532 SUPREME COURT REPORTS ANNOTATED

Government Service Insurance System vs. Commission

on Audit

*
G.R. No. 138381. November 10, 2004.

GOVERNMENT SERVICE INSURANCE SYSTEM,

petitioner, vs. COMMISSION ON AUDIT, respondent.
*
G.R. No. 141625. November 10, 2004.

GOVERNMENT SERVICE INSURANCE SYSTEM,

petitioner, vs. ALFREDO D. PINEDA, DANIEL GO,
FELINO BULANDUS, FELICIMO J. FERRARIS, JR.,
BEN HUR PORLUCAS, LUIS HIPONIA, MARIA
LUISA A. FERNANDEZ, VICTORINA JOVEN,
CORAZON S. ALIWANAG, SILVER L. MARTINES,
SR., RENATO PEREZ, LOLITA CAYLAN, DOUGLAS
VALLEJO and LETICIA ALMAZAN, on their own
behalf and on behalf of all GSIS retirees with all of
whom they share a common and general interest,
respondents.

Administrative Law; Doctrine of Primary Jurisdiction; The

doctrine of primary jurisdiction ordinarily precludes the
Supreme Court from resolving a matter which calls for a ruling
to be first made by the GSIS Board of Trustees, which Board is
vested by law with exclusive and original jurisdiction to settle
any dispute arising under RA 8291, as well as other matters
related thereto.—The only matter that was properly elevated to
this Court was the issue of whether or not the Board had
jurisdiction over respondents’ demands. We did not resolve the
issue of whether or not the deductions were valid under
Section 39 of RA 8291, for the simple reason that the Board, as
well

_______________

* EN BANC.

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as the appellate court, did not tackle the issue. The doctrine of
primary jurisdiction would ordinarily preclude us from
resolving the matter, which calls for a ruling to be first made
by the Board. It is the latter that is vested by law with
exclusive and original jurisdiction to settle any dispute arising
under RA 8291, as well as other matters related thereto.
Actions; Remand of Cases; The remand of a case is not
necessary where the court is in a position to resolve the dispute
based on the records before it—the Court will decide actions on
the merits in order to expedite the settlement of a controversy
and if the ends of justice would not be subserved by a remand
of the case.—Under certain exceptional circumstances, we have
taken cognizance of questions of law even in the absence of an
initial determination by a lower court or administrative body.
In China Banking Corporation v. Court of Appeals, the Court
held: At the outset, the Court’s attention is drawn to the fact
that since the filing of this suit before the trial court, none of
the substantial issues have been resolved. To avoid and gloss
over the issues raised by the parties, as what the trial court
and respondent Court of Appeals did, would unduly prolong
this litigation involving a rather simple case of foreclosure of
mortgage. Undoubtedly, this will run counter to the avowed
purpose of the rules, i.e., to assist the parties in obtaining just,
speedy and inexpensive determination of every action or
proceeding. The Court, therefore, feels that the central issues of
the case, albeit unresolved by the courts below, should now be
settled specially as they involved pure questions of law.
Furthermore, the pleadings of the respective parties on file
have amply ventilated their various positions and arguments
on the matter necessitating prompt adjudication. In Roman
Catholic Archbishop of Manila v. Court of Appeals, the Court
likewise held that the remand of a case is not necessary where
the court is in a position to resolve the dispute based on the
records before it. The Court will decide actions on the merits in
order to expedite the settlement of a controversy and if the
ends of justice would not be subserved by a remand of the case.
Administrative Law; Law on Public Officers; Retirement
Benefits; Statutory Construction; Verba Legis; Retirement
benefits cannot be diminished by COA disallowances in view of
the clear mandate of Sec. 39 of RA 8291; Under the plain
meaning rule, or verba legis, if a statute is clear, plain and free
from ambiguity, it must be given its

534

534 SUPREME COURT REPORTS ANNOTATED

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literal meaning and applied without interpretation.—The last

paragraph of Section 39, RA 8291 specifically provides: SEC.
39. Exemption from Tax, Legal Process and Lien.—x x x x x x x
x x The funds and/or the properties referred to herein as well
as the benefits, sums or monies corresponding to the benefits
under this Act shall be exempt from attachment, garnishment,
execution, levy or other processes issued by the courts, quasi-
judicial agencies or administrative bodies including
Commission on Audit (COA) disallowances and from all
financial obligations of the members, including his pecuniary
accountability arising from or caused or occasioned by his
exercise or performance of his official functions or duties, or
incurred relative to or in connection with his position or work
except when his monetary liability, contractual or otherwise, is
in favor of the GSIS. It is clear from the above provision that
COA disallowances cannot be deducted from benefits under
RA 8291, as the same are explicitly made exempt by law from
such deductions. Retirement benefits cannot be diminished by
COA disallowances in view of the clear mandate of the
foregoing provision. It is a basic rule in statutory construction
that if a statute is clear, plain and free from ambiguity, it
must be given its literal meaning and applied without
interpretation. This is what is known as plain-meaning rule or
verba legis.
Same; Same; Same; Same; Same; A meaning that does not
appear nor is intended or reflected in the very language of the
statute cannot be placed therein by construction.—The GSIS’
interpretation of Section 39 that COA disallowances have
become monetary liabilities of respondents to the GSIS and
therefore fall under the exception stated in the law is wrong.
No interpretation of the said provision is necessary given the
clear language of the statute. A meaning that does not appear
nor is intended or reflected in the very language of the statute
cannot be placed therein by construction.
Same; Same; Same; That retirement pay accruing to a
public officer may not be withheld and applied to his
indebtedness to the government has been settled in several
cases.—That retirement pay accruing to a public officer may
not be withheld and applied to his indebtedness to the
government has been settled in several cases. In Cruz v.
Tantuico, Jr., the Court, citing Hunt v. Hernandez, explained
the reason for such policy thus: x x x we are of the opinion that
the exemption should be liberally construed in favor of the
pensioner. Pension in this case is a bounty flowing from the
graciousness of the

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Government intended to reward past services and, at the same
time, to provide the pensioner with the means with which to
support himself and his family. Unless otherwise clearly
provided, the pension should inure wholly to the benefit of the
pensioner. It is true that the withholding and application of the
amount involved was had under section 624 of the
Administrative Code and not by any judicial process, but if the
gratuity could not be attached or levied upon execution in view
of the prohibition of section 3 of Act No. 4051, the
appropriation thereof by administrative action, if allowed,
would lead to the same prohibited result and enable the
respondents to do indirectly what they can not do directly
under section 3 of Act No. 4051. Act No. 4051 is a later statute
having been approved on February 21, 1933, whereas the
Administrative Code of 1917 which embodies section 624
relied upon by the respondents was approved on March 10 of
that year. Considering section 3 of Act No. 4051 as an
exception to the general authority granted in section 624 of the
Administrative Code, antagonism between the two provisions
is avoided. (Italics supplied)
Same; Same; Same; The latest GSIS enactment, RA 8291,
aside from exempting benefits from judicial processes, likewise
unconditionally exempts benefits from quasi-judicial and
administrative processes, including COA disallowances, as
well as all financial obligations of the member.—The law
which established the GSIS, Commonwealth Act No. 186 (“CA
No. 186”), went further by providing as follows: SEC. 23.
Exemptions from legal process and liens.—No policy of life
insurance issued under this Act, or the proceeds thereof, except
those corresponding to the annual premium thereon in excess
of five hundred pesos per annum, when paid to any member
thereunder, shall be liable to attachment, garnishment, or
other process, or to be seized, taken, appropriated, or applied
by any legal or equitable process or operation of law to pay any
debt or liability of such member, or his beneficiary, or any
other person who may have a right thereunder, either before
or after payment; nor shall the proceeds thereof, when not
made payable to a named beneficiary, constitute a part of the
estate of the member for payment of his debt. Presidential
Decree No. 1146, which amended CA No. 186, likewise
contained a provision exempting benefits from attachment,
garnishment, levy or other processes. However, the exemption
was expressly made inapplicable to “obligations of the member
to the System, or to the employer, or when the benefits
granted are assigned by the

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member with the authority of the System.” The latest GSIS

enactment, RA 8291, provides for a more detailed and wider
range of exemptions under Section 39. Aside from exempting
benefits from judicial processes, it likewise unconditionally
exempts benefits from quasi-judicial and administrative
processes, including COA disallowances, as well as all
financial obligations of the member. The latter includes any
pecuniary accountability of the member which arose out of the
exercise or performance of his official functions or duties or
incurred relative to his position or work. The only exception to
such pecuniary accountability is when the same is in favor of
the GSIS.
Same; Same; Same; Words and Phrases; “Monetary
liability in favor of GSIS” refers to indebtedness of the member
to the System other than those which fall under the categories
of pecuniary accountabilities exempted under the law, such as
unpaid social insurance premiums and balances on loans
obtained by the retiree from the System, which do not arise in
the performance of his duties and are not incurred relative to
his work.—“Monetary liability in favor of GSIS” refers to
indebtedness of the member to the System other than those
which fall under the categories of pecuniary accountabilities
exempted under the law. Such liability may include unpaid
social insurance premiums and balances on loans obtained by
the retiree from the System, which do not arise in the
performance of his duties and are not incurred relative to his
work. The general policy, as reflected in our retirement laws
and jurisprudence, is to exempt benefits from all legal
processes or liens, but not from outstanding obligations of the
member to the System. This is to ensure maintenance of the
GSIS’ fund reserves in order to guarantee fulfillment of all its
obligations under RA 8291.
Same; Same; Same; Unjust Enrichment; Solutio Indebiti;
Anent the benefits which were improperly disallowed by COA,
the same rightfully belong to the retirees without qualification
but for those which were justifiably disallowed, the same were
erroneously granted to and received by said retirees who now
have the obligation to return the same to the System.—We find
it necessary to nonetheless differentiate between those
benefits which were properly disallowed by the COA and those
which were not. Anent the benefits which were improperly
disallowed, the same rightfully belong to respondents without
qualification. As for benefits which were justifiably disal-

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lowed by the COA, the same were erroneously granted to and

received by respondents who now have the obligation to return
the same to the System. It cannot be denied that respondents
were recipients of benefits that were properly disallowed by
the COA. These COA disallowances would otherwise have
been deducted from their salaries, were it not for the fact that
respondents retired before such deductions could be effected.
The GSIS can no longer recover these amounts by any
administrative means due to the specific exemption of
retirement benefits from COA disallowances. Respondents
resultantly retained benefits to which they were not legally
entitled which, in turn, gave rise to an obligation on their part
to return the amounts under the principle of solutio indebiti.
Under Article 2154 of the Civil Code, if something is received
and unduly delivered through mistake when there is no right
to demand it, the obligation to return the thing arises.
Payment by reason of mistake in the construction or
application of a doubtful or difficult question of law also comes
within the scope of solutio indebiti.
Same; Same; Same; Actions; Judgments; The GSIS can
seek restoration of the amounts erroneously granted to and
received by the employees who have already retired by means of
a proper court action for their recovery, which may be enforced
against the retirees’ assets and properties other than their
retirement benefits.—While the GSIS cannot directly proceed
against respondents’ retirement benefits, it can nonetheless
seek restoration of the amounts by means of a proper court
action for its recovery. Respondents themselves submit that
this should be the case, although any judgment rendered
therein cannot be enforced against retirement benefits due to
the exemption provided in Section 39 of RA 8291. However,
there is no prohibition against enforcing a final monetary
judgment against respondents’ other assets and properties.
This is only fair and consistent with basic principles of due
process.

SPECIAL CIVIL ACTION in the Supreme Court.

Certiorari.

The facts are stated in the resolution of the Court.

          The Officer-in-Charge, Office of the Senior Vice
President for petitioner.
538

538 SUPREME COURT REPORTS ANNOTATED

Government Service Insurance System vs. Commission
on Audit

          Agustin S. Sundiam for respondents in G.R. No.

141625.
          Sanchez, Mercado & Melchor Law Firm for
movant-intervenor.
RESOLUTION

YNARES-SANTIAGO, J.:

On April 16, 2002, the Court promulgated a decision on

these two consolidated cases partially granting the
petition in G.R. No. 138381 (“first petition”) thereby
reversing the Commission on Audit’s (COA)
disallowance of certain fringe benefits granted to GSIS
employees. As a result, the Court ordered the refund of
amounts representing fringe benefits corresponding to
those allowed in the first petition in favor of the
respondents in G.R. No. 141625 (“second petition”).
The benefits which the Court ordered to be refunded
included increases in longevity pay, children’s allowance
and management contribution to the Provident Fund as
well as premiums for group personal accident insurance.
On the other hand, the Court affirmed the COA
disallowance of loyalty and service cash award as well
as housing allowance in excess of that approved by the
COA. Amounts corresponding to these benefits were
previously deducted by GSIS from respondents’
retirement benefits in view of the COA disallowance in
the first petition. COA did not seek reconsideration of
the judgment ordering said refund, which thus became
final and executory.
On August 7, 2002, the respondents in the second
petition, all GSIS retirees, filed a motion for amendatory
1
and clarificatory judgment (“amendatory motion”). They
averred that we did not categorically resolve the issue
raised in the second petition, namely: whether or not the
GSIS may lawfully de-

_______________

1 Rollo in G.R. No. 141625, pp. 454-464.

539
 VOL. 441, NOVEMBER 10, 2004 539
Government Service Insurance System vs. Commission
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duct any amount from their retirement benefits in light

of Section 39 of Republic Act No. 8291.
According to respondents, said provision of law
clearly states that no amount whatsoever could be
legally deducted from retirement benefits, even those
amounts representing COA disallowances. They posit
that we should have ordered refund not only of benefits
allowed in the first petition, but all amounts claimed,
regardless of whether or not these were allowed by the
COA. These include items which were correctly
disallowed by the COA in the first petition, as well as
disallowed benefits under the second petition. The latter
consists of initial payment of productivity bonus,
accelerated implementation of the new salary schedule
effective August 1, 1995, 1995 mid-year financial
assistance and increase in clothing, rice and meal
allowances. Respondents further insist that we should
have awarded damages in their favor, citing the GSIS’
alleged bad faith in making 2
the deductions.
GSIS filed a comment to respondents’ amendatory
motion, as directed by the Court in a resolution dated
September 3, 2002. GSIS posited that the other benefits
not passed upon in the main judgment should be
understood by respondents as having been impliedly
denied by this Court. It also sought clarification of our
decision insofar as it declared that there was no identity
of subject matter between the COA proceedings, from
which the first petition stemmed, and respondents’
claim under the second petition, which emanated from
an order of the GSIS Board of Trustees (“Board”). As for
the damages claimed by respondents, GSIS insists that
it made the deductions in good faith for these were done
in accordance with COA directives.
3
Respondents filed a reply to the comment of GSIS on
September 9, 2002.
_______________

2 Id., at pp. 465-473.

3 Id., at pp. 474-489.

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on Audit

Meanwhile, respondents filed a second motion, this time

for leave 4to file a motion for discretionary and partial
execution (“motion for execution”). They prayed that
GSIS be ordered to effect the refund, as finally adjudged
in our decision, pending resolution of their amendatory
motion as to the other deducted amounts. We granted
the motion for execution on September 3, 2002.
Subsequently, on December 26, 2002, counsel for
respondents, Atty. Agustin Sundiam, filed5 a motion for
entry and enforcement of attorney’s 6
lien (“motion for
charging lien”) and a supplement to this motion on
January 10, 2003. He sought entry of a charging lien in
the records of this case pursuant to Section 37 of Rule
138. He prayed for an order directing the GSIS to
deduct, as his professional fees, 15% from respondents’
refund vouchers since the GSIS was already in the
process of releasing his clients’ checks in compliance
with our judgment in the first petition. The payment
scheme was allegedly authorized by the Board of
Directors of his clients, the GSIS Retirees 7
Association,
Inc. (GRIA), through a board resolution that he has
attached to the motion.
Atty. Sundiam’s motion for charging lien was opposed
by petitioner GSIS on the ground that it was through its
efforts, and not Atty. Sundiam’s,
8
that the retirees were
able to obtain a refund. Meanwhile, the GRIA
confirmed the payment scheme it adopted9
with Atty.
Sundiam and prayed for its approval.
Thereafter, on January 10, 2003, respondents filed
another manifestation and motion as well as
supplement thereto, claiming that GSIS was deducting
new and unspecified sums

_______________

4 Id., at pp. 449-453.

5 Id., at pp. 497-499.
6 Id., at pp. 508-510.
7 Id., at p. 500.
8 Id., at pp. 512-516.
9 Id., at pp. 531-532.

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from the amount it was refunding to respondents. These

new deductions purportedly
10
pertain to another set of
COA disallowances.
On 11January 21, 2003, respondents again filed a
motion praying for the inclusion in the refundable
amount of dividends on the management contribution to
the Provident Fund (“motion for payment of dividends”).
Respondents claimed that the contribution, which
amounted to Fifty Million Pesos (P50M), was retained
by GSIS for more than five years and thus earned a
considerable sum of income while under its control.
GSIS declared and paid dividends on said contribution
to incumbent officials and employees, but refused to
extend the same benefits to respondents/retirees. 12
On March 6, 2003, GSIS filed a joint comment to
respondents’ two foregoing motions contending that the
new deductions are legitimate. The deductions pertain
to car loan arrearages, disallowed employees’
compensation claims and the like. As for the dividends
on the Provident Fund contributions, respondents are
not entitled to the same because while the first petition
was pending, the contributions were not actually
remitted to the fund but were withheld by COA
pursuant to its earlier disallowance.
On 13October 2, 2003, respondents filed another
motion for an order to compel the GSIS to pay
dividends on the Provident Fund contributions pending
resolution of their other motions. They also sought
refund of Permanent Partial Disability (PPD) benefits
that GSIS supposedly paid to some of the respondents,
but once again arbitrarily deducted from the amount
which the Court ordered to be refunded.

_______________

10 Id., at pp. 503-527.

11 Id., at pp. 518-520.
12 Id., at pp. 543-551.
13 Id., at pp. 562-566.

542

542 SUPREME COURT REPORTS ANNOTATED

Government Service Insurance System vs. Commission
on Audit

14
In a minute resolution dated November 11, 2003, we
denied the last motion for lack of merit. We likewise
denied with finality respondents’ motion 15
for
reconsideration from the denial of said motion.
We now resolve the matters raised by the parties.
On the amendatory motion, it must be clarified that
the question raised before this Court in the second
petition was the issue of the Board’s jurisdiction to
resolve respondents’ claim for refund of amounts
representing deductions from their retirement benefits.
What was assailed in the second petition was the
appellate court’s ruling that the Board had jurisdiction
over respondents’ claim since there was no identity of
subject matter between the proceedings then pending
before the COA and the petition brought by respondents
before the Board. The Court of Appeals did not rule on
the main controversy of whether COA disallowances
could be deducted from retirement benefits because the
Board ordered the dismissal of respondents’ claim for
alleged lack of jurisdiction, before it could even decide on
the principal issue.
Consequently, the only matter that was properly
elevated to this Court was the issue of whether or not
the Board had jurisdiction over respondents’ demands.
We did not resolve the issue of whether or not the
deductions were valid under Section 39 of RA 8291, for
the simple reason that the Board, as well as the
appellate court, did 16
not tackle the issue. The doctrine of
primary jurisdiction would ordinarily preclude us from
resolving the matter, which calls for a ruling to be first
made by the Board. It is the latter that is vested by law
with

_______________

14 Id., at p. 567.
15 Id., at p. 573.
16 Under this doctrine, the court cannot and will not arrogate unto
itself the authority to resolve a controversy, the jurisdiction over which
is initially lodged with a tribunal possessed of special competence.
(Province of Zamboanga del Norte v. Court of Appeals, G.R. No.
109853, 11 October 2000, 342 SCRA 549, 559, citing Paat v. Court of
Appeals, 334 Phil. 146; 266 SCRA 167 (1997).

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exclusive and original jurisdiction to settle any dispute

arising under
17
RA 8291, as well as other matters related
thereto.
However, both the GSIS and respondents have
extensively discussed the merits of the case in their
respective pleadings and did not confine their
arguments to the issue of jurisdiction. Respondents, in
fact, submit that we should resolve the main issue on
the ground that it is a purely legal question.
Respondents further state that a remand of the case to
the Board would merely result in unnecessary delay and
needless expense for the parties. They thus urge the
Court to decide the main question in order to finally put
an end to the controversy.
Indeed, the principal issue pending before the Board
does not involve any factual question, as it concerns only
the correct application of the last paragraph of Section
39, RA 8291. The parties agreed that the lone issue is
whether COA disallowances could be legally deducted
from retirement benefits on the ground that these were
respondents’ monetary liabilities to the GSIS under the
said provision. There is no dispute that the amounts
deducted by GSIS represented COA disallowances.
Thus, the only question left for the Board to decide is
whether the deductions are allowed under RA 8291.
Under certain exceptional circumstances, we have
taken cognizance of questions of law even in the absence
of an initial determination by a lower court or
administrative body.
18
In China Banking Corporation v.
Court of Appeals, the Court held:

At the outset, the Court’s attention is drawn to the fact that

since the filing of this suit before the trial court, none of the
substan-

_______________

17 RA 8291, Section 30, which states:

SEC. 30. Settlement of Disputes.—The GSIS shall have original and exclusive
jurisdiction to settle any dispute arising under this Act and any other laws
administered by the GSIS.

18 333 Phil. 158, 165; 265 SCRA 327, 335 (1996), citing then Rule 1, Section
2 of the Rules of Court.

544
544 SUPREME COURT REPORTS ANNOTATED
Government Service Insurance System vs. Commission on
Audit

tial issues have been resolved. To avoid and gloss over the
issues raised by the parties, as what the trial court and
respondent Court of Appeals did, would unduly prolong this
litigation involving a rather simple case of foreclosure of
mortgage. Undoubtedly, this will run counter to the avowed
purpose of the rules, i.e., to assist the parties in obtaining just,
speedy and inexpensive determination of every action or
proceeding. The Court, therefore, feels that the central issues of
the case, albeit unresolved by the courts below, should now be
settled specially as they involved pure questions of law.
Furthermore, the pleadings of the respective parties on file
have amply ventilated their various positions and arguments
on the matter necessitating prompt adjudication.

In Roman 19
Catholic Archbishop of Manila v. Court of
Appeals, the Court likewise held that the remand of a
case is not necessary where the court is in a position to
resolve the dispute based on the records before it. The
Court will decide actions on the merits in order to
expedite the settlement of a controversy and if the ends
of justice would not be subserved by a remand of the
case.
Here, the primary issue calls for an application of a
specific provision of RA 8291 as well as relevant
jurisprudence on the matter. No useful purpose will
indeed be served if we remand the matter to the Board,
only for its decision to be elevated again to the Court of
Appeals and subsequently to this Court. Hence, we
deem it sound to rule on the merits of the controversy
rather than to remand the case for further proceedings.
The last paragraph of Section 39, RA 8291
specifically provides:

SEC. 39. Exemption from Tax, Legal Process and Lien.—

x x x      x x x      x x x
The funds and/or the properties referred to herein as well as
the benefits, sums or monies corresponding to the benefits
under this Act shall be exempt from attachment, garnishment,
execution, levy or other processes issued by the courts, quasi-
judicial agencies or

_______________

19 G.R. No. 77425, 19 June 1991, 198 SCRA 300, 311.

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administrative bodies including Commission on Audit (COA)

disallowances and from all financial obligations of the
members, including his pecuniary accountability arising from
or caused or occasioned by his exercise or performance of his
official functions or duties, or incurred relative to or in
connection with his position or work except when his monetary
liability, contractual or otherwise, is in favor of the GSIS.

It is clear from the above provision that COA

disallowances cannot be deducted from benefits under
RA 8291, as the same are explicitly made exempt by law
from such deductions. Retirement benefits cannot be
diminished by COA disallowances in view of the clear
mandate of the foregoing provision. It is a basic rule in
statutory construction that if a statute is clear, plain
and free from ambiguity, it must be given its literal
meaning and applied without interpretation. This 20
is
what is known as plain-meaning rule or verba legis.
Accordingly, the GSIS’ interpretation of Section 39
that COA disallowances have become monetary
liabilities of respondents to the GSIS and therefore fall
under the exception stated in the law is wrong. No
interpretation of the said provision is necessary given
the clear language of the statute. A meaning that does
not appear nor is intended or reflected in the very
language of 21the statute cannot be placed therein by
construction.
 Moreover, if we are to accept the GSIS’
interpretation, then it would be unnecessary to single
out COA disallowances as among those from which
benefits under RA 8291 are exempt. In such a case, the
inclusion of COA disallowances in the enumeration of
exemptions would be a mere surplusage since the GSIS
could simply consider COA disallowances as monetary
liabilities in its favor. Such a construction would em-

_______________

20 Statutory Construction (2003 Edition) Ruben E. Agpalo, p. 124,

citing Bustamante v. National Labor Relations Commission, 332 Phil.
833; 255 SCRA 145 (1996).
21 Id., at p. 63.

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546 SUPREME COURT REPORTS ANNOTATED

Government Service Insurance System vs. Commission
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power the GSIS to withdraw, at its option, an exemption

expressly granted by law. This could not have been the
intention of the statute.
That retirement pay accruing to a public officer may
not be withheld and applied to his indebtedness to the
government has 22
been settled in several cases. In Cruz v.
23
Tantuico, Jr., the Court, citing Hunt v. Hernandez,
explained the reason for such policy thus:

x x x we are of the opinion that the exemption should be

liberally construed in favor of the pensioner. Pension in this
case is a bounty flowing from the graciousness of the
Government intended to reward past services and, at the same
time, to provide the pensioner with the means with which to
support himself and his family. Unless otherwise clearly
provided, the pension should inure wholly to the benefit of the
pensioner. It is true that the withholding and application of the
amount involved was had under section 624 of the
Administrative Code and not by any judicial process, but if the
gratuity could not be attached or levied upon execution in view
of the prohibition of section 3 of Act No. 4051, the
appropriation thereof by administrative action, if allowed,
would lead to the same prohibited result and enable the
respondents to do indirectly what they can not do directly
under section 3 of Act No. 4051. Act No. 4051 is a later statute
having been approved on February 21, 1933, whereas the
Administrative Code of 1917 which embodies section 624
relied upon by the respondents was approved on March 10 of
that year. Considering section 3 of Act No. 4051 as an
exception to the general authority granted in section 624 of the
Administrative Code, antagonism between the two provisions
is avoided. (Italics supplied)

The above24
ruling was reiterated in Tantuico, Jr. v.
Domingo, where the Court similarly declared that
benefits under retirement laws cannot be withheld
regardless of the petitioner’s monetary liability to the
government.

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22 G.R. No. L-49535, 28 October 1988, 166 SCRA 670, 679.

23 64 Phil. 753 (1937).
24 G.R. No. 96422, 28 February 1994, 230 SCRA 391.

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The policy of exempting retirement benefits from

attachment, levy and execution, as well as unwarranted
deductions, has been embodied 25in a long line of
retirement statutes. Act No. 4051, which provides for
the payment of gratuity to officers and employees of the
Insular Government upon retirement due to
reorganization, expressly provides in its Section 3 that
“(t)he gratuity provided for in this Act shall not be
attached or levied upon execution.”
The law which established
26
the GSIS, Commonwealth
Act No. 186 (“CA No. 186”), went further by providing
as follows:

SEC. 23. Exemptions from legal process and liens.—No policy

of life insurance issued under this Act, or the proceeds thereof,
except those corresponding to the annual premium thereon in
excess of five hundred pesos per annum, when paid to any
member thereunder, shall be liable to attachment,
garnishment, or other process, or to be seized, taken,
appropriated, or applied by any legal or equitable process or
operation of law to pay any debt or liability of such member, or
his beneficiary, or any other person who may have a right
thereunder, either before or after payment; nor shall the
proceeds thereof, when not made payable to a named
beneficiary, constitute a part of the estate of the member for
payment of his debt.
27
Presidential Decree No. 1146, which amended CA No.
186, likewise contained a provision exempting benefits
from attachment, garnishment, levy or other processes.
However, the exemption was expressly made
inapplicable to “obligations of the member to the
System, or to the employer, or when the benefits
granted are assigned
28
by the member with the authority
of the System.” 29
The latest GSIS enactment, RA 8291, provides for a
more detailed and wider range of exemptions under
Section 39.

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25 Approved February 21, 1933.

26 Approved November 14, 1936.
27 Approved May 31, 1977.
28 PD No. 1146, Section 33, par. 2.
29 Approved May 30, 1997.

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Government Service Insurance System vs. Commission
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Aside from exempting benefits from judicial processes, it

likewise unconditionally exempts benefits from quasi-
judicial and administrative processes, including COA
disallowances, as well as all financial obligations of the
member. The latter includes any pecuniary
accountability of the member which arose out of the
exercise or performance of his official functions or duties
or incurred relative to his position or work. The only
exception to such pecuniary accountability is when the
same is in favor of the GSIS.
Thus, “monetary liability in favor of GSIS” refers to
indebtedness of the member to the System other than
those which fall under the categories of pecuniary
accountabilities exempted under the law. Such liability
may include unpaid social insurance premiums and
balances on loans obtained by the retiree from the
System, which do not arise in the performance of his
duties and are not incurred relative to his work. The
general policy, as reflected in our retirement laws and
jurisprudence, is to exempt benefits from all legal
processes or liens, but not from outstanding obligations
of the member to the System. This is to ensure
maintenance of the GSIS’ fund reserves in order to
guarantee fulfillment of all its obligations under RA
8291.
Notwithstanding the foregoing, however, we find it
necessary to nonetheless differentiate between those
benefits which were properly disallowed by the COA and
those which were not.
Anent the benefits which were improperly disallowed,
the same rightfully belong to respondents without
qualification. As for benefits which were justifiably
disallowed by the COA, the same were erroneously
granted to and received by respondents who now have
the obligation to return the same to the System.
 It cannot be denied that respondents were recipients
of benefits that were properly disallowed by the COA.
These COA disallowances would otherwise have been
deducted from their salaries, were it not for the fact that
respondents retired

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before such deductions could be effected. The GSIS can

no longer recover these amounts by any administrative
means due to the specific exemption of retirement
benefits from COA disallowances. Respondents
resultantly retained benefits to which they were not
legally entitled which, in turn, gave rise to an obligation
on their part to return the amounts under the principle
of solutio indebiti. 30
Under Article 2154 of the Civil Code, if something is
received and unduly delivered through mistake when
there is no right to demand it, the obligation to return
the thing arises. Payment by reason of mistake in the
construction or application of a doubtful or difficult
question31of law also comes within the scope of solutio
indebiti.
In the instant case, the confusion about the increase
and payment of benefits to GSIS employees and
executives, as well as its subsequent disallowance by the
COA, arose on account of the application of RA 6758 or
the Salary Standardization Law and its implementing
rules, CCC No. 10. The complexity in the application of
these laws is manifested by the several cases that32 have
reached the Court since its passage in 1989. The
application of RA 6758 was made even more difficult
when its implementing
33
rules were nullified for non-
publication. Consequently, the delivery of benefits to

_______________
 30 Civil Code, Article 2154. If something is received when there is no
right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises.
31 Civil Code, Article 2155. Payment by reason of a mistake in the
construction or application of a doubtful or difficult question of law
may come within the scope of the preceding article.
32 Among these cases which we cited in our main decision are
Philippine Ports Authority v. Commission on Audit, G.R. No. 100773,
16 October 1992, 214 SCRA 653 and Manila International Airport
Authority v. Commission on Audit, G.R. No. 104217, 5 December 1994,
238 SCRA 714.
33 De Jesus v. Commission on Audit and Jamoralin, G.R. No.
109023, 12 August 1998, 294 SCRA 152.

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respondents under an erroneous interpretation of RA

6758 gave rise to an actionable obligation for them to
return the same.
While the GSIS cannot directly proceed against
respondents’ retirement benefits, it can nonetheless
seek restoration of the amounts by means of a proper
court action for its recovery. Respondents
34
themselves
submit that this should be the case, although any
judgment rendered therein cannot be enforced against
retirement benefits due to the exemption provided in
Section 39 of RA 8291. However, there is no prohibition
against enforcing a final monetary judgment against
respondents’ other assets and properties. This is only
fair and consistent with basic principles of due process.
As such, a proper accounting of the amounts due and
refundable is in order. In rendering such accounting, the
parties must observe the following guidelines:

(1) All deductions from respondents’ retirement

benefits should be refunded except those
 amounts which may properly be defined as
“monetary liability to the GSIS”;
(2) Any other amount to be deducted from
retirement benefits must be agreed upon by and
between the parties; and
(3) Refusal on the part of respondents to return
disallowed benefits shall give rise to a right of
action in favor of GSIS before the courts of law.

Conformably, any fees due to Atty. Sundiam for his

professional services may be charged against
respondents’ retirement benefits. The arrangement,
however, must be covered by a proper agreement
between him and his clients under (2) above.
As to whether respondents are entitled to dividends
on the provident fund contributions, the same is not
within the issues raised before the Court. The second
petition refers only

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34 Respondents’ comment to the petition in G.R. No. 141625, supra,

note 1 at p. 318.

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to the legality of the deductions made by GSIS from

respondents’ retirement benefits. There are factual
matters that need to be threshed out in determining
respondents’ right to the payment of dividends, in view
of the GSIS’ assertion that the management
contributions were not actually remitted to the fund.
Thus, the payment of dividends should be the subject of
a separate claim where the parties can present evidence
to prove their respective assertions. The Court is in no
position to resolve the matter since the material facts
that would prove or disprove the claim are not on record.
In the interest of clarity, we reiterate herein our
ruling that there is no identity of subject matter
between the COA proceedings, from which the first
petition stemmed, and respondents’ claim of refund
before the Board. While the first petition referred to the
propriety of the COA disallowances per se, respondents’
claim before the Board pertained to the legality of
deducting the COA disallowances from retirement
benefits under Section 39 of RA 8291.
Finally, on respondents claim that the GSIS acted in
bad faith when it deducted the COA disallowances from
their retirement benefits, except for bare allegations,
there is no proof or evidence of the alleged bad faith and
partiality of the GSIS. Moreover, the latter cannot be
faulted for taking measures to ensure recovery of the
COA disallowances since respondents have already
retired and would be beyond its administrative reach.
The GSIS merely acted upon its best judgment and
chose to err in the side of prudence rather than suffer
the consequence of not being able to account for the COA
disallowances. It concededly erred in taking this
recourse but it can hardly be accused of malice or bad
faith in doing so.
WHEREFORE, in view of the foregoing, the April 16,
2002 Decision in G.R. Nos. 138381 and 141625 is
AMENDED. In addition to the refund of amounts
corresponding to benefits allowed in G.R. No. 138381,
the GSIS is ordered to REFUND all deductions from
retirement benefits EXCEPT amounts

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representing monetary liability of the respondents to the

GSIS as well as all other amounts mutually agreed upon
 by the parties.
SO ORDERED.

          Davide, Jr. (C.J.), Panganiban, Quisumbing,

Sandoval-Gutierrez, Carpio, Austria-Martinez, Carpio-
Morales, Azcuna, Chico-Nazario and Garcia, JJ., concur.
     Puno, J., On Official Leave.
     Corona and Tinga, JJ., On Leave.
     Callejo, Sr., J., No part. Ponente in CA Decision.

Judgment amended.

Notes.—Section 28 (b) of CA 186 as amended by RA

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 iniquitous proliferation of such plans.
(Conte vs. Commission on Audit, 264 SCRA 19 [1996])
Retirement benefits, gratuity and separation pay in
the government service are invariably computed on the
basis of the highest salary, emolument and allowance
received. (Request of Clerk of Court Tessie L. Gatmaitan,
CA, for Payment of Retirement Benefits of CA Justice
Jorge S. Imperial, 313 SCRA 134 [1999])

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