G.R. No. L-18271; April 30, 1964
FELIX V. ESPINO, petitioner, vs. PEDRO M. GIMENEZ, Auditor General of the Republic of the Philippines and JUAN M. MATUTINA, Corporation Auditor, National Power Corporation, respondents.

FACTS

Petitioner Felix V. Espino, former Chief of the Chemical Fertilizer Department of the National Power Corporation (NPC), was granted a retirement gratuity under Republic Act No. 1616 . The NPC approved the payment, but respondent Corporation Auditor Juan M. Matutina refused to issue the required clearance certificate. This refusal was based on an incident in 1958 where petitioner authorized the release of fertilizer to Lucio Villanueva, whose check for payment was later dishonored. Villanueva was subsequently charged with estafa.
The Auditor General, in a ruling, held petitioner guilty of negligence for the release and ordered that action on his clearance be held in abeyance pending the settlement of Villanueva’s account or the termination of the estafa case. Petitioner sought review, arguing he acted in good faith based on assurances from a subordinate, Leopoldo Barrios, who verified Villanueva’s new deposit. The NPC management itself, after investigation, concluded petitioner acted in good faith and was not civilly liable for the unpaid account, with no action taken against him for over five years.

ISSUE

Were the respondents justified in withholding petitioner’s clearance and retirement gratuity based on the unsettled account and pending estafa case against Villanueva?

RULING

No. The Supreme Court ordered the respondents to issue the clearance and approve the payment. The legal logic centers on the proper application of set-off or compensation under Section 624 of the Revised Administrative Code. This provision allows the Auditor General to withhold payment of government money due to a person who is indebted to the Government to satisfy that indebtedness. However, this set-off operates only when the indebtedness to the Government is settled, definite, and uncontested.
In this case, the alleged indebtedness of petitioner to the NPC was neither settled nor admitted. Crucially, the NPC management itself, the government agency concerned, had exonerated petitioner from civil liability, finding he acted in good faith. The alleged credit of the Government was thus denied by both the petitioner and the NPC. Consequently, there was no liquidated debt due from petitioner to the Government that could legally be compensated against his liquidated retirement claim. The Auditor General cannot conclusively hold otherwise or create a liability that the principal agency itself does not recognize. To withhold the gratuity under these circumstances would defeat the purpose of the retirement law. The Court also held the petition was properly treated as one for mandamus.