SELLER or its nominee as per Section XIV hereof to meet the vessel arrival
THIRD DIVISION
[G.R. No. 126204. November 20, 2001]
NATIONAL POWER CORPORATION, petitioner, vs. PHILIPP BROTHERS
OCEANIC, INC., respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Where a person merely uses a right pertaining to him, without bad faith or intent
to injure, the fact that damages are thereby suffered by another will not make him
liable.[1]
This principle finds useful application to the present case.
Before us is a petition for review of the Decision [2] dated August 27, 1996 of the
Court of Appeals affirming in toto the Decision[3] dated January 16, 1992 of the
Regional Trial Court, Branch 57, Makati City.
The facts are:
On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations
to bid for the supply and delivery of 120,000 metric tons of imported coal for its
Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers
Oceanic, Inc. (PHIBRO) prequalified and was allowed to participate as one of the
bidders. After the public bidding was conducted, PHIBROs bid was accepted.
NAPOCORs acceptance was conveyed in a letter dated July 8, 1987, which was
received by PHIBRO on July 15, 1987.
The Bidding Terms and Specifications[4] provide for the manner of shipment of
coals, thus:
SECTION V
SHIPMENT
The winning TENDERER who then becomes the SELLER shall arrange and provide
gearless bulk carrier for the shipment of coal to arrive at discharging port on or
before thirty (30) calendar days after receipt of the Letter of Credit by the
schedules at Calaca, Batangas, Philippines as follows:
60,000 +/ - 10 % July 20, 1987
60,000 +/ - 10% September 4, 1987[5]
On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might
soon plague Australia, the shipments point of origin, which could seriously hamper
PHIBROs ability to supply the needed coal.[6] From July 23 to July 31, 1987, PHIBRO
again apprised NAPOCOR of the situation in Australia, particularly informing the latter
that the ship owners therein are not willing to load cargo unless a strike-free clause is
incorporated in the charter party or the contract of carriage.[7] In order to hasten the
transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the burden of
a strike-free clause.NAPOCOR refused.
On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable
letter of credit. Instead of delivering the coal on or before the thirtieth day after receipt
of the Letter of Credit, as agreed upon by the parties in the July contract, PHIBRO
effected its first shipment only on November 17, 1987.
Consequently, in October 1987, NAPOCOR once more advertised for the delivery
of coal to its Calaca thermal plant. PHIBRO participated anew in this subsequent
bidding. On November 24, 1987, NAPOCOR disapproved PHIBROs application for
pre-qualification to bid for not meeting the minimum requirements.[8] Upon further
inquiry, PHIBRO found that the real reason for the disapproval was its purported failure
to satisfy NAPOCORs demand for damages due to the delay in the delivery of the first
coal shipment.
This prompted PHIBRO to file an action for damages with application for injunction
against NAPOCOR with the Regional Trial Court, Branch 57, Makati City. [9] In its
complaint, PHIBRO alleged that NAPOCORs act of disqualifying it in the October 1987
bidding and in all subsequent biddings was tainted with malice and bad faith. PHIBRO
prayed for actual, moral and exemplary damages and attorneys fees.
In its answer, NAPOCOR averred that the strikes in Australia could not be invoked
as reason for the delay in the delivery of coal because PHIBRO itself admitted that as
of July 28, 1987 those strikes had already ceased. And, even assuming that the strikes
were still ongoing, PHIBRO should have shouldered the burden of a strike-free clause
because their contract was C and F Calaca, Batangas, Philippines, meaning,
the cost and freight from the point of origin until the point of destination would be for
the account of PHIBRO. Furthermore, NAPOCOR claimed that due to PHIBROs failure
to deliver the coal on time, it was compelled to purchase coal from ASEA at a higher
price. NAPOCOR claimed for actual damages in the amount of P12,436,185.73,
representing the increase in the price of coal, and a claim of P500,000.00 as litigation
expenses.[10]
 Thereafter, trial on the merits ensued.
On January 16, 1992, the trial court rendered a decision in favor of PHIBRO, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Philipp Brothers
Oceanic Inc. (PHIBRO) and against the defendant National Power Corporation
(NAPOCOR) ordering the said defendant NAPOCOR:
1. To reinstate Philipp Brothers Oceanic, Inc. (PHIBRO) in the defendant
National Power Corporations list of accredited bidders and allow
PHIBRO to participate in any and all future tenders of National Power
Corporation for the supply and delivery of imported steam coal;
2 To pay Philipp Brothers Oceanic, Inc. (PHIBRO);
a. The peso equivalent at the time of payment of $864,000 as actual
damages;
b. The peso equivalent at the time of payment of $100,000 as moral
damages;
c. The peso equivalent at the time of payment of $ 50,000 as
exemplary damages;
d. The peso equivalent at the time of payment of $73,231.91 as
reimbursement for expenses, cost of litigation and
attorneys fees;
3. To pay the costs of suit;
4. The counterclaims of defendant NAPOCOR are dismissed for lack of
merit.
SO ORDERED.[11]
Unsatisfied, NAPOCOR, through the Solicitor General, elevated the case to the
Court of Appeals. On August 27, 1996, the Court of Appeals rendered a Decision
affirming in toto the Decision of the Regional Trial Court. It ratiocinated that:
There is ample evidence to show that although PHIBROs delivery of the shipment of
coal was delayed, the delay was in fact caused by a) Napocors own delay in opening
a workable letter of credit; and b) the strikes which plaqued the Australian coal
industry from the first week of July to the third week of September 1987.Strikes are
included in the definition of force majeure in Section XVII of the Bidding Terms and
Specifications, (supra), so Phibro is not liable for any delay caused thereby.
Phibro was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was
to be effected thirty (30) days from Napocors opening of a confirmed and workable
letter of credit. Napocor was only able to do so on August 6, 1987.
By that time, Australias coal industry was in the middle of a seething controversy and
unrest, occasioned by strikes, overtime bans, mine stoppages. The origin, the scope
and the effects of this industrial unrest are lucidly described in the uncontroverted
testimony of James Archibald, an employee of Phibro and member of the Export
Committee of the Australian Coal Association during the time these events transpired.
xxxxxx
The records also attest that Phibro periodically informed Napocor of these
developments as early as July 1, 1987, even before the bid was approved. Yet,
Napocor did not forthwith open the letter of credit in order to avoid delay which might
be caused by the strikes and their after-effects.
Strikes are undoubtedly included in the force majeure clause of the Bidding Terms
and Specifications (supra). The renowned civilist, Prof. Arturo Tolentino, defines
force majeure as an event which takes place by accident and could not have been
foreseen. (Civil Code of the Philippines, Volume IV, Obligations and Constracts, 126,
[1991]) He further states:
Fortuitous events may be produced by two general causes: (1) by Nature, such as
earthquakes, storms, floods, epidemics, fires, etc., and (2) by the act of man, such as
an armed invasion, attack by bandits, governmental prohibitions, robbery, etc.
Tolentino adds that the term generally applies, broadly speaking, to natural
accidents. In order that acts of man such as a strike, may constitute fortuitous event, it
is necessary that they have the force of an imposition which the debtor could not have
resisted. He cites a parallel example in the case of Philippine National Bank v. Court
of Appeals, 94 SCRA 357 (1979), wherein the Supreme Court said that the outbreak
of war which prevents performance exempts a party from liability.
Hence, by law and by stipulation of the parties, the strikes which took place in
Australia from the first week of July to the third week of September, 1987, exempted
Phibro from the effects of delay of the delivery of the shipment of coal. [12]
Twice thwarted, NAPOCOR comes to us via a petition for review ascribing to the
Court of Appeals the following errors:
 I With the foregoing settled jurisprudence, we find it pointless to delve lengthily on
Respondent Court of Appeals gravely and seriously erred in concluding and so
holding that PHIBROs delay in the delivery of imported coal was due to
NAPOCORs alleged delay in opening a letter of credit and to force majeure, and
not to PHIBROs own deliberate acts and faults.[13]
II
Respondent Court of Appeals gravely and seriously erred in concluding and so
holding that NAPOCOR acted maliciously and unjustifiably in disqualifying
PHIBRO from participating in the December 8, 1987 and future biddings for the
supply of imported coal despite the existence of valid grounds therefor such as
serious impairment of its track record.[14]
III
Respondent Court of Appeals gravely and seriously erred in concluding and so
holding that PHIBRO was entitled to injunctive relief, to actual or
compensatory, moral and exemplary damages, attorneys fees and litigation
expenses despite the clear absence of legal and factual bases for such
award.[15]
IV
Respondent Court of Appeals gravely and seriously erred in absolving PHIBRO
from any liability for damages to NAPOCOR for its unjustified and deliberate
refusal and/or failure to deliver the contracted imported coal within the
stipulated period.[16]
V force majeure from complying with its obligation, does it necessarily follow that
Respondent Court of Appeals gravely and seriously erred in dismissing
NAPOCORs counterclaims for damages and litigation expenses.[17]
It is axiomatic that only questions of law, not questions of fact, may be raised
before this Court in a petition for review under Rule 45 of the Rules of Court. [18] The
findings of facts of the Court of Appeals are conclusive and binding on this Court[19] and
they carry even more weight when the said court affirms the factual findings of the trial
court.[20] Stated differently, the findings of the Court of Appeals, by itself, which are
supported by substantial evidence, are almost beyond the power of review by this
Court.[21]
the factual issues raised by petitioner. The existence of strikes in Australia having been
duly established in the lower courts, we are left only with the burden of
determining whether or not NAPOCOR acted wrongfully or with bad faith in
disqualifying PHIBRO from participating in the subsequent public bidding.
Let us consider the case in its proper perspective.
The Court of Appeals is justified in sustaining the Regional Trial Courts decision
exonerating PHIBRO from any liability for damages to NAPOCOR as it was clearly
established from the evidence, testimonial and documentary, that what prevented
PHIBRO from complying with its obligation under the July 1987 contract was the
industrial disputes which besieged Australia during that time. Extant in our Civil Code
is the rule that no person shall be responsible for those events which could not be
foreseeen, or which, though foreseen, were inevitable. [22] This means that when an
obligor is unable to fulfill his obligation because of a fortuitous event or
force majeure, he cannot be held liable for damages for non-performance.[23]
In addition to the above legal precept, it is worthy to note that PHIBRO and
NAPOCOR explicitly agreed in Section XVII of the Bidding Terms and
Specifications[24] that neither seller (PHIBRO) nor buyer (NAPOCOR) shall be liable for
any delay in or failure of the performance of its obligations, other than the payment of
money due, if any such delay or failure is due to Force Majeure. Specifically,
they defined force majeure as any disabling cause beyond the control of and without
fault or negligence of the party, which causes may include but are not restricted to Acts
of God or of the public enemy; acts of the Government in either its sovereign or
contractual capacity; governmental restrictions; strikes, fires, floods, wars, typhoons,
storms, epidemics and quarantine restrictions.
The law is clear and so is the contract between NAPOCOR and
PHIBRO. Therefore, we have no reason to rule otherwise.
However, proceeding from the premise that PHIBRO was prevented by
NAPOCOR acted unjustly, capriciously, and unfairly in disapproving PHIBROs
application for pre-qualification to bid?
First, it must be stressed that NAPOCOR was not bound under any contract to
approve PHIBROs pre-qualification requirements. In fact, NAPOCOR had expressly
reserved its right to reject bids. The Instruction to Bidders found in the Post-
Qualification Documents/ Specifications for the Supply and Delivery of Coal for the
Batangas Coal-Fired Thermal Power Plant I at Calaca, Batangas Philippines,[25] is
explicit, thus:
IB-17 RESERVATION OF NAPOCOR TO REJECT BIDS
 NAPOCOR reserves the right to reject any or all bids, to waive any
minor informality in the bids received. The right is also reserved to
reject the bids of any bidder who has previously failed to
properly perform or complete on time any and all contracts for
delivery of coal or any supply undertaken by a
bidder.[26] (Emphasis supplied)
This Court has held that where the right to reject is so reserved, the lowest bid or
any bid for that matter may be rejected on a mere technicality. [27] And where the
government as advertiser, availing itself of that right, makes its choice in rejecting any
or all bids, the losing bidder has no cause to complain nor right to dispute that choice
unless an unfairness or injustice is shown. Accordingly, a bidder has no ground of
action to compel the Government to award the contract in his favor, nor to
compel it to accept his bid. Even the lowest bid or any bid may be
rejected.[28] In Celeste v. Court of Appeals,[29] we had the occasion to rule:
Moreover, paragraph 15 of the Instructions to Bidders states that the Government
hereby reserves the right to reject any or all bids submitted. In the case ofA.C.
Esguerra and Sons v. Aytona, 4 SCRA 1245, 1249 (1962), we held:
x x x [I]n the invitation to bid, there is a condition imposed upon the bidders to the
effect that the bidders shall be subject to the right of the government to reject any and
all bids subject to its discretion. Here the government has made its choice, and
unless an unfairness or injustice is shown, the losing bidders have no cause to
complain, nor right to dispute that choice.
Since there is no evidence to prove bad faith and arbitrariness on the part of
the petitioners in evaluating the bids, we rule that the private respondents are
not entitled to damages representing lost profits. (Emphasis supplied)
Verily, a reservation of the government of its right to reject any bid, generally vests
in the authorities a wide discretion as to who is the best and most advantageous
bidder. The exercise of such discretion involves inquiry, investigation, comparison,
deliberation and decision, which are quasi-judicial functions, and when honestly
exercised, may not be reviewed by the court. [30] In Bureau Veritas v. Office of the
President,[31] we decreed:
The discretion to accept or reject a bid and award contracts is vested in the
Government agencies entrusted with that function. The discretion given to the
authorities on this matter is of such wide latitude that the Courts will not
interfere therewith, unless it is apparent that it is used as a shield to a
fraudulent award. (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x. The exercise of
this discretion is a policy decision that necessitates prior inquiry, investigation,
comparison, evaluation, and deliberation. This task can best be discharged by the
Government agencies concerned, not by the Courts. The role of the Courts is to
ascertain whether a branch or instrumentality of the Government has transgresses its
constitutional boundaries. But the Courts will not interfere with executive or legislative
discretion exercised within those boundaries. Otherwise, it strays into the realm of
policy decision-making. x x x. (Emphasis supplied)
Owing to the discretionary character of the right involved in this case, the propriety
of NAPOCORs act should therefore be judged on the basis of the general principles
regulating human relations, the forefront provision of which is Article 19 of the Civil
Code which provides that every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty
and good faith.[32] Accordingly, a person will be protected only when he acts in the
legitimate exercise of his right, that is, when he acts with prudence and in good faith;
but not when he acts with negligence or abuse.[33]
Did NAPOCOR abuse its right or act unjustly in disqualifying PHIBRO from the
public bidding?
We rule in the negative.
In practice, courts, in the sound exercise of their discretion, will have to determine
under all the facts and circumstances when the exercise of a right is unjust, or when
there has been an abuse of right.[34]
We went over the record of the case with painstaking solicitude and we are
convinced that NAPOCORs act of disapproving PHIBRO's application for pre-
qualification to bid was without any intent to injure or a purposive motive to perpetrate
damage. Apparently, NAPOCOR acted on the strong conviction that PHIBRO had a
seriously-impaired track record. NAPOCOR cannot be faulted from believing so. At this
juncture, it is worth mentioning that at the time NAPOCOR issued its subsequent
Invitation to Bid, i.e., October 1987, PHIBRO had not yet delivered the first shipment of
coal under the July 1987 contract, which was due on or before September 5,
1987. Naturally, NAPOCOR is justified in entertaining doubts on PHIBROs qualification
or capability to assume an obligation under a new contract.
Moreover, PHIBROs actuation in 1987 raised doubts as to the real situation of the
coal industry in Australia. It appears from the records that when NAPOCOR was
constrained to consider an offer from another coal supplier (ASEA) at a price of
US$33.44 per metric ton, PHIBRO unexpectedly offered the immediate delivery of
60,000 metric tons of Ulan steam coal at US$31.00 per metric ton for arrival at Calaca,
Batangas on September 20-21, 1987.[35] Of course, NAPOCOR had reason to ponder-
- how come PHIBRO could assure the immediate delivery of 60,000 metric tons
of coal from the same source to arrive at Calaca not later than September 20/21,
1987 but it could not deliver the coal it had undertaken under its contract?
Significantly, one characteristic of a fortuitous event, in a legal sense, and
consequently in relations to contracts, is that the concurrence must be such as to render
it impossible for the debtor to fulfill his obligation in a normal manner. [36] Faced with the
above circumstance, NAPOCOR is justified in assuming that, may be, there was really
no fortuitous event or force majeure which could render it impossible for PHIBRO to
effect the delivery of coal. Correspondingly, it is also justified in treating PHIBROs
failure to deliver a serious impairment of its track record. That the trial court, thereafter,
found PHIBROs unexpected offer actually a result of its desire to minimize losses on
the part of NAPOCOR is inconsequential. In determining the existence of good faith,
the yardstick is the frame of mind of the actor at the time he committed the act,
disregarding actualities or facts outside his knowledge. We cannot fault NAPOCOR if it
mistook PHIBROs unexpected offer a mere attempt on the latters part to undercut
ASEA or an indication of PHIBROs inconsistency. The circumstances warrant such
contemplation.
That NAPOCOR believed all along that PHIBROs failure to deliver on time was
unfounded is manifest from its letters[37] reminding PHIBRO that it was bound to deliver
the coal within 30 days from its (PHIBROs) receipt of the Letter of Credit, otherwise it
would be constrained to take legal action. The same honest belief can be deduced from
NAPOCORs Board Resolution, thus:
On the legal aspect, Management stressed that failure of PBO to deliver under
the contract makes them liable for damages, considering that the reasons
invoked were not valid. The measure of the damages will be limited to actual
and compensatory damages. However, it was reported that Philipp Brothers
advised they would like to have continuous business relation with NPC so they are
willing to sit down or even proposed that the case be submitted to the Department of
Justice as to avoid a court action or arbitration.
xxxxxx
On the technical-economic aspect, Management claims that if PBO delivers in
November 1987 and January 1988, there are some advantages. If PBO reacts to any
legal action and fails to deliver, the options are: one, to use 100% Semirara and
second, to go into urgent coal order. The first option will result in a 75 MW derating
and oil will be needed as supplement. We will stand to lose around P30 M. On the
other hand, if NPC goes into an urgent coal order, there will be an additional expense
of $786,000 or P16.11 M, considering the price of the latest purchase with ASEA. On
both points, reliability is decreased.[38]
The very purpose of requiring a bidder to furnish the awarding authority its pre-
qualification documents is to ensure that only those responsible and qualified bidders
could bid and be awarded with government contracts. It bears stressing that the award
of a contract is measured not solely by the smallest amount of bid for its performance,
but also by the responsibility of the bidder. Consequently, the integrity, honesty, and
trustworthiness of the bidder is to be considered. An awarding official is justified in
considering a bidder not qualified or not responsible if he has previously defrauded the
public in such contracts or if, on the evidence before him, the official bona fide believes
the bidder has committed such fraud, despite the fact that there is yet no judicial
determination to that effect.[39] Otherwise stated, if the awarding body bona
fide believes that a bidder has seriously impaired its track record because of a
particular conduct, it is justified in disqualifying the bidder. This policy is necessary to
protect the interest of the awarding body against irresponsible bidders.
Thus, one who acted pursuant to the sincere belief that another willfully committed
an act prejudicial to the interest of the government cannot be considered to have acted
in bad faith. Bad faith has always been a question of intention. It is that corrupt motive
that operates in the mind. As understood in law, it contemplates a state of mind
affirmatively operating with furtive design or with some motive of self-interest or ill-will
or for ulterior purpose.[40] While confined in the realm of thought, its presence may be
ascertained through the partys actuation or through circumstantial evidence. [41] The
circumstances under which NAPOCOR disapproved PHIBRO's pre-qualification to bid
do not show an intention to cause damage to the latter. The measure it adopted was
one of self-protection. Consequently, we cannot penalize NAPOCOR for the course of
action it took. NAPOCOR cannot be made liable for actual, moral and exemplary
damages.
Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000,
the Regional Trial Court computed what could have been the profits of PHIBRO had
NAPOCOR allowed it to participate in the subsequent public bidding. It ruled that
PHIBRO would have won the tenders for the supply of about 960,000 metric tons out
of at least 1,200,000 metric tons from the public bidding of December 1987 to 1990. We
quote the trial courts ruling, thus:
x x x. PHIBRO was unjustly excluded from participating in at least five (5) tenders
beginning December 1987 to 1990, for the supply and delivery of imported coal with a
total volume of about 1,200,000 metric tons valued at no less than US$32 Million.
(Exhs. AA, AA-1, to AA-2). The price of imported coal for delivery in 1988 was quoted
in June 1988 by bidders at US$ 41.35 to US $ 43.95 per metric ton (Exh. JJ); in
September 1988 at US$41.50 to US$49.50 per metric ton (Exh. J-1); in November
1988 at US$ 39.00 to US$ 48.50 per metric ton (Exh. J-2) and for the 1989 deliveries,
at US$ 44.35 to US$ 47.35 per metric ton (Exh. J-3) and US$38.00 to US$48.25 per
metric ton in September 1990 (Exh. JJ-6 and JJ-7). PHIBRO would have won the
tenders for the supply and delivery of about 960,000 metric tons of coal out of at least
1,200,000 metric tons awarded during said period based on its proven track record of
80%. The Court, therefore finds that as a result of its disqualification, PHIBRO
suffered damages equivalent to its standard 3% margin in 960,000 metric tons
of coal at the most conservative price of US$ 30.000 per metric ton, or the total
of US$ 864,000 which PHIBRO would have earned had it been allowed to
participate in biddings in which it was disqualified and in subsequent tenders
for supply and delivery of imported coal.
 We find this to be erroneous.
Basic is the rule that to recover actual damages, the amount of loss must not only
be capable of proof but must actually be proven with reasonable degree of certainty,
premised upon competent proof or best evidence obtainable of the actual amount
thereof.[42] A court cannot merely rely on speculations, conjectures, or guesswork as to
the fact and amount of damages. Thus, while indemnification for damages shall
comprehend not only the value of the loss suffered, but also that of the profits which
the obligee failed to obtain,[43] it is imperative that the basis of the alleged unearned
profits is not too speculative and conjectural as to show the actual damages which may
be suffered on a future period.
In Pantranco North Express, Inc. v. Court of Appeals,[44] this Court denied the
plaintiffs claim for actual damages which was premised on a contract he was about to
negotiate on the ground that there was still the requisite public bidding to be complied
with, thus:
As to the alleged contract he was about to negotiate with Minister Hipolito, there is no
showing that the same has been awarded to him. If Tandoc was about to negotiate a
contract with Minister Hipolito, there was no assurance that the former would get it or
that the latter would award the contract to him since there was the requisite public
bidding. The claimed loss of profit arising out of that alleged contract which was
still to be negotiated is a mere expectancy. Tandocs claim that he could have
earned P2 million in profits is highly speculative and no concrete evidence was
presented to prove the same. The only unearned income to which Tandoc is
entitled to from the evidence presented is that for the one-month period, during which
his business was interrupted, which is P6,125.00, considering that his annual net
income was P73, 500.00.
In Lufthansa German Airlines v. Court of Appeals,[45] this Court likewise
disallowed the trial court's award of actual damages for unrealized profits in the amount
of US$75,000.00 for being highly speculative. It was held that the realization of profits
by respondent x x x was not a certainty, but depended on a number of factors, foremost
of which was his ability to invite investors and to win the bid. This Court went further
saying that actual or compensatory damages cannot be presumed, but must be duly
proved, and proved with reasonable degree of certainty.
And in National Power Corporation v. Court of Appeals,[46] the Court, in denying
the bidders claim for unrealized commissions, ruled that even if NAPOCOR does not
deny its (bidder's) claims for unrealized commissions, and that these claims have been
transmuted into judicial admissions, these admissions cannot prevail over the rules and
regulations governing the bidding for NAPOCOR contracts, which necessarily and
inherently include the reservation by the NAPOCOR of its right to reject any or all bids.
The award of moral damages is likewise improper. To reiterate, NAPOCOR did
not act in bad faith. Moreover, moral damages are not, as a general rule, granted to a
corporation.[47] While it is true that besmirched reputation is included in moral damages,
it cannot cause mental anguish to a corporation, unlike in the case of a natural person,
for a corporation has no reputation in the sense that an individual has, and besides, it
is inherently impossible for a corporation to suffer mental anguish. [48] In LBC Express,
Inc. v. Court of Appeals,[49] we ruled:
Moral damages are granted in recompense for physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. A corporation, being an artificial person and having
existence only in legal contemplation, has no feelings, no emotions, no senses;
therefore, it cannot experience physical suffering and mental anguish. Mental
suffering can be experienced only by one having a nervous system and it flows from
real ills, sorrows, and griefs of life all of which cannot be suffered by respondent bank
as an artificial person.
Neither can we award exemplary damages under Article 2234 of the Civil Code.
Before the court may consider the question of whether or not exemplary damages
should be awarded, the plaintiff must show that he is entitled to moral, temperate, or
compensatory damages.
NAPOCOR, in this petition, likewise contests the judgment of the lower courts
awarding PHIBRO the amount of $73,231.91 as reimbursement for expenses, cost of
litigation and attorneys fees.
We agree with NAPOCOR.
This Court has laid down the rule that in the absence of stipulation, a winning
party may be awarded attorney's fees only in case plaintiff's action or defendant's stand
is so untenable as to amount to gross and evident bad faith. [50] This cannot be said of
the case at bar. NAPOCOR is justified in resisting PHIBROs claim for damages. As a
matter of fact, we partially grant the prayer of NAPOCOR as we find that it did not act
in bad faith in disapproving PHIBRO's pre-qualification to bid.
Trial courts must be reminded that attorney's fees may not be awarded to a party
simply because the judgment is favorable to him, for it may amount to imposing a
premium on the right to redress grievances in court. We adopt the same policy with
respect to the expenses of litigation. A winning party may be entitled to expenses of
litigation only where he, by reason of plaintiff's clearly unjustifiable claims or defendant's
unreasonable refusal to his demands, was compelled to incur said
expenditures. Evidently, the facts of this case do not warrant the granting of such
litigation expenses to PHIBRO.
At this point, we believe that, in the interest of fairness, NAPOCOR should give
PHIBRO another opportunity to participate in future public bidding. As earlier
mentioned, the delay on its part was due to a fortuitous event.
 But before we dispose of this case, we take this occasion to remind PHIBRO of
the indispensability of coal to a coal-fired thermal plant. With households and
businesses being entirely dependent on the electricity supplied by NAPOCOR, the
delivery of coal cannot be venturesome. Indeed, public interest demands that one who
offers to deliver coal at an appointed time must give a reasonable assurance that it can
carry through. With the deleterious possible consequences that may result from failure
to deliver the needed coal, we believe there is greater strain of commitment in this kind
of obligation.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 126204

dated August 27, 1996 is hereby MODIFIED. The award, in favor of PHIBRO, of actual,
moral and exemplary damages, reimbursement for expenses, cost of litigation and
attorneys fees, and costs of suit, is DELETED.

SO ORDERED.

EN BANC
[G.R. No. 151987. March 18, 2005]
DIRECTOR FREDRIC VILLANUEVA, ATTY. JOSEPH HUMIDING, ENGR. FRANCIS
BASALI, and TESSIE BRINGAS, petitioners, vs. THE COMMISSION ON
AUDIT, herein represented by GUILLERMO N. CARAGUE, RAUL C.
FLORES and EMMANUEL DALMAN, in their capacity as Chairman and
Commissioners, respectively, respondents.
DECISION
CHICO-NAZARIO, J.:
This original action for certiorari with prayer for temporary restraining order and
preliminary injunction seeks the reversal of the 12 September 2000 Decision of the
Commission on Audit (COA) as well as its 06 December 2001 Resolution denying the
motion for reconsideration of petitioners herein.[1] The assailed decision and resolution
both affirmed the Special Audit Office (SAO) Report No. 95-31 of the Special Audit
Office of the COA recommending the filing of criminal charges against petitioners for
violation of Section 3(e) of Republic Act No. 3019,[2] as amended, and requiring
petitioners to refund the amount of P316,138.50 representing an alleged overprice in
the purchase of polyethylene plastic bags which the Special Audit Team disallowed on
post-audit.
From the parties respective pleadings, the generative facts of the case are as
follows:
1. On 6 August 1993, an unnumbered Special Order of 1993 of the Department of
Environment and Natural Resources (DENR) was issued designating the Chief of
Planning Division (herein petitioner Engr. Francis Basali) and the Chief of the Legal
Division (herein petitioner Atty. Joseph Humiding) as members of the Bids and
Awards Committee of the DENR-Cordillera Administrative Region (DENR-CAR),
Baguio City. They were to join the previous appointee, herein petitioners Director
Fredric Villanueva and the Secretariat Tessie B. Bringas; [3]
2. In 1994, petitioners held the same positions in a hold-over capacity as there were yet no
appointees to take their place. Petitioner Veneracion then took over as the Officer-In-
Charge Regional Executive Director (OIC-RED) of DENR-CAR;[4]
3. During the said time, the DENR-CAR was tasked as implementing agency of a national
project dubbed Adopt-A-Street/Park Program throughout the Cordillera Administrative
Region pursuant to the provisions of Executive Order No. 100 (1993) and Joint
Memorandum Circular No. 1 (1993). E.O. No. 100, in particular, specifically mandated
the active participation of all government agencies nationwide in the urban greening
program. As lead agency, the DENR-CAR had to produce as many pine tree
seedlings as possible for the tree-planting activities of the other government agencies
in the Cordillera Administrative Region;[5]
4. Polyethylene plastic bags needed by the DENR-CAR in the production of pine tree
seedlings had to be purchased at the soonest possible time as the propagation of
pine seedlings had to be conducted before the end of the rainy season. Hence,
petitioner Veneracion, as OIC-RED, directed the conduct of a bidding for the
procurement of polyethylene plastic bags;[6]
5. In preparation for the bidding that was to be conducted on 12 July 1994, the following
steps were taken by the office of petitioner Veneracion:
(a) The preparation of the Invitation to Bid which invited all interested bidders
to submit sealed bids for the purchase of polyethylene plastic bags for
use in seedling production;[7]
(b) The posting of said Invitation To Bid at the bulletin boards of the different
sectors under the DENR-CAR;[8]
(c) The preparation of canvass papers inviting the submission of quotations on
the lowest prices of the plastic bags sought to be purchased;[9]
(d) The distribution of said canvass papers and invitation to bid, by mail and
personal delivery, to known suppliers of the DENR-CAR;[10]
6. Suppliers of the DENR-CAR were invited to submit bid offers, either by mail or through
personal delivery of the canvass papers. These were:[11]
(a) Fluid Air Technologies (Fluid Air), based in Quezon City, Metro Manila;
(b) Kinship Industrial Sales and Services (Kinship Industrial), also based in
Quezon City, Metro Manila;
(c) Torquoise Commercial and Industrial Sales and Services, Inc., based in
Paraaque City, Metro Manila; and
(d) Prince Enterprises, based in Baguio City.
7. The first three (3) establishments submitted their sealed bids to the Office of the
Regional Executive Director which forwarded the same to the Prequalification Bids
and Awards Committee (PBAC). Petitioners Villanueva, Humiding and Basali were
members of the PBAC;[12]
8. On 12 July 1994, the PBAC, composed of herein petitioners, conducted its deliberations.
Estrellita B. Belandres, the resident auditor of the DENR-CAR from the respondent
COA Regional Office of the Cordillera Administrative Region, personally attended the
deliberations;[13]
9. During the opening of the sealed bids, with COA Auditor Belandres in attendance, the
PBAC found that the bids tendered by Fluid Air and Kinship Industrial were the most
advantageous to the government, hence, they were declared the winning bidders; [14]
10. Pursuant thereto, the DENR-CAR purchased from Kinship Industrial and from Fluid Air
polyethylene plastic bags in varying sizes and quantities; [15]
11. In her Independent Auditors Report dated 14 February 1995, auditor Belandres stated
in part:
In our opinion, except for the effect of any adjustments which might have been made
had the agency conducted a physical count of its inventories and fixed assets as of
December 31, 1994 or had the records allowed us to apply alternative procedures,
the financial statements referred to above present fairly, in all material respects, the
financial position of the Department of Environment and Natural Resources as of
December 31, 1994, and the results of its operations for the year ended in
accordance with applicable laws and regulations and in conformity with generally
accepted state accounting principles;[16]
12. From 2 March to 5 May 1995, however, a special audit was conducted by the Special
Audit Office of respondent COA, in compliance with COA Assignment Order 95-030
dated 23 February 1995, on selected financial transactions and operations of the
DENR-CAR for the calendar years 1992 to 1994. The reasons behind the audit were
contained in a Memorandum dated 6 March 1997, addressed to the COA Chairman,
from Gregoria S. Ong, Director of the Special Audit Office, COA, where Director Ong
stated that disbursements for purchases of plastic bags, office supplies and
equipment were examined for legality, regularity and propriety; [17]
13. In its report (SAO Report No. 95-31), the audit team declared that the purchase of
plastic bags were made without a public bidding and that the acquisition was marked
by an overprice of as much as P316,138.50. The audit team thus recommended the
filing of criminal charges against the officers concerned pursuant to Section 3(e) of
Republic Act No. 3019, as amended, and recovery of the amount of P316,138.50
representing the alleged overprice in the purchase of said plastic bags; [18]
14. On 11 March 1997, the Special Audit Office, through State Auditor Vivencio C.
Quiambao, Jr., issued a Notice of Disallowance of the amount of P154,664.90
representing the total alleged overprice in the purchase of plastic bags from Kinship
Industrial. Another Notice of Disallowance was issued against plastic bags supplied
by Fluid Air in the amount of P161,473.60;[19]
15. On 2 July 1997, petitioners filed a letter-request for reconsideration of the findings of
the Audit Team;[20]
16. On 12 September 2000, respondent COA rendered the first assailed decision
dismissing petitioners request for reconsideration, the dispositive portion of which
reads:
Accordingly, the instant appeal for reconsideration of the findings under SAO Report
No. 95-31, specifically Findings No. 1, 7 and 8, except for the procurement of 24 units
of overhead projectors covered by Notice of Disallowance No. 014-03-97 for
P27,960.00, cannot be given due course. It is directed that a copy of this decision be
furnished the Office of the Ombudsman for Luzon for filing of appropriate criminal
action against those accountable officers responsible for the irregularities committed
relative thereto.[21]
17. On 17 October 2000, petitioners filed a Motion for Reconsideration which was denied,
for lack of merit by respondent COA in the second assailed Resolution dated 6
December 2001.[22]
Hence, the instant petition where it is averred that respondent COA gravely
abused its discretion amounting to lack or excess of jurisdiction
. . . IN FINDING THAT PETITIONERS SHOULD BE HELD LIABLE AND THUS
SHOULD BE CHARGED BEFORE THE OFFICE OF THE OMBUDSMAN FOR
GRAFT AND CORRUPTION PRACTICES;
. . . IN NOT EVALUATING THE FACTS AND CIRCUMSTANCES AS PRESENTED
BY THE EVIDENCE OF THE PETITIONERS;
. . . IN NOT APPLYING THE CORRECT LAW AND JURISPRUDENCE IN THE CASE
SUBMITTED BEFORE IT FOR RESOLUTION; [and]
. . . IN FAVORING AND EXONERATING ITS OWN AUDITOR AND INSTEAD
FINDING FAULT IN THE PETITIONERS.
At the pith of the controversy is the scope of the Commission on Audits authority
and the limits of its participation in public biddings of government agencies.
The assailed COA Decision, among other things, stated that the various plastic
bags were purchased without the benefit of public bidding and were overpriced by as
much as P344,098.50.[23] And, in its Resolution denying petitioners motion for
reconsideration, respondent COA underscored the Special Audit Teams observation
that:
The alleged failure of the Resident Auditor in the performance of her duties can not
also be given credence. COA Circular No. 78-87 dated September 6, 1978 states the
extent of auditorial involvement with regard to the opening of bids, to wit:
1. maintenance of documentary integrity;
2. physical security of the records of the bidding;
3. identification and security of alteration of bids.
Parenthetically, the technical and financial evaluation of the bids rests with the
members of the bidding committee who exercise discretionary functions and for that
matter it is presumed that so much is reposed in their integrity, ability, acumen and
judgment. The determination, therefore, of the overpricing of the bidded items is the
responsibility of the bidding committee and not of the representative of this
Commission.[24]
Petitioners, in refutation, argue in the main that they cannot be charged for
causing undue injury to the government (Section 3[e] of Rep. Act No. 3019) considering
that if there had been any suspicion of irregularity or any deliberate act on their part to
prejudice the government, the resident auditor should have caused the immediate
stoppage or suspension of the deliberations. In contrast, during the public bidding on
12 July 1994, resident auditor Estrellita B. Belandres stated that for as long as the
bidding was not contrary to Presidential Decree No. 1594, [25] it can be conducted
through simplified bidding even for amounts exceeding Fifty Thousand Pesos
(P50,000) and that it can be done thru sealed canvass. [26] During the deliberations and
opening of the sealed bids, auditor Belandres never caused the stoppage of the bidding
process. She even affixed her signature on the Minutes of the Proceedings, the
attendance sheet, and on the Resolution of the PBAC finding Fluid Air and Kinship
Industrial to be the lowest bidders whose offers were the most advantageous to the
government.[27] After the plastic bags were bought and paid for, auditor Belandres did
not disallow the transaction as evidenced by her Independent Auditors Report dated
14 February 1995.[28] In fine, petitioners argue that as they relied on the expertise of
the COA representative, they cannot be made liable for the alleged irregularities in the
bidding process considering that they complied with the requirements of bidding and
they conducted the bidding itself in the presence of and under the advisement of the
COA representative.
Parenthetically, petitioners challenge the ruling of respondent COA that the role
of the COA representative in public bidding is merely as witness as this would make
government representatives tasked with protecting government interests mere
automatons.
Respondent COA, as represented by the Office of the Solicitor General, replied
that it did not act in grave abuse of discretion as its findings were anchored on the report
of the Special Audit Office (SAO) that conducted a special audit of the financial
transactions and operations of the DENR-CAR for the years 1992 to 1994. Under the
Manual On Public Bidding published by the COA, petitioners, as members of the PBAC
were responsible for the conduct of prequalification, bidding, evaluation of bids and
recommending awards of contracts. The resident auditor, as representative of the COA,
on the other hand, serves only as an observer who can only perform post-audit
functions and who cannot participate or be actively involved in the bidding as this would
be tantamount to exercising pre-audit functions and encroaching into the government
agencys management prerogatives.[29] Respondent thus concluded that the ultimate
responsibility in the bidding process falls on the PBAC members.
We affirm the findings of respondent COA.
There is no doubt that the Commission on Audit, under the Constitution, is
empowered to examine and audit the use of funds by an agency of the national
government on a post-audit basis.[30] For this purpose, the Constitution has provided
that the COA shall have exclusive authority, subject to the limitations in this Article, to
define the scope of its audit and examination, establish the techniques and methods
required therefore, and promulgate accounting and auditing rules, and regulations
including those for the prevention and disallowance of irregular, unnecessary,
excessive, extravagant or unconscionable expenditures, or uses of government funds
and properties.[31]
Among the rules and regulations issued by the COA pursuant to the above-quoted
mandate is COA Circular No. 78-87 dated 06 September 1978 which requires the
attendance of an auditor or his duly authorized representative in the opening of bids.
The scope of the functions of the auditor during the opening of bids is clearly delineated
by the said circular, viz:
2. Authority for the Auditor's Presence:
Executive Order No. 269, Series of 1940, requires the presence of the Auditor during
the above occasions.
The pertinent portion of said Executive Order reads as follows:
". . . that the opening of all bids and quotations for similar services
(contract for public service or for furnishing supplies, materials, or
equipment) be made in the presence of a representative of the Auditor
General, who is hereby authorized to secure and identify such papers and
 samples of the materials submitted by the bidders as will ensure the
proper safeguard of the interests of the Government."
3. Nature and Extent of the Auditor's Participation:
The Executive Order enjoins the presence of the Auditor to be present and secure the
papers and samples at said bidding. The term "secure" necessarily implies:
1. Maintenance of documentary integrity.
2. Physical security of the records of the bidding.
The Auditor's presence or that of his duly authorized representative is as witness
only with specific functions to perform as hereunder delineated and explained.
(Emphasis supplied)
Maintenance of documentary integrity, under the said circular, only means that
(e)very document should be properly identified by each and every member of the
Committee on Bids and by the Auditor or his duly authorized representative by affixing
at some convenient portion of the document, usually the right up-hand corner of the
document, their initials or other identifying marks.[32] On the other hand, physical
security of the records of the bidding means that (c)opies of the tenders or offers should
be furnished the Auditor or his duly authorized representative for his file and reference
and to secure the same against tampering and/or improper handling. [33]
As respondent COA obviously relied on the foregoing circular in affirming SAO
Report No. 95-31 of the Special Audit Team finding that the responsibility for
determining whether there has been an overprice in the items up for bid pertains to the
members of the PBAC and not the COA auditor, it cannot be said that respondent COA
acted in grave abuse of its discretion. In Danville Maritime v. Commission on
Audit,[34] where the petitioner thereat likewise argued that the bidding conducted was
valid as the COA representative who was then present made no objections to the same,
we ruled that the role of the COA representative at the time of the bidding was only as
a witness to insure documentary integrity, i.e., by ensuring that every document is
properly identified and/or marked and that the records of the bidding are securely kept.
Moreover, it must be kept in mind that as early as 1989, COA had already passed
COA Circular No. 89-299 lifting the pre-audit of government transactions.[35] A pre-audit
is an examination of financial transactions before their consumption or payment.[36] A
pre-audit seeks to determine that: (1) The proposed expenditure complies with an
appropriation law or other specific statutory authority; (2) Sufficient funds are available
for the purpose; (3) The proposed expenditure is not unreasonable or extravagant and
the unexpended balance of appropriations where it will be charged to is sufficient to
cover the entire amount thereof; and (4) The transaction is approved by proper authority
and the claim is duly supported by authentic underlying evidences. [37]
Applying the foregoing to the facts before us, it can be safely said that at the time
of the subject public bidding in 1994, the COA auditor was not conducting a pre-audit.
Her presence thereat, as correctly pointed out by respondent, was merely as a witness
to ensure documentary integrity.
In contrast to the duties of the COA auditor in public bidding, the PBAC members,
under the Administrative Code of 1987, are specifically tasked with the conduct of
prequalification of contractors, bidding, evaluation of bids and recommending of awards
of contracts.[38] And rightfully so. Between the COA auditor who can only perform post-
audit functions and the PBAC members of the procuring entity (i.e., DENR-CAR), it is
the latter which has the technical expertise to determine the offers that will best meet
the needs and requirements of its office. Upon the agency that called for the bidding,
therefore, rests the burden of ensuring that the process undertaken is above-board and
that the outcome thereof is most advantageous to the government.[39] The presence of
the COA representative, as witness or observer,[40] on the other hand, is fundamental
only to the extent of guaranteeing documentary integrity and transparency in the
bidding process.
Petitioners, however, harp on their alleged good faith to negate criminal liability,
claiming that the COA auditor did more than just observe and that they merely relied
on her representations made during the opening of the bids.
This argument is a matter of defense in the criminal case, if any, filed against
petitioners. Verily, whether respondent COAs recommendation to file criminal charges
will be able to survive prosecutorial and/or judicial scrutiny is a different matter
altogether. The important thing to bear in mind is that for purposes of the instant
petition, respondent COA cannot be estopped by the acts of its resident auditor during
the public bidding of 12 July 1994. In Development Bank of the Philippines v.
Commission on Audit,[41] we had occasion to rule that the COA is not estopped from
questioning, in the process of post-audit, the previous acts of its officials considering
the well-established principle that estoppel does not lie against the government; more
so if the acts of its officials are erroneous, let alone irregular.
The main issue having been settled thus, petitioners nevertheless advance the
additional argument that, in any event, the plastic bags subject matter of the special
audit were not overpriced. The special audit team that conducted the re-canvass
allegedly did not take into account additional expenses incurred by the winning bidders
all of whom were Manila-based like freight cost, handling, insurance and other
necessary expenses.
The matter of overpricing has been sufficiently studied and explained by the
Special Audit Team. To quote the relevant portions of its audit report: [42]
In order to determine whether the agency was able to acquire the most advantageous
price thru the modes of procurement adopted, the team conducted recanvass of
prices from three (3) suppliers of polyethylene plastic bags with the same
specifications as that purchased by the agency.
 ...

Comparing the agencys purchase price with the quotations of various suppliers and Legend:
with the TSO price evaluation disclosed that the items purchased by the agency were
overpriced by a total amount of P344,098.50. For purpose of conservatism, the team (*) Included a mark-up of 10% allowable
adopted the canvass prices of the thickest plastic bags. The overpricing is shown as
follows: (Annex 1-E)
price variance to the lowest price

...
quotation obtained.

Supplier Description COA Difference Managements Comments:

Acquisition Quantity Percentage
Price TSO/ Recanvassed Evaluated Unit (Pcs.) Total Overprice
Price/pc. Price/pc. Price/pc. On the inadequacy of the bidding process and overpricing.
Overpriced (4/3x100%)
[(2) x 10%] (1-3) Amount (4x5)
Consultation made with the DENR-CAR Members of the PBAC revealed the
following:

(2) (6)
(1) . . . (5) (7)
(3) (4)

h. During the opening of the sealed bids which was done only on July 12, 1994, the
Kinship Polyethylene P1.00 P0.192 P0.2112 P0.7888 P150,000 P118,320.00 373.48%
PBAC relied on the quotations stated herein. In the presence of the COA Resident
Industrial plastic bag,
Auditor, Mrs. Estrellita Belandres, who together with the PBAC Members and
Sales & black, 4 x 6 Secretariat as well as Administrative Division representative in the person of Miss
Services Tessie Bringas, all signed each and every copy of the canvass form as the sealed
envelopes were being opened and offered for inspection.
- do - - do size: 10 x 3.50 0.855 0.940 2.5595 14,200 36,344.90 272.14%
12 i. Without any objection, the offers that appeared to be the lowest were chosen and the
Secretariat was directed to prepare the Resolution adjudging the winning bidders who
Fluid Air happened to be Fluid Air Technologies and Kinship Industrial Sales and Services.
Technologies The said Resolution was signed by all the PBAC Members including the DENR-
- do size: 4 x 1.30 0.250 0.275 1.025 100,000
CAR 102,500.00
COA Resident 372.727%
Auditor, Estrellita Belandres, who was the PBACs resource
8 person and guide in its proceedings.

- do - - do size: 6 x 2.50 0.358 0.3938 2.1062 j. 28,000 58,973.60

The PBAC relied in good faith 534.84%
with the quotations given in the canvass forms, hence,
8 it was routinary for the PBAC to award the items to the firms with the lowest
quotations. The Members of the PBAC were also not familiar with the prices of the
A. C. Overhead 17,500.00 14,850.00 16,335.00 1,165.00 plastic bags, the
24 units Members being
27,960.00 connected with the DENR Offices but not directly
7.49%
Pacheco, Projector concerned with tree planting and seedling production where plastic bags are needed.
Inc. Besides, the Chairman and a Member of the then PBAC are Mining Engineers by
profession while the other is a Lawyer, hence, this unfamiliarity with the prices of
plastic bags. P344,098.50
k. When the sealed bids were opened, each of the required documents therein
appeared to be regular on its face and the canvass quotations were obtained from
firms checked by the canvassers. If it so happens that one of the offerors is not
engaged in the business of dealing in plastic bags, it is respectfully submitted that
individual background checking by the PBAC of each offeror in addition to the
documents submitted by each is over and beyond the work responsibility of the PBAC
Members. It is stressed, however, that the then PBAC Members were exercising their
duties in addition to their main and regular functions which do not provide them
enough time to look deeply into such matter.

...

Teams Rejoinder:

The procedures adopted by the PBAC which is to require the submission of at least
(3) sealed quotations did not ensure the widest publicity needed for competitive
bidding. The PBAC left entirely to the canvassers the determination of which suppliers
are to be served canvass quotations. There is no showing that notices of biddings
were published in public places.

In view of the limited publicity, the PBAC was not able to draw more bidders, resulting
to overpricing. In relying on the quotations of the three suppliers one of whom is not
even qualified as such, PBAC took the risk of not getting the most advantageous price
for the government. And this is what actually happened.

We do not perceive any abuse of discretion on the part of respondent COA in

relying on the above-quoted report of the COA audit team. In sum, the discretion it
exercised in ruling for the disallowance of the transaction in question must be respected
as it is supported by substantial evidence. Well-established is the rule that findings of
administrative agencies are accorded not only respect but also finality when the
decision or order is not tainted with unfairness or arbitrariness that would amount to
grave abuse of discretion.[43] It is only upon a clear showing of grave abuse of discretion
that the Courts will set aside decisions of government agencies entrusted with the
regulation of activities coming under their special technical knowledge and training. [44]

WHEREFORE, premises considered, the petition dated 18 February 2002 is

DISMISSED for lack of merit. The 12 September 2000 Decision and the 06 December
2001 Resolution of the Commission on Audit are AFFIRMED. No costs.

SO ORDERED.

FIRST DIVISION
[G.R. No. 147410. February 5, 2004]
THE INSULAR LIFE ASSURANCE COMPANY, LTD., petitioner, vs. ASSET
BUILDERS CORPORATION, respondent.
DECISION
PANGANIBAN, J.:
Where the parties merely exchange offers and counteroffers, no agreement or
contract is perfected. A party may withdraw its offer or counteroffer prior to its receipt
of the other partys acceptance thereof. To produce an agreement, the offer must be
certain and the acceptance timely and absolute.
The Case
Before us is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of
Court, assailing the September 20, 2000 Decision[2] and the March 7, 2001
Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 61607. The dispositive part
of the Decision reads as follows:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the [petitioner]
is DISMISSED. The Decision of the Court a quo is AFFIRMED.[4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The appellate court summarized the facts of the case as follows:
Sometime in November, 1992, the Insular Life Assurance Company, Limited,
[petitioner], invited companies/corporations engaged in the building construction
business to participate in the bidding of [petitioners] proposed Insular Life building in
Lucena City. [Petitioner] distributed copies of Bid Document[s], including the general
construction x x x contract, with the winning bidder and Bid Proposal Forms[,] and
furnished copies of the Instruction to Bidders to participating bidders, containing the
rules to be followed in the bidding, including the following rules: (a) all bond proposals
shall be accompanied with a bid bond from the Insular General Insurance Company,
Inc., in an amount equivalent to ten (10) percent of the bid or five (5) percent of the
bid in Managers or Cashiers check payable to Insular Life, which bid bonds will be
returned to the bidder after sixty (60) days from opening of bids or after award of the
project, whichever date comes first;[5] (b) the bid shall be valid for sixty (60) days
[after] opening of bids[,] but the owner of the project (the [petitioner]) had the option to
request the bidder to extend the bid validity period after expiration of the original
validity period;[6] [and] (c) the bidder, whose proposal had been deemed acceptable
and complying with the requirements of the owner ([petitioner]) and the project, shall
be notified in writing to personally appear to execute the Contract
Agreements within five (5) days after the receipt of the Notice of Award[,] and that
failure on the part of the winning bidder to execute the contract shall constitute a
breach of the agreement, as effected by acceptance of the proposal, resulting in the
nullification of the award; and that the bond heretofore, offered by the winning bidder
shall be retained by the owner ([petitioner]) as payment due for liquidated damages.[7]
Asset Builders Corporation, [respondent], with four (4) other bidders, namely, Q.K.
Calderon Construction [Co., Inc.], Specified Contractors, A.[A.] Alarilla
Construction[,] and Serg Construction, submitted their respective bid proposals
secured by bid bonds, valid for sixty (60) days.[8] Under its Proposal Formwhich the
[respondent] submitted to the [petitioner], [respondent] bound and obliged itself to
enter into a Contract with the petitioner within ten (10) days from notice of the award,
with good and sufficient securities for the faithful compliance thereof. [9]
On November 9, 1993, the respective proposals of the bidders were opened. The
[petitioner] forwarded a Summary of Bids and Tender Documents to Adrian Wilson
International Associate[s], Inc.[10] (AWIA for brevity), [petitioners] designated Project
Manager[,] for the proposed Insular Life Building in Lucena City for its evaluation and
analysis. AWIA, in due time, submitted a report of its evaluation to the Real Property
Division of the [petitioner]. As [could] be gleaned from the Report of AWIA,
[respondents] P12,962,845.54[11] bid was the lowest among the bidders.
On January 21, 1994, Engineer Pete S. Espiritu (Espiritu for brevity) of the Real
Property Department, who was designated as Project Coordinator of the
petitioner[,] recommended that [respondent] and the other bidders, Q.K. CALDERON
[CONSTRUCTION] CO., INC. AND SPECIFIED CONTRACTORS, be subjected to
post-qualification proceedings, including the inspection of their respective offices,
equipment, as well as past and present projects, and that said bidders be subjected to
credit and financial investigations.[12]
[Petitioner] concurred with the recommendation of Espiritu and, indeed, post-
qualification, inspection[,] and evaluations of [respondent] and Q.K. Calderon
Construction Co., Inc. were effected. On January 25, 1994, [petitioner], with
concurrence of [respondent], visited [respondents] main office at the Tektite Tower
and its past and present projects, i.e., the four (4) and two (2) storey Air
Transportation buildings in its compound; the Government Service Insurance System
(GSIS) Headquarters Complex; and the National Historical Institute Building, and
[respondents] equipment. On February 14, 1994, Espiritu suggested that a bid
clarification and negotiation be undertaken with prospective contractors.
On February 23, 1994, Abraham Torrijos of [petitioners] Real Property
Department (hereinafter referred to as Torrijos) recommended the approval by the
Board of Directors of [petitioner] of the award of the general construction of the
Proposed Lucena Building, in favor of [respondent], emphasizing that:
2. Asset Builders Corporation is a (sic) AAA category Contractor. It has extensive
experience in vertical and horizontal projects. The company [has been] subjected to a
post qualification and credit investigation, the results of which are satisfactory and
acceptable, thus making it technically competent and financially capable of
contracting the work.[13]
On February 24, 1994, a conference was held by and among the representatives of
the [petitioner] and of the [respondent], including [respondents] Operations Manager,
Engineer Ramon Abu, for some clarifications. [Petitioner] proposed that [respondent]
adjust its bid from P12,961,845.54 to P13,000,000.00 to accommodate the wage
increase brought about by Wage Order No. 03, series of 1993, effective December 3,
1993. However, [respondents] representatives were noncommittal, declaring that they
had [to] report to the management of the [respondent] the proposal of [petitioners]
representatives, for its consideration and approval. Subsequently, the [respondent]
agreed to the readjustment of the amount of its bid as proposed by the [petitioner].
On March 9, 1994, Januario L. Flores (Flores for brevity), head of the Real Property
Department and Assistant Vice-President of the [petitioner], submitted to Mabini L.
Juan, the Chief Operating Officer and Senior Executive Vice-President of the
[petitioner], his findings on the post-qualification, evaluation and credit investigation of
[respondent], with the recommendation that the award be given to the [respondent]:
2. On the basis of the above very positive indicators, RPD[,] E.L. Mariano, [F. B.]
Mariano Associates and Co.[,] and Adrian Wilson Intl Associates, [Inc.] recommen[d]
to award the Lucena [p]roject to Asset Builders Corporation. We honestly believe that
they will do a good job.
3. For your consideratio[n/a]pproval.[14]
On March 14, 1994, [Flores] signed a Notice to Proceed, addressed to the
[respondent], for the conformity of the latters President, Rogelio P. Centeno. Under
the [ultimate] paragraph of the Notice to Proceed, the [respondent] may start its
mobilization and proceed with the construction immediately[,] pending execution of
the Construction Agreement.[15] The [petitioner prepared] a draft of the contract to
be executed by the [petitioner] and the [respondent].
On the same day, [Torrijos] informed, by letter, Engineer Bernardo A.
Sajorda (Sajorda for brevitys sake), Project Manager of AWIA, that [petitioner] had
awarded the general construction contract of the proposed Lucena Building to the
[respondent] and advised AWIA to coordinate with [respondent] and inform the latter
that a pre-construction meeting [would] be held on March 22, 1994 at the job site. [16] A
copy of the Notice of Award was appended to said letter.[17] Sajorda forthwith
informed Rogelio P. Centeno, the President of [respondent], by Memorandum that,
pursuant to the AWARD to [respondent], of the general construction of the Proposed
Lucena Building, a pre-construction conference [would] be held on March 22, 1994 at
the job site, during which the following will be discussed:
1. Contract Amount and completion time
2. Role of AWIA
3. Project Contractors Key [p]ersonnel [l]ist with [s]ignatures and
[p]ositions
4. Channel of [c]ommunications among Architect, Insular Life, ASSET
and AWIA
5. [Contractor submittals i.e. Work Schedule, Schedule of] Prices,
etc.
6. As-built[s] drawings
7. Submitt[al] of shop drawings prior to use of materials
8. Sanitation
9. Safety programs (first aid kit and hard hats)
10. Night work
11. CAR (Contractors All Ris[k I]nsurance)
 12. Owners review of payrolls, vouchers, etc. (sic) payments etc.
13. Sub-contracting [for] approval of subs.
14. Photographs every month
15. Billings based on actual work accomplishments. Undistributed
materials not billable
16. Security measures
17. Tests as required by spec[]s
18. Take note of specific requirements before final payment is
made[18]
The [respondent] received a copy of the Memorandum of Sajorda, on March 17,
1994. On March 18, 1994, the [petitioner] transmitted to the [respondent] the following
documents, evidenced by a Transmittal Sheet, received by Roy Roxas, for the
[respondent], to enable the latter to secure a Building Permit for the project:
ONE (1) LOT DOCUMENTS/PLANS FOR BUILDING PERMIT
4 SETS OF STRUCTURAL COMPUTATION
5 SETS OF SPECS FOR GENERAL CONSTRUCTION
3 SETS OF ELECTRICAL LOAD COMPUTATION
5 COPIES OF PRC ID [&] PTR OF DESIGN ENGRS.
6 SETS OF ELMA PLANS
5 SETS OF [R]MDA PLANS/SPECS[19]
On March 22, 1994, the Pre-Construction Conference ensued with the
representatives of the [petitioner] and its Project Manager and of the [respondent], in
the person of its Project Engineer, J.G. Quizon, in attendance:
Attendees: CARLOS M. ESPIRITU -- AWIA Asst. Project Manager
BERNARDO [A]. SAJORDA -- AWIA Project Manager
EDMUNDO C. SABATER -- AWIA Resident Engineer
JANUARIO L. FLORES -- IL/RPD Manager
J.G. QUIZON -- ASSET Project Manager
PETE S. ESPIRITU -- IL/RPD Project Coordinator
ABRAHAM P. TORRIJOS -- IL/RPD Asst. Manager[20]
During the conference, the following were discussed and clarified:
1. Contract Amount and Completion Time: Contract is for P13,000,000.00, to be
completed within 210 calendar days; day one to be 5 days after receipt of NTP by the
Contractor. Actual site mobilization to be first week of April 1994, per Mr. J.G.
Quizon. Issuance of building and other permits being worked out by the Contractor.[21]
On March 26, 1994, Jacobo G. Quizon, the Project Manager of [respondent], sent to
AWIA a letter requesting for the TCT lot description for the purpose of relocation of
the monuments and the staking out of the building:
We have the honor to request your good office, in relocating the monuments[,] as per
TCT lot description[s,] prior to staking out the building[;] likewise, we can do the
relocation[,] provided the cost will be reimbursed to the Owner[,] with an approximate
fee of P5,000.00 lump sum.
Further, problems may occur regarding structur[al] excavation for footing [and footing]
tie beams at Grid Line A & 4. As per plan, the proposed depth [of] excavation of about
2.5[0M] along the existing adjacent building walls will expose the CHB footing. [22]
Thereafter, a Ground Breaking ceremony was held at the project site, with Rogelio B.
Centeno, the President of [respondent], [and] Pete S. Espiritu and Januario L. Flores
of the [petitioner] in attendance. A billboard announcing the construction of [the]
Insular Life Building in Lucena City, with the [respondent] as the General Contractor,
was also erected in the project site.
However, the [respondent] did not affix its conformity to any Notice of Award, much
less commence its construction of the project. Neither did it execute
any Construction Agreement. Subsequently, the [respondent] wrote the [petitioner]
a letter dated April 5, 1994, informing the [petitioner] that the [respondent would] not
be able to undertake the project anymore[,] because the prerequisite paper work and
attendant processing could not be fast-trac[k]ed and that, since the previous two (2)
weeks, prices had escalated, which rendered its bid unattractive. [23] On April 25, 1994,
the [petitioner] wrote a letter to the [respondent], in response to its April 5, 1994
[letter], informing the [respondent] that, in view of the unjust withdrawal of the
[respondent] from the project, despite the award of the project to the [respondent], the
[petitioner] was impelled to engage the services of another contractor to complete the
project[,] without prejudice to further action of the [petitioner] against the [respondent]
for its withdrawal, pursuant to Section 10 of the Instruction to Bidders,
quoted, infra:
The exact amount of damages to the Owner due to the failure to execute the Contract
may be deemed difficult to determine. Failure, thereof, to execute the Contract within
five (5) days after the receipt of the Notice of Award shall cause [the] annulment of the
award. The amount of bid bond deposited with the proposal shall be retained by the
Owner as payment due for liquidated damages incurred.
By way of riposte, the [respondent] sent a letter to the [petitioner] averring that: (a) it
never received any written Notice of Award from the [petitioner]; [and] (b) since its
bid offer had a lifetime of sixty (60) days from November 9, 1993 or until January 8,
1993 (sic)[,] its offer was automatically withdrawn after said date, since the [petitioner]
had not requested the [respondent] for the extension of the lifetime thereof.
On December 23, 1994, the [petitioner] filed a complaint[24] against the [respondent],
with the Regional Trial Court[25] of Makati City, for Damages, x x x:
xxxxxxxxx
The [petitioner] alleged, inter alia, in its complain[t t]hat the [respondent] was duly
notified by AWIA of the award, in its favor, by the [petitioner], of the project[,] but the
[respondent] unjustly and arbitrarily withdrew from the project and refused to execute
the Construction Contract with the [petitioner,] which impelled the latter to engage
the services of another contractor for the project at the price of P14,500,000.00 and
that, consequently, the [petitioner] was obliged to pay the amount of P1,500,000.00
which was [the] difference between the contract price of the project with the
[respondent] in the amount of P13,000,000.00 and P14,500,000.00, by way of actual
damages or, alternatively, by way of liquidated damages. In its Answer[26] to the
complaint, the [respondent] alleged, inter alia, that it never received any Notice of
Award or Notice to Proceed; its bid had expired by January 8, 1994, without the
[petitioner] asking the [respondent] for the extension thereof[,] and interposed
counterclaims for damages against the [petitioner], praying that, after due
proceedings, judgment be rendered in its favor, x x x:
xxxxxxxxx
After due proceedings, the Court a quo rendered a Decision,[27] dated December [5],
1997, in favor of the [respondent] and against the [petitioner], ordering the dismissal
of the complaint of the [petitioner] and ordering the latter to pay damages to the
[respondent], the dispositive portion of which is quoted, infra:
WHEREFORE, judgment is rendered DISMISSING the Complaint with costs against
[petitioner].
On the counter-claim, Insular Life Assurance Co., Ltd., is hereby ordered to pay Asset
Builders Corporation the sums of Pesos: Five Hundred Thousand (P500,000.00) as
compensation for the injury to the latters business standing, and Pesos: Seventy Five
Thousand (P75,000.00) by way of attorneys fees and expenses of litigation.
Filing fees on the amount of P2,135,000.00 [respondent] sought in the counter-claim
shall constitute a first lien on the recovery from [petitioner].
xxxxxxxxx
The [petitioner] interposed its appeal from the Decision of the Court a quo and posed,
for [the CAs] resolution, the threshold issues of whether or not: (a) a construction
contract was perfected by and between the [petitioner] and the [respondent] for the
construction of petitioners building project in Lucena City; (b) the [respondent] waived
Section 9 of the Instruction to Bidders and was estopped from claiming that no
construction contract was perfected between it and the [petitioner]; [and] (c) the
[respondent] was liable for damages to the [petitioner].[28]
Ruling of the Court of Appeals
The CA affirmed the lower courts Decision. According to the appellate courts
ruling, the failure of petitioner to prove that it gave respondent a written notice of the
formers unqualified acceptance of the latters bid, as required in the Instruction to
Bidders, did not give birth to consent. The appellate court explained that when the exact
terms desired were not in the offer, any modification or variation therefrom would annul
that offer.Furthermore, estoppel did not apply because of petitioners own carelessness
or want of diligence.
Hence this Petition.[29]
The Issues
 I. The Court of Appeals gravely erred in not holding that there exists a valid
contract for the construction of the building project between IL [30] and
ABC.[31]
II. The Court of Appeals gravely erred in not holding that IL has notified ABC
of the award of the construction of the building project to it before it withdrew
its bid proposal.
III. The Court of Appeals gravely erred in not holding that ABCs withdrawal
from the contract constituted a breach of that contract.
IV. The Court of Appeals gravely erred in not holding that the contract had
been perfected and that its consummation stage [had] in fact been
commenced.
V. The Court of Appeals gravely erred in not holding that ABC is estopped
from claiming the contract was not perfected.
VI. The Court of Appeals gravely erred in not holding that ABC, instead of
IL, is liable for damages[,] and that, at worst, there is no evidence that
supported the award in favor of ABC.
VII. In any event, there is no basis to penalize IL for going to court.[32]
There is really only one major issue: Was there a valid contract between petitioner
and respondent?
The Courts Ruling
The Petition is unmeritorious.
Sole Issue:
Existence of a Contract
No Notice of Award,
No Contract
It is elementary that, being consensual,[33] a contract[34] is perfected[35] by mere
consent.[36] From the moment of a meeting[37] of the offer and the acceptance[38] upon
the object and the cause that would constitute the contract, [39] consent
arises.[40] However, the offer must be certain[41] and the acceptance seasonable and
absolute;[42] if qualified,[43] the acceptance[44] would merely constitute a counter-offer.[45]
Equally important are the three distinct stages of a contract -- its preparation or
negotiation, its perfection, and finally, its consummation. [46]Negotiation begins when the
prospective contracting parties manifest their interest in the contract and ends at the
moment of their agreement. The perfection or birth of the contract[47] occurs when they
agree upon the essential elements thereof. [48] The last stage is its consummation,
wherein they fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof.[49]
In the case at bar, the parties did not get past the negotiation stage. The events
that transpired between them were indeed initiated by a formal offer, but
this policitacin was merely an imperfect promise that could not be considered a binding
commitment.[50] At any time, either of the prospective contracting parties may stop the
negotiation and withdraw the offer.
In the present case, in fact, there was only an offer and a counteroffer[51] that did
not sum up to any final arrangement containing the elements of a contract. [52] Clearly,
no meeting of minds was established.[53] First, only after the bid bond had lapsed were
post-qualification proceedings, inspections, and credit investigations
conducted. Second, the inter-office memoranda issued by petitioner, as well as other
memoranda between it and its own project manager, were simply documents to which
respondent was not privy. Third, petitioner proposed a counteroffer to adjust
respondents bid to accommodate the wage increase of December 3, 1993.
In effect, the rule on the concurrence of the offer and its acceptance [54] did not
apply, because other matters or details -- in addition to the subject matter and the
consideration -- would still be stipulated and agreed upon by the parties.[55] While there
was an initial offer made, there was no acceptance; but when there allegedly came an
acceptance that could have had a binding effect, the offer was already lacking. The
offer and its acceptance did not meet to give birth to a contract. [56]
Moreover, the Civil Code provides that no contract shall arise unless its
acceptance is communicated to the offeror.[57] That is, the mere determination to accept
the proposal of a bidder does not constitute a contract; that decision must be
communicated to the bidder.[58] Although consent may be either express or
implied,[59] the Instruction to Bidders prepared by petitioner itself expressly required (1)
a formal acceptance and (2) a period within which such acceptance was to be made
known to respondent. The effect of giving the Notice of Award to the latter would have
been the perfection of the contract.[60] No such acceptance was communicated to
respondent; therefore, no consent was given. Without that express manifestation, as
required by the terms of its proposal, there was no contract. The due execution of
documents representing a contract is one thing, but its perfection is another. [61]
There is no issue as regards the subject of the contract or the cause of the
obligation. The controversy lies in the consent -- whether there was an acceptance by
petitioner of the offer made by respondent; and, if so, whether that acceptance was
communicated to the latter, thereby perfecting the contract. The period given to the
former within which to accept the offer was not itself founded upon or supported by any
consideration. Therefore, under the law, respondent still had the freedom and the right
to withdraw the offer by communicating such withdrawal to petitioner [62] before the
latters acceptance of the offer;[63] or, if the offer has been accepted,[64] before the
acceptance came to be known by respondent.[65]
Petitioner avers that an acceptance was made, but this allegation has not been
proven. Respondent had no knowledge of such acceptance when it communicated its
withdrawal to the former. Notably, this right to withdraw was not exercised whimsically
or arbitrarily by respondent. It did send a formal letter on April 5, 1994, expressing and
explaining its withdrawal. As of that date, the decision to award the contract had not
been made according to the terms of the Instruction to Bidders.
Besides, the subsequent acts between the parties did not even serve as a
confirmation of that decision. The existence of a second proposal -- petitioners request
for an adjustment of the bid to accommodate the wage increase -- in fact belies the
perfection of any contract arising from the first.[66] To the Courts mind, there was indeed
no acceptance of the offer made by respondent. Such failure to comply with a condition
imposed for the perfection of a contract resulted in failure of the contract. [67]
Subsistence of an Offer
Even Without a Bid Bond
Certainly, the bid bond is an indispensable requirement for the validation of a bid
proposal.[68] This requisite ensures the good faith of bidders and binds them to enter
into a contract with the owner, should their proposal be accepted. [69] One who submits
a bid not only signifies assent to the terms and conditions of a proposal, but impliedly
binds oneself to them, if and when the bid is considered. The Invitation to Bidders even
provided that incomplete proposals might be sufficient cause for their rejection. [70] If
mere insufficiency of a bond required of a bidder is a ground for rejection, a fortiori, all
the more so is the total want thereof.
The proposal of respondent was merely validated by its bid bond, which was
considered by petitioner. The expiration of the bond on January 8, 1994, [71] did not
mean that the bid also lapsed on the same date. The bond, which was an accessory,
merely guaranteed the performance of the principal obligation and could not exist
without the latter.[72] The former was given for the benefit of petitioner, which could
legally waive it. The bid continued without a bond, but still no formal acceptance was
made. Again, on that basis, no contract was perfected.
In the interpretation of a contract, the literal meaning of its stipulations controls, if
their terms are clear and leave no doubt as to the intention of the contracting
parties.[73] When there is no ambiguity in the language of a contract, there is no room
for construction,[74] only compliance.[75] This rule applies to the Instruction to Bidders,
which provides that failure to execute the Contract shall constitute a breach of
agreement as effected by acceptance of the proposal.[76] The language is clear and,
like contracts in general, is the law between the parties.[77] The contract must be fulfilled
according to its literal sense.[78]
No Estoppel
As aptly held by the appellate court, respondents acts subsequent to the
expiration of the bid bond did not constitute a waiver of Section 9 of the Instruction to
Bidders. To be valid and effective, waivers must be couched in clear and unequivocal
terms, leaving no doubt as to the intention of those giving up a right or a benefit that
legally pertains to them.[79] Respondent, contrary to the claim of petitioner, despite its
repeated requests, never received a copy of the Notice of Award. Indeed, the former
never adopted an inconsistent position, attitude or course of conduct that caused loss
or injury to the latter.[80] The attendance of respondent in the pre-construction
conference and the ground-breaking ceremony was part of the negotiation
process. Thus, petitioners claim of estoppel against it could not be applied.
Estoppel cannot be sustained by mere argument or doubtful inference; it must be
clearly proved in all its essential elements by clear, convincing and satisfactory
evidence.[81] It is hardly separable from the waiver of a right. [82] The party claiming
estoppel must show the following elements: (1) lack of knowledge and of the means of
knowledge of the truth as to the facts in question; (2) reliance, in good faith, upon the
conduct or statements of the party to be estopped; and (3) action or inaction based
thereon of such character as to change the position or status of the party claiming the
estoppel, to his injury, detriment or prejudice.[83]
None of these elements was proven.
First, petitioner had the knowledge and the means of knowledge of the truth as to
the facts in question. It had the means of knowing if respondent had been served a
copy of the Notice of Award, yet the former did not preserve a copy of such Notice,
which supposedly bore the signature of the latters employee who had received
it. Petitioner did not even enter in its corporate logbooks the release to and receipt by
respondent of that copy. The latter had every reason to withdraw its bid, given that the
prerequisite paper work and attendant processing could not be fast-tracked.[84]
Second, respondents conduct and statements were always consistent and
reliable. The manner of acceptance of all bids was prescribed by petitioner
itself. Applying Article 1321 of the Civil Code, such prescription must be complied
with,[85] yet it did not follow its own rules. Of no moment was its reliance in good faith
upon respondent. Good faith is always presumed, unless contrary evidence is
adduced.[86]
Third, the action or inaction of petitioner that caused its own injury was its own
fault. The written Notice of Award, which constituted the acceptance of the proposal,
was a sine qua non to the perfection of the contract.[87] The misplacement of such vital
document was inexcusable.Without it, there was no contract. Moreover, the March 14,
1994 Notice to Proceed clearly stated that its issuance would depend upon the
execution of the construction agreement.

Estoppel is a shield against injustice; the party invoking its protection should not
be allowed to use it to conceal its own lack of diligence [88] or want of reasonable care
and circumspection.[89]

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and
Resolution AFFIRMED. Costs against petitioner.

SO ORDERED.
 EN BANC
(1) Notice of Disallowance No. 2004-001 (04) dated November 22, 2004
JOSEPH PETER SISON, ROSEMARIE SIOTING, G.R. No. 177011 disallowing in audit the amount of P73,768.00 as overpayment of honoraria covering
FE P. VALENZUELA, ROBERTO L. BAUTISTA, the periods January and March 2004 for want of legal basis;
MARIO P. ESCOBER, ARLENE PUZON, DANILO
G. GERONA, NECITAS B. CLEMENTE, RAMON (2) Notice of Disallowance No. 2004-002 (03) dated December 2, 2004
MACATANGAY and NEOFITO HERNANDEZ, disallowing in audit the amount of P290,531.31 for honoraria paid covering the periods
Petitioners, from March to September 2003 for want of legal basis; and for the period covering
Present: October to December 2003, on the ground that they were paid in excess of the allowed
- versus - PUNO, C.J., rates, contrary to Section 4.1 of Budget Circular No. 2004-5 dated March 23, 2004 of
QUISUMBING, the Department of Budget and Management (DBM); and
ROGELIO TABLANG, Director IV, Commission YNARES-SANTIAGO,
on Audit; ELIZABETH S. ZOSA, Assistant CARPIO, (3) Notice of Disallowance No. 2005-001 (04) dated May 24, 2005 disallowing
Commissioner Legal Adjudication and CORONA, in audit the amount of P68,096.00 for the period covering April to June 2004, together
Settlement Board Chairperson; EMMA M. CARPIO MORALES,* with the honoraria received by the regular and provisionary members of the BAC for
ESPINA, JAIME P. NARANJO, AMORSONIA B. CHICO-NAZARIO,* the months of January to June 2004, the same having been paid contrary to the allowed
ESCARDA and CARMELA S. PEREZ, Members VELASCO, JR., rates provided in DBM Circular No. 2004-5 dated March 23, 2004.
of the Commission on Audit Legal Adjudication NACHURA,
and Settlement Board, LEONARDO-DE CASTRO, On January 3, 2005, petitioner Joseph Peter Sison, Assistant General Manager and
Respondents. BRION, Chairperson-BAC of the NHA, and the other petitioners, as members of the BAC and
PERALTA, and the TWG, sought reconsideration of the NDs on the following grounds:
BERSAMIN, JJ.
1. That the payment of honoraria was based on the
Promulgated: number of projects completed by the BAC and TWGs under
their respective level of responsibility and on the rate
June 5, 2009 provided for under the IRR of R.A. 9184, which should be in
x-----------------------------------------------------------------------------------------x an amount not to exceed 25% of their respective basic
monthly salary subject to availability of funds.

DECISION 2. Since DBM has yet to issue the necessary

Implementing Rules and Regulations for the grant of
NACHURA, J.: honoraria, the BAC and TWG members were given straight
25% of their basic monthly salary as honoraria for every
month from March 2003-March 2004.
This is a petition for certiorari assailing the decision[1] of the Adjudication and
Settlement Board (ASB) of the Commission on Audit (COA) dated March 5, 2007, which 3. That the work of BAC and its TWG is up to the
affirmed the Notices of Disallowance (ND) issued by the Legal and Adjudication Office- Recommendation of Award to the NHA General Manager. It
Corporate (LAO-C), disallowing the payment of honoraria in the amount of P364,299.31 is Managements responsibility to present such
made by the National Housing Authority (NHA) to petitioners, as members of the Bids recommendation to the Board for
and Awards Committee (BAC) and the Technical Working Group (TWG). notation/confirmation/approval. The payment of honoraria
should not be based on the Notice of Award but should be
Audit Observation Memoranda[2] were issued by the Supervising Auditor of reckoned on the date of Recommendation of Award, as it
the NHA, informing that there were excess/unauthorized payments of honoraria to sometimes takes several months before an award is
members of the BAC and the TWG. Thus, three (3) separate NDs were issued by the approved by the Board.
LAO-C, to wit:
 4. That they should not be made to refund immediately
whatever remaining disallowance after a computation of the
same is made using the recommendation of Award as the
reckoning date, but instead they request that the same be
deducted from the remaining unpaid COLA which they are
collecting from NHA or from succeeding honoraria they are
to receive as members of the BAC and TWG.[3]
On September 13, 2005, the LAO-C denied the motions for reconsideration filed by
petitioners in LAO-C Decision No. 2005-064.[4] It also rejected petitioners request for a
set-off of the disallowed amount against future collectibles from the NHA, as this was
not in accordance with law and jurisprudence.[5]
A petition for review[6] was then filed by petitioners before the ASB of the COA which
was denied on March 5, 2007 for lack of merit. The LAO-C decision, covering the three
(3) NDs, was affirmed.[7]
Aggrieved, petitioners filed the instant petition maintaining that the grant of
honoraria, not exceeding 25% of the basic monthly salaries of the BAC members, was
justified. They aver that the payments were in accordance with Republic Act (R.A.) No.
9184, which was the applicable law at that time, and stressed that they did not exceed
the 25% limit provided under Section 15 thereof.
The petition is bereft of merit.
It must first be stressed that petitioners failed to appeal the decision of the ASB to the
Commission on Audit Proper before filing the instant petition with this Court, in
derogation of the principle of exhaustion of administrative remedies. The general rule
is that before a party may seek the intervention of the court, he should first avail himself
of all the means afforded him by administrative processes. The issues which
administrative agencies are authorized to decide should not be summarily taken from
them and submitted to the court without first giving such administrative agency the
opportunity to dispose of the same after due deliberation. [8]
On January 30, 2003, the COA issued Resolution No. 2003-001 delegating
the authority to adjudicate and settle appeals from the decisions of the Directors
involving suspensions and disallowances in amounts not exceeding five hundred
thousand pesos (P500,000.00) to the ASB of the Commission. It also clearly provides
that appeals from the decision of the Board shall be brought before the Commission
Proper in the same manner as other cases under the Commissions existing rules and
regulations.[9]
Correlatively, the 1997 Revised Rules of Procedure of the COA states that:
RULE VI
APPEAL FROM DIRECTOR TO COMMISSION PROPER
Section 1. Who May Appeal and Where to Appeal. The
party aggrieved by a final order or decision of the Director may
appeal to the Commission Proper.
xxxx
RULE XI
JUDICIAL REVIEW
Section 1. Petition for Certiorari. Any decision, order or
resolution of the Commission may be brought to the Supreme Court
on certiorariby the aggrieved party within thirty (30) days from receipt
of a copy thereof in the manner provided by law, the Rules of Court
and these Rules.
It is, therefore, imperative that the Commission Proper be first given the opportunity to
review the decision of the ASB. Only after the Commission shall have acted thereon
may a petition for certiorari be brought to the Court by the aggrieved party. While the
principle of exhaustion of administrative remedies admits of exceptions, the Court does
not find any cogent reason to apply the cited exceptions to the instant case.[10] The non-
observance of the doctrine results in the petition having no cause of action, thus,
justifying its dismissal. In this case, the necessary consequence of the failure to exhaust
administrative remedies is obvious: the disallowance as ruled by the LAO-C has now
become final and executory.[11]
But even if we were to disregard this patent infirmity, we still find sufficient
bases to uphold the three (3) NDs issued by the LAO-C.
Section 15 of R.A. No. 9184, otherwise known as the Government
Procurement Act,[12] provides that:
Section 15. Honoraria of BAC Members. The Procuring Entity may
grant payment of honoraria to the BAC members in an amount not to
exceed twenty five percent (25%) of their respective basic monthly
salary subject to availability of funds. For this purpose, the
Department of Budget and Management (DBM) shall promulgate the
necessary guidelines.
Section 15 of the Implementing Rules and Regulations (IRR) of R.A. No. 9184,
issued on October 8, 2003, reads as follows:
Section 15. Honoraria of BAC and TWG Members

The procuring entity may grant payment of honoraria to the BAC
members in an amount not to exceed twenty five percent (25%) of
their respective basic monthly salary subject to availability of
funds. For this purpose, the [Department of Budget and
Management] DBM shall promulgate the necessary guidelines. The
procuring entity may also grant payment of honoraria to the TWG
members, subject to the relevant rules of the DBM.
There is no dispute that petitioners can be paid honoraria for the services they
rendered as BAC and TWG members. However, the payment of honoraria is subject to
the availability of funds and shall follow the guidelines and relevant rules which are
promulgated by the DBM.
For this purpose, DBM Budget Circular No. 2004-5 was issued on March 23,
2004, prescribing the guidelines for the grant of honoraria to government personnel
involved in government procurement, in accordance with the R.A. No. 9184.
Paragraphs 4.1 and 4.2 of the budget circular provide that:
4.1 The chairs and members of the Bids and Awards
Committee (BAC) and the Technical Working Group
(TWG) may be paid honoraria only for successfully
completed procurement projects. The honoraria shall
not exceed the rates indicated below per procurement
project:
Honorarium Rate Per
Procurement Project
BAC Chair 3,000.00
BAC Members 2,500.00
TWG Chair and Members 2,000.00
4.2 The total amount of honoraria received in a month
may not exceed twenty-five percent (25%) of the monthly basic
salary.[13]
Given the foregoing provisions, it was, therefore, error for petitioners to
remunerate themselves the amount equivalent to 25% of their basic monthly salaries
as honoraria for their services rendered as BAC members even before the DBM
guidelines were promulgated.We quote with favor the ASBs rationale for the
disallowance:
A reading of the above-quoted provision would reveal that
the first sentence sets the limit as to the amount of honoraria that
may be granted to BAC members, that is 25% of their respective
basic monthly salary subject to availability of funds. Further reading
of the same would reveal that an enabling rule, a DBM guideline, is
needed for its implementation as contained in the second
sentence thereof. Thus, the provision of Sec. 15 of the GPRA
authorizing procuring entities or agencies to grant honoraria to BAC
members is not self-executing, as it still needs an implementing
guideline to be promulgated by the DBM (Government Procurement
Tool Kit, Sofronio B. Ursal, 2004 ed., p. 90).[14]
Petitioners contend that it would be unjust if the BAC and the TWG members
were not paid their honoraria for work already performed just because the DBM had
not yet promulgated the necessary guidelines.[15]
This contention is untenable.
An honorarium is defined as something given not as a matter of obligation but
in appreciation for services rendered, a voluntary donation in consideration of services
which admit of no compensation in money. [16] Section 15 of R.A. No. 9184 uses the
word may which signifies that the honorarium cannot be demanded as a matter of
right.[17]
The government is not unmindful of the tasks that may be required of
government employees outside of their regular functions. It agrees that they ought to
be compensated; thus, honoraria are given as a recompense for their efforts and
performance of substantially similar duties, with substantially similar degrees of
responsibility and accountability.[18] However, the payment of honoraria to the members
of the BAC and the TWG must be circumscribed by applicable rules and guidelines
prescribed by the DBM, as provided by law. Section 15 of R.A. No. 9185 is explicit as
it states: For this purpose, the DBM shall promulgate the necessary guidelines. The
word shall has always been deemed mandatory, and not merely directory. Thus, in this
case, petitioners should have first waited for the rules and guidelines of the DBM
before payment of the honoraria. As the rules and guidelines were still forthcoming,
petitioners could not just award themselves the straight amount of 25% of their monthly
basic salaries as honoraria. This is not the intendment of the law.
Furthermore, albeit in hindsight, the DBM Budget Circular provides that the
payment of honoraria should be made only for successfully completed procurement
projects. This phrase was clarified in DBM Budget Circular No. 2004-5A dated October
7, 2005, to wit:
 5.1 The chairs and members of the Bids and Awards
Committee (BAC) and the Technical Working Group (TWG)
may be paid honoraria only for successfully completed
procurement projects. In accordance with Section 7 of the
Implementing Rules and Regulations Part A (IRR-A) of RA
No. 9184, a procurement project refers to the entire project
identified, described, detailed, scheduled and budgeted for
in the Project Procurement Management Plan prepared by
the agency.

A procurement project shall be considered successfully completed

once the contract has been awarded to the winning bidder.

No interpretation is needed for a law that is clear, plain and free from
ambiguity. Now, the DBM has already set the guidelines for the payment of honoraria
as required by law. Since the payment of honoraria to petitioners did not comply with
the law and the applicable rules and guidelines of the DBM, the notices of disallowance
are hereby upheld.

IN VIEW OF THE FOREGOING, the petition is DISMISSED for lack of merit.

SO ORDERED.