GOVERNMENT CONTRACTS | SYLLABUS PART I & II

I. CONTRACTS DEFINED
- Article 1305, NCC
o “A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.”
a. Who can enter into a contract?
o Age of majority
o Of sound mind
o Not disqualified by law
b. Requirements for a valid contract
o Article 1318, NCC
 “There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.”
o Consent (Article 1319-1346, NCC)
 “Consent is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contact. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer. xxx”
 Express or implied
 Voidable contract when consent is given through – mistake (on the principal cause to
give consent), violence (serious or irresistible force is employed), intimidation
(reasonable and well-founded fear of an imminent and grave evil upon his person or
property, or upon the person or property of his spouse, descendants or ascendant),
undue influence (improper advantage of his power over the will of another –
confidential, family, spiritual and other relations) or fraud (insidious words or
machinations).
 Void contract when there is absolute simulation of contract (when parties do not intend
to be bound by the contract at all).
o Object (Articles 1347-1349, NCC)
 Things within the commerce of men
 Future things
 Transmissible rights
 Future inheritance ONLY in cases expressly authorized by law
 Services NOT contrary to law, morals, good customs, public order, or public policy.
o Cause (Articles 1350-1355, NCC)
 Onerous – presentation or promise of a thing or service
 Remuneratory - reward
 Gratuitous – liberality of benefactor
c. Authorized government officials who can enter into a contract
i. National
ii. Local
iii. Members of the Congress
iv. Judiciary
v. Government institutions and corporations
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Relevant Jurisprudence:

a) Sargasso Construction and Development vs. PPA. G.R. No. 170530, 5 July 2010
b) People of the Philippines vs. Go, G.R. No. 168539, 25 March 2014
c) SM Land Inc. vs. BCDA. G.R. No. 203655, 18 March 2015
d) Capalla vs. COMELEC, G.R. No. 201112, 13 June 2012

II. GOVERNMENT DEFINED

- “Government is that institution or aggregate of institution by which an independent society makes and
carries out the rules of action which are necessary to enable men to live in a social state, or which are
imposed upon the people forming that society by those who possess the power or authority of
prescribing them. Government is the aggregate of authorities which rule a society. (US v. Dorr, 2 Phil.
332)”
a. Branch
o Executive
o Legislative
o Judiciary
b. Agency
o “includes any department, bureau, office, commission, authority or officer of the National
Government authorized by law or executive order to make rules, issue licenses, grant rights or
privileges, and adjudicate cases; research institutions with respect to licensing functions;
government corporations with respect to functions regulating private right, privilege,
occupation or business; and officials in the exercise of disciplinary power as provided by law.
(Sec. 2(1), Chapter I, Book VII,1987 Administrative Code)”
c. Incorporated agency vs. non-incorporated agency
d. Subdivision
e. Instrumentality
o “Any agency of the National Government, not integrated within the department framework
vested within special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy, usually through a
charter. This term includes regulatory agencies, chartered institutions and government-owned
or controlled corporations. (Sec. 2(12),Introductory Provisions,1987 Administrative Code)”

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 Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

SARGASSO CONSTRUCTION G.R. NO. 170530

& DEVELOPMENT CORPORATION/PICK
& SHOVEL, INC.,/ATLANTIC ERECTORS, Present:
INC. (JOINT VENTURE),
Petitioner, CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
- versus - MENDOZA, JJ.

PHILIPPINE PORTS AUTHORITY,

Respondent.
Promulgated:

July 5, 2010

X -------------------------------------------------------------------------------------- X

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 which seeks to annul and set aside the August 22, 2005 Decision [1] of

the Court of Appeals (CA) in CA-G.R. CV No. 63180 and its November 14, 2005 Resolution[2]denying petitioners motion for the

reconsideration thereof. The questioned CA decision reversed the June 8, 1998 Decision[3] of the Regional Trial Court of Manila,

Branch 14, in Civil Case No. 97-83916, which granted petitioners action for specific performance.

The factual and procedural antecedents have been succinctly recited in the subject Court of Appeals decision in this wise:[4]

Plaintiff Sargasso Construction and Development Corporation, Pick and Shovel, Inc. and Atlantic
Erectors, Inc., a joint venture, was awarded the construction of Pier 2 and the rock causeway (R.C. Pier 2)
for the port of San Fernando, La Union, after a public bidding conducted by the defendant PPA.
Implementation of the project commenced on August 14, 1990. The port construction was in pursuance of
the development of the Northwest Luzon Growth Quadrangle. Adjacent to Pier 2 is an area of P4,280
square meters intended for the reclamation project as part of the overall port development plan.

In a letter dated October 1, 1992 of Mr. Melecio J. Go, Executive Director of the consortium,
plaintiff offered to undertake the reclamation between the Timber Pier and Pier 2 of the Port of San
Fernando, La Union, as an extra work to its existing construction of R.C. Pier 2 and Rock Causeway for a
price of P36,294,857.03. Defendant replied thru its Assistant General Manager Teofilo H. Landicho who
sent the following letter dated December 18, 1992:

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 This is to acknowledge receipt of your letter dated 01 October 1992 offering to undertake
the reclamation between the Timber Pier and Pier 2, at the Port of San Fernando, La
Union as an extra work to your existing contract.

Your proposal to undertake the project at a total cost of THIRTY SIX MILLION TWO
HUNDRED NINETY FOUR THOUSAND EIGHT HUNDRED FIFTY SEVEN AND
03/100 PESOS (P36,294,857.03) is not acceptable to PPA. If you can reduce your offer to
THIRTY MILLION SEVEN HUNDRED NINETY FOUR THOUSAND TWO HUNDRED
THIRTY AND 89/100 (P30,794,230.89) we may consider favorably award of the project in
your favor, subject to the approval of higher authority.

Please signify your agreement to the reduced amount of P30,794,230.89 by signing in the
space provided below. (emphasis in the original)

On August 26, 1993, a Notice of Award signed by PPA General Manager Rogelio Dayan was sent
to plaintiff for the phase I Reclamation Contract in the amount of P30,794,230.89 and instructing it to
enter into and execute the contract agreement with this Office and to furnish the documents representing
performance security and credit line. Defendant likewise stated [and] made it a condition that fendering
of Pier No. 2 Port of San Fernando, and the Port of Tabaco is completed before the approval of the
contract for the reclamation project. Installation of the rubber dock fenders in the said ports was
accomplished in the year 1994. PPA Management further set a condition [that] the acceptance by the
contractor that mobilization/demobilization cost shall not be included in the contract and that escalation
shall be reckoned upon approval of the Supplemental Agreement. The award of the negotiated contract as
additional or supplemental project in favor of plaintiff was intended to save on the
mobilization/demobilization costs and some items as provided for in the original contract. Hence, then
General Manager Carlos L. Agustin presented for consideration by the PPA Board of Directors the
contract proposal for the reclamation project.

At its meeting held on September 9, 1994, the Board decided not to approve the contract
proposal, as reflected in the following excerpt of the minutes taken during said board meeting:

After due deliberation, the Board advised Management to bid the project since
there is no strong legal basis for Management to award the supplemental contract through
negotiation. The Board noted that the Pier 2 Project was basically for the construction of a
pier while the supplemental agreement refers to reclamation. Thus there is no basis to
compare the terms and conditions of the reclamation project with the original contract
(Pier 2 Project) of Sargasso.[5]

It appears that PPA did not formally advise the plaintiff of the Boards action on their contract proposal.
As plaintiff learned that the Board was not inclined to favor its Supplemental Agreement, Mr. Go wrote
General Manager Agustin requesting that the same be presented again to the Board meeting for approval.
However, no reply was received by plaintiff from the defendant.

On June 30, 1997, plaintiff filed a complaint for specific performance and damages before the Regional
Trial Court of Manila alleging that defendant PPAs unjustified refusal to comply with its undertaking,
unnecessarily leading to the delay in the implementation of the award under the August 26, 1993 Notice of
Award, has put on hold plaintiffs men and resources earmarked for the project, aside from effectively
tying its hands in undertaking other projects for fear that plaintiffs incapacity to undertake work might be
spread thinly and it might not be able to function efficiently if the PPA project and other projects should
require simultaneous attention. Plaintiff averred that it sought reconsideration of the August 9,
1996 letter of PPA informing it that it did not qualify to bid for the proposed extension of RC Pier No.
2, Port of San Fernando, La Union for not having IAC Registration and Classification and not complying
with equipment requirement. In its letter dated September 19, 1996, plaintiff pointed out that the
disqualification was clearly unjust and totally without basis considering that individual contractors of the
joint venture have undertaken separately bigger projects, and have been such individual contractors for
almost 16 years. It thus prayed that judgment be rendered by the court directing the defendant (a) to
comply with its undertaking under the Notice of Award dated August 26, 1993; and (b) to pay plaintiff
actual damages (P1,000,000.00), exemplary damages (P1,000,000.00), attorneys fees (P300,000.00)
and expenses of litigation and costs (P50,000.00).

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 Defendant PPA thru the Office of the Government Corporate Counsel (OGCC) filed its Answer with
Compulsory Counterclaim contending that the alleged Notice of Award has already been properly revoked
when the Supplemental Agreement which should have implemented the award was denied approval by
defendants Board of Directors. As to plaintiffs pre-disqualification from participating in the bidding for
the extension of R.C. Pier No. 2 Project at the Port of San Fernando, La Union, the same is based on
factual determination by the defendant that plaintiff lacked IAC Registration and Classification and
equipment for the said project as communicated in the August 9, 1996 letter. Defendant disclaimed any
liability for whatever damages suffered by the plaintiff when it jumped the gun by committing its alleged
resources for the reclamation project despite the fact that no Notice to Proceed was issued to plaintiff by
the defendant. The cause of action insofar as the Extension of R.C. Pier No. 2 of the Port of San Fernando,
La Union, is barred by the statute of limitation since plaintiff filed its request for reconsideration way
beyond the seven (7) day-period allowed under IB 6-5 of the Implementing Rules and Regulations of P.D.
1594. Defendant clarified that the proposed Reclamation Project and Extension of R.C. Pier No. 2 San
Fernando, La Union, are separate projects of PPA. The Board of Directors denied approval of the
Supplemental Agreement on September 9, 1994 for lack of legal basis to award the supplemental contract
through negotiation which was properly communicated to the plaintiff as shown by its letter dated
September 19, 1994 seeking reconsideration thereof. As advised by the Board, PPA Management began to
make preparations for the public bidding for the proposed reclamation project. In the meantime,
defendant decided to pursue the extension of R.C. Pier 2, San Fernando, La Union. xxx It [prayed that the
complaint be dismissed]. (Emphasis supplied)

After trial, the lower court rendered a decision in favor of the plaintiff, the dispositive portion of which reads:

WHEREFORE, and in view of the foregoing considerations, judgment is hereby rendered

ordering the defendant to execute a contract in favor of the plaintiff for the reclamation of the area
between the Timber Pier and Pier 2 located at San Fernando, La Union for the price of P30,794,230.89
and to pay the costs.

The counterclaim is dismissed for lack of merit.

SO ORDERED.[6]

In addressing affirmatively the basic issue of whether there was a perfected contract between the parties for the reclamation

project, the trial court ruled that the higher authority x x adverted to does not necessarily mean the Board of Directors (Board). Under

IRR, P.D. 1594 (1)B10.6, approval of award and contracts is vested on the head of the infrastructure department or its duly authorized

representative. Under Sec. 9 (iii) of P.D. 857 which has amended P.D. 505 that created the PPA, one of the particular powers and

duties of the General Manager and Assistant General Manager is to sign contracts.[7] It went on to say that in the case of the PPA, the

power to enter into contracts is not only vested on the Board of Directors, but also to the manager citing Section 9 (III) of P.D. No.

857.[8]

The trial court added that the tenor of the Notice of Award implied that respondents general manager had been empowered by

its Board of Directors to bind respondent by contract. It noted that whereas the letter-reply contained the phrase approval of the higher

authority, the conspicuous absence of the same in the Notice of Award supported the finding that the general manager had been vested

with authority to enter into the contract for and in behalf of respondent. To the trial court, the disapproval by the PPA Board of the

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supplementary contract for the reclamation on a ground other than the general managers lack of authority was an explicit recognition

that the latter was so authorized to enter into the purported contract.

Respondent moved for a reconsideration of the RTC decision but it was denied for lack of merit. Respondent then filed its

Notice of Appeal. Subsequently, petitioner moved to dismiss the appeal on the ground that respondent failed to perfect its appeal

seasonably. On June 27, 2000, the Court of Appeals issued a Resolution[9] dismissing respondents appeal for having been filed out

time. Respondents motion for reconsideration of said resolution was also denied.[10]

Undaunted, respondent elevated its problem to this Court via a petition for review on certiorari under Rule 45 assailing the

denial of its appeal. On July 30, 2004, the Court rendered an en banc decision[11] granting respondents petition on a liberal

interpretation of the rules of procedure, and ordering the CA to conduct further proceedings.

On August 22, 2005, the CA rendered the assailed decision reversing the trial courts decision and dismissing petitioners

complaint for specific performance and damages. Thus, the dispositive portion thereof reads:

WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed
Decision dated June 8, 1998 of the trial court in Civil Case No. 97-83916 is hereby REVERSED and SET
ASIDE. A new judgment is hereby entered DISMISSING the complaint for specific performance and
damages filed by Plaintiff Sargasso Construction and Development Corporation/Pick & Shovel,
Inc./Atlantic Erectors, Inc., (Joint Venture) against the Philippine Ports Authority for lack of merit.

In setting aside the trial courts decision, the CA ruled that the law itself should serve as the basis of the general managers

authority to bind respondent corporation and, thus, the trial court erred in merely relying on the wordings of the Notice of Award and

the Minutes of the Board meeting in determining the limits of his authority; that the power of the general manager to sign contracts is

different from the Boards power to make or enter (into) contracts; and that, in the execution of contracts, the general manager only

exercised a delegated power, in reference to which, evidence was wanting that the PPA Board delegated to its general manager the

authority to enter into a supplementary contract for the reclamation project.

The CA also found the disapproval of the contract on a ground other than the general managers lack of authority rather

inconsequential because Executive Order 380[12] expressly authorized the governing boards of government-owned or controlled

corporations to enter into negotiated infrastructure contracts involving not more than fifty million (P50 million). The CA further noted

that the Notice of Award was only one of those documents that comprised the entire contract and, therefore, did not in itself evidence

the perfection of a contract.

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 Hence, this petition.

The issue to be resolved in this case is whether or not a contract has been perfected between the parties which, in turn,

depends on whether or not the general manager of PPA is vested with authority to enter into a contract for and on behalf of PPA.

The petition fails.

Petitioner contends that the existence of Notice of Award of Contract and Contractors Conforme thereto, resulting from its

negotiation with respondent, proves that a contract has already been perfected, and that the other documents enumerated under the

amended Rules and Regulations[13] implementing P.D. 1594[14] are mere physical representations of the parties meeting of the minds;

that the Approval of Award by Approving Authority is only a supporting document, and not an evidence of perfection of contract, and

which merely facilitates the approval of the contract;[15] that PPA is bound by the acts of its general manager in issuing the Notice of

Award under the doctrine of apparent authority; and that the doctrine of estoppel, being an equitable doctrine, cannot be invoked to

perpetuate an injustice against petitioner.

At the outset, it must be stated that there are two (2) separate and distinct, though related, projects involving the parties

herein, viz: (i) the construction of Pier 2 and the rock causeway for the port of San Fernando, La Union, and (ii) the reclamation of the

area between the Timber Pier and Pier 2 of the same port. Petitioners action for specific performance and damages merely relates to

the latter.

Every contract has the following essential elements: (i) consent, (ii) object certain and (iii) cause. Consent has been defined

as the concurrence of the wills of the contracting parties with respect to the object and cause which shall constitute the contract.[16] In

general, contracts undergo three distinct stages, to wit: negotiation, perfection or birth, and consummation. Negotiation[17] begins from

the time the prospective contracting parties manifest their interest in the contract and ends at the moment of their

agreement. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract, i.e.,

consent, object and price. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract,

culminating in the extinguishment thereof. The birth or the perfection of the contract, which is the crux of the present controversy,

refers to that moment in the life of a contract when there is finally a concurrence of the wills of the contracting parties with respect to

the object and the cause of the contract.[18]

A government or public contract has been defined as a contract entered into by state officers acting on behalf of the state,

and in which the entire people of the state are directly interested. It relates wholly to matter of public concern, and affects private

rights only so far as the statute confers such rights when its provisions are carried out by the officer to whom it is confided to

perform.[19]

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 A government contract is essentially similar to a private contract contemplated under the Civil Code. The legal requisites of

consent of the contracting parties, an object certain which is the subject matter, and cause or consideration of the obligation must

likewise concur. Otherwise, there is no government contract to speak of. [20]

As correctly found by the CA, the issue on the reclamation of the area between Timber Pier and Pier 2 of the Portof San

Fernando involves a government infrastructure project, and it is beyond dispute that the applicable laws, rules and regulations on

government contracts or projects apply.

On the matter of entering into negotiated contracts by government-owned and controlled corporations, the provisions of
existing laws are crystal clear in requiring the governing boards approval thereof. The Court holds that the CA correctly applied the
pertinent laws, to wit:
Executive Order No. 380 provides for revised levels of authority on approval of government
contracts. Section 1 thereof authorizes GOCCs:
1. To enter into infrastructure contracts awarded through public bidding regardless
of the amount involved;
2. To enter into negotiated infrastructure contracts involving not more than one
hundred million pesos (P100 million) in the case of the Department of Transportation and
Communications and the Department of Public Works and Highways, and not more than
fifty million pesos (P50 million) in the case of the other Departments and governments
corporations; Provided, That contracts exceeding the said amounts shall only be entered
into upon prior authority from the Office of the President; and Provided, Further, That said
contracts shall only be awarded in strict compliance with Section 5 of Executive Order No.
164, S. of 1987.
xxx

The rule on negotiated contracts, as amended on August 12, 2000 (IB 10.6.2) now reads

1. Negotiated contract may be entered into only where any of the following conditions exists and the
implementing office/agency/corporation is not capable of undertaking the contract by
administration:

a. In times of emergencies arising from natural calamities where immediate action is

necessary to prevent imminent loss of life and/or property or to restore vital public
services, infrastructure and utilities such as

b. Failure to award the contract after competitive public bidding for valid cause or causes

c. Where the subject project is adjacent or contiguous to an on-going project and it could
be economically prosecuted by the same contractor provided that subject contract has
similar or related scope of works and it is within the contracting capacity of the
contractor, in which case, direct negotiation may be undertaken with the said
contractor

xxx

In cases a and b above, bidding may be undertaken through sealed canvass of at least three (3)
qualified contractors Authority to negotiate contract for projects under these exceptional cases shall be
subject to prior approval by heads of agencies within their limits of approving authority.[21] (emphasis in
the original)

Furthermore, the Revised Administrative Code[22] lays down the same requirement, thus:
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 Sec. 51. Who May Execute Contracts. Contracts in behalf of the Republic of the Philippines shall be
executed by the President unless authority therefore is expressly vested by law or by him in any other
public officer.

Contracts in behalf of the political subdivisions and corporate agencies or instrumentalities shall
be approved by their respective governing boards or councils and executed by their respective
executive heads.

Petitioner neither disputes nor admits the application of the foregoing statutory provisions but insists, nonetheless, that the

Notice of Award itself already embodies a perfected contract having passed the negotiation stage [23] despite the clear absence thereon

of a condition requiring the prior approval of respondents higher authority.

Petitioners argument is untenable. Contracts to which the government is a party are generally subject to the same laws and

regulations which govern the validity and sufficiency of contracts between private individuals. [24] A government contract, however, is

perfected[25] only upon approval by a competent authority, where such approval is required. [26]

The contracting officer functions as agent of the Philippine government for the purpose of making
the contract. There arises then, in that regard, a principal-agent relationship between the Government, on
one hand, and the contracting official, on the other. The latter though, in contemplation of law, possesses
only actual agency authority. This is to say that his contracting power exists, where it exists at all, only
because and by virtue of a law, or by authority of law, creating and conferring it. And it is well settled
that he may make only such contracts as he is so authorized to make. Flowing from these basic guiding
principles is another stating that the government is bound only to the extent of the power it has actually
given its officers-agents. It goes without saying then that, conformably to a fundamental principle in
agency, the acts of such agents in entering into agreements or contracts beyond the scope of their actual
authority do not bind or obligate the Government. The moment this happens, the principal-agent
relationship between the Government and the contracting officer ceases to exist.[27] (emphasis supplied)

It was stressed that

the contracting official who gives his consent as to the subject matter and the consideration ought
to be empowered legally to bind the Government and that his actuations in a particular contractual
undertaking on behalf of the government come within the ambit of his authority. On top of that, the
approval of the contract by a higher authority is usually required by law or administrative regulation as a
requisite for its perfection.[28]

Under Article 1881 of the Civil Code, the agent must act within the scope of his authority to bind his principal. So long as the

agent has authority, express or implied, the principal is bound by the acts of the agent on his behalf, whether or not the third person

dealing with the agent believes that the agent has actual authority.[29] Thus, all signatories in a contract should be clothed with

authority to bind the parties they represent.

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 P.D. 857 likewise states that one of the corporate powers of respondents Board of Directors is to reclaim any part of the lands

vested in the Authority. It also exercise[s] all the powers of a corporation under the Corporation Law. On the other hand, the law

merely vests the general manager the general power to sign contracts and to perform such other duties as the Board may

assign Therefore, unless respondents Board validly authorizes its general manager, the latter cannot bind respondent PPA to a

contract.

The Court completely agrees with the CA that the petitioner failed to present competent evidence to prove that the

respondents general manager possessed such actual authority delegated either by the Board of Directors, or by statutory provision. The

authority of government officials to represent the government in any contract must proceed from an express provision of law or valid

delegation of authority.[30] Without such actual authority being possessed by PPAs general manager, there could be no real consent,

much less a perfected contract, to speak of.

It is of no moment if the phrase approval of higher authority appears nowhere in the Notice of Award. It neither justifies

petitioners presumption that the required approval had already been granted nor supports its conclusion that no other condition (than

the completion of fendering of Pier 2 as stated in the Notice of Award) ought to be complied with to create a perfected

contract.[31] Applicable laws form part of, and are read into, the contract without need for any express reference thereto; [32] more so, to

a purported government contract, which is imbued with public interest.

Adopting the trial courts ratiocination, petitioner further argues that had it been true that respondents general manager was without

authority to bind respondent by contract, then the former should have disapproved the supplemental contract on that

ground.[33] Petitioner also interprets the Boards silence on the matter as an explicit recognition of the latters authority to enter into a

negotiated contract involving the reclamation project. This posture, however, does not conform with the basic provisions of the law to

which we always go back. Section 4 of P.D. 1594 [34] provides:[35]

Section 4. Bidding. Construction projects shall generally be undertaken by contract after

competitive public bidding. Projects may be undertaken by administration or force account or by
negotiated contract only in exceptional cases where time is of the essence, or where there is lack of
qualified bidders or contractors, or where there is a conclusive evidence that greater economy and
efficiency would be achieved through this arrangement, and in accordance with provision of laws and acts
on the matter, subject to the approval of the Ministry of Public Works, Transportation and
Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be, if the
project cost is less than P1 Million, and of the President of the Philippines, upon the recommendation of
the Minister, if the project cost is P1 Million or more.

Precisely, the Board of Directors of the respondent did not see fit to approve the contract by negotiation after finding that the Pier 2

Project was basically for the construction of a pier while the supplemental agreement refers to reclamation. Thus, there is no basis to

compare the terms and conditions of the reclamation project with the original contract (Pier 2 Project) of Sargasso. So even

Page 10 of 43
granting arguendo that the Boards action or inaction is an explicit recognition of the authority of the general manager, the purported

contract cannot possibly be the basis of an action for specific performance because the negotiated contract itself basically contravenes

stringent legal requirements aimed at protecting the interest of the public. The bottom line here is that the facts do not conform to what

the law requires.

No wonder petitioner conveniently omitted any attempt at presenting its case within the statutory exceptions, and insisted that

respondents disapproval of the supplemental agreement was a mere afterthought perhaps realizing the infirmity of its excuse (referring

to petitioners belated pre-disqualification in the construction project). But the Court, at the very outset, has previously clarified that the

two projects involved herein are distinct from each other. Hence, petitioners disqualification in the construction project due to its lack

of certain requirements has no significant bearing in this case.

Lastly, petitioners invocation of the doctrine of apparent authority[36] is misplaced. This doctrine, in the realm of

government contracts, has been restated to mean that the government is NOT bound by unauthorized acts of its agents, even though

within the apparent scope of their authority.[37] Under the law on agency, however, apparent authority is defined as the power to affect

the legal relations of another person by transactions with third persons arising from the others manifestations to such third

person[38] such that the liability of the principal for the acts and contracts of his agent extends to those which are within the apparent

scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred. [39]

Apparent authority, or what is sometimes referred to as the holding out theory, or doctrine of ostensible agency, imposes

liability, not as the result of the reality of a contractual relationship, but rather because of the actions of a principal or an employer in

somehow misleading the public into believing that the relationship or the authority exists. [40] The existence of apparent authority may

be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in

other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular

nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. It requires

presentation of evidence of similar act(s) executed either in its favor or in favor of other parties.[41]

Easily discernible from the foregoing is that apparent authority is determined only by the acts of the principal and not by the

acts of the agent. The principal is, therefore, not responsible where the agents own conduct and statements have created the apparent

authority.[42]

In this case, not a single act of respondent, acting through its Board of Directors, was cited as having clothed its general

manager with apparent authority to execute the contract with it.

With the foregoing disquisition, the Court finds it unnecessary to discuss the other arguments posed by petitioner.

WHEREFORE, the petition is DENIED. SO ORDERED.

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 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 168539 March 25, 2014

PEOPLE OF THE PHILIPPINES, Petitioner,

vs.
HENRY T. GO, Respondent.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari assailing the Resolution 1 of the Third Division2 of the Sandiganbayan
(SB) dated June 2, 2005 which quashed the Information filed against herein respondent for alleged violation of Section 3
(g) of Republic Act No. 3019 (R.A. 3019), otherwise known as the Anti-Graft and Corrupt Practices Act.

The Information filed against respondent is an offshoot of this Court's Decision 3 in Agan, Jr. v. Philippine International Air
Terminals Co., Inc. which nullified the various contracts awarded by the Government, through the Department of
Transportation and Communications (DOTC), to Philippine Air Terminals, Co., Inc. (PIATCO) for the construction,
operation and maintenance of the Ninoy Aquino International Airport International Passenger Terminal III (NAIA IPT III).
Subsequent to the above Decision, a certain Ma. Cecilia L. Pesayco filed a complaint with the Office of the Ombudsman
against several individuals for alleged violation of R.A. 3019. Among those charged was herein respondent, who was then
the Chairman and President of PIATCO, for having supposedly conspired with then DOTC Secretary Arturo Enrile
(Secretary Enrile) in entering into a contract which is grossly and manifestly disadvantageous to the government.

On September 16, 2004, the Office of the Deputy Ombudsman for Luzon found probable cause to indict, among others,
herein respondent for violation of Section 3(g) of R.A. 3019. While there was likewise a finding of probable cause against
Secretary Enrile, he was no longer indicted because he died prior to the issuance of the resolution finding probable cause.

Thus, in an Information dated January 13, 2005, respondent was charged before the SB as follows:

On or about July 12, 1997, or sometime prior or subsequent thereto, in Pasay City, Metro Manila, Philippines and within
the jurisdiction of this Honorable Court, the late ARTURO ENRILE, then Secretary of the Department of Transportation
and Communications (DOTC), committing the offense in relation to his office and taking advantage of the same, in
conspiracy with accused, HENRY T. GO, Chairman and President of the Philippine International Air Terminals, Co., Inc.
(PIATCO), did then and there, willfully, unlawfully and criminally enter into a Concession Agreement, after the project for
the construction of the Ninoy Aquino International Airport International Passenger Terminal III (NAIA IPT III) was awarded
to Paircargo Consortium/PIATCO, which Concession Agreement substantially amended the draft Concession Agreement
covering the construction of the NAIA IPT III under Republic Act 6957, as amended by Republic Act 7718 (BOT law),
specifically the provision on Public Utility Revenues, as well as the assumption by the government of the liabilities of
PIATCO in the event of the latter's default under Article IV, Section 4.04 (b) and (c) in relation to Article 1.06 of the
Concession Agreement, which terms are more beneficial to PIATCO while manifestly and grossly disadvantageous to the
government of the Republic of the Philippines.4

The case was docketed as Criminal Case No. 28090.

On March 10, 2005, the SB issued an Order, to wit:

The prosecution is given a period of ten (10) days from today within which to show cause why this case should not be
dismissed for lack of jurisdiction over the person of the accused considering that the accused is a private person and the
public official Arturo Enrile, his alleged co-conspirator, is already deceased, and not an accused in this case. 5

The prosecution complied with the above Order contending that the SB has already acquired jurisdiction over the person
of respondent by reason of his voluntary appearance, when he filed a motion for consolidation and when he posted bail.
Page 12 of 43
The prosecution also argued that the SB has exclusive jurisdiction over respondent's case, even if he is a private person,
because he was alleged to have conspired with a public officer. 6

On April 28, 2005, respondent filed a Motion to Quash 7 the Information filed against him on the ground that the operative
facts adduced therein do not constitute an offense under Section 3(g) of R.A. 3019. Respondent, citing the show cause
order of the SB, also contended that, independently of the deceased Secretary Enrile, the public officer with whom he was
alleged to have conspired, respondent, who is not a public officer nor was capacitated by any official authority as a
government agent, may not be prosecuted for violation of Section 3(g) of R.A. 3019.

The prosecution filed its Opposition.8

On June 2, 2005, the SB issued its assailed Resolution, pertinent portions of which read thus:

Acting on the Motion to Quash filed by accused Henry T. Go dated April 22, 2005, and it appearing that Henry T. Go, the
lone accused in this case is a private person and his alleged co-conspirator-public official was already deceased long
before this case was filed in court, for lack of jurisdiction over the person of the accused, the Court grants the Motion to
Quash and the Information filed in this case is hereby ordered quashed and dismissed.9

Hence, the instant petition raising the following issues, to wit:

WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND DECIDED A QUESTION OF SUBSTANCE IN A
MANNER NOT IN ACCORD WITH LAW OR APPLICABLE JURISPRUDENCE IN GRANTING THE DEMURRER TO
EVIDENCE AND IN DISMISSING CRIMINAL CASE NO. 28090 ON THE GROUND THAT IT HAS NO JURISDICTION
OVER THE PERSON OF RESPONDENT GO.

II

WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND DECIDED A QUESTION OF SUBSTANCE IN A
MANNER NOT IN ACCORD WITH LAW OR APPLICABLE JURISPRUDENCE, IN RULING THAT IT HAS NO
JURISDICTION OVER THE PERSON OF RESPONDENT GO DESPITE THE IRREFUTABLE FACT THAT HE HAS
ALREADY POSTED BAIL FOR HIS PROVISIONAL LIBERTY

III

WHETHER OR NOT THE COURT A QUO GRAVELY ERRED WHEN, IN COMPLETE DISREGARD OF THE EQUAL
PROTECTION CLAUSE OF THE CONSTITUTION, IT QUASHED THE INFORMATION AND DISMISSED CRIMINAL
CASE NO. 2809010

The Court finds the petition meritorious.

Section 3 (g) of R.A. 3019 provides:

Sec. 3. Corrupt practices of public officers. – In addition to acts or omissions of public officers already penalized by
existing law, the following shall constitute corrupt practices of any public officer and are hereby declared to be unlawful:

xxxx

(g) Entering, on behalf of the Government, into any contract or transaction manifestly and grossly disadvantageous to the
same, whether or not the public officer profited or will profit thereby.

The elements of the above provision are:

(1) that the accused is a public officer;

(2) that he entered into a contract or transaction on behalf of the government; and
Page 13 of 43
 (3) that such contract or transaction is grossly and manifestly disadvantageous to the government. 11

At the outset, it bears to reiterate the settled rule that private persons, when acting in conspiracy with public officers, may
be indicted and, if found guilty, held liable for the pertinent offenses under Section 3 of R.A. 3019, in consonance with the
avowed policy of the anti-graft law to repress certain acts of public officers and private persons alike constituting graft or
corrupt practices act or which may lead thereto. 12 This is the controlling doctrine as enunciated by this Court in previous
cases, among which is a case involving herein private respondent. 13

The only question that needs to be settled in the present petition is whether herein respondent, a private person, may be
indicted for conspiracy in violating Section 3(g) of R.A. 3019 even if the public officer, with whom he was alleged to have
conspired, has died prior to the filing of the Information.

Respondent contends that by reason of the death of Secretary Enrile, there is no public officer who was charged in the
Information and, as such, prosecution against respondent may not prosper.

The Court is not persuaded.

It is true that by reason of Secretary Enrile's death, there is no longer any public officer with whom respondent can be
charged for violation of R.A. 3019. It does not mean, however, that the allegation of conspiracy between them can no
longer be proved or that their alleged conspiracy is already expunged. The only thing extinguished by the death of
Secretary Enrile is his criminal liability. His death did not extinguish the crime nor did it remove the basis of the charge of
conspiracy between him and private respondent. Stated differently, the death of Secretary Enrile does not mean that there
was no public officer who allegedly violated Section 3 (g) of R.A. 3019. In fact, the Office of the Deputy Ombudsman for
Luzon found probable cause to indict Secretary Enrile for infringement of Sections 3 (e) and (g) of R.A. 3019.14 Were it not
for his death, he should have been charged.

The requirement before a private person may be indicted for violation of Section 3(g) of R.A. 3019, among others, is that
such private person must be alleged to have acted in conspiracy with a public officer. The law, however, does not require
that such person must, in all instances, be indicted together with the public officer. If circumstances exist where the public
officer may no longer be charged in court, as in the present case where the public officer has already died, the private
person may be indicted alone.

Indeed, it is not necessary to join all alleged co-conspirators in an indictment for conspiracy. 15 If two or more persons
enter into a conspiracy, any act done by any of them pursuant to the agreement is, in contemplation of law, the act of
each of them and they are jointly responsible therefor. 16 This means that everything said, written or done by any of the
conspirators in execution or furtherance of the common purpose is deemed to have been said, done, or written by each of
them and it makes no difference whether the actual actor is alive or dead, sane or insane at the time of trial. 17 The death
of one of two or more conspirators does not prevent the conviction of the survivor or survivors. 18 Thus, this Court held
that:

x x x [a] conspiracy is in its nature a joint offense. One person cannot conspire alone. The crime depends upon the joint
act or intent of two or more persons. Yet, it does not follow that one person cannot be convicted of conspiracy. So long as
the acquittal or death of a co-conspirator does not remove the bases of a charge for conspiracy, one defendant may be
found guilty of the offense.19

The Court agrees with petitioner's contention that, as alleged in the Information filed against respondent, which is deemed
hypothetically admitted in the latter's Motion to Quash, he (respondent) conspired with Secretary Enrile in violating Section
3 (g) of R.A. 3019 and that in conspiracy, the act of one is the act of all. Hence, the criminal liability incurred by a co-
conspirator is also incurred by the other co-conspirators.

Moreover, the Court agrees with petitioner that the avowed policy of the State and the legislative intent to repress "acts of
public officers and private persons alike, which constitute graft or corrupt practices," 20 would be frustrated if the death of a
public officer would bar the prosecution of a private person who conspired with such public officer in violating the Anti-
Graft Law.

In this regard, this Court's disquisition in the early case of People v. Peralta 21 as to the nature of and the principles
governing conspiracy, as construed under Philippine jurisdiction, is instructive, to wit:

Page 14 of 43
x x x A conspiracy exists when two or more persons come to an agreement concerning the commission of a felony and
decide to commit it. Generally, conspiracy is not a crime except when the law specifically provides a penalty therefor as in
treason, rebellion and sedition. The crime of conspiracy known to the common law is not an indictable offense in the
Philippines. An agreement to commit a crime is a reprehensible act from the view-point of morality, but as long as the
conspirators do not perform overt acts in furtherance of their malevolent design, the sovereignty of the State is not
outraged and the tranquility of the public remains undisturbed.

However, when in resolute execution of a common scheme, a felony is committed by two or more malefactors, the
existence of a conspiracy assumes pivotal importance in the determination of the liability of the perpetrators. In stressing
the significance of conspiracy in criminal law, this Court in U.S. vs. Infante and Barreto opined that

While it is true that the penalties cannot be imposed for the mere act of conspiring to commit a crime unless the statute
specifically prescribes a penalty therefor, nevertheless the existence of a conspiracy to commit a crime is in many cases a
fact of vital importance, when considered together with the other evidence of record, in establishing the existence, of the
consummated crime and its commission by the conspirators.

Once an express or implied conspiracy is proved, all of the conspirators are liable as co-principals regardless of the extent
and character of their respective active participation in the commission of the crime or crimes perpetrated in furtherance of
the conspiracy because in contemplation of law the act of one is the act of all. The foregoing rule is anchored on the
sound principle that "when two or more persons unite to accomplish a criminal object, whether through the physical
volition of one, or all, proceeding severally or collectively, each individual whose evil will actively contributes to the wrong-
doing is in law responsible for the whole, the same as though performed by himself alone." Although it is axiomatic that no
one is liable for acts other than his own, "when two or more persons agree or conspire to commit a crime, each is
responsible for all the acts of the others, done in furtherance of the agreement or conspiracy." The imposition of collective
liability upon the conspirators is clearly explained in one case where this Court held that x x x it is impossible to graduate
the separate liability of each (conspirator) without taking into consideration the close and inseparable relation of each of
them with the criminal act, for the commission of which they all acted by common agreement x x x. The crime must
therefore in view of the solidarity of the act and intent which existed between the x x x accused, be regarded as the act of
the band or party created by them, and they are all equally responsible x x x

Verily, the moment it is established that the malefactors conspired and confederated in the commission of the felony
proved, collective liability of the accused conspirators attaches by reason of the conspiracy, and the court shall not
speculate nor even investigate as to the actual degree of participation of each of the perpetrators present at the scene of
the crime. Of course, as to any conspirator who was remote from the situs of aggression, he could be drawn within the
enveloping ambit of the conspiracy if it be proved that through his moral ascendancy over the rest of the conspirators the
latter were moved or impelled to carry out the conspiracy.

In fine, the convergence of the wills of the conspirators in the scheming and execution of the crime amply justifies the
imputation to all of them the act of any one of them. It is in this light that conspiracy is generally viewed not as a separate
indictable offense, but a rule for collectivizing criminal liability. x x x x

x x x A time-honored rule in the corpus of our jurisprudence is that once conspiracy is proved, all of the conspirators who
acted in furtherance of the common design are liable as co-principals. This rule of collective criminal liability emanates
from the ensnaring nature of conspiracy. The concerted action of the conspirators in consummating their common
purpose is a patent display of their evil partnership, and for the consequences of such criminal enterprise they must be
held solidarily liable.22

This is not to say, however, that private respondent should be found guilty of conspiring with Secretary Enrile. It is settled
that the absence or presence of conspiracy is factual in nature and involves evidentiary matters. 23 Hence, the allegation of
conspiracy against respondent is better left ventilated before the trial court during trial, where respondent can adduce
evidence to prove or disprove its presence.

Respondent claims in his Manifestation and Motion24 as well as in his Urgent Motion to Resolve 25 that in a different case,
he was likewise indicted before the SB for conspiracy with the late Secretary Enrile in violating the same Section 3 (g) of
R.A. 3019 by allegedly entering into another agreement (Side Agreement) which is separate from the Concession
Agreement subject of the present case. The case was docketed as Criminal Case No. 28091. Here, the SB, through a
Resolution, granted respondent's motion to quash the Information on the ground that the SB has no jurisdiction over the
person of respondent. The prosecution questioned the said SB Resolution before this Court via a petition for review on
certiorari. The petition was docketed as G.R. No. 168919. In a minute resolution dated August 31, 2005, this Court denied

Page 15 of 43
the petition finding no reversible error on the part of the SB. This Resolution became final and executory on January 11,
2006. Respondent now argues that this Court's resolution in G.R. No. 168919 should be applied in the instant case.

The Court does not agree. Respondent should be reminded that prior to this Court's ruling in G.R. No. 168919, he already
posted bail for his provisional liberty. In fact, he even filed a Motion for Consolidation 26 in Criminal Case No. 28091. The
Court agrees with petitioner's contention that private respondent's act of posting bail and filing his Motion for Consolidation
vests the SB with jurisdiction over his person. The rule is well settled that the act of an accused in posting bail or in filing
motions seeking affirmative relief is tantamount to submission of his person to the jurisdiction of the court. 27

Thus, it has been held that:

When a defendant in a criminal case is brought before a competent court by virtue of a warrant of arrest or otherwise, in
order to avoid the submission of his body to the jurisdiction of the court he must raise the question of the court’s
jurisdiction over his person at the very earliest opportunity. If he gives bail, demurs to the complaint or files any dilatory
plea or pleads to the merits, he thereby gives the court jurisdiction over his person. (State ex rel. John Brown vs.
Fitzgerald, 51 Minn., 534)

xxxx

As ruled in La Naval Drug vs. CA [236 SCRA 78, 86]:

"[L]ack of jurisdiction over the person of the defendant may be waived either expressly or impliedly. When a defendant
voluntarily appears, he is deemed to have submitted himself to the jurisdiction of the court. If he so wishes not to waive
this defense, he must do so seasonably by motion for the purpose of objecting to the jurisdiction of the court; otherwise,
he shall be deemed to have submitted himself to that jurisdiction."

Moreover, "[w]here the appearance is by motion for the purpose of objecting to the jurisdiction of the court over the
person, it must be for the sole and separate purpose of objecting to said jurisdiction. If the appearance is for any other
purpose, the defendant is deemed to have submitted himself to the jurisdiction of the court. Such an appearance gives the
court jurisdiction over the person."

Verily, petitioner’s participation in the proceedings before the Sandiganbayan was not confined to his opposition to the
issuance of a warrant of arrest but also covered other matters which called for respondent court’s exercise of its
jurisdiction. Petitioner may not be heard now to deny said court’s jurisdiction over him. x x x. 28

In the instant case, respondent did not make any special appearance to question the jurisdiction of the SB over his person
prior to his posting of bail and filing his Motion for Consolidation. In fact, his Motion to Quash the Information in Criminal
Case No. 28090 only came after the SB issued an Order requiring the prosecution to show cause why the case should not
be dismissed for lack of jurisdiction over his person.

As a recapitulation, it would not be amiss to point out that the instant case involves a contract entered into by public
officers representing the government. More importantly, the SB is a special criminal court which has exclusive original
jurisdiction in all cases involving violations of R.A. 3019 committed by certain public officers, as enumerated in P.D. 1606
as amended by R.A. 8249. This includes private individuals who are charged as co-principals, accomplices or accessories
with the said public officers. In the instant case, respondent is being charged for violation of Section 3(g) of R.A. 3019, in
conspiracy with then Secretary Enrile. Ideally, under the law, both respondent and Secretary Enrile should have been
charged before and tried jointly by the Sandiganbayan. However, by reason of the death of the latter, this can no longer
be done. Nonetheless, for reasons already discussed, it does not follow that the SB is already divested of its jurisdiction
over the person of and the case involving herein respondent. To rule otherwise would mean that the power of a court to
decide a case would no longer be based on the law defining its jurisdiction but on other factors, such as the death of one
of the alleged offenders. Lastly, the issues raised in the present petition involve matters which are mere incidents in the
main case and the main case has already been pending for over nine (9) years. Thus, a referral of the case to the
Regional Trial Court would further delay the resolution of the main case and it would, by no means, promote respondent's
right to a speedy trial and a speedy disposition of his case.

WHEREFORE, the petition is GRANTED. The Resolution of the Sandiganbayan dated June 2, 2005, granting
respondent's Motion to Quash, is hereby REVERSED and SET ASIDE. The Sandiganbayan is forthwith DIRECTED to
proceed with deliberate dispatch in the disposition of Criminal Case No. 28090. SO ORDERED.

Page 16 of 43
 SPECIAL THIRD DIVISION

March 18, 2015

G.R. No. 203655

SM LAND, INC., Petitioner,

vs.
BASES CONVERSION AND DEVELOPMENT AUTHORITY and ARNEL PACIANO D. CASANOVA, ESQ., in his
official capacity as President and CEO of BCDA, Respondents.

RESOLUTION

VELASCO, JR., J.:

For reconsideration is the Decision of this Court dat.ed August 13, 2014, which granted the petition for certiorari filed by
SM Land, Inc. (SMLI) and directed respondent Bases Conversion Development Authority (BCDA) and its president to,
among other things, subject SMLI's duly accepted unsolicited proposal for the development of the Bonifacio South
Property to a competitive challenge.

The gravamen of respondents' motion is that BCDA and SMLI do not have a contract that would bestow upon the latter
the right to demand that its unsolicited proposal be subjected to a competitive challenge. Assuming arguendothe
existence of such an agreement between the parties, respondents contend that the same may be terminated by reasons
of public interest.

We are not convinced.

There exists a valid agreement

between SMLI and BCDA

Article 1305 of the New Civil Code defines a contract as "a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service." It is a "juridical convention manifested in
legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to the
fulfilment of a prestation to give, to do, or not to do."1 The succeeding Article 1318 of the Code lays down the essential
requisites of a valid contract, to wit:

(1)Consent of the contracting parties;

(2)Object certain which is the subject matter of the contract; and

(3)Cause of the obligation which is established.

In the case at bar, there is, between BCDA and SMLI, a perfected contract––a source of rights and reciprocal obligations
on the part of both parties. Consequently, a breach thereof may give rise to a cause of action against the erring party.

The first requisite, consent, is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract.2 In the case at bar, when SMLI submitted the first Unsolicited Proposal to BCDA on
December 14, 2009, the submission constituted an offer to undertake the development of the subject property. BCDA
then entered into negotiations with SMLI until the BCDA finally accepted the terms of the final unsolicited
proposal.3 Their agreement was thereafter reduced into writing through the issuance of the Certification of Successful
Negotiations where the meeting of the parties’ minds was reflected in this wise:

NOW, THEREFORE, for and in consideration of the foregoing, BCDA and SMLI have, after successful
negotiations pursuant to Stage II of Annex C x x x, reached an agreement on the purpose, terms and conditions on the
JV development of the subject property, which shall become the terms for the Competitive Challenge pursuant to Annex C
of the JV Guidelines x x x.4 (emphasis ours)

Page 17 of 43
Then, to manifest their assent to the terms thereof and their respective obligations, both parties––BCDA and SMLI,
represented by Gen. Narciso L. Abaya and Ms. Ana Bess Pingol, respectively––affixed their signatures on the
Certification of Successful Negotiations and had it notarized on August 6, 2010.

Cause, on the other hand, is the essential reason which moves the parties to enter into the contract. It is the immediate,
direct and proximate reason which justifies the creation of an obligation through the will of the contracting
parties.5 Complementing this is Article 1350 of the New Civil Code which provides that "[i]n onerous contracts the cause is
understood to be, for each contracting party, the prestation or promise of a thing or service by the other." As such, the
cause of the agreement in the case at hand is their interest in the sale or acquisition and development of the property and
their undertaking to perform their respective obligations, among others, as reflected in the Certificate of Successful
Negotiations and in the Terms of Reference (TOR) issued by BCDA.

Lastly, object certain refers to the subject matter of the contract. It is the thing to be delivered or the service to be
performed.6 Here, when the BCDA Board issued, on August 6, 2010, the Certification of Successful Negotiations, 7 it not
only accepted SMLI’s Unsolicited Proposal and declared SMLI eligible to enter into the proposed JV activity. It also
"agreed to subject [SMLI]’s Original Proposal to Competitive Challenge pursuant to Annex C [of the NEDA JV
Guidelines], which competitive challenge process shall be immediately implemented following the [TOR] Volumes 1 and
2."8 Moreover, said Certification provides that "the BCDA shall, thus, commence the activities for the solicitation for
comparative proposals x x x starting on August 10, 2010, on which date [SMLI] shall post the required Proposal Security
x x x."9

The elements of a valid contract being present, there thus exists between SMLI and BCDA a perfected contract,
embodied in the Certification of Successful Negotiations, upon which certain rights and obligations spring forth,
including the commencement of activities for the solicitation for comparative proposals. Thus, as evinced in the
Certification of Successful Negotiation:

BCDA and SMLI have agreed to subject SMLI’s Original Proposal to Competitive Challenge pursuant to Annex C –
Detailed Guidelines for Competitive Challenge Procedure for Public-Private Joint Ventures of the NEDA JV guidelines,
which competitive challenge process shall be immediately implemented following the Terms of Reference (TOR) Volumes
1 and 2.10 x x x

This agreement is the law between the contracting parties with which they are required to comply in good faith.11Verily, it
is BCDA’s subsequent unilateral cancellation of this perfected contract which this Court deemed to have been tainted with
grave abuse of discretion. BCDA could not validly renege on its obligation to subject the unsolicited proposal to a
competitive challenge in view of this perfected contract, and especially so after BCDA gave its assurance that it would
respect the rights that accrued in SMLI’s favor arising from the same.12

The NEDA JV Guidelines has

the force and effect of law

Aside from the agreement between the parties, the ruling in favor of SMLI is likewise based on the NEDA JV Guidelines.
As mandated by the rules, the Joint Venture activity, upon the successful completion of the detailed negotiation phase,
shall be subjected to a competitive challenge.13 While it is not disputed that respondents failed to comply with the pertinent
provisions of the NEDA JV Guidelines, the dissent postulates that it is justifiable since it is a mere guideline and not law.14

We regretfully disagree.

Under the Administrative Code of 1987, 15 acts of the President providing for rules of a general or permanent character in
implementation or execution of constitutional or statutory powers shall be promulgated in Executive Orders (EOs).16 In
other words, it is through these orders that the President ensures that laws are faithfully executed, by handing out
instructions to subordinate executive officials and the public, in the form of implementing rules and regulations, on how the
law should be executed by subordinate officials and complied with by the public. 17

For government contracts and procurement in the Philippines, then President Gloria Macapagal-Arroyo, adopting the
recommendation of the NEDA, issued EO 10918 on May 27, 2002. As its title indicates, EO 109 streamlined the rules and
procedures on the review and approval of all contracts of departments, bureaus, offices and agencies of the government,
including government-owned and controlled corporations and their subsidiaries. This executive issuance was, however,
later amended by EO 109-A,19 to conform to RA 9184 which was enacted barely two months after the issuance of EO

Page 18 of 43
109.20 Two years later, or on April 30, 2005, EO 42321 was issued, repealing EO 109-A and simplifying the procurement
process. Section 4 of EO 423 was later amended by EO 645.22

Amidst the changes effected on procurement rules, the NEDA’s duty to issue a JV Guidelines under the said executive
orders remained unaffected.23 Through Section 5 of EO 109, Section 8 of EO 109-A and now Section 8 of EO 423, the
President effectively delegated her inherent executive power to issue rules and regulations on procurement to her
subordinate executive officials,24 her alter egos, the most recent of which reads in this wise:

Section 8. Joint Venture Agreements. The NEDA, in consultation with the GPPB, shall issue guidelines regarding joint
venture agreements with private entities with the objective of promoting transparency, competitiveness, and
accountability in government transactions, and, where applicable, complying with the requirements of an open and
competitive public bidding.

Pursuant to said repeated directives from no less than the Chief Executive, the NEDA issued the JV Guidelines providing
the procedures for the coagulation of joint ventures between the government and a private entity. In this regard, attention
must be drawn to the well-established rule that administrative issuances, such as the NEDA JV Guidelines, duly
promulgated pursuant to the rule-making power granted by statute, have the force and effect of law.25 As
elucidated in the August 13, 2014 Decision:

x x x Being an issuance in compliance with an executive edict, the NEDA JV Guidelines, therefore, has the same
binding effect as if it were issued by the President himself, who parenthetically is a member of NEDA. As such, no
agency or instrumentality covered by the JV Guidelines can validly deviate from the mandatory procedures set forth
therein, even if the other party acquiesced therewith or not.26

Articles III (4) and VIII (3) only refer to

Private Sector Entities (PSEs), effectively
excluding the Original Proponent

The dissent would next draw our attention to Article III (on General Information) and VIII (on Qualifications and Waivers) of
the TOR Volume 1, which read:

III. GENERAL INFORMATION

xxxx

4. Amendment of these TOR. The information and/or procedures contained in these TOR may be amended or replaced at
any time, at the discretion of the BCDA Board, without giving prior notice or providing for any reason. Should any of the
information and/or procedures contained in these TOR be amended or replaced, the JV-SC shall inform and send
Supplemental Notices to all PSEs x x x.27

xxxx

VIII. QUALIFICATIONS AND WAIVERS

3. BCDA further reserves the right to call off this disposition prior to acceptance of the proposal(s) and call for a new
disposition process under amended rules, and without any liability whatsoever to any or all of the PSEs, except the
obligation to return the Proposal Security. 28 (emphasis added)

On this point, it is well to emphasize that the TOR containing the said provisions details the requirements for
eligibility to qualify as a PSE that may submit its technical and financial proposals for the JV, and does not
encompass the entire Swiss Challenge procedure. This is bolstered by the provisions’ perfect consonance with the
procedure for Stage Three per Annex C of the Guidelines, thus:

3.The Private Sector Entity shall post the proposal security at the date of the first day of the publication of the invitation for
comparative proposals in the amount and form stated in the tender documents.

4.The procedure for the determination of eligibility of comparative proponents/private sector participants, issuance of
supplemental competitive selection bulletins and pre-selection conferences, submission and receipt of proposals, opening
Page 19 of 43
and evaluation of proposals shall follow the procedure stipulated under Annex A hereof. In the evaluation of proposals, the
best offer shall be determined to include the original proposal of the Private Sector Entity. If the Government Entity
determines that an offer made by a comparative private sector participant other than the Original Proponent is superior or
more advantageous to the government than the original proposal, the Private Sector Entity who submitted the original
proposal shall be given the right to match such superior or more advantageous offer within thirty (30) calendar days from
receipt of notification from the Government Entity of the results of the competitive selection. Should no matching offer be
received within the stated period, the JV activity shall be awarded to the comparative private sector participant submitting
the most advantageous proposal. If a matching offer is received within the prescribed period, the JV activity shall be
awarded to the Original Proponent. If no comparative proposal is received by the Government Entity, the JV activity shall
be immediately awarded to the original private sector proponent.

Pursuant to the above-quoted provisions from the NEDA JV Guidelines, the interested PSEs, in order to be able to
participate in the competitive challenge, must first post their respective proposal securities before submitting their
comparative proposals for evaluation and consideration. Consequently, per the reservation clause, should the government
entity (GE) decide to make material changes in the TORs issued, it must do so before it accepts the comparative
proposals from the interested PSEs. This deadline is intended to protect the participating PSEs from alterations in the
benchmarks set forth in the TOR after their proposals have already been seen and reviewed by the GE. Furthermore,
should modifications be validly made, such may affect the computation for the amount of the proposal security to be
posted by the comparative proponents,29 hence the need for the GE to return the PSEs’ proposal securities should it
decide to pre-terminate the competitive challenge.

As to SMLI’s proposal security, suffice it to state that it is not covered by the clauses––hence will not be returned even if
the competitive challenge is terminated––because SMLI cannot be considered as a PSE within the context of the
TOR and the JV Guidelines.

It must be emphasized that while an Original Proponent necessarily comes from the private sector, the term "Private
Sector Entity" has a definite meaning in the Swiss Challenge procedure. Under the TOR, a "Private Sector Entity"
means "the party/ies that shall have submitted proposals in compliance with the requirements specified in Article
V, Volume 1 of these TOR for the privatization and development of the property."30 On the other hand, under the
same document, an "Original Proponent" means "SMLI, whose unsolicited proposal for the development and
privatization of [the] subject Property through JV with BCDA has been accepted by the latter, subject to certain
conditions, and is now being subjected to a competitive challenge." 31

To be sure, the Original Proponent, as duly noted in the assailed Decision herein, is bestowed several rights under the JV
Guidelines, including the right to the conduct and completion of a competitive challenge and the right to match a superior
or more advantageous offer, among others. As such, it is clear that SMLI, being the Original Proponent, cannot be
considered as a Private Sector Entity to which the reservation clause applies.

Moreover, pertinent to our reading of the above-cited provisions in the TOR is Article 1373 of the Civil Code, which
provides that "[i]f some stipulation of any contract should admit of several meanings, it shall be understood as bearing that
import which is most adequate to render it effectual." For this purpose, an interpretation which renders every word
operative is preferred over that which makes some words idle and nugatory.

Applying the doctrine in the case at bar, a contrary reading––that the adverted provisions in the TOR entitle BCDA to
cancel the entire Swiss Challenge––would violate the NEDA JV Guidelines, which, as earlier explained, has the force and
effect of law. As elucidated in the main Decision:

A review of the outlined three-stage framework reveals that there are only two occasions where pre-termination of the
Swiss Challenge process is allowed: at Stage One, prior to acceptance of the unsolicited proposal; and at Stage Two,
should the detailed negotiations prove unsuccessful. In the Third Stage, the BCDA can no longer withdraw with impunity
from conducting the Competitive Challenge as it became ministerial for the agency to commence and complete the same.
Thus, acceding to the interpretation of the TOR offered by BCDA will, in effect, result not only in the alteration of
the agreement between the parties but also of the NEDA JV Guidelines itself, both of which has the force and
effect of law.

The interpretation offered by BCDA is, therefore, unacceptable. Between procedural guidelines promulgated by an agency
pursuant to its rule-making power and a condition unilaterally designed and imposed for the implementation of the same,
the former must prevail. BCDA does not wield any rule-making power such that it can validly alter or abandon a clear and
definite provision in the NEDA JV Guidelines under the guise of a condition under the TOR. As We have time and again

Page 20 of 43
harped, the ones duty-bound to ensure observance with laws and rules should not be the ones to depart therefrom. A
contrary rule would open the floodgates to abuses and anomalies more detrimental to public interest. For how can others
be expected to respect the rule of law if the very persons or entities tasked to administer laws and their implementing
rules and regulations are the first to violate them, blatantly or surreptitiously?

Estoppel can be invoked

against herein respondents

Respondents cannot plausibly shift the blame on what it perceived to be a bad bargain on the previous administration by
arguing that the latter was negligent in its actions or that it entered into questionable transactions, for as can be gleaned,
the negotiations and agreement between BCDA and SMLI was authorized by the BCDA’s Board through Resolution No.
2010- 05-100. Acting as a collegial body, the BCDA’s Board could still validly authorize its president to enter into
transactions over the protestation of some of its members through a democratic vote.

Respondents cannot also find solace in the general rule that the State is not barred by estoppel by the mistakes or errors
of its officials or agents. As jurisprudence elucidates, the doctrine is subject to exceptions, viz:

Estoppels against the public are little favored. They should not be invoked except [in rare] and unusual circumstances,
and may not be invoked where they would operate to defeat the effective operation of a policy adopted to protect the
public. They must be applied with circumspection and should be applied only in those special cases where the interests of
justice clearly require it. Nevertheless, the government must not be allowed to deal dishonorably or capriciously
with its citizens, and must not play an ignoble part or do a shabby thing; and subject to limitations . . ., the
doctrine of equitable estoppel may be invoked against public authorities as well as against private individuals.32 (emphasis
added)

Clearly, estoppel against the government can be invoked in this case. This is in view of the fact that despite BCDA’s
repeated assurances that it would respect SMLI’s rights as an original proponent, and after putting the latter to
considerable trouble and expense, BCDA went back on its word to comply with its obligations under their agreement and
instead ultimately cancelled the same. BCDA’s capriciousness becomes all the more evident in its conflicting statements
as regards whether or not SMLI’s proposal would be advantageous to the government. As enunciated in the assailed
Decision:

Noticeably, in its November 8, 2010 Memorandum, the BCDA posited that competitive challenge is more advantageous to
the government than straight bidding, to wit:

The price of the Bonifacio South properties has already been set by the winning price in the bidding for the joint venture
development of the JUSMAG property (P31,111/sq.m.).1âwphi1 Thus, BCDA has established the benchmark for the price
of the remaining Bonifacio South properties, of which the JUSMAG property is the most prime. Logically the minimum bid
price under straight bidding for the BNS/PMC/ASCOM/SSU property, which is a far less inferior property, would be
P31,111/sq.m. However, with SM’s submission of a revised unsolicited proposal at P31,732/sq.m. and later further
revised to P32,500/sq.m., BCDA saw the opportunity to negotiate for better terms and eventually arrived at a higher price
of P36,900/sq.m. In this case, BCDA deemed that going into Competitive Challenge was more advantageous to the
government than Competitive Selection (straight bidding) because of the opportunity to increase the price.

Furthermore, subjecting the price to subsequent price challenge will possibly drive up the price even higher than
P38,900/sq.m. These opportunities cannot be taken advantage of under a straight bidding where failure of bidding would
likely ensue if in case BCDA immediately sets the price of the property too high. The competition in the real estate
industry and as experienced by BCDA is such that the other developers will usually challenge the original proposal to "up
the ante" as they cannot allow the original proponent to get the property easily.

Despite this testament, the BCDA, over a year later, made a complete turnaround stating that straight bidding will be best
for the Government. As can be gleaned from the BCDA’s Memorandum to the President dated February 13, 2012,
respondents themselves recommended to the President that the selection proceedings be terminated. To reiterate:

In view of the foregoing, may we respectfully recommend the President’s approval for BCDA to terminate the proceedings
for the privatization and development of the BNS/PMC/ASCOM/SSU Properties in Bonifacio South through Competitive
Challenge and proceed with the bidding of the property.

Page 21 of 43
The BCDA offered no explanation to reconcile its opposing positions. It also neglected to inform SMLI of the provisions in
its proposal that it deemed disadvantageous to the government. x x x

Respondents harp on the alleged dubiousness of the proceeding that led to the perfection of the agreement, but to rule
now that irregularities marred the actions of BCDA’s board and officers, as respondents would have us believe, would be
tantamount to prematurely exposing its former officers to potential administrative liability without due process of law. If
respondent would insist on such argument, it could have at least shown that the proper disciplinary cases have been
initiated as evidence that BCDA reasonably believed that its previous officers indeed deviated from lawful procedure.

The perceived government

losses remain speculative

The alleged adverse economic impact on the government, in finding for SMLI, does not constitute, under the premises, a
valid cause for the reversal of the assailed Decision. To clarify, Our ruling did not award the project in petitioner’s favor but
merely ordered that SMLI’s proposal be subjected to a competitive challenge. Consequently, any alleged disadvantage
the government would suffer is speculative at most as there is no final award for the project as of yet.

Lest it be misunderstood, the perceived low floor price for the project, based on SMLI’s proposal, remains just
that––a floor price. There is, thus, an opportunity to increase the price, the government share as it were, through
competitive challenge, as respondents themselves previously observed. Such offers can even surpass the property’s
current market value and, in which case, constitute sufficient consideration for the project. Without first subjecting SMLI’s
proposal to a competitive challenge, no bid can yet be obtained from PSEs and, corollarily, no determination can be made
at present as to whether or not the final bid price for the project is, indeed, below the property’s fair market value.

Public bidding may generally be more preferred than a competitive challenge for reasons explained in the dissent.
However, there must be a careful balance between what is best for the government and what is fair to the persons it deals
with. Otherwise, any and all unsolicited proposal can be cancellable, despite its acceptance, by the mere allegation that
straight bidding is what public interest so requires. Worse, the government can very well ignore, at will, its contractual
obligations by invoking that familiar mantra––public interest.

To be sure, the government has not strayed from accepting suo moto proposals from private entities and subjecting said
proposals to a Swiss Challenge. In fact, the recent "Price Challenge" as regards Metro Pacific Investment Corporation’s
(MPIC’s) proposal for the expansion of the North Luzon Expressway as well as its integration with the Subic-Clark-Tarlac
Expressway was undertaken by none other than BCDA itself. 33 Thereafter, the BCDA board, in its February 4, 2015
meeting, adopted the result of the concluded Price Challenge, wherein no firm has tried to match MPIC’s proposal, and,
consequently, approved the notice of award in the company’s favor. 34 Curiously enough, if straight bidding is, indeed,
more beneficial, more transparent, and would yield a better offer for the government, then there is no reason for
respondents not to have cancelled the process instead of awarding the project to MPIC. Otherwise stated, if public
interest requires the conduct of a straight bidding instead of a Swiss Challenge, then MPIC can never rest easy, thinking
the contract it entered into with the government can be terminated at any time.

It is, thus, recognized that there are instances wherein·the agreement stemming from faithful negotiations of the parties
should be upheld, especially so when, as in this case, the alleged adverse effects on the

remain government speculative at best. Respondents should, therefore, honor its commitment with petitioner, not as a
message conveying the coddling of PSEs, and not only pursuant to its contractual and legal obligations under the TOR
and the NEDA JV Guidelines, but also as a balancing mechanism between the tangible benefits the government stands to
reap in terms of contract consideration, and its intangible benefits including improved public confidence in the government
in terms of ease of doing business with. Moreover, and guilty of reiteration, it is worth emphasizing that SMLI's offer,
which was duly accepted by the BCDA, only serves as the floor price and does not foreclose better offers that
can even surpass the property's current market value. This being said, the government is not without protection for it
is not precluded from availing of safeguards and remedies it is entitled to after soliciting comparative proposals, as
provided under the TOR and the NEDA JV Guidelines.

WHEREFORE, in view of the foregoing, the Court's August 13, 2014 Decision is hereby AFFIRMED. Respondents'
Motion for Reconsideration is accordingly DENIED with FINALITY.

No further pleadings, motions, letters or other communications shall be entertained in this case. Let entry of judgment be
issued. SO ORDERED.
Page 22 of 43
 Republic of the Philippines

Supreme Court
Manila

EN BANC

ARCHBISHOP FERNANDO R. CAPALLA, OMAR G.R. No. 201112

SOLITARIO ALI and MARY ANNE L. SUSANO,
Petitioners,
- versus -

THE HONORABLE COMMISSION ON ELECTIONS,

Respondent.
x--------------------------------------------x

SOLIDARITY FOR SOVEREIGNTY (S4S), represented by Ma.

Linda Olaguer; RAMON PEDROSA, BENJAMIN PAULINO
SR., EVELYN CORONEL, MA. LINDA OLAGUER
MONTAYRE, and NELSON T. MONTAYRE, G.R. No. 201121
Petitioners,

- versus -

COMMISSION ON ELECTIONS, represented by its Chairman,

Commissioner SIXTO S. BRILLANTES, JR.,
Respondent.
x--------------------------------------------x

TEOFISTO T. GUINGONA, BISHOP BRODERICK S.

PABILLO, SOLITA COLLAS MONSOD, MARIA CORAZON
MENDOZA ACOL, FR. JOSE DIZON, NELSON JAVA CELIS,
PABLO R. MANALASTAS, GEORGINA R. ENCANTO and
ANNA LEAH E. COLINA,
Petitioners,
- versus -

COMMISSION ON ELECTIONS and SMARTMATIC TIM G.R. No. 201127

CORPORATION,
Respondents.
x--------------------------------------------x
TANGGULANG DEMOKRASYA (TAN DEM), INC., EVELYN
L. KILAYKO, TERESITA D. BALTAZAR, PILAR L.
CALDERON and ELITA T. MONTILLA,
Petitioners,

- versus -

COMMISSION ON ELECTIONS and SMARTMATIC-TIM G.R. No. 201413

Corporation,
Respondents. Promulgated:

June 13, 2012

x----------------------------------------------------------------------------------------x

Page 23 of 43
 DECISION

PERALTA, J.:

Pursuant to its authority to use an Automated Election System (AES) under Republic Act (RA) No. 8436, as amended by RA No.

9369, or the Automation Law and in accordance with RA No. 9184, otherwise known as the Government Procurement Reform Act,

the Commission on Elections (Comelec) posted and published an invitation to apply for eligibility and to bid for the 2010 Poll

Automation Project[1] (the Project). On March 18, 2009, the Comelec approved and issued a Request for Proposal [2] (RFP) for the

Project consisting of the following components:

Component 1: Paper-Based Automation Election System (AES)

1-A. Election Management System (EMS)

1-B. Precinct Count Optical Scan (PCOS) System
1-C. Consolidation/Canvassing System (CCS)

Component 2: Provision for Electronic Transmission of Election Results using Public Telecommunications Network

Component 3: Overall Project Management[3]

On June 9, 2009, the Comelec issued Resolution No. 8608 awarding the contract for the Project to respondent Smartmatic-

TIM.[4] On July 10, 2009, the Comelec and Smartmatic-TIM entered into a Contract for the Provision of an Automated Election

System for the May 10, 2010 Synchronized National and Local Elections,[5] (AES Contract, for brevity). The contract between the

Comelec and Smartmatic-TIM was one of lease of the AES with option to purchase (OTP) the goods listed in the contract. In said

contract, the Comelec was given until December 31, 2010 within which to exercise the option.

On September 23, 2010, the Comelec partially exercised its OTP 920 units of PCOS machines with corresponding

canvassing/consolidation system (CCS) for the special elections in certain areas in the provinces of Basilan, Lanao del Sur and

Bulacan.[6] In a letter[7] dated December 18, 2010, Smartmatic-TIM, through its Chairman Cesar Flores (Flores), proposed a temporary

extension of the option period on the remaining 81,280 PCOS machines until March 31, 2011, waiving the storage costs and covering

the maintenance costs. The Comelec did not exercise the option within the extended period. Several extensions were given for the

Comelec to exercise the OTP until its final extension on March 31, 2012.

On March 6, 2012, the Comelec issued Resolution No. 9373 [8] resolving to seriously consider exercising the OTP subject to

certain conditions. On March 21, 2012, the Comelec issued Resolution No. 9376 [9] resolving to exercise the OTP the PCOS and CCS

hardware and software in accordance with the AES contract between the Comelec and Smartmatic-TIM in connection with the May
Page 24 of 43
10, 2010 elections subject to the following conditions: (1) the warranties agreed upon in the AES contract shall be in full force and

effect; (2) the original price for the hardware and software covered by the OTP as specified in the AES contract shall be maintained,

excluding the cost of the 920 units of PCOS and related peripherals previously purchased for use in the 2010 special elections; and (3)

all other services related to the 2013 AES shall be subject to public bidding. On March 29, 2012, the Comelec issued Resolution No.

9377[10] resolving to accept Smartmatic-TIMs offer to extend the period to exercise the OTP until March 31, 2012 and to authorize

Chairman Brillantes to sign for and on behalf of the Comelec the Agreement on the Extension of the OTP Under the AES

Contract[11] (Extension Agreement, for brevity). The aforesaid Extension Agreement was signed on March 30, 2012. [12] On even date,

the Comelec issued Resolution No. 9378[13] resolving to approve the Deed of Sale between the Comelec and Smartmatic-TIM to

purchase the latters PCOS machines (hardware and software) to be used in the upcoming May 2013 elections and to authorize

Chairman Brillantes to sign the Deed of Sale for and on behalf of the Comelec. The Deed of Sale [14] was forthwith executed.

Claiming that the foregoing issuances of the Comelec, as well as the transactions entered pursuant thereto, are illegal and

unconstitutional, petitioners come before the Court in four separate Petitions for Certiorari, Prohibition, and Mandamus imputing

grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Comelec in issuing the assailed Resolutions and

in executing the assailed Extension Agreement and Deed.

G.R. No. 201112

In G.R. No. 201112, petitioners Archbishop Fernando R. Capalla, Omar Solitario Ali and Mary Anne L. Susano pray that a

Temporary Restraining Order (TRO) be issued enjoining the Comelec from purchasing the PCOS machines until after final judgment

of the instant case; a writ of prohibition be issued against the Comelec for the purchase of these defective PCOS machines; a writ of

mandamus be issued compelling the Comelec to conduct the necessary bidding for the equipment and facilities which shall be used for

the 2013 National and Local Elections; and to declare Comelec Resolution Nos. 9376, 9377, and 9378, on the purchase of PCOS

machines, null and void.

Petitioners argue that if there is a necessity to purchase the PCOS machines, the Comelec should follow RA 9184 requiring

competitive public bidding. They likewise argue that the OTP clause embodied in the contract with Smartmatic-TIM should be

rendered invalid not only because the OTP has already lapsed but because of the fact that the OTP clause is a circumvention of the

explicit provisions of RA 9184. Petitioners add that the current PCOS machines do not meet the rigorous requirements of RA 9369

that the system procured must have demonstrated capability and should have been successfully used in a prior electoral exercise here

or abroad. Petitioners submit that there are intrinsic technical infirmities as regards the PCOS machines used during the 2010 elections

Page 25 of 43
which rendered it incapable for future use. Lastly, petitioners claim that the Comelec does not have the capability to purchase and

maintain the PCOS machines, because of lack of trained manpower and technical expertise to properly maintain the PCOS machines;

thus, the purchase is unfavorable to the general public.

G.R. No. 201121

In G.R. No. 201121, petitioners Solidarity for Sovereignty (S4S), represented by Ma. Linda Olaguer, Ramon Pedrosa, Benjamin

Paulino, Sr., Evelyn Coronel, Ma. Linda Olaguer Montayre and Nelson T. Montayre, pray that a TRO be issued directing the Comelec

to desist from implementing the contract; that Resolution No. 9376 be declared unconstitutional and all acts made pursuant thereto,

including the purchase of the PCOS machines unlawful and void; that an Injunction be issued prohibiting the Comelec from further

pursuing any act pursuant to Resolution No. 9376.[15]

Petitioners argue that the Comelecs act of exercising its OTP the PCOS machines from Smartmatic-TIM after the period had

already lapsed is illegal and unlawful.[16] They explain that the period within which the Comelec may exercise the OTP could last only

until December 31, 2010 without extension as provided in the Comelecs bid bulletin.[17] They further assert that the Comelecs

acceptance of Smartmatic-TIMs unilateral extension of the option period constitutes substantial amendment to the AES contract

giving undue benefit to the winning bidder not available to the other bidders. [18] Petitioners also contend that the Comelecs decision to

purchase and use the PCOS machines is unconstitutional, as it allows the Comelec to abrogate its constitutional duty to safeguard the

election process by subcontracting the same to an independent provider (Smartmatic-TIM), who controls the software that safeguards

the entire election process. The purchase of the PCOS machines for use in the May 2013 elections would be tantamount to a complete

surrender and abdication of the Comelecs constitutional mandate in favor of Smartmatic-TIM. The control of the software and process

verification systems places the Comelec at the end of the process as it merely receives the report of Smartmatic-TIM. This, according

to petitioners, amounts to a direct transgression of the exclusive mandate of the Comelec completely to take charge of the enforcement

and administration of the conduct of elections. [19] Lastly, petitioners aver that the Comelecs act of deliberately ignoring the palpable

infirmities and defects of the PCOS machines, as duly confirmed by forensic experts, is in violation of Section 2, Article V of the

Constitution, as it fails to safeguard the integrity of the votes. They went on by saying that the subject PCOS machines lack security

features which can guaranty the secrecy and sanctity of our votes in direct contravention of RA 9369 which requires that the

automated election system must at least possess an adequate security feature against unauthorized access. In deciding to purchase the

PCOS machines despite the above-enumerated defects, the Comelecs decision are claimed to be unconstitutional. [20]

G.R. No. 201127

Page 26 of 43
In G.R. No. 201127, petitioners Teofisto Guingona, Bishop Broderick S. Pabillo, Solita Collas Monsod, Maria Corazon Mendoza

Acol, Fr. Jose Dizon, Nelson Java Celis, Pablo R. Manalastas, Georgina R. Encanto and Anna Leah E. Colina pray that the Court issue

a TRO enjoining and restraining respondents Comelec and Smartmatic-TIM from implementing Comelec Resolution No. 9376 and

the Deed of Sale for the acquisition and purchase of the PCOS machines and related equipment; issue writ of preliminary injunction;

declare Comelec Resolution No. 9376 void and unconstitutional and annul the Deed of Sale; and direct the Comelec to conduct public

bidding soonest for the automated election system to be used for the 2013 elections. [21]

Petitioners fault the Comelec in totally disregarding the recommendation of the Comelec Advisory Council (CAC) not to

exercise the OTP. They point out that in its Resolution No. 2012-2003, the CAC resolved to recommend that the Comelec should exert

all efforts to procure the necessary AES only through public bidding. The CAC likewise allegedly recommended that the OTP should

not be exercised if as a consequence, the rest of the system must come from the same vendor as the Comelec would lose the

opportunity to look for better technology; would prevent the Comelec from taking advantage of the best possible technology available;

would prevent other prospective vendors from competitively participating in the bidding process; and may erode the public trust and

confidence in the electoral process. In its report to the Congressional Oversight Committee after the 2010 elections, the CAC

supposedly concluded that the Comelec does not need to use the same PCOS machines and that the Comelec would be better off not

exercising the OTP the PCOS machines so it can look for an even better solution for the May 2013 elections. [22]Like the other

petitioners, it is their position that Comelec Resolution No. 9376 is totally null and void having been issued in violation of the express

provisions of RA 9184 and the AES contract. According to petitioners, the Comelec itself provided in its bid bulletins for a fixed and

determinate period, and such period ended on December 31, 2010.Thus, Smartmatic-TIM could not have unilaterally extended the

option period and the Comelec could not have also given its consent to the extension. In extending the option period, it is tantamount

to giving the winning bidder a benefit that was not known and available to all bidders during the bidding of the 2010 AES, which is a

clear violation of the bidding rules and the equal protection clause of the Constitution.[23] Considering that the option period already

expired, the purchase of the PCOS machines requires competitive public bidding. Lastly, petitioners claim that the Comelec

committed grave abuse of discretion in opting to buy the PCOS machines and allied paraphernalia of Smartmatic-TIM for the 2013

elections, despite incontrovertible findings of the glitches, malfunctions, bugs, and defects of the same. [24]

G.R. No. 201418

In G.R. No. 201418, petitioners Tanggulang Demokrasya (Tan Dem), Inc., Evelyn L. Kilayko, Teresita D. Baltazar, Pilar L.

Calderon and Elita T. Montilla pray that the Court annul Resolution No. 9376 and the March 30, 2012 Deed of Sale, and prohibit the

Page 27 of 43
Comelec and Smartmatic-TIM from implementing the same; and declare said Resolution and Deed of Sale invalid for having been

issued and executed by the Comelec with grave abuse of discretion and for violating the provisions of R.A. 9184. [25]

Petitioners claim that the Comelec committed grave abuse of discretion amounting to lack or excess of jurisdiction in

contracting for the purchase of AES goods and services from Smartmatic-TIM in spite of the below par performance of the latters

PCOS machines, CCS and other software and hardware in the May 2010 elections and non-compliance with the minimum functional

capabilities required by law.[26] They echo the other petitioners contention that the Comelecs decision to buy the CCS, PCOS

machines, software and hardware of Smartmatic violates RA 9184s requirement of a prior competitive public bidding. Since the

Comelec is bent on pursuing the purchase of the subject goods, which is an entirely new procurement, petitioners contend that there

must be a public bidding. They argue that there is enough time to conduct public bidding for the 2013 elections, considering that for

the May 2010 elections, the Comelec only had 10 months and they were able to conduct the public bidding. Petitioners are of the view

that there is no more OTP to speak of, because the option period already lapsed and could not be revived by the unilateral act of one of

the contracting parties.[27]

On April 24, 2012, the Court issued a TRO enjoining the implementation of the assailed contract of sale. The consolidated

cases were later set for Oral Arguments on the following issues:

I. Whether or not the Commission on Elections may validly accept the extension of time unilaterally
given by Smartmatic-TIM Corporation within which to exercise the option to purchase under Article 4 of the
Contract for the Provision of an Automated Election System for the May 2010 Synchronized National and Local
Elections; and

II. Whether or not the acceptance of the extension and the issuance of Comelec En Banc Resolution No.
9376 violate Republic Act No. 9184 or the Government Procurement Reform Act and its Implementing Rules, and
Republic Act No. 9369 or the Automated Election Systems Act.

The parties were, thereafter, required to submit their Memoranda.

The petitions are without merit.

Simply stated, petitioners assail the validity and constitutionality of the Comelec Resolutions for the purchase of the subject

PCOS machines as well as the Extension Agreement and the Deed of Sale covering said goods mainly on three grounds: (1) the option

period provided for in the AES contract between the Comelec and Smartmatic-TIM had already lapsed and, thus, could no longer be

extended, such extension being prohibited by the contract; (2) the extension of the option period and the exercise of the option without

competitive public bidding contravene the provisions of RA 9184; and, (3) despite the palpable infirmities and defects of the PCOS

machines, the Comelec purchased the same in contravention of the standards laid down in RA 9369.

Page 28 of 43
For its part, the Comelec defends the validity and constitutionality of its decision to purchase the subject PCOS machines, pursuant to

the OTP under the AES contract with Smartmatic-TIM, on the following grounds: (1) Article 6.6 of the AES contract which states the

option period was amended by the extension agreement; (2) the exercise of the OTP is not covered by RA 9184, because it is merely

an implementation of a previously bidded contract; (3) taking into account the funds available for the purpose, exercising the OTP was

the prudent choice for the Comelec and is more advantageous to the government; and (4) the exercise of the OTP is consistent with the

technical requirements of RA 9369.

Stated in another way, Smartmatic-TIM insists on the validity of the subject transaction based on the following grounds: (1)

there is no prohibition either in the contract or provision of law for it to extend the option period; rather, the contract itself allows the

parties to amend the same; (2) the OTP is not an independent contract in itself, but is a provision contained in the valid and existing

AES contract that had already satisfied the public bidding requirements of RA 9184; (3) exercising the option was the most

advantageous option of the Comelec; and (4) Smartmatic-TIM has an established track record in providing effective and accurate

electoral solutions and its satisfactory performance has been proven during the 2010 elections. The alleged glitches in the May 2010

elections, if at all, are not attributable to the PCOS machines.

We agree with respondents.

At the outset, we brush aside the procedural barriers (i.e., locus standi of petitioners and the non-observance of the hierarchy of courts)

that supposedly prevent the Court from entertaining the consolidated petitions. As we held in Guingona, Jr. v. Commission on

Elections:[28]

There can be no doubt that the coming 10 May 2010 [in this case, May 2013] elections is a matter of great public
concern. On election day, the country's registered voters will come out to exercise the sacred right of suffrage. Not
only is it an exercise that ensures the preservation of our democracy, the coming elections also embodies our
people's last ounce of hope for a better future. It is the final opportunity, patiently awaited by our people, for the
peaceful transition of power to the next chosen leaders of our country. If there is anything capable of directly
affecting the lives of ordinary Filipinos so as to come within the ambit of a public concern, it is the coming
elections, more so with the alarming turn of events that continue to unfold. The wanton wastage of public funds
brought about by one bungled contract after another, in staggering amounts, is in itself a matter of grave public
concern.[29]

Thus, in view of the compelling significance and transcending public importance of the issues raised by petitioners, the technicalities

raised by respondents should not be allowed to stand in the way, if the ends of justice would not be subserved by a rigid adherence to

the rules of procedure.[30]

Page 29 of 43
 Now on the substantive issues. In order to achieve the modernization program of the Philippine Electoral System, which

includes the automation of the counting, transmission and canvassing of votes for the May 2010 national and local elections with

systems integration and over-all project management in a comprehensive and well-managed manner,[31] the Comelec entered into an

AES contract with Smartmatic-TIM for the lease of goods and purchase of services under the contract, with option to purchase the

goods.

The option contract between the Comelec and Smartmatic-TIM is embodied in Article 4.3 of the AES contract to wit:

Article 4
Contract Fee and Payment

xxxx

4.3. OPTION TO PURCHASE

In the event the COMELEC exercises its option to purchase the Goods as listed in Annex L, COMELEC shall pay
the PROVIDER an additional amount of Two Billion One Hundred Thirty Million Six Hundred Thirty- Five
Thousand Forty-Eight Pesos and Fifteen Centavos (Php2,130,635,048.15) as contained in the Financial Proposal of
the joint venture partners Smartmatic and TIM.

In case COMELEC should exercise its option to purchase, a warranty shall be required in order to assure that: (a)
manufacturing defects shall be corrected; and/or (b) replacements shall be made by the PROVIDER, for a minimum
period of three (3) months, in the case of supplies, and one (1) year, in the case of equipment, after performance of
this Contract. The obligation for the warranty shall be covered by retention money of ten percent (10%) of every
option to purchase payment made.

The retention money will be returned within five (5) working days after the expiration of the above warranty,
provided, however, that the goods supplied are in good operating condition free from patent and latent defects, all
the conditions imposed under the purchase contract have been fully met, and any defective machines, except to those
attributable to the COMELEC, have been either repaired at no additional charge or replaced or deducted from the
price under the Option to Purchase.[32]

Article 6.6 thereof, in turn provides for the period within which the Comelec could exercise the option, thus:

Article 6
COMELECs Responsibilities

xxxx

6.6. COMELEC shall notify the PROVIDER on or before 31 December 2010 of its option to purchase the Goods as
listed in Annex L.[33]

The Comelec did not exercise the option within the period stated in the above provision. Smartmatic, however, unilaterally extended

the same until its final extension on March 31, 2012. The Comelec, thereafter, accepted the option and eventually executed a Deed of

Sale involving said goods. Now, petitioners come before the Court assailing the validity of the extension, the exercise of the option

and the Deed of Sale. In light of the AES contract, can Smartmatic-TIM unilaterally extend the option period? Can the Comelec

accept the extension?

Page 30 of 43
We answer in the affirmative.

It is a basic rule in the interpretation of contracts that an instrument must be construed so as to give effect to all the provisions of the

contract.[34] In essence, the contract must be read and taken as a whole.[35] While the contract indeed specifically required the Comelec

to notify Smartmatic-TIM of its OTP the subject goods until December 31, 2010, a reading of the other provisions of the AES contract

would show that the parties are given the right to amend the contract which may include the period within which to exercise the

option. There is, likewise, no prohibition on the extension of the period, provided that the contract is still effective.

Article 2 of the AES contract lays down the effectivity of the contract, viz.:
Article 2
EFFECTIVITY

2.1. This Contract shall take effect upon the fulfillment of all of the following conditions:

(a) Submission by the PROVIDER of the Performance Security;

(b) Signing of this Contract in seven (7) copies by the parties; and
(c) Receipt by the PROVIDER of the Notice to Proceed.

2.2. The Term of this Contract begins from the date of effectivity until the release of the Performance Security,
without prejudice to the surviving provisions of this Contract, including the warranty provision as prescribed in
Article 8.3 and the period of the option to purchase (Emphasis supplied).[36]

Obviously, the contract took effect even prior to the 2010 elections. The only question now is whether its existence already ceased.

Pursuant to the above-quoted provision, it is important to determine whether or not the performance security had already been released

to Smartmatic-TIM. In Article 8 of the AES contract, performance security was defined and the rules in releasing said security were

laid down, to wit:

Article 8
Performance Security and Warranty

8.1. Within three (3) days from receipt by the PROVIDER of the formal Notice of Award from COMELEC, the
PROVIDER shall furnish COMELEC with a Performance Security in an amount equivalent to five percent (5%) of
the Contract Amount; which Performance Security as of this date has been duly received by COMELEC.

Within seven (7) days from delivery by the PROVIDER to COMELEC of the Over-all Project Management Report
after successful conduct of the May 10, 2010 elections, COMELEC shall release to the PROVIDER the above-
mentioned Performance Security without need of demand. [37]

Smartmatic-TIM categorically stated in its Consolidated Comment to the petitions that the Comelec still retains P50M of the amount

due Smartmatic-TIM as performance security.[38] In short, the performance security had not yet been released to Smartmatic-TIM

which indicates that the AES contract is still effective and not yet terminated. Consequently, pursuant to Article 19 [39] of the contract,

the provisions thereof may still be amended by mutual agreement of the parties provided said amendment is in writing and signed by

Page 31 of 43
the parties. In light of the provisions of the AES contract, there is, therefore, nothing wrong with the execution of the Extension

Agreement.

Considering, however, that the AES contract is not an ordinary contract as it involves procurement by a government agency, the rights

and obligations of the parties are governed not only by the Civil Code but also by RA 9184. In this jurisdiction, public bidding is the

established procedure in the grant of government contracts. The award of public contracts, through public bidding, is a matter of

public policy.[40] The parties are, therefore, not at full liberty to amend or modify the provisions of the contract bidded upon.

The three principles of public bidding are: (1) the offer to the public; (2) an opportunity for competition; and (3) a basis for the exact

comparison of bids.[41] By its very nature, public bidding aims to protect public interest by giving the public the best possible

advantages through open competition.[42] Competition requires not only bidding upon a common standard, a common basis, upon the

same thing, the same subject matter, and the same undertaking, but also that it be legitimate, fair and honest and not designed to injure

or defraud the government.[43] The essence of competition in public bidding is that the bidders are placed on equal footing which

means that all qualified bidders have an equal chance of winning the auction through their bids. [44] Another self-evident purpose of

public bidding is to avoid or preclude suspicion of favoritism and anomalies in the execution of public contracts. [45]

A winning bidder is not precluded from modifying or amending certain provisions of the contract bidded upon. However, such

changes must not constitute substantial or material amendments that would alter the basic parameters of the contract and would

constitute a denial to the other bidders of the opportunity to bid on the same terms. [46] The determination of whether or not

a modification or amendment of a contract bidded out constitutes a substantial amendment rests on whether the contract, when taken

as a whole, would contain substantially different terms and conditions that would have the effect of altering the technical and/or

financial proposals previously submitted by the other bidders. The modifications in the contract executed between the government and

the winning bidder must be such as to render the executed contract to be an entirely different contract from the one bidded upon.[47]

Public bidding aims to secure for the government the lowest possible price under the most favorable terms and conditions, to

curtail favoritism in the award of government contracts and avoid suspicion of anomalies, and it places all bidders in equal footing.

Any government action which permits any substantial variance between the conditions under which the bids are invited and the

contract executed after the award thereof is a grave abuse of discretion amounting to lack or excess of jurisdiction which warrants

proper judicial action.[48] If this flawed process would be allowed, public bidding will cease to be competitive, and worse, government

would not be favored with the best bid. Bidders will no longer bid on the basis of the prescribed terms and conditions in the bid

documents but will formulate their bid in anticipation of the execution of a future contract containing new and better terms and

conditions that were not previously available at the time of the bidding. Such a public bidding will not inure to the public good.[49]

Page 32 of 43
 In Power Sector Assets and Liabilities Management Corporation (PSALM) v. Pozzolanic Philippines Incorporated,[50] the

Court nullified the right of first refusal granted to respondent therein in the Batangas Contract for being contrary to public policy. The

Court explained that the same violated the requirement of competitive public bidding in the government contract, because the grant of

the right of first refusal did not only substantially amend the terms of the contract bidded upon so that resultantly the other bidders

thereto were deprived of the terms and opportunities granted to respondent therein after it won the public auction, but also altered the

bid terms by effectively barring any and all true bidding in the future. [51]

Also in Agan, Jr. v. Philippine International Air Terminals Co., Inc., (PIATCO),[52] this Court declared as null and void, for

being contrary to public policy, the Concession Agreement entered into by the government with PIATCO, because it contained

provisions that substantially departed from the Draft Concession Agreement included in the bid documents. The Court considered the

subject contracts a mockery of the bidding process, because they were substantially amended after their award to the successful bidder

on terms more beneficial to PIATCO and prejudicial to public interest. [53]

The same conclusions cannot be applied in the present case.

One. Smartmatic-TIM was not granted additional right that was not previously available to the other bidders.Admittedly, the AES

contract was awarded to Smartmatic-TIM after compliance with all the requirements of a competitive public bidding. The RFP, Bid

Bulletins and the AES contract identified the contract as one of lease with option to purchase. The AES contract is primarily a contract

of lease of goods[54] listed in the contract and purchase of services[55] also stated in the contract. Section 4.3 thereof gives the Comelec

the OTP the goods agreed upon. The same provision states the conditions in exercising the option, including the additional amount

that the Comelec is required to pay should it exercise such right. It is, therefore, undisputed that this grant of option is recognized by

both parties and is already a part of the principal contract of lease. Having been included in the RFP and the bid bulletins, this right

given to the Comelec to exercise the option was known to all the bidders and was considered in preparing their bids. The bidders were

apprised that aside from the lease of goods and purchase of services, their proposals should include an OTP the subject goods.

Although the AES contract was amended after the award of the contract to Smartmatic-TIM, the amendment only pertains to the

period within which the Comelec could exercise the option because of its failure to exercise the same prior to the deadline originally

agreed upon by the parties. Unlike in PSALM, wherein the winning bidder was given the right of first refusal which substantially

amended the terms of the contract bidded upon, thereby depriving the other bidders of the terms and opportunities granted to winning

bidder after it won the public auction; and in Agan, Jr., wherein the Concession Agreement entered into by the government with

PIATCO contained provisions that substantially departed from the draft Concession Agreement included in the bid documents; the

option contract in this case was already a part of the original contract and not given only after Smartmatic-TIM emerged as winner.

Page 33 of 43
The OTP was actually a requirement by the Comelec when the contract of lease was bidded upon. To be sure, the Extension

Agreement does not contain a provision favorable to Smartmatic-TIM not previously made available to the other bidders.

Two. The amendment of the AES contract is not substantial. The approved budget for the contract was P11,223,618,400.00[56] charged

against the supplemental appropriations for election modernization. Bids were, therefore, accepted provided that they did not exceed

said amount. After the competitive public bidding, Smartmatic-TIM emerged as winner and the AES contract was thereafter executed.

As repeatedly stated above, the AES contract is a contract of lease with OTP giving the Comelec the right to purchase the goods

agreed upon if it decides to do so. The AES contract not only indicated the contract price for the lease of goods and purchase of

services which is P7,191,484,739.48, but also stated the additional amount that the Comelec has to pay if it decides to exercise the

option which is P2,130,635,048.15. Except for the period within which the Comelec could exercise the OTP, the terms and conditions

for such exercise are maintained and respected. Admittedly, the additional amount the Comelec needed to pay was maintained (less

the amount already paid when it purchased 920 units of PCOS machines with corresponding CCS for the special elections in certain

areas in the provinces of Basilan, Lanao del Sur and Bulacan) subject to the warranties originally agreed upon in the AES contract.

The contract amount not only included that for the contract of lease but also for the OTP. Hence, the competitive public bidding

conducted for the AES contract was sufficient. A new public bidding would be a superfluity.

The Solicitor General himself clarified during the oral arguments that the purchase price of the remaining PCOS machines stated in

the assailed Deed of Sale was the price stated in Article 4.3 of the AES contract. Therefore, the said amount was already part of the

original amount bidded upon in 2009 for the AES contract which negates the need for another competitive bidding. [57]

Third. More importantly, the amendment of the AES contract is more advantageous to the Comelec and the public.

The nature of an option contract was thoroughly explained in Eulogio v. Apeles,[58] to wit:

An option is a contract by which the owner of the property agrees with another person that the latter shall
have the right to buy the former's property at a fixed price within a certain time. It is a condition offered or contract
by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price
within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of
the property the right to sell or demand a sale. An option is not of itself a purchase, but merely secures the privilege
to buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of the
property agrees with another person that he shall have the right to buy his property at a fixed price within a certain
time. He does not sell his land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege
to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding
obligation on the person holding the option, aside from the consideration for the offer.[59]

Also in Carceller v. Court of Appeals,[60] the Court described an option in this wise:

An option is a preparatory contract in which one party grants to the other, for a fixed period and under specified
conditions, the power to decide, whether or not to enter into a principal contract. It binds the party who has given the
option, not to enter into the principal contract with any other person during the period designated and, within that
Page 34 of 43
 period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the
option. It is a separate agreement distinct from the contract which the parties may enter into upon the consummation
of the option.[61]

In Adelfa Properties, Inc. v. CA,[62] the Court described an option as:

An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with another
that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in
compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or
demand a sale. It is sometimes called an unaccepted offer. x x x[63]

From the foregoing jurisprudential pronouncements, an option is only a preparatory contract and a continuing offer to enter into a

principal contract. Under the set-up, the owner of the property, which is Smartmatic-TIM, gives the optionee, which is the Comelec,

the right to accept the formers offer to purchase the goods listed in the contract for a specified amount, and within a specified period.

Thus, the Comelec is given the right to decide whether or not it wants to purchase the subject goods. It is, therefore, uncertain whether

or not the principal contract would be entered into. The owner of the property would then have to wait for the optionee to make a

decision. A longer option period would mean that more time would be given to the optionee to consider circumstances affecting its

decision whether to purchase the goods or not. On the part of Smartmatic-TIM, it would have to wait for a longer period to determine

whether the subject goods will be sold to the Comelec or not, instead of freely selling or leasing them to other persons or governments

possibly at a higher price. This is especially true in this case as the terms and conditions for the exercise of the option including the

purchase price, had been included in the AES contract previously bidded upon. The parties are bound to observe the limitations

embodied therein, otherwise, a new public bidding would be needed.

We agree with respondents that the exercise of the option is more advantageous to the Comelec, because the P7,191,484,739.48

rentals paid for the lease of goods and purchase of services under the AES contract was considered part of the purchase price. For the

Comelec to own the subject goods, it was required to pay only P2,130,635,048.15. If the Comelec did not exercise the option, the

rentals already paid would just be one of the government expenses for the past election and would be of no use to future elections.

Assuming that the exercise of the option is nullified, the Comelec would again conduct another public bidding for the AES for the

2013 elections with its available budget of P7 billion. Considering that the 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 than P7 billion. Moreover, it is possible that

Smartmatic-TIM would again participate in the public bidding and could win at a possibly higher price. The Comelec might end up

acquiring the same PCOS machines but now at a higher price.

The advantage to the government of the exercise of the OTP was even recognized by petitioners, shown during the oral arguments:

ASSOCIATE JUSTICE PERALTA:

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

Page 35 of 43
DEAN ESPEJO:
Php1.8 billion pesos, Your Honor.

ASSOCIATE JUSTICE PERALTA:

Youre referring to the Deed of Sale.

DEAN ESPEJO:
Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

The whole, the whole equipment, subject matter of the contract.

DEAN ESPEJO:
I think roughly, the original contract something like 10 billion I am not sure, Your Honor.

ASSOCIATE JUSTICE PERALTA:

10 billion pesos.

DEAN ESPEJO:
Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

Okay. Now, in the original contract of July 10, 2009, the contract was not actually a purchase contract but merely a
lease contract.

DEAN ESPEJO:
Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

And the lease contract is 7.1 billion.

DEAN ESPEJO:
It says 7.1 billion.

ASSOCIATE JUSTICE PERALTA:

Okay. But it is here [denominated] as a lease contract.
DEAN ESPEJO:
Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

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

DEAN ESPEJO:
Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

Okay. Now, you look at your Deed of Sale, this is annexed to your petition, the value of the Deed of Sale is
something like two billion one hundred thirty million (Php2,130,000,000).

DEAN ESPEJO:
Around that much, Your Honor.

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 contract; you come up with something like over 9 billion pesos.
DEAN ESPEJO:
Page 36 of 43
Close to Ten, Your Honor.

ASSOCIATE JUSTICE PERALTA:

Close to Ten.

DEAN ESPEJO:
Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

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 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 even less than the 10
billion pesos. Do you think that is disadvantageous to the government?

DEAN ESPEJO:
May I be allowed to explain?

ASSOCIATE JUSTICE PERALTA:

Go ahead, you go ahead, you have all the time.

DEAN ESPEJO:
It may appear advantageous, Your Honor please, but on the other hand, there are certain disadvantages there. For
one thing, these are not brand new machines; these are refurbished existing machines which could be suffering from
hardware or software problem. For the COMELEC to accept this, Your Honor please, each machine will have to be
checked as to its hardware and software. Eighty-two thousand (82,000) PCOS machines, Your Honor please, what if
half of them, [turn out] to be white elephants or malfunctioning, Your Honor please, then we will be acquiring
eighty-two thousand (82,000) with fifty percent (50%) malfunctioning machines. There is a danger, Your Honor
please, that does not appear to the naked eye. In any event, with respect to the financial figures there appears to be
some advantages, Your Honor, please.

ASSOCIATE JUSTICE PERALTA:

x x x these are merely speculative. Yourre only speculating that there are dangers, the dangers might not come, in
fact, it might even be void or favorable. Okay, now my other question is, do you think that if this was bidden out
under R.A. 9184 for the purchase of all these equipment, do you think that a bidder will come up with a bid of less
than 2 billion pesos for the whole equipment? When according to you, the equipment in 2009 is 10 billion, and
elections are very near already 2013, the filing of certificates of candidacy will be on the second to the last month of
this year?
DEAN ESPEJO:
May I be allowed to answer that by way of a speculation, Your Honor.

ASSOCIATE JUSTICE PERALTA:

Go ahead, please.

DEAN ESPEJO:
I think bidder will find it difficult to match that.

xxxx

ASSOCIATE JUSTICE PERALTA:

Okay. My other question is this. Okay, now you admitted that the original value is 10 billion. Are you also
aware that the budget of the COMELEC when they come up with this contract is 7 billion?
DEAN ESPEJO:
Yes, Your Honor.

ASSOCIATE JUSTICE PERALTA:

And the total value of the original contract is 10 billion. Do you think that the COMELEC will have money to
purchase equipment valued at 10 billion pesos with only 7 billion pesos for the elections of 2013? Because the
budget of 7 billion is not for the purpose only of the purchase of the equipment, but also includes for the budget of
the elections, pre, during and post elections expenses.

DEAN ESPEJO:
Page 37 of 43
 Well, Your Honor please, the shortfall of 3 billion pesos can be remedied if Congress will appropriate additional
amounts, if the President of this Republic will convince the legislature to appropriate an additional amount, I see no
problem why the shortfall of 3 billion cannot be remedied, Your Honor please.

ASSOCIATE JUSTICE PERALTA:

Oh, thats again speculative.

DEAN ESPEJO:
Again, thats unfortunate thats my speculation.

ASSOCIATE JUSTICE PERALTA:

You will have first to go to Congress, then you go to Senate, and then you go to the President discounting the
possibility of filing a petition to question the allocation of additional amount for the 2013 elections, by the time that
all of these exercises are finished then election is there already.

DEAN ESPEJO:
Well, Im hopeful, Your Honor please, that our Congressmen and our Senators will rise to the occasion and move
fast and appropriate the needed amount of 3 billion pesos to help the COMELEC acquire the proper Automated
election System.

x x x[64]

Another reason posed by petitioners for their objection to the exercise of the option and the eventual execution of the March 30, 2012

Deed of Sale is the existence of the alleged defects, glitches, and infirmities of the subject goods. The technology provided by

Smartmatic-TIM was not perfect, because of some technical problems that were experienced during the 2010 elections. Petitioners

herein doubt that the integrity and sanctity of the ballots are protected because of these defects.

We do not agree.

Prior to the execution of the Deed of Sale, the Comelec and Smartmatic-TIM had agreed that the latter would undertake fixes

and enhancements to the hardware and software to make sure that the subject goods are in working condition to ensure a free, honest,

and credible elections. As former Commissioner Augusto C. Lagman admitted[65]during the oral arguments, there are possible

software solutions to the alleged problems on the PCOS machines and it is not inherently impossible to remedy the technical problems

that have been identified. While there is skepticism that Smartmatic-TIM would be able to correct the supposed defects prior to the

2013 elections because of its inaction during the two years prior to the exercise of the option, we agree with the opinion of Chairman

Sixto S. Brillantes, Jr. that it is absurd to expect Smartmatic-TIM to invest time, money and resources in fixing the PCOS machines to

the specifications and requirements of the Comelec when prior to the exercise of the OTP, they do not have the assurance from the

Comelec that the latter will exercise the option.[66]

Moreover, as to the digital signature which appears to be the major concern of petitioners, it has been clarified during the oral

arguments that the PCOS machines are capable of producing digitally-signed transmissions:

JUSTICE CARPIO:
Page 38 of 43
I have some questions. Counsel, the law requires that the election returns that are electronically transmitted must be
digitally signed, correct?

ATTY. LAZATIN:
Thats right, Your Honor.

JUSTICE CARPIO:
Now, but in the 2010 elections, all election returns electronically transmitted were NOT digitally signed,
correct?

ATTY. LAZATIN:

They were, Your Honors, please

JUSTICE CARPIO:
Why? How?

ATTY. LAZATIN:
Your Honor, as we explained in our presentation, the iButtons, Your Honor, contain the digital signatures

JUSTICE CARPIO:
Yes, I understand that

ATTY. LAZATIN:
and the iButtons [interrupted]

JUSTICE CARPIO:
because they are there, the machine is capable of producing digitally-signed transmissions. But you just said that the
BEI Chairman did not input their private keys because there was no time. It requires five (5) months.

ATTY. LAZATIN:
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 digital signature. What I also said, Your Honor, is that there is also a possibility that another
digital certificate or signature can come from another certification authority xxx

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

ATTY. LAZATIN:
Thats right.

JUSTICE CARPIO:
Thats why Chairman Melo told Congress that it will cost one (1) billion to get a third-party certifier, but the law
does not require it even now, if you said in your presentation that the BEI Chairman could not input their private
key, thats generated because it takes five (5) months to do that and the list of BEI Chairman is known only one (1)
month before the election, then how could there be a digital signature?

ATTY. LAZATIN:
Your Honor, as I mentioned it is anot a customized or personal digital signature. It is a digital signature that is
assigned by COMELEC.

JUSTICE CARPIO:
Assigned by COMELEC? How canwho inputs that digital signature?

ATTY. LAZATIN:
It is cranked out, Your Honor, and

JUSTICE CARPIO:
No, yourit is trusted that the list of the BEI Chairman is known only one (1) month before, so how can the BEI
Chairman input their digital signature five (5) months before?
Page 39 of 43
ATTY. LAZATIN:
As I said, Your Honor, it is not a personal or customized signature. It is just like

JUSTICE CARPIO:
It is a machine ID, in other words?

ATTY. LAZATIN:
No, let me explain it this way, Your Honor. The best example I can give, Your Honor, is

JUSTICE CARPIO:
Okay, let us define first what a digital signature means.

ATTY. LAZATIN:
The Rules of Court, Your Honor, defines digital signature as the first one it is electronic signature consisting of a
transformation of an electronic document or an electronic data message using an asymmetric or public Cryptosystem
such that a person having the initial untransformed electronic document and the signers public key can accurately
determine: (i) whether the transformation was created using the private key that corresponds to the signers public
key; and (ii) whether the initial electronic document has been altered after the transformation was made.

JUSTICE CARPIO:
Therefore, digital signature requires private key and public key

ATTY. LAZATIN:
Yes, Your Honor.

JUSTICE CARPIO:
and this private key and public key are generated by an algorithm, correct?

ATTY. LAZATIN:
Yes, thats right, Your Honor.

JUSTICE CARPIO:
And there is another algorithm which, if you matchif you put together the private key and the message, will generate
the signature.
ATTY. LAZATIN:
Thats right, Your Honor.

JUSTICE CARPIO:

And the third algorithm, that if you put together the public key and the signature it will accept or reject the message,
thats correct?

ATTY. LAZATIN:
Thats correct, Your Honor.

JUSTICE CARPIO:
Now, was that used in the 2010 elections?

ATTY. LAZATIN:
Yes, your Honor.

JUSTICE CARPIO:
How was that private key generated?

ATTY. LAZATIN:
Again, Your Honor, as I said

JUSTICE CARPIO:
Did the BEI Chairman know what that private key is?

Page 40 of 43
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. In the same way, Your Honor, in the office my code name, Your Honor, or assigned to me is 00
xxx

JUSTICE CARPIO:
You mean to say the private key is embedded in the machine?
ATTY. LAZATIN:
No, Your Honor, it is embedded in the iButton and they are given a x x x

JUSTICE CARPIO:
Yes, in the machinethe iButton is in the machine.

ATTY. LAZATIN:
No, Your Honor.

JUSTICE CARPIO:
Where is it?

ATTY. LAZATIN:
It is a gadget, Your Honors, that is usedit is a separate gadget, your 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 to this Court

xxxx

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

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

JUSTICE CARPIO:
In other words, whoever is in possession of that iButton can make a digitally-transmitted election return, correct?

ATTY. LAZATIN:
Thats correct, Your Honor. Your Honor, together with the other BEIs because apart from this iButton, Your Honor,
for authentication the BEIs, three of them, Your Honor, have an 8-digit PIN, Your Honor.

JUSTICE CARPIO:
How is that 8-digit PIN given to them?

ATTY. LAZATIN:
In a sealed envelope, Your Honor, these are x x x
JUSTICE CARPIO:
And then they also input that in the keyboard?

ATTY. LAZATIN:
Yes, Your Honor.

JUSTICE CARPIO:
In the display?

ATTY. LAZATIN:
Yes, Your Honor.
JUSTICE CARPIO:
So, that iButton contains the private key?

ATTY. LAZATIN:
Yes, Your Honor, thats my understanding.

JUSTICE CARPIO:
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 And who controls the public key? Who control[led] the public key in the last election?

ATTY. LAZATIN:
My understanding, Your honor, is COMELEC, your Honor.

JUSTICE CARPIO:
COMELEC had the public key?

ATTY. LAZATIN:
Thats my understanding, Your Honor.

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

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

JUSTICE CARPIO:
Okay. So, whoever is in possession of that iButton and in possession of the four (4) PINS, the set of PINs, for the
other BEI number, can send a transmission?

ATTY. LAZATIN:
Yes, Your Honor.

JUSTICE CARPIO:
The moment you are in possession of the iButton and the four (4) sets of PINs

ATTY. LAZATIN:
Thats correct, Your Honor.

JUSTICE CARPIO:
If they can send an electronic transmission thats digitally signed and when received by the COMELEC and matched
with the public key will result with an official election return, correct?
ATTY. LAZATIN:
Thats correct. In the same way, Your Honor, that even if someone keeps his key or private key, Your Honor, if he is
under threat he will also divulge it, Your Honor. Its the same.

JUSTICE CARPIO:
Okay, so whoever wants to send it, he will have to get the private key from the BEI Chairman and the PIN numbers
from the other members

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

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subject goods have been determined and may be corrected as in fact fixes and enhancements had been undertaken by Smartmatic-

TIM. Petitioners could not even give a plausible alternative to ensure the conduct of a successful 2013 automated elections, in the

event that the Court nullifies the Deed of Sale.

WHEREFORE, premises considered, the petitions are DISMISSED. The Temporary Restraining Order issued by the Court on April

24, 2012 is LIFTED.

SO ORDERED.

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