[ G.R. No. 242925, November 10, 2020 ]
NAOMI K. TORRETA AND JAIME M. LOPEZ, PETITIONERS, VS. COMMISSION ON AUDIT, RESPONDENT.
CONCURRING OPINION
PERLAS-BERNABE, J.:
I concur.
Respondent the Commission on Audit (COA) properly disallowed the National Dairy Authority's (NDA) dispersal of dairy animals in favor of Hapicows @ Tropical Dairy Farm, Inc. (Hapicows). As the COA correctly ruled, the subject dairy animals were dispersed in violation of the NDA Qualification Requirements and Selection Criteria for applicants under its Dairy Multiplier Farm Program (Program) and the Memorandum of Agreement executed by the NDA and Hapicows pursuant thereto, and hence, irregular.1
To recount the COA's findings, it was observed that: (1) there was only partial submission by Hapicows of the NDA requirements, leading to the NDA's decision to repossess the remaining animals with Hapicows; (2) Hapicows did not have good credit standing/updated loan standing with the NDA; (3) Hapicows did not have sufficient capitalization to secure the dairy animals at the time the MOA was executed; (4) Hapicows was not a member of good standing in accordance with the Cooperative Development Authority and Securities and Exchange Commission; and (5) Hapicows' three (3) farm sites were not substantiated by lease contracts and in fact, violated the requirements on technical evaluation in connection with acceptability, adequacy, capability and readiness of the proponent.2
Thus, the following persons were held civilly liable under Notice of Disallowance No. 10-002(10)3 dated September 28, 2020 (ND 10-00210):
The amount of P17,316,000.00 was disallowed in audit because the dairy animals were dispersed without proper evaluation and lacked the required supporting documents.ℒαwρhi৷ This constitutes an irregular transaction.
The following persons have been determined to be liable for the transaction:
| Name |
Position/Designation |
Nature of Participation in the Transaction |
| 1. Benjamin Molina |
President-CEO, Hapicows |
Signed MOA |
| 2. Orkhan H. Usman |
Former NDA Administrator |
Signed MOA |
| 3. Naomi K. Torreta |
Deputy Administrator |
Initialed MOA |
| 4. Sulpicio Bayawa Jr. |
OIC, Operations Dept. |
Signed MOA |
| 5. Jaime Lopez |
Manager, South Luzon |
Signed MOA |
As indicated in the ND, Hapicows' President-CEO Benjamin Molina (Mr. Molina) was held civilly liable together with the erring authorizing/approving officers. In this regard, the COA applied the piercing doctrine as follows:
It should be noted also that according to the 2008 audited financial statement, which was supposed to be considered by the NDA in their evaluation, Mr. Molina appears to be the controlling stockholder of Hapicows, having P2,000,000.00 out of the P3,400,000.00 subscribed and paid-up capital or 58.8% of the corporation. In view of the peculiarity of factual antecedents of this case, the doctrine of piercing the corporate veil can be applied in this case. x x x
x x x x
Contrary to the submission of the petitioners that Mr. Molina and Hapicows should be treated as distinct personalities, the statements in the petition show that the NDA, in evaluating the capability of Hapicows, considered Mr. Molina and Hapicows as one. These statements consist of Mr. Molina's expertise and experience outweighing the financial limitations of Hapicows and of Mr. Molina's active participation in the management and operations of Hapicows. These and his controlling interest in the corporation justify the conclusion that Mr. Molina and Hapicows are one and the same.4 (Emphases and underscorring supplied)
Meanwhile, with respect to Hapicows, the COA invoked the repossession/termination clauses under the MOA, and thereby resolved that Hapicows should be held accountable only for the difference between the book value of the originally distributed animal/s and the appraised/assessed values of the repossessed animals, viz.:
From the foregoing, this Commission finds the dispersal of 150 heads of dairy animals to Hapicows to be irregular, hence, the issuance of the assailed ND is proper. For this reason, NDA should implement Article 7 of the MOA providing for the repossession of the dairy animals and the termination of the MOA. As provided under Article 7.3 of the MOA, Hapicows "x x x shall be accountable for the difference between the book value of the originally distributed animal/s and the appraise/assessed values of the repossessed animals x x x". x x x.5
However, as the ponencia correctly pointed out,6 the COA should not have applied the repossession/termination clauses under the MOA since the case at bar does not fall under the circumstances stipulated therein.
Instead, considering the irregularity of the contract, Hapicows should turn over any remaining dairy animals and their offspring in its possession for being an unqualified beneficiary. By virtue of Section 7, Chapter 11 of the Government Accounting Manual for National Government Agencies,7 the returned dairy animals, if any, should be valued at their fair market value at the time of the return. Said value, once determined, should then be considered as a form of restitution in kind that serves to partially satisfy the civil liability of the persons to be held liable under ND 10-002(10).
In this regard, the Rules on Return in Madera v. Commission on Audit8 (Madera) have been generally resorted to by the Court in determining the civil liability of persons held liable in disallowance cases of recent vintage. However, I take this opportunity to clarify that the civil liability of the individuals under ND 10-002(10) should not be adjudged in accordance with the parameters laid down in Madera. This is because the Madera Rules on Return were specifically borne from the context of disallowance cases involving employee incentives and benefits, and not to government contracts for the procurement of goods and services involving the use or expenditure of public funds, as in this case.
To recall, Madera is a landmark jurisprudence which not only abandoned the then-prevailing "good faith rule" that absolved passive recipients from civil liability to return disallowed incentives and benefits received by them, but also detailed the statutory bases for the new rules of return in disallowance cases. In Madera, the Court primarily situated the civil liability of approving/authorizing officers under Section 38, Chapter 9, Book I of the Administrative Code, while that of recipients under the civil law principles of solutio indebiti and unjust enrichment.
Further, pursuant to Section 43, Chapter 5, Book VI of the Administrative Code, the Court ruled that the approving/authorizing officers who had acted with bad faith, malice, or gross negligence are solidarily liable for the disallowance. However, as discussed in Madera, such civil liability should only be confined to the net disallowed amount, i.e., the total disallowed amount minus the amounts excused to be returned by recipients, particularly those: (a) genuinely given in consideration of services rendered (Rule 2c); and (b) excused by the Court based on undue prejudice, social justice considerations, and other bona fide exceptions as may be determined on a case-to-case basis (Rule 2d). These exceptions were formulated by the Court relative to the solutio indebiti nature of the recipients' civil obligation, on a finding that these grounds for return negated the existence of unjust enrichment, and hence, resulted in no proper loss on the part of the government.
Accordingly, the Madera Rules on Return state in full:
E. The Rules on Return
In view of the foregoing discussion, the Court pronounces:
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, the rules on return are as follows:
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, which, as discussed herein, excludes amounts excused under the following sections 2c and 2d.
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.
d. The Court may likewise excuse the return of recipients based on undue prejudice, social justice considerations, and other bona fide exceptions as it may determine on a case to case basis.9
Given the backdrop of Madera, the solutio indebiti nature of the recipients' obligation to return the incentives and benefits they had received, and the considerations behind Rules 2c and 2d as above-discussed, it is my view that the Madera rules do not squarely apply in disallowances made under the peculiar auspices of unlawful/irregular10 government contracts authorizing the use or expenditure of public funds.
Since these contracts, by their very nature, provide for the expenditure of public funds in consideration of services rendered/to be rendered and/or the delivery of property/goods, the exception under Rule 2c of the Madera Rules (genuinely given in consideration of services rendered), as formulated, should not squarely apply. Neither should the grounds for excuse under Rule 2d (undue prejudice, social justice considerations, and other bona fide exceptions) apply since these grounds were intended to address the inequitable situation of requiring government employees to still return the incentives and benefits they had already received based on exceptional fairness or social justice considerations.
This notwithstanding, the general provisions of Sections 38 and 43 of the Administrative Code - which were utilized in Rules 2a and 2b of Madera - still apply.
Even in disallowances involving illegal/irregular expenditures under a government contract, only those approving/authorizing officers acting in bad faith, with malice or gross negligence, should be held civilly liable for the return of any amounts disallowed. If bad faith, malice or gross negligence are not shown, then the presumption of regularity stands, negating the accountable officers' civil liability following Section 38 of the Administrative Code. Meanwhile, pursuant to Section 43 of the Administrative Code, the officers who had approved/authorized the unlawful/irregular government contract in bad faith, with malice, or gross negligence are solidarily liable together with the recipients of the amounts disallowed under the said contract.
Notably, the application of Sections 38 and 43 - as embodied in Rules 2a and 2b of the Madera Rules on Return - to unlawful/irregular government contracts is consistent with the provisions of the General Appropriations Act,11 as well as pertinent COA rules and regulations.12 However, it should be qualified that with respect to the application of Madera's Rule 2b in this case, it is discerned that instead of applying the concept of net disallowed amount - which was specifically formulated in Madera relative to the grounds for excuse under Rules 2c and 2d - the liability of the recipient-counter party may instead, be reduced by the amounts qualified by the principle of quantum meruit,13 if so warranted by the peculiar facts and evidence submitted in each case. As discussed in Geronimo v. Commission on Audit:14
Recovery on the basis of quantum meruit [is] x x x allowed despite the invalidity or absence of a written contract between the contractor and the government agency. x x x
x x x x
Quantum meruit literally means "as much as he deserves." Under this principle, a person may recover a reasonable value of the thing he delivered or the service he rendered. The principle also acts as a device to prevent undue enrichment based on the equitable postulate that it is unjust for a person to retain benefit without paying for it. The principle of quantum meruit is predicated on equity.15
And finally, owing to the variances in the nature of some peculiar government contracts, the determination of civil liability under Sections 38 and 43 of the Administrative Code - as herein discussed - is nonetheless without prejudice to the application of the more specific provisions of law, COA rules and regulations, and recognized accounting principles.16
In fine, instead of directly applying the Madera Rules on Return, the following rules be applied in this case as well as in similar cases involving unlawful/irregular government contracts":
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, the rules on return are as follows:
a. Approving and certifying officers who acted in good faith, in the 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. Pursuant to Section 43 of the Administrative Code of 1987, approving and certifying officers who are clearly shown to have acted with bad faith, malice, or gross negligence, are solidarily liable together with the recipients for the return of the disallowed amount.
c. The civil liability for the disallowed amount may be reduced by the amounts due to the recipient based on the application of the principle of quantum meruit on a case to case basis.
d. These rules are without prejudice to the application of the more specific provisions of law, COA rules and regulations, and accounting principles depending on the nature of the government contract involved.
Here, petitioners Naomi K. Torreta and Jaime M. Lopez, as the officers of the NDA responsible for the irregular government contract, were correctly found by the ponencia to have acted with gross negligence,17 and hence civilly liable consistent with Rule 2b of the above-stated rules. Further, also following Rule 2b above, their liability is solidary with the other individuals named in the COA's ND 10-002(10):18
| Name |
Position/Designation |
Nature of Participation in the Transaction |
| 1. Benjamin Molina |
President-CEO, Hapicows |
Signed MOA |
| 2. Orkhan H. Usman |
Former NDA Administrator |
Signed MOA |
| 3. Naomi K. Torreta |
Deputy Administrator |
Initialed MOA |
| 4. Sulpicio Bayawa Jr. |
OIC, Operations Dept. |
Signed MOA |
| 5. Jaime Lopez |
Manager, South Luzon |
Signed MOA |
However, as earlier intimated, Hapicows should be directed to turn over to the NDA any remaining dairy animals and their offspring in its possession for being an unqualified beneficiary. This should consequently reduce the civil liability of P17,316,000.00 under the ND by the equivalent fair market value of these returned animals, if any, subject to COA rules and regulations and accepted accounting principles. To be sure, the repossessed animals, if any, partake the nature of restitution in kind which should consequently reduce the civil liability of the named individuals under the ND. Properly speaking, this is not an application of the quantum meruit principle where goods delivered or services rendered by the contractor are to be credited.
At this juncture, the COA has yet to determine (1) the total amount of dairy animals returned by Hapicows, if any, upon due notice for the purpose, and (2) the fair market value of the returned animals, among others. Hence as now ruled by the ponencia - a remand of this case is in order for the COA to:
(1) Direct the NDA to repossess any remaining dairy animals and their offspring in its possession, and determine their fair market value in accordance with the COA's own rules and regulations;
(2) Deduct the fair market value of the returned dairy animals from the civil liability of the named individuals held solidarily liable under ND 10-002(10); and
(3) Issue an amended Notice of Disallowance reflecting any deductions in accordance with the COA's factual determination.
Accordingly, the petition should be dismissed, and ND-10-002(10) affirmed with the foregoing modifications.
Footnotes
1 See rollo, pp. 44, 47-50, and 54-58.
2 See id. at 48-49 and 55-57.
3 Id. at 44.
4 See COA Decision dated September 11, 2014 in Decision No. 2014-245; Id. at 55-56.
5 Id. at 58.
6 See ponencia, pp. 17-18
7 Section 7. Measurement. A biological asset shall be measured on initial recognition and at each reporting date at its fair value lass costs to sell, except where market - determined process of values are not available, and for which alternative estimates of fair value are determined to be clearly unreliable. In such a case, that biological asset shall be measured at its cost less any accumulated depreciation and any accumulated impairment losses. (Pars. 16 and 34, PPSAS 27)
In determining cost, accumulated depreciation and accumulated impairment losses, an entity considers policies on Inventories, Property, Plant and Equipment, Impairment of Non-Cash-Generating Assets and Impairment of Cash-Generating Assets. (Par. 37, PPSAS 27)
In all cases, agricultural produce harvested from an entity's biological assets shall be measured at its fair value less costs to sell at the point of harvest. Such measurement is the cost at that date when applying PPSAS 12-Inventories or another applicable Standard. (Par. 18, PPSAS 27)
8 G.R. No. 244128, September 8, 2020.
9 See Madera v. Commission on Audit, supra.
10 This term is broadly used to refer to illegal, irregular, unnecessary, excessive, extravagant, or unconscionable use or expenditures of public funds authorized under government contracts.
11 Section 85 of Republic Act No. 11260, otherwise known as "AN ACT APPROPRIATING FUNDS FOR THE OPERATION OF THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES FROM JANUARY ONE TO DECEMBER THIRTY-ONE, TWO THOUSAND AND NINETEEN AND FOR OTHER PURPOSES," approved on April 15, 2019, which was extended until the end of 2020 by Republic Act No. 11464, otherwise known as "AN ACT EXTENDING THE AVAILABILITY OF THE 2019 APPROPRIATIONS TO DECEMBER 31, 2020, AMENDING FOR THE PURPOSE SECTION 65 OF THE GENERAL PROVISIONS OF REPUBLIC ACT No. 11260," approved on December 20, 2019, reads:
SECTION 85. Incurrence or Payment of Unauthorized or Unlawful obligation or Expenditure. - Disbursements or expenditures incurred in violation of existing laws, rules and regulations shall be rendered void. Any and all public officials or employees who will authorize, allow or permit, as well as those who are negligent in the performance of their duties and functions which resulted in the incurrence or payment of unauthorized and unlawful obligation or expenditure shall be, personally liable to the government for the full amount committed or expended and, subject to disciplinary actions in accordance with Section 43, Chapter 5 and Section 80, Chapter 7, Book VI of E.O. No. 292. (Emphases and underscoring supplied)
12 Section 30. 1.2 of COA Circular No. 94-001, otherwise known as the "Manual on Certificate of Settlement and Balances," provides:
Section 30. Liability for Unlawful/Illegal Expenditures or Uses of Government Funds
x x x x
30.1.2 Every expenditure or obligation authorized or incurred in violation of law or of the annual budgetary measure shall be void. Every payment in violation thereof shall be illegal and every official or employee authorizing such payment, or taking part therein, and every person receiving such payment shall be jointly and severally liable for the full amount so paid or received. (Emphases and underscoring supplied)
Presently, the foregoing rule is partly reflected, in essence, under Section 16.1.4 COA Circular No. 2009-006, otherwise known as the "Rules and Regulations on Settlement of Accounts," which stipulates:
16.1.4 Public officers and other persons who confederated or conspired in a transaction which is disadvantageous or prejudicial to the government shall be held liable jointly and severally with those who benefited therefrom. (Emphases and underscoring supplied)
13 The principle of quantum meruit has been often applied in disallowances involving government contracts. See Sto. Niño Construction v. Commission on Audit, G.R. No. 244443, October 15, 2019; F.L. Hong Architects and Associates v. Armed Forces of the Philippines, G.R. No. 214245, September 19, 2017; Department of Public Works and Highways v. Quiwa, 681 Phil. 485 (2012); Vigilar v. Aquino, 654 Phil. 755 (2011); Department of Health v. C.V. Canchela & Associates, 511 Phil. 654 (2005); Melchor v. Commission on Audit, 277 Phil. 801 (1991); Eslao v. Commission on Audit, 273 Phil. 97 (1991).
14 See G.R. No. 224163, December 4, 2018.
15 See id.
16 See for example Section 7 of Republic Act No. 6957, entitled "AN ACT AUTHORIZING THE FINANCING, CONSTRUCTION, OPERATION AND MAINTENANCE OF INFRASTRUCTURE PROJECTS BY THE PRIVATE SECTOR, AND FOR OTHER PURPOSES," as amended by Republic Act No. 7718, entitled "AN ACT AMENDING CERTAIN SECTIONS OF REPUBLIC ACT NO. 6957, ENTITLED 'AN ACT AUTHORIZING THE FINANCING, CONSTRUCTION, OPERATION AND MAINTENANCE OF INFRASTRUCTURE PROJECTS BY THE PRIVATE SECTOR, AND FOR OTHER PURPOSES,'" which provides for an additional reasonable rate of return to the counter-party when a build-operate-transfer project is revoked, cancelled or terminated by the government through no fault of their own.
See also Sections 65 (b) and (c), and 67 of Republic Act No. 9184, or the "Government Procurement Reform Act," which provides for particular criminal liability of counter-parties for violation of the bidding regulations contained therein and provides for a corresponding civil liability for restitution or forfeiture in cases of conviction.
17 See ponencia, pp. 13-14.
18 Rollo, p. 44; emphases supplied.
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