EPG Construction Co. vs. Vigilar

A contractor may recover compensation on a quantum meruit basis for additional work done on a government project despite the implied contract being void for lack of appropriation and certification of funds, provided the government has received and accepted the benefits of the completed project.

In 1983, the Ministry of Human Settlements initiated a housing project along the east bank of the Manggahan Floodway in Pasig City. A Memorandum of Agreement was executed with the Ministry of Public Works and Highways, tasking the latter with developing the site and constructing 145 housing units.

• Original Contracts: The Ministry of Public Works and Highways entered into individual contracts with the petitioners for the construction of 145 housing units. The scope and funding of these contracts covered only approximately two-thirds of each housing unit.
• Additional Constructions: At the verbal request and assurance of DPWH Undersecretary Aber Canlas that additional funds would be forthcoming, petitioners agreed to undertake the additional constructions required to complete the housing units. This was done despite the absence of supplemental written contracts, covering appropriations, and the certification of availability of funds mandated by law and auditing rules.
• Unpaid Balance: Petitioners were paid for the work covered by the original written contracts, leaving an unpaid balance of P5,918,315.63 representing the expenses for the additional constructions.
• Administrative Processing of Claims: Petitioners sent a demand letter to the DPWH Secretary. DPWH Assistant Secretary for Legal Services Dominador Madamba recognized the existence of implied contracts and recommended payment on a quantum meruit basis, referring the claim to the Commission on Audit (COA). The DPWH Auditor interposed no objection to the payment, subject to COA action. COA initially returned the documents, stating funds must first be made available before it could act.
• Release of Funds and Subsequent Denial: DPWH Secretary Jose De Jesus requested the release of funds from the Department of Budget and Management (DBM), which subsequently issued Advise of Allotment No. A4-1303-04-41-303 for P5,819,316.00. COA later referred the money claims back to the DPWH pursuant to COA Circular 95-006, which lifted pre-audit activities and vested fiscal responsibility on the agency head. Despite the fund release and COA referral, DPWH Secretary Gregorio Vigilar denied the money claims in a letter dated August 26, 1996.

• Right to Compensation: Petitioners maintained that they were entitled to payment for the additional constructions, having acted in good faith upon the verbal assurance of the DPWH Undersecretary, and that the government benefited from the completed housing units.
• Quantum Meruit: Petitioners argued that compensation should be based on quantum meruit, as recognized by the DPWH Assistant Secretary for Legal Services and the DPWH Auditor.

• Void Implied Contracts: Respondent argued that under Sections 46 and 47 of the Administrative Code of 1987, the existence of appropriations and certification of availability of funds are conditions sine qua non for government contracts. The implied contracts are fatally defective, inexistent, and void ab initio because the additional work was pursued verbally without the required supplemental contracts and appropriate funding.
• State Immunity from Suit: Respondent invoked the constitutional doctrine of non-suability of the State, asserting that the State may not be sued without its consent.

• Quantum Meruit Recovery: Whether petitioners-contractors may recover compensation for additional work done on a government housing project on a quantum meruit basis, despite the implied contracts being void for lack of appropriation and certification of funds.
• State Immunity from Suit: Whether the doctrine of non-suability of the State bars the petitioners' claim for compensation.

• Quantum Meruit Recovery: Compensation on a quantum meruit basis was upheld. The implied contracts were declared void for violating Sections 46, 47, and 48 of the Administrative Code and Article 1409(7) of the Civil Code. However, the illegality stemmed from an express declaration of law (lack of appropriation and certification), not from intrinsic illegality. Because the government and the public received and accepted the benefits of the completed housing project, equity and substantial justice dictate that the contractors be compensated for actual work performed and services rendered.
• State Immunity from Suit: The doctrine of state immunity was deemed inapplicable. The principle yields to settled exceptions and cannot serve as an instrument for perpetrating an injustice. Invoking the State's cloak of invincibility against suit under the circumstances would subvert the ends of justice.

• Quantum Meruit in Government Contracts — Allows recovery for the reasonable value of services rendered or work done for the government, even if the contract is void for lack of appropriation or certification of funds, provided the government has received and accepted the benefits of the project and the contractor acted in good faith. The amount of recovery is limited to the reasonable value of the thing or services rendered, regardless of any agreement as to value.
• State Immunity from Suit — The State cannot be sued without its consent, but this doctrine cannot be invoked to perpetrate an injustice, particularly when the State has received benefits from the labor and expenditures of a private party.

• "To our mind, it would be the apex of injustice and highly inequitable for us to defeat petitioners-contractors' right to be duly compensated for actual work performed and services rendered, where both the government and the public have, for years, received and accepted benefits from said housing project and reaped the fruits of petitioners-contractors' honest toil and labor."
• "[T]he doctrine of governmental immunity from suit cannot serve as an instrument for perpetrating an injustice on a citizen."

• Royal Trust Construction v. Commission on Audit, G.R. No. 84202, November 23, 1988 — Followed. Established that a contractor may be compensated on a quantum meruit basis for work impliedly authorized and expressly acknowledged by the Ministry, despite the absence of a specific covering appropriation, to prevent injustice.
• Eslao v. Commission on Audit, 195 SCRA 730 [1991] — Followed. Allowed recovery by a contractor on the basis of quantum meruit following the pronouncement in Royal Trust Construction.
• Melchor v. Commission on Audit, 200 SCRA 705 [1991] — Followed. Explained that quantum meruit recovery is limited to the reasonable value of services rendered regardless of any agreement as to value.
• Amigable v. Cuenca, 43 SCRA 360 — Applied. Held that the doctrine of governmental immunity from suit cannot serve as an instrument for perpetrating an injustice on a citizen.
• Ministerio v. CFI of Cebu, 40 SCRA 464 [1971] — Applied. Landmark case establishing that state immunity cannot be used to perpetrate injustice.

• Section 46, Chapter 7, Sub-Title B, Title I, Book V, Administrative Code of 1987 (E.O. 292) — Requires an appropriation before entering into a contract involving the expenditure of public funds. Applied to establish that the implied contracts were void for lacking the requisite appropriation.
• Section 47, Chapter 7, Sub-Title B, Title I, Book V, Administrative Code of 1987 (E.O. 292) — Requires a certificate showing appropriation to meet the contract, signed by the proper accounting official and auditor. Applied to establish that the implied contracts were void for lacking the required certification of availability of funds.
• Section 48, Chapter 7, Sub-Title B, Title I, Book V, Administrative Code of 1987 (E.O. 292) — Declares contracts entered into contrary to Sections 46 and 47 void, and holds entering officers liable. Applied to declare the implied contracts for additional constructions void.
• Article 1409(7), Civil Code — Provides that contracts expressly prohibited or declared void by law are inexistent and void from the beginning. Applied to characterize the nature of the contracts' illegality as proceeding from an express declaration of law, not intrinsic illegality.
• Section 3, Article XVI, 1987 Constitution — The State may not be sued without its consent. Cited by respondent but held inapplicable under the circumstances to avoid perpetrating injustice.

Bellosillo, Mendoza, Quisumbing, and De Leon, Jr.