Topbest Printing Corporation vs. Gemora

A party who fails to exhaust administrative remedies by not appealing a COA Director's decision to the COA Commission Proper cannot invoke certiorari jurisdiction under Rule 64 in relation to Rule 65, and the unappealed decision attains finality and immutability. The unavailability of certiorari is not excused by the party's own procedural choices that left it with limited time to pursue the administrative appeal, nor does the COA commit grave abuse of discretion where its disallowance findings are supported by evidence and consistent with applicable procurement regulations.

Topbest Printing Corporation is a private printing company that entered into contractual arrangements with the National Printing Office (NPO), a government instrumentality with corporate powers, for the provision of printing equipment and services. The Government Procurement Policy Board (GPPB), through Resolution No. 05-2010, approved the Guidelines on the Procurement of Printing Services, which expressly prohibit recognized government printers such as the NPO from engaging, subcontracting, or assigning any private printer to undertake the performance of printing services. Republic Act No. 9970 (General Appropriations Act of 2010) further restricts the printing of accountable forms and sensitive high-quality or high-volume requirements to the Bangko Sentral ng Pilipinas, the NPO, and APO Production, Inc. The COA, as the constitutional commission mandated to audit government expenditures, issued a Notice of Disallowance covering payments made by the NPO to twelve private printers, including Topbest, for the period April to December 2017.

On May 23, 2016, the National Printing Office (NPO) awarded to Topbest Printing Corporation a contract for the lease of one unit of a 4 Stations Web/Continuous Form Machine with Collator, with a contract price of PHP 49,500,000.00. Following the award, the NPO and Topbest entered into an Equipment Lease Agreement (ELA) on June 28, 2016. Under the ELA, the leased machines were to be in "tip top running conditions" and manned by NPO operators assigned at the lessor's premises. The rental fee for one year was set at PHP 49,500,000.00, payable after completion of the job order or work order on a running basis, computed on the value of the output from the machines. The ELA also stipulated that the lessor — Topbest — would bear all maintenance and repair expenses during the lease term.

On July 10, 2017, the NPO released an Invitation to Apply for Eligibility and to Submit Proposal for a Joint Venture Undertaking with the NPO in the Augmentation of Printing Capacity Phase I. The Invitation described the project as a "joint provision of property, plant and equipment, including consumables and services" for printing various forms for existing NPO clients, with capital outlay and operating expenses to be shouldered exclusively by the selected joint venture partner. Topbest submitted its proposal and was issued a Notice of Award dated September 13, 2017 for Lot 2 of the project. However, while a joint venture was supposed to be executed, Topbest admitted that the NPO applied the same terms and conditions of the ELA, except that payment for the leased printing equipment was made on a "per-usage basis" as shown in the work orders issued by the NPO.

On October 16, 2017, the NPO-Audit Team issued Audit Observation Memorandum No. 2017-001, noting that the NPO had been subcontracting the printing of accountable forms in the guise of an Equipment Lease Agreement with private printers, paying a total of PHP 3.71 billion from August 9, 2011 to August 13, 2017, contrary to GPPB Resolution No. 05-2010. The NPO responded that it could enter into joint venture agreements with private printers because it is a government instrumentality with corporate powers.

On January 22, 2019, the Audit Team issued the Notice of Disallowance, disallowing transactions between the NPO and twelve private printers, including Topbest, for the period April to December 2017, in the total amount of PHP 499,376,515.60. The Notice of Disallowance explained that the payments were irregular because the NPO engaged in subcontracting in violation of Section 4.6 of GPPB Resolution No. 05-2010, which prohibits the appropriate recognized government printer from subcontracting printing services to private printers. Topbest, as payee, was held liable for the rental fee it received from the NPO. Topbest received the Notice of Disallowance on February 8, 2019.

Under the COA's 2009 Revised Rules of Procedure, Topbest had six months from receipt of the Notice of Disallowance to file its appeal memorandum with Director Gemora. Topbest filed its Appeal Memorandum on August 6, 2019, two days before the end of the six-month period. Director Gemora denied the appeal in the COA-NGAS Decision, finding that the ELA was in reality a subcontracting arrangement. The COA-NGAS Decision noted that while the ELA provided for rental fees computed on the value of output from the machines on a running basis, the actual payment scheme was an 85%-15% split between Topbest and the NPO of the total cost of job orders or work orders. A Technical Evaluation Report dated May 11, 2012 revealed that the 15% represented the NPO's profit while the 85% received by Topbest covered not only rental cost but also material cost, maintenance cost, power, and operator expenses. The COA-NGAS Decision concluded that the NPO farmed out its contracts to private printers and subcontracted its projects to Topbest at 85% of the job order or work order value, affirming Topbest's liability in the amount of PHP 6,039,057.54.

Topbest received the COA-NGAS Decision on May 24, 2022. Instead of filing an appeal before the COA Commission Proper as required by Rule VII, Section 3 of the COA Rules of Procedure, Topbest filed a Petition for Certiorari before the Supreme Court on June 23, 2022.

• Inadequate Time to Appeal: Petitioner maintained that upon receipt of the COA-NGAS Decision on May 24, 2022, it only had until the following day, May 25, 2022, to file an appeal before the COA Commission Proper, rendering the administrative remedy no longer plain, speedy, and adequate, and justifying recourse to certiorari under Rule 64 in relation to Rule 65.
• Denial of Due Process: Petitioner argued that the Notice of Disallowance was procedurally and substantially insufficient because it failed to tender a single piece of evidence in support of the Audit Team's findings, and that the COA-NGAS Decision merely stated that voluminous transactions, records, and receipts were examined without identifying what these supporting documents were.
• Nature of the Contract: Petitioner insisted that the contractual arrangement between Topbest and the NPO is a contract of lease, comparable to a bareboat or demise charter, not a subcontracting agreement.
• Inclusion of Maintenance Costs: Petitioner relied on Article 1654 of the Civil Code, which obligates the lessor to make necessary repairs to keep the thing leased suitable for its intended use, arguing that it is normal and legally mandated for Topbest, as lessor, to shoulder maintenance and repair costs, and that the inclusion of such costs in the rental fee does not convert a lease into a subcontracting arrangement.
• Absence of Bad Faith: Petitioner asserted that even assuming the NPO violated the law, Topbest should not be held liable because nothing in the record shows Topbest was aware of the NPO's violations, as it simply entered into a lease contract with the NPO.

• Failure to Exhaust Administrative Remedies: Respondents argued that Topbest failed to exhaust administrative remedies by not appealing the COA-NGAS Decision to the COA Commission Proper, a remedy expressly available under the COA Rules of Procedure, and that Topbest's own admission confirmed it still had time to file the appeal.
• Sufficient Time to Appeal: Respondents contended that Topbest actually had two days, not one, to file the appeal before the COA Commission Proper, and that Topbest's predicament was self-inflicted because it filed its Appeal Memorandum too close to the end of the six-month period.
• Unavailability of Certiorari: Respondents asserted that a special civil action for certiorari can only be availed of where there is no appeal or other plain, speedy, and adequate remedy in the ordinary course of law, a condition Topbest failed to satisfy.
• No Grave Abuse of Discretion: Respondents maintained that the COA-NGAS Decision and the Notice of Disallowance were validly issued with both factual and legal bases, and that Topbest failed to establish that the respondents acted in a patently arbitrary and despotic manner.

• Correct Remedy: Whether Topbest availed of the correct remedy in filing the Petition for Certiorari instead of an appeal before the COA Commission Proper.
• Grave Abuse of Discretion: Whether the respondents acted with grave abuse of discretion amounting to lack or excess of jurisdiction in issuing the COA-NGAS Decision and the Notice of Disallowance.

• Correct Remedy: No. Topbest should have filed an appeal before the COA Commission Proper, as the remedy was clearly available and the period had not yet lapsed; certiorari under Rule 64 in relation to Rule 65 is available only where there is no appeal or other plain, speedy, and adequate remedy in the ordinary course of law.
• Grave Abuse of Discretion: No. The COA-NGAS Decision and the Notice of Disallowance were based on evidence and in accordance with the relevant laws and rules, and the respondents did not act capriciously, arbitrarily, or in a despotic manner.

• Correct Remedy: The procedure for contesting notices of disallowance is governed by Rules IV, V, and VII of the COA Rules of Procedure. Under Rule IV, Section 8, an auditor's decision becomes final upon the expiration of six months unless an appeal to the Director is filed. Under Rule V, Sections 2 and 4, the appeal to the Director is taken by filing an Appeal Memorandum within six months from receipt of the decision. The Director's receipt of the Appeal Memorandum tolls the running of the period, which resumes upon the appellant's receipt of the Director's decision (Rule V, Section 5). Under Rule VII, Sections 1 and 3, an appeal from the Director's decision is filed with the COA Commission Proper within the remainder of the six-month period. Topbest received the Notice of Disallowance on February 8, 2019, giving it until August 8, 2019 to file its Appeal Memorandum. Topbest filed on August 6, 2019, leaving two days to appeal to the COA Commission Proper. Topbest made no preparations for an adverse decision and instead filed a certiorari petition. The Court emphasized that Topbest's predicament was entirely self-inflicted: it chose to file its Appeal Memorandum near the end of the period, knowing the rules. The doctrine of exhaustion of administrative remedies requires that courts allow administrative agencies to carry out their functions within their specialized competence, which is especially important for the COA, a constitutional commission mandated to audit government expenditures. Because Topbest failed to exhaust this remedy, and the period to appeal has lapsed, the COA-NGAS Decision and the Notice of Disallowance attained finality and became immutable.

• Grave Abuse of Discretion: A special civil action for certiorari is an extraordinary remedy confined solely to questions of jurisdiction — whether a tribunal acted without jurisdiction, in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction. Grave abuse of discretion denotes capricious, arbitrary, and whimsical exercise of power, patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law. The Court's power of review over COA rulings is limited, complementing the COA's nature as an independent constitutional body tasked with safeguarding public funds. Factual findings of administrative bodies like the COA are afforded great weight and deemed conclusive absent a substantial showing of erroneous estimation of evidence. COA audit reports enjoy a presumption of regular performance of duties. Topbest failed to hurdle this high bar. On due process, the Court found that the essence of due process in administrative proceedings is the opportunity to be heard, satisfied when the person is notified of the conclusions and given the chance to appeal. The Notice of Disallowance categorically stated that the Audit Team examined and reviewed records of transactions, and the COA is not required to painstakingly enumerate all evidence or furnish parties copies when the evidence consists of documents that came from Topbest and the NPO themselves. On the nature of the contract, the COA-NGAS Decision found that the 85%-15% payment split — where 15% was the NPO's profit and 85% covered not just rental but the entire cost of production including materials, maintenance, power, and labor — demonstrated that the arrangement was subcontracting, not a lease. Ordinary lease agreements allow one party to use another's property for a fee; they do not cover situations where the owner also obligates the lessee to perform the lessor's work and split the revenue. The NPO is specifically prohibited from subcontracting under Section 29 of RA 9970 and Section 4.6 of GPPB Resolution No. 05-2010. The respondents' conclusions were based on evidence and in accordance with law, showing no grave abuse of discretion.

• Doctrine of Exhaustion of Administrative Remedies — Courts must allow administrative agencies to carry out their functions and discharge their responsibilities within the specialized areas of their respective competence before judicial intervention is sought. The rationale is lesser expenses, speedier resolution, and comity toward the administrative system. In this case, the doctrine was applied to require Topbest to appeal the COA-NGAS Decision to the COA Commission Proper before seeking certiorari from the Supreme Court, especially given the COA's constitutional mandate to audit government expenditures and the Court's limited capacity as a trier of facts.

• Grave Abuse of Discretion — Grave abuse of discretion denotes capricious, arbitrary, and whimsical exercise of power, patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law, or where power is exercised in an arbitrary and despotic manner by reason of passion or hostility. The Court found that the COA's findings were supported by evidence and consistent with law, and thus did not constitute grave abuse of discretion.

• Immutability of Final Judgments — When a judgment becomes final and executory, it becomes immutable and unalterable and may no longer be modified in any respect, even to correct perceived errors of fact or law. This is grounded on public policy and sound practice requiring that judgments become final at a definite date fixed by law. Because Topbest failed to appeal the COA-NGAS Decision, it attained finality and could no longer be modified, reopened, or relitigated. None of the narrow exceptions to this doctrine were present.

• Due Process in Administrative Proceedings — In administrative proceedings, due process does not require a formal or trial-type hearing. Procedural due process in disallowance cases is satisfied when the person held liable is (a) notified of the auditor's conclusions, recommendations, or dispositions, and the applicable laws, regulations, jurisprudence, and generally accepted accounting and auditing principles, and (b) interposes an appeal as allowed under the law and COA Rules. The Court found that Topbest was notified through the Notice of Disallowance and was able to contest it through its appeal.

• Presumption of Regularity of COA Audit Reports — COA audit reports and findings enjoy the presumption that they were issued as a result of the regular performance of COA's duties, prepared in line with the reporting standards set forth in PD 1445, founded on sufficient evidence, and duly communicated to concerned officials. Factual findings of the COA are afforded great weight and deemed conclusive absent a substantial showing of erroneous estimation of evidence.

• "That Topbest purportedly found the period to file the appeal inadequate does not excuse it from complying with the rules." — The Court rejects the argument that limited time to pursue an administrative appeal justifies bypassing it through certiorari, especially where the party's own procedural choices created the time constraint.

• "The limitation of the Court's power of review over COA rulings merely complements its nature as an independent constitutional body that is tasked to safeguard the proper use of the government and, ultimately, the people's property" — This passage articulates the rationale for the high bar of judicial review over COA decisions, reinforcing the COA's constitutional independence and specialized competence.

• "Ordinary lease agreements are arrangements where one party is allowed to use a property owned by the other party for a fee. It does not cover a situation where the owner of the property not only leases it to another person but also obligates the lessee to perform the lessor's work, after which they split the revenue." — This defines the distinction between a lease and a subcontracting arrangement, which was the factual and legal crux of the COA's disallowance.

• "relaxing the rule here and allowing the case to be reopened and remanded to the COA would, in effect, reward litigants like Topbest, who not only violated laws pertaining to government contracting but also repeatedly failed to comply with procedural rules" — The Court articulates the policy basis for refusing to relax the immutability doctrine, emphasizing that procedural compliance cannot be excused for parties who have violated procurement laws.

• Universal Robina Corp. (Corn Div.) vs. Laguna Lake Development Authority, 664 Phil. 754 (2011) — Cited as authority for the doctrine of exhaustion of administrative remedies, which requires courts to allow administrative agencies to carry out their functions within their specialized competence before judicial intervention.

• Maritime Industry Authority vs. Commission on Audit, 750 Phil. 288 (2015) — Cited for the principle that certiorari is an extraordinary remedy confined to questions of jurisdiction, and for the limitation of the Court's power of review over COA rulings, complementing the COA's nature as an independent constitutional body.

• Patadon vs. Commission on Audit, G.R. No. 218347, March 15, 2022 — Cited for two propositions: (1) the presumption of regularity of COA audit reports, and (2) the requirements of procedural due process in disallowance cases — notification of conclusions and the opportunity to appeal.

• Puentevella vs. Commission on Audit, G.R. No. 254077, August 2, 2022 — Cited for the principle that factual findings of administrative bodies such as the COA are afforded great weight and deemed conclusive absent a substantial showing of erroneous estimation of evidence.

• Nacuray vs. National Labor Relations Commission, 336 Phil. 749 (1997) — Cited for the doctrine of immutability of final judgments, which prohibits modification of a judgment once it becomes final and executory.

• Torreta vs. COA, 889 Phil. 1119 (2020) — Discussed in the context of Justice Kho's concurring and dissenting opinion, which argued for application of the quantum meruit principle; the majority declined to apply it, noting that doing so would open floodgates for parties in illegal contracts with the government to be paid notwithstanding a final and immutable COA ruling.

• Kilusang Mayo Uno, et al. vs. Aquino, et al., 850 Phil. 1168 (2019) — Cited for the definition of grave abuse of discretion as capricious, arbitrary, and whimsical exercise of power, patent and gross as to amount to evasion of positive duty.

• Manila International Airport Authority vs. Avia Filipinas International, Inc., 683 Phil. 34 (2012) — Cited for the definition of unjust enrichment, which the Court distinguished from the enforcement of a final and immutable COA decision requiring return of disallowed amounts.

• Rule 64 in relation to Rule 65, Rules of Court — Governs the special civil action for certiorari, which may be invoked only where there is no appeal or other plain, speedy, and adequate remedy in the ordinary course of law. The Court held that Topbest's appeal to the COA Commission Proper was an available remedy, rendering certiorari improper.

• Rules IV, V, and VII, COA Revised Rules of Procedure (2009) — Rule IV, Section 8 provides that an auditor's decision becomes final after six months unless appealed; Rule V, Sections 2, 4, and 5 govern the appeal to the Director, the six-month filing period, and the tolling of the period upon the Director's receipt of the Appeal Memorandum; Rule VII, Sections 1 and 3 govern the appeal from the Director's decision to the COA Commission Proper within the remainder of the six-month period. The Court applied these provisions to find that Topbest had two days to appeal and failed to do so.

• Section 4.6, GPPB Resolution No. 05-2010 (Guidelines on the Procurement of Printing Services) — Provides that the appropriate recognized government printer engaged by the procuring entity shall directly undertake the printing services and cannot engage, subcontract, or assign any private printer to undertake the performance of the printing service. The COA applied this provision to disallow the NPO's transactions with Topbest as prohibited subcontracting.

• Section 29, Republic Act No. 9970 (General Appropriations Act of 2010) — Provides that the printing of accountable forms and sensitive high-quality or high-volume requirements shall only be undertaken by the Bangko Sentral ng Pilipinas, the NPO, and APO Production, Inc. The Court cited this provision to underscore the statutory prohibition on the NPO subcontracting its printing work.

• Article 1654, Civil Code of the Philippines — Provides that the lessor has the obligation to make all necessary repairs to keep the thing leased suitable for the use to which it is devoted. Topbest invoked this provision to justify the inclusion of maintenance costs in the rental fee; the Court clarified that maintenance and labor costs are not usually included in ordinary lease agreements and that Article 1654 does not transform a subcontracting arrangement into a lease.

• Rule IV, Section 4, COA Revised Rules of Procedure — Requires that Notices of Disallowance be adequately established by evidence and that conclusions be supported by applicable laws, regulations, jurisprudence, and generally accepted accounting and auditing principles. The Court found that the COA complied with this requirement.

• Presidential Decree No. 1445 (Government Auditing Code of the Philippines) — Cited as the statutory foundation for the reporting standards under which COA audit reports are presumed to have been regularly prepared, founded on sufficient evidence, and duly communicated to concerned officials.

Gesmundo, C.J., Leonen, SAJ., Hernando, Lazaro-Javier, Zalameda, M. Lopez, Gaerlan, Rosario, J. Lopez, Dimaampao, and Marquez, JJ., concurred. Inting, J., was on leave.

• Justice Alfredo Benjamin S. Caguioa — Concurring and dissenting. Justice Caguioa argued that Topbest should not be required to return the compensation for its services because doing so would unjustly enrich the government. During deliberations, he contended that requiring return of amounts for services actually rendered, even under an illegal contract, would result in the government retaining a benefit without paying for it.

• Justice Antonio T. Kho, Jr. — Concurring and dissenting. Justice Kho agreed that Topbest failed to seasonably appeal the COA-NGAS Decision and that it became final and executory. However, he argued that the principle of quantum meruit established in Torreta vs. COA should apply, and suggested that the Court remand the case to the COA for determination of Topbest's liability — specifically, the amount to which Topbest is entitled as payment for its services and the amount it should return to the government. He also argued that requiring Topbest to return the full compensation would unjustly enrich the government. The majority rejected this position, holding that applying quantum meruit despite the final and immutable character of the COA-NGAS Decision would open floodgates for parties in illegal contracts with the government to be paid notwithstanding a final COA ruling, and that enforcing a final decision requiring return of disallowed amounts is a just cause that does not constitute unjust enrichment.