G.R. No. 89745 ; April 8, 1991
DR. RUFINO O. ESLAO, in his capacity as President of Pangasinan State University, petitioner, vs. THE COMMISSION ON AUDIT, respondent.

FACTS

Pangasinan State University (PSU), through its President Dr. Rufino O. Eslao, entered into two negotiated contracts with SJC Construction on December 29, 1986, for the completion of an Engineering Building and a Ceramics Building. This was done urgently after the Department of Budget and Management released an Advice of Allotment on the same date, with petitioner apprehensive that the funds would revert if not obligated before the fiscal year ended on December 31, 1986. The contracts were executed prior to the final approval of the detailed engineering plans by the DPWH Regional Office, which was granted on March 11, 1987, and before securing the required presidential approval for contracts costing P1 million or more under P.D. No. 1594. The PSU Board of Regents and the Secretary of Education later ratified the contracts in 1987.
The resident auditor disallowed the payments totaling P1,464,900.00, citing violations of P.D. No. 1594’s implementing rules, specifically the lack of prior detailed engineering plans and the use of a forged approval from the Office of the Executive Secretary. The Commission on Audit (COA) affirmed the disallowance. Petitioner appealed, arguing good faith and the necessity of the projects, and sought compensation for the contractor, as the buildings were nearly complete and in use by the university.

ISSUE

Whether the contractor, SJC Construction, is entitled to compensation for the completed portions of the public works projects despite procedural irregularities in the contract awarding process.

RULING

Yes. The Supreme Court reversed the COA decision and directed payment on a quantum meruit basis. The legal logic is anchored on principles of equity and unjust enrichment. While the Court acknowledged that the contracts were entered into in violation of P.D. No. 1594, specifically the requirements for prior detailed engineering plans and presidential approval for large-scale projects, it emphasized that the buildings were almost fully completed and were already being used by the university for public benefit. To deny payment would allow the government to unjustly enrich itself at the expense of the contractor who had rendered services and supplied materials. The Court, citing its ruling in National Irrigation Administration vs. Court of Appeals, held that substantial compliance and the demands of justice and equity may warrant compensation where the government has accepted and benefited from the contractor’s work. Thus, the contractor should be paid for the reasonable value of the work actually performed and accepted. The COA was ordered to determine the compensation due on a quantum meruit basis.