G.R. No. 210669 - Hi-Lon Manufacturing, Inc. vs. Commission on Audit

Case Summary (G.R. No. 210669)

Factual Background

In 1978 the Ministry of Public Works and Highways converted a 29,690 sq. m. portion of an 89,070 sq. m. parcel in Mayapa, Calamba, Laguna to a road right-of-way (RROW) for the Manila South Expressway Extension Project. The parcel was registered in successive Torrens titles to Commercial and Industrial Real Estate Corporation, then to Philippine Polymide Industrial Corporation, later acquired by the Development Bank of the Philippines (DBP) through foreclosure, and then transferred to the national government under Administrative Order No. 14 pursuant to Proclamation No. 50. The Asset Privatization Trust (APT) conducted public bidding on June 30, 1987, after which APT executed separate deeds of sale purporting to convey the improvements to Fibertex and the land to TG Property, Inc. (TGPI), with the Deed of Sale to TGPI dated October 29, 1987 describing the object as the “total usable area of 59,380 sq. m.” and expressly noting the 29,690 sq. m. used as RROW.

Subsequent transfers and DPWH transaction

TGPI paid real property taxes and was issued Torrens title T-158786 on December 9, 1987 covering the full 89,070 sq. m., and later executed a Deed of Absolute Sale dated April 16, 1995 conveying the subject parcel to HI-LON Manufacturing, Inc., which registered its title as TCT No. 383819. In 2001–2002, the Department of Public Works and Highways (DPWH) and HI-LON executed a Deed of Sale for the 29,690 sq. m. RROW parcel and the DPWH made a partial payment of P10,461,338.00 on January 23, 2002.

Administrative audit and notice of disallowance

A DPWH post-audit questioned the basis for the compensation valuation and concluded that just compensation should be determined at the time of actual taking in 1978, not on a 1999 zonal valuation. The Legal and Adjudication Office–National Legal and Adjudication Section (LAO-N) issued Notice of Disallowance No. 2004-032 dated January 29, 2004 disallowing P9,937,596.20 as excess payment, and subsequently affirmed the disallowance through administrative decisions, culminating in LAO-N Decision No. 2008-172-A denying appeals and affirming the ND with modification to include interest.

COA proceedings and investigatory action

Commission on Audit deferred final resolution in 2009 and constituted a Special Audit Team to investigate the propriety of the payment. In Decision No. 2011-003 dated January 20, 2011 the COA denied HI-LON’s petition for review and affirmed ND No. 2004-032 with modification, declaring HI-LON not entitled to just compensation and instructing the Special Audit Team to issue an ND for the remaining P523,741.80. COA Decision No. 2013-212 denied reconsideration, affirmed Decision No. 2011-003 with finality, and required HI-LON to refund P10,461,338.00.

Issues presented to the Supreme Court

HI-LON sought certiorari asserting that COA committed grave abuse of discretion when it held that: (1) HI-LON had no property taken by government for public use; (2) the 89,070 sq. m. parcel, including the 29,690 sq. m. RROW, was owned by the Republic since transfer to APT; (3) HI-LON was not entitled to just compensation; and (4) COA unlawfully collaterally attacked HI-LON’s Torrens title and TGPI’s title.

Parties’ principal contentions

HI-LON contended that the Deed of Sale dated October 29, 1987 conveyed the entire 89,070 sq. m. to TGPI and thus to HI-LON; that the Deed’s warranties and the absence of annotation of government claim on the antecedent titles established HI-LON as a bona fide registered owner entitled to compensation; and that COA lacked jurisdiction to contest ownership and thus improperly collaterally attacked Torrens titles. The Office of the Solicitor General supported COA, arguing that APT’s deed and Abstract of Bids showed the RROW was excluded from sale, that APT had no authority to sell a parcel already devoted to public use, and that HI-LON therefore was not entitled to just compensation and must refund the DPWH payment.

The Supreme Court’s disposition

The Court denied the petition for certiorari for lack of merit and affirmed COA Decision No. 2011-003 dated January 20, 2011 and COA Decision No. 2013-212 dated December 3, 2013, with modification to impose legal interest of six percent (6%) per annum on the refund amount of P10,461,338.00 from the finality of the decision until full payment.

Core legal findings on ownership and RROW character

The Court held that the Deed of Sale to TGPI expressly conveyed only the 59,380 sq. m. usable portion and explicitly excluded the 29,690 sq. m. RROW, and that APT’s Abstract of Bids corroborated that the public bidding covered only the usable portion. The Court reiterated that a road right-of-way is akin to property of public dominion under Article 420 of the New Civil Code, is outside the commerce of man, and cannot be the object of sale while it remains devoted to public use. The Court further explained that statutory liens created by Section 39, Act No. 496 and Section 44, P.D. No. 1529 bind the world and that actual notice of a public highway is equivalent to registration for purposes of notice to purchasers.

Treatment of Torrens titles and collateral attack argument

The Court rejected HI-LON’s argument that COA’s ruling amounted to an impermissible collateral attack on Torrens titles. The Court explained that the Torrens system does not create ownership where illegal inclusion occurred and that certificates of title are evidentiary rather than absolute shields against proof of fraud or mistake. The Court relied on precedent recognizing that registration cannot be used to perpetuate fraud and that erroneous inclusion of lands not registrable under Torrens does not vest ownership in the registrant.

Administrative jurisdiction and scope of COA review

The Court affirmed COA’s authority under Section 2, Article IX-D, 1987 Constitution and the COA’s revised rules to examine and disallow disbursements that are irregular, unnecessary, excessive, or unconscionable. The Court observed that COA may assess matters beyond the auditor’s original ground for disallowance and may investigate ownership when necessary to determine whether a public disbursement was proper. The Court applied the standard for certiorari relief and found no

Case Syllabus (G.R. No. 210669)

Parties and Posture

HI-LON MANUFACTURING, INC. was the petitioner before the Supreme Court seeking certiorari under Rule 64 in relation to Rule 65 of the 1997 Rules of Civil Procedure.
COMMISSION ON AUDIT was the respondent whose Decision No. 2011-003 dated January 20, 2011 and Decision No. 2013-212 dated December 3, 2013 were assailed.
The petition sought annulment and setting aside of COA Decision No. 2011-003, which affirmed Notice of Disallowance No. 2004-032 with modification, and of COA Decision No. 2013-212, which denied reconsideration and required refund of P10,461,338.00.
The Supreme Court resolved the petition by denying certiorari for lack of merit and affirming the COA decisions with modification concerning interest.

Key Factual Allegations

The government converted a 29,690 sq. m. portion of an 89,070 sq. m. parcel to a road right-of-way for the Manila South Expressway Extension Project in 1978.
The parcel was registered successively in the names of Commercial and Industrial Real Estate Corporation (CIREC), Philippine Polymide Industrial Corporation (PPIC), and the Development Bank of the Philippines (DBP) after foreclosure.
Pursuant to Proclamation No. 50 and Administrative Order No. 14, DBP’s acquired assets, including the subject property, were submitted to the Asset Privatization Trust (APT) and offered in public bidding on June 30, 1987.
APT executed separate deeds of sale conveying the land to TG Property, Inc. (TGPI) and improvements to Fibertex, and the Register of Deeds issued TCT No. T-158786 in TGPI’s name on December 9, 1987.
TGPI purportedly sold the entire 89,070 sq. m. subject property to HI-LON on April 16, 1995, and HI-LON registered TCT No. 383819 in its name.
HI-LON executed a Deed of Sale with the Republic covering the 29,690 sq. m. RROW on December 21, 2001 and received a partial DPWH payment of P10,461,338.00 on January 23, 2002.

Procedural History

The DPWH post-audit questioned the valuation basis and the Supervising Auditor recommended recovery of excess payments based on valuation at the time of actual taking.
The Legal and Adjudication Office–National Legal and Adjudication Section (LAO-N) issued Notice of Disallowance No. 2004-032 dated January 29, 2004 disallowing P9,937,596.20.
The LAO-N rendered Decision No. 2004-172 and later Decision No. 2008-172-A which denied appeals and affirmed the disallowance with modification for interest.
HI-LON filed a petition for review before COA, which in its regular meeting directed creation of a Special Audit Team and subsequently issued COA Decision No. 2011-003 denying the petition and affirming the ND with modification that claimant was not entitled to the compensation.
COA Decision No. 2013-212 denied HI-LON’s motion for reconsideration, affirmed Decision No. 2011-003 with finality, and required HI-LON to refund P10,461,338.00.
HI-LON filed the present petition for certiorari before the Supreme Court challenging COA’s authority and findings.

Issues Presented

Whether COA committed grave abuse of discretion in holding that HI-LON did not own the 29,690 sq. m. portion used as RROW and was thus not entitled to just compensation.
Whether the 29,690 sq. m. portion had been transferred to the Republic under Proclamation No. 50 and Administrative Order No. 14 and therefore remained property of the Republic.
Whether COA exceeded its authority by effectively adjudicating ownership and permitting a collateral attack on Torrens titles issued in favor of TGPI and HI-LON.
Whether the valuation of just compensation should be computed at the time of actual taking in 1978 or at a later date.

Parties' Principal Contentions

HI-LON contended that the October 29, 1987 Deed of Sale conveyed the entire 89,070 sq. m. parcel to TGPI and that HI-LON, as successor-in-interest, held title to the 29,690 sq. m. RROW and was entitled to just compensation.