Gochan & Sons Realty Corp. v. Commission on Audit
REITERATIONFacts
The Antecedents: Felix Gochan & Sons Realty Corporation (Gochan & Sons) owned two parcels of land (Banawa and Lorega Properties) occupied by the Banawa Elementary School and socialized housing beneficiaries, respectively. Cebu City owned a parcel of land (Lahug Property). To resolve potential ejectment cases and facilitate the use of the properties, Gochan & Sons and Cebu City agreed to a land swap, where Gochan & Sons would cede its properties in exchange for the Lahug Property. Procedural History: The Sangguniang Panlungsod of Cebu City approved the land swap. Initial valuations showed Gochan & Sons' properties valued at P37,966,550.00 and Cebu City's Lahug Property at P34,883,600.00. However, a subsequent re-appraisal indicated Gochan & Sons' properties were about 45% lower in value. The Commission on Audit (COA) initially disapproved the Deed of Exchange in Decision No. 2009-049, citing a violation of RA 7279 due to the disparity in property values and suggesting Gochan & Sons compensate for the difference. Gochan & Sons' motion for reconsideration, arguing rental losses should be considered, was denied in Resolution No. 2011-002. The COA later, in Resolution No. 2014-113, reversed its earlier stance and approved the Deed of Exchange, considering the potential displacement of the school and housing site. Cebu City moved for reconsideration, which the COA granted in its April 6, 2015 Resolution, reversing its 2014 decision and declaring the Deed of Exchange void ab initio for lack of COA approval and reiterating that rental losses should not be considered. Gochan & Sons' motion for reconsideration of this resolution was denied in the December 23, 2015 Resolution. The Petition: Gochan & Sons filed a Petition for Certiorari under Rule 64 of the Rules of Court, assailing the COA's April 6, 2015 and December 23, 2015 Resolutions, arguing that the COA committed grave abuse of discretion in denying its motions for reconsideration, rejecting the Deed of Exchange, ruling that Cebu City is not liable for rentals, disregarding the costs of relocation and prejudice to education, and declaring the Deed of Exchange void ab initio.
Issue(s)
Whether the public respondent (COA) committed grave abuse of discretion amounting to lack of or in excess of jurisdiction in denying petitioner's motion for reconsideration of the public respondent's 2015 Decision, and in rejecting the Deed of Exchange or land swapping between petitioner's Banawa and Lorega Properties and Cebu City's Lahug Property. Whether the public respondent committed grave abuse of discretion amounting to lack of or in excess of jurisdiction in ruling that Cebu City is not liable to petitioner for rentals or usage of the Banawa and Lorega Properties. Whether the public respondent committed grave abuse of discretion amounting to lack of or in excess of jurisdiction when it held that the 2014 Resolution improperly factored in the costs in reconstructing the school buildings and in relocating the informal settlers from the housing site and the prejudice to the delivery of quality education in approving the Deed of Exchange. Whether the public respondent committed grave abuse of discretion amounting to lack of or in excess of jurisdiction when it declared that a) the Deed of Exchange is null and void ab initio as it failed to obtain the approval of the Commission. Whether the public respondent committed grave abuse of discretion amounting to lack of or in excess of jurisdiction when it declared that b) Cebu City acted within its rights in selling its Lahug Property that was the subject matter of the Deed of Exchange. Whether the sale of the Lahug Property to Hotel of Asia, Inc. (HAI) requires approval of COA.
Ruling
The petition is meritorious. The April 6, 2015 and December 23, 2015 Resolutions of the Commission on Audit are REVERSED and SET ASIDE. The Deed of Exchange between Felix Gochan & Sons Realty Corporation and the City Government of Cebu is APPROVED, subject to the payment by Felix Gochan & Sons Realty Corporation of the amount of P20,137,000.00 to the City Government of Cebu.
Ratio Decidendi
On the issue of whether the COA committed grave abuse of discretion in denying petitioner's motion for reconsideration and rejecting the Deed of Exchange: The Court found that the COA acted in excess of its audit jurisdiction when it declared the Deed of Exchange void ab initio for lack of prior COA approval. The determination of the validity of contracts is a judicial question, not an audit matter within the COA's exclusive purview. While the COA has broad powers in audit matters, these are limited to audit-related functions and do not extend to encroaching upon judicial power. The COA's reliance on Danville Maritime, Inc. v. Commission on Audit was misplaced as the cited portion was a stipulation in a Memorandum of Agreement, not a ruling, and the Deed of Exchange in this case did not contain such a stipulation requiring COA approval for validity. Therefore, the COA's declaration of the Deed of Exchange as void ab initio was an act beyond its jurisdiction. The Court clarified that while Section 3(j) of R.A. No. 7279 defines land swapping and implies that lands should be of equal value or that a private individual may offer a more valuable land, it does not expressly prohibit or declare void land swap deals where the private individual offers land of lesser value. The provision aims to ensure LGUs are not disadvantaged but does not preclude parties from agreeing to a modified land swap where the private individual pays an additional amount for the difference in value. The Court noted that the consistent valuation by appraisers showed Gochan & Sons' properties were valued at over P20 Million less than Cebu City's Lahug Property. The COA's initial inclination was not to approve unless Gochan & Sons compensated for the difference, which Gochan & Sons agreed to do. Thus, the Deed of Exchange, with the condition of Gochan & Sons paying the difference, is not prohibited under R.A. No. 7279 and can be considered a valid mode of land acquisition under Section 10 of the same Act, as long as it is beneficial to the public and does not prejudice the government. On the issue of whether Cebu City is liable for rentals and if relocation costs should be considered: The Court reiterated the COA's consistent stance that rental losses or debts should not be considered in the valuation of properties for a land swap absent any contract or agreement. This is because such claims would constitute money claims against the government, which are distinct from the approval of a property swap and subject to separate evaluation by the COA. Similarly, relocation and construction costs cannot be ascertained in terms of determinable peso value and thus should not be factored into a value-for-value evaluation of the Deed of Exchange. The Court acknowledged the COA's concern about displacement but found that expropriation was a viable alternative for the state if the Deed of Exchange were denied, and that the financial implications of relocation were too speculative to be included in the valuation. The Court reiterated the COA's consistent stance that rental losses or debts should not be considered in the valuation of properties for a land swap absent any contract or agreement. This is because such claims would constitute money claims against the government, which are distinct from the approval of a property swap and subject to separate evaluation by the COA. Similarly, relocation and construction costs cannot be ascertained in terms of determinable peso value and thus should not be factored into a value-for-value evaluation of the Deed of Exchange. The Court acknowledged the COA's concern about displacement but found that expropriation was a viable alternative for the state if the Deed of Exchange were denied, and that the financial implications of relocation were too speculative to be included in the valuation. The Court reiterated the COA's consistent stance that rental losses or debts should not be considered in the valuation of properties for a land swap absent any contract or agreement. This is because such claims would constitute money claims against the government, which are distinct from the approval of a property swap and subject to separate evaluation by the COA. Similarly, relocation and construction costs cannot be ascertained in terms of determinable peso value and thus should not be factored into a value-for-value evaluation of the Deed of Exchange. The Court acknowledged the COA's concern about displacement but found that expropriation was a viable alternative for the state if the Deed of Exchange were denied, and that the financial implications of relocation were too speculative to be included in the valuation. The Court reiterated the COA's consistent stance that rental losses or debts should not be considered in the valuation of properties for a land swap absent any contract or agreement. This is because such claims would constitute money claims against the government, which are distinct from the approval of a property swap and subject to separate evaluation by the COA. Similarly, relocation and construction costs cannot be ascertained in terms of determinable peso value and thus should not be factored into a value-for-value evaluation of the Deed of Exchange. The Court acknowledged the COA's concern about displacement but found that expropriation was a viable alternative for the state if the Deed of Exchange were denied, and that the financial implications of relocation were too speculative to be included in the valuation. On the issue of whether the sale of the Lahug Property to HAI requires COA approval: The Court held that the COA acted within its rights when it decided to dispose of the Lahug property through public bidding after declaring the Deed of Exchange void. However, the Court's reversal of the COA's decision on the Deed of Exchange's validity renders this issue moot, as the Deed of Exchange is now approved. The sale to HAI was a consequence of the COA's prior disapproval of the Deed of Exchange. Since the Deed of Exchange is now approved, the Lahug Property is no longer available for sale to HAI under the terms of the original Deed of Exchange. The Court's ruling effectively nullifies the sale to HAI in the context of the approved land swap.
Main Doctrine
The Commission on Audit (COA) acted in excess of its audit jurisdiction when it declared a Deed of Exchange void ab initio for lack of prior COA approval, as the determination of the validity of contracts is a judicial question. Furthermore, a land swap agreement under RA 7279 is not necessarily void if the private individual offers land of lesser value, provided that the parties agree to a modified land swap where the private individual pays the difference in value, ensuring the government is not disadvantaged.