CONSTITUTIONAL LAW
Iron and Steel
Authority (ISA) v. Court of Appeals
G.R. No. 102976 [October
25, 1995]
THIRD DIVISION, FELICIANO,
J.
Ultra Vires Powers
Government agencies are strictly limited
to the powers expressly conferred upon them by their enabling statutes. Any act
or contract entered into beyond the scope of such powers is ultra vires and
void.
The Iron and Steel Authority (ISA) entered into a loan agreement with Maria Cristina Fertilizer Corporation (MCFC), a private entity engaged in fertilizer production. Under the agreement, ISA provided a loan to MCFC to finance the purchase of equipment and other operational needs. MCFC failed to repay the loan upon maturity, prompting ISA to file a collection case against MCFC.
MCFC, in its defense, argued that the
loan agreement was void for being ultra vires, claiming that ISA, as a
government agency, lacked the authority to grant loans. The trial court ruled
in favor of MCFC, declaring the loan agreement void. ISA appealed to the Court
of Appeals, which upheld the trial court’s decision. ISA then elevated the case
to the Supreme Court.
Whether the loan agreement entered into by the Iron
and Steel Authority with Maria Cristina Fertilizer Corporation is valid and
binding.
NO. The Supreme Court ruled in favor of the Court of Appeals and Maria Cristina Fertilizer Corporation, affirming the nullity of the loan agreement. The Court emphasized that government agencies like the Iron and Steel Authority must strictly adhere to their statutory mandates. ISA’s enabling law did not grant it the authority to engage in lending activities or act as a financial intermediary. Thus, the loan agreement was ultra vires and void.
The Court noted that while ISA had the mandate to develop the iron and steel industry, lending money to private entities was not within the scope of its legal powers. Any act performed beyond the authority granted by law is considered ultra vires and has no legal effect.
Furthermore, the Court stressed that
contracts entered into by government agencies must conform to their statutory
powers to avoid overreach and ensure accountability. In this case, the absence
of explicit authority for ISA to grant loans rendered the agreement
unenforceable.
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