CESAR VIRATA, IN HIS CAPACITY AS SECRETARY OF FINANCE; ROLANDO G. GEOTINA, IN HIS CAPACITY AS COMMISSIONER OF CUSTOMS; AND DOMINADOR GANGOSO, ALEJANDRO F. DIZON, ARTURO LEAÑO AN…

Virata versus E. Razon, Inc

The Case

This is a special civil action for certiorari and prohibition, with a prayer for preliminary injunction, brought by the Secretary of Finance, the acting Commissioner of Customs, and the members of the Bidding Committee against E. Razon, Inc. and the judge of the Manila Court of First Instance who had restrained the public bidding and ordered the contractor's continued operation. In plain speech: the government wanted to open the arrastre service at the Manila South Harbor to a new public bidding upon the expiration of the Revised Management Contract, and the contractor resisted, claiming a right to renewal. The case matters because it fixes the rule that a management contract of this kind confers no vested right to extension or renewal, and that the discretion to call a new bidding belongs to the administrative authorities under the very terms of the contract.

Procedural History

E. Razon, Inc. filed a petition for certiorari, prohibition, mandamus and injunction before Branch Fifteen of the Manila Court of First Instance, presided over by Judge Juan L. Bocar. The trial court issued a restraining order enjoining the Secretary of Finance, the acting Commissioner of Customs, and the Bidding Committee from proceeding with the bidding scheduled on March 15, 1971. Over the opposition of the Solicitor General, the trial court then issued a preliminary mandatory injunction dated March 30, 1971, upon the filing of a bond of 10,000 pesos, enjoining the public bidding and commanding the officials to allow E. Razon, Inc. to continue arrastre services on Piers 3 and 5 pursuant to its claimed right to a contract renewal. The government came to the Supreme Court on a petition for certiorari and prohibition. While that petition was pending, the Court allowed the trial court to resume proceedings, and the trial judge rendered a partial decision sustaining the right of E. Razon, Inc. and directing the Secretary of Finance and the Commissioner of Customs to renew the contract for another five years under the same terms and conditions. The government appealed that partial decision by certiorari, and the appeal was consolidated with the earlier petition.

Facts

On April 16, 1966, the Bureau of Customs executed a Management Contract with E. Razon, Inc. for the operation of the arrastre service at Piers 3 and 5 of the Manila South Harbor for six months commencing May 1, 1966, and a similar contract with Guacods, Inc. for Piers 9, 13 and 15. On January 27, 1967, the parties executed a Revised Management Contract, approved by the Secretary of Finance, for a period of five years commencing May 1, 1966, unless sooner terminated. The contract contained a clause requiring the Bureau, within one year before expiration, to decide and make known whether the arrastre service would be taken over by the Bureau itself, subjected to a new bidding, or continued with the contractor under such terms as may be agreed upon. It also contained a clause providing that should Congress create a government entity to manage port operations, the terms of the contract would be reconsidered to conform to the express provisions of such law.

The contract was amended on May 9, 1969, reducing the government share from 46 percent to 40 percent, with the contractor obliged to use the balance for modernization of equipment and to render quarterly statements of disbursements. A second amendment on July 27, 1970 increased handling charges to enable the contractor to grant across-the-board increases in salaries and wages, in view of the increase of the minimum wage for industrial workers from 6 pesos to 8 pesos daily.

E. Razon, Inc. requested renewal or continuation of its contract after April 30, 1971, and the Secretary of Finance replied that the Department was prepared to consider the proposal at the opportune time in accordance with the contract, provided full and satisfactory compliance had been experienced. No specific proposal for renewal was thereafter pursued. Exercising its rights under the contract, the Bureau of Customs informed both firms by letter dated March 9, 1971 that it had decided to call for a new bidding on March 15, 1971, and the acting Commissioner issued the corresponding invitation to bid and instructions to bidders. E. Razon, Inc. prepared its petition even before receiving the letter, and filed it on March 11, 1971.

Issues

• Whether or not E. Razon, Inc. has a vested right to an extension or renewal of the Revised Management Contract under the renewal clause thereof.
• Whether or not the Bureau of Customs validly exercised its option to call for a new public bidding upon the expiration of the contract.
• Whether or not the trial court committed grave abuse of discretion in issuing the preliminary mandatory injunction restraining the bidding and commanding the continued operation of the arrastre service by E. Razon, Inc.

Applicable Provisions

Paragraph Sixty-Two of the Revised Management Contract provides:

Within one (1) year before the expiration of this Contract, the BUREAU shall decide and make known whether the arrastre service shall be taken over by the BUREAU itself, or be subject to a new bidding, or that the CONTRACTOR shall be allowed to continue under such terms and conditions as may be agreed upon.

This clause is the source of the Bureau's option, and it confers no right on the contractor to demand renewal.

Paragraph Sixty-Three of the same contract provides:

The CONTRACTOR agrees that in the event that Congress of the Philippines enacts a law creating a government entity, agency or instrumentality to manage, control, operate, and supervise port operations in all or any port of entry in the Philippines, the terms and conditions of the management contract shall be reconsidered to conform to express provisions of such law, and this Contract shall therefore be amended accordingly.

This clause confirms that the contract is subject to legislative and administrative reconsideration, negating any claim of a fixed and vested right to continue.

Ruling

On the first issue, the Court held that E. Razon, Inc. has no vested right to a renewal. The renewal clause does not obligate the Bureau to extend the contract; it obligates the Bureau only to decide and make known, within one year before expiration, which of three courses it will take. The contractor's investments, its introduction of containerization, and its efficient operation, while commendable, do not convert a mere expectancy into an enforceable right. Equity cannot supply what the contract does not grant.

On the second issue, the Court held that the Bureau validly exercised its option. It notified both contractors of its decision to call a new bidding, issued the invitation to bid and the instructions to bidders, and published the same. The letter of the Secretary of Finance expressing willingness to consider a proposal at the opportune time was conditional and was never followed by any specific proposal on the part of the contractor.

On the third issue, the Court held that the trial court committed grave abuse of discretion in issuing the preliminary mandatory injunction. A mandatory injunction that commands the continued operation of a service and restrains a duly announced public bidding, in the face of a contract that grants no right of renewal, amounts to a prejudgment of the merits and an interference with administrative discretion. The Court accordingly modified the injunction, allowed the bidding to proceed without final award until further orders, permitted E. Razon, Inc. to participate upon filing sufficient bonds to guarantee the government's claims, and allowed it to continue operating Piers 3 and 5 under the existing contract until further orders.

Doctrine

A management contract containing a renewal clause of the tenor of Paragraph Sixty-Two confers on the contractor no vested right to extension or renewal; the clause grants the government the option to take over the service, to call a new bidding, or to continue with the contractor under terms to be agreed upon. The contractor's substantial investments and efficient performance do not create a right enforceable in equity where the contract is silent. Courts may not, by mandatory injunction, compel the renewal of a contract that the contracting authority has lawfully declined to renew, nor restrain a duly announced public bidding absent a clear legal right.

Disposition

The government prevailed: the Court upheld the Bureau's decision to call a new public bidding, lifted the restraint on the bidding subject to the conditions stated in its resolution, and set aside the partial decision directing the renewal of the contract for another five years.

Remember This

The one line to memorize: a renewal clause is an option for the government, not a vested right for the contractor. Examiners use this case in administrative law and public contracts to test whether a bidder or contractor can compel renewal on the strength of investments and equity alone.