Leo Querubin et al vs.

COMELEC SpecPro #62 KPG

2015 | En Banc | Velasco, Jr., J. | Corporate Purpose

DOCTRINE: “The purpose of a corporation should not be interpreted so strictly in accordance with the terms used in the text as found in
the Articles of Incorporation, rather that it should be construed to extend further into the complete fulfillment of any agreement entered
into which are direct and immediate acts for furtherance of the corporations business.”

SUMMARY: Smartmatic JV won a bid to provide automated election systems for COMELEC. However, certain taxpayers sought to
disallow them, primarily arguing that one of the JV’s major partners (SMTC or Smartmatic-TIM Corp) failed to submit a valid AOI to the
Bids and Awards Committee. They also argued that SMTC’s corporate purpose has already been fulfilled since the 2010 elections were
done (SMTC specified in its AOI that it was created in order to provide systems for the 2010 elections); that if the corporate purpose has
been fulfilled, it no longer has a valid purpose thus it cannot perform any other acts at all. The SC ruled against the taxpayers, mainly
ruling that there was not even a requirement for the AOI to be submitted (at most, what was required would be a certificate of registration
issued by the SEC, which is not the same as an AOI). Additionally, the corporate purpose of SMTC would still extend to services to be
performed even after the 2010 elections because there still exist provisions from the old agreement that have yet to be fulfilled. This,
technically speaking, the purpose has yet to be fully fulfilled, and thus SMTC can continue to act. Besides, it is but a logical conclusion
that SMTC would provide upgrades for the systems it provided during the 2010 elections for these services are directly and immediately
for the purpose of furthering the corporate business.

FACTS
1. COMELEC conducted a bidding process for the procurement of new election management systems, precinct based
optical mark reader, or optical scan system to be used for the up-coming 2016 national and local elections
2. One of the bidders (there were only two actually) was the joint venture of Smartmatic-TIM Corporation (SMTC), Smartmatic
International Holding, and Jarltech International (collectively known as the Smartmatic JV)
3. During the opening of the bid, Smartmatic JV informed the Bids and Awards Committee (BAC) that one of its partner
corporations currently has a pending amended for Articles of Incorporation (AOI) with the SEC
4. Eventually, Smartmatic JV was granted the contract but the BAC later on subsequently disqualified the JV saying that the
latter failed to submit a valid AOI and that their demo units failed to meet the technical requirements
5. Smartmatic JC moved for reconsideration and the BAC now says that while it did comply with the submission documentary
requirements, the JV still failed to meet the technical requirements
6. The JV filed a Protest before the COMELEC where the latter resolved to fully grant the contract to Smartmatic JV, ruling
that the latter managed to comply with all the requirements after a second demonstration
7. However, one of the Commissioners (Tito F. Guia) dissented to the grant, insisting that the JV failed to submit the
necessary documents; from this dissent the Petitioners in this case take their cue and filing as taxpayers

MAIN ISSUES:
A. W/N Smartmatic JV can validly undertake the project sought to be procured - YES
B. W/N submission of an AOI is eligibility criterion - NO

RULING:
A. Smartmatic can still validly undertake the project sought to be procured because the SMTC still has authority to conduct business even
after the conduct of the 2010 national and local elections
1. Petitioner’s Argument:
a. SMTC’s authority to conduct business ceased when it fulfilled its primary purpose as stated in its AOI (which is the
automation of the 2010 national and local elections) thus would make any of SMTC’s involvement in in this current bid
an ultra vires act
2. SC: Ruled that the cessation SMTC’s business cannot be assumed just because the May 10, 2010 polls have already concluded
a. SMTC’s purpose is “the automation of the 2010 national and local elections”, but it should not be limited to the conduct
of the election proper but extends further to the fulfillment of SMTC’s contractual obligations that spring forth from the
Automated Election System (AES) Contract during the lifetime of the agreement
b. For as long as one provision from the AES contract survives, the purpose of SMTC remains unfulfilled (thus it can still
continue to act)
c. One such provision is that Smartmatic must warrant the availability of parts, labor and technical support and
maintenance to COMELEC for 10 years beginning May 10, 2010 (thus until May 10, 2020)
3. SC: The issue has also been mooted by the subsequent approval of the amendment to SMTC’s AOI
a. The function of the BAC, in making an initial assessment as to the eligibility of the bidders during prequalification, is
ministerial and nondiscretionary (basically just confirms a provided checklist of requirements)
b. It cannot consider documents not listed in the checklist for purposes of ascertaining a bidder’s eligibility during
prequalification (and indeed, it was found that AOI was not included in the checklist of required documents, aka the Bid
Data Sheet or BDS)
c. It is thus clear that for pre-qualification, AOI is not required
d. As for post-qualification, section 29.3 of the Invitation to Bid may impose to require ‘other information as it may deem
necessary and appropriate’ but BAC didn’t require the AOI, even at this stage
i. Granted, even if the AOI was indeed required for the post qualification, the AOI of SMTC has already been
amended and approved by the SEC prior to that point, thus Smartmatic JV would still have properly complied
4. SC: SMTC’s participation in the bidding is not an ultra vires act but one that is incidental to its corporate purpose
a. Ultra vires acts art those which are clearly beyond the scope of one’s authority (considered null and void)
 b. The test to be applied is whether the act in question is in direct and immediate furtherance of the corporations business
c. SC ruled that upgrading machines that SMTC supplied the COMELEC for the automation of the 2010 elections and
offering them for subsequent elections is but a logical consequence of SMTC’s course of business

B. Submission of an AOI is not a prequalification requirement, nor is it a post-qualification requirement

1. Petitioners cite provisions of the Government Procurement Reform Act IRR which requires submission of a registration certificate
issued by the SEC but the SC pointed out that such certification is not the same as an AOI, and even then, the petitioners did
not specifically allege that SMTC failed to submit such SEC registration in the first place.
2. See Ruling A.3., arguments are similar for this issue

DISPOSITION: This petition for certiorari is DISMISSED.

Procedural Issues:
1. The Supreme Court (SC) has consistently held that the phrase “decision, order, or ruling” of constitutional commissions, the
Commission on Elections (COMELEC) included, that may be brought directly to the SC on certiorari (Rule 64) is not all-
encompassing, and that it only relates to those rendered in the commissions’ exercise of adjudicatory or quasi-judicial powers
(which is not the situation ITCAB, see below)
a. The case does not stem from an election controversy involving the election, qualification, or the returns of an elective
office. Rather, it pertains to the propriety of the polling commission’s conduct of the procurement process, and its initial
finding that Smartmatic Joint Venture (JV) is eligible to participate therein
i. Thus, what should’ve been done is Rule 65 to assail COMELEC’s decision granting the Protest of the JV
ii. This case should’ve been dismissed, but the SC decided to treat this as having been filed as under Rule 65
with the RTC because petitioners were able to establish a meritorious case in relaxing the strict application of
the Rules
2. RTC Jurisdiction, under GPRA Sec 58, the proper remedy to question the ruling of the head of the procuring entity (ie the Protest)
is through a Rule 65 petition for certiorari with the Regional Trial Court (RTC)
a. But while this is the case, the persons allowed to avail of the Protest is only the losing bidder, thus petitioners in this
are under no power of any legislative enactment requiring them to seek recourse first with the RTC
3. Hierarchy of Courts rule, exceptions:
a. Transcendental Importance
b. Time element
c. When involving a constitutional organ (power of COMELEC vs RTC power to disregard, amend, or contradict orders of
the COMELEC)

SMTC is a Filipino Corporation

1. Petitioners made use of an Annual Report and Financial Statement of Smartmatic Limited to prove that SMTC is 100% foreign
owned; and since SMTC has 46% share in the JV, that would make the JV NOT Filipino owned (since less than 60% shares are
Filipino)
a. SC: First of all, Smartmatic Limited is separate and distinct form SMTC
b. SMTC managed to show, through their GIS, that they complied with the 60% Filipino ownership rule, even provided
that their AOI had provisions ensuring to reserve class A Common Shares to Filipinos only to ensure that the 60% rule
is complied with