EN BANC
[G.R. No. 233499. February 26, 2019.]
CAROLINE T. CASTRO, petitioner, vs.COMMISSION ON AUDIT, respondent.
NOTICE
Sirs/Mesdames :
Please take notice that the Court en banc issued a Resolution dated FEBRUARY 26, 2019, which reads as follows:
"G.R. No. 233499 — (Caroline T. Castro v. Commission on Audit)
This is a petition for certiorari seeking to annul and set aside the September 9, 2016 Decision 1 and the April 26, 2017 Resolution 2 of the Commission on Audit (COA) in Decision No. 2016-231 and Resolution No. 2017-032, respectively. The COA disapproved the October 15, 2012 Decision of the COA Regional Office No. VI (Region VI) and affirmed Notice of Disallowance (ND) No. 09-001-101-(07) 3 dated November 26, 2009. The ND disallowed the non-deductibility of the two percent (2%) of the total contract price of the New Public Market of Himamaylan City in the total amount of P1,402,697.97.
On September 20, 2005, Himamaylan City, Negros Occidental entered into a Contract for Procurement of Infrastructure Projects 4 with Dynamic Builders Construction Co., Phil., Inc. (Dynamic Builders), as private contractor, for the construction of a new public market in the city in the total amount of P70,134,898.60. The said contract provides for a build-and-transfer arrangement. Dynamic Builders would initially finance and construct the new public market and, after its completion and turnover to Himamaylan City, the latter shall repay the amount advanced in fixed equal monthly installments over five (5) years at an interest rate of eleven percent (11%) per annum.
The primary mode of payment was expressly provided under Item D.1.b., to wit:
D. Cost Control
1. Contract Price
xxx xxx xxx
(b) The Contract Price shall be payable in five (5) years through amortized equal monthly payments with interest at the rate of eleven (11%) percent per annum. The Owner shall be entitled a two (2%) percent rebate of the total Contract Price in the event full payment is made within three (3) years from completion and turnover of any of the items comprising the work to be deducted from the final payment due. 5 (emphasis supplied) CAIHTE
Nevertheless, under the same contract, Himamaylan City was also given another option for the payment of price under Item D.2.c., viz.:
2. Procedure for payment
xxx xxx xxx
(c) The Owner shall have the option of making lump sum payments in the amount corresponding to the value of the item/s completed as an alternative to fixed equal monthly amortized payments stated above. The lump sum payment option may be exercised by the Owner while the construction is in progress or at any period of monthly amortized payments without prejudice to the Two percent (2%) rebate as provided for in D.1.b. 6 (emphasis supplied)
On November 4, 2005, the construction of the new public market started. While the construction was in progress, Himamaylan City obtained a loan from the Land Bank of the Philippines in order to pay the price in lump sum, as provided under Item D.2.c. of the contract. Thus, Himamaylan City began paying Dynamic Builders the contract price on May 4, 2006, while the construction was in progress. The full payment in the amount of P70,134,898.60 was completed on April 24, 2007. 7 On the other hand, the construction was finished on November 3, 2006.
The Notice of Disallowance
On November 26, 2009, the COA Audit Team Leader and Supervising Auditor issued ND No. 09-001-101-(07) disallowing the amount of P1,402,697.97 for failure of Himamaylan City to deduct the same as the two percent (2%) rebate of the total contract price from the last and final payment made to the Dynamic Builders per Item D.1.b. of the contract. It stated that City Mayor Carminia G. Bascon, City Engineer Vicente T. Genova, City Accountant Efren de la Rosa, City Treasurer Caroline T. Castro (petitioner) and Dynamic Builders are liable for the transaction.
Aggrieved, petitioner and the officers of Himamaylan City appealed the ND to the COA Region VI.
The COA Region VI Ruling
In its decision dated October 15, 2012, the COA Region VI granted the appeal. It held that the two percent (2%) rebate, under Item D.1.b. of the contract, does not apply in this case because the contract cost was paid pending the completion of the project. Hence, the COA Region VI concluded that petitioner and the other officers of Himamaylan City were not liable for the failure to deduct the two percent (2%) rebate in the amount of P1,402,697.97.
Thus, there was an automatic review to the COA.
Meanwhile, an administrative and criminal complaint was filed against petitioner and the other officers of Himamaylan City before the Office of the Ombudsman (Ombudsman) for failure to deduct the two percent (2%) rebate in the amount of P1,402,697.97. In its Joint Resolution 8 dated December 29, 2015, the Ombudsman dismissed the complaint for lack of merit. It applied the opinion of the Sangguniang Panlungsod and held that it was the intention of the contracting parties that the two percent (2%) rebate shall only apply when the contract price is subject to the eleven percent (11%) interest rate per annum. Thus, as the lump sum payment was made under Item D.2.c. while construction was pending, Himamaylan City could not apply the two percent (2%) rebate.
The COA Ruling
In its decision dated September 9, 2016, the COA disapproved the October 15, 2012 decision of the COA Region VI and affirmed the ND No. 09-001-101-(07) dated November 26, 2009. It held that since Himamaylan City opted for a lump sum payment, the two percent (2%) rebate applied because such option was without prejudice to the said two percent (2%) rebate as provided under Item D.2.c. of the contract. The COA also ruled that good faith could not be appreciated to escape liability. It underscored that those directly responsible for the processing and approval of the final payment to the contractor without deducting the two percent (2%) rebate therefrom were personally liable for the expenditures of the government funds in violation of law or regulations. DETACa
Petitioner and the other officers filed a motion for reconsideration but it was denied by the COA in its resolution dated April 26, 2017.
Hence, petitioner filed this petition for certiorari before the Court.
ISSUE
RESPONDENT COMMISSION ON AUDIT ERRED IN HOLDING THAT THE 2% REBATE APPLIES IN THIS CASE AND THAT THE AMOUNT OF P1,402,697.97 SHOULD HAVE BEEN DEDUCTED FROM THE LAST PAYMENT MADE TO DBCCI. 9
Petitioner argues that there are three modes of payment under the contract; that the parties stipulated a two percent (2%) rebate when the payment is advanced within the three (3) years from completion of the project because it constitutes as a reduction of the interest initially fixed at eleven percent (11%); that in the third mode of payment, which is the lump sum payment while the construction is in progress under Item D.2.c., the two percent (2%) rebate is inapplicable because the eleven percent (11%) interest rate is also inapplicable; that COA should have considered the opinion of the Committee on Laws, Rules and Legal Matters of the Sangguniang Panlungsod of Himamaylan City, which drafted the contract, affirming that the two percent (2%) rebate applies only if the payment of the contract is subjected to the eleven percent (11%) per annum interest rate; and that the finding of the Ombudsman that petitioner and the officers of Himamaylan City are not liable for the alleged two percent (2%) rebate should have been upheld.
In its Comment, 10 COA counters that the contract clearly states that the two percent (2%) rebate applies whenever there is payment in full within three (3) years from completion and turnover regardless of the mode of payment; that the lump sum payment is without prejudice to the two percent (2%) rebate stipulated in Item D.2.c. of the contract; and that the contract is unambiguous and it does not need further interpretation.
In her Reply, 11 petitioner states that the COA's arguments are mere repetitions of its previous arguments.
The Court's Ruling
The petition is partially meritorious.
Interpretation of the contract
The cardinal rule in the interpretation of contracts is embodied in the first item of Article 1370 of the Civil Code: "[i]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control." 12 In Bautista v. Court of Appeals, et al., 13 the Court held that:
The rule is that where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids. The intention of the parties must be gathered from that language, and from that language alone. Stated differently, where the language of a written contract is clear and unambiguous, the contract must be taken to mean that which, on its face, it purports to mean, unless some good reason can be assigned to show that the words used should be understood in a different sense. Courts cannot make for the parties better or more equitable agreements than they themselves have been satisfied to make, or rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter them for the benefit of one party and to the detriment of the other, or by construction, relieve one of the parties from terms which he voluntarily consented to, or impose on him those which he did not. 14
Further, in interpreting contracts, the courts must consider the stipulations therein as a whole. In Continental Cement Corp. v. Filipinas (PREFAB) Systems, Inc., 15 the Court stated that: aDSIHc
The intention of the contracting parties should be ascertained by looking at the words used to project their intention, that is, all the words, not just a particular word or two or more words standing alone. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. The parts and clauses must be interpreted in relation to one another to give effect to the whole. The legal effect of a contract is to be determined from the whole read together. 16 (emphasis supplied)
In this case, the contractual provisions that should be interpreted are Items D.1.b. and D.2.c. of the Contract for Procurement of Infrastructure Projects entered between Himamaylan City and Dynamic Builders. 17 According to petitioner, there are three modes of payment provided therein, to wit:
1. Under item D.1.b., payment of the contract price in five (5) years from the competition of the project through amortized equal monthly payments. In that mode of payment, there will be an interest at the rate of eleven percent (11%) per annum.
2. Under item D.1.b., full payment of the contract price within three (3) years from completion and turnover of the project. In that mode of payment, Himamaylan City is entitled to a two percent (2%) rebate of the total contract price.
3. Under item D.2.c., lump sum payment while the construction is in progress or at any period of monthly amortized payments without prejudice to the two percent (2%) rebate as provided for in D.1.b.
Also, according to petitioner, the two percent (2%) rebate is only applicable when the payment is made through monthly amortized payments under the first and second modes of payment because there is an eleven percent (11%) interest rate per annum. Since the payment of Himamaylan City was made under the third mode while the construction was in progress, petitioner asserts that the two percent (2%) rebate is inapplicable because the eleven percent (11%) interest rate per annum is also inapplicable.
The Court is not convinced.
Item D.2.c. clearly states that lump sum payment while the construction is in progress or at any period of monthly amortized payments shall be without prejudice to the two percent (2%) rebate as provided for in D.1.b. The phrase "without prejudice" is defined "without loss of any rights; in a way that does not harm or cancel the legal rights or privileges of a party." 18 In other words, it means that any lump sum payment under the third mode shall not cancel or stop the two percent (2%) rebate as provided for in D.1.b.
It must also be emphasized that the phrase "without prejudice to the two percent (2%) rebate as provided for in D.1.b." refers to both lump sum payment (1) while the construction is in progress or (2) at any period of monthly amortized payments. There is absolutely no qualification in the said contractual provision that the two percent (2%) rebate is only applicable to monthly amortized payments; thus, such rebate shall be applied to all lump sum payments regardless of the time of payment.
Even though Himamaylan City made lump sum payments to Dynamic Builders while construction of the new public market was in progress, the two percent (2%) rebate is still applicable. The amount of P1,402,697.97 should have been deducted by Himamaylan City as the two percent (2%) rebate of the total contract price. ETHIDa
External evidence cannot be
As discussed above, when the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. Indeed, where the language of a contract is plain and unambiguous, its meaning should be determined without reference to extrinsic facts or aids.
When an agreement has been reduced to writing, the parties cannot be permitted to adduce evidence to prove alleged practices which, to all purposes, would alter the terms of the written agreement. Whatever is not found in the writing is understood to have been waived and abandoned. 19 Section 9, Rule 130 of the Rules of Court, which embodies the parol evidence rule, states:
SEC. 9. Evidence of written agreements. — When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement. x x x 20
Verily, petitioner cannot rely upon external evidence to establish the interpretation of the contract because the said provisions are clear and unambiguous. Although the Committee on Laws, Rules and Legal Matters of the Sangguniang Panlungsod of Himamaylan City gave an opinion that the two percent (2%) rebate applies only if the payment of the contract is subjected to the eleven percent (11%) per annum interest rate, it shall not bind the contract. Again, only the clear meaning of the contract should be followed and it is evident therein that the lump sum payments shall be made without prejudice to the two percent (2%) rebate as provided for in Item D.1.b.
In the same manner, the joint resolution of the Ombudsman cannot bind the interpretation of the contract. Such resolution only refers to the administrative and criminal charges against petitioner; it does not cover the civil liability under ND No. 09-001-101-(07).
While the parol evidence rule is subject to certain exceptions, 21 petitioner failed to establish that the present case falls under any of these exceptions. Manifestly, the interpretation of the contract shall only be confined to the plain and clear stipulations therein; resort to external aids is not permitted.
Petitioner exercised good faith
Good faith is a state of mind denoting "honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction unconscientious." 22
In Development Bank of the Philippines v. Commission on Audit, 23 the Court ruled that good faith may be appreciated in favor of the responsible officers under the ND provided they comply with the following requisites: (1) that they acted in good faith believing that they could disburse the disallowed amounts based on the provisions of the law; and (2) that they lacked knowledge of facts or circumstances which would render the disbursements illegal, such when there is no similar ruling by this Court prohibiting a particular disbursement or when there is no clear and unequivocal law or administrative order barring the same.
In this case, the Court finds that petitioner exercised good faith in not deducting the two percent (2%) rebate from the total contract price due to the following reasons: cSEDTC
First, at the time Himamaylan City disbursed the total price of P70,134,898.60 while construction was in progress, there was no existing regulation or opinion regarding the proper interpretation of the phrase "without prejudice to the two percent (2%) rebate as provided for in D.1.b." under the Contract for Procurement of Infrastructure Projects with Dynamic Builders. Thus, as there was no guiding regulation or opinion, the officers of Himamaylan City, including petitioner, had to rely on their own interpretation that such two percent (2%) rebate is only applicable if the payment is made after the completion of the project when it is subject to the eleven (11%) interest rate per annum. As the payment was given while the construction was in progress, they honestly believed that the two percent (2%) rebate was not applicable.
Second, as discussed by the Ombudsman in its joint resolution, the Committee on Laws, Rules and Legal Matters of the Sangguniang Panlungsod of Himamaylan City, which drafted the contract, gave an opinion affirming that the two percent (2%) rebate applies only if the payment of the contract is subject to the eleven (11%) per annum interest rate. Again, the Himamaylan officials could not be blamed for genuinely depending on the opinion of the said committee that drafted the contract, even if said opinion is later deemed invalid.
Third, even the Ombudsman and the COA Region VI opined that the two percent (2%) rebate is not applicable if the contract price is paid while the construction is in progress. In its decision dated October 15, 2012, the COA Region VI held that the two percent (2%) rebate does not apply because the contract cost was paid pending the completion of the project. Similarly, in its joint resolution dated December 29, 2015, the Ombudsman confirmed that it was the intention of the contracting parties that the two (2%) rebate shall apply only when the contract price is subject to the eleven (11%) interest rate per annum.
Evidently, both the Ombudsman, the COA Region VI, and the COA experienced difficulty in interpreting the provisions of the Contract for Procurement of Infrastructure Projects with Dynamic Builders. Verily, it is only in the present case that the Court has the opportunity to finally resolve the interpretation of the phrase "without prejudice to the two percent (2%) rebate as provided for in D.1.b." Hence, at the time of payment of the contract price, petitioner, as City Treasurer, cannot be faulted for approving the disbursement of funds without the application of the two percent (2%) rebate.
Based on the foregoing, the COA committed grave abuse of discretion when it failed to appreciate good faith in favor of petitioner. While the validity of ND No. 09-001-101-(07) is upheld, petitioner cannot be held liable therein on the basis of good faith.
In conclusion, it is unfair to penalize public officials based on overly stretched and strained interpretations of rules which were not that readily capable of being understood at the time such functionaries acted in good faith. If there is any ambiguity, which is actually clarified years later, then it should only be applied prospectively. A contrary rule would be counterproductive. It could result in paralysis, or lack of innovative ideas getting tried. In addition, it could dissuade others from joining the government. When government service becomes unattractive, it could only have adverse consequences for society. 24
However, it must be emphasized that this petition was filed by petitioner, and, thus, only applicable to the government officials concerned. This ruling is without prejudice to the liability of the private contractor, Dynamic Builders. SDAaTC
WHEREFORE, the petition is PARTIALLY GRANTED. The September 9, 2016 Decision and the April 26, 2017 Resolution of the Commission on Audit in Decision No. 2016-231 and Resolution No. 2017-032, respectively, are AFFIRMED with MODIFICATION in that the disallowed amount need not be paid by petitioner without prejudice to recover from the private contractor." (adv24)
Very truly yours,
(SGD.) EDGAR O. ARICHETAClerk of Court
Footnotes
1. Concurred by Chairperson Michael G. Aguinaldo, Commissioners Jose A. Fabia and Isabel D. Agito; rollo, pp. 15-20.
2.Id. at 21.
3.Id. at 22-23.
4.Id. at 24-31.
5.Id. at 27-28.
6.Id. at 28.
7.Id. at 17.
8.Id. at 34-45.
9.Id. at 8.
10.Id. at 72-87.
11.Id. at 121-122.
12.Abad, et al. v. Goldloop Properties, Inc., 549 Phil. 641, 654 (2007).
13. 379 Phil. 386 (2000).
14.Id. at 399.
15. 612 Phil. 524 (2009).
16.Id. at 538, citing Villamaria, Jr. v. Court of Appeals, et al., 521 Phil. 682, 702-703 (2006).
17.Rollo, pp. 27-28.
18. Black Law's Dictionary, 9th Ed., p. 112 (2009), p. 1740.
19.Norton Resources and Development Corp. v. All Asia Bank Corp., 620 Phil. 381, 389-390 (2009).
20. RULES OF COURT, Rule 130.
21. RULES OF COURT, Rule 130, Section 9 provides:
xxx xxx xxx
However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake, or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement. x x x
22.Maritime Industry Authority v. Commission on Audit, 750 Phil. 288, 337 (2015), citing Philippine Economic Zone Authority v. Commission on Audit, et al., 690 Phil. 104, 115 (2012).
23. G.R. No. 221706, March 13, 2018.
24. Philippine Economic Zone Authority v. Commission on Audit, et al., 797 Phil. 117, 142 (2016).