G.R. No. 210936 - Cruz, Jr. vs. Commission on Audit

The LRTA Bids and Awards Committee (BAC) awarded the contract for the repair/rewinding of 23 traction motor armatures to TAN-CA International Inc./Yujin Machinery, Ltd.
The award was based on the lowest bid of US$94,800 (or PhP4,876,322.40 using the conversion rate of US$1 = PhP51.438).
No formal service repair agreement or contract was executed between the LRTA and the contractor.

Under a Letter of Credit issued by Land Bank of the Philippines, all 23 units were sent to South Korea for repair.
Outcome of the repair process:

13 of the 23 units were repaired and delivered back to Manila in February 2002.
Among the 13, three were subsequently rejected by the LRTA Engineering Division, sent back to Korea, and returned in February 2003.
The remaining 10 units were never sent back to the LRTA and remained with the contractor.

Out of the Letter of Credit amount, US$58,800 was disbursed to the contractor.
The balance of US$36,000 was cancelled as per the LRTA Finance Department’s request.

An Audit Observation Memorandum (AOM) No. 2003-001, dated 21 May 2003, revealed several irregularities:

No executed service repair agreement or contract between LRTA and the contractor.
Payment of US$58,800 was made without necessary certification confirming that the traction motor armatures had passed inspection and acceptance tests.
The contractor’s failure to return waste materials per the Terms of Reference (TOR).
The LRTA Management ignored the recommendation to conduct an ocular inspection of the contractor’s facilities, thereby risking the adequacy of the contractor’s capability.
The 10 units that were neither repaired nor returned remained with the contractor as of the AOM’s issuance.

On 27 February 2008, the COA Legal and Adjudication Office issued Notice of Disallowance (ND) No. LRTA 2008-005 (2002) for the amount of US$58,800.
Persons held responsible included:

Lack of supporting documents in violation of Section 4(6) of Presidential Decree (P.D.) No. 1445.
Failure of LRTA Management to file legal action against the contractor for noncompliance with the TOR.
Failure to forfeit the performance bond despite delays and incomplete repair work.
Payment executed for repair of 13 units despite only nine meeting the one-year warranty conditions.

Assertion that the payment was both demanded and justified since the 13 units had been repaired, delivered, and passed a five-month testing period.
Claim of unawareness that the one-year warranty was a precondition for payment.
Argument that stopping payment could have led to operational losses for the LRTA.
Contention that payment for nine units passing the one-year warranty should be honored, and any failure to do so would unjustly enrich the LRTA.
Assertion that the issuance of the ND was time-barred by the three-year prescriptive period under Section 52 of P.D. No. 1445.

COA maintained that petitioners failed to address the deficiencies noted in both the AOM and ND.
The appeal filed with COA was denied through Decision No. 2012-142 and a subsequent Motion for Reconsideration (Resolution dated 6 December 2013).
The petition for certiorari (filed on 10 February 2014) alleged grave abuse of discretion by COA in its audit and disallowance procedures.

Petitioners argued limited participation, citing that their roles were restricted to signing approvals based on endorsements from subordinates and the BAC.
They invoked reliance on the rulings in Arias v. Sandiganbayan and claimed their actions were in good faith.
Multiple letters demanding remedial action against the contractor were sent, though these efforts did not alleviate the findings of irregularities.

Whether there was a sufficient basis to warrant the reversal or lifting of the COA’s Notice of Disallowance that disallowed the payment of US$58,800 for the repair of the traction motor armatures.
Whether the issuance of the Notice of Disallowance almost five years after the settlement of accounts, allegedly beyond the three-year prescriptive period under Section 52 of P.D. No. 1445, was proper.
Whether the doctrine of limited participation and reliance on subordinate actions by petitioners absolves them from personal liability as the final approving authority in the transaction.