Government construction contracts - G.R. No. 183444

G.R. No. 183444

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As a general rule, the factual findings of the trial court, when affirmed by the appellate court, attain conclusiveness and are given utmost respect by this Court.[25] DPWH never questioned the completion of the Sacobia-Bamban-Parua river works. Neither did it question the authority of those who certified the completion of the works by respondents. The trial court ruled that the works were completed, as shown by the evidence presented before it. This finding was affirmed by the Court of Appeals. There is, therefore, no reason for us to view these factual findings.
With the findings of the trial and the appellate courts, there is no longer any issue on whether the contractors completed the projects in accordance with the specifications agreed upon. The regular course of a contract is that after the complete rendering of services, the contractors are subsequently paid. The DPWH, however, deviated from this course.
It should be noted that the completion of the works was recognized by the DPWH, as shown by the certifications issued by its engineers and even by municipal officials. Notwithstanding the said recognition, DPWH chose not to act on the claims of respondents, and later denied liability for the payment of the works on the ground of the invalidity of the contracts.
Petitioner DPWH primarily argues that the contracts with herein respondents were void for not complying with Sections 85 and 86 of P.D. 1445, or the Government Auditing Code of the Philippines, as amended by Executive Order No. 292. These sections require an appropriation for the contracts and a certification by the chief accountant of the agency or by the head of its accounting unit as to the availability of funds. It should be noted that there was an appropriation amounting to P400 million, which was increased to P700 million. The funding was for the rehabilitation of the areas devastated and affected by Mt. Pinatubo, which included the Sacobia-Bamban-Parua River for which some of the channeling, desilting and diking works were rendered by herein respondents’ construction companies.
It was, however, undisputed that there was no certification from the chief accountant of DPWH regarding the said expenditure. In addition, the project manager has a limited authority to approve contracts in an amount not exceeding P1 million.[26] Notwithstanding these irregularities, it should be pointed out that there is no novelty regarding the question of satisfying a claim for construction contracts entered into by the government, where there was no appropriation and where the contracts were considered void due to technical reasons. It has been settled in several cases that payment for services done on account of the government, but based on a void contract, cannot be avoided. The Court first resolved such question in Royal Trust Construction v. Commission on Audit.[27] In that case, the court issued a Resolution granting the claim of Royal Trust Construction under a void contract. The unpublished Resolution reads as follows:
NOV 23 1988

Quoted hereunder, for your information, is a resolution of the Court En Banc dated NOV 22 1988

G.R. No. 84202 (ROYAL TRUST CONSTRUCTION v. COMMISSION ON AUDIT). – The petitioner undertook the widening and deepening of the Betis River in Pampanga at the urgent request of the local officials and with the knowledge and consent of the Ministry of Public Works but without any written contract and the covering appropriation. The purpose of the project was to prevent the flooding of the neighboring areas and to irrigate the adjacent farmlands. On December 16, 1985, the petitioner sought compensation in the sum of P1,299,736.00 “for the completed portion of the P2.3 million Betis River project, which was implemented or undertaken sometime in mid-May, 1984.”

In a memorandum dated February 17, 1986, then Public Works Minister Jesus Hipolito recommended immediate “payment of the works already completed” from the cash disbursement ceiling of P300,000.00 for Betis River. On July 16, 1986, his successor, Minister Rogaciano M. Mercado manifested that his office was interposing “no objection to the proposal to use the P294,000.00 release for Betis River Control, Betis, Mexico, Pampanga, for the partial payment of work already accomplished for the channel improvement of said river from Sta. 2+200 to Sta. 5-100, subject, however, to existing budgetary accounting and auditing rules and regulations.”

On July 20, 1987, the Chairman of the Commission on Audit ruled that “payment to the contractor for the work accomplished, starting with the first partial payment in the amount of P268,051.14 only on the basis of quantum meruit may be allowed, in keeping with the time-honored principle that no one may be permitted to unjustly enrich himself at the expense of another.” However, in a subsequent indorsement dated August 27, 1987, Chairman Domingo reversed himself and held:

“However, this Commission is only too aware of its existing policy on recovery from government contracts on the basis of quantum meruit. Under COA Resolution No. 36-58, dated November 15, 1986, this Commission has adhered to a policy of barring such recovery where the project subject of the contract is patently violative of the mandatory legal provisions relating to, among others, the existence of the corresponding appropriation covering the contract cost. The mere delay in the accomplishment of the required certificate of availability of funds (CAF) to support a contract presents an entirely different situation considering that since the covering funds have in fact been already appropriated and budgetarily allotted to the implementing agency, the delayed execution of the CAF would not alter such fact.”

Even so, he added that “considering the sacrifices already made by the appellant in accomplishing the project in question, which are favorable circumstances attendant to the claim, payment on the basis of quantum meruit may be given due course but only upon order of a court.”
The respondent is now faulted for grave abuse of discretion in disallowing the petitioner’s claim without an order from a court. The Solicitor General, in support of the Commission on Audit, agrees that the said payment cannot be made because it is barred for lack of the required covering appropriation, let alone the corresponding written contract.
We hold for the petitioner.
The work done by it was impliedly authorized and later expressly acknowledged by the Ministry of Public Works, which has twice recommended favorable action on the petitioner’s request for payment. Despite the admitted absence of a specific covering appropriation as required under COA Resolution No. 36-58, the petitioner may nevertheless be compensated for the services rendered by it, concededly for the public benefit, from the general fund allotted by law to the Betis River Project. Substantial compliance with the said resolution, in view of the circumstances of this case, should suffice. The Court also feels that the remedy suggested by the respondent, to compensation claimed, would entail additional expense, inconvenience and delay which in fairness should not be imposed on the petitioner.
Accordingly, in the interest of substantial justice and equity, the respondent Commission on Audit is DIRECTED to determine on a quantum meruit basis the total compensation due to the petitioner for the services rendered by it in the channel improvement of the Betis River in Pampanga and to allow the payment thereof immediately upon completion of the said determination.”

Very truly yours,
Daniel T. Martinez
Clerk of Court

The above case became the authority in granting claims of a contractor against the government based on a void contract. This exercise of equity to compensate contracts with the government was repeated in Eslao vs. COA.[28] In the said case, the respondent therein, Commission on Audit (COA), was ordered to pay the company of petitioner for the services rendered by the latter in constructing a building for a state university, notwithstanding the contract’s violations of the mandatory requirements of law, including the prior appropriation of funds therefor. The Court, in resolving the case, cited the unpublished Resolution in Royal Construction, wherein the Court allowed the payment of the company’s services sans the legal requirements of prior appropriation.
Royal Trust Construction was again mentioned in Melchor v. COA,[29] which was decided a few months after Eslao. In Melchor, it was found that the contract was approved by an unauthorized person and, similar to the case at bar, the required certification of the chief accountant was absent. The Court did not deny or justify the invalidity of the contract. The Court, however, found that the government unjustifiably denied what the latter owed to the contractors, leaving them uncompensated after the government had benefited from the already completed work.
In EPG Construction Co., et al v Hon. Gregorio R. Vigilar,[30] the Court again refused to stamp with legality DPWH’s act of evading the payment of contracts that had been completed, and from which the government had already benefited. The Court held:
Although this Court agrees with respondent’s postulation that the “implied contracts”, which covered the additional constructions, are void, in view of violation of applicable laws, auditing rules and lack of legal requirements, we nonetheless find the instant petition laden with merit and uphold, in the interest of substantial justice, petitioners-contractors’ right to be compensated for the "additional constructions" on the public works housing project, applying the principle of quantum meruit.

The Court also held in the above case:

Notably, the peculiar circumstances present in the instant case buttress petitioners’ claim for compensation for the additional constructions, despite the illegality and void nature of the “implied contracts” forged between the DPWH and petitioners-contractors. On this matter, it bears stressing that the illegality of the subject contracts proceeds from an express declaration or prohibition by law, and not from any intrinsic illegality. Stated differently, the subject contracts are not illegal per se.

To emphasize, the contracts in the above cases, as in this case, were not illegal per se. There was prior appropriation of funds for the project including appropriation; and payment to the contractors, upon the subsequent completion of the works, was warranted.
As to Public Works and Highways officials Gregorio R. Vigilar, Teodoro T. Encarnacion and Jose P. de Jesus, their personal liability should not be sustained. They were sued in their official capacity, and it would be unfair to them to pay the contractors out of their own pockets. In Melchor, the Court declared that it was unjust to hold the public official liable for the payment of a construction that benefited the government.
We also depart from the CA and the RTC rulings awarding the respondents attorney’s fees and costs of suit. The Constitution provides that “no money shall be paid out of the Treasury except in pursuance of an appropriation made by law.”[31] Attorney’s fees and costs of suit were not included in the appropriation of expenditures for the Sacobia-Bamban-Parua project. In addition, we are not disposed to say that there was bad faith on the part of the DPWH in not settling its liability to the respondents for the works accomplished by the latter. The DPWH relied on P.D. 1445, Section 87, which provides that contracts in violation of Sections 85 and 86 thereof are void. The subject contracts undoubtedly lacked the legal requirement of certification of the chief accountant of DWPH. It was also clear that the project manager had no authority to approve the contracts, since the amounts involved were beyond his authority.[32] A strict application of the law, as the DPWH officials did, would therefore give a reasonable basis for the denial of the claim and eliminate the badge of bad faith on their part. The DPWH officials were apparently apprehensive that they might end up being liable to the government if they had wrongfully paid the contractors. This apprehension clearly showed in their letter to the DOJ Secretary.[33]
In conclusion, we uphold the CA in affirming the liability of the DPWH for the works accomplished by herein contractors. We, however, delete the liability of Gregorio Vigilar, Teodoro Encarnacion and Jose P. de Jesus, as well as other monetary awards in favor of respondents, as these awards were not directly for the subject accomplished works and were not funded by the department.
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