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EPG Construction Co. vs.

Vigilar
Buena, March 16, 2001

Topic: Sovereignty - Suits not against the State - Justice and Equity

Facts:

 In 1983, the Ministry of Human Settlement (MHS), through the BLISS


Development Corporation, intiated a housing project on a government property
along the east bank of Manggahan Floodway in Pasig

 The MHS entered into a Memorandum of Agreement (MOA) with Ministry of


Public Works and Highways (MPWH) where the latter undertook to develop the
housing site and construct thereon 145 housing units

 By virtue of the MOA, MPWH forged individual contracts with petitioners EPG,
Ciper, Septa, Phil. Plumbing, Home Construction, World Builders, Glass World,
Performance Builders, and De Leon Araneta Construction for the construction
of the housing units

 Under the contracts, the scope of construction and funding covered only
around "2/3 of each housing unit"

 Petitioners agreed to undertake and perform "additional constructions" for the


completion of the housing units despite the fact that there was only a verbal
promise, and not a written contract, by the MPWH Undersecretary Aber Canlas
that additional funds will be available and forthcoming

 Unpaid balance for the additional constructions amounted to P5,918,315.63

 Upon a demand letter from the petitioners, on November 14, 1988, DPWH Asst.
Secretary Madamba opined that payment of petitioners' money claims should
be based on quantum meruit (what one has earned) and should be forwarded
to the Commission on Audit (COA)

 In a Letter of the Undersecretary of Budget and Management dated December


20, 1994, the amount of P5,819,316.00 was then released for the payment of
the petitioners' money claims under Advise of Allotment No. A4-1303-04-41-303

 In an indorsement dated December 27, 1995, the COA referred anew the
money claims to the DPWH

 In a letter dated August 26, 1996, respondent Secretary Gregorio Vigilar denied
the subject money claims

 Petitioners filed before the RTC of QC, Branch 226 a Petition for Mandamus to
order the respondent to pay petitioners their money claims plus damages and
attorney's fees.

 Lower court denied the petition on February 18, 1997

Issue:

1. Whether or not the implied, verbal contracts between the petitioners and then
Undersecretary Canlas should be upheld

2. Whether or not the State is immune from suit

Holding:
1. Yes.

2. No.

Ratio:

1. While the court agrees with the respondent that the implied contracts are
void, in view of violation of applicable laws, auditing rules, and lack of legal
requirements, it still finds merit in the instant petition

o The illegality of the implied contracts proceeds from an express


declaration or prohibition by law, not from any intrinsic illegality

o "in the interest of substantial justice," petitioners-contractors' right to


be compensated is upheld, applying the principle of quantum meruit

o Even the DPWH Asst. Sec. for Legal Affairs recommends their
compensation; even the DPWH Auditor did not object to the payment of
the money claims 聽

2. The respondent may not conveniently hide under the State's cloak of invincibility
against suit, considering that this principle yields to certain settled exceptions.

o The State's immunity cannot serve as an instrument perpetrating


injustice