Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 193796 July 2, 2014
LAND BAN O! T"E P"#L#PP#NES, Petitioner,
vs.
ATLANTA #NDUSTR#ES, #NC., Respondent.
D E C I S I O N
PERLAS$BERNABE, J.:
his is a direct recourse! to the Court fro" the Decision# dated Septe"ber $, #%!% of the
Re&ional rial Court of Manila, 'ranch #! (Manila RC) in Civil Case No. %*+!##,-$ .hich
declared null and void the results of the re+biddin& for the suppl/ of .ater pipes conducted b/
the 'ids and 0.ards Co""ittee ('0C) of the Cit/ 1overn"ent of Ili&an due to the use of
biddin& docu"ents outside of the rules and procedures prescribed under Republic 0ct No. (R0)
*!2-,$ other.ise 3no.n as the 41overn"ent Procure"ent 0ct.4
he 5acts
On October $, #%%,, 6and 'an3 of the Philippines (6and 'an3) and the International 'an3 for
Reconstruction and Develop"ent- (I'RD) entered into 6oan 0&ree"ent No. -2$$+P78 for the
i"ple"entation. of the I'RD9s 4Support for Strate&ic 6ocal Develop"ent and Invest"ent .
Pro:ect4 (S#6DIP). he loan facilit/ in the a"ount of ;P<!!,=!%,%%%,%%%.%% .as full/
&uaranteed b/ the 1overn"ent of the Philippines and conditioned upon the participation of at
least t.o (#) local &overn"ent units b/ .a/ of a Subsidiar/ 6oan 0&ree"ent (S60) .ith 6and
'an3.,
On 5ebruar/ ##, #%%=, 6and 'an3 entered into an S60= .ith the Cit/ 1overn"ent of Ili&an to
finance the develop"ent and e>pansion of the cit/9s .ater suppl/ s/ste", .hich had t.o (#)
co"ponents, na"el/? (a) the procure"ent of civil .or3s@ and ( b) the procure"ent of &oods for
the suppl/ and deliver/ of various siAes of PE !%% 7DPE pipes and fittin&s.2 he S60 e>pressl/
provided that the &oods, .or3s, and services to be financed out of the proceeds of the loan .ith
6and 'an3 .ere to be 4procured in accordance .ith the provisions of Section I of the
91uidelines? Procure"ent under I'RD 6oans and ID0 Credits9 > > >, and .ith the provisions of
BtheC Schedule -.4* 0ccordin&l/, the Cit/ 1overn"ent of Ili&an, throu&h its '0C, conducted a
public biddin& for the suppl/ and deliver/ of various siAes of PE !%% 7DPE pipes and fittin&s
usin& the I'RD Procure"ent 1uidelines.!%
Respondent 0tlanta Industries, Inc. (0tlanta) participated in the said biddin& and ca"e up .ith
the second to the lo.est bid in the a"ount of P!*$,*8*,$8-.$-.!!
7o.ever, in a letter!# dated ;ul/ #=, #%%*, the '0C infor"ed 0tlanta that the biddin& .as
declared a failure upon the reco""endation of 6and 4'an3 due to the I'RD 9s non+concurrence
.ith the 'id Evaluation Report. Moreover, in a letter!$ dated 0u&ust #2, #%%*, the '0C
infor"ed 0tlanta of its disDualification fro" the biddin& because it lac3ed several docu"entar/
reDuire"ents.
In response, 0tlanta, throu&h a letter!- dated Septe"ber 2, #%%*, sou&ht to correct the '0C9s
erroneous assu"ption that it failed to sub"it the necessar/ docu"ents and to have its
disDualification reconsidered. It e>pressed its ob:ection a&ainst the '0C9s declaration of a failure
of biddin&, assertin& that had it not been i"properl/ disDualified there .ould have also been no
need to declare the biddin& a failure because its tender .ould be the sole responsive bid
necessar/ to save the bid process.!8
7o.ever, in a Resolution!, dated Septe"ber #8, #%%*, the '0C dee"ed it futile to reconsider
0tlanta9s disDualification in vie. of the fact that the biddin& had alread/ been declared a failure
because of noted violations of the I'RD Procure"ent 1uidelines and that, unless the '0C
conducts a ne. biddin& on the pro:ect, it .ould not be able to obtain a 4no ob:ection4 fro" .the
Eorld 'an3. 0tlanta did not pursue the "atter further .ith the '0C and opted, instead, to
participate in the re+biddin& of the pro:ect, the notice of .hich .as published ane. on October
$%, #%%*.!=
his not.ithstandin&, 0tlanta, in a letter!2 dated Nove"ber !,, #%%*, called the '0C9s attention
to its use of 'iddin& Docu"ents!* .hich, as it purported, not onl/ failed to confor" .ith the
hird Edition of the Philippine 'iddin& Docu"ents for the Procure"ent of 1oods (P'Ds)#%
prescribed b/ the 1overn"ent Procure"ent Polic/ 'oard (1PP') but also contained nu"erous
provisions that .ere not in accordance .ith R0 *!2- and its I"ple"entin& Rules and
Re&ulations (IRR). Durin& the pre+bid conference, the '0C declared that the pro:ect .as not
covered b/ R0 *!2- or b/ an/ of the 1PP' 9s issuances. It further announced that the bid
openin& .ould be conducted on Dece"ber !-, #%%*.#!
0pprehensive of the '0C9s use of biddin& docu"ents that appeared to be in contravention of R0
*!2- and its IRR, 0tlanta filed on Dece"ber !%, #%%* a Petition for Prohibition and
Manda"us## .ith an ur&ent pra/er for the issuance of a te"porar/ restrainin& order (RO)
andFor .rit of preli"inar/ in:unction to en:oin the re+biddin& .of the pro:ect a&ainst the Cit/
1overn"ent of Ili&an, the '0C, and 6and 'an3 before the Manila RC, doc3eted as Civil Case
No. %*+!##,-$ (Petition for Prohibition).
In their separate co""ents on the said petition, 6and 'an3 and the '0C asserted that the case
.as dis"issible for i"proper. venue, "ootness, non+e>haustion of ad"inistrative re"edies,
failure to i"plead an indispensable part/, and the inapplicabilit/ of R0 *!2.-.#$
In the "eanti"e, .ith 0tlanta9s Gr&ent E> Parte Motion for the Issuance of a =#+7our RO and
Special Raffle#- havin& been denied,#8 the re+biddin& of the pro:ect .as conducted (as
scheduled on Dece"ber !-, #%%*), .ith four .C -) bidders participatin& and sub"ittin& the
follo.in& bids?
!. 0tlanta Industries, Inc. P!-!,#2*,,2%.8%
#. Molde> Products, Inc. P!=#,=#=,%8#.-*
$. Don& Eon Plastics, Inc. P!2*,!2-,8**.=-
-. hai+0siaF;unnie Industries P!*!,*%%.%#%.%%#,
hereupon, the case proceeded .ith the parties9 sub"ission of their respective "e"oranda#= and
the denial of 0tlanta9s pra/er for the issuance of an in:unctive .rit.#2
he Manila RC Rulin&
In a Decision#* dated Septe"ber $, #%!%, the Manila RC declared the sub:ect biddin& null and
void on the &round that it .as done contrar/ to the rules and procedure prescribed in R0 *!2-
and its IRR. ConseDuentl/, it en:oined the Cit/ 1overn"ent of Ili&an and. its '0C fro" enterin&
into andFor i"ple"entin& the contract for the suppl/ of .ater pipes .ith Molde> Products, Inc.$%
he Manila RC also ruled that the Cit/ 1overn"ent of Ili&an cannot clai" e>e"ption fro" the
application of R0 *!2- and its IRR b/ virtue of 6oan 0&ree"ent No. -2H$+P7 .ith the I'RD
because it .as 6and 'an3, and not the Cit/ 1overn"ent of Ili&an, .hich .as the part/ to the
sa"e. Moreover, it .held that the I'RD could not have passed on its status as an international
institution e>e"pt fro" R0 *!2- si"pl/ because it loaned "one/ to 6and 'an3.$! It added that
the S60 subseDuentl/ e>ecuted b/ 6and 'an3 .ith the Cit/ 1overn"ent of Ili&an cannot validl/
provide for the use of biddin& procedures different fro" those provided under R0 *!2- because
the said S60 is not in the nature of an international a&ree"ent si"ilar to the 6oan 0&ree"ent
.ith the I'RD.$#
he Manila RC finall/ concluded that in vie. of 1PP' Resolution No. %8+#%%* (Septe"ber
$%, #%%*) .hich reDuires 4all branches, a&encies, depart"ents, bureaus, offices and
instru"entalities of the 1overn"ent, includin& > > > local &overn"ent units > > > to use the
Philippine 'iddin& Docu"ents hird Edition for all their procure"ent activities,4 the Cit/
1overn"ent of Ili&an and its '0C e>ceeded their :urisdiction in conductin& the public biddin&
usin& the Duestioned biddin& docu"ents.$$
Dissatisfied, 6and 'an3 elevated the "atter directl/ to the Court, vi&orousl/ assertin&, a"on&
others, that? (a) venue .as i"properl/ laid@ and (b) the public biddin& for the suppl/ of .ater
pipes to the Cit/ of Ili&an9s Eater Suppl/ S/ste" Develop"ent and E>pansion Pro:ect is e>e"pt
fro" the application of R0 *!2- and its IRR b/ virtue of the S60 bein& .a related and
subordinate covenant to 6oan 0&ree"ent No. -2$$+P7.$-
he Issues 'efore the Court
he "ain issues presented for the Court9s resolution are? (a) .hether or not the Manila RC has
:urisdiction over the instant prohibition case and eventuall/ issue the .rit pra/ed for@ and (b)
.hether or not the S60 bet.een the 6and 'an3 and the Cit/ 1overn"ent of Ili&an is an
e>ecutive a&ree"ent si"ilar to 6oan 0&ree"ent No. -2$$+P7 such that the procure"ent of .ater
pipes b/ the '0C of the Cit/ 1overn"ent of Ili&an should be dee"ed e>e"pt fro" the
application of R0 *!2-.
he Court9s Rulin&
he petition is "eritorious.
he Court first resolves the procedural issues of this case, then proceeds to its substantive
aspects.
0. PROCEDGR06 ISSGES?
he Manila RC9s 6ac3 of ;urisdiction to
Issue the Erit of Prohibition Sub:ect of
this Case@ and 0tlanta9s 5ailure to
E>haust 0d"inistrative Re"edies.
Preli"inaril/, 6and 'an3 asserts that the Petition for Prohibition .as i"properl/ filed before the
Manila RC considerin& that the acts sou&ht to be en:oined, i.e., the public biddin& for the
suppl/ of .ater pipes, are be/ond the said court9s territorial :urisdiction.$8 0tlanta, for its part,
counter+ar&ues that the acts of 6and 'an3 are as "uch to be en:oined for causin& the Cit/
1overn"ent of Ili&an and its '0C to continuousl/ violate the provisions of R0 *!2-, its IRR,
and the P'Ds in the conduct of the public biddin&$, and that the filin& of the prohibition case in
the Cit/ of Manila .as in accordance .ith the rules on venue &iven that 6and 'an39s "ain office
is in the Cit/ of Manila.$=
he Court finds for 6and 'an3.
0 petition for prohibition is a special civil action that see3s for a :ud&"ent orderin& the
respondent to desist fro" continuin& .ith the co""ission of an act perceived to be ille&al.
Section #, Rule ,8 of the Rules of Court (Rules) reads?
Sec. #. Petition for Prohibition. + Ehen the proceedin&s of an/ tribunal, corporation, board,
officer or person, .hether e>ercisin& :udicial, Duasi+:udicial or "inisterial functions, are .ithout
or in e>cess of its or his :urisdiction, or .ith &rave abuse of discretion a"ountin& to lac3 or
e>cess of :urisdiction, and there is no appeal or an/ other plain, speed/, and adeDuate re"ed/ in
the ordinar/ course of la., a person a&&rieved thereb/ "a/ file a verified petition in the proper
court, alle&in& the facts .ith certaint/ and pra/in& that :ud&"ent be rendered co""andin& the
respondent to desist fro" further proceedin&s in the action or "atter specified therein, or
other.ise &rantin& such incidental reliefs as la. and :ustice "a/ reDuire.
> > > > (E"phasis supplied)
Ehile the Court, Court of 0ppeals and Re&ional rial Court have ori&inal concurrent :urisdiction
to issue .rits of certiorari, prohibition and "anda"us, if .hat is assailed relates to 4acts or
o"issions of a lo.er court or of a corporation, board, officer or person,4 the petition "ust be
filed 4in the Re&ional rial Court e>ercisin& :urisdiction over the territorial area as defined b/ the
Court.4 Section - of the sa"e Rules provides that?
Sec. -. Ehen and Ehere to file the petition. +he petition shall be filed not later than si>t/ (,%)
da/s fro" notice of the :ud&"ent, order or resolution. In case a "otion for reconsideration or
ne. trial is ti"el/ filed, .hether such "otion is reDuired or not, the petition shall be filed not
later than si>t/ (,%) da/s counted fro" the notice of the denial of the "otion.
If the petition relates to an act or an o"ission of a "unicipal trial court or of a corporation, a
board, an officer or a person, it shall be filed .ith the Re&ional rial Court e>ercisin& :urisdiction
over the territorial area as defined b/ the Supre"e Court. 7 "a/ also be filed .ith the Court of
0ppeals or .ith the Sandi&anba/an, .hether or not the sa"e is .in aid of the court9s appellate
:urisdiction. If the petition involves an act or an o"ission of a Duasi+:udicial a&enc/, unless
other.ise provided b/ la. or these rules, the petition shall be filed .ith and be co&niAable onl/
b/ the Court of 0ppeals.
> > > > (E"phasis supplied)
he fore&oin& rule corresponds to Section #! ( !) of 'atas Pa"bansa 'l&. !#*,$2 other.ise
3no.n as 4he ;udiciar/ Reor&aniAation 0ct of !*2%4 ('P !#*), .hich &ives Re&ional rial
Courts ori&inal :urisdiction over cases of certiorari, prohibition, "anda"us, Duo .arranto,
habeas corpus, and in:unction but la/s do.n the li"itation that the .rits issued therein are
enforceable onl/ .ithin their respective territorial :urisdictions. he pertinent provision reads?
Sec. #!. Ori&inal :urisdiction in other cases. + Re&ional rial Courts shall e>ercise ori&inal
:urisdiction?
(!) In the issuance of .rits of certiorari? prohibition, "anda"us, Duo .arranto, habeas corpus
and in:unction, .hich "a/ be enforced in an/ part of their respective re&ions@
> > > > (E"phasis supplied)
he Court alread/ ruled in nu"erous cases, be&innin& .ith the ver/ earl/ case of CostaIo v.
6obin&ier,$* that the po.er to ad"inister :ustice conferred upon :ud&es of the Re&ional rial
Courts, for"erl/ Courts of 5irst Instance (C5I), can onl/ be e>ercised .ithin the li"its of their
respective districts, outside of .hich the/ have no :urisdiction .hatsoever. 0ppl/in& previous
le&islation si"ilar to the present Section #! of 'P !#* and its co"ple"entar/ provision, i.e.,
Section -, Rule ,8 of the Rules, the Court held in said case that the C5I of 6e/te had no po.er to
issue .rits of in:unction and certiorari a&ainst the ;ustice of the Peace of Manila, as the sa"e .as
outside the territorial boundaries of the issuin& court. 0lso, in Sa"ar Minin& Co., Inc. v.
0rnado,-% a petition for certiorari and prohibition .ith preli"inar/ in:unction .as filed in the
C5I of Manila to Duestion the authorit/ of the Re&ional 0d"inistrator and 6abor 0ttorne/ of the
Depart"ent of 6abor in Cebu Cit/ to hear a co"plaint for sic3ness co"pensation in Catbalo&an,
Sa"ar and to en:oin said respondents fro" conductin& further proceedin&s thereat. he Court
affir"ed the dis"issal . of the case on the &round of i"proper venue, holdin& that the C5I of
Manila had no authorit/ to issue .rits of in:unction, certiorari, and prohibition affectin& persons
outside its territorial boundaries. 5urther, in both Cudia"at v. orres (Cudia"at)-! and National
Eater.or3s and Se.era&e 0uthorit/ v. Re/es-# (N0E0S0), the losin& bidders succeeded in
securin& an in:unctive .rit fro" the C5I of RiAal in order to . restrain, in Cudia"at, the
i"ple"entation of an a.ard on a public biddin& for the suppl/ of a police call and si&nal bo>
s/ste" for the Cit/ of Manila, and, in N0E0S0, the conduct of the public biddin& for the
suppl/ of steel pipes for its Manila and Suburbs Eater.or3s Pro:ect. he Court held in both
cases that the in:unction issued b/ the C5I of RiAal purportin& to restrain acts outside the
province of RiAal .as null and void for .ant of :urisdiction.
Gndoubtedl/, appl/in& the afore"entioned precepts and pronounce"ents to the instant case, the
.rit of prohibition issued b/ the Manila RC in order to restrain acts be/ond the bounds of the
territorial li"its of its :urisdiction (i.e., in Ili&an Cit/) is null and void.
0lso on a "atter of procedure, the Court further discerns that the Manila RC should have
dis"issed the case outri&ht for failure of 0tlanta to e>haust ad"inistrative re"edies. Gnder R0
*!2-, the decisions of the '0C in all sta&es of procure"ent "a/ be protested. to the head of the
procurin& entit/ throu&h a verified position paper and upon pa/"ent of a protest fee.-$ he
necessit/ for the co"plainin& bid participant to co"plete the protest process before resortin& to
court action cannot be overe"phasiAed. It is a condition precedent to the court9s ta3in&
co&niAance of an action that assails a bid process.-- Ehen precipitatel/ ta3en prior to the
co"pletion of the protest process, such case shall be dis"issed for lac3 of :urisdiction.-8 Ehile
0tlanta "a/ have .ritten the '0C a letter ob:ectin& to so"e of the ter"s and conditions
contained in the biddin& docu"ents to be used for the re+biddin&, its action fell short of the
reDuired protest. It failed to follo. throu&h .ith9 its protest and opted instead to participate in the
re+biddin& .ith full 3no.led&e that the I'RD Procure"ent 1uidelines .ere to be follo.ed
throu&hout the conduct of the bid. 7avin& failed to observe the protest procedure reDuired b/
la., 0tlanta9s case should not have prospered .ith the RC alto&ether.
Eith the procedural "atters havin& been resolved, the Court no. proceeds to discuss the
substantive aspect of this case concernin& the S60 and 6and 'an39s clai"ed e>e"ption fro" the
provisions of R0 *!2-.
'. SG'S0NIVE ISSGES?
he 0pplicabilit/ of the 'iddin&
Procedure under R0 *!2-@ and the
Nature of 6oan No. -2$$+P7 J and its
Relation to the S60.
Ehile "andatin& adherence to the &eneral polic/ of the &overn"ent that contracts for the
procure"ent of civil .or3s or suppl/ of &oods and eDuip"ent shall be underta3en onl/ after
co"petitive public biddin&, R0 *!2- reco&niAes the countr/9s co""it"ent to abide b/ its
obli&ations under an/ treat/ or international or e>ecutive a&ree"ent. his is pertinentl/ provided
in Section - of R0 *!2- .hich reads as follo.s?
Sec. -. Scope and 0pplication. + his 0ct shall appl/ to the Procure"ent of Infrastructure
Pro:ects, 1oods and Consultin& Services, re&ardless of source of funds, .hether local or forei&n,
b/ all branches and instru"entalities of the &overn"ent, its depart"ent, offices and a&encies,
includin& &overn"ent o.ned andFor +controlled corporations and local &overn"ent units, sub:ect
to the provisions of Co""on.ealth 0ct No. !$2.1wphi1 0n/ treat/ or international or
e>ecutive a&ree"ent affectin& the sub:ect "atter of this 0ct to .hich the Philippine &overn"ent
is a si&nator/ shall be observed. (E"phasis supplied)
he IRR of R0 *!2- further supple"ents the la.9s treat"ent of treaties and international or
e>ecutive a&ree"ents as follo.s?
Section -. Scope and 0pplication of the IRR
-.! his IRR shall appl/ to all procure"ent of an/ branch, a&enc/, depart"ent, bureau,
office or instru"entalit/ of the 1OP, includin& &overn"ent+o.ned andFor +controlled
corporations (1OCCs), &overn"ent financial institutions (15is), state universities and
colle&es (SGCs) and local &overn"ent units (61Gs).
-.# 0n/ reat/ or International or E>ecutive 0&ree"ent to .hich the 1OP is a si&nator/
affectin& the sub:ect "atter of the 0ct and this IRR shall be observed. In case of conflict
bet.een the ter"s of the reat/ or International or E>ecutive 0&ree"ent and this IRR,
the for"er shall prevail.
-.$ Gnless the reat/ or International or E>ecutive 0&ree"ent e>pressl/ provides use of
forei&n &overn"entFforei&n or international financin& institution procure"ent procedures
and &uidelines, this IRR shall appl/ to 5orei&n+funded Procure"ent for &oods,
infrastructure pro:ects, and consultin& services b/ the 1OP.
Consistent .ith the policies and principles set forth in Sections # and $ of this IRR, the 1OP
ne&otiatin& panels shall adopt, as its default position, use of this IRR, or at the ver/ least,
selection throu&h co"petitive biddin&, in all 5orei&n+funded Procure"ent. If the reat/ or
International or E>ecutive 0&ree"ent states other.ise, then the ne&otiatin& panels shall e>plain
in .ritin& the reasons therefor. (E"phasis supplied)
Ehile 0tlanta ad"its that there are e>ceptions to the application of R0 *!2-, it posits that the
Cit/ 1overn"ent of Ili&an could not clai" to be e>e"pt under an/ of the enu"erated instances
because it is not a part/ to the I'RD 6oan 0&ree"ent.-, It further asserts that a provision in the
S60 bet.een 6arid 'an3 and the Cit/ 1overn"ent of Ili&an providin& for procure"ent
procedures different fro" that reDuired under R0 *!2- .ould not be valid since it is not a treat/
or an e>ecutive a&ree"ent in the .a/ that 6oan 0&ree"ent, No. -2$$+P7 is.
he ar&u"ent lac3s "erit.
0s the parties have correctl/ discerned, 6oan 0&ree"ent No. -2$$+P7 is in the nature of an
e>ecutive a&ree"ent. In 'a/an Muna v. Ro"ulo-= ('a/an Muna) the Court defined an
international a&ree"ent as one concluded bet.een states in .ritten for" and &overned b/
international la., 4.hether e"bodied in a sin&le instru"ent or in t.o or "ore related
instru"ents and .hatever its particular desi&nation,4-2 and further e>pounded that it "a/ be in
the for" of either (a) treaties that reDuire le&islative concurrence after e>ecutive ratification@ or
( b) e>ecutive a&ree"ents that are si"ilar to treaties, e>cept that the/ do not reDuire le&islative
concurrence and are usuall/ less for"al and deal .ith a narro.er ran&e of sub:ect "atters than
treaties.-* E>a"inin& its features, 6oan 0&ree"ent No. -2$$+P7 bet.een the I'RD and the
6and 'an3 is an inte&ral co"ponent of the 1uarantee 0&ree"ent e>ecuted b/ the 1overn"ent of
the Philippines as a sub:ect of international la. possessed of a treat/+"a3in& capacit/, and the
I'RD, .hich, as an international lendin& institution or&aniAed b/ .orld &overn"ents to provide
loans conditioned upon the &uarantee of repa/"ent b/ the borro.in& soverei&n state, is li3e.ise
re&arded a sub:ect of international la. and possessed of the capacit/ to enter into e>ecutive
a&ree"ents .ith soverei&n states. 'ein& si"ilar to a treat/ but .ithout reDuirin& le&islative
concurrence, 6oan 0&ree"ent No. -2$$+P7 + follo.in& the definition &iven in the 'a/an Muna
case + is an e>ecutive a&ree"ent and is, thus, &overned b/ international la.. O.in& to this
classification, the 1overn"ent of the Philippines is therefore obli&ated to observe its ter"s and
conditions under the rule of pacta sunt servanda, a funda"ental "a>i" of international la. that
reDuires the parties to 3eep their a&ree"ent in &ood faith.8% It bears pointin& out that the pacta
sunt servanda rule has beco"e part of the la. of the land throu&h the incorporation clause found
under Section #, 0rticle II of the !*2= Philippine Constitution, .hich states that the Philippines
4adopts the &enerall/ accepted principles of international la. as part of the la. of the land and
adheres to the polic/ of peace, eDualit/, :ustice, freedo", cooperation, and a"it/ .ith all
nations.4 Keepin& in "ind the fore&oin& attributions, the .Court no. e>a"ines the S60 and its
relation .ith 6oan 0&ree"ent No. -2$$+P7.
0s "a/ be palpabl/ observed, the ter"s and conditions of 6oan 0&ree"ent No. -2$$+P7, bein&
a pro:ect+based and &overn"ent+&uaranteed loan facilit/, .ere incorporated and "ade part of the
S60 that .as subseDuentl/ entered into b/ 6and 'an3 .ith the Cit/ 1overn"ent of Ili&an.8!
ConseDuentl/, this "eans that the S60 cannot be treated as an independent and unrelated
contract but as a con:unct of, or havin& a :oint and si"ultaneous occurrence .ith, 6oan
0&ree"ent No. -2$$+P7. Its nature and consideration, bein& a "ere accessor/ contract of 6oan
0&ree"ent No. -2$$+P7, are thus the sa"e as that of its principal contract fro" .hich it
receives life and .ithout .hich it cannot e>ist as an independent contract.8# Indeed, the
accessor/ follo.s the principal@8$ and, conco"itantl/, accessor/ contracts should not be read
independentl/ of the "ain contract.8- 7ence, as 6and 'an3 correctl/ puts it, the S60 has
attained indivisibilit/ .ith the 6oan 0&ree"ent and the 1uarantee 0&ree"ent throu&h the
incorporation of each other9s ter"s and conditions such that the character of one has li3e.ise
beco"e the character of the other.
Considerin& that 6oan 0&ree"ent No. -2$$+P7 e>pressl/ provides that the procure"ent of the
&oods to be financed fro" the loan proceeds shall be in accordance .ith the I'RD 1uidelines
and the provisions of Schedule -, and that the accessor/ S60 contract "erel/ follo.s its
principal 9s ter"s and conditions, the procedure for co"petitive public biddin& prescribed under
R0 *!2- therefore finds no application to the procure"ent of &oods for the Ili&an Cit/ Eater
Suppl/ S/ste" Develop"ent and E>pansion Pro:ect. he validit/ of si"ilar stipulations in
forei&n loan a&ree"ents reDuirin& the observance of I'RD Procure"ent 1uidelines in the
procure"ent process has, in fact, been previousl/ upheld b/ the Court in the case of Depart"ent
of 'ud&et and Mana&e"ent Procure"ent Service (D'MPS) v. Kolon.el radin&,88 viA.?
he Duestion as to .hether or not forei&n loan a&ree"ents .ith international financial
institutions, such as 6oan No. =!!2+P7, parta3e of an e>ecutive or international a&ree"ent
.ithin the purvie. of Section - of R.0. No. *!2-, has been ans.ered b/ the Court in the
affir"ative in B0ba/a v. Sec. Ebdane, ;r., 8-- Phil. ,-8 (#%%=)C. Si&nificantl/, 0ba/a declared
that the RP+;'IC loan a&ree"ent .as to be of &overnin& application over the CP I pro:ect and
that the ;'IC J Procure"ent 1uidelines, as stipulated in the loan a&ree"ent, shall pri"aril/
&overn the procure"ent of &oods necessar/ to i"ple"ent the "ain pro:ect.
Gnder the funda"ental international la. principle of pacta sunt servanda, .hich is in fact
e"bodied in the afore+Duoted Section - of R.0. No. *!2-, the RP, as borro.er, bound itself to
perfor" in &ood faith its duties and obli&ation under 6oan No. =!!2+P7. 0ppl/in& this postulate
in the concrete to this case, the I0'0C .as le&all/ obli&ed to co"pl/ .ith, or accord, pri"ac/
to, the E' 1uidelines on the conduct and i"ple"entation of the biddin&Fprocure"ent process in
Duestion.8,
Eith the nature and treat"ent of 6oan 0&ree"ent No. -2$$+P7 as .ell as its accessor/ S60
herein e>plained, the Court thus holds that the RC co""itted reversible error in rulin& that the
provisions of R0 *!2- .ere to be applied in this case. Luite the contrar/, it is the I'RD
1uidelines and the provisions of Schedule - .hich should &overn. 0s such, the procure"ent of
.ater pipes b/ the '0C of the Cit/ 1overn"ent of Ili&an +as 6and 'an3 "eritoriousl/ sub"its
in its petition + is be/ond the purvie. of R0 *!2-, /ieldin& as it should to the e>press
stipulations found in the e>ecutive a&ree"ent, to .hich the latter9s accessor/ "erel/ follo.s.
In vie. of all these errors, both on procedural and substantive counts, the Court is hereb/ bound
to reverse the trial court9s decision and accordin&l/ &rant the present petition.
E7ERE5ORE, the petition is 1R0NED. he Decision dated Septe"ber $, #%!% of the
Re&ional rial Court of Manila, 'ranch #! (Manila RC) in Civil Case No. %*+!##,-$ is hereb/
REVERSED and SE 0SIDE. he Petition for Prohibition and Manda"us filed before the
Manila RC is DISMISSED.
SO ORDERED.
ESTELA M. PERLAS$BERNABE
0ssociate ;ustice
EE CONCGR?
ANTON#O T. CARP#O
0ssociate ;ustice
Chairperson
ARTURO D. BR#ON MAR#ANO C. DEL CAST#LLO
0ssociate ;ustice 0ssociate ;ustice
JOSE PORTUGAL PERE%
0ssociate ;ustice
0 E S 0 I O N
I attest that the conclusions in the above Decision had been reached in consultation before the
case .as assi&ned to the .riter of the opinion of the Court9s Division.
ANTON#O T. CARP#O
0ssociate ;ustice
Chairperson, Second Division
C E R I 5 I C 0 I O N
Pursuant to Section !$, 0rticle VIII of the Constitution, and the Division Chairperson9s
0ttestation, I certif/ that the conclusions in the above Decision had been reached in consultation
before the case .as assi&ned to the .riter of the opinion of the Court9s Division.
MAR#A LOURDES P. A. SERENO
Chief ;ustice