Allen v. Province of Tayabas
REITERATIONFacts
The Antecedents: Arthur F. Allen entered into a contract with the Province of Tayabas to construct five reinforced concrete bridges for P39,200. The contract stipulated adherence to specifications and outlined payment terms for extras. Four bridges were accepted and paid for. Procedural History: A dispute arose concerning the fifth bridge (No. 53.3) and certain extras. The Province of Tayabas withheld P2,840 of the contract price for this bridge, alleging deviations from specifications and defective work, and also refused payment for extras. Allen filed an action for P9,685, claiming the balance due and damages. The defendant demurred, arguing lack of Governor-General approval and absence of required certificates for payment. The demurrer was overruled. The defendant answered, admitting P2,454.78 as due, but reiterating grounds of defective work. The trial court ruled in favor of Allen for P4,905 with interest and costs. The defendant appealed. The Petition: The Province of Tayabas appealed, assigning errors related to findings of fact and two main legal issues: (a) the necessity of Governor-General approval for the contract, and (b) the requirement of certificates from the district engineer and Director of Public Works as a prerequisite to suit and as conclusive findings.
Issue(s)
Whether the approval of the Governor-General is a prerequisite for the validity of a provincial construction contract. Whether the certificate of approval from the Director of Public Works or District Engineer is a condition precedent to a suit for payment. Whether the findings of the designated government engineer are conclusive upon the contractor in the absence of fraud or bad faith.
Ruling
The Supreme Court modified the judgment, ordering the Province of Tayabas to pay Arthur F. Allen P3,354.90 with legal interest from July 14, 1914, until paid. The Court held that the Governor-General's approval was not required for this type of contract, but that the certificate of acceptance was a condition precedent, conclusive in the absence of fraud or bad faith. The Province was ordered to pay the balance for bridge No. 53.3 and certain extras, but the findings of the Government engineers on other disputed points were deemed conclusive.
Ratio Decidendi
On Issue 1: The Court held that the approval of the Governor-General is a prerequisite only for the purchase and conveyance of real estate by a province, as provided in Act No. 83, as amended by Act No. 1600. The grammatical construction of the English text, which is controlling, makes it clear that this requirement does not extend to public works construction contracts. This interpretation is further reinforced by the Administrative Code of 1917, which separates the requirements for real estate transfers from the general corporate powers of provinces. Therefore, the contract entered into by the Director of Public Works on behalf of the province was valid despite the lack of the Governor-General's signature. Consequently, the province's objection on this ground was deemed untenable. On Issue 2: The Court ruled that both Act No. 1401 and the specific terms of the contract (Instruction to Bidders) made the certificate of acceptance by the Director of Public Works or his representative a mandatory condition precedent to payment. Parties are legally competent to agree that a third party or the purchaser's representative shall have the power of acceptance or non-acceptance. This stipulation must be respected as part of the mutuality of contracts, and a contractor who enters into such an agreement must abide by it. While modern rules favor substantial performance, the contractor must still allege and prove either the fulfillment of this condition or a valid legal excuse for its non-fulfillment. In this case, the complaint failed to explicitly allege the excuse, though the issue was later cured by the answer and the evidence presented at trial. On Issue 3: The findings of the designated government engineers are conclusive upon the contractor unless fraud, bad faith, or such gross mistake as would imply bad faith is established. The Court emphasized that courts will only with great reluctance interfere to nullify the action of a designated arbitrator or inspector chosen by the parties. Although the trial court noted 'ill-feelings' between the contractor and the engineer, the Supreme Court held that this observation was insufficient to prove fraud or bad faith. Because the contractor failed to provide clear evidence of such bad faith, the engineer's refusal to certify the extras was binding. However, regarding the balance for the bridge itself, the Court noted that since the Province had already accepted and occupied the bridge, it could not withhold the remaining contract price or deduct arbitrary 'test costs' not stipulated in the contract.
Main Doctrine
A certificate of acceptance from the Director of Public Works or his representative is a condition precedent to payment on public works contracts, and such certificate is conclusive in the absence of fraud or bad faith. While substantial performance is recognized, the parties may contractually agree that satisfaction of a designated official is absolute.