SBDMC wins Php 100 million civil case versus SBMA; Court of Appeals affirms the ruling

In an Order dated 31 January 2013, the Regional Trial Court (RTC) of Olongapo City, Branch 75, presided by Judge Raymond C. Viray, pursuant to a motion for summary judgment filed by Subic Bay Development and Management Corp. (SBDMC), declared that Subic Bay Metropolitan Authority (SBMA) has no legal basis to collect and demand payment for the disputed billings, and that SBDMC is not and cannot be held liable for SBMA’s supposed claim, now amounting to more or less Php 100,000,000.00.

The case stemmed from SBMA's continued and repeated attempts to collect from SBDMC differential billings for power consumption of locators within the SBDMC-managed industrial park inside the Subic Bay Freeport Zone (SBFZ) between 1998 and 2002. During that period, SBMA was managing and operating the power distribution system within the Freeport. SBDMC then filed a petition for declaratory relief in 2010.

According to the Court, “The role of SBDMC in the scheme of things is clear: It is the managing agent of SBMA with respect to the industrial park. In line with this conclusion, and in the absence of express agreement between SBDMC and SBMA with regard to power billing and collection of all locators within the industrial park, it is clear that Petitioner (SBDMC) merely acted as an agent of SBMA when it billed and collected power usage from locators…”

“SBDMC paid and SBMA received the amount collected from the locators. This role of Petitioner as mere collecting agent was further confirmed when SBMA took over the billing and collection directly theretofore performed by the petitioner. And since Petitioner is a mere collecting agent of Respondent (SBMA) with respect to power usage of the Locators within the SBGP (industrial park), there is no basis, in the absence of clear express agreement, for Respondent to charge and demand payment from Petitioner for disputed billings. To hold otherwise will violate the intent and agreements of the parties under the Joint Venture and companion agreements, which all contain “Entire Agreement” clause and which bar the introduction of ‘any rights, interests, understandings, agreements and obligations of the respective parties’ outside said agreements…” declared the Court.

Update: In a decision dated 30 January 2015, the Special Seventeenth (17th) Division of the Court of Appeals (CA G.R.-CV No. 100289) denied the appeal of the SBMA and affirmed in toto the assailed Order of RTC Branch 75 of Olongapo. 

(Disclosure: subiclawyer is handling the case for SBDMC)

The non-impairment clause and government contracts

Section 10, Article III of the Constitution provides:

"SECTION 10. NO LAW IMPAIRING THE OBLIGATION OF CONTRACTS SHALL BE PASSED."

According to a ruling of the Supreme Court, the purpose of the non-impairment clause is to safeguard the integrity of contracts against unwarranted interference by the State. As a rule, contracts should not be tampered with by subsequent laws that would change or modify the rights and obligations of the parties. 

It includes statutes enacted by the national legislature, executive orders and administrative regulations promulgated under a valid delegation of power, and municipal ordinances passed by the local legislative bodies.

There is impairment if a subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of the parties. It is anything that diminishes the efficacy of the contract.

However, it applies only to previously perfected contracts and is limited in application to laws that derogate from prior acts or contracts by enlarging, abridging or in any manner changing the intention of the parties.

Interestingly, Republic Act No. 3019 considers as a corrupt practice and unlawful the act by any public officer, “Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence.”


It behooves all concerned officers of government agencies and instrumentalities then, especially those bestowed with rule-making powers, to observe and be mindful of this section of the Bill of Rights when entering into contracts and subsequently crafting rules and regulations affecting the former, to avert and avoid any legal bind.