Philippine Race Horse Trainer's Ass'n v. Piedras Negras Construction
REITERATIONFacts
The Antecedents: Petitioner Philippine Race Horse Trainer's Association, Inc. (PRHTAI) entered into a series of contracts for a housing project. Initially, it contracted with Fil-Estate Properties, Inc. (Fil-Estate) on October 3, 2000, for ₱67,453,000.00. Fil-Estate assigned its rights to respondent Piedras Negras Construction and Development Corporation (PNCDC). Subsequently, PRHTAI entered into a second contract with PNCDC on October 13, 2004, for ₱80,324,788.00, and a third contract on August 23, 2005, for ₱101,150,000.00. PNCDC issued a Certificate of Completion and Acceptance on April 25, 2007, and demanded payment of the remaining balance. PRHTAI acknowledged the obligation but cited financial difficulties. A new set of directors and officers was elected at PRHTAI on April 28, 2008, who then initiated inquiries regarding the project. Procedural History: Unable to collect, PNCDC filed a complaint with the Construction Industry Arbitration Commission (CIAC) for payment. The CIAC Arbitral Tribunal ruled that the third contract was unenforceable and that PRHTAI had overpaid PNCDC by ₱14,351,484.61, ordering PNCDC to pay PRHTAI the overpaid amount plus attorney's fees and other expenses. The Court of Appeals (CA) set aside the CIAC ruling, ordering PRHTAI to pay PNCDC the balance of the final contract amounting to ₱6,473,727.59 with legal interest, and PRHTAI to pay arbitration expenses. PRHTAI's motion for reconsideration was denied. The Petition: PRHTAI filed a petition for review with the Supreme Court, seeking to reverse the CA's decision and reinstate the CIAC award.
Issue(s)
Whether or not the CIAC has jurisdiction to pass upon the enforceability of the contract between PRHTAI and PNCDC. Whether or not the third and final contract between PRHTAI and PNCDC is unenforceable. Whether or not there is overpayment on PRHTAI's part, and whether PRHTAI ratified the unenforceable contract.
Ruling
The Supreme Court granted the petition, reversed and set aside the Court of Appeals Decision and Resolution, and affirmed the CIAC Arbitral Tribunal Award with modification as to the legal rate of interest.
Ratio Decidendi
On the CIAC's Jurisdiction: The Court affirmed that the CIAC possesses original and exclusive jurisdiction over disputes arising from or connected with construction contracts, as provided by Section 4 of Executive Order No. 1008. This jurisdiction is broad enough to cover claims involving contractual money claims or execution of works, including issues of enforceability, interpretation, and payment. The CA erred in questioning the CIAC's authority to determine the enforceability of the contract, as this falls squarely within its mandate. The CIAC's findings of fact, when supported by evidence and within its expertise, are generally accorded finality, unless exceptions like grave abuse of discretion or fraud are proven. On the Enforceability of the Third Contract: The Court found that the third contract, dated August 23, 2005, for ₱101,150,000.00, was unenforceable. The CA erred in concluding that PRHTAI's president, Rogelio J. Catajan, was authorized to enter into this contract. The Board Resolution dated September 26, 2000, explicitly authorized Catajan to enter into a contract only with Fil-Estate Properties, Inc., not with PNCDC. Furthermore, the increased contract price in the third contract, compared to the first and second contracts, lacked justification and exceeded Catajan's limited authority. The reliance by PNCDC on a Secretary's Certificate dated March 1, 2005, which was found to be falsified and did not reflect the actual Board Resolution, constituted gross negligence. Ordinary prudence dictated that PNCDC should have verified the actual Board Resolution, especially given the significant increase in contract value and the nature of PRHTAI's business. The subsequent Board Resolution dated April 24, 2006, and the Minutes of the May 5, 2008 meeting did not establish PRHTAI's consent to the third contract, as the new board had no knowledge of Catajan's unauthorized actions at the time of the latter meeting. On Overpayment and Ratification: The Court agreed with the CIAC that there was an overpayment by PRHTAI to PNCDC. The CA's finding of a remaining balance due to PNCDC was based on an erroneous assessment of the enforceability of the third contract. The letter dated May 27, 2008, from PRHTAI's new president, Pablito L. Guce, was merely a request for documents and did not constitute an acknowledgment or ratification of the debt to PNCDC. The letter's purpose was to gather information due to missing records, not to confirm indebtedness. The doctrine of apparent authority was also inapplicable because PRHTAI did not hold Catajan out as having the power to enter into such a massive housing project contract, which was outside the scope of its usual business as an association of horse trainers. The board of directors, not the president, exercises corporate power, and Catajan exceeded his authority by agreeing to the inflated price in the third contract without proper board authorization.
Main Doctrine
A corporate president's authority to enter into contracts is limited by the scope of his or her usual duties and the general objectives of the company's business, and such authority cannot be presumed for acts outside these parameters, especially when the corporation is not in the ordinary course of its business. The board of directors, not the president, exercises corporate power. Reliance on a falsified Secretary's Certificate without verifying the actual Board Resolution constitutes gross negligence.