EN BANC

[G.R. No. 138381. November 10, 2004]

GOVERNMENT
SERVICE
INSURANCE
vs. COMMISSION ON AUDIT, respondent.

SYSTEM, petitioner,

[G.R. No. 141625. November 10, 2004]

Ads by Cinema-Plus-1.8cGOVERNMENT 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 Audits (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, childrens 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 allamounts 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.
Respondents filed a reply[3] to the comment of GSIS on September 9, 2002.

Ads by Cinema-Plus-1.8cMeanwhile, 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 attorneys 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. Sundiams motion for charging lien was opposed by petitioner GSIS on the
ground that it was through its efforts, and not Atty. Sundiams, 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 motion [11] 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 comment[12] 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[13] 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[14] 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.

Ads by Cinema-Plus-1.8cOn the amendatory motion, it must be clarified that the question raised
before this Court in the second petition was the issue of the Boards 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 courts
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 jurisdiction[16] 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 Courts 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.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 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 petitioners 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, AustriaMartinez, 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.

[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.

[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.

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