The GSIS is a social insurance institution created under Commonwealth Act Number 186 that was passed on November 14, 1936. To secure the future of all employees of the Philippine government, it provides and administers a pension fund that has the following social security benefits: compulsory life insurance, optional life insurance, retirement benefits, and disability benefits for work-related accidents and death benefits.

Likewise, the GSIS manages the General Insurance Fund as mandated by Republic Act 696 or the Property Insurance Law. It provides comprehensive protection to government insurable interests.

MANDATE

The GSIS is created by Commonwealth Act No. 186 that was passed on November 14, 1936, and later amended under Republic Act No. 8291 dated June 24, 1997.

GSIS, as designed in its charter, is a social insurance institution under a defined benefit scheme. It insures its members against the occurrence of certain contingencies in exchange for their monthly premium contributions.

The social security benefits available for all GSIS members are: compulsory life insurance, optional life insurance, retirement benefits, disability benefits for work-related contingencies and death benefits.

In addition, the GSIS is entrusted with the administration of the General Insurance Fund by virtue of R.A. 656 of the Property Insurance Law. It provides insurance coverage to assets and properties that have government insurable interests.

COVERAGE

The GSIS covers all government workers irrespective of their employment status, except:

- Members of the Judiciary and Constitutional Commissions who are covered by separated retirement laws;

- Contractual employees who have no employee-employer relationship with their agencies;

- Uniformed members of the Armed Forces of the Philippines and the Philippine National Police, including the Bureau of Jail Management and Penology and the Bureau of Fire Protection.

BENEFITS AND SERVICESThe principal benefit package of the GSIS consists of compulsory and optional life insurance, retirement, separation, and employee's compensation benefits.

SERVICE PRIVILEGESActive GSIS members are entitled to the following loan privileges: salary, policy, emergency and housing loans, subject to the cross-default policy of the System (CLIP).

ORGANIZATION The governing and policy-making body of the GSIS is the Board of Trustees, the members of which are appointed by the President of the Philippines.

The GSIS workforce consists of 3,104 employees, 52% of whom are in the Head Office while the remaining 48% are in the Branches. To date, the GSIS has 15 Regional Offices, 25 Branch Offices and 18 Satellite Offices nationwide.

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,

-versus-

THE HONORABLE 15TH DIVISION OF THE COURT OF APPEALS and INDUSTRIAL BANK OF KOREA, TONG YANG MERCHANT BANK, HANAREUM BANKING CORP., LAND BANK OF THE PHILIPPINES, WESTMONT BANK and DOMSAT HOLDINGS, INC.,

Respondents.

G.R. No. 189206

Present:

CORONA, C.J.,

Chairperson

VELASCO, JR.,

LEONARDO-DE CASTRO,

DEL CASTILLO, and

PEREZ, JJ.

Promulgated:

June 8, 2011

x —————————————————————————————-x

D E C I S I O N

PEREZ, J.:

The subject of this petition for certiorari is the Decision1 of the Court of Appeals in CA-G.R. SP No. 82647 allowing the quashal by the Regional Trial Court (RTC) of Makati of a subpoena for the production of bank ledger. This case is incident to Civil Case No. 99-1853, which is the main case for collection of sum of money with damages filed by Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation, Land Bank of the Philippines, and Westmont Bank (now United Overseas Bank), collectively known as “the Banks” against Domsat Holdings, Inc. (Domsat) and the Government Service Insurance System (GSIS). Said case stemmed from a Loan Agreement,2 whereby the Banks agreed to lend United States (U.S.) $11 Million to Domsat for the purpose of financing the lease and/or purchase of a Gorizon Satellite from the International Organization of Space Communications (Intersputnik).3

The controversy originated from a surety agreement by which Domsat obtained a surety bond from GSIS to secure the payment of the loan from the Banks. We quote the terms of the Surety Bond in its entirety.4

Republic of the Philippines

GOVERNMENT SERVICE INSURANCE SYSTEM

GENERAL INSURANCE FUND

GSIS Headquarters, Financial Center

Roxas Boulevard, Pasay City

G(16) GIF Bond 027461

S U R E T Y B O N D

KNOW ALL MEN BY THESE PRESENTS:

That we, DOMSAT HOLDINGS, INC., represented by its President as PRINCIPAL, and the GOVERNMENT SERVICE INSURANCE SYSTEM, as Administrator of the GENERAL INSURANCE FUND, a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office in the City of Pasay, Metro Manila, Philippines as SURETY, are held and firmly bound unto the OBLIGEES: LAND BANK OF THE PHILIPPINES, 7th Floor, Land Bank Bldg. IV. 313 Sen. Gil J. Puyat Avenue, Makati City; WESTMONT BANK, 411 Quintin Paredes St., Binondo, Manila: TONG YANG MERCHANT BANK, 185, 2-Ka, Ulchi-ro, Chungk-ku, Seoul, Korea; INDUSTRIAL BANK OF KOREA, 50, 2-Ga, Ulchi-ro, Chung-gu, Seoul, Korea; and FIRST MERCHANT BANKING CORPORATION, 199-40, 2-Ga, Euliji-ro, Jung-gu, Seoul, Korea, in the sum, of US $ ELEVEN MILLION DOLLARS ($11,000,000.00) for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents.

THE CONDITIONS OF THE OBLIGATION ARE AS FOLLOWS:

WHEREAS, the above bounden PRINCIPAL, on the 12th day of December, 1996 entered into a contract agreement with the aforementioned OBLIGEES to fully and faithfully

Guarantee the repayment of the principal and interest on the loan granted the PRINCIPAL to be used for the financing of the two (2) year lease of a Russian Satellite from INTERSPUTNIK, in accordance with the terms and conditions of the credit package entered into by the parties.

This bond shall remain valid and effective until the loan including interest has been fully paid and liquidated,

a copy of which contract/agreement is hereto attached and made part hereof;

WHEREAS, the aforementioned OBLIGEES require said PRINCIPAL to give a good and sufficient bond in the above stated sum to secure the full and faithful performance on his part of said contract/agreement.

NOW, THEREFORE, if the PRINCIPAL shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions, and agreements stipulated in said

contract/agreements, then this obligation shall be null and void; otherwise, it shall remain in full force and effect.

WITNESS OUR HANDS AND SEALS this 13th day of December 1996 at Pasay City, Philippines.

DOMSAT HOLDINGS, INC GOVERNMENT SERVICE INSURANCE

Principal SYSTEM

General Insurance Fund

By: By:

CAPT. RODRIGO A. SILVERIO AMALIO A. MALLARI

President Senior Vice-President

General Insurance Group

When Domsat failed to pay the loan, GSIS refused to comply with its obligation reasoning that Domsat did not use the loan proceeds for the payment of rental for the satellite. GSIS alleged that Domsat, with Westmont Bank as the conduit, transferred the U.S. $11 Million loan proceeds from the Industrial Bank of Korea to Citibank New York account of Westmont Bank and from there to the Binondo Branch of Westmont Bank.5 The Banks filed a complaint before the RTC of Makati against Domsat and GSIS.

In the course of the hearing, GSIS requested for the issuance of a subpoena duces tecum to the custodian of records of Westmont Bank to produce the following documents:

1. Ledger covering the account of DOMSAT Holdings, Inc. with Westmont Bank (now United Overseas Bank), any and all documents, records, files, books, deeds, papers, notes and other data and materials relating to the account or transactions of DOMSAT Holdings, Inc. with or through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002, in his/her direct or indirect possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise;

2. All applications for cashier’s/ manager’s checks and bank transfers funded by the account of DOMSAT Holdings, Inc. with or through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002, and all other data and materials covering said applications, in his/her direct or indirect possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise;

3. Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont Bank (now United Overseas Bank), any and all documents, records, files, books, deeds, papers, notes and other data and materials relating to the account or transactions of Philippine Agila Satellite, Inc. with or through the Westmont bank (now United Overseas Bank) for the period January 1997 to December 2002, in his/her direct or indirect possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise;

4. All applications for cashier’s/manager’s checks funded by the account of Philippine Agila Satellite, Inc. with or through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002, and all other data and materials covering said applications, in his/her direct or indirect possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise.6

The RTC issued a subpoena decus tecum on 21 November 2002.7 A motion to quash was filed by the banks on three grounds: 1) the subpoena is unreasonable, oppressive and does not establish the relevance of the documents sought; 2) request for the documents will violate the Law on Secrecy of Bank Deposits; and 3) GSIS failed to advance the reasonable cost of production of the documents.8 Domsat also joined the banks’ motion to quash through its Manifestation/Comment.9 On 9 April 2003, the RTC issued an Order denying the motion to quash for lack of merit. We quote the pertinent portion of the Order, thus:

After a careful consideration of the arguments of the parties, the Court did not find merit in the motion.

The serious objection appears to be that the subpoena is violative of the Law on Secrecy of Bank Deposit, as amended. The law declares bank deposits to be “absolutely confidential” except: x x x (6) In cases where the money deposited or invested is the subject matter of the litigation.

The case at bench is for the collection of a sum of money from defendants that obtained a loan from the plaintiff. The loan was secured by defendant GSIS which was the surety. It is the contention of defendant GSIS that the proceeds of the loan was deviated to purposes other than to what the loan was extended. The quashal of the subpoena would deny defendant GSIS its right to prove its defenses.

WHEREFORE, for lack of merit the motion is DENIED.10

On 26 June 2003, another Order was issued by the RTC denying the motion for reconsideration filed by the banks.11 On 1 September 2003 however, the trial court granted the second motion for reconsideration filed by the banks. The previous subpoenas issued were consequently quashed.12 The trial court invoked the ruling in Intengan v. Court of Appeals,13 where it was ruled that foreign currency deposits are absolutely confidential and may be examined only when there is a written permission from the depositor. The motion for reconsideration filed by GSIS was denied on 30 December 2003.

Hence, these assailed orders are the subject of the petition for certiorari before the Court of Appeals. GSIS raised the following arguments in support of its petition:

I.

Respondent Judge acted with grave abuse of discretion when it favorably considered respondent banks’ (second) Motion for Reconsideration dated July 9, 2003 despite the fact that it did not contain a notice of hearing and was therefore a mere scrap of paper.

II.

Respondent judge capriciously and arbitrarily ignored Section 2 of the Foreign Currency Deposit Act (RA 6426) in ruling in his Orders dated September 1 and December 30, 2003 that the US$11,000,000.00 deposit in the account of respondent Domsat in Westmont Bank is covered by the secrecy of bank deposit.

III.

Since both respondent banks and respondent Domsat have disclosed during the trial the US$11,000,000.00 deposit, it is no longer secret and confidential, and petitioner GSIS’ right to inquire into what happened to such deposit can not be suppressed.14

The Court of Appeals addressed these issues in seriatim.

The Court of Appeals resorted to a liberal interpretation of the rules to avoid miscarriage of justice when it allowed the filing and acceptance of the second motion for reconsideration. The appellate court also underscored the fact that GSIS did not raise the defect of lack of notice in its opposition to the second motion for reconsideration. The appellate court held that failure to timely object to the admission of a defective motion is considered a waiver of its right to do so.

The Court of Appeals declared that Domsat’s deposit in Westmont Bank is covered by Republic Act No. 6426 or the Bank Secrecy Law. We quote the pertinent portion of the Decision:

It is our considered opinion that Domsat’s deposit of $11,000,000.00 in Westmont Bank is covered by the Bank Secrecy Law, as such it cannot be examined, inquired or looked into without the written consent of its owner. The ruling in Van Twest vs. Court of Appeals was rendered during the effectivity of CB Circular No. 960, Series of 1983, under Sec. 102 thereof, transfer to foreign currency deposit account or receipt from another foreign currency deposit account, whether for payment of legitimate obligation or otherwise, are not eligible for deposit under the System.

CB Circular No. 960 has since been superseded by CB Circular 1318 and later by CB Circular 1389. Section 102 of Circular 960 has not been re-enacted in the later Circulars. What is applicable now is the decision in Intengan vs. Court of Appeals where the Supreme Court has ruled that the under R.A. 6426 there is only a single exception to the secrecy of foreign currency deposits, that is, disclosure is allowed only upon the written permission of the depositor. Petitioner, therefore, had inappropriately invoked the provisions of Central Bank (CB) Circular Nos. 343 which has already been superseded by more recently issued CB Circulars. CB Circular 343 requires the surrender to the banking system of foreign exchange, including proceeds of foreign borrowings. This requirement, however, can no longer be found in later circulars.

In its Reply to respondent banks’ comment, petitioner appears to have conceded that what is applicable in this case is CB Circular 1389. Obviously, under CB 1389, proceeds of foreign borrowings are no longer required to be surrendered to the banking system.

Undaunted, petitioner now argues that paragraph 2, Section 27 of CB Circular 1389 is applicable because Domsat’s $11,000,000.00 loan from respondent banks was intended to be paid to a foreign supplier Intersputnik and, therefore, should have been paid directly to Intersputnik and not deposited into Westmont Bank. The fact that it was deposited to the local bank Westmont Bank, petitioner claims violates the circular and makes the deposit lose its

confidentiality status under R.A. 6426. However, a reading of the entire Section 27 of CB Circular 1389 reveals that the portion quoted by the petitioner refers only to the procedure/conditions of drawdown for service of debts using foreign exchange. The above-said provision relied upon by the petitioner does not in any manner prescribe the conditions before any foreign currency deposit can be entitled to the confidentiality provisions of R.A. 6426.15

Anent the third issue, the Court of Appeals ruled that the testimony of the incumbent president of Westmont Bank is not the written consent contemplated by Republic Act No. 6426.

The Court of Appeals however upheld the issuance of subpoena praying for the production of applications for cashier’s or manager’s checks by Domsat through Westmont Bank, as well as a copy of an Agreement and/or Contract and/or Memorandum between Domsat and/or Philippine Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon Satellite. The appellate court believed that the production of these documents does not involve the examination of Domsat’s account since it will never be known how much money was deposited into it or withdrawn therefrom and how much remains therein.

On 29 February 2008, the Court of Appeals rendered the assailed Decision, the decretal portion of which reads:

WHEREFORE, the petition is partially GRANTED. Accordingly, the assailed Order dated December 30, 2003 is hereby modified in that the quashal of the subpoena for the production of Domsat’s bank ledger in Westmont Bank is upheld while respondent court is hereby ordered to issue subpoena duces tecum ad testificandum directing the records custodian of Westmont Bank to bring to court the following documents:

a) applications for cashier’s or manager’s checks by respondent Domsat through Westmont Bank from January 1997 to December 2002;

b) bank transfers by respondent Domsat through Westmont Bank from January 1997 to December 2002; and

c) copy of an agreement and/or contract and/or memorandum between respondent Domsat and/or Philippine Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon satellite.

No pronouncement as to costs.16

GSIS filed a motion for reconsideration which the Court of Appeals denied on 19 June 2009. Thus, the instant petition ascribing grave abuse of discretion on the part of the Court of Appeals in ruling that Domsat’s deposit with Westmont Bank cannot be examined and in finding that the banks’ second motion for reconsideration in Civil Case No. 99-1853 is procedurally acceptable.17

This Court notes that GSIS filed a petition for certiorari under Rule 65 of the Rules of Court to assail the Decision and Resolution of the Court of Appeals. Petitioner availed of the improper remedy as the appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45 and not a special civil action under Rule 65.18 Certiorari under Rule 65 lies only when there is no appeal, nor plain, speedy and adequate remedy in the ordinary course of law. That action is not a substitute for a lost appeal in general; it is not allowed when a party to a

case fails to appeal a judgment to the proper forum.19 Where an appeal is available, certiorari will not prosper even if the ground therefor is grave abuse of discretion. Accordingly, when a party adopts an improper remedy, his petition may be dismissed outright.20

Yet, even if this procedural infirmity is discarded for the broader interest of justice, the petition sorely lacks merit.

GSIS insists that Domsat’s deposit with Westmont Bank can be examined and inquired into. It anchored its argument on Republic Act No. 1405 or the “Law on Secrecy of Bank Deposits,” which allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the litigation. GSIS asserts that the subject matter of the litigation is the U.S. $11 Million obtained by Domsat from the Banks to supposedly finance the lease of a Russian satellite from Intersputnik. Whether or not it should be held liable as a surety for the principal amount of U.S. $11 Million, GSIS contends, is contingent upon whether Domsat indeed utilized the amount to lease a Russian satellite as agreed in the Surety Bond Agreement. Hence, GSIS argues that the whereabouts of the U.S. $11 Million is the subject matter of the case and the disclosure of bank deposits relating to the U.S. $11 Million should be allowed.

GSIS also contends that the concerted refusal of Domsat and the banks to divulge the whereabouts of the U.S. $11 Million will greatly prejudice and burden the GSIS pension fund considering that a substantial portion of this fund is earmarked every year to cover the surety bond issued.

Lastly, GSIS defends the acceptance by the trial court of the second motion for reconsideration filed by the banks on the grounds that it is pro forma and did not conform to the notice requirements of Section 4, Rule 15 of the Rules of Civil Procedure.21

Domsat denies the allegations of GSIS and reiterates that it did not give a categorical or affirmative written consent or permission to GSIS to examine its bank statements with Westmont Bank.

The Banks maintain that Republic Act No. 1405 is not the applicable law in the instant case because the Domsat deposit is a foreign currency deposit, thus covered by Republic Act No. 6426. Under said law, only the consent of the depositor shall serve as the exception for the disclosure of his/her deposit.

The Banks counter the arguments of GSIS as a mere rehash of its previous arguments before the Court of Appeals. They justify the issuance of the subpoena as an interlocutory matter which may be reconsidered anytime and that the pro forma rule has no application to interlocutory orders.

It appears that only GSIS appealed the ruling of the Court of Appeals pertaining to the quashal of the subpoena for the production of Domsat’s bank ledger with Westmont Bank. Since neither Domsat nor the Banks interposed an appeal from the other portions of the decision, particularly for the production of applications for cashier’s or manager’s checks by Domsat through Westmont Bank, as well as a copy of an agreement and/or contract and/or memorandum between Domsat and/or Philippine Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon satellite, the latter became final and executory.

GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the banks cite Republic Act No. 6426 to oppose it. The core issue is which of the two laws should apply in the instant case.

Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by Presidential Decree No. 1792 in 1981 and further amended by Republic Act No. 7653 in 1993. It now reads:

Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation.

Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by Presidential Decree No. 1035 and later by Presidential Decree No. 1246, provides:

Section 8. Secrecy of Foreign Currency Deposits. – All foreign currency deposits authorized under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or legislative or any other entity whether public or private; Provided, however, That said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov. 21, 1977.)

On the one hand, Republic Act No. 1405 provides for four (4) exceptions when records of deposits may be disclosed. These are under any of the following instances: a) upon written permission of the depositor, (b) in cases of impeachment, (c) upon order of a competent court in the case of bribery or dereliction of duty of public officials or, (d) when the money deposited or invested is the subject matter of the litigation, and e) in cases of violation of the Anti-Money Laundering Act (AMLA), the Anti-Money Laundering Council (AMLC) may inquire into a bank account upon order of any competent court.22 On the other hand, the lone exception to the non-disclosure of foreign currency deposits, under Republic Act No. 6426, is disclosure upon the written permission of the depositor.

These two laws both support the confidentiality of bank deposits. There is no conflict between them. Republic Act No. 1405 was enacted for the purpose of giving encouragement to the people to deposit their money in banking institutions and to discourage private hoarding so that the same may be properly utilized by banks in authorized loans to assist in the economic development of the country.23 It covers all bank deposits in the Philippines and no distinction was made between domestic and foreign deposits. Thus, Republic Act No. 1405 is considered a law of general application. On the other hand, Republic Act No. 6426 was intended to encourage deposits from foreign lenders and investors.24 It is a special law designed especially for foreign currency deposits in the Philippines. A general law does not nullify a specific or

special law. Generalia specialibus non derogant.25 Therefore, it is beyond cavil that Republic Act No. 6426 applies in this case.

Intengan v. Court of Appeals affirmed the above-cited principle and categorically declared that for foreign currency deposits, such as U.S. dollar deposits, the applicable law is Republic Act No. 6426.

In said case, Citibank filed an action against its officers for persuading their clients to transfer their dollar deposits to competitor banks. Bank records, including dollar deposits of petitioners, purporting to establish the deception practiced by the officers, were annexed to the complaint. Petitioners now complained that Citibank violated Republic Act No. 1405. This Court ruled that since the accounts in question are U.S. dollar deposits, the applicable law therefore is not Republic Act No. 1405 but Republic Act No. 6426.

The above pronouncement was reiterated in China Banking Corporation v. Court of Appeals,26 where respondent accused his daughter of stealing his dollar deposits with Citibank. The latter allegedly received the checks from Citibank and deposited them to her account in China Bank. The subject checks were presented in evidence. A subpoena was issued to employees of China Bank to testify on these checks. China Bank argued that the Citibank dollar checks with both respondent and/or her daughter as payees, deposited with China Bank, may not be looked into under the law on secrecy of foreign currency deposits. This Court highlighted the exception to the non-disclosure of foreign currency deposits, i.e., in the case of a written permission of the depositor, and ruled that respondent, as owner of the funds unlawfully taken and which are undisputably now deposited with China Bank, he has the right to inquire into the said deposits.

Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat, Westmont Bank cannot be legally compelled to disclose the bank deposits of Domsat, otherwise, it might expose itself to criminal liability under the same act.27

The basis for the application of subpoena is to prove that the loan intended for Domsat by the Banks and guaranteed by GSIS, was diverted to a purpose other than that stated in the surety bond. The Banks, however, argue that GSIS is in fact liable to them for the proper applications of the loan proceeds and not vice-versa. We are however not prepared to rule on the merits of this case lest we pre-empt the findings of the lower courts on the matter.

The third issue raised by GSIS was properly addressed by the appellate court. The appellate court maintained that the judge may, in the exercise of his sound discretion, grant the second motion for reconsideration despite its being pro forma. The appellate court correctly relied on precedents where this Court set aside technicality in favor of substantive justice. Furthermore, the appellate court accurately pointed out that petitioner did not assail the defect of lack of notice in its opposition to the second motion of reconsideration, thus it can be considered a waiver of the defect.

WHEREFORE, the petition for certiorari is DISMISSED. The Decision dated 29 February 2008 and 19 June 2009 Resolution of the Court of Appeals are hereby AFFIRMED.

THE BOARD OF TRUSTEES

G.R. No. 170463

OF THE GOVERNMENT SERVICE INSURANCE SYSTEM and

WINSTON F. GARCIA, in his capacity

as GSIS President and General Manager,

Petitioners,

- versus -

ALBERT M. VELASCO and MARIO I. MOLINA,

Respondents.

Present:

CARPIO, J., Chairperson,

NACHURA,

PERALTA,

ABAD, and

MENDOZA, JJ.

Promulgated:

February 2, 2011

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

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review1 of the 24 September 2004 Decision2 and the 7 October 2005 Order3 of the Regional Trial Court of Manila, Branch 19 (trial court), in Civil Case No. 03-108389. In its 24 September 2004 Decision, the trial court granted respondents Albert M. Velasco4 and Mario I. Molina’s5 (respondents) petition for prohibition. In its 7 October 2005 Order, the trial court denied petitioners Board of Trustees of the Government Service Insurance System (GSIS) and Winston F. Garcia’s (petitioners) motion for reconsideration.

The Facts

On 23 May 2002, petitioners charged respondents administratively with grave misconduct and placed them under preventive suspension for 90 days.6 Respondents were charged for their alleged participation in the demonstration held by some GSIS employees denouncing the alleged corruption in the GSIS and calling for the ouster of its president and general manager, petitioner Winston F. Garcia.7

In a letter dated 4 April 2003, respondent Mario I. Molina (respondent Molina) requested GSIS Senior Vice President Concepcion L. Madarang (SVP Madarang) for the implementation of his step increment.8 On 22 April 2003, SVP Madarang denied the request citing GSIS Board Resolution No. 372 (Resolution No. 372)9 issued by petitioner Board of Trustees of the GSIS (petitioner GSIS Board) which approved the new GSIS salary structure, its implementing rules and regulations, and the adoption of the supplemental guidelines on step increment and promotion.10 The pertinent provision of Resolution No. 372 provides:

A. Step Increment

x x x x

III. Specific Rules:

x x xx

3. The step increment adjustment of an employee who is on preventive suspension shall be withheld until such time that a decision on the case has been rendered. x x x x

Respondents also asked that they be allowed to avail of the employee privileges under GSIS Board Resolution No. 306 (Resolution No. 306) approving Christmas raffle benefits for all GSIS officials and employees effective year 2002.11 Respondents’ request was again denied because of their pending administrative case.

On 27 August 2003, petitioner GSIS Board issued Board Resolution No. 197 (Resolution No. 197) approving the following policy recommendations:

B. On the disqualification from promotion of an employee with a pending administrative case

To adopt the policy that an employee with pending administrative case shall be disqualified from the following during the pendency of the case:

a) Promotion;

b) Step Increment;

c) Performance-Based Bonus; and

d) Other benefits and privileges.

On 14 November 2003, respondents filed before the trial court a petition for prohibition with prayer for a writ of preliminary injunction.12 Respondents claimed that they were denied the benefits which GSIS employees were entitled under Resolution No. 306. Respondents also sought to restrain and prohibit petitioners from implementing Resolution Nos. 197 and 372. Respondents claimed that the denial of the employee benefits due them on the ground of their pending administrative cases violates their right to be presumed innocent and that they are being punished without hearing. Respondent Molina also added that he had already earned his right to the step increment before Resolution No. 372 was enacted. Respondents also argued that the three resolutions were ineffective because they were not registered with the University of the Philippines (UP) Law Center pursuant to the Revised Administrative Code of 1987.13

On 24 November 2003, petitioners filed their comment with motion to dismiss and opposition.14 On 2 December 2003, respondents filed their opposition to the motion to dismiss.15 On 5 December 2003, petitioners filed their reply.16

On 16 January 2004, the trial court denied petitioners’ motion to dismiss and granted respondents’ prayer for a writ of preliminary injunction.17

Petitioners filed a motion for reconsideration.18 In its 26 February 2004 Order, the trial court denied petitioners’ motion.19

In its 24 September 2004 Decision, the trial court granted respondents’ petition for prohibition. The dispositive portion of the 24 September 2004 Decision provides:

WHEREFORE, the petition is GRANTED and respondents’ Board Resolution No. 197 of August 27, 2003 and No. 372 of November 21, 2000 are hereby declared null and void. The writ of preliminary injunction issued by this Court is hereby made permanent.

SO ORDERED.20

Petitioners filed a motion for reconsideration. In its 7 October 2005 Order, the trial court denied petitioners’ motion.

Hence, this petition.

The Ruling of the Trial Court

On the issue of jurisdiction, the trial court said it can take cognizance of the petition because the “territorial area” referred to in Section 4, Rule 65 of the Rules of Court “does not necessarily delimit to a particular locality but rather to the judicial region where the office or agency is situated so that the prohibitive writ can be enforced.”

On the merits of the case, the trial court ruled that respondents were entitled to all employee benefits as provided under the law by reason of their employment. According to the trial court, to deny respondents these employee benefits for the reason alone that they have pending administrative cases is unjustified since it would deprive them of what is legally due them without due process of law, inflict punishment on them without hearing, and violate their right to be presumed innocent.

The trial court also found that the assailed resolutions were not registered with the UP Law Center, per certification of the Office of the National Administrative Register (ONAR).21 Since they were not registered, the trial court declared that the assailed resolutions have not become effective citing Sections 3 and 4, Chapter 2, Book 7 of the Revised Administrative Code of 1987.22

The Issues

Petitioners raise the following issues:

I

Whether the jurisdiction over the subject matter of Civil Case No. 03-108389 (Velasco, et al. vs. The Board of Trustees of GSIS, et al., RTC-Manila, Branch 19) lies with the Civil Service Commission (CSC) and not with the Regional Trial Court of Manila, Branch 19.

II

Whether a Special Civil Action for Prohibition against the GSIS Board or its President and General Manager exercising quasi-legislative and administrative functions in Pasay City is outside the territorial jurisdiction of RTC-Manila, Branch 19.

III

Whether internal rules and regulations need not require publication with the Office of the National [Administrative] Register for their effectivity, contrary to the conclusion of the RTC-Manila, Branch 19.

IV

Whether a regulation, which disqualifies government employees who have pending administrative cases from the grant of step increment and Christmas raffle benefits is unconstitutional.

V

Whether the nullification of GSIS Board Resolutions is beyond an action for prohibition, and a writ of preliminary injunction cannot be made permanent without a decision ordering the issuance of a writ of prohibition.23

The Ruling of the Court

The petition is partly meritorious.

Petitioners argue that the Civil Service Commission (CSC), not the trial court, has jurisdiction over Civil Case No. 03-108389 because it involves claims of employee benefits. Petitioners point out that the trial court should have dismissed the case for lack of jurisdiction.

Sections 2 and 4, Rule 65 of the Rules of Court provide:

Sec. 2. Petition for Prohibition. - When the proceedings of any tribunal, corporation, board, officer or person, whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of its jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the respondent to desist from further proceedings in the action or matter specified therein, or otherwise granting such incidental reliefs as law and justice may require.

Sec. 4. Where petition filed. - The petition may be filed not later than sixty (60) days from notice of the judgment, order or resolution sought to be assailed in the Supreme Court or, if it related to acts or omissions of a lower court or of a corporation, board, officer or person in the Regional Trial Court exercising jurisdiction over the territorial area as defined by the Supreme Court. It may also be filed in the Court of Appeals whether or not the same is in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of its jurisdiction. If it involves the acts or omissions of a quasi-judicial agency, and unless otherwise provided by law or these Rules, the petition shall be filed in and cognizable only by the Court of Appeals. (Emphasis supplied)

Civil Case No. 03-108389 is a petition for prohibition with prayer for the issuance of a writ of preliminary injunction. Respondents prayed that the trial court declare all acts emanating from Resolution Nos. 372, 197, and 306 void and to prohibit petitioners from further enforcing the said resolutions.24 Therefore, the trial court, not the CSC, has jurisdiction over respondents’ petition for prohibition.

Petitioners also claim that the petition for prohibition was filed in the wrong territorial jurisdiction because the acts sought to be prohibited are the acts of petitioners who hold their principal office in Pasay City, while the petition for prohibition was filed in Manila.

Section 18 of Batas Pambansa Blg. 129 (BP 129)25 provides:

SEC. 18. Authority to define territory appurtenant to each branch. - The Supreme Court shall define the territory over which a branch of the Regional Trial Court shall exercise its authority. The territory thus defined shall be deemed to be the territorial area of the branch concerned for purposes of determining the venue of all suits, proceedings or actions, whether civil or criminal, as well as determining the Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts over which the said branch may exercise appellate jurisdiction. The power herein granted shall be exercised with a view to making the courts readily accessible to the people of the different parts of the region and making attendance of litigants and witnesses as inexpensive as possible. (Emphasis supplied)

In line with this, the Supreme Court issued Administrative Order No. 326 defining the territorial jurisdiction of the regional trial courts in the National Capital Judicial Region, as follows:

a. Branches I to LXXXII, inclusive, with seats at Manila – over the City of Manila only.

b. Branches LXXXIII to CVII, inclusive, with seats at Quezon City – over Quezon City only.

c. Branches CVIII to CXIX, inclusive, with seats at Pasay City – over Pasay City only.

x x x x

The petition for prohibition filed by respondents is a special civil action which may be filed in the Supreme Court, the Court of Appeals, the Sandiganbayan or the regional trial court, as the case may be.27 It is also a personal action because it does not affect the title to, or possession of real property, or interest therein. Thus, it may be commenced and tried where the plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the principal defendants resides, at the election of the plaintiff.28 Since respondent Velasco, plaintiff before the trial court, is a resident of the City of Manila,29 the petition could properly be filed in the City of Manila.30 The choice of venue is sanctioned by Section 2, Rule 4 of the Rules of Court.

Moreover, Section 21(1) of BP 129 provides:

Sec. 21. Original jurisdiction in other cases. - Regional Trial Courts shall exercise original jurisdiction:

(1) In the issuance of writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction, which may be enforced in any part of their respective regions; x x x (Emphasis supplied)

Since the National Capital Judicial Region is comprised of the cities of Manila, Quezon, Pasay, Caloocan, Malabon, Mandaluyong, Makati, Pasig, Marikina, Parañaque, Las Piñas, Muntinlupa, and Valenzuela and the municipalities of Navotas, San Juan, Pateros, and Taguig, a writ of prohibition issued by the regional trial court sitting in the City of Manila, is enforceable in Pasay City. Clearly, the RTC did not err when it took cognizance of respondents’ petition for prohibition because it had jurisdiction over the action and the venue was properly laid before it.

Petitioners also argue that Resolution Nos. 372, 197, and 306 need not be filed with the UP Law Center ONAR since they are, at most, regulations which are merely internal in nature – regulating only the personnel of the GSIS and not the public.

Not all rules and regulations adopted by every government agency are to be filed with the UP Law Center. Only those of general or of permanent character are to be filed. According to the UP Law Center’s guidelines for receiving and publication of rules and regulations, “interpretative regulations and those merely internal in nature, that is, regulating only the personnel of the Administrative agency and not the public,” need not be filed with the UP Law Center.

Resolution No. 372 was about the new GSIS salary structure, Resolution No. 306 was about the authority to pay the 2002 Christmas Package, and Resolution No. 197 was about the GSIS merit selection and promotion plan. Clearly, the assailed resolutions pertained only to internal rules meant to regulate the personnel of the GSIS. There was no need for the publication or filing of these resolutions with the UP Law Center.

Petitioners insist that petitioner GSIS Board has the power to issue the assailed resolutions. According to petitioners, it was within the power of petitioner GSIS Board to disqualify respondents for step increment and from receiving GSIS benefits from the time formal administrative charges were filed against them until the cases are resolved.

The Court notes that the trial court only declared Resolution Nos. 197 and 372 void. The trial court made no ruling on Resolution No. 306 and respondents did not appeal this matter. Therefore, we will limit our discussion to Resolution Nos. 197 and 372, particularly to the effects of preventive suspension on the grant of step increment because this was what respondents raised before the trial court.

First, entitlement to step increment depends on the rules relative to the grant of such benefit. In point are Section 1(b), Rule II and Section 2, Rule III of Joint Circular No. 1, series of 1990, which provide:

Rule II. Selection Criteria

Section 1. Step increments shall be granted to all deserving officials and employees x x x

(b) Length of Service – For those who have rendered continuous satisfactory service in a particular position for at least three (3) years.

Rule III. Step Increments

x x x x

Section 2. Length of Service – A one (1) step increment shall be granted officials and employees for every three (3) years of continuous satisfactory service in the position. Years of service in the position shall include the following:

(a) Those rendered before the position was reclassified to a position title with a lower or the same salary grade allocation; and

(b) Those rendered before the incumbent was transferred to another position within the same agency or to another agency without a change in position title and salary grade allocation.

In the initial implementation of step increments in 1990, an incumbent shall be granted step increments equivalent to one (1) step for every three (3) years of continuous satisfactory service in a given position occupied as of January 1, 1990.

A grant of step increment on the basis of length of service requires that an employee must have rendered at least three years of continuous and satisfactory service in the same position to which he is an incumbent.31 To determine whether service is continuous, it is necessary to define what actual service is.32 “Actual service” refers to the period of continuous service since the appointment of the official or employee concerned, including the period or periods covered by any previously approved leave with pay.33

Second, while there are no specific rules on the effects of preventive suspension on step increment, we can refer to the CSC rules and rulings on the effects of the penalty

of suspension and approved vacation leaves without pay on the grant of step increment for guidance.

Section 56(d), Rule IV of the Uniform Rules on Administrative Cases in the Civil Service provides:

Section 56. Duration and effect of administrative penalties. - The following rules shall govern in the imposition of administrative penalties: x x x

(d) The penalty of suspension shall result in the temporary cessation of work for a period not exceeding one (1) year.

Suspension of one day or more shall be considered a gap in the continuity of service. During the period of suspension, respondent shall not be entitled to all money benefits including leave credits.

If an employee is suspended as a penalty, it effectively interrupts the continuity of his government service at the commencement of the service of the said suspension. This is because a person under penalty of suspension is not rendering actual service. The suspension will undoubtedly be considered a gap in the continuity of the service for purposes of the computation of the three year period in the grant of step increment.34 However, this does not mean that the employee will only be entitled to the step increment after completing another three years of continuous satisfactory service reckoned from the time the employee has fully served the penalty of suspension.35 The CSC has taken this to mean that the computation of the three year period requirement will only be extended by the number of days that the employee was under suspension.36 In other words, the grant of step increment will only be delayed by the same number of days that the employee was under suspension.

This is akin to the status of an employee who incurred vacation leave without pay for purposes of the grant of step increment.37 Employees who were on approved vacation leave without pay enjoy the liberal application of the rule on the grant of step increment under Section 60 of CSC Memorandum Circular No. 41, series of 1998, which provides:

Section 60. Effect of vacation leave without pay on the grant of length of service step increment. - For purposes of computing the length of service for the grant of step increment, approved vacation leave without pay for an aggregate of fifteen (15) days shall not interrupt the continuity of the three-year service requirement for the grant of step increment. However, if the total number of authorized vacation leave without pay included within the three-year period exceeds fifteen (15) days, the grant of one-step increment will only be delayed for the same number of days that an official or employee was absent without pay. (Emphasis supplied)

Third, on preventive suspension, Sections 51 and 52, Chapter 7, Subtitle A, Title I, Book V of the Revised Administrative Code of 1987 provide:

SEC. 51. Preventive Suspension. - The proper disciplining authority may preventively suspend any subordinate officer or employee under his authority pending an investigation, if the charge against such officer or employee involves dishonesty, oppression or grave misconduct, or neglect in the performance of duty, or if there are reasons to believe that the respondent is guilty of charges which would warrant his removal from the service.

SEC. 52. Lifting of Preventive Suspension. Pending Administrative Investigation. - When the administrative case against the officer or employee under preventive suspension is not finally decided by the disciplining authority within the period of ninety (90) days after the date of suspension of the respondent who is not a presidential appointee, the respondent shall be automatically reinstated in the service: Provided, That when the delay in the disposition of the case is due to the fault, negligence or petition of the respondent, the period of delay shall not be counted in computing the period of suspension herein provided. (Emphasis supplied)

Preventive suspension pending investigation is not a penalty.38 It is a measure intended to enable the disciplining authority to investigate charges against respondent by preventing the latter from intimidating or in any way influencing witnesses against him.39 If the investigation is not finished and a decision is not rendered within that period, the suspension will be lifted and the respondent will automatically be reinstated.

Therefore, on the matter of step increment, if an employee who was suspended as a penalty will be treated like an employee on approved vacation leave without pay,40 then it is only fair and reasonable to apply the same rules to an employee who was preventively suspended, more so considering that preventive suspension is not a penalty. If an employee is preventively suspended, the employee is not rendering actual service and this will also effectively interrupt the continuity of his government service. Consequently, an employee who was preventively suspended will still be entitled to step increment after serving the time of his preventive suspension even if the pending administrative case against him has not yet been resolved or dismissed. The grant of step increment will only be delayed for the same number of days, which must not exceed 90 days, that an official or employee was serving the preventive suspension.

Fourth, the trial court was correct in declaring that respondents had the right to be presumed innocent until proven guilty. This means that an employee who has a pending administrative case filed against him is given the benefit of the doubt and is considered innocent until the contrary is proven.41

In this case, respondents were placed under preventive suspension for 90 days beginning on 23 May 2002. Their preventive suspension ended on 21 August 2002. Therefore, after serving the period of their preventive suspension and without the administrative case being finally resolved, respondents should have been reinstated and, after serving the same number of days of their suspension, entitled to the grant of step increment.

On a final note, social legislation like the circular on the grant of step increment, being remedial in character, should be liberally construed and administered in favor of the persons to be benefited. The liberal approach aims to achieve humanitarian purposes of the law in order that the efficiency, security and well-being of government employees may be enhanced.42

WHEREFORE, we DENY the petition. We AFFIRM with MODIFICATION the 24 September 2004 Decision and the 7 October 2005 Order of the Regional Trial Court of Manila, Branch 19 in Civil Case No. 03-108389. We DECLARE the

assailed provisions on step increment in GSIS Board Resolution Nos. 197 and 372 VOID. We MODIFY the 24 September 2004 Decision of the Regional Trial Court of Manila, Branch 19 and rule that GSIS Board Resolution Nos. 197, 306 and 372 need not be filed with the University of the Philippines Law Center.

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS) and WINSTON F. GARCIA, in his capacity as PRESIDENT and GENERAL MANAGER of the GSIS,Petitioners,

- versus -

DINNAH VILLAVIZA, ELIZABETH DUQUE,ADRONICO A. ECHAVEZ,RODEL RUBIO, ROWENA THERESE B. GRACIA, PILAR LAYCO, and ANTONIO JOSE LEGARDA,

Respondents.

G.R. No. 180291

Present:

CORONA, C.J.,CARPIO,CARPIO MORALES,VELASCO, JR.,NACHURA,LEONARDO-DE CASTRO,BRION, PERALTA,BERSAMIN,DEL CASTILLO,ABAD,VILLARAMA, JR.,PEREZ, andMENDOZA, JJ.

Promulgated:

July 27, 2010

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

D E C I S I O N

MENDOZA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of

Court seeking to reverse and set aside the August 31, 2007 Decision1[1] of the Court

of Appeals (CA), in CA-G.R. SP No. 98952, dismissing the petition for certiorari

of Government Service Insurance System (GSIS) assailing the Civil Service

Commission’s Resolution No. 062177.

THE FACTS:

Petitioner Winston Garcia (PGM Garcia), as President and General

Manager of the GSIS, filed separate formal charges against respondents Dinnah

Villaviza, Elizabeth Duque, Adronico A. Echavez, Rodel Rubio, Rowena Therese

B. Gracia, Pilar Layco, and Antonio Jose Legarda for Grave Misconduct and/or

Conduct Prejudicial to the Best Interest of the Service pursuant to the Rules of

Procedure in Administrative Investigation (RPAI) of GSIS Employees and

Officials, III, D, (1, c, f) in relation to Section 52A (3), (20), Rule IV, of the

Uniform Rules on Administrative Cases in the Civil Service (URACCS), in

accordance with Book V of the Administrative Code of 1987, committed as

follows:

That on 27 May 2005, respondent, wearing red shirt together with some employees, marched to or appeared simultaneously at or just outside the office of the Investigation Unit in a mass demonstration/rally of protest and support for

1

Messrs. Mario Molina and Albert Velasco, the latter having surreptitiously entered the GSIS premises;

x x x x x x x x x

That some of these employees badmouthed the security guards and the GSIS management and defiantly raised clenched fists led by Atty. Velasco who was barred by Hearing Officer Marvin R. Gatpayat in an Order dated 24 May 2005 from appearing as counsel for Atty. Molina pursuant to Section 7 (b) (2) of R.A. 6713 otherwise known as the Code of Conduct and Ethical Standards for Public Officials and Employees;

That respondent, together with other employees in utter contempt of CSC Resolution No. 021316, dated 11 October 2002, otherwise known as Omnibus Rules on Prohibited Concerted Mass Actions in the Public Sector caused alarm and heightened some employees and disrupted the work at the Investigation Unit during office hours.2[2]

This episode was earlier reported to PGM Garcia, through an office

memorandum dated May 31, 2005, by the Manager of the GSIS Security

Department (GSIS-SD), Dennis Nagtalon. On the same day, the Manager of the

GSIS Investigation Unit (GSIS-IU), Atty. Lutgardo Barbo, issued a memorandum

to each of the seven (7) respondents requiring them to explain in writing and under

oath within three (3) days why they should not be administratively dealt with.3[3]

Respondents Duque, Echavez, Rubio, Gracia, Layco, and Legarda, together

with two others, submitted a letter-explanation to Atty. Barbo dated June 6, 2005.

Denying that there was a planned mass action, the respondents explained that their

act of going to the office of the GSIS-IU was a spontaneous reaction after learning

that their former union president was there. Aside from some of them wanting to

2

3

show their support, they were interested in that hearing as it might also affect them.

For her part, respondent Villaviza submitted a separate letter explaining that she

had a scheduled pre-hearing at the GSIS-IU that day and that she had informed her

immediate supervisor about it, attaching a copy of the order of pre-hearing. These

letters were not under oath.4[4]

PGM Garcia then filed the above-mentioned formal charges for Grave

Misconduct and/or Conduct Prejudicial to the Best Interest of the Service against

each of the respondents, all dated June 4, 2005. Respondents were again directed to

submit their written answers under oath within three (3) days from receipt thereof.5

[5] None was filed.

On June 29, 2005, PGM Garcia issued separate but similarly worded

decisions finding all seven (7) respondents guilty of the charges and meting out the

penalty of one (1) year suspension plus the accessory penalties appurtenant thereto.

On appeal, the Civil Service Commission (CSC) found the respondents

guilty of the lesser offense of Violation of Reasonable Office Rules and

Regulations and reduced the penalty to reprimand. The CSC ruled that respondents

were not denied their right to due process but there was no substantial evidence to

hold them guilty of Conduct Prejudicial to the Best Interest of the Service. Instead,

x x x. The actuation of the appellants in going to the IU, wearing red shirts, to witness a public hearing cannot be considered as constitutive of such offense. Appellants’ (respondents herein) assembly at the said office to express support to Velasco, their Union President, who pledged to defend them against any oppression by the GSIS management,

4

5

can be considered as an exercise of their freedom of expression, a constitutionally guaranteed right.6[6] x x x

PGM Garcia sought reconsideration but was denied. Thus, PGM Garcia

went to the Court of Appeals via a Petition for Review under Rule 43 of the Rules

on Civil Procedure.7[7] The CA upheld the CSC in this wise:

The Civil Service Commission is correct when it found that the act sought to be punished hardly falls within the definition of a prohibited concerted activity or mass action. The petitioners failed to prove that the supposed concerted activity of the respondents resulted in work stoppage and caused prejudice to the public service. Only about twenty (20) out of more than a hundred employees at the main office, joined the activity sought to be punished. These employees, now respondents in this case, were assigned at different offices of the petitioner GSIS. Hence, despite the belated claim of the petitioners that the act complained of had created substantial disturbance inside the petitioner GSIS’ premises during office hours, there is nothing in the record that could support the claim that the operational capacity of petitioner GSIS was affected or reduced to substantial percentage when respondents gathered at the Investigation Unit. Despite the hazy claim of the petitioners that the gathering was intended to force the Investigation Unit and petitioner GSIS to be lenient in the handling of Atty. Molina’s case and allow Atty. Velasco to represent Atty. Molina in his administrative case before petitioner GSIS, there is likewise no concrete and convincing evidence to prove that the gathering was made to demand or force concessions, economic or otherwise from the GSIS management or from the government. In fact, in the separate formal charges filed against the respondents, petitioners clearly alleged that respondents “marched to or appeared simultaneously at or just outside the office of the Investigation Unit in a mass demonstration/rally of protest and support for Mssrs. Mario Molina and Albert Velasco, the latter surreptitiously entered the GSIS premises.” Thus, petitioners are aware at the outset that the only apparent intention of the respondents in going to the IU was to show support to Atty. Mario Molina and Albert Velasco, their union

6

7

officers. The belated assertion that the intention of the respondents in going to the IU was to disrupt the operation and pressure the GSIS administration to be lenient with Atty. Mario Molina and Albert Velasco, is only an afterthought.8[8]

Not in conformity, PGM Garcia is now before us via this Petition for

Review presenting the following:

STATEMENT OF THE ISSUES

I

WHETHER AN ADMINISTRATIVE TRIBUNAL MAY APPLY SUPPLETORILY THE PROVISIONS OF THE RULES OF COURT ON THE EFFECT OF FAILURE TO DENY THE ALLEGATIONS IN THE COMPLAINT AND FAILURE TO FILE ANSWER, WHERE THE RESPONDENTS IN THE ADMINISTRATIVE PROCEEDINGS DID NOT FILE ANY RESPONSIVE PLEADING TO THE FORMAL CHARGES AGAINST THEM.

II

WHETHER THE RULE THAT ADMINISTRATIVE DUE PROCESS CANNOT BE EQUATED WITH DUE PROCESS IN JUDICIAL SENSE AUTHORIZES AN ADMINISTRATIVE TRIBUNAL TO CONSIDER IN EVIDENCE AND GIVE FULL PROBATIVE VALUE TO UNNOTARIZED LETTERS THAT DID NOT FORM PART OF THE CASE RECORD.

III

WHETHER A DECISION THAT MAKES CONCLUSIONS OF FACTS BASED ON EVIDENCE ON RECORD BUT MAKES A CONCLUSION OF LAW BASED ON THE ALLEGATIONS OF A DOCUMENT THAT NEVER FORMED PART OF THE CASE RECORDS IS VALID.

IV

WHETHER FURTHER PROOF OF SUSBTANTIAL REDUCTION OF THE OPERATIONAL CAPACITY OF AN AGENCY, DUE TO UNRULY

8

MASS GATHERING OF GOVERNMENT EMPLOYEES INSIDE OFFICE PREMISES AND WITHIN OFFICE HOURS, IS REQUIRED TO HOLD THE SAID EMPLOYEES LIABLE FOR CONDUCT PREJUDICIAL TO THE BEST INTEREST OF THE SERVICE PURSUANT TO CSC RESOLUTION NO. 021316.

V

WHETHER AN UNRULY MASS GATHERING OF TWENTY EMPLOYEES, LASTING FOR MORE THAN AN HOUR DURING OFFICE HOURS, INSIDE OFFICE PREMISES AND WITHIN A UNIT TASKED TO HEAR AN ADMINISTRATIVE CASE, TO PROTEST THE PROHIBITION AGAINST THE APPEARANCE OF THEIR LEADER AS COUNSEL IN THE SAID ADMINISTRATIVE CASE, FALLS WITHIN THE PURVIEW OF THE CONSTITUTIONAL GUARANTEE TO FREEDOM OF EXPRESSION AND PEACEFUL ASSEMBLY.

VI

WHETHER THE CONCERTED ABANDONMENT OF EMPLOYEES OF THEIR POSTS FOR MORE THAN AN HOUR TO HOLD AN UNRULY PROTEST INSIDE OFFICE PREMISES ONLY CONSTITUTES THE ADMINISTRATIVE OFFENSE OF VIOLATION OF REASONABLE OFFICE RULES AND REGULATIONS.9[9]

The Court finds no merit in the petition.

Petitioners primarily question the probative value accorded to respondents’

letters of explanation in response to the memorandum of the GSIS-IU Manager.

The respondents never filed their answers to the formal charges. The petitioners

argue that there being no answers, the allegations in the formal charges that they

filed should have been deemed admitted pursuant to Section 11, Rule 8 of the

Rules of Court which provides:

SECTION 11. Allegations not specifically denied deemed admitted.— Material averment in the complaint, other than those as to the amount of liquidated damages, shall be deemed admitted when not specifically denied. Allegations of usury in a

9

complaint to recover usurious interest are deemed admitted if not denied specifically and under oath.

According to the petitioners, this rule is applicable to the case at bench

pursuant to Rule 1, Section 4 of the Rules of Court which reads:

SECTION 4. In what cases not applicable. – These Rules shall not apply to election cases, land registration, cadastral, naturalization and insolvency proceedings, and other cases not herein provided for, except by analogy or in a suppletory character and whenever practicable and convenient. (underscoring supplied)

The Court does not subscribe to the argument of the petitioners. Petitioners’

own rules, Rule XI, Section 4 of the GSIS’ Amended Policy and Procedural

Guidelines No. 178-04, specifically provides:

If the respondent fails to file his Answer within five (5) working days from receipt of the Formal Charge for the supporting evidence, when requested, he shall be considered to have waived his right to file an answer and the PGM or the Board of Trustees, in proper cases, shall render judgment, as may be warranted by the facts and evidence submitted by the prosecution.

A perusal of said section readily discloses that the failure of a respondent to

file an answer merely translates to a waiver of “his right to file an answer.” There

is nothing in the rule that says that the charges are deemed admitted. It has not

done away with the burden of the complainant to prove the charges with clear and

convincing evidence.

It is true that Section 4 of the Rules of Court provides that the rules can be

applied in a “suppletory character.” Suppletory is defined as “supplying

deficiencies.”10[10] It means that the provisions in the Rules of Court will be made to

10

apply only where there is an insufficiency in the applicable rule. There is, however,

no such deficiency as the rules of the GSIS are explicit in case of failure to file the

required answer. What is clearly stated there is that GSIS may “render judgment as

may be warranted by the facts and evidence submitted by the prosecution.”

Even granting that Rule 8, Section 11 of the Rules of Court finds application

in this case, petitioners must remember that there remain averments that are not

deemed admitted by the failure to deny the same. Among them are immaterial

allegations and incorrect conclusions drawn from facts set out in the complaint.11[11]

Thus, even if respondents failed to file their answer, it does not mean that all

averments found in the complaint will be considered as true and correct in their

entirety, and that the forthcoming decision will be rendered in favor of the

petitioners. We must not forget that even in administrative proceedings, it is still

the complainant, or in this case the petitioners, who have the burden of proving,

with substantial evidence, the allegations in the complaint or in the formal

charges.12[12]

A perusal of the decisions of the CA and of the CSC will reveal that the case

was resolved against petitioners based, not on the absence of respondents’

evidence, but on the weakness of that of the petitioners. Thus, the CA wrote:

Petitioners correctly submitted the administrative cases for resolution without the respondents’ respective answer to the separate formal charges in accordance with Section 4, Rule XI of the RPAI. Being in full control of the administrative proceeding and having effectively prevented respondents from further submitting their responsive answer and evidence for the defense, petitioners were in the most advantageous position to prove the merit of their allegations in the formal charges. When

11

12

petitioner Winston Garcia issued those similarly worded decisions in the administrative cases against the respondents, it is presumed that all evidence in their favor were duly submitted and justly considered independent of the weakness of respondent’s evidence in view of the principle that ‘‘the burden of proof belongs to the one who alleges and not the one who denies.”13[13]

On the merits, what needs to be resolved in the case at bench is the question

of whether or not there was a violation of Section 5 of CSC Resolution No. 02-

1316. Stated differently, whether or not respondents’ actions on May 27, 2005

amounted to a “prohibited concerted activity or mass action.” Pertinently, the said

provision states:

Section 5. As used in this Omnibus Rules, the phrase ‘‘prohibited concerted activity or mass action’’ shall be understood to refer to any collective activity undertaken by government employees, by themselves or through their employees organizations, with intent of effecting work stoppage or service disruption in order to realize their demands of force concession, economic or otherwise, from their respective agencies or the government. It shall include mass leaves, walkouts, pickets and acts of similar nature. (underscoring supplied)

In this case, CSC found that the acts of respondents in going to the GSIS-IU

office wearing red shirts to witness a public hearing do not amount to a concerted

activity or mass action proscribed above. CSC even added that their actuations can

be deemed an exercise of their constitutional right to freedom of expression. The

CA found no cogent reason to deviate therefrom.

As defined in Section 5 of CSC Resolution No. 02-1316 which serves to

regulate the political rights of those in the government service, the concerted

13

activity or mass action proscribed must be coupled with the “intent of effecting

work stoppage or service disruption in order to realize their demands of force

concession.” Wearing similarly colored shirts, attending a public hearing at the

GSIS-IU office, bringing with them recording gadgets, clenching their fists, some

even badmouthing the guards and PGM Garcia, are acts not constitutive of an (i)

intent to effect work stoppage or service disruption and (ii) for the purpose of

realizing their demands of force concession.

Precisely, the limitations or qualifications found in Section 5 of CSC

Resolution No. 02-1316 are there to temper and focus the application of such

prohibition. Not all collective activity or mass undertaking of government

employees is prohibited. Otherwise, we would be totally depriving our brothers

and sisters in the government service of their constitutional right to freedom of

expression.

Government workers, whatever their ranks, have as much right as any

person in the land to voice out their protests against what they believe to be a

violation of their rights and interests. Civil Service does not deprive them of their

freedom of expression. It would be unfair to hold that by joining the government

service, the members thereof have renounced or waived this basic liberty. This

freedom can be reasonably regulated only but can never be taken away.

A review of PGM Garcia’s formal charges against the respondents reveals

that he himself was not even certain whether the respondents and the rest of the

twenty or so GSIS employees who were at the GSIS-IU office that fateful day

marched there or just simply appeared there simultaneously.14[14] Thus, the

petitioners were not even sure if the spontaneous act of each of the twenty or so

14

GSIS employees on May 27, 2005 was a concerted one. The report of Manager

Nagtalon of the GSIS-SD which was the basis for PGM Garcia’s formal charges

reflected such uncertainty. Thus,

Of these red shirt protesters, only Mr. Molina has official business at the Investigation Unit during this time. The rest abandoned their post and duties for the duration of this incident which lasted until 10:55 A.M. It was also observed that the protesters, some of whom raised their clenched left fists, carefully planned this illegal action as evident in their behavior of arrogance, defiance and provocation, the presence of various recording gadgets such as VCRs, voice recorders and digital cameras, the bad mouthing of the security guards and the PGM, the uniformity in their attire and the collusion regarding the anomalous entry of Mr. Albert Velasco to the premises as reported earlier.15[15]

The said report of Nagtalon contained only bare facts. It did not show

respondents’ unified intent to effect disruption or stoppage in their work. It also

failed to show that their purpose was to demand a force concession.

In the recent case of GSIS v. Kapisanan ng mga Manggagawa sa

GSIS,16[16] the Court upheld the position of petitioner GSIS because its employees,

numbering between 300 and 800 each day, staged a walkout and participated in a

mass protest or demonstration outside the GSIS for four straight days. We cannot

say the same for the 20 or so employees in this case. To equate their wearing of red

shirts and going to the GSIS-IU office for just over an hour with that four-day mass

action in Kapisanan ng mga Manggagawa sa GSIS case and to punish them

in the same manner would most certainly be unfair and unjust.

15

16

Recent analogous decisions in the United States, while recognizing the

government’s right as an employer to lay down certain standards of conduct, tend

to lean towards a broad definition of “public concern speech” which is protected by

their First Amendment. One such case is that of Scott v. Meters.17[17] In said case,

the New York Transit Authority (NYTA), responsible for operation of New York

City’s mass transit service, issued a rule prohibiting employees from wearing

badges or buttons on their uniforms. A number of union members wore union

buttons promoting their opposition to a collective bargaining agreement.

Consequently, the NYTA tried to enforce its rule and threatened to subject these

union members to discipline. The court, though recognizing the government’s right

to impose reasonable restrictions, held that the NYTA’s rule was

“unconstitutionally overboard.”

In another case, Communication Workers of America v. Ector County

Hospital District,18[18] it was held that,

A county hospital employee’s wearing of a “Union Yes” lapel pin during a union organization drive constituted speech on a matter of public concern, and the county’s proffered interest in enforcing the anti-adornment provision of its dress code was outweighed by the employee’s interest in exercising his First Amendment speech and associational rights by wearing a pro-union lapel button.19[19]

Thus, respondents’ freedom of speech and of expression remains intact, and

CSC’s Resolution No. 02-1316 defining what a prohibited concerted activity or

mass action has only tempered or regulated these rights. Measured against that

17

18

19

definition, respondents’ actuations did not amount to a prohibited concerted

activity or mass action. The CSC and the CA were both correct in arriving at said

conclusion.

WHEREFORE, the assailed August 31, 2007 Decision of the Court of

Appeals as well as its October 16, 2007 Resolution in CA G.R. SP No. 98952 are

hereby AFFIRMED.

SO ORDERED.

G.R. No. 186560 November 17, 2010

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner, vs.FERNANDO P. DE LEON, Respondent.

D E C I S I O N

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. Petitioner Government Service Insurance System (GSIS) seeks the nullification of the Decision1 dated October 28, 2008 and the Resolution2 dated February 18, 2009 of the Court of Appeals (CA) in CA-G.R. SP No. 101811.

Respondent Fernando P. de Leon retired as Chief State Prosecutor of the Department of Justice (DOJ) in 1992, after 44 years of service to the government. He applied for retirement under Republic Act (R.A.) No. 910, invoking R.A. No. 3783, as amended by R.A. No. 4140, which provides that chief state prosecutors hold the same rank as judges. The application was approved by GSIS. Thereafter, and for more than nine years, respondent continuously received his retirement benefits, until 2001, when he failed to receive his monthly pension.3

Respondent learned that GSIS cancelled the payment of his pension because the Department of Budget and Management (DBM) informed GSIS that respondent was not qualified to retire under R.A. No. 910; that the law was meant to apply only to justices and judges; and that having the same rank and qualification as a judge did not entitle respondent to the retirement benefits provided thereunder. Thus, GSIS stopped the payment of respondent’s monthly pension.4

Respondent wrote GSIS several letters but he received no response until November 9, 2007, when respondent received the following letter from GSIS:

Dear Atty. De Leon:

This is in response to your request for resumption of pension benefit.

It appears that you retired under Republic Act No. 910 in 1992 from your position as Chief State Prosecutor in the Department of Justice. From 1992 to 2001, you were receiving pension benefits under the said law. Beginning the year 2002, the Department of Budget and Management through then Secretary Emilia T. Boncodin already refused to release the funds for your pension benefit on the ground that Chief State Prosecutors are not covered by R.A. 910. This conclusion was later on affirmed by Secretary Rolando G. Andaya, Jr. in a letter dated 6 June 2006.

In view of these, you now seek to secure benefits under Republic Act No. 660 or any other applicable GSIS law.

We regret, however, that we cannot accede to your request because you have chosen to retire and in fact have already retired under a different law, Republic Act No. 910, more than fifteen (15) years ago. There is nothing in the GSIS law which sanctions double retirement unless the retiree is first re-employed and qualifies once again to retire under GSIS law. In fact, Section 55 of Republic Act No. 8291 provides for exclusivity of benefits which means that a retiree may choose only one retirement scheme available to him to the exclusion of all others.

Nonetheless, we believe that the peculiarities of your case is a matter that may be jointly addressed or threshed out by your agency, the Department of Justice, and the Department of Budget and Management.

Very truly yours,

(signed)

CECIL L. FELEOSenior Vice PresidentSocial Insurance Group5

Respondent then filed a petition for mandamus before the CA, praying that petitioner be compelled to continue paying his monthly pension and to pay his unpaid monthly benefits from 2001. He also asked that GSIS and the DBM be ordered to pay him damages.6

In the assailed October 28, 2008 Decision, the CA resolved to grant the petition, to wit:

WHEREFORE, the petition is GRANTED. The GSIS is hereby ordered to pay without delay petitioner Atty. Fernando de Leon, his monthly adjusted pension in accordance with other applicable law not under RA 910. It is also ordered to pay the back pensions which should also be adjusted to conform to the applicable law from the time his pension was withheld.

SO ORDERED.7

The CA found that GSIS allowed respondent to retire under R.A. No. 910, following precedents which allowed non-judges to retire under the said law. The CA said that it was not respondent’s fault that he was allowed to avail of the benefits under R.A. No. 910; and that, even if his retirement under that law was erroneous, respondent was, nonetheless, entitled to a monthly

pension under the GSIS Act. The CA held that this was not a case of double retirement, but merely a continuation of the payment of respondent’s pension benefit to which he was clearly entitled. Since the error in the award of retirement benefits under R.A. 910 was not attributable to respondent, it was incumbent upon GSIS to continue defraying his pension in accordance with the appropriate law which might apply to him. It was unjust for GSIS to entirely stop the payment of respondent’s monthly pension without providing any alternative sustenance to him.8

The CA further held that, under R.A. No. 660, R.A. No. 8291, and Presidential Decree (P.D.) No. 1146, respondent is entitled to a monthly pension for life. He cannot be penalized for the error committed by GSIS itself. Thus, although respondent may not be qualified to receive the retirement benefits under R.A. No. 910, he is still entitled to a monthly pension under R.A. No. 660, P.D. No. 1146, and R.A. No. 8291.9

Petitioner GSIS is now before this Court, assailing the Decision of the CA and the Resolution denying its motion for reconsideration.

GSIS admits that respondent received monthly pensions from August 1997 until December 2001. Thereafter, the DBM refused to remit the funds for respondent’s pension on the ground that he was not entitled to retire under R.A. No. 910 and should have retired under another law, without however specifying which law it was.10 It appears that the DBM discontinued the payment of respondent’s pension on the basis of the memorandum of the Chief Presidential Legal Counsel that Chief Prosecutors of the DOJ are not entitled to the retirement package under R.A. No. 910.

Because of the discontinuance of his pension, respondent sought to convert his retirement under R.A. No. 910 to one under another law administered by GSIS.11 However, this conversion was not allowed because, as GSIS avers, R.A. No. 8291 provides that conversion of one’s retirement mode on whatever ground and for whatever reason is not allowed beyond one year from the date of retirement.

GSIS assails the CA’s Decision for not specifying under which law respondent’s retirement benefits should be paid, thus making it legally impossible for GSIS to comply with the directive.12

It then raises several arguments that challenge the validity of the appellate court’s decision.

GSIS argues, first, that the CA erred in issuing a writ of mandamus despite the absence of any specific and clear right on the part of respondent, since he could not even specify the benefits to which he is entitled and the law under which he is making the claim.13

Second, GSIS alleges that it had refunded respondent’s premium payments because he opted to retire under R.A. No. 910, which it does not administer. Thus, GSIS posits that the nexus between itself and respondent had been severed and, therefore, the latter cannot claim benefits from GSIS anymore.14

Third, GSIS contends that the CA erred in concluding that respondent would not be unjustly enriched by the continuation of his monthly pension because he had already benefited from having erroneously retired under R.A. No. 910. GSIS points out that it had refunded respondent’s premium contributions. When the Chief Presidential Legal Counsel concluded that respondent was not entitled to retire under R.A. No. 910, it was implicit recognition that respondent was actually not entitled to the P1.2 million lump sum payment he received, which he never refunded.15

Fourth, GSIS points out that the CA erred in concluding that respondent was not seeking conversion from one retirement mode to another. It reiterates that R.A. No. 8291 expressly prohibits conversion beyond one year from retirement. To compel GSIS to release respondent’s retirement benefits despite the fact that he is disqualified to receive retirement benefits violates R.A. No. 8291, and would subject its officials to possible charges under R.A. No. 3019, the Anti-Graft and Corrupt Practices Act.

Fifth, GSIS contends that respondent is not entitled to the retirement benefits under R.A. No. 8291 because, when he retired in 1992, the law had not yet been enacted. The retirement laws administered by GSIS at that time were R.A. No. 660, R.A. No. 1616, and P.D. No. 1146.

Lastly, GSIS argues that the writ of mandamus issued by the CA is not proper because it compels petitioner to perform an act that is contrary to law.

Respondent traverses these allegations, and insists that he has a clear legal right to receive retirement benefits under either R.A. No. 660 or P.D. No. 1146.16 He claims that he has met all the conditions for entitlement to the benefits under either of the two laws.17 Respondent contends that the return of his contributions does not bar him from pursuing his claims because GSIS can require him to refund the premium contributions, or even deduct the amount returned to him from the retirement benefits he will receive.18 He also argues that resumption of his monthly pension will not constitute unjust enrichment because he is entitled to the same as a matter of right for the rest of his natural life.19

Respondent accepts that, contrary to the pronouncement of the CA, he is not covered by R.A. No. 8291. He, therefore, asks this Court to modify the CA Decision, such that instead of Section 13 of R.A. No. 8291, it should be Section 12 of P.D. No. 1146 or Section 11 of R.A. No. 660 to be used as the basis of his right to receive, and the adjustment of, his monthly pension.

Furthermore, respondent argues that allowing him to retire under another law does not constitute "conversion" as contemplated in the GSIS law. He avers that his application for retirement under R.A. No. 910 was duly approved by GSIS, endorsed by the DOJ, and implemented by the DBM for almost a decade. Thus, he should not be made to suffer any adverse consequences owing to the change in the interpretation of the provisions of R.A. No. 910. Moreover, he could not have applied for conversion of his chosen retirement mode to one under a different law within one year from approval of his retirement application, because of his firm belief that his retirement under R.A. No. 910 was proper – a belief amply supported by its approval by GSIS, the favorable endorsement of the DOJ, and its implementation by the DBM.20

The petition is without merit.

Initially, we resolve the procedural issue.

GSIS contends that respondent’s petition for mandamus filed before the CA was procedurally improper because respondent could not show a clear legal right to the relief sought.

The Court disagrees with petitioner. The CA itself acknowledged that it would not indulge in technicalities to resolve the case, but focus instead on the substantive issues rather than on procedural questions.21 Furthermore, courts have the discretion to relax the rules of procedure in order to protect substantive rights and prevent manifest injustice to a party.

The Court has allowed numerous meritorious cases to proceed despite inherent procedural defects and lapses. Rules of procedure are mere tools designed to facilitate the attainment of justice. Strict and rigid application of rules which would result in technicalities that tend to frustrate rather than to promote substantial justice must always be avoided.22

Besides, as will be discussed hereunder, contrary to petitioner’s posture, respondent has a clear legal right to the relief prayed for. Thus, the CA acted correctly when it gave due course to respondent’s petition for mandamus.

This case involves a former government official who, after honorably serving office for 44 years, was comfortably enjoying his retirement in the relative security of a regular monthly pension, but found himself abruptly denied the benefit and left without means of sustenance. This is a situation that obviously cries out for the proper application of retirement laws, which are in the class of social legislation.

The inflexible rule in our jurisdiction is that social legislation must be liberally construed in favor of the beneficiaries.23 Retirement laws, in particular, are liberally construed in favor of the retiree24 because their objective is to provide for the retiree’s sustenance and, hopefully, even comfort, when he no longer has the capability to earn a livelihood. The liberal approach aims to achieve the humanitarian purposes of the law in order that efficiency, security, and well-being of government employees may be enhanced.25 Indeed, retirement laws are liberally construed and administered in favor of the persons intended to be benefited, and all doubts are resolved in favor of the retiree to achieve their humanitarian purpose.26

In this case, as adverted to above, respondent was able to establish that he has a clear legal right to the reinstatement of his retirement benefits.

In stopping the payment of respondent’s monthly pension, GSIS relied on the memorandum of the DBM, which, in turn, was based on the Chief Presidential Legal Counsel’s opinion that respondent, not being a judge, was not entitled to retire under R.A. No. 910. And because respondent had been mistakenly allowed to receive retirement benefits under R.A. No. 910, GSIS erroneously concluded that respondent was not entitled to any retirement benefits at all, not even under any other extant retirement law. This is flawed logic.

Respondent’s disqualification from receiving retirement benefits under R.A. No. 910 does not mean that he is disqualified from receiving any retirement benefit under any other existing retirement law.

The CA, however, incorrectly held that respondent was covered by R.A. No. 8291. R.A. No. 8291 became a law after respondent retired from government service. Hence, petitioner and even respondent agree that it does not apply to respondent, because the law took effect after respondent’s retirement.

Prior to the effectivity of R.A. No. 8291, retiring government employees who were not entitled to the benefits under R.A. No. 910 had the option to retire under either of two laws: Commonwealth Act No. 186, as amended by R.A. No. 660, or P.D. No. 1146.

In his Comment, respondent implicitly indicated his preference to retire under P.D. No. 1146, since this law provides for higher benefits, and because the same was the latest law at the time of his retirement in 1992.27

Under P.D. No. 1146, to be eligible for retirement benefits, one must satisfy the following requisites:

Section 11. Conditions for Old-Age Pension.

(a) Old-age pension shall be paid to a member who:

(1) has at least fifteen years of service;

(2) is at least sixty years of age; and

(3) is separated from the service.

Respondent had complied with these requirements at the time of his retirement. GSIS does not dispute this. Accordingly, respondent is entitled to receive the benefits provided under Section 12 of the same law, to wit:

Section 12. Old-Age Pension.

(a) A member entitled to old-age pension shall receive the basic monthly pension for life but in no case for a period less than five years: Provided, That, the member shall have the option to convert the basic monthly pensions for the first five years into a lump sum as defined in this Act: Provided, further, That, in case the pensioner dies before the expiration of the five-year period, his primary beneficiaries shall be entitled to the balance of the amount still due to him. In default of primary beneficiaries, the amount shall be paid to his legal heirs.

To grant respondent these benefits does not equate to double retirement, as GSIS mistakenly claims. Since respondent has been declared ineligible to retire under R.A. No. 910, GSIS should simply apply the proper retirement law to respondent’s claim, in substitution of R.A. No. 910. In this way, GSIS would be faithful to its mandate to administer retirement laws in the spirit in which they have been enacted, i.e., to provide retirees the wherewithal to live a life of relative comfort and security after years of service to the government. Respondent will not receive --- and GSIS is under no obligation to give him --- more than what is due him under the proper retirement law.

It must be emphasized that P.D. No. 1146 specifically mandates that a retiree is entitled to monthly pension for life. As this Court previously held:

Considering the mandatory salary deductions from the government employee, the government pensions do not constitute mere gratuity but form part of compensation.

In a pension plan where employee participation is mandatory, the prevailing view is that employees have contractual or vested rights in the pension where the pension is part of the terms of employment. The reason for providing retirement benefits is to compensate service to the government. Retirement benefits to government employees are part of emolument to encourage and retain qualified employees in the government service. Retirement benefits to government employees reward them for giving the best years of their lives in the service of their country.

Thus, where the employee retires and meets the eligibility requirements, he acquires a vested right to benefits that is protected by the due process clause. Retirees enjoy a protected property interest whenever they acquire a right to immediate payment under pre-existing law. Thus, a pensioner acquires a vested right to benefits that have become due as provided under the terms of the public employees’ pension statute. No law can deprive such person of his pension rights without due process of law, that is, without notice and opportunity to be heard.28

It must also be underscored that GSIS itself allowed respondent to retire under R.A. No. 910, following jurisprudence laid down by this Court.

One could hardly fault respondent, though a seasoned lawyer, for relying on petitioner’s interpretation of the pertinent retirement laws, considering that the latter is tasked to administer the government’s retirement system. He had the right to assume that GSIS personnel knew what they were doing.

Since the change in circumstances was through no fault of respondent, he cannot be prejudiced by the same.1avvphi1 His right to receive monthly pension from the government cannot be jeopardized by a new interpretation of the law.

GSIS’ argument that respondent has already been enormously benefited under R.A. No. 910 misses the point.

Retirement benefits are a form of reward for an employee’s loyalty and service to the employer, and are intended to help the employee enjoy the remaining years of his life, lessening the burden of having to worry about his financial support or upkeep. A pension partakes of the nature of "retained wages" of the retiree for a dual purpose: to entice competent people to enter the government service; and to permit them to retire from the service with relative security, not only for those who have retained their vigor, but more so for those who have been incapacitated by illness or accident.29

Surely, giving respondent what is due him under the law is not unjust enrichment.

As to GSIS’ contention that what respondent seeks is conversion of his retirement mode, which is prohibited under R.A. No. 8291, the Court agrees with the CA that this is not a case of conversion within the contemplation of the law. The conversion under the law is one that is voluntary, a choice to be made by the retiree. Here, respondent had no choice but to look for another law under which to claim his pension benefits because the DBM had decided not to release the funds needed to continue payment of his monthly pension.

Respondent himself admitted that, if the DBM had not suspended the payment of his pension, he would not have sought any other law under which to receive his benefits. The necessity to "convert" was not a voluntary choice of respondent but a circumstance forced upon him by the government itself.

Finally, GSIS would like this Court to believe that because it has returned respondent’s premium contributions, it is now legally impossible for it to comply with the CA’s directive.

Given the fact that respondent is ineligible to retire under R.A. No. 910, the refund by GSIS of respondent’s premium payments was erroneous. Hence, GSIS can demand the return of the erroneous payment or it may opt to deduct the amount earlier received by respondent from the

benefits which he will receive in the future. Considering its expertise on the matter, GSIS can device a scheme that will facilitate either the reimbursement or the deduction in the most cost-efficient and beneficial manner.

The foregoing disquisition draws even greater force from subsequent developments. While this case was pending, the Congress enacted Republic Act No. 10071,30 the Prosecution Service Act of 2010. On April 8, 2010, it lapsed into law without the signature of the President,31 pursuant to Article VI, Section 27(1) of the Constitution.32

Section 24 of R.A. No. 10071 provides:

Section 24. Retroactivity. - The benefits mentioned in Sections 14 and 16 hereof shall be granted to all those who retired prior to the effectivity of this Act.

By virtue of this express provision, respondent is covered by R.A. No. 10071. In addition, he is now entitled to avail of the benefits provided by Section 23, that "all pension benefits of retired prosecutors of the National Prosecution Service shall be automatically increased whenever there is an increase in the salary and allowance of the same position from which he retired."

Respondent, as former Chief State Prosecutor, albeit the position has been renamed "Prosecutor General,"33 should enjoy the same retirement benefits as the Presiding Justice of the CA, pursuant to Section 14 of R.A. No. 10071, to wit:

Section 14. Qualifications, Rank and Appointment of the Prosecutor General. - The Prosecutor General shall have the same qualifications for appointment, rank, category, prerogatives, salary grade and salaries, allowances, emoluments, and other privileges, shall be subject to the same inhibitions and disqualifications, and shall enjoy the same retirement and other benefits as those of the Presiding Justice of the Court of Appeals and shall be appointed by the President.34

Furthermore, respondent should also benefit from the application of Section 16 of the law, which states:

Section 16. Qualifications, Ranks, and Appointments of Prosecutors, and other Prosecution Officers. – x x x.

Any increase after the approval of this Act in the salaries, allowances or retirement benefits or any upgrading of the grades or levels thereof of any or all of the Justices or Judges referred to herein to whom said emoluments are assimilated shall apply to the corresponding prosecutors.

Lastly, and most importantly, by explicit fiat of R.A. No. 10071, members of the National Prosecution Service have been granted the retirement benefits under R.A. No. 910, to wit:

Section 25. Applicability. - All benefits heretofore extended under Republic Act No. 910, as amended, and all other benefits that may be extended by the way of amendment thereto shall likewise be given to the prosecutors covered by this Act.

Hence, from the time of the effectivity of R.A. No. 10071, respondent should be entitled to receive retirement benefits granted under R.A. No. 910.

Consequently, GSIS should compute respondent’s retirement benefits from the time the same were withheld until April 7, 2010 in accordance with P.D. No. 1146; and his retirement benefits from April 8, 2010 onwards in accordance with R.A. No. 910.

A final note. The Court is dismayed at the cavalier manner in which GSIS handled respondent’s claims, keeping respondent in the dark as to the real status of his retirement benefits for so long. That the agency tasked with administering the benefits of retired government employees could so unreasonably treat one of its beneficiaries, one who faithfully served our people for over 40 years, is appalling. It is well to remind GSIS of its mandate to promote the efficiency and welfare of the employees of our government, and to perform its tasks not only with competence and proficiency but with genuine compassion and concern.

WHEREFORE, the foregoing premises considered, the Decision dated October 28, 2008 and the Resolution dated February 18, 2009 of the Court of Appeals in CA-G.R. SP No. 101811 are hereby AFFIRMED WITH MODIFICATION. Government Service Insurance System is ORDERED to (1) pay respondent’s retirement benefits in accordance with P.D. No. 1146, subject to deductions, if any, computed from the time the same were withheld until April 7, 2010; and (2) pay respondent’s retirement benefits in accordance with R.A. No. 910, computed from April 8, 2010 onwards.

In order that respondent may not be further deprived of his monthly pension benefits, this Decision is IMMEDIATELY EXECUTORY.

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), HERMOGENES D. CONCEPCION, JR., WINSTON F. GARCIA, REYNALDO P. PALMIERY, LEOVIGILDO P. ARRELLANO, ELMER T. BAUTISTA, LEONORA V. DE JESUS, FULGENCIO S. FACTORAN, FLORINO O. IBAÑEZ, AIDA C. NOCETE, AURORA P. MATHAY, ENRIQUETA DISUANCO, AMALIO MALLARI, LOURDES PATAG, RICHARD M. MARTINEZ, ASUNCION C. SINDAC, GLORIA D. CAEDO, ROMEO C. QUILATAN, ESPERANZA FALLORINA, LOLITA BACANI, ARNULFO MADRIAGA, LEOCADIA S. FAJARDO, BENIGNO BULAONG, SHIRLEY D. FLORENTINO, and LEA M. MENDIOLA,Petitioners,

- versus -

COMMISSION ON AUDIT (COA), AMORSONIA B. ESCARDA, MA. CRISTINA D. DIMAGIBA, and REYNALDO P. VENTURA, Respondents.

G. R. No. 162372

Present:

CORONA, C.J.,CARPIO, VELASCO, JR., LEONARDO-DE CASTRO, BRION, PERALTA, BERSAMIN,*

DEL CASTILLO,* ABAD, VILLARAMA, JR., PEREZ, MENDOZA, SERENO, REYES, and PERLAS-BERNABE, JJ.

Promulgated:

*

October 19, 2011

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

D E C I S I O N

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari under Rule 64 in relation to Rule

65 of the 1997 Rules of Court to annul and set aside the Commission on Audit’s

Decision Nos. 2003-062 and 2004-004 dated March 18, 2003 and January 27,

2004, respectively, for having been made without or in excess of jurisdiction, or

with grave abuse of discretion amounting to lack or excess of jurisdiction.

The Government Service Insurance System (GSIS) is joined by its Board of

Trustees and officials, namely: Chairman Hermogenes D. Concepcion, Jr.; Vice-

Chairman and President and General Manager Winston F. Garcia (Garcia);

Executive Vice President and Chief Operating Officer Reynaldo P. Palmiery;

Trustees Leovigildo P. Arrellano, Elmer T. Bautista, Leonora V. de Jesus,

Fulgencio S. Factoran, Florino O. Ibañez, and Aida C. Nocete; Senior Vice

Presidents Aurora Mathay, Enriqueta Disuangco, Amalio Mallari, Lourdes Patag,

and Asuncion C. Sindac; Vice Presidents Richard Martinez, Romeo C. Quilatan,

and Gloria D. Caedo; and Managers Esperanza Fallorina, Lolita Bacani, Arnulfo

Madriaga, Leocadia S. Fajardo, Benigno Bulaong, Shirley D. Florentino, and Lea

M. Mendiola, together with all other officials and employees held liable by the

Commission on Audit (COA) as petitioners in this case.20[1]

The respondents in this petition are: the COA; its Director of Corporate

Audit Office (CAO) I, Amorsonia B. Escarda (Escarda), who rendered CAO I

Decision No. 2002-009 dated May 27, 2002; the former Corporate Auditor of

GSIS, Ma. Cristina D. Dimagiba (Dimagiba), who issued the Notices of

Disallowance subject of CAO I Decision No. 2002-009; and the incumbent GSIS

Corporate Auditor Reynaldo P. Ventura (Ventura).21[2]

The facts are as follows:

On May 30, 1997, Republic Act No. 8291, otherwise known as “The

Government Service Insurance System Act of 1997” (the GSIS Act) was enacted

and approved, amending Presidential Decree No. 1146, as amended, expanding

and increasing the coverage and benefits of the GSIS, and instituting reforms

therein.

20

21

On October 17, 2000, pursuant to the powers granted to it under Section

41(n) of the said law, the GSIS Board of Trustees, upon the recommendation of the

Management-Employee Relations Committee (MERCOM), approved Board

Resolution No. 326 wherein they adopted the GSIS Employees Loyalty

Incentive Plan (ELIP),22[3] to wit:

GSIS EMPLOYEES LOYALTY INCENTIVE PLAN

(Pursuant to Sec. 41(n) of R.A. No. 8291)

I OBJECTIVE : To motivate and reward employees for meritorious, faithful and satisfactory service

II COVERAGE : The GSIS Employees Loyalty Incentive Plan shall cover all present permanent employees and members of the Board and those who may hereafter be appointed.

III SPECIFIC BENEFIT : LI = TGS* MULTIPLIED BY HS MINUS 5yLS/BPRCP

Where : LI = loyalty incentive

TGS = total government service

HS = highest monthly salary/benefit received

5yLS = 5 year lump sum under RA 660, RA 910, PD 1146 or RA 8291

BPRCP = retirement benefit previously received plus cash payment for employees no longer qualified to 5yLS

22

*Determined as follows:

**For positions salary grade 1-26 For positions SG 27 up

1 - 20 yrs x 1.5 1 - 20 yrs x 1.25

21 - 30 yrs x 2.0 21 - 30 yrs x 1.75

31 yrs above x 2.5 31 yrs above x 2.00

**Subject to review. Applicable only to present salary structure.

IV IMPLEMENTING POLICIES:

1. To be entitled to the plan, the employee must be qualified to retire with 5 year lump sum under RA 660 or RA 8291 or had previously retired under applicable retirement laws

2. The loyalty incentive benefit shall be computed based on both total government service and highest monthly salary/benefit received from GSIS

3. Employees with pending administrative and/or criminal case may apply but processing and payment of loyalty incentive shall be held in abeyance until final decision on their cases

4. GSIS loyalty incentive plan can only be availed once and employees who retired under GERSIP’97 are no longer qualified

5. There shall be no refund of retirement premiums in all cases

6. Application is subject to approval by the President and General Manager

PROCEDURE:

1. Employees availing of the Employee Loyalty Incentive Plan must file his/her application under RA 66023[4] or RA 8291 for the five (5) year lump sum, with HRS for indorsement to SIG

2. Option 2 under RA 8291 may be allowed but the loyalty incentive shall be computed based on 5 year lump sum

3. The loyalty incentive shall only be paid after deducting the lump sum under RA 660, RA 910,24[5] PD 114625[6] or RA 8291 or retirement benefit previously received plus cash payment

4. Government service of previously retired employees shall be considered in computing the loyalty incentive

5. For expediency, the processing of the plan shall be done by the Social Insurance Group

EFFECTIVITY DATE: The Plan shall take effect August, 2000. (Emphases supplied.)

On November 21, 2000, Board Resolution No. 326 was amended by Board

Resolution No. 360,26[7] which provided for a single rate for all positions,

regardless of salary grade, in the computation of creditable service, viz:

1-20 years x 1.5

21-30 years x 2.0

31 years above x 2.5

Except as herein amended, Resolution No. 326 dated October 17, 2000 shall remain to have full force and effect.

23

24

25

26

Dimagiba, the corporate auditor of GSIS, communicated to the President and

General Manager of GSIS that the GSIS RFP was contrary to law. However, the

GSIS Legal Services Group opined that the GSIS Board was legally authorized to

adopt the plan since Section 28(b) of Commonwealth Act No. 186 as amended by

Republic Act No. 4968 has been repealed by Sections 3 and 41(n) of Republic Act

No. 8291.27[8]

On January 16, 2001, Board Resolution No. 628[9] was approved, wherein

ELIP was renamed GSIS Retirement/Financial Plan (RFP) to conform strictly to

the wordings of Section 41(n) of Republic Act No. 8291.

Upon Garcia’s assumption of office as President and General Manager,

Dimagiba requested to again review the GSIS RFP. This was denied by Garcia.29[10]

Believing that the GSIS RFP was “morally indefensible,”30[11] Dimagiba sought the

assistance of COA “in determining the legality and/or morality of the said Plan in

so far as it has ‘adopted the best features of the two retirement schemes, the 5-year

lump sum payment under [Republic Act No.] 1616 and the monthly pension of

[Republic Act No.] 660 based on the creditable service computed at 150%.’”31[12]

27

28

29

30

31

On August 7, 2001, COA’s General Counsel Santos M. Alquizalas

(Alquizalas) issued a Memorandum to COA Commissioner Raul C. Flores

regarding the GSIS RFP. Alquizalas opined that the GSIS RFP is a supplementary

retirement plan, which is prohibited under Republic Act No. 4968, or the “Teves

Retirement Law.” He also said that since there is no provision in the new

Republic Act No. 8291 expressly repealing the Teves Retirement Law, the two

laws must be harmonized absent an irreconcilable inconsistency. Alquizalas

pronounced that Board Resolution Nos. 360 and 6 are null and void for being

violative of Section 28(b) of Commonwealth Act No. 186 as amended by

Republic Act No. 4968, which bars the creation of a supplemental retirement

scheme; and Section 41(n) of Republic Act No. 8291, which speaks of an early

retirement plan or financial assistance.32[13]

On August 14, 2001,33[14] Commissioner Flores forwarded this Memorandum

to Dimagiba, who in turn forwarded it to Garcia on August 23, 2001. Dimagiba, in

her letter attached to Alquizalas’s Memorandum, added that for lack of legal basis,

her office was disallowing in audit the portion of retirement benefits granted

under the GSIS RFP, or the excess of the benefits due the retirees. She also

said that GSIS could avail of the appeal process provided for under Sections 48 to

50 of Presidential Decree No. 1445 and Section 37.1 of the Manual on Certificate

of Settlement and Balances.34[15]

32

33

34

On August 27, 2001, Garcia responded35[16]to Dimagiba, taking exception to

the notice of disallowance for being “highly irregular and precipitate” as it was

based on a mere opinion of COA’s counsel who had no authority to declare the

resolution of the GSIS Board of Trustees as null and void. Moreover, Garcia

asseverated that COA had neither power nor authority to declare as null and void

certain resolutions approved by the Board of Government Corporations, as the

power to do so was exclusively lodged before the courts. He also argued that the

notice of disallowance was premature, and was tantamount to a pre-audit activity,

as it should refer only to a particular or specific disbursement of public funds and

not against a general activity or transaction. Garcia averred that the GSIS RFP was

part and parcel of the compensation package that GSIS may provide for its

personnel, by virtue of the powers granted to its Board of Trustees under Section

41(m) and (n) of Republic Act No. 8291. Garcia said that the appeal process would

commence only upon GSIS’s receipt of the particulars of the disallowances.36[17]

Finally, Garcia requested Dimagiba to withdraw the notices of disallowance “in the

interest of industrial peace in the GSIS.”37[18]

Without responding to Garcia’s August 27, 2001 Memorandum, Dimagiba

issued the following Notices of Disallowance on the grounds that:

35

36

37

Pursuant to legal opinion of the General Counsel dated August 7, 2001, Board Resolution No. 360 dated Nov. 21, 2000 as amended by No. 6 dated Jan. 16, 2001 approving the Employees Loyalty Incentive Plan (ELIP) is null and void for being directly in conflict with Section 28(b) of CA No. 186 as amended by RA 4968 which bars the creation of supplemental retirement scheme and of Section 41 (n) of RA 8291 which speaks of an early retirement plan or financial assistance.38[19]

Notices of Disallowance dated September 19, 200139[20]

Notice of Disallowance

No./Period covered:

PayeeAmount

Disallowed

Persons Liable:

Board of Trustees;

Lourdes Patag (SVP),

Gloria Caedo (VP-SIAMS II),

the payee, and

the following officers:

2001-01-412/

December 2000

Marina Santamaria ₱6,895,545.84

Richard Martinez

Lea M. Mendiola2001-02-412/

December 2000

Rosita N. Lim ₱2,281,005.52

2001-03-412/

January 2001

Manuel G. Ojeda ₱1,201,581.29 Daniel Mijares

Romeo Quilatan

Richard Martinez

Benigno Bulaong

38

39

2001-04-412/

March 2001

Federico Pascual ₱11,444,957.32 Winston F. Garcia

Esperanza Fallorina

Lea M. Mendiola

2001-05-412/

March 2001

Juanito Gamier, Sr. ₱332,035.79 Winston F. Garcia

Esperanza Fallorina

Lea M. Mendiola

Shirley Florentino

2001-06-412/

May 2001

Vicente Villegas ₱4,792,260.17 Enriqueta Disuanco

Aurora P. Mathay

Lea M. Mendiola

Notices of Disallowance dated October 22, 200140[21]

Notice of Disallowance

No./Period covered:

July 24, 2001

Payee Amount Disallowed

Persons Liable:

Board of Trustees;

Gloria Caedo (VP-SIAMS II);

Asuncion Sindac (VP);

Richard M. Martinez (VP & Controller);

Lea M. Mendiola (Manager, HRSD);

the payee; and

the following officers:

40

2001-07-412 Rustico G. Delos Angeles

₱1,968,516.01 Reynaldo Palmiery

2001-08-412 Lourdes Delos Angeles

₱4,320,567.99 Reynaldo Palmiery

Amalio A. Mallari

2001-09-412 Gloria L. Anonuevo

₱1,308,705.75 Lolita B. Bacani

2001-10-412 Elvira J. Agcaoili ₱2,313,729.41 Reynaldo Palmiery

Amalio A. Mallari

2001-11-412 Segundina S. Dionisio

₱743,877.21 (except Richard Martinez and Lea M. Mendiola)

Notices of Disallowance dated October 23, 200141[22]

Notice of Disallowance

No./Period covered:

July 24, 2001

PayeeAmount

Disallowed

Persons Liable:

Board of Trustees;

Gloria Caedo (VP-SIAMS II);

Asuncion Sindac (VP);

Lea M. Mendiola (Manager, HRSD);

the payee; and

the following officers:

2001-12-412 Daniel N. Mijares ₱7,148,031.17 Reynaldo Palmiery

41

Richard Martinez

2001-13-412 Melinda A. Flores ₱1,459,974.12 Reynaldo Palmiery

Richard Martinez

Manuel P. Bausa

2001-14-412 Democrito M. Silang

₱532,869.65 Enriqueta Disuanco

Arnulfo Madriaga

2001-15-412 Manuel P. Bausa ₱1,955,561.67 Reynaldo Palmiery

Richard Martinez

Lourdes A. Delos Angeles

Notices of Disallowance dated November 9, 200142[23]

Notice of Disallowance

No./Period covered:

PayeeAmount

Disallowed

Persons Liable:

Board of Trustees;

Winston F. Garcia (PGM);

Asuncion Sindac (SVP);

Gloria Caedo (VP);

the payee; and

the following officers:

2001-16-412/ Lourdes G. Patag ₱7,883,629.28 Enriquita Disuanco

42

June 28, 2001 Lea M. Mendiola

2001-17-412/

July 17, 2001

Elvira U. Geronimo

₱5,648,739.26 Richard Martinez

Notices of Disallowance dated November 13, 200143[24]

Notice of Disallowance

No./Period covered:

PayeeAmount

Disallowed

Persons Liable:

Board of Trustees;

Asuncion Sindac (SVP);

Gloria Caedo (VP);

Lea M. Mendiola (Manager, HRSD)

the payee; and

the following officers:

2001-20-412/

August 28, 2001

Modesto A. De Leon

₱2,887,056.75 Daniel N. Mijares

Romeo Quilatan

2001-21-412/

July 20, 2001

Antonio S. De Castro

₱931,583.11 Reynaldo Palmiery

Richard Martinez

2001-22-412/

August 27, 2001

Teresa O. Loyola ₱485,184.27 Leocadia S. Fajardo

2001-23-412/

August 27, 2001

Pablito B. Galvez ₱93,487.54 Reynaldo Palmiery

Shirley Florentino

43

On January 30, 2002, GSIS, together with some of the petitioners herein,

gave notice44[25] to the COA CAO I that it was appealing the 21 Notices of

Disallowance it had received from Dimagiba on various dates. It amended45[26] this

Notice of Appeal the following day, to include all GSIS officials and employees

held liable and accountable under the said disallowances.46[27]

In their Memorandum of Appeal,47[28] the petitioners mainly argued that

GSIS had the power, under its charter, to adopt and implement the GSIS RFP.

They alleged that their plan was not unique to GSIS as other government agencies

also have their own retirement or financial assistance plans. They claimed that to

then disallow their retirement plan would be tantamount to a violation of their

constitutional right to be equally protected by our laws.48[29] The petitioners also

argued that Republic Act No. 8291 had modified or repealed all provisions of the

Teves Retirement Law that were inconsistent with it and that GSIS’s officials

could not be held liable or accountable for implementing the GSIS RFP since this

was done in the performance of their duties.49[30]

44

45

46

47

48

49

On May 27, 2002, the COA, through Escarda, in CAO I Decision No.

2002-009,50[31] affirmed the disallowances made by Dimagiba. Escarda sustained

the COA general counsel’s opinion and said that while the GSIS may have the

power to adopt an early retirement or a financial assistance plan under its charter, it

cannot supplement a retirement plan already existing under the law. Escarda said

that the purpose of an early retirement plan is generally to streamline the

organization by encouraging those who would not be qualified for compulsory

retirement to retire early under the plan. However, Escarda claimed, the availees of

the plan were employees whose supposed monthly pensions under the GSIS RFP

included services they had already earned in other government agencies. Thus,

Escarda held that the GSIS RFP was in reality a supplementary retirement plan for

these GSIS employees. Finally, Escarda disagreed with GSIS’s assertion that the

Teves Retirement Law had been modified or repealed as the repealing clause in

Republic Act No. 8291 is a general repealing clause, which is frowned upon and is

generally not effective to repeal a specific law like the Teves Retirement Law.51[32]

Undaunted, the petitioners filed before the COA a Petition for Review52[33] of

CAO I’s decision, raising the exact same issues it raised in its Memorandum of

Appeal dated February 14, 2002, to wit:

I

50

51

52

Whether or not petitioners/appellants GSIS and GSIS Board of Trustees have the power and authority to design and adopt the questioned GSIS Retirement Financial Plan.

II

Whether or not petitioners/appellant GSIS officials who are merely implementing the GSIS Act of 1997 and duly adopted Board Resolutions must be held responsible and accountable for the implementation of the GSIS Retirement Financial Plan.

III

Whether or not the adoption of the GSIS Retirement Financial Plan violated Section 28 (b) of CA No. 186 as amended by Republic Act No. 4968, and Section 41(n) of Republic Act No. 8291, otherwise known as the GSIS Act of 1997.

IV

Whether or not the COA disallowance of the GSIS Retirement Financial Plan is lawful, and the CAO I Decision No. 2002-009 and the Notices of Disallowance issued by GSIS Corporate Auditor Dimagiba are proper.53[34]

53

On March 18, 2003, COA issued Decision No. 2003-062,54[35] wherein the

issue was narrowed down to “whether or not the GSIS Board can reward

themselves with unusually large benefits in the face of an unusually large actuarial

deficit which will result in the denial of benefits of future retirees in other

government agencies for whom the fund is principally intended.”55[36]

COA zeroed in on the fact that to be entitled to the GSIS RFP, the employee

“must be qualified to retire with 5-year lump sum under R.A. No. 660 or R.A. No.

8291 or [must have] previously retired under the applicable retirement laws.”56[37]

They affirmed Escarda’s ruling and contended that what the “still valid”57[38] Teves

Retirement Law permits is the creation of an early retirement or financial

assistance plan, and the above requirement imposed under the GSIS RFP does not

apply to either plans. COA added:

Unmistakably, the Plan being a supplementary pension/retirement plan, it contravenes the Teves law. Not even the renaming of [the] Employees Loyalty Incentive Plan (ELIP) to Retirement Financial Plan (RFP), purportedly to conform with the wording of the law, could conceal its true nature or character as a supplementary pension/retirement plan which incorporates the best features of R.A. Nos. 660 and 8291, creating in effect a third retirement plan for GSIS personnel only. This is all the more made manifest by the fact that even Board members who are not qualified at all to retire under any existing retirement laws could retire under the RFP. Strikingly, by promulgating another regular retirement scheme, the GSIS Board enlarged the field of its authority and regulation as provided in the statute it is supposed to administer.58[39]

54

55

56

57

58

COA said that the power of GSIS in applying the law must not be abused.

COA averred that GSIS was found to be deficient actuarially by Fifteen Billion

Pesos, and for it to reward its employees, who were already enjoying salaries

higher than their counterparts in other government agencies, meant that it would

have to dip into its principal fund to the prejudice of its members, who were the

very raison d’etre for its establishment.59[40]

Addressing petitioners’ claim of discrimination, COA said that each of the

government agencies that had adopted its own retirement plans did so pursuant to a

valid law and under factual circumstances that were not present in the case of

GSIS. COA also affirmed the liability of the petitioners who were held accountable

under the disallowances as they had failed to exercise the diligence of a good

father of a family in the performance of their functions.60[41] Finally, COA averred

that while its general counsel’s opinion boosted its position, such was not the basis

of the disallowance.61[42]

The petitioners sought reconsideration62[43] of this decision and even asked to

be heard in oral arguments,63[44] but COA, in its Decision No. 2004-004 dated

59

60

61

62

63

January 27, 2004,64[45] denied both motions and affirmed its Decision No. 2003-062

dated March 18, 2003 with finality.

The petitioners are now before us, asking us to nullify COA’s March 18,

2003 and January 27, 2004 decisions, on the ground that they were made with

grave abuse of discretion amounting to lack or excess of jurisdiction.65[46]

The petitioners posit the following arguments to support their cause:

RESPONDENTS ACTED WITHOUT OR IN EXCESS OF JURISDICTION, OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION, WHEN IN THE FOLLOWING MANNER:

I

Respondents sought to interpret clear provisions of Republic Act No. 8291, otherwise known as the GSIS Act of 1997, and declare null and void duly adopted resolutions of petitioner GSIS which has the power and authority to design and adopt the questioned GSIS Retirement Financial Plan (RFP).

II

Respondents ruled that petitioners GSIS officials who are merely implementing the GSIS Act of 1997 and duly adopted Board

64

65

Resolutions could be held responsible and accountable for the implementation of the GSIS Retirement Financial Plan (RFP).

III

Respondents held that the adoption of the GSIS Retirement Financial Plan (RFP) violated Section 28 (b) of CA No. 186, as amended by Republic Act No. 4968, and Section 41(n) of Republic Act No. 8291, otherwise known as the GSIS Act of 1997.

IV

Respondent[s] disallowed the GSIS Retirement Financial Plan (RFP), and erroneously affirmed the Notices of Disallowance issued by then GSIS Corporate Auditor Dimagiba.

V

Respondents touched on new and irrelevant matters which were not raised in the disallowances and/or pleadings below, and which were never validated.66[47]

The crux of the present case boils down to the legality of Board Resolution

Nos. 360, 326, and 6, which we shall refer to simply as “the GSIS RFP,” in light

of Republic Act No. 8291 or the GSIS Act of 1997, and Commonwealth Act No. 66

186 or the Government Service Insurance Act as amended by Republic Act No.

4968 (the Teves Retirement Law).

Below are the pertinent provisions of the foregoing laws:

Republic Act No. 8291

SECTION 41. Powers and Functions of the GSIS. — The GSIS shall exercise the following powers and functions:

x x x x

(n) to design and adopt an Early Retirement Incentive Plan (ERIP) and/or financial assistance for the purpose of retirement for its own personnel; x x x.

Commonwealth Act No. 186 as amended by the Teves Retirement Law:

SEC. 28. Miscellaneous Provisions – x x x

(b) Hereafter no insurance or retirement plan for officers or employees shall be created by any employer. All supplementary retirement or pension plans heretofore in force in any government office, agency, or instrumentality or corporation owned or controlled by the government, are hereby declared inoperative or abolished. x x x. 67[48]

67

Republic Act No. 4968 or the

Teves Retirement Law

Is Still Good Law

The petitioners insist that under Section 3 of Republic Act No. 8291, which

provides that “all laws or any law or parts of law specifically inconsistent herewith

are hereby repealed or modified accordingly,” all provisions of the Teves

Retirement Law that are inconsistent with Republic Act No. 8291 are deemed

repealed or modified.68[49]

We do not subscribe to petitioner’s interpretation of this law. This is

because, unless the intention to revoke is clear and manifest, the abrogation or

repeal of a law cannot be assumed.69[50] The repealing clause contained in Republic

Act No. 8291 is not an express repealing clause because it fails to identify or

designate the statutes that are intended to be repealed. It is actually a clause, which

predicated the intended repeal upon the condition that a substantial conflict must

be found in existing and prior laws.70[51]

68

69

70

Since Republic Act No. 8291 made no express repeal or abrogation of the

provisions of Commonwealth Act No. 186 as amended by the Teves Retirement

Law, the reliance of the petitioners on its general repealing clause is erroneous.

The failure to add a specific repealing clause in Republic Act No. 8291 indicates

that the intent was not to repeal any existing law, unless an irreconcilable

inconsistency and repugnancy exists in the terms of the new and old laws.71[52]

We are likewise not convinced by petitioners’ claim of repeal by

implication. It is a well-settled rule that to bring about an implied repeal, the two

laws must be absolutely incompatible and clearly repugnant that the later law

cannot exist without nullifying the prior law.72[53] As this Court held in Recaña, Jr.

v. Court of Appeals73[54]:

Repeal of laws should be made clear and expressed. Repeals by implication are not favored as laws are presumed to be passed with deliberation and full knowledge of all laws existing on the subject. Such repeals are not favored for a law cannot be deemed repealed unless it is clearly manifest that the legislature so intended it. x x x.74[55]

This Court sees no incompatibility between the two laws being discussed

here. In reconciling Section 41(n) of Republic Act No. 8291 with the Teves

71

72

73

74

Retirement Law, we are guided by this Court’s pronouncement in Philippine

International Trading Corporation v. Commission on Audit75[56]:

In reconciling Section 6 of Executive Order No. 756 with Section 28, Subsection (b) of Commonwealth Act No. 186, as amended, uppermost in the mind of the Court is the fact that the best method of interpretation is that which makes laws consistent with other laws which are to be harmonized rather than having one considered repealed in favor of the other. Time and again, it has been held that every statute must be so interpreted and brought in accord with other laws as to form a uniform system of jurisprudence — interpretere et concordare legibus est optimus interpretendi. Thus, if diverse statutes relate to the same thing, they ought to be taken into consideration in construing any one of them, as it is an established rule of law that all acts in pari materia are to be taken together, as if they were one law. x x x.76[57]

While Republic Act No. 8291 speaks of an early retirement incentive plan

or financial assistance for the GSIS employees, Commonwealth Act No. 186 as

amended by the Teves Retirement Law talks about insurance or retirement plans

other than our existing retirement laws. In other words, what the Teves

Retirement Law contemplates and prohibits are separate retirement or insurance

plans. In fact, the very same provision declared inoperative or abolished all

supplementary retirement or pension plans.

The GSIS Retirement/Financial

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76

Plan is Null and Void

It is true that under Section 41(n) of Republic Act No. 8291, GSIS is

expressly granted the power to adopt a retirement plan and/or financial assistance

for its employees, but a closer look at the provision readily shows that this power is

not absolute. It is qualified by the words “early,” “incentive,” and “for the purpose

of retirement.” The retirement plan must be an early retirement incentive plan and

such early retirement incentive plan or financial assistance must be for the

purpose of retirement.

According to Webster’s Third New International Dictionary, “early” means

“occurring before the expected or usual time,” while “incentive” means “serving to

encourage, rouse, or move to action,” or “something that constitutes a motive or

spur.”77[58]

It is clear from the foregoing that Section 41(n) of Republic Act No. 8291

contemplates a situation wherein GSIS, due to a reorganization, a streamlining of

its organization, or some other circumstance, which calls for the termination of

some of its employees, must design a plan to encourage, induce, or motivate these

employees, who are not yet qualified for either optional or compulsory retirement

under our laws, to instead voluntarily retire. This is the very reason why under the

law, the retirement plan to be adopted is in reality an incentive scheme to

encourage the employees to retire before their retirement age. 77

The above interpretation applies equally to the phrase “financial assistance,”

which, contrary to the petitioners’ assertion, should not be read independently of

the purpose of an early retirement incentive plan. Under the doctrine of noscitur a

sociis, the construction of a particular word or phrase, which is in itself ambiguous,

or is equally susceptible of various meanings, may be made clear and specific by

considering the company of words in which it is found or with which it is

associated. In other words, the obscurity or doubt of the word or phrase may be

reviewed by reference to associated words.78[59] Thus, the phrase “financial

assistance,” in light of the preceding words with which it is associated, should also

be construed as an incentive scheme to induce employees to retire early or as an

assistance plan to be given to employees retiring earlier than their retirement age.

Such is not the case with the GSIS RFP. Its very objective, “[t]o motivate

and reward employees for meritorious, faithful, and satisfactory service,”79[60]

contradicts the nature of an early retirement incentive plan, or a financial

assistance plan, which involves a substantial amount that is given to motivate

employees to retire early. Instead, it falls exactly within the purpose of a

retirement benefit, which is a form of reward for an employee’s loyalty and

lengthy service,80[61] in order to help him or her enjoy the remaining years of his

life.

78

79

80

Furthermore, to be able to apply for the GSIS RFP, one must be qualified to

retire under Republic Act No. 660 or Republic Act No. 8291, or must have

previously retired under our existing retirement laws. This only means that the

employees covered by the GSIS RFP were those who were already eligible to retire

or had already retired. Certainly, this is not included in the scope of “an early

retirement incentive plan or financial assistance for the purpose of retirement.”

The fact that GSIS changed the name from “Employees Loyalty Incentive

Plan” to “Retirement/Financial Plan” does not change its essential nature. A

perusal of the plan shows that its purpose is not to encourage GSIS’s employees to

retire before their retirement age, but to augment the retirement benefits they

would receive under our present laws. 81[62] Without a doubt, the GSIS RFP is a

supplementary retirement plan, which is prohibited by the Teves Retirement

Law.

Conte v. Commission on Audit82[63] squarely applies in this case. In that case,

the Social Security System (SSS) issued Resolution No. 56, which provided

financial incentive and inducement to SSS employees who were qualified to retire,

to avail of retirement benefits under Republic Act No. 660, as amended (which

GSIS would have to pay), rather than the retirement benefits under Republic Act

No. 1616, as amended (which SSS would have to pay). Under SSS Resolution No.

56, those who retire under Republic Act No. 660 would be given a “financial

assistance” equivalent in amount to the difference between what a retiree would

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82

have received under Republic Act No. 1616, less what he was entitled to under

Republic Act No. 660. COA disallowed in audit all claims for financial assistance

under SSS Resolution No. 56 for being similar to those separate retirement plans or

incentive/separation pay plans adopted by other government corporate agencies,

which resulted in the increase of benefits beyond what was allowed under existing

retirement laws. This Court sustained COA’s disallowance and held that SSS

Resolution No. 56 constituted a supplementary retirement plan proscribed by

Section 28(b) of Commonwealth Act No. 186, as amended by Republic Act No.

4968. 83[64]

The petitioners argue that Conte finds no application in this case, since SSS

had no authority under its charter to adopt such a resolution, unlike the GSIS,

which was cloaked with authority to issue the questioned resolutions. Furthermore,

petitioners argue that Republic Act No. 8291 became effective in 1997, which was

after this Court had already decided the Conte case.

We find no merit in the petitioners’ arguments. The laws have not changed,

and the doctrine in Conte has not been overturned or abandoned. The fact that

Republic Act No. 8291 was approved and enacted after Conte is of no moment, as

what was interpreted in Conte was the provision in the Teves Retirement Law in

issue here. Moreover, we have already discussed above how such provision has

neither been repealed nor modified by Section 41(n) of Republic Act No. 8291.

Thus, it is just fitting that we find guidance in the application and interpretation of

83

Section 28(b) of Commonwealth Act No. 186, as amended by Republic Act No.

4968, from the Conte case.

As we have held in that case:

Section 28(b) [of C.A. No. 186] as amended by R.A. No. 4968 in no uncertain terms bars the creation of any insurance or retirement plan – other than the GSIS – for government officers and employees, in order to prevent the undue and inequitous proliferation of such plans. x x x.84[65]

The petitioners asseverate that many laws such as Republic Act Nos. 8291,

1161, 8282, 6683, and 7641, were validly enacted after the Teves Retirement Law;

thus, the evil that it seeks to avoid is the proliferation of those retirement plans that

are not so authorized by law.85[66] The petitioners even go so far as comparing

themselves to other government agencies, which have adopted their own retirement

schemes at one time or another such as the Development Bank of the Philippines,

the Securities and Exchange Commission, the National Power Corporation, the

COA, the Court of Appeals, and even this Court.86[67]

84

85

86

The petitioners themselves admit that those retirement schemes were

adopted as a “[one-time] grant [by] reason of reorganization”87[68] pursuant to

Republic Act No. 668388[69] or the Early Retirement Law. As for the additional

benefits extended to retiring justices or commissioners, suffice it to say that they

were also given pursuant to laws passed by Congress. Moreover, those retirement

plans enjoy the presumption of validity and regularity.

In stark contrast, the GSIS RFP was not created because of a valid company

reorganization. Its purpose did not include the granting of benefits for early

retirement. Neither did it provide benefits for either voluntary or involuntary

separation from GSIS. It was intended for employees who were already eligible to

retire under existing retirement laws. While the GSIS may have been clothed with

authority to adopt an early retirement or financial assistance plan, such authority

was limited by the very law it was seeking to implement.

Borrowing this Court’s words in the Conte case, “it is beyond cavil that [the

GSIS Retirement/Financial Plan] contravenes [Section 28(b) of C.A. No. 186 as

amended by R.A. No. 4968 or the Teves Retirement Law], and is therefore invalid,

void, and of no effect. To ignore this and rule otherwise would be tantamount to

permitting every other government office or agency to put up its own

supplementary retirement benefit plan under the guise of such ‘financial

assistance.’”89[70]

87

88

89

Another compelling reason to nullify the GSIS RFP is that it allows, and in

fact mandates, the inclusion of the years in government service of previously

retired employees, to wit:

PROCEDURE:

x x x x

4. Government service of previously retired employees shall be considered in computing the loyalty incentive.90[71]

In Santos v. Court of Appeals,91[72] we affirmed the Court of Appeals and the

Civil Service Commission’s ruling that for the purpose of computing or

determining Santos’ separation pay, his years of service in his previous

government office should be excluded and his separation pay should be solely

confined to his services in his new government position. We gave the rationale for

this as follows:

Such would run counter to the policy of this Court against double compensation for exactly the same services. More important, it would be in violation of the first paragraph of Section 8 of Article IX-B of the Constitution, which proscribes additional, double, or indirect compensation. Said provision reads:

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91

No elective or appointive public officer or employee shall receive additional, double, or indirect compensation, unless specifically authorized by law… .92[73]

Our ruling therein is likewise applicable in this case. To credit the years of

service of GSIS retirees in their previous government office into the computation

of their retirement benefits under the GSIS RFP, notwithstanding the fact that they

had received or had been receiving the retirement benefits under the applicable

retirement law they retired in, would be to countenance double compensation for

exactly the same services.93[74]

To emphasize COA’s “distaste”94[75] for the huge retirement benefits of

GSIS’s board members, officers, and employees, who are already receiving

significantly higher salaries than their counterparts in other government agencies,

COA illustrated the glaring discrepancy between what a GSIS employee would get

under the GSIS RFP, and what a mere GSIS member would get under applicable

retirement laws:

GSIS EMPLOYEE vs GSIS MEMBER not covered by [GSIS RFP]

GSIS EMPLOYEE SALARY GRADE GSIS MEMBER

92

93

94

GSIS Vice-President 27 Director III

46.36895 Length of Service 46.36895

₱110,775.00 Basic Salary ₱25,223.00

65 years old Age at Retirement 65 years old

August 21, 2001 Date of Retirement August 21, 2001

April 8, 1954 First Day in Govt Service April 8, 1954

April 8, 1954 First Day in GSIS/Other office

April 8, 1954

BENEFITS UNDER DIFFERENT MODES OF RETIREMENT

[GSIS Employee] [GSIS Member]

[GSIS RFP] RA 1616 RA 660 [GSIS RFP]

RA 1616 RA 660

90.92238 67.7379 46.36895 CGS N/A 67.7379 46.36895

10,071,926.00 7,503,665.87 NONE GA 1,708,553.05 NONE

3,176,380.80 5YLS 1,210,704.00

52,939.68 BMP 20,178.40

NONE with refund NONE RRP with refund NONE

*[GSIS RFP] less 5YLS = FINANCIAL ASSISTANCE plus MP of ₱52,939.68 after five years

= ₱6,895,545.20 Financial Assistance + Monthly Pension after five years

* CGS - Creditable Government Service

* GA - Gratuity Amount Payable by Employer

* 5YLS - Five (5) Year Lump Sum Payable by GSIS

* BMP - Basic Monthly Pension

* RRP - Refund of Retirement Premiums95[76]

With the above illustration, it can be readily seen and understood why the

Teves Retirement Law prohibits the proliferation of additional retirement plans in

our government offices. While it is true that a better compensation package will

not only attract more competent and capable individuals to work in GSIS, but will

also ensure that they remain loyal and faithful therein, this has already been

addressed by the GSIS employees’ exemption from Republic Act No. 678 or the

Salary Standardization Law (SSL), under Sec. 43(d) of Republic Act No. 8291. As

shown in the above tables, the salary of a GSIS employee is much higher compared

to his counterpart in another government agency. This remains to be true even with

the recent increase of the salaries in the SSL.

The petitioners also question COA’s authority to nullify the resolutions

involved in this case. It must be remembered that none of the COA decisions

nullified the Board Resolutions adopted by GSIS’s Board of Trustees. What the

COA decisions affirmed were the disallowances made by GSIS’s own Corporate

Auditor, Dimagiba. It is irrelevant that COA, in its decisions, touched upon issues

not brought before it, or that it referred to its general counsel’s opinion on the

95

GSIS RFP, as these were done only to reinforce COA’s position. They have no

bearing upon the weight of COA’s decisions, which are based upon our existing

laws and jurisprudence.

As for Dimagiba, while she may have relied on the opinion of COA’s legal

counsel to support the disallowances she had made, it is worthy to note that she

had already informed Garcia of the GSIS RFP’s illegality even before she sought

COA’s opinion on the matter. Moreover, neither Dimagiba’s nor COA’s

confidence in the opinion of COA’s general counsel could be faulted, as under

Presidential Decree No. 1445, or the Government Auditing Code of the

Philippines, one of the responsibilities of COA’s legal office is to interpret

pertinent laws and auditing rules and regulations, to wit:

SECTION 11. The Legal Office. –The Legal Office shall be charged with the following responsibilities:

(1) Perform advisory and consultative functions and render legal services with respect to the performance of the functions of the Commission and the interpretation of pertinent laws and auditing rules and regulations; x x x.

In view of the above, we can hardly impute grave abuse of discretion

amounting to lack or excess of jurisdiction on the part of respondents COA,

Escarda, and Dimagiba, for disallowing in audit the portion of retirement benefits

in excess of what is allowed under our existing retirement laws. On the contrary,

they acted with caution, diligence, and vigilance in the exercise of their duties,

especially since what was involved were huge amounts of money imbued with

public interest, since GSIS’s funds come from the contributions of its members.

Thus, GSIS’s business is to keep in trust the money belonging to its members,96[77]

who are not limited to its own employees.

The Payees are Liable for the

Return of the Disallowed Benefits

Under the GSIS RFP

The petitioners claim that GSIS’s Board of Trustees cannot be held liable as

they were acting pursuant to a valid law when they adopted the GSIS RFP. The

petitioners also argue that the implementation of the GSIS RFP was merely

ministerial, thus the GSIS officers held accountable under the Notices of

Disallowance should not be held responsible and accountable for the allocation and

release of the benefits under the GSIS RFP.

This Court agrees that only the payees should be held liable for the return of

the disallowed amounts under the GSIS RFP.

96

Although it is true that as early as December 2000,97[78] Dimagiba already

questioned the legality of the GSIS RFP, it was only in August 2001 when GSIS

received COA’s opinion on the matter. Moreover, COA first decided the issue only

in 2002.

While the Board of Trustees believed they had the authority and power to

adopt the GSIS RFP, the officers on the other hand believed that they were

implementing a valid resolution. As we said in Buscaino v. Commission on Audit,98

[79] the resolution of the Board of Trustees was sufficient basis for the

disbursement, and it is beyond these officers’ competence to pass upon the validity

of such board resolutions.99[80]

On account of the GSIS RFP’s doubtful validity, the petitioners should have

exercised prudence and held in abeyance the disbursement of the portion of

retirement benefits under the GSIS RFP until the issue of its legality had been

resolved.

However, the Board of Trustees and the officers held accountable under the

Notices of Disallowance should not be held liable as they are entitled to the

presumption of having exercised their functions with regularity and in good faith.

97

98

99

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed

Decisions of the Commission on Audit Nos. 2003-062 and 2004-004 dated March

18, 2003 and January 27, 2004, are AFFIRMED with the MODIFICATION that

only the payees of the disbursements made under the GSIS RFP in the Notices of

Disallowance are liable for such disbursements. Board Resolution Nos. 326, 360,

and 6 are declared ILLEGAL, VOID, and OF NO EFFECT.

SO ORDERED.

G.R. No. L-28093 January 30, 1971

BASILIA BERDIN VDA. DE CONSUEGRA; JULIANA, PACITA, MARIA LOURDES, JOSE, JR., RODRIGO, LINEDA and LUIS, all surnamed CONSUEGRA, petitioners-appellants, vs.GOVERNMENT SERVICE INSURANCE SYSTEM, COMMISSIONER OF PUBLIC HIGHWAYS, HIGHWAY DISTRICT ENGINEER OF SURIGAO DEL NORTE, COMMISSIONER OF CIVIL SERVICE, and ROSARIO DIAZ, respondents-appellees.

Bernardino O. Almeda for petitioners-appellants.

Binag and Arevalo, Jr. for respondent-appellee Government Service Insurance System.

Office of the Solicitor General for other respondents-appellees.

ZALDIVAR, J.:

Appeal on purely questions of law from the decision of the Court of First Instance of Surigao del Norte, dated March 7, 1967, in its Special Proceeding No. 1720.

The pertinent facts, culled from the stipulation of facts submitted by the parties, are the following:

The late Jose Consuegra, at the time of his death, was employed as a shop foreman of the office of the District Engineer in the province of Surigao del Norte. In his lifetime, Consuegra contracted two marriages, the first with herein respondent Rosario Diaz, solemnized in the parish church of San Nicolas de Tolentino, Surigao, Surigao, on July 15, 1937, out of which marriage were born two children, namely, Jose Consuegra, Jr. and Pedro Consuegra, but both predeceased their father; and the second, which was contracted in good faith while the first marriage was subsisting, with herein petitioner Basilia Berdin, on May 1, 1957 in the same parish and municipality, out of which marriage were born seven children, namely, Juliana, Pacita, Maria Lourdes, Jose, Rodrigo, Lenida and Luz, all surnamed Consuegra.

Being a member of the Government Service Insurance System (GSIS, for short) when Consuegra died on September 26, 1965, the proceeds of his life insurance under policy No. 601801 were paid by the GSIS to petitioner Basilia Berdin and her children who were the beneficiaries named in the policy. Having been in the service of the government for 22.5028 years, Consuegra was entitled to retirement insurance benefits in the sum of P6,304.47 pursuant to Section 12(c) of Commonwealth Act 186 as amended by Republic Acts 1616 and 3836. Consuegra did not designate any beneficiary who would receive the retirement insurance benefits due to him. Respondent Rosario Diaz, the widow by the first marriage, filed a claim with the GSIS asking that the retirement insurance benefits be paid to her as the only legal heir of Consuegra, considering that the deceased did not designate any beneficiary with respect to his retirement insurance benefits. Petitioner Basilia Berdin and her children, likewise, filed a similar claim with the GSIS, asserting that being the beneficiaries named in the life insurance policy of Consuegra, they are the only ones entitled to receive the retirement insurance benefits due the deceased Consuegra. Resolving the conflicting claims, the GSIS ruled that the legal heirs of the late Jose Consuegra were Rosario Diaz, his widow by his first marriage who is entitled to one-half, or 8/16, of the retirement insurance benefits, on the one hand; and Basilia Berdin, his widow by the second marriage and their seven children, on the other hand, who are entitled to the remaining one-half, or 8/16, each of them to receive an equal share of 1/16.

Dissatisfied with the foregoing ruling and apportionment made by the GSIS, Basilia Berdin and her children1 filed on October 10, 1966 a petition for mandamus with preliminary injunction in the Court of First Instance of Surigao, naming as respondents the GSIS, the Commissioner of Public Highways, the Highway District Engineer of Surigao del Norte, the Commissioner of Civil Service, and Rosario Diaz, praying that they (petitioners therein) be declared the legal heirs and exclusive beneficiaries of the retirement insurance of the late Jose Consuegra, and that a writ of preliminary injunction be issued restraining the implementation of the adjudication made by the GSIS. On October 26, 1966, the trial court issued an order requiring therein respondents to file their respective answers, but refrained from issuing the writ of preliminary injunction prayed for. On February 11, 1967, the parties submitted a stipulation of facts, prayed that the same be admitted and approved and that judgment be rendered on the basis of the stipulation of facts. On March 7, 1967, the court below rendered judgment, the pertinent portions of which are quoted hereunder:

This Court, in conformity with the foregoing stipulation of facts, likewise is in full accord with the parties with respect to the authority cited by them in support of said stipulation and which is herein-below cited for purposes of this judgment, to wit:

"When two women innocently and in good faith are legally united in holy matrimony to the same man, they and their children, born of said wedlock, will be regarded as legitimate children and each family be entitled to one half of the estate. Lao & Lao vs. Dee Tim, 45 Phil. 739; Estrella vs. Laong Masa, Inc., (CA) 39 OG 79; Pisalbon vs. Bejec, 74 Phil. 88.

WHEREFORE, in view of the above premises, this Court is of the opinion that the foregoing stipulation of facts is in order and in accordance with law and the same is hereby approved. Judgment, therefore, is hereby rendered declaring the petitioner Basilia Berdin Vda. de Consuegra and her co-petitioners Juliana, Pacita, Maria Lourdes, Jose, Jr., Rodrigo,

Lenida and Luis, all surnamed Consuegra, beneficiary and entitled to one-half (1/2) of the retirement benefit in the amount of Six Thousand Three Hundred Four Pesos and Fourty-Seven Centavos (P6,304.47) due to the deceased Jose Consuegra from the Government Service Insurance System or the amount of P3,152.235 to be divided equally among them in the proportional amount of 1/16 each. Likewise, the respondent Rosario Diaz Vda. de Consuegra is hereby declared beneficiary and entitled to the other half of the retirement benefit of the late Jose Consuegra or the amount of P3,152.235. The case with respect to the Highway District Engineer of Surigao del Norte is hereby ordered dismissed.

Hence the present appeal by herein petitioners-appellants, Basilia Berdin and her children.

It is the contention of appellants that the lower court erred in not holding that the designated beneficiaries in the life insurance of the late Jose Consuegra are also the exclusive beneficiaries in the retirement insurance of said deceased. In other words, it is the submission of appellants that because the deceased Jose Consuegra failed to designate the beneficiaries in his retirement insurance, the appellants who were the beneficiaries named in the life insurance should automatically be considered the beneficiaries to receive the retirement insurance benefits, to the exclusion of respondent Rosario Diaz. From the arguments adduced by appellants in their brief We gather that it is their stand that the system of life insurance and the system of retirement insurance, that are provided for in Commonwealth Act 186 as amended, are simply complementary to each other, or that one is a part or an extension of the other, such that whoever is named the beneficiary in the life insurance is also the beneficiary in the retirement insurance when no such beneficiary is named in the retirement insurance.

The contention of appellants is untenable.

It should be noted that the law creating the Government Service Insurance System is Commonwealth Act 186 which was enacted by the National Assembly on November 14, 1936. As originally approved, Commonwealth Act 186 provided for the compulsory membership in the Government Service Insurance System of all regularly and permanently appointed officials and employees of the government, considering as automatically insured on life all such officials and employees, and issuing to them the corresponding membership policy under the terms and conditions as provided in the Act.2

Originally, Commonwealth Act 186 provided for life insurance only. Commonwealth Act 186 was amended by Republic Act 660 which was enacted by the Congress of the Philippines on June 16, 1951, and, among others, the amendatory Act provided that aside from the system of life insurance under the Government Service Insurance System there was also established the system of retirement insurance. Thus, We will note in Republic Act 660 that there is a chapter on life insurance and another chapter on retirement insurance. 3 Under the chapter on life insurance are sections 8, 9 and 10 of Commonwealth Act 186, as amended; and under the chapter on retirement insurance are sections 11, 12, 13 and 13-A. On May 31, 1957, Republic Act 1616 was enacted by Congress, amending section 12 of Commonwealth Act 186 as amended by Republic Act 660, by adding thereto two new subsections, designated as subsections (b) and (c). This subsection (c) of section 12 of Commonwealth Act 186, as amended by Republic Acts 660, 1616 and 3096, was again amended by Republic Act 3836 which was enacted on June 22, 1963. lâwphî1.ñèt The pertinent provisions of subsection (c) of Section 12 of Commonwealth Act 186, as thus amended and reamended, read as follows:

(c) Retirement is likewise allowed to a member, regardless of age, who has rendered at least twenty years of service. The benefit shall, in addition to the return of his personal contributions plus interest and the payment of the corresponding employer's premiums described in subsection (a) of Section 5 hereof, without interest, be only a gratuity equivalent to one month's salary for every year of service, based on the highest rate received, but not to exceed twenty-four months; Provided, That the retiring officer or employee has been in the service of the said employer or office for at least four years, immediately preceding his retirement.

xxx xxx xxx

The gratuity is payable by the employer or office concerned which is hereby authorized to provide the necessary appropriation to pay the same from any unexpended items of appropriations.

Elective or appointive officials and employees paid gratuity under this subsection shall be entitled to the commutation of the unused vacation and sick leave, based on the highest rate received, which they may have to their credit at the time of retirement.

Jose Consuegra died on September 26, 1965, and so at the time of his death he had acquired rights under the above-quoted provisions of subsection (c) of Section 12 of Com. Act 186, as finally amended by Rep. Act 3836 on June 22, 1963. When Consuegra died on September 26, 1965, he had to his credit 22.5028 years of service in the government, and pursuant to the above-quoted provisions of subsection (c) of Section 12 of Com. Act 186, as amended, on the basis of the highest rate of salary received by him which was P282.83 per month, he was entitled to receive retirement insurance benefits in the amount of P6,304.47. This is the retirement benefits that are the subject of dispute between the appellants, on the one hand, and the appellee Rosario Diaz, on the other, in the present case. The question posed is: to whom should this retirement insurance benefits of Jose Consuegra be paid, because he did not, or failed to, designate the beneficiary of his retirement insurance?

If Consuegra had 22.5028 years of service in the government when he died on September 26, 1965, it follows that he started in the government service sometime during the early part of 1943, or before 1943. In 1943 Com. Act 186 was not yet amended, and the only benefits then provided for in said Com. Act 186 were those that proceed from a life insurance. Upon entering the government service Consuegra became a compulsory member of the GSIS, being automatically insured on his life, pursuant to the provisions of Com. Act 186 which was in force at the time. During 1943 the operation of the Government Service Insurance System was suspended because of the war, and the operation was resumed sometime in 1946. When Consuegra designated his beneficiaries in his life insurance he could not have intended those beneficiaries of his life insurance as also the beneficiaries of his retirement insurance because the provisions on retirement insurance under the GSIS came about only when Com. Act 186 was amended by Rep. Act 660 on June 16, 1951. Hence, it cannot be said that because herein appellants were designated beneficiaries in Consuegra's life insurance they automatically became the beneficiaries also of his retirement insurance. Rep. Act 660 added to Com. Act 186 provisions regarding retirement insurance, which are Sections 11, 12, and 13 of Com. Act 186,

as amended. Subsection (b) of Section 11 of Com. Act 186, as amended by Rep. Act 660, provides as follows:

(b) Survivors benefit. — Upon death before he becomes eligible for retirement, his beneficiaries as recorded in the application for retirement annuity filed with the System shall be paid his own premiums with interest of three per centum per annum, compounded monthly. If on his death he is eligible for retirement, then the automatic retirement annuity or the annuity chosen by him previously shall be paid accordingly.

The above-quoted provisions of subsection (b) of Section 11 of Commonwealth Act 186, as amended by Rep. Act 660, clearly indicate that there is need for the employee to file an application for retirement insurance benefits when he becomes a member of the GSIS, and he should state in his application the beneficiary of his retirement insurance. Hence, the beneficiary named in the life insurance does not automatically become the beneficiary in the retirement insurance unless the same beneficiary in the life insurance is so designated in the application for retirement insurance.

Section 24 of Commonwealth Act 186, as amended by Rep. Act 660, provides for a life insurance fund and for a retirement insurance fund. There was no such provision in Com. Act 186 before it was amended by Rep. Act 660. Thus, subsections (a) and (b) of Section 24 of Commonwealth Act 186, as amended by Rep. Act 660, partly read as follows:

(a) Life insurance fund. — This shall consist of all premiums for life insurance benefit and/or earnings and savings therefrom. It shall meet death claims as they may arise or such equities as any member may be entitled to, under the conditions of his policy, and shall maintain the required reserves to the end of guaranteeing the fulfillment of the life insurance contracts issued by the System ...

(b) Retirement insurance fund. — This shall consist of all contributions for retirement insurance benefit and of earnings and savings therefrom. It shall meet annuity payments and establish the required reserves to the end of guaranteeing the fulfillment of the contracts issued by the System. ...

Thus, We see that the GSIS offers two separate and distinct systems of benefits to its members — one is the life insurance and the other is the retirement insurance. These two distinct systems of benefits are paid out from two distinct and separate funds that are maintained by the GSIS.

In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in the life insurance policy. As in the case of a life insurance provided for in the Insurance Act (Act 2427, as amended), the beneficiary in a life insurance under the GSIS may not necessarily be a heir of the insured. The insured in a life insurance may designate any person as beneficiary unless disqualified to be so under the provisions of the Civil Code.4 And in the absence of any beneficiary named in the life insurance policy, the proceeds of the insurance will go to the estate of the insured.

Retirement insurance is primarily intended for the benefit of the employee — to provide for his old age, or incapacity, after rendering service in the government for a required number of years.

If the employee reaches the age of retirement, he gets the retirement benefits even to the exclusion of the beneficiary or beneficiaries named in his application for retirement insurance. The beneficiary of the retirement insurance can only claim the proceeds of the retirement insurance if the employee dies before retirement. If the employee failed or overlooked to state the beneficiary of his retirement insurance, the retirement benefits will accrue to his estate and will be given to his legal heirs in accordance with law, as in the case of a life insurance if no beneficiary is named in the insurance policy.

It is Our view, therefore, that the respondent GSIS had correctly acted when it ruled that the proceeds of the retirement insurance of the late Jose Consuegra should be divided equally between his first living wife Rosario Diaz, on the one hand, and his second wife Basilia Berdin and his children by her, on the other; and the lower court did not commit error when it confirmed the action of the GSIS, it being accepted as a fact that the second marriage of Jose Consuegra to Basilia Berdin was contracted in good faith. The lower court has correctly applied the ruling of this Court in the case of Lao, et al. vs. Dee Tim, et al., 45 Phil. 739 as cited in the stipulation of facts and in the decision appealed from.5 In the recent case of Gomez vs. Lipana, L-23214, June 30, 1970, 6 this Court, in construing the rights of two women who were married to the same man — a situation more or less similar to the case of appellant Basilia Berdin and appellee Rosario Diaz — held "that since the defendant's first marriage has not been dissolved or declared void the conjugal partnership established by that marriage has not ceased. Nor has the first wife lost or relinquished her status as putative heir of her husband under the new Civil Code, entitled to share in his estate upon his death should she survive him. Consequently, whether as conjugal partner in a still subsisting marriage or as such putative heir she has an interest in the husband's share in the property here in dispute.... " And with respect to the right of the second wife, this Court observed that although the second marriage can be presumed to be void ab initio as it was celebrated while the first marriage was still subsisting, still there is need for judicial declaration of such nullity. And inasmuch as the conjugal partnership formed by the second marriage was dissolved before judicial declaration of its nullity, "[t]he only lust and equitable solution in this case would be to recognize the right of the second wife to her share of one-half in the property acquired by her and her husband and consider the other half as pertaining to the conjugal partnership of the first marriage."

WHEREFORE, the decision appealed from is affirmed, with costs against petitioners-appellants. It is so ordered.

G.R. Nos. 98395-102449 June 19, 1995

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs.CIVIL SERVICE COMMISSION and DR. MANUEL BARADERO, respondents.

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs.CIVIL SERVICE COMMISSION and MATILDE S. BELO, respondents.

KAPUNAN, J.:

In our decision dated October 28, 1994 we held that government service rendered on a per diem basis is not creditable in computing the length of service for retirement purposes. Thus, we reversed the questioned resolutions and orders of the Civil Service Commission (CSC) requiring

the Government Service Insurance System (GSIS) to consider creditable the services of private respondents on a per diem basis.

However, private respondent Matilde S. Belo in G.R. No 102449 filed a motion for reconsideration dated 17 November 1994, of this Court 's decision of October 28, 1994. She insists that the services rendered by her as Vice Governor of Capiz, between December 31, 1975 to January 1, 1979, be considered as creditable for purposes of retirement. The Government Service Insurance System likewise filed a motion for reconsideration on November 22, 1984 in behalf of both private respondents Belo and Dr. Manuel Baradero on essentially the same grounds. We shall deal with both motions together.

Central to the averments on the aforestated motions for reconsideration is the question of whether or not regular service in government on a per diem basis, without any other form of compensation or emolument, is compensation within the contemplation of the term "service with compensation" under the Government Service Insurance Act of 1987.

After a careful consideration of the arguments in both motions, we are compelled to reconsider our decision.

While what respondents Belo and Baradero received were denominated as "per diem," the amounts received were actually in the nature of a compensation or pay. What should therefore be considered as controlling in both cases would be the nature of remuneration, not the label attached to it.

Respondent Belo held the position of Vice-Governor of Capiz continuously between January 5, 1972 up to February 1, 1988. From January 25, 1972 up to December 31, 1979, she held office by virtue of an election and was paid a fixed salary. 1 From December 31, 1979 up to February 1, 1988, she held the position of Vice Governor of Capiz in a holdover capacity, broken down into two periods: 2

1. A period in which she was paid on a per diem basis from December 31, 1976 to December 31, 1979; and

2. A period in which she was paid a fixed salary — from January 1, 1980 to February 1,1988.

In its June 7, 1989 Resolution 3 on the matter, CSC held that the services rendered for the first holdover period between January 31, 1976 to January 1, 1979 was creditable for purposes of retirement. CSC noted that during the entire holdover period, respondent Belo actually served on a full time basis as Vice Governor and was on call 24 hours a day. Disagreeing with the CSC's insistence that the period in which respondent Belo was paid on a per diem basis should be credited in computing the number of years of creditable service to the government, GSIS subsequently filed a petition for certiorari before this court, questioning the orders of the CSC. Agreeing that per diems were not compensation within the meaning of Section 1(c) of R.A. 1573 which amended Section 1(c) of C.A. No. 186 (Government Service Insurance Act), we granted the petitions in G.R. Nos. 98395 and 102449, 4 and reversed the CSC Orders and Resolutions in question.

A review of the circumstances surrounding payment to respondent Belo of the per diems in question convinces us that her motion is meritorious. We are convinced that the "per diem" she

received was actually paid for in the performance of her duties as Vice-Governor of Capiz in a holdover capacity not as the per diem referred to by section 1(c) of R.A. No 1573 which amended Section 1(c) of C.A. No. 186 (Government Insurance Service Act). A closer look at the aforecited provision, moreover, reveals a legislative intent to make a clear distinction between salary, pay or compensation, on one hand, and other incidental allowances, including per diems on the other. Section 1(c) provides:

(c) Salary, pay or compensation shall be construed as to exclude all bonuses, per diems, allowances and overtime pay, or salary, pay or compensation given to the base pay of the position or rank as fixed by law or regulations. 5

Since it is generally held that an allowance for expenses incident to the discharge of an office is not a salary of office, 6 it follows that if the remuneration received by a public official in the performance of his duties does not constitute a mere "allowance for expenses" but appears to be his actual base pay, then no amount of categorizing the salary as base pay, a "per diem" would take the allowances received by petitioner from the term service with compensation for the purpose of computing the number of years of service in government. Furthermore, it would grossly violate the law's intent to reward the public servant's years of dedicated service to government for us to gloss over the circumstances surrounding the payment of the said remunerations to the petitioner in taking a purely mechanical approach to the problem by accepting an attached label at face value.

In G.R. No. 98395, the period disputed was served by respondent Baradero as a member of the Sangguniang Bayan of the Municipality of La Castellana, Negros Occidental between January 1, 1976 to October 10, 1978 where he was likewise paid on a per diem basis. It is not disputed that during this period, respondent Baradero rendered full services to the government as a member of the Sangguniang Bayan. In fact, on the basis of its earlier resolution on the case of respondent Belo, the Civil Service Commission recognized the period in which respondent Baradero served as a member of the Sangguniang Bayan as creditable for retirement purposes instead of allowing his petition for extension of service in order to complete the 15 year period of service required for the purpose of qualifying for retirement benefits. 7

In the sense in which the phrase "per diem" is used under the Government Service Insurance Law, a per diem is a daily allowance given for each day an officer or employee of government is away from his home base. 8 This is its traditional meaning: its usual signification is as a reimbursement for extra expenses incurred by the public official in the performance of his duties. 9 Under this definition the per diem intended to cover the cost of lodging and subsistence of officers and employees when the latter are on duty outside of their permanent station. 10

On the other hand, a per diem could rightfully be considered a compensation or remuneration attached to an office. 11 Under the circumstances obtaining in the case of respondent Belo the per diems received by her during the period that she acted in holdover capacity obviously were in the nature of compensation or remuneration for her services as Vice Governor of the Province of Capiz, rather than as a reimbursement for incidental expenses incurred while away from her home base. In connection with this, it is important to lay stress to the following facts:

1. Petitioner rendered service to the government continuously from January 25, 1972 to February 1, 1988 as Vice Governor of the Province of Capiz. During a portion of the holdover-period, i.e., from December 31,

1976 to January 11 1979, payment for her services to the government was through per diems for every regular or special session of the Sangguniang Panlalawigan attended. 12

2. The CSC noted that: "[F]ormer Vice Governor Belo was on a full time basis when she served . . . on a hold-over capacity. . . As such provincial official she is (sic) legally and factually on call by the provincial people and the province more than eight hours a day, or at any time of the day beyond the prescribed working hours.

3. She received no other forms of remuneration during the disputed period. 13

The same could be said of the services rendered by respondent Baradero, who, before and after the period in question had an unblemished record of service to the government as a member of the army and as a medical officer of the Philippine Medicare Commission. The disputed period was served on a full-time basis regardless of the denomination given to the compensation received by him.

What ought to be controlling in the cases at bench therefore, should be the nature of the remuneration rather than the label attached to it. While there is no dispute that the law excepting per diems from the definition of compensation is clear and requires no interpretation, however, since the term per diem may be construed either as compensation or as allowance, it would be necessary for us to inquire whether the term per diem in the GSIS Law refers to one or the other signification. As explained above, it is plainly obvious that per diem as compensation, is not what the law contemplates. The clear intent of the Government Insurance Law was to exclude those extra incidental expenses or incurred on a daily basis covered by the traditional definition of the term per diem. An important fact missed from our earlier decision was that, while respondent Belo was paid on a per diem basis during her first holdover period as Vice Governor she was subsequently paid a fixed salary, which apparently rectified an otherwise anomalous situation. The services rendered by respondent Belo having been continuous, the disputed period should be credited for purposes of retirement.

On the other hand, respondent Baradero was willing to serve two additional years of service to government in order to complete the 15 year period required by our retirement laws. The Civil Service Commission felt this was unnecessary and denied the same on the ground that the period served on a per diem basis, was, like the disputed period in the Belo case, creditable. 14

The distinctions between salary and per diem made hereinabove were in fact adverted to in our original decision dated October 28, 1994. In explaining the allowance of service rendered on a per diem basis in the case of Inocencio vs. Ferrer of the Social Security System, we noted with approval the Government Service Insurance System's explanation that the per diem service which was credited for purposes of retirement was Commissioner Ferrer's full time service as Hearing Officer not his per diem service for attendance at Board Meetings. Even then, we indirectly noted the difference between per diem paid as compensation for services rendered on a full time basis and per diem as allowance for incidental expenses. Respondent Belo asserts, with reason, that the per diems paid to her, while reckoned on the basis of attendance in Board Meetings, were for her full time services as Vice Governor of the Province of Capiz. In fact, the same service, albeit still on a holdover basis, was eventually paid with a fixed salary.

Retirement benefits given to government employees in effect reward them for giving the best years of their lives to the service of their country. This is especially true with those in government service occupying positions of leadership or positions requiring management skills because the years they devote to government service could be spent more profitably in lucrative appointments in the private sector. In exchange for their selfless dedication to government service, they enjoy security of tenure and are ensured of a reasonable amount of support after they leave the government. The basis for the provision of retirement benefits is, therefore, service to government. While a government insurance system rationalizes the management of funds necessary to keep this system of retirement support afloat and is partly dependent on contributions made by the thousands of members of the system, the fact that these contributions are minimal when compared to the amount of retirement benefits actually received shows that such contributions, while necessary, are not absolutely determinative in drawing up criteria for those who would qualify as recipients of the retirement benefit system.

It cannot be convincingly asserted that petitioners could not avail themselves of the benefits of the policy because no deductions were made from their salaries during the disputed periods when they were paid on a per diem basis. In respondent Belo's case, before and after that short interregnum, she was paid a fixed salary. She was not duly informed that short period was not to be credited in computing the length of her service for retirement purposes. She assumed in all good faith that she continued to be covered by the GSIS insurance benefits considering that in fact and in practice the deductions are virtually mandatorily made from all government employees on an essentially involuntary basis. Similarly, had respondent Baradero been informed of the need to pay the required deductions for the purpose of qualifying for retirement benefits, he would have willingly paid the required sums. In a sense, the contract made between the GSIS and the government employee is done on a take-it-or-leave-it basis, that is, it is a virtual contract of adhesion which gives the employee no choice but to involuntarily accede to the deductions made from their oftentimes meager salaries. If the GSIS did not deduct, it was by its own choice: contributions were exacted from petitioner before and after the disputed period. To assert that petitioners would have been entitled to benefits had they opted for optional deductions at that point misses the principal fact in issue here, which is the question as to whether or not the disputed periods should be credited as service with compensation for the purposes of retirement.

Moreover, the source of GSIS benefits is not in essence merely contractual; rather, it is a social legislation as clearly indicated in the "whereas" of Presidential Decree No. 1146, to wit:

WHEREAS, provisions of existing laws that have prejudiced, rather than benefited, the government employee; restricted, rather than broadened, his benefits, prolonged, rather than facilitated the payment of benefits, must now yield to his paramount welfare;

WHEREAS, the social security and insurance benefits of government employees must be continuously re-examined and improved to assure comprehensive and integrated social security and insurance programs that will provide benefits responsive to their needs and those of their dependents in the event of sickness, disability, death, retirement, and other contingencies; and to serve as a fitting reward for dedicated public service;

WHEREAS, in the light existing economic conditions affecting the welfare of government employees there is a need to expand and improve the social security and insurance programs administered by the Government Service Insurance Systems, specifically, among others, by increasing pension benefits, expanding disability benefits, introducing survivorship benefits, introducing sickness income benefits, and eventually extending the compulsory coverage of these programs to all government employees regardless of employment status.

The situation as far as private respondents and the GSIS are concerned could be rectified by deducting a reasonable amount corresponding to the contributions which should have been deducted during the period from the amount of retirement benefits accruing to them. It would be grossly inequitable — as it would violate the spirit of the government retirement and insurance laws — to permanently penalize both respondents Belo and Baradero by ignoring the fact of actual period of service to government with compensation, and deny them the retirement privileges that they, for their unselfish service to the government justly deserve. Under the peculiar circumstances of the case at bench, the demand for equity prompts us to regard spirit not letter, and intent, not form, in according substantial justice to both respondents, where the law, through its inflexible rules might prove inadequate.

WHEREFORE, the instant motion is hereby GRANTED, our decision dated October 28, 1994 RECONSIDERED and the questioned resolutions and orders of the CSC requiring GSIS to consider creditable the services of private respondents on a per diem basis AFFIRMED.