Can government officials validly enter into contracts for the expenditure of public funds if no funds have been appropriated for the expenditure? In Philippine National Railways v. Kanlaon Construction Enterprises, Co., Inc., G.R. No. 182967, April 6, 2011, the Supreme Court ruled that three contracts entered into by the Philippine National Railways are void for failure to comply with the requirements of the Administrative Code of 1987.
According to the Court:
. . . the Administrative Code of 1987 expressly prohibits the entering into contracts involving the expenditure of public funds unless two prior requirements are satisfied. First, there must be an appropriation law authorizing the expenditure required in the contract. Second, there must be attached to the contract a certification by the proper accounting official and auditor that funds have been appropriated by law and such funds are available. Failure to comply with any of these two requirements renders the contract void.
In several cases, the Court had the occasion to apply these provisions of the Administrative Code of 1987 and the Government Auditing Code of the Philippines. In these cases, the Court clearly ruled that the two requirements – the existence of appropriation and the attachment of the certification – are “conditions sine qua non for the execution of government contracts.” x x x
The law expressly declares void a contract that fails to comply with the two requirements, namely, an appropriation law funding the contract and a certification of appropriation and fund availability. The clear purpose of these requirements is to insure that government contracts are never signed unless supported by the corresponding appropriation law and fund availability.
The three contracts between PNR and Kanlaon do not comply with the requirement of a certification of appropriation and fund availability. Even if a certification of appropriation is not applicable to PNR if the funds used are internally generated, still a certificate of fund availability is required. Thus, the three contracts between PNR and Kanlaon are void for violation of Sections 46, 47, and 48, Chapter 8, Subtitle B, Title I, Book V of the Administrative Code of 1987, as well as Sections 85, 86, and 87 of the Government Auditing Code of the Philippines.
What is the recourse of the private party who entered into the contract with the government? According to the Court, the private party can go after the government officers who signed the contract and hold them personally liable. Section 48 of the Administrative Code of 1987 provides that “the officer or officers 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.”