92. Melchor v. COA, G.R No.

95398, August 16, 1991

Petitioner Mario R. Melchor entered into a contract with Cebu Diamond Construction for the construction of Phase I of
the home Technology Building of Alangalang Agro-Industrial School of Alangalang, Leyte, for the price of P488, 000.
Pablo Narido, chief accountant of the school, issued a certificate of availability of funds to cover the construction cost.
Narido, however, failed to sign as a Witness to the contract, contrarily to the requirement of Section I of Letter of
Instruction (LOI) No. 968.

While the construction of Phase I was under way, the contractor, in a letter dated November 8, 1983 addressed to
Melchor, sought an additional charge of P73,000 equivalent to 15% of the stipulated amount due to an increase in the
cost of labor and construction materials. The petitioner then sent a letter asking for the approval of the Regional
Director of the Ministry of Education, Culture and Sports (MECS) on the contractor's additional charge which the latter
later approved.

The contractor requested series of extensions for the completion of the construction which the petitioner granted.
However, the contractor later gave up the project mainly to save itself from further losses due to, among other things,
increased cost of construction materials and labor.

The Commission on Audit Regional Director, Cesar A. Damole, disallowed the payment of P515,305.60 in post-audit on
the ground that the contract was null and void for lack of signature of the chief accountant of the school as witness to it.
Melchor Respondent
The petitioner reasons that the absence of the accountant's signature as witness to Respondent COA maintains that
the contract should not militate against its validity. the contract entered into by the
petitioner with Cebu Diamond
Petitioner Melchor urges that the issuance by the chief accountant of a "Certificate Construction is null and void
of Availability of Funds" compensates for the latter's non-signing as a contract since the chief accountant did not
witness since under Section 86 of PD 1445, the certificate is attached to and affix his signature to the contract,
becomes an integral part of the contract. He argues that there was, in effect, in violate on of the requirements
substantial compliance with the mandate of LOI 968. of LOI 968.

Moreover the petitioner contends that assuming arguendo that the contract is null According to COA, since there
and void, he should still not be made personally accountable for the amount paid was no compliance with the above
to the contractor. He cites this Court's resolution in Royal Trust Corporation v. provision, then the amount of
Commission on Audit, G.R. No. 84202, November 22, 1988. In that case. despite P344,430.80 should be disallowed
the absence of a specific covering appropriation as required under COA iii post-audit and the petitioner
Resolution No. 86-58, the contractor was allowed by the Court to be compensated should be personally able for said
on a quantum meruit basis. amount.
ISSUE:
 WON the petitioner should be held personally liable for the amount paid for the construction of a public school
building on the ground that the infrastructure contract is null and void for want of one signature
RULING OF THE SUPREME COURT

No.

With respect to the remaining P12,003.26 paid by the petitioner to the contractor for extra work done, the COA reasons
that the extra work done. being more than 25% of the escalated original contract price, was null and void because no
supplemental agreement was executed.
Under the facts of this case, we adjudge that respondent COA is not without legal basis in disallowing the P172,003.26
payment for the extra work orders. However, since the word "may" was used in the Decree then the requirement of a
supplemental agreement under all circumstances may not always be mandatory. There is no need to go into any
possible exceptions because we find the rule applicable in this case.

Under COA Circular 83-101-J, supra, the Minister of Education, Culture and Sports has the authority to approve extra
work orders or other variation orders not exceeding 50% of the original contract price or P1 Million whichever is less.
In this case, there is no showing that the extra work order was approved by the Minister.

Moreover, a variation order (which may take the form of a change order, extra work or supplemental agreement) is a
contract by itself and involves the expenditure of public funds to cover the cost of the work called for thereunder.
(Fernandez, A Treatise on Government Contracts under Philippine Law, 115-116 [1985]) As such, it is subject to the
restrictions imposed by Sections 85 and 86 of PD 1445 and LOI 968-COA Circular No. 80-122, dated January 15, 1980,
likewise ensures that an extra work order is approved only when supported by available funds. Again, the petitioner
has not presented proof of an appropriation to cover the extra work order.

For a failure to show the approval by the proper authority and to submit the corresponding appropriation, We declare
the contract for extra works null and void. Section 87 of PD 1445 states:

Any contract entered into contrary to the requirements of the two immediately preceding sections shall be void, and
the officer or offices entering into the contract shall be liable to the government or other contracting party for any
consequent damage to the same extent as if the transaction had been wholly between private parties. (Emphasis
supplied)

This does not mean, however, that the petitioner should be held personally liable and automatically ordered to return
to the government the full amount of P172,003.26. It would be unjust to Order the petitioner to shoulder the
expenditure when the government had already received and accepted benefits from the utilization of the building.

In Royal Trust Construction v. Commission on Audit, supra, cited by the petitioner, the Court, in the interest of
substantial justice and equity, allowed payment to the contractor on a quantum meruit basis despite the absence of a
written contract and a covering appropriation.

In a more recent case, Dr. Rufino O. Eslao v. Commission on Audit, G.R. No. 89745, April 8, 1991, the Court directed
payment to the contractor on a quantum meruit basis despite the petitioner's failure to undertake a public bidding. In
that case, the Court held that "to deny payment to the contractor of the two buildings which are almost fully completed
and presently occupied by the university would be to allow the government to unjustly enrich itself at the expense of
another.

Where payment is based on quantum meruit the amount of recovery would only be the reasonable value of the thing or
services rendered regardless of any agreement as to value. (Tantuico, State Audit Code of the Philippines Annotated,
471 [1982])

Although the two cases mentioned above contemplated a situation where it is the contractor who is seeking recovery,
we find that the principle of payment by quantum meruit likewise applies to this case where the contractor had already
been paid and the government is seeking reimbursement from the public official who heads the school. If, after COA
determines the value of the extra works computed on the basis of quantum meruit it finds that the petitioner made an
excess or improper payment for these extra works, then petitioner Melchor shall be liable only for such excess payment.