Republic of the Philippines

SUPREME COURT
Manila

1. Motion to Dismiss, consisting of 16 pages filed September 5, 1959;

2. Motion to Dismiss the Amended Complaint, consisting of 2 pages, filed September 12,
1959,

EN BANC
3. Respondent's Rejoinder, consisting of all pages, filed October 11, 1959;
G.R. No. L-17115

November 30, 1962

GUILLERMO B. GUEVARA, petitioner,

vs.
THE HONORABLE PEDRO M. GIMENEZ, as the Auditor General of the Philippines and
ISMAEL MATHAY, as the Auditor of the Central Bank, respondents.
Guillermo B. Guevara for and in his own behalf is petitioner.
Office of the Solicitor General for respondents.
CONCEPCION, J.:
This is an original action for mandamus to compel respondents, Pedro M. Gimenez, as Auditor
General of the Philippines, and Ismael Mathay, as Auditor of the Central Bank of the Philippines,
hereafter referred to, respectively, as the Auditor General and the Bank Auditor, to approve and
pass in audit two (2) bills of petitioner Guillermo B. Guevara for professional services rendered by
him to said Bank.
It is admitted that, on or about September 1, 1959, Miguel Cuaderno, the then Governor of the
Central Bank of the Philippines thereafter referred to as the Central Bank acting for and in
behalf thereof, asked petitioner herein, as member of the Philippine bar and practising lawyer, to
cooperate with the legal counsel of the Central Bank in defending the same and its Monetary
Board in Civil Case No. 41226 of the Court of First Instance of Manila, an action
for certiorari, mandamus, quo warranto and damages in the amount of P574,000, filed against
them by one R. Marino Corpus. Accordingly petitioner entered his appearance as counsel for the
respondents in said case and argued therein, verbally and in writing, on September 1, 8, 12, 24 and
28, October 22 and November 9, 1959, January 7 and 14, and March 10 and 17, 1960, as well as
submitted the following:

4. Additional Legal Arguments in support of Motion to Dismiss, consisting of 5 pages

filed June 14, 1960.
In pursuance of his authority, under Resolution No. 1283 of the Monetary Board, dated September
8, 1959, reading:
The Governor presented to the Board, and the latter approved by unanimous vote, the
designation of Judge Guillermo Guevara as counsel to collaborate with the Legal Counsel
of the Central Bank in connection with the court action filed by Mr. R. Marino Corpus
against the individual members of the Monetary Board and the Governor of the Central
Bank of the Philippines. The Board also authorized the Governor to arrange with Judge
Guevera the amount of fee which the latter will charge the Central Bank for handling the
said cases.
Governor Cuaderno urged petitioner herein to submit a proposal setting forth the terms and
conditions under which his professional services were being rendered, and petitioner did so in a
letter of September 11, 1959, in which he stated that his professional fees would be as follows:
"retainer's fee of P10,000, plus a per diem of P300 for every hearing or trial. In precise of appeal
to the Supreme Court, . . . another fee of P5,000.00". On the same date Governor Cuaderno
accepted the proposal, as regards the retainer's fee and the per diem, effective as of the date of
entry (September 1, 1959) of petitioner's appearance in said case. On June 14, 1960, the same was
dismissed by the Court of First Instance of Manila, on motion of the respondents herein,
represented by petitioner herein.
Prior thereto, or on January 10, 1960, the latter had sent to the Central Bank his bill for the
retainer's fee of P10,000. The Bank Auditor sought advise thereon from the Auditor General, who
in a communication to the former, dated June 10, 1960. stated that he would not object to said
retainer's fees of P10,000, provided that its payment was made "not in lump sum as causes or

circumstances may arise which may prevent Judge Guevara from proceeding or continuing as
counsel of the Bank in the aforesaid case before it is finally terminated", but, in installments, as
follows:
P3,000.00
after
filing
the
answer
P3,000.00
after
decision
by
P2,000.00
after
filing
briefs
in
case
P2,000.00 when the case is finally terminated.

to
of

the
petition;
the
CFI;
appeal;
and

with the understanding that, "in case there is no appeal from the CFI decision, the balance will be
paid in full", once, presumably, the decision has become final. As regards the P300 per diem, the
Auditor General express however, the belief that it is "excessive and may be allowed in audit".
Hence, the present action for mandamus filed on July 6, 1960, to compel respondent to approve
payment of petitioner's retainer fee of P10,000 and his per diem aggregating P3,300, for the eleven
(11) hearings attended by him.
In their answer, respondents alleged that the sum P6,000 has already been paid on account of said
retain fee and impugned the legality of petitioner's contract with the Central Bank, upon the
ground that the latter has no authority to enter into said contract, and that its Monetary Board has
no power to confirm it, because both can be and were represented in said case No. 41226 by the
legal staff of the Central Bank, aside from fact that the Government has its corporate counsel, and
because the authority to engage special counsel for the Government of the Republic of the
Philippines is vested, pursuant to section 1664 of the Revised Administrative Code, in the Solicitor
General, with the approval of the Secretary of Justice. Respondents further alleged petitioner
should have appealed from the action of respondents herein, instead of seeking a writ
of mandamus.
At the outset, we note that two (2) of the defenses set up by respondents herein are inconsistent
with each other. On the one hand, they assail the legality of the contract between petitioner herein
and the Central Bank, where as, on the other hand, they allege that the sum of P6,000 has already
been paid on account of the retainer stipulated in said contract. That payment which could not
have been made without the approval of respondent and/or their authorized representatives and
the reliance placed thereon in respondents' answer constitute a partial performance of the
aforementioned contract and a clear admission of its legality. Indeed, such implied admission is
merely a reiteration of that made in the communication of the Auditor General to the Bank

Auditor, dated June 10, 1960, expressing no objection to said retainer fee, on condition only that
its payment be made in installments, as above indicated, and questioning the P300.00 per diem
upon the sole ground that it is excessive. In fact, as early as September 19, 1959, the then secretary
of Justice, Hon. Pedro Tuason, had rendered an opinion upholding the inherent power of the
Central Bank to employ attorneys for any compensation, the Monetary Board may deem
reasonable. The pertinent part of said opinion follows:
This is in reply to your letter of the 20th instant asking me whether Judge Guillermo B.
Guevara, who has been appointed special prosecutor under Section 1686 of the Revised
Administration administrative Code 'to assist the City Fiscal of Manila in the
investigation and prosecution of violations of the Central Bank Act and other related
laws, including violations of circulars and regulations issued by the Monetary Board,
Central Bank, and Department Heads relative to importations and exchange control', may
be paid a monthly retainer by the Central Bank instead of per diems.
The same Section 1686 regulates the compensation of special counsel appointed
thereunder, limiting it to 'thirty pesos per day for the time employed'. But I am inclined to
believe that this limitation applies to fees payable by the Department of Justice or other
branches of the Government. Governed by a special charter and enjoying a distinct
personality with a right to sue and be sued, the Central Bank may be regarded as a private
party unaffected by the restrictions of said Section 1686 as to salary in the hiring of
lawyers to protect the bank's interest and prosecute violations of the Central Bank Act
and of the Bank's rules and regulations. The fact that such lawyers are appointed by the
Secretary of Justice to better carry out the work for which they are retained does not alter
the Central Bank's inherent power to employ attorneys for any compensation the
Monetary Board deems reasonable.
The cases of Angara vs. Gorospe, L-9230 (April 22, 1957) and Enriquez vs. Auditor General, L2817 (April 29, 1960), cited by respondents are not in point. The first involved a city official, who
by law was entitled to be represented by the city attorney, and the second referred to, a municipal
corporation, which was entitled to be represented by the provincial fiscal. The aforementioned city
official and municipal corporation are subject to the provisions of our Revised Administrative
Code, whereas the Central Bank is governed by a special charter.
Section 1664 of the Revised Administrative Code, upon which respondents rely, provide:

The Solicitor General shall, when in his opinion the public interest requires it, upon
approval of the Department Head, employ and retain in the name of the Government of
the Republic of the Philippines such attorneys as he may deem necessary to assist him in
the discharge of his duties. Such attorneys shall be entitled to travel expenses, if incurred,
and such compensation as shall be stipulated for.
This section refers to attorneys retained in the name of the Government of the Republic of the
Philippines and deemed necessary by the Solicitor General to assist him in the discharge of his
duties". Petitioner herein does not fall under this class, he having been retained in the name of the
Central Bank, which has a personality distinct and separate from that of our Government.
Moreover, he did not appear in case No. 41226 as representative of the Solicitor General. In fact,
the latter did not participate or intervene in any manner whatsoever in said case. In short,
petitioner's services were not engaged for the purpose of rendering any assistance to the Solicitor
General. Said Section 1663 is, therefore, inapplicable to this case.
It is urged that the proper remedy for petitioner herein is to appeal from the action of respondents
herein, not to seek a writ of mandamus against them. It is well-settled, however, that when a
contract has been made by an agency of the Government, through its proper officer, acting within
the scope of his authority, and there is an appropriation made by law to cover the disbursements
required by said contract, apart from the fact that delivery of the goods or rendition of the services
stipulated has been duly attested to, the Auditor General or his representative has the duty,
enforceable by mandamus to approve and pass in audit the voucher for said disbursements if
issued by the proper officer of said agency of the Government. (Radiowealth vs. Agregado, 86
Phil. 429; Tan C. Tee & Co. vs. Wright, 53 Phil. 194; Inchausti & Co. vs. Wright, 47 Phil. 866.)
Under our Constitution, the authority of the Auditor General, in connection with expenditures of
the Government is limited to the auditing of expenditures of funds or property pertaining to, or
held in trust by the Government or the provinces or municipalities thereof (Article XI, section 2,
of the Constitution). Such function is limited to a determination of whether there is a law
appropriating funds for a given purpose; whether a contract, made by the proper officer, has been
entered into in conformity with said appropriation law; whether the goods or services covered by
said contract have been delivered or rendered in pursuance of the provisions thereof, as attested to
by the proper officer; and whether payment therefor has been authorized by the officials of the
corresponding department or bureau. If these requirements have been fulfilled, it is the ministerial
duty of the Auditor General to approve and pass in audit the voucher and treasury warrant for said

payment. He has no discretion or authority to disapprove said payment upon the ground that the
aforementioned contract was unwise or that the amount stipulated thereon is unreasonable. If he
entertains such belief, he may do so more than discharge the duty imposed upon him by the
Constitution (Article XI, section 2), "to bring to the attention of the proper administrative officer
expenditures of funds or Property which, in his opinion, are irregular, unnecessary, excessive or
extravagant". This duty implies a negation of the power to refuse and disapprove payment of such
expenditures, for its disapproval, if he had authority therefor, would bring to the attention of the
aforementioned administrative officer the reasons for the adverse action thus taken by the General
Auditing office, and, hence, render the imposition of said duty unnecessary.
WHEREFORE, the writ prayed for is granted and respondents herein are hereby ordered to pass in
audit and approve the payment of the amounts claimed by petitioner herein, after deducting
therefrom the sum of P6,000 already collected by him. It is so ordered.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

For the period September 1988 to August 1989, the fuel supply requirements of PAL were
allocated among Petron, Caltex and Shell in the following proportions:

Location

Petron

Shell

Caltex

Requirements

G.R. No. 91890 June 9, 1995

PHILIPPINE AIRLINES. INC., petitioner,
vs.
COMMISSION ON AUDIT and PETRON CORPORATION, respondents.

Total

Mla. Int'l.

36,720 1 (60%)

24,480 (40%)

61,200.00

Mactan Int'l.

1,450 (100%)

1,450.00

Package A 2

13,256 (40%)

19,884 (60%)

33,140.00

Package B 3

7,450 (100%)

7,450.00

OVERALL

45,620(44%)

37,736 (37%)

19,884(19%)

103,240.00

ROMERO, J.:
In this special civil action for certiorari and prohibition, petitioner Philippine Airlines. Inc. (PAL)
seeks to review, annul end reverse Decision No. 1127 of the Commission on Audit (COA) dated
January 5, 1990 and to prohibit, enjoin and prevent COA from enforcing or in any way
implementing Department Order No. 19, s. 1974 of the then Department of General Services as
implemented by COA Circular No. 78-84, Memorandum No. 498 and Memorandum No. 88-565.
COA Decision No. 1127 required PAL to purchase its fuel requirements solely from Petron
Corporation (Petron).
PAL is a domestic corporation duly organized and existing under Philippine laws, principally
engaged in the air transport business, both domestic and international. At the time of the filing of
the petition on February 8, 1990, majority of its shares of stock was owned by the Government
Service Insurance System (GSIS), a government corporation.
To assure itself of continuous, reliable and cost-efficient supply of fuel, PAL adopted a system of
bidding out its fuel requirements under a multiple supplier set-up whereby PAL awarded to the
lowest bidder sixty percent (60%) of its fuel requirements and to the second lowest bidder the
remaining forty percent(40%), provided it matched the price of the lowest bidder.

On August 17, 1989, COA wrote PAL a letter 4 stating:

It has come to our attention that PAL international fuel supply contracts are
expiring this August 31, 1989. In this connection, you are advised to desist from
bidding the company's fuel supply contracts, considering that existing
regulations require government-owned or controlled corporations and other
agencies of government to procure their petroleum product requirements from
PETRON Corporation.

The existing regulations referred to in the letter were Department Order No. 19 dated May 1, 1974
of the defunct Department of General Services, COA Office Memorandum No. 498 dated
September 12, 1974 and COA Circular No. 78-84 dated August 1, 1978, which required strict
compliance with said Department Order No. 19, as well as COA Memorandum No. 88-565 dated
August 2, 1988, reiterating COA Circular No. 78-84 and COA Office Memorandum No. 498.
Department Order No. 19 reads as follows:
SUBJECT : PROCUREMENT
GOVERNMENT.

OF

PETROLEUM

TO : All Heads of Departments

Offices and Agencies of the Government.

and

PRODUCTS

Chiefs

of

BY

PAL sought reconsideration of the August 17, 1989 advice, reiterating its reasons contained in an
earlier letter, for preferring to bid out and secure its fuel supply from more than one supplier and
for its contention that Department Order No. 19, s. 1974, as circularized by COA Office
Memorandum No. 490, should not apply to PAL. 6
In a letter 7 dated September 5, 1989, COA denied PAL 's request for reconsideration, holding that
Department Order No. 19. s. 1974 applied to government-owned or controlled corporations,
including subsidiaries. It disposed of PAL 's contention that. competitive bidding ensured the best
price by suggesting that "PAL negotiate with PETRON for the lowest possible price for its fuel
requirements and to request PETRON to ensure adequate and continued fuel supply to PAL."

Bureaus,
A final appeal for reconsideration was made by PAL in a letter 8 dated September 15, 1989, but this
was denied in the now assailed COA Decision No. 1127, the essential portion of which states:

To give essence to the policy of: preference to government resources in the

filling of the needs of the government for supplies, It is hereby prescribed that
all departments, bureaus, offices and/or agencies of the Philippine government,
procure their petroleum product requirements (gasoline, diesel fuel, bunker fuel,
jet fuel, aviation oil, marine oil, kerosene lubricants, greases and asphalt) from
the PETROPHIL 5 Corporation, a government-owned corporation, whenever
these commodities are adequately available and whenever practicable, at prices
not exceeding those set by the Oil Industry Commission.
The PETROPHIL Corporation shall furnish copies of the price lists, showing
points of delivery, to the Commission on Audit and all prospective government
requisitioners.
For statistical purposes, the PETROPHIL Corporation shall render a quarterly
report to the Bureau of Supply Coordination (BSC) of deliveries made during
the quarter in accordance with the format prescribed by the BSC and to be
submitted within forty five (45) days after the end of each quarter.

In this regard, we obtained information from PETRON Corporation that it can

easily supply PAL 's total jet fuel requirements on a daily basis and that there is
an existing Borrow and Loan Agreement (BLA) among oil companies whereby
they assist each other during times of product shortfall conformably to industry
practice. In view thereof, this Commission is unable to find merit in your
justifications for the procurement of petroleum products by PAL from oil
companies other than PETRON Corporation thru bidding as an exception to
Department Order No. 19, s. 1974 of the then Department of General Services,
as implemented by COA Memorandum No. 88-565. Your contention that PAL is
not covered by subject department order has already been considered by this
Commission when it rendered the decision in question.
Pursuant to Article IX(A), Section 7 of the Constitution, and there being no appeal or any other
plain, speedy, adequate and effective remedy in the ordinary course of law from the
aforementioned Decision, PAL instituted the present petition, alleging that:
I.

This Department Order shall take effect immediately.

(SGD.)
Secretary

CONSTANCIO

E.

CASTAEDA

THE COMMISSION ON AUDIT COMMITTED GRAVE ABUSE OF

DISCRETION AMOUNTING TO EXCESS OR LACK OF JURISDICTION IN
HOLDING THAT DEPARTMENT ORDER NO. 19 OF THE DEFUNCT
DEPARTMENT OF GENERAL SERVICES APPLIES TO PAL
II.

THE COA LIKEWISE EXCEEDED ITS JURISDICTION IN EXTENDING

THE APPLICATION OF SAID DEPARTMENT ORDER TO PETITIONER.

ASSUMING ARGUENDO THAT THE ORDER IN QUESTION WAS

INTENDED TO COVER PAL, THE SAME CONSTITUTES AN ARBITRARY,
CAPRICIOUS, AND WHIMSICAL REGULATION THAT DEPRIVES
PETITIONER OF ITS RIGHTS UNDER THE CONSTITUTIONAL
GUARANTEE OF SUBSTANTIVE DUE PROCESS.

The COA is clothed under Section 2(2), Article IX-D of the 1987 Constitution with the "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." The authority granted under this constitutional provision, being broad and
comprehensive enough, enables COA to adopt as its own, simply by reiteration or by reference,
without the necessity of repromulgation, already existing rules and regulations. It may also expand
the coverage thereof to agencies or instrumentalities under its audit jurisdiction. It is in this light
that we view COA Memorandum No. 88-565 issued on August 1, 1988.

On May 17, 1990, after COA, through the Office of the Solicitor General, had filed its Comment
on the petition, the Court resolved "to dismiss the petition, there being no grave abuse of
discretion committed by the respondent Commission on Audit in rendering the questioned
decision." 9 PAL moved for reconsideration; whereupon, the Court resolved .on July 10, 1990 to
implead Petron Corporation as respondent in the case and to require both COA and Petron to
comment on the motion for reconsideration.

As asserted by the Solicitor General, while Memorandum No. 88-565 still referred to Office
Memorandum No 498, dated September 12, 1974 requiring strict compliance with Department
Order No. 19 dated May 1, 1974, in restating in full said Department Order No. 19 in
Memorandum No 88-565, COA effectively adopted it as its own, thereby expanding its coverage
to government-owned or controlled corporations. Such action was in consonance with its
jurisdiction as defined under the 1987 Constitution, as follows,

Respondents having filed their respective Comments and petitioner, its Reply to the Comments,
the motion for reconsideration was set for hearing on November 13, 1990. Thereafter, the Court
resolved to grant the motion for reconsideration, reinstate the petition, consider the respondent's
comment as Answer to the petition, give due course to the petition and require the parties to file
simultaneously their respective Memoranda. 11 The Court further resolved to issue a temporary
restraining order directing the respondent COA, or any other officer or subordinate official thereof
to cease and desist from enforcing its Decision No. 1127.

Sec. 2. (1) The Commission on Audit shall have the power, authority and duty to
examine, audit and settle all accounts pertaining to the revenue and receipts of,
and expenditures of uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned and controlled corporations with
original charters, and on a post-audit basis: (a) constitutional bodies,
commissions and offices that have been granted fiscal autonomy under this
Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations with original charters and their
subsidiaries; and (d) such non-governmental entities receiving subsidy or equity,
directly or indirectly, from or through the government, which are required by
law of the granting institution to submit to such audit as a condition of subsidy
or equity. . . .

III.

Once again, we find ourselves compelled to dismiss the petition. Pursuant to the government's
privatization program, PAL's shares of stock were bidded out early this year, resulting in the
acquisition by PR Holdings, a private corporation, of 67% PAL's outstanding stocks. PAL having
ceased to be a government-owned or controlled corporation, is no longer under the audit
jurisdiction of the COA.. Accordingly, the question raised in this petition has clearly become moot
and academic.
Had it not been for this supervening event, PAL would have obtained the relief sought in the
instant petition. For although COA was correct in ruling that Department Order No. 19 applied to
PAL as a government agency at the time, it nonetheless gravely abused its discretion in not
exempting PAL therefrom.

as well as the settled legal meaning of the phrase "agency of the Government," as incorporated in
Section 2, Chapter I, Subtitle 8, of the Revised Administrative Code of 1987, thus:
(8) "Government agency" or "agency of the government," or "agency" refers to
any department, bureau or office of the National Government, or any of its
branches and instrumentalities, or any political sub-division, as well as any

government-owned or controlled corporation , including its subsidiaries or other

self-governing board or commission of the Government.

Nichols/Cebu/Davao/Zamboanga and suggested that PAL arrange with its other suppliers for the
balance of its needs by simply extending all of its existing contracts covering domestic fuels.

As a corporation, the majority Shares of Stocks of which were owned by the GSIS at that time,
PAL could not hope to escape the operation of Memorandum No. 88-565.
Be that as it may, it must be noted that Department Order No. 19 itself states that the procurement
of petroleum product requirements from the then PETROPHIL, now PETRON Corporation,
prescribed "whenever these commodities are adequately available and whenever practicable, at
prices not exceeding those set by the Oil Industry Commission."

The reasons given by PAL for seeking exemption from the operation of Department Order No. 19
were, to our mind, meritorious. They far outweigh the policy enunciated in Department Order No.
19 of giving preference to government sources in the filling of the needs of the government for
supplies. Thus, PAL's bidding requirement conformed to the accepted policy of the government to
subject every transaction/contract to public bidding in order to protect public interest by giving the
public the best possible advantages thru open competition and to avoid or preclude suspicion of
favoritism and anomalies in the execution of public contracts. 12

In its letters of reconsideration addressed to COA, PAL stated the reasons why procuring all its
fuel requirements from PETRON Corporation might not be practicable. One reason was that
bidding gave the best and lowest prices. If compelled to purchase all of its fuel needs from
PETRON, PAL stood to lose some P34,055,377.00; indeed, a considerable amount for a
corporation trying to effect a financial turnabout, and consequently an additional burden to the
riding public which has to eventually shoulder the added operating costs.

Its multiple supplier set-up was designed precisely to meet every contingency that might disrupt
its fuel supply. It bespoke of foresight, careful planning and sound business judgment on the part
of PAL. As a business operation heavily dependent on fuel supply, for PAL to rely solely on a
single supplier would indeed be impracticable. To compel it to do so would amount to a grave
abuse of discretion on its part as this might well lead to irregular, excessive or unconscionable
expenditures, the very evil sought to be avoided in the creation of the COA.

Another reason given by PAL was that relying on a single fuel supplier would put into jeopardy
the regularity of its services, as there were possible contingencies not within PETRON's control
which could cause a disruption of fuel supply. In fact, during the pendency of the petition,
PETRON gave notice to PAL of its inability at the time to serve PAL's requirement at

This, however, is so much water under the bridge. PAL's corporate complexion having changed
during the pendency of the instant petition from government-controlled to private ownership, we
dismiss the petition for being moot and academic.