LOTRIM CONSTRUCTION, INC., REPRESENTED BY ITS PRESIDENT, ENGINEER ODILON MARLON L. GAVIOLA, AND ENGINEER ODILON MARLON L. GAVIOLA, PETITIONERS, VS. COMMISSION ON AUDIT, RESPONDENT.

Lotrim Construction versus Commission on Audit

The Case

This is a petition for certiorari under Rule 64 in relation to Rule 65 of the Rules of Court, brought by Lotrim Construction, Inc., represented by its president, Engineer Odilon Marlon L. Gaviola, against the Commission on Audit. The petitioners assail the decision and resolution of the Commission on Audit Commission Proper, which upheld the disallowances of the payments made by the Bureau of Customs to Lotrim for the expansion of the Administration Building of the Bureau of Customs Port of Davao, and which held Lotrim liable to return an overpayment of 408,859.16 pesos. The case matters because it gathers in one place the rules on the timeliness of a petition for certiorari under Rule 64, the breadth of the Commission on Audit's constitutional audit power, the requirements of administrative due process in audit proceedings, the waiver of Construction Industry Arbitration Commission jurisdiction, and the application of quantum meruit to a void government contract.

Procedural History

The Commission on Audit issued two notices of disallowance against the payments to Lotrim, one in July 2013 covering the fifteen percent advance payment and one in January 2014 covering the first partial payment. Lotrim appealed both to the regional director of the Commission on Audit Regional Office Number Eleven in Davao City, and later to the Commission on Audit Cluster Director for the National Government Sector, Cluster Two. The Cluster Director granted the appeals and lifted both notices of disallowance, holding that Lotrim was entitled to payment under the principle of quantum meruit, and directing the audit team leader to evaluate the remaining payment on postaudit, not to exceed 6,347,826.73 pesos based on the inspection report. The case then went to the Commission on Audit Commission Proper on automatic review. The Commission Proper disapproved the Cluster Director's decision insofar as it lifted the notices of disallowance, affirmed the notices, and reduced Lotrim's liability to 408,859.16 pesos. Lotrim moved for reconsideration, which the Commission Proper denied. Lotrim then filed this petition for certiorari in the Supreme Court.

Facts

In 2012, the Bureau of Customs issued an Invitation to Bid for the expansion of its Administration Building at the Port of Davao, informing prospective bidders that 20,000,000 pesos had been appropriated in the General Appropriations Act of 2012 as the Approved Budget for the Contract. In the public bidding held in December 2012, Lotrim was declared the bidder with the lowest calculated and responsive bid, in the amount of 17,203,203.18 pesos. The Notice of Award was issued in February 2013, and in March 2013 the Bureau of Customs, represented by Commissioner Rozzano Rufino B. Biazon, and Lotrim, represented by Engineer Gaviola, entered into a Contract of Agreement at the agreed contract price of 17,203,203.18 pesos. A Notice to Proceed followed.

In April 2013, the Bureau of Customs disbursed 2,419,200.45 pesos to Lotrim as the fifteen percent advance payment. In June 2013, it paid 3,828,184.10 pesos as the first partial payment for work accomplished. In July 2013, the Commission on Audit issued the first notice of disallowance, disallowing the advance payment on the ground that funds allotted for Maintenance and Other Operating Expenses were misappropriated for the construction of a new office building, that funds were obligated to cover up a nonexistent creditor, and that savings from a prior fiscal year were unlawfully spent beyond that year. Lotrim, Engineer Gaviola, and the approving and certifying officials of the Bureau of Customs were named liable. Because of the disallowance, the Bureau of Customs Port of Davao wrote Lotrim in August 2013 to cease construction pending resolution of its appeal. Lotrim reported an accomplishment rate of 80.67 percent, or 13,878,362.71 pesos.

In January 2014, the Commission on Audit issued the second notice of disallowance, covering the first partial payment, on similar grounds. At the request of the officer in charge of the Port of Davao, the Commission on Audit Technical and Information Technology Services inspected the project and reported that the works performed were only at 36.90 percent, and that actual accomplishment amounted only to 6,347,826.73 pesos, contrary to Lotrim's reported accomplishment. Lotrim appealed both notices. The Cluster Director granted the appeals and applied quantum meruit. On automatic review, the Commission Proper held the contract void for lack of a valid appropriation, affirmed the notices of disallowance, and after recomputation found that the Bureau of Customs had overpaid Lotrim by 408,859.16 pesos, for which Lotrim was held liable. Lotrim's motion for reconsideration, supported by an independent assessment reporting a 64.15 percent accomplishment, was denied.

Issues

• Whether or not the petition for certiorari under Rule 64 was filed within the reglementary period.
• Whether or not the petitioners were denied administrative due process when the Commission on Audit Technical and Information Technology Services inspected the project and issued its inspection report without prior notice to them.
• Whether or not the Commission on Audit had jurisdiction to determine the petitioners' degree of accomplishment, or whether the matter should have been referred to the Construction Industry Arbitration Commission.
• Whether or not the petitioners are liable to refund the amount of 408,859.16 pesos to the Government.

Applicable Provisions

Section 3, Rule 64 of the Rules of Court provides:

A petition for certiorari shall be filed within 30 days from notice of the judgment, final order, or resolution sought to be reviewed. The filing of a motion for new trial or reconsideration, if allowed under the procedural rules of the Commission concerned, shall interrupt the 30-day reglementary period. If the motion is denied, the aggrieved party may file the petition within the remaining period, which shall not be less than five days, reckoned from the notice of denial.

This provision fixes the period within which the petitioners had to come to the Supreme Court, and its breach is the first ground on which the petition fails.

Section 2, paragraph 2, Article Nine-D of the Constitution provides:

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

This is the source of the Commission on Audit's broad audit power, which the Court holds is not confined to the grounds initially cited by the government auditor.

Ruling

On the first issue, the Court holds that the petition was filed out of time. The petitioners received a copy of the assailed decision in October 2018 and filed their motion for reconsideration twenty-seven days later, leaving three days of the thirty-day period. When the motion was denied, the remaining period was five days, reckoned from notice of denial, or until September 5, 2023. The petition was filed only on October 2, 2023. The belated filing is fatal, and the assailed rulings are deemed to have attained finality under the doctrine of immutability of judgment.

On the second issue, the Court holds that there was no denial of administrative due process. The essence of due process is simply the opportunity to be heard, or to explain one's side, or to seek a reconsideration of the action or ruling complained of. The petitioners actively participated in the proceedings, their appeal and their motion for reconsideration were resolved on the merits, and their prayer for compensation on the basis of quantum meruit was granted below. The Technical and Information Technology Services is an internal office answerable only to the Commission on Audit, and no rule requires it to furnish a private contractor a copy of its findings.

On the third issue, the Court holds that while the Construction Industry Arbitration Commission may have jurisdiction over the dispute by virtue of the arbitration clause in the construction contract, the petitioners are barred from invoking it at this stage. The issue was raised for the first time on appeal, and a party who adopts a certain theory upon which the case was tried and decided will not be permitted to change theory on appeal. The Court applies the rule that active participation in a case, combined with a failure to timely object to the jurisdiction of the forum, constitutes an implicit invocation of that jurisdiction and a willingness to abide by its resolution. The petitioners first raised the issue of arbitration jurisdiction nearly eight years after the Cluster Director's decision, an unreasonable delay that constitutes a waiver.

On the fourth issue, the Court holds that the petitioners must be compensated for their works on the project based on the principle of quantum meruit, but only to the extent of the value actually received. The Court quotes its earlier ruling:

Quantum meruit literally means as much as he deserves. Under this principle, a person may recover a reasonable value of the thing he delivered or the service he rendered.

Since the Commission on Audit found on recomputation that the Bureau of Customs had overpaid Lotrim by 408,859.16 pesos, the petitioners are liable to return that overpayment.

Doctrine

First, the belated filing of a petition for certiorari under Rule 64 is fatal, and a decision that has acquired finality becomes immutable and unalterable. Second, the Commission on Audit, as guardian of public funds, has the sole authority to define the scope of its audit and examination, and in resolving cases on appeal it is not required to limit its review to the grounds relied upon by the government auditor; it is duty-bound to make its own assessment of the disallowed disbursement. Third, the essence of due process is the opportunity to be heard, and it is satisfied where the party was notified of the allegations, given an opportunity to defend, and the defense was considered by the tribunal. Fourth, while the Construction Industry Arbitration Commission generally has jurisdiction over construction disputes subject to arbitration, that jurisdiction is not absolute and may be waived by a party's active participation in another forum and its unreasonable delay in raising the objection. Fifth, under the principle of quantum meruit, a contractor on a void government contract may recover the reasonable value of the work it rendered, but it must return any amount it received in excess of that value.

Disposition

The petition was dismissed, and the decision and resolution of the Commission on Audit Commission Proper were affirmed, with Lotrim held liable to return the overpayment of 408,859.16 pesos.

Remember This

Remember that the belated filing of a Rule 64 petition is fatal, and that the Commission on Audit's audit power is broad enough to reach beyond the grounds cited in the notice of disallowance. Examiners like to use this case on the timeliness of petitions for certiorari against constitutional commissions, on the waiver of Construction Industry Arbitration Commission jurisdiction, and on quantum meruit in void government contracts.