EN BANC

 

 

CRESER PRECISION SYSTEMS, INC.,

Petitioner,

 

 

 

 

 

 

 

 

- versus -

 

 

 

 

 

 

 

 

COMMISSION ON AUDIT,

Respondent.

 

G.R. Nos. 143803

 

Present:

DAVIDE, JR., C.J.

PUNO,

PANGANIBAN,

QUISUMBING,

YNARES-SANTIAGO,

SANDOVAL-GUTIERREZ,

CARPIO,

AUSTRIA-MARTINEZ,

CORONA,

CARPIO MORALES,

CALLEJO, SR.,

AZCUNA,

TINGA,

CHICO-NAZARIO, and

GARCIA, JJ.

 

Promulgated:

 

November 17, 2005

x---------------------------------------------------------------------------------x

 

D E C I S I O N

 

 

GARCIA, J.:

 

Imputing grave abuse of discretion amounting to lack or in excess of jurisdiction on the part of respondent Commission on Audit (COA), petitioner Creser Precision Systems, Inc., has come this Court via this special civil action of certiorari under Rule 65 of the Rules of Court to seek the annulment and setting aside of: (a) COA Decision No. 98-074 dated February 3, 1998[1] which denied petitioners letter-appeal dated September 27, 1996 for reconsideration of the audit disallowance in the amount of P11,075,650.00, representing the second price escalation within the same year on the price of mortar fuzes delivered by it up to July, 1987 under its 1981 MANUFACTURING ARGREEMENT[2] with the Armed Forces of the Philippines (AFP), effective September 1, 1983 to July 1986; and (b) COA Decision No. 99-131 dated August 17, 1999,[3] denying petitioners motion for reconsideration of the first.

The material facts are summarized in COAs basic decision, as follows:

Extant records show that sometime in 1981, the Department of National Defense (DND) entered into a contract with Creative Self-Reliance Enterprises, Inc., now CRESER Precision Systems, Inc. (CRESER for brevity), for the delivery of 340,450 mortar fuzes at P125 per piece for a total amount of P42,556.25.

 

It appears that as of August 1987, CRESER had delivered 295,000 mortar fuzes and had been paid the amount of P39,957,400. On September 11, 1987, Gen. Rafael M. Ileto, then Secretary of National Defense, approved a price escalation together with the payment of P8,848,750 as price differential on the deliveries made up to July, 1986. In response to a request for review and evaluation of the price adjustment on the mortar fuzes, the Technical Services Office (TSO), this Commission, on November 11, 1987, allowed the price differential for labor cost but disallowed the price escalation for material cost effective September 1983 for being violative of paragraph 6.2 of the Manufacturing Agreement which provides that the parties may renegotiate for price adjustment not oftener than once a year. It appears that recently approved price escalation was in July 1983 which was only two months prior to the requested effectivity date of escalation of September 1, 1983.

 

On November 23, 1987, Mr. Francis L. Romualdez, Jr., President of CRESER Precision Systems, Inc., requested Col. Danilo C. Lazo, Acting Deputy Chief of Staff for Materiel Development, J8, to make representations with this Commission for reconsideration of the results of the review and evaluation of the material cost escalation by the Technical Services Office. Thus, in a 3rd Indorsement dated December 7, 1987, Col. Danilo C. Lazo favorably indorsed the matter to the Auditor, GHQ-AFP, who, in turn, recommended approval of the price escalation, in a 4th Indorsement dated December 8, 1987.

 

In a Memorandum, dated December 10, 1987, Director Arcadio B. Cuenco, Jr. then of the TSO, referred to the General Counsel, both of this Commission for a more authoritative pronouncement relative to the interpretation of paragraph 6.2 of the Manufacturing Agreement with respect to the issue on price escalation.

 

While the request for escalation was pending at the COA Legal Office, the Armed Forces of the Philippines, relying on the notation of Auditor Archimedes Sitjar on the face of the disbursement voucher, dated October 29, 1987, which sates: This claim was referred to Chairman Eufemio C. Domingo and Directors Cuenco and Perez and they did not offer any objection to allowing it in audit, paid the amounts of P8,848,750 under TW No. B-05737473 dated December 16, 1987, representing price differentials on the mortar fuzes delivered up to July 21, 1987.

 

Meanwhile, in response to the request of Director Cuenco for the interpretation of the said provision of the contract, Director Emmanuel M. Dalman, then General Counsel of this Commission, in a Memorandum dated February 4, 1988, expressed the view that any request for material cost escalation should be effective not earlier than July 1984 in line with paragraph 6.2 of the Agreement. On account of said pronouncement, the then GHQ-AFP Auditor Manuel C. Samson on November 29, 1989, disallowed under CSB No. TW-89-0001-101 the amount of P11,075,650 representing the price escalation on mortar fuzes delivered up to July 21, 1987 and in a letter dated January 10, 1990, the Auditor requested the Commanding General, OJ9, GHQ-AFP to withhold the payment of salaries or any amount due to the persons determined liable under the said CSB.

 

Aggrieved by the Auditors action, the CRESER Precision Systems, Inc., in a letter dated January 29, 1990, thru Ms. Jeannette D. Tolentino, filed an appeal with this Commission which was received by the Office of the Auditor, GHQ-AFP, requesting that the company be cleared as regards the transactions contending, among others, that an incident beyond the control of the company had happened. This incident was the assassination of Sen. Benigno Aquino which caused a tremendous downtrend in the countrys economy.

 

Furthermore, Brig. General Umberto A. Rodriguez, then Deputy Chief of Staff for Materiel Development, in a letter dated March 30, 1990, requested reconsideration of the disallowance alleging that the matter is considered closed as the same had been cleared by Honorable Chairman Eufemio C. Domingo, in a conference request by the AFP which was also participated in by Engr. Cuenco, Director Perez and Atty. Sitjar, all of this Commission and Capt. Andaya, LCDR Arcellana, and Mr. Romualdez, representing the AFP group. However, records on file show that no such appeal had been forwarded to this Commission or the pertinent documents therefor elevated for final disposition.

 

In a Contract Review Report dated December 29, 1990 made by the Technical Services Office, this Commission, it was found that the approved price escalation of CRESER was in order, which report was transmitted to the Office of the Auditor, GHQ-AFP, through a 4th Indorsement, dated January 25, 1991, of the Technical Services Office.

Finally, on December 6, 1995, Commodore Francis T. Mallillin, Deputy Chief of Staff for Materiel Development, in response to the request, dated January 10, 1990, of the Auditor GHQ-AFP withheld the amount of P1,591,250 representing the disallowance for material cost escalation. The request of Mr. Francis L. Romualdez, CRESER, for the Commission to intercede for the release of the said amount was returned by the Assistant Commissioner, National Government Audit Office I, this Commission, advising him to file his appeal for the release of the amount withheld being directly connected with the disallowance.

 

Hence, petitioners letter-appeal dated September 27, 1996[4] for reconsideration of the audit disallowance of its claim in the amount of P11,075,650.00.

 

In the herein assailed COA DECISION No. 98-074, dated February 3, 1998, respondent COA denied petitioners aforesaid appeal, thus:

 

Premises considered, the instant request for reconsideration of the audit disallowance amounting to P11,075,650 is hereby denied. Accordingly, the Auditor GHQ-AFP is instructed to take the necessary steps for the enforcement of the disallowance in question.

 

In time, petitioner moved for a reconsideration[5] but its motion was denied by the respondent Commission in its subsequent Resolution of August 17, 1999 (COA Decision No. 99-131), to wit:

 

Premises considered, and there being no compelling reason or valid justification to reconsider COA Decision No. 98-074, the instant motion for reconsideration is denied. Accordingly, subject decision is affirmed with finality.

 

Petitioner is now before us upon the following cogent grounds:

RESPONDENT COA GRAVELY ABUSED ITS DISCRETION AND/OR ACTED WITHOUT OT IN EXCESS OF JURISDICTION IN RENDERING COA DECISION NO. 98-074 AND DENYING PETITIONERS MOTION FOR RECONSIDERATION THEREOF IN COA DECISION NO. 99-131 IN THAT

A

COA DECISION NO. 98-074 AND NO. 99-131 ARE NULL AND VOID FOR HAVING BEEN RENDERED IN FLAGRANT VIOLATION OF PETITIONERS CONSTITUTIONAL RIGHT TO A SPEEDY DISPOSITION OF ITS CASE BEFORE RESPONDENT COA; SECTIONS 33 AND 34, CHAPTER 5, SUBTITLE B, BOOK V OF THE ADMINISTRATIVE CODE OF 1987 (E.O. NO. 292); AND SECTION 7, RULE IX OF THE LATTERS OWN RULES OF PROCEDURE.

B

COA DECISIONS NO. 98-074 AND 99-131 ARE NULL AND VOID AS THEY HAVE THE EFFECT OF CAUSING THE RE-OPENING AND THE REVIEW OF THE ACCOUNT INVOLVED WHEN THE SAME HAD ALREADY BECOME FINAL SIX (6) MONTHS AFTER IT HAD BEEN PASSED IN AUDIT BY GHQ-AFP STATE AUDITOR ARCHIMEDES SITJAR IN DECEMBER 1987 IN ACCORDANCE WITH SECTION 6, RULE IV OF RESPONDENT COAS OWN RULES OF PROCEDURE AND WITHOUT THE COMMISSION PROPER HAVING ORDERED FOR SUCH REVIEW AND/OR REVISION WITHIN THREE (3) YEARS FROM DECEMBER 1987 SUCH THAT THE SAID ACCOUNT IS DEEMED SETTLED CONFORMABLY TO SECTION 37, CHAPTER 5, SUBTITLE B, BOOK V OF THE ADMINISTRATIVE CODE OF 1987 (E.O. NO. 292).

C

RESPONDENT COAS FINDING THAT ALLOWING THE PRICE ESCALATION VIOLATES PARAGRAPH 6.2 OF THE MANUFACTURING AGREEMENT IS WITHOUT FACTUAL AND LEGAL BASIS.

D

THE REQUESTED PRICE ADJUSTMENTS ARE WARRANTED AND JUSTIFIABLE.

E

WERE THE AFP TO BE COMPELLED TO WITHHOLD PAYMENTS DUE TO PETITIONER TO COVER FOR AND OFFSET THE SAME AGAINST THE LATTERS ALLEGED ACCOUNTABILITY, PETITIONER WHICH OPERATES ON LOANS AND REVOLVING CREDIT LINES TO MEET THE AFPS PRODUCTION REQUIREMENTS AND DELIVERY SCHEDULES, WOULD BE FINANCIALLY CRIPPLED, AS PAYMENTS DUE TO CREDITORS COULD BE DELAYED OR SUSPENDED, THREATENING IN TURN PETITIONERS CREDIBILITY WITH ITS LENDERS AND RESULTANTLY, PETITIONERS CONTINUED OPERATION, TO THE EVENTUAL DETRIMENT OF THE GOVERNMENTS PEACE EFFORTS IN MINDANAO.

 

As aptly put by the Solicitor General in his Comment[6] for the respondent, the issues boil down to two; namely:

 

1. Was the disallowance of the material cost escalation effective September 1, 1983 proper?

 

2. Was Cresers claim expeditiously resolved by the COA?

 

We find no merit in the petition.

 

The pertinent provision of the Manufacturing Agreement[7] between petitioner and DND reads:

ARTICLE VI

PRICE ADJUSTMENT & RENEGOTIATION

x x x x x x x x x

6.2 Renegotiation Clause. The parties may renegotiate for price adjustment, not often than once a year due to an increase in the cost of raw materials, finished parts and/or supplies in the open market, in excess of ten (10%) percent based on quotations from at least two (2) reputable suppliers acceptable to the MANUFACTURER/AFP, the agreed price shall be adjusted accordingly by adding to said price the actual increase in the cost.

Based on the foregoing provision, respondent COA disallowed payment of the increased price of the mortar fuzes, subject of petitioners claim, holding that any request for material cost escalation shall be effective not earlier than July 1984, there being a price adjustment effected pursuant to such agreement in July 1983.[8]

 

Petitioner disagrees, contending that what appears proscribed by the aforequoted paragraph 6.2 of the Manufacturing Agreement is any renegotiation for price adjustment taking place more than once a year, adding that the date of effectivity of such price adjustment, which COA seemed to be concerned about, was totally unrelated to paragraph 6.2.

 

We are not persuaded.

 

The only logical interpretation of paragraph 6.2 is that both renegotiation and effectivity of any price adjustment cannot be made oftener than once a year. The intention of the parties to this effect cannot get much clearer than that. If renegotiation within less than the agreed one-year period is proscribed by the paragraph in question, it is unthinkable how the same provision could allow any increase or adjustment in the quoted price within one year, i.e., taking effect retroactively, or at a date prior to a request for price adjustment. Necessarily, the effectivity of the price adjustment shall similarly have a minimum of one-year gap. Thus, we find no grave abuse of discretion on the part of respondent COA in ruling that any request for material cost escalation shall be effective not earlier than July 1984 Here, it is not disputed that a prior adjustment was actually effected less than a year earlier or in July, 1983. After all, COA only enforces the stipulation of the parties in their Manufacturing Agreement, which constitutes the law between them.[9]

 

Nor can the Court agree with petitioner that the political and economic developments after the assassination of Sen. Benigno Aquino justified a price adjustment within the proscribed one-year period. For sure, paragraph 6.2 provides nothing to this effect. The Court cannot subscribe to the argument that just because the Aquino assassination caused the economy to tailspin overnight, triggering massive capital flight and interest and inflation rates to skyrocket in a matter of weeks,[10] the parties may already renege from the terms and conditions expressly and mutually agreed upon by them in their Manufacturing Agreement. What may have come out as a disastrous deal, when the parties therein agreed to limit the price escalation or adjustment to only once yearly, cannot be exempted therefrom, bound as they are by what they had freely signed and agreed upon. Despite being disadvantageous as petitioner claims the subject agreement to be, nonetheless any losses resulting therefrom within the one-year period from July 1983 to the end of June 1984, must be borne by the petitioner.

 

Very recently in Laperal vs. Solid Homes,[11] this Court had occasion to stress that:

 

xxx. It is a long established doctrine that the law does not relieve a party from the effects of an unwise, foolish, or disastrous contract, entered into with all the required formalities and with full awareness of what he was doing. Courts have no power to relieve parties from obligations voluntarily assumed, simply because their contracts turned out to be disastrous deals or unwise investments. xxx.

 

 

Finding the COAs ruling on the disallowance of the September 1, 1983 material cost escalation completely in accord with law and jurisprudence, the Court has no other alternative but to sustain the same.

 

Petitioner also cries foul for the alleged unreasonable and unjustifiable delay of not less than eight (8) years to resolve the issue involving the propriety of its second request in 1987 for material cost escalation.

 

Addressing petitioners grievance in this respect, respondent COA, in its Resolution of August 17, 1999 (COA Decision No. 99-131) which denied petitioners motion for reconsideration of its basic decision, explained as follows:

 

Anent the first ground, perusal of the records yields the fact that no unreasonable and unjustifiable delay was committed in the resolution of CRESERs case. The allegation that it took this Commission a period of eight (8) years to resolve the case is misleading and smacks of irresponsibility. The span between the time CRESER filed its request for reconsideration of CSB No. 89-0001-101 on September 27, 1996 and its corresponding resolution as contained in COA Decision No. 98-074 dated February 3, 1998 clearly contradicts the sweeping statement that there was delay to the prejudice of the herein [petitioner].

This Commission wishes to emphasize that it did not discriminately sleep on its duty to resolve the appeal of CRESER dated January 29, 1990 and March 30, 1990 as averred by Bgen. Umberto Rodriguez for it is on official record that no such appeal had been forwarded to this Commission or the pertinent documents therefor elevated for final resolution (page 3, COA Decision No. 98-074). No case or request pertaining to CRESER has been submitted for decision or resolution except its request dated September 27, 1996. Thus, Section 7 of Rule IX of the Revised Rules of Procedure which states that any case brought to the Commission Proper shall be decided within sixty (60) days from the date it is submitted for decision or resolution has negated the allegation that this rule has been violated. To reiterate, no case relative to the appeal/request of CRESER has been forwarded to the Commission Proper for decision or resolution.

 

Upon careful review of the proceedings that transpired in relation to the disallowance of the material cost escalation in this case, we find no reason to fault COA for its alleged prolonged inaction on the subject claim of petitioner.

 

The assailed COA Decision No. 99-131 clearly states that official records of the case before the respondent Commission bears no formal request or appeal questioning the disallowance of the material cost escalation was ever filed in 1987. The Court has no basis to disregard such finding.

 

In this connection, the COA Rules of Procedure[12] pertinently states:

Sec. 48. Appeal from decision of Auditors. Any person aggrieved by the decision of an auditor of any government agency in the settlement of an account or claim may within 6 months from receipt of a copy of the said decision appeal in writing to the Commission. (Emphasis added).

 

Appeal is not a natural right nor is it part of due process, for it is merely a statutory privilege that must be exercised in the manner and according to procedures laid down by law.[13] The COA Rules expressly spelled out how appeal from a decision or disallowance by an Auditor should be made. No such appeal in writing was filed by petitioner with the COA until September 27, 1996.

 

Petitioners letter dated November 23, 1987,[14] addressed as it is to Col. Danilo C. Lazo, questioning the 1st Indorsement dated November 11, 1987 by COA-TSO Director Cuenco recommending the disallowance of the material cost escalation effective September 1, 1983, cannot be considered as an appeal by petitioner under the COA Rules of Procedure because it does not duly invoke the very jurisdiction of the Commission itself to rule on the subject disallowance. Nihil forum ex scena.[15] The records of the case bear clearly that COA had nothing to officially act upon until petitioner formally invoked its jurisdiction to rule on this issue by filing its letter-appeal dated September 27, 1996. It is utterly unfair and unjust for petitioner to ascribe inaction on the part of respondent COA prior to that date not only because COA is not duty-bound to do so at that time, but more so because it has no power nor jurisdiction then to act upon it until the matter was brought to its attention in petitioners letter-appeal of September 17, 1996.

WHEREFORE, the instant petition is DENIED and the assailed COA Decision and Resolution AFFIRMED.

Costs against petitioner.

 

SO ORDERED.

 

 

 

 

 

 

CANCIO C. GARCIA

Associate Justice

 

 

 

WE CONCUR:

 

 

 

HILARIO G. DAVIDE, JR.

Chief Justice

 

 

 

REYNATO S. PUNO

Associate Justice

 

 

 

ARTEMIO V. PANGANIBAN

Associate Justice

 

 

 

LEONARDO A. QUISUMBING

Associate Justice

 

 

 

CONSUELO YNARES-SANTIAGO

Associate Justice

 

 

 

 

ANGELINA SANDOVAL-GUTIERREZ

Associate Justice

 

 

 

 

ANTONIO T. CARPIO

Associate Justice

 

 

 

MA. ALICIA M. AUSTRIA-MARTINEZ

Associate Justice

 

 

 

RENATO C. CORONA

Associate Justice

 

 

 

 

CONCHITA CARPIO MORALES

Associate Justice

 

 

 

 

ROMEO J. CALLEJO, SR.

Associate Justice

 

 

 

ADOLFO S. AZCUNA

Associate Justice

 

 

 

DANTE O. TINGA

Associate Justice

 

 

 

MINITA V. CHICO-NAZARIO

Associate Justice

 

 

 

 

C E R T I F I C A T I O N

 

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

 

 

 

HILARIO G. DAVIDE, JR.

Chief Justice



[1] Chairman Celso Gagan, and Commissioners Raul C. Flores and Emmanuel M. Dalman, voting unanimously; Rollo, pp. 183-186.

[2] Annex A, Petition; Rollo, pp. 65-86.

[3] Commissioner Raul C. Flores, dissenting; Rollo, pp. 235-239.

[4] Annex X; Petition; Rollo, pp. 176-182.

[5] Annex AA, Petitioner; Rollo, pp. 188-200.

 

[6] Rollo, pp. 256-263.

 

[7] Annex A of Petition; Rollo, pp. 65-87.

[8] Rollo, p. 185.

[9] Multinational Village Homeowners Association, Inc. vs. Ara Security & Surveillance Agency, Inc., 441 SCRA 126 [2004].

[10] Petition; Rollo, p. 59.

[11] G.R. No. 130913, June 21, 2005.

[12] Presidential Decree No. 1445.

[13] Ongpauco vs. Court of Appeals, G.R. No. 134039, December 21, 2004, citing Veloria vs. Comelec, 211 SCRA 907 [1992]; Borre vs. Court of Appeals, 158 SCRA 560 [1988].

[14] Annex I, Petition, Rollo, pp. 110-113.

[15] The court has nothing to do with what is not before it. Lee, G. Handbook of Legal Maxims, 2nd Ed., 1998, p. 121.