Soundness of Contract of Lease between Benguet State University and Graceland 23 Corp. for Development of Commercial Mall

DOJ OPINION NO. 048, s. 2016 October 16, 2016 Dr. Feliciano G. Calora, Jr. Ph.D. University President Office of the University President Benguet State University La Trinidad, 2601 Benguet Province Dear Dr. Calora : This refers to your request to the Office of the Solicitor General (OSG) for a legal opinion, which was endorsed to this Department by that Office, on the soundness of the contract of lease of an 8,000 square meters, more or less, of a portion of a property of the Benguet State University for a commercial mall development entered into between the Benguet State University and Graceland 23 Corporation. You state that you are faced with the request to implement the subject contract of lease which was signed by then Chair-Designate of the Board of Regents of Benguet State University Board, Dr. Hadja Luningning Misuarez-Umar, with the Graceland 23 Corporation. You state, however, that upon review of the records relative to the said contract, the University Board of Regents in its approval of the contract requested a formal transmittal from the OSG on the soundness of the contract as per Board Resolution No. 2055, s. 2011. You also state that the committee, upon which the University Board of Regents relied on their approval of the contract of lease, submitted a letter practically objecting to their committee's report as basis for the approval of the proposal of Graceland 23 Corporation. Hence this request for opinion. We are constrained, much to our regret, to decline the opinion requested. At the outset, interpretation of contracts are justiciable in nature affecting, as they do, the substantial and contractual rights of private parties upon whom the opinions of the Secretary of Justice which are merely advisory do not have any binding force. The private parties, who, if adversely affected by such opinion, may take issue therewith and contest it before the courts, thereby unnecessarily drag this Department in court litigations. Hence, as a matter of policy, the Secretary of Justice has consistently refrained from rendering opinion on questions which, as earlier stated, are justiciable in nature or those which may be the subject of litigation before the courts. 1 Besides, the Secretary of Justice, as a matter of policy and practice, does not render opinion or give legal advice on issues involving the interpretation of contracts because contract review calls for the legal examination of the contract on a general basis, and not the resolution of specific legal issues. By law, the Secretary of Justice renders opinion only on specific legal questions arising in the performance of the powers and functions of the national government functionary requesting the opinion. 2 Be that as it may, for your information and guidance only, you may find that the authority of the Benguet State University to enter into a lease contract is based on Section 9 of Presidential Decree No. 2010, 3 its enabling law, as instructive: Section 9. The Board of Regents shall have the following powers and duties in addition to its general powers of administration and supervision and the exercise of all the powers of a corporation as provided in Section Thirty-Six of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines : . . . (underscoring ours) Under Section 36 4 of the Corporation Code of the Philippines, one of the corporate powers and capacity that the Benguet State University can exercise is the power to enter into contract of lease. However, we invite your attention to Executive Order No. 301, series of 1987, which states that no contract for public services (i.e.: service contracts, management contracts, lease contracts and concessions) shall be renewed or entered into without public bidding. 5 Furthermore, the Government Accounting and Auditing Manual (GAAM) of the Commission on Audit mandates that all revenue-generating contracts, except for the rental or lease of market stalls and spaces, must be publicly bidded. Pertinent provisions of the GAAM relative to the prohibition, limitations and approval of revenue generating contracts, state that: Section 531. Revenue-generating contract defined. A revenue generating contract is an agreement whereby the government agency grants to a lessee, contractor, or concessionaire the right to manage and operate the revenue-generating project or facility of the former for a fixed fee, such as, but not limited to, buildings, market and market stalls and spaces, slaughterhouses, land, parking lots, porterage services, stalls and advertising spaces, port facilities, cargo handling, warehouse operations, stevedoring, transport service and the like. Except for the rental or lease of market stalls and spaces, no such contracts shall be awarded for the first time or renewed and entered into without the required public bidding. Such public bidding shall be in accordance with pertinent laws, rules and regulations . Section 532. Prohibiting open-ended or automatic renewal of revenue generating contract. No revenue-generating contract shall be entered into stipulating an open-ended period or automatic renewal thereof if at the end of the period of contract no notice of termination is served the lessee, contractor, or concessionaire. Section 533. Limited period of revenue-generating contract. As a general rule, the contract period shall be limited to one year. It shall be the responsibility of the head of the agency to see to it that the public bidding and award can already be made before the expiration of the contract. A contract period longer than one year but not exceeding two years may, however, be fixed to allow the lessee, contractor or concessionaire to recover the cost of equipment or leasehold improvement necessary to be brought into or introduced in the operation to effectively fulfill its part of the agreement. Section 534. Approval of revenue-generating contract. Revenue generating contracts shall be entered into by the head of the agency granting the lease contract or concession without need of prior approval by higher authorities, subject to compliance with the uniform standards or guidelines established by the DPWH (Executive Order No. 301, July 26, 1987). (stress supplied) The requirement of public bidding aims to protect the public interest by giving the public the best possible advantages thru open competition. 6 It is a mechanism that enables the government agency to avoid or preclude anomalies such as overpricing and favoritism in the execution of public contracts. 7 Please be guided accordingly. Very truly yours, (SGD.) VITALIANO N. AGUIRRE II Secretary Footnotes 1. Secretary of Justice Op. Nos. 13 and 27, s. 1997; Op. Nos. 99 and 100, s. 2000; Op. Nos. 73 and 64, s. 2001; and Op. No. 8, s. 2004. 2. Secretary of Justice Op. Nos. 78, 64 and 51, s. 2006; Op. Nos. 22, s. 2008; and Op. No. 56, s. 2007. 3. Converting the Mountain State Agricultural College in the Municipality of La Trinidad, Province of Benguet, into a University, to be Known as the Benguet State University, and Appropriating Funds Therefor. 4. Section 36. Corporate powers and capacity . Every corporation incorporated under this Code has the power and capacity: xxx xxx xxx 7. To purchase, receive, take or grant, hold, convey, sell, lease , pledge, mortgage and otherwise deal with such real and personal property , including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution; xxx xxx xxx 11. To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation. (stress supplied) 5. Section 1, Executive Order No. 301, series of 1987, Decentralizing Actions on Government Negotiated Contracts, Lease Contracts and Records Disposal. 6. National Food Authority and Romeo G. David vs. the Hon. Court of Appeals, et al., G.R. Nos. 115121-25 (February 9, 1996), citing Danville Maritime, Inc. vs. Commission on Audit, 175 SCRA 701 (1989) and Malaga vs. Penachos , 213 SCRA 516 (1992). 7. Manila International Airport Authority, et al. vs. Hon. Sergio Mabunay, Presiding Judge Regional Trial Court of Manila, Branch 24, et al., G.R. No. 126151 (January 20, 2000), citing Tantuico, Jr.