COA Primary Jurisdiction Over Money Claims Against LGUs: The Province of Aklan Case

When a private company has an unpaid claim against a local government unit (LGU), where should it file its case? The Supreme Court's 2013 decision in Province of Aklan v. Jody King Construction and Development Corp. (G.R. Nos. 197592 & 202623) provides a clear answer: the Commission on Audit (COA), not the Regional Trial Court (RTC), has primary jurisdiction over such money claims.

The case arose from a construction dispute. The Province of Aklan contracted Jody King Construction for the design and construction of the Caticlan Jetty Port and Terminal. After completion, the contractor demanded over P22 million for unpaid accomplishments, tax refunds, price escalation, and other costs. When the province failed to pay, the contractor sued in the RTC of Marikina City.

The Trial Court Proceedings

The RTC ruled in favor of the contractor and ordered the province to pay over P17 million in damages and interest. When the province filed a motion for reconsideration one day late, the trial court denied it and issued a writ of execution. The sheriff then served notices of garnishment on several banks where the province held funds.

The province appealed to the Court of Appeals (CA), arguing that the RTC lacked jurisdiction because the COA should have heard the case first. The CA dismissed the appeals, holding that the province was estopped from raising the primary jurisdiction issue after actively participating in the trial.

The Doctrine of Primary Jurisdiction

The Supreme Court reversed the CA and set aside the RTC's decision. The Court explained that the doctrine of primary jurisdiction requires that when a case demands the expertise of an administrative body, relief must first be sought there before the courts can act.

Under Commonwealth Act No. 327, as amended by Section 26 of Presidential Decree No. 1445 (the Government Auditing Code), the COA has jurisdiction over the examination, audit, and settlement of all debts and claims due from or owing to the government or any of its subdivisions, agencies, and instrumentalities. The COA's 2009 Revised Rules of Procedure likewise give it original jurisdiction over money claims against the government.

Jurisdiction Cannot Be Waived

The Court rejected the argument that the province waived its right to question the RTC's jurisdiction by participating in the trial. Citing Euro-Med Laboratories Phil., Inc. v. Province of Batangas, the Court ruled that the doctrine of primary jurisdiction cannot be waived by the parties' failure to raise it or by their active participation in the proceedings. The doctrine exists for the proper distribution of power between judicial and administrative bodies, not for the convenience of the parties.

The Court also noted that the exceptions to the doctrine—such as estoppel, patently illegal administrative acts, or urgent judicial intervention—did not apply in this case.

Void Judgment, Void Execution

Because the RTC acted without jurisdiction, its decision was void. A void judgment has no legal effect and cannot be the source of any right. Consequently, the writ of execution and the notices of garnishment based on that judgment were also void.

The Court further held that the RTC violated Administrative Circular No. 10-2000, which directs courts to exercise utmost caution in issuing writs of execution against government agencies and LGUs. The circular was issued precisely to prevent the circumvention of PD 1445 and COA rules.

Practical Takeaways

• File money claims against LGUs with the COA first. A contractor or supplier with an unpaid claim against a province, city, or municipality must bring the claim to the COA, not the RTC.
• The RTC cannot take over. Even if the amount claimed is within the RTC's jurisdiction, the COA's primary jurisdiction prevails. The RTC should suspend proceedings and refer the matter to the COA.
• Jurisdiction cannot be waived. A party's failure to raise the primary jurisdiction issue early, or its active participation in the trial, does not cure the lack of jurisdiction.
• Void judgments cannot be enforced. Any writ of execution or garnishment based on a judgment rendered without jurisdiction is itself void and has no legal effect.
• Banks may refuse garnishment. Financial institutions holding LGU funds may properly refuse to honor garnishment orders that violate COA rules and Administrative Circular No. 10-2000.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.