G.R. No. 223228 . April 10, 2019.
FELIX GOCHAN & SONS REALTY CORPORATION, Petitioner, vs. COMMISSION ON AUDIT and THE CITY GOVERNMENT OF CEBU, Respondents.

FACTS

Petitioner Felix Gochan & Sons Realty Corporation owned two parcels of land occupied by Cebu City: the Banawa Property, used by Banawa Elementary School since 1970, and the Lorega Property, declared a socialized housing site. Respondent City Government of Cebu owned the Lahug Property. To resolve potential ejectment issues, the parties executed a Deed of Exchange in 2005, swapping Gochan’s two properties for the city’s Lahug Property, approved by the Sangguniang Panlungsod. The Commission on Audit (COA) initially disapproved the swap, finding a substantial disparity in value after a re-appraisal showed the city’s property was more valuable.
The COA, in its 2009 Decision, held the exchange violated Republic Act (R.A.) No. 7279 (Urban Development and Housing Act) due to the unequal value, requiring Gochan to compensate the city. Gochan moved for reconsideration, arguing the valuation should account for decades of unpaid rentals for the city’s use of its properties. The COA denied this, stating no contractual liability for rentals existed, the use was for public purpose, and such a claim would constitute a separate money claim against the government. After protracted proceedings, the COA ultimately issued resolutions in 2015 annulling the Deed of Exchange.

ISSUE

Whether the COA committed grave abuse of discretion in annulling the Deed of Exchange between Gochan and Cebu City.

RULING

Yes, the Supreme Court granted the petition and reversed the COA resolutions. The Court found the COA acted with grave abuse of discretion by imposing a rigid and restrictive interpretation of R.A. No. 7279 . The law expressly authorizes local government units to acquire land for socialized housing through land swapping or exchanges, provided the values are approximately equal. The COA erroneously focused solely on the raw market value disparity, disregarding the overarching public purpose and benefit of the transaction, which aimed to secure land tenure for a public school and housing beneficiaries, thereby preventing disruptive litigation.
The legal logic is that COA’s audit power must be exercised within the bounds of law and with due regard for the substantive purpose of the transaction. While the COA correctly identified a value discrepancy, its outright annulment of the exchange was too severe. The Court, applying equitable principles and a liberal construction of the housing law to achieve its social objectives, approved a modified land swap. The solution was to uphold the exchange but require Gochan to pay the city the amount of the valuation difference (₱20,137,000.00). This ensures the government receives commensurate value, aligns with R.A. No. 7279 ’s intent, and serves the greater public interest of stabilizing land use for essential public services.