In Sto. Niño Construction v. Commission on Audit, the Supreme Court ruled that a construction company could be compensated for a completed road project despite the lack of a formal contract and funding appropriation. The Court recognized the principle of quantum meruit, emphasizing that the government should not be unjustly enriched by benefiting from completed projects without compensating the contractor, especially when the project was completed and acknowledged by relevant government entities. This decision provides a crucial precedent for contractors who undertake projects in good faith but face payment issues due to procedural lapses.

Verbal Assurances vs. Legal Requirements: Can Insurgency Concerns Override Contractual Deficiencies?

The case revolves around Sto. Niño Construction (STC), which undertook the improvement and rehabilitation of Payao Road in Zamboanga, Sibugay, upon the verbal instruction of then-Representative Belma Cabilao, who cited the need to minimize insurgency in the area. STC was assured by Rep. Cabilao and Undersecretary Renato Ebarle that funding would be released. Despite completing the project, STC was not paid, leading to a money claim against the Department of Public Works and Highways (DPWH). The Commission on Audit (COA) denied STC’s claim, citing the absence of a valid contract and fund appropriation as required under Presidential Decree No. (P.D.) 1445, the Government Auditing Code of the Philippines. This raised the central legal question: can STC recover payment for a completed government project based on the principle of quantum meruit, despite non-compliance with statutory requirements for government contracts?

The COA anchored its decision on Sections 85 and 86 of P.D. 1445, which mandate that contracts involving public funds require prior appropriation and available funds. Section 87 further stipulates that contracts entered into without these prerequisites are void. According to the COA, since no appropriation existed, no valid contract was formed, thus precluding STC’s claim. The COA also distinguished the case from previous rulings where quantum meruit was applied, emphasizing that in those instances, the construction was authorized by the agency, a condition absent in STC’s case. However, the Supreme Court disagreed, highlighting several factors that warranted a deviation from the strict application of P.D. 1445. The Court emphasized the acknowledgment by DPWH of the completed works, the recommendation for payment by the Audit Team Leader, and the urgency of the project due to insurgency concerns.

Sec. 85. Appropriation before entering into contract.

1. No contract involving the expenditure of public funds shall be entered into unless there is an appropriation therefor, the unexpended balance of which, free of other obligations, is sufficient to cover the proposed expenditure.

The Supreme Court found that the DPWH’s actions constituted an implied authorization and effectively cured the initial defects. Even though there was no formal contract, the DPWH conducted a public bidding, declared STC as the lowest responsive bidder, and certified the completion of the project. Moreover, the District Engineer admitted that the project was completed to address insurgency and was turned over to the government for public use. The Court highlighted that if the DPWH had not authorized the project, it could have simply rejected the works. This acknowledgment, coupled with the COA Regional Technical Information Technology Services’ recommendation for payment based on actual services rendered, demonstrated that the DPWH had, in effect, ratified the project.

Building on this principle, the Court invoked the doctrine of curative acts, which allows for the validation of actions that initially lack legal requisites. In this context, the DPWH’s subsequent actions served to validate STC’s work, despite the initial absence of a formal contract and funding appropriation. The court acknowledged that strict adherence to legal formalities should not prevail over substantive justice, especially when the government has benefited from the contractor’s services. Central to the court’s reasoning was the principle against unjust enrichment. The Court emphasized that the government and the people of Zamboanga Sibugay benefited from the completed road, and denying STC compensation would amount to unjust enrichment at the company’s expense. This principle is rooted in the idea that no one should unjustly profit or enrich oneself at the expense of another.

This approach contrasts with the COA’s rigid interpretation of P.D. 1445, which prioritizes procedural compliance over equitable considerations. While the COA’s concern for safeguarding public funds is valid, the Supreme Court recognized that exceptional circumstances warrant a more flexible approach. To deny STC payment, despite the completed and beneficial project, would undermine the principles of fairness and equity. The Court’s decision underscores the importance of balancing procedural rules with the broader goal of achieving justice and preventing unjust enrichment.

The Supreme Court also addressed the issue of the finality of the COA decision. While recognizing the doctrine of immutability of judgments, which generally prevents the modification of final decisions, the Court emphasized that this doctrine is not absolute. Exceptions exist where the decision was issued in excess of jurisdiction or where special considerations, such as public welfare or policy, are involved. In this case, the Court found that the COA committed grave abuse of discretion by overlooking relevant facts, thus justifying a deviation from the doctrine of immutability. The Court deemed that upholding the COA’s decision would perpetuate an injustice and undermine public policy considerations.

FAQs

What was the key issue in this case?	The main issue was whether a construction company could be compensated for a completed government project despite the lack of a formal contract and funding appropriation. The Supreme Court considered the principle of quantum meruit and unjust enrichment in its decision.
What is quantum meruit?	Quantum meruit is a legal principle that allows a party to recover payment for services rendered or work done, even in the absence of a formal contract. It is based on the idea that a person should be compensated for the reasonable value of their services if they have conferred a benefit on another party.
What is Presidential Decree No. 1445?	Presidential Decree No. 1445, also known as the Government Auditing Code of the Philippines, sets out the rules and regulations for government auditing. It requires that contracts involving public funds have prior appropriation and available funds.
Why did the COA deny Sto. Niño Construction’s claim?	The COA denied the claim because Sto. Niño Construction did not have a formal contract with the DPWH and there was no fund appropriation for the project. The COA strictly applied the provisions of P.D. 1445.
How did the DPWH acknowledge the project?	The DPWH acknowledged the project by conducting a public bidding, declaring Sto. Niño Construction as the lowest responsive bidder, and certifying the completion of the project. The District Engineer also admitted that the project was completed to address insurgency issues.
What is the doctrine of curative acts?	The doctrine of curative acts allows for the validation of actions that initially lack legal requisites. In this case, the DPWH’s actions, such as certifying the completion of the project, served to validate Sto. Niño Construction’s work.
What is the significance of the principle against unjust enrichment?	The principle against unjust enrichment means that no one should unjustly profit or enrich oneself at the expense of another. The Supreme Court emphasized that denying Sto. Niño Construction compensation would result in the government being unjustly enriched.
What was the final ruling of the Supreme Court?	The Supreme Court granted the petition and ordered the DPWH to pay Sto. Niño Construction the amount of P8,238,271.35. This was the amount determined by the COA Regional Technical Information Technology Services for actual services rendered by the company.

The Supreme Court’s decision in Sto. Niño Construction v. Commission on Audit clarifies the application of quantum meruit in government contracts, particularly when projects are completed and provide substantial benefits to the public. It serves as a reminder that government agencies must act in good faith and ensure that contractors are fairly compensated for their work, even if procedural requirements are not strictly followed. This ruling offers guidance to contractors who find themselves in similar situations, providing a legal basis for seeking compensation based on the value of their services.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: STO. NIÑO CONSTRUCTION VS. COMMISSION ON AUDIT, G.R. No. 244443, October 15, 2019