G.R. No. 224516 - Domato-Togonon vs. Commission on Audit

Case Summary (G.R. No. 224516)

Applicable Law and Background

The case was decided under the 1987 Philippine Constitution, specifically Section 2, Article IX-D, conferring on COA exclusive authority to audit government transactions and prevent irregular or illegal expenditures of public funds. The Local Government Code (Republic Act No. 7160) governs the powers, functions, and taxation authority of local government units (LGUs). Key tax laws include the National Internal Revenue Code (NIRC), which imposes capital gains tax, documentary stamp tax, and estate tax. Civil Code Article 1487 states that the vendor shall ordinarily bear the expenses of executing and registering a sale unless stipulated otherwise.

Facts: Property Purchase and Payment Dispute

In 2001, the Koronadal City Appraisal Committee sought landowners willing to sell land for the new city hall. The heirs of Plomillo first offered their land for ₱30 million inclusive of costs, and later reduced the price to ₱22 million provided the city government would shoulder all transfer expenses such as documentation fees, capital gains tax, estate taxes, transfer tax, and documentary tax, excluding realty taxes. The Sangguniang Panlungsod authorized the mayor to enter into a Deed of Absolute Sale reflecting the ₱22 million purchase price but did not explicitly include the city’s assumption of transfer expenses in the deed.

Koronadal City subsequently paid a total of ₱24,398,403.02, which included purchase price, notarial fees, capital gains and documentary stamp taxes, transfer taxes, and registration fees. COA’s audit later flagged the payments for transfer taxes and fees as irregular and contrary to laws and regulations, issuing Notices of Disallowance against the city government officials including Togonon, and the heirs of Plomillo, holding them liable for the disallowed amount.

Issues Presented

Whether COA gravely abused its discretion by not considering the payment of taxes by Koronadal City as part of the contract’s consideration.
Whether COA erred in treating the city’s payment of transfer taxes as an indirect imposition of tax prohibited by law.
Whether the hiring of a private lawyer by Koronadal City for notarization was lawful under the Local Government Code and COA regulations.
Whether petitioner Togonon should be held personally liable for the disallowed amount.

Commission on Audit’s Authority and Standard of Review

COA is constitutionally mandated to audit and prevent irregular, unnecessary, excessive or unconscionable uses of government funds and properties. Its rulings are generally upheld unless shown to be tainted with grave abuse of discretion, defined as caprice, whim, or the disregard of law and evidence.

Liability for Payment of Sale Expenses under Civil Code

Civil Code Article 1487 provides the default rule that the seller (vendor) bears the expenses of executing and registering the sale unless there is a stipulation otherwise. The Deed of Absolute Sale executed by Koronadal City and the heirs of Plomillo did not contain any provision for the city to shoulder said expenses. Therefore, the general rule applies, and the sellers were primarily liable for the transfer-related expenses.

The petitioner’s reliance on prior offers and municipal resolutions as constituting exceptions to this rule is rejected because of the Parol Evidence Rule. This rule binds parties to the written contract’s terms as the complete embodiment of their agreement. No exceptions to the Parol Evidence Rule, such as ambiguity or mistake, apply here.

Taxation and Local Government Code Limitations

Local government units like Koronadal City derive their powers from law and the 1987 Constitution. Section 133(o) of the Local Government Code explicitly prohibits LGUs from levying taxes, fees, or charges on other LGUs or the national government, either directly or indirectly. COA correctly found that shifting the burden of national taxes (capital gains, documentary stamps, estate tax) imposed by national law onto the city government is an indirect tax imposition and therefore unlawful.

National tax laws, including the NIRC, establish that capital gains tax is a final tax on the seller or transferor; documentary stamp tax liability is primarily on the parties making, signing, issuing, accepting, or transferring taxable documents but may vary by agreement; estate tax is primarily the administrator’s responsibility with subsidiary liability on heirs; and local transfer taxes are borne by the seller or transferor. These statutory schemes confirm that Koronadal City should not have shouldered these tax expenses.

Hiring of Private Lawyer for Notarization Services

COA disallowed payment for the services of a private lawyer retained by Koronadal City to notarize the deed of sale, citing the Local Government Code Section 481 and COA Circulars No. 86-255, 95-011, and 98-002 which generally prohibit LGUs from paying private lawyers with public funds except under specific conditions. The Sandiganbayan’s ruling in a related criminal case upheld that the city mayor violated these prohibitions by hiring a private lawyer despite the availability of free legal services from the provincial legal office.

Petitioner argues that notarization is not "handling of legal cases" and therefore exempt. However, COA Circular No. 98-002 and related jurisprudence clarify that the hiring of private lawyers for any legal service, including notarization, is generally prohibited unless extraordinary circumstances exist and proper approvals are obtained. Legal opinions following the Supreme Court’s resolution in the related criminal case reinforce this interpretation. Koronadal City’s engagement of a private lawyer without complying with COA’s rules was improper.

Liability of Petitioner Marites Domato-Togonon for the Disallowed Amount

The disallowed amount relates to taxes paid to the government and notarial fees paid for services rendered. COA’s disallowance imposed civil

Case Syllabus (G.R. No. 224516)

Background and Procedural History

The case concerns a Petition for Certiorari challenging the Resolution of the Commission on Audit (COA)-Proper which affirmed preceding Decisions upholding the validity of Notices of Disallowance issued by COA concerning the disallowance of payments made by Koronadal City for taxes and registration fees related to the purchase of a property.
In 2001, Executive Orders established a City Appraisal Committee tasked with acquiring land for Koronadal City’s new city hall. The heirs of Plomillo offered to sell Lot 80, PLS-246-D originally for P30,000,000.00 all-inclusive, later lowering the price to P22,000,000.00 provided the city would shoulder all transfer-related expenses excluding realty taxes.
The Sangguniang Panlungsod authorized the purchase via Resolution No. 746 on August 14, 2003, which complied with the heirs’ terms.
A Deed of Absolute Sale was executed, but it did not include stipulations that the city would shoulder transfer expenses.
Koronadal City paid the purchase price plus notarial fees, capital gains tax, documentary and estate taxes, transfer tax, and registration fees totaling P24,398,403.02.
An audit found the tax-related payments irregular and contrary to law, leading COA’s Regional Cluster Director to issue Notices of Disallowance for the sum of P2,398,403.02 based on alleged violation of BIR Regulation No. 13-85.
Various officials, including petitioner Domato-Togonon (a Sangguniang Panlungsod member), were held liable and appealed but the disallowances were affirmed.
Subsequent motions and petitions for review before COA were denied, culminating in the present petition before the Supreme Court.

Issue Presented

Whether the Commission on Audit gravely abused its discretion when it:
- Did not recognize Koronadal City’s payment of taxes and fees as part of the contractual consideration;
- Considered Sangguniang Panlungsod Resolution No. 746 as an indirect imposition of tax violating the Local Government Code;
- Deemed the hiring of a private lawyer (Atty. Joffrey Montefrio) by the city prohibited;
- Held petitioner liable for the disallowed amount.

Legal Framework on Government Property Acquisition and Tax Responsibilities

Local Government Units (LGUs) like Koronadal City have contractual and corporate powers to acquire real property and enter into contracts under Sections 22 and 455 of the Local Government Code (LGC).
Article 1487 of the Civil Code mandates that, absent stipulation to the contrary, sellers bear the expenses of sale execution and registration.
The Deed of Absolute Sale lacked any stipulation transferring those expenses to the purchaser (Koronadal City), hence the default rule applies making the seller responsible for related expenses.
The Parol Evidence Rule limits evidence outside the written contract unless exceptions like ambiguity or mistake are present, neither of which applied here, reinforcing the primacy of the Deed’s terms.
The power to tax is inherently sovereign and must be specifically granted to LGUs by law; Section 133(o) of the LGC expressly prohibits LGUs from levying taxes, fees, or charges on other LGUs.
National taxes such as capital gains, documentary stamp, estate, and transfer taxes are imposed by the National Internal Revenue Code (NIRC) and are normally the seller’s obligation under the law.
The contract and resolution cannot circumvent prohibitions on taxation or shift the burden of national taxes to the LGU.

Commission on Audit’s Authority and Audit Findings

COA, under Section 2, Article IX-D of the Constitution, has exclusive authority to audit government expenditures and to disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures.
COA’s findings are strong and