Sargasso Vs PPA
Sargasso Vs PPA
Sargasso Vs PPA
Contracts; Elements; Stages; The birth or the perfection of the contract refers to that moment in
the life of a contract when there is finally a concurrence of the wills of the contracting parties
with respect to the object and the cause of the contract.—Every contract has the following
essential elements: (i) consent, (ii) object certain and (iii) cause. Consent has been defined as the
concurrence of the wills of the contracting parties with respect to the object and cause which
shall constitute the contract. In general, contracts undergo three distinct stages, to wit:
negotiation, perfection or birth, and consummation. Negotiation begins from the time the
prospective contracting parties manifest their interest in the contract and ends at the moment of
their agreement. Perfection or birth of the contract takes place when the parties agree upon the
essential elements of the contract, i.e., consent, object and price. Consummation occurs when
the parties fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof. The birth or the perfection of the contract, which is the crux of the
present controversy, refers to that moment in the life of a contract when there is finally a
concurrence of the wills of the contracting parties with respect to the object and the cause of
the contract.
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* SECOND DIVISION.
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Sargasso Construction & Development Corporation/Pick & Shovel, Inc./Atlantic Erectors, Inc.
(Joint Venture) vs. Philippine Ports Authority
Same; Government Contracts; Words and Phrases; A government or public contract has been
defined as a contract entered into by state officers acting on behalf of the state, and in which the
entire people of the state are directly interested.—A government or public contract has been
defined as a contract entered into by state officers acting on behalf of the state, and in which the
entire people of the state are directly interested. It relates wholly to matter of public concern,
and affects private rights only so far as the statute confers such rights when its provisions are
carried out by the officer to whom it is confided to perform. A government contract is essentially
similar to a private contract contemplated under the Civil Code. The legal requisites of consent of
the contracting parties, an object certain which is the subject matter, and cause or consideration
of the obligation must likewise concur. Otherwise, there is no government contract to speak of.
Same; Same; While contracts to which the government is a party are generally subject to the
same laws and regulations which govern the validity and sufficiency of contracts between private
individuals, a government contract, however, is perfected only upon approval by a competent
authority, where such approval is required.—Contracts to which the government is a party are
generally subject to the same laws and regulations which govern the validity and sufficiency of
contracts between private individuals. A government contract, however, is perfected only upon
approval by a competent authority, where such approval is required. The contracting officer
functions as agent of the Philippine government for the purpose of making the contract. There
arises then, in that regard, a principal-agent relationship between the Government, on one
hand, and the contracting official, on the other. The latter though, in contemplation of law,
possesses only actual agency authority. This is to say that his contracting power exists, where it
exists at all, only because and by virtue of a law, or by authority of law, creating and conferring it.
And it is well settled that he may make only such contracts as he is so authorized to make.
Flowing from these basic guiding principles is another stating that the government is bound only
to the extent of the power it has actually given its officers-agents. It goes without saying then
that, conformably to a fundamental principle in agency, the acts of such agents in entering into
agreements or contracts beyond the scope of their actual authority
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do not bind or obligate the Government. The moment this happens, the principal-agent
relationship between the Government and the contracting officer ceases to exist. (emphasis
supplied) It was stressed that … the contracting official who gives his consent as to the subject
matter and the consideration ought to be empowered legally to bind the Government and that
his actuations in a particular contractual undertaking on behalf of the government come within
the ambit of his authority. On top of that, the approval of the contract by a higher authority is
usually required by law or administrative regulation as a requisite for its perfection.
Same; Same; The authority of government officials to represent the government in any contract
must proceed from an express provision of law or valid delegation of authority—without such
actual authority being possessed by Philippine Ports Authority’s (PPA’s) general manager, there
could be no real consent, much less a perfected contract, to speak of.—P.D. 857 likewise states
that one of the corporate powers of respondent’s Board of Directors is to “reclaim… any part of
the lands vested in the Authority.” It also “exercise[s] all the powers of a corporation under the
Corporation Law.” On the other hand, the law merely vests the general manager the “general
power… to sign contracts” and “to perform such other duties as the Board may assign…”
Therefore, unless respondent’s Board validly authorizes its general manager, the latter cannot
bind respondent PPA to a contract. The Court completely agrees with the CA that the petitioner
failed to present competent evidence to prove that the respondent’s general manager possessed
such actual authority delegated either by the Board of Directors, or by statutory provision. The
authority of government officials to represent the government in any contract must proceed
from an express provision of law or valid delegation of authority. Without such actual authority
being possessed by PPA’s general manager, there could be no real consent, much less a perfected
contract, to speak of.
Same; Same; Applicable laws form part of, and are read into, the contract without need for any
express reference thereto, and, more so, to a purported government contract, which is imbued
with public interest.—It is of no moment if the phrase “approval of higher authority” appears
nowhere in the Notice of Award. It neither justifies petitioner’s presumption that the required
approval “had already
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been granted” nor supports its conclusion that no other condition (than the completion of
fendering of Pier 2 as stated in the Notice of Award) ought to be complied with to create a
perfected contract. Applicable laws form part of, and are read into, the contract without need for
any express reference thereto; more so, to a purported government contract, which is imbued
with public interest.
Same; Same; Doctrine of Apparent Authority; Words and Phrases; The doctrine of apparent
authority, in the realm of government contracts, has been restated to mean that the government
is not bound by unauthorized acts of its agents, even though within the apparent scope of their
authority; Apparent authority, or what is sometimes referred to as the “holding out” theory, or
doctrine of ostensible agency, imposes liability, not as the result of the reality of a contractual
relationship, but rather because of the actions of a principal or an employer in somehow
misleading the public into believing that the relationship or the authority exists.—Petitioner’s
invocation of the doctrine of apparent authority is misplaced. This doctrine, in the realm of
government contracts, has been restated to mean that the government is NOT bound by
unauthorized acts of its agents, even though within the apparent scope of their authority. Under
the law on agency, however, “apparent authority” is defined as the power to affect the legal
relations of another person by transactions with third persons arising from the other’s
manifestations to such third person such that the liability of the principal for the acts and
contracts of his agent extends to those which are within the apparent scope of the authority
conferred on him, although no actual authority to do such acts or to make such contracts has
been conferred. Apparent authority, or what is sometimes referred to as the “holding out”
theory, or doctrine of ostensible agency, imposes liability, not as the result of the reality of a
contractual relationship, but rather because of the actions of a principal or an employer in
somehow misleading the public into believing that the relationship or the authority exists. The
existence of apparent authority may be ascertained through (1) the general manner in which the
corporation holds out an officer or agent as having the power to act or, in other words, the
apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts
of a particular nature, with actual or constructive knowledge thereof, whether within or beyond
the scope of
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his ordinary powers. It requires presentation of evidence of similar act(s) executed either in its
favor or in favor of other parties.
Same; Same; Same; Apparent authority is determined only by the acts of the principal and not
by the acts of the agent—the principal is not responsible where the agent’s own conduct and
statements have created the apparent authority.—Easily discernible from the foregoing is that
apparent authority is determined only by the acts of the principal and not by the acts of the
agent. The principal is, therefore, not responsible where the agent’s own conduct and
statements have created the apparent authority. In this case, not a single act of respondent,
acting through its Board of Directors, was cited as having clothed its general manager with
apparent authority to execute the contract with it.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
MENDOZA,J.:
This is a petition for review on certiorari under Rule 45 which seeks to annul and set aside the
August 22, 2005 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 63180 and its
November 14, 2005 Resolution2 denying petitioner’s motion for the reconsideration thereof. The
questioned CA decision reversed the June 8, 1998 Decision3 of the Regional
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1 Penned by Associate Justice Martin S. Villarama, Jr., (now a member of this Court) with
Associate Justice Bienvenido L. Reyes and Associate Justice Lucenito N. Tagle concurring.
2 Rollo, p. 30.
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Sargasso Construction & Development Corporation/Pick & Shovel, Inc./Atlantic Erectors, Inc.
(Joint Venture) vs. Philippine Ports Authority
Trial Court of Manila, Branch 14, in Civil Case No. 97-83916, which granted petitioner’s action for
specific performance.
The factual and procedural antecedents have been succinctly recited in the subject Court of
Appeals decision in this wise:4
“Plaintiff Sargasso Construction and Development Corporation, Pick and Shovel, Inc. and Atlantic
Erectors, Inc., a joint venture, was awarded the construction of Pier 2 and the rock causeway
(R.C. Pier 2) for the port of San Fernando, La Union, after a public bidding conducted by the
defendant PPA. Implementation of the project commenced on August 14, 1990. The port
construction was in pursuance of the development of the Northwest Luzon Growth Quadrangle.
Adjacent to Pier 2 is an area of P4,280 square meters intended for the reclamation project as
part of the overall port development plan.
In a letter dated October 1, 1992 of Mr. Melecio J. Go, Executive Director of the consortium,
plaintiff offered to undertake the reclamation between the Timber Pier and Pier 2 of the Port of
San Fernando, La Union, as an extra work to its existing construction of R.C. Pier 2 and Rock
Causeway for a price of P36,294,857.03. Defendant replied thru its Assistant General Manager
Teofilo H. Landicho who sent the following letter dated December 18, 1992:
“This is to acknowledge receipt of your letter dated 01 October 1992 offering to undertake the
reclamation between the Timber Pier and Pier 2, at the Port of San Fernando, La Union as an
extra work to your existing contract.
“Your proposal to undertake the project at a total cost of THIRTY SIX MILLION TWO HUNDRED
NINETY FOUR THOUSAND EIGHT HUNDRED FIFTY SEVEN AND 03/100 PESOS (P36,294,857.03) is
not acceptable to PPA. If you can reduce your offer to THIRTY MILLION SEVEN HUNDRED NINETY
FOUR THOUSAND TWO HUNDRED THIRTY AND 89/100 (P30,794,230.89) we may consider
favorably award
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Please signify your agreement to the reduced amount of P30,794,230.89 by signing in the space
provided below. (emphasis in the original)
On August 26, 1993, a Notice of Award signed by PPA General Manager Rogelio Dayan was sent
to plaintiff for the phase I Reclamation Contract in the amount of P30,794,230.89 and instructing
it to “enter into and execute the contract agreement with this Office” and to furnish the
documents representing performance security and credit line. Defendant likewise stated [and]
made it a condition that “fendering of Pier No. 2 Port of San Fernando, and the Port of Tabaco is
completed before the approval of the contract for the reclamation project.” Installation of the
rubber dock fenders in the said ports was accomplished in the year 1994. PPA Management
further set a condition [that] “the acceptance by the contractor that mobilization/demobilization
cost shall not be included in the contract and that escalation shall be reckoned upon approval of
the Supplemental Agreement.” The award of the negotiated contract as additional or
supplemental project in favor of plaintiff was intended “to save on the
mobilization/demobilization costs and some items as provided for in the original contract.”
Hence, then General Manager Carlos L. Agustin presented for consideration by the PPA Board of
Directors the contract proposal for the reclamation project.
At its meeting held on September 9, 1994, the Board decided not to approve the contract
proposal, as reflected in the following excerpt of the minutes taken during said board meeting:
“After due deliberation, the Board advised Management to bid the project since there is no
strong legal basis for Management to award the supplemental contract through negotiation. The
Board noted that the Pier 2 Project was basically for the construction of a pier while the
supplemental agreement refers to reclamation. Thus there is no basis to compare the terms and
conditions of the reclamation project with the original contract (Pier 2 Project) of Sargasso.”5
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(Joint Venture) vs. Philippine Ports Authority
It appears that PPA did not formally advise the plaintiff of the Board’s action on their contract
proposal. As plaintiff learned that the Board was not inclined to favor its Supplemental
Agreement, Mr. Go wrote General Manager Agustin requesting that the same be presented
again to the Board meeting for approval. However, no reply was received by plaintiff from the
defendant.
On June 30, 1997, plaintiff filed a complaint for specific performance and damages before the
Regional Trial Court of Manila alleging that defendant PPA’s unjustified refusal to comply with its
undertaking, unnecessarily leading to the delay in the implementation of the award under the
August 26, 1993 Notice of Award, has put on hold plaintiff’s men and resources earmarked for
the project, aside from effectively tying its hands in undertaking other projects for fear that
plaintiff’s incapacity to undertake work might be spread thinly and it might not be able to
function efficiently if the PPA project and other projects should require simultaneous attention.
Plaintiff averred that it sought reconsideration of the August 9, 1996 letter of PPA informing it
that it did not qualify to bid for the proposed extension of RC Pier No. 2, Port of San Fernando,
La Union for not having IAC Registration and Classification and not complying with equipment
requirement. In its letter dated September 19, 1996, plaintiff pointed out that the
disqualification was clearly unjust and totally without basis considering that individual
contractors of the joint venture have undertaken separately bigger projects, and have been such
individual contractors for almost 16 years. It thus prayed that judgment be rendered by the court
directing the defendant (a) to comply with its undertaking under the Notice of Award dated
August 26, 1993; and (b) to pay plaintiff actual damages (P1,000,000.00), exemplary damages
(P1,000,000.00), attorney’s fees (P300,000.00) and expenses of litigation and costs (P50,000.00).
Defendant PPA thru the Office of the Government Corporate Counsel (OGCC) filed its Answer
with Compulsory Counterclaim contending that the alleged Notice of Award has already been
properly revoked when the Supplemental Agreement which should have implemented the
award was denied approval by defendant’s Board of Directors. As to plaintiff’s pre-
disqualification from participating in the bidding for the extension of R.C. Pier No. 2 Project at
the Port of San Fernando, La Union, the same is based on factual determination by the
defendant that plaintiff lacked IAC Registration and Classi-
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(Joint Venture) vs. Philippine Ports Authority
fication and equipment for the said project as communicated in the August 9, 1996 letter.
Defendant disclaimed any liability for whatever damages suffered by the plaintiff when it
“jumped the gun” by committing its alleged resources for the reclamation project despite the
fact that no Notice to Proceed was issued to plaintiff by the defendant. The cause of action
insofar as the Extension of R.C. Pier No. 2 of the Port of San Fernando, La Union, is barred by the
statute of limitation since plaintiff filed its request for reconsideration way beyond the seven (7)
day-period allowed under IB 6-5 of the Implementing Rules and Regulations of P.D. 1594.
Defendant clarified that the proposed Reclamation Project and Extension of R.C. Pier No. 2 San
Fernando, La Union, are separate projects of PPA. The Board of Directors denied approval of the
Supplemental Agreement on September 9, 1994 for lack of legal basis to award the
supplemental contract through negotiation which was properly communicated to the plaintiff as
shown by its letter dated September 19, 1994 seeking reconsideration thereof. As advised by the
Board, PPA Management began to make preparations for the public bidding for the proposed
reclamation project. In the meantime, defendant decided to pursue the extension of R.C. Pier 2,
San Fernando, La Union. x x x It [prayed that the complaint be dismissed].” (Emphasis supplied)
After trial, the lower court rendered a decision in favor of the plaintiff, the dispositive portion of
which reads:
SO ORDERED.”6
In addressing affirmatively the basic issue of whether there was a perfected contract between
the parties for the reclamation project, the trial court ruled that the “higher authority
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6 Decision of the Trial Court, Rollo, pp. 158-167.
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(Joint Venture) vs. Philippine Ports Authority
x x x adverted to does not necessarily mean the Board of Directors (Board). Under IRR, P.D. 1594
(1)B10.6, approval of award and contracts is vested on the head of the infrastructure
department or its duly authorized representative. Under Sec. 9 (iii) of P.D. 857 which has
amended P.D. 505 that created the PPA, one of the particular powers and duties of the General
Manager and Assistant General Manager is to sign contracts.”7 It went on to say that “in the case
of the PPA, the power to enter into contracts is not only vested on the Board of Directors, but
also to the manager” citing Section 9 (III) of P.D. No. 857.8
The trial court added that the tenor of the Notice of Award implied that respondent’s general
manager had been empowered by its Board of Directors to bind respondent by contract. It noted
that whereas the letter-reply contained the phrase “approval of the higher authority,” the
conspicuous absence of
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8 Providing for the Reorganization of Port Administrative and Operation Functions in the
Philippines, Revising Presidential Decree No. 505 dated July 11, 1974, Creating the Philippine
Port Authority, by Substitution, and for other Purposes otherwise known as the Revised Charter
of the Philippine Ports Authority. Section 9 thereof provides:
Section9.General Powers and Duties of the General Manager and Assistant General Managers
The General Manager shall be responsible to the Board, and shall have the following general
powers, functions, and duties: xxx
(iii)To sign contracts, to approve expenditures and payments within the budget provisions, and
generally to do any all acts or things for the proper operations of the Authority or any of the
Ports under the jurisdiction, control or ownership of the Authority.
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the same in the Notice of Award supported the finding that the general manager had been
vested with authority to enter into the contract for and in behalf of respondent. To the trial
court, the disapproval by the PPA Board of the supplementary contract for the reclamation on a
ground other than the general manager’s lack of authority was an explicit recognition that the
latter was so authorized to enter into the purported contract.
Respondent moved for a reconsideration of the RTC decision but it was denied for lack of merit.
Respondent then filed its Notice of Appeal. Subsequently, petitioner moved to dismiss the
appeal on the ground that respondent failed to perfect its appeal seasonably. On June 27, 2000,
the Court of Appeals issued a Resolution9 dismissing respondent’s appeal for having been filed
out time. Respondent’s motion for reconsideration of said resolution was also denied.10
Undaunted, respondent elevated its problem to this Court via a petition for review on certiorari
under Rule 45 assailing the denial of its appeal. On July 30, 2004, the Court rendered an en banc
decision11 granting respondent’s petition on a liberal interpretation of the rules of procedure,
and ordering the CA to conduct further proceedings.
On August 22, 2005, the CA rendered the assailed decision reversing the trial court’s decision
and dismissing petitioner’s complaint for specific performance and damages. Thus, the
dispositive portion thereof reads:
“WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed
Decision dated June 8, 1998 of the trial court in Civil Case No. 97-83916 is hereby REVERSED and
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10 Id., at p. 277.
11 Philippine Ports Authority v. Sargasso Construction and Development Corp., Pick & Shovel,
Inc./Atlantic Erectors, Inc. (Joint Venture), G.R. No. 146478, July 30, 2004, 435 SCRA 512.
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SET ASIDE. A new judgment is hereby entered DISMISSING the complaint for specific
performance and damages filed by Plaintiff Sargasso Construction and Development
Corporation/Pick & Shovel, Inc./Atlantic Erectors, Inc., (Joint Venture) against the Philippine Ports
Authority for lack of merit.”
In setting aside the trial court’s decision, the CA ruled that the law itself should serve as the basis
of the general manager’s authority to bind respondent corporation and, thus, the trial court
erred in merely relying on the wordings of the Notice of Award and the Minutes of the Board
meeting in determining the limits of his authority; that the power of the general manager “to
sign contracts” is different from the Board’s power “to make or enter (into) contracts”; and that,
in the execution of contracts, the general manager only exercised a delegated power, in
reference to which, evidence was wanting that the PPA Board delegated to its general manager
the authority to enter into a supplementary contract for the reclamation project.
The CA also found the disapproval of the contract on a ground other than the general manager’s
lack of authority rather inconsequential because Executive Order 38012 expressly authorized the
governing boards of government-owned or controlled corporations “to enter into negotiated
infrastructure contracts involving… not more than fifty million (P50 million).” The CA further
noted that the Notice of Award was only one of those documents that comprised the entire
contract and, therefore, did not in itself evidence the perfection of a contract.
The issue to be resolved in this case is whether or not a contract has been perfected between
the parties which, in turn, depends on whether or not the general manager of PPA
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is vested with authority to enter into a contract for and on behalf of PPA.
Petitioner contends that the existence of “Notice of Award of Contract and Contractor’s
Conforme thereto,” resulting from its negotiation with respondent, proves that a contract has
already been perfected, and that the other documents enumerated under the amended Rules
and Regulations13 im-
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2.Conditions of Contract
3.Drawings/Plans
4.Specifications
5.Invitations to Bid
6.Instructions to Bidders
7.Addenda
c.Detailed Estimates
d.Construction Schedule
e.Construction Methods
g.Manpower Schedule
9.Performance Bond
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Sargasso Construction & Development Corporation/Pick & Shovel, Inc./Atlantic Erectors, Inc.
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plementing P.D. 159414 are mere physical representations of the parties’ meeting of the minds;
that the “Approval of Award by Approving Authority” is only a “supporting document,” and not
an evidence of perfection of contract, and which merely “facilitates the approval of the
contract;”15 that PPA is bound by the acts of its general manager in issuing the Notice of Award
under the doctrine of apparent authority; and that the doctrine of estoppel, being an equitable
doctrine, cannot be invoked to perpetuate an injustice against petitioner.
At the outset, it must be stated that there are two (2) separate and distinct, though related,
projects involving the parties herein, viz: (i) the construction of Pier 2 and the rock causeway for
the port of San Fernando, La Union, and (ii) the reclamation of the area between the Timber Pier
and Pier 2 of the same port. Petitioner’s action for specific performance and damages merely
relates to the latter.
Every contract has the following essential elements: (i) consent, (ii) object certain and (iii) cause.
Consent has been defined as the concurrence of the wills of the contracting parties with respect
to the object and cause which shall constitute the contract.16 In general, contracts undergo
three distinct stages, to wit: negotiation, perfection or birth, and consummation.
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1.x x x
xxx
16 Jurado, Desiderio P., Comments and Jurisprudence on Obligations and Contracts, 1993, Tenth
Revised Edition, p. 396; citing 3 Castan, 7th Ed., pp. 326-327, 8 Manresa, 5th Ed., Bk. P. 365, and
Sanchez Roman 191.
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(Joint Venture) vs. Philippine Ports Authority
Negotiation17 begins from the time the prospective contracting parties manifest their interest in
the contract and ends at the moment of their agreement. Perfection or birth of the contract
takes place when the parties agree upon the essential elements of the contract, i.e., consent,
object and price. Consummation occurs when the parties fulfill or perform the terms agreed
upon in the contract, culminating in the extinguishment thereof. The birth or the perfection of
the contract, which is the crux of the present controversy, refers to that moment in the life of a
contract when there is finally a concurrence of the wills of the contracting parties with respect to
the object and the cause of the contract.18
A government or public contract has been defined as a contract entered into by state officers
acting on behalf of the state, and in which the entire people of the state are directly interested.
It relates wholly to matter of public concern, and affects private rights only so far as the statute
confers such rights when its provisions are carried out by the officer to whom it is confided to
perform.19
A government contract is essentially similar to a private contract contemplated under the Civil
Code. The legal requisites of consent of the contracting parties, an object certain which is the
subject matter, and cause or consideration of the
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17 A negotiation is formally initiated by an offer which should be certain with respect to both the
object and the cause or consideration of the envisioned contract. In order to produce a contract,
there must be acceptance, which may be express or implied, but it must not qualify the terms of
the offer. The acceptance of an offer must be unqualified and absolute to perfect the contract. In
other words, it must be identical in all respects with that of the offer so as to produce consent or
meeting of the minds.
19 Cobacha, Agapito P. and Lucenario, Domingo O., Law on Public Bidding and Government
Contracts, 1960, p. 283, citing People v. Palmer, 35 N.Y.S. 222, 14 Misc. 41.
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obligation must likewise concur. Otherwise, there is no government contract to speak of.20
As correctly found by the CA, the issue on the reclamation of the area between Timber Pier and
Pier 2 of the Port of San Fernando involves a government infrastructure project, and it is beyond
dispute that the applicable laws, rules and regulations on government contracts or projects
apply.
“Executive Order No. 380… provides for revised levels of authority on approval of government
contracts. Section 1 thereof authorizes… GOCCs:
1.To enter into infrastructure contracts awarded through public bidding regardless of the amount
involved;
2.To enter into negotiated infrastructure contracts involving not more than one hundred million
pesos (P100 million) in the case of the Department of Transportation and Communications and
the Department of Public Works and Highways, and not more than fifty million pesos (P50
million) in the case of the other Departments and governments corporations; Provided, That
contracts exceeding the said amounts shall only be entered into upon prior authority from the
Office of the President; and Provided, further, That said contracts shall only be awarded in strict
compliance with Section 5 of Executive Order No. 164, S. of 1987.
xxx
The rule on negotiated contracts, as amended on August 12, 2000 (IB 10.6.2) now reads—
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20 Fernandez, Jr., Bartolome C., A Treatise on Government Contracts under Philippine Law, 2003
Revised Edition, p. 10.
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1.Negotiated contract may be entered into only where any of the following conditions exists and
the implementing office/agency/corporation is not capable of undertaking the contract by
administration:
a.In times of emergencies arising from natural calamities where immediate action is necessary to
prevent imminent loss of life and/or property or to restore vital public services, infrastructure
and utilities such as…
b.Failure to award the contract after competitive public bidding for valid cause or causes
c.Where the subject project is adjacent or contiguous to an on-going project and it could be
economically prosecuted by the same contractor provided that subject contract has similar or
related scope of works and it is within the contracting capacity of the contractor, in which case,
direct negotiation may be undertaken with the said contractor…
xxx
In cases a and b above, bidding may be undertaken through sealed canvass of at least three (3)
qualified contractors… Authority to negotiate contract for projects under these exceptional cases
shall be subject to prior approval by heads of agencies within their limits of approving
authority.”21 (emphasis in the original)
Furthermore, the Revised Administrative Code22 lays down the same requirement, thus:
“Sec.51.Who May Execute Contracts.—Contracts in behalf of the Republic of the Philippines shall
be executed by the President unless authority therefore is expressly vested by law or by him in
any other public officer.
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21 Decision of the Court of Appeals, pp. 14, 16-17; Rollo, pp. 86, 88-89.
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Contracts in behalf of the political subdivisions and corporate agencies or instrumentalities shall
be approved by their respective governing boards or councils and executed by their respective
executive heads.”
Petitioner neither disputes nor admits the application of the foregoing statutory provisions but
insists, nonetheless, that the Notice of Award itself already embodies a perfected contract
having passed the negotiation stage23 despite the clear absence thereon of a condition
requiring the prior approval of respondent’s higher authority.
Petitioner’s argument is untenable. Contracts to which the government is a party are generally
subject to the same laws and regulations which govern the validity and sufficiency of contracts
between private individuals.24 A government contract, however, is perfected25 only upon
approval by a competent authority, where such approval is required.26
“The contracting officer functions as agent of the Philippine government for the purpose of
making the contract. There arises
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25 The Court in Central Bank of the Philippines vs. Court of Appeals, G.R. No. L-33022, April 22,
1975, 63 SCRA 446-447, involving a government contract, said “An agreement presupposes a
meeting of minds and when that point is reached in the negotiations between two parties
intending to enter into a contract, the purported contract is deemed perfected and none of
them may thereafter disengage himself therefrom without being liable to the other in an action
for specific performance. xxx Even a government-owned corporation may not under the guise of
protecting the public interest unceremoniously disregard contractual commitments to the
prejudice of the other party.,” cited in Government Contracts, U.P. Law Center, 1982, p. 42. In
said case, however, it is the Monetary Board of respondent Central Bank which “unanimously
voted and approved the award to the plaintiff [petitioner therein].”
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then, in that regard, a principal-agent relationship between the Government, on one hand, and
the contracting official, on the other. The latter though, in contemplation of law, possesses only
actual agency authority. This is to say that his contracting power exists, where it exists at all, only
because and by virtue of a law, or by authority of law, creating and conferring it. And it is well
settled that he may make only such contracts as he is so authorized to make. Flowing from these
basic guiding principles is another stating that the government is bound only to the extent of the
power it has actually given its officers-agents. It goes without saying then that, conformably to a
fundamental principle in agency, the acts of such agents in entering into agreements or contracts
beyond the scope of their actual authority do not bind or obligate the Government. The moment
this happens, the principal-agent relationship between the Government and the contracting
officer ceases to exist.”27 (emphasis supplied)
Under Article 1881 of the Civil Code, the agent must act within the scope of his authority to bind
his principal. So long as the agent has authority, express or implied, the principal is bound by the
acts of the agent on his behalf, whether or not the third person dealing with the agent believes
that the agent has actual authority.29 Thus, all signatories in a con-
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27 Supra note 20 at 8.
29 De Leon, Hector S., Comments and Cases on Partnership, Agency, and Trusts, 2005 Sixth
Edition, p. 460.
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tract should be clothed with authority to bind the parties they represent.
P.D. 857 likewise states that one of the corporate powers of respondent’s Board of Directors is to
“reclaim… any part of the lands vested in the Authority.” It also “exercise[s] all the powers of a
corporation under the Corporation Law.” On the other hand, the law merely vests the general
manager the “general power… to sign contracts” and “to perform such other duties as the Board
may assign…” Therefore, unless respondent’s Board validly authorizes its general manager, the
latter cannot bind respondent PPA to a contract.
The Court completely agrees with the CA that the petitioner failed to present competent
evidence to prove that the respondent’s general manager possessed such actual authority
delegated either by the Board of Directors, or by statutory provision. The authority of
government officials to represent the government in any contract must proceed from an express
provision of law or valid delegation of authority.30 Without such actual authority being
possessed by PPA’s general manager, there could be no real consent, much less a perfected
contract, to speak of.
It is of no moment if the phrase “approval of higher authority” appears nowhere in the Notice of
Award. It neither justifies petitioner’s presumption that the required approval “had already been
granted” nor supports its conclusion that no other condition (than the completion of fendering
of Pier 2 as stated in the Notice of Award) ought to be complied with to create a perfected
contract.31 Applicable laws form part of, and are read into, the contract without need for any
express refer-
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ence thereto;32 more so, to a purported government contract, which is imbued with public
interest.
Adopting the trial court’s ratiocination, petitioner further argues that had it been true that
respondent’s general manager was without authority to bind respondent by contract, then the
former should have disapproved the supplemental contract on that ground.33 Petitioner also
interprets the Board’s silence on the matter as an explicit recognition of the latter’s authority to
enter into a negotiated contract involving the reclamation project. This posture, however, does
not conform with the basic provisions of the law to which we always go back. Section 4 of P.D.
159434 provides:35
Precisely, the Board of Directors of the respondent did not see fit to approve the contract by
negotiation after finding
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32 Intra-Strata Assurance Corp. and Philippine Home Assurance Corp. v. Republic, G.R. No.
156571, July 9, 2008, 557 SCRA 363.
34 Now expressly repealed by R.A. 9184 (An Act Providing for the Modernization,
Standardization and Regulation of the Procurement Activities of the Government and for Other
Purposes) otherwise known as Government Procurement Reform Act of 2003.
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that “the Pier 2 Project was basically for the construction of a pier while the supplemental
agreement refers to reclamation. Thus, there is no basis to compare the terms and conditions of
the reclamation project with the original contract (Pier 2 Project) of Sargasso.” So even granting
arguendo that the Board’s action or inaction is an “explicit” recognition of the authority of the
general manager, the purported contract cannot possibly be the basis of an action for specific
performance because the negotiated contract itself basically contravenes stringent legal
requirements aimed at protecting the interest of the public. The bottom line here is that the
facts do not conform to what the law requires.
No wonder petitioner conveniently omitted any attempt at presenting its case within the
statutory exceptions, and insisted that respondent’s disapproval of the supplemental agreement
was “a mere afterthought” “perhaps realizing the infirmity of its excuse” (referring to
petitioner’s belated pre-disqualification in the construction project). But the Court, at the very
outset, has previously clarified that the two projects involved herein are distinct from each other.
Hence, petitioner’s disqualification in the construction project due to its lack of certain
requirements has no significant bearing in this case.
Lastly, petitioner’s invocation of the doctrine of apparent authority36 is misplaced. This doctrine,
in the realm of government contracts, has been restated to mean that the government is NOT
bound by unauthorized acts of its agents, even though within the apparent scope of their
authority.37 Under the law on agency, however, “apparent authority” is defined as the power to
affect the legal relations of another
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36 Memorandum for Petitioner, p. 32, citing the case of First Phil. International Bank v. Court of
Appeals, 252 SCRA 259, 295; Rollo, p. 413.
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person by transactions with third persons arising from the other’s manifestations to such third
person38 such that the liability of the principal for the acts and contracts of his agent extends to
those which are within the apparent scope of the authority conferred on him, although no actual
authority to do such acts or to make such contracts has been conferred.39
Apparent authority, or what is sometimes referred to as the “holding out” theory, or doctrine of
ostensible agency, imposes liability, not as the result of the reality of a contractual relationship,
but rather because of the actions of a principal or an employer in somehow misleading the
public into believing that the relationship or the authority exists.40 The existence of apparent
authority may be ascertained through (1) the general manner in which the corporation holds out
an officer or agent as having the power to act or, in other words, the apparent authority to act in
general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary
powers. It requires presentation of evidence of similar act(s) executed either in its favor or in
favor of other parties.41
Easily discernible from the foregoing is that apparent authority is determined only by the acts of
the principal and not by the acts of the agent. The principal is, therefore, not responsible where
the agent’s own conduct and statements have created the apparent authority.42
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40 Professional Services, Inc. v. Agana, G.R. No. 126297, January 31, 2007, 513 SCRA 500-501.
41 People’s Aircargo and Warehousing Co., Inc. v. CA, 357 Phil. 850; 297 SCRA 170 (1998).
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In this case, not a single act of respondent, acting through its Board of Directors, was cited as
having clothed its general manager with apparent authority to execute the contract with it.
With the foregoing disquisition, the Court finds it unnecessary to discuss the other arguments
posed by petitioner.
SO ORDERED.
Petition denied.
Notes.—An exception to the general rule that a hospital is not liable for the negligence of an
independent contractor-physician is when the physician is the “ostensible” agent of the hospital,
which exception is also known as the “doctrine of apparent authority.” (Nogales vs. Capitol
Medical Center, 511 SCRA 204 [2006])
The doctrine of “apparent authority,” with special reference to banks, had long been recognized
in the Philippine jurisdiction; Apparent authority is derived not only from practice—its existence
may be ascertained through (1) the general manner in which the corporation holds out an officer
or agent as having the power to act, with which it clothes him, or, (2) the acquiescence in his
acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the
scope of his ordinary powers. (Associated Bank vs. Pronstroller, 558 SCRA 113 [2008])
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Sargasso Construction & Development Corporation/Pick & Shovel, Inc./Atlantic Erectors, Inc.
(Joint Venture) vs. Philippine Ports Authority, 623 SCRA 260, G.R. No. 170530 July 5, 2010