TL;DR

In a Commission on Audit (COA) disallowance case, the Supreme Court ruled in favor of a Supply Officer, Emerita Collado, excusing her from personal liability for erroneously computed liquidated damages. Collado, who acted in good faith and without gross negligence, was initially held solidarily liable for the under-deduction of liquidated damages in a government construction project. The Court, applying the principle of good faith for public officers and the recent Madera v. COA ruling, modified the COA decision. While affirming the disallowance and the need to recover the funds from the contractor, the Court absolved Collado of personal financial responsibility, emphasizing that honest mistakes in official duties, absent bad faith or gross negligence, should not lead to personal liability. This decision provides significant relief for public officers acting in good faith in complex government transactions.

When Honest Errors Meet Public Accountability: Finding Fairness in Fiscal Oversight

This case revolves around Emerita A. Collado, a Supply Officer III at the Philippine Science High School (PSHS), who found herself embroiled in a legal battle over disallowed public funds. The Commission on Audit (COA) sought to hold Collado personally liable for a significant sum due to incorrectly computed liquidated damages in a construction project for the PSHS-Mindanao Campus. The central legal question is whether a public officer, who made an honest mistake in calculating contractual obligations, should be held financially accountable, even in the absence of bad faith or gross negligence. This decision navigates the delicate balance between ensuring fiscal responsibility and protecting public servants acting in good faith.

The dispute originated from Notices of Disallowance issued due to the under-deduction of liquidated damages from payments to N.C. Roxas, Inc., the contractor for the PSHS-Mindanao Campus Building Complex. Collado, along with other officials, was deemed solidarily liable for the deficiency amounting to P2,148,019.86. The COA argued that Collado used an incorrect formula for calculating liquidated damages, contrary to the Implementing Rules and Regulations (IRR) of Presidential Decree No. 1594. The COA decisions, through various levels of review, consistently upheld the disallowance and Collado’s liability. Collado contended that her computation was based on her understanding of the IRR and in consultation with previous auditors, arguing against bad faith or gross negligence.

The Supreme Court, while acknowledging the procedural lapse in Collado’s petition due to late filing, opted to relax the rules in the interest of substantial justice. The Court emphasized that procedural rules are tools to facilitate justice, not to obstruct it, especially when matters of property rights are at stake. The Court then addressed the substantive issue of Collado’s liability.

The Court affirmed the COA’s finding that the incorrect formula was used for liquidated damages, referencing CI 7 of the IRR of P.D. No. 1594, which clearly stipulates the correct computation method. The IRR states:

CI 7 Liquidated Damages

Where the contractor refuses or fails to satisfactorily complete the work within the specified contract time…the contractor shall pay the Government for liquidated damages…an amount equal to one tenth of one percent (0.10%) of the total contract cost minus the value of the completed portions of the contract…for each calendar day of delay.

The Court underscored the principle that factual findings of administrative agencies like the COA, when supported by substantial evidence, are generally accorded finality and respect due to their expertise. However, the crucial turning point in this case was the Court’s application of the principles of good faith and the recent doctrine established in Madera v. COA, concerning the liability of approving and certifying officers.

Madera v. COA clarified that civil liability for public officers under Sections 38 and 39 of the Administrative Code of 1987 arises only when there is a clear showing of bad faith, malice, or gross negligence in the performance of official duties. Section 38 of the Administrative Code states:

SECTION 38. Liability of Superior Officers. – (1) A public officer shall not be civilly liable for acts done in the performance of his official duties, unless there is a clear showing of bad faith, malice or gross negligence.

Applying the Rules on Return from Madera, specifically Part 2a, the Court examined whether Collado acted in good faith, in the regular performance of her functions, and with due diligence. The Court found compelling circumstances supporting Collado’s good faith. Firstly, there was no evidence that Collado personally benefited from the disallowed amount. The disallowance stemmed from a misinterpretation of the IRR, not from an illegal or baseless disbursement. Secondly, the Notices of Disallowance were issued approximately eight years after the payments were made, during which time Collado had no indication of any error.

The Court concluded that while Collado made an error, it did not amount to bad faith, malice, or gross negligence. Mistakes by public officers, absent malicious intent or gross negligence, are not automatically actionable. Gross negligence, as defined by the Court, implies a flagrant and culpable refusal or unwillingness to perform a duty, characterized by a conscious indifference to consequences. In Collado’s case, the fact that the vouchers passed review by other officials, including accountants and auditors, further mitigated any finding of gross negligence. Therefore, holding Collado personally liable would be unjust.

Ultimately, the Supreme Court granted the petition in part, modifying the COA decision. Collado was excused from solidary liability, while the COA was directed to pursue claims against N.C. Roxas, Inc. for the recovery of the disallowed amount based on the principle of solutio indebiti, as the contractor was unjustly enriched by the erroneous payments. This ruling underscores the importance of good faith in public service and provides a balanced approach to fiscal accountability, protecting conscientious public officers from undue personal liability for honest mistakes.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Collado v. Villar, G.R. No. 193143, December 01, 2020