GOVT CON FULL CASES PART 1
development plan.
SARGASSO CONSTRUCTION
& DEVELOPMENT CORPORATION/PICK & SHOVEL, INC.,/ATLANTIC
ERECTORS, INC. (JOINT VENTURE),
- versus - PHILIPPINE PORTS AUTHORITY,
G.R. NO. 170530
Promulgated:
July 5, 2010
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 which seeks
to annul and set aside the August 22, 2005 Decision[1] of the Court
of Appeals (CA) in CA-G.R. CV No. 63180 and its November 14, 2005
Resolution[2] denying petitioners motion for the reconsideration
thereof. The questioned CA decision reversed the June 8, 1998
Decision[3] of the Regional Trial Court of Manila, Branch 14, in Civil
Case No. 97-83916, which granted petitioners 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
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 of
the project in your favor, subject to the approval of higher
authority.
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
1
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]
It appears that PPA did not formally advise the plaintiff of the
Boards 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 PPAs 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 plaintiffs men and resources earmarked for
the project, aside from effectively tying its hands in undertaking
other projects for fear that plaintiffs 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), attorneys
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 defendants
Board of Directors. As to plaintiffs pre-disqualification from
2
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 Classification 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. xxx 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:
WHEREFORE, and in view of the foregoing considerations,
judgment is hereby rendered ordering the defendant to execute a
contract in favor of the plaintiff for the reclamation of the area
between the Timber Pier and Pier 2 located at San Fernando, La
Union for the price of P30,794,230.89 and to pay the costs.
The counterclaim is dismissed for lack of merit.
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 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 respondents 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 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 managers 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
3
the ground that respondent failed to perfect its appeal seasonably.
On June 27, 2000, the Court of Appeals issued a Resolution[9]
dismissing respondents appeal for having been filed out time.
Respondents 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
decision[11] granting respondents 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 courts decision and dismissing petitioners
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 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 courts decision, the CA ruled that the law
itself should serve as the basis of the general managers 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 Boards 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 managers lack of authority rather
inconsequential because Executive Order 380[12] 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.
Hence, this petition.
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 is vested with authority
to enter into a contract for and on behalf of PPA.
The petition fails.
Petitioner contends that the existence of Notice of Award of
Contract and Contractors 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 Regulations[13] implementing P.D. 1594[14]
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
4
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. Petitioners 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. Negotiation[17] 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 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.
On the matter of entering into negotiated contracts by government-
owned and controlled corporations, the provisions of existing laws
are crystal clear in requiring the governing boards approval thereof.
The Court holds that the CA correctly applied the pertinent laws, to
wit:
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
5
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
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 Code[22] 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.
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 stage[23] despite the clear absence thereon
of a condition requiring the prior approval of respondents higher
authority.
Petitioners 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 perfected[25] 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
then, in that regard, a principal-agent relationship between the
6
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)
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.[28]
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 contract should be clothed with authority
to bind the parties they represent.
P.D. 857 likewise states that one of the corporate powers of
respondents 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 respondents 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 respondents
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
PPAs 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
petitioners 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 reference thereto;[32] more
so, to a purported government contract, which is imbued with
public interest.
Adopting the trial courts ratiocination, petitioner further argues
that had it been true that respondents 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 Boards silence on the
matter as an explicit recognition of the latters authority to enter
7
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. 1594[34]
provides:[35]
Section 4. Bidding. Construction projects shall generally be
undertaken by contract after competitive public bidding. Projects
may be undertaken by administration or force account or by
negotiated contract only in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors,
or where there is a conclusive evidence that greater economy and
efficiency would be achieved through this arrangement, and in
accordance with provision of laws and acts on the matter, subject to
the approval of the Ministry of Public Works, Transportation and
Communications, the Minister of Public Highways, or the Minister of
Energy, as the case may be, if the project cost is less than P1 Million,
and of the President of the Philippines, upon the recommendation
of the Minister, if the project cost is P1 Million or more.
Precisely, the Board of Directors of the respondent did not see fit to
approve the contract by negotiation after finding 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 Boards 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
respondents disapproval of the supplemental agreement was a
mere afterthought perhaps realizing the infirmity of its excuse
(referring to petitioners 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, petitioners disqualification in the
construction project due to its lack of certain requirements has no
significant bearing in this case.
Lastly, petitioners invocation of the doctrine of apparent
authority[36] 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 person by transactions with
third persons arising from the others manifestations to such third
person[38] 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
8
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
agents own conduct and statements have created the apparent
authority.[42]
G.R. No. 168539 March 25, 2014
PEOPLE OF THE PHILIPPINES, Petitioner,
vs.
HENRY T. GO, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari assailing the
Resolution1 of the Third Division2 of the Sandiganbayan (SB) dated
June 2, 2005 which quashed the Information filed against herein
respondent for alleged violation of Section 3 (g) of Republic Act No.
3019 (R.A. 3019), otherwise known as the Anti-Graft and Corrupt
Practices Act.
The Information filed against respondent is an offshoot of this
Court's Decision3 in Agan, Jr. v. Philippine International Air
Terminals Co., Inc. which nullified the various contracts awarded by
the Government, through the Department of Transportation and
Communications (DOTC), to Philippine Air Terminals, Co., Inc.
(PIATCO) for the construction, operation and maintenance of the
Ninoy Aquino International Airport International Passenger Terminal
III (NAIA IPT III). Subsequent to the above Decision, a certain Ma.
Cecilia L. Pesayco filed a complaint with the Office of the
Ombudsman against several individuals for alleged violation of R.A.
3019. Among those charged was herein respondent, who was then
the Chairman and President of PIATCO, for having supposedly
conspired with then DOTC Secretary Arturo Enrile (Secretary Enrile)
in entering into a contract which is grossly and manifestly
disadvantageous to the government.
On September 16, 2004, the Office of the Deputy Ombudsman for
Luzon found probable cause to indict, among others, herein
respondent for violation of Section 3(g) of R.A. 3019. While there
was likewise a finding of probable cause against Secretary Enrile, he
was no longer indicted because he died prior to the issuance of the
resolution finding probable cause.
Thus, in an Information dated January 13, 2005, respondent was
charged before the SB as follows:
On or about July 12, 1997, or sometime prior or subsequent
thereto, in Pasay City, Metro Manila, Philippines and within the
jurisdiction of this Honorable Court, the late ARTURO ENRILE, then
Secretary of the Department of Transportation and
Communications (DOTC), committing the offense in relation to his
office and taking advantage of the same, in conspiracy with accused,
HENRY T. GO, Chairman and President of the Philippine
International Air Terminals, Co., Inc. (PIATCO), did then and there,
willfully, unlawfully and criminally enter into a Concession
Agreement, after the project for the construction of the Ninoy
Aquino International Airport International Passenger Terminal III
(NAIA IPT III) was awarded to Paircargo Consortium/PIATCO, which
Concession Agreement substantially amended the draft Concession
9
Agreement covering the construction of the NAIA IPT III under
Republic Act 6957, as amended by Republic Act 7718 (BOT law),
specifically the provision on Public Utility Revenues, as well as the
assumption by the government of the liabilities of PIATCO in the
event of the latter's default under Article IV, Section 4.04 (b) and (c)
in relation to Article 1.06 of the Concession Agreement, which terms
are more beneficial to PIATCO while manifestly and grossly
disadvantageous to the government of the Republic of the
Philippines.4
The case was docketed as Criminal Case No. 28090.
On March 10, 2005, the SB issued an Order, to wit:
The prosecution is given a period of ten (10) days from today within
which to show cause why this case should not be dismissed for lack
of jurisdiction over the person of the accused considering that the
accused is a private person and the public official Arturo Enrile, his
alleged co-conspirator, is already deceased, and not an accused in
this case.5
The prosecution complied with the above Order contending that the
SB has already acquired jurisdiction over the person of respondent
by reason of his voluntary appearance, when he filed a motion for
consolidation and when he posted bail. The prosecution also argued
that the SB has exclusive jurisdiction over respondent's case, even if
he is a private person, because he was alleged to have conspired
with a public officer.6
On April 28, 2005, respondent filed a Motion to Quash7 the
Information filed against him on the ground that the operative facts
adduced therein do not constitute an offense under Section 3(g) of
R.A. 3019. Respondent, citing the show cause order of the SB, also
contended that, independently of the deceased Secretary Enrile, the
public officer with whom he was alleged to have conspired,
respondent, who is not a public officer nor was capacitated by any
official authority as a government agent, may not be prosecuted for
violation of Section 3(g) of R.A. 3019.
The prosecution filed its Opposition.8
On June 2, 2005, the SB issued its assailed Resolution, pertinent
portions of which read thus:
Acting on the Motion to Quash filed by accused Henry T. Go dated
April 22, 2005, and it appearing that Henry T. Go, the lone accused
in this case is a private person and his alleged co-conspirator-public
official was already deceased long before this case was filed in
court, for lack of jurisdiction over the person of the accused, the
Court grants the Motion to Quash and the Information filed in this
case is hereby ordered quashed and dismissed.9
Hence, the instant petition raising the following issues, to wit:
I
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND
DECIDED A QUESTION OF SUBSTANCE IN A MANNER NOT IN
ACCORD WITH LAW OR APPLICABLE JURISPRUDENCE IN GRANTING
THE DEMURRER TO EVIDENCE AND IN DISMISSING CRIMINAL CASE
NO. 28090 ON THE GROUND THAT IT HAS NO JURISDICTION OVER
THE PERSON OF RESPONDENT GO.
II
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND
DECIDED A QUESTION OF SUBSTANCE IN A MANNER NOT IN
ACCORD WITH LAW OR APPLICABLE JURISPRUDENCE, IN RULING
10
THAT IT HAS NO JURISDICTION OVER THE PERSON OF RESPONDENT
GO DESPITE THE IRREFUTABLE FACT THAT HE HAS ALREADY POSTED
BAIL FOR HIS PROVISIONAL LIBERTY
III
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED WHEN, IN
COMPLETE DISREGARD OF THE EQUAL PROTECTION CLAUSE OF THE
CONSTITUTION, IT QUASHED THE INFORMATION AND DISMISSED
CRIMINAL CASE NO. 2809010
The Court finds the petition meritorious.
Section 3 (g) of R.A. 3019 provides:
Sec. 3. Corrupt practices of public officers. – In addition to acts or
omissions of public officers already penalized by existing law, the
following shall constitute corrupt practices of any public officer and
are hereby declared to be unlawful:
xxxx
(g) Entering, on behalf of the Government, into any contract or
transaction manifestly and grossly disadvantageous to the same,
whether or not the public officer profited or will profit thereby.
The elements of the above provision are:
(1) that the accused is a public officer;
(2) that he entered into a contract or transaction on behalf of the
government; and
(3) that such contract or transaction is grossly and manifestly
disadvantageous to the government.11
At the outset, it bears to reiterate the settled rule that private
persons, when acting in conspiracy with public officers, may be
indicted and, if found guilty, held liable for the pertinent offenses
under Section 3 of R.A. 3019, in consonance with the avowed policy
of the anti-graft law to repress certain acts of public officers and
private persons alike constituting graft or corrupt practices act or
which may lead thereto.12 This is the controlling doctrine as
enunciated by this Court in previous cases, among which is a case
involving herein private respondent.13
The only question that needs to be settled in the present petition is
whether herein respondent, a private person, may be indicted for
conspiracy in violating Section 3(g) of R.A. 3019 even if the public
officer, with whom he was alleged to have conspired, has died prior
to the filing of the Information.
Respondent contends that by reason of the death of Secretary
Enrile, there is no public officer who was charged in the Information
and, as such, prosecution against respondent may not prosper.
The Court is not persuaded.
It is true that by reason of Secretary Enrile's death, there is no
longer any public officer with whom respondent can be charged for
violation of R.A. 3019. It does not mean, however, that the
allegation of conspiracy between them can no longer be proved or
that their alleged conspiracy is already expunged. The only thing
extinguished by the death of Secretary Enrile is his criminal liability.
His death did not extinguish the crime nor did it remove the basis of
the charge of conspiracy between him and private respondent.
Stated differently, the death of Secretary Enrile does not mean that
11
there was no public officer who allegedly violated Section 3 (g) of
R.A. 3019. In fact, the Office of the Deputy Ombudsman for Luzon
found probable cause to indict Secretary Enrile for infringement of
Sections 3 (e) and (g) of R.A. 3019.14 Were it not for his death, he
should have been charged.
The requirement before a private person may be indicted for
violation of Section 3(g) of R.A. 3019, among others, is that such
private person must be alleged to have acted in conspiracy with a
public officer. The law, however, does not require that such person
must, in all instances, be indicted together with the public officer. If
circumstances exist where the public officer may no longer be
charged in court, as in the present case where the public officer has
already died, the private person may be indicted alone.
Indeed, it is not necessary to join all alleged co-conspirators in an
indictment for conspiracy.15 If two or more persons enter into a
conspiracy, any act done by any of them pursuant to the agreement
is, in contemplation of law, the act of each of them and they are
jointly responsible therefor.16 This means that everything said,
written or done by any of the conspirators in execution or
furtherance of the common purpose is deemed to have been said,
done, or written by each of them and it makes no difference
whether the actual actor is alive or dead, sane or insane at the time
of trial.17 The death of one of two or more conspirators does not
prevent the conviction of the survivor or survivors.18 Thus, this
Court held that:
x x x [a] conspiracy is in its nature a joint offense. One person
cannot conspire alone. The crime depends upon the joint act or
intent of two or more persons. Yet, it does not follow that one
person cannot be convicted of conspiracy. So long as the acquittal
or death of a co-conspirator does not remove the bases of a charge
for conspiracy, one defendant may be found guilty of the offense.19
The Court agrees with petitioner's contention that, as alleged in the
Information filed against respondent, which is deemed
hypothetically admitted in the latter's Motion to Quash, he
(respondent) conspired with Secretary Enrile in violating Section 3
(g) of R.A. 3019 and that in conspiracy, the act of one is the act of
all. Hence, the criminal liability incurred by a co-conspirator is also
incurred by the other co-conspirators.
Moreover, the Court agrees with petitioner that the avowed policy
of the State and the legislative intent to repress "acts of public
officers and private persons alike, which constitute graft or corrupt
practices,"20 would be frustrated if the death of a public officer
would bar the prosecution of a private person who conspired with
such public officer in violating the Anti-Graft Law.
In this regard, this Court's disquisition in the early case of People v.
Peralta21 as to the nature of and the principles governing
conspiracy, as construed under Philippine jurisdiction, is instructive,
to wit:
x x x A conspiracy exists when two or more persons come to an
agreement concerning the commission of a felony and decide to
commit it. Generally, conspiracy is not a crime except when the law
specifically provides a penalty therefor as in treason, rebellion and
sedition. The crime of conspiracy known to the common law is not
an indictable offense in the Philippines. An agreement to commit a
crime is a reprehensible act from the view-point of morality, but as
long as the conspirators do not perform overt acts in furtherance of
their malevolent design, the sovereignty of the State is not outraged
and the tranquility of the public remains undisturbed.
However, when in resolute execution of a common scheme, a
felony is committed by two or more malefactors, the existence of a
12
conspiracy assumes pivotal importance in the determination of the
liability of the perpetrators. In stressing the significance of
conspiracy in criminal law, this Court in U.S. vs. Infante and Barreto
opined that
While it is true that the penalties cannot be imposed for the mere
act of conspiring to commit a crime unless the statute specifically
prescribes a penalty therefor, nevertheless the existence of a
conspiracy to commit a crime is in many cases a fact of vital
importance, when considered together with the other evidence of
record, in establishing the existence, of the consummated crime and
its commission by the conspirators.
Once an express or implied conspiracy is proved, all of the
conspirators are liable as co-principals regardless of the extent and
character of their respective active participation in the commission
of the crime or crimes perpetrated in furtherance of the conspiracy
because in contemplation of law the act of one is the act of all. The
foregoing rule is anchored on the sound principle that "when two or
more persons unite to accomplish a criminal object, whether
through the physical volition of one, or all, proceeding severally or
collectively, each individual whose evil will actively contributes to
the wrong-doing is in law responsible for the whole, the same as
though performed by himself alone." Although it is axiomatic that
no one is liable for acts other than his own, "when two or more
persons agree or conspire to commit a crime, each is responsible for
all the acts of the others, done in furtherance of the agreement or
conspiracy." The imposition of collective liability upon the
conspirators is clearly explained in one case where this Court held
that x x x it is impossible to graduate the separate liability of each
(conspirator) without taking into consideration the close and
inseparable relation of each of them with the criminal act, for the
commission of which they all acted by common agreement x x x.
The crime must therefore in view of the solidarity of the act and
intent which existed between the x x x accused, be regarded as the
act of the band or party created by them, and they are all equally
responsible x x x
Verily, the moment it is established that the malefactors conspired
and confederated in the commission of the felony proved, collective
liability of the accused conspirators attaches by reason of the
conspiracy, and the court shall not speculate nor even investigate as
to the actual degree of participation of each of the perpetrators
present at the scene of the crime. Of course, as to any conspirator
who was remote from the situs of aggression, he could be drawn
within the enveloping ambit of the conspiracy if it be proved that
through his moral ascendancy over the rest of the conspirators the
latter were moved or impelled to carry out the conspiracy.
In fine, the convergence of the wills of the conspirators in the
scheming and execution of the crime amply justifies the imputation
to all of them the act of any one of them. It is in this light that
conspiracy is generally viewed not as a separate indictable offense,
but a rule for collectivizing criminal liability.
xxxx
x x x A time-honored rule in the corpus of our jurisprudence is that
once conspiracy is proved, all of the conspirators who acted in
furtherance of the common design are liable as co-principals. This
rule of collective criminal liability emanates from the ensnaring
nature of conspiracy. The concerted action of the conspirators in
consummating their common purpose is a patent display of their
evil partnership, and for the consequences of such criminal
enterprise they must be held solidarily liable.22
This is not to say, however, that private respondent should be found
guilty of conspiring with Secretary Enrile. It is settled that the
13
absence or presence of conspiracy is factual in nature and involves
evidentiary matters.23 Hence, the allegation of conspiracy against
respondent is better left ventilated before the trial court during
trial, where respondent can adduce evidence to prove or disprove
its presence.
Respondent claims in his Manifestation and Motion24 as well as in
his Urgent Motion to Resolve25 that in a different case, he was
likewise indicted before the SB for conspiracy with the late
Secretary Enrile in violating the same Section 3 (g) of R.A. 3019 by
allegedly entering into another agreement (Side Agreement) which
is separate from the Concession Agreement subject of the present
case. The case was docketed as Criminal Case No. 28091. Here, the
SB, through a Resolution, granted respondent's motion to quash the
Information on the ground that the SB has no jurisdiction over the
person of respondent. The prosecution questioned the said SB
Resolution before this Court via a petition for review on certiorari.
The petition was docketed as G.R. No. 168919. In a minute
resolution dated August 31, 2005, this Court denied the petition
finding no reversible error on the part of the SB. This Resolution
became final and executory on January 11, 2006. Respondent now
argues that this Court's resolution in G.R. No. 168919 should be
applied in the instant case.
The Court does not agree. Respondent should be reminded that
prior to this Court's ruling in G.R. No. 168919, he already posted bail
for his provisional liberty. In fact, he even filed a Motion for
Consolidation26 in Criminal Case No. 28091. The Court agrees with
petitioner's contention that private respondent's act of posting bail
and filing his Motion for Consolidation vests the SB with jurisdiction
over his person. The rule is well settled that the act of an accused in
posting bail or in filing motions seeking affirmative relief is
tantamount to submission of his person to the jurisdiction of the
court.27
Thus, it has been held that:
When a defendant in a criminal case is brought before a competent
court by virtue of a warrant of arrest or otherwise, in order to avoid
the submission of his body to the jurisdiction of the court he must
raise the question of the court’s jurisdiction over his person at the
very earliest opportunity. If he gives bail, demurs to the complaint
or files any dilatory plea or pleads to the merits, he thereby gives
the court jurisdiction over his person. (State ex rel. John Brown vs.
Fitzgerald, 51 Minn., 534)
xxxx
As ruled in La Naval Drug vs. CA [236 SCRA 78, 86]:
"[L]ack of jurisdiction over the person of the defendant may be
waived either expressly or impliedly. When a defendant voluntarily
appears, he is deemed to have submitted himself to the jurisdiction
of the court. If he so wishes not to waive this defense, he must do
so seasonably by motion for the purpose of objecting to the
jurisdiction of the court; otherwise, he shall be deemed to have
submitted himself to that jurisdiction."
Moreover, "[w]here the appearance is by motion for the purpose of
objecting to the jurisdiction of the court over the person, it must be
for the sole and separate purpose of objecting to said jurisdiction. If
the appearance is for any other purpose, the defendant is deemed
to have submitted himself to the jurisdiction of the court. Such an
appearance gives the court jurisdiction over the person."
Verily, petitioner’s participation in the proceedings before the
Sandiganbayan was not confined to his opposition to the issuance of
a warrant of arrest but also covered other matters which called for
14
respondent court’s exercise of its jurisdiction. Petitioner may not be
heard now to deny said court’s jurisdiction over him. x x x.28
In the instant case, respondent did not make any special
appearance to question the jurisdiction of the SB over his person
prior to his posting of bail and filing his Motion for Consolidation. In
fact, his Motion to Quash the Information in Criminal Case No.
28090 only came after the SB issued an Order requiring the
prosecution to show cause why the case should not be dismissed for
lack of jurisdiction over his person.
As a recapitulation, it would not be amiss to point out that the
instant case involves a contract entered into by public officers
representing the government. More importantly, the SB is a special
criminal court which has exclusive original jurisdiction in all cases
involving violations of R.A. 3019 committed by certain public
officers, as enumerated in P.D. 1606 as amended by R.A. 8249. This
includes private individuals who are charged as co-principals,
accomplices or accessories with the said public officers. In the
instant case, respondent is being charged for violation of Section
3(g) of R.A. 3019, in conspiracy with then Secretary Enrile. Ideally,
under the law, both respondent and Secretary Enrile should have
been charged before and tried jointly by the Sandiganbayan.
However, by reason of the death of the latter, this can no longer be
done. Nonetheless, for reasons already discussed, it does not follow
that the SB is already divested of its jurisdiction over the person of
and the case involving herein respondent. To rule otherwise would
mean that the power of a court to decide a case would no longer be
based on the law defining its jurisdiction but on other factors, such
as the death of one of the alleged offenders.
Lastly, the issues raised in the present petition involve matters
which are mere incidents in the main case and the main case has
already been pending for over nine (9) years. Thus, a referral of the
case to the Regional Trial Court would further delay the resolution
of the main case and it would, by no means, promote respondent's
right to a speedy trial and a speedy disposition of his case.
WHEREFORE, the petition is GRANTED. The Resolution of the
Sandiganbayan dated June 2, 2005, granting respondent's Motion to
Quash, is hereby REVERSED and SET ASIDE. The Sandiganbayan is
forthwith DIRECTED to proceed with deliberate dispatch in the
disposition of Criminal Case No. 28090.
SO ORDERED.
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.
WHEREFORE, the petition is DENIED.
SO ORDERED.
G.R. No. 203655 August 13, 2014
SM LAND, INC., Petitioner,
vs.
BASES CONVERSION AND DEVELOPMENT AUTHORITY and ARNEL
PACIANO D. CASANOVA, ESQ., in his official capacity as President
and CEO of BCDA, Respondents.
DECISION
VELASCO, JR., J.:
15

The Case
Before Us is a Petition for Certiorari, Prohibition and Mandamus
under Rule 65 of the Rules of Court, with prayer for injunctive relief,
seeking to nullify and set aside the Bases Conversion and
Development Authority (BCDA) Supplemental Notice No. 5 as well
as all other acts1 pursued in furtherance thereof, and to order
respondents to immelliately conduct and complete the Competitive
Selection Process on petitioner's duly accepted unsolicited proposal.
The Facts
As culled from the records, the facts are simple and undisputed.
Pursuant to Republic Act No. (RA) 7227 or the "Bases Conversion
and Development Act of 1992," the BCDA opened for disposition
and development its Bonifacio South Property, a 33.1-hectare
expanse located at Taguig City that was once used as the command
center for the country's military forces. Jumping on the opportunity,
petitioner SM Land, Inc. (SMLI), on December 14, 2009, submitted
to the BCDA an unsolicited proposal for the development of the lot
through a public-private joint venture agreement. The proposal
guaranteed the BCDA secured payments amounting to PhP
15,985/sqm or a total of PhP 8.1 billion.
Barely three months later, the initial proposal was followed by a
second one with guaranteed secured payments of PhP 31,139/sqm,
totaling PhP 20 billion. On May 4, 2010, however, SMLI submitted
its third unsolicited proposal with guaranteed secured payments
amounting to PhP 32,501/sqm for a total of PhP 22.6 billion.
Thereafter, the BCDA created a Joint Venture Selection Committee
(JV-SC) following the procedures prescribed under Annex "C" of the
Detailed Guidelines for Competitive Challenge Procedure for
PublicPrivate Joint Ventures (NEDA JV Guidelines) promulgated by
the National Economic Development Authority(NEDA). The said
committee recommended the acceptance of the unsolicited
proposal, which recommendation was favorablyacted upon by the
BCDA. Through a letter dated May 12, 2010, the BCDA
communicated to petitioner its acceptance of the unsolicited
proposal. Despite its acceptance, however, the BCDA clarified that
its act should not be construed to bind the agency to enter into a
joint venture agreement with the petitioner but only constitutes an
authorization granted to the JV-SC to conduct detailed negotiations
with petitioner SMLI and iron out the terms and conditions of the
agreement.
Pursuant to this authorization, the JV-SC and SMLI embarked on a
series of detailed negotiations, and on July 23, 2010, SMLI
submitted its final revised proposal with guaranteed secured
payments amounting to a total of PhP 25.9 billion. Afterwards, upon
arriving at mutually acceptable terms and conditions, a Certification
of Successful Negotiations (Certification) was issued by the BCDA
and signed by both parties on August 6, 2010. Through the said
Certification, the BCDA undertook to "subject SMLI’s Original
Proposal to Competitive Challenge pursuant to Annex C" and
committed itself to "commence the activities for the solicitation for
comparative proposals."1
In an attempt to comply with its obligations, the BCDA prepared for
the conduct of a Competitive Challenge to determine whether or
not there are other Private Sector Entities (PSEs)that can match the
proposal of SMLI, and concurrently ensure that the joint venture
contract will be awarded to the party that can offer the most
advantageous terms in favor of the government. In furtherance
thereof, the agency issued Terms of Reference (TOR),2 which
mapped out the procedure to be followed in connection with the
16
Competitive Challenge. Consequently, SMLI was required, as it did,
to post a proposalsecurity in the amount of PhP 187 million,
following the prescribed procedure outlined in the TOR and the
NEDA JV Guidelines.
Afterwards, the BCDA set the Pre-eligibility Conference on
September 3, 2010. Invitations to apply for eligibility and to submit
comparative proposals were then duly published on August 12, 16
and 20, 2010. Hence, the pre-eligibility conference was conducted
as scheduled. The companies that participated in the conference
included SMLI, as the Original Proponent, and three (3) PSEs,
namely Ayala Land, Inc., Rockwell Land Corp., and Filinvest Land,
Inc.
On Ayala Land, Inc.’s request, the deadline for submission of
Eligibility Documents was scheduled on October 20, 2010 through
Supplemental Notice No. 1. However, the deadline was again
moved to November 19, 2010 to allow the BCDA, in conjunction
with other national agencies, to resolve issues concerning the
relocation and replication of facilities located in the subject
property.For this purpose, the BCDA issued Supplemental Notice
No. 2.
Following a conference, the BCDA, on November 18, 2010, issued
Supplemental Notice No. 3, again rescheduling the submission
deadline this time to an unspecified future date "pending final
results of the policy review by the Office of the President on the
lease versus joint venture/sale mode and other issues."3
Henceforth, the BCDA repeatedly postponed the deadline of
eligibility requirements untiltwo (2) years have already elapsed from
the signing of the Certification without the Competitive Challenge
being completed.
Then, instead of proceeding withthe Competitive Challenge, the
BCDA addressed a letter4 to Jose T. Gabionza, Vice President of
SMLI, stating that it will welcome any "voluntary and unconditional
proposal" to improve the original offer, with the assurance that the
BCDA will nonetheless respect any right which may have accrued in
favor of SMLI. SMLI, through a letter dated December 22, 2011,
replied by increasing the total secured payments to PhP 22.436
billion in over fifteen (15) years with an upfront payment of PhP 3
billion. SMLI likewise proposed to increase the net present value of
the property to PhP 38,500.00/sqm. With this accelerated terms of
payment, the total inflow to be received by the BCDA from the
project after five (5) years would amount to PhP 9.289 billion. In the
same letter, SMLI clarified that itsimproved offer is tendered on
reliance of the BCDA’s previous commitment torespect SMLI’s
status as the Original Proponent.
Without responding to SMLI’s new proposal, the BCDA sent a
memorandum to the Office of the President (OP) dated February 13,
2012, categorically recommending the termination of the
Competitive Challenge. The memorandum, in part, reads:
In view of the foregoing, may we respectfully recommend the
President’s approval for BCDA to terminate the proceedings for the
privatization and development of the BNS/PMC/ASCOM/SSU
Properties in Bonifacio South through Competitive Challenge and
proceed with the bidding of the property.5
Alarmed by this development, SMLI, in a letter dated August 10,
2012, urged the BCDA to proceed with the Competitive Challenge as
agreed upon. However, the BCDA, via the assailed Supplemental
Notice No. 5, terminated the Competitive Challenge altogether. Said
Supplemental Notice pertinently reads:
17
This Supplemental Notice No. 05 is issued to inform the [PSEs] that
the Competitive Challenge for the Selection of BCDA’s Private Sector
Partner for the Privatization and Development of the approximately
33.1-hectare BNS/PMC/ASCOM/SSU Properties in Bonifacio South is
hereby terminated. BCDA shall not dispose the property through
Competitive Challenge.6
To support its position, the BCDA invoked Article VIII of the TOR on
the subject "Qualifications and Waivers," to wit:
The BCDA reserves the right to call off [the] disposition prior to
acceptance of the proposal(s) and call for a new disposition process
under amended rules and without any liability whatsoever to any or
all the PSEs, except the obligation to return the Proposal Security.
Thereafter, the BCDA informed SMLI of the OP’s decision to subject
the development of the subject propertyto public bidding. When
asked by SMLI, the JV-SC manifested its conformity with the actions
thus taken by the BCDA and OP.
The JV-SC’s declaration proved to be the last straw that fractured
SMLI’s patience as it lost no time in interposing the instant recourse.
In the meantime, the BCDA issuedin favor of SMLI Philippine
National Bank Check No. 11-634-610001-0 in the amount of PhP
188,508,466.67 dated September 28, 2012. The check was sent
through registered mail with no explanation whatsoever
accompanying the same, although the BCDA admitted that its value
corresponds to the proposal security posted by SMLI, plus interest
in an unspecified rate. SMLI attempted to return the check but to no
avail.
The BCDA likewise caused the publication of an "Invitation to Bid"
for the development of the subject property in the December 21,
2012 issue of the Philippine Star.7 This impelled SMLI to file an
Urgent Manifestation with Reiterative Motion to Resolve SMLI’s
Application for Temporary Restraining Order (TRO) and Preliminary
Injunctionon the same day. By Resolution8 of January 9, 2013, the
Court issued the TRO prayed for by petitioner and enjoined
respondent BCDA from proceeding with the new selection process
for the development of the property.
The Issue
Without a doubt, the issue in this case boils down to whether or not
the BCDA gravely abused its discretion in issuing Supplemental
Notice No. 5, in unilaterally aborting the Competitive Challenge, and
in subjecting the development of the project to public bidding.
For its part, SMLI alleged in its petition that the Certification issued
by the BCDA and signed by the parties constituted a contract and
that under the said contract, BCDA cannot renege on its obligation
to conduct and complete the Competitive Challenge. The BCDA, on
the other hand, relies chiefly on the reservation clause in the TOR,
which allegedly authorized the agency to unilaterally cancel the
Competitive Challenge. Respondents add that the terms and
conditions agreedupon are disadvantageous to the government,
and that it cannot legally be barred by estoppel in correcting a
mistake committed by its agents.
The Court’s Ruling
The petition is impressed with merit. SMLI has the right to a
completed competitive challenge pursuant to the NEDA JV
Guidelines and the Certification issued by the BCDA. The reservation
clause adverted to by the respondent cannot, in any way, prejudice
said right.
18
The Procurement Process under the NEDA JV Guidelines
In resolving the case, discussing the procedure outlined under the
NEDA JV Guidelines and a brief backgrounder thereof is apropos.
To streamline the procurement process and expedite the acquisition
of goods and services, Executive Order No. (EO) 423 was issued on
April 30, 2005, which prescribed the rules and procedures on the
review and approval of government contracts. The EO, in part,
provides: Section 8. Joint Venture Agreements. The NEDA, in
consultation with the GPPB, shall issue guidelines regarding joint
venture agreements with private entities with the objective of
promoting transparency, competitiveness, and accountability in
government transactions, and, where applicable, complying with
the requirements of an open and competitive public bidding.
Taking its cue from the above-quoted provision, the NEDA
promulgated the NEDA JV Guidelines, which detailed two (2) modes
of selecting a private sector JV partner: by competitive selection or
through negotiated agreements.
Competitive selection involves a selection process based on
transparent criteria, which should not constrain or limit
competition, and is open to participation by any interested and
qualified private entity.9 Selection by negotiated agreements10 or
negotiated projects,11 on the other hand, comes about as an end
result of an unsolicited proposal12 from a private sector proponent,
or if the government has failed to identify an eligible private sector
partner for a desired activity after subjecting the same to a
competitive selection.
Relevant to the case at bar is the selection modality by negotiated
agreement arising from the submission and acceptance of an
unsolicited proposal, known as the Swiss Challenge method,13 in
essea hybrid mechanism between the direct negotiation approach
and the competitive bidding route.14 With the availability of the
Swiss Challenge method for utilization by those in the private
sector, PSEs have studied, formulated, and submitted numerous suo
motoor unsolicited proposals with the ultimate goal of assisting the
public sector in elevating the country’s place in the global economy,
as in the case herein.
The development and adoption by several countries of the Swiss
Challenge scheme15 is attributed to the recognition that the private
sector can be an important source of technical and managerial
expertise, as well as financing, as evidenced by private companies’
practice of directly approaching governments with new and
innovative project ideas through unsolicited proposals.16 Some
states, however, frown on the practice since transparency is
allegedly compromised when the government directly negotiates
with a proponent. In this method, the Original Proponent, who first
submitted and secured acceptance ofthe unsolicited proposal, is
given the right to match the successful bid received in the
competitive bid process for the said project.17
Item III, Annex "C" of the NEDA JV Guidelines, where the Swiss
Challenge format is tucked in, maps out a three-stage framework, to
which Negotiated JV Agreements are to be mandatorily subjected,
as summarized below:
Stage One
Submission and the Acceptance
or Rejection of the Unsolicited Proposal
Stage One18 of the process involves the submission, evaluation, and
the acceptance of unsolicited proposals from private entities. The
steps involved are:
19

1. A PSE submits an unsolicited proposalto the government entity
(GE) or the GE seeks out a JV partner after a failed competition
(open bidding) for a JV activity or project.
2. The GE, through its JV-SC, undertakes the initial evaluation of the
proposal.
3. The head of the GE shall then either issue an acceptance or
nonacceptance notice of the proposal.
a. An acceptance shall not bind the GE to enter into the JV activity,
but shall mean that authorization is given to proceed with detailed
negotiations on the terms and conditions of the JV activity.
b. In case of non-acceptance, the private sector entity shall be
informed of the reasons/grounds for such action.
Stage Two
Detailed Negotiations
Stage Two19 entails negotiation on the terms and conditions of the
JV activity. Below is a summary of the parameters adhered to in
detailed negotiations, and the preparation of the proposal
documents in case of successful negotiations:
1. The parties shall negotiate on, among other things, the scope as
well as all legal, technical, and financial aspects of the JV activity.
2. The JV-SC shall determine the eligibility of the PSE to enter into
the JV activity in accordance with pre-set rules.
3. Negotiations shall comply with the process, requirements and
conditions as stipulated under Sections 6 (General Guidelines) and 7
(Process for Entering into JV Agreements) of the JV Guidelines.
a. If successful, the GE head and the representative of the PSE shall
issue a signed certification of successful negotiation to the effect
that:
a) an agreement has been reached;
b) the PSE is eligible to enter into the proposed JV activity; and
c) the GE shall commence the activities for the solicitation for
comparative proposals.
b. If an acceptable agreement isnot reached, the GE may:
a) reject the proposal and thereafter accept a new one from private
sector participants; or
b) pursue the proposed activity through alternative routes other
than a joint venture.
4. After an agreement is reached, the contract documents, including
the selection documents for the competitive challenge, are
prepared.
Stage Three
Competitive Challenge
In Stage Three,20 upon the successful completion of the detailed
negotiation phase, the JV activity shall be subjected to a competitive
20
challenge,21 which includes the observance of the following
procedure:
1. Preparation and approval of all tender documents including the
draft contract before the invitation for comparative proposals is
published.
2. Publication of the invitation for comparative proposals followed
by the posting by the PSE of the proposal security.
3. Determination of the eligibility of comparative proponents/PSEs,
issuance of supplemental competitive selection bulletins and pre-
selection conferences, submission, opening and evaluation of
comparative proposals.
4. In the evaluation of the comparative proposals as a prelude to
determine the best offer, the original proposal of the original
proponent shall be considered.
a. If the GE determines that an offer made by a comparative private
sector participant is more advantageous to the government than
the original proposal, the original proponent shall be given the right
to match such superior or more advantageous offer.
b. Should no matching offer be received, the JV activity shall be
awarded to the comparative private sector participant submitting
the most advantageous proposal.
c. If a matching offer is received, or if there is no comparative
proposal, the JV activity shall be awarded to the original proponent.
5. After the completion of the competitive challenge, the JV-SC shall
submit the recommendation of award to the head of the GE.22
6. Embarking on activities leading to the execution of the Final
Agreement.23
Deviation from the procedure outlined cannot be countenanced.
Wellestablished is the rule that administrative issuances––such as
the NEDA JV Guidelines, duly promulgated pursuant to the rule-
making power granted by statute––have the force and effect of
law.24 Being an issuance in compliance with an executive edict, the
NEDA JV Guidelines, therefore, has the same binding effect as if it
were issued by the President himself.25 As such, no agency or
instrumentality covered by the JV Guidelines26 can validly stray
from the mandatory procedures set forth therein, even if the other
party acquiesced therewith27 or not.
SMLI’s rights as an Original Proponent and BCDA’s correlative duty
under the NEDA JV Guidelinesand the parties’ agreement
It is well to point out that after BCDA accepted the unsolicited
proposal of SMLI and after both parties herein successfully
concluded the detailed negotiations on the terms and conditions of
the project, SMLI acquired the status of an Original Proponent. An
Original Proponent, per the TOR, pertains to the party whose
unsolicited proposal for the development and privatization of the
subject property though JV with BCDA has been accepted by the
latter, subject to certain conditions, and is now being subjected to a
competitive challenge.28
In this regard, SMLI insists that asan Original Proponent, it obtained
the right to a completed competitive challenge. On the other hand,
the BCDA argues that it can, at any time, withdraw from the
disposition process as it is not bound to enter into the proposed JV
activity with SMLI. Petitioner’s argument holds water.
21
A scrutiny of the NEDA JV Guidelinesreveals that certain rights are
conferred to an Original Proponent. Ascorrectly pointed out by
SMLI, these rights include:
1. The right to the conduct and completion of a competitive
challenge;
2. The right to match the superior or more advantageous offer, if
any;
3. The right to be awarded the JV activity in the event that a
matching offer is submitted within the prescribed period; and
4. The right to be immediately awarded the JV activity should there
be no comparative proposals.29 (emphasis added)
Material to the present case is the right to the conduct and
completion of a Competitive Challenge. Based onthe NEDA JV
Guidelines, it is necessary that Stages One and Two of the Swiss
Challenge shall have been fruitful for this right to arise.
To recall, Stages One and Two ofthe framework deal with the
submission and evaluation of the unsolicited proposal and the
conduct of the detailed negotiations. Should the parties
productively conclude the in-depth negotiations, the guidelines
require the preparation of the contract and selection documents for
the competitive challenge.30 Following this, Stage Three of the
same rules provides that the GE shall subject the terms agreed upon
to a Competitive Challenge. Thus:
Stage Three – Once the negotiations have been successfully
completed, the JV activity shallbe subjected to a competitive
challenge, as follows:
1. The [GE] shallprepare the tender documents pursuant to Section
II (Selection/Tender Documents) of Annex A hereof. The eligibility
criteria used in determining the eligibility of the [PSE] shall be the
same as those stated in the tender documents. x x x The Head of the
[GE] shall approve all tender documents including the draft contract
before the publication of the invitation for comparative proposals.
2. Within seven (7) calendar days from the issuance of the
Certification of a successful negotiation referred toin Stage Two
above, the JV-SC shall publish the invitation for comparative
proposals in accordance with Section III.2. (Publication of Invitation
to Apply for Eligibility and to Submit Proposal) under Annex A
hereof.
3. The [PSE] shallpost the proposal security at the date of the first
day of the publication of the invitation for comparative proposals in
the amount and form stated in the tender documents.
4. The procedure for the determination of eligibility of comparative
proponents/private sector participants, issuance of supplemental
competitive selection bulletins and pre-selection conferences,
submission and receipt of proposals, opening and evaluation of
proposals shall follow the procedure stipulated under Annex A
hereof. In the evaluation of proposals, the best offer shall be
determined to include the original proposal of the [PSE]. If the [GE]
determines that an offer made by a comparative private sector
participant other than the original proponent is superior or more
advantageous to the government than the original proposal, the
[PSE] who submitted the original proposal shall be given the right to
match such superior or more advantageous offerx x x. Should no
matching offer be received within the stated period, the JV activity
shallbe awarded to the comparative private sector participant
submitting the most advantageous proposal. If a matching offer is
received within the prescribed period, the JV activity shallbe
22
awarded to the original proponent. If no comparative proposal
isreceived by the [GE], the JV activity shallbe immediately awarded
to the original private sector proponent.
5. Within seven (7) calendar days from the date of completion of
the Competitive Challenge, the JV-SC shallsubmit the
recommendation of award to the Head of the [GE]. Succeeding
activities shall be in accordance with Sections VIII. (Awardand
Approval of Contract) and X (Final Approval) of Annex A hereof.31
(emphasis added)
Anent the above-quoted directives, emphasis must be given to the
repeated use of the word "shall." It is elementary that the word
"shall" underscores the mandatory character of the rule. Itis a word
of command, one which always has or must be given a compulsory
meaning, and is generally imperative or mandatory.32 Considering
the compulsory tenor of the order, the rule could not be any
clearer––that once the negotiations at Stage Two shall have been
successfully completed, it becomes mandatory for the GE to subject
theJV activity to a competitive challenge. By the Guidelines’ explicit
order, proceeding to Stage Three of the process is compulsory,
conditioned only on the successful conclusion of Stage Two. The GE
is not given any discretion to decide whether it will proceed with
the competitive challenge or not. Furthermore, there is no question
in the case at hand that the unsolicited proposal for the
development of the subject property passed through scrutiny under
the first two stages, resulting inthe issuance and signing of the
Certification. As a matter of fact, this is clearly evinced in the
whereas clauses of the Certification, to wit:
WHEREAS, on 04 May 2010, BCDA received from [SMLI] an
unsolicited proposalfor the development of [the subject property]. x
xx
WHEREAS, after evaluation of the unsolicited proposalsubmitted by
SMLI in accordance with the provisions of Annex "C" of the JV
Guidelines, the [JV-SC] created byBCDA x x x recommended to the
BCDA Board, and the BCDA Board approved, per Board Resolution
No. 2010-05-100, the acceptance ofthe unsolicited proposal, subject
to the condition that such acceptance shall not bind BCDA to enter
into a JV activity, but shall mean that authorization is given to
proceed with detailed negotiationson the terms and conditions of
the JV activity;
WHEREAS, pursuant to the authorization granted by the Board and
issued pursuant to Annex "C", Part III, Stage One of the JV
Guidelines, BCDA went into detailed negotiations with SMLI. The JV-
SC simultaneously ascertained the eligibility of SMLI inaccordance
with Annex "C", Part III, Stage 2 (2) of the JV Guidelines;
WHEREAS, this Certificationisissuedpursuant to Annex "C" Part III,
Stage 2 (2) of the JV Guidelines;
NOW, THEREFORE, for and in consideration of the foregoing, BCDA
and SMLI, after successful negotiationspursuant to Stage II of Annex
C x x x reached an agreement on the purpose, terms and conditions
of the JV development of the subjectproperty, which shall become
the terms for the Competitive Challenge pursuant to Annex C of the
JV Guidelinesx x x.33 (emphasis added)
Moreover, the Certification further discloses that the BCDA has the
obligation to subject SMLI’s unsolicited proposal to a Competitive
Challenge, to which SMLI assented. As provided:
BCDA and SMLI have agreed to subject SMLI’s Original Proposal to
Competitive Challenge pursuant to Annex C – Detailed Guidelines
for Competitive Challenge Procedure for Public-Private Joint
Ventures of the NEDA JV Guidelines, which competitive challenge
23
process shall be immediately implemented following the Terms of
Reference (TOR) Volumes 1 and 2. BCDA shall, thus, commence the
activities for the solicitation for comparative proposals with the
publication of the Invitation to Apply for Eligibility and to Submit
Comparative Proposals (IAESCP) thrice for two (2) consecutive
weeks in three (3) major newspapers starting on 10 August 2010, on
which date SMLI shall post the required Proposal Security as
statedabove. Pursuant to Annex C of the NEDA JV Guidelines, if,
after solicitation of comparative proposals, BCDA determines that
an offer by a comparative PSE is found to be superior to SMLI’s
Original Proposal,SMLI shall be given the right to match such
superior offer within the period prescribed in the attached TOR
Volumes 1 and 2. If SMLI is ableto match such superior offer, SMLI
shall be issued the Notice of Award, subject to Item No. 19 above. In
the event, however, that SMLI is unable to match the superior offer,
the comparative PSE which submitted such superior offer shall be
awarded the contract, subject to Item No. 19 above.34 (emphasis
added)
By their mutual consent and in signing the Certification, both
parties, in effect, entered into a binding agreement to subject the
unsolicited proposal to the Competitive Challenge. Evidently, the
certification partakes of a contractwherein BCDA committed itself to
proceed with the Third Stage of the process and simultaneously
grants SMLI the right to expect that the BCDA will fulfill its
obligations under the same. The preconditions to the conduct of the
Competitive Challenge having been met, what is left, therefore, is
tosubject the terms agreed upon to a Competitive Challenge
pursuant to Stage Three, Annex "C" of the NEDA JV Guidelines.
The Reservation Clause only covers the Third Stage and cannot
prejudice SMLI’s rights stemming from the first two stages
In an attempt to advance its claim, BCDA invokes the reservation
clause in Article VIII of the TOR on "Qualifications and Waivers." To
reiterate, said provision reads:
3. BCDA further reserves the right to call off this disposition prior to
acceptance of the proposal(s) and call for a new disposition process
under amended rules, and without any liability whatsoever to any
or all of the PSEs, except the obligation to return the Proposal
Security.35 (emphasis ours)
The BCDA insists that the "disposition process" to which the
reservation clause refers is the entire Swiss Challenge, and not
merely Stage Three thereof regarding the Competitive Challenge.
This interpretation does not come as a surprise considering the
term’s technical meaning, that is, alienation of property;36 the
transfer of the property and possession of lands, tenements, or
other things from one person to another; or the voluntary
resignation of title to real estate by one person to another and
accepted by the latter, in the forms prescribed by law.37 On the
basis of said definition, indeed, the reservation clause seemingly
refers to the Swiss Challenge itself since in the case at bar, it is the
Swiss Challenge, not the competitive challenge, that is the avenue
for the disposition.
To anchor the real import of the clause on the basis only of a single
word may, however, result in a deviation from its true meaning by
rendering all the other terms unnecessaryor insignificant. Suchan
interpretation would run afoul Article 1373 of the Civil Code, which
states that "[i]f some stipulation of any contract should admit of
several meanings, it shall be understood as bearing that import
which is most adequate to render it effectual." It is a cardinal rule in
statutory construction that no word, clause, sentence, provision or
part of a statute shall be considered surplusage or superfluous,
meaningless, void and insignificant.38 For this purpose, an
24
interpretation which renders every word operative is preferred over
that which makes some words idle and nugatory.
We find that the reservation clausecannot justify the cancellation of
the entire procurement process. Respondent cannot merely harp on
the lone provision adverted to without first explaining the context
surrounding the reservation clause. The said provision cannot be
interpreted in a vacuum and should instead be read in congruence
with the other provisions in the TOR for Us to fully appreciate its
import.
At this juncture, it is worthy to point out that the TOR containing the
reservation clause details the requirements for eligibility to qualify
as a PSE that may submit its proposal for the JV,39 as well as the
procedure to be followed in the assessment of the eligibility
requirements submitted and in the conduct of the Competitive
Challenge. It basically governs only part and parcel of Stage Three of
the Swiss Challenge Process, that is, the requirements for and the
determination of an interested PSE’s eligibility to participate inthe
Competitive Challenge. This conclusion is deduced from the very
provisions of the TOR, viz:
These [TOR] describe the procedures that shall be followed in
connection with the disposition of the approximately Three
Hundred Thirty-one Thousand Three Hundred Twenty-seven square
meters (331,327 sq.m.) or 33.1-hectare Bonifacio Naval Station
(BNS)/Philippine Marine Corps (PMC)/Army Support Command
(ASCOM)/Service Support Unit (SSU) Properties in Bonifacio South
(the "Property"), located along Lawton Avenue, Fort Bonifacio,
Taguig City, Metro Manila, Philippines.
These TOR are issued in two (2) volumes: Volume 1 – Eligibility
Documents; and Volume 2 – Tender Documents. This first volume
details the requirements for eligibility to qualify as a Private Sector
Entity (PSE) that may submit Technical and Financial Proposals for
the Joint Venture (JV) Privatization and Development of [the]
subject Property, and the procedures involved in the entire
Competitive Challenge procedure. [PSEs] which shall be declared
eligible shall be issued the second volume of the TOR which details
the requirements and procedures for the submission of Technical
and Financial Proposals, with the end-view of determining a
Winning PSE for subject JV development.
xxxx
I. GENERAL INFORMATION
xxxx
2. Publication of Invitation for Comparative Proposals. BCDA shall
publish x x x the "Invitation to Apply for Eligibility and to Submit a
Comparative Proposal" (IAESCP). This shall serve to inform and to
invite the prospective PSEs to the Competitive Challenge procedure
at hand. x x x
3. Joint Venture Agreement.x x x the ultimate objective of BCDA in
qualifying prospective PSEsto be eligible to submit Technical and
Financial Proposals is to select a partner in the
unincorporated/contractual [JV]for the privatization and
development of the subject Property. x x x
xxxx
4. Amendment of these TOR. x x x Should any of the information
and/or procedurescontained in these TOR be amended or replaced,
the JV-SC shall inform and send Supplemental Notices to all PSEs. To
ensure all PSEs are informed of any amendments, all PSEs are
requested to inform BCDA of their contact [details].In addition,
25
receipt of all Supplemental Notices shall beduly acknowledged by
each PSEprior to the submission of eligibility documents and/or
proposals and shall be soindicated therein.
5. Pre-Eligibility Conference. Interested parties are invited to attend
a Pre-Eligibility Conference for prospective PSEs x x x.
6. One-on-One Meetings. Prospective PSEs may request for one-on-
one meetings with the JV-SC or its duly authorized representatives.
xxx
xxxx
9. Due Diligence. x x x
The PSE shall investigate x x x [and] carefully examine [the]
conditions of and at the Property and its surrounding vicinities
affecting the actual execution and such other information as to
allow the PSE to make a competitive estimate. The PSE, by the act of
submitting its proposal, acknowledges that it has inspected the
Property and accepted all the terms and conditions for this
competitive challenge as set in TOR Volumes 1 and 2.
xxxx
V. APPLICATION FOR ELIGIBILITY
1. Eligibility Requirements. Only eligible PSEs shall be allowed to
submit comparative Technical and Financial Proposals, or
collectively, the Tender Documents x x x. Hence, interested PSEs are
invited to apply for eligibility and to participate in the Competitive
Challenge procedure. Aside from being required to purchase the
[TOR] – Volume1, for a non-refundable fee x x x, a PSE shall be
considered eligible if it satisfies all of the following requirements:
1.1. Legal Requirements. The PSE must be a duly registered and
existing corporation authorized by Philippine Laws to own, hold or
develop lands in the Philippines. x x
x
1.2. Technical Requirements.
1.2.1. Firm Experience. The PSEx x x shall have completed within a
period of ten (10) years from the date of submission and receipt of
Proposals, a similar or related development project x x x.
1.2.2. Key Personnel. x x x
1.3. Financial Capability. The PSEx x x must have adequate capability
to sustain the financing requirements for the proposed
development ofthe Property. This shall be measured in terms of:
1.3.1. Net Worth. x x x
1.3.2. Good financial standing. x x x
1.3.3. No Arrears. x x x
1.3.4. Timely and complete Payment of Taxes. x x x
1.3.5. Financial Capacity to Undertake the
Project.
xxxx
26
2. Required Eligibility Documents. The PSEs x x x that wish to be
considered for eligibility are required to submit x x x the following
documents:
xxxx
VI. EVALUATION OF ELIGIBILITY
1. Opening of Eligibility Documents. x x x
2. Evaluation Process. Eligibility Documents submitted by the
PSEshall be evaluated on a pass or fail basis to determine if the PSEx
x x complies with or satisfies all of the requirements specified in
Article V hereof. x x x
3. Motion for Reconsideration/Appeal on Eligibility. A prospective
PSE determined as "Ineligible" has seven (7) calendar days upon
written notice within which to file a motion for reconsideration
tothe JV-SC. x x x
4. No Eligible [PSEs]. In the event that no PSE be found eligible or no
PSE submitted itself to eligibility check for the Competitive
Challenge procedure, BCDA shall proceed to the issuance of Notice
of Award to SMLI, as the original proponent for the subject JV
project.
xxxx
VII. CHANGE IN MEMBERSHIP OF AN ELIGIBLE PSE.
xxxx
VIII. QUALIFICATIONS AND WAIVERS
1. BCDA reserves the right to reject any or all Eligibility Documents,
to waive any defect or informality thereon or minor deviations,
which do notaffect the substance and validity of the proposal.
2. BCDA reserves the right to review other relevant information
affecting the PSE or its Eligibility Documents before its declaration
as eligible to participate further in the selection process, and be
allowed to submit a Final Proposal. Should such review uncover any
misrepresentations made in the eligibility documents, or any change
in the situation of the PSE, which affects its eligibility, BCDA may
disqualify the PSE from obtaining any award/contract.
3. BCDA further reserves the right tocall of this disposition prior to
acceptance of the proposal(s) and call for a new disposition process
under amended rules,and without any liability whatsoever to any or
all the PSEs, except the obligation to return the Proposal Security x x
x.40 (emphasis ours; citation omitted)
A cursory reading of the TOR, ascouched, readily shows that it
focuses only on the eligibility requirements for PSEs who wish to
challenge SMLI’s proposal as well as the procedure to be followed
by the BCDA JVSC in the evaluation of the PSEs’ submittals. We thus
find merit in SMLI’s thrust that since the TOR governs the eligibility
requirements for PSE’s, the "disposition process" referred to inthe
reservation clause could only refer to the eligibility process in Stage
Three of the Swiss Challenge and not the entire Swiss Challenge
process itself. We are convinced that the said provision does not
authorize BCDA to abort the entire procurement process and cannot
impair any of SMLI’s statutorily and contractuallyconferred rights
stemming from the first two stages’ conclusion. To rule otherwise
would grant the GE unbridled authority to thrust aside the
agreement between the parties after successful detailed
negotiations. It would disregard the fact that through the said
27
covenant,the GE bound itself to conduct and complete the
Competitive Challenge pertaining to SMLI’s proposal.
Provisions of the TOR cannot prevail over the NEDA JV Guidelines
In the same vein, We cannot also agree with respondents’
contention that the term "disposition" in the assailed reservation
clause refers to the entire Swiss Challenge itself and authorizes the
BCDA to abandon the negotiations even at Stage Three of the
process for this would result in an interpretation that is
antagonisticwith the NEDA JV Guidelines.
A review of the outlined three-stage framework reveals that there
are only two occasions where pre-termination of the Swiss
Challenge process is allowed: at Stage One, prior to acceptance of
the unsolicited proposal; and at Stage Two, should the detailed
negotiationsprove unsuccessful. In the Third Stage, the BCDA can no
longer withdraw with impunity from conducting the Competitive
Challenge as it became ministerial for the agency to commence and
complete the same. Thus, acceding to the interpretation of the TOR
offered byBCDA will, in effect, result not only in the alteration of the
agreement between the parties but also of the NEDA JV Guidelines
itself, both of which has the force and effect of law.
The interpretation offered by BCDA is, therefore, unacceptable.
Between procedural guidelines promulgated by an agency pursuant
to its rule-making power and a condition unilaterally designed and
imposed for the implementation of the same, the former must
prevail. BCDA does not wield any rule-making power such that it can
validly alter or abandon a clear and definite provision in the NEDA
JV Guidelines under the guise of a condition under the TOR. AsWe
have time and again harped, the ones dutybound to ensure
observance with laws and rules should not be the ones to depart
therefrom.41 A contrary rule would open the floodgates to abuses
and anomalies more detrimental to public interest.42 For how can
others be expected to respect the rule of law if the very persons or
entities tasked to administer laws and their implementing rules and
regulations are the first to violate them, blatantly or surreptitiously?
BCDA gravely abused its discretion when it issued Supplemental
Notice No. 5 in breach of its contractual obligation to SMLI
"Grave abuse of discretion" implies such capricious and whimsical
exercise of judgment as is equivalent tolack of jurisdiction. It must
be so patent and gross as to amount to an evasion of positive duty
or to a virtual refusal to perform the duty enjoined or to act at all in
contemplation of law.43 While it is the general policy of the Court
to sustain the decisions of administrative authorities, not only on
the basis of the doctrine of separation of powers but also for their
presumed expertise in the laws they are entrusted to enforce, when
said decisions and orders are tainted with unfairness or
arbitrariness that would amount to grave abuse of discretion, the
Courts are duty-bound to entertain petitions questioning the
former’s rulings or actions.44
In the present case, the Court finds that BCDA gravely abused its
discretion for having acted arbitrarily and contrary to its contractual
commitment to SMLI, to the damage and prejudice of the latter. It
veritably desecrated the rules the Government itself set in the
award of public contracts.
To review, We have demonstratedthat the BCDA is duty-bound to
proceed with and complete the competitive challenge if the detailed
negotiations proved successful. Afterwards, it becomes mandatory
for the competitive challenge to proceed. Whatever rights and
obligations that may have accrued to the parties by that time can no
longer be altered by a new disposition process. At most, the
28
reservation clause in the TOR can only serve to alter the rules of the
eligibility process under the Competitive Challenge.
In the case at bar, however, BCDA, in its mistaken reliance on the
reservation clause, aborted not just the eligibility process of the
Competitive Challenge but the entire Swiss Challenge. Even though
the language of Supplemental Notice No. 5 at first blush appears to
limit its application to the Third Stage of the framework, BCDA’s
actuations say otherwise. Worthy of reiteration at this point is the
fact that after BCDA issued the assailed notice, the agency also
returned through registeredmail the security posted by SMLI.
Coupled with the factthat BCDA subjected the property instead to
straight bidding, it becomes obvious that BCDA no longer intends to
comply with its obligations to SMLI and that it abandoned the Swiss
Challenge process altogether, in contravention of its statutory and
contractual obligations.
Moreover, the asseveration of the BCDA in its last ditch effort to
salvage its position––that the withdrawal is justified since it
allegedly found that the revised SMLI proposal shall not yield the
best value for the government45 ––deserves scant consideration.
On the contrary, the BCDA’s statements have been
inconsistentwhen it comes to identifying the procurement process
that would best serve the interest of the state.
Noticeably, in its November 8, 2010 Memorandum, the BCDA
posited that competitive challenge is more advantageous to the
government than straight bidding, to wit:
The price of the Bonifacio South properties has already been set by
the winning price in the bidding for the joint venture development
of the JUSMAG property (₱31,111/sq.m.). Thus, BCDA has
established the benchmark for the price of the remaining Bonifacio
South properties, of which the JUSMAG property is the most prime.
Logically the minimum bid price under straight bidding for the
BNS/PMC/ASCOM/SSU property, which is a far less inferior
property, would be ₱31,111/sq.m. However, with SM’s submission
of a revised unsolicited proposal at ₱31,732/sq.m. and later further
revised to ₱32,500/sq.m., BCDA saw the opportunity to negotiate
for better terms and eventually arrived at a higher price of
₱36,900/sq.m. In this case, BCDA deemed that going into
Competitive Challenge was more advantageous to the government
than Competitive Selection (straight bidding) because of the
opportunity to increase the price.
Furthermore, subjecting the price tosubsequent price challenge will
possibly drive up the price even higher than ₱38,900/sq.m. These
opportunities cannot be taken advantage of under a straight bidding
where failure of bidding would likely ensue if in case BCDA
immediately sets the price of the property too high. The
competition in the real estate industry and as experienced by BCDA
issuch that the other developers will usually challenge the original
proposal to "up the ante" as they cannot allow the original
proponent to get the property easily.46
Despite this testament, the BCDA, over a year later, made a
complete turnaround stating that straight bidding will be best for
the Government.47 As can be gleaned from the BCDA’s
Memorandum to the Presidentdated February 13, 2012,
respondents themselves recommended to the President that the
selection proceedings be terminated. To reiterate:
In view of the foregoing, may we respectfully recommend the
President’s approval for BCDA to terminate the proceedings for the
privatization and development of the BNS/PMC/ASCOM/SSU
Properties in Bonifacio South through Competitive Challenge and
proceed with the bidding of the property.48
29
The BCDA offered no explanation to reconcile its opposing positions.
It also neglected to inform SMLI of the provisions in its proposal that
it deemed disadvantageous to the government. The sweeping
statement of the BCDA that the terms are disadvantageous cannot
be accepted at face value, bearing in mind that a fruitful in-
depthnegotiation necessarily implies that BCDA found the terms
offered by SMLI acceptable. Consider also that should the
Competitive Challenge prove to be unsuccessful, it has no other
recourse but to award the project toSMLI, the Original Proponent.
This caveat forces BCDA to ensure that the terms agreed upon
during the detailed negotiations are advantageousto it, lest it run
the risk of being bound to a project that is not beneficial to the
government in the first place.
Overall, the foregoing goes to showthat the BCDA failed to establish
a justifiable reason for its refusal to proceed with the Competitive
Challenge and for canceling the entire Swiss Challenge. Because of
BCDA’s mistaken reliance on the TOR provision, and by changing its
stand on the conduct of the Competitive Challenge without pointing
out with specificity the socalled unfavorable terms, Weare left to
believe that the cancellation of the Swiss Challenge was only due to
BCDA’s whims and caprices.
Acceptance of Unsolicited Proposal vis-à-vis Estoppel
Lastly, respondents argue that the government cannot be estopped
by the mistakes or errors of its agents, implying that when it issued
the Certification, it committed a lapse of judgment as it later
discovered that the terms of the proposal allegedly turnedout to be
disadvantageous to the Government. Thus, according to them, it
cannot be compelled to proceed with the Competitive Challenge.
We are very much aware of the time-honored rule that "the
government cannot be estopped by the mistakes or errors of its
agents."49 Suffice it to state, however, that this precept is not
absolute. As jurisprudence teaches, this rule on estoppel cannot be
used to perpetrate an injustice.50
In the case at bar, it is evident that to allow BCDA to renege on its
statutory and contractual obligationswould cause grave prejudice to
petitioner, who already invested time, effort, and resources in the
study and formulation of the proposal, in the adjustment thereof, as
well as in the negotiations. To permit BCDA to suddenly cancel the
procurement process and strip SMLI of its earlier-enumerated rights
as an Original Proponent at this point––after the former has already
benefited from SMLI’s proposal through the acquisition of
information and ideas for the development of the subject property–
–would unjustly enrich the agency through the efforts of petitioner.
What is worse, to do so would be contrary to BCDA’s
representations and assurances that it will respect SMLI’s earlier
acquired rights, which statements SMLI reasonably and innocently
believed.
All told, the BCDA’s acceptance ofthe unsolicited proposal and the
successful in-depth negotiation cannot be written off as mere
mistake or error that respondents claim to be reversible and not
susceptible to the legal bar of estoppel. The subsequent
cancellation of the Competitive Challenge on grounds that infringe
the contractual rights of SMLI and violate the NEDA JV Guidelines
cannot be shrouded with legitimacy by invoking the above-cited
rule.
Conclusion
To increase government prospects, participation in joint ventures
has been incentivized by granting rightsand advantages to the
Original Proponent in the Competitive Challenge phase of a Swiss
Challenge. Faithful observance of these provisions oflaw that grant
30
the aforesaid rights, may it be sourced from a bilateral contract or
executive edict, aids in improving government reliability. This, in
turn, heavily correlates with greater availability of options when
entering into future joint venture agreements with private sector
entities via public-private enterprises as it will attract investors to
contribute in formulating a roadmap towards a nationwide
infrastructure development.
Needless to say, allowing government agencies to retract their
commitments to the project proponents will essentially render
inutile the incentives offered to and have accrued in favor of the
private sector entity. Without securing these rights, the business
community will be wary when it comes to forging contracts with the
government. Simply put, the failure of the government to abide by
the rules ititself set would have detrimental effects on the private
sector’s confidence that the government will comply with its
statutory and contractual obligations to the letter.
In the case at bench, considering the undisputed facts presented
before Us, We cannot sustain the BCDA’s arguments that its
withdrawal from the negotiations is permissible and was not done
with grave abuse of discretion. Being an instrumentality of the
government, it is incumbent upon the BCDA to abide by the laws,
rules and regulations, and perform its obligations with utmost good
faith. It cannot, under the guise of protecting the public interest,
disregard the clear mandate of the NEDA JV Guidelines and
unceremoniously disregard the very commitments it made to the
prejudice of the SMLI that innocently relied on such promises.51 It
is in instances such as this––where an agency, instrumentality or
officer of the government evades the performance of a positive
duty enjoined by law52 ––wherein the exercise of judicial power is
warranted. Consistent with Our solemn obligation to afford
protection by ensuring that grave abuses of discretion on the part of
a branch or instrumentality of the government do not go
unchecked, the Petition for Certiorari must be granted and the
corresponding injunctive relief be made permanent.
As a final note, it is worth mentioning that the foreseeable
repercussion of a contrary ponenciaencompasses the reduction of
the number of interested private sector entities that would
bewilling to submit suo motoproposals and invest in government
projects. After all, what would be the point of developing ideas and
allocating resources in the formulation of PPP projects when one’s
rights asan Original Proponent, under the NEDA JV Guidelines and
the agreement between the parties, can easily be wiped out should
the agency decide tolevel the playing field and conduct straight
bidding instead? Evidently, this would not attract but would, in
contrast, repel investors from tendering offers. In addition, even if
potential investors do submit unsolicited or comparative proposals,
the terms therein might be driven to become less competitive due
to the adjustment in the balance of risks and returns on investment.
Taking into account the increased possibility of the development
project not pushing through, investors might not be too keen in
guaranteeing a high amount of secured payments for the
same.1âwphi1 These considerations further validate the need to
secure the private sector’s trust and confidence in the government.
WHEREFORE, premises considered, the petition is hereby GRANTED.
The assailed Supplemental Notice No. 5 dated August 6, 2012 issued
by the BCDA is hereby ANULLED and SET ASIDE. The Temporary
Restraining Order issued bythis Court on January 9, 2013 is hereby
madePERMANENT.
Respondent Bases Conversion and Development Authority and
Arnel Paciano D. Casanova, or whoever assumes the position of
president of BCDA, are hereby ORDEREDto conduct and complete
the Competitive Challenge pursuant to the Certification, TOR, and
NEDA JV Guidelines.
31

Specifically, the BCDA and/or the JV-SC are DIRECTEDto carry out
the following:
1. Publish, within seven (7) calendar days from finality of this
Decision, the "Invitation to Apply for Eligibility and to Submit a
Comparative Proposal" (IAESCP) in three (3) newspapers of general
nationwide circulation for two (2) consecutive weeks, and in the
BCDA website (www.bcda.gov.ph), in accordance with Section III.2.
(Publication of Invitation to Apply for Eligibility and to Submit
Proposal), Section III (Project Rationale), Item 5 of the TOR, and
Section III (General Information), Item 2 (Publication of Invitation
for Comparative Proposals) of the TOR;
2. Immediately make the necessary adjustments to the timetable of
activities set forth in Supplemental Notice No. 1, considering that
the periods specified therein have already lapsed, without awaiting
the lapse of the period for publication;
3. Strictly adhere to the TOR, Supplemental Notice No. 1, as
adjusted, the Certification of Successful Negotiations, and the NEDA
JV Guidelines, in the conduct and completion of the Swiss Challenge
procedure on SM Land Inc.’s unsolicited proposal accepted by the
BCDA; and
4. Perform any and all acts necessary to carry out and complete
Stage Three of the Swiss Challenge pursuant to the provisions of the
TOR and NEDA JV Guidelines, including, but not limited to,
subjecting petitioner's unsolicited proposal to a competitive
challenge.
In the event that SM Land, Inc. already obtained from BCDA the
amount representing its Proposal Security, SM Land, Inc. is hereby
DIRECTED to re-post the Proposal Security, in the same amount as
the previous one, on the first day of the publication of the invitation
for comparative proposals, per the NEDA JV Guidelines.
SO ORDERED.
ARCHBISHOP FERNANDO R. CAPALLA, OMAR SOLITARIO ALI and
MARY ANNE L. SUSANO,
Petitioners,
- versus -
THE HONORABLE COMMISSION ON ELECTIONS,
Respondent.
x--------------------------------------------x
SOLIDARITY FOR SOVEREIGNTY (S4S), represented by Ma. Linda
Olaguer; RAMON PEDROSA, BENJAMIN PAULINO SR., EVELYN
CORONEL, MA. LINDA OLAGUER MONTAYRE, and NELSON T.
MONTAYRE,
Petitioners,
- versus -
COMMISSION ON ELECTIONS, represented by its Chairman,
Commissioner SIXTO S. BRILLANTES, JR.,
Respondent.
x--------------------------------------------x
TEOFISTO T. GUINGONA, BISHOP BRODERICK S. PABILLO, SOLITA
COLLAS MONSOD, MARIA CORAZON MENDOZA ACOL, FR. JOSE
32
DIZON, NELSON JAVA CELIS, PABLO R. MANALASTAS, GEORGINA R.
ENCANTO and ANNA LEAH E. COLINA,
Petitioners,
- versus -
COMMISSION ON ELECTIONS and SMARTMATIC TIM
CORPORATION,
Respondents.
x--------------------------------------------x
TANGGULANG DEMOKRASYA (TAN DEM), INC., EVELYN L. KILAYKO,
TERESITA D. BALTAZAR, PILAR L. CALDERON and ELITA T. MONTILLA,
DECISION
Pursuant to its authority to use an Automated Election System (AES)
under Republic Act (RA) No. 8436, as amended by RA No. 9369, or
the Automation Law and in accordance with RA No. 9184, otherwise
known as the Government Procurement Reform Act, the
Commission on Elections (Comelec) posted and published an
invitation to apply for eligibility and to bid for the 2010 Poll
Automation Project[1] (the Project). On March 18, 2009, the
Comelec approved and issued a Request for Proposal[2] (RFP) for
the Project consisting of the following components:
Component 1: Paper-Based Automation Election System (AES)

Petitioners, 1-A. Election Management System (EMS)

- versus -
1-B. Precinct Count Optical Scan (PCOS) System
COMMISSION ON ELECTIONS and SMARTMATIC-TIM Corporation,
1-C. Consolidation/Canvassing System (CCS)
Respondents.
Component 2: Provision for Electronic Transmission of Election
G.R. No. 201112 Results using Public Telecommunications Network

G.R. No. 201121 Component 3: Overall Project Management[3]

G.R. No. 201127 On June 9, 2009, the Comelec issued Resolution No. 8608 awarding
the contract for the Project to respondent Smartmatic-TIM.[4] On
G.R. No. 201413 July 10, 2009, the Comelec and Smartmatic-TIM entered into a
Contract for the Provision of an Automated Election System for the
Promulgated: May 10, 2010 Synchronized National and Local Elections,[5] (AES
Contract, for brevity). The contract between the Comelec and
June 13, 2012 Smartmatic-TIM was one of lease of the AES with option to

33
purchase (OTP) the goods listed in the contract. In said contract, the
Comelec was given until December 31, 2010 within which to
exercise the option.
On September 23, 2010, the Comelec partially exercised its OTP
920 units of PCOS machines with corresponding
canvassing/consolidation system (CCS) for the special elections in
certain areas in the provinces of Basilan, Lanao del Sur and
Bulacan.[6] In a letter[7] dated December 18, 2010, Smartmatic-
TIM, through its Chairman Cesar Flores (Flores), proposed a
temporary extension of the option period on the remaining 81,280
PCOS machines until March 31, 2011, waiving the storage costs and
covering the maintenance costs. The Comelec did not exercise the
option within the extended period. Several extensions were given
for the Comelec to exercise the OTP until its final extension on
March 31, 2012.
On March 6, 2012, the Comelec issued Resolution No. 9373[8]
resolving to seriously consider exercising the OTP subject to certain
conditions. On March 21, 2012, the Comelec issued Resolution No.
9376[9] resolving to exercise the OTP the PCOS and CCS hardware
and software in accordance with the AES contract between the
Comelec and Smartmatic-TIM in connection with the May 10, 2010
elections subject to the following conditions: (1) the warranties
agreed upon in the AES contract shall be in full force and effect; (2)
the original price for the hardware and software covered by the OTP
as specified in the AES contract shall be maintained, excluding the
cost of the 920 units of PCOS and related peripherals previously
purchased for use in the 2010 special elections; and (3) all other
services related to the 2013 AES shall be subject to public bidding.
On March 29, 2012, the Comelec issued Resolution No. 9377[10]
resolving to accept Smartmatic-TIMs offer to extend the period to
exercise the OTP until March 31, 2012 and to authorize Chairman
Brillantes to sign for and on behalf of the Comelec the Agreement
on the Extension of the OTP Under the AES Contract[11] (Extension
Agreement, for brevity). The aforesaid Extension Agreement was
signed on March 30, 2012.[12] On even date, the Comelec issued
Resolution No. 9378[13] resolving to approve the Deed of Sale
between the Comelec and Smartmatic-TIM to purchase the latters
PCOS machines (hardware and software) to be used in the
upcoming May 2013 elections and to authorize Chairman Brillantes
to sign the Deed of Sale for and on behalf of the Comelec. The Deed
of Sale[14] was forthwith executed.
Claiming that the foregoing issuances of the Comelec, as well as the
transactions entered pursuant thereto, are illegal and
unconstitutional, petitioners come before the Court in four separate
Petitions for Certiorari, Prohibition, and Mandamus imputing grave
abuse of discretion amounting to lack or excess of jurisdiction on
the part of the Comelec in issuing the assailed Resolutions and in
executing the assailed Extension Agreement and Deed.
G.R. No. 201112
In G.R. No. 201112, petitioners Archbishop Fernando R. Capalla,
Omar Solitario Ali and Mary Anne L. Susano pray that a Temporary
Restraining Order (TRO) be issued enjoining the Comelec from
purchasing the PCOS machines until after final judgment of the
instant case; a writ of prohibition be issued against the Comelec for
the purchase of these defective PCOS machines; a writ of
mandamus be issued compelling the Comelec to conduct the
necessary bidding for the equipment and facilities which shall be
used for the 2013 National and Local Elections; and to declare
Comelec Resolution Nos. 9376, 9377, and 9378, on the purchase of
PCOS machines, null and void.
Petitioners argue that if there is a necessity to purchase the PCOS
machines, the Comelec should follow RA 9184 requiring competitive
34
public bidding. They likewise argue that the OTP clause embodied in
the contract with Smartmatic-TIM should be rendered invalid not
only because the OTP has already lapsed but because of the fact
that the OTP clause is a circumvention of the explicit provisions of
RA 9184. Petitioners add that the current PCOS machines do not
meet the rigorous requirements of RA 9369 that the system
procured must have demonstrated capability and should have been
successfully used in a prior electoral exercise here or abroad.
Petitioners submit that there are intrinsic technical infirmities as
regards the PCOS machines used during the 2010 elections which
rendered it incapable for future use. Lastly, petitioners claim that
the Comelec does not have the capability to purchase and maintain
the PCOS machines, because of lack of trained manpower and
technical expertise to properly maintain the PCOS machines; thus,
the purchase is unfavorable to the general public.
G.R. No. 201121
In G.R. No. 201121, petitioners Solidarity for Sovereignty (S4S),
represented by Ma. Linda Olaguer, Ramon Pedrosa, Benjamin
Paulino, Sr., Evelyn Coronel, Ma. Linda Olaguer Montayre and
Nelson T. Montayre, pray that a TRO be issued directing the
Comelec to desist from implementing the contract; that Resolution
No. 9376 be declared unconstitutional and all acts made pursuant
thereto, including the purchase of the PCOS machines unlawful and
void; that an Injunction be issued prohibiting the Comelec from
further pursuing any act pursuant to Resolution No. 9376.[15]
Petitioners argue that the Comelecs act of exercising its OTP the
PCOS machines from Smartmatic-TIM after the period had already
lapsed is illegal and unlawful.[16] They explain that the period
within which the Comelec may exercise the OTP could last only until
December 31, 2010 without extension as provided in the Comelecs
bid bulletin.[17] They further assert that the Comelecs acceptance
of Smartmatic-TIMs unilateral extension of the option period
constitutes substantial amendment to the AES contract giving
undue benefit to the winning bidder not available to the other
bidders.[18] Petitioners also contend that the Comelecs decision to
purchase and use the PCOS machines is unconstitutional, as it
allows the Comelec to abrogate its constitutional duty to safeguard
the election process by subcontracting the same to an independent
provider (Smartmatic-TIM), who controls the software that
safeguards the entire election process. The purchase of the PCOS
machines for use in the May 2013 elections would be tantamount to
a complete surrender and abdication of the Comelecs constitutional
mandate in favor of Smartmatic-TIM. The control of the software
and process verification systems places the Comelec at the end of
the process as it merely receives the report of Smartmatic-TIM. This,
according to petitioners, amounts to a direct transgression of the
exclusive mandate of the Comelec completely to take charge of the
enforcement and administration of the conduct of elections. [19]
Lastly, petitioners aver that the Comelecs act of deliberately
ignoring the palpable infirmities and defects of the PCOS machines,
as duly confirmed by forensic experts, is in violation of Section 2,
Article V of the Constitution, as it fails to safeguard the integrity of
the votes. They went on by saying that the subject PCOS machines
lack security features which can guaranty the secrecy and sanctity of
our votes in direct contravention of RA 9369 which requires that the
automated election system must at least possess an adequate
security feature against unauthorized access. In deciding to
purchase the PCOS machines despite the above-enumerated
defects, the Comelecs decision are claimed to be
unconstitutional.[20]
G.R. No. 201127
In G.R. No. 201127, petitioners Teofisto Guingona, Bishop Broderick
S. Pabillo, Solita Collas Monsod, Maria Corazon Mendoza Acol, Fr.
35
Jose Dizon, Nelson Java Celis, Pablo R. Manalastas, Georgina R.
Encanto and Anna Leah E. Colina pray that the Court issue a TRO
enjoining and restraining respondents Comelec and Smartmatic-TIM
from implementing Comelec Resolution No. 9376 and the Deed of
Sale for the acquisition and purchase of the PCOS machines and
related equipment; issue writ of preliminary injunction; declare
Comelec Resolution No. 9376 void and unconstitutional and annul
the Deed of Sale; and direct the Comelec to conduct public bidding
soonest for the automated election system to be used for the 2013
elections.[21]
Petitioners fault the Comelec in totally disregarding the
recommendation of the Comelec Advisory Council (CAC) not to
exercise the OTP. They point out that in its Resolution No. 2012-
2003, the CAC resolved to recommend that the Comelec should
exert all efforts to procure the necessary AES only through public
bidding. The CAC likewise allegedly recommended that the OTP
should not be exercised if as a consequence, the rest of the system
must come from the same vendor as the Comelec would lose the
opportunity to look for better technology; would prevent the
Comelec from taking advantage of the best possible technology
available; would prevent other prospective vendors from
competitively participating in the bidding process; and may erode
the public trust and confidence in the electoral process. In its report
to the Congressional Oversight Committee after the 2010 elections,
the CAC supposedly concluded that the Comelec does not need to
use the same PCOS machines and that the Comelec would be better
off not exercising the OTP the PCOS machines so it can look for an
even better solution for the May 2013 elections.[22] Like the other
petitioners, it is their position that Comelec Resolution No. 9376 is
totally null and void having been issued in violation of the express
provisions of RA 9184 and the AES contract. According to
petitioners, the Comelec itself provided in its bid bulletins for a fixed
and determinate period, and such period ended on December 31,
2010. Thus, Smartmatic-TIM could not have unilaterally extended
the option period and the Comelec could not have also given its
consent to the extension. In extending the option period, it is
tantamount to giving the winning bidder a benefit that was not
known and available to all bidders during the bidding of the 2010
AES, which is a clear violation of the bidding rules and the equal
protection clause of the Constitution.[23] Considering that the
option period already expired, the purchase of the PCOS machines
requires competitive public bidding. Lastly, petitioners claim that
the Comelec committed grave abuse of discretion in opting to buy
the PCOS machines and allied paraphernalia of Smartmatic-TIM for
the 2013 elections, despite incontrovertible findings of the glitches,
malfunctions, bugs, and defects of the same.[24]
G.R. No. 201418
In G.R. No. 201418, petitioners Tanggulang Demokrasya (Tan Dem),
Inc., Evelyn L. Kilayko, Teresita D. Baltazar, Pilar L. Calderon and Elita
T. Montilla pray that the Court annul Resolution No. 9376 and the
March 30, 2012 Deed of Sale, and prohibit the Comelec and
Smartmatic-TIM from implementing the same; and declare said
Resolution and Deed of Sale invalid for having been issued and
executed by the Comelec with grave abuse of discretion and for
violating the provisions of R.A. 9184.[25]
Petitioners claim that the Comelec committed grave abuse of
discretion amounting to lack or excess of jurisdiction in contracting
for the purchase of AES goods and services from Smartmatic-TIM in
spite of the below par performance of the latters PCOS machines,
CCS and other software and hardware in the May 2010 elections
and non-compliance with the minimum functional capabilities
required by law.[26] They echo the other petitioners contention
that the Comelecs decision to buy the CCS, PCOS machines,
software and hardware of Smartmatic violates RA 9184s
36
requirement of a prior competitive public bidding. Since the
Comelec is bent on pursuing the purchase of the subject goods,
which is an entirely new procurement, petitioners contend that
there must be a public bidding. They argue that there is enough
time to conduct public bidding for the 2013 elections, considering
that for the May 2010 elections, the Comelec only had 10 months
and they were able to conduct the public bidding. Petitioners are of
the view that there is no more OTP to speak of, because the option
period already lapsed and could not be revived by the unilateral act
of one of the contracting parties.[27]
On April 24, 2012, the Court issued a TRO enjoining the
implementation of the assailed contract of sale. The consolidated
cases were later set for Oral Arguments on the following issues:
I. Whether or not the Commission on Elections may validly
accept the extension of time unilaterally given by Smartmatic-TIM
Corporation within which to exercise the option to purchase under
Article 4 of the Contract for the Provision of an Automated Election
System for the May 2010 Synchronized National and Local Elections;
and
II. Whether or not the acceptance of the extension and the
issuance of Comelec En Banc Resolution No. 9376 violate Republic
Act No. 9184 or the Government Procurement Reform Act and its
Implementing Rules, and Republic Act No. 9369 or the Automated
Election Systems Act.
The parties were, thereafter, required to submit their Memoranda.
The petitions are without merit.
Simply stated, petitioners assail the validity and constitutionality of
the Comelec Resolutions for the purchase of the subject PCOS
machines as well as the Extension Agreement and the Deed of Sale
covering said goods mainly on three grounds: (1) the option period
provided for in the AES contract between the Comelec and
Smartmatic-TIM had already lapsed and, thus, could no longer be
extended, such extension being prohibited by the contract; (2) the
extension of the option period and the exercise of the option
without competitive public bidding contravene the provisions of RA
9184; and, (3) despite the palpable infirmities and defects of the
PCOS machines, the Comelec purchased the same in contravention
of the standards laid down in RA 9369.
For its part, the Comelec defends the validity and constitutionality
of its decision to purchase the subject PCOS machines, pursuant to
the OTP under the AES contract with Smartmatic-TIM, on the
following grounds: (1) Article 6.6 of the AES contract which states
the option period was amended by the extension agreement; (2)
the exercise of the OTP is not covered by RA 9184, because it is
merely an implementation of a previously bidded contract; (3)
taking into account the funds available for the purpose, exercising
the OTP was the prudent choice for the Comelec and is more
advantageous to the government; and (4) the exercise of the OTP is
consistent with the technical requirements of RA 9369.
Stated in another way, Smartmatic-TIM insists on the validity of the
subject transaction based on the following grounds: (1) there is no
prohibition either in the contract or provision of law for it to extend
the option period; rather, the contract itself allows the parties to
amend the same; (2) the OTP is not an independent contract in
itself, but is a provision contained in the valid and existing AES
contract that had already satisfied the public bidding requirements
of RA 9184; (3) exercising the option was the most advantageous
option of the Comelec; and (4) Smartmatic-TIM has an established
track record in providing effective and accurate electoral solutions
and its satisfactory performance has been proven during the 2010
37
elections. The alleged glitches in the May 2010 elections, if at all,
are not attributable to the PCOS machines.
We agree with respondents.
At the outset, we brush aside the procedural barriers (i.e., locus
standi of petitioners and the non-observance of the hierarchy of
courts) that supposedly prevent the Court from entertaining the
consolidated petitions. As we held in Guingona, Jr. v. Commission on
Elections:[28]
There can be no doubt that the coming 10 May 2010 [in this case,
May 2013] elections is a matter of great public concern. On election
day, the country's registered voters will come out to exercise the
sacred right of suffrage. Not only is it an exercise that ensures the
preservation of our democracy, the coming elections also embodies
our people's last ounce of hope for a better future. It is the final
opportunity, patiently awaited by our people, for the peaceful
transition of power to the next chosen leaders of our country. If
there is anything capable of directly affecting the lives of ordinary
Filipinos so as to come within the ambit of a public concern, it is the
coming elections, more so with the alarming turn of events that
continue to unfold. The wanton wastage of public funds brought
about by one bungled contract after another, in staggering
amounts, is in itself a matter of grave public concern.[29]
Thus, in view of the compelling significance and transcending public
importance of the issues raised by petitioners, the technicalities
raised by respondents should not be allowed to stand in the way, if
the ends of justice would not be subserved by a rigid adherence to
the rules of procedure.[30]
Now on the substantive issues. In order to achieve the
modernization program of the Philippine Electoral System, which
includes the automation of the counting, transmission and
canvassing of votes for the May 2010 national and local elections
with systems integration and over-all project management in a
comprehensive and well-managed manner,[31] the Comelec
entered into an AES contract with Smartmatic-TIM for the lease of
goods and purchase of services under the contract, with option to
purchase the goods.
The option contract between the Comelec and Smartmatic-TIM is
embodied in Article 4.3 of the AES contract to wit:
Article 4
Contract Fee and Payment
xxxx
4.3. OPTION TO PURCHASE
In the event the COMELEC exercises its option to purchase the
Goods as listed in Annex L, COMELEC shall pay the PROVIDER an
additional amount of Two Billion One Hundred Thirty Million Six
Hundred Thirty- Five Thousand Forty-Eight Pesos and Fifteen
Centavos (Php2,130,635,048.15) as contained in the Financial
Proposal of the joint venture partners Smartmatic and TIM.
In case COMELEC should exercise its option to purchase, a warranty
shall be required in order to assure that: (a) manufacturing defects
shall be corrected; and/or (b) replacements shall be made by the
PROVIDER, for a minimum period of three (3) months, in the case of
supplies, and one (1) year, in the case of equipment, after
performance of this Contract. The obligation for the warranty shall
be covered by retention money of ten percent (10%) of every option
to purchase payment made.
38

The retention money will be returned within five (5) working days
after the expiration of the above warranty, provided, however, that
the goods supplied are in good operating condition free from patent
and latent defects, all the conditions imposed under the purchase
contract have been fully met, and any defective machines, except to
those attributable to the COMELEC, have been either repaired at no
additional charge or replaced or deducted from the price under the
Option to Purchase.[32]
Article 6.6 thereof, in turn provides for the period within which the
Comelec could exercise the option, thus:
Article 6
COMELECs Responsibilities
xxxx
6.6. COMELEC shall notify the PROVIDER on or before 31 December
2010 of its option to purchase the Goods as listed in Annex L.[33]
The Comelec did not exercise the option within the period stated in
the above provision. Smartmatic, however, unilaterally extended
the same until its final extension on March 31, 2012. The Comelec,
thereafter, accepted the option and eventually executed a Deed of
Sale involving said goods. Now, petitioners come before the Court
assailing the validity of the extension, the exercise of the option and
the Deed of Sale. In light of the AES contract, can Smartmatic-TIM
unilaterally extend the option period? Can the Comelec accept the
extension?
We answer in the affirmative.
It is a basic rule in the interpretation of contracts that an instrument
must be construed so as to give effect to all the provisions of the
contract.[34] In essence, the contract must be read and taken as a
whole.[35] While the contract indeed specifically required the
Comelec to notify Smartmatic-TIM of its OTP the subject goods until
December 31, 2010, a reading of the other provisions of the AES
contract would show that the parties are given the right to amend
the contract which may include the period within which to exercise
the option. There is, likewise, no prohibition on the extension of the
period, provided that the contract is still effective.
Article 2 of the AES contract lays down the effectivity of the
contract, viz.:
Article 2
EFFECTIVITY
2.1. This Contract shall take effect upon the fulfillment of all of the
following conditions:
(a) Submission by the PROVIDER of the Performance Security;
(b) Signing of this Contract in seven (7) copies by the parties; and
(c) Receipt by the PROVIDER of the Notice to Proceed.
2.2. The Term of this Contract begins from the date of effectivity
until the release of the Performance Security, without prejudice to
the surviving provisions of this Contract, including the warranty
provision as prescribed in Article 8.3 and the period of the option to
purchase (Emphasis supplied).[36]
39
 Obviously, the contract took effect even prior to the 2010 elections.
The only question now is whether its existence already ceased.
Pursuant to the above-quoted provision, it is important to
determine whether or not the performance security had already
been released to Smartmatic-TIM. In Article 8 of the AES contract,
performance security was defined and the rules in releasing said
security were laid down, to wit:
Article 8
Performance Security and Warranty
8.1. Within three (3) days from receipt by the PROVIDER of the
formal Notice of Award from COMELEC, the PROVIDER shall furnish
COMELEC with a Performance Security in an amount equivalent to
five percent (5%) of the Contract Amount; which Performance
Security as of this date has been duly received by COMELEC.
Within seven (7) days from delivery by the PROVIDER to COMELEC
of the Over-all Project Management Report after successful conduct
of the May 10, 2010 elections, COMELEC shall release to the
PROVIDER the above-mentioned Performance Security without
need of demand.[37]
Smartmatic-TIM categorically stated in its Consolidated Comment
to the petitions that the Comelec still retains P50M of the amount
due Smartmatic-TIM as performance security.[38] In short, the
performance security had not yet been released to Smartmatic-TIM
which indicates that the AES contract is still effective and not yet
terminated. Consequently, pursuant to Article 19[39] of the
contract, the provisions thereof may still be amended by mutual
agreement of the parties provided said amendment is in writing and
signed by the parties. In light of the provisions of the AES contract,
there is, therefore, nothing wrong with the execution of the
Extension Agreement.
Considering, however, that the AES contract is not an ordinary
contract as it involves procurement by a government agency, the
rights and obligations of the parties are governed not only by the
Civil Code but also by RA 9184. In this jurisdiction, public bidding is
the established procedure in the grant of government contracts.
The award of public contracts, through public bidding, is a matter of
public policy.[40] The parties are, therefore, not at full liberty to
amend or modify the provisions of the contract bidded upon.
The three principles of public bidding are: (1) the offer to the
public; (2) an opportunity for competition; and (3) a basis for the
exact comparison of bids.[41] By its very nature, public bidding aims
to protect public interest by giving the public the best possible
advantages through open competition.[42] Competition requires
not only bidding upon a common standard, a common basis, upon
the same thing, the same subject matter, and the same undertaking,
but also that it be legitimate, fair and honest and not designed to
injure or defraud the government.[43] The essence of competition
in public bidding is that the bidders are placed on equal footing
which means that all qualified bidders have an equal chance of
winning the auction through their bids.[44] Another self-evident
purpose of public bidding is to avoid or preclude suspicion of
favoritism and anomalies in the execution of public contracts.[45]
A winning bidder is not precluded from modifying or amending
certain provisions of the contract bidded upon. However, such
changes must not constitute substantial or material amendments
that would alter the basic parameters of the contract and would
constitute a denial to the other bidders of the opportunity to bid on
the same terms.[46] The determination of whether or not a
modification or amendment of a contract bidded out constitutes a
40
substantial amendment rests on whether the contract, when taken
as a whole, would contain substantially different terms and
conditions that would have the effect of altering the technical
and/or financial proposals previously submitted by the other
bidders. The modifications in the contract executed between the
government and the winning bidder must be such as to render the
executed contract to be an entirely different contract from the one
bidded upon.[47]
Public bidding aims to secure for the government the lowest
possible price under the most favorable terms and conditions, to
curtail favoritism in the award of government contracts and avoid
suspicion of anomalies, and it places all bidders in equal footing.
Any government action which permits any substantial variance
between the conditions under which the bids are invited and the
contract executed after the award thereof is a grave abuse of
discretion amounting to lack or excess of jurisdiction which warrants
proper judicial action.[48] If this flawed process would be allowed,
public bidding will cease to be competitive, and worse, government
would not be favored with the best bid. Bidders will no longer bid
on the basis of the prescribed terms and conditions in the bid
documents but will formulate their bid in anticipation of the
execution of a future contract containing new and better terms and
conditions that were not previously available at the time of the
bidding. Such a public bidding will not inure to the public good.[49]
In Power Sector Assets and Liabilities Management Corporation
(PSALM) v. Pozzolanic Philippines Incorporated,[50] the Court
nullified the right of first refusal granted to respondent therein in
the Batangas Contract for being contrary to public policy. The Court
explained that the same violated the requirement of competitive
public bidding in the government contract, because the grant of the
right of first refusal did not only substantially amend the terms of
the contract bidded upon so that resultantly the other bidders
thereto were deprived of the terms and opportunities granted to
respondent therein after it won the public auction, but also altered
the bid terms by effectively barring any and all true bidding in the
future.[51]
Also in Agan, Jr. v. Philippine International Air Terminals Co., Inc.,
(PIATCO),[52] this Court declared as null and void, for being contrary
to public policy, the Concession Agreement entered into by the
government with PIATCO, because it contained provisions that
substantially departed from the Draft Concession Agreement
included in the bid documents. The Court considered the subject
contracts a mockery of the bidding process, because they were
substantially amended after their award to the successful bidder on
terms more beneficial to PIATCO and prejudicial to public
interest.[53]
The same conclusions cannot be applied in the present case.
One. Smartmatic-TIM was not granted additional right that was not
previously available to the other bidders. Admittedly, the AES
contract was awarded to Smartmatic-TIM after compliance with all
the requirements of a competitive public bidding. The RFP, Bid
Bulletins and the AES contract identified the contract as one of lease
with option to purchase. The AES contract is primarily a contract of
lease of goods[54] listed in the contract and purchase of
services[55] also stated in the contract. Section 4.3 thereof gives the
Comelec the OTP the goods agreed upon. The same provision states
the conditions in exercising the option, including the additional
amount that the Comelec is required to pay should it exercise such
right. It is, therefore, undisputed that this grant of option is
recognized by both parties and is already a part of the principal
contract of lease. Having been included in the RFP and the bid
bulletins, this right given to the Comelec to exercise the option was
known to all the bidders and was considered in preparing their bids.
41
The bidders were apprised that aside from the lease of goods and
purchase of services, their proposals should include an OTP the
subject goods. Although the AES contract was amended after the
award of the contract to Smartmatic-TIM, the amendment only
pertains to the period within which the Comelec could exercise the
option because of its failure to exercise the same prior to the
deadline originally agreed upon by the parties. Unlike in PSALM,
wherein the winning bidder was given the right of first refusal which
substantially amended the terms of the contract bidded upon,
thereby depriving the other bidders of the terms and opportunities
granted to winning bidder after it won the public auction; and in
Agan, Jr., wherein the Concession Agreement entered into by the
government with PIATCO contained provisions that substantially
departed from the draft Concession Agreement included in the bid
documents; the option contract in this case was already a part of
the original contract and not given only after Smartmatic-TIM
emerged as winner. The OTP was actually a requirement by the
Comelec when the contract of lease was bidded upon. To be sure,
the Extension Agreement does not contain a provision favorable to
Smartmatic-TIM not previously made available to the other bidders.
Two. The amendment of the AES contract is not substantial. The
approved budget for the contract was P11,223,618,400.00[56]
charged against the supplemental appropriations for election
modernization. Bids were, therefore, accepted provided that they
did not exceed said amount. After the competitive public bidding,
Smartmatic-TIM emerged as winner and the AES contract was
thereafter executed. As repeatedly stated above, the AES contract is
a contract of lease with OTP giving the Comelec the right to
purchase the goods agreed upon if it decides to do so. The AES
contract not only indicated the contract price for the lease of goods
and purchase of services which is P7,191,484,739.48, but also stated
the additional amount that the Comelec has to pay if it decides to
exercise the option which is P2,130,635,048.15. Except for the
period within which the Comelec could exercise the OTP, the terms
and conditions for such exercise are maintained and respected.
Admittedly, the additional amount the Comelec needed to pay was
maintained (less the amount already paid when it purchased 920
units of PCOS machines with corresponding CCS for the special
elections in certain areas in the provinces of Basilan, Lanao del Sur
and Bulacan) subject to the warranties originally agreed upon in the
AES contract. The contract amount not only included that for the
contract of lease but also for the OTP. Hence, the competitive public
bidding conducted for the AES contract was sufficient. A new public
bidding would be a superfluity.
The Solicitor General himself clarified during the oral arguments
that the purchase price of the remaining PCOS machines stated in
the assailed Deed of Sale was the price stated in Article 4.3 of the
AES contract. Therefore, the said amount was already part of the
original amount bidded upon in 2009 for the AES contract which
negates the need for another competitive bidding.[57]
Third. More importantly, the amendment of the AES contract is
more advantageous to the Comelec and the public.
The nature of an option contract was thoroughly explained in
Eulogio v. Apeles,[58] to wit:
An option is a contract by which the owner of the property agrees
with another person that the latter shall have the right to buy the
former's property at a fixed price within a certain time. It is a
condition offered or contract by which the owner stipulates with
another that the latter shall have the right to buy the property at a
fixed price within a certain time, or under, or in compliance with
certain terms and conditions; or which gives to the owner of the
property the right to sell or demand a sale. An option is not of itself
42
a purchase, but merely secures the privilege to buy. It is not a sale
of property but a sale of the right to purchase. It is simply a contract
by which the owner of the property agrees with another person that
he shall have the right to buy his property at a fixed price within a
certain time. He does not sell his land; he does not then agree to sell
it; but he does sell something, i.e., the right or privilege to buy at
the election or option of the other party. Its distinguishing
characteristic is that it imposes no binding obligation on the person
holding the option, aside from the consideration for the offer.[59]
Also in Carceller v. Court of Appeals,[60] the Court described an
option in this wise:
An option is a preparatory contract in which one party grants to the
other, for a fixed period and under specified conditions, the power
to decide, whether or not to enter into a principal contract. It binds
the party who has given the option, not to enter into the principal
contract with any other person during the period designated and,
within that period, to enter into such contract with the one to
whom the option was granted, if the latter should decide to use the
option. It is a separate agreement distinct from the contract which
the parties may enter into upon the consummation of the
option.[61]
In Adelfa Properties, Inc. v. CA,[62] the Court described an option
as:
An option, as used in the law on sales, is a continuing offer or
contract by which the owner stipulates with another that the latter
shall have the right to buy the property at a fixed price within a
certain time, or under, or in compliance with, certain terms and
conditions, or which gives to the owner of the property the right to
sell or demand a sale. It is sometimes called an unaccepted offer. x x
x[63]
From the foregoing jurisprudential pronouncements, an option is
only a preparatory contract and a continuing offer to enter into a
principal contract. Under the set-up, the owner of the property,
which is Smartmatic-TIM, gives the optionee, which is the Comelec,
the right to accept the formers offer to purchase the goods listed in
the contract for a specified amount, and within a specified period.
Thus, the Comelec is given the right to decide whether or not it
wants to purchase the subject goods. It is, therefore, uncertain
whether or not the principal contract would be entered into. The
owner of the property would then have to wait for the optionee to
make a decision. A longer option period would mean that more time
would be given to the optionee to consider circumstances affecting
its decision whether to purchase the goods or not. On the part of
Smartmatic-TIM, it would have to wait for a longer period to
determine whether the subject goods will be sold to the Comelec or
not, instead of freely selling or leasing them to other persons or
governments possibly at a higher price. This is especially true in this
case as the terms and conditions for the exercise of the option
including the purchase price, had been included in the AES contract
previously bidded upon. The parties are bound to observe the
limitations embodied therein, otherwise, a new public bidding
would be needed.
We agree with respondents that the exercise of the option is more
advantageous to the Comelec, because the P7,191,484,739.48
rentals paid for the lease of goods and purchase of services under
the AES contract was considered part of the purchase price. For the
Comelec to own the subject goods, it was required to pay only
P2,130,635,048.15. If the Comelec did not exercise the option, the
rentals already paid would just be one of the government expenses
for the past election and would be of no use to future elections.
Assuming that the exercise of the option is nullified, the Comelec
would again conduct another public bidding for the AES for the 2013
43
elections with its available budget of P7 billion. Considering that the The whole, the whole equipment, subject matter of the contract.
said amount is the available fund for the whole election process, the
amount for the purchase or lease of new AES will definitely be less DEAN ESPEJO:
than P7 billion. Moreover, it is possible that Smartmatic-TIM would
again participate in the public bidding and could win at a possibly I think roughly, the original contract something like 10 billion I am
higher price. The Comelec might end up acquiring the same PCOS not sure, Your Honor.
machines but now at a higher price.
ASSOCIATE JUSTICE PERALTA:
The advantage to the government of the exercise of the OTP was
even recognized by petitioners, shown during the oral arguments: 10 billion pesos.

ASSOCIATE JUSTICE PERALTA: DEAN ESPEJO:

May I just ask you, do you know the total value of the subject Yes, Your Honor.
matter of this contract?

ASSOCIATE JUSTICE PERALTA:

DEAN ESPEJO:
Okay. Now, in the original contract of July 10, 2009, the contract
Php1.8 billion pesos, Your Honor. was not actually a purchase contract but merely a lease contract.

ASSOCIATE JUSTICE PERALTA: DEAN ESPEJO:

Youre referring to the Deed of Sale. Yes, Your Honor.

DEAN ESPEJO: ASSOCIATE JUSTICE PERALTA:

Yes, Your Honor. And the lease contract is 7.1 billion.

DEAN ESPEJO:
ASSOCIATE JUSTICE PERALTA:
It says 7.1 billion.

44
 ASSOCIATE JUSTICE PERALTA:

ASSOCIATE JUSTICE PERALTA: You add this at two [billion] one hundred thirty million and so to
seven billion one ninety-one the subject matter of your original
Okay. But it is here [denominated] as a lease contract. contract; you come up with something like over 9 billion pesos.

DEAN ESPEJO: DEAN ESPEJO:

Yes, Your Honor. Close to Ten, Your Honor.

ASSOCIATE JUSTICE PERALTA:

ASSOCIATE JUSTICE PERALTA: Close to Ten.

So the value was 10 billion pesos then you just pay the difference DEAN ESPEJO:
between ten (10) and seven (7) you get 3 billion pesos to purchase
all of these equipment. Yes, Your Honor.

DEAN ESPEJO: ASSOCIATE JUSTICE PERALTA:

Yes, Your Honor. So thats practically less than the total value of the equipment,
because according to you the total value would come up to 10
billion pesos, you add up the Lease Contract of 7 billion and two
ASSOCIATE JUSTICE PERALTA: billion, plus under this Deed of Sale which is the subject matter of
this petition, you will come up with a little more than 9 billion pesos
Okay. Now, you look at your Deed of Sale, this is annexed to your even less than the 10 billion pesos. Do you think that is
petition, the value of the Deed of Sale is something like two billion disadvantageous to the government?
one hundred thirty million (Php2,130,000,000).
DEAN ESPEJO:
DEAN ESPEJO:
May I be allowed to explain?
Around that much, Your Honor.
ASSOCIATE JUSTICE PERALTA:

45

Go ahead, you go ahead, you have all the time.
DEAN ESPEJO:
It may appear advantageous, Your Honor please, but on the other
hand, there are certain disadvantages there. For one thing, these
are not brand new machines; these are refurbished existing
machines which could be suffering from hardware or software
problem. For the COMELEC to accept this, Your Honor please, each
machine will have to be checked as to its hardware and software.
Eighty-two thousand (82,000) PCOS machines, Your Honor please,
what if half of them, [turn out] to be white elephants or
malfunctioning, Your Honor please, then we will be acquiring eighty-
two thousand (82,000) with fifty percent (50%) malfunctioning
machines. There is a danger, Your Honor please, that does not
appear to the naked eye. In any event, with respect to the financial
figures there appears to be some advantages, Your Honor, please.
ASSOCIATE JUSTICE PERALTA:
x x x these are merely speculative. Yourre only speculating that
there are dangers, the dangers might not come, in fact, it might
even be void or favorable. Okay, now my other question is, do you
think that if this was bidden out under R.A. 9184 for the purchase of
all these equipment, do you think that a bidder will come up with a
bid of less than 2 billion pesos for the whole equipment? When
according to you, the equipment in 2009 is 10 billion, and elections
are very near already 2013, the filing of certificates of candidacy will
be on the second to the last month of this year?
DEAN ESPEJO:
May I be allowed to answer that by way of a speculation, Your
Honor.
ASSOCIATE JUSTICE PERALTA:
Go ahead, please.
DEAN ESPEJO:
I think bidder will find it difficult to match that.
xxxx
ASSOCIATE JUSTICE PERALTA:
Okay. My other question is this. Okay, now you admitted that the
original value is 10 billion. Are you also aware that the budget of the
COMELEC when they come up with this contract is 7 billion?
DEAN ESPEJO:
Yes, Your Honor.
ASSOCIATE JUSTICE PERALTA:
And the total value of the original contract is 10 billion. Do you think
that the COMELEC will have money to purchase equipment valued
at 10 billion pesos with only 7 billion pesos for the elections of
2013? Because the budget of 7 billion is not for the purpose only of
the purchase of the equipment, but also includes for the budget of
the elections, pre, during and post elections expenses.
DEAN ESPEJO:
46
Well, Your Honor please, the shortfall of 3 billion pesos can be
remedied if Congress will appropriate additional amounts, if the
President of this Republic will convince the legislature to
appropriate an additional amount, I see no problem why the
shortfall of 3 billion cannot be remedied, Your Honor please.
ASSOCIATE JUSTICE PERALTA:
Oh, thats again speculative.
DEAN ESPEJO:
Again, thats unfortunate thats my speculation.
ASSOCIATE JUSTICE PERALTA:
You will have first to go to Congress, then you go to Senate, and
then you go to the President discounting the possibility of filing a
petition to question the allocation of additional amount for the
2013 elections, by the time that all of these exercises are finished
then election is there already.
DEAN ESPEJO:
Well, Im hopeful, Your Honor please, that our Congressmen and our
Senators will rise to the occasion and move fast and appropriate the
needed amount of 3 billion pesos to help the COMELEC acquire the
proper Automated election System.
x x x[64]
Another reason posed by petitioners for their objection to the
exercise of the option and the eventual execution of the March 30,
2012 Deed of Sale is the existence of the alleged defects, glitches,
and infirmities of the subject goods. The technology provided by
Smartmatic-TIM was not perfect, because of some technical
problems that were experienced during the 2010 elections.
Petitioners herein doubt that the integrity and sanctity of the ballots
are protected because of these defects.
We do not agree.
Prior to the execution of the Deed of Sale, the Comelec and
Smartmatic-TIM had agreed that the latter would undertake fixes
and enhancements to the hardware and software to make sure that
the subject goods are in working condition to ensure a free, honest,
and credible elections. As former Commissioner Augusto C. Lagman
admitted[65] during the oral arguments, there are possible software
solutions to the alleged problems on the PCOS machines and it is
not inherently impossible to remedy the technical problems that
have been identified. While there is skepticism that Smartmatic-TIM
would be able to correct the supposed defects prior to the 2013
elections because of its inaction during the two years prior to the
exercise of the option, we agree with the opinion of Chairman Sixto
S. Brillantes, Jr. that it is absurd to expect Smartmatic-TIM to invest
time, money and resources in fixing the PCOS machines to the
specifications and requirements of the Comelec when prior to the
exercise of the OTP, they do not have the assurance from the
Comelec that the latter will exercise the option.[66]
Moreover, as to the digital signature which appears to be the major
concern of petitioners, it has been clarified during the oral
arguments that the PCOS machines are capable of producing
digitally-signed transmissions:
JUSTICE CARPIO:
47
I have some questions. Counsel, the law requires that the election and the iButtons [interrupted]
returns that are electronically transmitted must be digitally signed,
correct? JUSTICE CARPIO:

ATTY. LAZATIN: because they are there, the machine is capable of producing
digitally-signed transmissions. But you just said that the BEI
Thats right, Your Honor. Chairman did not input their private keys because there was no
time. It requires five (5) months.
JUSTICE CARPIO:
ATTY. LAZATIN:
Now, but in the 2010 elections, all election returns electronically
transmitted were NOT digitally signed, correct? Your Honor, as I said, there is a digital signature that was assigned
to the BEIto the BEIs, your Honor, okay. I am saying that there is
ATTY. LAZATIN: digital signature. What I also said, Your Honor, is that there is also a
They were, Your Honors, please possibility that another digital certificate or signature can come
from another certification authority xxx

JUSTICE CARPIO: JUSTICE CARPIO:

Why? How? No, thats a third partythats a third-party certifier, but thats an
option. The law does not require a third-party certification. It
ATTY. LAZATIN: merely says that transmission must be digitally signed.

Your Honor, as we explained in our presentation, the iButtons, Your

Honor, contain the digital signatures ATTY. LAZATIN:

JUSTICE CARPIO: Thats right.

Yes, I understand that

JUSTICE CARPIO:

Thats why Chairman Melo told Congress that it will cost one (1)
ATTY. LAZATIN: billion to get a third-party certifier, but the law does not require it

48
even now, if you said in your presentation that the BEI Chairman
could not input their private key, thats generated because it takes
five (5) months to do that and the list of BEI Chairman is known only
one (1) month before the election, then how could there be a digital
signature?
ATTY. LAZATIN:
Your Honor, as I mentioned it is anot a customized or personal
digital signature. It is a digital signature that is assigned by
COMELEC.
JUSTICE CARPIO:
Assigned by COMELEC? How canwho inputs that digital signature?
ATTY. LAZATIN:
It is cranked out, Your Honor, and
JUSTICE CARPIO:
No, yourit is trusted that the list of the BEI Chairman is known only
one (1) month before, so how can the BEI Chairman input their
digital signature five (5) months before?
ATTY. LAZATIN:
As I said, Your Honor, it is not a personal or customized signature. It
is just like
JUSTICE CARPIO:
It is a machine ID, in other words?
ATTY. LAZATIN:
No, let me explain it this way, Your Honor. The best example I can
give, Your Honor, is
JUSTICE CARPIO:
Okay, let us define first what a digital signature means.
ATTY. LAZATIN:
The Rules of Court, Your Honor, defines digital signature as the first
one it is electronic signature consisting of a transformation of an
electronic document or an electronic data message using an
asymmetric or public Cryptosystem such that a person having the
initial untransformed electronic document and the signers public
key can accurately determine: (i) whether the transformation was
created using the private key that corresponds to the signers public
key; and (ii) whether the initial electronic document has been
altered after the transformation was made.
JUSTICE CARPIO:
Therefore, digital signature requires private key and public key
ATTY. LAZATIN:
Yes, Your Honor.
JUSTICE CARPIO:
49
and this private key and public key are generated by an algorithm, Now, was that used in the 2010 elections?
correct?
ATTY. LAZATIN:

ATTY. LAZATIN: Yes, your Honor.

Yes, thats right, Your Honor. JUSTICE CARPIO:

JUSTICE CARPIO: How was that private key generated?

And there is another algorithm which, if you matchif you put ATTY. LAZATIN:
together the private key and the message, will generate the
signature. Again, Your Honor, as I said

ATTY. LAZATIN: JUSTICE CARPIO:

Thats right, Your Honor. Did the BEI Chairman know what that private key is?

JUSTICE CARPIO: ATTY. LAZATIN:

Your Honor, allow me to explain, Your Honor. The names, Your

Honor, or the private keys arewere assigned to the BEIs Your Honor.
And the third algorithm, that if you put together the public key and In the same way, Your Honor, in the office my code name, Your
the signature it will accept or reject the message, thats correct? Honor, or assigned to me is 00 xxx

ATTY. LAZATIN: JUSTICE CARPIO:

Thats correct, Your Honor. You mean to say the private key is embedded in the machine?

ATTY. LAZATIN:
JUSTICE CARPIO:

50
No, Your Honor, it is embedded in the iButton and they are given a x In other words, whoever is in possession of that iButton can make a
xx digitally-transmitted election return, correct?

JUSTICE CARPIO: ATTY. LAZATIN:

Yes, in the machinethe iButton is in the machine. Thats correct, Your Honor. Your Honor, together with the other BEIs
because apart from this iButton, Your Honor, for authentication the
ATTY. LAZATIN: BEIs, three of them, Your Honor, have an 8-digit PIN, Your Honor.
JUSTICE CARPIO:
No, Your Honor.
How is that 8-digit PIN given to them?
JUSTICE CARPIO:
ATTY. LAZATIN:
Where is it?
ATTY. LAZATIN: In a sealed envelope, Your Honor, these are x x x

It is a gadget, Your Honors, that is usedit is a separate gadget, your JUSTICE CARPIO:
Honor xxx This is a sample of an iButton, your Honor, and in fact we
said that we are prepared to demonstrate, Your Honor, and to show And then they also input that in the keyboard?
to this Court
ATTY. LAZATIN:
xxx
Yes, Your Honor.
JUSTICE CARPIO:

On election Day, where was the iButton placed? In the machine? JUSTICE CARPIO:

ATTY. LAZATIN: In the display?

To start the machine, Your Honor, you have to put it on top of that ATTY. LAZATIN:
Button xxx
Yes, Your Honor.
JUSTICE CARPIO:
JUSTICE CARPIO:

51
 Thats correct, Your Honor. But the machine, Your Honor, as I
So, that iButton contains the private key? mentioned, is capable of accepting any number of digital signatures
whether self-generated or by a third-party certification authority,
ATTY. LAZATIN: Your Honor.

Yes, Your Honor, thats my understanding.

JUSTICE CARPIO: JUSTICE CARPIO:

And who controls the public key? Who control[led] the public key in Okay. So, whoever is in possession of that iButton and in possession
the last election? of the four (4) PINS, the set of PINs, for the other BEI number, can
send a transmission?
ATTY. LAZATIN:
ATTY. LAZATIN:
My understanding, Your honor, is COMELEC, your Honor.
Yes, Your Honor.

JUSTICE CARPIO:
JUSTICE CARPIO:
COMELEC had the public key?
The moment you are in possession of the iButton and the four (4)
sets of PINs
ATTY. LAZATIN:

Thats my understanding, Your Honor. ATTY. LAZATIN:

JUSTICE CARPIO: Thats correct, Your Honor.

And there was no certifying agency because it cost too much and
the law did not require that? JUSTICE CARPIO:

If they can send an electronic transmission thats digitally signed and

ATTY. LAZATIN: when received by the COMELEC and matched with the public key
will result with an official election return, correct?

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ATTY. LAZATIN:
Thats correct. In the same way, Your Honor, that even if someone
keeps his key or private key, Your Honor, if he is under threat he will
also divulge it, Your Honor. Its the same.
JUSTICE CARPIO:
Okay, so whoever wants to send it, he will have to get the private
key from the BEI Chairman and the PIN numbers from the other
members
fact fixes and enhancements had been undertaken by Smartmatic-
TIM. Petitioners could not even give a plausible alternative to
ensure the conduct of a successful 2013 automated elections, in the
event that the Court nullifies the Deed of Sale.
WHEREFORE, premises considered, the petitions are DISMISSED.
The Temporary Restraining Order issued by the Court on April 24,
2012 is LIFTED.
SO ORDERED.

ATTY. LAZATIN:

Yes, Your Honor.

JUSTICE CARPIO:

before they can send the electronic transmission.

ATTY. LAZATIN:

Yes, Your Honor.

JUSTICE CARPIO:

Okay. That clarifies things. x x x[67]

As the Comelec is confronted with time and budget constraints, and
in view of the Comelecs mandate to ensure free, honest, and
credible elections, the acceptance of the extension of the option
period, the exercise of the option, and the execution of the Deed of
Sale, are the more prudent choices available to the Comelec for a
successful 2013 automated elections. The alleged defects in the
subject goods have been determined and may be corrected as in

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