G.R. No. 223228 - FELIX GOCHAN & SONS REALTY CORPORATION, PETITIONER, v.

COMMISSION ON AUDIT AND THE CITY GOVERNMENT OF CEBU, RESPONDENTS.

EN BANC

G.R. No. 223228, April 10, 2019

FELIX GOCHAN & SONS REALTY CORPORATION, PETITIONER, v. COMMISSION

ON AUDIT AND THE CITY GOVERNMENT OF CEBU, RESPONDENTS.

DECISION

REYES, J. JR., J.:

Before this Court is a Petition for Certiorari under Rule 64 of the Rules of Court which
seeks to reverse and set aside the Resolutions dated April 6, 2015 1 (Decision No. 2015-
147) and December 23, 20152 (COA CP Case No. 2007-008) of the Commission on
Audit (COA) which annulled the Deed of Exchange between petitioner Felix Gochan &
Sons Realty Corporation (Gochan & Sons) and public respondent City Government of
Cebu (Cebu City).

Factual background

Gochan & Sons owned two parcels of land in Cebu City. One was located in Barangay
Guadalupe, Cebu City and registered under Transfer Certificate of Title (TCT) No.
247123 (Banawa Property). The Banawa Elementary School, however, occupied the
Banawa Prope1iy, since April 1970. Another property was located in Lorega, San
Miguel, Cebu City and registered under TCT No. 7840 (Lorega Property). Pursuant to
City Ordinance No. 1684 dated August 14, 1997 declaring the Lorega Property as a
Socialized Housing Site, beneficiaries of the Socialized Housing Program of the local
government had settled therein. On the other hand, Cebu City owned a parcel of land
found in Salinas Drive, Lahug, Cebu City and registered under TCT No. T-30916 (Lahug
Property)4

On December 14, 2005, the Sangguniang Panlungsod of Cebu issued Resolution No.

05-16765 approving the proposed land swap between Gochan & Sons and Cebu City
and authorizing the city mayor to sign and execute a Deed of Exchange with Gochan &

1
Sons. In the said trade, Gochan & Sons will give its Banawa and Lorega Properties to
Cebu City in place of the latter's Lahug Property. The possible ejectment case Gochan &
Sons may file against the Banawa Elementary School, to the prejudice of the school
children and the city government itself, motivated the parties to agree to the land
swap.

Consequently, a Deed of Exchange 6 was made between the parties with Gochan & Sons'
President Louise Y. Gochan and Cebu City Mayor Tomas R. Osmeña acting as their
representatives. The COA Legal and Adjudication Office-Local Sector recommended the
approval of the exchange after Gochan & Sons' properties were initially valued at
P37,966,550.00 and Cebu City's Lahug Property only at P34,883,600.00. 7

Sometime in 2008, an inspection was made on the properties subject of the exchange
in compliance with the directives from the COA. As a result of the inspection, a
committee composed of COA assistant commissioners recommended a re-appraisal of
the properties involved. After the re-appraisal, it was discovered that the value of
Gochan & Sons' properties were about 45% lower compared to the Lahug Property. 8

Proceedings before the COA

In its Decision No. 2009-049 dated June 5, 2009, 9 the COA held that it did not favor the
approval of the Deed of Exchange. It opined that the exchange of properties would
violate Republic Act (R.A.) No. 7279 because the property owned by Cebu City was
more valuable than what Gochan & Sons had offered in exchange. The COA expounded
that while it was aware of the objectives of City Ordinance No. 1684, it could not
approve of the transaction because the difference of P20 Million is substantial, which
Gochan & Sons should compensate if the transaction would be consummated.

Aggrieved, Gochan & Sons moved for reconsideration arguing that the rental losses
should be considered in appraising its properties. It highlighted that for a period of 30
years its properties were used by Cebu City without paying rentals. 10

In its January 20, 2011 Resolution in Decision No. 2011-002, 11 the COA denied Gochan
& Sons' motion for reconsideration. It explained that while it may be true that Cebu
City had occupied Gochan & Sons' properties since 1970, it does not necessarily follow
that Cebu City is liable for rentals in the absence of any contract. The COA expounded
that the fact that the Lorega Property was declared as a Socialized Housing Site would
not make Cebu City liable to pay rentals because R.A. No. 7279 only provides for
modes of land acquisition. Further, it noted that it was the Department of Education
which mistakenly constructed the Banawa Elementary School on the Banawa Property
because public schools were devolved to the local government units (LGUs) only upon
the effectivity of the Local Government Code of 1991.

The COA added that if the Lahug property would be conveyed as payment for the

2
alleged debts of Cebu City, then the transaction would no longer be a land swap but
a dacion en pago. Lastly, it stressed that even if Cebu City's liability was valid, it will
not be considered because it is a claim against the government subject to the COA's
evaluation, which is distinct from the instant request for approval of the land swap.

Before receiving, but after the above-mentioned resolution was issued, Gochan & Sons
filed its Supplemental Motion for Reconsideration12 (Supplemental MR) on January 28,
2011.

On June 27, 2011, the COA issued a Notice of Finality of Decision. Gochan & Sons filed
a Letter-Request to Recall the Notice of Finality of Decision assailing that the Notice of
Finality of Decision was premature because the COA did not pass upon the issues
contained in its Supplemental MR. It again filed another Supplemental MR dated
December 5, 2011 reminding the COA about the pending motions it had filed. 13

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. (HAI) upon payment of P83,673,500.00. 14

Thereafter, on June 7, 2012, the COA, during its Regional Meeting, resolved to admit
Gochan & Sons' Supplemental MR. Thus, it instructed its Legal Services Sector to re-
evaluate the case.15

In its June 18, 2014 Resolution,16 the COA ruled in favor of Gochan & Sons and
approved the Deed of Exchange it had entered into with Cebu City. It reiterated that
under R.A. No. 7279, the value of lands involved in land swapping is determined based
on land classification, market value reflected in the zonal valuation and assessed value
taken from existing tax declarations. The COA remained consistent that debts or rental
losses are not part of the cost to be capitalized in determining the market value of the
land for exchange. It echoed that even if Cebu City's liability is valid and admitted, it
will not be considered because it would then partake of a money claim against the
government, which is distinct from the request for approval of the property swap.
Likewise, the COA maintained that the more accurate and reliable valuation was that
done by two private appraisers showing that Gochan & Sons' properties were about P20
Million less than Cebu City's Lahug Property.

Nevertheless, the COA recognized the predicament that the Cebu City and the affected
communities face should the school and the Socialized Housing Site be relocated in the
event that Gochan & Sons takes back its properties. It noted that the government
would spend millions; there would be interruption in the delivery of quality education;
and disruption of on-going urban land reforms if the Banawa Elementary School and the
Socialized Housing Site be moved. Thus, the COA surmised that the P20,137,100.00
difference between the properties of Gochan & Sons and Cebu City is insubstantial

3
when measured against the immeasurable value of distortion that may result in the
denial of the Deed of Exchange.

Aggrieved, Cebu City moved for reconsideration.

Assailed COA Resolutions

In its April 6, 2015 Resolution, 17 the COA granted Cebu City's motion for
reconsideration. It explained that Gochan & Sons' Supplemental MR should have not
been given due course because it was filed in the wrong office - it was filed before the
office of a Commissioner and not the Commission Proper itself. The COA also noted that
the Supplemental MR did not comply with the requirements for a supplemental pleading
under Section 6, Rule 10 of the Rules of Court as it was filed without leave of court and
it failed to set forth a supervening event that occurred since the date of the first motion
for reconsideration. It highlighted that the Supplemental MR merely rehashed the
issues already considered and passed upon in the June 5, 2009 Decision and the
January 20, 2011 Resolution.

Moving to the substantive issues, the COA expounded that in all previous decision and
resolutions of the COA involving the present controversy, it was consistently held that
the supposed rental losses Gochan & Sons incurred should not be considered in the
valuation of the properties for the land swap absent any contract or agreement. It
highlighted that the June 18, 2014 Resolution only reversed the June 5, 2009 Decision
and the January 20, 2011 Resolution for fear of displacement of the Banawa
Elementary School and the Socialized Housing Site. Nevertheless, the COA pointed out
that the said conclusion failed to take into account that the state could acquire Gochan
& Sons properties through expropriation. In addition, it noted that 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.

The COA opined that the Deed of Exchange between Cebu City and Gochan & Sons was
void ab initio because it was without its approval. Thus, it reasoned that Cebu City
acted within its rights when it decided to dispose of the Lahug property through public
bidding. The COA highlighted that HAI purchased the said property for P83,673,500.00,
which was higher than the P44,783,000.00 fair market value previously determined,
and that the purchase price more accurately reflects the property's actual market value.
Thus, it disposed:

WHEREFORE, premises considered, this Commission GRANTS the instant Motion for

Reconsideration. Accordingly, COA Decision No. 2014-113 dated June 18, 2014 is
hereby REVERSED AND SET ASIDE.18

4
Gochan & Sons moved for reconsideration but it was denied by the COA in its December
23,2015 Resolution.19

Hence, this present petition, raising the following: 

Issues

WHETHER OR NOT THE PUBLIC RESPONDENT 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[;]

II

WHETHER OR NOT THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN
REJECTING THE DEED OF EXCHANGE OR LAND SWAPPING BETWEEN
PETITIONER'S BANAWA AND LOREGA PROPERTIES AND [CEBU CITY'S] LAHUG
PROPERTY[;]

III

WHETHER OR NOT 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[;]

IV

WHETHER OR NOT 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 OR NOT THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION WHEN

5
IT DECLARED THAT A) THE DEED OF EXCHANGE IS NULL [AND] VOID [AB
INITIO] AS IT FAILED TO OBTAIN THE APPROVAL OF THE COMMISSION[;]
AND B) CEBU [CITY] ACTED WITHIN ITS RIGHTS IN SELLING ITS LAHUG
PROPERTY THAT WAS [THE] SUBJECT MATTER OF THE DEED OF EXCHANGE[;
AND]

[VI]

WHETHER OR NOT THE SALE OF THE LAHUG PROPERTY TO HAI REQUIRES

APPROVAL OF COA.20

Gochan & Sons argues 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 and declaring that the said resolution to be final and immutable. It
posits that the COA Rules of Procedure allows one motion for reconsideration per
decision issued by the COA, and, as such, the motion for reconsideration assailing the
April 6, 2015 Resolution should be treated separately because the prior decisions of the
COA were in conflict with each other and the motions for reconsideration filed pertained
to a particular decision of the COA.

In addition, Gochan & Sons laments that the COA erred in concluding that the
Supplemental MR it filed did not bar the finality of the January 20, 2011 Resolution. It
points out that the Cebu City never opposed to its filing and that the COA itself ordered
a review of the said January 20, 2011 Resolution on the basis of the pending
Supplemental MR. Gochan & Sons posits that the COA is now estopped from changing
its admission of the Supplemental MR because it had already decided to accept it.

Further, Gochan & Sons theorizes that even assuming that the January 20, 2011
Resolution, which affirmed in toto the June 5, 2009 Decision, had attained finality, the
tenor of the decision is that the COA is not inclined to approve the Deed of Exchange
unless the parties consummate the same with Gochan & Sons' payment of the
difference of the values of the properties. It highlights that it had acceded to
compensate Cebu City of the difference in property values. Thus, Gochan & Sons
surmises that the proper action of the COA should be to order Cebu City to accept its
offered compensation.

In any case, Gochan & Sons believes that the COA erred in declaring the Deed of
Exchange with Cebu City void ab initio. First, it postulates 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. Second, Gochan & Sons expounds that there was no
basis to declare the Deed of Exchange void because the COA's disapproval is not among
the grounds for declaring a contract void under Articles 1390 and 1409 of the Civil
Code. Third, it bewails that Cebu City is liable for rentals for its use of the Banawa and

6
Lorega properties and the same should have been considered in the valuation of the
properties. Finally, Gochan & Sons avers 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 officials of
the LGUs, who have decided that land swap, and not expropriation, was the best way to
settle the controversy over Gochan & Sons' properties.

In its Comment,21 dated May 12, 2016, Cebu City countered that Gochan & Sons'
present petition was filed out of time because if the latter wanted to question the
January 20, 2011 Resolution of the COA, it should have filed a petition
for certiorari under Rule 64 of the Rules of Court within the time prescribed and not a
Supplemental MR. It assailed that the Supplemental MR merely repeated the arguments
raised in Gochan & Sons' initial motion for reconsideration of the June 5, 2009 Decision
and failed to raise any supervening events or arguments. Thus, Cebu City surmised that
the Supplemental MR was, in fact, a second motion for reconsideration, which was a
prohibited pleading under the COA's Rules of Procedure, and did not interrupt the
running of the period to file a petition for certiorari under Rule 64 of the Rules of Court.
Consequently, when it received the notice of finality of the January 20, 2011
Resolution, it decided to dispose of the Lahug Property through public bidding instead.

In its Comment,22 dated July 5, 2016, the COA agreed that Gochan & Sons' present
petition for certiorari was filed out of time. It highlighted that when Gochan & Sons'
motion for reconsideration of the June 5, 2009 Decision was denied, the only legal
remedy it had left was the filing of a petition for certiorari within the remaining 30-day
period but not less than five days. The COA noted that the June 5, 2009 Decision,
subsequently, the January 20, 2011 Resolution affirming it, had lapsed into finality
when Gochan & Sons failed to file a timely petition for certiorari. Further, it expounded
that it did not act with grave abuse of discretion in disregarding Gochan & Sons'
Supplemental MR as it was a mere rehash of the initial motion for reconsideration.

The COA reiterated that the Deed of Exchange was correctly disapproved as it was
contrary to the provisions of R.A. No. 7279 because Cebu City's property was more
valuable than Gochan & Sons' properties. It disagreed with Gochan & Sons' position
that there was no ground to declare the Deed of Exchange void and countered that
Article 1409 of the Civil Code declares contracts prohibited by law to be void.

In its Reply to the COA's Comment23 dated September 15, 2016, Gochan & Sons
countered that the present petition for certiorari was timely filed. It reasoned that it
merely relied on COA when the latter recalled its Notice of Finality of Decision dated
July 18, 2011, and admitted the former's Supplemental MR, which eventually led to the
June 18, 2014 Resolution reversing the January 20, 2011 Resolution and approving the
Deed of Exchange with Cebu City. In addition, Gochan & Sons explained that it was
within the COA's discretion to admit the Supplemental MR. It also assailed that
assuming that the January 20, 2011 Resolution had attained finality, the proper action

7
for the COA was to order Cebu City to accept its offer to pay the variance of the value
of the properties involved in the land swap. Gochan & Sons reiterated that the COA had
no authority to declare the Deed of Exchange void as its jurisdiction was limited to
audit-related matters.

The Court's Ruling

The petition is meritorious.

Supplemental pleadings must pertain to facts or events arising after the initial pleading
was filed

Under Section 1, Rule XV of the 2009 COA Rules of Procedure, the Rules of Court
applies suppletorily in the absence of any applicable provision. In this regard, Section 6,
Rule 10 of the Rules of Court provides the procedure to be observed in filing
supplemental pleadings, to wit:

SEC. 6. Supplemental Pleadings. - Upon motion of a party the court may, upon
reasonable notice and upon such terms as are just, permit him to serve a supplemental
pleading setting forth transactions, occurrences or events which have
happened since the date of the pleading sought to be supplemented. The
adverse party may plead thereto within ten (10) days from notice of the order
admitting the supplemental pleading. (Emphasis supplied)

Considering that the 2009 COA Rules of Procedure does not have any provision on
supplemental pleadings, the pertinent rules found in the Rules of Court should apply
suppletorily. In Young v. Spouses Sy,24 the Court explained the nature and purpose of
supplementary pleadings, viz.:

As its very name denotes, a supplemental pleading only serves to bolster or

add something to the primary pleading. A supplement exists side by side
with the original. It does not replace that which it supplements. Moreover, a
supplemental pleading assumes that the original pleading is to stand and
that the issues joined with the original pleading remained an issue to be tried
in the action. It is but a continuation of the complaint. Its usual office is to
set up new facts which justify, enlarge or change the kind of relief
with respect to the same subject matter as the controversy referred to
in the original complaint.

The purpose of the supplemental pleading is to bring into the records

new facts which will enlarge or change the kind of relief to which the
plaintiff is entitled; hence, any supplemental facts which further develop the
original right of action, or extend to vary the relief, are available by way of

8
 supplemental complaint even though they themselves constitute a right of
action. (Emphases supplied)

A reading of Gochan & Sons' Supplemental MR of the June 5, 2009 Decision reveals
that it merely expounded or reiterated the arguments it had raised in its initial MR.
Primarily, the Supplemental MR simply elaborated how the COA erred in appreciating
the correct valuation of the properties involved in the land swap.

Nevertheless, the Supplemental MR does not raise new facts or events, which have
developed after the filing of the MR. Gochan & Sons could have already included the
arguments it had raised in the Supplemental MR in its original MR. Thus, the COA had
reason not to consider Gochan & Sons' Supplemental MR and treat it as a second MR.

Petition for Review on Certiorari  before the Court timely filed

In its April 6, 2015 Resolution, the COA ruled that Gochan & Sons' Supplemental MR
was, in fact, a second MR, and, thus, was a prohibited pleading. Subsequently, in its
December 23, 2015 Resolution, the COA dismissed Gochan & Sons' MR to the April 6,
2015 Resolution for being a prohibited pleading and that the January 20, 2011
Resolution had attained finality. Thus, it is the COA's position that the present Petition
for Certiorari was filed out of time. The COA highlighted that upon denial of Gochan &
Sons' MR of the June 5, 2009 Decision, it had only the remainder of the 30-day period
to file an appeal before the Court. As such, it believes that Gochan & Sons allowed the
June 5, 2009 Decision to lapse into finality when it failed to timely file a Petition
for certiorari under Rule 64 of the Rules of Court, instead of opting to file a
Supplemental MR before the COA.

Under Section 3, Rule 6425 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 said motion is denied. Here, the COA mistakenly reckons the 30-
day period from notice of the June 5, 2009 Decision.

It must be remembered that the COA withdrew the finality of the June 5, 2009 Decision
and took cognizance of Gochan & Sons' Supplemental MR. In fact, the COA, in its June
18, 2014 Resolution, ruled in favor of Gochan & Sons' Supplemental MR and approved
the Deed of Exchange with Cebu City. This prompted Cebu City to file a motion for
reconsideration assailing the June 18, 2014 Resolution. However, in its April 6, 2015
Resolution, the COA granted Cebu City's motion for reconsideration and again
disapproved the Deed of Exchange. Eventually, the COA denied the motion for
reconsideration Gochan & Sons had filed to assail the latest resolution.

A closer look of the timeline, the decision and resolutions issued by the COA in the
present case will indicate that the resolutions sought to be reviewed in Gochan & Sons'

9
Petition for Certiorari are the April 6, 2015 and the December 23, 2015 Resolutions of
the COA. It is true that in its June 5, 2009 Decision, the COA ruled against Gochan &
Sons and disapproved the Deed of Exchange with Cebu City. However, the COA
eventually reversed its earlier pronouncements and approved the Deed of Exchange in
its June 18, 2014 Resolution. Unfortunately for Gochan & Sons, the COA again changed
its mind and disapproved the Deed of Exchange after Cebu City filed its MR for the June
18, 2014 Resolution. Hence, 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 in its June 18, 2014 Resolution.

Consequently, the 30-day period should be reckoned from the April 6, 2015 and the
December 23, 2015 Resolutions. Based on the records, Gochan & Sons received the
April 6, 2015 Resolution on May 15, 2015 and received the denial of the motion for
reconsideration, which was filed on June 9, 2015, on March 15, 2016. Thus, the present
Petition for Certiorari was filed within the periods prescribed under Rule 64 of the Rules
of Court.

In addition, Gochan & Sons' MR assailing the April  6, 2015 Resolution should not be
deemed a second MR - a pleading prohibited under the 2009 COA Rules of Procedure.
In Cristobal v. Philippine Airlines, Inc.,26 the Court elucidated 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.

Applied analogously with the prohibition of filing a second MR under the 2009 COA
Rules of Procedure, the same should pertain to an MR filed by a party assailing the
same judgment. As discussed above, the June 5, 2009 Decision is distinct from the
April 6, 2015 Resolution, and Gochan & Sons should not be precluded from filing a
separate MR for the April 6, 2015 Resolution, apart from the one it filed to question the
June 5, 2009 Decision.

Neither should Gochan & Sons be prejudiced by the fact that ultimately the
Supplemental MR it filed in connection with the June 5, 2009 Decision was found to be
a prohibited pleading under the COA Rules of Procedure. This is true since the COA
itself withdrew the finality of its June 5, 2009 Decision and decided to take cognizance
of the Supplemental MR- eventually reversing its June 5, 2009 Decision and ruling in
Gochan & Sons' favor in its June 18, 2014 Resolution.

Going into the merits of the present case, Gochan & Sons essentially assails that the
COA had acted beyond its power and authority in disapproving the Deed of Exchange
with Cebu City. Even assuming that the COA had jurisdiction to annul a contract,
Gochan & Sons surmises that the audit commission erred in voiding the aforementioned
deed.

10
COA's jurisdiction defined

Section 26 of Presidential Decree (P.D.) No. 1445, or the Government Auditing Code of
the Philippines, laid out the general jurisdiction of the COA.

SEC. 26. General Jurisdiction. -The authority and powers of the Commission shall
extend to and comprehend all matters relating to auditing procedures, systems and
controls, the keeping of the general accounts of the Government, the preservation of
vouchers pertaining thereto for a period of ten years, the examination and inspection of
the books, records, and papers relating to those accounts; and the audit and settlement
of the accounts of all persons respecting funds or property received or held by them in
an accountable capacity, as well as the examination, audit, and settlement of all debts
and claims of any sort due from or owing to the Government or any of its subdivisions,
agencies and instrumentalities. The said jurisdiction extends to all government-owned
or controlled corporations, including their subsidiaries, and other self governing boards,
commissions, or agencies of the Government, and as herein prescribed, including non-
governmental entities subsidized by the government, those funded by donations
through the government, those required to pay levies or government share, and those
for which the government has put up a counterpart fund or those partly funded by the
government.

Essentially, COA's statutory mandate under P.D. No. 1445 1s reiterated in the
Constitution. Section 2, Article IX(D), reads:

SEC. 2. (1) The Commission on Audit shall have the 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, or any of its subdivisions, agencies, or instrumentalities, including
government-owned or controlled corporations with original charters, and on a post-
audit basis: (a) constitutional bodies, commissions and offices that have been granted
fiscal autonomy under this Constitution; (b) autonomous state colleges and
universities; (c) other government-owned or controlled corporations and their
subsidiaries; and (d) such non governmental entities receiving subsidy or equity,
directly or indirectly, from or through the Government, which are required by law or the
granting institution to submit to such audit as a condition of subsidy or equity.
However, where the internal control system of the audited agencies is inadequate, the
Commission may adopt such measures, including temporary or special pre-audit, as are
necessary and appropriate to correct the deficiencies. It shall keep the general accounts
of the Government and, for such period as may be provided by law, preserve the
vouchers and other supporting papers pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this
Article, to define the scope of its audit and examination, establish the techniques and
methods required therefor, and promulgate accounting and auditing rules and

11
regulations, including those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of
government funds and properties.

As guardians of public funds, COA is vested with broad powers over all accounts
pertaining to government revenue and expenditures and the uses of public funds and
property including the exclusive authority to define the scope of its audit and
examination, establish techniques and methods for such review, and promulgate
accounting and auditing rules and regulations.27 In recognition of its expertise in audit
matters, as conferred by law and the Constitution, the findings of the COA are generally
accorded not only respect but at times finality if such findings are supported by
substantial evidence.28

Nevertheless, 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. 29 A tribunal
is lacking of jurisdiction when it is devoid of legal power, right or authority to hear and
determine a cause or causes, considered either in general or with reference to a
particular matter.30 On the other hand, there is excess of jurisdiction when an act,
though within the general power of a tribunal, board, or officer, is not authorized and
invalid with respect to the particular proceeding, because the conditions which alone
authorize the exercise of the general power in respect of it are wanting. 31

In its April 6, 2015 Resolution, the COA declared the Deed of Exchange void ab initio,
because it had previously disapproved the same in its June 5, 2009 Decision and the
January 20, 2011 Resolution. It added that its approval is essential for the validity of
the contract as held in Danville Maritime, Inc. v. Commission on Audit (Danville).32

The determination of the validity of contracts is a judicial question, which is within the
jurisdiction of the courts.33 A judicial question is raised when the determination of the
question involves the exercise of a judicial function; that is, the question involves the
determination of what the law is and what the legal rights of the parties are with
respect to the matter in controversy.34

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. Again, it is recognized that the COA has broad jurisdiction within the realms of
its expertise such that its findings are generally afforded great weight and finality.
Nevertheless, the said jurisdiction is not infinite as it is limited only to audit matters. In
declaring the Deed of Exchange void, the COA exceeded its broad, yet well-defined,
constitutional powers as it encroaches on judicial power vested in the courts.

12
There is no law which requires that the Deed of Exchange should be previously
approved by the COA, otherwise it would be null and void. It is worth pointing out that
the COA, in its April 6, 2015 Resolution, mistakenly relied on Danville because the
portion cited by it was not a ruling of the Court but merely a stipulation in a
Memorandum of Agreement (MOA) executed by the parties therein. It is noteworthy
that, unlike the MOA in Danville, the Deed of Exchange did not have any stipulations to
the effect that a COA approval is vital to the validity of the contract.

Deed of Exchange not prohibited under R.A. No. 7279

R.A. No. 7279, or the "Urban Development and Housing Act of 1992," covers all lands
in urban and urbanizable areas, including existing areas for priority development, zonal
improvement sites, slum improvement and resettlement sites, and in other areas that
may be identified by the LGUs as suitable for socialized housing. 35 Gochan & Sons'
Lorega Property was previously declared as a Socialized Housing Site, bringing it within
the ambit of the said law.

R.A. No. 7279 provides for various modes of land acquisition to be utilized for the
purposes provided therein, one of which is land swapping. 36 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 in a government or quasi-
government corporation whose book value is of equal value to the land being
exchanged, for the purpose of planned and rational development and provision for
socialized housing where land values are determined based on land classification,
market value and assessed value taken from existing tax declarations: Provided, That
more valuable lands owned by private persons may be exchanged with less valuable
lands to carry out the objectives of this Act[.]"

Based on the records in the present case, the combined value of Gochan & Sons'
properties had been consistently determined to be lower than Cebu City's Lahug
property in accordance with the parameters of R.A. No. 7279. The appraised value of
Gochan & Sons' properties and Cebu City's property was computed by the COA, and
two private appraisers, CB Richard Ellis (CBRE) and Magaca Appraisal Konsult (MAK): 37
Property COA CBRE MAK
LAHUG P44,783,000.00 P50,200,000.00 P49,497,000.00
LOREGA P16,351,500.00 P18,829,000.00 P17,838,000.00
BANAWA P8,294,400.00 P8,630,000.00 P9,020,900.00
DIFFERENCE P20,137,100.00 P22,741,000.00 P22,638,100.00
Based on the evaluation of three different appraisers, the value of Cebu City's property
was more than P20 Million than Gochan & Sons' properties combined. Gochan & Sons
notes that the COA, in its June 5, 2009 Decision, did not categorically disapprove the

13
Deed of Exchange as it was merely not inclined to approve it in light of the difference in
the value of the properties involved. It highlights that the COA had opined that should
the Deed of Exchange be consummated, the former should compensate the Cebu City
with an amount equal to the average of the difference in the valuations of the three
appraisers less 10% allowable variance. It is for this reason that Gochan & Sons filed a
Manifestation and Motion before the COA38 expressing its willingness to pay the amount
required to the Cebu City for the approval of the Deed of Exchange.

At first blush, it appears that the Deed of Exchange is violative of R.A. No. 7279
because the value of the properties Gochan & Sons offered is lower than what the Cebu
City is giving in exchange. The COA applied Section 3(j) of R.A. No. 7279 to mean that
lands to be swapped should be more or less of equal value, and if a more valuable land
is to be exchanged, that land should belong to the private individual and not to the
goven1ment - otherwise, the transaction would be void.

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.

It must be remembered that the whole and every part of the statute must be
considered in fixing the meaning of any of its parts and in order to produce a
harmonious whole.39 Section 10 of R.A. No. 7279 reads:

SEC. 10. Modes of Land Acquisition. - The modes of acquiring lands for purposes of this
Act 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: Provided, however, That expropriation shall be
resorted to only when other modes of acquisition have been exhausted: Provided,
further, That where expropriation is resorted to, parcels of land owned by small
property owners shall be exempted for purposes of this Act: Provided, finally, That
abandoned property, as herein defined, shall be reverted and escheated to the State in
a proceeding analogous to the procedure laid down in Rule 91 of the Rules of Court.
(Emphasis supplied)

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. Thus, Gochan & Sons

14
and the Cebu City may enter into a modified land swap in that the former must pay an
amount corresponding to the difference in value between the private and public lands
involved. In doing so, the Cebu City would, in effect, be receiving properties of
commensurate value to the property it would be giving in exchange.

WHEREFORE, the petition is GRANTED. 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.

SO ORDERED.

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

NOTICE OF JUDGMENT

Sirs/Mesdames:

Please take notice that on April 10, 2019 a Decision, copy attached herewith, was
rendered by the Supreme Court in the above-entitled case, the original of which was
received by this Office on July 8, 2019 at 4:35 p.m.

Very truly yours, 

(SGD) EDGAR O. ARICHETA 

Clerk of Court

Endnotes:

1
 Concurred in by Officer-in-Charge Commissioner Heidi L. Mendoza and Commissioner
Jose A. Fabia; rollo, pp. 37-49. 

2
 Id. at 36.

15
3
 Id. at 118.

4
 Id. at 5-6.

5
 Id. at 83-85.

6
 Id. at 86-89.

7
 Id. at 6.

8
 Id. at 6-7.

9
 Concurred in by Chairman Reynaldo A. Villar and Commissioner Juanito G. Espino, Jr.;
id. at 90-97.

10
 Id. at 7.

11
 Id. at 98-102.

12
 Id. at 103-108.

13
 Id. at 7-8.

14
 Id. at 8.

15
 Id.

16
 Denominated as Decision No. 2014-113; id. at 50-58.

17
 Supra note 1.

18
 Id. at 48.

19
 Supra note 2.

20
 Id. at 9-11.

21
 Id. at 152-166.

22
 Id. at 169-190.

23
 Id. at 202-210.

16
24
 534 Phil. 246, 260 (2006).

25
 The petition shall be filed within thirty (30) days form notice of the judgment or final
order or resolution sought to be reviewed. The filing of a motion for new trial or
reconsideration of said judgment or final order or resolution, if allowed under the
procedural rules of the Commission concerned, shall interrupt the period herein fixed. If
the motion is denied, the aggrieved party may file the petition within the remaining
period, but which shall not be less than five (5) days in any event, reckoned from
notice of denial.

26
 G.R. No. 201622, October 4, 2017.

27
Yap v. Commission on Audit, 633 Phil. 174, 189 (2010).

28
Verzosa, Jr. v. Carague, 660 Phil. 131, 168 (2011).

29
Daraga Press, Inc. v. Commission on Audit, 760 Phil. 391, 399 (2015).

30
Chamber of Real Estate and Builders Association, Inc. v. Secretary of Agrarian
Reform, 635 Phil. 283, 303 (2010).

31
 Id.

32
 256 Phil. 1092 (1989).

33
Asaphil Construction and Development Corporation v. Tuason, Jr., 522 Phil. 103, 113
(2006).

34
 Id. at 113-114.

35
 Republic Act No. 7279, Article II, Sec. 4.

36
 Id. at Article IV, Sec. 10.

37
Rollo, pp. 91-94.

38
 Id. at 218-220.

39
Chavez v. Judicial and Bar Council, 691 Phil. 173, 200 (2012).

17