Central Bay Reclamation and Development Corporation vs. Commission on Audit and the Philippine Reclamation Authority

A compromise agreement that allows a private corporation to assign reclaimed land of the public domain to a "qualified assignee" is void for circumventing the constitutional prohibition against private corporations acquiring alienable lands of the public domain, because the assignee cannot acquire greater rights than those pertaining to the assignor, and what cannot be done directly cannot be done indirectly.

The Philippine Reclamation Authority (PRA), formerly the Public Estates Authority (PEA), is a government agency tasked with reclamation projects. Central Bay Reclamation and Development Corporation (Central Bay), formerly Amari Coastal Bay and Development Corporation (AMARI), is a private corporation. On March 30, 1999, PRA and Central Bay entered into an Amended Joint Venture Agreement (JVA) to develop three reclaimed islands known as the "Freedom Islands" and to reclaim foreshore and submerged areas of Manila Bay. In a prior case, Chavez vs. Public Estates Authority, the Supreme Court declared the Amended JVA null and void ab initio for violating Sections 2 and 3, Article XII of the 1987 Constitution, which respectively prohibit the alienation of natural resources other than agricultural lands of the public domain and the acquisition by private corporations of any kind of alienable land of the public domain. The Court, however, held that Central Bay was not precluded from recovering costs incurred in implementing the agreement on a quantum meruit basis in proper proceedings.

The Philippine Reclamation Authority (PRA), formerly the Public Estates Authority (PEA), and Central Bay Reclamation and Development Corporation (Central Bay), formerly Amari Coastal Bay and Development Corporation (AMARI), entered into an Amended Joint Venture Agreement (JVA) on March 30, 1999, to develop three reclaimed islands with a combined titled area of 157.84 hectares known as the "Freedom Islands" located at the southern portion of the Manila-Cavite Coastal Road, Parañaque City, and to reclaim about 592.15 hectares of foreshore and submerged areas of Manila Bay. The agreement provided that Central Bay would acquire and own 77.34 hectares of the Freedom Islands and 290.156 hectares of still submerged areas of the Manila Bay.

In a Decision dated July 9, 2002, the Supreme Court in Chavez vs. Public Estates Authority nullified the Amended JVA for violating Sections 2 and 3, Article XII of the 1987 Constitution. The Court declared that the 157.84 hectares of reclaimed lands comprising the Freedom Islands were alienable lands of the public domain that PEA could lease but not sell to private corporations; that the 592.15 hectares of submerged areas remained inalienable natural resources until classified as alienable or disposable; and that the transfer to AMARI, a private corporation, was void. The Court permanently enjoined PEA and AMARI from implementing the Amended JVA. Central Bay moved for reconsideration, and in a Resolution dated May 6, 2003, the Court denied the motion but held that Central Bay was not precluded from recovering costs incurred in implementing the agreement prior to its declaration of nullity on a quantum meruit basis in proper proceedings.

Accordingly, Central Bay filed a petition for money claim against PRA before the COA in COA CP Case No. 2010-350, seeking reimbursement of P11,527,573,684.12. The parties later submitted a joint motion for judgment based on a Compromise Agreement where PRA offered to pay the incurred costs of P1,027,031,483.79 by transferring 102,703.15 square meters of reclaimed land located in Barangay San Dionisio, Parañaque City, covered by Transfer Certificate of Title No. 7309, to Central Bay's "Qualified Assignee," defined as a Filipino citizen qualified to own reclaimed lands under existing laws. The agreement also provided for the conveyance of a VAT equivalent land area of 12,324.38 square meters, with the VAT arising from the conveyance to be paid by Central Bay to the BIR.

In a Decision dated May 23, 2019, the COA disapproved the Compromise Agreement, finding that the stipulation to transfer the reclaimed land to Central Bay's qualified assignee was a circumvention of the Court's Decision declaring void the Amended JVA. The COA found Central Bay entitled to reimburse only P714,937,790.29, representing advance payment for reclamation and project development, and denied the other money claims for lack of supporting documents, including squatter relocation costs, additional advances, professional fees, interest and bank charges on loans, foreign exchange losses, pre-operating and operating expenses, input tax, documentary stamp tax, and legal interest. Central Bay moved for reconsideration, which was denied. Central Bay then filed the petition for certiorari before the Supreme Court, insisting that it would not own the reclaimed land but would assign it to a qualified individual. The COA, through the Office of the Solicitor General, countered that the Compromise Agreement contravened the constitutional ban against corporate ownership of land.

• No Grave Abuse of Discretion: Central Bay insisted that the COA committed grave abuse of discretion in disapproving the Compromise Agreement and disallowing the other money claims.
• Qualified Assignee Scheme: Central Bay argued that it will not own the reclaimed land but will be assigning it to a qualified individual, and thus the constitutional prohibition against corporate ownership of land is not violated.
• Entitlement to Money Claims: Central Bay maintained that it is entitled to reimbursement of the full amount of its claims, including squatter relocation costs, professional fees, interest and bank charges on loans, foreign exchange losses, pre-operating and operating expenses, input tax, documentary stamp tax, and legal interest.

• Constitutional Prohibition: The COA, through the Office of the Solicitor General, countered that the Compromise Agreement contravened the letter and intent of the constitutional ban against corporate ownership of land.
• Circumvention of Prior Decision: The COA argued that the stipulation to transfer the reclaimed land from PRA to Central Bay's qualified assignee was a circumvention of the Court's Decision which declared void the Amended JVA for violating the constitutional prohibition against private corporations acquiring any kind of alienable land of the public domain except through a lease.
• Lack of Congressional Approval: The COA maintained that the Compromise Agreement was void absent congressional approval, as the claim exceeded P100,000.00, and that no appropriation law existed to support the payment.

• Grave Abuse of Discretion: Whether the COA committed grave abuse of discretion in disapproving the Compromise Agreement and disallowing the other money claims.
• Validity of the Compromise Agreement: Whether the Compromise Agreement providing for the conveyance of reclaimed land to Central Bay's "qualified assignee" is void for circumventing the constitutional prohibition against private corporations acquiring alienable lands of the public domain.
• Congressional Approval and Appropriation: Whether the Compromise Agreement is void for lack of congressional approval and appropriation as required by the Administrative Code of 1987, the Government Auditing Code, and the 1987 Constitution.
• Money Claims: Whether the COA correctly disallowed Central Bay's money claims except the amount of P714,937,790.29 for lack of supporting documentation.

• Grave Abuse of Discretion: No. The COA did not commit grave abuse of discretion when it disapproved the Compromise Agreement and disallowed the money claims, except the amount of P714,937,790.29 that was properly established with documentary evidence. Grave abuse of discretion refers to evasion of a positive duty or virtual refusal to perform a duty enjoined by law, and mere reversible error is not enough.
• Validity of the Compromise Agreement: Void. The Compromise Agreement obliged PRA to transfer the reclaimed land to Central Bay's qualified assignee, a scheme that grants Central Bay beneficial ownership or equitable title, circumventing Section 3, Article XII of the 1987 Constitution which prohibits private corporations from holding alienable lands of the public domain except by lease.
• Congressional Approval and Appropriation: Void. Section 20(1), Chapter IV, Subtitle B, Title I, Book V of Executive Order No. 292 vests exclusively in Congress the authority to compromise a settled claim or liability exceeding P100,000.00 involving a government agency, and Section 29(1), Article VI of the 1987 Constitution requires an appropriation law before money can be paid out of the Treasury.
• Money Claims: Affirmed. The COA correctly disallowed Central Bay's money claims except the amount of P714,937,790.29 representing advance payment for the reclamation and project development, which were properly established with documentary evidence, consistent with the principle that claims against government funds shall be supported with complete documentation.

• Grave Abuse of Discretion: The 1987 Constitution made the COA the guardian of public funds, vesting it with broad powers over all accounts pertaining to government revenue and expenditures, including the exclusive authority to define the scope of its audit and examination. The Court has generally sustained COA decisions owing to its constitutional mandate and special knowledge on matters within its powers unless it has clearly acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction. The petitioner has the burden to prove the COA's arbitrariness, and mere reversible error or abuse is not enough.

• Validity of the Compromise Agreement: The proscription against corporate ownership of alienable lands is absolute and clear. Section 3, Article XII of the 1987 Constitution provides that private corporations "may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area." The Compromise Agreement obliged PRA to transfer the reclaimed land to Central Bay's qualified assignee, a scheme that grants Central Bay beneficial ownership or equitable title. The provision allowing conveyance to "Central Bay's [q]ualified [a]ssignee" clearly means that Central Bay will hold the reclaimed land other than by lease, which the constitutional ban seeks to avoid. The stipulation presupposes that Central Bay, as an assignor, is qualified by law to exercise ownership of the land and transfer it to another party. An assignee cannot acquire greater rights than those pertaining to the assignor, and the assignee is merely subrogated to the rights and obligations of the assignor. In the analogous case of Strategic Alliance Development Corporation vs. Radstock Securities Limited, the Court declared void a Compromise Agreement because the assignment of rights circumvented the prohibition against foreign corporations owning land in the Philippines. Applying the maxim "nemo dat quod non habet," the qualified assignee can acquire ownership of the land only if Central Bay owns the land. Since Central Bay is a private corporation that cannot own land in the Philippines, it cannot transfer ownership of any land to another party.

• Congressional Approval and Appropriation: Section 20(1), Chapter IV, Subtitle B, Title I, Book V of Executive Order No. 292, or the Administrative Code of 1987, is explicit that Congress has the exclusive authority to compromise a settled claim or liability that exceeded P100,000.00 involving a government agency. In Binga Hydroelectric Plant, Inc. vs. COA, the Court clarified that the term "government agency" refers to any of the various units of the Government, including a department, bureau, office, instrumentality, or government-owned or controlled corporation, and that a GOCC cannot validly invoke its autonomy to enter into a compromise agreement in violation of the provision. The Compromise Agreement between PRA and Central Bay must bear the approval of Congress since the stipulated P1,027,031,483.79 money claim exceeded the threshold amount. Section 29(1), Article VI of the 1987 Constitution provides that no money shall be paid out of the Treasury except in pursuance of an appropriation made by law. Sections 84 and 85 of PD No. 1445, the Government Auditing Code, require that before a government agency can enter into a contract involving the expenditure of government funds, there must be an appropriation law for such expenditure. Section 87 of PD No. 1445 provides that any contract entered into contrary to the requirements of Sections 85 and 86 shall be void. Without an appropriation law, PRA cannot lawfully pay the money claims to Central Bay, and any contract allowing such payment, like the Compromise Agreement, shall be void under Article 5 of the Civil Code.

• Money Claims: One of the fundamental principles governing financial transactions and operations of any government agency is that claims against government funds shall be supported with complete documentation. The COA correctly granted the advance payment of P300,000,000.00 paid by Central Bay to PRA as partial payment for the rawland reclamation cost, as it was directly connected to the implementation of the project and duly supported with copies of official receipts. The project development cost of P414,937,790.29 was granted based on accomplishment reports certified by PRA. The squatter's relocation costs were denied for lack of documents sufficient to support the claim, as only photocopies of payable vouchers, check vouchers, and acknowledgment receipts were on record. The additional advances for relocation and Housing Cash Assistance Program could not be validated for lack of supporting documents. The professional fees were denied because 83% represented brokers' fees not directly related to the project, and the rest were paid to law firms, accounting firms, engineering companies, appraisers, and developers not directly related to the implementation of the project. The interest and bank charges on loans and foreign exchange losses were denied because the funding of the project was at the sole expense of Central Bay, and the government was not privy to any loan agreement entered into by Central Bay. The pre-operating and operating expenses were denied as they pertained to Central Bay's operational expenses not directly related to the project. The input tax and documentary stamp tax claims were denied for lack of legal basis as they were part of the development cost solely for the account of Central Bay. The claim for legal interest was denied because the ruling in Eastern Assurance and Surety Corporation vs. Court of Appeals could not apply, as it involved a claim for indemnity and payment of damages against an insurance company for breach of contract, not a money claim against the government for reimbursement based on quantum meruit, and awarding legal interest would be contrary to the principle of quantum meruit.

• Nemo dat quod non habet — No one can give what he does not have. The Court applied this maxim to hold that the qualified assignee under the Compromise Agreement could acquire ownership of the reclaimed land only if Central Bay, the assignor, owned the land. Since Central Bay is a private corporation that cannot own alienable lands of the public domain under Section 3, Article XII of the 1987 Constitution, it cannot transfer ownership of any land to another party, and the Compromise Agreement is void.

• Quantum meruit — Recovery of the reasonable value of services rendered regardless of any agreement as to value. The Court applied this principle to allow Central Bay to recover the actual costs it incurred in implementing the Amended JVA prior to its declaration of nullity, provided that the claim is substantiated by supporting documents. The principle entitles the party to as much as he reasonably deserves, as distinguished from quantum valebant or as much as what is reasonably worth.

• Circumvention of Constitutional Prohibitions — What cannot be done directly cannot be done indirectly. The Court applied this principle to declare void the Compromise Agreement that allowed Central Bay to assign the reclaimed land to a "qualified assignee," as the scheme circumvented the constitutional prohibition against private corporations acquiring alienable lands of the public domain. The Court reiterated that a contract which violates the Constitution is void, and it will not permit to be done indirectly which, because of public policy, cannot be done directly.

• COA's Power to Disapprove Compromise Agreements — The COA is endowed with enough latitude to determine, prevent, and disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures of government funds. The Court sustained the COA's disapproval of the Compromise Agreement, as the COA did not commit grave abuse of discretion, and the agreement was void for violating the constitutional prohibition against corporate ownership of land, for lack of congressional approval, and for lack of appropriation.

• "The Court is not a legitimizer of violations of law. What cannot be done directly cannot be done indirectly. This principle is elementary and does not need explanation. Certainly, if acts that cannot be legally done directly can be done indirectly, then all laws would be illusory." — This passage states the overarching principle guiding the Court's resolution of the petition, emphasizing that the Court will not permit circumvention of constitutional prohibitions.

• "The proscription against corporate ownership of alienable lands is absolute and clear. Apropos is Section 3, Article XII of the 1987 Constitution which provides that private corporations 'may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area.'" — This passage articulates the controlling constitutional provision and the absolute nature of the prohibition against corporate ownership of alienable lands of the public domain.

• "Applying the maxim 'nemo dat quod non habet,' the qualified assignee can acquire ownership of the land only if Central Bay owns the land. Otherwise, the stipulation will evade the Court's decision which declared void the Amended JVA between PRA and Central Bay for violating the constitutional prohibition against private corporations from acquiring any kind of alienable land of the public domain except through a lease." — This passage states the ratio decidendi for declaring the Compromise Agreement void, applying the nemo dat principle to the assignment scheme.

• "It is basic that an assignor or seller cannot assign or sell something he does not own at the time the ownership, or the rights to the ownership, are to be transferred to the assignee or buyer. The third party assignee under the Compromise Agreement who will be designated by Radstock can only acquire rights duplicating those which its assignor (Radstock) is entitled by law to exercise." — This passage, quoted from Strategic Alliance Development Corporation vs. Radstock Securities Limited, articulates the principle that an assignee cannot acquire greater rights than those of the assignor, which the Court applied to the Central Bay case.

• Chavez vs. Public Estates Authority, 433 Phil. 506 (2002) — Controlling precedent that declared the Amended JVA between PEA and AMARI null and void ab initio for violating Sections 2 and 3, Article XII of the 1987 Constitution. The Court relied on this decision as the basis for finding that the Compromise Agreement circumvented the prior ruling.

• Chavez vs. Public Estates Authority, 451 Phil. 1 (2003) — Followed. The Court denied Central Bay's motion for reconsideration but held that Central Bay may recover costs incurred in implementing the agreement prior to its declaration of nullity on a quantum meruit basis in proper proceedings.

• Strategic Alliance Development Corporation vs. Radstock Securities Limited, 622 Phil. 431 (2009) — Controlling precedent, directly analogous. The Court declared void a Compromise Agreement because the assignment of rights circumvented the prohibition against foreign corporations owning land in the Philippines. The Court applied the same reasoning to Central Bay's assignment scheme.

• Binga Hydroelectric Plant, Inc. vs. COA, 836 Phil. 46 (2018) — Followed. The Court clarified that the term "government agency" in Section 20(1) of the Administrative Code of 1987 refers to any of the various units of the Government, including government-owned or controlled corporations, and that the authority to compromise a settled claim or liability exceeding P100,000.00 is vested exclusively in Congress.

• Eastern Assurance and Surety Corporation vs. Court of Appeals, 379 Phil. 84 (2000) — Distinguished. The Court held that this case could not apply to Central Bay's claim for legal interest because it involved a claim for indemnity and payment of damages against an insurance company for breach of contract, not a money claim against the government for reimbursement based on quantum meruit.

• Civil Service Commission vs. Cortes, 734 Phil. 295 (2014) — Cited for the principle that what cannot be done directly cannot be done indirectly.

• Tawang Multi-Purpose Cooperative vs. La Trinidad Water District, 661 Phil. 390 (2011) — Cited for the principle that what cannot be done directly cannot be done indirectly.

• Beumer vs. Amores, 700 Phil. 90 (2012) — Cited for the principle that a contract which violates the Constitution is void, and the Court will not permit to be done indirectly which, because of public policy, cannot be done directly.

• Section 3, Article XII, 1987 Constitution — Prohibits private corporations from acquiring any kind of alienable land of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area. The Court applied this provision to declare void the Compromise Agreement that allowed Central Bay to assign reclaimed land to a qualified assignee.

• Section 2, Article XII, 1987 Constitution — Prohibits the alienation of natural resources other than agricultural lands of the public domain. This provision was the basis of the prior ruling in Chavez vs. Public Estates Authority declaring the Amended JVA void.

• Section 20(1), Chapter IV, Subtitle B, Title I, Book V, Executive Order No. 292 (Administrative Code of 1987) — Vests exclusively in Congress the authority to compromise a settled claim or liability exceeding P100,000.00 involving a government agency. The Court applied this provision to hold that the Compromise Agreement between PRA and Central Bay must bear the approval of Congress since the stipulated claim exceeded the threshold amount.

• Section 29(1), Article VI, 1987 Constitution — Provides that no money shall be paid out of the Treasury except in pursuance of an appropriation made by law. The Court applied this provision to hold that a law must first be enacted by Congress appropriating P1,027,031,483.79 as compromise money before payment to Central Bay can be made.

• Sections 84, 85, 86, and 87, Chapter 4, Title II, Presidential Decree No. 1445 (Government Auditing Code of the Philippines) — Sections 84 and 85 require that before a government agency can enter into a contract involving the expenditure of government funds, there must be an appropriation law for such expenditure. Section 86 requires that the proper accounting official must certify that funds have been appropriated. Section 87 provides that any contract entered into contrary to the requirements of Sections 85 and 86 shall be void. The Court applied these provisions to declare the Compromise Agreement void.

• Article 5, Civil Code — Provides that acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity. The Court applied this provision to hold that without an appropriation law, PRA cannot lawfully pay the money claims to Central Bay.

• Article 1409, Civil Code — Provides that contracts whose object or purpose is contrary to law, or whose object is outside the commerce of men, are inexistent and void from the beginning. This provision was cited in the prior ruling in Chavez vs. Public Estates Authority declaring the Amended JVA void.

• Section 4, paragraph 6, Presidential Decree No. 1445 — Provides that claims against government funds shall be supported with complete documentation. The Court applied this principle to affirm the COA's disallowance of money claims lacking supporting documents.

Gesmundo, C.J. (Chairperson), Perlas-Bernabe, S.A.J., Leonen, Caguioa, Hernando, Lazaro-Javier, Inting, Zalameda, Gaerlan, Rosario, J. Lopez, Dimaampao, Marquez, and Kho, Jr., JJ., concurred.