Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION
DEPARTMENT
OF
PUBLIC
WORKS AND HIGHWAYS,

G.R. No. 183444

Petitioner,
- versus -

RONALDO E. QUIWA, doing

business under the name R.E.Q.
Construction, EFREN N. RIGOR,
doing businesss under the name
Chiara Construction, ROMEO R.
DIMATULAC, doing business under
the name Ardy Construction and
FELICITAS C. SUMERA, doing
business under the name F.C.S.
Construction, represented by her
ATTORNEY-IN-FACT ROMEO M.
DE LEON,
Respondents.

Present:
CARPIO, J.,
Chairperson,
BRION,
SERENO,
REYES, and
PERLAS-BERNABE, JJ.
Promulgated:
October 12, 2011

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DECISION
SERENO, J.:
Assailed in this Petition for Review on Certiorari is the 26 June 2008 Decision of
the Court of Appeals in CA-G.R. CV No. 76584,[1] affirming the trial courts
judgment in favor of herein respondents in their money claims against petitioner
DPWH.
The Factual Antecedents

With the eruption of Mt. Pinatubo in 1991 and the consequent onslaught of
lahar and floodwater, the rehabilitation of the affected areas became urgent. River
systems needed to be channeled, dredged, desilted and diked to prevent flooding
and overflowing of lahar; and to avert damage to life, limb and property of the
people in the area.
In 1992, a number of contractors, including herein respondents, were engaged by
the DPWH through its Project Manager, Philip F. Meez, for the aforesaid services
pursuant to an emergency project under the Mount Pinatubo Rehabilitation
Project. It was alleged that prior to the engagement of the contractors,
Undersecretary Teodoro T. Encarnacion of DPWH, who had overall supervision of
the infrastructure and flood control projects, met with the contractors and insisted
on the urgency of the said projects. Respondents claimed that they had
accomplished works on the Sacobia-Bamban-Parua River Control Project pursuant
to this emergency project.[2] Ronaldo E. Quiwa claimed that under two construction
agreements with the DPWH, his construction company, the R.E.Q. Construction,
had accomplished the channeling of the Sacobia-Bamban-Parua River Control
Project for the excavated spoils of 69,835 cubic meters, pegged at P3,448,258.25
for one project, and 80,480 cubic meters at the cost of P4,019,976.00 for another,
or a total amount of P7,508,234.25.[3] Efren Rigor, on behalf of Chiara
Construction, alleged that the sum of money due him for the channeling of the
Sacobia-Bamban-Parua River was P8,854,654.10 for three accomplished projects.
[4]
Romeo Dimatulac of Ardy Construction claimed P1,402,928.45 for double
diking;[5] and Felicitas C. Sumera, P4,232,363.40 for her construction company.[6]
Initially, R.E.Q. Construction filed its money claim with the DPWH, which
referred the matter to the Commission on Audit.[7] The COA returned the claims to
the DPWH with the information that the latter had already been given the funds
and the authority to disburse them.[8] When respondent Quiwa filed his claims with
the DPWH, it failed to act on these, resulting in the withholding of the payment
due him, despite the favorable report and Certification of Completion made by the
Asstistant Project Manager for Operations, Engineer Rolando G. Santos.
[9]
Prompted by the prolonged inaction of the DPWH on their claims, respondents
jointly filed an action for a sum of money against the DPWH. [10] The case was
decided in their favor by the Regional Trial Court (RTC) of Manila, Branch 51,
in Civil Case No. 96-77180.[11]
As found by the RTC, the respondents, plaintiffs therein, were duly licensed
contractors, who had completed the construction works on the Sacobia-BambanParua River as certified by the DPWH itself. In 1992, the funding for the
infrastructure and other work requirements under the Mt. Pinatubo Rehabilitation

Program in the amount of P400 million pesos was initially allocated by the
government, and was later increased to P700M. Despite the completion of
respondents works in accordance with the specifications and the allocation of the
funds to cover the said services, the DPWH unjustly denied the claims. The court a
quo gave credence to the evidence presented by respondents, consisting of contract
agreements; statement of work accomplished, certified and signed by the engineers
of the DPWH; and testimonial evidence of witnesses. It ruled that respondents
were able to prove their claims by a preponderance of evidence. The RTC found
that the contracts between DPWH and the plaintiffs were valid contracts, as all the
requisites thereof -- consent, subject matter and cause -- were present; and,
notwithstanding the absence of the signature of the regional director on the
agreement executed with Quiwa and Sumera, the contract was ratified when he
affixed his signature to the Inspection and Certification of Completion of the
projects.
The court a quo likewise sustained the claim of Rigor and Dimatulac even in the
absence of a written contract. It held that there was already a perfected contract,
since there was a concurrence of the essential requisites thereof. It also, in effect,
held that DPWH was already estopped from repudiating the contract, as the latter
had already made representations and assurances that the plaintiffs would be paid
for the work that they would do, and as even then DPWH Undersecretary Teodoro
T. Encarnacion had told them to fast-track the project.[12]
The RTC also ruled that the claim of the respondents against DPWH was proper
since they had already made a demand on the Commission on Audit regarding the
payment of their construction services. Thus, they first availed themselves of the
properadministrative remedy in filing their claim with COA, which unfortunately
referred the claim to the DPWH. The court a quo also reasoned that the contracts
could not be declared void on the ground of the absence of a certification of
availability of funds issued by the proper accounting official. It found that there
was already an advice of allotment from the Department of Budget and
Management to cover the projects.[13] The respondents were thus correct in suing
the government for the nonpayment of the services they had
rendered. Consequently, the court
a quo disposed:
WHEREFORE, in view of the foregoing, judgment is hereby ordered in
favor of plaintiffs Ronaldo Quiwa doing business under the name
R.E.Q . Construction, Efren N. Rigor, doing business under the name
Chiara Construction, Romeo R. Dimatulac, doing business under the
namme (sic) Ardy Construction and against Felicitas C. Sumera, doing

business under the namee (sic) FC.S. (sic) Construction and against
defendants Department of Public Works and Highways, Gregorio R.
Vigilar, Teodoro T. Encarnacion and Jose P. de Jesus, ordering them to
jointly and solidarily pay plaintiffs the following amounts:
1) To plaintiff Ronaldo Z. Quiwa
First: The principal sum of P3,488,258.25 representing the actual work
accomplishments of Quiwas first project, the channeling with disposal
of Sacobia-Bamban-Parua River from Sta. 2 + 100 to Sta. 2 + 500 (left
bank) in Bamban, Tarlac and the principal sum of P3,843,252.90
representing the actual work accomplishments of Quiwas second
project which is Channeling with Disposal of Sacobia-Bamban-Parua
River from Sta. 1 + 200 to Sta. 1 + 500 at Bamban, Tarlac with legal
rate of interest from July 1992 until fully paid;
Second: The sum of 10% of the total amount due as attorneys fees; and
Third: The sum equivalent to the lawful fees paid by plaintiff Quiwa in
entering and docketing the action which must be the proportion of the
filing fees for his total claim in the amount of P7,331,511.115 as costs
of suit.
2) To plaintiff Efren Rigor
First: The principal sum of P3,843,252.90 representing the actual work
accomplishments of plaintiff Rigors first project, the channeling and
disposal of Sacobia-Bamban-Parua River Channeling Section 1 + 200
Sta. 1 + 500 in Bamban, Tarlac, and the principal sum of P3,155,641.20
representing the actual accomplisments of plaintiff Rigors second
project which is the Channeling and Disposal Sacobia-Bamban-Parua
River from Station -0 + 700 to Station-1 + 000 in Bamban, Tarlac with
legal rate of interest from July 1992 until fully paid;
Second: The sum of 10% of the total amount due as attorneys fees; and
Third: The sum equivalent to the lawful fees paid by Plaintiff Rigor in
entering or docketing the action which must be the proportion of the
filing fees for his total claim in the amount of P6,998,849.10 as costs of
suit.
3) For Plaintiff Romeo Dimatulac

First: The principal sum of P1,402,928.45 representing the actual work

accomplishments of plaintiff Dimatulac project, the Double Diking at
Sacobia-Bamban-Parua River Control System from Station 2 + 000 to
Station 2 + 400 in Bamban, Tarlac with legal rate of interest from July
1922 until fully paid;
Second: The sum of 10% of the total amount due as attorneys fees; and
Third: The sum equivalent to the lawful fees paid by plaintiff
Dimatulac in entering and docketing the action which must be the
proportion of the filing fee for his total claim in the amount of
P1,402,928.45 as costs of suit.
4) To plaintiff Felicitas C. Sumera
First: The principal sum of P4,232,363.40 representing the actual work
accomplishments of plaintiff Sumeras project, the Channeling with
disposal of the Sacobia-Bamban-Parua River Control covering Station
-1 = 500 to Station -1 + 800 in Bamban, Tarlac with legal rate of
interest from July 1992 until fully paid;
Second: The sum of 10% of the total amount due as attorneys fees; and
Third: The sum equivalent to the lawful fees paid by plaintiff Sumeras
(sic) in entering and docketing the action which must be the
proportion of the filing fees for her total claim in the amount of
P4,232,363.40 as costs of suit.. (sic)
SO ORDERED.

Not amenable to the trial courts Decision, Petitioner DPWH, through the Office of
the Solicitor General, filed an appeal[14] to question the said Decision. DPWH
mainly argued that there was no valid contract between it and respondents.[15] It
claimed that there was no certification of the availability of funds issued by the
DPWH Chief Accountant or by the head of its accounting unit as required by
Executive Order No. 292, or the Administrative Code of 1987.[16] It also alleged
other deficiencies and irregularities, which rendered the contract void from its
inception, such as the absence of the requirements enumerated in Presidential
Decree (P.D.) Nos. 1594 and 1445; and the lack of authority on the part of
Engineer Philip Meez, Project Manager II of the DPWH to enter into contracts on
behalf of DPWH. DPWH likewise contested the RTCs award of attorneys fees and
costs of suit to respondents.

The Court of Appeals (CA), similar to the court a quo, sided with respondents. The
CA resolved in the affirmative the issue of whether the respondents are entitled to
their claim representing actual expenses for the construction projects they
undertook.It found that there was already a fund allocation for the projects, and
that the payment for the channeling services rendered by the respondents had been
included in the said fund allocation as testified to by DPWHs witness, Felix
Desierto. It ruled that DPWH officials who approved the projects, even though
middle-rank, had the authority to bind the department. The CA held:
...[I]t appears that all the procedures followed by the project
managers and plaintiff-appellees were in accordance with the usual
DPWH procedures, such that, there was no reason for plaintiffsappellees not to rely on the authority of the project managers who
allowed them to proceed with their projects from start to finish.[17]
The CA further held that revalidation was not part of the contract and, thus, not a
precondition for payment to the respondents. The constitution of the revalidation
team after the commencement of the construction project indicated that approval
by DPWH was not meant to be a condition for the payment of the project. [18] With
the completion of the project, the CA ruled that the DPWH was estopped from
refusing to pay plaintiffs:[19]
...[I]t is readily seen that defendant-appellants conduct in allowing the
subject projects to continue without objecting thereto and in even
assigning its own employees to oversee these projects estopped
defendant-appellant from adopting a position that such projects were
not authorized. Without a doubt, such acts induced plaintiff-appellees to
believe that such projects will be honored by defendant-appellant and
that they will be compensated for all their expenditures. [20]

According to the CA, the absence of a written contract with R. Dimatulac and
Rigor did not affect the validity and the enforceability of the contracts between
DPWH and the contractors.
With the affirmance of the RTC Decision, DPWH filed a Petition for
Review[21] before this Court, alleging that the following were errors committed by
the Court of Appeals:[22]
IN NOT FINDING THAT THE PURPORTED CONTRACTS BETWEEN THE PARTIES ARE
NULL AND VOID FROM THE BEGINNING AND HENCE, NOT BINDING BETWEEN
THEM;

IN NOT FINDING THAT [RESPONDENTS QUIWA ET AL.] HAVE NO CAUSE OF ACTION

AGAINST [PETITIONER DPWH];
IN NOT FINDING THAT THE AWARD OF ATTORNEYS FEES AND COSTS OF SUIT IS
UNWARRANTED AND HAS NO BASIS IN LAW.

Petitioner insists that there was no valid contract between it and the respondents,
and, thus, the latter had no cause of action against the former. Consequently, there
was no basis to grant the Complaint and to award attorneys fees and the costs of
suit in favor of the respondents.[23]
On the other hand, respondents, in their comment, reiterates the correctness of the
RTC and the CA Decisions. They also brought to the attention of this Court the fact
that the individual defendants in the case, DPWH former Secretaries Gregorio T.
Vigilar and Jose P. de Jesus, and Undersecretary Teodoro T. Encarnacion did not
file an appeal to this Court. Both the RTC and the CA Decisions adjudged these
defendants jointly and solidarily liable with DPWH to pay the amount awarded to
the respondents. Respondents are effectively claiming that the said judgments have
become final and executory against defendant public officials.
The Issues
We find that the crux of the Petition is simply whether the DPWH is liable to pay
the claims filed against them by the plaintiffs. Corollary to this main issue, the
following sub-issues beg for resolution:
Whether, in the absence of the legal requirements under PD 1445, a
valid contract between the DPWH and the plaintiffs exists;
Whether the plaintiffs are entitled to payment for accomplishing
100% of the work, attorneys fees and costs of suit;
Whether the Secretary and the Undersecretary of DWPH should be
held jointly and solidarily liable to plaintiffs.
The Courts Ruling
It should be borne in mind that a review under Rule 45 of the Rules of Court is
discretionary and must be granted only when there are special and important
reasons therefor.[24] We find that these reasons are not present in this case.

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
Gentlemen
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 petitioners 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 petitioners 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,
(sgd)
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 contracts 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 companys
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 DPWHs 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 respondents 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
attorneys 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]
Attorneys 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.
IN VIEW THEREOF, the assailed 26 June 2008 Decision of the Court of Appeals
is hereby AFFIRMED with MODIFICATION. Gregorio Vigilar, Teodoro
Encarnacion and Jose P. de Jesus are absolved from their solidary liability with the
government for the payment of the subject contracts. The payment is solely on
account of DPWH. Likewise, attorneys fees and costs of suit are
hereby DELETED.
SO ORDERED.