G.R. No. 217342, October 13, 2020
NOEL F. MANANKIL, ET AL., PETITIONERS, VS. COMMISSION ON AUDIT, RESPONDENT.

FACTS

Clark Development Corporation (CDC), a government-owned and controlled corporation, entered into a 25-year lease agreement with Amari Duty Free, Inc. (later Grand Duty Free Plaza, Inc.). The agreement stipulated that the lessee would insure the leased structures, with CDC designated as the beneficiary. A fire destroyed the leased building in 2005. The Government Service Insurance System (GSIS) released insurance proceeds of P39,246,781.37, payable to “CDC-Grand Duty Free Plaza.” Subsequently, CDC and Grand Duty Free executed a Memorandum of Agreement (MOA) wherein CDC agreed to undertake the reconstruction using the insurance proceeds. CDC’s Board of Directors approved the MOA and authorized the release of funds for the construction, which was completed.
The Commission on Audit (COA) disallowed the total disbursement of P39,246,781.37 used for the reconstruction. COA held that the expenditure was irregular, unnecessary, and extravagant, as the obligation to rebuild rested solely with the private lessee under the original lease contract. COA found the petitioners, CDC officials, liable for the disallowance. The COA Commission Proper affirmed the disallowance. Petitioners filed a petition for certiorari before the Supreme Court, which was initially dismissed. They then filed the subject Second Motion for Reconsideration.

ISSUE

Whether the COA gravely abused its discretion in affirming the disallowance of the amount spent by CDC for the reconstruction of the building destroyed by fire.

RULING

The Supreme Court denied the motions and affirmed the COA’s decision. The Court found no grave abuse of discretion in COA’s ruling. The legal logic centers on the contractual obligations and the nature of the disbursement as a government fund. Under the original Lease Agreement, the lessee had the unequivocal duty to insure the structures and, in case of loss, to reconstruct the property using the insurance proceeds, with CDC merely obligated to facilitate the restoration for the lessee’s continued use. The insurance proceeds, though payable to both parties, were intended to fund the lessee’s reconstruction obligation.
By entering into the MOA and using corporate funds to rebuild, CDC effectively assumed a private contractual obligation that properly belonged to Grand Duty Free. This constituted an irregular use of government funds, as the expenditure conferred a benefit upon a private entity without adequate consideration or public purpose directly accruing to the government corporation. COA correctly characterized the disbursement as unnecessary and extravagant. The petitioners, as approving officers, were solidarily liable for the disallowance as they permitted the release of funds for a purpose not authorized by the primary contract and without legal obligation on CDC’s part. The Court upheld COA’s constitutional mandate to prevent irregular expenditures of government funds.