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G.R. No. L-55397 February 29, 1988

TAI TONG CHUACHE CO., petitioner,vs.THE IN!URANCE CO""I!!ION a#$ TRA%ELLER! "ULTI-IN&E"NIT'COR(ORATION, respondents.

GANCA'CO,J.:

This petition for review on certiorari seeks the reversal of the decision of the InsuranceCommission in IC Case #367 1dismissing the complaint 2for recovery of the allegedunpaid alance of the proceeds of the !ire Insurance "olicies issued y herein respondentinsurance company in favor of petitionerintervenor.

The facts of the case as found y respondent Insurance Commission are as follows$

Complainants ac%uired from a certain &olando 'on(ales a parcel ofland and a uilding located at )an &afael *illage, +avao City.Complainants assumed the mortgage of the uilding in favor of ).).).,which uilding was insured with respondent ).).). ccredited 'roup ofInsurers for "-,///.//.

On April 19, 1975, Azucena Palomo obtained a loan from Tai TongChuache Inc.in the amount of "0//,///.//. To secure the payment ofthe loan, a mortgage was e1ecuted over the land and the uilding infavor of Tai Tong Chuache 2 Co. !hibit "1" and "1#A"4. 5n pril -,07, rsenio Chua, repre$entati%e of Thai Tong Chuache & Co. insuredthe latters interest with Travellers 8ultiIndemnity Corporation for"0//,///.// "7/,///.// for the uilding and "3/,///.// for the

contents thereof4 91hiit :a,: contents thereof4 91hiit :a:4.

5n ;une 00, 07, "edro "alomo secured a !ire Insurance "olicy

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>?/

hil.

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//

De are showing hereunder another apportionment of the loss whichincludes the Travellers 8ultiIndemnity policy for reference purposes.

"olicy

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!!!

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@ased on the computation of the loss, including the Travellers 8ultiIndemnity, respondents, =enith Insurance, "hil. @ritish ssurance and).).). ccredited 'roup of Insurers, paid their corresponding shares ofthe loss. Complainants were paid the following$ "?0,?6.7 y"hilippine @ritish ssurance Co., "00,>77.0? y =enith InsuranceCorporation, and ",36.7 y ).).). 'roup of ccredited Insurers "ar.6. mended Complaint4. +emand was made from respondent Travellers8ultiIndemnity for its share in the loss ut the same was refused.ence, complainants demanded from the other three 34 respondentsthe alance of each share in the loss ased on the computation of thedBustment )tandards &eport e1cluding Travellers 8ultiIndemnity inthe amount of "3/,>?.30 ",73-.7=enith Insurance$ "--,-?.6-,

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"hil. @ritish$ and "-,>66./, ))) ccredited4 ut the same was refused,hence, this action.

In their answers, "hilippine @ritish ssurance and =enith InsuranceCorporation admitted the material allegations in the complaint, utdenied liaility on the ground that the claim of the complainants had

already een waived, e1tinguished or paid. @oth companies set upcounterclaim in the total amount of " 0,?6.7.

Instead of Aling an answer, ))) ccredited 'roup of Insurers informedthe Commission in its letter of ;uly --, 077 that the herein claim ofcomplainants for the alance had een paid in the amount of ",3>.7 in full, ased on the dBustment )tandards Corporation&eport of )eptemer --, 07.

Travellers Insurance, on its part, admitted the issuance of the"olicy 'o. 599 ()

and alleged as its special and aFrmative defensesthe following, to wit$ that !ire "olicy 'o. 599 (), covering the furnitureand uilding of complainants was secured y a certain Ar$enio Chua,mortgage creditor, for the purpose of protecting his mortgage credit

against the complainantsG that the said policy was issued in the nameof (ucena "alomo, only to indicate that she owns the insuredpremisesG that the policy contains an endorsement in favor of rsenioChua as his mortgage interest may appear to indicate that insured wasrsenio Chua and the complainantsG that the premium due on said Arepolicy was paid y rsenio ChuaG that respondent Travellers is notliale to pay complainants.

5n 8ay 30, 077, Tai Tong Chuache 2 Co. Aled a complaint inintervention claiming the proceeds of the Are Insurance "olicy

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rsenio Hope( Chua stands as the complainant and not Tai Tong Chuache. !rom saidevidence respondent commission inferred that the credit e1tended y herein petitionerto the "alomos secured y the insured property must have een paid. )uch is a glaringerror which this Court cannot sanction. &espondent Commissions Andings are asedupon a mere inference.

The record of the case shows that the petitioner to support its claim for the insuranceproceeds oJered as evidence the contract of mortgage 91h. 04 which has not eencancelled nor released. It has een held in a long line of cases that when the creditor isin possession of the document of credit, he need not prove nonpayment for it ispresumed. 8The validity of the insurance policy taken petitioner was not assailed yprivate respondent. 8oreover, petitioners claim that the loan e1tended to the "alomoshas not yet een paid was corroorated y (ucena "alomo who testiAed that they arestill indeted to herein petitioner. 9

"ulic respondent argues however, that if the civil case really stemmed from the loangranted to (ucena "alomo y petitioner the same should have een rought y Tai TongChuache or y its representative in its own ehalf. !rom the aove premise respondentconcluded that the oligation secured y the insured property must have een paid.

The premise is correct ut the conclusion is wrong. Citing &ule 3, )ec. -1+

respondentpointed out that the action must e rought in the name of the real party in interest. Deagree. owever, it should e orne in mind that petitioner eing a partnership may sueand e sued in its name or y its duly authori(ed representative. The fact that rsenioHope( Chua is the representative of petitioner is not %uestioned. "etitioners declarationthat rsenio Hope( Chua acts as the managing partner of the partnership wascorroorated y respondent insurance company. 11Thus Chua as the managing partnerof the partnership may e1ecute all acts of administration 12including the right to suedetors of the partnership in case of their failure to pay their oligations when it ecamedue and demandale. 5r at the very least, Chua eing a partner of petitioner Tai TongChuache 2 Company is an agent of the partnership. @eing an agent, it is understood thathe acted for and in ehalf of the Arm.13"ulic respondents allegation that the civil caseKied y rsenio Chua was in his capacity as personal creditor of spouses "alomo has noasis.

The respondent insurance company having issued a policy in favor of herein petitionerwhich policy was of legal force and eJect at the time of the Are, it is ound y its termsand conditions. pon its failure to prove the allegation of lack of insurale interest on thepart of the petitioner, respondent insurance company is and must e held liale.

I< *I9D 5! T9 !5&9'5I

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(ANGANIAN,J.

There is grave ause of discretion 04 when an act is done contrary to the Constitution,the law or BurisprudenceG0or -4 when it is e1ecuted whimsically, capriciously or aritrarilyout of malice, ill will or personal ias.-In the present case, the Commission on 9lectionsapproved the assailed &esolution and awarded the suBect Contract not only in clear

violation of law and Burisprudence, ut also in reckless disregard of its own idding rulesand procedure. !or the automation of the counting and canvassing of the allots in the-//? elections, Comelec awarded the Contract to :8ega "aciAc Consortium: an entitythat had not participated in the idding. +espite this grant, the poll ody signed theactual automation Contract with :8ega "aciAc e)olutions, Inc.,: a company that Boinedthe idding ut had not met the eligiility re%uirements.

Comelec awarded this illionpeso undertaking with ine1plicale haste, withoutade%uately checking and oserving mandatory Anancial, technical and legalre%uirements. It also accepted the proferred computer hardware and software even if, atthe time of the award, they had undenialy failed to pass eight critical re%uirementsdesigned to safeguard the integrity of elections, especially the following three items$

L They failed to achieve the accuracy rating criteria of . percent setup

y the Comelec itself

L They were not ale to detect previously downloaded results at variouscanvassing or consolidation levels and to prevent these from eing inputtedagain

L They were unale to print the statutorily re%uired audit trails of thecountEcanvass at diJerent levels without any loss of data

@ecause of the foregoing violations of law and the glaring grave ause of discretioncommitted y Comelec, the Court has no choice ut to e1ercise its solemn :constitutionalduty:3to void the assailed &esolution and the suBect Contract. The illegal, imprudentand hasty actions of the Commission have not only desecrated legal and Burisprudentialnorms, ut have also cast serious douts upon the poll odyMs aility and capacity toconduct automated elections. Truly, the pith and soul of democracy credile, orderly,and peaceful elections has een put in Beopardy y the illegal and gravely ausive actsof Comelec.

T4e Cae

@efore us is a "etition?under &ule 6 of the &ules of Court, seeking 04 to declare nulland void &esolution

In the 8ay -//0 elections, the counting and canvassing of votes for oth national andlocal positions were also done manually, as no additional C8s had een ac%uired forthat electoral e1ercise allegedly ecause of time constraints.

5n 5ctoer -, -//-, Comelec adopted in its &esolution /-/07/ a moderni(ationprogram for the -//? elections. It resolved to conduct iddings for the three 34 phasesof its utomated 9lection )ystemG namely, "hase I *oter &egistration and *alidation)ystemG "hase II utomated Counting and Canvassing )ystemG and "hase III 9lectronicTransmission.

5n ;anuary -?, -//3, "resident 'loria 8acapagalrroyo issued 91ecutive 5rder , -//3, the Commission issued an :Invitation to pply for 9ligiility and to@id,: which we %uote as follows$

:I

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5nly ids from the following entities shall e entertained$

a. +uly licensed !ilipino citi(ensEproprietorshipsG

. "artnerships duly organi(ed under the laws of the "hilippines and ofwhich at least si1ty percent 6/O4 of the interest elongs to citi(ens of

the "hilippinesG

c. Corporations duly organi(ed under the laws of the "hilippines, and ofwhich at least si1ty percent 6/O4 of the outstanding capital stockelongs to citi(ens of the "hilippinesG

d. 8anufacturers, suppliers andEor distriutors forming themselves intoa Boint venture, i.e., a group of two -4 or more manufacturers,suppliers andEor distriutors that intend to e Bointly and severallyresponsile or liale for a particular contract, provided that !ilipinoownership thereof shall e at least si1ty percent 6/O4G and

e. Cooperatives duly registered with the Cooperatives +evelopment

uthority.

@id documents for the three 34 phases may e otained starting 0/ !eruary-//3, during oFce hours from the @ids and wards Committee @C4)ecretariatE5Fce of Commissioner &esurreccion =. @orra, 7th !loor, "alacio del'overnador, Intramuros, 8anila, upon payment at the Cash +ivision,Commission on 9lections, in cash or cashierMs check, payale to the Commissionon 9lections, of a nonrefundale amount of !I!T99< T5) !eruary -//3 at $// a.m.

The C589H9C reserves the right to review the %ualiAcations of the idders afterthe idding and efore the contract is e1ecuted. )hould such review uncoverany misrepresentation made in the eligiility statements, or any changes in thesituation of the idder to materially downgrade the sustance of suchstatements, the C589H9C shall dis%ualify the idder upon due notice without

any oligation whatsoever for any e1penses or losses that may e incurred y itin the preparation of its id.:

5n !eruary 00, -//3, Comelec issued &esolution

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convened a preid conference on !eruary 0>, -//3 and gave prospective idders until8arch 0/, -//3 to sumit their respective ids.

mong others, the &!" provided that ids from manufacturers, suppliers andEordistriutors forming themselves into a Boint venture may e entertained, provided thatthe "hilippine ownership thereof shall e at least 6/ percent. +oint %entureis deAned in

the &!" as :a group of two or more manufacturers, suppliers andEor distriutors thatintend to e Bointly and severally responsile or liale for a particular contract.: 00

@asically, the pulic idding was to e conducted under a to#en%elope-to $tage$*$tem. The idderMs Arst envelope or the 9ligiility 9nvelope should estalish theidderMs eligiility to id and its %ualiAcations to perform the acts if accepted. 5n theother hand, the second envelope would e the @id 9nvelope itself. The &!" outlines theidding procedures as follows$

:-. (etermination of ligibilit* of Pro$pecti%e idder$

:-.0 The eligiility envelopes of prospective @idders shall e openedArst to determine their eligiility. In case any of the re%uirementsspeciAed in Clause -/ is missing from the Arst id envelope, the @Cshall declare said prospective @idder as ineligile to id. @id envelopesof ineligile @idders shall e immediately returned unopened.

:-.- The eligiility of prospective @idders shall e determined usingsimple QpassEfailM criteria and shall e determined as either eligile orineligile. If the prospective @idder is rated QpassedM for all the legal,technical and Anancial re%uirements, he shall e considered eligile. Ifthe prospective @idder is rated QfailedM in any of the re%uirements, heshall e considered ineligile.

:-6. id !amination-%aluation

:-6.0 The @C will e1amine the @ids to determine whether they are

complete, whether any computational errors have een made, whetherre%uired securities have een furnished, whether the documents haveeen properly signed, and whether the @ids are generally in order.

:-6.- The @C shall check the sumitted documents of each @idderagainst the re%uired documents enumerated under Clause -/, toascertain if they are all present in the )econd id envelope Technical9nvelope4. In case one 04 or more of the re%uired documents ismissing, the @C shall rate the @id concerned as QfailedM andimmediately return to the @idder its Third id envelope !inancial9nvelope4 unopened. 5therwise, the @C shall rate the Arst idenvelope as QpassedM.

:-6.3 The @C shall immediately open the !inancial 9nvelopes of the

@idders whose Technical 9nvelopes were passed or rated on or aovethe passing score. 5nly @ids that are determined to contain all the id

re%uirements for oth components shall e rated QpassedM and shallimmediately e considered for evaluation and comparison.

:-6.? In the opening and e1amination of the !inancial 9nvelope, the@C shall announce and taulate the Total @id "rice as calculated.rithmetical errors will e rectiAed on the following asis$ If there is a

discrepancy etween words and Agures, the amount in words willprevail. If there is a discrepancy etween the unit price and the totalprice that is otained y multiplying the unit price and the %uantity,the unit price shall prevail and the total price shall e correctedaccordingly. If there is a discrepancy etween the Total @id "rice andthe sum of the total prices, the sum of the total prices prevail and theTotal @id "rice shall e corrected accordingly.

:-6. !inancial "roposals which do not clearly state the Total @id "riceshall e reBected. lso, Total @id "rice as calculated that e1ceeds theapproved udget for the contract shall also e reBected.

-7. Compari$on of id$

-7.0 The id price shall e deemed to emrace all costs, charges andfees associated with carrying out all the elements of the proposedContract, including ut not limited to, license fees, freight charges andta1es.

-7.- The @C shall estalish the calculated prices of all @ids ratedQpassedM and rank the same in ascending order.

1 1 1 1 1 1 1 1 1

:-. Po$t/uali0cation

:-.0 The @C will determine to its satisfaction whether the @idderselected as having sumitted the lowest calculated id is %ualiAed tosatisfactorily perform the Contract.

:-.- The determination will take into account the @idderMs Anancial,technical and production capailitiesEresources. It will e ased uponan e1amination of the documentary evidence of the @idderMs%ualiAcation sumitted y the @idder as well as such other informationas the @C deems necessary and appropriate.

:-.3 id determined as not sustantially responsive will e reBectedy the @C and may not suse%uently e made responsive y the@idder y correction of the nonconformity.

:-.? The @C may waive any informality or nonconformity orirregularity in a id which does not constitute a material deviation,

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provided such waiver does not preBudice or aJect the relative rankingof any @idder.

:-. )hould the @C And that the @idder complies with the legal,Anancial and technical re%uirements, it shall make an aFrmativedetermination which shall e a prere%uisite for award of the Contract

to the @idder. 5therwise, it will make a negative determination whichwill result in reBection of the @idderMs id, in which event the @C willproceed to the ne1t lowest calculated id to make a similardetermination of that @idderMs capailities to perform satisfactorily.:0-

5ut of the 7 idders,03the @C found 8"C and the Total Information 8anagementCorporation TI8C4 eligile. !or technical evaluation, they were referred to the @CMsTechnical Dorking 'roup TD'4 and the +epartment of )cience and Technology +5)T4.

In its &eport on the 9valuation of the Technical "roposals on "hase II, +5)T said that oth8"C and TI8C had otained a numer of failed marks in the technical evaluation.?36. 8oreover, petitionerssupposedly admitted during the 5ral rgument that no law had een violated y theaward of the Contract. !urthermore, they allegedly have no actual and material interestin the Contract and, hence, do not stand to e inBured or preBudiced on account of theaward.

5n the other hand, petitioners suing in their capacities as ta1payers, registered votersand concerned citi(ens respond that the issues central to this case are :oftranscendental importance and of national interest.: llegedly, ComelecMs Kawed iddingand %uestionale award of the Contract to an un%ualiAed entity would impact directly onthe success or the failure of the electoral process. Thus, any taint on the sanctity of theallot as the e1pression of the will of the people would inevitaly aJect their faith in thedemocratic system of government. "etitioners further argue that the award of anycontract for automation involves disursement of pulic funds in gargantuan amountsGtherefore, pulic interest re%uires that the laws governing the transaction must efollowed strictly.

De agree with petitioners. 5ur nationMs political and economic future virtually hangs inthe alance, pending the outcome of the -//? elections. ence, there can e no seriousdout that the suBect matter of this case is :a matter of pulic concern and imued withpulic interest:G0>in other words, it is of :paramount pulic interest:0and:transcendental importance.:-/This fact alone would Bustify rela1ing the rule on legalstanding, following the lieral policy of this Court whenever a case involves :an issue ofoverarching signiAcance to our society.:-0"etitionersM legal standing should therefore erecogni(ed and upheld.

8oreover, this Court has held that ta1payers are allowed to sue when there is a claim of:illegal disursement of pulic funds,:--or if pulic money is eing :deKected to anyimproper purpose:G-3or when petitioners seek to restrain respondent from :wasting

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pulic funds through the enforcement of an invalid or unconstitutional law.:-?In theinstant case, individual petitioners, suing as ta1payers, assert a material interest inseeing to it that pulic funds are properly and lawfully used. In the "etition, they claimthat the idding was defective, the winning idder not a %ualiAed entity, and the awardof the Contract contrary to law and regulation. ccordingly, they seek to restrainrespondents from implementing the Contract and, necessarily, from making anyunwarranted e1penditure of pulic funds pursuant thereto. Thus, we hold that petitioners

possess locu$ $tandi.

!e6o#$ (ro6e$ura: Iue

Alleged Prematurity Due to Non-Exhaustion of Administrative emedies

&espondents claim that petitioners acted prematurely, since they had not Arst utili(edthe protest mechanism availale to them under & 0>?, the 'overnment "rocurement&eform ct, for the settlement of disputes pertaining to procurement contracts.

)ection of & 0>? states that protests against decisions of the @idding and wardsCommittee in all stages of procurement may e lodged with the head of the procuringentity y Aling a veriAed position paper and paying a protest fee. )ection 7 of the same

law mandates that in no case shall any such protest stay or delay the idding process,ut it must Arst e resolved efore any award is made.

5n the other hand, )ection > provides that court action may e resorted to only afterthe protests contemplated y the statute shall have een completed. Cases Aled inviolation of this process are to e dismissed for lack of Burisdiction. &egional trial courtsshall have Burisdiction over Anal decisions of the head of the procuring entity, and courtactions shall e instituted pursuant to &ule 6 of the 07 &ules of Civil "rocedure.

&espondents assert that throughout the idding process, petitioners never %uestionedthe @C &eport Anding 8"C eligile to id and recommending the award of the Contractto it 8"C4. ccording to respondents, the &eport should have een appealed to theComelc en anc, pursuant to the aforementioned sections of & 0>?. In the asence ofsuch appeal, the determination and recommendation of the @C had ecome Anal.

The Court is not persuaded.

&espondent Comelec came out with its en anc &esolution

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2econd, without necessarily ascriing any premature malice or premeditation on the partof the Comelec oFcials involved, it should nevertheless e conceded that this carteforethehorse maneuver awarding of the Contract ahead of the @CMs written report4would deAnitely serve as a clever and eJective way of averting and frustrating anyimpending protest under )ection .

aving made the foregoing oservations, we now go ack to the %uestion of e1haustingadministrative remedies. &espondents may not have reali(ed it, ut the letter addressedto Chairman @enBamin alos )r. dated 8ay -, -//3->serves to eliminate theprematurity issue as it was an actual written protest against the decision of the poll odyto award the Contract. The letter was signed yEfor, inter alia, two of herein petitioners$the Information Technology !oundation of the "hilippines, represented y its president,lfredo 8. TorresG and 8a. Cora(on kol.

)uch letterprotest is suFcient compliance with the re%uirement to e1haustadministrative remedies particularly ecause it hews closely to the procedure outlined in)ection of & 0>?.

nd even without that 8ay -, -//3 letterprotest, the Court still holds that petitionersneed not e1haust administrative remedies in the light of "aat v. Court of ppeals.-"aat

enumerates the instances when the rule on e1haustion of administrative remedies maye disregarded, as follows$

:04 when there is a violation of due process,

-4 when the issue involved is purely a legal %uestion,

34 when the administrative action is patently illegal amounting to lack ore1cess of Burisdiction,

?4 when there is estoppel on the part of the administrative agency concerned,

4 when there is irreparale inBury,

64 when the respondent is a department secretary whose acts as an alter egoof the "resident ears the implied and assumed approval of the latter,

74 when to re%uire e1haustion of administrative remedies would eunreasonale,

>4 when it would amount to a nulliAcation of a claim,

4 when the suBect matter is a private land in land case proceedings,

0/4 when the rule does not provide a plain, speedy and ade%uate remedy, and

004 when there are circumstances indicating the urgency of Budicialintervention.:3/

The present controversy precisely falls within the e1ceptions listed as

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@. !ailure of the automated counting machines C8s4 to pass the +5)Ttechnical tests

C. &emedial measures and retestings undertaken y Comelec and +5)T afterthe award, and their eJect on the present controversy

.

!ailure to 9stalish the Identity, 91istence and 9ligiility of the lleged Consortium as a@idder

5n the %uestion of the identity and the e1istence of the real idder, respondents insistthat, contrary to petitionersM allegations, the idder was not 8ega "aciAc e)olutions, Inc.8"9I4, which was incorporated only on !eruary -7, -//3, or 00 days prior to theidding itself. &ather, the idder was 8ega "aciAc Consortium 8"C4, of which 8"9I wasut a part. s proof thereof, they point to the 8arch 7, -//3 letter of intent to id, signedy the president of 8"9I allegedly for and on ehalf of 8"C. They also call attention tothe oFcial receipt issued to 8"C, acknowledging payment for the idding documents, asproof that it was the :consortium: that participated in the idding process.

De do not agree. The 8arch 7, -//3 letter, signed y only one signatory :Dilly . Nu,"resident, 8ega "aciAc e)olutions, Inc., Head CompanyE "roponent4 !or$ 8ega "aciAcConsortium: and without any further proof, does not y itself prove the e1istence ofthe consortium. It does not show that 8"9I or its president have een duly preauthori(ed y the other memers of the putative consortium to represent them, to id ontheir collective ehalf and, more important, to commit them Bointly and severally to theid undertakings. The letter is purely selfserving and uncorroorated.

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Inasmuch as Comelec should not have considered 8"9I et al. as comprising a consortiumor Boint venture, it should not have allowed them to avail themselves of the provision in)ection .? 4 i4 of the I&& for & 67 the @uild5perateTransfer Haw4, as amendedy & 770>. This provision states in part that a Boint ventureEconsortium proponent shalle evaluated ased on the individual or collective e1perience of the memerArms of theBoint venture or consortium and of the contractors4 that it has engaged for the proBect."arenthetically, respondents have uniformly argued that the said I&& of & 67, as

amended, have suppletory application to the instant case.

ence, had the proponent 8"9I een evaluated ased solely on its own e1perience,Anancial and operational track record or lack thereof, it would surely not have %ualiAedand would have een immediately considered ineligile to id, as respondents readilyadmit.

t any rate, it is clear that Comelec gravely aused its discretion in aritrarily failing tooserve its own rules, policies and guidelines with respect to the idding process,therey negating a fair, honest and competitive idding.

$ommissioners Not A'are of $onsortium

In this regard, the Court is eguiled y the statements of Commissioner !lorentinoTuason ;r., given in open court during the 5ral rgument last 5ctoer 7, -//3. The goodcommissioner aFrmed that he was aware, of his own personal knowledge, that there hadindeed een a written agreement among the :consortium: memers,3?although it was aninternal matter among them,3and of the fact that it would e presented y counsel forprivate respondent.36

owever, under %uestioning y Chief ;ustice ilario '. +avide ;r. and ;ustice ;ose C. *itug,Commissioner Tuason in eJect admitted that, while he was the commissionerinchargeof ComelecMs Hegal +epartment, he had never seen, even up to that late date, theagreement he spoke of.37nder further %uestioning, he was likewise unale to provideany information regarding the amounts invested into the proBect y several memers ofthe claimed consortium.3> short while later, he admitted that the Commission had nottaken a look at the agreement if any4. 3

e tried to Bustify his position y claiming that he was not a memer of the @C.

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L :Teaming greement: etween 8"9I and 9lection.com Htd.

L :Teaming greement: etween 8"9I and e"H+T

In sum, each of the four diJerent and separate ilateral greements is valid and indingonly etween 8"9I and the other contracting party, leaving the other :consortium:

memers total strangers thereto. nder this setup, 8"9I dealt separately with each ofthe :memers,: and the latter De)olv, )S C2C, 9lection.com, and e"H+T4 in turn hadnothing to do with one another, each dealing only with 8"9I.

&espondents assert that these four greements were suFcient for the purpose ofenaling the corporations to still %ualify even at that late stage4 as a consortium or Bointventure, since the Arst two greements had allegedly set forth the Boint and severalundertakings among the parties, whereas the latter two clariAed the partiesM respectiveroles with regard to the "roBect, with 8"9I eing the independent contractor and9lection.com and e"H+T the sucontractors.

dditionally, the use of the phrase :particular contract: in the ComelecMs &e%uest for"roposal &!"4, in connection with the Boint and several liailities of companies in a Bointventure, is taken y them to mean that all the memers of the Boint venture need not e

solidarily liale for the entire proBect or Boint venture, ecause it is suFcient that the leadcompany and the memer in charge of a particular contract or aspect of the Bointventure agree to e solidarily liale.

t this point, it must e stressed most vigorously that the sumission of the four ilateralgreements to Comelec after the end of the idding process did nothing to eliminate thegrave ause of discretion it had already committed on pril 0, -//3.

Deciencies ave Not #een /$ured/

In any event, it is also claimed that the automation Contract awarded y Comelecincorporates all documents e1ecuted y the :consortium: memers, even if thesedocuments are not referred to therein. The asis of this assertion appears to e the

passages from )ection 0.? of the Contract, which is reproduced as follows$

:ll Contract +ocuments shall form part of the Contract even if they or any oneof them is not referred to or mentioned in the Contract as forming a partthereof. 9ach of the Contract +ocuments shall e mutually complementary ande1planatory of each other such that what is noted in one although not shown inthe other shall e considered contained in all, and what is re%uired y any oneshall e as inding as if re%uired y all, unless one item is a correction of theother.

:The intent of the Contract +ocuments is the proper, satisfactory and timelye1ecution and completion of the "roBect, in accordance with the Contract+ocuments. Conse%uently, all items necessary for the proper and timelye1ecution and completion of the "roBect shall e deemed included in the

Contract.:

Thus, it is argued that whatever perceived deAciencies there were in the supplementarycontracts those entered into y 8"9I and the other memers of the :consortium: asregards their Boint and several undertakings have een cured. @etter still, suchdeAciencies have supposedly een prevented from arising as a result of the aove%uoted provisions, from which it can e immediately estalished that each of thememers of 8"C assumes the same Boint and several liaility as the other memers.

The foregoing argument is unpersuasive. !irst, the contract eing referred to, entitled:The utomated Counting and Canvassing "roBect Contract,: is etween Comelec and8"9I, not the alleged consortium, 8"C. To repeat, it is 8"9I not 8"C that is a party tothe Contract.

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e"H+T negate the idea that these :memers: are on a par with one another and are,as such, assuming the same Boint and several liaility.

8oreover, respondents have earlier sei(ed upon the use of the term :particular contract:in the ComelecMs &e%uest for "roposal &!"4, in order to argue that all the memers ofthe Boint venture did not need to e solidarily liale for the entire proBect or Boint venture.

It was suFcient that the lead company and the memer in charge of a particularcontract or aspect of the Boint venture would agree to e solidarily liale. The glaring lackof consistency leaves us at a loss. re respondents trying to estalish the same Boint andsolidary liaility among all the :memers: or notR

Enforcement of Lia"ilities Pro"lematic

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This Court in Silosayan v. 'uingona?6deAned Boint venture as :an association of personsor companies Bointly undertaking some commercial enterpriseG generally, all contriuteassets and share risks. It re%uires a community of interest in the performance of thesuBect matter, a right to direct and govern the policy in connection therewith, and UaVduty, which may e altered y agreement to share oth in proAt and losses.:

'oing ack to the instant case, it should e recalled that the automation Contract withComelec was not e1ecuted y the :consortium: 8"C or y 8"9I for and on ehalf of8"C ut y 8"9I, period. The said Contract contains no mention whatsoever of anyconsortium or memers thereof. This fact alone seems to contradict all the suppositionsaout a Boint undertaking that would normally apply to a Boint venture or consortium$that it is a commercial enterprise involving a community of interest, a sharing of risks,proAts and losses, and so on.

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It is diFcult to imagine how these are greements especially the Arst two could eimplemented in practiceG and how a dispute etween the parties or a claim y Comelecagainst them, for instance, could e resolved without lengthy and deilitating litigations.sent any clearcut statement as to the e1act nature and scope of the partiesMrespective undertakings, commitments, deliverales and covenants, one party oranother can easily dodge its oligation and deny or contest its liaility under thegreementG or claim that it is the other party that should have delivered ut failed to.

Hikewise, in the asence of deAnite indicators as to the amount of investments to econtriuted y each party, disursements for e1penses, the partiesM respective shares inthe proAts and the like, it seems to the Court that this situation could readily give rise toall kinds of misunderstandings and disagreements over money matters.

nder such a scenario, it will e e1tremely diFcult for Comelec to enforce the supposedBoint and several liailities of the memers of the :consortium.: The Court is not evenmentioning the possiility of a situation arising from a failure of De)olv and 8"9I toagree on the scope, the terms and the conditions for the supply of the products andservices under the greement. In that situation, y virtue of paragraph 6 of its 85,De)olv would perforce cease to e ound y its oligations including its Boint andsolidary liaility with 8"9I under the 85 and could forthwith disengage from theproBect. 9Jectively, De)olv could at any time unilaterally e1it from its 85 with 8"9I y

simply failing to agree. Dhere would that outcome leave 8"9I and ComelecR

To the Court, this strange and eguiling arrangement of 8"9I with the other companiesdoes not %ualify them to e treated as a consortium or Boint venture, at least of the typethat government agencies like the Comelec should e dealing with. Dith more reason isit unale to agree to the proposal to evaluate the memers of 8"C on a collective asis.

In any event, the 8"C memers claim to e a Boint ventureEconsortiumG and respondentshave consistently een arguing that the I&& for & 67, as amended, should e appliedto the instant case in order to allow a collective evaluation of consortium memers.)urprisingly, considering these facts, respondents have not deemed it necessary for 8"Cmemers to comply with )ection .? a4 iii4 of the I&& for & 67 as amended.

ccording to the aforementioned provision, if the proBect proponent is a Boint venture orconsortium, the memers or participants thereof are re%uired to sumit a swornstatement that, if awarded the contract, they shall ind themselves to e Bointly,severally and solidarily liale for the proBect proponentMs oligations thereunder. Thisprovision was supposed to mirror )ection of & 67, as amended, which states$ :In allcases, a consortium that participates in a id must present proof that the memers ofthe consortium have ound themselves Bointly and severally to assume responsiility forany proBect. The withdrawal of any memer of the consortium prior to theimplementation of the proBect could e a ground for the cancellation of the contract.:The Court has certainly not seen any Boint and several undertaking y the 8"C memersthat even appro1imates the tenor of that which is descried aove. De fail to see whyrespondents should invoke the I&& if it is for their eneAt, ut refuse to comply with itotherwise.

#.

D!S) )echnical )ests ,lun3ed "y the Automated $ounting (achines

Het us now move to the second sutopic, which deals with the sustantive issue$ theC8Ms failure to pass the tests of the +epartment of )cience and Technology +5)T4.

fter respondent :consortium: and the other idder, TI8, had sumitted their respectiveids on 8arch 0/, -//3, the ComelecMs @C through its Technical Dorking 'roup TD'4and the +5)T evaluated their technical proposals. &e%uirements that were highlytechnical in nature and that re%uired the use of certain e%uipment in the evaluationprocess were referred to the +5)T for testing. The +epartment reported thus$

TE!T RE!ULT! "ATRI/)7

Te64#6a: Eae$ Cou##; "a64#e

ccording to respondents, it was only after the TD' and the +5)T had conducted theirseparate tests and sumitted their respective reports that the @C, on the asis of thesereports formulated its commentsErecommendations on the ids of the consortium and

TI8.

The @C, in its &eport dated pril -0, -//3, recommended that the "hase II proBectinvolving the ac%uisition of automated counting machines e awarded to 8"9I. It said$

:fter incisive analysis of the technical reports of the +5)T and the TechnicalDorking 'roup for "hase II P utomated Counting 8achine, the @C considersadaptaility to advances in modern technology to ensure an eJective andeFcient method, as well as the security and integrity of the system.

:The results of the evaluation conducted y the TD' and that of the +5)T 0?pril -//3 report4, would show the apparent advantage of 8ega"aciAc over theother competitor, TI8.

:The @C further noted that oth 8ega"aciAc and TI8 otained some QfailedmarksM in the technical evaluation. In general, the Qfailed marksM of TotalInformation 8anagement as enumerated aove aJect the counting machineitself which are material in nature, constituting noncompliance to the &!". 5nthe other hand, the Qfailed marksM of 8ega"aciAc are mere formalities oncertain documentary re%uirements which the @C may waive as clearlyindicated in the Invitation to @id.

:In the +5)T test, TI8 otained 0- failed marks and mostly attriuted to thecounting machine itself as stated earlier. These are re%uirements of the &!" andtherefore the @C cannot disregard the same.

:8ega"aciAc failed in > items however these are mostly on the software which

can e corrected y reprogramming the software and therefore can e readilycorrected.

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:The @C verally in%uired from +5)T on the status of the retest of thecounting machines of the TI8 and was informed that the report will eforthcoming after the holy week. The @C was informed that the retest is on adiJerent parameters theyMre eing two diJerent machines eing tested. 5nepurposely to test if previously read allots will e read again and the other forthe other features such as two sided allots.

:The said machine and the software therefore may not e considered the samemachine and program as sumitted in the Technical proposal and therefore maye considered an enhancement of the original proposal.

:dvance information relayed to the @C as of 0$?/ "8 of 0 pril -//3 y91ecutive +irector &onaldo T. *iloria of +5)T is that the result of the test in thetwo counting machines of TI8 contains sustantial errors that may lead to thefailure of these machines ased on the speciAc items of the &!" that +5)T hasto certify.

!PEN2N4 !, ,2NAN$2AL #2DS

:The @C on 0 pril -//3, after notifying the concerned idders opened the

Anancial ids in their presence and the results were as follows$

8ega"aciAc$

5ption 0 P 5utright purchase$ @id "rice if "hp0,-?>,?,/>>.//

5ption - P Hease option$

7/O +own payment of cost of hardware or "hp6?-,7,77./7

&emainder payale over / months or a total of "hp6?-,7,77./7

+iscount rate of 0O p.a. or 0.-3-O per month.

Total

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the cit*-municipal canvassing system software must e ale to detect previouslydownloaded precinct results and prevent these from eing :inputted: again into thesystem. gain, on page 3- of the &!", we read that thepro%incial-di$trictcanvassingsystem software must e ale to detect previously downloaded cityEmunicipal results andprevent these from eing :inputted: again into the system. nd once more, on page 3of the &!", we And the re%uirement that the national canvassing system software muste ale to detect previously downloaded provincialEdistrict results and prevent these

from eing :inputted: again into the system.

5nce again, though, Comelec chose to ignore this crucial deAciency, which should haveeen a cause for the gravest concern. Come 8ay -//?, unscrupulous persons may takeadvantage of and e1ploit such deAciency y repeatedly downloading and feeding into thecomputers results favorale to a particular candidate or candidates.6e are thusconfronted 'ith the grim %ros%ect of election fraud on a massive scale "ymeans of 7ust a fe' 3ey stro3es. )he marvels and 'oes of the electronic age8

2na"ility to Print the Audit )rail

@ut that grim prospect is not all. The @C &eport, on pages 6 and 7, indicate that theC8s of oth idders wereu#ab:e o ?r# 4e au$ ra: without any loss of data. In

the case of 8"C, the audit trail system was :not yet incorporated: into its C8s.

This particular deAciency is signiAcant, not only to this idding ut to the cause of freeand credile elections. The purpose of re%uiring audit trails is to enale Comelec to traceand verify the identities of the C8 operators responsile for data entry anddownloading, as well as the times when the various data were downloaded into thecanvassing system, in order to forestall fraud and to identify the perpetrators.

Thus, the &!" on page -7 states that the ballot counting machine$ and ballot counting$oftare must print an audit trail of all machine operations for documentation andveriAcation purposes. !urthermore, the audit trail must e stored on the internal storagedevice and e availale on demand for future printing and verifying. 5n pages 3/30, the&!" also re%uires that the cit*-municipal canvassing system $oftare e ale to print anaudit trail of the canvassing operations, including therein such data as the date and time

the canvassing program was started, the login of the authori(ed users the identity ofthe machine operators4, the date and time the canvass data were downloaded into thecanvassing system, and so on and so forth. 5n page 33 of the &!", we And the sameaudit trail re%uirement with respect to thepro%incial-di$trict canvassing system $oftareGand again on pages 336 thereof, the same audit trail re%uirement with respect tothe national canvassing system $oftare.

That this re%uirement for printing audit trails is not to e lightly rushed aside y the@C or Comelec itself as a mere formality or technicality can e readily gleaned from theprovisions of )ection 7 of & >?36, which authori(es the Commission to use anautomated system for elections.

The said provision which respondents have %uoted several times, provides that C8s areto possess certain features divided into two classes$ those that the statute itself

considers mandatory and other features or capailities that the law deems optional.mong those considered mandatory are :provisions for audit trails:W )ection 7 reads asfollows$ :The 2*$tem shall contain the folloing feature$ 6a u$e of appropriate ballot$8

6b $tand#alone machine hich can count %ote$ and an automated $*$tem hich cancon$olidate the re$ult$ immediatel*8 6c 'ith %rovisions for audit trails8 6d minimumhuman inter%ention8 and 6e ade/uate $afeguard-$ecurit* mea$ure$.: Italics andemphases supplied.4

In rief, respondents cannot deny that the provision re%uiring audit trails is indeedmandatory, considering the wording of )ection 7 of & >?36.

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Clearly, none of the respondents othered to think the matter through. Comelec simplytook the word of the @C as gospel truth, without even othering to in%uire from +5)Twhether it was true that the deAciencies noted could possily e remedied y reprogramming the software. pparently, Comelec did not care aout the software, utfocused only on purchasing the machines.

Dhat really adds to the CourtMs dismay is the admission made y Commissioner @orraduring the 5ral rgument that the software currently eing used y Comelec was merelythe :demo: version, inasmuch as the Anal version that would actually e used in theelections was still eing developed and had not yet een Anali(ed.

It is not clear when the Anal version of the software would e ready for testing anddeployment. It seems to the Court that Comelec is Bust keeping its Angers crossed andhoping the Anal product would work. Is there a :"lan @: in case it does notR Dho knowsR@ut all these software programs are part and parcel of the idding and the Contractawarded to the Consortium. 4h* i$ it that the machine$ are alread* being brought inand paid for, hen there i$ a$ *et no a* of >noing if the 0nal %er$ion of the $oftareould be able to run them properl*, a$ ell a$ can%a$$ and con$olidate the re$ult$ in themanner re/uiredR

The counting machines, as well as the canvassing system, will never workproperly ithout the correct $oftare program$. There is an old adage that is still valid tothis day$ :'arage in, garage out.: counting machines had een tested and had passed theacceptance testing conducted y the +epartment on 5ctoer >0>, -//3. mong thosetested were some machines that had failed previous tests, ut had undergone

adBustments and thus passed retesting.

nfortunately, the CertiAcations from +5)T fail to divulge in what manner and y whatstandards or criteria the condition, performance andEor readiness of the machines werereevaluated and reappraised and thereafter given the passing mark. part from thatfact, the remedial eJorts of respondents were, not surprisingly, apparently focused againon the machines the hardware. ?,067,67.?0, which corresponded to 0,73 C8 units that had passed theacceptance testing procedures conducted y the 8I&+C+5)T0and which had thereforeeen accepted y the poll ody.

In the same sumission, for the %er* 0r$t time, Comelec also disclosed to the Court thefollowing$

:The utomated Counting and Canvassing "roBect involves not only themanufacturing of the C8 hardware ut also the development of three 34 typesof software, which are intended for use in the following$

0. 9valuation of Technical @ids

-. Testing and cceptance "rocedures

3. 9lection +ay se.:

Purchase of the ,irst )y%e of Soft'are 6ithout Evaluation

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In other words, the Arst type of software was to e developed solely for the purpose ofenaling the evaluation of the idderMs technical id. Comelec e1plained thus$ :Inaddition to the pre$entation of the AC hardare, the bidder$ ere re/uired to de%elopa ba$e= $oftare program that ill enable the AC to function properl*. 2ince the$oftare program utilized during the e%aluation of bid$ i$ not the actual $oftareprogram to be emplo*ed on election da*, there being to 6D other t*pe$ of $oftareprogram that ill $till ha%e to be de%eloped and thoroughl* te$ted prior to actual

election da* u$e, defect$ in the ba$e= $oftare that can be readil* corrected b*reprogramming are con$idered minor in nature, and ma* therefore be ai%ed.:

In short, Comelec claims that it eva luated the ids and made the decision to award theContract to the :winning: idder partly on the asis of the operation of the C8s runninga :ase: software. That software was therefore nothing ut a sample or :demo: software,which would not e the actual one that would e used on election day. Seeping in mindthat the Contract involves the ac%uisition of not Bust the C8s or the hardware, ut alsothe software that would run them, it is now even clearer that the Contract was awardedwithout Comelec having seen, much less evaluated, the Anal product the software thatwould Anally e utili(ed come election day.

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:&5H?36, and :has passed the 8I&+C+5)T tests.: There is no mention at all of anysoftware reprogramming. If the 8I&+C+5)T had indeed undertaken the supposedreprogramming and the process turned out to e successful, that agency would haveproudly trumpeted its singular achievement.

ow Comelec came to elieve that such reprogramming had een undertaken is unclear.In any event, the Commission is not forthright and candid with the factual details. Ifreprogramming has een done, who performed it and whenR Dhat e1actly did theprocess involveR ow can we e assured that it was properly performedR )ince the factsattendant to the alleged reprogramming are still shrouded in mystery, the Court cannotgive any weight to ComelecMs are allegations.

The fact that a total of 0,73 of the machines has ultimately passed the 8I&+C+5)Ttests does not y itself serve as an endorsement of the soundness of the softwareprogram, much less as a proof that it has een reprogrammed. In the Arst place, nothingon record shows that the tests and retests conducted on the machines were intended toaddress the serious deAciencies noted earlier. s a matter of fact, the 8I&+C+5)T letterdoes not even indicate what kinds of tests or retests were conducted, their e1act natureand scope, and the speciAc oBectives thereof.3The asence of relevant supportingdocuments, comined with the utter vagueness of the letter, certainly fails to inspireelief or to Bustify the e1pansive conAdence displayed y Comelec. In an* e%ent, it goe$ithout $a*ing that remedial mea$ure$ $uch a$ the alleged reprogramming cannot inan* a* mitigate the gra%e abu$e of di$cretion alread* committed a$ earl* a$ April 15,DGG.

ationale of Pu"lic #idding Negated

"y the )hird )y%e of Soft'are

&espondent Comelec tries to assuage this CourtMs an1iety in these words$ :Thereprogrammed software that has already passed the re%uirements of &epulic ct ?36 during the 8I&+C+5)T testing and acceptance procedures will re%uire furthercustomi(ation since the following additional elements, among other things, will have toe considered efore the Anal software can e used on election day$ 0. !inal CertiAed Histof Candidates 1 1 1 -. "roBect of "recincts 1 1 1 3. 5Fcial @allot +esign and )ecurity!eatures 1 1 1 ?. 9ncryption, digital certiAcates and digital signatures 1 1 1. The certi0edli$t of candidate$ for national electi%e po$ition$ ill be 0nalized on or before D +anuar*DGG@ hile the 0nal li$t of proHect$ of precinct$ ill be prepared al$o on the $ame date.Once all the abo%e element$ are incorporated in the $oftare program, the Te$t

Certi0cation roup created b* the Ad Foc Technical %aluation Committee ill conductmeticulou$ te$ting of the 0nal $oftare before the $ame can be u$ed on election da*. Inaddition to the te$ting to be conducted b* $aid Te$t Certi0cation roup, the Comelec ill

conduct moc> election$ in $elected area$ nationide not onl* for purpo$e$ of publicinformation but al$o to further te$t the 0nal election da* program. Public re$pondentComelec, therefore, re/ue$t$ that it be gi%en up to 1B ebruar* DGG@ to compl* ith thi$re/uirement.:

The foregoing passage shows the imprudent approach adopted y Comelec in theidding and ac%uisition process. The Commission says that efore the software can eutili(ed on election day, it will re%uire :customi(ation: through addition of data like thelist of candidates, proBect of precincts, and so on. nd inasmuch as such data willecome availale only in ;anuary -//? anyway, there is therefore no perceived need onComelecMs part to rush the supplier into producing the Anal or nearAnal4 version of thesoftware efore that time. In any case, Comelec argues that the software needed for theelectoral e1ercise can e continuously developed, tested, adBusted and perfected,practically all the way up to election day, at the same time that the Commission isundertaking all the other distinct and diverse activities pertinent to the elections.

'iven such a frame of mind, it is no wonder that Comelec paid little attention to thecounting and canvassing software during the entire idding process, which took place in!eruary8arch -//3. 'ranted that the software was defective, could not detect andprevent the reuse of previously downloaded data or produce the audit trail aside fromits other shortcomings nevertheless, all those deAciencies could still e corrected down

the road. t any rate, the software used for idding purposes would not e the same onethat will e used on election day, so why pay any attention to its defectsR 5r to theComelecMs own idding rules for that matterR

Clearly, such Bumled ratiocinations completely negate the rationale underlying theidding process mandated y law.

t the very outset, the Court has e1plained that Comelec Kagrantly violated the pulicpolicy on pulic iddings 04 y allowing 8"CE8"9I to participate in the idding eventhough it was not %ualiAed to do soG and -4 y eventually awarding the Contract to8"CE8"9I. ?36. The hole point in going through the public bidding

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e!erci$e a$ completel* lo$t. The %er* rationale of public bidding a$ totall* $ub%ertedb* the Commi$$ion.

!rom another perspective, the Comelec approach also fails to make sense. 'ranted that,efore election day, the software would still have to e customi(ed to each precinct,municipality, city, district, and so on, there still was nothing at all to prevent Comelecfrom re%uiring prospective suppliersEidders to produce, at the %er* $tart of the biddingproce$$, the :ne1ttoAnal: versions of the software the est software the suppliers had4 pretested and ready to e customi(ed to the Anal list of candidates and proBect ofprecincts, among others, and ready to e deployed thereafter. The satisfaction of suchre%uirement would proaly have provided far etter ases for evaluation and selection,as etween suppliers, than the socalled demo software.&espondents contend that theidding suppliersM counting machines were previously used in at least one politicale1ercise with no less than -/ million voters. If so, it stands to reason that the softwareused in that past electoral e1ercise would proaly still e availale and, in all likelihood,could have een adopted for use in this instance. "aying for machines and software ofthat category already tried and proven in actual elections and ready to e adopted foruse4 would deAnitely make more sense than paying the same hundreds of millions ofpesos for demo software and empty promises of usale programs in the future.

@ut there is still another gutlevel reason why the approach taken y Comelec is

reprehensile. It rides on the perilous assumption that nothing would go wrongG and that,come election day, the Commission and the supplier would have developed, adBustedand :reprogrammed: the software to the point where the automated system couldfunction as envisioned. @ut what if such optimistic proBection does not materiali(eR Dhatif, despite all their herculean eJorts, the software now eing hurriedly developed andtested for the automated system performs dismally and inaccurately or, worse, is hackedandEor manipulatedR?Dhat then will we do with all the machines and defectivesoftware alread* paidfor in the amount of ">? million of our ta1 moneyR 9ven moreimportant,hat ill happen to our countr* in ca$e of failure of the automationR

The Court cannot grant the plea of Comelec that it e given until !eruary 06, -//? to eale to sumit a :certiAcation relative to the additional elements of the software that wille customi(ed,: ecause for us to do so would unnecessarily delay the resolution of thiscase and would Bust give the poll ody an unwarranted e1cuse to postpone the -//?

elections. 5n the other hand, ecause such certiAcation will not cure the gravely ausiveactions complained of y petitioners, it will e utterly useless.

Is this Court eing overly pessimistic and perhaps even engaging in speculationR ardly.&ather, the Court holds that Comelec should not have gamled on the unrealisticoptimism that the supplierMs software development eJorts would turn out well. TheCommission should have adopted a much more prudent and Budicious approach toensure the delivery of tried and tested software, and readied alternative courses ofaction in case of failure. Considering that the nationMs future is at stake here, it shouldhave done no less.

E%ilogue

5nce again, the Court Ands itself at the crossroads of our nationMs history. t stake in this

controversy is not Bust the usiness of a computer supplier, or a %uestionaleproclamation y Comelec of one or more pulic oFcials.

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furtherO?(?( to refrain from implementing any other contract or agreement enteredinto with regard to this proBect.

Het a copy of this +ecision e furnished the 5Fce of the 5mudsman which shalldetermine the criminal liaility, if any, of the pulic oFcials and conspiring privateindividuals, if any4 involved in the suBect &esolution and Contract. Het the 5Fce of the)olicitor 'eneral also take measures to protect the government and vindicate pulicinterest from the ill eJects of the illegal disursements of pulic funds made y reason ofthe void &esolution and Contract.

!O OR&ERE&.

'.&. , 0-

85@IH 5IH "IHI""I

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-. That 8iguel 9nri%ue(, not eing a general partner, could not ind thepartnership in the )ales greement he signed with plaintiJG and

3. That defendant 'eminiano Naut already withdrew as partner and president ofHa 8allorca as of )eptemer 0?, 07-.

5n

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8r. 8iguel 9nri%ue( automatically ecame a general partner of the partnership Ha8allorca eing one of the heirs of the deceased partner 8ariano 9nri%ue(. rticle I* ofthe uncontested rticles of Co"artnership of Ha 8allorca provides$

I*. "artners. PP The parties aovenamed, with their civil status, citi(enship andresidences set forth after their respective names, shall e memers comprising thispartnership, all of whom shall e general partners.

If during the e1istence of this copartnership, any of the herein partners should die, thecopartnership shall continue to e1ist amongst the surviving partners and the heir orheirs of the deceased partner or partnersG "rovided, owever, that if the heir or heirs ofthe deceased partner or partners elect not to continue in the copartnership, thesurviving partners shall have the right to ac%uire the interests of the deceased partner orpartners at their ook value ased upon the last alance sheet of the copartnership, andin proportion to their respective capital contriutionsG nd, "rovided !urther, that shoulda partner or partners desire to withdraw from the copartnership and the remainingpartners are not willing to ac%uire his or their shares or interest in the copartnership inaccordance with the foregoing provisions, the copartnership shall not therey edissolved, ut such retiring partner or partners shall only e entitled to his or their sharesin the assets of the copartnership according to the latest alance sheet which haveeen drawn prior to the date of his or their withdrawal. In such event, the copartnershipshall continue amongst the remaining partners. 06

s to respondent 'eminiano Nauts claim that he cannot e liale as a partner, hehaving withdrawn as such, does not convince s. The det was incurred long efore hiswithdrawal as partner and his resignation as "resident of Ha 8allorca on )eptemer 0?,07-. &espondent 'eminiano Naut could not Bust withdraw unilaterally from thepartnership to avoid his liaility as a general partner to third persons like the petitioner inthe instant case.

This is likewise true with regard to the alleged nonactive participation of respondentgueda Naut in the partnership. ctive participation in a partnership is not a conditionprecedent for memership in a partnership so as to e entitled to its proAts nor eurdened with its liailities.

!rom the foregoing, it is evident that the court a %uo erred in issuing the 5rders of

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In the "etition for &eview on Certiorariefore us, Him Tong Him assails the +ecision of the Court of ppeals in C'& C*

?0?77, 1which disposed as follows$

D9&9!5&9, Uthere eingV no reversile error in the appealed

decision, the same is herey aFrmed. 2

The decretal portion of the Xue(on City &egional Trial Court &TC4 ruling, which was

aFrmed y the C, reads as follows$

D9&9!5&9, the Court rules$

0. That plaintiJ is entitled to the writ of preliminary attachment issued

y this Court on )eptemer -/, 0/G

-. That defendants are Bointly liale to plaintiJ for the following

amounts, suBect to the modiAcations as hereinafter made y reason of

the special and uni%ue facts and circumstances and the proceedings

that transpired during the trial of this caseG

a. "3-,/?.// representing UtheV unpaid purchase

price of the Ashing nets covered y the greement

plus "6>,///.// representing the unpaid price of the

Koats not covered y said greementG

. 0-O interestper annum counted from date of

plaintiJs invoices and computed on their respective

amounts as follows$

i. ccrued interest of "73,--0.// on

Invoice ,///.//, respectively, or

for the total amount "6//,/?.//, this Court noted that these

items were attached to guarantee any Budgment that may e

rendered in favor of the plaintiJ ut, upon agreement of the

parties, and, to avoid further deterioration of the nets during

the pendency of this case, it was ordered sold at pulicauction for not less than "//,///.// for which the plaintiJ

was the sole and winning idder. The proceeds of the sale

paid for y plaintiJ was deposited in court. In eJect, the

amount of "//,///.// replaced the attached property as a

guaranty for any Budgment that plaintiJ may e ale to secure

in this case with the ownership and possession of the nets and

Koats awarded and delivered y the sheriJ to plaintiJ as the

highest idder in the pulic auction sale. It has also een

noted that ownership of the nets UwasV retained y the

plaintiJ until full payment UwasV made as stipulated in the

invoicesG hence, in eJect, the plaintiJ attached its own

properties. It UwasV for this reason also that this Court earlier

ordered the attachment ond Aled y plaintiJ to guarantydamages to defendants to e cancelled and for the

"//,///.// cash idded and paid for y plaintiJ to serve as

its ond in favor of defendants.

!rom the foregoing, it would appear therefore that whatever

Budgment the plaintiJ may e entitled to in this case will have

to e satisAed from the amount of "//,///.// as this

amount replaced the attached nets and Koats. Considering,

however, that the total Budgment oligation as computed

aove would amount to only ">?/,-06.-, it would e

ine%uitale, unfair and unBust to award the e1cess to the

defendants who are not entitled to damages and who did not

put up a single centavo to raise the amount of "//,///.//aside from the fact that they are not the owners of the nets

and Koats. !or this reason, the defendants are herey relieved

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from any and all liailities arising from the monetary Budgment

oligation enumerated aove and for plaintiJ to retain

possession and ownership of the nets and Koats and for the

reimursement of the "//,///.// deposited y it with the

Clerk of Court.

)5 5&+9&9+. 3

The act$

5n ehalf of :5cean Xuest !ishing Corporation,: ntonio Chua and "eter Nao entered into

a Contract dated !eruary 7, 0/, for the purchase of Ashing nets of various si(es from

the "hilippine !ishing 'ear Industries, Inc. herein respondent4. They claimed that they

were engaged in a usiness venture with "etitioner Him Tong Him, who however was not

a signatory to the agreement. The total price of the nets amounted to "3-,/?. !our

hundred pieces of Koats worth "6>,/// were also sold to the Corporation. )

The uyers, however, failed to pay for the Ashing nets and the KoatsG hence, private

respondents Aled a collection suit against Chua, Nao and "etitioner Him Tong Him with aprayer for a writ of preliminary attachment. The suit was rought against the three in

their capacities as general partners, on the allegation that :5cean Xuest !ishing

Corporation: was a none1istent corporation as shown y a CertiAcation from the

)ecurities and 91change Commission. 55n )eptemer -/, 0/, the lower court issued a

Drit of "reliminary ttachment, which the sheriJ enforced y attaching the Ashing nets

on oard !E@ Hourdes which was then docked at the !isheries "ort,

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In his "etition and 8emorandum, Him asks this Court to reverse the assailed +ecision on

the following grounds$

I T9 C5&T 5! ""9H) 9&&9+ I< 5H+I

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contractsG c4 declaration of ownership of Ashing oatsG ?4 inBunctionG

and e4 damages.

4 That the case was amicaly settled through a Compromise

greement e1ecuted etween the partieslitigants the terms of which

are already enumerated aove.

!rom the factual Andings of oth lower courts, it is clear that Chua, Nao and Him had

decided to engage in a Ashing usiness, which they started y uying oats worth "3.3

million, Ananced y a loan secured from ;esus H im who was petitioners rother. In their

Compromise greement, they suse%uently revealed their intention to pay the loan with

the proceeds of the sale of the oats, and to divide e%ually among them the e1cess or

loss. These oats, the purchase and the repair of which were Ananced with orrowed

money, fell under the term :common fund: under rticle 0767. The contriution to such

fund need not e cash or A1ed assetsG it could e an intangile like credit or industry.

That the parties agreed that any loss or proAt from the sale and operation of the oats

would e divided e%ually among them also shows that they had indeed formed a

partnership.

8oreover, it is clear that the partnership e1tended not only to the purchase of the oat,

ut also to that of the nets and the Koats. The Ashing nets and the Koats, oth essential

to Ashing, were oviously ac%uired in furtherance of their usiness. It would have een

inconceivale for Him to involve himself so much in uying the oat ut not in the

ac%uisition of the aforesaid e%uipment, without which the usiness could not have

proceeded.

'iven the preceding facts, it is clear that there was, among petitioner, Chua and Nao, a

partnership engaged in the Ashing usiness. They purchased the oats, which

constituted the main assets of the partnership, and they agreed that the proceeds from

the sales and operations thereof would e divided among them.

De stress that under &ule ?, a petition for review like the present case should involve

only %uestions of law. Thus, the foregoing factual Andings of the &TC and the C are

inding on this Court, asent any cogent proof that the present action is emraced y

one of the e1ceptions to the rule. 1*In assailing the factual Andings of the two lower

courts, petitioner eJectively goes eyond the ounds of a petition for review under &ule

?.

Compromi$e Agreement

'ot the 2ole a$i$ of Partner$hip

"etitioner argues that the appellate courts sole asis for assuming the e1istence of a

partnership was the Compromise greement. e also claims that the settlement was

entered into only to end the dispute among them, ut not to adBudicate their pree1isting

rights and oligations. is arguments are aseless. The greement was ut an

emodiment of the relationship e1tant among the parties prior to its e1ecution.

proper adBudication of claimants rights mandates that courts must review and

thoroughly appraise all relevant facts. @oth lower courts have done so and have found,

correctly, a pree1isting partnership among the parties. In implying that the lower courts

have decided on the asis of one piece of document alone, petitioner fails to appreciatethat the C and the &TC delved into the history of the document and e1plored all the

possile conse%uential cominations in harmony with law, logic and fairness. *erily, the

two lower courts factual Andings mentioned aove nulliAed petitioners argument that

the e1istence of a partnership was ased only on the Compromise greement.

Petitioner 4a$ a Partner,

'ot a Ke$$or

De are not convinced y petitioners argument that he was merely the lessor of the

oats to Chua and Nao, not a partner in the Ashing venture. is argument allegedly Ands

support in the Contract of Hease and the registration papers showing that he was theowner of the oats, including - Kourde$where the nets were found.

is allegation deAes logic. In eJect, he would like this Court to elieve that he consented

to the sale of his own oats to pay a det of Chua and Mao, with the e1cess of the

proceeds to e divided among the three of them.

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)ec. -0 of the Corporation Code of the "hilippines provides$

)ec. -0. Corporation b* e$toppel. Z ll persons who assume to act as

a corporation knowing it to e without authority to do so shall e liale

as general partners for all dets, liailities and damages incurred or

arising as a result thereof$ Pro%ided hoe%er,That when any such

ostensile corporation is sued on any transaction entered y it as acorporation or on any tort committed y it as such, it shall not e

allowed to use as a defense its lack of corporate personality.

5ne who assumes an oligation to an ostensile corporation as such,

cannot resist performance thereof on the ground that there was in fact

no corporation.

Thus, even if the ostensile corporate entity is proven to e legally none1istent, a party

may e estopped from denying its corporate e1istence. :The reason ehind this doctrine

is ovious Z an unincorporated association has no personality and would e

incompetent to act and appropriate for itself the power and attriutes of a corporation as

provided y lawG it cannot create agents or confer authority on another to act in itsehalfG thus, those who act or purport to act as its representatives or agents do so

without authority and at their own risk. nd as it is an elementary principle of law that a

person who acts as an agent without authority or without a principal is himself regarded

as the principal, possessed of all the right and suBect to all the liailities of a principal, a

person acting or purporting to act on ehalf of a corporation which has no valid e1istence

assumes such privileges and oligations and ecomes personally liale for contracts

entered into or for other acts performed as such agent. 17

The doctrine of corporation y estoppel may apply to the alleged corporation and to a

third party. In the Arst instance, an unincorporated association, which represented itself

to e a corporation, will e estopped from denying its corporate capacity in a suit against

it y a third person who relied in good faith on such representation. It cannot allege lack

of personality to e sued to evade its responsiility for a contract it entered into and yvirtue of which it received advantages and eneAts.

5n the other hand, a third party who, knowing an association to e unincorporated,

nonetheless treated it as a corporation and received eneAts from it, may e arred from

denying its corporate e1istence in a suit rought against the alleged corporation. In such

case, all those who eneAted from the transaction made y the ostensile corporation,

despite knowledge of its legal defects, may e held liale for contracts they impliedly

assented to or took advantage of.

There is no dispute that the respondent, "hilippine !ishing 'ear Industries, is entitled to

e paid for the nets it sold. The only %uestion here is whether petitioner should e held

Bointly18

liale with Chua and Nao. "etitioner contests such liaility, insisting that onlythose who dealt in the name of the ostensile corporation should e held liale. )ince his

name does not appear on any of the contracts and since he never directly transacted

with the respondent corporation, ergo, he cannot e held liale.

n%uestionaly, petitioner eneAted from the use of the nets found inside - Kourde$,

the oat which has earlier een proven to e an asset of the partnership. e in fact

%uestions the attachment of the nets, ecause the Drit has eJectively stopped his use of

the Ashing vessel.

It is diFcult to disagree with the &TC and the C that Him, Chua and Nao decided to form

a corporation. lthough it was never legally formed for unknown reasons, this fact alone

does not preclude the liailities of the three as contracting parties in representation of it.

Clearly, under the law on estoppel, those acting on ehalf of a corporation and those

eneAted y it, knowing it to e without valid e1istence, are held liale as general

partners.

Technically, it is true that petitioner did not directly act on ehalf of the corporation.

owever, having reaped the eneAts of the contract entered into y persons with whom

he previously had an e1isting relationship, he is deemed to e part of said association

and is covered y the scope of the doctrine of corporation y estoppel. De reiterate theruling of the Court inAlon$o %. )illamor$ 19

litigation is not a game of technicalities in which one, more deeply

schooled and skilled in the sutle art of movement and position,

entraps and destroys the other. It is, rather, a contest in which each

contending party fully and fairly lays efore the court the facts in issue

and then, rushing aside as wholly trivial and indecisive all

imperfections of form and technicalities of procedure, asks that Bustice

e done upon the merits. Hawsuits, unlike duels, are not to e won y a

rapiers thrust. Technicality, when it deserts its proper oFce as an aid

to Bustice and ecomes its great hindrance and chief enemy, deserves

scant consideration from courts. There should e no vested rights in

technicalities.

Third I$$ue$

)alidit* of Attachment

!inally, petitioner claims that the Drit of ttachment was improperly issued against the

nets. De agree with the Court of ppeals that this issue is now moot and academic. s

previously discussed, - Kourde$was an asset of the partnership and that it was placed

in the name of petitioner, only to assure payment of the det he and his partners owed.

The nets and the Koats were speciAcally manufactured and tailormade according to their

own design, and were ought and used in the Ashing venture they agreed upon. ence,

the issuance of the Drit to assure the payment of the price stipulated in the invoices isproper. @esides, y speciAc agreement, ownership of the nets remained with &espondent

"hilippine !ishing 'ear, until full payment thereof.

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D9&9!5&9, the "etition is +9

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)ecurities and 91change Commission on ? ugust 0?>. The )9C records show

that there were several suse%uent amendments to the articles of partnership

on 0> )eptemer 0>, to change the Arm UnameV to &5)), )9H" and

C&&)C5)5G on 6 ;uly 06 . . . to &5)), )9H", )HC9+5, +9H &5)&I5,

@IT5 2 8I)G on 0> pril 07- to )HC9+5, +9H &5)&I5, @IT5, 8I) 2

H5=+G on ? +ecemer 07- to )HC9+5, +9H &5)&I5, @IT5, 8I) 2

H5=+G on 00 8arch 077 to +9H &5)&I5, @IT5, 8I) 2 H5=+G on 7 ;une077 to @IT5, 8I) 2 H5=+G on 0 +ecemer 0>/, U;oa%uin H. 8isaV

appellees ;esus @. @ito and 8ariano 8. Ho(ada associated themselves together,

as senior partners with respondentsappellees 'regorio !. 5rtega, Tomas 5. del

Castillo, ;r., and @enBamin @acorro, as Bunior partners.

5n !eruary 07, 0>>, petitionerappellant wrote the respondentsappellees a

letter stating$

I am withdrawing and retiring from the Arm of @ito, 8isa and

Ho(ada, eJective at the end of this month.

:I trust that the accountants will e instructed to make theproper li%uidation of my participation in the Arm.:

5n the same day, petitionerappellant wrote respondentsappellees another

letter stating$

:!urther to my letter to you today, I would like to have a

meeting with all of you with regard to the mechanics of

li%uidation, and more particularly, my interest in the two Koors

of this uilding. I would like to have this resolved soon

ecause it has to do with my own plans.:

5n 0 !eruary 0>>, petitionerappellant wrote respondentsappellees anotherletter stating$

:The partnership has ceased to e mutually satisfactory

ecause of the working conditions of our employees including

the assistant attorneys. ll my eJorts to ameliorate the elow

susistence level of the pay scale of our employees have

een thwarted y the other partners. >, petitioner Aled with this Commissions )ecurities Investigation

and Clearing +epartment )IC+4 a petition for dissolution and li%uidation of

partnership, docketed as )9C Case ? praying that the Commission$

:0. +ecree the formal dissolution and order the immediate

li%uidation of the partnership of4 @ito, 8isa 2 Ho(adaG

:-. 5rder the respondents to deliver or pay for petitioners

share in the partnership assets plus the proAts, rent or

interest attriutale to the use of his right in the assets of the

dissolved partnershipG

:3. 9nBoin respondents from using the Arm name of @ ito, 8isa

2 Ho(ada in any of their correspondence, checks and

pleadings and to pay petitioners damages for the use thereof

despite the dissolution of the partnership in the amount of at

least "/,///.//G

:?. 5rder respondents Bointly and severally to pay petitionerattorneys fees and e1pense of litigation in such amounts as

maye proven during the trial and which the Commission may

deem Bust and e%uitale under the premises ut in no case

less than ten 0/O4 per cent of the value of the shares of

petitioner or "0//,///.//G

:. 5rder the respondents to pay petitioner moral damages

with the amount of "//,///.// and e1emplary damages in

the amount of "-//,///.//.

:"etitioner likewise prayed for such other and further reliefs

that the Commission may deem Bust and e%uitale under thepremises.:

5n 03 ;uly 0>>, respondentsappellees Aled their opposition to the petition.

5n 03 ;uly 0>>, petitioner Aled his &eply to the 5pposition.

5n 30 8arch 0>, the hearing oFcer rendered a decision ruling that$

:U"Vetitioners withdrawal from the law Arm @ito, 8isa 2

Ho(ada did not dissolve the said law partnership. ccordingly,

the petitioner and respondents are herey enBoined to aide

y the provisions of the greement relative to the mattergoverning the li%uidation of the shares of any retiring or

withdrawing partner in the partnership interest.:1

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5n appeal, the )9C en bancreversed the decision of the earing 5Fcer and held that

the withdrawal of ttorney ;oa%uin H. 8isa had dissolved the partnership of :@ito, 8isa 2

Ho(ada.: The Commission ruled that, eing a partnership at will, the law Arm could e

dissolved y any partner at anytime, such as y his withdrawal therefrom, regardless of

good faith or ad faith, since no partner can e forced to continue in the partnership

against his will. In its decision, dated 07 ;anuary 0/, the )9C held$

D9&9!5&9, premises considered the appealed order of 30 8arch 0> is

herey &9*9&)9+ insofar as it concludes that the partnership of @ito, 8isa 2

Ho(ada has not een dissolved. The case is herey &984 does not

provide for a speciAed period or undertaking. The :+&TI5

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therefore e no need to provide for articles on partnership at will as none would

so e1ist. pparently what the law contemplates, is a speciAc undertaking or

:proBect: which has a deAnite or deAnale period of completion.3

The irth and life of a partnership at will is predicated on the mutual desire and consent

of the partners. The right to choose with whom a person wishes to associate himself is

the very foundation and essence of that partnership. Its continued e1istence is, in turn,dependent on the constancy of that mutual resolve, along with each partners capaility

to give it, and the asence of a cause for dissolution provided y the law itself. *erily,

any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership

at will. e must, however, act in good faith, not that the attendance of ad faith can

prevent the dissolution of the partnership)ut that it can result in a liaility for

damages.5

In passing, neither would the presence of a period for its speciAc duration or the

statement of a particular purpose for its creation prevent the dissolution of any

partnership y an act or will of a partner.*mong partners,7mutual agency arises and

the doctrine of delectu$ per$onaeallows them to have thepoer, although not

necessarily theright, to dissolve the partnership. n unBustiAed dissolution y the

partner can suBect him to a possile action for damages.

The dissolution of a partnership is the change in the relation of the parties caused y any

partner ceasing to e associated in the carrying on, as might e distinguished from the

winding up of, the usiness. 8pon its dissolution, the partnership continues and its legal

personality is retained until the complete winding up of its usiness culminating in its

termination.9

The li%uidation of the assets of the partnership following its dissolution is governed y

various provisions of the Civil CodeG 1+however, an agreement of the partners, like any

other contract, is inding among them and normally takes precedence to the e1tent

applicale over the Codes general provisions. De here take note of paragraph > of the

:mendment to rticles of "artnership: reading thusly$

. . . In the event of the death or retirement of any partner, his interest in the

partnership shall e li%uidated and paid in accordance with the e1isting

agreements and his partnership participation shall revert to the )enior "artners

for allocation as the )enior "artners may determineGpro%ided, hoe%er, that

with respect to the two -4 Koors of oFce condominium which the partnership is

now ac%uiring, consisting of the th and the 6th Koors of the lpap @uilding,

0?/ lfaro )treet, )alcedo *illage, 8akati, 8etro 8anila, their true value at the

time of such death or retirement shall e determined y two -4 independent

appraisers, one to e appointed y the partnership and the other y the4

retiring partner or the heirs of a deceased partner, as the case may e. In the

event of any disagreement etween the said appraisers a third appraiser will e

appointed y them whose decision shall e Anal. The share of the retiring or

deceased partner in the aforementioned two -4 Koor oFce condominium shall

e determined upon the asis of the valuation aove mentioned which shall e

paid monthly within the Arst ten 0/4 days of every month in installments of not

less than "-/,///.// for the )enior "artners, "0/,///.// in the case of two -4

e1isting ;unior "artners and ",///.// in the case of the new ;unior "artner. 11

The term :retirement: must have een used in the articles, as we so hold, in a generic

sense to mean the dissociation y a partner, inclusive of resignation or withdrawal, fromthe partnership that therey dissolves it.

5n the third and Anal issue, we accord due respect to the appellate court and respondent

Commission on their common factual Anding, i.e., that ttorney 8isa did not act in ad

faith. "ulic respondents viewed his withdrawal to have een spurred y :interpersonal

conKict: among the partners. It would not e right, we agree, to let any of the partners

remain in the partnership under such an atmosphere of animosityG certainly, not against

their will. 12Indeed, for as long as the reason for withdrawal of a partner is not contrary to

the dictates of Bustice and fairness, nor for the purpose of unduly visiting harm and

damage upon the partnership, bad faithcannot e said to characteri(e the act. @ad faith,

in the conte1t here used, is no diJerent from its normal concept of a conscious and

intentional design to do a wrongful act for a dishonest purpose or moral oli%uity.

D9&9!5&9, the decision appealed from is !!I&89+.

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G.R. No. 7+92* a#uary 31, 1989

&AN FUE LEUNG, petitioner,

vs.

HON. INTER"E&IATE A((ELLATE COURT a#$ LEUNG 'IU, respondents.

+ohn K. J* for petitioner.

dgardo . 2undiam for pri%ate re$pondent.

GUTIERRE,J.* J.:

The p