In a significant ruling on local governance, the Supreme Court clarified that while local chief executives can disburse funds according to an approved budget, they generally need prior authorization from the Sangguniang Panlalawigan (Provincial Board) for new contracts that create financial obligations for the local government unit. This check-and-balance ensures that local councils maintain oversight of contracts binding the government to financial commitments.

Cebu’s Fiscal Contracts: Governor’s Prerogative or Board Oversight?

This case originated from a Commission on Audit (COA) report questioning infrastructure contracts entered into by the Governor of Cebu without the prior authorization of the Sangguniang Panlalawigan. The Governor, Gwendolyn Garcia, argued that the contracts were based on existing appropriation ordinances and followed bidding procedures. However, the COA maintained that Section 22 of the Local Government Code (Republic Act No. 7160) mandates prior sanggunian approval for such contracts. The central legal question revolved around interpreting the extent of a local chief executive’s contracting powers in light of the sanggunian’s oversight authority.

The Regional Trial Court (RTC) initially ruled in favor of Gov. Garcia, stating that as long as a prior appropriation ordinance existed, further approval wasn’t necessary. The Supreme Court, however, reversed this decision, clarifying the interplay between Sections 22, 306, and 346 of the Local Government Code. Section 22(c) explicitly states that “no contract may be entered into by the local chief executive in behalf of the local government unit without prior authorization by the sanggunian concerned.” While Sections 306 and 346 allow local chief executives to disburse funds according to existing appropriations without additional approval for recurring expenditures, these sections cannot be interpreted to bypass the fundamental requirement of prior authorization for new contractual obligations.

To interpret Sections 306 and 346 of R.A. No. 7160 as exceptions to Sec. 22(c) would make the sanggunian requirement of prior authorization “superfluous, useless, and irrelevant.” Congress intended a measure of check and balance to temper the authority of the local chief executive when the corporate powers of the local government unit are concerned. According to the Court, a sanggunian’s approval may come as an appropriation ordinance passed for the year which specifically covers the project, cost or contract to be entered into by the local government unit.

The Supreme Court also highlighted that in cases of a reenacted budget—as was the situation in Cebu—disbursements are restricted to essential items outlined in the previous year’s budget. Section 323 of R.A. No. 7160 states that “only the annual appropriations for salaries and wages of existing positions, statutory and contractual obligations, and essential operating expenses authorized in the annual and supplemental budgets for the preceding year shall be deemed reenacted and disbursement of funds shall be in accordance therewith.” Any new contracts entered into under a reenacted budget, therefore, require explicit approval from the sanggunian.

Sec. 465, Art. 1, Chapter 3 of R.A. No. 7160 states that the provincial governor shall “[r]epresent the province in all its business transactions and sign in its behalf all bonds, contracts, and obligations, and such other documents upon authority of the sangguniang panlalawigan or pursuant to law or ordinances.”

Furthermore, the Court stressed the importance of aligning the Local Government Code with procurement laws. Section 37 of R.A. No. 9184 states that “The Procuring Entity shall issue the Notice to Proceed to the winning bidder not later than seven (7) calendar days from the date of approval of the contract by the appropriate authority x x x.” This signifies that the sanggunian, as the appropriate authority, must first approve the contract before any further steps can be taken. Thus, local chief executives act as an instrumentality of the local council.

The Supreme Court remanded the case back to the RTC for a full trial to determine if any prior ordinances authorizing Gov. Garcia to enter into the contracts already existed, which would potentially negate the need for individual sanggunian approval. Depending on the character of the questioned contracts, being either disbursements or new contracts, the need of the provincial board’s authority must be assessed. Therefore, this is considered as an ordinary civil action to have all facts conflate to complete adjudication.

The ruling has broader implications for local governance across the Philippines. The Supreme Court decision is not a restriction to all contracts. Rather, when a local government unit operates under an annual budget, the appropriation passed by the sanggunian may validly serve as the authorization required under Section 22(c) of R.A. No. 7160. As emphasized, resort to the appropriation ordinance is necessary in order to determine if there is a provision that specifically covers the expense to be incurred or the contract to be entered into.

Ultimately, this decision reinforces the vital role of the sanggunian in ensuring transparency and accountability in local government spending. By requiring prior authorization for contracts, the ruling aims to prevent potential abuses of power and safeguard public funds.

FAQs

What was the key issue in this case?	The key issue was whether the Governor of Cebu needed prior authorization from the Sangguniang Panlalawigan before entering into contracts that committed the province to monetary obligations, given existing appropriation ordinances.
What did the Commission on Audit (COA) find?	The COA found that several contracts lacked the required Sangguniang Panlalawigan resolution authorizing the Governor to enter into them, which it deemed a violation of Section 22 of the Local Government Code.
What was the Governor’s argument?	The Governor argued that the contracts were based on appropriation ordinances passed by the Sangguniang Panlalawigan and followed the bidding procedures required under Republic Act No. 9184, making separate authorization unnecessary.
What does the Local Government Code say about contracts?	Section 22(c) of the Local Government Code states that a local chief executive generally needs prior authorization from the sanggunian before entering into contracts on behalf of the local government unit.
What happens when a local government operates under a reenacted budget?	Under a reenacted budget, only specific items like salaries, statutory obligations, and essential operating expenses are automatically reauthorized. New contractual obligations require additional sanggunian approval.
Did the Supreme Court agree with the Regional Trial Court’s decision?	No, the Supreme Court reversed the Regional Trial Court’s decision. It clarified that Gov. Garcia needed authorization from the Provincial Board before she entered into contracts.
Why did the Supreme Court send the case back to the lower court?	The Supreme Court sent the case back to the RTC to determine the nature of the contracts in question and if Gov. Garcia had authorization. The intent was to ensure a factual issue to determine whether authorization for the provincial board was granted.
What does this ruling mean for other local government units?	The ruling underscores the importance of sanggunian authorization for new contracts. The authorization ensures accountability. Therefore, local governments are called to have local chief executives secure authorization.

This Supreme Court decision highlights the importance of checks and balances in local governance, particularly in financial matters. Local governments must prioritize the collaboration between the executive and legislative branches to uphold transparency and accountability. Ultimately, securing authorization fosters responsible stewardship of public funds and helps ensure that contracts benefit the community.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Quisumbing vs. Garcia, G.R. No. 175527, December 8, 2008