Municipality of Corella v. Philkonstrak Development Corporation
REITERATIONFacts
The Antecedents: The Municipality of Corella (Corella), through then Mayor Vito Rapal (Rapal), entered into a contract with Philkonstrak Development Corporation (Philkonstrak) for the rehabilitation and improvement of its municipal waterworks system for P15,997,732.63. Philkonstrak commenced work, expending P8,233,000.00 and accomplishing over 50% of the project. Subsequently, Corella, under Mayor Jose Nicanor D. Tocmo (Tocmo), refused to pay and denied liability, questioning the contract's validity, specifically the authority of Rapal to enter into it without prior authorization from the Sangguniang Bayan and proper appropriation. Procedural History: Philkonstrak filed a collection case before the Construction Industry Arbitration Commission (CIAC). The CIAC ruled the contract valid and ordered Corella to pay Philkonstrak P12,844,650.00, exonerating Rapal. Corella's motion for correction was denied by the CIAC, which then issued a writ of execution. Corella appealed to the Court of Appeals (CA), which affirmed the CIAC decision. Corella then filed a petition for review on certiorari with the Supreme Court. The Petition: Corella sought to nullify the contract and the CA's affirmation of the CIAC decision, raising issues on the necessity of Sangguniang Bayan authorization, proper appropriation of funds, the validity of a DILG circular over a Supreme Court decision, and the reviewability of a final and executory CIAC decision.
Issue(s)
Whether a mayor can enter into a contract without prior authorization from the sangguniang bayan as required by RA 7160 and RA 9184, and whether the appropriation ordinance sufficiently details the project, negating the need for separate authorization. Whether a mayor can enter into a contract without proper appropriation of public funds as required by the Constitution, PD 1445, and EO 292, specifically regarding the required voting majority for appropriation ordinances. Whether a Department of Interior and Local Government (DILG) Circular prevails over a Supreme Court En Banc Decision regarding the voting requirement for appropriation ordinances. Whether a final and executory decision of the CIAC can still be subject to judicial review, and whether a 'Motion for Correction of Final Award' tolls the reglementary period for appeal. Whether the contract between Corella and Philkonstrak is valid and binding, considering the validity of the appropriation ordinance. Whether Corella is liable to pay Philkonstrak for the work done and materials supplied, and if so, on what basis and for what amounts.
Ruling
The Supreme Court granted the petition in part. It declared the Contract Agreement between the Municipality of Corella and Philkonstrak Development Corporation NULL and VOID. However, it ordered the Municipality of Corella to pay Philkonstrak Development Corporation P8,233,000.00 for work done and materials supplied, and P4,000,000.00 for materials purchased and delivered but not installed, based on the principle of quantum meruit. The Court also ordered the payment of accrued legal interest and affirmed the pro rata sharing of arbitration costs.
Ratio Decidendi
On the validity of the contract and the necessity of Sangguniang Bayan authorization: The Court found that while Section 22(c) of the Local Government Code requires prior authorization from the sanggunian for contracts entered into by the local chief executive, this requirement is dispensed with if the appropriation ordinance sufficiently details the project. In this case, Municipal Ordinance No. 2010-02, which appropriated funds for the project, was deemed sufficiently detailed, thus negating the need for a separate authorization. However, the Court ultimately declared the contract void due to a defect in the passage of the appropriation ordinance itself. On the validity of the appropriation ordinance and the required voting majority: The Court disagreed with the CIAC and CA's reliance on a DILG Opinion regarding the voting requirement for appropriation ordinances. The Court clarified that an appropriation ordinance, by definition under Section 306 of the Local Government Code, directs the payment of money. Therefore, it falls under the exception in Article 107(g) of the IRR, requiring the affirmative vote of a majority of all sanggunian members, not just those present. Since Municipal Ordinance No. 2010-02 only obtained five votes out of eleven members (based on a quorum of eight present), it failed to meet the required majority and was thus null and void. On the DILG Circular vs. Supreme Court En Banc Decision: The Court clarified that an appropriation ordinance requires the affirmative vote of a majority of all sanggunian members, not just those present, as per Section 306 of the Local Government Code and Article 107(g) of the IRR. The Court's interpretation prevails over any conflicting DILG circular. On the reviewability of a final and executory CIAC decision: The Court affirmed the CA's ruling that the CIAC decision had become final and executory. Corella's "Motion for Correction of Final Award" was deemed a prohibited motion for reconsideration under CIAC Rules Section 17.2, as it did not fall under the exclusive grounds for correction. This prohibited motion did not toll the reglementary period for appeal. Therefore, Corella's petition for review filed with the CA was out of time, rendering the CIAC decision immutable and unalterable. On the validity of the contract between Corella and Philkonstrak: Consequently, the contract entered into based on this ordinance was also void. On the application of quantum meruit and specific amounts awarded: Despite the contract's invalidity, the Court held that Philkonstrak is entitled to payment based on the principle of quantum meruit (as much as he deserves). This equitable principle allows recovery for the reasonable value of services rendered and materials delivered, even if the contract is void, to prevent unjust enrichment. The Court found that Philkonstrak acted in good faith and that Corella benefited from the work done and materials supplied, making it unjust to deny compensation. The Court ordered Corella to pay Philkonstrak P8,233,000.00 for work done and materials supplied, and P4,000,000.00 for materials purchased and delivered but not installed. These amounts were based on the CIAC's findings and the principle of quantum meruit. The Court also ordered the payment of accrued legal interest and affirmed the pro rata sharing of arbitration costs.
Main Doctrine
Despite the invalidity of a contract due to a defective appropriation ordinance, a contractor is entitled to payment based on the principle of quantum meruit for services rendered and materials delivered, to prevent unjust enrichment.