Understanding Solidary Liability in Audit Disallowances: Lessons from Lozada v. COA

The Supreme Court's 2021 ruling in Lozada v. Commission on Audit offers important guidance for government officials and employees who face audit disallowances. The case clarifies what "solidary liability" means when the Commission on Audit (COA) disallows illegal expenditures — and why COA may collect the full amount from any single liable person, even if others are equally responsible.

The Facts of the Case

Several officials of the Manila International Airport Authority (MIAA) were found liable for various disbursements that COA disallowed in audit. After the disallowance decisions became final, COA issued Orders of Execution. MIAA then enforced these orders by deducting salaries from officials who remained employed and referring collection from resigned or retired officials to its legal department.

The petitioners — all incumbent MIAA officials — objected to this arrangement. They argued that COA should also collect from those who had resigned, retired, or died, insisting that all persons named in the disallowance should be held equally liable. They asked the Supreme Court to declare Section 16.3 of COA Circular No. 006-09 unconstitutional.

The Challenged Rule

Section 16.3 of COA Circular No. 006-09 states that the liability of persons determined to be liable under a Notice of Disallowance shall be solidary, and COA may proceed against any person liable without prejudice to that person's claim against the rest.

The petitioners claimed this rule was "excessive, unreasonable, and unconscionable to human dignity." They argued that it allowed MIAA to single them out while ignoring others who were equally responsible.

The Court's Ruling

The Supreme Court dismissed the petition. It held that the petitioners failed to overcome the presumption of validity that attaches to statutes and regulations. Their allegations were vague conclusions of law that did not specify which constitutional right was violated.

More importantly, the Court explained that the petitioners misunderstood the nature of solidary liability.

Under the Civil Code, solidarity exists only when the obligation expressly states so, or when the law requires it. The Administrative Code of 1987 expressly provides that every official or employee who authorizes, makes, or takes part in an illegal payment, and every person receiving such payment, shall be jointly and severally liable to the Government for the full amount paid or received.

The Court clarified that in a solidary obligation, there is only one debt despite the plurality of parties. The Civil Code allows the creditor to proceed against any one of the solidary debtors, or some or all of them simultaneously. There is nothing illegal when a creditor chooses to collect from one debtor ahead of others — that is the essence of solidarity.

The Court also noted that MIAA actually proceeded against all liable persons simultaneously, just through different modes: salary deductions for those still in service, and legal collection for those who had left.

The Concurring Opinion's Important Clarification

Justice Caguioa's concurring opinion added a crucial nuance. Solidary liability for illegal expenditures is based on each person's participation in the disallowed transaction. The "full amount so paid or received" refers to each payment in which a person took part — not necessarily the entire amount stated in the Notice of Disallowance.

Thus, a payee who received only a portion of the disallowed amount is solidarily liable only for what he or she actually received, together with the officers who authorized or certified that particular payment. There may be as many discrete solidary obligations in a single Notice of Disallowance as there are payees or separate transactions.

Practical Takeaways

• Solidary liability means COA can collect the full amount from any single liable person. The government may choose the most convenient mode of collection, such as salary deduction from current employees.
• Liability is based on participation, not equal sharing. A person's solidary liability is limited to the disallowed payments in which he or she actually participated.
• Officers who paid have a right to reimbursement. A solidary debtor who pays more than his or her share can demand proportional reimbursement from co-debtors.
• Challenging COA rules requires specific constitutional grounds. Vague claims of unfairness or burden will not overcome the presumption of validity.
• Act promptly. The Court noted that the petitioners filed their case over a year after the Orders of Execution were issued, suggesting their petition was a belated afterthought.

The Lozada ruling confirms that solidary liability for audit disallowances is a deliberate legal design — it protects public funds by ensuring the government can recover disallowed amounts efficiently, while still allowing liable persons to seek reimbursement from each other.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.