2ND LT. SALVADOR PARREÑO REPRESENTED BY HIS DAUGHTER MYRNA P. CAINTIC, PETITIONER, VS. COMMISSION ON AUDIT AND CHIEF OF STAFF, ARMED FORCES OF THE PHILIPPINES, RESPONDENTS.

Parreño versus Commission on Audit

The Case

This is a petition for certiorari brought by Salvador Parreño, a retired military officer of the Armed Forces of the Philippines, represented by his daughter Myrna P. Caintíc, against the Commission on Audit and the Chief of Staff of the Armed Forces of the Philippines. Parreño's monthly pension was stopped after he became a naturalized American citizen, and he asked the Commission on Audit to restore it. The Commission declined, saying it had no jurisdiction to pass upon the constitutionality of the law that cut off his pension. The case matters because it settles three things a reviewee must know: that the Commission on Audit cannot rule on the validity of a law, that a military retiree has no vested right to his pension before he actually retires, and that a retiree who loses his Filipino citizenship may lawfully be removed from the retired list.

Procedural History

Parreño first asked the Judge Advocate General of the Armed Forces of the Philippines to reconsider the stoppage of his pension, and that request was denied. He then filed a money claim before the Commission on Audit. In its decision of 9 January 2003, the Commission denied the claim for lack of jurisdiction, reasoning that the dispute turned on the validity of Section 27 of Presidential Decree 1638, as amended, which only the courts may pass upon, and it advised him to file his claim with the proper court of original jurisdiction. Parreño moved for reconsideration, arguing that the Commission could incidentally rule on constitutionality and that a direct resort to court would fail for non-exhaustion of administrative remedies. In its resolution of 13 January 2004, the Commission denied the motion, holding that exhaustion does not apply where the administrative body has no jurisdiction in the first place, and adding that even if it assumed jurisdiction, his entitlement ceased upon loss of Filipino citizenship. Parreño then went directly to the Supreme Court by petition for certiorari.

Facts

Salvador Parreño served in the Armed Forces of the Philippines for thirty two years. On 5 January 1982 he retired from the Philippine Constabulary with the rank of second lieutenant, and he availed himself of, and received, a lump sum pension equivalent to three years pay. Beginning in 1985 he received a monthly pension of 13,680 pesos.

Parreño later migrated to Hawaii and became a naturalized American citizen. In January 2001, the Armed Forces stopped his monthly pension, invoking Section 27 of Presidential Decree 1638, as amended, which removes from the retired list any retiree who loses his Filipino citizenship and terminates his retirement benefits upon that loss.

Parreño sought reconsideration, which the Judge Advocate General denied, and then filed a claim before the Commission on Audit for continuance of his monthly pension. The Commission refused to act on the merits, and the case reached the Supreme Court.

Issues

• Whether or not Section 27 of Presidential Decree 1638, as amended, is constitutional.
• Whether or not the Commission on Audit has jurisdiction to rule on the constitutionality of Section 27 of Presidential Decree 1638, as amended.
• Whether or not Presidential Decree 1638, as amended, has retroactive or prospective effect.

Applicable Provisions

Section 2, paragraph 1, Article Nine D of the 1987 Constitution defines the audit power of the Commission on Audit:

Section 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the Government, which are required by law or the granting institution to submit such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto.

This grant of audit power is the source of the Commission's jurisdiction over money claims, and the Court reads it as not including the power to declare a law unconstitutional.

Section 27 of Presidential Decree 1638, as amended, is the provision under attack:

Section 27. Military personnel retired under Sections 4, 5, 10, 11 and 12 shall be carried in the retired list of the Armed Forces of the Philippines. The name of a retiree who loses his Filipino citizenship shall be removed from the retired list and his retirement benefits terminated upon such loss.

This is the provision that authorized the stoppage of Parreño's pension and whose constitutionality the Court upholds.

Section 2 of Presidential Decree 1638, as amended, fixes its coverage:

This Decree shall apply to all military personnel in the service of the Armed Forces of the Philippines.

This settles that the decree reaches those already in service at its approval, including Parreño.

Section 4 of the 1987 Constitution states the duty to defend the State:

Section 4. The prime duty of the Government is to serve and protect the people. The Government may call upon the people to defend the State and, in the fulfillment thereof, all citizens may be required, under conditions provided by law, to render personal, military, or civil service.

This is the constitutional basis for requiring retirees to remain citizens, since citizenship is what makes them subject to the call to military service.

Article 4 of the Civil Code supplies the rule on retroactivity:

Laws shall have no retroactive effect, unless the contrary is provided.

This confirms that Presidential Decree 1638, as amended, operates prospectively only.

Ruling

On the first issue, the Court holds that Section 27 of Presidential Decree 1638, as amended, is constitutional. The equal protection clause is not absolute but permits reasonable classification, and the Court applies its four requisites: the classification must rest on substantial distinctions which make real differences, must be germane to the purpose of the law, must not be limited to existing conditions only, and must apply equally to each member of the class. All are satisfied. There is a substantial difference between retirees who remain Filipino citizens and those who, like Parreño, lost citizenship by naturalization abroad. A retiree who renounced his allegiance can no longer be compelled to render compulsory military service when the need arises, and Republic Act 7077 treats ex-servicemen and retired officers as part of the Citizen Armed Forces. The condition is therefore neither oppressive nor discriminatory, and the State may impose it for national defense. There was likewise no denial of due process, because Parreño had the opportunity to contest the termination when he sought reconsideration before the Judge Advocate General.

On the second issue, the Court holds that the Commission on Audit has no jurisdiction to rule on the constitutionality or validity of laws. Its power over money claims against the government does not carry with it the power of judicial review, which the Constitution vests in the Supreme Court and the Regional Trial Courts. Since Parreño's money claim essentially involved the constitutionality of Section 27, the Commission did not commit grave abuse of discretion in dismissing it. The Court notes that the Commission nonetheless ruled on the merits in its resolution, effectively denying the claim because of the loss of Filipino citizenship.

On the third issue, the Court holds that Presidential Decree 1638, as amended, applies prospectively, since it took effect upon approval and provides for no retroactive application. But the Court rejects the argument of Parreño and the Office of the Solicitor General that it applies only to those who joined the military after its effectivity. Being a new system of retirement for military personnel, it applies to those already in the service at its approval, and Parreño retired in 1982, long after the decree was signed in 1979. On the claim of a vested right, the Court holds that no right had vested, because at the time of the decree and its amendment Parreño was still in active service and his benefits were mere future benefits; a right vests only upon retirement, when the eligibility conditions of nature of employment, age, and length of service are met. Military retirement benefits are moreover purely gratuitous, unlike contributory pension plans. Finally, the Court observes that Parreño has a remedy: should he reacquire Filipino citizenship under Republic Act 9225, he would be entitled to pension reckoned from the time of reacquisition, though not for the period he was not a Filipino.

Doctrine

First, the Commission on Audit has jurisdiction over money claims against the government, but that jurisdiction does not include the power to rule on the constitutionality or validity of laws, which belongs to the courts. Second, a law is presumed constitutional, and one who assails it must overcome that presumption. Third, a retirement law that classifies retirees by citizenship does not violate equal protection where the distinction is substantial, germane to the purpose of the law, not limited to existing conditions, and applied equally to all members of the class; loss of Filipino citizenship is such a distinction because the retiree can no longer be called to military service. Fourth, no vested right to a pension arises before retirement; until the eligibility conditions are met, the benefits are mere future benefits, and military retirement benefits are gratuitous in nature. Fifth, a retirement decree operates prospectively but applies to all military personnel in the service at the time of its approval.

Disposition

The petition was dismissed, and the decision and resolution of the Commission on Audit were affirmed; Parreño lost, and his pension remains terminated unless he reacquires Filipino citizenship.

Remember This

The one line to memorize: the Commission on Audit settles money claims but cannot declare a law unconstitutional, and a military retiree who loses his Filipino citizenship loses his pension because he has no vested right before retirement. Examiners use this case to test the limits of the audit power, the vested rights doctrine in retirement law, and reasonable classification under the equal protection clause.