G.R. No. 157001; October 19, 2004
HOME DEVELOPMENT MUTUAL FUND represented by its acting President and Chief Executive Officer, ATTY. ROMERO FEDERICO S. QUIMBO, petitioner, vs. COMMISSION ON AUDIT represented by the Chairman, GUILLERMO N. CARAGUE, respondent.

FACTS

The Home Development Mutual Fund (HDMF), a government-owned and controlled corporation, entered into successive annual Contracts for Manpower Services with DBP Service Corporation (DBPSC) for the years 1995, 1996, and 1997. These contracts stipulated that DBPSC would supply temporary manpower services (e.g., clerks, encoders, messengers, janitors) to HDMF. On June 2, 1997, the HDMF Board of Trustees approved Resolution No. 1313, granting an amelioration allowance (equivalent to one month’s basic salary but not less than ₱10,000) to its employees, including DBPSC personnel assigned to its head office who were in service as of December 31, 1996. The allowance, chargeable against HDMF’s 1996 budget, was paid on June 24, 1997. On September 29, 1997, a state auditor post-audited and disallowed the payment of ₱1,376,666.67 in amelioration allowance to DBPSC personnel, citing a lack of legal basis for granting such an allowance to employees of an independent contractor. HDMF’s appeals to the Corporate Auditor and the Corporate Audit Office (CAO) were denied. The CAO ruled that the 1996 contract contained no stipulation for HDMF to grant additional benefits to DBPSC personnel and that Administrative Order No. 365 (issued October 10, 1997) prohibited such payments to contract workers. HDMF’s petition for review to the Commission on Audit (COA) was denied, prompting this appeal.

ISSUE

1. Whether Administrative Order No. 365, issued on October 10, 1997, which prohibits payment of amelioration allowance to those under service contracts, has retroactive effect to disallow a payment made on June 24, 1997.
2. Whether the payment made in 1997 of the amelioration allowance for 1996, based on a stipulation in the 1997 contract, is valid.
3. Assuming the disallowance is correct, whether the COA should nevertheless allow the payment in audit since HDMF acted in good faith.

RULING

The Supreme Court DENIED the petition and AFFIRMED the COA’s decision and resolution disallowing the payment.
1. On the retroactive application of Administrative Order No. 365: The Court held that AO 365, issued on October 10, 1997, could not retroactively apply to invalidate the payment made on June 24, 1997. Laws and administrative issuances generally have prospective application unless the contrary is expressly stated or clearly implied. Therefore, the disallowance could not be sustained solely on the basis of AO 365.
2. On the validity of the payment: The Court ruled that the payment lacked a legal basis. The amelioration allowance was granted for the year 1996 under Board Resolution No. 1313. However, the 1996 Contract for Manpower Services between HDMF and DBPSC contained no stipulation authorizing HDMF to grant additional allowances or benefits to DBPSC personnel. The 1997 Contract, which did contain a provision allowing HDMF to grant “other benefits,” was not applicable as it governed services for 1997, not 1996. The Court emphasized that as a government corporation, HDMF’s expenditures must have a clear legal basis and must comply with laws, rules, and regulations. The use of 1997 funds to pay an allowance for 1996, without the prior approval of the Office of the President as required by budget circulars, was contrary to law.
3. On the claim of good faith: The Court rejected HDMF’s claim of good faith. Good faith requires a well-founded belief that one is legally entitled to perform the act. HDMF failed to show any legal basis—such as a law, presidential issuance, or a provision in the pertinent 1996 contract—that authorized it to grant the amelioration allowance to the contract workers. The absence of such authority negates any claim of good faith. Consequently, the disallowance must stand, and the approving and certifying officers of HDMF who authorized the illegal payment are liable for its refund.