Manankil v. Commission On Audit

ON AUDIT INTING, J.:

For the Court's resolution are the following motions filed by Noel F. Mananldl, Liberate P. Laus, Gloria C. Magtoto, Evangeline G. Tejada, Alizaido F. Paras, Philip Jose B. Panlilio (collectively, Manankil, et al.), and Clark Development Corporation (CDC): (1) Motion for Leave to Admit Second Motion for Reconsideration1 dated March 12, 2018; and (2) Second Motion for Reconsideration2 dated March 12, 2018 of the Court's Resolution3 dated December 5, 2017 (Main Resolution), dismissing their petition for certiorari. Antecedents CDC is a subsidiary corporation of the Bases Conversion and Development Authority (BCDA). It was established through Executive Order No. (EO) 804 in 1993 for the purpose of becoming BCDA's "operating and implementing arm, x x x to manage the Clark Special Economic Zone (CSEZ)."5 The CDC is empowered by law6 to "make contracts, lease, own or otherwise dispose of personal and real property; sue and be sued; and otherwise do and perform any and all things that may be necessary or proper"

to carry out the BCDA's purpose and objectives. Pursuant to this authority, on December 14, 1995, CDC entered into a 25-year Lease Agreement7 with Amari Duty Free, Inc. (Amari) to rent out a 1.70-hectare parcel of land located along Dyess Highway, CSEZ, Pampanga (leased property). Amari shall use the leased property for its "duty free store/commercial shopping"

and "fastfood/cafeteria" operations.8 Under the agreement, Amari shall pay for the lease based on either of two schemes: (1) minimum guaranteed lease payments amounting to P204,000.00 per month for the first two years and subject to a 10% compounded increase thereafter; or (2) percentage of gross revenues, which shall be 3%, 5%, and 7% of gross revenues from years 1 to 7, 8 to 15, and 16 to 25, respectively.9 Amari also undertook the duty to "improve the best use of the [l]eased [p]roperty by upgrading the facilities" thereon.

The parties agreed that the ownership of any improvement introduced to the leased property shall automatically transfer to CDC at the end of the lease term.10 In this connection, Amari caused the construction of a two-story building (original structure) on the leased property. The structure was completed on November 13, 1996 and had an estimated cost of P36,000,000.00.11 In addition, Amari insured the original structure as required under the Lease Agreement, viz.: ARTICLE VIII MISCELLANEOUS Section 1. x x x x Section 2.

Insurance - The LESSEE shall insure against all risks including its interest in all existing facilities, new constructions and improvements introduced during the term of the lease, and such insurance shall likewise include the coverage for business interruption in an amount equal to the maximum insurable value, and which shall be adjusted yearly commensurate to the increasing value of said insurable interest of LESSOR in the Leased Property. All premium on any such insurance coverage shall be for the account of the LESSEE. It is expressly agreed and understood that the insurance coverage herein stipulated shall be secured from the Government Service Insurance System (GSIS) only not later than two (2) months after construction/rehabilitation of facilities, in which the LESSOR shall be designated as its beneficiary.

However, for moveable properties, insurance coverage may be secured from any insurance company duly authorized by the LESSOR. It is further agreed, that in case of loss or damage to the Leased Property during the term of this Contract, the LESSOR shall reconstruct or restore the lost or damaged property to its original condition using the proceeds from the insurance for the continued lease and use by the LESSEE.

In the event that the insurance proceeds are insufficient for purpose of reconstruction or restoration as herein required, then LESSEE shall provide the necessary funds to augment the insurance proceeds)12 (Emphasis and underscoring supplied.) In the meantime, Amari changed its corporate name to Grand Duty Free Plaza, Inc. (Grand Duty Free).13 The parties also amended14 the Lease Agreement to allow Grand Duty Free "[t]o engage in the transshipment of all kinds of goods or commercial products, such as but not limited to, clothing materials (brand new), appliances and house wares, tobacco and liquor products, consumer and health care products, food and other such products."15 On December 29, 2005, a fire razed the original structure, forcing Grand Duty Free to shut down its business operations.16 In view of this, in a Letter17 dated January 16, 2006, Grand Duty Free, through its President Antonio See, requested CDC to waive its monthly rental payments starting January 2006.

In response, CDC's Executive Committee authorized a moratorium on Grand Duty Free's rentals until December 31, 2007.18 Sometime in 2007, Grand Duty Free expressed its intention "to engage in the manufacture of branded cigarettes for export" and "to build a plant at the Grand Duty Free property." In this connection, Grand Duty Free inquired from CDC the tax and regulatory implications of its proposed venture.

In a Letter19 dated May 30, 2007, CDC wrote Grand Duty Free on the following matters: (1) Grand Duty Free's proposal to manufacture branded cigarettes for export "is not among the Investment Priority Plan" as provided by Republic Act No. (RA) 9400,20 which classified Clark as a freeport zone; (2) Grand Duty Free should cause the "complete demolition and clearing of all debris and remnants" of the original structure; and (3) As the moratorium on Grand Duty Free's rental payments had already ceased, the CDC shall resume the collection of rental payments accruing after the moratorium.

Nevertheless, in a Letter21 dated June 12, 2007, Grand Duty Free pleaded CDC to extend the moratorium. It was still waiting for GSIS's release of the proceeds from the original structure's insurance (insurance proceeds), which it intends to use in clearing the leased property in preparation for the original structure's rebuilding. Moreover, the reconstruction is not expected to be completed for another eight months.

Thus, it cannot resume its operations yet. Meanwhile, on July 5, 2007, the GSIS released the insurance proceeds through a check amounting to P39,246,781.37 and payable to "CDC-Grand Duty Free Plaza."22 In response23 to Grand Duty Free's request for extension, the CDC required Grand Duty Free to submit business and construction proposals, detailing its plans to erect a new structure (proposed stmcture) and the intended use thereof. The plans will be subject to CDC's approval.

Thereafter, CDC shall: (1) consider extending the moratorium; and (2) undertake the construction of the proposed structure. Grand Duty Free questioned CDC's rationale for its requirements, viz.: First, the activities Grand Duty Free is allowed to engage in are already set forth in the Lease Agreement and its amendment. Second, it already submitted a construction plan in relation to the original structure.

In moving forward with the proposed structure, it does not intend to deviate from the original plan, which was already approved and found compliant with the National Building Code and CSEZ's master plan. Third, on a more practical standpoint, CDC should defer the duty to rebuild the proposed structure to Grand Duty Free.

Section 18,24 Article VIII of the Lease Agreement mandates the parties to amicably settle disputes between them, including the question of who bears the burden of rebuilding the original structure.25 In this regard, CDC insisted that Section 2, Article VIII of the Lease Agreement authorizes the lessor to reconstruct or restore the original structure in case of loss or damage to the lease property. The contract is clear on this matter. Thus, there is no dispute to subject to an amicable settlement.26 The parties had seemed to reach an impasse after these exchanges.

As a result, Grand Duty Free intimated the possibility of discontinuing its business in the Clark Freeport Zone. With this in mind, it proposed the pretermination of the Lease Agreement.27 After negotiations between the parties, CDC agreed to preterminate the Lease Agreement, as authorized by its Board of Directors (Board) through Resolution No. SM-03-03, Series of 2008 dated March 13, 2008, viz.: "RESOLVED THAT, the following recommendations of the Executive Committee (Excom) with regard to the pre-termination of the Lease Agreement of Grand Duty Free Plaza, Inc., be APPROVED, as they are hereby APPROVED: a. Pre-termination of the Lease Agreement effective 31 December 2007; b.

50%-50% sharing of the insurance proceeds of Php39,246,781 between CDC and Grand Duty Free; c. Forfeiture of Security Deposit of Php1,224,000 and waiver of all accounts due (Php343,849.58-unpaid rentals) to CDC; and d. Release of the 50% (Phpl9,623,390.68) share of Grand [Duty Free] in the insurance proceeds only upon proof of payments of all utility bills and submission of clearances from the Bureau of Customs and Bureau of Internal Revenues (BIR).28 Based on the parties' 50-50 sharing scheme, CDC and Grand Duty Free will each receive P19,623,390.68, representing their 50% share in the insurance proceeds.

On its end, CDC's net proceeds from the pretermination amounted to P20,503,541.10 computed as follows: CDC's share in the proceeds P19,623,390.68 add Security deposit 1,224,000.00 subtract Unpaid dues -343,849.58