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GOVT CON FULL CASES PART 1 intended for the reclamation project as part of the overall port

development plan.
SARGASSO CONSTRUCTION
& DEVELOPMENT CORPORATION/PICK & SHOVEL, INC.,/ATLANTIC In a letter dated October 1, 1992 of Mr. Melecio J. Go, Executive
ERECTORS, INC. (JOINT VENTURE), Director of the consortium, plaintiff offered to undertake the
- versus - PHILIPPINE PORTS AUTHORITY, reclamation between the Timber Pier and Pier 2 of the Port of San
G.R. NO. 170530 Fernando, La Union, as an extra work to its existing construction of
Promulgated: R.C. Pier 2 and Rock Causeway for a price of P36,294,857.03.
July 5, 2010 Defendant replied thru its Assistant General Manager Teofilo H.
Landicho who sent the following letter dated December 18, 1992:
DECISION
MENDOZA, J.: This is to acknowledge receipt of your letter dated 01 October 1992
offering to undertake the reclamation between the Timber Pier and
This is a petition for review on certiorari under Rule 45 which seeks Pier 2, at the Port of San Fernando, La Union as an extra work to
to annul and set aside the August 22, 2005 Decision[1] of the Court your existing contract.
of Appeals (CA) in CA-G.R. CV No. 63180 and its November 14, 2005
Resolution[2] denying petitioners motion for the reconsideration Your proposal to undertake the project at a total cost of THIRTY SIX
thereof. The questioned CA decision reversed the June 8, 1998 MILLION TWO HUNDRED NINETY FOUR THOUSAND EIGHT
Decision[3] of the Regional Trial Court of Manila, Branch 14, in Civil HUNDRED FIFTY SEVEN AND 03/100 PESOS (P36,294,857.03) is not
Case No. 97-83916, which granted petitioners action for specific acceptable to PPA. If you can reduce your offer to THIRTY MILLION
performance. SEVEN HUNDRED NINETY FOUR THOUSAND TWO HUNDRED THIRTY
AND 89/100 (P30,794,230.89) we may consider favorably award of
The factual and procedural antecedents have been succinctly the project in your favor, subject to the approval of higher
recited in the subject Court of Appeals decision in this wise:[4] authority.

Plaintiff Sargasso Construction and Development Corporation, Pick Please signify your agreement to the reduced amount of
and Shovel, Inc. and Atlantic Erectors, Inc., a joint venture, was P30,794,230.89 by signing in the space provided below. (emphasis
awarded the construction of Pier 2 and the rock causeway (R.C. Pier in the original)
2) for the port of San Fernando, La Union, after a public bidding
conducted by the defendant PPA. Implementation of the project On August 26, 1993, a Notice of Award signed by PPA General
commenced on August 14, 1990. The port construction was in Manager Rogelio Dayan was sent to plaintiff for the phase I
pursuance of the development of the Northwest Luzon Growth Reclamation Contract in the amount of P30,794,230.89 and
Quadrangle. Adjacent to Pier 2 is an area of P4,280 square meters 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 On June 30, 1997, plaintiff filed a complaint for specific
Port of Tabaco is completed before the approval of the contract for performance and damages before the Regional Trial Court of Manila
the reclamation project. Installation of the rubber dock fenders in alleging that defendant PPAs unjustified refusal to comply with its
the said ports was accomplished in the year 1994. PPA Management undertaking, unnecessarily leading to the delay in the
further set a condition [that] the acceptance by the contractor that implementation of the award under the August 26, 1993 Notice of
mobilization/demobilization cost shall not be included in the Award, has put on hold plaintiffs men and resources earmarked for
contract and that escalation shall be reckoned upon approval of the the project, aside from effectively tying its hands in undertaking
Supplemental Agreement. The award of the negotiated contract as other projects for fear that plaintiffs incapacity to undertake work
additional or supplemental project in favor of plaintiff was intended might be spread thinly and it might not be able to function
to save on the mobilization/demobilization costs and some items as efficiently if the PPA project and other projects should require
provided for in the original contract. Hence, then General Manager simultaneous attention. Plaintiff averred that it sought
Carlos L. Agustin presented for consideration by the PPA Board of reconsideration of the August 9, 1996 letter of PPA informing it that
Directors the contract proposal for the reclamation project. 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
At its meeting held on September 9, 1994, the Board decided not to Classification and not complying with equipment requirement. In its
approve the contract proposal, as reflected in the following excerpt letter dated September 19, 1996, plaintiff pointed out that the
of the minutes taken during said board meeting: disqualification was clearly unjust and totally without basis
considering that individual contractors of the joint venture have
After due deliberation, the Board advised Management to bid the undertaken separately bigger projects, and have been such
project since there is no strong legal basis for Management to individual contractors for almost 16 years. It thus prayed that
award the supplemental contract through negotiation. The Board judgment be rendered by the court directing the defendant (a) to
noted that the Pier 2 Project was basically for the construction of a comply with its undertaking under the Notice of Award dated
pier while the supplemental agreement refers to reclamation. Thus August 26, 1993; and (b) to pay plaintiff actual damages
there is no basis to compare the terms and conditions of the (P1,000,000.00), exemplary damages (P1,000,000.00), attorneys
reclamation project with the original contract (Pier 2 Project) of fees (P300,000.00) and expenses of litigation and costs
Sargasso.[5] (P50,000.00).

It appears that PPA did not formally advise the plaintiff of the Defendant PPA thru the Office of the Government Corporate
Boards action on their contract proposal. As plaintiff learned that Counsel (OGCC) filed its Answer with Compulsory Counterclaim
the Board was not inclined to favor its Supplemental Agreement, contending that the alleged Notice of Award has already been
Mr. Go wrote General Manager Agustin requesting that the same be properly revoked when the Supplemental Agreement which should
presented again to the Board meeting for approval. However, no have implemented the award was denied approval by defendants
reply was received by plaintiff from the defendant. 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 The counterclaim is dismissed for lack of merit.
factual determination by the defendant that plaintiff lacked IAC SO ORDERED.[6]
Registration and Classification and equipment for the said project as
communicated in the August 9, 1996 letter. Defendant disclaimed In addressing affirmatively the basic issue of whether there was a
any liability for whatever damages suffered by the plaintiff when it perfected contract between the parties for the reclamation project,
jumped the gun by committing its alleged resources for the the trial court ruled that the higher authority x x adverted to does
reclamation project despite the fact that no Notice to Proceed was not necessarily mean the Board of Directors (Board). Under IRR, P.D.
issued to plaintiff by the defendant. The cause of action insofar as 1594 (1)B10.6, approval of award and contracts is vested on the
the Extension of R.C. Pier No. 2 of the Port of San Fernando, La head of the infrastructure department or its duly authorized
Union, is barred by the statute of limitation since plaintiff filed its representative. Under Sec. 9 (iii) of P.D. 857 which has amended
request for reconsideration way beyond the seven (7) day-period P.D. 505 that created the PPA, one of the particular powers and
allowed under IB 6-5 of the Implementing Rules and Regulations of duties of the General Manager and Assistant General Manager is to
P.D. 1594. Defendant clarified that the proposed Reclamation sign contracts.[7] It went on to say that in the case of the PPA, the
Project and Extension of R.C. Pier No. 2 San Fernando, La Union, are power to enter into contracts is not only vested on the Board of
separate projects of PPA. The Board of Directors denied approval of Directors, but also to the manager citing Section 9 (III) of P.D. No.
the Supplemental Agreement on September 9, 1994 for lack of legal 857.[8]
basis to award the supplemental contract through negotiation
which was properly communicated to the plaintiff as shown by its The trial court added that the tenor of the Notice of Award implied
letter dated September 19, 1994 seeking reconsideration thereof. that respondents general manager had been empowered by its
As advised by the Board, PPA Management began to make Board of Directors to bind respondent by contract. It noted that
preparations for the public bidding for the proposed reclamation whereas the letter-reply contained the phrase approval of the
project. In the meantime, defendant decided to pursue the higher authority, the conspicuous absence of the same in the Notice
extension of R.C. Pier 2, San Fernando, La Union. xxx It [prayed that of Award supported the finding that the general manager had been
the complaint be dismissed]. (Emphasis supplied) 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
After trial, the lower court rendered a decision in favor of the the supplementary contract for the reclamation on a ground other
plaintiff, the dispositive portion of which reads: than the general managers lack of authority was an explicit
recognition that the latter was so authorized to enter into the
WHEREFORE, and in view of the foregoing considerations, purported contract.
judgment is hereby rendered ordering the defendant to execute a
contract in favor of the plaintiff for the reclamation of the area Respondent moved for a reconsideration of the RTC decision but it
between the Timber Pier and Pier 2 located at San Fernando, La was denied for lack of merit. Respondent then filed its Notice of
Union for the price of P30,794,230.89 and to pay the costs. Appeal. Subsequently, petitioner moved to dismiss the appeal on

3
the ground that respondent failed to perfect its appeal seasonably. contracts; and that, in the execution of contracts, the general
On June 27, 2000, the Court of Appeals issued a Resolution[9] manager only exercised a delegated power, in reference to which,
dismissing respondents appeal for having been filed out time. evidence was wanting that the PPA Board delegated to its general
Respondents motion for reconsideration of said resolution was also manager the authority to enter into a supplementary contract for
denied.[10] the reclamation project.

Undaunted, respondent elevated its problem to this Court via a The CA also found the disapproval of the contract on a ground
petition for review on certiorari under Rule 45 assailing the denial of other than the general managers lack of authority rather
its appeal. On July 30, 2004, the Court rendered an en banc inconsequential because Executive Order 380[12] expressly
decision[11] granting respondents petition on a liberal authorized the governing boards of government-owned or
interpretation of the rules of procedure, and ordering the CA to controlled corporations to enter into negotiated infrastructure
conduct further proceedings. contracts involving not more than fifty million (P50 million). The CA
further noted that the Notice of Award was only one of those
On August 22, 2005, the CA rendered the assailed decision documents that comprised the entire contract and, therefore, did
reversing the trial courts decision and dismissing petitioners not in itself evidence the perfection of a contract.
complaint for specific performance and damages. Thus, the
dispositive portion thereof reads: Hence, this petition.

WHEREFORE, premises considered, the present appeal is hereby The issue to be resolved in this case is whether or not a contract
GRANTED. The appealed Decision dated June 8, 1998 of the trial has been perfected between the parties which, in turn, depends on
court in Civil Case No. 97-83916 is hereby REVERSED and SET ASIDE. whether or not the general manager of PPA is vested with authority
A new judgment is hereby entered DISMISSING the complaint for to enter into a contract for and on behalf of PPA.
specific performance and damages filed by Plaintiff Sargasso
Construction and Development Corporation/Pick & Shovel, The petition fails.
Inc./Atlantic Erectors, Inc., (Joint Venture) against the Philippine
Ports Authority for lack of merit. Petitioner contends that the existence of Notice of Award of
Contract and Contractors Conforme thereto, resulting from its
In setting aside the trial courts decision, the CA ruled that the law negotiation with respondent, proves that a contract has already
itself should serve as the basis of the general managers authority to been perfected, and that the other documents enumerated under
bind respondent corporation and, thus, the trial court erred in the amended Rules and Regulations[13] implementing P.D. 1594[14]
merely relying on the wordings of the Notice of Award and the are mere physical representations of the parties meeting of the
Minutes of the Board meeting in determining the limits of his minds; that the Approval of Award by Approving Authority is only a
authority; that the power of the general manager to sign contracts supporting document, and not an evidence of perfection of
is different from the Boards power to make or enter (into) contract, and which merely facilitates the approval of the

4
contract;[15] that PPA is bound by the acts of its general manager in relates wholly to matter of public concern, and affects private rights
issuing the Notice of Award under the doctrine of apparent only so far as the statute confers such rights when its provisions are
authority; and that the doctrine of estoppel, being an equitable carried out by the officer to whom it is confided to perform.[19]
doctrine, cannot be invoked to perpetuate an injustice against
petitioner. A government contract is essentially similar to a private contract
contemplated under the Civil Code. The legal requisites of consent
At the outset, it must be stated that there are two (2) separate and of the contracting parties, an object certain which is the subject
distinct, though related, projects involving the parties herein, viz: (i) matter, and cause or consideration of the obligation must likewise
the construction of Pier 2 and the rock causeway for the port of San concur. Otherwise, there is no government contract to speak of.[20]
Fernando, La Union, and (ii) the reclamation of the area between
the Timber Pier and Pier 2 of the same port. Petitioners action for As correctly found by the CA, the issue on the reclamation of the
specific performance and damages merely relates to the latter. area between Timber Pier and Pier 2 of the Port of San Fernando
involves a government infrastructure project, and it is beyond
Every contract has the following essential elements: (i) consent, (ii) dispute that the applicable laws, rules and regulations on
object certain and (iii) cause. Consent has been defined as the government contracts or projects apply.
concurrence of the wills of the contracting parties with respect to
the object and cause which shall constitute the contract.[16] In On the matter of entering into negotiated contracts by government-
general, contracts undergo three distinct stages, to wit: negotiation, owned and controlled corporations, the provisions of existing laws
perfection or birth, and consummation. Negotiation[17] begins from are crystal clear in requiring the governing boards approval thereof.
the time the prospective contracting parties manifest their interest The Court holds that the CA correctly applied the pertinent laws, to
in the contract and ends at the moment of their agreement. wit:
Perfection or birth of the contract takes place when the parties
agree upon the essential elements of the contract, i.e., consent, Executive Order No. 380 provides for revised levels of authority on
object and price. Consummation occurs when the parties fulfill or approval of government contracts. Section 1 thereof authorizes
perform the terms agreed upon in the contract, culminating in the GOCCs:
extinguishment thereof. The birth or the perfection of the contract,
which is the crux of the present controversy, refers to that moment 1. To enter into infrastructure contracts awarded through public
in the life of a contract when there is finally a concurrence of the bidding regardless of the amount involved;
wills of the contracting parties with respect to the object and the
cause of the contract.[18] 2. To enter into negotiated infrastructure contracts involving not
more than one hundred million pesos (P100 million) in the case of
A government or public contract has been defined as a contract the Department of Transportation and Communications and the
entered into by state officers acting on behalf of the state, and in Department of Public Works and Highways, and not more than fifty
which the entire people of the state are directly interested. It million pesos (P50 million) in the case of the other Departments and

5
governments corporations; Provided, That contracts exceeding the negotiate contract for projects under these exceptional cases shall
said amounts shall only be entered into upon prior authority from be subject to prior approval by heads of agencies within their limits
the Office of the President; and Provided, Further, That said of approving authority.[21] (emphasis in the original)
contracts shall only be awarded in strict compliance with Section 5
of Executive Order No. 164, S. of 1987. Furthermore, the Revised Administrative Code[22] lays down the
same requirement, thus:
xxx
Sec. 51. Who May Execute Contracts. Contracts in behalf of the
The rule on negotiated contracts, as amended on August 12, 2000 Republic of the Philippines shall be executed by the President unless
(IB 10.6.2) now reads authority therefore is expressly vested by law or by him in any other
public officer.
1. Negotiated contract may be entered into only where any of the
following conditions exists and the implementing Contracts in behalf of the political subdivisions and corporate
office/agency/corporation is not capable of undertaking the agencies or instrumentalities shall be approved by their respective
contract by administration: governing boards or councils and executed by their respective
executive heads.
a. In times of emergencies arising from natural calamities where
immediate action is necessary to prevent imminent loss of life Petitioner neither disputes nor admits the application of the
and/or property or to restore vital public services, infrastructure foregoing statutory provisions but insists, nonetheless, that the
and utilities such as Notice of Award itself already embodies a perfected contract having
passed the negotiation stage[23] despite the clear absence thereon
b. Failure to award the contract after competitive public bidding of a condition requiring the prior approval of respondents higher
for valid cause or causes authority.

c. Where the subject project is adjacent or contiguous to an on- Petitioners argument is untenable. Contracts to which the
going project and it could be economically prosecuted by the same government is a party are generally subject to the same laws and
contractor provided that subject contract has similar or related regulations which govern the validity and sufficiency of contracts
scope of works and it is within the contracting capacity of the between private individuals.[24] A government contract, however,
contractor, in which case, direct negotiation may be undertaken is perfected[25] only upon approval by a competent authority,
with the said contractor where such approval is required.[26]

xxx The contracting officer functions as agent of the Philippine


In cases a and b above, bidding may be undertaken through sealed government for the purpose of making the contract. There arises
canvass of at least three (3) qualified contractors Authority to then, in that regard, a principal-agent relationship between the

6
Government, on one hand, and the contracting official, on the vested in the Authority. It also exercise[s] all the powers of a
other. The latter though, in contemplation of law, possesses only corporation under the Corporation Law. On the other hand, the law
actual agency authority. This is to say that his contracting power merely vests the general manager the general power to sign
exists, where it exists at all, only because and by virtue of a law, or contracts and to perform such other duties as the Board may assign
by authority of law, creating and conferring it. And it is well settled Therefore, unless respondents Board validly authorizes its general
that he may make only such contracts as he is so authorized to manager, the latter cannot bind respondent PPA to a contract.
make. Flowing from these basic guiding principles is another stating
that the government is bound only to the extent of the power it has The Court completely agrees with the CA that the petitioner failed
actually given its officers-agents. It goes without saying then that, to present competent evidence to prove that the respondents
conformably to a fundamental principle in agency, the acts of such general manager possessed such actual authority delegated either
agents in entering into agreements or contracts beyond the scope by the Board of Directors, or by statutory provision. The authority of
of their actual authority do not bind or obligate the Government. government officials to represent the government in any contract
The moment this happens, the principal-agent relationship between must proceed from an express provision of law or valid delegation
the Government and the contracting officer ceases to exist.[27] of authority.[30] Without such actual authority being possessed by
(emphasis supplied) PPAs general manager, there could be no real consent, much less a
perfected contract, to speak of.
It was stressed that the contracting official who gives his consent as
to the subject matter and the consideration ought to be It is of no moment if the phrase approval of higher authority
empowered legally to bind the Government and that his actuations appears nowhere in the Notice of Award. It neither justifies
in a particular contractual undertaking on behalf of the government petitioners presumption that the required approval had already
come within the ambit of his authority. On top of that, the approval been granted nor supports its conclusion that no other condition
of the contract by a higher authority is usually required by law or (than the completion of fendering of Pier 2 as stated in the Notice of
administrative regulation as a requisite for its perfection.[28] Award) ought to be complied with to create a perfected
contract.[31] Applicable laws form part of, and are read into, the
Under Article 1881 of the Civil Code, the agent must act within the contract without need for any express reference thereto;[32] more
scope of his authority to bind his principal. So long as the agent has so, to a purported government contract, which is imbued with
authority, express or implied, the principal is bound by the acts of public interest.
the agent on his behalf, whether or not the third person dealing
with the agent believes that the agent has actual authority.[29] Adopting the trial courts ratiocination, petitioner further argues
Thus, all signatories in a contract should be clothed with authority that had it been true that respondents general manager was
to bind the parties they represent. without authority to bind respondent by contract, then the former
should have disapproved the supplemental contract on that
P.D. 857 likewise states that one of the corporate powers of ground.[33] Petitioner also interprets the Boards silence on the
respondents Board of Directors is to reclaim any part of the lands matter as an explicit recognition of the latters authority to enter

7
into a negotiated contract involving the reclamation project. This No wonder petitioner conveniently omitted any attempt at
posture, however, does not conform with the basic provisions of the presenting its case within the statutory exceptions, and insisted that
law to which we always go back. Section 4 of P.D. 1594[34] respondents disapproval of the supplemental agreement was a
provides:[35] mere afterthought perhaps realizing the infirmity of its excuse
(referring to petitioners belated pre-disqualification in the
Section 4. Bidding. Construction projects shall generally be construction project). But the Court, at the very outset, has
undertaken by contract after competitive public bidding. Projects previously clarified that the two projects involved herein are distinct
may be undertaken by administration or force account or by from each other. Hence, petitioners disqualification in the
negotiated contract only in exceptional cases where time is of the construction project due to its lack of certain requirements has no
essence, or where there is lack of qualified bidders or contractors, significant bearing in this case.
or where there is a conclusive evidence that greater economy and
efficiency would be achieved through this arrangement, and in Lastly, petitioners invocation of the doctrine of apparent
accordance with provision of laws and acts on the matter, subject to authority[36] is misplaced. This doctrine, in the realm of
the approval of the Ministry of Public Works, Transportation and government contracts, has been restated to mean that the
Communications, the Minister of Public Highways, or the Minister of government is NOT bound by unauthorized acts of its agents, even
Energy, as the case may be, if the project cost is less than P1 Million, though within the apparent scope of their authority.[37] Under the
and of the President of the Philippines, upon the recommendation law on agency, however, apparent authority is defined as the power
of the Minister, if the project cost is P1 Million or more. to affect the legal relations of another person by transactions with
third persons arising from the others manifestations to such third
Precisely, the Board of Directors of the respondent did not see fit to person[38] such that the liability of the principal for the acts and
approve the contract by negotiation after finding that the Pier 2 contracts of his agent extends to those which are within the
Project was basically for the construction of a pier while the apparent scope of the authority conferred on him, although no
supplemental agreement refers to reclamation. Thus, there is no actual authority to do such acts or to make such contracts has been
basis to compare the terms and conditions of the reclamation conferred.[39]
project with the original contract (Pier 2 Project) of Sargasso. So
even granting arguendo that the Boards action or inaction is an Apparent authority, or what is sometimes referred to as the holding
explicit recognition of the authority of the general manager, the out theory, or doctrine of ostensible agency, imposes liability, not as
purported contract cannot possibly be the basis of an action for the result of the reality of a contractual relationship, but rather
specific performance because the negotiated contract itself basically because of the actions of a principal or an employer in somehow
contravenes stringent legal requirements aimed at protecting the misleading the public into believing that the relationship or the
interest of the public. The bottom line here is that the facts do not authority exists.[40] The existence of apparent authority may be
conform to what the law requires. 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 (PIATCO) for the construction, operation and maintenance of the
particular nature, with actual or constructive knowledge thereof, Ninoy Aquino International Airport International Passenger Terminal
whether within or beyond the scope of his ordinary powers. It III (NAIA IPT III). Subsequent to the above Decision, a certain Ma.
requires presentation of evidence of similar act(s) executed either in Cecilia L. Pesayco filed a complaint with the Office of the
its favor or in favor of other parties.[41] Ombudsman against several individuals for alleged violation of R.A.
3019. Among those charged was herein respondent, who was then
Easily discernible from the foregoing is that apparent authority is the Chairman and President of PIATCO, for having supposedly
determined only by the acts of the principal and not by the acts of conspired with then DOTC Secretary Arturo Enrile (Secretary Enrile)
the agent. The principal is, therefore, not responsible where the in entering into a contract which is grossly and manifestly
agents own conduct and statements have created the apparent disadvantageous to the government.
authority.[42]
On September 16, 2004, the Office of the Deputy Ombudsman for
G.R. No. 168539 March 25, 2014 Luzon found probable cause to indict, among others, herein
respondent for violation of Section 3(g) of R.A. 3019. While there
PEOPLE OF THE PHILIPPINES, Petitioner, was likewise a finding of probable cause against Secretary Enrile, he
vs. was no longer indicted because he died prior to the issuance of the
HENRY T. GO, Respondent. resolution finding probable cause.

DECISION Thus, in an Information dated January 13, 2005, respondent was


charged before the SB as follows:
PERALTA, J.:
On or about July 12, 1997, or sometime prior or subsequent
Before the Court is a petition for review on certiorari assailing the thereto, in Pasay City, Metro Manila, Philippines and within the
Resolution1 of the Third Division2 of the Sandiganbayan (SB) dated jurisdiction of this Honorable Court, the late ARTURO ENRILE, then
June 2, 2005 which quashed the Information filed against herein Secretary of the Department of Transportation and
respondent for alleged violation of Section 3 (g) of Republic Act No. Communications (DOTC), committing the offense in relation to his
3019 (R.A. 3019), otherwise known as the Anti-Graft and Corrupt office and taking advantage of the same, in conspiracy with accused,
Practices Act. HENRY T. GO, Chairman and President of the Philippine
International Air Terminals, Co., Inc. (PIATCO), did then and there,
The Information filed against respondent is an offshoot of this willfully, unlawfully and criminally enter into a Concession
Court's Decision3 in Agan, Jr. v. Philippine International Air Agreement, after the project for the construction of the Ninoy
Terminals Co., Inc. which nullified the various contracts awarded by Aquino International Airport International Passenger Terminal III
the Government, through the Department of Transportation and (NAIA IPT III) was awarded to Paircargo Consortium/PIATCO, which
Communications (DOTC), to Philippine Air Terminals, Co., Inc. Concession Agreement substantially amended the draft Concession

9
Agreement covering the construction of the NAIA IPT III under public officer with whom he was alleged to have conspired,
Republic Act 6957, as amended by Republic Act 7718 (BOT law), respondent, who is not a public officer nor was capacitated by any
specifically the provision on Public Utility Revenues, as well as the official authority as a government agent, may not be prosecuted for
assumption by the government of the liabilities of PIATCO in the violation of Section 3(g) of R.A. 3019.
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 The prosecution filed its Opposition.8
are more beneficial to PIATCO while manifestly and grossly
disadvantageous to the government of the Republic of the On June 2, 2005, the SB issued its assailed Resolution, pertinent
Philippines.4 portions of which read thus:

The case was docketed as Criminal Case No. 28090. 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
On March 10, 2005, the SB issued an Order, to wit: in this case is a private person and his alleged co-conspirator-public
official was already deceased long before this case was filed in
The prosecution is given a period of ten (10) days from today within court, for lack of jurisdiction over the person of the accused, the
which to show cause why this case should not be dismissed for lack Court grants the Motion to Quash and the Information filed in this
of jurisdiction over the person of the accused considering that the case is hereby ordered quashed and dismissed.9
accused is a private person and the public official Arturo Enrile, his
alleged co-conspirator, is already deceased, and not an accused in Hence, the instant petition raising the following issues, to wit:
this case.5
I
The prosecution complied with the above Order contending that the
SB has already acquired jurisdiction over the person of respondent WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND
by reason of his voluntary appearance, when he filed a motion for DECIDED A QUESTION OF SUBSTANCE IN A MANNER NOT IN
consolidation and when he posted bail. The prosecution also argued ACCORD WITH LAW OR APPLICABLE JURISPRUDENCE IN GRANTING
that the SB has exclusive jurisdiction over respondent's case, even if THE DEMURRER TO EVIDENCE AND IN DISMISSING CRIMINAL CASE
he is a private person, because he was alleged to have conspired NO. 28090 ON THE GROUND THAT IT HAS NO JURISDICTION OVER
with a public officer.6 THE PERSON OF RESPONDENT GO.

On April 28, 2005, respondent filed a Motion to Quash7 the II


Information filed against him on the ground that the operative facts
adduced therein do not constitute an offense under Section 3(g) of WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND
R.A. 3019. Respondent, citing the show cause order of the SB, also DECIDED A QUESTION OF SUBSTANCE IN A MANNER NOT IN
contended that, independently of the deceased Secretary Enrile, the ACCORD WITH LAW OR APPLICABLE JURISPRUDENCE, IN RULING

10
THAT IT HAS NO JURISDICTION OVER THE PERSON OF RESPONDENT (3) that such contract or transaction is grossly and manifestly
GO DESPITE THE IRREFUTABLE FACT THAT HE HAS ALREADY POSTED disadvantageous to the government.11
BAIL FOR HIS PROVISIONAL LIBERTY
At the outset, it bears to reiterate the settled rule that private
III persons, when acting in conspiracy with public officers, may be
indicted and, if found guilty, held liable for the pertinent offenses
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED WHEN, IN under Section 3 of R.A. 3019, in consonance with the avowed policy
COMPLETE DISREGARD OF THE EQUAL PROTECTION CLAUSE OF THE of the anti-graft law to repress certain acts of public officers and
CONSTITUTION, IT QUASHED THE INFORMATION AND DISMISSED private persons alike constituting graft or corrupt practices act or
CRIMINAL CASE NO. 2809010 which may lead thereto.12 This is the controlling doctrine as
enunciated by this Court in previous cases, among which is a case
The Court finds the petition meritorious. involving herein private respondent.13

Section 3 (g) of R.A. 3019 provides: The only question that needs to be settled in the present petition is
whether herein respondent, a private person, may be indicted for
Sec. 3. Corrupt practices of public officers. – In addition to acts or conspiracy in violating Section 3(g) of R.A. 3019 even if the public
omissions of public officers already penalized by existing law, the officer, with whom he was alleged to have conspired, has died prior
following shall constitute corrupt practices of any public officer and to the filing of the Information.
are hereby declared to be unlawful:
Respondent contends that by reason of the death of Secretary
xxxx Enrile, there is no public officer who was charged in the Information
and, as such, prosecution against respondent may not prosper.
(g) Entering, on behalf of the Government, into any contract or
transaction manifestly and grossly disadvantageous to the same, The Court is not persuaded.
whether or not the public officer profited or will profit thereby.
It is true that by reason of Secretary Enrile's death, there is no
The elements of the above provision are: longer any public officer with whom respondent can be charged for
violation of R.A. 3019. It does not mean, however, that the
(1) that the accused is a public officer; allegation of conspiracy between them can no longer be proved or
that their alleged conspiracy is already expunged. The only thing
(2) that he entered into a contract or transaction on behalf of the extinguished by the death of Secretary Enrile is his criminal liability.
government; and 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 The Court agrees with petitioner's contention that, as alleged in the
found probable cause to indict Secretary Enrile for infringement of Information filed against respondent, which is deemed
Sections 3 (e) and (g) of R.A. 3019.14 Were it not for his death, he hypothetically admitted in the latter's Motion to Quash, he
should have been charged. (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
The requirement before a private person may be indicted for all. Hence, the criminal liability incurred by a co-conspirator is also
violation of Section 3(g) of R.A. 3019, among others, is that such incurred by the other co-conspirators.
private person must be alleged to have acted in conspiracy with a
public officer. The law, however, does not require that such person Moreover, the Court agrees with petitioner that the avowed policy
must, in all instances, be indicted together with the public officer. If of the State and the legislative intent to repress "acts of public
circumstances exist where the public officer may no longer be officers and private persons alike, which constitute graft or corrupt
charged in court, as in the present case where the public officer has practices,"20 would be frustrated if the death of a public officer
already died, the private person may be indicted alone. would bar the prosecution of a private person who conspired with
such public officer in violating the Anti-Graft Law.
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 In this regard, this Court's disquisition in the early case of People v.
conspiracy, any act done by any of them pursuant to the agreement Peralta21 as to the nature of and the principles governing
is, in contemplation of law, the act of each of them and they are conspiracy, as construed under Philippine jurisdiction, is instructive,
jointly responsible therefor.16 This means that everything said, to wit:
written or done by any of the conspirators in execution or
furtherance of the common purpose is deemed to have been said, x x x A conspiracy exists when two or more persons come to an
done, or written by each of them and it makes no difference agreement concerning the commission of a felony and decide to
whether the actual actor is alive or dead, sane or insane at the time commit it. Generally, conspiracy is not a crime except when the law
of trial.17 The death of one of two or more conspirators does not specifically provides a penalty therefor as in treason, rebellion and
prevent the conviction of the survivor or survivors.18 Thus, this sedition. The crime of conspiracy known to the common law is not
Court held that: an indictable offense in the Philippines. An agreement to commit a
crime is a reprehensible act from the view-point of morality, but as
x x x [a] conspiracy is in its nature a joint offense. One person long as the conspirators do not perform overt acts in furtherance of
cannot conspire alone. The crime depends upon the joint act or their malevolent design, the sovereignty of the State is not outraged
intent of two or more persons. Yet, it does not follow that one and the tranquility of the public remains undisturbed.
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 However, when in resolute execution of a common scheme, a
for conspiracy, one defendant may be found guilty of the offense.19 felony is committed by two or more malefactors, the existence of a

12
conspiracy assumes pivotal importance in the determination of the intent which existed between the x x x accused, be regarded as the
liability of the perpetrators. In stressing the significance of act of the band or party created by them, and they are all equally
conspiracy in criminal law, this Court in U.S. vs. Infante and Barreto responsible x x x
opined that
Verily, the moment it is established that the malefactors conspired
While it is true that the penalties cannot be imposed for the mere and confederated in the commission of the felony proved, collective
act of conspiring to commit a crime unless the statute specifically liability of the accused conspirators attaches by reason of the
prescribes a penalty therefor, nevertheless the existence of a conspiracy, and the court shall not speculate nor even investigate as
conspiracy to commit a crime is in many cases a fact of vital to the actual degree of participation of each of the perpetrators
importance, when considered together with the other evidence of present at the scene of the crime. Of course, as to any conspirator
record, in establishing the existence, of the consummated crime and who was remote from the situs of aggression, he could be drawn
its commission by the conspirators. within the enveloping ambit of the conspiracy if it be proved that
through his moral ascendancy over the rest of the conspirators the
Once an express or implied conspiracy is proved, all of the latter were moved or impelled to carry out the conspiracy.
conspirators are liable as co-principals regardless of the extent and
character of their respective active participation in the commission In fine, the convergence of the wills of the conspirators in the
of the crime or crimes perpetrated in furtherance of the conspiracy scheming and execution of the crime amply justifies the imputation
because in contemplation of law the act of one is the act of all. The to all of them the act of any one of them. It is in this light that
foregoing rule is anchored on the sound principle that "when two or conspiracy is generally viewed not as a separate indictable offense,
more persons unite to accomplish a criminal object, whether but a rule for collectivizing criminal liability.
through the physical volition of one, or all, proceeding severally or
collectively, each individual whose evil will actively contributes to xxxx
the wrong-doing is in law responsible for the whole, the same as
though performed by himself alone." Although it is axiomatic that x x x A time-honored rule in the corpus of our jurisprudence is that
no one is liable for acts other than his own, "when two or more once conspiracy is proved, all of the conspirators who acted in
persons agree or conspire to commit a crime, each is responsible for furtherance of the common design are liable as co-principals. This
all the acts of the others, done in furtherance of the agreement or rule of collective criminal liability emanates from the ensnaring
conspiracy." The imposition of collective liability upon the nature of conspiracy. The concerted action of the conspirators in
conspirators is clearly explained in one case where this Court held consummating their common purpose is a patent display of their
that x x x it is impossible to graduate the separate liability of each evil partnership, and for the consequences of such criminal
(conspirator) without taking into consideration the close and enterprise they must be held solidarily liable.22
inseparable relation of each of them with the criminal act, for the
commission of which they all acted by common agreement x x x. This is not to say, however, that private respondent should be found
The crime must therefore in view of the solidarity of the act and 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 Thus, it has been held that:
respondent is better left ventilated before the trial court during
trial, where respondent can adduce evidence to prove or disprove When a defendant in a criminal case is brought before a competent
its presence. 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
Respondent claims in his Manifestation and Motion24 as well as in raise the question of the court’s jurisdiction over his person at the
his Urgent Motion to Resolve25 that in a different case, he was very earliest opportunity. If he gives bail, demurs to the complaint
likewise indicted before the SB for conspiracy with the late or files any dilatory plea or pleads to the merits, he thereby gives
Secretary Enrile in violating the same Section 3 (g) of R.A. 3019 by the court jurisdiction over his person. (State ex rel. John Brown vs.
allegedly entering into another agreement (Side Agreement) which Fitzgerald, 51 Minn., 534)
is separate from the Concession Agreement subject of the present
case. The case was docketed as Criminal Case No. 28091. Here, the xxxx
SB, through a Resolution, granted respondent's motion to quash the
Information on the ground that the SB has no jurisdiction over the As ruled in La Naval Drug vs. CA [236 SCRA 78, 86]:
person of respondent. The prosecution questioned the said SB
Resolution before this Court via a petition for review on certiorari. "[L]ack of jurisdiction over the person of the defendant may be
The petition was docketed as G.R. No. 168919. In a minute waived either expressly or impliedly. When a defendant voluntarily
resolution dated August 31, 2005, this Court denied the petition appears, he is deemed to have submitted himself to the jurisdiction
finding no reversible error on the part of the SB. This Resolution of the court. If he so wishes not to waive this defense, he must do
became final and executory on January 11, 2006. Respondent now so seasonably by motion for the purpose of objecting to the
argues that this Court's resolution in G.R. No. 168919 should be jurisdiction of the court; otherwise, he shall be deemed to have
applied in the instant case. submitted himself to that jurisdiction."

The Court does not agree. Respondent should be reminded that Moreover, "[w]here the appearance is by motion for the purpose of
prior to this Court's ruling in G.R. No. 168919, he already posted bail objecting to the jurisdiction of the court over the person, it must be
for his provisional liberty. In fact, he even filed a Motion for for the sole and separate purpose of objecting to said jurisdiction. If
Consolidation26 in Criminal Case No. 28091. The Court agrees with the appearance is for any other purpose, the defendant is deemed
petitioner's contention that private respondent's act of posting bail to have submitted himself to the jurisdiction of the court. Such an
and filing his Motion for Consolidation vests the SB with jurisdiction appearance gives the court jurisdiction over the person."
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 Verily, petitioner’s participation in the proceedings before the
tantamount to submission of his person to the jurisdiction of the Sandiganbayan was not confined to his opposition to the issuance of
court.27 a warrant of arrest but also covered other matters which called for

14
respondent court’s exercise of its jurisdiction. Petitioner may not be case to the Regional Trial Court would further delay the resolution
heard now to deny said court’s jurisdiction over him. x x x.28 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.
In the instant case, respondent did not make any special
appearance to question the jurisdiction of the SB over his person WHEREFORE, the petition is GRANTED. The Resolution of the
prior to his posting of bail and filing his Motion for Consolidation. In Sandiganbayan dated June 2, 2005, granting respondent's Motion to
fact, his Motion to Quash the Information in Criminal Case No. Quash, is hereby REVERSED and SET ASIDE. The Sandiganbayan is
28090 only came after the SB issued an Order requiring the forthwith DIRECTED to proceed with deliberate dispatch in the
prosecution to show cause why the case should not be dismissed for disposition of Criminal Case No. 28090.
lack of jurisdiction over his person.
SO ORDERED.
As a recapitulation, it would not be amiss to point out that the
instant case involves a contract entered into by public officers In this case, not a single act of respondent, acting through its Board
representing the government. More importantly, the SB is a special of Directors, was cited as having clothed its general manager with
criminal court which has exclusive original jurisdiction in all cases apparent authority to execute the contract with it.
involving violations of R.A. 3019 committed by certain public
officers, as enumerated in P.D. 1606 as amended by R.A. 8249. This With the foregoing disquisition, the Court finds it unnecessary to
includes private individuals who are charged as co-principals, discuss the other arguments posed by petitioner.
accomplices or accessories with the said public officers. In the
instant case, respondent is being charged for violation of Section WHEREFORE, the petition is DENIED.
3(g) of R.A. 3019, in conspiracy with then Secretary Enrile. Ideally,
under the law, both respondent and Secretary Enrile should have SO ORDERED.
been charged before and tried jointly by the Sandiganbayan.
However, by reason of the death of the latter, this can no longer be G.R. No. 203655 August 13, 2014
done. Nonetheless, for reasons already discussed, it does not follow
that the SB is already divested of its jurisdiction over the person of SM LAND, INC., Petitioner,
and the case involving herein respondent. To rule otherwise would vs.
mean that the power of a court to decide a case would no longer be BASES CONVERSION AND DEVELOPMENT AUTHORITY and ARNEL
based on the law defining its jurisdiction but on other factors, such PACIANO D. CASANOVA, ESQ., in his official capacity as President
as the death of one of the alleged offenders. and CEO of BCDA, Respondents.

Lastly, the issues raised in the present petition involve matters DECISION
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 VELASCO, JR., J.:

15
Detailed Guidelines for Competitive Challenge Procedure for
The Case PublicPrivate Joint Ventures (NEDA JV Guidelines) promulgated by
the National Economic Development Authority(NEDA). The said
Before Us is a Petition for Certiorari, Prohibition and Mandamus committee recommended the acceptance of the unsolicited
under Rule 65 of the Rules of Court, with prayer for injunctive relief, proposal, which recommendation was favorablyacted upon by the
seeking to nullify and set aside the Bases Conversion and BCDA. Through a letter dated May 12, 2010, the BCDA
Development Authority (BCDA) Supplemental Notice No. 5 as well communicated to petitioner its acceptance of the unsolicited
as all other acts1 pursued in furtherance thereof, and to order proposal. Despite its acceptance, however, the BCDA clarified that
respondents to immelliately conduct and complete the Competitive its act should not be construed to bind the agency to enter into a
Selection Process on petitioner's duly accepted unsolicited proposal. joint venture agreement with the petitioner but only constitutes an
authorization granted to the JV-SC to conduct detailed negotiations
The Facts with petitioner SMLI and iron out the terms and conditions of the
agreement.
As culled from the records, the facts are simple and undisputed.
Pursuant to this authorization, the JV-SC and SMLI embarked on a
Pursuant to Republic Act No. (RA) 7227 or the "Bases Conversion series of detailed negotiations, and on July 23, 2010, SMLI
and Development Act of 1992," the BCDA opened for disposition submitted its final revised proposal with guaranteed secured
and development its Bonifacio South Property, a 33.1-hectare payments amounting to a total of PhP 25.9 billion. Afterwards, upon
expanse located at Taguig City that was once used as the command arriving at mutually acceptable terms and conditions, a Certification
center for the country's military forces. Jumping on the opportunity, of Successful Negotiations (Certification) was issued by the BCDA
petitioner SM Land, Inc. (SMLI), on December 14, 2009, submitted and signed by both parties on August 6, 2010. Through the said
to the BCDA an unsolicited proposal for the development of the lot Certification, the BCDA undertook to "subject SMLI’s Original
through a public-private joint venture agreement. The proposal Proposal to Competitive Challenge pursuant to Annex C" and
guaranteed the BCDA secured payments amounting to PhP committed itself to "commence the activities for the solicitation for
15,985/sqm or a total of PhP 8.1 billion. comparative proposals."1

Barely three months later, the initial proposal was followed by a In an attempt to comply with its obligations, the BCDA prepared for
second one with guaranteed secured payments of PhP 31,139/sqm, the conduct of a Competitive Challenge to determine whether or
totaling PhP 20 billion. On May 4, 2010, however, SMLI submitted not there are other Private Sector Entities (PSEs)that can match the
its third unsolicited proposal with guaranteed secured payments proposal of SMLI, and concurrently ensure that the joint venture
amounting to PhP 32,501/sqm for a total of PhP 22.6 billion. contract will be awarded to the party that can offer the most
advantageous terms in favor of the government. In furtherance
Thereafter, the BCDA created a Joint Venture Selection Committee thereof, the agency issued Terms of Reference (TOR),2 which
(JV-SC) following the procedures prescribed under Annex "C" of the mapped out the procedure to be followed in connection with the

16
Competitive Challenge. Consequently, SMLI was required, as it did, Then, instead of proceeding withthe Competitive Challenge, the
to post a proposalsecurity in the amount of PhP 187 million, BCDA addressed a letter4 to Jose T. Gabionza, Vice President of
following the prescribed procedure outlined in the TOR and the SMLI, stating that it will welcome any "voluntary and unconditional
NEDA JV Guidelines. proposal" to improve the original offer, with the assurance that the
BCDA will nonetheless respect any right which may have accrued in
Afterwards, the BCDA set the Pre-eligibility Conference on favor of SMLI. SMLI, through a letter dated December 22, 2011,
September 3, 2010. Invitations to apply for eligibility and to submit replied by increasing the total secured payments to PhP 22.436
comparative proposals were then duly published on August 12, 16 billion in over fifteen (15) years with an upfront payment of PhP 3
and 20, 2010. Hence, the pre-eligibility conference was conducted billion. SMLI likewise proposed to increase the net present value of
as scheduled. The companies that participated in the conference the property to PhP 38,500.00/sqm. With this accelerated terms of
included SMLI, as the Original Proponent, and three (3) PSEs, payment, the total inflow to be received by the BCDA from the
namely Ayala Land, Inc., Rockwell Land Corp., and Filinvest Land, project after five (5) years would amount to PhP 9.289 billion. In the
Inc. same letter, SMLI clarified that itsimproved offer is tendered on
reliance of the BCDA’s previous commitment torespect SMLI’s
On Ayala Land, Inc.’s request, the deadline for submission of status as the Original Proponent.
Eligibility Documents was scheduled on October 20, 2010 through
Supplemental Notice No. 1. However, the deadline was again Without responding to SMLI’s new proposal, the BCDA sent a
moved to November 19, 2010 to allow the BCDA, in conjunction memorandum to the Office of the President (OP) dated February 13,
with other national agencies, to resolve issues concerning the 2012, categorically recommending the termination of the
relocation and replication of facilities located in the subject Competitive Challenge. The memorandum, in part, reads:
property.For this purpose, the BCDA issued Supplemental Notice
No. 2. In view of the foregoing, may we respectfully recommend the
President’s approval for BCDA to terminate the proceedings for the
Following a conference, the BCDA, on November 18, 2010, issued privatization and development of the BNS/PMC/ASCOM/SSU
Supplemental Notice No. 3, again rescheduling the submission Properties in Bonifacio South through Competitive Challenge and
deadline this time to an unspecified future date "pending final proceed with the bidding of the property.5
results of the policy review by the Office of the President on the
lease versus joint venture/sale mode and other issues."3 Alarmed by this development, SMLI, in a letter dated August 10,
Henceforth, the BCDA repeatedly postponed the deadline of 2012, urged the BCDA to proceed with the Competitive Challenge as
eligibility requirements untiltwo (2) years have already elapsed from agreed upon. However, the BCDA, via the assailed Supplemental
the signing of the Certification without the Competitive Challenge Notice No. 5, terminated the Competitive Challenge altogether. Said
being completed. Supplemental Notice pertinently reads:

17
This Supplemental Notice No. 05 is issued to inform the [PSEs] that 2012 issue of the Philippine Star.7 This impelled SMLI to file an
the Competitive Challenge for the Selection of BCDA’s Private Sector Urgent Manifestation with Reiterative Motion to Resolve SMLI’s
Partner for the Privatization and Development of the approximately Application for Temporary Restraining Order (TRO) and Preliminary
33.1-hectare BNS/PMC/ASCOM/SSU Properties in Bonifacio South is Injunctionon the same day. By Resolution8 of January 9, 2013, the
hereby terminated. BCDA shall not dispose the property through Court issued the TRO prayed for by petitioner and enjoined
Competitive Challenge.6 respondent BCDA from proceeding with the new selection process
for the development of the property.
To support its position, the BCDA invoked Article VIII of the TOR on
the subject "Qualifications and Waivers," to wit: The Issue

The BCDA reserves the right to call off [the] disposition prior to Without a doubt, the issue in this case boils down to whether or not
acceptance of the proposal(s) and call for a new disposition process the BCDA gravely abused its discretion in issuing Supplemental
under amended rules and without any liability whatsoever to any or Notice No. 5, in unilaterally aborting the Competitive Challenge, and
all the PSEs, except the obligation to return the Proposal Security. in subjecting the development of the project to public bidding.

Thereafter, the BCDA informed SMLI of the OP’s decision to subject For its part, SMLI alleged in its petition that the Certification issued
the development of the subject propertyto public bidding. When by the BCDA and signed by the parties constituted a contract and
asked by SMLI, the JV-SC manifested its conformity with the actions that under the said contract, BCDA cannot renege on its obligation
thus taken by the BCDA and OP. to conduct and complete the Competitive Challenge. The BCDA, on
the other hand, relies chiefly on the reservation clause in the TOR,
The JV-SC’s declaration proved to be the last straw that fractured which allegedly authorized the agency to unilaterally cancel the
SMLI’s patience as it lost no time in interposing the instant recourse. Competitive Challenge. Respondents add that the terms and
conditions agreedupon are disadvantageous to the government,
In the meantime, the BCDA issuedin favor of SMLI Philippine and that it cannot legally be barred by estoppel in correcting a
National Bank Check No. 11-634-610001-0 in the amount of PhP mistake committed by its agents.
188,508,466.67 dated September 28, 2012. The check was sent
through registered mail with no explanation whatsoever The Court’s Ruling
accompanying the same, although the BCDA admitted that its value
corresponds to the proposal security posted by SMLI, plus interest The petition is impressed with merit. SMLI has the right to a
in an unspecified rate. SMLI attempted to return the check but to no completed competitive challenge pursuant to the NEDA JV
avail. Guidelines and the Certification issued by the BCDA. The reservation
clause adverted to by the respondent cannot, in any way, prejudice
The BCDA likewise caused the publication of an "Invitation to Bid" said right.
for the development of the subject property in the December 21,

18
The Procurement Process under the NEDA JV Guidelines essea hybrid mechanism between the direct negotiation approach
and the competitive bidding route.14 With the availability of the
In resolving the case, discussing the procedure outlined under the Swiss Challenge method for utilization by those in the private
NEDA JV Guidelines and a brief backgrounder thereof is apropos. sector, PSEs have studied, formulated, and submitted numerous suo
motoor unsolicited proposals with the ultimate goal of assisting the
To streamline the procurement process and expedite the acquisition public sector in elevating the country’s place in the global economy,
of goods and services, Executive Order No. (EO) 423 was issued on as in the case herein.
April 30, 2005, which prescribed the rules and procedures on the
review and approval of government contracts. The EO, in part, The development and adoption by several countries of the Swiss
provides: Section 8. Joint Venture Agreements. The NEDA, in Challenge scheme15 is attributed to the recognition that the private
consultation with the GPPB, shall issue guidelines regarding joint sector can be an important source of technical and managerial
venture agreements with private entities with the objective of expertise, as well as financing, as evidenced by private companies’
promoting transparency, competitiveness, and accountability in practice of directly approaching governments with new and
government transactions, and, where applicable, complying with innovative project ideas through unsolicited proposals.16 Some
the requirements of an open and competitive public bidding. states, however, frown on the practice since transparency is
allegedly compromised when the government directly negotiates
Taking its cue from the above-quoted provision, the NEDA with a proponent. In this method, the Original Proponent, who first
promulgated the NEDA JV Guidelines, which detailed two (2) modes submitted and secured acceptance ofthe unsolicited proposal, is
of selecting a private sector JV partner: by competitive selection or given the right to match the successful bid received in the
through negotiated agreements. competitive bid process for the said project.17

Competitive selection involves a selection process based on Item III, Annex "C" of the NEDA JV Guidelines, where the Swiss
transparent criteria, which should not constrain or limit Challenge format is tucked in, maps out a three-stage framework, to
competition, and is open to participation by any interested and which Negotiated JV Agreements are to be mandatorily subjected,
qualified private entity.9 Selection by negotiated agreements10 or as summarized below:
negotiated projects,11 on the other hand, comes about as an end
result of an unsolicited proposal12 from a private sector proponent, Stage One
or if the government has failed to identify an eligible private sector
partner for a desired activity after subjecting the same to a Submission and the Acceptance
competitive selection. or Rejection of the Unsolicited Proposal

Relevant to the case at bar is the selection modality by negotiated Stage One18 of the process involves the submission, evaluation, and
agreement arising from the submission and acceptance of an the acceptance of unsolicited proposals from private entities. The
unsolicited proposal, known as the Swiss Challenge method,13 in steps involved are:

19
3. Negotiations shall comply with the process, requirements and
1. A PSE submits an unsolicited proposalto the government entity conditions as stipulated under Sections 6 (General Guidelines) and 7
(GE) or the GE seeks out a JV partner after a failed competition (Process for Entering into JV Agreements) of the JV Guidelines.
(open bidding) for a JV activity or project.
a. If successful, the GE head and the representative of the PSE shall
2. The GE, through its JV-SC, undertakes the initial evaluation of the issue a signed certification of successful negotiation to the effect
proposal. that:

3. The head of the GE shall then either issue an acceptance or a) an agreement has been reached;
nonacceptance notice of the proposal.
b) the PSE is eligible to enter into the proposed JV activity; and
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 c) the GE shall commence the activities for the solicitation for
negotiations on the terms and conditions of the JV activity. comparative proposals.

b. In case of non-acceptance, the private sector entity shall be b. If an acceptable agreement isnot reached, the GE may:
informed of the reasons/grounds for such action.
a) reject the proposal and thereafter accept a new one from private
Stage Two sector participants; or

Detailed Negotiations b) pursue the proposed activity through alternative routes other
than a joint venture.
Stage Two19 entails negotiation on the terms and conditions of the
JV activity. Below is a summary of the parameters adhered to in 4. After an agreement is reached, the contract documents, including
detailed negotiations, and the preparation of the proposal the selection documents for the competitive challenge, are
documents in case of successful negotiations: prepared.

1. The parties shall negotiate on, among other things, the scope as Stage Three
well as all legal, technical, and financial aspects of the JV activity.
Competitive Challenge
2. The JV-SC shall determine the eligibility of the PSE to enter into
the JV activity in accordance with pre-set rules. 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 6. Embarking on activities leading to the execution of the Final
procedure: Agreement.23

1. Preparation and approval of all tender documents including the Deviation from the procedure outlined cannot be countenanced.
draft contract before the invitation for comparative proposals is Wellestablished is the rule that administrative issuances––such as
published. the NEDA JV Guidelines, duly promulgated pursuant to the rule-
making power granted by statute––have the force and effect of
2. Publication of the invitation for comparative proposals followed law.24 Being an issuance in compliance with an executive edict, the
by the posting by the PSE of the proposal security. NEDA JV Guidelines, therefore, has the same binding effect as if it
were issued by the President himself.25 As such, no agency or
3. Determination of the eligibility of comparative proponents/PSEs, instrumentality covered by the JV Guidelines26 can validly stray
issuance of supplemental competitive selection bulletins and pre- from the mandatory procedures set forth therein, even if the other
selection conferences, submission, opening and evaluation of party acquiesced therewith27 or not.
comparative proposals.
SMLI’s rights as an Original Proponent and BCDA’s correlative duty
4. In the evaluation of the comparative proposals as a prelude to under the NEDA JV Guidelinesand the parties’ agreement
determine the best offer, the original proposal of the original
proponent shall be considered. It is well to point out that after BCDA accepted the unsolicited
proposal of SMLI and after both parties herein successfully
a. If the GE determines that an offer made by a comparative private concluded the detailed negotiations on the terms and conditions of
sector participant is more advantageous to the government than the project, SMLI acquired the status of an Original Proponent. An
the original proposal, the original proponent shall be given the right Original Proponent, per the TOR, pertains to the party whose
to match such superior or more advantageous offer. unsolicited proposal for the development and privatization of the
subject property though JV with BCDA has been accepted by the
b. Should no matching offer be received, the JV activity shall be latter, subject to certain conditions, and is now being subjected to a
awarded to the comparative private sector participant submitting competitive challenge.28
the most advantageous proposal.
In this regard, SMLI insists that asan Original Proponent, it obtained
c. If a matching offer is received, or if there is no comparative the right to a completed competitive challenge. On the other hand,
proposal, the JV activity shall be awarded to the original proponent. 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
5. After the completion of the competitive challenge, the JV-SC shall activity with SMLI. Petitioner’s argument holds water.
submit the recommendation of award to the head of the GE.22

21
A scrutiny of the NEDA JV Guidelinesreveals that certain rights are 1. The [GE] shallprepare the tender documents pursuant to Section
conferred to an Original Proponent. Ascorrectly pointed out by II (Selection/Tender Documents) of Annex A hereof. The eligibility
SMLI, these rights include: 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
1. The right to the conduct and completion of a competitive [GE] shall approve all tender documents including the draft contract
challenge; before the publication of the invitation for comparative proposals.

2. The right to match the superior or more advantageous offer, if 2. Within seven (7) calendar days from the issuance of the
any; Certification of a successful negotiation referred toin Stage Two
above, the JV-SC shall publish the invitation for comparative
3. The right to be awarded the JV activity in the event that a proposals in accordance with Section III.2. (Publication of Invitation
matching offer is submitted within the prescribed period; and to Apply for Eligibility and to Submit Proposal) under Annex A
hereof.
4. The right to be immediately awarded the JV activity should there
be no comparative proposals.29 (emphasis added) 3. The [PSE] shallpost the proposal security at the date of the first
day of the publication of the invitation for comparative proposals in
Material to the present case is the right to the conduct and the amount and form stated in the tender documents.
completion of a Competitive Challenge. Based onthe NEDA JV
Guidelines, it is necessary that Stages One and Two of the Swiss 4. The procedure for the determination of eligibility of comparative
Challenge shall have been fruitful for this right to arise. proponents/private sector participants, issuance of supplemental
competitive selection bulletins and pre-selection conferences,
To recall, Stages One and Two ofthe framework deal with the submission and receipt of proposals, opening and evaluation of
submission and evaluation of the unsolicited proposal and the proposals shall follow the procedure stipulated under Annex A
conduct of the detailed negotiations. Should the parties hereof. In the evaluation of proposals, the best offer shall be
productively conclude the in-depth negotiations, the guidelines determined to include the original proposal of the [PSE]. If the [GE]
require the preparation of the contract and selection documents for determines that an offer made by a comparative private sector
the competitive challenge.30 Following this, Stage Three of the participant other than the original proponent is superior or more
same rules provides that the GE shall subject the terms agreed upon advantageous to the government than the original proposal, the
to a Competitive Challenge. Thus: [PSE] who submitted the original proposal shall be given the right to
match such superior or more advantageous offerx x x. Should no
Stage Three – Once the negotiations have been successfully matching offer be received within the stated period, the JV activity
completed, the JV activity shallbe subjected to a competitive shallbe awarded to the comparative private sector participant
challenge, as follows: 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 WHEREAS, after evaluation of the unsolicited proposalsubmitted by
isreceived by the [GE], the JV activity shallbe immediately awarded SMLI in accordance with the provisions of Annex "C" of the JV
to the original private sector proponent. Guidelines, the [JV-SC] created byBCDA x x x recommended to the
BCDA Board, and the BCDA Board approved, per Board Resolution
5. Within seven (7) calendar days from the date of completion of No. 2010-05-100, the acceptance ofthe unsolicited proposal, subject
the Competitive Challenge, the JV-SC shallsubmit the to the condition that such acceptance shall not bind BCDA to enter
recommendation of award to the Head of the [GE]. Succeeding into a JV activity, but shall mean that authorization is given to
activities shall be in accordance with Sections VIII. (Awardand proceed with detailed negotiationson the terms and conditions of
Approval of Contract) and X (Final Approval) of Annex A hereof.31 the JV activity;
(emphasis added)
WHEREAS, pursuant to the authorization granted by the Board and
Anent the above-quoted directives, emphasis must be given to the issued pursuant to Annex "C", Part III, Stage One of the JV
repeated use of the word "shall." It is elementary that the word Guidelines, BCDA went into detailed negotiations with SMLI. The JV-
"shall" underscores the mandatory character of the rule. Itis a word SC simultaneously ascertained the eligibility of SMLI inaccordance
of command, one which always has or must be given a compulsory with Annex "C", Part III, Stage 2 (2) of the JV Guidelines;
meaning, and is generally imperative or mandatory.32 Considering
the compulsory tenor of the order, the rule could not be any WHEREAS, this Certificationisissuedpursuant to Annex "C" Part III,
clearer––that once the negotiations at Stage Two shall have been Stage 2 (2) of the JV Guidelines;
successfully completed, it becomes mandatory for the GE to subject
theJV activity to a competitive challenge. By the Guidelines’ explicit NOW, THEREFORE, for and in consideration of the foregoing, BCDA
order, proceeding to Stage Three of the process is compulsory, and SMLI, after successful negotiationspursuant to Stage II of Annex
conditioned only on the successful conclusion of Stage Two. The GE C x x x reached an agreement on the purpose, terms and conditions
is not given any discretion to decide whether it will proceed with of the JV development of the subjectproperty, which shall become
the competitive challenge or not. Furthermore, there is no question the terms for the Competitive Challenge pursuant to Annex C of the
in the case at hand that the unsolicited proposal for the JV Guidelinesx x x.33 (emphasis added)
development of the subject property passed through scrutiny under
the first two stages, resulting inthe issuance and signing of the Moreover, the Certification further discloses that the BCDA has the
Certification. As a matter of fact, this is clearly evinced in the obligation to subject SMLI’s unsolicited proposal to a Competitive
whereas clauses of the Certification, to wit: Challenge, to which SMLI assented. As provided:

WHEREAS, on 04 May 2010, BCDA received from [SMLI] an BCDA and SMLI have agreed to subject SMLI’s Original Proposal to
unsolicited proposalfor the development of [the subject property]. x Competitive Challenge pursuant to Annex C – Detailed Guidelines
xx 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 In an attempt to advance its claim, BCDA invokes the reservation
Reference (TOR) Volumes 1 and 2. BCDA shall, thus, commence the clause in Article VIII of the TOR on "Qualifications and Waivers." To
activities for the solicitation for comparative proposals with the reiterate, said provision reads:
publication of the Invitation to Apply for Eligibility and to Submit
Comparative Proposals (IAESCP) thrice for two (2) consecutive 3. BCDA further reserves the right to call off this disposition prior to
weeks in three (3) major newspapers starting on 10 August 2010, on acceptance of the proposal(s) and call for a new disposition process
which date SMLI shall post the required Proposal Security as under amended rules, and without any liability whatsoever to any
statedabove. Pursuant to Annex C of the NEDA JV Guidelines, if, or all of the PSEs, except the obligation to return the Proposal
after solicitation of comparative proposals, BCDA determines that Security.35 (emphasis ours)
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 The BCDA insists that the "disposition process" to which the
superior offer within the period prescribed in the attached TOR reservation clause refers is the entire Swiss Challenge, and not
Volumes 1 and 2. If SMLI is ableto match such superior offer, SMLI merely Stage Three thereof regarding the Competitive Challenge.
shall be issued the Notice of Award, subject to Item No. 19 above. In This interpretation does not come as a surprise considering the
the event, however, that SMLI is unable to match the superior offer, term’s technical meaning, that is, alienation of property;36 the
the comparative PSE which submitted such superior offer shall be transfer of the property and possession of lands, tenements, or
awarded the contract, subject to Item No. 19 above.34 (emphasis other things from one person to another; or the voluntary
added) 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
By their mutual consent and in signing the Certification, both basis of said definition, indeed, the reservation clause seemingly
parties, in effect, entered into a binding agreement to subject the refers to the Swiss Challenge itself since in the case at bar, it is the
unsolicited proposal to the Competitive Challenge. Evidently, the Swiss Challenge, not the competitive challenge, that is the avenue
certification partakes of a contractwherein BCDA committed itself to for the disposition.
proceed with the Third Stage of the process and simultaneously
grants SMLI the right to expect that the BCDA will fulfill its To anchor the real import of the clause on the basis only of a single
obligations under the same. The preconditions to the conduct of the word may, however, result in a deviation from its true meaning by
Competitive Challenge having been met, what is left, therefore, is rendering all the other terms unnecessaryor insignificant. Suchan
tosubject the terms agreed upon to a Competitive Challenge interpretation would run afoul Article 1373 of the Civil Code, which
pursuant to Stage Three, Annex "C" of the NEDA JV Guidelines. states that "[i]f some stipulation of any contract should admit of
several meanings, it shall be understood as bearing that import
The Reservation Clause only covers the Third Stage and cannot which is most adequate to render it effectual." It is a cardinal rule in
prejudice SMLI’s rights stemming from the first two stages 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 Entity (PSE) that may submit Technical and Financial Proposals for
that which makes some words idle and nugatory. the Joint Venture (JV) Privatization and Development of [the]
subject Property, and the procedures involved in the entire
We find that the reservation clausecannot justify the cancellation of Competitive Challenge procedure. [PSEs] which shall be declared
the entire procurement process. Respondent cannot merely harp on eligible shall be issued the second volume of the TOR which details
the lone provision adverted to without first explaining the context the requirements and procedures for the submission of Technical
surrounding the reservation clause. The said provision cannot be and Financial Proposals, with the end-view of determining a
interpreted in a vacuum and should instead be read in congruence Winning PSE for subject JV development.
with the other provisions in the TOR for Us to fully appreciate its
import. xxxx

At this juncture, it is worthy to point out that the TOR containing the I. GENERAL INFORMATION
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 xxxx
procedure to be followed in the assessment of the eligibility
requirements submitted and in the conduct of the Competitive 2. Publication of Invitation for Comparative Proposals. BCDA shall
Challenge. It basically governs only part and parcel of Stage Three of publish x x x the "Invitation to Apply for Eligibility and to Submit a
the Swiss Challenge Process, that is, the requirements for and the Comparative Proposal" (IAESCP). This shall serve to inform and to
determination of an interested PSE’s eligibility to participate inthe invite the prospective PSEs to the Competitive Challenge procedure
Competitive Challenge. This conclusion is deduced from the very at hand. x x x
provisions of the TOR, viz:
3. Joint Venture Agreement.x x x the ultimate objective of BCDA in
These [TOR] describe the procedures that shall be followed in qualifying prospective PSEsto be eligible to submit Technical and
connection with the disposition of the approximately Three Financial Proposals is to select a partner in the
Hundred Thirty-one Thousand Three Hundred Twenty-seven square unincorporated/contractual [JV]for the privatization and
meters (331,327 sq.m.) or 33.1-hectare Bonifacio Naval Station development of the subject Property. x x x
(BNS)/Philippine Marine Corps (PMC)/Army Support Command
(ASCOM)/Service Support Unit (SSU) Properties in Bonifacio South xxxx
(the "Property"), located along Lawton Avenue, Fort Bonifacio,
Taguig City, Metro Manila, Philippines. 4. Amendment of these TOR. x x x Should any of the information
and/or procedurescontained in these TOR be amended or replaced,
These TOR are issued in two (2) volumes: Volume 1 – Eligibility the JV-SC shall inform and send Supplemental Notices to all PSEs. To
Documents; and Volume 2 – Tender Documents. This first volume ensure all PSEs are informed of any amendments, all PSEs are
details the requirements for eligibility to qualify as a Private Sector 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 1.1. Legal Requirements. The PSE must be a duly registered and
proposals and shall be soindicated therein. existing corporation authorized by Philippine Laws to own, hold or
develop lands in the Philippines. x x
5. Pre-Eligibility Conference. Interested parties are invited to attend
a Pre-Eligibility Conference for prospective PSEs x x x. x

6. One-on-One Meetings. Prospective PSEs may request for one-on- 1.2. Technical Requirements.
one meetings with the JV-SC or its duly authorized representatives.
xxx 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
xxxx Proposals, a similar or related development project x x x.

9. Due Diligence. x x x 1.2.2. Key Personnel. x x x

The PSE shall investigate x x x [and] carefully examine [the] 1.3. Financial Capability. The PSEx x x must have adequate capability
conditions of and at the Property and its surrounding vicinities to sustain the financing requirements for the proposed
affecting the actual execution and such other information as to development ofthe Property. This shall be measured in terms of:
allow the PSE to make a competitive estimate. The PSE, by the act of
submitting its proposal, acknowledges that it has inspected the 1.3.1. Net Worth. x x x
Property and accepted all the terms and conditions for this
competitive challenge as set in TOR Volumes 1 and 2. 1.3.2. Good financial standing. x x x

xxxx 1.3.3. No Arrears. x x x

V. APPLICATION FOR ELIGIBILITY 1.3.4. Timely and complete Payment of Taxes. x x x

1. Eligibility Requirements. Only eligible PSEs shall be allowed to 1.3.5. Financial Capacity to Undertake the
submit comparative Technical and Financial Proposals, or
collectively, the Tender Documents x x x. Hence, interested PSEs are Project.
invited to apply for eligibility and to participate in the Competitive
Challenge procedure. Aside from being required to purchase the xxxx
[TOR] – Volume1, for a non-refundable fee x x x, a PSE shall be
considered eligible if it satisfies all of the following requirements:

26
2. Required Eligibility Documents. The PSEs x x x that wish to be 1. BCDA reserves the right to reject any or all Eligibility Documents,
considered for eligibility are required to submit x x x the following to waive any defect or informality thereon or minor deviations,
documents: which do notaffect the substance and validity of the proposal.

xxxx 2. BCDA reserves the right to review other relevant information


affecting the PSE or its Eligibility Documents before its declaration
VI. EVALUATION OF ELIGIBILITY as eligible to participate further in the selection process, and be
allowed to submit a Final Proposal. Should such review uncover any
1. Opening of Eligibility Documents. x x x misrepresentations made in the eligibility documents, or any change
in the situation of the PSE, which affects its eligibility, BCDA may
2. Evaluation Process. Eligibility Documents submitted by the disqualify the PSE from obtaining any award/contract.
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 3. BCDA further reserves the right tocall of this disposition prior to
Article V hereof. x x x acceptance of the proposal(s) and call for a new disposition process
under amended rules,and without any liability whatsoever to any or
3. Motion for Reconsideration/Appeal on Eligibility. A prospective all the PSEs, except the obligation to return the Proposal Security x x
PSE determined as "Ineligible" has seven (7) calendar days upon x.40 (emphasis ours; citation omitted)
written notice within which to file a motion for reconsideration
tothe JV-SC. x x x A cursory reading of the TOR, ascouched, readily shows that it
focuses only on the eligibility requirements for PSEs who wish to
4. No Eligible [PSEs]. In the event that no PSE be found eligible or no challenge SMLI’s proposal as well as the procedure to be followed
PSE submitted itself to eligibility check for the Competitive by the BCDA JVSC in the evaluation of the PSEs’ submittals. We thus
Challenge procedure, BCDA shall proceed to the issuance of Notice find merit in SMLI’s thrust that since the TOR governs the eligibility
of Award to SMLI, as the original proponent for the subject JV requirements for PSE’s, the "disposition process" referred to inthe
project. reservation clause could only refer to the eligibility process in Stage
Three of the Swiss Challenge and not the entire Swiss Challenge
xxxx process itself. We are convinced that the said provision does not
authorize BCDA to abort the entire procurement process and cannot
VII. CHANGE IN MEMBERSHIP OF AN ELIGIBLE PSE. impair any of SMLI’s statutorily and contractuallyconferred rights
stemming from the first two stages’ conclusion. To rule otherwise
xxxx would grant the GE unbridled authority to thrust aside the
agreement between the parties after successful detailed
VIII. QUALIFICATIONS AND WAIVERS negotiations. It would disregard the fact that through the said

27
covenant,the GE bound itself to conduct and complete the and anomalies more detrimental to public interest.42 For how can
Competitive Challenge pertaining to SMLI’s proposal. others be expected to respect the rule of law if the very persons or
entities tasked to administer laws and their implementing rules and
Provisions of the TOR cannot prevail over the NEDA JV Guidelines regulations are the first to violate them, blatantly or surreptitiously?

In the same vein, We cannot also agree with respondents’ BCDA gravely abused its discretion when it issued Supplemental
contention that the term "disposition" in the assailed reservation
clause refers to the entire Swiss Challenge itself and authorizes the Notice No. 5 in breach of its contractual obligation to SMLI
BCDA to abandon the negotiations even at Stage Three of the
process for this would result in an interpretation that is "Grave abuse of discretion" implies such capricious and whimsical
antagonisticwith the NEDA JV Guidelines. 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
A review of the outlined three-stage framework reveals that there or to a virtual refusal to perform the duty enjoined or to act at all in
are only two occasions where pre-termination of the Swiss contemplation of law.43 While it is the general policy of the Court
Challenge process is allowed: at Stage One, prior to acceptance of to sustain the decisions of administrative authorities, not only on
the unsolicited proposal; and at Stage Two, should the detailed the basis of the doctrine of separation of powers but also for their
negotiationsprove unsuccessful. In the Third Stage, the BCDA can no presumed expertise in the laws they are entrusted to enforce, when
longer withdraw with impunity from conducting the Competitive said decisions and orders are tainted with unfairness or
Challenge as it became ministerial for the agency to commence and arbitrariness that would amount to grave abuse of discretion, the
complete the same. Thus, acceding to the interpretation of the TOR Courts are duty-bound to entertain petitions questioning the
offered byBCDA will, in effect, result not only in the alteration of the former’s rulings or actions.44
agreement between the parties but also of the NEDA JV Guidelines
itself, both of which has the force and effect of law. In the present case, the Court finds that BCDA gravely abused its
discretion for having acted arbitrarily and contrary to its contractual
The interpretation offered by BCDA is, therefore, unacceptable. commitment to SMLI, to the damage and prejudice of the latter. It
Between procedural guidelines promulgated by an agency pursuant veritably desecrated the rules the Government itself set in the
to its rule-making power and a condition unilaterally designed and award of public contracts.
imposed for the implementation of the same, the former must
prevail. BCDA does not wield any rule-making power such that it can To review, We have demonstratedthat the BCDA is duty-bound to
validly alter or abandon a clear and definite provision in the NEDA proceed with and complete the competitive challenge if the detailed
JV Guidelines under the guise of a condition under the TOR. AsWe negotiations proved successful. Afterwards, it becomes mandatory
have time and again harped, the ones dutybound to ensure for the competitive challenge to proceed. Whatever rights and
observance with laws and rules should not be the ones to depart obligations that may have accrued to the parties by that time can no
therefrom.41 A contrary rule would open the floodgates to abuses 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 Logically the minimum bid price under straight bidding for the
eligibility process under the Competitive Challenge. BNS/PMC/ASCOM/SSU property, which is a far less inferior
property, would be ₱31,111/sq.m. However, with SM’s submission
In the case at bar, however, BCDA, in its mistaken reliance on the of a revised unsolicited proposal at ₱31,732/sq.m. and later further
reservation clause, aborted not just the eligibility process of the revised to ₱32,500/sq.m., BCDA saw the opportunity to negotiate
Competitive Challenge but the entire Swiss Challenge. Even though for better terms and eventually arrived at a higher price of
the language of Supplemental Notice No. 5 at first blush appears to ₱36,900/sq.m. In this case, BCDA deemed that going into
limit its application to the Third Stage of the framework, BCDA’s Competitive Challenge was more advantageous to the government
actuations say otherwise. Worthy of reiteration at this point is the than Competitive Selection (straight bidding) because of the
fact that after BCDA issued the assailed notice, the agency also opportunity to increase the price.
returned through registeredmail the security posted by SMLI.
Coupled with the factthat BCDA subjected the property instead to Furthermore, subjecting the price tosubsequent price challenge will
straight bidding, it becomes obvious that BCDA no longer intends to possibly drive up the price even higher than ₱38,900/sq.m. These
comply with its obligations to SMLI and that it abandoned the Swiss opportunities cannot be taken advantage of under a straight bidding
Challenge process altogether, in contravention of its statutory and where failure of bidding would likely ensue if in case BCDA
contractual obligations. immediately sets the price of the property too high. The
competition in the real estate industry and as experienced by BCDA
Moreover, the asseveration of the BCDA in its last ditch effort to issuch that the other developers will usually challenge the original
salvage its position––that the withdrawal is justified since it proposal to "up the ante" as they cannot allow the original
allegedly found that the revised SMLI proposal shall not yield the proponent to get the property easily.46
best value for the government45 ––deserves scant consideration.
On the contrary, the BCDA’s statements have been Despite this testament, the BCDA, over a year later, made a
inconsistentwhen it comes to identifying the procurement process complete turnaround stating that straight bidding will be best for
that would best serve the interest of the state. the Government.47 As can be gleaned from the BCDA’s
Memorandum to the Presidentdated February 13, 2012,
Noticeably, in its November 8, 2010 Memorandum, the BCDA respondents themselves recommended to the President that the
posited that competitive challenge is more advantageous to the selection proceedings be terminated. To reiterate:
government than straight bidding, to wit:
In view of the foregoing, may we respectfully recommend the
The price of the Bonifacio South properties has already been set by President’s approval for BCDA to terminate the proceedings for the
the winning price in the bidding for the joint venture development privatization and development of the BNS/PMC/ASCOM/SSU
of the JUSMAG property (₱31,111/sq.m.). Thus, BCDA has Properties in Bonifacio South through Competitive Challenge and
established the benchmark for the price of the remaining Bonifacio proceed with the bidding of the property.48
South properties, of which the JUSMAG property is the most prime.

29
The BCDA offered no explanation to reconcile its opposing positions. agents."49 Suffice it to state, however, that this precept is not
It also neglected to inform SMLI of the provisions in its proposal that absolute. As jurisprudence teaches, this rule on estoppel cannot be
it deemed disadvantageous to the government. The sweeping used to perpetrate an injustice.50
statement of the BCDA that the terms are disadvantageous cannot
be accepted at face value, bearing in mind that a fruitful in- In the case at bar, it is evident that to allow BCDA to renege on its
depthnegotiation necessarily implies that BCDA found the terms statutory and contractual obligationswould cause grave prejudice to
offered by SMLI acceptable. Consider also that should the petitioner, who already invested time, effort, and resources in the
Competitive Challenge prove to be unsuccessful, it has no other study and formulation of the proposal, in the adjustment thereof, as
recourse but to award the project toSMLI, the Original Proponent. well as in the negotiations. To permit BCDA to suddenly cancel the
This caveat forces BCDA to ensure that the terms agreed upon procurement process and strip SMLI of its earlier-enumerated rights
during the detailed negotiations are advantageousto it, lest it run as an Original Proponent at this point––after the former has already
the risk of being bound to a project that is not beneficial to the benefited from SMLI’s proposal through the acquisition of
government in the first place. information and ideas for the development of the subject property–
–would unjustly enrich the agency through the efforts of petitioner.
Overall, the foregoing goes to showthat the BCDA failed to establish What is worse, to do so would be contrary to BCDA’s
a justifiable reason for its refusal to proceed with the Competitive representations and assurances that it will respect SMLI’s earlier
Challenge and for canceling the entire Swiss Challenge. Because of acquired rights, which statements SMLI reasonably and innocently
BCDA’s mistaken reliance on the TOR provision, and by changing its believed.
stand on the conduct of the Competitive Challenge without pointing
out with specificity the socalled unfavorable terms, Weare left to All told, the BCDA’s acceptance ofthe unsolicited proposal and the
believe that the cancellation of the Swiss Challenge was only due to successful in-depth negotiation cannot be written off as mere
BCDA’s whims and caprices. mistake or error that respondents claim to be reversible and not
susceptible to the legal bar of estoppel. The subsequent
Acceptance of Unsolicited Proposal vis-à-vis Estoppel cancellation of the Competitive Challenge on grounds that infringe
the contractual rights of SMLI and violate the NEDA JV Guidelines
Lastly, respondents argue that the government cannot be estopped cannot be shrouded with legitimacy by invoking the above-cited
by the mistakes or errors of its agents, implying that when it issued rule.
the Certification, it committed a lapse of judgment as it later
discovered that the terms of the proposal allegedly turnedout to be Conclusion
disadvantageous to the Government. Thus, according to them, it
cannot be compelled to proceed with the Competitive Challenge. To increase government prospects, participation in joint ventures
has been incentivized by granting rightsand advantages to the
We are very much aware of the time-honored rule that "the Original Proponent in the Competitive Challenge phase of a Swiss
government cannot be estopped by the mistakes or errors of its Challenge. Faithful observance of these provisions oflaw that grant

30
the aforesaid rights, may it be sourced from a bilateral contract or unchecked, the Petition for Certiorari must be granted and the
executive edict, aids in improving government reliability. This, in corresponding injunctive relief be made permanent.
turn, heavily correlates with greater availability of options when
entering into future joint venture agreements with private sector As a final note, it is worth mentioning that the foreseeable
entities via public-private enterprises as it will attract investors to repercussion of a contrary ponenciaencompasses the reduction of
contribute in formulating a roadmap towards a nationwide the number of interested private sector entities that would
infrastructure development. bewilling to submit suo motoproposals and invest in government
projects. After all, what would be the point of developing ideas and
Needless to say, allowing government agencies to retract their allocating resources in the formulation of PPP projects when one’s
commitments to the project proponents will essentially render rights asan Original Proponent, under the NEDA JV Guidelines and
inutile the incentives offered to and have accrued in favor of the the agreement between the parties, can easily be wiped out should
private sector entity. Without securing these rights, the business the agency decide tolevel the playing field and conduct straight
community will be wary when it comes to forging contracts with the bidding instead? Evidently, this would not attract but would, in
government. Simply put, the failure of the government to abide by contrast, repel investors from tendering offers. In addition, even if
the rules ititself set would have detrimental effects on the private potential investors do submit unsolicited or comparative proposals,
sector’s confidence that the government will comply with its the terms therein might be driven to become less competitive due
statutory and contractual obligations to the letter. to the adjustment in the balance of risks and returns on investment.
Taking into account the increased possibility of the development
In the case at bench, considering the undisputed facts presented project not pushing through, investors might not be too keen in
before Us, We cannot sustain the BCDA’s arguments that its guaranteeing a high amount of secured payments for the
withdrawal from the negotiations is permissible and was not done same.1âwphi1 These considerations further validate the need to
with grave abuse of discretion. Being an instrumentality of the secure the private sector’s trust and confidence in the government.
government, it is incumbent upon the BCDA to abide by the laws,
rules and regulations, and perform its obligations with utmost good WHEREFORE, premises considered, the petition is hereby GRANTED.
faith. It cannot, under the guise of protecting the public interest, The assailed Supplemental Notice No. 5 dated August 6, 2012 issued
disregard the clear mandate of the NEDA JV Guidelines and by the BCDA is hereby ANULLED and SET ASIDE. The Temporary
unceremoniously disregard the very commitments it made to the Restraining Order issued bythis Court on January 9, 2013 is hereby
prejudice of the SMLI that innocently relied on such promises.51 It madePERMANENT.
is in instances such as this––where an agency, instrumentality or
officer of the government evades the performance of a positive Respondent Bases Conversion and Development Authority and
duty enjoined by law52 ––wherein the exercise of judicial power is Arnel Paciano D. Casanova, or whoever assumes the position of
warranted. Consistent with Our solemn obligation to afford president of BCDA, are hereby ORDEREDto conduct and complete
protection by ensuring that grave abuses of discretion on the part of the Competitive Challenge pursuant to the Certification, TOR, and
a branch or instrumentality of the government do not go NEDA JV Guidelines.

31
the previous one, on the first day of the publication of the invitation
Specifically, the BCDA and/or the JV-SC are DIRECTEDto carry out for comparative proposals, per the NEDA JV Guidelines.
the following:
SO ORDERED.
1. Publish, within seven (7) calendar days from finality of this
Decision, the "Invitation to Apply for Eligibility and to Submit a ARCHBISHOP FERNANDO R. CAPALLA, OMAR SOLITARIO ALI and
Comparative Proposal" (IAESCP) in three (3) newspapers of general MARY ANNE L. SUSANO,
nationwide circulation for two (2) consecutive weeks, and in the Petitioners,
BCDA website (www.bcda.gov.ph), in accordance with Section III.2. - versus -
(Publication of Invitation to Apply for Eligibility and to Submit
Proposal), Section III (Project Rationale), Item 5 of the TOR, and THE HONORABLE COMMISSION ON ELECTIONS,
Section III (General Information), Item 2 (Publication of Invitation
for Comparative Proposals) of the TOR; Respondent.

2. Immediately make the necessary adjustments to the timetable of x--------------------------------------------x


activities set forth in Supplemental Notice No. 1, considering that
the periods specified therein have already lapsed, without awaiting SOLIDARITY FOR SOVEREIGNTY (S4S), represented by Ma. Linda
the lapse of the period for publication; Olaguer; RAMON PEDROSA, BENJAMIN PAULINO SR., EVELYN
CORONEL, MA. LINDA OLAGUER MONTAYRE, and NELSON T.
3. Strictly adhere to the TOR, Supplemental Notice No. 1, as MONTAYRE,
adjusted, the Certification of Successful Negotiations, and the NEDA
JV Guidelines, in the conduct and completion of the Swiss Challenge Petitioners,
procedure on SM Land Inc.’s unsolicited proposal accepted by the
BCDA; and - versus -

4. Perform any and all acts necessary to carry out and complete COMMISSION ON ELECTIONS, represented by its Chairman,
Stage Three of the Swiss Challenge pursuant to the provisions of the Commissioner SIXTO S. BRILLANTES, JR.,
TOR and NEDA JV Guidelines, including, but not limited to,
subjecting petitioner's unsolicited proposal to a competitive Respondent.
challenge.
x--------------------------------------------x
In the event that SM Land, Inc. already obtained from BCDA the
amount representing its Proposal Security, SM Land, Inc. is hereby TEOFISTO T. GUINGONA, BISHOP BRODERICK S. PABILLO, SOLITA
DIRECTED to re-post the Proposal Security, in the same amount as COLLAS MONSOD, MARIA CORAZON MENDOZA ACOL, FR. JOSE

32
DIZON, NELSON JAVA CELIS, PABLO R. MANALASTAS, GEORGINA R.
ENCANTO and ANNA LEAH E. COLINA,
DECISION
Petitioners,
- versus - Pursuant to its authority to use an Automated Election System (AES)
under Republic Act (RA) No. 8436, as amended by RA No. 9369, or
COMMISSION ON ELECTIONS and SMARTMATIC TIM the Automation Law and in accordance with RA No. 9184, otherwise
CORPORATION, known as the Government Procurement Reform Act, the
Commission on Elections (Comelec) posted and published an
Respondents. invitation to apply for eligibility and to bid for the 2010 Poll
Automation Project[1] (the Project). On March 18, 2009, the
x--------------------------------------------x Comelec approved and issued a Request for Proposal[2] (RFP) for
the Project consisting of the following components:
TANGGULANG DEMOKRASYA (TAN DEM), INC., EVELYN L. KILAYKO,
TERESITA D. BALTAZAR, PILAR L. CALDERON and ELITA T. MONTILLA, 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 on the Extension of the OTP Under the AES Contract[11] (Extension
Comelec was given until December 31, 2010 within which to Agreement, for brevity). The aforesaid Extension Agreement was
exercise the option. signed on March 30, 2012.[12] On even date, the Comelec issued
Resolution No. 9378[13] resolving to approve the Deed of Sale
On September 23, 2010, the Comelec partially exercised its OTP between the Comelec and Smartmatic-TIM to purchase the latters
920 units of PCOS machines with corresponding PCOS machines (hardware and software) to be used in the
canvassing/consolidation system (CCS) for the special elections in upcoming May 2013 elections and to authorize Chairman Brillantes
certain areas in the provinces of Basilan, Lanao del Sur and to sign the Deed of Sale for and on behalf of the Comelec. The Deed
Bulacan.[6] In a letter[7] dated December 18, 2010, Smartmatic- of Sale[14] was forthwith executed.
TIM, through its Chairman Cesar Flores (Flores), proposed a
temporary extension of the option period on the remaining 81,280 Claiming that the foregoing issuances of the Comelec, as well as the
PCOS machines until March 31, 2011, waiving the storage costs and transactions entered pursuant thereto, are illegal and
covering the maintenance costs. The Comelec did not exercise the unconstitutional, petitioners come before the Court in four separate
option within the extended period. Several extensions were given Petitions for Certiorari, Prohibition, and Mandamus imputing grave
for the Comelec to exercise the OTP until its final extension on abuse of discretion amounting to lack or excess of jurisdiction on
March 31, 2012. the part of the Comelec in issuing the assailed Resolutions and in
executing the assailed Extension Agreement and Deed.
On March 6, 2012, the Comelec issued Resolution No. 9373[8]
resolving to seriously consider exercising the OTP subject to certain G.R. No. 201112
conditions. On March 21, 2012, the Comelec issued Resolution No.
9376[9] resolving to exercise the OTP the PCOS and CCS hardware In G.R. No. 201112, petitioners Archbishop Fernando R. Capalla,
and software in accordance with the AES contract between the Omar Solitario Ali and Mary Anne L. Susano pray that a Temporary
Comelec and Smartmatic-TIM in connection with the May 10, 2010 Restraining Order (TRO) be issued enjoining the Comelec from
elections subject to the following conditions: (1) the warranties purchasing the PCOS machines until after final judgment of the
agreed upon in the AES contract shall be in full force and effect; (2) instant case; a writ of prohibition be issued against the Comelec for
the original price for the hardware and software covered by the OTP the purchase of these defective PCOS machines; a writ of
as specified in the AES contract shall be maintained, excluding the mandamus be issued compelling the Comelec to conduct the
cost of the 920 units of PCOS and related peripherals previously necessary bidding for the equipment and facilities which shall be
purchased for use in the 2010 special elections; and (3) all other used for the 2013 National and Local Elections; and to declare
services related to the 2013 AES shall be subject to public bidding. Comelec Resolution Nos. 9376, 9377, and 9378, on the purchase of
On March 29, 2012, the Comelec issued Resolution No. 9377[10] PCOS machines, null and void.
resolving to accept Smartmatic-TIMs offer to extend the period to
exercise the OTP until March 31, 2012 and to authorize Chairman Petitioners argue that if there is a necessity to purchase the PCOS
Brillantes to sign for and on behalf of the Comelec the Agreement machines, the Comelec should follow RA 9184 requiring competitive

34
public bidding. They likewise argue that the OTP clause embodied in of Smartmatic-TIMs unilateral extension of the option period
the contract with Smartmatic-TIM should be rendered invalid not constitutes substantial amendment to the AES contract giving
only because the OTP has already lapsed but because of the fact undue benefit to the winning bidder not available to the other
that the OTP clause is a circumvention of the explicit provisions of bidders.[18] Petitioners also contend that the Comelecs decision to
RA 9184. Petitioners add that the current PCOS machines do not purchase and use the PCOS machines is unconstitutional, as it
meet the rigorous requirements of RA 9369 that the system allows the Comelec to abrogate its constitutional duty to safeguard
procured must have demonstrated capability and should have been the election process by subcontracting the same to an independent
successfully used in a prior electoral exercise here or abroad. provider (Smartmatic-TIM), who controls the software that
Petitioners submit that there are intrinsic technical infirmities as safeguards the entire election process. The purchase of the PCOS
regards the PCOS machines used during the 2010 elections which machines for use in the May 2013 elections would be tantamount to
rendered it incapable for future use. Lastly, petitioners claim that a complete surrender and abdication of the Comelecs constitutional
the Comelec does not have the capability to purchase and maintain mandate in favor of Smartmatic-TIM. The control of the software
the PCOS machines, because of lack of trained manpower and and process verification systems places the Comelec at the end of
technical expertise to properly maintain the PCOS machines; thus, the process as it merely receives the report of Smartmatic-TIM. This,
the purchase is unfavorable to the general public. according to petitioners, amounts to a direct transgression of the
exclusive mandate of the Comelec completely to take charge of the
G.R. No. 201121 enforcement and administration of the conduct of elections. [19]
Lastly, petitioners aver that the Comelecs act of deliberately
In G.R. No. 201121, petitioners Solidarity for Sovereignty (S4S), ignoring the palpable infirmities and defects of the PCOS machines,
represented by Ma. Linda Olaguer, Ramon Pedrosa, Benjamin as duly confirmed by forensic experts, is in violation of Section 2,
Paulino, Sr., Evelyn Coronel, Ma. Linda Olaguer Montayre and Article V of the Constitution, as it fails to safeguard the integrity of
Nelson T. Montayre, pray that a TRO be issued directing the the votes. They went on by saying that the subject PCOS machines
Comelec to desist from implementing the contract; that Resolution lack security features which can guaranty the secrecy and sanctity of
No. 9376 be declared unconstitutional and all acts made pursuant our votes in direct contravention of RA 9369 which requires that the
thereto, including the purchase of the PCOS machines unlawful and automated election system must at least possess an adequate
void; that an Injunction be issued prohibiting the Comelec from security feature against unauthorized access. In deciding to
further pursuing any act pursuant to Resolution No. 9376.[15] purchase the PCOS machines despite the above-enumerated
defects, the Comelecs decision are claimed to be
Petitioners argue that the Comelecs act of exercising its OTP the unconstitutional.[20]
PCOS machines from Smartmatic-TIM after the period had already
lapsed is illegal and unlawful.[16] They explain that the period G.R. No. 201127
within which the Comelec may exercise the OTP could last only until
December 31, 2010 without extension as provided in the Comelecs In G.R. No. 201127, petitioners Teofisto Guingona, Bishop Broderick
bid bulletin.[17] They further assert that the Comelecs acceptance S. Pabillo, Solita Collas Monsod, Maria Corazon Mendoza Acol, Fr.

35
Jose Dizon, Nelson Java Celis, Pablo R. Manalastas, Georgina R. 2010. Thus, Smartmatic-TIM could not have unilaterally extended
Encanto and Anna Leah E. Colina pray that the Court issue a TRO the option period and the Comelec could not have also given its
enjoining and restraining respondents Comelec and Smartmatic-TIM consent to the extension. In extending the option period, it is
from implementing Comelec Resolution No. 9376 and the Deed of tantamount to giving the winning bidder a benefit that was not
Sale for the acquisition and purchase of the PCOS machines and known and available to all bidders during the bidding of the 2010
related equipment; issue writ of preliminary injunction; declare AES, which is a clear violation of the bidding rules and the equal
Comelec Resolution No. 9376 void and unconstitutional and annul protection clause of the Constitution.[23] Considering that the
the Deed of Sale; and direct the Comelec to conduct public bidding option period already expired, the purchase of the PCOS machines
soonest for the automated election system to be used for the 2013 requires competitive public bidding. Lastly, petitioners claim that
elections.[21] the Comelec committed grave abuse of discretion in opting to buy
the PCOS machines and allied paraphernalia of Smartmatic-TIM for
Petitioners fault the Comelec in totally disregarding the the 2013 elections, despite incontrovertible findings of the glitches,
recommendation of the Comelec Advisory Council (CAC) not to malfunctions, bugs, and defects of the same.[24]
exercise the OTP. They point out that in its Resolution No. 2012-
2003, the CAC resolved to recommend that the Comelec should G.R. No. 201418
exert all efforts to procure the necessary AES only through public
bidding. The CAC likewise allegedly recommended that the OTP In G.R. No. 201418, petitioners Tanggulang Demokrasya (Tan Dem),
should not be exercised if as a consequence, the rest of the system Inc., Evelyn L. Kilayko, Teresita D. Baltazar, Pilar L. Calderon and Elita
must come from the same vendor as the Comelec would lose the T. Montilla pray that the Court annul Resolution No. 9376 and the
opportunity to look for better technology; would prevent the March 30, 2012 Deed of Sale, and prohibit the Comelec and
Comelec from taking advantage of the best possible technology Smartmatic-TIM from implementing the same; and declare said
available; would prevent other prospective vendors from Resolution and Deed of Sale invalid for having been issued and
competitively participating in the bidding process; and may erode executed by the Comelec with grave abuse of discretion and for
the public trust and confidence in the electoral process. In its report violating the provisions of R.A. 9184.[25]
to the Congressional Oversight Committee after the 2010 elections,
the CAC supposedly concluded that the Comelec does not need to Petitioners claim that the Comelec committed grave abuse of
use the same PCOS machines and that the Comelec would be better discretion amounting to lack or excess of jurisdiction in contracting
off not exercising the OTP the PCOS machines so it can look for an for the purchase of AES goods and services from Smartmatic-TIM in
even better solution for the May 2013 elections.[22] Like the other spite of the below par performance of the latters PCOS machines,
petitioners, it is their position that Comelec Resolution No. 9376 is CCS and other software and hardware in the May 2010 elections
totally null and void having been issued in violation of the express and non-compliance with the minimum functional capabilities
provisions of RA 9184 and the AES contract. According to required by law.[26] They echo the other petitioners contention
petitioners, the Comelec itself provided in its bid bulletins for a fixed that the Comelecs decision to buy the CCS, PCOS machines,
and determinate period, and such period ended on December 31, software and hardware of Smartmatic violates RA 9184s

36
requirement of a prior competitive public bidding. Since the machines as well as the Extension Agreement and the Deed of Sale
Comelec is bent on pursuing the purchase of the subject goods, covering said goods mainly on three grounds: (1) the option period
which is an entirely new procurement, petitioners contend that provided for in the AES contract between the Comelec and
there must be a public bidding. They argue that there is enough Smartmatic-TIM had already lapsed and, thus, could no longer be
time to conduct public bidding for the 2013 elections, considering extended, such extension being prohibited by the contract; (2) the
that for the May 2010 elections, the Comelec only had 10 months extension of the option period and the exercise of the option
and they were able to conduct the public bidding. Petitioners are of without competitive public bidding contravene the provisions of RA
the view that there is no more OTP to speak of, because the option 9184; and, (3) despite the palpable infirmities and defects of the
period already lapsed and could not be revived by the unilateral act PCOS machines, the Comelec purchased the same in contravention
of one of the contracting parties.[27] of the standards laid down in RA 9369.

On April 24, 2012, the Court issued a TRO enjoining the For its part, the Comelec defends the validity and constitutionality
implementation of the assailed contract of sale. The consolidated of its decision to purchase the subject PCOS machines, pursuant to
cases were later set for Oral Arguments on the following issues: the OTP under the AES contract with Smartmatic-TIM, on the
following grounds: (1) Article 6.6 of the AES contract which states
I. Whether or not the Commission on Elections may validly the option period was amended by the extension agreement; (2)
accept the extension of time unilaterally given by Smartmatic-TIM the exercise of the OTP is not covered by RA 9184, because it is
Corporation within which to exercise the option to purchase under merely an implementation of a previously bidded contract; (3)
Article 4 of the Contract for the Provision of an Automated Election taking into account the funds available for the purpose, exercising
System for the May 2010 Synchronized National and Local Elections; the OTP was the prudent choice for the Comelec and is more
and advantageous to the government; and (4) the exercise of the OTP is
consistent with the technical requirements of RA 9369.
II. Whether or not the acceptance of the extension and the
issuance of Comelec En Banc Resolution No. 9376 violate Republic Stated in another way, Smartmatic-TIM insists on the validity of the
Act No. 9184 or the Government Procurement Reform Act and its subject transaction based on the following grounds: (1) there is no
Implementing Rules, and Republic Act No. 9369 or the Automated prohibition either in the contract or provision of law for it to extend
Election Systems Act. the option period; rather, the contract itself allows the parties to
amend the same; (2) the OTP is not an independent contract in
The parties were, thereafter, required to submit their Memoranda. itself, but is a provision contained in the valid and existing AES
contract that had already satisfied the public bidding requirements
The petitions are without merit. of RA 9184; (3) exercising the option was the most advantageous
option of the Comelec; and (4) Smartmatic-TIM has an established
Simply stated, petitioners assail the validity and constitutionality of track record in providing effective and accurate electoral solutions
the Comelec Resolutions for the purchase of the subject PCOS and its satisfactory performance has been proven during the 2010

37
elections. The alleged glitches in the May 2010 elections, if at all, includes the automation of the counting, transmission and
are not attributable to the PCOS machines. canvassing of votes for the May 2010 national and local elections
with systems integration and over-all project management in a
We agree with respondents. comprehensive and well-managed manner,[31] the Comelec
entered into an AES contract with Smartmatic-TIM for the lease of
At the outset, we brush aside the procedural barriers (i.e., locus goods and purchase of services under the contract, with option to
standi of petitioners and the non-observance of the hierarchy of purchase the goods.
courts) that supposedly prevent the Court from entertaining the
consolidated petitions. As we held in Guingona, Jr. v. Commission on The option contract between the Comelec and Smartmatic-TIM is
Elections:[28] embodied in Article 4.3 of the AES contract to wit:

There can be no doubt that the coming 10 May 2010 [in this case, Article 4
May 2013] elections is a matter of great public concern. On election
day, the country's registered voters will come out to exercise the Contract Fee and Payment
sacred right of suffrage. Not only is it an exercise that ensures the
preservation of our democracy, the coming elections also embodies xxxx
our people's last ounce of hope for a better future. It is the final
opportunity, patiently awaited by our people, for the peaceful 4.3. OPTION TO PURCHASE
transition of power to the next chosen leaders of our country. If
there is anything capable of directly affecting the lives of ordinary In the event the COMELEC exercises its option to purchase the
Filipinos so as to come within the ambit of a public concern, it is the Goods as listed in Annex L, COMELEC shall pay the PROVIDER an
coming elections, more so with the alarming turn of events that additional amount of Two Billion One Hundred Thirty Million Six
continue to unfold. The wanton wastage of public funds brought Hundred Thirty- Five Thousand Forty-Eight Pesos and Fifteen
about by one bungled contract after another, in staggering Centavos (Php2,130,635,048.15) as contained in the Financial
amounts, is in itself a matter of grave public concern.[29] Proposal of the joint venture partners Smartmatic and TIM.

Thus, in view of the compelling significance and transcending public In case COMELEC should exercise its option to purchase, a warranty
importance of the issues raised by petitioners, the technicalities shall be required in order to assure that: (a) manufacturing defects
raised by respondents should not be allowed to stand in the way, if shall be corrected; and/or (b) replacements shall be made by the
the ends of justice would not be subserved by a rigid adherence to PROVIDER, for a minimum period of three (3) months, in the case of
the rules of procedure.[30] supplies, and one (1) year, in the case of equipment, after
performance of this Contract. The obligation for the warranty shall
Now on the substantive issues. In order to achieve the be covered by retention money of ten percent (10%) of every option
modernization program of the Philippine Electoral System, which to purchase payment made.

38
It is a basic rule in the interpretation of contracts that an instrument
The retention money will be returned within five (5) working days must be construed so as to give effect to all the provisions of the
after the expiration of the above warranty, provided, however, that contract.[34] In essence, the contract must be read and taken as a
the goods supplied are in good operating condition free from patent whole.[35] While the contract indeed specifically required the
and latent defects, all the conditions imposed under the purchase Comelec to notify Smartmatic-TIM of its OTP the subject goods until
contract have been fully met, and any defective machines, except to December 31, 2010, a reading of the other provisions of the AES
those attributable to the COMELEC, have been either repaired at no contract would show that the parties are given the right to amend
additional charge or replaced or deducted from the price under the the contract which may include the period within which to exercise
Option to Purchase.[32] the option. There is, likewise, no prohibition on the extension of the
period, provided that the contract is still effective.
Article 6.6 thereof, in turn provides for the period within which the
Comelec could exercise the option, thus: Article 2 of the AES contract lays down the effectivity of the
contract, viz.:
Article 6
Article 2
COMELECs Responsibilities
xxxx EFFECTIVITY

6.6. COMELEC shall notify the PROVIDER on or before 31 December 2.1. This Contract shall take effect upon the fulfillment of all of the
2010 of its option to purchase the Goods as listed in Annex L.[33] following conditions:

The Comelec did not exercise the option within the period stated in (a) Submission by the PROVIDER of the Performance Security;
the above provision. Smartmatic, however, unilaterally extended
the same until its final extension on March 31, 2012. The Comelec, (b) Signing of this Contract in seven (7) copies by the parties; and
thereafter, accepted the option and eventually executed a Deed of
Sale involving said goods. Now, petitioners come before the Court (c) Receipt by the PROVIDER of the Notice to Proceed.
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 2.2. The Term of this Contract begins from the date of effectivity
unilaterally extend the option period? Can the Comelec accept the until the release of the Performance Security, without prejudice to
extension? the surviving provisions of this Contract, including the warranty
provision as prescribed in Article 8.3 and the period of the option to
We answer in the affirmative. purchase (Emphasis supplied).[36]

39
Obviously, the contract took effect even prior to the 2010 elections. there is, therefore, nothing wrong with the execution of the
The only question now is whether its existence already ceased. Extension Agreement.
Pursuant to the above-quoted provision, it is important to
determine whether or not the performance security had already Considering, however, that the AES contract is not an ordinary
been released to Smartmatic-TIM. In Article 8 of the AES contract, contract as it involves procurement by a government agency, the
performance security was defined and the rules in releasing said rights and obligations of the parties are governed not only by the
security were laid down, to wit: Civil Code but also by RA 9184. In this jurisdiction, public bidding is
the established procedure in the grant of government contracts.
Article 8 The award of public contracts, through public bidding, is a matter of
public policy.[40] The parties are, therefore, not at full liberty to
Performance Security and Warranty amend or modify the provisions of the contract bidded upon.

8.1. Within three (3) days from receipt by the PROVIDER of the The three principles of public bidding are: (1) the offer to the
formal Notice of Award from COMELEC, the PROVIDER shall furnish public; (2) an opportunity for competition; and (3) a basis for the
COMELEC with a Performance Security in an amount equivalent to exact comparison of bids.[41] By its very nature, public bidding aims
five percent (5%) of the Contract Amount; which Performance to protect public interest by giving the public the best possible
Security as of this date has been duly received by COMELEC. advantages through open competition.[42] Competition requires
not only bidding upon a common standard, a common basis, upon
Within seven (7) days from delivery by the PROVIDER to COMELEC the same thing, the same subject matter, and the same undertaking,
of the Over-all Project Management Report after successful conduct but also that it be legitimate, fair and honest and not designed to
of the May 10, 2010 elections, COMELEC shall release to the injure or defraud the government.[43] The essence of competition
PROVIDER the above-mentioned Performance Security without in public bidding is that the bidders are placed on equal footing
need of demand.[37] which means that all qualified bidders have an equal chance of
winning the auction through their bids.[44] Another self-evident
Smartmatic-TIM categorically stated in its Consolidated Comment purpose of public bidding is to avoid or preclude suspicion of
to the petitions that the Comelec still retains P50M of the amount favoritism and anomalies in the execution of public contracts.[45]
due Smartmatic-TIM as performance security.[38] In short, the
performance security had not yet been released to Smartmatic-TIM A winning bidder is not precluded from modifying or amending
which indicates that the AES contract is still effective and not yet certain provisions of the contract bidded upon. However, such
terminated. Consequently, pursuant to Article 19[39] of the changes must not constitute substantial or material amendments
contract, the provisions thereof may still be amended by mutual that would alter the basic parameters of the contract and would
agreement of the parties provided said amendment is in writing and constitute a denial to the other bidders of the opportunity to bid on
signed by the parties. In light of the provisions of the AES contract, 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 thereto were deprived of the terms and opportunities granted to
as a whole, would contain substantially different terms and respondent therein after it won the public auction, but also altered
conditions that would have the effect of altering the technical the bid terms by effectively barring any and all true bidding in the
and/or financial proposals previously submitted by the other future.[51]
bidders. The modifications in the contract executed between the
government and the winning bidder must be such as to render the Also in Agan, Jr. v. Philippine International Air Terminals Co., Inc.,
executed contract to be an entirely different contract from the one (PIATCO),[52] this Court declared as null and void, for being contrary
bidded upon.[47] to public policy, the Concession Agreement entered into by the
government with PIATCO, because it contained provisions that
Public bidding aims to secure for the government the lowest substantially departed from the Draft Concession Agreement
possible price under the most favorable terms and conditions, to included in the bid documents. The Court considered the subject
curtail favoritism in the award of government contracts and avoid contracts a mockery of the bidding process, because they were
suspicion of anomalies, and it places all bidders in equal footing. substantially amended after their award to the successful bidder on
Any government action which permits any substantial variance terms more beneficial to PIATCO and prejudicial to public
between the conditions under which the bids are invited and the interest.[53]
contract executed after the award thereof is a grave abuse of
discretion amounting to lack or excess of jurisdiction which warrants The same conclusions cannot be applied in the present case.
proper judicial action.[48] If this flawed process would be allowed,
public bidding will cease to be competitive, and worse, government One. Smartmatic-TIM was not granted additional right that was not
would not be favored with the best bid. Bidders will no longer bid previously available to the other bidders. Admittedly, the AES
on the basis of the prescribed terms and conditions in the bid contract was awarded to Smartmatic-TIM after compliance with all
documents but will formulate their bid in anticipation of the the requirements of a competitive public bidding. The RFP, Bid
execution of a future contract containing new and better terms and Bulletins and the AES contract identified the contract as one of lease
conditions that were not previously available at the time of the with option to purchase. The AES contract is primarily a contract of
bidding. Such a public bidding will not inure to the public good.[49] lease of goods[54] listed in the contract and purchase of
services[55] also stated in the contract. Section 4.3 thereof gives the
In Power Sector Assets and Liabilities Management Corporation Comelec the OTP the goods agreed upon. The same provision states
(PSALM) v. Pozzolanic Philippines Incorporated,[50] the Court the conditions in exercising the option, including the additional
nullified the right of first refusal granted to respondent therein in amount that the Comelec is required to pay should it exercise such
the Batangas Contract for being contrary to public policy. The Court right. It is, therefore, undisputed that this grant of option is
explained that the same violated the requirement of competitive recognized by both parties and is already a part of the principal
public bidding in the government contract, because the grant of the contract of lease. Having been included in the RFP and the bid
right of first refusal did not only substantially amend the terms of bulletins, this right given to the Comelec to exercise the option was
the contract bidded upon so that resultantly the other bidders 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 exercise the option which is P2,130,635,048.15. Except for the
purchase of services, their proposals should include an OTP the period within which the Comelec could exercise the OTP, the terms
subject goods. Although the AES contract was amended after the and conditions for such exercise are maintained and respected.
award of the contract to Smartmatic-TIM, the amendment only Admittedly, the additional amount the Comelec needed to pay was
pertains to the period within which the Comelec could exercise the maintained (less the amount already paid when it purchased 920
option because of its failure to exercise the same prior to the units of PCOS machines with corresponding CCS for the special
deadline originally agreed upon by the parties. Unlike in PSALM, elections in certain areas in the provinces of Basilan, Lanao del Sur
wherein the winning bidder was given the right of first refusal which and Bulacan) subject to the warranties originally agreed upon in the
substantially amended the terms of the contract bidded upon, AES contract. The contract amount not only included that for the
thereby depriving the other bidders of the terms and opportunities contract of lease but also for the OTP. Hence, the competitive public
granted to winning bidder after it won the public auction; and in bidding conducted for the AES contract was sufficient. A new public
Agan, Jr., wherein the Concession Agreement entered into by the bidding would be a superfluity.
government with PIATCO contained provisions that substantially
departed from the draft Concession Agreement included in the bid The Solicitor General himself clarified during the oral arguments
documents; the option contract in this case was already a part of that the purchase price of the remaining PCOS machines stated in
the original contract and not given only after Smartmatic-TIM the assailed Deed of Sale was the price stated in Article 4.3 of the
emerged as winner. The OTP was actually a requirement by the AES contract. Therefore, the said amount was already part of the
Comelec when the contract of lease was bidded upon. To be sure, original amount bidded upon in 2009 for the AES contract which
the Extension Agreement does not contain a provision favorable to negates the need for another competitive bidding.[57]
Smartmatic-TIM not previously made available to the other bidders.
Third. More importantly, the amendment of the AES contract is
more advantageous to the Comelec and the public.
Two. The amendment of the AES contract is not substantial. The
approved budget for the contract was P11,223,618,400.00[56] The nature of an option contract was thoroughly explained in
charged against the supplemental appropriations for election Eulogio v. Apeles,[58] to wit:
modernization. Bids were, therefore, accepted provided that they
did not exceed said amount. After the competitive public bidding, An option is a contract by which the owner of the property agrees
Smartmatic-TIM emerged as winner and the AES contract was with another person that the latter shall have the right to buy the
thereafter executed. As repeatedly stated above, the AES contract is former's property at a fixed price within a certain time. It is a
a contract of lease with OTP giving the Comelec the right to condition offered or contract by which the owner stipulates with
purchase the goods agreed upon if it decides to do so. The AES another that the latter shall have the right to buy the property at a
contract not only indicated the contract price for the lease of goods fixed price within a certain time, or under, or in compliance with
and purchase of services which is P7,191,484,739.48, but also stated certain terms and conditions; or which gives to the owner of the
the additional amount that the Comelec has to pay if it decides to 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 From the foregoing jurisprudential pronouncements, an option is
by which the owner of the property agrees with another person that only a preparatory contract and a continuing offer to enter into a
he shall have the right to buy his property at a fixed price within a principal contract. Under the set-up, the owner of the property,
certain time. He does not sell his land; he does not then agree to sell which is Smartmatic-TIM, gives the optionee, which is the Comelec,
it; but he does sell something, i.e., the right or privilege to buy at the right to accept the formers offer to purchase the goods listed in
the election or option of the other party. Its distinguishing the contract for a specified amount, and within a specified period.
characteristic is that it imposes no binding obligation on the person Thus, the Comelec is given the right to decide whether or not it
holding the option, aside from the consideration for the offer.[59] wants to purchase the subject goods. It is, therefore, uncertain
whether or not the principal contract would be entered into. The
Also in Carceller v. Court of Appeals,[60] the Court described an owner of the property would then have to wait for the optionee to
option in this wise: make a decision. A longer option period would mean that more time
would be given to the optionee to consider circumstances affecting
An option is a preparatory contract in which one party grants to the its decision whether to purchase the goods or not. On the part of
other, for a fixed period and under specified conditions, the power Smartmatic-TIM, it would have to wait for a longer period to
to decide, whether or not to enter into a principal contract. It binds determine whether the subject goods will be sold to the Comelec or
the party who has given the option, not to enter into the principal not, instead of freely selling or leasing them to other persons or
contract with any other person during the period designated and, governments possibly at a higher price. This is especially true in this
within that period, to enter into such contract with the one to case as the terms and conditions for the exercise of the option
whom the option was granted, if the latter should decide to use the including the purchase price, had been included in the AES contract
option. It is a separate agreement distinct from the contract which previously bidded upon. The parties are bound to observe the
the parties may enter into upon the consummation of the limitations embodied therein, otherwise, a new public bidding
option.[61] would be needed.

In Adelfa Properties, Inc. v. CA,[62] the Court described an option We agree with respondents that the exercise of the option is more
as: advantageous to the Comelec, because the P7,191,484,739.48
rentals paid for the lease of goods and purchase of services under
An option, as used in the law on sales, is a continuing offer or the AES contract was considered part of the purchase price. For the
contract by which the owner stipulates with another that the latter Comelec to own the subject goods, it was required to pay only
shall have the right to buy the property at a fixed price within a P2,130,635,048.15. If the Comelec did not exercise the option, the
certain time, or under, or in compliance with, certain terms and rentals already paid would just be one of the government expenses
conditions, or which gives to the owner of the property the right to for the past election and would be of no use to future elections.
sell or demand a sale. It is sometimes called an unaccepted offer. x x Assuming that the exercise of the option is nullified, the Comelec
x[63] 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
May I be allowed to answer that by way of a speculation, Your
Go ahead, you go ahead, you have all the time. Honor.
DEAN ESPEJO:
ASSOCIATE JUSTICE PERALTA:
It may appear advantageous, Your Honor please, but on the other
hand, there are certain disadvantages there. For one thing, these Go ahead, please.
are not brand new machines; these are refurbished existing
machines which could be suffering from hardware or software DEAN ESPEJO:
problem. For the COMELEC to accept this, Your Honor please, each
machine will have to be checked as to its hardware and software. I think bidder will find it difficult to match that.
Eighty-two thousand (82,000) PCOS machines, Your Honor please,
what if half of them, [turn out] to be white elephants or xxxx
malfunctioning, Your Honor please, then we will be acquiring eighty-
two thousand (82,000) with fifty percent (50%) malfunctioning ASSOCIATE JUSTICE PERALTA:
machines. There is a danger, Your Honor please, that does not
appear to the naked eye. In any event, with respect to the financial Okay. My other question is this. Okay, now you admitted that the
figures there appears to be some advantages, Your Honor, please. 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?
ASSOCIATE JUSTICE PERALTA:
DEAN ESPEJO:
x x x these are merely speculative. Yourre only speculating that
there are dangers, the dangers might not come, in fact, it might Yes, Your Honor.
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 ASSOCIATE JUSTICE PERALTA:
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 And the total value of the original contract is 10 billion. Do you think
according to you, the equipment in 2009 is 10 billion, and elections that the COMELEC will have money to purchase equipment valued
are very near already 2013, the filing of certificates of candidacy will at 10 billion pesos with only 7 billion pesos for the elections of
be on the second to the last month of this year? 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:
DEAN ESPEJO:

46
Well, Your Honor please, the shortfall of 3 billion pesos can be 2012 Deed of Sale is the existence of the alleged defects, glitches,
remedied if Congress will appropriate additional amounts, if the and infirmities of the subject goods. The technology provided by
President of this Republic will convince the legislature to Smartmatic-TIM was not perfect, because of some technical
appropriate an additional amount, I see no problem why the problems that were experienced during the 2010 elections.
shortfall of 3 billion cannot be remedied, Your Honor please. Petitioners herein doubt that the integrity and sanctity of the ballots
are protected because of these defects.
ASSOCIATE JUSTICE PERALTA:
We do not agree.
Oh, thats again speculative.
Prior to the execution of the Deed of Sale, the Comelec and
DEAN ESPEJO: Smartmatic-TIM had agreed that the latter would undertake fixes
and enhancements to the hardware and software to make sure that
Again, thats unfortunate thats my speculation. 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
ASSOCIATE JUSTICE PERALTA: solutions to the alleged problems on the PCOS machines and it is
not inherently impossible to remedy the technical problems that
You will have first to go to Congress, then you go to Senate, and have been identified. While there is skepticism that Smartmatic-TIM
then you go to the President discounting the possibility of filing a would be able to correct the supposed defects prior to the 2013
petition to question the allocation of additional amount for the elections because of its inaction during the two years prior to the
2013 elections, by the time that all of these exercises are finished exercise of the option, we agree with the opinion of Chairman Sixto
then election is there already. S. Brillantes, Jr. that it is absurd to expect Smartmatic-TIM to invest
time, money and resources in fixing the PCOS machines to the
DEAN ESPEJO: specifications and requirements of the Comelec when prior to the
exercise of the OTP, they do not have the assurance from the
Well, Im hopeful, Your Honor please, that our Congressmen and our Comelec that the latter will exercise the option.[66]
Senators will rise to the occasion and move fast and appropriate the
needed amount of 3 billion pesos to help the COMELEC acquire the Moreover, as to the digital signature which appears to be the major
proper Automated election System. concern of petitioners, it has been clarified during the oral
arguments that the PCOS machines are capable of producing
x x x[64] digitally-signed transmissions:

Another reason posed by petitioners for their objection to the


exercise of the option and the eventual execution of the March 30, 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 ATTY. LAZATIN:
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 No, let me explain it this way, Your Honor. The best example I can
one (1) month before the election, then how could there be a digital give, Your Honor, is
signature?
JUSTICE CARPIO:
ATTY. LAZATIN:
Okay, let us define first what a digital signature means.
Your Honor, as I mentioned it is anot a customized or personal
digital signature. It is a digital signature that is assigned by ATTY. LAZATIN:
COMELEC.
The Rules of Court, Your Honor, defines digital signature as the first
JUSTICE CARPIO: one it is electronic signature consisting of a transformation of an
electronic document or an electronic data message using an
Assigned by COMELEC? How canwho inputs that digital signature? asymmetric or public Cryptosystem such that a person having the
ATTY. LAZATIN: initial untransformed electronic document and the signers public
key can accurately determine: (i) whether the transformation was
It is cranked out, Your Honor, and created using the private key that corresponds to the signers public
key; and (ii) whether the initial electronic document has been
JUSTICE CARPIO: altered after the transformation was made.

No, yourit is trusted that the list of the BEI Chairman is known only JUSTICE CARPIO:
one (1) month before, so how can the BEI Chairman input their
digital signature five (5) months before? Therefore, digital signature requires private key and public key

ATTY. LAZATIN:

As I said, Your Honor, it is not a personal or customized signature. It ATTY. LAZATIN:


is just like
Yes, Your Honor.
JUSTICE CARPIO:
JUSTICE CARPIO:
It is a machine ID, in other words?

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?

52
ATTY. LAZATIN: fact fixes and enhancements had been undertaken by Smartmatic-
TIM. Petitioners could not even give a plausible alternative to
Thats correct. In the same way, Your Honor, that even if someone ensure the conduct of a successful 2013 automated elections, in the
keeps his key or private key, Your Honor, if he is under threat he will event that the Court nullifies the Deed of Sale.
also divulge it, Your Honor. Its the same.
WHEREFORE, premises considered, the petitions are DISMISSED.
JUSTICE CARPIO: The Temporary Restraining Order issued by the Court on April 24,
2012 is LIFTED.
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 SO ORDERED.
members

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

53