Municipality of Corella vs. Philkonstrak Development Corporation and Vito Rapal

A contract entered into by a local chief executive without a valid appropriation ordinance is null and void, but the contractor may still recover payment on the basis of quantum meruit for services actually rendered in good faith. An appropriation ordinance that directs the payment of money requires the affirmative vote of a majority of all sanggunian members, not merely a majority of those present, and a DILG opinion to the contrary is a clearly erroneous contemporaneous construction that the Court may disregard.

The Municipality of Corella is a local government unit in Bohol, represented by its municipal mayor. Philkonstrak Development Corporation is a private corporation engaged in the business of design/build construction. The dispute arises from a public bidding conducted in 2009 for the rehabilitation and improvement of Corella's municipal waterworks system, which is governed by the Local Government Code of 1991 (RA 7160), its Implementing Rules and Regulations, and the Government Procurement Reform Act (RA 9184). The case also involves the authority of a local chief executive to enter into contracts on behalf of the local government unit, which requires either prior sangguniang bayan authorization or a sufficiently detailed appropriation ordinance.

The Municipality of Corella, a municipality in Bohol, conducted a public bidding in 2009 for the rehabilitation and improvement of its municipal waterworks system project. Philkonstrak Development Corporation, a private firm engaged in design/build construction, emerged as the winning bidder. Corella, through then Mayor Vito Rapal, entered into a contract agreement with Philkonstrak for the project in the total amount of P15,997,732.63.

Pursuant to the contract, Philkonstrak procured the materials, equipment, and labor force for the mobilization of the construction works, submitting progress reports to the municipal engineer of Corella for coordination and supervision. As of December 2009, Philkonstrak had accomplished more than 50% of the work essential for the project, expending P8,233,000.00. When Corella, through its new mayor Jose Nicanor D. Tocmo, refused to pay and denied liability, Philkonstrak was forced to suspend its construction works. Philkonstrak sent formal demand letters to both Corella and Rapal.

Tocmo, in his reply, denied liability and questioned the validity of the contract, averring that Rapal had no authority to enter into such contract during his term as mayor. On April 28, 2011, Philkonstrak filed a complaint before the CIAC for collection of sum of money against Corella and Rapal. Philkonstrak claimed it had undertaken more than 50% of the construction work, incurring P8,233,000.00, and that Tocmo refused to pay primarily because of political differences with Rapal. Rapal admitted the material allegations, asserting he was authorized under Municipal Ordinance No. 2010-02, which appropriated P27,000,000.00 for the purchase of heavy equipment and rehabilitation/improvement of the existing waterworks system.

Corella denied the material allegations, asserting that the contract was not binding because Municipal Ordinance No. 2010-02 violated Article 107(g) of the IRR of RA 7160, and that Rapal was in bad faith for knowing the ordinance was defective. The CIAC found the contract valid and ordered Corella to pay P12,844,650.00, which included claims for unpaid billings, delivered but uninstalled materials, and accrued interest. The CIAC exonerated Rapal from liability on the principle of res inter alios acta. The CIAC noted that upon disapproval of the ordinance by the sangguniang panlalawigan of Bohol, then Mayor Rapal elevated the matter to the DILG, whose Regional Director issued an Opinion stating that the ordinance was accorded the presumption of validity and that the Local Government Code does not prescribe a specific voting requirement for appropriation ordinances.

• Lack of Prior Sangguniang Bayan Authorization: Corella argued that then Mayor Rapal failed to secure proper authorization from the sangguniang bayan before entering into the contract, as required by Section 22(c) of the Local Government Code and Section 37 of RA 9184, and that the contract nowhere showed such prior authorization.
• Invalid Appropriation Ordinance: Corella contended that Municipal Ordinance No. 2010-02 was null and void because it required the affirmative vote of a majority of all sangguniang bayan members under Article 107(g) of the IRR of the Local Government Code, but only obtained five affirmative votes out of the 11-member body, based on the quorum of eight members present.
• DILG Opinion Erroneous: Corella argued that the DILG Opinion applying the general rule on voting requirements was erroneous and should not prevail over the Supreme Court's En Banc Decision in Quisumbing vs. Garcia.
• Final and Executory Decision: Corella questioned whether a final and executory decision of a quasi-judicial agency like the CIAC could still be subject to judicial review.

• Validity of the Contract: Philkonstrak maintained that it had no knowledge of the underlying issues between the administrations of Tocmo and Rapal, and that it merely complied faithfully with the terms of the contract.
• Good Faith Performance: Philkonstrak averred that it had already undertaken more than 50% of the construction work and that Tocmo refused to pay primarily because of political differences with Rapal.
• Entitlement to Compensation: Philkonstrak prayed for attorney's fees, legal interest, exemplary damages, arbitration fees, and other expenses, asserting its right to be compensated for the work done and materials supplied.

• Prior Sangguniang Bayan Authorization: Whether a mayor can enter into a contract with a corporation without prior authorization from the sangguniang bayan as required by RA 7160 and RA 9184.
• Appropriation of Public Funds: Whether a mayor can enter into a contract with a corporation without the proper appropriation of public funds as required by the 1987 Constitution, Presidential Decree 1445, and Executive Order 292.
• DILG Opinion vs. Supreme Court Decision: Whether a DILG Circular can prevail over the En Banc Decision of the Supreme Court in Quisumbing vs. Garcia.
• Finality of CIAC Decision: Whether a final and executory decision of a quasi-judicial agency (CIAC) can still be subject to judicial review.

• Prior Sangguniang Bayan Authorization: No separate sangguniang bayan authorization was necessary because Municipal Ordinance No. 2010-02 identified the project in sufficient detail, satisfying the requirement under Quisumbing vs. Garcia that the appropriation ordinance itself serves as the local chief executive's authority.
• Appropriation of Public Funds: No. Municipal Ordinance No. 2010-02 was invalid because it failed to obtain the affirmative vote of a majority of all sangguniang bayan members as required by Article 107(g) of the IRR of the Local Government Code for ordinances authorizing or directing the payment of money.
• DILG Opinion vs. Supreme Court Decision: The DILG Opinion was clearly erroneous and was disregarded by the Court, which applied the principle of contemporaneous construction and its exception for clearly erroneous administrative interpretations.
• Finality of CIAC Decision: Yes. The CIAC Decision had become final and executory because Corella's motion for correction of final award was not based on the exclusive grounds under Section 17.1 of the CIAC Rules and thus did not interrupt the 15-day period to appeal.

• Prior Sangguniang Bayan Authorization: The Court applied the doctrine in Quisumbing vs. Garcia, which delineated when sangguniang bayan authorization is still necessary. If the project is provided for in sufficient detail in the appropriation ordinance—meaning the transactions, bonds, contracts, documents, and other obligations the mayor would enter into are enumerated—then no separate authorization is necessary. The Court found that Municipal Ordinance No. 2010-02 specifically and expressly set aside P27,000,000.00 for certain projects, including the purchase of specific heavy equipment and rehabilitation/improvement of the existing waterworks system. Thus, the ordinance sufficiently covered the project and cost in detail, and no separate sangguniang bayan authorization was required.

• Appropriation of Public Funds: The Court held that the term "appropriation" under Section 306 of the Local Government Code refers to an authorization made by ordinance directing the payment of goods and services from local government funds. Juxtaposing this with the exception in Article 107(g) of the IRR, which requires the affirmative vote of a majority of all sanggunian members for any ordinance authorizing or directing the payment of money, the Court found that an appropriation ordinance is one such ordinance contemplated in the exception. Since Municipal Ordinance No. 2010-02 only obtained five affirmative votes out of 11 members, it was null and void, and consequently, the contract between Corella and Philkonstrak was also null and void.

• DILG Opinion vs. Supreme Court Decision: The Court applied the principle of contemporaneous construction, which holds that the construction of a statute by executive officers whose duty is to execute it is entitled to great respect. However, the Court found the DILG Opinion clearly erroneous because the Local Government Code's definition of "appropriation" and the exception in Article 107(g) of the IRR expressly require a majority of all sanggunian members for ordinances directing the payment of money. The Court held that the DILG Opinion was erroneous and that the CIAC and CA wrongfully applied it.

• Finality of CIAC Decision: The Court held that a CIAC Final Award is susceptible to judicial review, but one must abide by the procedural framework set therefor, including the periods of appeal and prohibited motions. Under the CIAC Rules, a party aggrieved by a final award may contest it by filing either a motion for correction or a petition for review under Rule 43, both within 15 days from receipt. Since Corella's motion for correction was not based on any of the exclusive grounds under Section 17.1, it did not interrupt the running of the period to appeal. Corella received the CIAC Decision on November 10, 2011, and had until November 25, 2011 to file its petition for review. Having filed its Rule 43 petition on December 26, 2011, the petition was filed out of time, and the CIAC Decision became final and executory and immutable.

• Quantum Meruit — Literally meaning "as much as he deserves," this principle, predicated on equity, states that a person may recover the reasonable value of the thing he delivered or the service he rendered. It is a device to prevent undue enrichment based on the equitable postulate that it is unjust for a person to retain a benefit without paying for it. The Court applied this doctrine to allow Philkonstrak to recover payment despite the invalidity of the contract, since it had rendered more than 50% of the services in good faith and Corella would otherwise be unjustly enriched.

• Contemporaneous Construction — The principle that the construction of a statute by executive officers of the government whose duty is to execute it is entitled to great respect and should ordinarily control. However, the exception is that the construction may be disregarded by competent authorities or judicial courts when it is clearly erroneous, when strong reason to the contrary exists, or when the court has previously given the statute a different interpretation. The Court applied this doctrine to disregard the DILG Opinion, finding it clearly erroneous.

• Finality of Judgment — A definitive final judgment, however erroneous, is no longer subject to change or revision. A decision that has acquired finality becomes immutable and unalterable, precluding modification even if meant to correct erroneous conclusions of fact and law. This principle of conclusiveness of prior adjudication extends to all bodies upon which judicial powers have been conferred, including quasi-judicial agencies like the CIAC.

• Res Inter Alios Acta — The principle that a contract is binding only upon the parties to it and cannot prejudice third persons. The CIAC applied this principle to exonerate Rapal from liability arising from the repudiation of the contract, since he was not a party to the contract in his personal capacity.

• "Explained simply, the [Local Government Code] requires the local chief executive to secure prior authorization from the sanggunian before he can enter into contracts on behalf of the LGU. A separate prior authorization is no longer required if the specific projects are covered by appropriations of the LGU." — This passage from Verceles v. Commission on Audit, cited by the Court, articulates the rule that a sufficiently detailed appropriation ordinance serves as the local chief executive's authority to enter into contracts, eliminating the need for separate sanggunian authorization.

• "The definition of the term 'appropriation' in the Local Government Code is clear: [i]t is an authorization made by an ordinance that directs the payment of money. The exception to the general rule of the prescribed voting requirement in the IRR of the Local Government Code is clear: an ordinance that directs or authorizes the payment of money needs a quorum of all the sanggunian members, not only of those sanggunian members present." — This passage states the Court's reasoning for declaring the DILG Opinion erroneous and Municipal Ordinance No. 2010-02 invalid for failing to obtain the required majority vote.

• "A definitive final judgment, however erroneous, is no longer subject to change or revision. A decision that has acquired finality becomes immutable and unalterable. This quality of immutability precludes the modification of a final judgment, even if the modification is meant to correct erroneous conclusions of fact and law." — This passage from Department of Labor and Employment v. Kentex Manufacturing Corporation, cited by the Court, explains the primacy of the finality of judgment principle and its application to quasi-judicial agency decisions.

• Quisumbing vs. Garcia, 593 Phil. 655-677 (2008) — Controlling precedent that delineated when sangguniang bayan authorization is still necessary to accompany the appropriation ordinance and when it is not, depending on whether the project is provided for in sufficient detail in the appropriation ordinance.

• Verceles, Jr. vs. Commission on Audit, 794 Phil. 629-661 (2016) — Followed and cited for the proposition that a separate prior authorization is no longer required if the specific projects are covered by appropriations of the LGU, and that "sufficient authority" in an appropriation ordinance means specifically and expressly setting aside an amount of money for a certain project or program.

• Department of Labor and Employment vs. Kentex Manufacturing Corporation, G.R. No. 233781, July 8, 2019 — Cited for the principle of finality of judgment and its application to decisions of bodies upon which judicial powers have been conferred.

• Mocorro, Jr. vs. Ramirez, 582 Phil. 357, 366-367 (2008) — Cited in Kentex for the explanation of the primacy of the finality of judgment principle.

• Nacar vs. Gallery Frames, 716 Phil. 267, 282-283 (2013) — Cited for the applicable rates of legal interest: 12% per annum until June 30, 2013, and 6% per annum from July 1, 2013.

• Geronimo vs. Commission on Audit, G.R. No. 224163, December 4, 2018 — Cited for the definition and application of the principle of quantum meruit.

• Philippine Duplicators, Inc. vs. National Labor Relations Commission, 298 Phil. 552, 562 (1993) — Cited for the principle of contemporaneous construction of statutes by executive officers.

• Adasa vs. Abalos, 545 Phil. 168 (2007) — Cited for the exception to the principle of contemporaneous construction when the construction is clearly erroneous.

• Section 22(c), Local Government Code (RA 7160) — Provides that no contract may be entered into by the local chief executive in behalf of the local government unit without prior authorization by the sanggunian concerned, unless otherwise provided in the Code. The Court applied this provision in determining whether separate sangguniang bayan authorization was required.

• Article 107(g), IRR of the Local Government Code — Provides that any ordinance or resolution authorizing or directing the payment of money or creating liability shall require the affirmative vote of a majority of all the sanggunian members. The Court applied this provision to declare Municipal Ordinance No. 2010-02 invalid for failing to obtain the required majority vote.

• Section 37, Government Procurement Reform Act (RA 9184) — Provides that the Procuring Entity shall issue the Notice to Proceed to the winning bidder not later than seven calendar days from the date of the approval of the contract by the appropriate authority. Corella cited this provision in arguing that prior sangguniang bayan authorization was required.

• Section 306, Title V, Local Government Code — Defines "appropriation" as an authorization made by ordinance directing the payment of goods and services from local government funds under specified conditions or for specific purposes. The Court used this definition to determine that an appropriation ordinance falls under the exception in Article 107(g) of the IRR.

• Sections 17.1, 17.1.2, 17.2, 18.1, 18.2, and 18.5, CIAC Revised Rules of Procedure Governing Construction Arbitration — Govern post-award proceedings, including the exclusive grounds for a motion for correction of final award, the prohibition on motions for reconsideration, the 15-day period for appeal, and the execution of final awards. The Court applied these provisions to determine that the CIAC Decision had become final and executory.

Perlas-Bernabe, S.A.J. (Chairperson), Zalameda, Rosario, and Marquez, JJ., concurred.