CASE BRIEF NO. 2019-0061


“The principle of quantum meruit—that a party is allowed to recover as much as he or she reasonably deserves — is usually invoked with regard to paying a contractor for works rendered.


CASE: Teresita S. Lazaro, Dennis S. Lazaro, Marieta V. Jara, Antonio P. Relova, Gilberto R. Mondez, Pablo V. Del Mundo, Jr., and Alsaneo F. Lagos vs. Commission on Audit, Regional Director of COA Regional Office No. IV-A, and COA Audit Team Leader, Province of Laguna [G.R. No. 213323, January 22, 2019]

Evelyn  T. Villanueva, Provincial Accountant of the Province of Laguna vs. COA [G.R. No. 213324, January 22, 2019]

PONENTE: Justice Mario Victor F. Leonen

SUBJECT:
A.       Republic Act No. 9184 otherwise known as the “Government
          Procurement Reform Act:
          i.        Liability of public officials responsible for irregular transactions
          ii.       Application of the principle of “quantum meruit”

FACTS:        The Regional Director of the COA Regional Office created an audit team to conduct a preliminary fact-finding audit and investigation of the alleged irregularities in the purchase of medical items by the Provincial Government of Laguna in the total amount of P118,039,493.46.

The audit team issued two (2) Audit Observation Memoranda, which revealed that in the 2004 and 2005 procurement of medical items: (1) no public bidding had been conducted; (2) purchase requests had made reference to brand names; and (3) there had been splitting of purchase requests and purchase orders.

Consequently, the Regional Cluster Director issued a Notice of Disallowance, which held liable the following individuals: Governor Teresita S. Lazaro (Governor Lazaro); Officer-in-Charge Provincial Accountant Evelyn T. Villanueva (Villanueva); and six (6) others for the 2004 and 2005 procurement of medical items worth P118,039,493.46

The Notice of Disallowance indicated that: (1) the medical items were purchased without public bidding; and (2) reference to brand names were made in the procurement contrary to Section 18 of Republic Act No. 9184.

Governor Lazaro timely filed a Motion for Reconsideration of the Notice of Disallowance. However, it was denied by the Regional Cluster Director.

Hence, Governor Lazaro and the rest of the persons held liable filed an Appeal Memorandum to the Notice of Disallowance to the Regional Director.

The Regional Office granted their appeal. It held:

While this is the letter of the law, it bears emphasizing that no less than the Supreme Court admits of exceptions to the provisions of law above cited. In affirming the respect accorded to the exercise by administrative agencies of discretion whenever reference to brand names and the consequential resort to negotiated purchase are made, the Court, in the precedent setting pronouncement in National Center for Mental Health (NCMH) vs. COA, G.R. No. 114864, December 6, 1996, 265 SCRA 390, declared in categorical manner that the judgment of the government agency concerned regarding the suitability of the product, given the nature of its services, should be accorded respect even if there could have been substitute items.

Equally decisive and of similar tenor is the implication of the Court’s declaration in Baylon vs. Ombudsman and Sandiganbayan, G.R. No. 142738, December 14, 2001, wherein the reference to brand names, while supposedly prohibited under the above cited Section 18 of RA No. 9184, was allowed.

Upon automatic review, the Commission on Audit (COA) disapproved the Regional Office Decision. In affirming the Notice of Disallowance, it held that the disallowance was proper, and that petitioners should be held liable for P118,039,493.46.

Petitioners Governor Lazaro, Dennis Lazaro, Jara, Relova, Mondez, Del Mundo, and Lagos (petitioners Governor Lazaro, et al.) filed a Petition for Certiorari under Rule 64 of the Rules of Courtbefore the Supreme Court (this Court), docketed as G.R. No. 213323.

Petitioner Villanueva filed another Petition for Certiorari, which was docketed as G.R. No. 213324.

This Court, through a resolution, consolidated the two (2) Petitions.

Petitioner Villanueva points out that she did not participate in the transactions prior to July 5, 2005, and should not be held liable for them.

Petitioners Governor Lazaro, et al. argue that they had factual basis for resorting to direct contracting on the basis of brand names because: (1) there are exceptions to the prohibition against referring to brand names under Republic Act No. 9184; (2) the Therapeutics Committees of the Province of Laguna’s district hospitals issued Certifications/Justifications recommending the brand names selected; and (3) the Certificates of Exclusive Distributorship and Certificates of Product Registration proved that the suppliers selected “were the exclusive distributors” of the procured medical items.

Petitioners Governor Lazaro, et al. further insist that even if the contract was defective, a claim under the defective contract can still be satisfied under the principle of quantum meruit. They point out that in Royal Trust Construction v. Commission on Audit (G.R. No. 84202, November 22, 1988) and EPG Construction Co. v. Hon. Vigilar, 407 Phil. 53 (2001), this Court allowed the payment to the contractor despite perceived infirmities in the contract.


ISSUES:
A.       Whether or not the Commission on Audit committed grave abuse of discretion in disallowing the expenditures covered by the Notice of Disallowance.
          a.       Whether Governor Lazaro et. al. were correct in citing National Center for Mental Health Management v. Commission on Audit.

B.       Whether or not the principle of quantum meruit applies here.

C.       Whether or not petitioner Villanueva can be held liable for disallowed transactions in which she has not been shown to have participated.


RULING:
A.      
The Commission on Audit has not committed grave abuse of discretion in disallowing the expenditures covered by the Notice of Disallowance.

Governor Lazaro, et al. cite National Center for Mental Health Management v. Commission on Auditto support their claims. In that case, this Court laid exceptions to the prohibition against references to brand names under Republic Act No. 9184. Further, the Certifications/Justifications of the Therapeutics Committees, which are responsible for determining the drugs to be procured by government hospitals, explained the choice of the brand names.

Petitioners Governor Lazaro, et al. point out that in National Center for Mental Health Management, this Court found that while there could have been substitute items, the procuring entity’s judgment on the suitability of the brand of the items procured should be accorded respect.

What petitioners Governor Lazaro, et al. fail to mention is that National Center for Mental Health Management was decided in 1996, before Republic Act No. 9184 was enacted in 2003. Exceptions to the prohibition against reference to brand names in Republic Act No. 9184 could not have been laid out years before the statute’s enactment.

The law is patently clear, with no exceptions: “reference to brand names shall not be allowed” (Rep. Act No. 9184, sec. 18). Without basis to claim that it was proper to refer to brand names in their procurement, the claim that this case is an exception to the requirement of competitive bidding has no leg to stand on. Consequently, the transactions were properly disallowed.


B.      
On the basis of quantum meruit, petitioners claim that even if the transactions were properly disallowed, they should not be required to reimburse the disallowed amounts. This is because all the medical items procured were delivered in good condition and distributed to the provincial and health centers and were used by the intended beneficiaries of the health program.

Petitioners cite Royal Trust ConstructionEPG Construction Co., Dr. Eslao v. The Commission on Audit [273 Phil. 97 (1991)] and Melchor v. Commission on Audit[277 Phil. 801 (1991)] to support their position.

Royal Trust Construction, EPG Construction Co., and Eslao are not squarely applicable here. All three (3) cases involved the question of whether payment should be made to the contractor who had already provided the services covered by a disallowed transaction. They did not tackle the liability of public officials responsible for irregular transactions.

Indeed, the principle of quantum meruit—that a party is allowed to recover as much as he or she reasonably deserves— is usually invoked with regard to paying a contractor for works rendered. Here, however, the contractors have already been paid, and the question to be resolved is whether the public officers responsible for the irregularity must reimburse the government for it.

Melchor is more relevant than the rest here, as it pertained to the liability of a public officer for disallowed transactions. Nonetheless, it is still not entirely on all fours with this case. Melchor involved two (2) amounts that were disallowed: (1) P344,340.88, when the Commission on Audit found that the legal requirements for the contract had not been met; and (2) an additional P172,003.26, supposedly for extra work on the same project, when the Commission on Audit found that there had been no supplemental agreement executed for this additional amount.

In Melchor, this Court reversed the disallowance for the amount of P344,340.88, because the requirements for the contract on the project had substantially been complied with as far as that amount was concerned. However, this Court determined it proper to declare the contract for extra works as void since there was no approval by the proper authority on the additional amount. Thus, disallowing the amount of P172,003.26 had basis. Despite the disallowance, this Court held that the petitioner’s liability for the entire amount of P172,003.26 should not be considered automatic. This Court recognized that while the principle of quantum meruit is generally contemplated for unpaid contractors, it also applied to the public officer in that case. It directed the Commission on Audit to compute the value of the extra works under quantum meruit, and hold the public officer liable for the excess or improper payment for the extra works, if any.

Although this Court in Melchor recognized the possibility of applying the principle of quantum meruit when considering a public officer’s liability, it must be stressed that it was not used to completely absolve this liability. Rather, the principle was used to determine whether the contractor had been paid beyond the amount deserved based on quantum meruit, such that the public officer there was liable only for the amount that was paid beyond the reasonable amount deserved by the contractor. Even more significant, before it applied the principle of quantum meruit, this Court had determined that the requirements for the validity of the main contract of P344,340.88 had already been met. This is not the case here.

Here, no part of the disallowed transaction could be deemed valid. Petitioners plainly violated the law requiring procurement to undergo competitive bidding. In doing so, they also violated the law prohibiting reference to brand names.

Moreover, even if the principle of quantum meruit could be applied here, petitioners fail to establish the factual basis for its application. In Melchor, to determine a public officer’s liability based on quantum meruit, the amount of reasonable value of the procured items or services must first be established, so that the public officer is liable for only the excess paid beyond the reasonable value.

Here, petitioners were held liable for the disallowed purchase of medical items amounting to P118,039,493.46. They do not, however, provide any basis to determine what were purchased. Thus, there is no basis to determine the reasonable value for the items purchased.

This Court cannot accept the position that the entire P118,039,493.46 was the reasonable value for the items purchased.

Likewise, petitioners, in good diligence, should have alleged and supported their claims of good faith, which were based on their supposed reliance on expert advice.

Petitioners fail to allege and support with good diligence their claims of good faith. Petitioners claim that they relied on the expertise of the Therapeutics Committees, which they allege to have recommended the chosen brand names.

To convince this Court of their good faith, petitioners should have sufficiently alleged facts that would show that there was no collusion between petitioners and the Therapeutics Committees to use the committee’s role as a tool to circumvent the rules on procurement.

To support their claims, petitioners Governor Lazaro, et al. supposedly attached copies of the Certifications/Justifications of the Therapeutics Committees of different district hospitals of the Provincial Government of Laguna. However, a scrutiny of these documents reveals that half of them were merely Certifications signed by various companies, pertaining to Innovators Trading as their exclusive dealers.

These Certifications were not issued by the Therapeutics Committees. Moreover, they do not give reasons for referring to brand names, and could not have formed the basis of petitioners’ good faith or reliance on the Therapeutics Committees.

The rest of the Annexes alleged to have been issued by the Therapeutics Committees of various district hospitals, denominated as Justifications, are hardly more persuasive.

Petitioners Governor Lazaro, et al.’s submissions do not clearly allege and establish the sequence of events, such as when and how the Therapeutics Committees made the recommendations, and when and how petitioners responded to them. These circumstances are vital in establishing petitioners’ frame of mind and good faith.

Petitioners Governor Lazaro, et al. suggest that the Purchase Requests were prepared based on the Justifications by the Therapeutics Committees. However, the Justifications are undated, and do not mention any particular supplies or drugs, which suggest that they may have been prepared after the Purchase Requests. The Justifications mention “drugs requested” and “requisition,” but petitioners have not attached anything to show what drugs they were referring to. It is unclear what drugs requested were being justified in the Justifications.

Without any other attachment, this Court is inclined to surmise that the “drugs requested” and “requisition” mentioned in the Justifications pertained to the Purchase Requests. If so, then the Purchase Requests were prepared before the Justifications, not following the advice of the Therapeutics Committees.


C.      
In certifying that the documents were complete and in order, when they were in fact not so, petitioner Villanueva failed to act with due care and diligence, knowing fully well that the approval of the disbursement vouchers for the release of public funds largely depends on her certification. Contrary to her claims, petitioner Villanueva failed to meticulously inspect all the documents submitted to her to ensure that the circumstances she was certifying were indeed true and correct.

Indeed, petitioner Villanueva is liable for her failure to exercise due diligence in the performance of her duties as Provincial Accountant.

However, petitioner Villanueva’s liability for the disallowed transactions is anchored on her position as Provincial Accountant. She should only be liable for the transactions that occurred after she was designated Officer-in-Charge of the Office of the Provincial Accountant. Finding her liable for reimbursements of transactions prior to this constitutes grave abuse of discretion. However, which of the disallowed transactions occurred before her designation is a question of fact that this Court has no evidentiary basis to determine.

Related Case Briefs:
a)       Royal Trust Construction v. COA (G.R. No. 84202, November 22, 1988)
b)       EPG Construction Co. v. Hon. Vigilar, 407 Phil. 53 (2001)
c)       National Center for Mental Health vs. COA, G.R. No. 114864, December 6, 1996
d)       Melchor v. Commission on Audit [277 Phil. 801 (1991)]
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THINGS DECIDED:

A.       The law is patently clear, with no exceptions: “reference to brand names shall not be allowed” (Rep. Act No. 9184, sec. 18).

B.       The principle of quantum meruit—that a party is allowed to recover as much as he or she reasonably deserves— is usually invoked with regard to paying a contractor for works rendered.

C.       However, petitioner Villanueva’s liability for the disallowed transactions is anchored on her position as Provincial Accountant. She should only be liable for the transactions that occurred after she was designated Officer-in-Charge of the Office of the Provincial Accountant. Finding her liable for reimbursements of transactions prior to this constitutes grave abuse of discretion. However, which of the disallowed transactions occurred before her designation is a question of fact that this Court has no evidentiary basis to determine.

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