Magalong v. COA
REITERATION and MODIFICATIONFacts
1. The Antecedents: In 2008, the Sangguniang Panlungsod (SP) of Baguio City passed Resolution Nos. 222 and 306, authorizing the release of Cost of Living Allowance (COLA) to city officials and employees for the period of January 1, 1990, to March 16, 1999. The SP relied on Supreme Court (SC) cases like De Jesus v. COA and PITC v. COA, believing the employees were entitled to the accrued allowance. The Audit Team Leader (ATL) subsequently questioned the legality of the disbursement, citing a lack of appropriation and violation of Department of Budget and Management (DBM) Local Budget Circular (LBC) No. 081-05, which prohibited the grant of COLA to Local Government Units (LGUs). 2. Procedural History: The COA issued several Notices of Disallowance (ND) in 2009 totaling approximately PHP 63.7 million. The Regional Director (RD) affirmed the disallowances. On appeal to the COA Proper, Decision No. 2018-432 was rendered, which affirmed the disallowance but explicitly absolved the passive recipients (payees) from the liability to refund. Then-Mayor Mauricio Domogan moved for reconsideration, but only on behalf of the approving and certifying officers. However, in its 2022 Resolution (Decision No. 2022-114), the COA Proper reinstated the liability of the passive recipients to refund the amounts they received, citing the then-recent Madera v. COA ruling on solutio indebiti. 3. The Petition: Petitioners, led by Mayor Benjamin Magalong, filed a petition for certiorari under Rule 64 in relation to Rule 65. They argued that the COLA grant had legal basis under existing jurisprudence at the time and that the COA committed grave abuse of discretion by reinstating the liability of passive recipients. They contended that the 2018 Decision exonerating the payees had already become final and immutable because the payees did not move for reconsideration and the Mayor's MR only addressed the officers' liability.
Issue(s)
Whether the payment of COLA for the period of 1990 to 1999 was correctly disallowed. Whether the COA violated the principle of immutability of judgments and due process by reinstating the liability of passive recipients in its 2022 Resolution. Whether the petitioners (both officers and payees) are liable to refund the disallowed amounts under the Madera framework.
Ruling
The Petition is PARTLY GRANTED. The disallowance is AFFIRMED, but the liability to refund is EXCUSED for all petitioners.
Ratio Decidendi
On Issue 1: The Court held that the disallowance was valid because Section 12 of Republic Act No. 6758 (the Salary Standardization Law) mandates the integration of all allowances, including COLA, into the standardized salary rates. This provision is self-executing, and the nullification of DBM-CCC No. 10 in the case of De Jesus v. COA did not suspend the effectivity of the law itself. The Court clarified that the ruling in PPA Employees v. COA, which allowed COLA for certain employees, only applies if there was an actual decrease in the compensation package, which was not proven in this case. Consequently, the grant of COLA for the years 1990 to 1999 lacked legal basis as the allowance was already integrated into the employees' basic salaries by legal fiction. On Issue 2: The Court ruled that the COA Proper violated the principle of immutability of judgments and the right to due process. The 2018 COA Decision, which exonerated the passive recipients, became final and executory as to them because they did not file an MR, and the Mayor's MR did not raise their liability as an issue. By motu proprio reinstating their liability in the 2022 Resolution, the COA acted beyond its jurisdiction and deprived the payees of the opportunity to defend themselves against the application of the Madera doctrine. Jurisprudence, specifically Incumbent and Former Employees of NEDA RO XIII v. COA, establishes that the COA cannot unilaterally revisit the exoneration of parties once that portion of the decision has lapsed into finality. On Issue 3: Even regardless of the procedural finality, the Court excused all petitioners from the liability to refund based on Rule 2d of the Madera framework. The Court noted that 17 years had passed since the receipt of the COLA, and requiring a refund of PHP 63.7 million would cause undue prejudice to ordinary government employees, many of whom are now retired or deceased. Applying the guidelines from Cagayan de Oro City Water District v. COA, the Court found that the nature of COLA as a benefit for the cost of living, combined with the extreme lapse of time, justified an exception based on social justice and equity. Furthermore, the approving officers were excused because they acted in good faith by relying on then-existing Supreme Court precedents, and holding them liable while payees were excused would violate the principle of equal protection.
Main Doctrine
Under the Salary Standardization Law (Republic Act No. 6758), all allowances, including the Cost of Living Allowance (COLA), are integrated into the basic salary by legal fiction, making separate grants of such allowances illegal. However, the obligation to refund disallowed amounts is not absolute; under Rule 2d of the Madera v. COA framework, the Court may excuse the return based on undue prejudice, social justice, and bona fide exceptions. This exception is particularly applicable when a substantial amount of time has passed (e.g., 17 years), and the recipients are rank-and-file or retired employees who received the funds in good faith, as requiring a refund would be iniquitous and violate the principle of equal protection if applied inconsistently between officers and payees.