Republic vs. Lacap

A contractor with an expired license who fully completes a government project is entitled to payment, as the Contractor's License Law (R.A. No. 4566) does not declare contracts entered into under such circumstances as void. The government cannot refuse payment and retain the benefits of the completed work, as this would constitute unjust enrichment under Article 22 of the Civil Code.

The District Engineer of Pampanga initiated a public bidding for the concreting of Sitio 5 Bahay Pare. Carlito Lacap, doing business as Carwin Construction and Construction Supply, was one of three pre-qualified contractors. After submitting the lowest bid, Lacap was awarded the contract by the Department of Public Works and Highways (DPWH). A formal Contract Agreement was executed, and Lacap proceeded with and completed the project. The dispute arose when the government, through the DPWH, refused to release the payment for the completed project upon the disapproval of the District Auditor of the Commission on Audit (COA).

• The District Engineer of Pampanga published an "Invitation to Bid" on January 27, 1992, for a road concreting project.
• Respondent Carlito Lacap (doing business as Carwin Construction) was pre-qualified and awarded the contract after submitting the lowest bid.
• A Contract Agreement was executed between Lacap and the petitioner (Republic of the Philippines) on November 4, 1992.
• On October 29, 1992, a final inspection by the Office of the District Engineer found the project to be 100% completed according to specifications, leading to the issuance of Certificates of Final Inspection and Final Acceptance.
• Lacap sought payment, and the DPWH prepared the corresponding Disbursement Voucher.
• The DPWH withheld payment after the District Auditor of the Commission on Audit (COA) disapproved the fund release because Lacap's contractor's license had expired at the time the contract was executed.
• The DPWH Legal Department issued opinions in 1993 and 1994 stating that the contract was enforceable and payment could be made, without prejudice to administrative liabilities.
• Despite these legal opinions and repeated demands, the DPWH made no payment to Lacap.
• On July 3, 1995, Lacap filed a complaint for Specific Performance and Damages against the petitioner in the RTC.

• The respondent's recourse to judicial action was premature for failure to exhaust administrative remedies.
• The proper remedy was for the respondent to appeal the District Auditor's disapproval of payment to the Commission on Audit itself, pursuant to the Government Auditing Code (P.D. No. 1445).
• The Commission on Audit has primary jurisdiction to resolve money claims against the government.
• The respondent's failure to observe the doctrines of exhaustion of administrative remedies and primary jurisdiction results in a lack of cause of action.

• Equity and the principles of human relations under the Civil Code demand that he be paid for the work he has fully performed and which the government has accepted.
• To allow the government to benefit from the completed project without paying for it would be unjust and would render the Civil Code's standards of behavior nugatory.

• Procedural Issues:
  • Whether the respondent's complaint was prematurely filed in court due to his failure to exhaust administrative remedies by not appealing the District Auditor's decision to the Commission on Audit.
• Substantive Issues:
  • Whether a contractor with an expired license at the time of the execution of a contract is entitled to be paid for a government project that has been fully completed and accepted.

• Procedural:
  • The Court ruled that the complaint was not prematurely filed. While the general rule requires exhaustion of administrative remedies, this case falls under established exceptions. Specifically, there was unreasonable delay and official inaction on the part of the government, which prejudiced the respondent. Furthermore, the central issue—whether a contractor with an expired license is entitled to payment—is a pure question of law that does not require the specialized expertise of an administrative body and is ultimately for the courts to decide.
• Substantive:
  • The Court ruled that the respondent is entitled to payment. Applying the plain meaning rule to Section 35 of R.A. No. 4566 (Contractor's License Law), the Court found that the law only penalizes a contractor for using an expired license with a fine; it does not declare the contract entered into as void. To allow the petitioner to acquire the finished project at no cost would constitute unjust enrichment at the expense of the respondent, which is prohibited by Article 22 of the Civil Code. The government, having accepted and benefited from the completed work, is legally and equitably bound to compensate the contractor.

• Exhaustion of Administrative Remedies — This doctrine states that a party must first avail of all administrative processes before seeking judicial intervention. The Court held that this doctrine is not absolute and does not apply in this case due to the presence of exceptions, namely: (1) unreasonable delay or official inaction that will irretrievably prejudice the complainant, and (2) the question involved is purely legal.
• Primary Jurisdiction — A corollary doctrine providing that courts will not resolve a controversy involving a question within the jurisdiction of an administrative tribunal, especially where the question demands its special knowledge or expertise. This was deemed inapplicable because the issue was a pure question of law (statutory interpretation) rather than a technical matter.
• Unjust Enrichment (Nemo ex alterius incommode debet lecupletari) — This principle, embodied in Article 22 of the Civil Code, dictates that no person shall unjustly enrich himself at the expense of another. The Court applied this to rule that the government, having received the full benefit of the completed construction project, cannot refuse payment, as doing so would be an unjust enrichment.
• Statutory Construction (Verba Legis) — The "plain meaning rule" which holds that if a statute is clear and unambiguous, it must be given its literal meaning and applied without interpretation. The Court used this to interpret R.A. No. 4566, concluding that since the law only specifies a fine as a penalty and does not mention the nullity of the contract, the contract remains valid and enforceable.

• "The plaintiffs were not supposed to hold their breath and wait until the Commission on Audit and the Ministry of Public Highways had acted on the claims for compensation for the lands appropriated by the government. The road had been completed; the Pope had come and gone; but the plaintiffs had yet to be paid for the properties taken from them. Given this official indifference, which apparently would continue indefinitely, the private respondents had to act to assert and protect their interests."

• Rocamora v. RTC-Cebu (Branch VIII) — Cited as the primary authority for applying exceptions to the doctrine of exhaustion of administrative remedies. The Court drew a parallel between the "official indifference" in Rocamora and the government's unreasonable delay in paying Lacap despite the project's completion and favorable legal opinions from its own department.

• Republic Act No. 4566 (Contractor's License Law), Section 35 — The Court analyzed this provision and concluded that it only imposes a fine for contracting with an expired license and does not declare the resulting contract void.
• Civil Code, Article 22 — This article was the substantive basis for the ruling, establishing the principle against unjust enrichment and compelling the government to pay for the benefit it received from the respondent.
• Presidential Decree No. 1445 (Government Auditing Code of the Philippines), Section 48 — This provision outlines the administrative appeal process from a decision of a COA auditor to the Commission proper. The petitioner argued that the respondent's failure to follow this process was fatal to his case.
• 1987 Constitution, Article IX, Section 2(1) — Cited by the petitioner to support its argument regarding the COA's primary jurisdiction over money claims against the government.