PNR v Kanlaon Construction GR no.

182967 Apr 6, 2011

Petitioner: Kanlaon Construction Group

Respondent: Philippine National Railways

Petitioner: Petitioner Kanlaon Construction entered into contract with Philippine National Railways for
the rehabilitation of 3 PNR stations on July 1990. The said stations were the College Station, Binan
Station and Buendia Station. Total cost amounted to 6,685,081.44. The action was completed on
November, 1990. The petitioner sent a demand letter requesting release of retention money amounting
to 333,894.07. After numerous demands, Kanlaon proceeded with a complaint for collection of the sum
of the remaining balance of 531,652.72 and retention money.

Respondent: PNR admits the existence of the contract of repair but had a valid ground to refuse the
release of money due to COA orders suspending release of payment.

Issue: W/N PNR has a valid ground to refuse release of money to Kanlaon Construction.

Decision: According to Article VI Sec 3 of the Constitution: “The state may be sued without its
consent”. However when the government enters itself into contract with the private sector it descends
itself where they can be sued.

Citing Eslao vs COA 195 SCRA 730

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 state immunity from suit
would be to allow the government to unjustly enrich itself at the expense of another.

However the provisions of the Administrative code cannot be ignored and as per the provision the
contract will be rendered void.

As what happened in DOH vs CV Canchela 475 SCRA 218

While the agreement is indeed Void Ab Initio for violation of existing laws. the DOH is liable to pay the
private respondents.
It is also worth noting that Kanlaon has already been paid more than 75 percent of what is due them and
as such to some degree the contractor has already been properly compensated.