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G & G LAW FIRM Rm. 801 G & G Building, Quezon Ave., Iligan City Tel. Nos.

221-2345/221-6789
August 24, 2011 Mr. Antonio Anton Campus Director Philippine Trade and Commerce College Tibanga, Iligan City Dear Mr. Anton, In response to your request for legal advice regarding the issue between Philippine Trade and Commerce College (PTCC) and Mr. Pepito Manaloto, former canteen concessionaire of said college, we present to you the following legal opinion. Extant records shows that PTCC, represented by the former Campus Director, Mr. Richard Rick, entered into a two-year renewable contract with Mr. Pepito Manaloto to be the canteen concessionaire of the said institution to cater to the needs of its scholars and constituents. The agreement between them provides that the first party, PTCC, shall allow Mr. Manaloto, the second party, to construct, at his own expense, a canteen in the school site at Tibanga, Iligan City and in the temporary dormitory site located at TESDA. PTCC was also obliged to ban outside or ambulant vendors, provide security for the canteen and to provide the weekly menu. It was also agreed that PTCC has the right to inspect the canteen premises during reasonable hours, to evaluate the second party, and to see that the provisions of the contract were complied with. Mr. Manaloto on the other hand shall, provide nutritious, healthy and well-balanced meal, keep the canteen in a sanitary and clean condition and post the weekly menu in a conspicuous place. It was further agreed that in case the contract is not renewed after two years, Mr. Manaloto is to be reimbursed by the succeeding concessionaire 50% of the construction cost of the two canteens. Except for the complaints raised by the scholars and the Federated Parent Teachers Association (FPTA) about the kind of canteen services, and the termination of canteen operation at TESDA due to the closure of the temporary dormitory, as the FPTA decided to build a new dormitory at Tibanga campus, all was well for the first year of operation. Canteen operation at the campus site continued and in fact still on-going up to the present, despite the fact that the contract was never renewed after the lapse of two years. On March 20, 2010, the FPTA entered into a canteen concessionaire contract with Bruno Marz located at PTCC Campus and shortly thereafter, on April 8, 2010 Mr. Manaloto wrote a letter addressed to you demanding 50% reimbursement as stated in the contract with PTCC and that the additional years from 2009 up to the present should not be counted against him as it was intended to offset his loss from the sudden termination of his TESDA canteen. Beforehand, you realized after reviewing the contract that it was the students who benefited from the contract, albeit with complaints, and not PTCC. On June 2, 2010 you met with Mr. Manaloto at the Office of the Barangay Chairman after being summoned the day before. Mr. Manaloto reiterated his demand for the 50%

reimbursement except this time, he wants it from the new canteen concessionaire and that he will not stop his canteen operation until he was paid of the said reimbursement. In addition, the computation of said reimbursement will be based upon his report of expenses for the construction of the two canteens. When the time came to finally settle the reimbursement, Mr. Manaloto changed his demands once again and would only settle for the return of his canteen concession with the removal of the current one. Before answering your queries, we would like for you to ascertain if, the former Campus Director Richard Rick entered into the contract with the proper authority given by the Board of Director/Trustees as stated in Republic Act 8292 ( Act Providing For The Uniform Composition And Powers Of The Governing Boards, The Manner Of Appointment And Term Of Office Of The President Of Chartered State Universities And Colleges, And For Other Purposes ). Section 4 first paragraph of the aforementioned Act states: The governing board of chartered state universities and colleges shall have . . . x x x . . . specific powers and duties in addition to its general powers of administration and the exercise of all the powers granted to the board of directors of a corporation under Sec. 36 of Batas Pambansa Blg. 68 otherwise known as the Corporation Code of the Philippines. In ABS-CBN Broadcasting Corporation v. Court of Appeals, 301 SCRA 572 (1999) it was stated that: Unless otherwise provided by the Corporation Code, corporate powers, such as the power to enter into contracts, are exercised by the Board of Directors. The Board of Directors/Trustees has the power under Section 4 (w) of RA 8292: to privatize, where most advantageous to the institution, management and non-academic services such as health, food, building or grounds or property maintenance and similar such other objectives; The Board can delegate this power to the President or Campus Director of a State University or College (SUC) or any other official, for that matter, before he can exercise it as provided under Section 4 (o) of RA 8292: to delegate any of its powers and duties provided for hereinabove to the president and/or other officials of the university or college as it may deem appropriate so as to expedite the administration of the affairs of the university or college; This pronouncement was also in ABS-CBN Broadcasting Corporation v. Court of Appeals, 301 SCRA 572 (1999) where it was stated: However, the Board may delegate such powers to either an executive committee or officials or contracted managers, which delegation, except for the executive committee, must be for specific purposes. The delegated officers make the latter agents of the corporation, and rules of agency as to the binding effects of their acts would apply. For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so.

If it was determined that the former Campus Director entered into the contract without authority, then that contract is void as stated in Yao Ka Sin Trading v. CA, 209 SCRA 763 (1992): A contract signed by the President/Chairman without authority from the Board of Directors is void. Although the by-laws grant authority to the President to execute and sign for and in behalf of the corporation all contracts and agreements which the corporation may enter into, the same presupposes a prior act of the corporation exercised through its Board of Directors. It must be emphasized that such authority should be expressed and valid as decided by the Supreme Court in Sargasso Construction & Development Corporation / Pick & Shovel, Inc., / Atlantic Erectors, Inc. (Joint Venture), v. Philippine Ports Authority, G.R. No. 170530, July 5, 2010: The authority of government officials to represent the government in any contract must proceed from an express provision of law or valid delegation of authority. Without such actual authority being possessed by PPA s general manager, there could be no real consent, much less a perfected contract, to speak of. It is of no moment if the phrase approval of higher authority appears nowhere in the Notice of Award. It neither justifies petitioner s presumption that the required approval had already been granted nor supports its conclusion that no other condition ought to be complied with to create a perfected contract. Applicable laws form part of, and are read into, the contract without need for any express reference thereto; more so, to a purported government contract, which is imbued with public interest. If the above laws and judicial pronouncements were not complied with, you need not worry about the actions of Mr. Manaloto as the contract is really void from the start. Therefore, to answer your queries, we must come under the assumption that the former Campus Director Richard Rick was clothed with authority to enter into the contract. In answer to your first query whether there was violation or breach of contract in the part of Mr. Manaloto, we are of the opinion that he complied with the provisions of the contract and so did PTCC. In RCPI v. Verchez, et al. G. R. No. 190601 breach of contract is defined as: the failure without legal reason to comply with the terms of a contract. It is also defined as the [f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract. During the first two years when the contract was still in effect, no controversy arose except maybe, the complaints of the scholars and FPTA about the kind of services that Mr. Manaloto provided. The term kind of services as applied to the concessionaire, could be a myriad of situations, from customer service to food preparation. We are of the assumption that the provisions of the contract regarding security services, evaluation of the concessionaire, weekly menu and quality of food was complied with as no disagreement arose between PTCC and Mr. Manaloto about these in the first two years.

We would like to discuss here, the nature of this contract. The contract is akin to usufructuary. That is Mr. Manaloto enjoys the property and the fruits of it but doesn t own the property (Article 562 of the Civil Code). Payment of rent by Mr. Manaloto was never mentioned so it is not a contract of lease. No benefit accrued to PTCC. The present dilemma arose when the contract was not renewed after the lapse of two years, when the contract has lost its effectivity. What you have now is an implied contract. An implied-in-fact contract (a/k/a "implied contract") is a contract agreed by nonverbal conduct, rather than by explicit words. As defined by the United States Supreme Court, in its decision in Baltimore & Ohio R. Co. v. United States, 261 U.S. 592 (1923), it is "an agreement 'implied in fact'" as "founded upon a meeting of minds, which, although not embodied in an express contract, is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding." But this is still disputable. As we said before, in Republic Act 8292, Section 4(o), the power to enter into contracts by PTCC Campus Director, needs authority from the Board of Directors/Trustees and as no authority was given to you, express or implied, therefore no contract exist. Nonrenewal of the contract is not a breach of contract. If Mr. Manaloto really wanted to retain the concession, he could or should have reminded PTCC that their contract is drawing to a close, as the power to initiate and to renew of the contract is with PTCC as can be implied from it. Mr. Manaloto should be grateful that he was not evicted by PTCC as the power to alienate or dispose of said property is still with the latter through its Board of Directors/Trustees (Section 4 of R.A. 8292). On your second query whether or not Mr. Manaloto is entitled for the reimbursement of 50% of his expenses, for the building of the two canteens, we are of the opinion that he is not entitled. As can be gleaned from the contract, reimbursement will only take effect when these two things occur: One, that the contract with him will not be renewed and two, when PTCC contracts with another. It is also evident and clearly stated that reimbursement will only come from the next contracting party or concessionaire. It is of no consequence whether the next concessionaire will occupy the same premises or not. PTCC may designate another area for the canteen and the next concessionaire may or may not use the materials of Mr. Manaloto. Art. 1370 of the Civil Code of the Philippines states that: If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control As explained by the recent case of Abad v. Goldloop Properties, Inc.,: The cardinal rule in the interpretation of contracts is embodied in the first paragraph of Article 1370 of the Civil Code: "[i]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control." This provision is akin to the "plain meaning rule" applied by Pennsylvania courts, which assumes that the intent of the parties to an instrument is "embodied in the writing itself, and when the words are clear and unambiguous the intent is to be discovered only from the express language of the agreement." Fundamentally, two or more parties can enter into a contract. A "party" may be an individual, a group of people, or even an "artificial person" such as a corporation. The parties to a contract must have the legal capacity to enter into that contract. (Murray, John Edward. Murray on Contracts. 3rd ed. Charlottesville,VA: Michie Co., 1990). So in response to your third question whether or not the former Campus Director can forge a contract with

canteen concessionaires on behalf of the students, we are on the opinion that he can, that is, if given the authority to do so (Article 1317 of the Civil Code). As we have mentioned previously, citing Republic Act 8292 and the Corporation Code, the power to enter into contracts rest with the Board of Directors/Trustees. These powers may be validly delegated expressly or by implication in the exercise of the official s given duties. On your fourth query whether the contract entered by FPTA with the new concessionaire is valid, we answer in the affirmative that yes, it is valid with regards to the elements of the contract. To quote from book of Calamari, John D. and Joseph M. Perillo. The Law of Contracts. 3rded. St. Paul, MN: West, 1987 that A contract is considered valid when two or more parties with capacity make an agreement involving valid consideration to do or to refrain from doing some lawful act. If these elements exist, the contract is valid. If one or more of these necessary elements is missing, the contract is void or voidable. Also, in the book of Murray, John Edward. Murray on Contracts. 3rd ed. Charlottesville,VA: Michie Co., 1990 that contract to be valid and legally binding, the agreement must specifically define the terms under which the promise can be considered fulfilled by both parties. In addition, the agreement must prescribe remedies for conditions unfulfilled by one of the parties involved. Since these elements are present between the FPTA and the new concessionaire, then the contract is valid and enforceable. However, this contract must be done with the authority of the Board of Directors/Trustees as embodied in the Corporation Code and Republic and 8292 otherwise, it is invalid. A contract is defined as an agreement, based on consensus between legal subjects with contractual capacity, which is legal, physically possible and complies with the prescribed formalities and which is reached with the intention of creating a legal obligation with resultant rights and duties (Introduction to the law of contract, en.juripedia.org). It is apparent from this definition that a valid contract creates rights and duties as to the parties involved. As a rule, a contract cannot be assailed by one who is not a party obliged principally or subsidiarily under a contract. However, when a contract prejudices the rights of a third person, he may exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show detriment which would positively result to him from the contract in which he had no intervention. (Rodolfo Fernandez, et al vs. Romeo Fernandez, et al, G. R. No. 143256, August 28, 2001). In relation to the present case and to your fifth query whether the contract entered by FPTA with the new concessionaire has violated the contract and/or rights of Mr. Manaloto, we opined that it did not. It is valid since the contract between the PTCC and Mr. Manoloto was not renewed and therefore no contract or right, whether express or implied, was violated and therefore Mr. Manaloto cannot bring any action against them. On the last and final question whether there is a connection between the former and subsequent contract which entitles Mr. Manaloto to demand that certain provisions in the former contract be implemented against the new concessionaire, we give a qualified opinion. There is a connection between the former and the current contract but not one that gives Mr. Manaloto the right to demand reimbursement of his expenses. The former contract is already non-existent as far as the current contract is concerned because it was not renewed after the required obligatory period which is two years. However, because the current contract involves school property, it must have the authority of PTCC s Board of Directors/Trustees to be effective, similar to the former contract. In this aspect, they are connected. From the above discussion, it is clear that Mr. Manaloto have no cause of action. As a private citizen and a taxpayer though, Mr. Manaloto can enquire about the current contract and find out if it is advantageous to PTCC or it benefits only PFTA, as provided by Republic Act, Section 4(w). He can even enquire if it is in accordance with Section 10 of

Republic Act 9184 (Government Procurement Act) which mandates that all procurement of goods and services must undergo competitive bidding. He can also allege that his contract was not renewed and was allowed to lapse in anticipation and in deference to PFTA as quid pro quo for the construction of the students dormitory by PFTA. You must be ready for this. In Miller vs. Miller, G.R. No. 149615, 29 August 2006; Abacus Security vs. Ampil, G.R. No. 160016, 27 February 2006, 483 SCRA 315 quoting the decision on Tala Realty Services Corporation vs. Banco Filipino Savings and Mortgage Bank, G.R. No. 137533, 22 November 2002, 392 SCRA 506 It is an established principle in law that one who comes in equity must come with clean hands. One who seeks equity must do equity, and he who comes into equity must come with clean hands . He or she who has done inequity shall not have equity. The courts may deny equitable relief on the ground that the conduct and actions of a party are inequitable, unfair, dishonest, or fraudulent, or deceitful. Make sure that all transactions involving the canteen concession is properly authorized by the Board of Directors/Trustees as this involves school property. If it is possible to rescind the current contract even due to minor non-compliance with Republic Act 8292 or Republic Act 9184, then do so. A contract of lease incorporated in the concession contract is more beneficial to PTCC than a usufruct. If FPTA is the authorized agent of PTCC for the said contract, then have a profit sharing agreement/contract with FPTA. If possible, open the concession contract to the public and make a public bidding for the said concession. This will be fair not only to Mr. Pepito Manaloto but also with Bruno Marz.

Very truly yours,

G & G Law Firm

By:

AMADO PETER A. GARBANZOS Operations Partner

MARICEL A. GIMOTEA Administrative Partner

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