Department of Public Works and Highways vs. Quiwa

A contractor is entitled to compensation on a quantum meruit basis for completed works under a void government contract, provided the contract is not illegal per se and the government has benefited from the services rendered. However, attorney's fees and costs of suit cannot be awarded against the government absent a specific appropriation therefor and a finding of bad faith.

Following the 1991 eruption of Mt. Pinatubo, the DPWH engaged several contractors, including respondents, for emergency rehabilitation work on the Sacobia-Bamban-Parua River Control Project. The contractors completed the channeling, desilting, and diking works, which were certified by DPWH engineers. When the contractors sought payment, the DPWH denied the claims, citing the absence of a certification of availability of funds from its chief accountant and the lack of authority of the project manager to enter into contracts exceeding ₱1 million.

• Emergency Rehabilitation: After the 1991 Mt. Pinatubo eruption, DPWH Undersecretary Teodoro T. Encarnacion urged contractors to "fast-track" rehabilitation projects for the Sacobia-Bamban-Parua River.
• Completed Works: Respondents (Quiwa, Rigor, Dimatulac, and Sumera) performed channeling, desilting, and diking works. The projects were completed and certified by DPWH engineers and municipal officials.
• Procedural Deficiencies: No certification of availability of funds (CAF) was issued by the DPWH chief accountant. Project Manager Philip Meñez approved contracts exceeding his ₱1 million authority limit. Rigor and Dimatulac had no written contracts.
• Denial of Claims: When respondents sought payment, the DPWH denied the claims based on the invalidity of the contracts due to violations of the Government Auditing Code.

• Validity of Contracts: Petitioner argued that no valid contract existed due to the absence of the chief accountant's certification of availability of funds as required by P.D. 1445 and E.O. 292, and the project manager's lack of authority to approve contracts exceeding ₱1 million.
• Cause of Action: Petitioner maintained that because the contracts were void from the beginning, respondents had no cause of action against the DPWH.
• Monetary Awards: Petitioner argued that the award of attorney's fees and costs of suit was unwarranted and had no basis in law.

• Entitlement to Payment: Respondents argued they were entitled to payment for actual expenses, emphasizing that funds were allocated for the projects and DPWH procedures were followed.
• Estoppel: Respondents countered that the DPWH was estopped from repudiating the contracts because its officials made representations assuring payment, allowed the projects to proceed to completion, and assigned employees to oversee the work.
• Solidary Liability of Officials: Respondents pointed out that the individual DPWH officials (Vigilar, Encarnacion, de Jesus) did not appeal, rendering the lower courts' judgments of solidary liability final and executory against them.

• Validity of Contracts: Whether a valid contract exists between the DPWH and the contractors in the absence of the legal requirements under P.D. 1445.
• Entitlement to Payment: Whether the contractors are entitled to payment for the completed works, attorney's fees, and costs of suit.
• Solidary Liability: Whether the Secretary and Undersecretary of the DPWH should be held jointly and solidarily liable to the contractors.

• Validity of Contracts: The contracts were void for failing to comply with the certification of availability of funds and the authorized signatory limits under P.D. 1445. However, the void nature of the contracts did not preclude recovery.
• Entitlement to Payment: Payment for the completed works was granted on a quantum meruit basis. The contracts were not illegal per se; the illegality stemmed from procedural omissions, not intrinsic illegality. The government benefited from the completed works and cannot unjustly enrich itself at the contractors' expense. However, the awards for attorney's fees and costs of suit were deleted. The Constitution prohibits paying money out of the Treasury without an appropriation, and no appropriation existed for attorney's fees and costs. Furthermore, bad faith was absent; DPWH officials relied on Section 87 of P.D. 1445, which declares contracts violating Sections 85 and 86 void, providing a reasonable basis for denying the claims.
• Solidary Liability: The solidary liability of the public officials was deleted. They were sued in their official capacity, and it is unjust to hold them personally liable for constructions that benefited the government.

• Quantum Meruit Recovery from the Government — A contractor may recover payment for services rendered under a void government contract on a quantum meruit basis, provided the contract is not illegal per se and the government has benefited from the completed works. The principle prevents unjust enrichment of the government at the expense of the contractor, notwithstanding procedural defects like the lack of a certification of availability of funds or the project manager's lack of authority.
• Non-liability of Public Officials for Government Contracts — Public officials sued in their official capacities cannot be held jointly and solidarily liable to pay contractors out of their own pockets when the construction benefited the government, absent a showing of bad faith or malice.
• Prohibition on Award of Attorney's Fees Against the State Without Appropriation — Attorney's fees and costs of suit cannot be awarded against the government absent a specific appropriation therefor, pursuant to the constitutional mandate that no money shall be paid out of the Treasury except in pursuance of an appropriation made by law, and absent bad faith on the part of the government agency.

• "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." — Cited from EPG Construction, reinforcing that void government contracts do not bar recovery if the work benefited the public.
• "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." — Distinguishes void contracts due to procedural lapses from contracts that are intrinsically illegal, justifying quantum meruit recovery.

• Royal Trust Construction v. Commission on Audit — Followed. Established the doctrine that a contractor may be compensated on a quantum meruit basis for completed works under a void government contract when the work was impliedly authorized, expressly acknowledged, and benefited the public, despite the lack of a specific covering appropriation.
• Eslao v. Commission on Audit — Followed. Reiterated the principle in Royal Trust Construction, allowing payment for services rendered to a state university despite violations of mandatory legal requirements.
• Melchor v. Commission on Audit — Followed. Applied quantum meruit where a contract was approved by an unauthorized person and lacked the chief accountant's certification; also established that public officials should not be held personally liable for payments for government-benefiting constructions.
• EPG Construction Co. v. Vigilar — Followed. Upheld compensation on a quantum meruit basis for additional constructions under void implied contracts, emphasizing that such contracts are not illegal per se when the illegality proceeds from an express statutory prohibition rather than intrinsic illegality.

• Sections 85 and 86, Presidential Decree No. 1445 (Government Auditing Code of the Philippines) — Require that contracts entered into by government agencies be supported by an appropriation and a certification of availability of funds by the chief accountant or head of the accounting unit. Applied to determine that the contracts were void due to the absence of the required certification.
• Section 87, Presidential Decree No. 1445 — Declares contracts entered into in violation of Sections 85 and 86 void. Cited as a reasonable basis for DPWH's denial of the claims, negating a finding of bad faith.
• Article VI, Section 29(1), 1987 Constitution — Provides that no money shall be paid out of the Treasury except in pursuance of an appropriation made by law. Applied to delete the awards for attorney's fees and costs of suit, which lacked a specific appropriation.

Carpio, A.T. (Chairperson), Brion, A.D., Reyes, B.L., and Perlas-Bernabe, E.M.