G.R. No. 213409. October 05, 2021.
LAND BANK OF THE PHILIPPINES, ET AL., PETITIONERS, VS. COMMISSION ON AUDIT, RESPONDENT.

FACTS

The Commission on Audit (COA) issued Notice of Disallowance No. LBP-Subs. 2008-015 (2002-2003) dated August 11, 2008, disallowing payments amounting to P5,133,830.02. These payments represented additional allowances and benefits granted to officials of the Land Bank of the Philippines (LBP or Parent Company) who were simultaneously serving as officers/members of the Board of Directors of LBP’s wholly-owned subsidiaries and a corporate foundation (collectively, Subsidiaries). The COA based the disallowance on two main grounds: (1) the payments violated Section 30 of the Corporation Code, as the Subsidiaries’ by-laws did not provide for such additional compensation and there was no approval by the vote of stockholders representing a majority of the outstanding capital stock; and (2) the payments constituted double compensation prohibited by the Constitution, as they were granted to public officials without specific statutory authority and the requisite approval from the President. LBP and the Subsidiaries filed a Petition for Review before the COA Proper, arguing, among others, that they were denied due process due to the non-issuance of an Audit Observation Memorandum (AOM), that the payments were approved by the Subsidiaries’ Boards which was tantamount to approval by the majority stockholder (LBP), and that the prohibition on double compensation did not apply as the Subsidiaries were private corporations and the payments were not sourced from government funds. The COA Proper affirmed the disallowance in its Decision No. 2012-018 dated February 16, 2012. Hence, LBP and the Subsidiaries filed the present Petition for Certiorari.

ISSUE

Whether the COA Proper committed grave abuse of discretion in affirming the disallowance of the additional allowances and benefits paid to LBP officials for their services in the Subsidiaries’ Boards.

RULING

No, the COA Proper did not commit grave abuse of discretion. The Supreme Court denied the petition and affirmed the COA Proper’s decision.
First, there was no denial of due process. The COA Director was authorized to issue the Notice of Disallowance based on the Annual Audit Report. The petitioners were able to respond to the findings through a joint letter-reply and availed themselves of remedies under the COA Rules.
Second, the payments violated Section 30 of the Corporation Code. The Subsidiaries’ by-laws did not authorize additional compensation for directors beyond per diems. The approval by the Subsidiaries’ Boards, even if composed of LBP representatives, could not be equated to the required “vote of the stockholders representing at least a majority of the outstanding capital stock.” A board cannot validly grant additional compensation to its own members.
Third, the payments constituted illegal double compensation. The LBP officials receiving the payments were public officials. The allowances and benefits were given by reason of their public office (as LBP officials serving in the Subsidiaries’ Boards). No law specifically authorized these payments, and they lacked the required approval from the President as mandated by Memorandum Order No. 20 and DBM Circular Letter No. 2003-10. The fact that the Subsidiaries were incorporated under the Corporation Code and that the funds were not directly from the government treasury did not remove the payments from the constitutional proscription, as the Subsidiaries were government-owned or controlled corporations and their funds were ultimately public in character.
The disallowance was proper. The approving/certifying officers and the payees were correctly held liable. However, the payees may refund the disallowed amounts depending on their good faith, following applicable jurisprudence.