G.R. No. 180388 ; January 18, 2011
GREGORIO R. VIGILAR, SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS (DPWH), DPWH UNDERSECRETARIES TEODORO E. ENCARNACION AND EDMUNDO V. MIR, DPWH ASSISTANT SECRETARY JOEL L. ALTEA, DPWH REGIONAL DIRECTOR VICENTE B. LOPEZ, DPWH DISTRICT ENGINEER ANGELITO M. TWAÑO, FELIX A. DESIERTO OF THE TECHNICAL WORKING GROUP VALIDATION AND AUDITING TEAM, AND LEONARDO ALVARO, ROMEO N. SUPAN, VICTORINO C. SANTOS OF THE DPWH PAMPANGA 2ND ENGINEERING DISTRICT, Petitioners, vs. ARNULFO D. AQUINO, Respondent.

FACTS

On 19 June 1992, petitioner Angelito M. Twaño, OIC-District Engineer of the DPWH 2nd Engineering District of Pampanga, sent an Invitation to Bid to respondent Arnulfo D. Aquino, owner of A.D. Aquino Construction and Supplies, for the construction of a dike. The project was awarded to respondent on 7 July 1992, and a “Contract of Agreement” was executed for the amount of PhP1,873,790.69. Respondent completed the project by 9 July 1992 and was issued a Certificate of Project Completion dated 16 July 1992. Respondent claimed that PhP1,262,696.20 remained unpaid, leading him to file a Complaint for collection of sum of money with damages before the Regional Trial Court (RTC) of Guagua, Pampanga (Civil Case No. 3137). Petitioners defended by asserting that the Complaint was a suit against the state, that respondent failed to exhaust administrative remedies, and that the “Contract of Agreement” was void for violating Presidential Decree No. 1445 due to the absence of proper appropriation and a Certificate of Availability of Funds. The RTC ruled in favor of respondent, ordering DPWH to pay PhP1,873,790.69 (the full contract amount, exceeding respondent’s claim), attorney’s fees, and costs. On appeal, the Court of Appeals reversed the RTC, declared the contract null and void ab initio, but ordered the Commission on Audit (COA) to determine and pay respondent on a quantum meruit basis. Petitioners sought a reversal from the Supreme Court.

ISSUE

1. Whether the Court of Appeals erred in holding that the doctrine of non-suability of the state has no application in this case.
2. Whether the Court of Appeals erred in not dismissing the Complaint for failure of respondent to exhaust all administrative remedies.
3. Whether the Court of Appeals erred in ordering the COA to allow payment to respondent on a quantum meruit basis despite his failure to comply with the requirements of Presidential Decree No. 1445.

RULING

The Supreme Court DENIED the Petition and AFFIRMED the Decision of the Court of Appeals.
1. On Exhaustion of Administrative Remedies: The Court held that the doctrine of exhaustion of administrative remedies is not an ironclad rule. Exceptions apply, including where there is unreasonable delay or official inaction that will irretrievably prejudice the complainant, and where the question involved is purely legal. Both conditions were present here. The project was completed almost two decades prior, and remanding the case would prejudice respondent. Furthermore, the issues involved the validity and enforceability of the “Contract of Agreement,” which are pure questions of law beyond the expertise of the COA or DPWH and ultimately require judicial resolution.
2. On Quantum Meruit Payment: The Court upheld the Court of Appeals’ order for payment on a quantum meruit basis, relying on established jurisprudence (Royal Trust Corporation v. COA, Eslao v. COA, Melchor v. COA, EPG Construction Company v. Vigilar, and Department of Health v. C.V. Canchela & Associates, Architects). These cases consistently held that while contracts for government projects undertaken in violation of laws (like P.D. No. 1445 and the Revised Administrative Code) are void, public interest and equity demand that the contractor be compensated for services rendered and work done that benefited the public. The contract in this case was not illegal per se but void due to a legal prohibition. The dike was completed in 1992, and the public and government had benefited from it for nearly two decades. Denying compensation would allow the government to unjustly enrich itself at the expense of another. Justice and equity mandate compensation based on quantum meruit.
3. On State Immunity: The Court implicitly addressed this by affirming the appellate court’s decision, which allowed a claim for compensation based on quantum meruit despite the void contract, effectively recognizing that the suit was not barred as it sought payment for a rendered benefit, not enforcement of a void contract against the state.
DISPOSITIVE PORTION:
WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 82268 dated 25 September 2006 is AFFIRMED.