The Supreme Court ruled that compromise agreements involving government agencies and liabilities exceeding P100,000 require congressional approval, regardless of prior court decisions. This ruling underscores the principle that no government-owned or controlled corporation (GOCC) can bypass congressional oversight when settling substantial financial claims. It reinforces the Commission on Audit’s (COA) authority to scrutinize these agreements, ensuring accountability and protecting public funds.

Binga’s Settlement: Can a Court-Approved Deal Bypass Congressional Scrutiny?

This case revolves around a dispute between Binga Hydroelectric Plant, Inc. (BHEPI) and the National Power Corporation (NPC) concerning a Rehabilitate-Operate-Leaseback (ROL) contract. To resolve the dispute, BHEPI and NPC entered into a Settlement Framework Agreement (SFA) where NPC would pay BHEPI $5,000,000.00. However, disagreements arose, leading BHEPI to file a case for specific performance. Ultimately, the parties reached a Compromise Agreement, approved by the Court of Appeals (CA), which stipulated payments to BHEPI totaling $5,000,000.00 plus P40,118,442.79. When BHEPI sought to execute the judgment, the trial court directed them to the COA, which then denied the claim, asserting that the power to compromise claims exceeding a certain amount resided with Congress.

The core legal question is whether a court-approved compromise agreement involving a government entity is binding and immediately enforceable, or if it remains subject to the COA’s review and ultimately requires congressional approval. The COA based its denial on Section 20(1), Chapter IV, Subtitle B, Title I, Book V of Executive Order (EO) No. 292, also known as the Administrative Code of 1987. This provision states that for claims exceeding P100,000, any compromise or release must be submitted to Congress for approval.

BHEPI argued that the CA’s judgment on the Compromise Agreement was final and immutable, precluding the COA from questioning its validity. They also emphasized that the agreement was reached in good faith, with the involvement of multiple government agencies. The Supreme Court disagreed, affirming the COA’s decision and underscoring the importance of congressional oversight in financial settlements involving government entities. The Court cited Strategic Alliance Development Corporation v. Radstock Securities Limited, emphasizing that Section 36 of Presidential Decree (PD) No. 1445, which previously governed the power of GOCCs to compromise claims, has been superseded by EO No. 292.

The Court emphasized that the authority to compromise claims exceeding P100,000 involving a government agency rests exclusively with Congress. The participation of the COA and the President is limited to recommending whether to grant the application for relief. This ensures that substantial financial commitments by government entities are subject to a higher level of scrutiny and approval, safeguarding public funds. The Supreme Court firmly stated:

Sec. 20. Power to Compromise Claims. – (1) When the interest of the Government so requires, the Commission may compromise or release in whole or in part, any settled claim or liability to any government agency not exceeding ten thousand pesos arising out of any matter or case before it or within its jurisdiction, and with the written approval of the President, it may likewise compromise or release any similar claim or liability not exceeding one hundred thousand pesos. In case the claim or liability exceeds one hundred thousand pesos, the application for relief therefrom shall be submitted, through the Commission and the President, with their recommendations, to the Congress x x x. (Emphasis supplied.)

The ruling clarified that the finality of a court judgment does not preclude the COA from examining the validity and veracity of the underlying claims. The Court underscored COA’s constitutional mandate to audit government accounts and ensure that public funds are spent judiciously. This power extends to scrutinizing compromise agreements, even those already validated by the courts, before payment can be authorized.

Furthermore, the Court addressed the issue of whether the liabilities of NPC were indeed “settled,” which is a prerequisite for the application of Section 20(1) of EO No. 292. The Court highlighted that while NPC and PSALM had initially approved the SFA, PSALM was not a party to the Compromise Agreement. The Court noted that under the Electric Power Industry Reform Act (EPIRA), PSALM assumed the liabilities of NPC. Therefore, PSALM’s non-participation in the Compromise Agreement cast doubt on the settled nature of the claims.

The Court also found the basis for BHEPI’s claims unsubstantiated. BHEPI failed to provide sufficient documentation to establish its contractual relationship with NPC or details of actual services rendered. This lack of transparency further justified the COA’s decision to deny the claim. The Court also raised concerns about the P40,118,442.79 claimed as savings, stating that it effectively constituted unjust enrichment for BHEPI at the expense of its subcontractors and employees.

In essence, the Supreme Court’s decision reinforces the principle of checks and balances in government financial matters. It emphasizes the importance of adhering to statutory requirements for compromising claims against government entities. It reinforces the COA’s oversight authority, safeguarding public funds and ensuring accountability in government transactions. This prevents circumvention of established financial procedures through court-approved agreements.

FAQs

What was the key issue in this case?	The key issue was whether a court-approved compromise agreement involving a government-owned and controlled corporation (GOCC) is binding and immediately enforceable, or if it still requires congressional approval when the liability exceeds P100,000.
What did the Commission on Audit (COA) decide?	The COA denied BHEPI’s money claim, ruling that the power to compromise claims exceeding P100,000 is vested exclusively in Congress, according to Executive Order No. 292. The COA also noted that PSALM, an indispensable party, was not a signatory to the Compromise Agreement.
What was the basis of the COA’s decision?	The COA based its decision on Section 20(1), Chapter IV, Subtitle B, Title I, Book V of Executive Order No. 292, which requires congressional approval for compromising claims against government agencies exceeding P100,000.
Why didn’t the Court of Appeals’ approval make the agreement binding?	The Supreme Court clarified that the finality of a court judgment does not preclude the COA from examining the validity and veracity of the underlying claims, especially when public funds are involved. COA has the constitutional mandate to audit government accounts.
What role does the PSALM play in this case?	The Power Sector Assets and Liabilities Management Corporation (PSALM) assumed the liabilities of the National Power Corporation (NPC) under the Electric Power Industry Reform Act (EPIRA). Because PSALM was not a party to the Compromise Agreement, the Court found the claims against the NPC doubtful.
What is the significance of Section 20(1) of Executive Order No. 292?	Section 20(1) of Executive Order No. 292 mandates that claims or liabilities exceeding P100,000 involving a government agency must be submitted to Congress for approval, ensuring a higher level of scrutiny for substantial financial commitments.
What documentation was lacking in BHEPI’s claim?	BHEPI failed to provide sufficient documentation establishing its contractual relationship with NPC, details of actual services rendered, and proof of how the rights and obligations of the original party to the ROL Contract were assigned to it.
What was the Court’s view on the P40,118,442.79 claimed as savings?	The Court deemed the claim for savings improper, as it would result in BHEPI receiving a commission on the waived portion of the original claims of its subcontractors and employees, constituting unjust enrichment.
What is the key takeaway from this Supreme Court decision?	Government entities must adhere to statutory requirements for compromising claims involving public funds, ensuring transparency and accountability. Court-approved agreements are not automatically binding and are subject to COA review and congressional approval when the amount exceeds P100,000.

The Supreme Court’s decision serves as a crucial reminder to GOCCs and private entities dealing with the government. It clarifies the boundaries of compromise agreements and reinforces the necessity of adhering to established legal procedures for financial settlements involving public funds. Congressional approval remains a vital safeguard against potential abuses or irregularities in these agreements.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Binga Hydroelectric Plant, Inc. vs. Commission on Audit and National Power Corporation, G.R. No. 218721, July 10, 2018