EN BANC

[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.

RESOLUTION

YNARES-SANTIAGO , J : p

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 and clarificatory judgment ("amendatory motion"). 1 They averred that we
did not categorically resolve the issue raised in the second petition, namely: whether or not
the GSIS may lawfully deduct 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
CD Technologies Asia, Inc. 2016 cdasiaonline.com
 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 the
deductions.
GSIS filed a comment 2 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. ISEHTa

Respondents filed a reply 3 to the comment of GSIS on September 9, 2002.

Meanwhile, respondents filed a second motion, this time for leave to file a motion for
discretionary and partial execution 4 ("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,
filed a motion for entry and enforcement of attorney's lien 5 ("motion for charging lien") and
a supplement 6 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 Association, Inc.
(GRIA), through a board resolution 7 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, that the retirees were able to obtain
a refund. 8 Meanwhile, the GRIA confirmed the payment scheme it adopted with Atty.
Sundiam and prayed for its approval. 9
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
from the amount it was refunding to respondents. These new deductions purportedly
pertain to another set of COA disallowances. 1 0
On January 21, 2003, respondents again filed a motion 1 1 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
CD Technologies Asia, Inc. 2016 cdasiaonline.com
 dividends on said contribution to incumbent officials and employees, but refused to
extend the same benefits to respondents/retirees.
On March 6, 2003, GSIS filed a joint comment 1 2 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 October 2, 2003, respondents filed another motion 1 3 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.
In a minute resolution 1 4 dated November 11, 2003, we denied the last motion for lack of
merit. We likewise denied with finality respondents' motion for reconsideration from the
denial of said motion. 1 5
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. aATEDS

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 not tackle the issue. The
doctrine of primary jurisdiction 1 6 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. 1 7
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
CD Technologies Asia, Inc. 2016 cdasiaonline.com
 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. In
China Banking Corporation v. Court of Appeals, 1 8 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, 1 9 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. —
xxx xxx xxx

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
CD Technologies Asia, Inc. 2016 cdasiaonline.com
 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.
20

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 the statute cannot be placed therein by construction. 2 1
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 empower the
GSIS to withdraw, at its option, an exemption expressly granted by law. This could not have
been the intention of the statute. DAaIEc

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.,
2 2 the Court, citing Hunt v. Hernandez, 2 3 explained the reason for such policy thus:

. . . 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. (Emphasis supplied)

The above ruling was reiterated in Tantuico, Jr. v. Domingo, 2 4 where the Court similarly
declared that benefits under retirement laws cannot be withheld regardless of the
petitioner’s monetary liability to the government.
The policy of exempting retirement benefits from attachment, levy and execution, as well
as unwarranted deductions, has been embodied in a long line of retirement statutes. Act
No. 4051, 2 5 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 the GSIS, Commonwealth Act No. 186 ("CA No. 186"), 2 6 went
further by providing as follows:
CD Technologies Asia, Inc. 2016 cdasiaonline.com
 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, 2 7 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
member with the authority of the System." 2 8
The latest GSIS enactment, RA 8291, 2 9 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. cEASTa

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 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.
CD Technologies Asia, Inc. 2016 cdasiaonline.com
 Under Article 2154 of the Civil Code, 3 0 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. 3 1
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 that have reached the Court since its passage in 1989. 3 2
The application of RA 6758 was made even more difficult when its implementing rules
were nullified for non-publication. 3 3 Consequently, the delivery of benefits to 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 themselves submit that this should be the case, 3 4 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
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. DTIaHE

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
CD Technologies Asia, Inc. 2016 cdasiaonline.com
 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 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., is on official leave.
Corona and Tinga, JJ., are on leave.
Callejo, Sr., J., took no part. Ponente in CA decision.

Footnotes

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

2. Id. at 465–473.
3. Id. at 474–489.
4. Id. at 449–453.
5. Id. at 497–499.
6. Id. at 508–510.
7. Id. at 500.
8. Id. at 512–516.
9. Id. at 531–532.
10. Id. at 503–527.
11. Id. at 518–520.
CD Technologies Asia, Inc. 2016 cdasiaonline.com
 12. Id. at 543–551.
13. Id. at 562–566.
14. Id. at 567.
15. Id. at 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. CA, 334
Phil. 146 (1997).
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 (1996), citing then Rule 1, Section 2 of the Rules of Court.
19. G.R. No. 77425, 19 June 1991, 198 SCRA 300, 311.
20. Statutory Construction (2003 Edition) Ruben E. Agpalo, p. 124, citing Bustamante v.
NLRC, 332 Phil. 833 (1996).
21. Id. at 63.
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.
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.
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. COA, G.R. No. 100773, 16 October 1992, 214 SCRA 653 and Manila International
Airport Authority v. COA, G.R. No. 104217, 5 December 1994, 238 SCRA 714.
33. De Jesus, et al. v. COA and Jamoralin, G.R. No. 109023, 12 August 1998, 294 SCRA
152.
34. Respondents' comment to the petition in G.R. No. 141625, supra, note 1 at 318.
CD Technologies Asia, Inc. 2016 cdasiaonline.com
CD Technologies Asia, Inc. 2016 cdasiaonline.com