Osmeña v. Commission on Audit
REITERATIONFacts
The Antecedents: The City of Cebu initiated a project to construct a modern abattoir in 1985. A contract was awarded to H. Franco Construction Company, Inc. (HFCCI) for P8,368,920.00, despite an initial certification of funds availability for only P5,419,180.00. Subsequently, the project was suspended, and HFCCI claimed P2,142,964.29 for work accomplished. This led to a civil action by HFCCI against the City of Cebu for recovery of investment and damages. Procedural History: The Commission on Audit (COA) declared the abattoir construction contract void in an indorsement dated September 4, 1986, citing a lack of sufficient funds. Despite this declaration, the City of Cebu, through Mayor Tomas R. Osmeña, entered into a compromise agreement with HFCCI on December 15, 1988, agreeing to pay P1,500,000.00. This compromise agreement was approved by the court, and a writ of execution was issued, leading to the garnishment of City funds. The COA, in a subsequent indorsement on May 2, 1989, ruled that the compromise agreement was void as it circumvented the COA's prior decision and the constitutional provision for appeal. The COA further stated that the expenditure would be the personal liability of the officer responsible. Petitioner's request for reconsideration was denied. The Petition: Petitioner Tomas R. Osmeña filed a petition with the Supreme Court, arguing that the COA's initial decision declaring the contract void was null and void for being made without or in excess of jurisdiction or with grave abuse of discretion. Petitioner contended that the COA decision never became final because it was issued without jurisdiction. The petition further argued that the COA had no authority to declare an already executed contract void and that the 2nd Indorsement was a nullity that never attained finality. The petition sought to overturn the COA's ruling that the compromise agreement was void and that the payment constituted a personal liability of the petitioner.
Issue(s)
Whether the COA decision declaring the abattoir contract void was null and void for lack of, or excess of, jurisdiction or grave abuse of discretion. Whether the compromise agreement entered into by the City of Cebu with HFCCI, based on a contract previously declared void by the COA, is valid and enforceable against the City. Whether the expenditure incurred pursuant to the compromise agreement constitutes a personal liability of the petitioner.
Ruling
The petition is devoid of merit. The Supreme Court affirmed the ruling of the Commission on Audit. The compromise agreement entered into by the City of Cebu, through its Mayor, Tomas Osmeña, is void, being merely a derivative of a previously void abattoir contract, and thus becomes a personal liability of the officer who entered into it.
Ratio Decidendi
On the issue of COA's jurisdiction and the validity of the abattoir contract: The Commission on Audit has the power to examine, audit, and settle all accounts pertaining to government expenditures. Presidential Decree No. 1445 explicitly states that no contract involving the expenditure of public funds shall be entered into unless there is an appropriation therefor and the proper accounting official has certified the availability of funds. Any contract entered into contrary to these requirements is VOID. In this case, the contract cost (P8,368,920.00) exceeded the appropriated amount (P5,419,180.00), rendering the contract void from the beginning. The COA's declaration of invalidity was therefore proper and within its jurisdiction. The petitioner cannot invoke the jurisdiction of the COA to secure affirmative relief and then later question that same jurisdiction. Neither the petitioner nor HFCCI questioned the COA's ruling declaring the abattoir contract invalid. As such, the decision attained finality even before the civil case was instituted. The law provides that decisions of the Commission on Audit not appealed within the period provided by law shall be final and executory. The petitioner had the remedy to file a petition for certiorari to the Supreme Court within thirty days from receipt of the COA decision, which he failed to do. On the validity of the compromise agreement: A compromise agreement based upon an antecedent claim that is undisputedly and undoubtedly illegal is considered invalid. Since the abattoir contract was declared void ab initio by the COA, the subsequent compromise agreement entered into by the City of Cebu with HFCCI, which was based on this void contract, is also void and unenforceable against the City. The trial court's judgment based on this compromise agreement could not ratify a contract that was void from the beginning. The principle of quantum meruit cannot be relied upon when the underlying contract is void and there is no evidence presented to substantiate the extent of work accomplished. On the personal liability of the petitioner: The expenditure incurred pursuant to the void compromise agreement becomes a personal liability of the officer directly responsible for its incurrence. This is in accordance with Section 103 of P.D. 1445, which holds officers personally liable for illegal expenditures. Since Mayor Tomas Osmeña entered into the compromise agreement after the abattoir contract had been declared void, he cannot evade the legal sanctions resulting from his failure to comply with the law's safeguards against undue expenditures of public funds.
Main Doctrine
A compromise agreement based on an antecedent claim that is undisputedly and undoubtedly illegal is invalid. Furthermore, a contract entered into in violation of the requirements for the expenditure of public funds, specifically the certification of fund availability, is void ab initio and cannot be ratified by a subsequent compromise agreement or court judgment, rendering the officer responsible for its incurrence personally liable.