Solante v. Commission on Audit
REITERATIONFacts
1. The Antecedents: The City of Mandaue and F.F. Cruz and Co., Inc. (F.F. Cruz) entered into a Contract of Reclamation for 180 hectares. A subsequent Memorandum of Agreement (MOA) stipulated that structures built by F.F. Cruz on city land for project supervision would become city property upon completion of the reclamation project, without rental payment. Later, the Department of Public Works and Highways (DPWH) required the demolition of these F.F. Cruz structures for the Metro Cebu Development Project II (MCDP II) road widening. F.F. Cruz was compensated PhP 1,084,836.42 for the demolition. 2. Procedural History: Petitioner Rowena R. Solante, as Human Resource Management Officer III, approved the disbursement voucher for the compensation paid to F.F. Cruz. An audit by the Commission on Audit (COA) resulted in Notice of Disallowance No. 2000-002-101(97), disallowing the payment and holding F.F. Cruz, Samuel B. Darza, and Solante liable. Solante's motion for reconsideration and F.F. Cruz's appeal were denied by the COA. The COA affirmed the disallowance in a Decision dated February 15, 2008, and a Resolution dated November 5, 2012, finding that the structures should have belonged to the City of Mandaue as compensation for land use, regardless of project completion. 3. The Petition: Solante filed a petition for review under Rule 64 of the Rules of Court, assailing the COA's decision and resolution. She argued that ownership of the structures had not yet transferred to the City of Mandaue because the reclamation project was not completed, and therefore, F.F. Cruz was the rightful owner at the time of demolition and entitled to compensation. The petition contends that the COA misinterpreted the MOA and the Contract of Reclamation, particularly regarding the estimated completion period and the conditions for the transfer of ownership.
Issue(s)
Whether the ownership of the improvements constructed by F.F. Cruz on the City of Mandaue's property had already transferred to the City at the time of demolition. Whether F.F. Cruz was in delay in the completion of the reclamation project, thereby triggering the transfer of ownership of the improvements to the City.
Ruling
The petition is meritorious. The Supreme Court reversed and set aside the assailed Decision, Resolution, and Notice of Disallowance issued by the Commission on Audit.
Ratio Decidendi
On the issue of ownership of improvements: The Court held that the MOA clearly stipulated that the improvements constructed by F.F. Cruz on the City of Mandaue's property would belong to the City only upon the completion of the reclamation project. This completion was a suspensive condition. The mere lapse of the estimated six-year period for project completion did not automatically transfer ownership of the structures to the City. Until the reclamation project was actually finished and turned over, F.F. Cruz remained the owner of the structures. Therefore, the payment for the demolition of these structures was justified, and the disallowance by the COA was without factual and legal basis. On the issue of delay: The Court ruled that F.F. Cruz could not be deemed to be in delay for the non-completion of the reclamation project. Article 1193 of the Civil Code states that obligations with a resolutory period take effect at once but terminate upon arrival of the day certain. However, the six-year period mentioned in the Contract of Reclamation was explicitly stated as an estimate, not a fixed or certain day. Therefore, the mere lapse of six years did not make the obligation to finish the project demandable, nor did it put F.F. Cruz in actionable delay. Furthermore, Article 1169 of the Civil Code requires demand, either judicial or extrajudicial, for delay to exist, unless specific exceptions apply. The records showed no demand from the City of Mandaue for the fulfillment of the obligation. Even the former Mayor of Mandaue City, in an affidavit, stated that the project was not fully completed at the time of demolition and that the City had no claim over the payment for the demolished improvements. Consequently, the COA gravely abused its discretion when it decreed the disallowance.
Main Doctrine
The ownership of improvements constructed by a contractor on a parcel of land owned by the government, as stipulated in a Memorandum of Agreement (MOA), vests in the government only upon the completion of the main project, which is a suspensive condition. The mere lapse of the estimated period for project completion does not automatically transfer ownership, nor does it place the contractor in delay without a demand from the government.