies, rates and other related details following such specifications as may be prescribed by the President."

This Court ruled in Intia that contrary to PPC’s assertion, Section 6 of P.D. No. 1597 still applies and has not been repealed expressly or impliedly. Although its charter grants PPC the power to fix the compensation and benefits of its employees and exempts PPC from the coverage of the rules and regulations of the Compensation and Position Classification Office, by virtue of Section 6 of P.D. No. 1597, the compensation system established by the PPC is subject to the review of the Department of Budget and Management. In this respect, the function of the Department of Budget and Management is to ensure that the proposed compensation scheme is consistent with applicable laws and regulations. In reconciling the provisions of the PPC Charter and the provisions of P.D. No. 1597, this Court explained:

18

"It should be emphasized that the review by the DBM of any PPC resolution affecting the compensation structure of its personnel should not be interpreted to mean that the DBM can dictate upon the PPC Board of Directors and deprive the latter of its discretion on the matter. Rather, the DBM’s function is merely to ensure that the action taken by the Board of Directors complies with the requirements of the law, specifically that PPC’s compensation system "conforms as closely as possible with that provided for under R.A. No. 6758." (emphasis supplied)

Similarly, under P.D. No. 1037, PRA was granted the power and authority to "establish and fix, review, revise and adjust the appropriate compensation scheme of the officers and employees of [PRA] with reasonable allowances, bonuses and other incentives as may be recommended by the Chief Executive Officer/General Manager of the [PRA]."19 Further, Section 13 of P.D. No. 1037 also exempts officers and employees of PRA from the rules and regulations of the Office of Compensation and Position Classification.20

In accordance with the ruling of this Court in Intia, we agree with petitioner PRA that these provisions should be read together with P.D. No. 985 and P.D. No. 1597, particularly Section 6 of P.D. No. 1597.21 Thus, notwithstanding exemptions from the authority of the Office of Compensation and Position Classification granted to PRA under its charter, PRA is still required to 1) observe the policies and guidelines issued by the President with respect to position classification, salary rates, levels of allowances, project and other honoraria, overtime rates, and other forms of compensation and fringe benefits and 2) report to the President, through the Budget Commission, on their position classification and compensation plans, policies, rates and other related details following such specifications as may be prescribed by the President.

Despite the power granted to the Board of Directors of PRA to establish and fix a compensation and benefits scheme for its employees, the same is subject to the review of the Department of Budget and Management. However, in view of the express powers granted to PRA under its charter, the extent of the review authority of the Department of Budget and Management is limited. As stated in Intia, the task of the Department of Budget and Management is simply to review the compensation and benefits plan of the government agency or entity concerned and determine if the same complies with the prescribed policies and guidelines issued in this regard. The role of the Department of Budget and Management is supervisorial in nature, its main duty being to ascertain that the proposed compensation, benefits and other incentives to be given to PRA officials and employees adhere to the policies and guidelines issued in accordance with applicable laws.

The rationale for the review authority of the Department of Budget and Management is obvious. Even prior to R.A. No. 6758, the declared policy of the national government is to provide "equal pay for substantially equal work and to base differences in pay upon substantive differences in duties and responsibilities, and qualification requirements of the positions."22 To implement this policy, P.D. No. 985 provided for the standardized compensation of government employees and officials, including those in government-owned and controlled corporations. Subsequently, P.D. No. 1597 was enacted prescribing the duties to be followed by agencies and offices exempt from coverage of the rules and regulations of the Office of Compensation and Position Classification. The intention, therefore, was to provide a compensation standardization scheme such that notwithstanding any exemptions from the coverage of the Office of Compensation and Position Classification, the exempt government entity or office is still required to observe the policies and guidelines issued by the President and to submit a report to the Budget Commission on matters concerning position classification and compensation plans, policies, rates and other related details. This ought to be the interpretation if the avowed policy of compensation standardization in government is to be given full effect. The policy of "equal pay for substantially equal work" will be an empty directive if government entities exempt from the coverage of the Office of Compensation and Position Classification may freely impose any type of salary scheme, benefit or monetary incentive to its employees in any amount, without regard to the compensation plan implemented in the other government agencies or entities. Thus, even prior to the passage of R.A No. 6758, consistent with the salary standardization laws in effect, the compensation and benefits scheme of PRA is subject to the review of the Department of Budget and Management.

Private respondents argue, however, that by virtue of the effectivity of R.A. No. 6758, they are entitled to receive the compensation and allowances previously granted to them as the transitory provisions in the said law allow the continued payment of compensation and allowances to incumbents as of July 1, 1989. They allege that by being incumbents as of said date, the transitory provisions of R.A. No. 6758 should apply. The pertinent provisions are Sections 12 and 17 of R.A. No. 6758, viz:

"Section 12. Consolidation of Allowances and Compensation.—All allowances, except for representation and transportation allowances, clothing and laundry allowances; subsistence allowance of marine officers and crew on board government vessels and hospital personnel; hazard pay; allowances of foreign service personnel stationed abroad; and such other additional compensation not otherwise specified herein as may determined by the [Department of Budget and Management], shall be deemed included in the standardized salary rates herein prescribed. Such other additional compensation, whether in cash or in kind, being received by incumbents only as of July 1, 1989 not integrated into the standardized salary rates shall continue to be authorized.

….

Section 17. Salaries of Incumbents.—Incumbents of positions presently receiving salaries and additional compensation/fringe benefits including those absorbed from local government units and other emoluments, the aggregate of which exceeds the standardized salary rate as herein prescribed, shall continue to receive such excess compensation, which shall be referred to as transition allowance. The transition allowance shall be reduced by the amount of salary adjustment that the incumbent shall receive in the future.

…."

The transitory provisions embody the legislative intent to protect incumbents who are receiving salaries and allowances in excess of those granted under R.A. No. 6758 under the principle of non-diminution of pay and consistent with the rule that laws should only be applied prospectively in the spirit of justice and fair play.23 However, we subscribe to petitioner’s view that the foregoing transitory provisions do not contemplate a situation where the grant of unauthorized or irregular compensation and benefits would be continued or subsequently authorized by the passage of the law. It is a settled principle that in construing legislative enactments, it is presumed that the legislature never intended undesirable consequences or absurd results.24 Statutes must receive a sensible construction that will give effect to the legislative intention and avoid an unjust or absurd conclusion.25

Consequently, despite the passage of R.A. No. 6758 providing for the continued grant of salaries and benefits to incumbents as of July 1, 1989, private respondents are not entitled to receive salaries, benefits and allowances that were granted without the prior review and approval of the Department of Budget and Management.

Upon the effectivity of R.A. No. 6758, it is not disputed that government-owned and controlled corporations are included in the Compensation and Position Classification System provided in R.A. No. 6758. Section 16 thereof repeals "[a]ll laws, decrees, executive orders, corporate charters, and other issuances or parts thereof that exempt agencies from the coverage of the [Compensation and Position Classification] System, or that authorize and fix position classification, salaries, pay rates or allowances of specified positions, or groups of officials and employees or of agencies."26 Although the applicable legal regime with respect to salary standardization for government–owned and controlled corporations is clear, the resolution of the instant controversy would not be complete without a discussion on the application of DBM-CCC No. 10 implementing the provisions of R.A No. 6758, initially issued by the Department of Budget and Management and made effective on November 1, 1989.

It appears that one of the grounds for the disallowance of particular items in PRA’s Corporate Operating Budget for calendar year 1992 relied upon by the Office of the President in its letters dated December 29, 1992 and November 11, 1993, which triggered the present controversy, are the provisions of DBM-CCC No. 10.27

In the case of De Jesus v. Commission on Audit,28 this Court held that DBM-CCC No. 10 is without legal force and effect due to the absence of prior publication in the Official Gazette or in a newspaper of general circulation. The Court further ruled that such prior publication is a condition sine qua non to the effectiveness and enforceability of DBM-CCC No. 10.29 As a result of its nullification, DBM-CCC No. 10 was subsequently re-issued in its entirety on February 15, 1999 and was published in the Official Gazette on March 1, 1999.30

As to the legal effect of the nullification of DBM-CCC No. 10 and its subsequent re-issuance and publication, this Court, in Philippine International Trading Corporation v. Commission on Audit,31 ruled that the re-issuance and publication of DBM-CCC No. 10 does not cure its previous defect and hence, cannot have retroactive effect. The Court cited precisely the reason that publication is a condition precedent to the effectivity of the law to inform the public of its contents before their rights are affected by the same.32 Consequently, disallowances made by the Commission on Audit in the said case that were based on DBM-CCC No. 10, prior to its re-issuance and publication, were nullified by this Court.

Although cited as basis for the disallowance of particular benefits granted to private respondents, the records of the case at bar do not clearly show what particular items contested by private respondents are disallowed on the basis of DBM-CCC No. 10. At any rate, for a complete resolution of the present controversy and to prevent any confusion or misapplication, in accordance with this Court’s ruling in Philippine International Trading Corporation v. Commission on Audit,33 with respect to particular items of allowances or benefits that have been disallowed by the Office of the President based on the provisions of DBM-CCC No. 10 prior to its re-issuance and publication, the said items of disallowance cannot be given legal effect in view of the nullity of DBM-CCC No. 10.

In sum, this Court rules that prior to R.A. No. 6758, the compensation and benefits scheme of petitioner PRA is subject to the review authority of the Department of Budget and Management. Hence, compensation, allowances and other benefits received by PRA officials and employees without the requisite approval or authority of the Department of Budget and Management are unauthorized and irregular and this defect cannot be cured by the transitory provisions in R.A No. 6758. However, the function of the Department of Budget and Management in this regard is simply to ensure that the proposed compensation and benefits scheme complies with the requirements of applicable laws, rules and regulations. With respect to particular items of allowances and benefits that have been disallowed in the Corporate Operating Budget of PRA for Calendar Year 1992, which disallowance is based solely on particular provisions of DBM-CCC No. 10, the said disallowances cannot be given legal effect in view of the nullity of DBM-CCC No. 10 prior to its re-issuance and publication.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 47818 is MODIFIED as follows:

(a) Compensation and allowances granted to private respondents prior to the effectivity of R.A. No. 6758 without the authority or approval of the Department of Budget and Management are unauthorized and disallowed; and

(b) Particular items of disallowance of the Corporate Operating Budget of PRA for Calendar Year 1992 representing various allowances and benefits in the amount of ₱1,324,822.00 based solely on particular provisions of DBM-CCC No. 10, in view of the nullity of DBM-CCC No. 10, are void.

The Department of Budget and Management is directed to effect the necessary adjustments in the compensation, allowances and other benefits of private respondents in accordance with the foregoing pronouncements.

SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Footnotes

1 Dated July 1, 1989.

2 Creating the Philippine Retirement Park System, Providing Funds Therefor and for Other Purposes.

3 CA Rollo, pp. 103-104.

4 Rollo, p. 42.

5 CA Rollo, pp. 150-151.

6 Id. at 152.

7 Id. at 155.

8 Id. at 156.

9 Id. at 157-158.

10 Rollo, pp. 96-101.

11 CA Rollo, p. 91.

12 A Decree Revising the Position Classification and Compensation Systems in the National Government and Integrating the same, dated August 22, 1976.

13 Further Rationalizing the System of Compensation and Position Classification in the National Government, dated June 11, 1978.

14 Rollo, p. 83 citing De Jesus v. Commission on Audit, 294 SCRA 152 (1998).

15 306 SCRA 593 (1999).

16 R.A. No. 7354 (1992).

17 306 SCRA 593, 607 (1999).

18 Id. at 609.

19 Section 6 (f), P.D. No. 1037 (1985).

20 Section 13 of P.D. No. 1037 reads:

"Section 13. Merit System.—All officials and employees of the SYSTEM shall be selected and appointed on the basis of merit and fitness in accordance with a comprehensive and progressive merit system to be established by the SYSTEM upon its organization. The recruitment, transfer, promotion and dismissal of all its personnel shall be governed by such merit system. In this connection, the officers and employees of the SYSTEM shall be exempt from the application of the Civil Service Law, rules and regulations and from the rules and regulations of the Office of Compensation and Position Classification."

21 The section reads:

"Sec. 6. Exemption from OCPC Rules and Regulations.—Agencies, positions or groups of officials and employees of the national government, including government-owned and controlled corporations, who are hereafter exempted by law from OCPC coverage, shall observe such guidelines and policies as may be issued by the President governing position classification, salary rates, levels of allowances, project and other honoraria, overtime rates, and other forms of compensation and fringe benefits. Exemptions notwithstanding, agencies shall report to the President, through the Budget Commission, on their position classification and compensation plans, policies, rates and other related details following such specifications as may be prescribed by the President." (emphasis supplied)

22 Section 2, P.D. No. 985 (1976).

23 Philippine International Trading Corporation v. Commission on Audit, 309 SCRA 177, 185 (1999).

24 N.C. Diaz, Judge Noli C. Diaz on Statutory Construction 109-111 (2000).

25 Id.

26 Philippine International Trading Corporation v. Commission on Audit, 309 SCRA 177, 191 (1999).

27 Supra note 5.

28 294 SCRA 152 (1998).

29 Id. at 156-157.

30 95 O.G. Supp. No. 9. 1 (March, 1999).

31 309 SCRA 177 (1999).

32 Id. at 189.

33 Supra.

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