SECOND DIVISION
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POWER SECTOR ASSETS AND
lIABILITIES MANAGEMENT CORPORATION, Petitioner, -versus- POZZOLANIC Respondent. |
G.R. No. 183789 Present: CARPIO, Chairperson, VELASCO, JR.* PERALTA,** PEREZ, and MENDOZA, JJ. *** Promulgated: August 24, 2011 |
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D E C I S I O N
PEREZ, J.:
The Case
This petition[1]
for review on certiorari under Rule
45 of the 1997 Rules of Civil Procedure assails (1) the Decision[2] dated
30 April 2008 of the Regional Trial Court of Quezon City, Branch 96, upholding
the validity of respondents right of first refusal and holding such right
binding on petitioner, and (2) the Order[3]
dated 27 June 2008 of the same court, denying petitioners Motion for
Reconsideration and Supplemental Motion for Reconsideration of the 30 April 2008
Decision of the trial court in Civil Case No. Q-00-40731.
The Antecedents
Petitioner
Power Sector Assets and Liabilities Management Corporation (PSALM) is a
government-owned and controlled corporation created by virtue of Republic Act
No. 9136, otherwise known as the Electric Power Industry Reform Act (EPIRA) of
2001.[4]
Its principal purpose is to manage the orderly sale, disposition, and
privatization of the National Power Corporations (NPCs) generation assets,
real estate and other disposable assets, and Independent Power Producer (IPP)
contracts, with the objective of liquidating all NPC financial obligations and
stranded contract costs in an optimal manner.[5]
Respondent Pozzolanic Philippines
Incorporated (Pozzolanic) is the local subsidiary of Pozzolanic Australia Pty.
Ltd. (Pozzolanic Australia),[6] an
Australian corporation which claims to have perfected the techniques in the processing
of fly ash for use in the making of cement.[7]
In 1986, Pozzolanic Australia won the public bidding for the purchase of
the fly ash generated by NPCs power plant in Batangas.[8]
Pozzolanic
Under Article I of the contract, NPC,
referred to therein as the CORPORATION, granted Pozzolanic Australia, the
PURCHASER, a right of first refusal to purchase the fly ash generated by the
coal-fired plants that may be put up by NPC in the future. The specific
provision of the contract states:
PURCHASER
has first option to purchase Fly Ash under similar terms and conditions as
herein contained from the second unit of Batangas Coal-Fired Thermal Plant that
the CORPORATION may construct. PURCHASER may also exercise the right of first
refusal to purchase fly ash from any new coal-fired plants which will be put up
by CORPORATION.[10]
In
1988, while the necessary clearances and approvals were being obtained by
Pozzolanic Australia in connection with the operation of its fly ash business
in the Philippines, its major stockholders decided that it would be more
advantageous for the company to organize a Philippine corporation and to assign
to such corporation Pozzolanic Australias rights to the commercial use of fly
ash in the Philippines. Accordingly, in April 1989, respondent Pozzolanic was
formally incorporated to take over Pozzolanic Australias business in the
In
1998, the Masinloc Coal-Fired Thermal Power Plant (Masinloc Plant) started
operations to provide power for NPC. Late that year, respondent began the installation
of its fly ash processing equipment in the Masinloc Plant and began off taking
the fly ash produced therein. [13]
Subsequently,
on 15 February 1999, NPC and respondent, on an interim basis and prior to the
conduct of a public bidding for the contract to purchase the Masinloc Plants
fly ash, executed a contract whereby respondent was given the right to purchase
the said fly ash for a period of one year.[14]
The fourth and fifth WHEREAS clauses of the contract provide:
WHEREAS, under the Contract for the Purchase of the Fly Ash of Batangas Coal-Fired Thermal Power Plant dated 20 October 1987, PURCHASER was granted the right of first refusal over any and all fly ash that may be produced by any of NPCs coal-fired power plants in the Philippines;
WHEREAS, NPC intends to bid out the long term contract for the Fly Ash that may be produced by the (Masinloc Coal Fired Thermal Power) Plant subject to the second paragraph of Article I of the original contract between the parties which was signed on 20 October 1987 giving PURCHASER the right of first refusal.[15]
In October 1999, the Sual Coal-Fired Power
Plant started providing electricity in the
As a result, respondent sent letters
to NPC calling its attention to respondents right of first refusal under the
Batangas Contract. It also demanded that any tender documents to be issued in
connection with the bidding on the right to purchase the Masinloc and Sual Plants
fly ash include notices informing prospective bidders of respondents right of
first refusal.
In a letter dated 7 March 2000, NPC
informed respondent that it had decided to defer indefinitely the bidding on
the right to purchase the Masinloc Plants fly ash and to proceed first with
the bidding on the right to purchase the Sual Plants fly ash. Thus, on 7 April
2000, NPC released the tender documents for the bidding on the Sual Plants fly
ash, which tender documents made no reference to respondents right of first
refusal.[19]
This prompted respondent to file a
complaint[20] (later
amended[21]) with
the trial court praying that NPC be ordered to allow Pozzolanic to exercise its
right of first refusal by permitting it to match the price and terms offered by
the winning bidder and by awarding the contract for the purchase of the Sual
Plants fly ash to Pozzolanic if it matches the price and terms offered by said
winning bidder.[22]
While the case was pending before the
lower court, NPC decided to also dispose of the fly ash from the Masinloc Plant
through public bidding, without allowing respondent to exercise its right of
first refusal. Thus, respondent filed a Supplementary Complaint[23],
dated 8 August 2002, praying for the same reliefs as those prayed for in the
amended complaint earlier filed, but as regards the Masinloc Plant.[24]
Meanwhile,
on 4 June 2001, Congress enacted the EPIRA (RA 9136) which created PSALM. This
resulted in the filing of a Second Supplementary Complaint, dated 5 March 2003,
impleading petitioner PSALM as a necessary and indispensable party.[25]
The
litigation became more complicated when petitioner, NPC, and the Department of
Energy entered into a Memorandum of Agreement with the Provincial Government of
Zambales and several local government units of Zambales, pursuant to which the
Provincial Government of Zambales was awarded the exclusive right to withdraw the
fly ash from the Masinloc Plant.[26]
With this development, respondent filed a Third Supplementary Complaint seeking
the annulment of the aforesaid Memorandum of Agreement and other documents
related thereto.[27] This
complaint was dismissed by the trial court on the ground of forum shopping, it
appearing that the
Respondent
appealed the order of dismissal to the Court of Appeals.
On 18 July 2007, while the appeal was
pending, respondent and the Provincial Government of Zambales executed an
Agreement[29] (the Masinloc
Contract) by virtue of which the
Also, previously, on 30 March 2005, respondent
and NPC entered into a Purchase Agreement for the Purchase of Fly Ash of Sual
Coal-Fired Thermal Power Plant[31] (the
Sual Contract) whereby NPC awarded to respondent the exclusive right to
withdraw the fly ash from the Sual Plant.[32]
As a
result, NPC filed, on 4 February 2008, a Motion to Dismiss[33]
the Complaint against it on the ground that the issues between it and respondent
had become moot and academic. This is in view of the Purchase Agreement executed
by NPC and respondent for the fly ash of the Sual Plant and the Agreement
between respondent and the Provincial Government of Zambales with respect to
the fly ash of the Masinloc Plant.[34]
During
the hearing on NPCs Motion to Dismiss held on 7 February 2008, the trial court
ordered herein petitioner PSALM and respondent Pozzolanic to comment on the
Motion. Petitioner, through counsel, manifested that in addition to commenting
on the Motion to Dismiss, it would also like to challenge, through a position
paper, the validity of respondents right of first refusal.[35]
Respondent
herein interposed no objection to the Motion to Dismiss.[36]
On the other hand, in its Comment[37]
dated 14 February 2008, petitioner asserted that the following issues should
first be resolved before a resolution on the Motion to Dismiss may be had:
1. whether or not fly ash, which is/are [sic] not yet existing, can be considered assets of the government, the disposition of which is subject to government rules particularly public bidding;
2. whether or not the alleged right of first refusal of plaintiff is not contrary to law; and
3. whether or not PSALM is bound by the said alleged right.[38]
Petitioner thus prayed that resolution
on the Motion to Dismiss be held in abeyance pending determination of the
issues concerning respondents alleged right of first refusal.
Pursuant to its manifestation in open
court during the 7 February 2008 hearing on NPCs Motion to Dismiss, petitioner
submitted its Position Paper[39]
on 29 February 2008 raising the same issues as those in its Comment to NPCs
Motion to Dismiss. Petitioner prayed that the complaint against it be dismissed
and that respondents right of first refusal contained in the second paragraph,
Article 1 of the Batangas Contract be declared void ab initio for being contrary to law and public policy.
In an Order[40]
dated 17 March 2008, the trial court dismissed in toto the Amended Complaint and the First Supplementary
Complaint. The Second Supplementary Complaint was PARTIALLY DISMISSED insofar
as it refers to herein respondents complaint against
NPC only. Thus, on 30 April 2008, the trial court rendered the herein assailed Decision
declaring respondents right of first refusal valid and binding on petitioner. The
Motion for Reconsideration and Supplemental Motion for Reconsideration filed by
petitioner seeking a reversal of the decision of the trial court were both
denied for lack of merit.[41]
Hence,
this petition.
The Issues
Petitioner PSALM prays for the
reversal of the challenged decision on the following grounds:
1. THE
TRIAL COURT WAS DIVESTED OF JURISDICTION AFTER IT ISSUED THE ORDER DATED 17
MARCH 2008 DISMISSING WITH PREJUDICE THE AMENDED COMPLAINT AND THE FIRST
SUPPLEMENTARY COMPLAINT. THUS, THE DECISION DATED 30 APRIL 2008 RENDERED
SUBSEQUENT TO SUCH DISMISSAL IS NULL AND VOID; AND
2. EVEN
ASSUMING THAT THE TRIAL COURT WAS NOT DIVESTED OF JURISDICTION, THE RIGHT OF
FIRST REFUSAL IS NOT VALID, AND THEREFORE, WITHOUT BINDING EFFECT, FOR BEING
CONTRARY TO PUBLIC POLICY.
The Courts Ruling
On whether or
not the trial court
was divested
of jurisdiction
Petitioner
contends that by virtue of the Order of the trial court dated 17 March 2008,
respondents Amended Complaint was dismissed with prejudice; and, since no
motion for reconsideration or appeal was filed by any of the parties in the
lower court, the Order attained finality. Thus, petitioner argues, the trial
court can no longer take any further action since it had lost all power or
authority over the case. The Order of dismissal effectively deprived it of
jurisdiction.[42]
We
cannot subscribe to petitioners argument. Petitioner is barred by the doctrine
of estoppel from challenging the lower courts authority to render the 30 April
2008 Decision since it was petitioner itself which called for the exercise of
such authority. In its Comment to NPCs Motion to Dismiss, it raised the following
issues:
1. whether or not fly ash, which is/are [sic] not yet existing, can be considered assets of the government, the disposition of which is subject to government rules particularly public bidding;
2. whether or not the alleged right of first refusal of plaintiff is not contrary to law; and
3. whether or not PSALM is bound by the said alleged right.
Then, again, in its Position Paper, it reiterated the
aforesaid issues and petitioned the trial court to dismiss herein respondents
complaint against it and to invalidate respondents right of first refusal as
contained in the Batangas Contract. Clearly, petitioner invoked the courts
jurisdiction by seeking to obtain a definite pronouncement from it. Having thus
called upon the court to settle the issues it has raised, petitioner cannot now
repudiate that same jurisdiction it has invoked in the first place.
This Court has consistently held that
a party cannot invoke the jurisdiction of a court to secure affirmative relief
against his opponent and after obtaining or failing to obtain such relief,
repudiate or question that same jurisdiction.[43]
The Supreme Court frowns upon the undesirable practice of a party submitting
his case for decision and then accepting the judgment only if favorable, and attacking
it for lack of jurisdiction if adverse.[44]
If a party invokes the jurisdiction of a court, he cannot thereafter challenge
the courts jurisdiction in the same case. To rule otherwise would amount to
speculating on the fortune of litigation, which is against the policy of the
Court.[45]
Petitioner maintains that it had
tried to prevent the current situation wherein a decision was rendered by the
trial court without a standing complaint. According to petitioner, in its
Comment to NPCs Motion to Dismiss, it prayed for a deferral of the courts
action on the Motion until after the resolution of the issues it has raised.
Thus, petitioner claims, it cannot be faulted for the lower courts own
procedural lapse in dismissing the Amended Complaint despite petitioners prayer.[46]
Again, we cannot sustain petitioners
contention.
It must be noted that petitioner did
not raise the foregoing argument in its Comment on NPCs Motion to Dismiss.
Neither was it mentioned in the Position Paper it filed before the trial court.
Not even in its Motion for Reconsideration of the herein challenged Decision
did petitioner discuss the issue. The matter was raised for the first time in
its Supplemental Motion for Reconsideration, thereby giving credence to
respondents contention that the same was just an afterthought[47]
on the part of petitioner.
If petitioners claim is to be accepted
as true, it should have raised the issue regarding the trial courts
jurisdiction at the very first opportunity, which was, at the time of its receipt
of the 17 March 2008 Order dismissing the Amended and First Supplementary
Complaints in toto and only partially
dismissing the Second Supplementary Complaint wherein petitioner was impleaded.
At that point, petitioner should have been forewarned that the proceedings, as
against it, have not been terminated. Then, too, as far as the issues it raised
in its Comment and Position Paper were concerned, no pronouncement had, as yet,
been made by the court at the time. Obviously, there were still matters that
needed to be resolved by the court. Thus, if petitioner truly believed that the
court had lost its jurisdiction after it dismissed the Amended Complaint, it
should have questioned the 17 March 2008 Order of the court which failed to
completely dispose of the case. Instead, it waited for the court to issue the
questioned Decision, and only then did petitioner broach the subject. Clearly, under
the circumstances, petitioner is estopped from questioning the courts
jurisdiction.
On the
validity of respondents
right of first refusal
We hold the right of first refusal
granted to respondent in the Batangas Contract invalid for being contrary to
public policy as the same violates the requirement of competitive public
bidding in the award of government contracts, for the following reasons:
One: The grant to respondent of the right of first
refusal constitutes an unauthorized provision in the contract that was entered
into pursuant to the bidding.
By
respondents own admission, the right of first refusal granted to it was
contractually bargained for and acquired from NPC[48]
after it won the public bidding for the purchase of the fly ash produced by the
Batangas Power Plant.[49]
This clearly indicates that the right of first refusal was not included in the
bid documents presented to the other bidders who participated in the bidding.
As a result, the contract signed by NPC and respondent is different from that
which was bidded out.
It has
been held that the three principles in public bidding are: (1) the offer to the
public; (2) an opportunity for competition; and (3) a basis for the exact
comparison of bids. A regulation of the matter which excludes any of these
factors destroys the distinctive character of the system and thwarts the
purpose of its adoption.[50]
Thus,
in the case of Agan, Jr. v. Philippine
International Air Terminals
Also,
in Commission on Audit v. Link Worth
International, Inc.,[53]
the Court affirmed the respective decisions of the trial court and the Court of
Appeals annulling the award of a procurement contract to a bidder whose
technical proposal varied from the bid specifications. It appears that during
the post-qualification stage, the Bids and Awards Committee of the Commission
on Audit considered some factors in the verification and validation of the
winning bidders proposal which were extraneous to and not included in the bid
documents.[54] Thus,
the Court emphasized that the function of post-qualification is to verify,
inspect and test whether the technical specifications of the goods offered
comply with the requirements of the contract and the bidding documents. It does
not give occasion for the procuring entity to arbitrarily exercise its
discretion and brush aside the very requirements it specified as vital
components of the goods it bids out.[55]
In Caltex (
x x x the said agreement of June 1, 1951 executed and entered into without previous public bidding, is null and void, and can not adversely affect the rights of third parties, x x x and of the public in general. x x x the due execution of a contract after public bidding is a limitation upon the right of the contracting parties to alter or amend it without another public bidding, for otherwise what would a public bidding be good for if after the execution of a contract after public bidding, the contracting parties may alter or amend the contract, or even cancel it, at their will? Public biddings are held for the protection of the public, and to give the public the best possible advantages by means of open competition between the bidders. He who bids or offers the best terms is awarded the contract subject of the bid, and it is obvious that such protection and best possible advantages to the public will disappear if the parties to a contract executed after public bidding may alter or amend it without another previous public bidding.[57]
Finally, in Information Technology Foundation of the Philippines v. Commission on
Elections,[58] the
Court nullified the award by the Commission on Elections (COMELEC) of a
contract for the automation of the counting and canvassing of the ballots in
the 2004 elections on the ground, among others, that it permitted the winning
bidder to change and alter the subject of the contract, in effect allowing a
substantive amendment without public bidding.[59]
Said the Supreme Court therein: it is contrary to the very concept of public
bidding to permit a variance between the conditions under which the bids are
invited and those under which proposals are submitted and approved; or, as in
this case, the conditions under which the bid is won and those under which the
awarded contract will be complied with. The substantive amendment of the
contract bidded out, without any public bidding after the bidding process had been concluded is violative of the
public policy on public biddings, x x x. The
whole point in going through the public bidding exercise was completely lost.
The very rationale of public bidding was totally subverted by the Commission.[60]
By its
very nature, public bidding aims to protect public interest by giving the
public the best possible advantages through open competition. Thus, competition
must be legitimate, fair and honest. In the field of government contract law,
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.[61]
An essential element of a publicly bidded contract is that all bidders must be
on equal footing, not simply in terms of application of the procedural rules
and regulations imposed by the relevant government agency, but more
importantly, on the contract bidded upon. Each bidder must be able to bid on
the same thing.[62]
As
pointed out by the Court in Agan, if
the winning bidder is allowed to later include or modify certain provisions in
the contract awarded such that the contract is altered in any material respect,
then the essence of fair competition in the public bidding is destroyed. A
public bidding would be a farce if, after the contract is awarded, the winning
bidder may modify the contract and include provisions which are favorable to it
that were not previously made available to the other bidders.[63]
The government cannot enter into a contract with the highest bidder and
incorporate substantial provisions beneficial to him, not included or
contemplated in the terms and specifications upon which the bids were invited.[64]
Aside from protecting public interest
by giving the public the best possible advantages through open competition, [a]nother
self-evident purpose of public bidding is to avoid or preclude suspicion of
favoritism and anomalies in the execution of public contracts.[65]
Such bias or partiality and irregularities may be validly presumed if, as in
this case, after a contract has been awarded, the parties carry out changes or
make amendments thereto which gives the winning bidder an edge or advantage over
the other bidders who participated in the bidding, or which makes the signed
contract unfavorable to the government. Thus, there can be no substantial or
material change to the parameters of the project, including the essential terms
and conditions of the contract bidded upon, after the contract award.[66]
The
Court acknowledges that 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. Hence, 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 other bidders. The alteration and modifications in the contract
executed between the government and the winning bidder must be such as to
render such executed contract to be an entirely different contract from the one
that was bidded upon.[67]
The
grant of the right of first refusal in this case 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 after it won the
public auction, it so altered the bid terms the very admission by all parties
that the disposal of fly ash must be through public bidding by effectively
barring any and all true biddings in the future. The grant of first refusal was a grant to
respondent of the right to buy fly ash in all coal-fired plants of NPC.
Proceeding from the afore-cited jurisprudence, the Batangas Contract is,
consequently, a nullity.
Two:
The right to buy fly ash precedes and is the basis of the right of first
refusal, and the consequent right cannot be acquired together with and at the
same time as the precedent right.
The
right of first refusal has long been recognized, both legally and
jurisprudentially, as valid in our jurisdiction. It is significant to note,
however, that in those cases where the right of refusal is upheld by both law
and jurisprudence, the party in whose favor the right is granted has an
interest on the object over which the right of first refusal is to be
exercised. In those instances, the grant of the right of first refusal is a
means to protect such interest.
Thus, Presidential Decree
(P.D.) No. 1517,[68] as amended by P.D. No.
2016,[69] grants to qualified
tenants of land in areas declared as urban land reform zones, the right of
first refusal to purchase the same within a reasonable time and
at a reasonable price.[70]
The same right is accorded by Republic Act No. 7279[71]
(Urban Development and Housing Act of 1992) to qualified beneficiaries of
socialized housing, with respect to the land they are occupying. Accordingly, in
Valderama v. Macalde,[72] Paraaque Kings Enterprises, Inc. v.
Court of Appeals,[73]
and Conculada v. Court of Appeals,[74] the Supreme Court sustained the
tenants right of first refusal pursuant to P.D. 1517.
In Polytechnic University of the Philippines v. Court of Appeals[75]
and Polytechnic University of the
Philippines v. Golden Horizon Realty Corporation[76],
this Court upheld the right of refusal of therein respondent private
corporations concerning lots they are leasing from the government.
In the case of Republic v. Sandiganbayan, [77]
the Presidential Commission on Good Government (PCGG) sought to exercise its
right of first refusal as a stockholder of Eastern Telecommunications
Philippines, Inc. (ETPI), a corporation sequestered by the PCGG, to purchase
ETPI shares being sold by another stockholder to a non-stockholder. While the
Court recognized that PCGG had a right of first refusal with respect to ETPIs
shares,[78]
it nevertheless did not sustain such right on the ground that the same was not
seasonably exercised.[79]
Finally, in Litonjua v. L & R Corporation,[80]
the Supreme Court recognized the validity and enforceability of a stipulation
in a mortgage contract granting the mortgagee the right of first refusal should
the mortgagor decide to sell the property subject of the mortgage.
In all the foregoing cases, the party
seeking to exercise the right has a vested interest in, if not a right to, the
subject of the right of first refusal. Thus, on account of such interest, a
tenant (with respect to the land occupied), a lessee (vis--vis the property
leased), a stockholder (as regards
shares of stock), and a mortgagor (in relation to the subject of the mortgage),
are all granted first priority to buy the property over which they have an
interest in the event of its sale. Even in the JG Summit Case,[81]
which case was heavily relied upon by the lower court in its decision and by
respondent in support of its arguments, the right of first refusal to the
corporations shares of stock later exchanged for the right to top granted
to KAWASAKI was based on the fact that it was a shareholder in the joint
venture for the construction, operation, and management of the Philippine
Shipyard and Engineering Corporation (PHILSECO).
In the case at bar, however, there is
no basis whatsoever for the grant to respondent of the right of first refusal
with respect to the fly ash of NPC power plants since the right to purchase at
the time of bidding is that which is precisely the bidding subject, not yet
existent much more vested in respondent.
Further, in the JG Summit Case,[83]
what was involved was not merely a right to match but a right to top by five percent (5%) the highest bid for the shares
subject of the public bidding.[84] Undoubtedly,
such an arrangement is truly advantageous to the government. Here, aside from
respondent not having a vested interest in the subject matter of the public
bidding, its right of first refusal allows it to merely match the highest bid offered at the public auction. This agreement
clearly makes a farce of the bidding process, as the government will merely go
through the motion of holding a public bidding and declaring a highest bidder
only to award the contract to respondent, who did not even participate in the
bidding.
It is significant to note that, in
the tender documents for the bidding of the fly ash of the Masinloc Power
Plant, NPC gave respondent the opportunity to top the highest bid by fifteen
percent (15%). Respondent protested this, however, as an infringement upon its alleged
right of first refusal to purchase the Masinloc fly ash, as supposedly guaranteed
by the Batangas Contract.[85]
In effect, therefore, in asserting
its right of first refusal, what respondent is asking is that it be given undue
advantage over any other party interested to purchase the fly ash of NPCs
power plants. Obviously, this cannot be countenanced. It is inherent in public
biddings that there shall be a fair competition among the bidders. The
specifications in such biddings provide the common ground or basis for the
bidders. The specifications should, accordingly, operate equally or
indiscriminately upon all bidders.[86]
It should also be pointed out that
while respondent maintains that it never sought to disallow the public bidding
of the fly ash in question, the records of this case, nevertheless, disclose
that the right to withdraw the fly ash of the Sual and Masinloc Plants was
awarded to respondent without the benefit of a public auction.[87]
Thus, the grant to respondent of the right of first refusal in the Batangas
Contract paved the way for respondent to obtain the right to withdraw fly ash
from the aforementioned power plants without public bidding. The second and
third WHEREAS clauses of the Sual Contract are particularly telling on this
score:
WHEREAS, in the Contract for the Purchase of Fly Ash of BCFTPP provides for the Right of First Refusal to PURCHASER to purchase fly ash from any new coal-fired plants which will be put up by NPC;
WHEREAS, NPC owns the fly ash generated by the two (2) units of 1,200 MW Sual Coal-Fired Thermal Power Plant (SCFTPP) located at Barangay Pangascasan, Sual, Pangasinan, hereinafter referred to as the Plant;[88]
With respect to the Masinloc Plant,
it will be recalled that the right to
withdraw the fly ash from the same was the subject of
the Third Supplementary Complaint, filed by respondent before the trial court to
enforce the right of first refusal provision in the Batangas Contract, which
complaint was, however, dismissed on the ground of forum shopping.
Nevertheless, while the order of dismissal was on appeal in the Court of
Appeals, the right to withdraw the fly ash of the Masinloc Plant was granted to
respondent by the Provincial Government of Zambales, by virtue of which,
respondent moved for the dismissal of its appeal, thereby resulting in the
finality of the order of dismissal of the trial court.
It can
be easily deduced from the foregoing that the Masinloc Contract was likewise
sourced from respondents supposed right of first refusal, thereby giving
respondent preferential right to the fly ash of the Masinloc Plant and allowing
it to withdraw the Plants fly ash without having to go through a public
bidding. Had the Masinloc Contract not been drafted, it is clear that
respondents complaint for the enforcement of the provision granting it the
right of first refusal would have continued. The Masinloc Contract, then, is a virtual
recognition of respondents alleged right of first refusal.
The rationale behind the requirement
of a public bidding, as a mode of awarding government contracts, is to ensure
that the people get maximum benefits and quality services from the contracts.
More significantly, strict compliance with the requirement of public bidding
echoes the call for transparency in government transactions and accountability
of public officers. Public biddings are intended to minimize occasions for
corruption and temptations to abuse discretion on the part of government
authorities in awarding contracts.[89]
Based on the afore-quoted WHEREAS
clauses of the Sual Contract, the right to purchase the fly ash from the Sual
Plant was granted to respondent, without having to undergo a public auction, on
the basis of its right of first refusal embodied in the Batangas Contract. This
negates respondents claim that the right of first refusal granted to it does
not preclude a public bidding. The right of first refusal provision was used to
subvert the rule that all government contracts should be awarded after
competitive public bidding. This demonstrates the iniquity of allowing the
provision to prevail over requirements of public policy. Thus, the evil
precisely sought to be prevented by the requirement of public bidding came to
pass in this case: the Sual and Masinloc Contracts were awarded to respondent
without any public bidding having been conducted.
Three: The right of
first refusal is against the public policy that contracts must be awarded
through public bidding.
Respondent would have us sustain its
right of first refusal on the ground that Article 1159 of the New Civil Code
provides that obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith. Hence,
respondent argues, the Batangas Contract is binding upon NPC and respondent and
their respective successors-in-interest.[90]
True,
it is a fundamental rule that contracts, once perfected, bind both contracting
parties and a contract freely entered into should be respected since a contract
is the law between the parties.[91]
However, it must be understood that contracts are not the only source of law
that govern the rights and obligations between parties. More specifically, no
contractual stipulation may contradict law, morals, good customs, public order
or public policy.[92]
The
principle of party autonomy in contracts is not an absolute principle. The rule
in Article 1306 of our Civil Code is that the contracting parties may establish
such stipulations as they may deem convenient provided they are not contrary to
law, morals, good customs, public order or public policy. Thus,
counter-balancing the principle of autonomy of contracting parties is the
equally general rule that provisions of applicable laws, especially provisions
relating to matters affected with public policy, are deemed written into the
contract. Put a little differently, the governing principle is that parties may
not contract away applicable provisions of law, especially peremptory
provisions dealing with matters heavily impressed with public interest.[93]
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.[94]
Public
policy has been defined as that principle under which freedom of contract or
private dealing is restricted for the good of the community.[95] Under
the principles relating to the doctrine of public policy, as applied to the law
of contracts, courts of justice will not recognize or uphold a transaction when
its object, operation, or tendency is calculated to be prejudicial to the
public welfare, to sound morality or
to civic honesty.[96]
Consistent with the principle that
public auction in the conferment of government contract involves public policy,
Congress enacted various laws governing the procedure in the conduct of public
bidding and prescribing policies and guidelines therefor. With respect to the
disposal of government assets and property, of particular application in this
case are Circular Nos. 86-264[97]
and 89-296[98] of the
Commission on Audit, dated 16 October 1986 and 27 January 1989, respectively.
Both circulars provide that the divestment or disposal of government property
shall be undertaken primarily through public auction.[99]
Respondent puts forth the argument
that fly ash is a waste product[100]
and therefore cannot be considered as an asset of the government within the
contemplation of the laws governing disposal of government property.
The peculiarity of fly ash as
property of the government is that, from its inception, it is already a
residual product. Unlike the government properties subject of P.D. 1445[101]
and the Government Auditing and Accounting Manual, fly ash is not property
previously utilized by the government in its operations which has become unserviceable.
Justifiably, the government did not foresee the possibility of any use for and,
much less, of deriving profit from it. Hence, the lack of a specific law
governing its disposal and its non-inclusion in existing laws on the divestment
of government property. There is no doubt, however that fly ash is property
and more importantly, asset of the government. Fly ash is produced by power
plants owned by the government and both the government and respondent derive
profit from it. Besides, the fact that respondent is fighting tooth and nail
for the right to withdraw the same from NPCs power plants is indubitable proof
of its value. Its sale is, therefore, subject to the rules on the disposal of
government assets and property. Applicable laws form part of, and are read
into, contracts without need for any express reference thereto; more so, to a
government contract which is imbued with public interest.[102]
In the case of Ongsiako v. Gamboa,[103] this Court declared that an agreement
is against public policy if it is injurious to the interests of the public,
contravenes some established interest of society, violates some public statute,
is against good morals, tends to interfere with the public welfare or safety,
or, as it is sometimes put, if it is at war with the interests of society and
is in conflict with the morals of the time.[104]
Thus, respondents right of first
refusal cannot take precedence over the dictates of public policy.
The
right of first refusal of respondent being invalid, it follows that it has no
binding effect. It does not create an obligation on the part of petitioner to
acknowledge the same. Neither does it confer a preferential right upon
respondent to the fly ash of NPCs power plants.
How, then, does the invalidation of
respondents right of first refusal affect the Sual and Masinloc Contracts
which were executed pursuant to such right?
As discussed above, the right of
first refusal granted to respondent in the Batangas Contract paved the way for
the award to respondent of the Sual Contract without any public bidding having
been conducted therefor. In a long line of cases, this Court has pronounced
that government contracts shall not be entered into or renewed without public
bidding.[105] Thus,
the Supreme Court has struck down contracts and agreements entered into in
violation of this requirement.
In the case of National Food Authority v. Court of Appeals,[106]
the Court ruled against the legality of negotiated security contracts awarded
by the National Food Authority (NFA) to several private security agencies in
default of a public bidding. According to the Court, the NFAs manifest
reluctance to hold a public bidding and award a contract to the winning bidder
smacks of favoritism and partiality toward the security agencies to whom it
awarded the negotiated contracts and cannot be countenanced.[107]
Likewise, in Manila International Airport Authority v. Mabunay,[108]
the Supreme Court dismissed a petition for review seeking the annulment of a
decision of the lower court declaring that under the laws and regulations, it
is necessary for the Manila International Airport Authority to contract for
security services through public bidding. The Court reiterated the basic
principle that in the execution of all government contracts, public bidding is
the accepted method for arriving at a fair and reasonable price. [I]t ensures
that overpricing and favoritism, and other anomalous practices are eliminated
or minimized.[109]
In Chavez v. Public Estates Authority,[110] the
Amended Joint Venture Agreement (JVA) entered into between the Public Estates
Authority and the
Section 79 of P.D. 1445 and COA
Circular No. 89-296, among others, were also relied upon by the Supreme Court
in declaring as inexistent and void ab
initio the Compromise Agreement between the Philippine National
Construction Corporation and Radstock Securities Limited in the case of Strategic Alliance Development Corporation v.
Radstock Securities Limited.[115]
Under the Compromise Agreement in that case, the PNCC shall dispose of
substantial parcels of land, by way of dacion
en pago, in favor of Radstock, a private corporation incorporated in the
Finally, in Gana v. Triple Crown Services Inc.,[119]
the Supreme Court declared as null and void the negotiated contract for
janitorial and maintenance services between the Manila International Airport
Authority (MIAA) and Goodline Staffers & Allied Services, Inc. According to
the Supreme Court, the constitutional right of Olongapo Maintenance Services,
Inc. (OMSI) and Triple Crown Services, Inc. (TCSI), the incumbent service
contractors, to equal protection of the law was violated by MIAA and its
general manager when no public bidding was called precisely because the latter
were going to award the subject service contracts through negotiation. Worse,
the Court continued, the acts of MIAA and Gana
smack of arbitrariness and discrimination as they not only did not call for the
required public bidding but also did not even accord OMSI and TCSI the opportunity
to submit their proposals in a public bidding.[120]
By the very language of the Sual
Contract, the same was entered pursuant to respondents right of first refusal and
in consideration of respondents conformity to withdraw its complaint against
NPC. The pertinent provisions of the Sual Contract are herein below quoted:
WHEREAS, NPC and PURCHASER [Pozzolanic] entered into a Contract for the Purchase of Fly Ash of Batangas Coal Fired Thermal Power Plant (BCFTPP) on October 20, 1987 and Contract for the Purchase of Fly Ash of Masinloc Coal Fired Thermal Power Plant (MCFTPP) dated February 10, 1999;
WHEREAS, in the Contract for the Purchase of Fly Ash of BCFTPP provided for the Right of First Refusal to PURCHASER to purchase fly ash from any new coal-fired plants which will be put up by NPC;
WHEREAS, NPC owns the fly ash generated by the two (2) units of 1,200 MW Sual Coal-Fired Thermal Power Plant (SCFTPP) located at Barangay Pangascasan, Sual, Pangasinan, hereinafter referred to as the Plant;
X X X
WHEREAS, PURCHASER filed a case for Specific Performance with Injunction under Civil Case No. Q-00-40731 before the Branch 90 of the Regional Trial Court of Quezon City and which Court issued a Preliminary Injunction against NPC on the public bidding and sale of Fly Ash of MCFTPP and Sual Coal Fired Thermal Power Plant (SCFTPP);
WHEREAS, in a letter dated December 2, 2004, NPC and PURCHASER have agreed that in order to settle the issue, NPC fully recognizes and honors the Right of First Refusal of PURCHASER to the fly ash produced at SCFTPP in lieu of the fly ash produced at MCFTPP;
WHEREAS, in consideration of NPCs recognition of the Right of First Refusal in said letter dated 2 December 2004 and the execution of this Purchase Agreement, PURCHASER waives any and all claims to the fly ash produced at MCFTPP and arising out of its rights under the Contract for the Purchase of Fly Ash of the Masinloc Coal-Fired Thermal Power Plant dated February 10, 1999;
X X X
ARTICLE VI
WAIVER
NPC hereby fully recognizes and honors the Right of First Refusal of PURCHASER to the fly ash produced at SCFTPP in lieu of the fly ash produced at the Masinloc Plant.
X X X
It is agreed that within thirty (30) days
from and after execution of this Agreement, NPC and PURCHASER will jointly,
together with PSALM Corporation move for the dismissal, with prejudice of Civil
Case No. Q-00-40731 at the Regional Trial Court, Branch 90 of
The pertinent Motion for the dismissal of Civil Case No. Q-00-40731, to be filed in Branch 90 of the Regional Trial Court of Quezon City, or before any other Court who may then be hearing the above case, shall include therein a complete textual copy of this Purchase Agreement, duly signed by all the parties hereto, which shall become an integral part of the compromise, for the dismissal of the said case, to be approved by the Trial Court.
X X X[121] (Emphases supplied).
Based on the foregoing, the Sual
Contract is clearly a negotiated
contract by virtue of which, NPC awards to respondent the right to withdraw
the fly ash of the Sual Plant without public bidding in exchange for which,
respondent (1) waives its rights to the fly ash of the Masinloc Plant and (2)
consents to withdraw its case against NPC. As a result, the Sual Contract is
invalid for failure to comply with the rules on public bidding.
The foregoing principles on the
necessity of a public bidding for all government contracts obviously apply to
the Masinloc Contract as well, the same being a public contract since one of
the parties thereto is a government entity. While its terms do not expressly
provide that the same was executed pursuant to the right of first refusal
granted to respondent under the Batangas Contract, the circumstances under
which it was drafted, as narrated above, clearly indicate that the Masinloc
Contract is a recognition of the challenged right of first refusal. The case
filed by respondent for the recognition and enforcement of its right of first
refusal was settled only after the execution of the Masinloc Contract, pursuant
to which, respondent was awarded the exclusive right to withdraw the fly ash of
the Masinloc Power Plant without the benefit of a public bidding.
As adverted to above, the disposal of
NPC power plants fly ash is governed by COA Circular Nos. 86-264 and 89-296.[122] These
circulars direct that public auction shall be the primary mode of disposal of
assets of the government and sale through negotiation shall be resorted to only
in case of failure of public auction.[123] For
failure to abide by the requirement of a public bidding in the disposal of
government assets, this Court is left with no option but to likewise declare
the Sual and Masinloc Contracts null and void.
In conclusion, this Court stresses
that although a right of first refusal is a contractual prerogative recognized
by both law and jurisprudence, the grant of such right in this case is invalid
for being contrary to public policy.
WHEREFORE, we GRANT the petition for review on
certiorari. The Decision dated 30 April 2008 and Order dated 27 June 2008
of the Regional Trial Court of Quezon City, Branch 96 in Civil Case
No. Q-00-40731 are
hereby REVERSED AND SET ASIDE.
Further, the Batangas, Sual and Masinloc Contracts are hereby declared NULL AND VOID for being contrary to law
and public policy. Petitioner is hereby ordered to conduct a bidding of the
right to purchase the fly ash produced by the Batangas, Masinloc and Sual Power Plants
within thirty (30) days from the finality of this Decision.
SO ORDERED.
|
|
JOSE
|
WE
CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
PRESBITERO J. VELASCO, JR. DIOSDADO M. PERALTA
Associate
Justice Associate
Justice
JOSE CATRAL
MENDOZA
Associate Justice
ATTESTATION
I attest that the conclusions in the
above Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second
Division
CERTIFICATION
Pursuant to Section 13, Article VIII
of the Constitution, and the Division Chairpersons Attestation, it is hereby
certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
RENATO C. CORONA
Chief Justice
* Per Special Order No. 1006-D dated 10 June 2011.
** Per Special Order No. 1067 dated 23 August 2011.
*** Per Special Order No. 1066 dated 23 August 2011.
[1] Rollo, pp. 3-32.
[2]
[3]
[4]
[5] Section 50, Republic Act No. 9136
(Electric Power Industry Reform Act of 2001).
[6] Rollo, p. 34, Decision of the trial court.
[7]
[8]
[9]
[10]
[11]
[12]
[13]
[14]
[15]
[16] http://www.teamenergy.ph/about01_sual.php. Official website of Team Energy, the IPP of the Sual Plant. See p. 7, no. 10 of Petition for Review, rollo, p. 9.
[17] Records, Vol. 1, p. 353.
[18] Rollo, p. 150. 2nd Supplementary
Complaint filed by respondent before the trial court.
[19]
[20] Records, Vol. 1, pp. 1-17.
[21]
[22]
[23]
[24] Rollo, p. 37 and 136. Decision dated 30 April 2008
of the trial court and Supplementary Complaint
of respondent.
[25]
[26]
[27]
[28]
[29] Records, Vol. 10, pp. 76-82.
[30] Rollo, pp. 38-39. 30 April 2008 decision of the
trial court.
[31]
[32]
[33]
[34]
[35]
[36]
[37]
[38]
[39]
[40]
[41]
[42]
[43] Province of Bulacan v. Court of
Appeals, G.R. No.
126232, 27 November 1998, 299 SCRA 442, 452-453
citing Lee v. Presiding Judge, 145
SCRA 408 (1986).
[44]
[45] Lu
v. Lu Ym, Sr., G.R. No. 153690, 26 August 2008, 563 SCRA 254, 277 citing Heirs of Bertuldo
Hinog v. Melicor, G.R. No. 140954, 12 April 2005, 455 SCRA 460, 473.
[46] Rollo, p. 16. Petition for Review.
[47]
[48] Rollo,
pp. 246 and 428. Pozzolanics Position Paper filed before the trial court,
reiterated in its Comment to the
Petition for Review.
[49] Records, Vol. 1, p. 176.
[50] Malaga
v. Penachos, Jr., G.R. No. 86695, 3 September 1992, 213 SCRA 516, 526,
citing Hannan v. Board of Education, 25 Okla. 372.
[51] G.R. No. 155001, 5 May 2003, 402
SCRA 612.
[52] Id.
at 654.
[53] G.R. No. 182559, 13 March 2009, 581
SCRA 501.
[54]
[55]
[56] 96 Phil. 368 (1954).
[57] Id.
at 375.
[58] G.R. No. 159139, 13 January 2004,
419 SCRA 141.
[59]
[60]
[61] Agan, Jr. v. Philippine International Air
Terminals Co., Inc., supra note 51 at 654 citing Danville Maritime, Inc. v.
Commission on Audit, G.R. No. 85285, 28 July 1989, 175 SCRA 701
[62]
[63]
[64]
[65] Danville
Maritime, Inc. v. Commission on Audit, G.R. No. 85285, 28 July 1989, 175
SCRA 701, 711citing Fernandez, B.C,
Treatise on Government Contracts
Under Philippine Law, pp. 63 and 64,
and Cobacha and Lucenario, Law on Public Bidding and Government Contracts, 1961
Ed., pp. 6 and 8-9.
[66] Agan,
Jr. v. Philippine International Air Terminals Co., Inc., supra note 51;
Resolution on the Motions for
Reconsideration of the 5 May 2003 Decision of the Court, G.R. No. 155001 21 January 2004, 420 SCRA 575, 592.
[67]
[68] Proclaiming Urban Land Reform in the
[69] Prohibiting the Eviction of Occupant Families
from Land Identified and Proclaimed as Areas for Priority Development [APD] or as Urban Land Reform Zones and Exempting
Such Land from Payment of Real
Property Taxes, signed by President Marcos on 23 January 1986.
[70] Section 6, P.D. 1517.
[71] An Act to Provide for a Comprehensive and Continuing Urban Development and Housing Program, Establish the Mechanism for its Implementation, and for Other Purposes, which took effect on 24 March 1992.
[72] G.R. No. 165005, 16 September 2005, 470 SCRA 168.
[73] G.R. No. 111538, 26 February 1997, 268 SCRA 727.
[74] G.R.
No. 130562, 11 October 2001, 367 SCRA 164.
[75] G.R. No. 143513, 14 November 2001, 368 SCRA 691.
[76] G.R. No. 183612, 15 March 2010, 615 SCRA 478.
[77] G.R. No. 128606, 4 December 2000, 346 SCRA 760.
[78]
[79]
[80] G.R. No. 130722, 9 December 1999,
320 SCRA 405.
[81] JG Summit Holdings, Inc. v. Court of
Appeals, G.R. No.
124293, 24 September 2003, 412 SCRA 10.
[82]
[83] Supra note 81.
[84]
[85] Records, Vol. 1, p. 221.
[86] Cobacha and Lucenario, Law on
Public Bidding and Government Contracts, 1960, p. 13, citing a decision
of the Auditor General of the Philippines dated 10 August 1954.
[87] See Agreement between the Provincial Government of Zambales and Pozzolanic and the Purchase Agreement for the Purchase of Fly Ash of Sual Coal-Fired Thermal Power Plant between NPC and Pozzolanic. Records, Vol. 10, pp. 76-82; rollo, pp. 188-197.
[88] Rollo, p. 188. Purchase Agreement for the
Purchase of Fly Ash of Sual Coal-Fired Thermal Power
Plant.
[89]
[90] Rollo,
p. 236. Pozzolanics Position Paper filed before the trial court, reiterated in
its Comment to the Petition for Review.
[91] Halaguea
v. Philippine Airlines, Incorporated, G.R. No. 172013, 2 October 2009, 602
SCRA 297, 313.
[92] National
Housing Authority v. Grace Baptist Church, G.R. No. 156437, 1 March 2004,
424 SCRA 147, 152, citing
Article 1306 of the Civil Code.
[93] Halaguea
v. Philippine Airlines, Incorporated,
supra note 91.
[94]
[95] Ollendorff
v. Abrahamson, 38 Phil. 585, 590-591 (1918) citing Peoples Bank v. Dalton, 2
[96] Cui
v.
[97] General Guidelines on the
divestment or disposal of assets of government-owned and/or controlled corporations, and their
subsidiaries, signed by then Chairman Teofisto T. Guingona, Jr.
[98] Audit Guidelines on the Divestment
or Disposal of Property and Other Assets of National Government Agencies and Instrumentalities, Local
Government Units and Government-Owned or Controlled
Corporations and their Subsidiaries, signed by then Chairman Eufemio C. Domingo
and then Commissioners Alberto P.
Cruz and Bartolome C. Fernandez, Jr.
[99] No. 3.1 of Circular No. 86-264 and
No. V (1) of Circular No. 89-296.
[100] Rollo,
p. 234 and 425, Position Paper of Pozzolanic, reiterated in its Comment to the
Petition for Review.
[101] Ordaining and Instituting a Government Auditing Code of the Philippines,
issued by then President Marcos on 11 June 1978.
[102] Sargasso
Construction & Development Corporation/Pick & Shovel, Inc./Atlantic
Erectors, Inc. (Joint Venture) v.
Philippine Ports Authority, G.R. No. 170530, 5 July 2010, 623 SCRA 260, 279- 280.
[103] 86 Phil. 50 (1950).
[104] Id.
at 56.
[105] Andres v. Commission on Audit, G.R. No. 94476, 26 September 1991,
201 SCRA 780, 787, cited in Manila International Airport Authority v.
Olongapo Maintenance Services, Inc., supra note 89 at 291-292.
[106] G.R. Nos. 115121-25, 9 February 1996, 253 SCRA 470.
[107]
[108] G.R. No. 126151, 20 January 2000, 322 SCRA 760.
[109] Id. at 768, citing Tantuico, Jr., State Audit Code of the
[110] G.R. No. 133250, 9 July 2002, 384 SCRA 152.
[111]
[112] Audit Guidelines on the Divestment
or Disposal of Property and Other Assets of National Government Agencies and Instrumentalities, Local
Government Units and Government-Owned or Controlled
Corporations and their Subsidiaries, signed by then Chairman Eufemio C. Domingo
and then Commissioners Alberto P.
Cruz and Bartolome C. Fernandez, Jr.
[113] Chavez v. Public Estates Authority, supra note 110 at 228.
[114]
[115] G.R. No. 178158, 4 December 2009, 607 SCRA 413.
[116]
[117] Supra
note 110.
[118] Id.
at 227.
[119] G.R. No. 161117, 31 January 2008,
543 SCRA 269.
[120]
[121] Rollo,
pp. 188-189 and 191-192.
[122] General Guidelines on the divestment
or disposal of assets of government-owned and/or controlled corporations, and their subsidiaries, signed by then
Chairman Teofisto T. Guingona, Jr. and
Audit Guidelines on the Divestment or Disposal of Property and Other Assets of
National Government Agencies and
Instrumentalities, Local Government Units and Government-Owned or Controlled Corporations and their
Subsidiaries, signed by then Chairman Eufemio C. Domingo and then Commissioners Alberto P. Cruz and
Bartolome C. Fernandez, Jr.
[123] No. 3.2 of Circular No. 86-264 and No. V (2) of Circular No. 89-296.