SM Land, Inc. v.

Bases Conversion and Development Authority

G.R. No. 203655, March 18, 2015
Special Third Division, Velasco Jr., J.

DOCTRINE:
The essential requisites of a valid contract are the following: (a) consent of the parties;
(b) object certain which is the subject matter of the contract; and (c) cause of the obligation
which is established.

FACTS:
Pursuant to Republic Act No. (RA) 7227 or the "Bases Conversion and Development Act
of 1992," the BCDA opened the disposition and development of Bonifacio South Property. On
December 14, 2009, Petitioner SM Land, Inc. (SMLI) submitted to the BCDA an unsolicited
proposal for the development of the lot through a public-private joint venture agreement. Three
months later, the initial proposal was followed by a second one with guaranteed secured
payments totaling Php 20 billion. On May 14, 2010, SMLI submitted its third unsolicited
proposal with guaranteed secured payments amounting to Php 22.6 billion.

The BCDA created a Joint Venture Selection Committee (JV-SC). The BCDA
communicated to petitioner its acceptance of the unsolicited proposal. Despite its acceptance,
however, the BCDA clarified that its act should not be construed to bind the agency to enter into
a joint venture agreement with the petitioner but only constitutes an authorization granted to the
JV-SC to conduct detailed negotiations with petitioner SMLI and iron out the terms and
conditions of the agreement. SMLI submitted its final revised proposal with guaranteed secured
payments amounting to a total of Php 25.9 billion. A Certification of Successful Negotiations
(Certification) was issued by the BCDA and signed by both parties. Through the said
Certification, the BCDA undertook to "subject SMLI’s Original Proposal to Competitive
Challenge and committed itself to "commence the activities for the solicitation for comparative
proposals."

The BCDA prepared for the conduct of a Competitive Challenge to determine whether or
not there are other Private Sector Entities (PSEs) that can match the proposal of SMLI, and
concurrently ensure that the joint venture contract will be awarded to the party that can offer the
most advantageous terms in favor of the government. The companies that participated in the
conference included SMLI, as the Original Proponent, and three (3) PSEs, namely Ayala Land,
Inc., Rockwell Land Corp., and Filinvest Land, Inc. Instead of proceeding with the Competitive
Challenge, the BCDA addressed a letter to Jose T. Gabionza, Vice President of SMLI, stating
that it will welcome any "voluntary and unconditional proposal" to improve the original offer,
with the assurance that the BCDA will nonetheless respect any right which may have accrued in
favor of SMLI. SMLI replied by increasing the total secured payments to Php 22.436 billion in
over fifteen (15) years with an upfront payment of Php 3 billion.

The BCDA sent a memorandum to the Office of the President (OP) categorically
recommending the termination of the Competitive Challenge. Alarmed by this development,
SMLI urged the BCDA to proceed with the Competitive Challenge as agreed upon. However, the
BCDA, via the assailed Supplemental Notice No. 5, terminated the Competitive Challenge
altogether. To support its position, BCDA invoked its right, pursuant to Article VIII of the Terms
of Reference (TOR), to call off the disposition prior to acceptance of the proposals and call for a
new disposition process under amended rules and without any liability whatsoever to any or all
the PSEs, except the obligation to return the Proposal Security.

SMLI sued respondent BCDA for supposedly changing the negotiation rules from a
competitive challenge to public bidding, when the former was already well into talks with the
latter over its proposal. According to SMLI, BCDA had violated a contract by doing so. On the
other hand, BCDA argued that BCDA and SMLI do not have a contract that would bestow upon
the latter the right to demand that its unsolicited proposal be subjected to a competitive
challenge. Assuming arguendo the existence of such an agreement between the parties,
respondents contend that the same may be terminated since SMLI’s offer was incompatible with
public interest, thus, void.

ISSUE:
Is there a valid contract between SMLI and BCDA?

RULING:
Yes. There is a valid contract between SMLI and BCDA.

The essential requisites of a valid contract are the following: (a) consent of the parties;
(b) object certain which is the subject matter of the contract; and (c) cause of the obligation
which is established.

In this case, all of the essential elements of a valid contract are all present. There is a
valid consent when SMLI submitted the first Unsolicited Proposal to BCDA. The submission
constituted an offer to undertake the development of the subject property. BCDA then entered
into negotiations with SMLI until the BCDA finally accepted the terms of the final unsolicited
proposal. Their agreement was thereafter reduced into writing through the issuance of the
Certification of Successful Negotiations where the meeting of the parties’ minds was reflected.
The cause of the agreement is SMLI’s interest in developing the Bonifacio South Property, as
shown by the Certification of Successful Negotiations and BCDA’s Terms of Reference (TOR).
Finally, the BCDA’s agreement to subject SMLI’s proposal to competitive challenge constitutes
the agreement’s object certain.

Thus, there is a valid contract between SMLI and BCDA.