Verceles vs. Commission on Audit

An appropriation ordinance that describes a project in generic terms requires the local chief executive to secure prior sanggunian authorization before entering into a contract, but if the ordinance specifically identifies the project and its cost in sufficient detail, no separate authorization is necessary. The power to augment items under Section 336 of the Local Government Code is an exception that must be strictly construed; augmentation requires prior authority by ordinance, and a subsequent blanket ratification of past augmentations is ineffective. Public officials are personally liable for expenditures made in violation of law, and good-faith reliance on legal opinions does not exculpate them.

The Provincial Government of Catanduanes, represented by then Governor Leandro B. Verceles, Jr., engaged the Provincial Environment and Natural Resources Office (PENRO) to carry out a tree seedlings production project. The project was funded from the 20% Economic Development Fund (EDF) portion of the province’s internal revenue allotment. Between September 2001 and September 2002, the province and PENRO executed five Memoranda of Agreement (MOAs) with a total cost of P10 million, of which P7,528,175.46 was paid. In June 2001, the Sangguniang Panlalawigan (SP) granted the governor blanket authority to enter into contracts and to realign budget items, but in October 2001 the SP revoked that blanket authority. A COA audit later found that Verceles had not obtained prior SP approval for the MOAs executed after the revocation and had made unauthorized realignments. The COA issued Notices of Disallowance for the paid amount, and Verceles challenged the disallowance up to the Supreme Court.

• Nature: Petitioner Leandro B. Verceles, Jr. was the Provincial Governor of Catanduanes. The Province, through Verceles, engaged the PENRO for a tree seedlings production project. The Province and PENRO executed five MOAs between September 27, 2001 and September 26, 2002, with a total face value of P10 million, of which P7,528,175.46 was paid. The project cost was booked against the 20% Economic Development Fund (EDF) allocation of the provincial budget for CYs 2001 and 2002.
• SP Resolutions Granting and Revoking Authority: On June 11, 2001, the Sangguniang Panlalawigan (SP) issued Resolution Nos. 067-2001, 068-2001, and 069-2001, granting Governor Hector Sanchez blanket authority to enter into contracts on behalf of the province and to realign budget items. On October 12, 2001, the SP issued Resolution No. 104-A-2001, which effectively revoked the blanket authority previously given. Verceles, who succeeded Sanchez, claimed he vetoed the revocatory resolution.
• The Five MOAs and Their Funding Bases:
  • First MOA (Sept. 27, 2001; P1.5M): purportedly funded from the EDF allocation in the CY 2001 budget, citing the June 2001 SP resolutions.
  • Second MOA (Oct. 30, 2001; P1.5M): funded by supposed savings from the EDF (CY 2001) transferred to the Environment Management Program.
  • Third MOA (May 6, 2002; P3M): funded from the EDF allocation in the CY 2002 budget.
  • Fourth MOA (Aug. 22, 2002; P3M): funded by savings from the EDF (CY 2002) transferred to Tree Seedling Production of Environmental Safeguard.
  • Fifth MOA (Sept. 26, 2002; P1M): same funding source as the fourth MOA.
• Appropriation Ordinances:
  • CY 2001: Section 6 of Appropriation Ordinance No. 1-2001 provided a lump-sum EDF of P45,405,633.20 but did not list specific projects to be funded; it further required that appropriations under the EDF “shall be approved by the Sanggunian Panlalawigan.” Section 9 authorized the governor to realign, revise, modify, or change items in the budget.
  • CY 2002: Section 3 of Appropriation Ordinance No. 2002-001 specifically identified the tree seedlings production project under the Environmental Sector with a P3,000,000.00 allocation. Section 26 stated that “all realignments of fund shall be approved by the Sangguniang Panlalawigan.”
  • CY 2003: Section 8 authorized the governor to augment items and ratified “all augmentations … in the CY 2003 Budget … and previous budgets and 20% [EDFs].”
  • COA Findings and Disallowance: The COA found that Verceles had no prior authority from the SP to execute the MOAs after Resolution No. 104-A-2001 was issued, and that the augmentations for the second, fourth, and fifth MOAs violated Section 336 of the LGC. It ruled that the blanket authority resolutions applied only to Verceles’ predecessor and that resolutions lack permanence. The CY 2003 appropriation could not retroactively ratify the augmentations. The COA disallowed the total amount paid and held Verceles personally liable.
  • Proceedings Before the Supreme Court: Verceles argued that prior authority was unnecessary because the MOAs implemented items already appropriated; he vetoed the revocatory resolution; the blanket authority resolutions had the force of an ordinance and were effective during his term; augmentations were ratified by the 2003 ordinance; and his right to speedy disposition of cases was violated. The COA defended its disallowance on the ground that no specific SP authorization existed and that no grave abuse of discretion attended its decision.

• Exception under Section 465(b)(1)(vi) of the LGC: Verceles maintained that prior authorization to enter into contracts is the general rule, but an exception exists when the contract is entered into pursuant to a law or ordinance. He argued that the first and third MOAs were covered by appropriations already approved in the CY 2001 and 2002 budgets and thus required no separate SP authorization.
• Veto of Resolution No. 104-A-2001: Verceles claimed he had vetoed the SP resolution that revoked the blanket authority, so the revocation never took effect.
• Force and Effect of the June 2001 Resolutions: Verceles contended that SP Resolution Nos. 067-2001, 068-2001, and 069-2001 had the force and effect of an ordinance, conveyed the legislative intent to authorize the provincial governor to enter into contracts, were not time-bound, and remained effective during his term.
• Proper Funding Authorizations: Verceles argued that the first and third MOAs were directly covered by EDF appropriations in the CY 2001 and 2002 budgets, while the second, fourth, and fifth MOAs were funded by valid augmentations from savings, which were subsequently ratified by Section 8 of the CY 2003 appropriation ordinance. He invoked Section 336 of the LGC and Article 454(b) of its implementing rules to support augmentation.
• Violation of Right to Speedy Disposition of Cases: Verceles submitted that the COA violated his constitutional right when it took more than ten years to resolve the case.

• Lack of Prior SP Authorization: The COA emphasized that Section 22(c) of the LGC requires the local chief executive to secure prior sanggunian authorization before entering into contracts, and that the appropriation ordinances for CYs 2001 and 2002 did not specifically authorize Verceles to execute MOAs with PENRO. The June 2001 blanket authority resolutions pertained only to the previous governor and had been revoked.
• No Grave Abuse of Discretion: The COA maintained that its disallowance was grounded on clear violations of the LGC and the Government Auditing Code, and that it acted within its constitutional audit mandate. The abuse of discretion necessary for certiorari must be grave—arbitrary or despotic—which was not present.
• Speedy Disposition Not Violated: The COA argued that the right to speedy disposition of cases is a flexible concept; mere mathematical reckoning of time is insufficient unless the delay is vexatious, capricious, and oppressive, which Verceles failed to show.

• Prior Authorization for the First and Third MOAs: Whether the COA gravely abused its discretion in ruling that the first and third MOAs lacked prior SP authorization, despite Verceles’ claim that they were covered by the EDF allocations in the CY 2001 and 2002 appropriation ordinances.
• Validity of Augmentations for the Second, Fourth, and Fifth MOAs: Whether the COA gravely abused its discretion in disallowing the second, fourth, and fifth MOAs on the ground that the augmentations made to fund them were unauthorized and could not be retroactively ratified by the CY 2003 appropriation ordinance.
• Personal Liability of Verceles: Whether the COA gravely abused its discretion in holding Verceles personally liable for the disallowed amount under the Government Auditing Code.

• Prior Authorization for the First and Third MOAs: The disallowance of the first MOA was proper, but the disallowance of the third MOA constituted grave abuse of discretion. Where an appropriation ordinance specifically identifies a project and its cost in sufficient detail, no separate sanggunian authorization is required for the local chief executive to enter into a contract implementing that project. The CY 2002 appropriation ordinance expressly set aside P3,000,000.00 for the “Tree Seedlings Production for Environmental Safeguard,” providing sufficient authority for the third MOA. In contrast, the CY 2001 appropriation ordinance merely provided a lump-sum EDF without identifying specific projects and further required SP approval for all appropriations under the EDF. The blanket authority resolution, even assuming it was valid and vetoed the revocation, was insufficient for implementing projects funded by lump-sum appropriations. Because the 2001 EDF did not specify the projects to be funded, the SP had not yet fully exercised its power of the purse; the governor therefore needed specific prior approval, which he failed to obtain.
• Validity of Augmentations for the Second, Fourth, and Fifth MOAs: The disallowance of the second, fourth, and fifth MOAs was correct. With respect to the second MOA, augmentation was legally impossible because the CY 2001 EDF contained no identified items from which savings could be generated or to which savings could be transferred. As to the fourth and fifth MOAs, Section 336 of the LGC requires the local chief executive to be “authorized by ordinance” before making augmentations. The CY 2003 appropriation ordinance’s blanket ratification of all past augmentations was ineffective because (1) the augmentation power is a strict exception to the rule that funds must be used exclusively for their appropriated purpose, and the phrase “authorized to augment” contemplates prior authority, not retroactive cure; (2) the blanket ratification bypassed the requisites for valid augmentation, such as the existence of actual savings; and (3) Section 26 of the CY 2002 appropriation ordinance itself required SP approval for all realignments, thereby withholding augmentation authority from the governor for that year.
• Personal Liability of Verceles: The finding of personal liability was not a grave abuse of discretion. Section 103 of the Government Auditing Code makes expenditures in violation of law a personal liability of the official directly responsible. Verceles’ acts—making augmentations without prior authority and entering into contracts without requisite SP authorization—violated the LGC. His reliance on legal opinions did not exculpate him, as the applicable statutes and ordinance provisions were clear and precise.

• Specific appropriation as prior authorization for contracts — Under the Local Government Code, a local chief executive must secure prior authorization from the sanggunian before entering into contracts on behalf of the LGU. That authorization may be supplied by the appropriation ordinance itself if the project and its cost are described in sufficient detail. Where the ordinance uses generic terms (e.g., “economic development fund” without listed projects), separate sanggunian approval is required for each specific contract. This principle, drawn from Quisumbing v. Garcia, harmonizes Section 22(c) and Section 465(b)(1)(vi) of the LGC.
• Requisites for valid augmentation under Section 336, LGC — The power to augment is an exception to the rule that appropriated funds may be used exclusively for their specified purpose. For a valid augmentation, (1) the local chief executive must be authorized by ordinance prior to making the augmentation; (2) there must be an existing item or project in the approved annual budget with an appropriation that, upon implementation or evaluation, is determined to be deficient; and (3) savings must be generated from other items within the same expense class. A blanket ratification in a subsequent year’s appropriation ordinance cannot operate post facto to cure the absence of prior authority, as the exception must be strictly construed. Augmentation cannot be used to fund items that were never identified in the budget.
• Personal liability for illegal expenditures — Under Section 103 of Presidential Decree No. 1445 (Government Auditing Code), expenditures of government funds made in violation of law render the responsible public official personally liable for the amount. Good-faith reliance on a legal opinion does not exculpate where the statutory or ordinance provisions are clear and leave no room for interpretation.

• "Resort to the appropriation ordinance is necessary in order to determine if there is a provision therein which specifically covers the expense to be incurred or the contract to be entered into. Should the appropriation ordinance, for instance, already contain in sufficient detail the project and cost of a capital outlay such that all that the local chief executive needs to do after undergoing the requisite public bidding is to execute the contract, no further authorization is required, the appropriation ordinance already being sufficient. On the other hand, should the appropriation ordinance describe the projects in generic terms such as 'infrastructure projects,' … there is an obvious need for a covering contract for every specific project that in turn requires approval by the sanggunian." — Restates the Quisumbing v. Garcia standard and lies at the core of the distinction between the first and third MOAs.
• "Since such appropriation type necessitates the further determination of both the actual amount to be expended and the actual purpose of the appropriation which must still be chosen from the multiple purposes stated in the law, it cannot be said that the appropriation law already indicates a 'specific appropriation of money' …" — The Court analogized the 2001 EDF to the PDAF in Belgica v. Ochoa to highlight that a lump-sum appropriation without identified projects does not satisfy the requirement of a specific appropriation.
• "To 'authorize' means 'to empower; to give a right or authority to act.' It means 'to endow with authority or effective legal power, warrant or right; to permit a thing to be done in the future.' Thus, strictly speaking, the governor must be duly authorized before he can make augmentations." — The textual basis for requiring prior, not retroactive, authority to augment.

• Quisumbing v. Garcia, 593 Phil. 655 (2008) — Followed. Established the rule that an appropriation ordinance describing a project in sufficient detail dispenses with the need for separate sanggunian authorization for the contract. The Court applied its two-tier analysis (specific vs. generic description) to distinguish between the first and third MOAs.
• Belgica v. Secretary Ochoa, 721 Phil. 416 (2013) — Cited as persuasive analogy. The characterization of a lump-sum appropriation as lacking specific purpose was used to underscore that the 2001 EDF did not constitute a specific appropriation of money.
• Araullo v. Aquino III, G.R. No. 209287, July 1, 2014, 728 SCRA 1 — Followed. Its requisites for a valid transfer of appropriated funds at the national level (existence of a law authorizing transfer; savings from appropriations; augmentation of an item in the appropriations law) were applied to local augmentations. The Court also relied on Araullo’s clarification that augmentation cannot fund non-existent items.
• Ocampo v. People, 567 Phil. 461 (2008) — Distinguished. Unlike in Ocampo, where an implied ratification of a loan agreement was recognized, the present case involved unauthorized augmentations that formed the basis for unauthorized MOAs, and the governing LGC provision on augmentation had no counterpart in the old LGC.
• Vicencio v. Villar, 690 Phil. 59 (2012) — Cited to support that good-faith reliance on a legal opinion does not exculpate an official from personal liability where the governing rule is clear.

• Section 22(c), R.A. No. 7160 (Local Government Code) — Provides that no contract may be entered into by the local chief executive on behalf of the LGU without prior authorization by the sanggunian. Applied as the general rule against which the sufficiency of the appropriation ordinances was measured.
• Section 465(b)(1)(vi), R.A. No. 7160 — Mandates that the governor represent the province in business transactions and sign contracts “upon authority of the sangguniang panlalawigan or pursuant to law or ordinance.” Read together with Section 22(c) to hold that the appropriation ordinance can itself constitute the required “authority” if it specifies the project.
• Section 336, R.A. No. 7160 — Governs the use of appropriated funds and savings, allowing the local chief executive, “by ordinance, be authorized to augment any item in the approved annual budget … from savings in other items within the same expense class.” Strictly construed to require prior ordinance authorization; the 2003 ratification was held insufficient.
• Section 305(1), R.A. No. 7160 — States that no money shall be paid out of the local treasury except in pursuance of an appropriations ordinance or law. Underpins the requirement of a legal basis for expenditure.
• Section 85(1), P.D. No. 1445 (Government Auditing Code) — Prohibits entering into any contract involving the expenditure of public funds without an appropriation therefor. Applied to the disallowed MOAs.
• Section 103, P.D. No. 1445 — Declares expenditures in violation of law to be a personal liability of the official directly responsible. Basis for affirming Verceles’ personal liability.
• Article 454, IRR of the LGC (Administrative Order No. 270) — Defines savings and augmentation, requiring the existence of an item with an appropriation determined to be deficient. Referenced in the augmentation analysis.

Chief Justice Sereno, Justices Carpio, Velasco, Jr., Leonardo-De Castro, Peralta, Del Castillo, Perez, Mendoza, Reyes, Perlas-Bernabe, Leonen, and Caguioa concurred. Justice Bersamin was on official leave. Justice Jardeleza took no part due to prior OSG action.

N/A — The decision was unanimous as to the participating justices; no dissenting opinions were recorded.