Felix Gochan & Sons Realty Corporation vs. Commission on Audit and The City Government of Cebu

The Commission on Audit exceeds its constitutional jurisdiction when it declares a contract void ab initio, because the determination of the validity of contracts is a judicial question within the jurisdiction of the courts. A land swap under R.A. No. 7279 is not prohibited where the private party's land is of lesser value than the government's land, provided the private party pays the difference in value, since Section 10 of R.A. No. 7279 is not an exclusive list of modes of land acquisition.

Felix Gochan & Sons Realty Corporation is a private corporation that owned two parcels of land in Cebu City: the Banawa Property in Barangay Guadalupe, occupied by Banawa Elementary School since April 1970, and the Lorega Property in Lorega, San Miguel, declared as a Socialized Housing Site pursuant to City Ordinance No. 1684 dated August 14, 1997. The City Government of Cebu owned the Lahug Property in Salinas Drive, Lahug, Cebu City. The possible ejectment case Gochan & Sons might file against the Banawa Elementary School, to the prejudice of school children and the city government, motivated the parties to agree to a land swap. The COA's statutory mandate under P.D. No. 1445 and its constitutional powers under Section 2, Article IX(D) of the Constitution define the scope of its audit jurisdiction.

Felix Gochan & Sons Realty Corporation owned two parcels of land in Cebu City: the Banawa Property in Barangay Guadalupe, registered under TCT No. 24712, which had been occupied by Banawa Elementary School since April 1970, and the Lorega Property in Lorega, San Miguel, registered under TCT No. 7840, which had been declared a Socialized Housing Site pursuant to City Ordinance No. 1684 dated August 14, 1997, with beneficiaries of the Socialized Housing Program settled therein. Cebu City owned the Lahug Property in Salinas Drive, Lahug, registered under TCT No. T-30916.

On December 14, 2005, the Sangguniang Panlungsod of Cebu issued Resolution No. 05-1676 approving the proposed land swap and authorizing the city mayor to execute a Deed of Exchange. The possible ejectment case Gochan & Sons might file against the Banawa Elementary School, to the prejudice of school children and the city government, motivated the parties to agree to the land swap. A Deed of Exchange was executed with Gochan & Sons' President Louise Y. Gochan and Cebu City Mayor Tomas R. Osmeña as representatives. The COA Legal and Adjudication Office-Local Sector recommended approval after Gochan & Sons' properties were initially valued at P37,966,550.00 and Cebu City's Lahug Property at P34,883,600.00.

Sometime in 2008, an inspection was made on the properties in compliance with COA directives, and a committee of COA assistant commissioners recommended a re-appraisal. After re-appraisal, it was discovered that the value of Gochan & Sons' properties was about 45% lower compared to the Lahug Property. The COA then issued Decision No. 2009-049 dated June 5, 2009, disapproving the Deed of Exchange, opining that the exchange would violate R.A. No. 7279 because Cebu City's property was more valuable, and that the P20 Million difference was substantial, which Gochan & Sons should compensate if the transaction were consummated.

Gochan & Sons moved for reconsideration, arguing that rental losses should be considered in appraising its properties, highlighting that for 30 years its properties were used by Cebu City without paying rentals. The COA denied the motion in its January 20, 2011 Resolution, explaining that Cebu City was not liable for rentals absent any contract, that R.A. No. 7279 only provides for modes of land acquisition, and that the Department of Education mistakenly constructed the school because public schools were devolved to LGUs only upon the effectivity of the Local Government Code of 1991. The COA added that if the Lahug Property were conveyed as payment for alleged debts, the transaction would be a dacion en pago, and that even if Cebu City's liability were valid, it would be a claim against the government subject to COA evaluation.

Gochan & Sons filed a Supplemental MR on January 28, 2011, before receiving the January 20, 2011 Resolution. On June 27, 2011, the COA issued a Notice of Finality of Decision, which Gochan & Sons assailed as premature because the COA did not pass upon the issues in its Supplemental MR. Meanwhile, on December 27, 2012, Cebu City enacted Budget Ordinance No. 2348 authorizing the sale of parcels of land, including the Lahug Property, for revenue generation. After public bidding, the Lahug Property was awarded to the lone bidder, Hotel of Asia, Inc., upon payment of P83,673,500.00. On June 7, 2012, the COA, during its Regional Meeting, resolved to admit Gochan & Sons' Supplemental MR and instructed its Legal Services Sector to re-evaluate the case.

In its June 18, 2014 Resolution, the COA ruled in favor of Gochan & Sons and approved the Deed of Exchange, reiterating that under R.A. No. 7279, the value of lands involved in land swapping is determined based on land classification, market value reflected in zonal valuation, and assessed value from existing tax declarations. The COA recognized the predicament that Cebu City and the affected communities would face should the school and Socialized Housing Site be relocated, surmising that the P20,137,100.00 difference was insubstantial when measured against the immeasurable value of distortion that may result from denial of the Deed of Exchange. Cebu City moved for reconsideration.

In its April 6, 2015 Resolution, the COA granted Cebu City's motion, explaining that Gochan & Sons' Supplemental MR should not have been given due course because it was filed in the wrong office and did not comply with Section 6, Rule 10 of the Rules of Court. The COA declared the Deed of Exchange void ab initio because it was without its approval, reasoned that Cebu City acted within its rights in disposing of the Lahug Property through public bidding, and noted that HAI purchased the property for P83,673,500.00, which was higher than the P44,783,000.00 fair market value previously determined. Gochan & Sons moved for reconsideration but was denied in the December 23, 2015 Resolution.

• Timeliness of Petition: Gochan & Sons argued that the COA committed grave abuse of discretion when it disregarded its motion for reconsideration of the April 6, 2015 Resolution for being a prohibited pleading, positing that the COA Rules of Procedure allows one motion for reconsideration per decision issued, and the motion assailing the April 6, 2015 Resolution should be treated separately because the prior decisions were in conflict.
• Supplemental MR and Estoppel: Gochan & Sons argued that the COA erred in concluding that the Supplemental MR did not bar the finality of the January 20, 2011 Resolution, pointing out that Cebu City never opposed its filing and that the COA itself ordered a review based on the pending Supplemental MR, and that the COA is estopped from changing its admission.
• Finality and Compensation: Gochan & Sons theorized that even assuming the January 20, 2011 Resolution attained finality, the tenor of the decision was that the COA was not inclined to approve the Deed of Exchange unless Gochan & Sons paid the difference, and it had acceded to compensate Cebu City, so the proper action was to order Cebu City to accept the offered compensation.
• COA's Power to Declare Contracts Void: Gochan & Sons postulated that the Commission had no power to decide on the validity of contracts since it is a judicial function and its role is limited to audit-related matters, and that there was no basis to declare the Deed of Exchange void because COA's disapproval is not among the grounds for declaring a contract void under Articles 1390 and 1409 of the Civil Code.
• Rental Liability and Valuation: Gochan & Sons bewailed that Cebu City is liable for rentals for its use of the Banawa and Lorega properties and the same should have been considered in the valuation of the properties.
• Relocation Costs and LGU Discretion: Gochan & Sons averred that the COA should have factored in the costs of relocating the Banawa Elementary School and the Socialized Housing Site, and that the Commission should not have substituted its judgment with the concerned LGU officials who decided that land swap, not expropriation, was the best way to settle the controversy.

• Timeliness of Petition: Cebu City countered that Gochan & Sons' petition was filed out of time because if it wanted to question the January 20, 2011 Resolution, it should have filed a petition for certiorari under Rule 64 within the prescribed period, and the Supplemental MR was a prohibited second motion for reconsideration that did not interrupt the running of the period.
• Finality of the January 20, 2011 Resolution: The COA agreed that the petition was filed out of time, highlighting that when the motion for reconsideration of the June 5, 2009 Decision was denied, the only legal remedy was a petition for certiorari within the remaining 30-day period, and the June 5, 2009 Decision and January 20, 2011 Resolution had lapsed into finality.
• Supplemental MR as Rehash: The COA expounded that it did not act with grave abuse of discretion in disregarding the Supplemental MR as it was a mere rehash of the initial motion for reconsideration.
• Violation of R.A. No. 7279: The COA reiterated that the Deed of Exchange was correctly disapproved as contrary to R.A. No. 7279 because Cebu City's property was more valuable than Gochan & Sons' properties.
• Void Contract: The COA disagreed with Gochan & Sons' position that there was no ground to declare the Deed of Exchange void, countering that Article 1409 of the Civil Code declares contracts prohibited by law to be void.

• Timeliness of Petition: Whether the petition for certiorari was timely filed, given that the COA reckoned the 30-day period from notice of the June 5, 2009 Decision rather than the April 6, 2015 Resolution.
• Supplemental MR as Prohibited Pleading: Whether the COA correctly treated Gochan & Sons' Supplemental MR as a prohibited second motion for reconsideration.
• COA's Jurisdiction to Declare Contracts Void: Whether the COA acted in excess of its audit jurisdiction in declaring the Deed of Exchange void ab initio for lack of prior COA approval.
• Land Swap Under R.A. No. 7279: Whether the Deed of Exchange violated R.A. No. 7279 because Cebu City's property was more valuable than Gochan & Sons' properties.
• Rental Losses in Valuation: Whether Cebu City is liable for rentals for its use of the Banawa and Lorega properties and whether such rental losses should be considered in the valuation of the properties for the land swap.
• Relocation and Construction Costs: Whether the COA improperly factored in the costs of reconstructing school buildings and relocating informal settlers in approving the Deed of Exchange.
• Sale of the Lahug Property to HAI: Whether the sale of the Lahug Property to Hotel of Asia, Inc. requires approval of the COA.

• Timeliness of Petition: Yes. The petition was timely filed because the 30-day period should be reckoned from the April 6, 2015 and December 23, 2015 Resolutions, which are separate and different from the June 5, 2009 Decision since the COA had previously ruled in Gochan & Sons' favor in its June 18, 2014 Resolution.
• Supplemental MR as Prohibited Pleading: No. The Supplemental MR was correctly treated as a prohibited second MR because it did not raise new facts or events that developed after the filing of the initial MR, but Gochan & Sons' MR assailing the April 6, 2015 Resolution should not be deemed a second MR because the April 6, 2015 Resolution is a different decision from the June 5, 2009 Decision.
• COA's Jurisdiction to Declare Contracts Void: No. The COA acted in excess of its audit jurisdiction in declaring the Deed of Exchange void ab initio, because the determination of the validity of contracts is a judicial question within the jurisdiction of the courts, and there is no law requiring prior COA approval for the validity of the Deed of Exchange.
• Land Swap Under R.A. No. 7279: No. The Deed of Exchange did not violate R.A. No. 7279 because Section 3(j) does not expressly prohibit land swap deals where the private individual offers land of lesser value, and Section 10 is not an exclusive list of modes of land acquisition, so the parties may enter into a modified land swap where the private party pays the difference in value.
• Rental Losses in Valuation: No. Rental losses should not be considered in the valuation of the properties for the land swap absent any contract or agreement, as the COA consistently held.
• Relocation and Construction Costs: No. Relocation and construction costs should not be considered in the value-for-value evaluation of the Deed of Exchange because they could not be ascertained in terms of determinable peso value.
• Sale of the Lahug Property to HAI: N/A. The Court did not directly rule on this issue, as the Deed of Exchange was approved and the sale to HAI was rendered moot by the approval of the land swap.

• Timeliness of Petition: Under Section 3, Rule 64 of the Rules of Court, a petition for certiorari shall be filed within 30 days from notice of judgment, final order or resolution sought to be reviewed, and in cases where a motion for reconsideration is allowed, within the remainder of the said period when the motion is denied. The COA mistakenly reckoned the 30-day period from notice of the June 5, 2009 Decision. The COA withdrew the finality of the June 5, 2009 Decision and took cognizance of Gochan & Sons' Supplemental MR, eventually ruling in Gochan & Sons' favor in its June 18, 2014 Resolution. The April 6, 2015 Resolution should be treated as a separate and different resolution from the June 5, 2009 Decision since the COA had previously ruled in Gochan & Sons' favor. Gochan & Sons received the April 6, 2015 Resolution on May 15, 2015, filed its MR on June 9, 2015, and received the denial on March 15, 2016, so the petition was filed within the prescribed periods.

• Supplemental MR as Prohibited Pleading: Under Section 1, Rule XV of the 2009 COA Rules of Procedure, the Rules of Court applies suppletorily. Section 6, Rule 10 of the Rules of Court requires that a supplemental pleading set forth transactions, occurrences or events which have happened since the date of the pleading sought to be supplemented. Citing Young vs. Spouses Sy, the Court explained that a supplemental pleading serves to bolster or add something to the primary pleading and sets up new facts which justify, enlarge or change the kind of relief. Gochan & Sons' Supplemental MR merely expounded or reiterated the arguments raised in its initial MR and did not raise new facts or events, so the COA had reason to treat it as a second MR. However, applying Cristobal vs. Philippine Airlines, Inc. analogously, the prohibition against a second MR contemplates the same party assailing the same judgment, and a decision substantially reversing a determination in a prior decision is a different decision. The June 5, 2009 Decision is distinct from the April 6, 2015 Resolution, so Gochan & Sons should not be precluded from filing a separate MR for the April 6, 2015 Resolution.

• COA's Jurisdiction to Declare Contracts Void: Section 26 of P.D. No. 1445 and Section 2, Article IX(D) of the Constitution define the COA's jurisdiction over audit matters. While the COA's findings are generally accorded respect and finality when supported by substantial evidence, the Court would not hesitate to annul its decisions when it is without jurisdiction or exceeded its jurisdiction. A tribunal lacks jurisdiction when it is devoid of legal power, and there is excess of jurisdiction when an act, though within the general power, is not authorized with respect to the particular proceeding. The determination of the validity of contracts is a judicial question within the jurisdiction of the courts, involving the determination of what the law is and what the legal rights of the parties are. The COA, in declaring the Deed of Exchange void for lack of prior approval, acted in excess of its audit jurisdiction as it encroached on judicial power. There is no law requiring that the Deed of Exchange be previously approved by the COA, otherwise it would be null and void. The COA mistakenly relied on Danville Maritime, Inc. vs. Commission on Audit because the portion cited was not a ruling of the Court but merely a stipulation in a Memorandum of Agreement, and the Deed of Exchange did not have any stipulations that COA approval is vital to the validity of the contract.

• Land Swap Under R.A. No. 7279: Section 3(j) of R.A. No. 7279 defines land swapping as the process of land acquisition by exchanging land for another piece of land of equal value, or for shares of stock, for the purpose of planned and rational development and provision for socialized housing, with the proviso that more valuable lands owned by private persons may be exchanged with less valuable lands to carry out the objectives of the Act. The combined value of Gochan & Sons' properties was consistently determined to be lower than Cebu City's Lahug Property by more than P20 Million based on the evaluations of the COA, CB Richard Ellis, and Magaca Appraisal Konsult. A closer reading of Section 3(j) reveals that it did not expressly prohibit or declare void land swap deals where the private individual offers land of lesser value to the government; it only defined a land swap deal in such terms to ensure that LGUs are never placed at a disadvantage. The provision does not preclude parties from agreeing that the private individual pay an additional amount in case the value of the private land is lesser. Citing Chavez vs. Judicial and Bar Council, the Court noted that the whole and every part of the statute must be considered in fixing the meaning of any of its parts. Section 10 of R.A. No. 7279 provides that the modes of acquiring lands shall include, among others, community mortgage, land swapping, land assembly or consolidation, land banking, donation to the government, joint-venture agreement, negotiated purchase, and expropriation, but this was never meant to be an exclusive list. Thus, Gochan & Sons and Cebu City may enter into a modified land swap where the former must pay the difference in value, and Cebu City would, in effect, be receiving properties of commensurate value.

• COA's Audit Jurisdiction is Limited — The COA's jurisdiction under Section 26 of P.D. No. 1445 and Section 2, Article IX(D) of the Constitution extends to audit matters, including the examination, audit, and settlement of all accounts pertaining to government revenue and expenditures and uses of public funds and property. The determination of the validity of contracts is a judicial question within the jurisdiction of the courts, and the COA exceeds its jurisdiction when it declares a contract void ab initio, as this encroaches on judicial power vested in the courts.

• Supplemental Pleadings Require Supervening Events — Under Section 6, Rule 10 of the Rules of Court, applied suppletorily to the 2009 COA Rules of Procedure, a supplemental pleading must set forth transactions, occurrences or events which have happened since the date of the pleading sought to be supplemented. A supplemental pleading that merely rehashes arguments already raised in the initial pleading is properly treated as a prohibited second motion for reconsideration.

• Prohibition Against Second Motion for Reconsideration — The prohibition against the filing of a second motion for reconsideration contemplates the same party assailing the same judgment. A decision substantially reversing a determination in a prior decision is a different decision from the earlier one, and a party is not precluded from filing a separate motion for reconsideration for the later decision.

• Land Swapping Under R.A. No. 7279 — Section 3(j) of R.A. No. 7279 defines land swapping as the process of land acquisition by exchanging land for another piece of land of equal value, or for shares of stock, for the purpose of planned and rational development and provision for socialized housing. The provision does not expressly prohibit land swap deals where the private individual offers land of lesser value to the government, and Section 10 of R.A. No. 7279 is not an exclusive list of modes of land acquisition, so parties may enter into a modified land swap where the private party pays the difference in value.

• "The Court finds that the COA, in declaring the Deed of Exchange between Cebu City and Gochan & Sons void for lack of COA's prior approval, had acted in excess of its audit jurisdiction. While the COA exercises broad powers in audit matters and its findings afforded great weight if not finality in matters within its expertise, it could not pass upon the issue of validity of contracts as it would be an encroachment of judicial function." — This passage states the ratio decidendi on the COA's jurisdictional limits, holding that contract validity is a judicial question outside the COA's audit mandate.

• "A closer reading of the aforementioned provision, however, reveals that it did not expressly prohibit or declare void land swap deals where the private individual offers land of lesser value to the government. It only defined a land swap deal in such terms to ensure that the LGUs are never placed at a disadvantage, i.e., they would only receive land of equal or higher value. Nevertheless, the provision does not preclude parties into agreeing that the private individual pay an additional amount in case the value of the private land is lesser compared to the public land involved in a land swap." — This passage defines the controlling interpretation of Section 3(j) of R.A. No. 7279, establishing that a modified land swap with compensation for the value difference is permissible.

• "It can be readily seen that while Section 10 of R.A. No. 7279 provides for specific modes of land acquisition, it was never meant to be an exclusive list. The law recognizes that there may be other transactions by which LGUs can acquire land for the purposes of R.A. No. 7279 which were not specifically stated therein, for so long as it is beneficial to the public and does not prejudice the government." — This passage establishes the statutory construction principle that Section 10 of R.A. No. 7279 is not an exclusive enumeration of modes of land acquisition.

• Young vs. Spouses Sy, 534 Phil. 246, 260 (2006) — Cited to explain the nature and purpose of supplementary pleadings, that a supplemental pleading serves to bolster or add something to the primary pleading and sets up new facts which justify, enlarge or change the kind of relief.

• Cristobal vs. Philippine Airlines, Inc., G.R. No. 201622, October 4, 2017 — Cited to elucidate that the prohibition against the filing of a second MR contemplates the same party assailing the same judgment, and that a decision substantially reversing a determination in a prior decision is a different decision from the earlier one.

• Danville Maritime, Inc. vs. Commission on Audit, 256 Phil. 1092 (1989) — Distinguished; the COA mistakenly relied on this case because the portion cited was not a ruling of the Court but merely a stipulation in a Memorandum of Agreement executed by the parties therein.

• Yap vs. Commission on Audit, 633 Phil. 174, 189 (2010) — Cited for the proposition that COA is vested with broad powers over all accounts pertaining to government revenue and expenditures and the uses of public funds and property.

• Verzosa, Jr. vs. Carague, 660 Phil. 131, 168 (2011) — Cited for the proposition that the findings of the COA are generally accorded not only respect but at times finality if supported by substantial evidence.

• Daraga Press, Inc. vs. Commission on Audit, 760 Phil. 391, 399 (2015) — Cited for the proposition that the Court would not hesitate to annul decisions and resolutions of the COA when it is without jurisdiction or when it had exceeded its jurisdiction.

• Chamber of Real Estate and Builders Association, Inc. vs. Secretary of Agrarian Reform, 635 Phil. 283, 303 (2010) — Cited to define lack of jurisdiction and excess of jurisdiction.

• Asaphil Construction and Development Corporation vs. Tuason, Jr., 522 Phil. 103, 113 (2006) — Cited for the proposition that the determination of the validity of contracts is a judicial question within the jurisdiction of the courts.

• Chavez vs. Judicial and Bar Council, 691 Phil. 173, 200 (2012) — Cited for the statutory construction principle that the whole and every part of the statute must be considered in fixing the meaning of any of its parts in order to produce a harmonious whole.

• Section 2, Article IX(D), Constitution — Defines the COA's 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, and grants the COA exclusive authority to define the scope of its audit and examination. Applied to determine the limits of COA's jurisdiction, which does not include declaring contracts void.

• Section 26, Presidential Decree No. 1445 — Lays out the general jurisdiction of the COA over auditing procedures, systems and controls, the keeping of general accounts of the Government, and the audit and settlement of all debts and claims due from or owing to the Government. Applied to define the scope of COA's audit jurisdiction.

• Section 3(j), Republic Act No. 7279 — Defines land swapping as the process of land acquisition by exchanging land for another piece of land of equal value, or for shares of stock, for the purpose of planned and rational development and provision for socialized housing. Applied to determine that the provision does not prohibit land swaps where the private party offers land of lesser value, provided the difference is compensated.

• Section 10, Republic Act No. 7279 — Provides the modes of land acquisition, including community mortgage, land swapping, land assembly or consolidation, land banking, donation to the government, joint-venture agreement, negotiated purchase, and expropriation. Applied to determine that the list is not exclusive, allowing a modified land swap where the private party pays the difference in value.

• Section 6, Rule 10, Rules of Court — Provides the procedure for filing supplemental pleadings, requiring that they set forth transactions, occurrences or events which have happened since the date of the pleading sought to be supplemented. Applied suppletorily to the 2009 COA Rules of Procedure to determine that Gochan & Sons' Supplemental MR was properly treated as a prohibited second MR.

• Section 3, Rule 64, Rules of Court — Provides that a petition for certiorari shall be filed within 30 days from notice of judgment, final order or resolution sought to be reviewed, and in cases where a motion for reconsideration is allowed, within the remainder of the said period when the motion is denied. Applied to determine that the petition was timely filed, reckoned from the April 6, 2015 Resolution.

• Article 1409, Civil Code — Declares contracts prohibited by law to be void. Cited by the COA to support its position that the Deed of Exchange was void, but the Court found that R.A. No. 7279 does not prohibit the land swap.

Bersamin, C.J., Carpio, Peralta, Leonen, Caguioa, A. Reyes, Jr., Gesmundo, Hernando, Carandang, and Lazaro-Javier, JJ., concurred. Del Castillo, J., was on official leave. Perlas-Bernabe, J., was on leave. Jardeleza, J., was on official leave.

N/A — No dissenting opinions were noted in the provided case text.