G.R. No. L-45515 October 29, 1987
ASBESTOS INTEGRATED MANUFACTURING, INC. (AIMI), petitioner, vs. HON. ELVIRO L. PERALTA, Presiding Judge, Branch XVII, Manila Court of First Instance, METROPOLITAN WATERWORKS and SEWERAGE SYSTEM (MWSS), ETERNIT CORPORATION, respondents.

FACTS

Petitioner Asbestos Integrated Manufacturing, Inc. (AIMI), a fully Filipino-owned corporation, participated in two public biddings conducted by respondent Metropolitan Waterworks and Sewerage System (MWSS) for asbestos cement pipes. In both biddings, AIMI’s bid was higher than that of Sanvar Development Corporation (Sanvar), another fully Filipino-owned corporation. The contract was awarded to Sanvar. AIMI filed a petition before the Court of First Instance to nullify the award, alleging that Sanvar was merely a dealer or marketing arm for respondent Eternit Corporation, a domestic corporation with 90% alien ownership. AIMI invoked laws favoring Filipino enterprises, including the Flag Law (Com. Act No. 138). The trial court initially issued a restraining order but later dissolved it and dismissed AIMI’s complaint.

ISSUE

Whether the trial court erred in dismissing AIMI’s complaint and upholding the award of contract to Sanvar, despite AIMI’s claim that Sanvar was a front for an alien-owned corporation in violation of nationality laws.

RULING

The Supreme Court dismissed the petition and upheld the trial court’s orders. The legal logic centered on the application of the Flag Law. The Court found that Sanvar, as the bidder, was a 100% Filipino-owned corporation and was “habitually established in business and engaged in the sale of the commodity covered by his bid,” which is a requirement under the Flag Law for a bidder to be considered a “domestic entity.” This status meant Sanvar was a bona fide business entitled to bid, not a mere dummy for Eternit. The Court noted the Flag Law’s built-in safeguard against dummy arrangements by requiring the bidder to be habitually engaged in the relevant business line. Furthermore, even if a preference under the Flag Law were applied, AIMI would still not be entitled to the award. The law allowed a 15% margin preference for a domestic entity over a non-domestic one. AIMI’s bid was 22.84% higher than Sanvar’s, exceeding the allowable margin. Thus, Sanvar’s lower bid was rightly accepted. The Court also declined to consider AIMI’s separate handwritten offer for an additional discount, as it was not part of the formal bid requirements.