G.R. No.

193796

July 2, 2014

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
ATLANTA INDUSTRIES, INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
This is a direct recourse to the Court from the Decision dated September 3, 2010 of the Regional
Trial Court of Manila, Branch 21 (Manila RTC) in Civil Case No. 09-122643 which declared null and
void the results of the re-bidding for the supply of water pipes conducted by the Bids and Awards
Committee (BAC) of the City Government of Iligan due to the use of bidding documents outside of
the rules and procedures prescribed under Republic Act No. (RA) 9184, otherwise known as the
"Government Procurement Act."
1

The Facts
On October 3, 2006, Land Bank of the Philippines (Land Bank) and the International Bank for
Reconstruction and Development (IBRD) entered into Loan Agreement No. 4833-PH for the
implementation. of the IBRD's "Support for Strategic Local Development and Investment . Project"
(S2LDIP). The loan facility in the amount of JP11,710,000,000.00 was fully guaranteed by the
Government of the Philippines and conditioned upon the participation of at least two (2) local
government units by way of a Subsidiary Loan Agreement (SLA) with Land Bank.
4

On February 22, 2007, Land Bank entered into an SLA with the City Government of Iligan to finance
the development and expansion of the city's water supply system, which had two (2) components,
namely: (a) the procurement of civil works; and ( b) the procurement of goods for the supply and
delivery of various sizes of PE 100 HDPE pipes and fittings. The SLA expressly provided that the
goods, works, and services to be financed out of the proceeds of the loan with Land Bank were to be
"procured in accordance with the provisions of Section I of the 'Guidelines: Procurement under IBRD
Loans and IDA Credits' x x x, and with the provisions of [the] Schedule 4." Accordingly, the City
Government of Iligan, through its BAC, conducted a public bidding for the supply and delivery of
various sizes of PE 100 HDPE pipes and fittings using the IBRD Procurement Guidelines.
7

10

Respondent Atlanta Industries, Inc. (Atlanta) participated in the said bidding and came up with the
second to the lowest bid in the amount of P193,959,354.34.
11

However, in a letter dated July 27, 2009, the BAC informed Atlanta that the bidding was declared a
failure upon the recommendation of Land "Bank due to the IBRD 's non-concurrence with the Bid
Evaluation Report. Moreover, in a letter dated August 28, 2009, the BAC informed Atlanta of its
disqualification from the bidding because it lacked several documentary requirements.
12

13

In response, Atlanta, through a letter dated September 8, 2009, sought to correct the BAC's
erroneous assumption that it failed to submit the necessary documents and to have its
disqualification reconsidered. It expressed its objection against the BAC's declaration of a failure of
bidding, asserting that had it not been improperly disqualified there would have also been no need to
declare the bidding a failure because its tender would be the sole responsive bid necessary to save
the bid process.
14

15

However, in a Resolution dated September 25, 2009, the BAC deemed it futile to reconsider
Atlanta's disqualification in view of the fact that the bidding had already been declared a failure
because of noted violations of the IBRD Procurement Guidelines and that, unless the BAC conducts
a new bidding on the project, it would not be able to obtain a "no objection" from .the World Bank.
Atlanta did not pursue the matter further with the BAC and opted, instead, to participate in the rebidding of the project, the notice of which was published anew on October 30, 2009.
16

17

This notwithstanding, Atlanta, in a letter dated November 16, 2009, called the BAC's attention to its
use of Bidding Documents which, as it purported, not only failed to conform with the Third Edition of
the Philippine Bidding Documents for the Procurement of Goods (PBDs) prescribed by the
Government Procurement Policy Board (GPPB) but also contained numerous provisions that were
not in accordance with RA 9184 and its Implementing Rules and Regulations (IRR). During the prebid conference, the BAC declared that the project was not covered by RA 9184 or by any of the
GPPB 's issuances. It further announced that the bid opening would be conducted on December 14,
2009.
18

19

20

21

Apprehensive of the BAC's use of bidding documents that appeared to be in contravention of RA

9184 and its IRR, Atlanta filed on December 10, 2009 a Petition for Prohibition and Mandamus with
an urgent prayer for the issuance of a temporary restraining order (TRO) and/or writ of preliminary
injunction to enjoin the re-bidding .of the project against the City Government of Iligan, the BAC, and
Land Bank before the Manila RTC, docketed as Civil Case No. 09-122643 (Petition for Prohibition).
22

In their separate comments on the said petition, Land Bank and the BAC asserted that the case was
dismissible for improper. venue, mootness, non-exhaustion of administrative remedies, failure to
implead an indispensable party, and the inapplicability of RA 918.4.
23

In the meantime, with Atlanta's Urgent Ex Parte Motion for the Issuance of a 72-Hour TRO and
Special Raffle having been denied, the re-bidding of the project was conducted (as scheduled on
December 14, 2009), with four .C 4) bidders participating and submitting the following bids:
24

25

1. Atlanta Industries, Inc.

P141,289,680.50

2. Moldex Products, Inc.

P172,727,052.49

3. Dong Won Plastics, Inc.

P189,184,599.74

4. Thai-Asia/Junnie Industries

P191,900.020.00

Thereupon, the case proceeded with the parties' submission of their respective memoranda and the
denial of Atlanta's prayer for the issuance of an injunctive writ.
27

28

The Manila RTC Ruling

In a Decision dated September 3, 2010, the Manila RTC declared the subject bidding null and void
on the ground that it was done contrary to the rules and procedure prescribed in RA 9184 and its
IRR. Consequently, it enjoined the City Government of Iligan and. its BAC from entering into and/or
implementing the contract for the supply of water pipes with Moldex Products, Inc.
29

30

The Manila RTC also ruled that the City Government of Iligan cannot claim exemption from the
application of RA 9184 and its IRR by virtue of Loan Agreement No. 48~3-PH with the IBRD because
it was Land Bank, and not the City Government of Iligan, which was the party to the same.
Moreover, it .held that the IBRD could not have passed on its status as an international institution

26

exempt from RA 9184 simply because it loaned money to Land Bank. It added that the SLA
subsequently executed by Land Bank with the City Government of Iligan cannot validly provide for
the use of bidding procedures different from those provided under RA 9184 because the said SLA is
not in the nature of an international agreement similar to the Loan Agreement with the IBRD.
31

32

The Manila RTC finally concluded that in view of GPPB Resolution No. 05-2009 (September 30,
2009) which requires "all branches, agencies, departments, bureaus, offices and instrumentalities of
the Government, including x x x local government units x x x to use the Philippine Bidding
Documents Third Edition for all their procurement activities," the City Government of Iligan and its
BAC exceeded their jurisdiction in conducting the public bidding using the questioned bidding
documents.
33

Dissatisfied, Land Bank elevated the matter directly to the Court, vigorously asserting, among
others, that: (a) venue was improperly laid; and (b) the public bidding for the supply of water pipes to
the City of Iligan's Water Supply System Development and Expansion Project is exempt from the
application of RA 9184 and its IRR by virtue of the SLA being .a related and subordinate covenant to
Loan Agreement No. 4833-PH.
34

The Issues Before the Court

The main issues presented for the Court's resolution are: (a) whether or not the Manila RTC has
jurisdiction over the instant prohibition case and eventually issue the writ prayed for; and (b) whether
or not the SLA between the Land Bank and the City Government of Iligan is an executive agreement
similar to Loan Agreement No. 4833-PH such that the procurement of water pipes by the BAC of the
City Government of Iligan should be deemed exempt from the application of RA 9184.
The Court's Ruling
The petition is meritorious.
The Court first resolves the procedural issues of this case, then proceeds to its substantive aspects.
A. PROCEDURAL ISSUES:
The Manila RTC's Lack of Jurisdiction to
Issue the Writ of Prohibition Subject of
this Case; and Atlanta's Failure to
Exhaust Administrative Remedies.
Preliminarily, Land Bank asserts that the Petition for Prohibition was improperly filed before the
Manila RTC considering that the acts sought to be enjoined, i.e., the public bidding for the supply of
water pipes, are beyond the said court's territorial jurisdiction. Atlanta, for its part, counter-argues
that the acts of Land Bank are as much to be enjoined for causing the City Government of Iligan and
its BAC to continuously violate the provisions of RA 9184, its IRR, and the PBDs in the conduct of
the public bidding and that the filing of the prohibition case in the City of Manila was in accordance
with the rules on venue given that Land Bank's main office is in the City of Manila.
35

36

37

The Court finds for Land Bank.

A petition for prohibition is a special civil action that seeks for a judgment ordering the respondent to
desist from continuing with the commission of an act perceived to be illegal. Section 2, Rule 65 of
the Rules of Court (Rules) reads:
Sec. 2. Petition for Prohibition. - When the proceedings of any tribunal, corporation, board, officer or
person, whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of
its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction,
and there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of
law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered commanding the respondent to desist from further
proceedings in the action or matter specified therein, or otherwise granting such incidental reliefs as
law and justice may require.
x x x x (Emphasis supplied)
While the Court, Court of Appeals and Regional Trial Court have original concurrent jurisdiction to
issue writs of certiorari, prohibition and mandamus, if what is assailed relates to "acts or omissions of
a lower court or of a corporation, board, officer or person," the petition must be filed "in the Regional
Trial Court exercising jurisdiction over the territorial area as defined by the Court." Section 4 of the
same Rules provides that:
Sec. 4. When and Where to file the petition. -The petition shall be filed not later than sixty (60) days
from notice of the judgment, order or resolution. In case a motion for reconsideration or new trial is
timely filed, whether such motion is required or not, the petition shall be filed not later than sixty (60)
days counted from the notice of the denial of the motion.
If the petition relates to an act or an omission of a municipal trial court or of a corporation, a board,
an officer or a person, it shall be filed with the Regional Trial Court exercising jurisdiction over the
territorial area as defined by the Supreme Court. H may also be filed with the Court of Appeals or
with the Sandiganbayan, whether or not the same is .in aid of the court's appellate jurisdiction. If the
petition involves an act or an omission of a quasi-judicial agency, unless otherwise provided by law
or these rules, the petition shall be filed with and be cognizable only by the Court of Appeals.
x x x x (Emphasis supplied)
The foregoing rule corresponds to Section 21 ( 1) of Batas Pambansa Blg. 129, otherwise known as
"The Judiciary Reorganization Act of 1980" (BP 129), which gives Regional Trial Courts original
jurisdiction over cases of certiorari, prohibition, mandamus, quo warranto, habeas corpus, and
injunction but lays down the limitation that the writs issued therein are enforceable only within their
respective territorial jurisdictions. The pertinent provision reads:
38

Sec. 21. Original jurisdiction in other cases. - Regional Trial Courts shall exercise original jurisdiction:
(1) In the issuance of writs of certiorari: prohibition, mandamus, quo warranto, habeas corpus and
injunction, which may be enforced in any part of their respective regions;
x x x x (Emphasis supplied)
The Court already ruled in numerous cases, beginning with the very early case of Costao v.
Lobingier, that the power to administer justice conferred upon judges of the Regional Trial Courts,
formerly Courts of First Instance (CFI), can only be exercised within the limits of their respective
39

districts, outside of which they have no jurisdiction whatsoever. Applying previous legislation similar
to the present Section 21 of BP 129 and its complementary provision, i.e., Section 4, Rule 65 of the
Rules, the Court held in said case that the CFI of Leyte had no power to issue writs of injunction and
certiorari against the Justice of the Peace of Manila, as the same was outside the territorial
boundaries of the issuing court. Also, in Samar Mining Co., Inc. v. Arnado, a petition for certiorari
and prohibition with preliminary injunction was filed in the CFI of Manila to question the authority of
the Regional Administrator and Labor Attorney of the Department of Labor in Cebu City to hear a
complaint for sickness compensation in Catbalogan, Samar and to enjoin said respondents from
conducting further proceedings thereat. The Court affirmed the dismissal . of the case on the ground
of improper venue, holding that the CFI of Manila had no authority to issue writs of injunction,
certiorari, and prohibition affecting persons outside its territorial boundaries. Further, in both
Cudiamat v. Torres (Cudiamat) and National Waterworks and Sewerage Authority v.
Reyes (NAWASA), the losing bidders succeeded in securing an injunctive writ from the CFI of Rizal
in order to . restrain, in Cudiamat, the implementation of an award on a public bidding for the supply
of a police call and signal box system for the City of Manila, and, in NAWASA, the conduct of the
public bidding for the supply of steel pipes for its Manila and Suburbs Waterworks Project. The Court
held in both cases that the injunction issued by the CFI of Rizal purporting to restrain acts outside
the province of Rizal was null and void for want of jurisdiction.
40

41

42

Undoubtedly, applying the aforementioned precepts and pronouncements to the instant case, the
writ of prohibition issued by the Manila RTC in order to restrain acts beyond the bounds of the
territorial limits of its jurisdiction (i.e., in Iligan City) is null and void.
Also on a matter of procedure, the Court further discerns that the Manila RTC should have dismissed
the case outright for failure of Atlanta to exhaust administrative remedies. Under RA 9184, the
decisions of the BAC in all stages of procurement may be protested. to the head of the procuring
entity through a verified position paper and upon payment of a protest fee. The necessity for the
complaining bid participant to complete the protest process before resorting to court action cannot
be overemphasized. It is a condition precedent to the court's taking cognizance of an action that
assails a bid process. When precipitately taken prior to the completion of the protest process, such
case shall be dismissed for lack of jurisdiction. While Atlanta may have written the BAC a letter
objecting to some of the terms and conditions contained in the bidding documents to be used for the
re-bidding, its action fell short of the required protest. It failed to follow through with' its protest and
opted instead to participate in the re-bidding with full knowledge that the IBRD Procurement
Guidelines were to be followed throughout the conduct of the bid. Having failed to observe the
protest procedure required by law, Atlanta's case should not have prospered with the RTC
altogether.
43

44

45

With the procedural matters having been resolved, the Court now proceeds to discuss the
substantive aspect of this case concerning the SLA and Land Bank's claimed exemption from the
provisions of RA 9184.
B. SUBSTANTIVE ISSUES:
The Applicability of the Bidding
Procedure under RA 9184; and the
Nature of Loan No. 4833-PH and its
Relation to the SLA.
While mandating adherence to the general policy of the government that contracts for the
procurement of civil works or supply of goods and equipment shall be undertaken only after
competitive public bidding, RA 9184 recognizes the country's commitment to abide by its obligations

under any treaty or international or executive agreement. This is pertinently provided in Section 4 of
RA 9184 which reads as follows:
Sec. 4. Scope and Application. - This Act shall apply to the Procurement of Infrastructure Projects,
Goods and Consulting Services, regardless of source of funds, whether local or foreign, by all
branches and instrumentalities of the government, its department, offices and agencies, including
government owned and/or -controlled corporations and local government units, subject to the
provisions of Commonwealth Act No. 138. Any treaty or international or executive agreement
affecting the subject matter of this Act to which the Philippine government is a signatory shall be
observed. (Emphasis supplied)
1wphi1

The IRR of RA 9184 further supplements the law's treatment of treaties and international or
executive agreements as follows:
Section 4. Scope and Application of the IRR
4.1 This IRR shall apply to all procurement of any branch, agency, department, bureau, office
or instrumentality of the GOP, including government-owned and/or -controlled corporations
(GOCCs), government financial institutions (GFis), state universities and colleges (SUCs)
and local government units (LGUs).
4.2 Any Treaty or International or Executive Agreement to which the GOP is a signatory
affecting the subject matter of the Act and this IRR shall be observed. In case of conflict
between the terms of the Treaty or International or Executive Agreement and this IRR, the
former shall prevail.
4.3 Unless the Treaty or International or Executive Agreement expressly provides use of
foreign government/foreign or international financing institution procurement procedures and
guidelines, this IRR shall apply to Foreign-funded Procurement for goods, infrastructure
projects, and consulting services by the GOP.
Consistent with the policies and principles set forth in Sections 2 and 3 of this IRR, the GOP
negotiating panels shall adopt, as its default position, use of this IRR, or at the very least, selection
through competitive bidding, in all Foreign-funded Procurement. If the Treaty or International or
Executive Agreement states otherwise, then the negotiating panels shall explain in writing the
reasons therefor. (Emphasis supplied)
While Atlanta admits that there are exceptions to the application of RA 9184, it posits that the City
Government of Iligan could not claim to be exempt under any of the enumerated instances because
it is not a party to the IBRD Loan Agreement. It further asserts that a provision in the SLA between
Larid Bank and the City Government of Iligan providing for procurement procedures different from
that required under RA 9184 would not be valid since it is not a treaty or an executive agreement in
the way that Loan Agreement, No. 4833-PH is.
46

The argument lacks merit.

As the parties have correctly discerned, Loan Agreement No. 4833-PH is in the nature of an
executive agreement. In Bayan Muna v. Romulo (Bayan Muna) the Court defined an international
agreement as one concluded between states in written form and governed by international law,
"whether embodied in a single instrument or in two or more related instruments and whatever its
particular designation," and further expounded that it may be in the form of either (a) treaties that
47

48

require legislative concurrence after executive ratification; or ( b) executive agreements that are
similar to treaties, except that they do not require legislative concurrence and are usually less formal
and deal with a narrower range of subject matters than treaties. Examining its features, Loan
Agreement No. 4833-PH between the IBRD and the Land Bank is an integral component of the
Guarantee Agreement executed by the Government of the Philippines as a subject of international
law possessed of a treaty-making capacity, and the IBRD, which, as an international lending
institution organized by world governments to provide loans conditioned upon the guarantee of
repayment by the borrowing sovereign state, is likewise regarded a subject of international law and
possessed of the capacity to enter into executive agreements with sovereign states. Being similar to
a treaty but without requiring legislative concurrence, Loan Agreement No. 4833-PH - following the
definition given in the Bayan Muna case - is an executive agreement and is, thus, governed by
international law. Owing to this classification, the Government of the Philippines is therefore
obligated to observe its terms and conditions under the rule of pacta sunt servanda, a fundamental
maxim of international law that requires the parties to keep their agreement in good faith. It bears
pointing out that the pacta sunt servanda rule has become part of the law of the land through the
incorporation clause found under Section 2, Article II of the 1987 Philippine Constitution, which
states that the Philippines "adopts the generally accepted principles of international law as part of
the law of the land and adheres to the policy of peace, equality, justice, freedom, cooperation, and
amity with all nations." Keeping in mind the foregoing attributions, the .Court now examines the SLA
and its relation with Loan Agreement No. 4833-PH.
49

50

As may be palpably observed, the terms and conditions of Loan Agreement No. 4833-PH, being a
project-based and government-guaranteed loan facility, were incorporated and made part of the SLA
that was subsequently entered into by Land Bank with the City Government of Iligan. Consequently,
this means that the SLA cannot be treated as an independent and unrelated contract but as a
conjunct of, or having a joint and simultaneous occurrence with, Loan Agreement No. 4833-PH. Its
nature and consideration, being a mere accessory contract of Loan Agreement No. 4833-PH, are
thus the same as that of its principal contract from which it receives life and without which it cannot
exist as an independent contract. Indeed, the accessory follows the principal; and, concomitantly,
accessory contracts should not be read independently of the main contract. Hence, as Land Bank
correctly puts it, the SLA has attained indivisibility with the Loan Agreement and the Guarantee
Agreement through the incorporation of each other's terms and conditions such that the character of
one has likewise become the character of the other.
51

52

53

54

Considering that Loan Agreement No. 4833-PH expressly provides that the procurement of the
goods to be financed from the loan proceeds shall be in accordance with the IBRD Guidelines and
the provisions of Schedule 4, and that the accessory SLA contract merely follows its principal 's
terms and conditions, the procedure for competitive public bidding prescribed under RA 9184
therefore finds no application to the procurement of goods for the Iligan City Water Supply System
Development and Expansion Project. The validity of similar stipulations in foreign loan agreements
requiring the observance of IBRD Procurement Guidelines in the procurement process has, in fact,
been previously upheld by the Court in the case of Department of Budget and Management
Procurement Service (DBMPS) v. Kolonwel Trading, viz.:
55

The question as to whether or not foreign loan agreements with international financial institutions,
such as Loan No. 7118-PH, partake of an executive or international agreement within the purview of
Section 4 of R.A. No. 9184, has been answered by the Court in the affirmative in [Abaya v. Sec.
Ebdane, Jr., 544 Phil. 645 (2007)]. Significantly, Abaya declared that the RP-JBIC loan agreement
was to be of governing application over the CP I project and that the JBIC Procurement Guidelines,
as stipulated in the loan agreement, shall primarily govern the procurement of goods necessary to
implement the main project.

Under the fundamental international law principle of pacta sunt servanda, which is in fact embodied
in the afore-quoted Section 4 of R.A. No. 9184, the RP, as borrower, bound itself to perform in good
faith its duties and obligation under Loan No. 7118-PH. Applying this postulate in the concrete to this
case, the IABAC was legally obliged to comply with, or accord, primacy to, the WB Guidelines on the
conduct and implementation of the bidding/procurement process in question.
56

With the nature and treatment of Loan Agreement No. 4833-PH as well as its accessory SLA herein
explained, the Court thus holds that the RTC committed reversible error in ruling that the provisions
of RA 9184 were to be applied in this case. Quite the contrary, it is the IBRD Guidelines and the
provisions of Schedule 4 which should govern. As such, the procurement of water pipes by the BAC
of the City Government of Iligan -as Land Bank meritoriously submits in its petition - is beyond the
purview of RA 9184, yielding as it should to the express stipulations found in the executive
agreement, to which the latter's accessory merely follows.
In view of all these errors, both on procedural and substantive counts, the Court is hereby bound to
reverse the trial court's decision and accordingly grant the present petition.
WHEREFORE, the petition is GRANTED. The Decision dated September 3, 2010 of the Regional
Trial Court of Manila, Branch 21 (Manila RTC) in Civil Case No. 09-122643 is hereby REVERSED
and SET ASIDE. The Petition for Prohibition and Mandamus filed before the Manila RTC is
DISMISSED.
SO ORDERED.