Contracts to which the Government is a party are generally subject to the same laws and regulations which govern the validity and sufficiency of contracts between private individuals. Except with respect to the authority and liability of public officers acting as agents of the Government for the purpose of entering into a contract which are limited by statute, the rights and obligations as well as the liabilities of parties to a public contract are governed by the same principles as those which apply to private contracts.
This is so because when the Government enters into a contract, it sheds its cloak of sovereignty and descends to the level of a citizen. He is, thus, treated by the law as a private person with the same rights and obligations of such individual as are generally governed by the law applicable to contracts between private persons. Consequently, all the essential elements and characteristics of a contract in general must be present in order to create a binding and enforceable contract.
Basically, the legal requisites of consent of the contracting parties, an object certain which is the subject matter of the contract, and cause or consideration of the obligation which is established must concur, otherwise, there is no contract to speak of.
Applicable Laws, Rules and Regulations
Article 1318, NCC - Requisites of a Contract
There is no contract unless the following requisites concur:
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.
Article 1347, NCC - Object of a Contract
All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts.
All services which are not contrary to law, morals, good customs, public order, or public policy may likewise be the object of a contract.
Article 1350, NCC - Cause or Consideration
In onerous contracts, the cause is understood to be, for each contracting party, the presentation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence the mere liberality of the benefactor.
COA Decision No. 353 dated February 15, 1985 - Non-adherence to legal formalities in the execution of contracts renders contracting parties liable as private individuals
The NCA Management should be enjoined to henceforth reduce into formal writing what it agrees to pay its contractors for services rendered and supplies or materials delivered and to strictly adhere to the legal formalities in the execution of contracts, otherwise, the officer or officers violating said contracting requirements shall become personally liable to the Government or to the other contracting party for any consequent damage to the same extent as if the transaction has been wholly between private parties.
COA Decision No. 1904 dated May 17, 1991 - Perfected contracts have the force of law between parties thereto
The agreement entered into by the Light Rail Transit Authority (LRTA) with Meralco Transit Organization, Inc. (METRO, Inc.) for the management, operation and maintenance of the Light Rail Transit System was upheld by the Supreme Court in a Resolution dated January 9, 1990 (GR No. 88635, LRT vs. COA) and ordered COA to recognize the validity of the said agreement. Having been perfected, the Agreement has the force of law between the parties and its provisions should be complied with in good faith.