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.:

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 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 comment2 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.

Respondents filed a reply3 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 execution4 ("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 lien5 ("motion for charging lien") and a supplement6 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 resolution7 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.10

On January 21, 2003, respondents again filed a motion11 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.

On March 6, 2003, GSIS filed a joint comment12 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 motion13 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 resolution14 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.15

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 not tackle the issue. The doctrine of primary jurisdiction16 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.17

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. In China Banking
Corporation v. Court of Appeals,18 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,19 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.-

xxxxxxxxx

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.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.21

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.

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.,22 the Court, citing Hunt
v. Hernandez,23 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. (Underscoring supplied)

The above ruling was reiterated in Tantuico, Jr. v. Domingo,24 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.
4051,25 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"),26 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. 1146,27 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."28
The latest GSIS enactment, RA 8291,29 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.

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.

Under Article 2154 of the Civil Code,30 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.31

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 1989.32 The application of RA 6758 was made even more difficult when
its implementing rules were nullified for non-publication.33 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,34 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.

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 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.

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.

12
Id. at 543-551.

13
Id. at 562-566.

14
Id. at 567.

15
Id. at 573.

Under this doctrine, the court cannot and will not arrogate unto itself the authority to resolve
16

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.

Statutory Construction (2003 Edition) Ruben E. Agpalo, p. 124, citing Bustamante v. NLRC,
20

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.

Civil Code, Article 2154. If something is received when there is no right to demand it, and it
30

was unduly delivered through mistake, the obligation to return it arises.

Civil Code, Article 2155. Payment by reason of a mistake in the construction or application
31

of a doubtful or difficult question of law may come within the scope of the preceding article.

Among these cases which we cited in our main decision are Philippine Ports Authority v.
32

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.