Republic of the Philippines

SUPREME COURT
Manila
-oOo-

G.R. No. ________________

ZAMBOANGA CITY WATER DISTRICT

and its employees, represented by General
Manager LEONARDO REY D. VASQUEZ,
Petitioners,

-versus-

THE HON. COMMISSION ON AUDIT,

Respondent.
x----------------------------------------------------------x

PETITION

COME NOW, Petitioners, thru the undersigned counsels and unto the
Honorable Court, most respectfully submit the foregoing Petition as follows:

NATURE OF THE PETITION

This is a Petition under Rule 64 in relation to Rule 65 of the Rules of

Court, for a review on writ of certiorari and to declare null and void, for
having been rendered with grave abuse of discretion amount to lack or
excess of jurisdiction, DECISION No. 2014-182 (a Certified True Copy of
which is hereto attached as ANNEX “A”), dated 28 August 2014, of
Respondent Commission on Audit, and its Resolution dated 09 March 2015
as contained in an En Banc Notice issued last 06 April 2015 and received by
Petitioners last 25 May 2015 (a Certified Copy of which is hereto attached
as ANNEX “B”), denying the Motion for Reconsideration filed by
Petitioners dated 29 September 2014, original copy of which is hereto
attached as ANNEX “C”.

THE PARTIES

Petitioner Zamboanga City Water District (ZCWD for brevity), is a

government owned and controlled corporation (GOCC) created pursuant to
and by virtue of Presidential Decree (PD) Number 198, otherwise known as
the Provincial Water Utilities Act of 1973. It is represented by its General
Manager, Leonardo Rey D. Vasquez as Head of the Agency as provided for
under the rules and pursuant to Board Resolution No. ________-2015,
 2

(hereto attached as ANNEX “D”), and Secretary’s Certificate, hereto

attached as ANNEX “D-1”. Petitioners’ official address is ZCWD Bldg.,
Pilar Street, Zamboanga City, Philippines, where notices and other processes
of the Honorable Supreme Court may be served.

STATEMENT OF THE FACTS

The facts salient to the resolution of the issues in this case are as
follows:

On May 13, 2009, former President Gloria Macapagal-Arroyo issued

Memorandum Circular (MC) No. 174, s. 2009, which “Enjoined all
Government Agencies, including Government –Owned and –Controlled
Corporations, State Universities and Colleges to Support the Philippine
Government Employees Association’s Public Sector Agenda.” A true and
faithful reproduction of MC No. 174, s. 2009 is hereto attached as ANNEX
“E”, and the pertinent portions of which are hereby quoted, to wit:

“MALACAÑANG
Manila

BY THE PRESIDENT OF THE PHILIPPINES

MEMORANDUM CIRCULAR No. 174

ENJOINING ALL GOVERNMENT AGENCIES,

INCLUDING GOVERNMENT OWNED AND
CONTROLLED CORPORATIONS, STATE
UNIVERSITIES AND COLLEGES TO SUPPORT
THE PHILIPPINE GOVERNMENT EMPLOYEES
ASSOCIATION’S PUBLIC SECTOR AGENDA

WHEREAS, the Government recognizes the important role

of government employees in nation building.

WHEREAS, it is necessary that the needs of government

employees, especially in the face of the present global
economic crisis, be addressed in a manner that will improve
and promote their social and economic welfare.

In view thereof, all government agencies, including

Government Owned and Controlled Corporations, State
Universities and Colleges are hereby enjoined to provide the
following to their employees:

 shuttle service
 3

 financial subsidy and other needed support to make the

Botika ng Bayan more accessible to them
 scholarships programs for their children with siblings
 PX mart that sell affordable commodities and to ensure
theh implementation of this Circular.

IN WITNESS WHEREOF, I have hereunto set my hand

and caused the seal of the Republic of the Philippines to be
affixed thereto.

Done in the City of Manila, this 13th day of May, in the year
of Our Lord Two Thousand and Nine.

[Signed]
Gloria M. Arroyo

By the President:

[Signed]
EDUARDO R. ERMITA
Executive Secretary”

On December 7, 2009, ZCWD Board of Directors passed Board

Resolution No. 206, Series of 2009. Pursuant to Memorandum Circular
(MC) No. 174, s. 2009 and the recent Board Resolution, Petitioners came up
with its Guidelines on the Grant of Financial Subsidy, allowing thereof
equivalent to one (1) month salary per employee. (certified true copies,
hereto attached as ANNEXES “F” to “F-3”). The funds therefor were
charged from Petitioner’s corporate funds.

Petitioners likewise sought the guidance of the Office of Government

Corporate Counsel, the Statutory Counsel of ZCWD.

On January 4, 2010, OGCC Legal Opinion dated 04 January 2010

(hereto attached as ANNEX “G”), was received by Petitioners the following
queries relative to the implementation of MC No. 174, s. 2009:

“1. Does Zamboanga City Water District (ZCWD) have

the power to prescribe the amount to be granted as financial
subsidy?

2. Are the benefits enumerated in Memorandum Circular

No. 174 in the nature of ‘de minimis’ benefits and/or can be
treated as such by ZCWD?
 4

3. How often can ZCWD allow the grant of such subsidy

(monthly or annually)?”

The OGCC through Government Corporate Counsel Alberto C. Agra

responded, thus:

“Anent your first query, we answer in the affirmative.

The Memorandum Circular itself does not provide for the
amount of financial subsidy to be granted to the employees of
GOCCs concerned. The Department of Budget and
Management (DBM) has not issued a set of guidelines on the
implementation of the said Memorandum Circular. Hence,
considering that water districts generate their own income, it is
our view that the Board has sufficient discretion and authority
to determine the amount of the financial subsidy that it will
grant through a board resolution, subject to the availability of
funds. It is noted though that the financial subsidy is intended
to support the Botika ng Bayan, and thus, would presumably be
for the purpose of purchasing medicies.

We likewise answer your second query in the affirmative.

Financial subsidies given pursuant to MC No. 174 may be
classified as ‘de minimis’ benefits which are not subject to
withholding tax on compensation pursuant to Section 2.78.1 (B)
(11) (b) of Revenue Regulation No. 2-98. These are being given
to address the needs of government employees in the midst of
the present global economic crisis, thus:

(11) Thirteenth (13th) month pay and other benefits. –

(a) Thirteenth (13th) month pay equivalent to the

mandatory one (1) month basic salary of officials and
employees of the government, (whether national or
local), including government owned or controlled
corporations, and or private offices received after the
twelfth (12th) month pay; and

(b) Other benefits such as Christmas bonus, productivity

incentive bonus, loyalty award, gifts in cash or in kind
and other benefits of similar nature actually
received by officials and employees of both
government and private offices.

(Emphasis supplied).

As to your third query, MC No. 174 is likewise silent as to

how often a GOCC may grant the financial subsidy. Hence,
 5

unless the Office of the President or the DBM will issue

guidelines in the implementation thereof, it is our considered
view that there are no legal objections if ZCWD were to adopt
its own guidelines on the frequency of the grants, which, as
mentioned earlier, would be subject to availability of funds.

Please be guided accordingly.

Very truly yours,

[Signed]
ALBERTO C. AGRA
Government Corporate Counsel

Emphasis supplied.”
On July 21, 2010, an Audit Observation Memorandum (AOM) No.
ZCWD-2010-05(09) (hereto attached as ANNEX “H”) was issued by
Respondent’s Audit Team No. 4, Audit Group C – Corporate Government
Sector, COA Regional Office IX, Zamboanga City, and received by
Petitioner last 27 July 2010. It was observed by Respondent that:

“We have audited the Zamboanga City Water District’s

Operation Expenses account and observed the following
deficiencies/errors:

A total of P5,127,523.00 financial subsidy was paid to

ZCWD employees which is not in accordance with Section 57
of the Republic Act (RA) No. 9524.

Section 57 of RA 9524, otherwise known as the General

Appropriations Act (GAA) of 2009, states that ‘No official or
employee of the national government, LGUs and GOCCs shall
be paid any personnel benefits charged against the
appropriations in this Act, other appropriations laws or income
of the government, unless specifically authorized by law. Grant
of personnel benefits authorized by law but not supported by
specific appropriations shall also be deemed unauthorized.

The payment of any unauthorized personnel benefit in

violation of this section shall be null and void. The erring
officials and employees shall be subject to disciplinary action
under the provisions of Section 43, Chapter 5 and Section 80,
Chapter 7, Book VI of E.O. No. 292, and to appropriate
criminal action under existing penal laws.’

Audit of disbursements showed that ZCWD granted one

(1) month basic salary or a total of P5,127,523.00 as financial
subsidy to its employees irrespective of their appointments,
 6

whether permanent, casual, temporary or contractual who have

rendered at least a total or an aggregate of four (4) months
including leaves of absences with pay per Board Resolution No.
206, Series of 2009.

Further examination revealed that the basis of such

payment was Memorandum Circular (MC No. 174 from the
Office of the President entitled ‘Enjoining All Government
Agencies, Including Government Owned and Controlled
Corporations, State Universities and Colleges to Support the
Philippine Government Employees Association’s Public Sector
Agenda’ dated May 13, 2009.

Paragraph 3 of MC No. 174 states that ‘In view thereof,

all government agencies, including Government Owned and
Controlled Corporations, State Universities and Colleges are
hereby enjoined to provide the following to their employees:

 Shuttle service
 Financial subsidy and other needed support to make the
Botica ng Bayan more accessible to them
 Scholarships programs for their children with siblings
 PX mart that sell affordable commodities and the
provision of its seed fund

MC No. 174 particularly item no. 2 of the above paragraph

cannot be used as the legal basis for the payment of such
benefit since the ‘financial subsidy’ meant monetary
assistance to the Botica ng Bayan and not to the employees of
the agency. The MC did not specifically mention that
financial assistance shall be given to the employees. The
phrase ‘financial subsidy’ should not be taken out of context.

We therefore recommend that ZCWD employees should

refund the amount representing financial subsidy and
Management should refrain from paying benefits unless
expressly authorized by law.

May we have your comments on the foregoing audit

observations within five (5) calendar days from receipt hereof.

ELVIRA B. VILLANUEVA
Audit Team Leader

ESTRELLA B. AVILA
Supervising Auditor”
 7

On October 14, 2010, ZCWD received Respondent’s Notice of

Disallowance (ND) No. 10-127(09) dated 07 September 2010, certified copy
of which is hereto attached as ANNEX “H”, effectively disallowing the
grant of financial subsidy to Petitioner’s employees, in the total amount of
Php5,127,523.00. Portions of said ND No. 10-127(09) are hereinafter
quoted, to wit:

“We have audited the Financial Subsidy Account in the

amount of P5,127,523.00 covered by the following reference
documents and particulars:

Check/DV/JV/N Date Amount Payee

o.
JV No. 2009- 12-09- P5,127,523 Rolando M. Pantaleon,
12-018 2009 .00 et. al

The amount of P5,127,523.00 was disallowed in audit

because Section 57 of RA 9524, otherwise known as the
General Appropriations Act (GAA) of 2009, states that ‘No
official or employee of the national government, LGUs, and
GOCCs, shall be paid any personnel benefits charged against
the appropriations in this Act, other appropriations laws or
income of the government, unless specifically authorized by
law. Grant of personnel benefits authorized by law but not
supported by specific appropriations shall also be deemed
unauthorized.”

An Appeal Memorandum was filed by Petitioner last 11 January

2011, true and faithful reproduction of which is hereto attached as ANNEX
“I”. This was denied by Respondent’s Regional Office No. 09 in its
Decision dated 06 February 2012, original copy of which is hereto attached
as ANNEX “J”.

Petitioners filed before the Commission on Audit Proper a Petition for

Review dated 24 June 2012. The Petition was denied by Respondents in its
assailed Decision No. 2014-182 dated 28 August 2014, Certified True Copy
of which is already attached as ANNEX “A” above. From said denial,
Petitioners filed a Motion for Reconsideration dated 29 September 2014,
Original Copy of which is already attached as ANNEX “C” above. The
same was denied by Respondents by way of ONE PAGE NOTICE,
Certified Copy of which is already attached as ANNEX “B” above, and the
substantial portion of which states:

“NOTICE
Sirs/Mesdames:
 8

Please take notice that the Commission Proper (CP) en

banc issued a resolution on March 9, 2015, which reads as
follows:

COA CP Case No. 2012-102 – MOTION FOR

RECONSIDERATION OF ZAMBOANGA CITY WATER
DISTRICT (ZCWD), THROUGH COUNSEL, OF
COMMISSION ON AUDIT (COA) DECISION NO. 2014-182,
DATED AUGUST 28, 2014, AFFIRMING COA REGIONAL
OFFICE NO. IX DECISION NO. 2012-12 DATED FEBRUARY
6, 2012 AND NOTICE OF DISALLOWANCE (ND) NO. 10-
127(09) DATED SEPTEMBER 7, 2010 ON THE PAYMENT
OF FINANCIAL SUBSIDY TO THE ZCWD’S OFFICIALS
AND EMPLOYEES IN THE TOTAL AMOUNT OF
P5,127,523.00.

‘The CP denied the motion for reconsideration for failure to

raise new matter or show sufficient ground to justify
reconsideration of the assailed Decision.’
Very truly yours

[SIGNED]
NILDA B. PLARAS
Director IV
Commission Secretary”
Hence this PETITION.

TIMELINESS

Pursuant to Section 3 Rule 64 of the Rules of Court, Petitioners have

thirty (30) days from Notice of the judgment or final order or resolution
sought to be reviewed. Respondent’s undated Notice as quoted above was
received by Petitioners last 25 May 2015, hence they have until 24 June
2015 to file the instant Petition.

Hence, this Petition is filed ON TIME.

GROUNDS FOR THE PETITION

Petitioner respectfully submits, that in rendering the assailed Decision

No. 2014-182 dated 28 August 2014, Respondent committed grave abuse of
discretion amounting to lack or excess of jurisdiction, as follows:

1. In affirming ND No. 10-127(09) dated 07 September 2012,

concerning the payment of financial subsidy to Petitioners’
officials and employees, in the amount of Php5,127,523.00, by
 9

holding that Memorandum Circular (MC) No. 174 s. 2009 does not
authorize direct payment of financial subsidy to government
employees, despite the clear mandate of the same MC No. 174 s.
2009, which in fact enjoins all government agencies including
government –owned and –controlled corporations such as herein
Petitioner, to provide certain benefits to its employees;

2. In holding that the financial subsidy contemplated in MC No. 174

s. 2009 should be directly paid to the Botika ng Bayan which is a
chain of pharmaceutical outlets owned by a private entity, and thus
in clear violation of Section 4 of PD 1445 which establishes the
fundamental principle that government funds or property shall be
spent or used solely for public purposes;

3. In holding that MC No. 174 s. 2009 does not intend to authorize

direct payment of financial subsidy to government employees and
the Board Resolution issued pursuant thereto has no legal basis,
despite the opinion of the Office of the Government Corporate
Counsel (OGCC), that the Board has sufficient discretion and
authority to determine the amount of the financial subsidy that it
will grant through a board resolution;

4. In denying Petitioner’s Motion for Reconsideration by way of a

ONE-PAGE NOTICE, which does not exhaustively resolve the
merits presented by Petitioner and which parenthetically violates
the constitutional provision that Decisions rendered must clearly
and distinctly state the facts and the law on which it is based;
ARGUMENTS AND DISCUSSIONS

FIRST GROUND: In affirming ND No. 10-

127(09) dated 07 September 2012,
concerning the payment of financial subsidy
to Petitioners’ officials and employees, in
the amount of Php5,127,523.00, by holding
that Memorandum Circular (MC) No. 174 s.
2009 does not authorize direct payment of
financial subsidy to government employees,
despite the clear mandate of the same MC
No. 174 s. 2009, which in fact enjoins all
government agencies including government
–owned and –controlled corporations such
as herein Petitioner, to provide certain
benefits to its employees.

In affirming ND No. 10-127(09) dated 07 September 2012,

concerning the payment of financial subsidy to Petitioners’ officials and
 10

employees, in the amount of Php5,127,523.00, Respondent commission held

that Memorandum Circular (MC) No. 174 s. 2009 does not authorize direct
payment of financial subsidy to government employees. This is because,
according to Respondent Commission, the term “financial subsidy” referred
to in MC No. 174 meant “financial subsidy” to be paid directly to the Botika
ng Bayan and not to the ZCWD employees.

Such interpretation is a total disregard and in violation of Section 41

of Presidential Decree No. 198 as amended, states that:

The income of the District shall be disposed of according to the

following priorities:

First, to pay its contractual obligation and statutory

obligation and to meet its essential current operating
expenses.

Second, to allocate at least fifty percent (50%) of the

balance exclusively as reserve for debt service and
operating and maintenance to be used for such purposes
only during periods of calamities, force majeure or
unforeseen events;

Third, to allocate the residue as a reserve exclusively

for the expansion an improvement of physical facilities.

Further, it is respectfully submitted however that the Commission

Proper’s ruling is misplaced, as it runs contrary to the clear meaning and
intention of the pertinent provisions of the subject Memorandum Circular.
The conception that the monetary assistance shall be given directly to the
Botika ng Bayan is nowhere to be found in the MC No. 174, s. 2009. The
third paragraph thereof states:

“x-x-x

In view thereof, all government agencies, including all

Government Owned or Controlled Corporations, State
Universities and Colleges are hereby enjoined to provide the
following to their emmployees:

 Shuttle service
 Financial subsidy and other needed support to make the
Botika ng Bayan more accessible to them.x-x-x”

Emphasis supplied.
 11

Furthermore, this notion advanced by Respondent which relies on the

interpretation of the Respondent’s COA Region IX Audit Team Leader runs
contrary to the plain-meaning rule or principle of verbal legis in statutory
construction, that if a statute is clear, plain and free from ambiguity, it must
be given its literal meaning and applied without need of further
interpretation1. Verba legis non est recedendum, or from the words of a
statute there should be no departure.2

The wordings of MC No. 174, s. 2009 are clear – all government

agencies including GOCCs such as herein Petitioner, are enjoined to
provide financial subsidy to their employees. There is no need to depart from
its plain and literal language, or worse, come up with a strange interpretation
such as that advanced by Respondent’s COA Region IX Audit Team Leader.

SECOND GROUND: In holding that the

financial subsidy contemplated in MC No.
174 s. 2009 should be directly paid to the
Botika ng Bayan which is a chain of
pharmaceutical outlets, and thus in clear
violation of the Section 4 of PD 1445, which
sets the fundamental principle that
government funds or property shall be spent
or used solely for public purposes.

As Respondent Commission Proper would have it, Petitioner ZCWD

should directly pay the financial subsidy to the Botika ng Bayan. We submit
that such interpretation initially advanced by Respondent’s COA Region IX
Audit Team Leader and relied upon by Respondents in promulgating its
assailed Decision, will violate Section 4 of PD 1445, which states:

“Section 4. Fundamental principles. Financial transactions

and operations of any government agency shall be governed by
the fundamental principles set forth hereunder, to wit:

1. No money shall be paid out of any public treasury or

depository except in pursuance of an appropriation law or
other specific statutory authority.

2. Government funds or property shall be spent or used solely

for public funds. x-x-x”

Emphasis supplied.
1
Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 15, 2005, 456 SCRA
414, 443; National Federation of Labor v. National Labor Relations Commission, 383 Phil. 910, 918 (2000)

2
Enjay, Inc. v. National Labor Relations Commission, 315 Phil. 648, 656 (1995); Globe-Mackay Cable and Radio
Corporation v. National Labor Relations Commission, G.R. No. 82511, March 3, 1992, 206 SCRA 701, 711
 12

In the case of Ramon R. Yap vs. Commission on Audit 3, the Supreme

Court had the opportunity to discuss the meaning of public purpose as
contemplated in Section 4 of PD No. 1445, thus:

“x-x-x

To summarize, any disbursement of public funds, which

includes payment of salaries and benefits to government
employees and officials, must (a) be authorized by law, and (b)
serve a public purpose.

In this regard, it is necessary for this Court to elaborate on

the nature and meaning of the term public purpose, in relation
to disbursement of public funds. As understood in the
traditional sense, public purpose or public use means any
purpose or use directly available to the general public as a
matter of right. Thus, it has also been defined as an activity as
will serve as benefit to [the] community as a body and which at
the same time is directly related function of government. 4
However, the concept of public use is not limited to traditional
purposes. Here as elsewhere, the idea that public use is strictly
limited to clear cases of use by the public has been discarded. 5
In fact, this Court has already categorically stated that the term
public purpose is not defined, since it is an elastic concept that
can be hammered to fit modern standards. It should be given a
broad interpretation; therefore, it does not only pertain to
those purposes that which are traditionally viewed as
essentially government functions, such as building roads and
delivery of basic services, but also includes those purposes
designed to promote social justice. Thus, public money may
now be used for the relocation of illegal settlers, low-cost
housing and urban or agrarian reform.6 In short, public use is
now equated with public interest7, and that it is not
unconstitutional merely because it incidentally benefits a
limited number of persons8”.

3
G.R. No. 158562, 23 April 2010

4
Blacks Law Dictionary, p. 1231, (6th ed., 1990), citing Pack v. Southern Bell Tel. & Tel. Co., 215 Tenn. 503, 387 S.W.
2d 789, 794

5
Heirs of Juancho Ardona v. Reyes, Nos. L-60549, 60553-60555, October 26, 1983, 125 SCRA 220, 223

6
Planters Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, March 14, 2008, 548 SCRA 485, 510-511

7
Bengzon v. Drilon, G.R. No. 103524, April 15, 1992, 208 SCRA 133, 155

8
Binay v. Domingo, G.R. No. 92389, September 11, 1991, 201 SCRA 508, 516
 13

Emphasis supplied.

The Whereas clauses of MC No. 174 s. 2009 have thus precisely laid
the raison d'être for the grant of the financial subsidy, thus:

“x-x-x

WHEREAS, the Government recognizes the

important role of government employees in nation
building.

WHEREAS, it is necessary that the needs of

government employees, especially in the face of the
present global economic crisis, be addressed in a
manner that will improve and promote their social and
economic welfare. x-x-x”

It is submitted that the public purpose requirement for the

disbursement of public funds have squarely been met, owing to the noble
purpose for which MC 174 s. 2009 has been issued. It mandates government
agencies such as herein Petitioner ZCWD to grant certain benefits to
government employees, in recognition of their important role in nation
building, and to address the present global economic crisis in order to
improve and promote their social and economic welfare. Petitioners cannot
be faulted for simply having implemented a mandatory Presidential directive
in the furtherance of a public purpose, as every well stated in the MC itself.

Moreover, the Botika ng Bayan is a chain of pharmaceutical outlets

controlled by PITC-Pharma, Inc., which albeit being a government –owned
and –controlled corporation, is operating as a profit-making institution
pursuant to its functions under Republic Act No. 9502 otherwise known as
the Universally Accessible Cheaper and Quality Medicines Act of 2008, and
its IRR. Besides, PITC-Pharma, Inc. is in fact: 1) registered with the
Securities and Exchange Commission; 2) operating with an authorized
capital of Php 100,000,000.00; 3) engaged in the procurement, sourcing and
marketing of quality essential and low-priced medicines.

Stated differently, Respondent’s interpretation will effectively defeat

the purpose for which MC No. 174, s. 2009 has been issued, because there is
no guarantee that government employees will be able to buy cheap
medicines from the Botika ng Bayan if the latter will be granted the financial
subsidy through PITC-Pharma, Inc. This may in fact negate the intent of the
President in issuing MC No. 174, which mandates provision of the financial
subsidy to government employees so that they may have easier access to the
amenities and/or products of the Botika ng Bayan.
 14

THIRD GROUND: In holding that MC No.

174 s. 2009 does not intend to authorize
direct payment of financial subsidy to
government employees and the Board
Resolution issued pursuant thereto has no
legal basis, despite the opinion of the Office
of the Government Corporate Counsel
(OGCC), that the Board has sufficient
discretion and authority to determine the
amount of the financial subsidy that it will
grant through a board resolution.

In holding that MC No. 174 s. 2009 does not intend to authorize direct
payment of financial subsidy to government employees and the Board
Resolution issued pursuant thereto has no legal basis, Respondent miserably
failed to consider the opinion of the Office of the Government Corporate
Counsel (OGCC) that the Board has sufficient discretion and authority to
determine the amount of the financial subsidy that it will grant through a
board resolution.

As opined by the OGCC, “local water districts generate their own

income so that the Board [of a local water district] has sufficient discretion
and authority to determine the amount of the financial subsidy that it will
grant through a board resolution, subject to the availability of funds” (p. 2 of
ANNEX “F” above). It further opined that “there are no legal objections if
ZCWD were to adopt its own guidelines on the frequency of the grants,
which, as mentioned earlier, would be subject to availability of funds.”

Once again, Petitioners cannot be faulted for relying on

Memorandum Circular (MC) No. 174, s. 2009 and the subsequent legal
opinion issued by no less than the statutory counsel of all government –
owned and –controlled corporations of the Republic of the Philipines.

Additionally, it is to be emphasized that local water districts do not

derive any funding from the national government to sustain its operations.
Being a GOCC endowed with corporate powers under Section 25 of PD 198
as amended, Petitioner is authorized through its Board of Directors to grant
benefits to its employees, as may be authorized by law or regulation. MC
174, s. 2009 provides ample legal basis for the grant of financial subsidy to
employees, otherwise similar executive issuance of this nature can simply be
brushed aside as inutile government will be unable to provide for the
economic and general well-being of its own workers.

PETITIONER OFFICERS AND

EMPLOYEES OF ZCWD
 15

AUTHORIZED THE DISBURSEMENT

AND RECEIVED THE BENEFITS
PURSUANT TO MC 174, S. 2009 WITH
THE HONEST BELIEF THAT THE
TRANSACTION WAS VALID AND
THAT THE RECIPIENTS WERE
ENTITLED THERETO, IN GOOD
FAITH.

The foregoing arguments notwithstanding, Petitioners’ pray that they

be relieved from refunding the amount involved in Respondent’s ND No.
10-127 (09), by reason of the fact that the subject disbursement was made,
and the amount involved was received in the honest belief that the
transaction was valid and in accordance with law.

The GOOD FAITH of Petitioners have been shown by the

circumstances attending the instant case such as relying on the presumption
that Memorandum Circular (MC) No. 174, s. 2009 as a valid issuance and
having the force and effect of a law; and the rudiments of the laws are so
deep that Petitioners ordinary employees sought the guidance from its
Statutory Counsel, the OGCC, which assured them that there will be no legal
impediment for the grant of the financial subsidy.

In a long line of cases, the Honorable Court has excused from liability
recipients of amounts which were disallowed in audit, such as: Nazareth v.
COA, et. al., G.R. No. 188635, 29 January 2013 where it was held that:
“Nevertheless, our pronouncement in Blaquera v. Alcala supports
petitioners’ position on the refund of the benefits they received. In Blaquera,
the officials and employees of several government departments and agencies
were paid incentive benefits which the COA disallowed on the ground that
Administrative Order No. 29 dated 19 January 1993 prohibited payment of
these benefits. While the court sustained the COA on the disallowance, it
nevertheless declared that: ‘Considering however, that all the parties here
acted in good faith, we cannot countenance the refund of subject incentive
benefits for the year 1992, which amounts the petitioners have already
received. Indeed, no indicia of bad faith can be detected under the attendant
facts and circumstances. The officials and chiefs of offices concerned
disbursed such incentive benefits in the honest belief that the amounts given
were due to the recipients and the latter accepted the same with gratitude,
confident that they richly deserve such benefits.”

In Veloso, et. al., v. COA, G.R. No. 193677, 06 September 2011 – it

was held that: “However, in line with existing jurisprudence, we need not
require the refund of the disallowed amount because all the parties acted in
good faith. In this case, the questioned disbursement was made pursuant to
an ordinance enacted as early as December 7, 2000 although deemed
approved only on August 22, 2002. The city officials disbursed the
 16

retirement and gratuity pay remuneration in the honest belief that the
amounts given were due to the recipients and the latter acceptance the same
with gratitude, confident that they richly deserve such reward.”

In Querubin, et. al., v. Regional Cluster Director, LAO-COA RO-

VI, G.R. No. 159299, 07 July 2004, it was held that “Accordingly, the
Court sustains the disallowance of the monetary benefits granted to
petitioners Members of the Board of the BCWD in accordance with LWUA
Resolution No. 313, series of 1995. Having been granted said allowances
and bonuses in 1999, before the Court declared in Baybay Water District
the illegality of payment of additional compensation other than the allowed
per diem in Section 13, of PD 198, as amended, they can thus be considered
to have received the same in good faith. Hence, they need not refund them.”

In Abanilla, et. al., v. COA, et. al., G.R. No. 142347, 25 August
2007, it was held that “While we sustain the disallowance of the above
benefits by respondent COA, however, we find that the MCWD affected
personnel who received the above mentioned benefits and privileges acted
in good faith under the honest belief that the CBA authorized such payment.
Consequently, they need not refund them.

And in De Jesus, et. al., v. COA, G.R. No. 149154, 10 June 2003, it
was similarly held that “This ruling in Blaquera applies to the instant case.
Petitioners here received the additional allowances and bonuses in good
faith under the honest belief that LWUA Board Resolution No. 313
authorized such payment. At the time petitioners received the additional
allowances and bonuses, the Court had not yet decided Baybay Water
District. Petitioners had no knowledge that such payment was without legal
basis. Thus, being in good faith, petitioners need not refund the allowances
and bonuses they received but disallowed by the COA.”

All told, Petitioners believed that they should not be required to

refund should the High Court exercise it exclusive powers to interpret the
subject memorandum Circular. Good faith is not an empty doctrine in
Philippine jurisprudence and can be clearly applied to herein Petitioners.

GOVERNMENT INSTITUTION EXERCISING

QUASI-JUDICIAL FUNCTIONS SHALL
RENDER DECISIONS CLEARLY, DISTINCTLY
STATE THE FACTS AND THE LAW ON WHICH
IT IS BASED;

Respondents have shown its arrogance in the exercise of its quasi-

judicial function by merely resolving issues of extreme importance by just a
ONE-PAGE NOTICE, which does not exhaustively resolve the merits
presented by Petitioner and which parenthetically violates the constitutional
 17

provision that Decisions rendered must clearly and distinctly state the facts
and the law on which it is based.

PRAYER

WHEREFORE, in view of the foregoing considerations, and in the

interest of equity and justice, it is most respectfully prayed of the Honorable
Supreme Court:

1. To declare NULL and VOID Respondent Commission on Audit’s

Decision No. 2014-182 dated 28 August 2014, and its Resolution
dated 09 March 2015 in relation to COA CP Case No. 2012-102, for
having been issued with grave abuse of discretion amounting to lack
or excess of jurisdiction; and

2. To LIFT Notice of Disallowance (ND) No. 10-127(09) dated 07

September 2010 on the payment of financial subsidy to ZCWD’s
employees in the total amount of Php5,127,523.00;

3. In the alternative, to declare that the recipients of the disallowed

amounts be all excused from liability for having received the same IN
GOOD FAITH.

Such other relief and remedies warranted under the premises are likewise
prayed for.

11th day of June 2015, in the City of Zamboanga, for the City of Manila,
Philippines.

ATTY. LOVELL C. ABAD

Lead Counsel for Petitioner
PTR No.1008854/January 15, 2015, Z.C.
Lifetime IBP No. 703682/June 5, 2007, IBP Roll No. 48879
MCLE Compliance No.IV 0021162 on July8, 2013
ZCWD Bldg., Pilar Street
Zamboanga City

Contact details:
+63 916 477 5551
lovellabadLMSD@gmail.com

ATTY. MARK ALLEN M. PAREDES

Co-counsel for Petitioner
PTR No.1008853; 01/15/15; Z.C.
IBP No. 897360; 01/09/15; Roll of Attorneys No.: 57733
 18

MCLE Compliance No. IV-0000369

MCLE Compliance No. V-0002092
2/F Legal Department, ZCWD Bldg.
Pilar Street, Zamboanga City

Contact details:
+63917 322 5382
mam.paredes@zcwd.gov.ph
 19

REPUBLIC OF THE PHILIPPINES)

CITY OF ZAMBOANGA)S.S.
x---------------------------------------------x

VERIFICATION AND CERTIFICATION OF NON-FORUM

SHOPPING

I, LEONARDO REY D. VASQUEZ, Filipino, of legal age, married,

and a resident of Canelar Moret, Zamboanga City, after having been duly
sworn to in accordance with law, under oath hereby DEPOSE and STATE:

1. That I am the Petitioner in the above-entitled case;

2. That I have caused the preparation of the foregoing Petition and have
read and understood the allegations contained therein and the same
are true and correct of my own personal knowledge or based on
authentic records;

3. That I have not commenced any other action or proceeding involving

the same issues in the Supreme Court, The Court of Appeals, or
different Divisions thereof or any other tribunal or agency;

4. That to the best of my knowledge, no such action or proceeding is

pending in the Supreme Court, the Court of Appeals, or different
Divisions thereof or any other tribunal or agency;

5. That if I should learn that another similar action or proceeding has

been filed or is pending before the Supreme Court, the Court of
Appeals or different Divisions thereof or any other tribunal or
agency, I shall notify the court within five (5) days from such notice.

City of Zamboanga, for Manila, Philippines, 11 June 2015.

LEONARDO REY D. VASQUEZ

Petitioner

SUBSCRIBED and SWORN to before me this 11th day of June 2015 in

the City of Zamboanga, Philippines. Leonardo Rey D. Vasquez exhibited
competent evidence of identity in the form of his ZCWD Identification Card
bearing ID No. ______________.

Doc. No.
Page No.
Book No.
Series of 2015
 20

COPY FURNISHED:

1. COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City
Philippines
Registry Receipt No. _______________

2. OFFICE OF THE SOLICITOR GENERAL

134 Amorsolo St. Legaspi Village
Makati City, Philippines
Registry Receipt No. _______________

3. OFFICE OF THE GOVERNMENT CORPORATE COUNSEL

MWSS Building, Balara Quezon City
Philippines
Registry Receipt No. _______________

4. COA REGIONAL OFFICE No. IX

Cabatangan Hills, Zamboanga City
Registry Receipt No. _______________

5. Ms. ANABELLA UY
COA Audit Team Leader – ZCWD
Cabatangan Hills, Zamboanga City
Registry Receipt No. _______________

EXPLANATION

The foregoing Reply was served on Respondents and all other parties
furnished with copies thereof by registered mail instead of personal service
due to distance and geographical constraints.
Republic of the Philippines
SUPREME COURT
Manila
-oOo-

G.R. No. ________________

ZAMBOANGA CITY WATER DISTRICT

and its employees, represented by General
Manager LEONARDO REY D. VASQUEZ,
Petitioners,

-versus-
 21

THE HON. COMMISSION ON AUDIT,

Respondent.
x----------------------------------------------------------x

PETITION

COME NOW, Petitioners, thru the undersigned counsels and unto the
Honorable Court, most respectfully submit the foregoing Petition as follows:

NATURE OF THE PETITION

This is a Petition under Rule 64 in relation to Rule 65 of the Rules of

Court, for a review on writ of certiorari and to declare null and void, for
having been rendered with grave abuse of discretion amount to lack or
excess of jurisdiction, DECISION No. 2014-182 (a Certified True Copy of
which is hereto attached as ANNEX “A”), dated 28 August 2014, of
Respondent Commission on Audit, and its Resolution dated 09 March 2015
as contained in an En Banc Notice issued last 06 April 2015 and received by
Petitioners last 25 May 2015 (a Certified Copy of which is hereto attached
as ANNEX “B”), denying the Motion for Reconsideration filed by
Petitioners dated 29 September 2014, original copy of which is hereto
attached as ANNEX “C”.

THE PARTIES

Petitioner Zamboanga City Water District (ZCWD for brevity), is a

government owned and controlled corporation (GOCC) created pursuant to
and by virtue of Presidential Decree (PD) Number 198, otherwise known as
the Provincial Water Utilities Act of 1973. It is represented by its General
Manager, Leonardo Rey D. Vasquez as Head of the Agency as provided for
under the rules and pursuant to Board Resolution No. ________-2015,
(hereto attached as ANNEX “D”), and Secretary’s Certificate, hereto
attached as ANNEX “D-1”. Petitioners’ official address is ZCWD Bldg.,
Pilar Street, Zamboanga City, Philippines, where notices and other processes
of the Honorable Supreme Court may be served.

STATEMENT OF THE FACTS

The facts salient to the resolution of the issues in this case are as
follows:

On May 13, 2009, former President Gloria Macapagal-Arroyo issued

Memorandum Circular (MC) No. 174, s. 2009, which “Enjoined all
 22

Government Agencies, including Government –Owned and –Controlled

Corporations, State Universities and Colleges to Support the Philippine
Government Employees Association’s Public Sector Agenda.” A true and
faithful reproduction of MC No. 174, s. 2009 is hereto attached as ANNEX
“E”, and the pertinent portions of which are hereby quoted, to wit:

“MALACAÑANG
Manila

BY THE PRESIDENT OF THE PHILIPPINES

MEMORANDUM CIRCULAR No. 174

ENJOINING ALL GOVERNMENT AGENCIES,

INCLUDING GOVERNMENT OWNED AND
CONTROLLED CORPORATIONS, STATE
UNIVERSITIES AND COLLEGES TO SUPPORT
THE PHILIPPINE GOVERNMENT EMPLOYEES
ASSOCIATION’S PUBLIC SECTOR AGENDA

WHEREAS, the Government recognizes the important role

of government employees in nation building.

WHEREAS, it is necessary that the needs of government

employees, especially in the face of the present global
economic crisis, be addressed in a manner that will improve
and promote their social and economic welfare.

In view thereof, all government agencies, including

Government Owned and Controlled Corporations, State
Universities and Colleges are hereby enjoined to provide the
following to their employees:

 shuttle service
 financial subsidy and other needed support to make the
Botika ng Bayan more accessible to them
 scholarships programs for their children with siblings
 PX mart that sell affordable commodities and to ensure
theh implementation of this Circular.

IN WITNESS WHEREOF, I have hereunto set my hand

and caused the seal of the Republic of the Philippines to be
affixed thereto.

Done in the City of Manila, this 13th day of May, in the year
of Our Lord Two Thousand and Nine.
 23

[Signed]
Gloria M. Arroyo

By the President:

[Signed]
EDUARDO R. ERMITA
Executive Secretary”

On December 7, 2009, ZCWD Board of Directors passed Board

Resolution No. 206, Series of 2009. Pursuant to Memorandum Circular
(MC) No. 174, s. 2009 and the recent Board Resolution, Petitioners came up
with its Guidelines on the Grant of Financial Subsidy, allowing thereof
equivalent to one (1) month salary per employee. (certified true copies,
hereto attached as ANNEXES “F” to “F-3”). The funds therefor were
charged from Petitioner’s corporate funds.

Petitioners likewise sought the guidance of the Office of Government

Corporate Counsel, the Statutory Counsel of ZCWD.

On January 4, 2010, OGCC Legal Opinion dated 04 January 2010

(hereto attached as ANNEX “G”), was received by Petitioners the following
queries relative to the implementation of MC No. 174, s. 2009:

“1. Does Zamboanga City Water District (ZCWD) have

the power to prescribe the amount to be granted as financial
subsidy?

2. Are the benefits enumerated in Memorandum Circular

No. 174 in the nature of ‘de minimis’ benefits and/or can be
treated as such by ZCWD?

3. How often can ZCWD allow the grant of such subsidy

(monthly or annually)?”

The OGCC through Government Corporate Counsel Alberto C. Agra

responded, thus:

“Anent your first query, we answer in the affirmative.

The Memorandum Circular itself does not provide for the
amount of financial subsidy to be granted to the employees of
GOCCs concerned. The Department of Budget and
Management (DBM) has not issued a set of guidelines on the
implementation of the said Memorandum Circular. Hence,
considering that water districts generate their own income, it is
our view that the Board has sufficient discretion and authority
 24

to determine the amount of the financial subsidy that it will

grant through a board resolution, subject to the availability of
funds. It is noted though that the financial subsidy is intended
to support the Botika ng Bayan, and thus, would presumably be
for the purpose of purchasing medicies.

We likewise answer your second query in the affirmative.

Financial subsidies given pursuant to MC No. 174 may be
classified as ‘de minimis’ benefits which are not subject to
withholding tax on compensation pursuant to Section 2.78.1 (B)
(11) (b) of Revenue Regulation No. 2-98. These are being given
to address the needs of government employees in the midst of
the present global economic crisis, thus:

(11) Thirteenth (13th) month pay and other benefits. –

(c) Thirteenth (13th) month pay equivalent to the

mandatory one (1) month basic salary of officials and
employees of the government, (whether national or
local), including government owned or controlled
corporations, and or private offices received after the
twelfth (12th) month pay; and

(d) Other benefits such as Christmas bonus, productivity

incentive bonus, loyalty award, gifts in cash or in kind
and other benefits of similar nature actually
received by officials and employees of both
government and private offices.

(Emphasis supplied).

As to your third query, MC No. 174 is likewise silent as to

how often a GOCC may grant the financial subsidy. Hence,
unless the Office of the President or the DBM will issue
guidelines in the implementation thereof, it is our considered
view that there are no legal objections if ZCWD were to adopt
its own guidelines on the frequency of the grants, which, as
mentioned earlier, would be subject to availability of funds.

Please be guided accordingly.

Very truly yours,

[Signed]
ALBERTO C. AGRA
Government Corporate Counsel

Emphasis supplied.”
 25

On July 21, 2010, an Audit Observation Memorandum (AOM) No.

ZCWD-2010-05(09) was issued by Respondent’s Audit Team No. 4, Audit
Group C – Corporate Government Sector, COA Regional Office IX,
Zamboanga City, and received by Petitioner last 27 July 2010. It was
observed by Respondent that:

“We have audited the Zamboanga City Water District’s

Operation Expenses account and observed the following
deficiencies/errors:

A total of P5,127,523.00 financial subsidy was paid to

ZCWD employees which is not in accordance with Section 57
of the Republic Act (RA) No. 9524.

Section 57 of RA 9524, otherwise known as the General

Appropriations Act (GAA) of 2009, states that ‘No official or
employee of the national government, LGUs and GOCCs shall
be paid any personnel benefits charged against the
appropriations in this Act, other appropriations laws or income
of the government, unless specifically authorized by law. Grant
of personnel benefits authorized by law but not supported by
specific appropriations shall also be deemed unauthorized.

The payment of any unauthorized personnel benefit in

violation of this section shall be null and void. The erring
officials and employees shall be subject to disciplinary action
under the provisions of Section 43, Chapter 5 and Section 80,
Chapter 7, Book VI of E.O. No. 292, and to appropriate
criminal action under existing penal laws.’

Audit of disbursements showed that ZCWD granted one

(1) month basic salary or a total of P5,127,523.00 as financial
subsidy to its employees irrespective of their appointments,
whether permanent, casual, temporary or contractual who have
rendered at least a total or an aggregate of four (4) months
including leaves of absences with pay per Board Resolution No.
206, Series of 2009.

Further examination revealed that the basis of such

payment was Memorandum Circular (MC No. 174 from the
Office of the President entitled ‘Enjoining All Government
Agencies, Including Government Owned and Controlled
Corporations, State Universities and Colleges to Support the
Philippine Government Employees Association’s Public Sector
Agenda’ dated May 13, 2009.
 26

Paragraph 3 of MC No. 174 states that ‘In view thereof,

all government agencies, including Government Owned and
Controlled Corporations, State Universities and Colleges are
hereby enjoined to provide the following to their employees:

 Shuttle service
 Financial subsidy and other needed support to make the
Botica ng Bayan more accessible to them
 Scholarships programs for their children with siblings
 PX mart that sell affordable commodities and the
provision of its seed fund

MC No. 174 particularly item no. 2 of the above paragraph

cannot be used as the legal basis for the payment of such
benefit since the ‘financial subsidy’ meant monetary
assistance to the Botica ng Bayan and not to the employees of
the agency. The MC did not specifically mention that
financial assistance shall be given to the employees. The
phrase ‘financial subsidy’ should not be taken out of context.

We therefore recommend that ZCWD employees should

refund the amount representing financial subsidy and
Management should refrain from paying benefits unless
expressly authorized by law.

May we have your comments on the foregoing audit

observations within five (5) calendar days from receipt hereof.

ELVIRA B. VILLANUEVA
Audit Team Leader

ESTRELLA B. AVILA
Supervising Auditor”

On October 14, 2010, ZCWD received Respondent’s Notice of

Disallowance (ND) No. 10-127(09) dated 07 September 2010, certified copy
of which is hereto attached as ANNEX “H”, effectively disallowing the
grant of financial subsidy to Petitioner’s employees, in the total amount of
Php5,127,523.00. Portions of said ND No. 10-127(09) are hereinafter
quoted, to wit:

“We have audited the Financial Subsidy Account in the

amount of P5,127,523.00 covered by the following reference
documents and particulars:

Check/DV/JV/N Date Amount Payee

 27

o.
JV No. 2009- 12-09- P5,127,523 Rolando M. Pantaleon,
12-018 2009 .00 et. al

The amount of P5,127,523.00 was disallowed in audit

because Section 57 of RA 9524, otherwise known as the
General Appropriations Act (GAA) of 2009, states that ‘No
official or employee of the national government, LGUs, and
GOCCs, shall be paid any personnel benefits charged against
the appropriations in this Act, other appropriations laws or
income of the government, unless specifically authorized by
law. Grant of personnel benefits authorized by law but not
supported by specific appropriations shall also be deemed
unauthorized.”

An Appeal Memorandum was filed by Petitioner last 11 January

2011, true and faithful reproduction of which is hereto attached as ANNEX
“I”. This was denied by Respondent’s Regional Office No. 09 in its
Decision dated 06 February 2012, original copy of which is hereto attached
as ANNEX “J”.

Petitioners filed before the Commission on Audit Proper a Petition for

Review dated 24 June 2012. The Petition was denied by Respondents in its
assailed Decision No. 2014-182 dated 28 August 2014, Certified True Copy
of which is already attached as ANNEX “A” above. From said denial,
Petitioners filed a Motion for Reconsideration dated 29 September 2014,
Original Copy of which is already attached as ANNEX “C” above. The
same was denied by Respondents by way of ONE PAGE NOTICE,
Certified Copy of which is already attached as ANNEX “B” above, and the
substantial portion of which states:

“NOTICE
Sirs/Mesdames:

Please take notice that the Commission Proper (CP) en

banc issued a resolution on March 9, 2015, which reads as
follows:

COA CP Case No. 2012-102 – MOTION FOR

RECONSIDERATION OF ZAMBOANGA CITY WATER
DISTRICT (ZCWD), THROUGH COUNSEL, OF
COMMISSION ON AUDIT (COA) DECISION NO. 2014-182,
DATED AUGUST 28, 2014, AFFIRMING COA REGIONAL
OFFICE NO. IX DECISION NO. 2012-12 DATED FEBRUARY
6, 2012 AND NOTICE OF DISALLOWANCE (ND) NO. 10-
127(09) DATED SEPTEMBER 7, 2010 ON THE PAYMENT
 28

OF FINANCIAL SUBSIDY TO THE ZCWD’S OFFICIALS

AND EMPLOYEES IN THE TOTAL AMOUNT OF
P5,127,523.00.

‘The CP denied the motion for reconsideration for failure to

raise new matter or show sufficient ground to justify
reconsideration of the assailed Decision.’
Very truly yours

[SIGNED]
NILDA B. PLARAS
Director IV
Commission Secretary”
Hence this PETITION.

TIMELINESS

Pursuant to Section 3 Rule 64 of the Rules of Court, Petitioners have

thirty (30) days from Notice of the judgment or final order or resolution
sought to be reviewed. Respondent’s undated Notice as quoted above was
received by Petitioners last 25 May 2015, hence they have until 24 June
2015 to file the instant Petition.

Hence, this Petition is filed ON TIME.

GROUNDS FOR THE PETITION

Petitioner respectfully submits, that in rendering the assailed Decision

No. 2014-182 dated 28 August 2014, Respondent committed grave abuse of
discretion amounting to lack or excess of jurisdiction, as follows:

5. In affirming ND No. 10-127(09) dated 07 September 2012,

concerning the payment of financial subsidy to Petitioners’
officials and employees, in the amount of Php5,127,523.00, by
holding that Memorandum Circular (MC) No. 174 s. 2009 does not
authorize direct payment of financial subsidy to government
employees, despite the clear mandate of the same MC No. 174 s.
2009, which in fact enjoins all government agencies including
government –owned and –controlled corporations such as herein
Petitioner, to provide certain benefits to its employees;

6. In holding that the financial subsidy contemplated in MC No. 174

s. 2009 should be directly paid to the Botika ng Bayan which is a
chain of pharmaceutical outlets owned by a private entity, and thus
in clear violation of Section 4 of PD 1445 which establishes the
fundamental principle that government funds or property shall be
spent or used solely for public purposes;
 29

7. In holding that MC No. 174 s. 2009 does not intend to authorize

direct payment of financial subsidy to government employees and
the Board Resolution issued pursuant thereto has no legal basis,
despite the opinion of the Office of the Government Corporate
Counsel (OGCC), that the Board has sufficient discretion and
authority to determine the amount of the financial subsidy that it
will grant through a board resolution;

8. In denying Petitioner’s Motion for Reconsideration by way of a

ONE-PAGE NOTICE, which does not exhaustively resolve the
merits presented by Petitioner and which parenthetically violates
the constitutional provision that Decisions rendered must clearly
and distinctly state the facts and the law on which it is based;
ARGUMENTS AND DISCUSSIONS

FIRST GROUND: In affirming ND No. 10-

127(09) dated 07 September 2012,
concerning the payment of financial subsidy
to Petitioners’ officials and employees, in
the amount of Php5,127,523.00, by holding
that Memorandum Circular (MC) No. 174 s.
2009 does not authorize direct payment of
financial subsidy to government employees,
despite the clear mandate of the same MC
No. 174 s. 2009, which in fact enjoins all
government agencies including government
–owned and –controlled corporations such
as herein Petitioner, to provide certain
benefits to its employees.

In affirming ND No. 10-127(09) dated 07 September 2012,

concerning the payment of financial subsidy to Petitioners’ officials and
employees, in the amount of Php5,127,523.00, Respondent commission held
that Memorandum Circular (MC) No. 174 s. 2009 does not authorize direct
payment of financial subsidy to government employees. This is because,
according to Respondent Commission, the term “financial subsidy” referred
to in MC No. 174 meant “financial subsidy” to be paid directly to the Botika
ng Bayan and not to the ZCWD employees.

Such interpretation is a total disregard and in violation of Section 41

of Presidential Decree No. 198 as amended, states that:

The income of the District shall be disposed of according to the

following priorities:
 30

First, to pay its contractual obligation and statutory

obligation and to meet its essential current operating
expenses.

Second, to allocate at least fifty percent (50%) of the

balance exclusively as reserve for debt service and
operating and maintenance to be used for such purposes
only during periods of calamities, force majeure or
unforeseen events;

Third, to allocate the residue as a reserve exclusively

for the expansion an improvement of physical facilities.

Further, it is respectfully submitted however that the Commission

Proper’s ruling is misplaced, as it runs contrary to the clear meaning and
intention of the pertinent provisions of the subject Memorandum Circular.
The conception that the monetary assistance shall be given directly to the
Botika ng Bayan is nowhere to be found in the MC No. 174, s. 2009. The
third paragraph thereof states:

“x-x-x

In view thereof, all government agencies, including all

Government Owned or Controlled Corporations, State
Universities and Colleges are hereby enjoined to provide the
following to their emmployees:

 Shuttle service
 Financial subsidy and other needed support to make the
Botika ng Bayan more accessible to them.x-x-x”

Emphasis supplied.

Furthermore, this notion advanced by Respondent which relies on the

interpretation of the Respondent’s COA Region IX Audit Team Leader runs
contrary to the plain-meaning rule or principle of verbal legis in statutory
construction, that if a statute is clear, plain and free from ambiguity, it must
be given its literal meaning and applied without need of further
interpretation9. Verba legis non est recedendum, or from the words of a
statute there should be no departure.10

The wordings of MC No. 174, s. 2009 are clear – all government

agencies including GOCCs such as herein Petitioner, are enjoined to
9
Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 15, 2005, 456 SCRA
414, 443; National Federation of Labor v. National Labor Relations Commission, 383 Phil. 910, 918 (2000)

10
Enjay, Inc. v. National Labor Relations Commission, 315 Phil. 648, 656 (1995); Globe-Mackay Cable and Radio
Corporation v. National Labor Relations Commission, G.R. No. 82511, March 3, 1992, 206 SCRA 701, 711
 31

provide financial subsidy to their employees. There is no need to depart from

its plain and literal language, or worse, come up with a strange interpretation
such as that advanced by Respondent’s COA Region IX Audit Team Leader.

SECOND GROUND: In holding that the

financial subsidy contemplated in MC No.
174 s. 2009 should be directly paid to the
Botika ng Bayan which is a chain of
pharmaceutical outlets, and thus in clear
violation of the Section 4 of PD 1445, which
sets the fundamental principle that
government funds or property shall be spent
or used solely for public purposes.

As Respondent Commission Proper would have it, Petitioner ZCWD

should directly pay the financial subsidy to the Botika ng Bayan. We submit
that such interpretation initially advanced by Respondent’s COA Region IX
Audit Team Leader and relied upon by Respondents in promulgating its
assailed Decision, will violate Section 4 of PD 1445, which states:

“Section 4. Fundamental principles. Financial transactions

and operations of any government agency shall be governed by
the fundamental principles set forth hereunder, to wit:

3. No money shall be paid out of any public treasury or

depository except in pursuance of an appropriation law or
other specific statutory authority.

4. Government funds or property shall be spent or used solely

for public funds. x-x-x”

Emphasis supplied.

In the case of Ramon R. Yap vs. Commission on Audit 11, the Supreme
Court had the opportunity to discuss the meaning of public purpose as
contemplated in Section 4 of PD No. 1445, thus:

“x-x-x

To summarize, any disbursement of public funds, which

includes payment of salaries and benefits to government
employees and officials, must (a) be authorized by law, and (b)
serve a public purpose.

11
G.R. No. 158562, 23 April 2010
 32

In this regard, it is necessary for this Court to elaborate on

the nature and meaning of the term public purpose, in relation
to disbursement of public funds. As understood in the
traditional sense, public purpose or public use means any
purpose or use directly available to the general public as a
matter of right. Thus, it has also been defined as an activity as
will serve as benefit to [the] community as a body and which at
the same time is directly related function of government. 12
However, the concept of public use is not limited to traditional
purposes. Here as elsewhere, the idea that public use is strictly
limited to clear cases of use by the public has been discarded. 13
In fact, this Court has already categorically stated that the term
public purpose is not defined, since it is an elastic concept that
can be hammered to fit modern standards. It should be given a
broad interpretation; therefore, it does not only pertain to
those purposes that which are traditionally viewed as
essentially government functions, such as building roads and
delivery of basic services, but also includes those purposes
designed to promote social justice. Thus, public money may
now be used for the relocation of illegal settlers, low-cost
housing and urban or agrarian reform.14 In short, public use is
now equated with public interest15, and that it is not
unconstitutional merely because it incidentally benefits a
limited number of persons16”.

Emphasis supplied.

The Whereas clauses of MC No. 174 s. 2009 have thus precisely laid
the raison d'être for the grant of the financial subsidy, thus:

“x-x-x

WHEREAS, the Government recognizes the

important role of government employees in nation
building.

WHEREAS, it is necessary that the needs of

government employees, especially in the face of the
12
Blacks Law Dictionary, p. 1231, (6th ed., 1990), citing Pack v. Southern Bell Tel. & Tel. Co., 215 Tenn. 503, 387
S.W. 2d 789, 794

13
Heirs of Juancho Ardona v. Reyes, Nos. L-60549, 60553-60555, October 26, 1983, 125 SCRA 220, 223

14
Planters Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, March 14, 2008, 548 SCRA 485, 510-511

15
Bengzon v. Drilon, G.R. No. 103524, April 15, 1992, 208 SCRA 133, 155

16
Binay v. Domingo, G.R. No. 92389, September 11, 1991, 201 SCRA 508, 516
 33

present global economic crisis, be addressed in a

manner that will improve and promote their social and
economic welfare. x-x-x”

It is submitted that the public purpose requirement for the

disbursement of public funds have squarely been met, owing to the noble
purpose for which MC 174 s. 2009 has been issued. It mandates government
agencies such as herein Petitioner ZCWD to grant certain benefits to
government employees, in recognition of their important role in nation
building, and to address the present global economic crisis in order to
improve and promote their social and economic welfare. Petitioners cannot
be faulted for simply having implemented a mandatory Presidential directive
in the furtherance of a public purpose, as every well stated in the MC itself.

Moreover, the Botika ng Bayan is a chain of pharmaceutical outlets

controlled by PITC-Pharma, Inc., which albeit being a government –owned
and –controlled corporation, is operating as a profit-making institution
pursuant to its functions under Republic Act No. 9502 otherwise known as
the Universally Accessible Cheaper and Quality Medicines Act of 2008, and
its IRR. Besides, PITC-Pharma, Inc. is in fact: 1) registered with the
Securities and Exchange Commission; 2) operating with an authorized
capital of Php 100,000,000.00; 3) engaged in the procurement, sourcing and
marketing of quality essential and low-priced medicines.

Stated differently, Respondent’s interpretation will effectively defeat

the purpose for which MC No. 174, s. 2009 has been issued, because there is
no guarantee that government employees will be able to buy cheap
medicines from the Botika ng Bayan if the latter will be granted the financial
subsidy through PITC-Pharma, Inc. This may in fact negate the intent of the
President in issuing MC No. 174, which mandates provision of the financial
subsidy to government employees so that they may have easier access to the
amenities and/or products of the Botika ng Bayan.

THIRD GROUND: In holding that MC No.

174 s. 2009 does not intend to authorize
direct payment of financial subsidy to
government employees and the Board
Resolution issued pursuant thereto has no
legal basis, despite the opinion of the Office
of the Government Corporate Counsel
(OGCC), that the Board has sufficient
discretion and authority to determine the
amount of the financial subsidy that it will
grant through a board resolution.
 34

In a long line of cases, the Honorable Court has excused from liability
recipients of amounts which were disallowed in audit, such as: Nazareth v.
COA, et. al., G.R. No. 188635, 29 January 2013 where it was held that:
“Nevertheless, our pronouncement in Blaquera v. Alcala supports
petitioners’ position on the refund of the benefits they received. In Blaquera,
the officials and employees of several government departments and agencies
were paid incentive benefits which the COA disallowed on the ground that
Administrative Order No. 29 dated 19 January 1993 prohibited payment of
these benefits. While the court sustained the COA on the disallowance, it
nevertheless declared that: ‘Considering however, that all the parties here
acted in good faith, we cannot countenance the refund of subject incentive
benefits for the year 1992, which amounts the petitioners have already
received. Indeed, no indicia of bad faith can be detected under the attendant
facts and circumstances. The officials and chiefs of offices concerned
disbursed such incentive benefits in the honest belief that the amounts given
were due to the recipients and the latter accepted the same with gratitude,
confident that they richly deserve such benefits.”

In Veloso, et. al., v. COA, G.R. No. 193677, 06 September 2011 – it

was held that: “However, in line with existing jurisprudence, we need not
require the refund of the disallowed amount because all the parties acted in
good faith. In this case, the questioned disbursement was made pursuant to
an ordinance enacted as early as December 7, 2000 although deemed
approved only on August 22, 2002. The city officials disbursed the
retirement and gratuity pay remuneration in the honest belief that the
amounts given were due to the recipients and the latter acceptance the same
with gratitude, confident that they richly deserve such reward.”

In Querubin, et. al., v. Regional Cluster Director, LAO-COA RO-

VI, G.R. No. 159299, 07 July 2004, it was held that “Accordingly, the
Court sustains the disallowance of the monetary benefits granted to
petitioners Members of the Board of the BCWD in accordance with LWUA
Resolution No. 313, series of 1995. Having been granted said allowances
and bonuses in 1999, before the Court declared in Baybay Water District
the illegality of payment of additional compensation other than the allowed
per diem in Section 13, of PD 198, as amended, they can thus be considered
to have received the same in good faith. Hence, they need not refund them.”

In Abanilla, et. al., v. COA, et. al., G.R. No. 142347, 25 August
2007, it was held that “While we sustain the disallowance of the above
benefits by respondent COA, however, we find that the MCWD affected
personnel who received the above mentioned benefits and privileges acted
in good faith under the honest belief that the CBA authorized such payment.
Consequently, they need not refund them.

And in De Jesus, et. al., v. COA, G.R. No. 149154, 10 June 2003, it
was similarly held that “This ruling in Blaquera applies to the instant case.
 35

Petitioners here received the additional allowances and bonuses in good

faith under the honest belief that LWUA Board Resolution No. 313
authorized such payment. At the time petitioners received the additional
allowances and bonuses, the Court had not yet decided Baybay Water
District. Petitioners had no knowledge that such payment was without legal
basis. Thus, being in good faith, petitioners need not refund the allowances
and bonuses they received but disallowed by the COA.”

In holding that MC No. 174 s. 2009 does not intend to authorize direct
payment of financial subsidy to government employees and the Board
Resolution issued pursuant thereto has no legal basis, Respondent miserably
failed to consider the opinion of the Office of the Government Corporate
Counsel (OGCC) that the Board has sufficient discretion and authority to
determine the amount of the financial subsidy that it will grant through a
board resolution.

As opined by the OGCC, “local water districts generate their own

income so that the Board [of a local water district] has sufficient discretion
and authority to determine the amount of the financial subsidy that it will
grant through a board resolution, subject to the availability of funds” (p. 2 of
ANNEX “F” above). It further opined that “there are no legal objections if
ZCWD were to adopt its own guidelines on the frequency of the grants,
which, as mentioned earlier, would be subject to availability of funds.”

Once again, Petitioners cannot be faulted for relying on

Memorandum Circular (MC) No. 174, s. 2009 and the subsequent legal
opinion issued by no less than the statutory counsel of all government –
owned and –controlled corporations of the Republic of the Philipines.

Additionally, it is to be emphasized that local water districts do not

derive any funding from the national government to sustain its operations.
Being a GOCC endowed with corporate powers under Section 25 of PD 198
as amended, Petitioner is authorized through its Board of Directors to grant
benefits to its employees, as may be authorized by law or regulation. MC
174, s. 2009 provides ample legal basis for the grant of financial subsidy to
employees, otherwise similar executive issuance of this nature can simply be
brushed aside as inutile government will be unable to provide for the
economic and general well-being of its own workers.

The foregoing arguments notwithstanding, Petitioners’ pray that they

be relieved from refunding the amount involved in Respondent’s ND No.
10-127 (09), by reason of the fact that the subject disbursement was made,
and the amount involved was received in the honest belief that the
transaction was valid and in accordance with law.
 36

The GOOD FAITH of Petitioners can be shown in the following

circumstances attending the instant case such as relying on the presumption
that Memorandum Circular (MC) No. 174, s. 2009 as a valid law and have
the force and effect of a law; and the rudiments of the laws are so deep that
Petitioner as ordinary employees sought the guidance from legal experts, the
Office of the Government Corporate Counsel who assured them that there
will be no legal impediment for the grant of the financial subsidy.

All told, Petitioners believed that they should not be required to

refund should the High Court exercises it exclusive powers to interpret the
subject memorandum Circular. Good faith is not an empty doctrine in
Philippine jurisprudence and can be clearly applied to herein Petitioners.

GOVERNMENT INSTITUTION EXERCISING

QUASI-JUDICIAL FUNCTIONS SHALL
RENDER DECISIONS CLEARLY, DISTINCTLY
STATE THE FACTS AND THE LAW ON WHICH
IT IS BASED;

Respondents have shown its arrogance in the exercise of its quasi-

judicial function by merely resolving issues of extreme importance by just a
ONE-PAGE NOTICE, which does not exhaustively resolve the merits
presented by Petitioner and which parenthetically violates the constitutional
provision that Decisions rendered must clearly and distinctly state the facts
and the law on which it is based.

PRAYER

WHEREFORE, in view of the foregoing considerations, and in the

interest of equity and justice, it is most respectfully prayed of the Honorable
Supreme Court:

4. To declare NULL and VOID Respondent Commission on Audit’s

Decision No. 2014-182 dated 28 August 2014, and its Resolution
dated 09 March 2015 in relation to COA CP Case No. 2012-102, for
having been issued with grave abuse of discretion amounting to lack
or excess of jurisdiction; and

5. To LIFT Notice of Disallowance (ND) No. 10-127(09) dated 07

September 2010 on the payment of financial subsidy to ZCWD’s
employees in the total amount of Php5,127,523.00;

6. In the alternative, to declare that the recipients of the disallowed

amounts be all excused from liability for having received the same IN
GOOD FAITH.
 37

Such other relief and remedies warranted under the premises are likewise
prayed for.

11th day of June 2015, in the City of Zamboanga, for the City of Manila,
Philippines.

ATTY. LOVELL C. ABAD

Lead Counsel for Petitioner
PTR No.1008854/January 15, 2015, Z.C.
Lifetime IBP No. 703682/June 5, 2007, IBP Roll No. 48879
MCLE Compliance No.IV 0021162 on July8, 2013
ZCWD Bldg., Pilar Street
Zamboanga City

Contact details:
+63 916 477 5551
lovellabadLMSD@gmail.com

ATTY. MARK ALLEN M. PAREDES

Co-counsel for Petitioner
PTR No.1008853; 01/15/15; Z.C.
IBP No. 897360; 01/09/15; Roll of Attorneys No.: 57733
MCLE Compliance No. IV-0000369
MCLE Compliance No. V-0002092
2/F Legal Department, ZCWD Bldg.
Pilar Street, Zamboanga City

Contact details:
+63917 322 5382
mam.paredes@zcwd.gov.ph
 38

REPUBLIC OF THE PHILIPPINES)

CITY OF ZAMBOANGA)S.S.
x---------------------------------------------x

VERIFICATION AND CERTIFICATION OF NON-FORUM

SHOPPING

I, LEONARDO REY D. VASQUEZ, Filipino, of legal age, married,

and a resident of Canelar Moret, Zamboanga City, after having been duly
sworn to in accordance with law, under oath hereby DEPOSE and STATE:

6. That I am the Petitioner in the above-entitled case;

7. That I have caused the preparation of the foregoing Petition and have
read and understood the allegations contained therein and the same
are true and correct of my own personal knowledge or based on
authentic records;

8. That I have not commenced any other action or proceeding involving

the same issues in the Supreme Court, The Court of Appeals, or
different Divisions thereof or any other tribunal or agency;

9. That to the best of my knowledge, no such action or proceeding is

pending in the Supreme Court, the Court of Appeals, or different
Divisions thereof or any other tribunal or agency;

10.That if I should learn that another similar action or proceeding has

been filed or is pending before the Supreme Court, the Court of
Appeals or different Divisions thereof or any other tribunal or
agency, I shall notify the court within five (5) days from such notice.

City of Zamboanga, for Manila, Philippines, 11 June 2015.

LEONARDO REY D. VASQUEZ

Petitioner

SUBSCRIBED and SWORN to before me this 11th day of June 2015 in

the City of Zamboanga, Philippines. Leonardo Rey D. Vasquez exhibited
competent evidence of identity in the form of his ZCWD Identification Card
bearing ID No. ______________.

Doc. No.
Page No.
Book No.
Series of 2015
 39

COPY FURNISHED:

6. COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City
Philippines
Registry Receipt No. _______________

7. OFFICE OF THE SOLICITOR GENERAL

134 Amorsolo St. Legaspi Village
Makati City, Philippines
Registry Receipt No. _______________

8. OFFICE OF THE GOVERNMENT CORPORATE COUNSEL

MWSS Building, Balara Quezon City
Philippines
Registry Receipt No. _______________

9. COA REGIONAL OFFICE No. IX

Cabatangan Hills, Zamboanga City
Registry Receipt No. _______________

10.Ms. ANABELLA UY
COA Audit Team Leader – ZCWD
Cabatangan Hills, Zamboanga City
Registry Receipt No. _______________

EXPLANATION

The foregoing Reply was served on Respondents and all other parties
furnished with copies thereof by registered mail instead of personal service
due to distance and geographical constraints.