Title
Sargasso Construction and Development Corp. vs. Philippine Ports Authority
Case
G.R. No. 170530
Decision Date
Jul 5, 2010
A construction joint venture sought to enforce a reclamation project contract with PPA, but the Supreme Court ruled no contract was perfected due to lack of Board approval and authority.
construction company
petition for review
annul decision

Case Summary (G.R. No. 170530)

Factual Background

The petitioner joint venture was the contractor for construction of Pier 2 and the rock causeway at the Port of San Fernando, La Union, work that began on August 14, 1990. By letter dated October 1, 1992 the consortium offered to undertake an additional reclamation between the Timber Pier and Pier 2 for P36,294,857.03. The respondent, through its Assistant General Manager, replied by letter dated December 18, 1992 proposing a reduced price of P30,794,230.89 “subject to the approval of higher authority” and requesting petitioner to signify agreement. On August 26, 1993 the respondent issued a Notice of Award for the phase I Reclamation Contract in the amount of P30,794,230.89 and instructed petitioner to execute the contract and furnish performance security and credit line. The Notice of Award also conditioned award upon completion of fendering of Pier No. 2 and other operational conditions. The fendering was installed in 1994. The respondent’s Management presented the proposed supplemental contract to its Board; at its meeting of September 9, 1994 the Board declined to approve the negotiated supplemental contract, finding no legal basis to award the supplemental work through negotiation because the reclamation was distinct in nature from the original Pier 2 project.

Trial Court Proceedings

Petitioner filed a complaint for specific performance and damages on June 30, 1997, alleging unjustified refusal by respondent to comply with the Notice of Award and requesting an order compelling execution of the reclamation contract and damages. The respondent answered and filed a compulsory counterclaim, asserting that the Notice of Award was effectively revoked when the Board denied approval of the supplemental agreement and that no Notice to Proceed had been issued. The Regional Trial Court rendered judgment for the petitioner on June 8, 1998, ordering respondent to execute the reclamation contract at P30,794,230.89 and dismissing the counterclaim. The trial court based its finding on its view that the general manager had authority under P.D. 857, Section 9(iii), and the Implementing Rules of P.D. 1594, to bind the Authority; it found the Notice of Award and the Board minutes to imply adequate authority.

Intermediate Appellate Proceedings

Respondent sought reconsideration of the RTC judgment which the court denied and then filed an appeal. The petitioner moved to dismiss the appeal as late and the Court of Appeals initially dismissed respondent’s appeal on grounds of failure to perfect appeal. Respondent pursued relief in the Supreme Court. On July 30, 2004 this Court granted respondent’s petition for review in G.R. No. 146478, remanding the matter to the Court of Appeals for further proceedings. On remand the Court of Appeals reversed the RTC in an August 22, 2005 decision, dismissed the complaint, and its denial of petitioner’s motion for reconsideration was entered November 14, 2005. Petitioner then filed the present Rule 45 petition.

Court of Appeals Ruling

The Court of Appeals concluded that the trial court erred in finding a perfected contract because the general manager’s power “to sign contracts” under P.D. 857, Section 9(iii), differs from the Board’s power “to make or enter (into) contracts,” and evidence did not show a valid delegation of authority by the Board to the general manager to enter into the negotiated supplemental contract. The CA held that the Notice of Award alone did not constitute the entire contract under the contracting rules and the IB list of documents. It also invoked Executive Order No. 380 as expressly authorizing governing boards of GOCCs to enter into negotiated infrastructure contracts up to P50 million, thereby underscoring that board approval remained essential.

Issues Presented

The dispositive issue is whether a contract was perfected between the parties for the reclamation project, which in turn depends on whether the respondent’s general manager had authority to enter into the negotiated contract for and on behalf of the Philippine Ports Authority.

Petitioner's Contentions

Petitioner maintained that the Notice of Award together with the contractor's conforme evidenced a meeting of minds and perfected the contract despite absence of an explicit “approval of higher authority” notation; that the listed supporting approval is merely procedural and not an element of contract perfection; that the Authority is bound by the acts of its general manager under the doctrine of apparent authority; and that equitable estoppel should prevent the respondent from repudiating the Notice of Award.

Respondent's Contentions

Respondent asserted that the Notice of Award was effectively revoked when its Board refused to approve the supplemental agreement on September 9, 1994, and that the purported negotiated contract could not be implemented without compliance with statutory and administrative requirements governing negotiated infrastructure contracts. Respondent also argued that petitioner had no right to specific performance where no Notice to Proceed was issued and where the Board had duly determined that the supplemental work was outside the scope of the original contract and required public bidding.

Supreme Court's Analysis

The Court reviewed principles governing contract formation. It reiterated that every contract requires consent, an object certain, and cause, and that contracts pass through negotiation, perfection, and consummation. The Court emphasized that a government contract is subject to the same requisites but is perfected only upon approval by a competent authority where such approval is required by law or administrative regulation. The Court agreed with the Court of Appeals that negotiated contracts by GOCCs are governed by statutory and executive rules that vest approval authority in governing boards within prescribed limits. The Court cited Executive Order No. 380, the Implementing Rules and the Revised Administrative Code, Section 51, to demonstrate that board approval is a condition to perfection of negotiated infrastructure contracts where the law so requires.

Authority of the General Manager and Agency Principles

The Court examined the corporate powers under P.D. 857, noting that while the general manager is empowered “to sign contracts,” that power does not ipso facto confer authority to bind the Authority in negotiated contracts that, by law or board regulation, require the governing board’s approval. The Court applied agency principles, including Article 1881 of the Civil Code, that an agent must act within the scope of his authority to bind the principal. The Court reaffirmed that contracting officers in government constitute agents with actual agency authority only to the extent conferred by law or valid delegation, and that acts beyond that actual authority do not bind the Government. The Court found petitioner failed to offer competent evidence that the Board

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