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CANCHELA, SECTION 3, IMMUNITY FROM SUIT FACTS: The DOH entered into three owner consultant agreements with the private respondents covering infrastructure projects for the Baguio General Hospital and Medical Center (BGHMC), the Batangas Regional Hospital and the Corazon L. Montelibano Memorial regional Hospital in Bacolod City. The agreements for the three (3) projects are almost identical. This requires the private respondents to prepare: detailed architectural and engineering design plans; technical specifications and detailed estimates of cost of construction of the hospital, including the preparation of bid documents and requirements; and construction supervision until completion of hand-over and issuance of final certificate. While the Agreements were witnessed by the respective Chief Accountants of the hospitals and were duly approved by the Department of Health, the former did not issue corresponding certificates of availability of funds to cover the professional or consultancy fees. The DOH through is authorized representative, wrote separate letters to the respective chiefs of hospitals confirming the acceptance of private respondents complete Contract or Bid Documents for each project and RECOMMENDED THE PAYMENT OF 7.5% OF THE PROJECT ALLOCATION TO PRIVATE RESPONDENTS AS CONSULTANCY FEES. During the construction of the projects, various deficiencies in the performance of the agreed scope of private respondents work were allegedly discovered which were not communicated to the private respondents. Due to such alleged deficiencies, petitioner withheld payment of the consultancy fees due to private respondent. Neither did petitioner return the documents, plans, specifications and estimates submitted by private respondents.

Considering the refusal of the DOH to pay said fees despite repeated demands, the private respondents submitted the dispute to the Construction Industry Arbitration Commission (CIAC). After the presentation of evidence by both parties, the Arbitrator issued his decision dated March 30, 1999 sentencing the DOH to pay the private respondents to pay P3,492,713.00 for services performed and completed for and accepted by DOH. The said amount shall earn interest at 6% per annum from the date of the award until the decision becomes final. Thereafter, the principal and the interest accrued as of such time shall earn interest at 12% per annum. The DOH filed a Petition for Review under Rule 43 before the Court of Appeals but was dismissed for being filed out of time. As such, on motion of the private respondents, the Arbitrator issued a Writ of Execution . Issue: Whether or not the CIAC has jurisdiction to entertain the suit considering that the Agreements, being to promote the heath and well-being of the citizens, is in furtherance of the states sovereign and governmental power and therefore, IMMUNE FROM SUIT. Held: In their Memorandum before the Supreme Court, the DOH, for the first time, raised the nullity of the three (3) agreements from the very beginning for failure to include therein a certification of availability of funds which is required under existing laws, particularly the Auditing Code of the Philippines, PD 1445. As such, the fees of the private respondents shall not be based on the project fund allocation but on the basis of reasonable value or on the principle of quantum meruit.

While the agreement is indeed void ab initio for violation of existing laws, the DOH is liable to pay the private respondents their consultancy services based on quantum merit to be determined by the Commission on Audit. The invocation of immunity from suit is without merit. This is so because the government has already received and accepted the benefits rendered. To refuse payment as a result of the states immunity from suit would be to allow the government to unjustly enrich itself at the expense of another. (Citing Eslao vs. COA, 195 SCRA 730)