August 7, 2014

Mr. Mandro T. Alas

City Accountant
City Government of Cebu
123 Legaspi St.
Cebu City

Dear Mr. Alas:

Here is the legal opinion you requested.

The facts gathered from you and your documents are as follows:

The City of Cebu has entered into a contract with XYZ Construction for the Asphalting of Lapu-lapu
Avenue and A. Villanueva Street. Approved Budget for Contract was P 14,000,000 duly signed on
September 12, 2013. Contract of Agreement was signed and notarized on January 3, 2014.

Approved Statement of Work Accomplished was dated July 11, 2014. Obligation request was obligated
by the City Budget Office in 2013 with reference number 300-13-12-123456 dated December 2, 2013.

No obligation was made by your office in 2013. Mode of procurement used was direct contracting under
Section 50 of RA 9184.

Voucher is prepared and processed for the payment of the said projects.

The issue to be settled is whether or not your office will allow the payment of the projects contracted.

Firstly, Art. 1305 of the Civil Code provides that a contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render some service.

Further, Art. 1315 of the same code provides that contracts are perfected by mere consent, and from
that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their nature, may be in keeping with good faith, usage
and law.

In the case of Ang Yu et al vs CA, GR No. 109125 dated December 2, 1994, the court held that the
perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract
which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the
concurrence of offer and acceptance, on the object and on the cause thereof. Until the contract is
perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation.

In your case, the contract was perfected on January 3, 2014 as reflected in the contract of agreement. It
is only during this time that a juridical relation exists between the City Government of Cebu and XYZ
Construction. It is only during this time when there had been meeting of the minds.
Secondly, Section 157 of the Government Accounting and Auditing Manual states that no obligation shall
be certified to accounts payable unless the obligation is funded on a valid claim that is properly
supported by sufficient evidence and unless there is proper authority for its incurrence.

In addition, Section 338 of the Local Government Code of 1991 states that no money shall be paid on
account of any contract under which no services have been rendered or goods delivered.

In the case of Governor Josie Castillo-Co vs Hon. Robert Barbers et al, GR No. 129952 dated June 16,
1998, the governor was disciplined for making advance payment prior to delivery in violation of Section
338 of the Local Government Code.

Based on your Approved Statement of Work Accomplished, the contract was completed on July 11,
2014. You are correct in not making any obligation for the projects in 2013 since no works were
accomplished in that year.

Thirdly, Section 10 of Republic Act 9184 provides that all Procurement shall be done through
Competitive Bidding, except as provided for in Article XVI of this Act.

Further, Section 50 of Article XVI of said law provides that Direct Contracting may be resorted to only in
any of the following conditions:

(a) Procurement of Goods of proprietary nature, which can be obtained only from the proprietary
source, i.e. when patents, trade secrets and copyrights prohibit others from manufacturing the same
item;

(b) When the Procurement of critical components from a specific manufacturer, supplier or distributor is
a condition precedent to hold a contractor to guarantee its project performance, in accordance with the
provisions of his contract; or,

(c) Those sold by an exclusive dealer or manufacturer, which does not have sub-dealers selling at lower
prices and for which no suitable substitute can be obtained at more advantageous terms to the
Government

In the case of Philippine Sports Commission et al vs Dear John Services, Inc, GR No. 183260, the court
held that public bidding, as a method of government procurement, is governed by the principles of
transparency, competitiveness, simplicity, and accountability. By its very nature and characteristic, a
competitive public bidding aims to protect the public interest by giving the public the best possible
advantages thru open competition and in order to avoid or preclude suspicion of favoritism and
anomalies in the execution of public contracts. Except only in cases in which alternative methods of
procurement are allowed, all government procurement shall be done by competitive bidding.

In your case, the general rule on competitive bidding was not followed. Instead, alternative mode of
procurement was resorted pursuant to Section 50 of the Procurement Law without any justifications or
documentations to support the deviation from the general rule.

In view of the foregoing, it is my humble opinion that it will be improper for the City to pay the projects
completed. The obligation made by the City Budget Office is not in accordance with the law. Instead,
those officers and employees who imprudently executed the contract shall be held responsible and
accountable to the contractor.

Should you have any clarifications or should you wish to discuss further this matter, please feel free to
contact me at 09224478533 or 412-0120.

Thank you and more power.

Respectfully yours,

MARK JASON S. TIROL

CITY LEGAL OFFICE