PNR v KANLAON

Petitioner: Philippine National Railways

Respondent: Kanlaon Construction Enterprises Co., Inc.

PETITIONER
(1) On July 12, 1994, PNR sent a letter to Kanlaon denying its demand
because of the Notices of Suspension issued by the Commission on Audit
(COA)
Januaryis24,
1994.
SC:onPetition
meritorious.
TheCOAdirectedPNRtosuspendthepaymentduetoKanlaonforthe

followingreasons:
NATURE: Petition for review on certiorari of the decision and resolution
Issues raised by PNR:
RTC:
1. The contracts were not approved by the PNR Board of Directors
of the Court of Appeals
1. CA erred in finding that the projects were completed;
(1) Found that:
pursuanttoE.O.164,asamendedbyE.O.380
2. CA erred in affirming decision of RTC;
1. Kanlaon completed2. theThecontractswerenotsubmittedtoCOAforreviewinaccordance
projects; PNR stations at College Bian
PONENTE: Carpio, J.
3. CA erred in ruling that interest should be reckoned from the date of
and Buendia are fully withCOACircularNo.89299
operational and have been continuously
respondents first written demand.
3. riding
ThecontractsdidnotcontainCertificateofAvailabilityofFunds
used by PNR and the
public
Section
85 (PD1445) and 46 (Admin. Code). Appropriation before
DOCTRINE: Liability under a contract can only attach if all requirements
asrequiredunderSec.85and86ofP.D.1445
2.
PNR
ledger,
which
was
the
only
documentary
evidence
presented
enteringintocontract.
of law may been fully satisfied
Opinion
Justice
COA issued
the ofNotices
ofSereno:
Suspension was because contracts did not
4.(1)Separate
Norequestforinspectionofworkaccomplishmentwasmade.
by PNR to show that
the
projects
were
not
completed,
is self1.
Nocontractinvolvingtheexpenditureofpublicfundsshallbeentered
- Public
interestfiled
equity
may
that
the contractor
should
be
contain
a Certificate
ofand
Availability
of dictate
Funds,
as required
under
85 and
(2)
PNR,
in
its
answer
to
complaint
by
Kanlaon,
admitted
existence
of Sec
serving
and
unverified.
intounlessthereisanappropriationtherefor,theunexpendedbalance
RULING FORMAT:
compensated
for
services
rendered
and
work
done
that
benefited
the
86
of
PD
1445,
entitled
Ordaining
and
Instituting
a
Government
Auditing
3 contracts,
but alleged
that Kanlaon
did that
not comply with the
to present
any credible
and substantial
evidence
RTC Directed petitioner PNR to pay respondent Kanlaon remaining 3. PNR failedthe
ofwhich,freeofotherobligations,issufficienttocovertheproposed
government
and the public.
Code
of the Philippines.
aka Government Auditing Code of the
conditions
of
the
contract.
Kanlaon failed to complete-projects.
balance of the contracts and to release the retention money.
expenditure.
Respondent
has already
been
paid
equivalent
of around
Philippines;
andcomplete
Administrative
Code
1987,
47, and87%
48.
(3) Allegedpayment
that Kanlaon
didPNR
not
projects
andofthe
that
PNRSec.
did 46,
not
4. COA suspended
failed
tothe
comply
with
CA Affirmed Decision of RTC. Denied PNRs MR.
2. because
Notwithstanding
this
provision,
contracts
forapplication
the procurement
of
percent
of
the
total
contract
price,
the
of
equity
*Check
provisions
next
page
have anynot
unpaid
balance.
certain conditions;
because
Kanlaon
did
not
complete
projects
supplies

and

materials

to

be

carried

in

stock

may

be

entered

principles
do
not
seem
to
as
imperative
(2)
Administrative
Code
of
1987
expressly
prohibits
the
entering
into
(4) not
Alleged
that it had a valid ground to refuse the release of retention money
(Kanlaon
at fault)
- underregulationsoftheCommissionprovidedthatwhenissued,the
Had
payment
to
significantly
lessunless
as to amount
to
involving
therespondent
expenditure
public tofunds
two prior
because
of
thecontracts
COA
orders
suspending
releasebeen
ofof
payment
Kanlaon.
(2)
Therefore,
Kanlaon
is
entitled
to payment
in
full of thethe
contract
price
FACTS:
unjust
enrichment
on
the
part
of
government,
I
may
have
had
to
suppliesandmaterialsshallbechargedtotheproperappropriation
requirements
are satisfied.
On July 1990, PNR and Kanlaon entered into contracts for the repair of 3 and release of retention money. Two
disagree
with
the
ponencia.
Reqs:
account.
- Ordered PNR to pay Kanlaon unreleased retention money
PNR station buildings and passenger shelters, namely:
1. Existence of Appropriation. There must be an appropriation law
RESPONDENT
and unpaid contract price, both with legal interest of 12%
1. College Station for P2,316,568.41
authorizing
the
expenditure
required
in the College
contract.
Section
86
had
(PD1445)
and
(Admin.
projects:
Code).
Certificate showing
(1) Kanlaon
thatto
it 6%
already
thefirst
three
which
was lateralleged
modified
from
the completed
date 47
of the
2. Bian Station for P2,547,978.63
2.
Attachment
of
Certification.
There
must
be and
attached to the
appropriationtomeetcontract:Exceptinthecaseofacontractforpersonal
Station
on
November
23,
1990,
Bian
Station
on
November
19.
1990,
written
demand
3. Buendia Station for P1,820,534.40
contract
a
certification
by
the
proper
accounting
official and
Station
service,forsuppliesforcurrentconsumptionortobecarriedinstocknot
on November
1990. because there
(3) Absolved COABuendia
from actual
damages
or moral12,
damages
Total Cost of the 3 projects was P6,685,081.44
auditor
that
funds
have
been
appropriated
by
law
and
funds
(2) On June
30,exceeding
1994,
Kanlaon
a demand
letter
PNR
for the orsuch
the
sent
estimated
consumption
forrequesting
three months,
banking
was no contractual
relations
between
COA
and
Kanlaon
and to
COA
are
available
of the
retention
money
amounting
to
P333,894.07.
transactions
of negligence
government
owned
or controlled banks, no contract
did not act in release
bad faith,
malice
or gross
when
it issued
Conditions
indispensable
for1995.
the execution of
Kanlaon impleaded
COA in itsare
amended
complaintpre-requisites
dated August 17,
involvingtheexpenditureofpublicfundsbyanygovernmentagencyshall
Notices of(3)
Suspension
government
contracts.
(4)
On
November
8,
1994,
Kanlaon
filed
a
complaint
for
collection
of
sum
of
(4) Both PNR and COA liablebeenteredintoorauthorizedunlesstheproperaccountingofficial
for atty.s fees and cost of suit
ofthe
Law
expressly
declares
void
a
contract
that
fails
to
comply
with
money plusagency
damages
against
PNR,
in
a
total
of
P865,906.79;
consisting
of:
concerned shall have certified to the officer entering
into
the2
requirements,
in
order
to
insure
that
government
contracts
are
never
a.
The
remaining
balances
of
the
3
projects
in
the
amount
of
CA:
obligationthatfundshavebeendulyappropriatedforthepurposeandthat
signed
unless
supported
by
the corresponding
appropriation
law and
(College
Station
at of
P131,962.65;
Bian Station
at
(1) Sustained RTCs rulingP531,652.72
and
agreed
that
preponderance
evidence
theamountnecessarytocovertheproposedcontractforthecurrentfiscal
fund
availability.
P141,391.89;
and
Buendia
Station
at
P288,298.18)
leaned in favor of Kanlaons
claim
against
PNR
yearisavailableforexpenditureonaccountthereof,subjecttoverification
(3) retention
3 PNRs
Contracts
between
PNR
and of
Kanlaon
b. The
money
in the
amount
P334.254.07
(2) Nothing on record supporting
allegation
that
Kanlaon
failed
todo not comply both requirements;
bytheauditorconcerned.Thecertificatesignedbytheproperaccounting
thus,
all
3
are
void.
Even
if
certification
of of
appropriation
(5) Kanlaon does not dispute the absence of a Certificate
Availabilityisofnot applicable
complete project
officialandtheauditorwhoverifiedit,shallbeattachedtoandbecomean
to
PNR
if
the
funds
used
are
internally
generated,
still a certificate of fund
(3) COA not liableFunds
for atty.s fees
andpart
costsofthe
of suitproposedcontract,andthesum
for lack of factual and
integral
socertified shall not
availability
is
required.
legal bases
thereafter

be

available

for

expenditure

for

any

other
purpose
untilthem
the
(4) Kanlaon may go after the officers who signed the contract
and hold
obligationofthegovernmentagencyconcernedunderthecontractisfully
personally liable, pursuant to Sec 48 of the Administrative Code of 1987
extinguished.
the officer or officers entering into the contract shall be liable to
the Government or other contracting party for any consequent
SECTION
48. VoidContractandLiabilityofOfficer.Anycontract
damage
to the same extent as if the transaction had been wholly
between private parties.
enteredintocontrarytotherequirementsofthetwo(2)immediately
precedingsectionsshallbevoid,andtheofficerorofficersenteringintothe
Dispositive:
Petition GRANTED. The Decision of RTC and CA are REVERSED
contractshallbeliabletotheGovernmentorothercontractingpartyforany
and SET
ASIDE.
consequentdamagetothesameextentasifthetransactionhadbeenwholly
betweenprivateparties.(Emphasissupplied)